As filed with the Securities and Exchange Commission on October 12, 2000
File Nos. _____ and ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.______ [ ]
Post-Effective Amendment No.______ [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No._______
GLEN RAUCH FUNDS
(Exact Name of Registrant as Specified in Charter)
44 Wall Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
(212) 363 - 9760
(Registrant's Telephone Numbers, Including Area Code)
Glen R. Rauch
44 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
Copies to:
Peter O'Rourke, Esq. Chad E. Fickett, Esq.
Kramer Levin Naftalis & Frankel LLP Firstar Mutual Fund Services, LLC
919 Third Avenue 615 East Michigan Street
New York, New York 10022 Milwaukee, WI 53202
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.
SUBJECT TO COMPLETION, DATED OCTOBER 12, 2000
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 IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
BUY-WRITE FUND
A SERIES OF GLEN RAUCH FUNDS
PROSPECTUS
__________, 2000
MANAGED BY:
GLEN RAUCH SECURITIES, INC.
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
Risk/Return Summary of the Fund................................................3
Performance Summary............................................................4
Fees and Expenses..............................................................5
Management of the Fund.........................................................6
Distribution of Shares.........................................................7
Pricing of Shares..............................................................8
How to Purchase Shares.........................................................8
How to Sell Shares............................................................10
Retirement Plans..............................................................11
Distributions and Taxes.......................................................12
Shareholder Reports and Confirmations.........................................13
Financial Highlights..........................................................13
RISK/RETURN SUMMARY OF THE FUND
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INVESTMENT OBJECTIVE
The investment objective of the Buy-Write Fund (the "Fund") is the long-term
growth of your investment capital. Generating income is a secondary objective.
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COVERED CALL OPTIONS: GIVE BUYERS THE RIGHT TO PURCHASE SECURITIES HELD BY THE
FUND AT A SPECIFIED PRICE IN EXCHANGE FOR AN AGREED UPON SUM.
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PRINCIPAL INVESTMENT STRATEGY
To achieve the Fund's objective, Glen Rauch Securities, Inc. (the "Adviser")
uses a covered call writing strategy under normal market conditions. There are
two ways to write covered calls: (1) by simultaneously purchasing stock and
selling call options against the purchased stock, or (2) selling call options
against stock held by the Fund at the time of sale. The purchaser of a call
option pays a premium for the right (not the obligation) to exercise the option
and buy the shares on or before a certain expiration date. The Adviser intends
to write covered calls on at least 90% of the stocks purchased or held by the
Fund. By collecting premiums on covered call options sold against the stocks of
these companies, the Fund minimizes its risk by limiting potential loss to the
Fund during periods of general market decline. The Fund expects to achieve a
more moderate level of capital growth in exchange for minimized risk.
When choosing stocks against which the Fund writes covered call options, the
Adviser will use extensive research to carefully select from common stocks of
large, well-managed and well-financed domestic or multi-national companies that
possess strong fundamentals and that generally have a market capitalization of
at least $1 billion. In addition, the Adviser looks for companies that have
higher than average ratings by Standard & Poor's, Morningstar, or Value-Line.
The Fund will not write call options on securities not owned by the Fund.
Although the Fund intends to write covered call options on all stocks purchased
or held, the Adviser will be rigorous about selling shares of those companies
that have experienced adverse changes in their fundamentals or whose shares
under-perform the rest of the portfolio (i.e., declines by more than 10%) or
that may otherwise become unattractive for writing covered call options. The
Adviser believes that while the additional turnover increases transaction costs,
the process of eliminating the weakest stocks will enhance the overall
performance of the Fund. Portfolio turnover may expose shareholders to a higher
current realization of capital gains, which could cause you to pay higher taxes.
However, the Adviser will attempt to offset any gains with losses in
under-performing securities in efforts to minimize any adverse tax consequences
to shareholders of the Fund.
TEMPORARY INVESTMENTS
In attempting to respond to adverse market, economic, political, or other
conditions, the Adviser may adopt temporary defensive positions that are
inconsistent with the Fund's principal investment strategies. During such times,
the Fund may temporarily invest up to 100% of its assets in cash or cash
equivalents, including money market instruments, Treasury bills and/or other
short-term obligations of the U. S. Government, its agencies or
instrumentalities. To the extent the Fund invests in these temporary
investments, the Fund may not achieve its investment objectives.
PRINCIPAL RISKS
Investing in the Fund involves certain risks that could cause you to lose money.
The following risks could affect the value of your investment:
STOCK MARKET RISKS: The Fund's major risks are those of investing in the stock
market. This means that the Fund may experience sudden, unpredictable declines
in value, as well as periods of poor performance. Because stock values go up and
down, the value of the Fund's shares may go up or down.
COVERED CALL WRITING RISKS: The Fund may experience the loss of opportunity on
stocks with written call options that reach their exercise price before the
expiration date because the Fund foregoes the opportunity to profit from an
increase in the market price of the underlying security above the exercise
price. Furthermore, stocks held or purchased by the Fund may become less
attractive for writing covered call options and the Fund may temporarily be
unable to meet its investment objective.
MEDIUM-CAPITALIZATION COMPANIES RISKS:
The Fund may invest in the stocks of medium-capitalization companies.
Medium-capitalization companies often have narrower markets and limited
managerial and financial resources compared to larger, more established
companies. As a result, their performance can be more volatile and they face
greater risk of business reversals that could increase the volatility of the
Fund's portfolio.
PORTFOLIO TURNOVER RISKS: The Fund may experience higher than average portfolio
turnover which may cause increased brokerage commission costs. A high turnover
rate exposes you to a higher current realization of capital gains, and thus a
higher current tax liability, than may be associated with investments in other
investment companies that have lower turnover rates.
NON-DIVERSIFICATION RISKS: The Fund is a non-diversified Fund. As such, the Fund
has added risk because it may invest a greater percentage of assets in a more
limited number of issuers compared to other mutual funds.
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.
WHO MAY WANT TO INVEST
This Fund may be appropriate for investors who:
|X| are looking for long-term capital appreciation;
|X| are willing to gain some downside protection in exchange for a more
conservative equity investment strategy;
|X| are looking for a neutral to bullish investment strategy; or
|X| are looking for increased income.
This Fund may not be appropriate for investors who are not willing to take any
risk that they may experience share price fluctuations or lose money on their
investment.
PERFORMANCE SUMMARY
--------------------------------------------------------------------------------
Because the Fund has little operating history, there is no performance
information available for the Fund at this time. For additional information
refer to "Historical Investment Results of the Adviser's Private Accounts."
FEES AND EXPENSES
--------------------------------------------------------------------------------
As an investor, you may pay certain fees and expenses if you buy and hold shares
of the Fund. These fees are described in the tables below and further explained
in the example that follows.
------------------------------------------------- -------------
SHAREHOLDER FEES
(fees paid directly from your investment)
------------------------------------------------- -------------
Maximum Sales Charge (Load) Imposed on None
Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
(as percentage of offering price)
Maximum Sales Charge (Load) Imposed on None
Reinvested Dividends
Redemption Fee 1.00%1
Exchange Fee None
------------------------------------------------- -------------
(1)The Fund charges a fee of 1.00% on redemptions of shares held for less than 1
year. This fee is paid to the Fund and is waived for Fund shareholders who are
private clients of the Adviser. See "How to Sell Shares."
------------------------------------------------ ----------
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
------------------------------------------------ ----------
Management Fees 1.00%
Distribution and Service (12b-1) Fees 1.00%
Other Expenses2 1.85%
-----
Total Annual Operating Expenses 3.85%
=====
------------------------------------------------ ----------
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EXAMPLE This example is intended to help compare the cost of investing in this
Fund with the cost of investing in other mutual funds. This example assumes
that:
(1) you invest $10,000 in the Fund for the time period indicated and then
redeem all of your shares at the end of those periods,
(2) your investment has a 5% return each year, (3) all dividends and
distributions have been reinvested, and (4) the Fund operating expenses
remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
-------------- ---------
1 YEAR* 3 YEARS
-------------- ---------
$387 $1,175
-------------- ---------
*Redemptions within 1 year of purchase are subject to a redemption fee of 1.00%.
--------------------------------------------------------------------------------
(2) These expenses, which include custodian, transfer agency and other customary
Fund expenses, are based on estimated amounts for the Fund's current fiscal
year.
MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------
INVESTMENT ADVISER
Glen Rauch Securities, Inc. is the investment adviser for the Fund. The Adviser
is an SEC-approved full-service brokerage firm and member of the NASD since
March 1986. The Adviser's main office is at 44 Wall Street, New York, New York
10005. The Adviser provides investment management services for individuals and
institutional clients including pension and profit sharing plans and has in
excess of $1 billion in assets under management, which includes privately
managed accounts.
The Adviser has been retained under an Investment Advisory Agreement with Glen
Rauch Funds to act as the Fund's investment adviser subject to the authority of
the Board of Trustees. (See "Management of the Trust--Trustees and Officers" in
the Fund's Statement of Additional Information.) Under the Investment Advisory
Agreement, the Adviser receives a monthly fee computed at an annual rate of
1.00% of average daily net assets. The Adviser furnishes the Fund with
investment advice and, in general, supervises the management of the Fund in
accordance with the Fund's investment objectives. The Adviser provides all
necessary administrative services, office space, equipment, clerical personnel
for servicing the investments of the Fund, investment advisory facilities, and
executive and supervisory personnel for managing the investments and effecting
the securities transactions of the Fund. In addition, the Adviser pays the
salaries and fees of all officers and trustees of Glen Rauch Funds who are
affiliated persons of the Adviser.
PORTFOLIO MANAGERS
|X| GLEN R. RAUCH is President of the Trust and the Adviser and serves as
co-portfolio manager to the Fund. Along with Ms. Betsy, Mr. Rauch is
responsible for the Fund's overall day-to-day management. Mr. Rauch has
been President and controlling shareholder of the Adviser since 1986.
Prior to forming the Adviser in 1986, Mr. Rauch was Senior Vice-President
and Partner at Gabrielle, Hueglin and Cashman, Inc., a securities
brokerage firm in New York. Mr. Rauch has nearly 28 years of experience on
Wall Street.
|X| CHERYL SPINELLA BETSY is the co-portfolio manager of the Fund. Along with
Mr. Rauch, Ms. Betsy is responsible for the Fund's day-to-day management.
Ms. Betsy has been with the Adviser since March 1997. Prior to joining the
Adviser, Ms. Betsy assisted in specialist/market making functions for
Spear, Leeds & Kellog, LLC, a securities brokerage firm in New York.
Ms. Betsy holds a Bachelor of Science degree in Finance from Villanova
University and holds Series 7, 63, 4 and 55 licenses.
FUND ADMINISTRATION, FUND ACCOUNTING, TRANSFER AGENT, CUSTODY, AUDIT AND LEGAL
SERVICES
Firstar Mutual Fund Services, LLC serves as the Fund's administrator, transfer
agent and fund accountant. As such, Firstar Mutual Fund Services, LLC provides
all necessary record keeping services and share transfer services for the Fund.
Firstar Bank, N.A. serves as the Fund's custodian. ______________ serves as the
independent public accountant for purposes of auditing the Fund. Kramer Levin
Naftalis & Frankel LLP serves as the Fund's legal counsel.
HISTORICAL INVESTMENT RESULTS OF THE ADVISER'S PRIVATE ACCOUNTS
The table below shows certain performance data provided by the Adviser relating
to investment results of a composite of all of the Adviser's private client
accounts (the "Accounts") managed using the same investment objective and
substantially similar investment strategies and techniques as those specified
for the Fund--the covered call strategy. The Accounts are not subject to the
same types of expenses to which the Fund is subject, nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Fund by the Investment Company Act of 1940, or the Internal Revenue Code, as
amended. The performance of the Accounts may have been adversely affected had
they been subject to the same expenses, restrictions and limitations as the
Fund. The Adviser believes that any adverse effect would not have been
significant. The results presented are not intended to predict or suggest the
return to be experienced by the Fund or the return one might achieve by
investing in the Fund. One should not rely on the following data as an
indication of future performance of the Adviser or of the Fund. If the higher
expense structure of the Fund were used on the Accounts, the performance of the
Accounts would have been lower than shown.
------------------------- ------------------- ------------------ ---------------
Returns as of 6/30/00 Total Account S&P Dow Jones
(net of fees)(1) Index (2) Average (3)
------------------------- ------------------- ------------------ ---------------
1-YEAR 14.40% 7.22% 3.29%
3-YEAR 6.77% 19.62% 12.69%
SINCE INCEPTION* (2/1/96) 12.49% 22.61% 18.41%
------------------------- ------------------- ------------------ ---------------
*This date indicates the first date the Adviser managed accounts using the
covered call strategy.
Please read the following important notes concerning the Accounts:
1 The results for the Accounts reflect either income and capital
appreciation or depreciation (total return). Dividends and other items
of income are accounted for on a cash basis. Returns are time weighted
and represent the dollar-weighted average of all the accounts managed
by the Adviser using a covered call strategy. Return figures are net of
applicable fees and expenses (other than separate custodian fees).
2 The S&P 500 Index consists of 500 stocks chosen by Standard and Poor's
for market size, liquidity and industry group representation. It is a
market-value weighted unmanaged index (stock price times number of
shares outstanding) with each stock's weight in the S&P 500 Index
proportionate to its market value.
3 The Dow Jones Composite Average encompasses 65 stocks combining the Dow
Industrials, Transportation, and Utility Averages. The Dow Jones
Industrial Average is an average of 30 actively traded widely-held,
blue chip stocks and is the oldest and most widely quoted of all market
indicators. The Dow Jones Transportation Average is an average of 20
stocks representative of the transportation industry and the Dow Jones
Utility Average consists of 15 geographically representative utility
companies. The Adviser believes that this index more accurately
reflects the positions managed by the Fund.
SPECIAL NOTE CONCERNING ADVISER INVESTMENT RETURNS: You should note that the
Fund computes and disclose its average annual compounded rate of return using
the standard formula set forth in rules promulgated by the Securities and
Exchange Commission ("SEC"), which differs in certain respects from the methods
used to compute the returns for the Accounts noted above. The SEC total return
calculation method calls for the computation and disclosure of an average annual
compounded rate of return for one, three, five and ten year periods or shorter
periods from inception. The SEC formula provides a rate of return that equates a
hypothetical initial investment of $10,000 to an ending redeemable value. The
returns shown for the Accounts are reduced to reflect the deduction of Advisory
fees in accordance with the SEC calculation formula, which requires that returns
shown for a Fund be net of Advisory fees as well as all other applicable Fund
operating expenses. Performance was calculated on a trade date basis in
accordance with AIMR standards.
DISTRIBUTION OF SHARES
--------------------------------------------------------------------------------
DISTRIBUTOR
Glen Rauch Securities, Inc. also serves as distributor and principal underwriter
for the shares of the Fund pursuant to an Underwriting Agreement. Glen Rauch
Securities, Inc. is a member of the National Association of Securities
Dealers, Inc. (NASD) and the Securities Investor Protection Corporation (SIPC).
DISTRIBUTION SHAREHOLDER SERVICING PLAN
The Fund has adopted a Distribution Shareholder Servicing Plan pursuant to Rule
12b-1 of the 1940 Act to provide certain distribution and shareholder servicing
activities for the shareholders of the Fund. The maximum level of Rule 12b-1
fees paid by the Fund is 0.75% and 0.25% for shareholder servicing per year of
the Fund's average daily net asset value. As these fees are paid out of the
Fund's assets on an on-going basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
PRICING OF SHARES
--------------------------------------------------------------------------------
Shares of the Fund are sold at their net asset value (NAV). The NAV for all
shares of the Fund is determined as of the close of regular trading on the New
York Stock Exchange ("NYSE") (normally 4:00 p.m., Eastern Time) on every
business day. The NAV for the Fund is calculated by dividing the sum of the
value of the securities held plus cash or other assets minus all liabilities by
the total number of shares outstanding of the Fund. The NYSE is closed on
weekends and most national holidays.
The Fund's investments are valued according to market value. When a market quote
is not readily available, the security's value is based on "fair value" as
determined by the Adviser under supervision of the Fund's Board of Trustees.
If your purchase order is in "good order" (see "How to Purchase Shares") and
delivered to the Fund's transfer agent before the close of the regular trading
session of the NYSE on any business day, your order will receive the share price
next determined for the Fund as of that day. If your order is received after the
close of the regular trading session of the NYSE, it will receive the price
determined on the next business day.
HOW TO PURCHASE SHARES
--------------------------------------------------------------------------------
To open an account, you must invest at least the minimum amount.
MINIMUM INVESTMENTS TO OPEN TO ADD TO
YOUR ACCOUNT YOUR ACCOUNT
All Accounts $2,000 $100
GOOD ORDER PURCHASE REQUESTS
When making a purchase request, make sure your request is in good order. "Good
order" means your purchase request includes:
|X| the NAME of the Fund
|X| the DOLLAR amount of shares to be purchased
|X| account application form or investment stub
|X| check payable to the "Glen Rauch Funds"
METHODS OF BUYING
THROUGH A You can purchase shares of the Fund through any
BROKER/DEALERS broker/dealer organization that has been authorized by the
ORGANIZATION Fund. These 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 You can purchase shares of the Fund directly from the Fund's
transfer agent, Firstar Mutual Fund Services, LLC. To open
an account, complete an account application form and send it
together with your check to the address below. To make
additional investments once you have opened your account,
send your check together with the detachable form that's
included with your Fund account statement or confirmation.
You may also send a letter stating the amount of your
investment with your name, the name of the Fund and your
account number together with a check to the address below.
Checks should be made payable to the "Buy-Write Fund."
No third party checks will be accepted. If your check is
returned for any reason, a $25 fee will be assessed against
your account.
REGULAR MAIL
------------
Glen Rauch Funds
Buy-Write Fund
c/o Firstar Mutual Fund Service, LLC
Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
OVERNIGHT DELIVERY
------------------
Glen Rauch Funds
Buy-Write Fund
c/o Firstar Mutual Fund
615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53202
NOTE: THE FUND DOES NOT CONSIDER THE U.S. POSTAL SERVICE OR
OTHER INDEPENDENT DELIVERY SERVICES TO BE ITS AGENTS.
BY TELEPHONE To make additional investments by telephone, you
must check the appropriate box on your account application
form authorizing telephone purchases. If you have given
authorization for telephone transactions and your account
has been open for at least 15 days, call the Fund toll free
at 1-8__-____ and you will be allowed to move money from
your bank account to your Fund account upon request. Only
bank accounts held at domestic institutions that are
Automated Clearing House (ACH) members may be used for
telephone transactions. For security reasons, requests by
telephone will be recorded.
BY WIRE To open an account or to make additional investments by
wire, call 1-8__-____ to notify the Fund of the incoming
wire using the wiring instructions below:
Firstar Bank, N.A.
Milwaukee, WI 53202
ABA #: 042000013
Credit: Firstar Mutual Fund Services, LLC
Account #: 112-952-137
Further Credit: Glen Rauch Funds, Buy-Write Fund
(your name or the title on the
account)
(your account #)
THROUGH AN Once your account has been opened, you may purchase shares
AUTOMATIC of the Fund through an Automatic Investment Plan ("AIP").
INVESTMENT You can have money automatically transferred from your
PLAN checking or savings account on a weekly, bi-weekly, monthly,
bi-monthly or quarterly basis. To be eligible for this
plan, your bank must be a domestic institution that is an
ACH member. The Fund may modify or terminate the AIP at any
time. The first AIP purchase will take place no earlier than
15 days after the transfer agent has received your request.
HOW TO SELL SHARES
-------------------------------------------------------------------------------
METHODS OF SELLING
THROUGH A If you purchased your shares through a broker/dealer or
BROKER/DEALER other financial organization, your redemption order
OR FINANCIAL should be placed through the same organization. Your broker
CONSULTANT or financial consultant is responsible for sending your
redemption order to the Fund's transfer agent on a
timely basis. Please keep in mind that your broker or
financial consultant may charge additional fees for its
services.
BY MAIL If you purchased your shares directly from the Fund's
transfer agent, you should send your written redemption
request to the address below. Your request should contain
the Fund's name, your account number and the number of
shares or the dollar amount of shares to be redeemed. Be
sure to have all account holders sign the letter.
Additional documents are required for shareholders that are
corporations, partnerships, executors, trustees,
administrators, or guardians (I.E., corporate resolutions or
trust documents indicating proper authorization).
REGULAR MAIL
------------
Glen Rauch Funds
Buy-Write Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
OVERNIGHT DELIVERY
------------------
Glen Rauch Funds
Buy-Write Fund
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53202
The Fund's transfer agent may require a SIGNATURE GUARANTEE
for certain redemption requests such as redemption requests
for amounts in excess of $50,000 or redemption requests made
payable to a person or an address not on record with the
Fund. A signature guarantee assures that your signature is
genuine and protects you from unauthorized account
transfers. You may obtain signature guarantees from most
trust companies, commercial banks or other eligible
guarantor institutions. A NOTARY PUBLIC CANNOT GUARANTEE
SIGNATURES.
BY TELEPHONE If you are authorized to perform telephone
transactions (either through your account application form
or by subsequent arrangement in writing with the Fund) you
may redeem shares in any amount, but not less than $100, by
calling 1-8__-____. A signature guarantee is required of all
shareholders to change or add telephone redemption
privileges. For security reasons, requests by telephone may
be recorded.
BY WIRE To redeem shares by wire, call the Fund at 1-8__-____
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.
WHEN REDEMPTION PROCEEDS ARE SENT TO YOU
Your shares will be redeemed at the NAV next determined after the Fund receives
your redemption request in good order. Your redemption request cannot be
processed on days the NYSE is closed.
All requests received in good order by the Fund before the close of the regular
trading session of the NYSE (normally 4:00 p.m. Eastern time) will normally be
wired to the bank you indicate or mailed on the following day to the address of
record. In no event will proceeds be wired or a check mailed more than 7
calendar days after the Fund receives your redemption request.
If you purchase shares using a check and soon after request a redemption, the
Fund will honor the redemption request, but will not mail the proceeds until
your purchase check has cleared (usually within 12 days).
REDEMPTION REQUESTS IN GOOD ORDER
When making a redemption request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
|X| the name of the Fund
|x| the dollar amount or the number of shares to be redeemed
|x| signatures of all registered shareholders exactly as the shares are
registered
|x| the account number
REDEMPTION FEE
If you redeem shares of the Fund after holding them for less than one year, the
Fund will charge a fee of 1.00% of the value of the shares redeemed. This fee is
paid to the Fund to cover the costs of maintaining accounts that are abnormally
active. This fee is waived for Fund shareholders who are private clients of the
Adviser.
GENERAL TRANSACTION POLICIES
The Fund reserves the right to:
|X| Vary or waive any minimum investment requirement.
|X| Refuse, change, discontinue, or temporarily suspend account
services, including purchase, exchange, or telephone redemption
privileges, for any reason.
|X| Reject any purchase or exchange request for any reason. Generally,
the Fund does this if the purchase or exchange is disruptive to
the efficient management of the Fund (due to the timing of the
investment or an investor's history of excessive trading).
|X| Delay paying redemption proceeds for up to seven days after
receiving a request, if an earlier payment could adversely affect
the Fund.
RETIREMENT PLANS
-------------------------------------------------------------------------------
You may purchase shares of the Fund for your individual retirement accounts
including Traditional IRA, Rollover IRA, Roth IRA, Educational IRA, SEP IRA,
Simple IRA and 401(k) accounts. To obtain the appropriate disclosure
documentation and complete information on how to open a retirement account, call
1-8__-____.
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Generally, the Fund will declare dividends of net investment income annually. If
such day falls on a weekend or holiday on which the NYSE is closed, the dividend
will be distributed on the next succeeding business day. Payments vary in amount
depending on income received from portfolio securities and expenses of operation
of the Fund.
Shares will begin earning dividends on the day after which the Fund receives
payment and shares are issued. Shares or cash continue to earn dividends through
the date they are redeemed or delivered subsequent to reinstatement.
The Fund intends to qualify as a regulated investment company for federal income
tax purposes and intends to make additional distributions to the minimum extent
necessary to distribute the entire annual investment company taxable income of
the Fund, plus any net capital gains and to avoid imposition of the excise tax
imposed by the Internal Revenue Code of 1986, as amended. The additional
distributions, if needed, would consist of the following:
|X| an increase in distribution scheduled for January to include any
amount by which the estimated Fund investment company taxable
income and net capital gains for a fiscal year exceeds the amount
of Fund taxable income previously distributed with respect to such
year, or, if greater, the minimum amount required to avoid
imposition of such excise tax;
|X| a distribution soon after actual annual investment company taxable
income and net capital gains of the Fund have been computed of the
amount, if any, by which such actual income exceeds the
distributions already made; or
|X| if, in the reasonable discretion of the Advisor, 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. 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 the 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 Funds
must withhold 31% of your taxable distribution and redemption proceeds if you do
not provide your correct certified social security or taxpayer identification
number and certify that your are not subject to withholding, or if the IRS
instructs the Funds to do so.
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.
Additional tax information may be found in the Statement of Additional
Information. Because everyone's tax situation is unique, always consult your tax
professional about federal, state and local tax consequences of an investment in
the Fund.
SHAREHOLDER REPORTS AND CONFIRMATIONS
--------------------------------------------------------------------------------
As a shareholder, you will be provided annual and semi-annual reports showing
the Fund's portfolio investments and financial information. You will also
receive confirmations of your purchases into, and redemptions out of, the Fund.
Account statements will be mailed to you on an annual basis.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Because the Fund has recently commenced operations, there are no financial
highlights available at this time.
INVESTMENT ADVISER AND
DISTRIBUTOR
GLEN RAUCH SECURITIES, INC.
NEW YORK, NEW YORK
INDEPENDENT AUDITORS
------------------------
---------, ---------
LEGAL COUNSEL
KRAMER LEVIN NAFTALIS & FRANKEL LLP
NEW YORK, NEW YORK
ADMINISTRATOR, TRANSFER AGENT,
AND FUND ACCOUNTANT
FIRSTAR MUTUAL FUND SERVICES, LLC
MILWAUKEE, WISCONSIN
CUSTODIAN
FIRSTAR BANK, N.A.
CINCINNATI, OHIO
WHERE TO FIND MORE INFORMATION:
You can find more information about the Buy-Write Fund in the following
documents:
STATEMENT OF ADDITIONAL INFORMATION DATED __________, 2000
The Statement of Additional Information for the Fund provides more details about
the Fund's policies and management. The Fund's Statement of Additional
Information is incorporated by reference into this Prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
After the Fund has been operating for the appropriate time, annual and
semi-annual reports will be made available. The Fund's annual and semi-annual
reports provide the most recent financial reports and portfolio listings. The
annual report contains a discussion of the market conditions and investment
strategies that affected the Fund's performance during the last fiscal year.
You can obtain a free copy of these documents, request other information, or
make general inquiries about the Fund by calling the Fund at 1-8__-____ or by
writing to:
GLEN RAUCH FUNDS
BUY-WRITE FUND
C/O FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WI 53201-0701
You may write to the Securities and Exchange Commission ("SEC") Public Reference
Room at the regular mailing address or the e-mail address below and ask them to
mail you information about the Fund, including the SAI. They will charge you a
fee for this duplicating service. You can also visit the SEC Public Reference
Room and copy documents while you are there. For more information about the
operation of the Public Reference Room, call the SEC at the telephone number
below.
PUBLIC REFERENCE SECTION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0102
[email protected]
1-202-942-8090
Reports and other information about the Fund are available on the EDGAR Database
on the SEC's Internet site at HTTP://WWW.SEC.GOV.
1940 Act File No. 811-____
SUBJECT TO COMPLETION, DATED OCTOBER 12, 2000
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
BUY-WRITE FUND
A Series of Glen Rauch Funds
This Statement of Additional Information ("SAI") relates to the Buy-Write Fund,
which is a series of Glen Rauch 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
________, 2000 (the "Prospectus") of the Buy-Write 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) ___-____.
---------------------------------
TABLE OF CONTENTS
---------------------------------
PAGE
Organization of the Trust and the Fund.........................................3
Investments and Risks..........................................................3
Management of the Trust.......................................................11
Advisory Services.............................................................13
Distributor...................................................................14
Service Providers.............................................................15
Portfolio Transactions........................................................16
Determining Net Asset Value...................................................18
Buying Shares.................................................................19
Redeeming Shares..............................................................19
Tax Considerations............................................................20
Calculation of Performance Data...............................................24
Financial Statements..........................................................25
ORGANIZATION OF THE TRUST AND THE FUND
Glen Rauch Funds (the "Trust") is an open-end management investment company, or
mutual fund, organized as a Delaware business trust on October 10, 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
strategy, risks and management policies set forth in the "Investment Objective,"
"Principal Investment Strategy" and "Principal 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:
1. May not 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 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. 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, to meet redemption requests, or for any additional
investment purpose beneficial to the Fund 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. May not 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. May not 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, its agencies or
instrumentalities.
5. May not purchase or sell real estate and commodities, except that
the Fund may purchase or sell securities of real estate investment trusts, may
enter into futures contracts on securities, or any other financial instruments,
and may purchase and sell options on such futures contracts.
6. May not lend any security or make any other loan if, as a result,
more than 33 1/3% of the value of the Fund's total assets would be lent to other
parties, except to the extent permitted by the 1940 Act or any exemptions
therefrom which may be granted by the SEC.
7. May not pledge, mortgage, or hypothecate the Fund's assets, except
(a) to the extent necessary to secure permitted borrowing, (b) in connection
with the purchase of securities on a delayed-delivery basis or the sale of
securities on a delayed-delivery basis, and (c) in connection with options and
other financial instruments.
INVESTMENT STRATEGIES, POLICIES AND RISKS
In addition to the principal investment strategies that are set forth under the
"Principal Investment Strategy" and the "Principal 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 Trust's Board of Trustees.
WRITING COVERED CALL OPTIONS. The Fund writes (sells) call options on securities
listed on a national securities exchange and in the over-the-counter ("OTC")
market. A call option is a contract that provides the holder or buyer of the
option the right (not the obligation) to receive shares from the seller at a
fixed price. Options on securities owned or purchased by the Fund are considered
"derivative securities." 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 in a segregated account with the Fund's custodian bank.
The premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price (intrinsic value) and
volatility of the underlying security, the remaining term of the option, supply
and demand, and interest rates.
The Fund, as writer of an option, may have no control over when the underlying
securities must be sold because the Fund may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or not an option
expires unexercised, the Fund retains the amount of the premium. This amount
may, in the case of a covered call option, may offset a decline in the market
value of the underlying security during the option period. If a call option is
assigned, the Fund experiences a profit or loss from the sale of the underlying
security.
The Fund, as writer of an option, may want to take advantage of market declines
and/or advances by terminating its obligation. To employ this strategy, the Fund
may effect a "closing purchase transaction" by buying an option of the same
series as the option previously written. A closing purchase transaction will
ordinarily be effected to realize a profit on an outstanding option, to prevent
an underlying security from being called, to permit the sale of the underlying
security or to permit the writing of a new option containing different terms.
The effect of the purchase is that the clearing corporation will cancel the
Fund's position. However, a Fund 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. 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 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 principal reason for writing covered call options is an attempt to manage
price volatility or risk. In addition, the Fund will attempt to obtain, through
a receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a covered
call option that they retain whether or not the option is exercised. By writing
a call option, the Fund might become obligated to sell the underlying security
for less than the current market price upon exercise. By writing a covered call
option on a security, the Fund foregoes the opportunity to profit from an
increase in the market price of the underlying security above the exercise
price, except insofar as the premium represents an enhancement of such a profit.
The Fund may write covered 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, an underlying security from 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.
DERIVATIVE SECURITIES RISKS. The Fund's transactions in options 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. The Fund bears the risk that the prices of its portfolio securities
will not move in the same amount as the option 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. 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 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 at any specific time. Thus, it may
not be possible to close an option position. 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 option positions only if there
appears to be a liquid secondary market for the such options.
Similarly, there can be no assurance that a continuous liquid secondary market
will exist for any particular OTC option at any specific time. 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.
PUT OPTIONS. 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
utilizes a put strategy as a means to hedge current positions in times of market
uncertainty.
EQUITY SECURITIES. The Fund invests primarily in equity securities. 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, preferred stocks and convertible securities are examples of
equity securities in which the fund principally invests.
Preferred stocks are stocks that often pay dividends at a specific rate and have
a preference over common stocks in dividend payments and liquidation of assets.
Some preferred stocks may be convertible into common stock. Convertible
securities are securities that may be converted into or exchanged for a specific
amount of common stock of the same or different issuer within a particular
period of time at a specified price or formula.
Although the Fund intends to invest in companies with large capitalizations, the
Fund may temporarily invest in companies with medium-size capitalizations. To
the extent the Fund invests in the equity securities of medium-size companies,
it will be exposed to the risks associated with companies that 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.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"). The Fund may invest in ADRs. ADRS are
dollar denominated receipts representing interests in the securities of a
foreign issuer, which securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by United States banks and trust companies that evidence
ownership of underlying securities issued by a foreign corporation. ADRs include
ordinary shares and New York shares. ADRs may be purchased through "sponsored"
or "unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depository, whereas a depository may
establish an unsponsored facility without participation by the issuer of the
depository security. Holders of unsponsored depository receipts generally bear
all the costs of such facilities and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts of the deposited securities. ADRs are not
necessarily denominated in the same currency as the underlying securities to
which they may be connected. Generally, ADRs in registered form are designed for
use in the U.S. securities market and ADRs in bearer form are designed for use
outside the United States.
ILLIQUID INVESTMENTS. The Fund may invest not more than 5% 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.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Fund may invest in the securities
of other investment companies to the extent that such an investment would be
consistent with the requirements of the 1940 Act. Investments in the securities
of other investment companies may involve duplication of advisory fees and
certain other expenses. By investing in another investment company, the Fund
becomes a shareholder of that investment company. As a result, Fund shareholders
indirectly will bear a Fund's proportionate share of the fees and expenses paid
by shareholders of the other investment company, in addition to the fees and
expenses Fund shareholders directly ear in connection with the Fund's own
operations.
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 Adviser 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.
WHEN-ISSUED PURCHASES AND DELAYED DELIVERY. The Fund may purchase or sell
particular securities with payment and delivery taking place at a later date.
The price or yield obtained in a transaction may be less favorable than the
price or yield available in the market when the securities delivery takes place.
When the Fund agrees to purchase securities on a when-issued or delayed delivery
basis, its custodian will set aside cash or liquid securities equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitments. It may be expected that the
market value of the Fund's net assets will fluctuate to a greater degree when it
sets aside portfolio securities to cover such purchase commitments than when it
sets aside cash. When-issued transactions involve the risk that the price or
yield obtained in a transaction (and therefore the value of a security) may be
less favorable than the price or yield (and therefore the value of a security)
available in the market when the securities delivery takes place.
The Fund will make commitments to purchase securities on a when-issued basis or
to purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, the
Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases, the Fund may
realize a capital gain or loss.
When the Fund engages in when-issued and delayed delivery transactions, it
relies on the other party to consummate the trade. Failure of such party to do
so may result in the Fund incurring a loss or missing an opportunity to obtain a
price considered advantageous. The market value of the securities underlying a
when-issued purchase, and any subsequent fluctuations in their market value, are
taken into account when determining the net asset value of the Fund starting on
the day the Fund agrees to purchase the securities. The Fund does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date.
SHORT SELLING. The Fund may, from time to time, make short sales. Short sales
are transactions where the Fund sells securities they do not own in anticipation
of a decline in the market value of the securities. The Fund must borrow the
security to deliver it to the buyer. The Fund is then obligated to replace the
security borrowed at the market price at the time of replacement. Until the
security is replaced, the Fund is required to pay the lender any dividends or
interest which accrue on the security during the loan period. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. To the extent necessary to meet margin
requirements, the Broker will retain proceeds of the short sale until the short
position is closed out. The Adviser anticipates that the frequency of short
sales will vary substantially under different market conditions and the Fund
does not intend that any significant amount of its assets, as a matter of
practice, will be in short sales.
In addition to the short sales discussed above, the Fund may also make short
sales "against the box," a transaction in which the Fund enters into a short
sale of a security owned by the Fund. A broker holds the proceeds of the short
sale until the settlement date, at which time the Fund delivers the security to
close the short position. The Fund receives the net proceeds from the short
sale.
The Fund may also purchase call options to provide a hedge against an increase
in the price of a security sold short by the Fund. When a Fund purchases call
options, it has to pay a premium to the person writing the option and a
commission to the broker selling the option. If the options are exercised by the
Fund, the premium and the commission paid may be more than the amount of the
brokerage commission charged if the securities were to be purchased directly.
SHORT-TERM TRADING. From time to time, the Fund seeks to trade on a short-term
basis to take advantage of higher returns. Short-term trading involves taking
advantage of daily and intra-day price opportunities not available to investors
who seek to hold their investments long-term. To the extent that the Fund
engages in short-term trading to capture these opportunities, it may not meet
its investment objective.
WARRANTS AND RIGHTS. The Fund may invest in warrants. Warrants are basically
options to purchase common stock at a specific price (usually a premium above
the market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than a year to twenty
years or may be perpetual. However, most warrants have expiration dates after
which they are worthless. In addition, if the market price of the common stock
does not exceed the warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting rights, pay no
dividends, and have no rights with respect to assets of the corporation issuing
them. The percentage increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in the market price
of the optioned common stock. Warrants acquired in units or attached to
securities may be deemed to be without value for purposes of this policy. The
Fund may also invest in rights. Rights are basically privileges granted to
existing shareholders of a corporation to subscribe to shares of new issues of
common stock before such stock is offered to the public. Rights are normally
short-term, freely transferable and they entitle the holder to buy the new
common stock below the offered public price.
NON-DIVERSIFIED FUND. The Fund is non-diversified under the 1940 Act, which
means that there is no restriction under the 1940 Act on how much the Fund may
invest in the securities of any one issuer. However, to qualify for tax
treatment as a regulated investment company under the Internal Revenue Code
("Code"), the Fund intends to comply, as of the end of each taxable quarter,
with certain diversification requirements imposed by the Code. Pursuant to these
requirements, the Fund will, among other things, limit its investments in the
securities of any one issuer (other than U. S. Government securities or
securities of other regulated investment companies) to no more than 25% of the
value of the Fund's total assets. In addition, the Fund, with respect to 50% of
its total assets, will limit its investments in the securities of any issuer to
5% of its total assets, and will not purchase more than 10% of the outstanding
voting securities of any one issuer.
In applying the Fund's fundamental policy concerning concentration that is
described above, it is a matter of non-fundamental policy that investments in
certain categories of companies will not be considered to be investments in a
particular industry. For example: (i) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; (ii) technology companies will be divided according to their products
and services, for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry; (iii)
asset-backed securities will be classified according to the underlying assets
securing such securities; and (iv) utility companies will be divided according
to their services, for example, gas, gas transmission, electric and telephone
will each be considered a separate industry.
TEMPORARY INVESTMENTS. When the Fund's Adviser believes market or economic
conditions are unfavorable for investors, the Adviser 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, Treasury Bills or other short-term obligations, certificates of
deposit, money market fund shares, and other money market equivalents. The
Adviser 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 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 trustees 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 Trustee who is an "interested
person" of the Fund, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
--------------------------- -------------------- -----------------------------------------------------------------
NAME, AGE, ADDRESS POSITIONS WITH THE PRINCIPAL OCCUPATION DURING PAST 5 YEARS
TRUST
--------------------------- -------------------- -----------------------------------------------------------------
<S> <C> <C>
*Glen R. Rauch (50) President, Trustee President and Controlling Manager of the Adviser (1986 -
44 Wall Street, 16th Floor and Chairperson of present); Senior Vice President and Partner, Gabrielle,
New York, NY 10005 the Board Hueglin and Cashman, Inc., a New York brokerage firm (Sept.
1980 - Dec. 1985); Municipal Bond Salesman, Stover Glass
and Company, a New York brokerage firm, (1973 - July, 1980)
--------------------------- -------------------- -----------------------------------------------------------------
*Cheryl Spinella Betsy (27) Trustee, Portfolio Manager of the Adviser (1997 - present); Secretary
44 Wall Street, 16th Floor Treasurer and Securities specialist clerk, Spear, Leeds & Kellogg, LLC,
New York, NY 10005 Secretary a securities brokerage firm in New York, (Sept. 1995 - Feb. 1997).
--------------------------- -------------------- -----------------------------------------------------------------
Trustee
--------------------------- -------------------- -----------------------------------------------------------------
Trustee
--------------------------- -------------------- -----------------------------------------------------------------
Trustee
--------------------------- -------------------- -----------------------------------------------------------------
</TABLE>
*These Trustees are "interested persons" of the Fund, as defined in the 1940
Act. Mr. Rauch serves as the President of the Adviser to the Fund.
TRUSTEE COMPENSATION. For their service as Trustees, the independent trustees
receive $____ per Trustee meeting, as well as reimbursement for expenses
incurred in connection with attendance at Board meetings. The Chairman of the
Audit Committee receives additional compensation of $___ per meeting for his
service as chairman. Interested trustees do not receive any compensation for
their service as Trustees. The members of the Trust's Board of Trustees receive
the following compensation:
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FROM TRUST PAID TO
NAME OF PERSON/POSITION THE TRUST1 FUND EXPENSES RETIREMENT TRUSTEES
------------------------ --------------------- --------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
Glen R. Rauch, None None None None
President and Chairperson
------------------------ --------------------- --------------------- ------------------ -----------------------
Cheryl Spinella Betsy, None None None None
Treasurer and Secretary
------------------------ --------------------- --------------------- ------------------ -----------------------
____ None None ____
------------------------ --------------------- --------------------- ------------------ -----------------------
____ None None ____
------------------------ --------------------- --------------------- ------------------ -----------------------
____ None None ____
------------------------ --------------------- --------------------- ------------------ ------------------------
</TABLE>
(1) These represent estimates for the current fiscal year ending June 30,
2001.
CONTROL PERSONS, PRINCIPAL HOLDERS OF SECURITIES AND MANAGEMENT OWNERSHIP. A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of the Fund. As of _____, 2000, the Adviser owned
of record 100% of the shares of the Fund. Accordingly, as of _____, 2000, the
Adviser owned a controlling interest in the Fund. A control person is one who
owns beneficially or through controlled companies more than 25% of the voting
securities of a company or acknowledges the existence of control.
MANAGEMENT OWNERSHIP
As of ________, 2000, for organizational purpose, Glen R. Rauch, President and
Chairperson of the Fund, owned 100% of the outstanding shares of the Fund.
ADVISORY SERVICES
INVESTMENT ADVISER
Glen Rauch Securities, Inc. (the "Adviser"), a New York company, is the
investment adviser to the Fund pursuant to an investment advisory agreement with
the Trust dated as of _________, 2000 (the "Advisory Agreement"). The Adviser is
a corporation organized under the laws of the state of New York and its
principal place of business is 44 Wall Street, New York, New York, 10005. For
more information about the Adviser, see "Investment Adviser" in the Prospectus.
The Adviser is under the control of Glen R. Rauch, President and controlling
member of the Adviser. Glen R. Rauch is also the President and Chairperson of
the Board of Trustees of the Fund.
Under the Advisory Agreement between the Trust and the Adviser and subject to
the control of the Board of Trustees, the Adviser 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 Adviser 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 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 Adviser 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 Adviser is entitled to receive an annual
management fee from the Fund, calculated daily and payable monthly, equal to
1.00% 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 Adviser. From the inception of the Fund to the date hereof, the Adviser has
been paid a total of $0.
The Fund is responsible for paying all its expenses other than those assumed by
the Adviser 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 Adviser, 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 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, as applicable, or interested persons of
any such party), and if the Adviser 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 may be terminated by the Fund,
without penalty, on 60 days' written notice to the Adviser and will terminate
automatically in the event of its assignment, as applicable.
CODE OF ETHICS
The Trust, the Adviser and the Distributor have adopted Codes of Ethics that
govern the conduct of employees of the Trust and Adviser 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 Adviser; 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.
DISTRIBUTOR
The Adviser, Glen Rauch Securities, Inc., also serves as the principal
underwriter (the "Distributor") and the general distributor of the shares of the
Fund pursuant to a distribution agreement among the Trust and the Adviser dated
as of _________ __, 2000 (the "Distribution Agreement"). The Distributor is
registered as a broker-dealer under the Securities Exchange Act of 1934 and each
state's securities laws and is a member of the NASD. The offering of the Fund's
shares is continuous. The Distribution Agreement 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."
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Fund has adopted a Distribution and Shareholder Servicing Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the
Fund in connection with the distribution of Investor Class Shares at an annual
rate of 1.00% of the Fund's average daily net asset value (0.75% for 12b-1
expenses and 0.25% for shareholder servicing activities). Payments may be made
by the Fund under the Plan for the purpose of financing any activity primarily
intended to result in the sale of shares of the Fund, as determined by the Board
of Trustees. Such activities typically include advertising; compensation for
sales and sales marketing activities of financial service agents and others,
such as dealers or distributors; shareholder account servicing; production and
dissemination of prospectuses and sales and marketing materials; and capital or
other expenses of associated equipment, rent, salaries, bonuses, interest and
other overhead. To the extent any activity is one which the Fund may finance
without the Plan, the Fund may also make payments to finance such activity
outside of the Plan and not subject to its limitations. Payments under the Plan
are based upon a percentage of average daily net assets attributable to the
shares of the Fund regardless of the amounts actually paid or expenses actually
incurred by the Distributor; however, in no event, may such payments exceed the
maximum allowable fee. It is, therefore, possible that the Distributor may
realize a profit in a particular year as a result of these payments. The Plan
increases the Fund's expenses from what they would otherwise be and the
Adviser's financial advisers may receive a higher percentage of the 12b-1 fee
paid by the Funds than of a 12b-1 fee paid by a non-affiliated mutual fund.
Administration of the Plan is regulated by Rule 12b-1 under the 1940 Act, which
requires that the Board of Trustees receive and review at least quarterly
reports concerning the nature and qualification of expenses which are made, that
the Board of Trustees, including a majority of the disinterested Trustees,
approve all agreements implementing the Plan and that the Plan may be continued
from year-to-year only if the Board of Trustees, including a majority of the
disinterested Trustees, concludes at least annually that continuation of the
Plan is likely to benefit shareholders.
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, dated as of ________, 2000, 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 based on the average net assets of the Fund.
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 425 Walnut Street, Cincinnati, Ohio 45202.
Pursuant to a Fund Administration Servicing Agreement and a Fund Accounting
Servicing Agreement dated as of __________, 2000, each between Firstar and the
Trust, 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.
Kramer Levin Naftalis & Frankel LLP acts as legal counsel to the Fund.
_________________ is the auditor of the Trust.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, the Adviser is
responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
The portfolio turnover rate for the Fund is calculated by dividing the lesser of
purchases or sales of portfolio securities for the reporting period by the
monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements which
enable the Fund to receive favorable tax treatment. Portfolio turnover will not
be a limiting factor in making portfolio decisions, and the Fund may engage in
short-term trading to achieve its investment objective. Portfolio turnover is
anticipated to be as high as 120% for the Fund.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers.
Transactions in the over-the-counter market are generally principal transactions
with dealers and the costs of such transactions involve dealer spreads rather
than brokerage commissions. With respect to over-the-counter transactions, the
Adviser will normally deal directly with dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere or as described below.
The Fund may participate, if and when practicable, in bidding for the purchase
of portfolio securities directly from an issuer in order to take advantage of
the lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Adviser, in its sole discretion,
believes such practice to be in the Fund's interests.
The Advisory Agreement between the Trust and the Adviser provides that, in
executing portfolio transactions and selecting brokers or dealers, the Adviser
will seek to execute portfolio transactions at prices which, under the
circumstances, result in total costs or proceeds being the most favorable to the
Fund. When allocating transactions to broker-dealers, the Adviser is authorized
to consider, in determining whether a particular broker-dealer will provide best
execution, all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, research services provided to the Adviser,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis, and thus need not pay the lowest spread
or commission available if the Adviser 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 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 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 Adviser as its
adviser or having the same Adviser, 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 Adviser, and that such research received by such other accounts may or may
not be useful to the Fund.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Adviser and does not reduce
the advisory fees payable to it by the Fund. The Board of Trustees will
periodically review the commissions paid by the Fund to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. Research services furnished by
firms through which the Fund effects its securities transactions may be used by
the Adviser in servicing all of its accounts; not all of such services may be
used by the Adviser in connection with the Fund. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other accounts for which investment discretion is exercised. Conversely,
the Fund may be the primary beneficiary of the research or services received as
a result of portfolio transactions effected for such other account.
Investment decisions for the Fund are made independently from those for other
accounts advised or managed by its Adviser. Such other accounts may also invest
in the same securities as the Fund. When a purchase or sale of the same security
is made at substantially the same time on behalf of the Fund and another
account, the transaction will be averaged as to price and available investments
allocated as to amount, in a manner which the Advisor believes to be equitable
to the Fund and such other account. In some instances, this investment procedure
may adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for other accounts in executing transactions.
Any portfolio transaction may be executed through broker-dealers who are
affiliated with the Fund or the Adviser if, in the 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 Adviser, or the Distributor.
The Adviser will cause the Fund to deal directly with the selling or purchasing
principal or market maker without incurring brokerage commissions unless the
Adviser 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 Distributor, 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 Trustees,
including a majority of the Fund's Board of Trustees who are not interested
persons of the Fund as defined by the 1940 Act.
The Board of Trustees will review quarterly the Adviser'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 Adviser and determination of the
appropriate price whenever a furnished price is significantly different from the
previous day's furnished price. 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 Adviser 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 $2,000
on regular accounts and IRAs. Investments may be made in any amount in excess of
these amounts. To add to any existing accounts, the Fund requires a minimum
investment of $100.
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 SEC 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.
If you redeem shares of the Fund after holding them for less than one year, the
Fund will charge a fee of 1.00% of the value of the shares redeemed. This fee is
paid to the Fund to cover the costs of maintaining accounts that are abnormally
active. This fee is waived for Fund shareholders who are private clients of the
Adviser.
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.
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.
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:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years in the base period.
ERV = ending redeemable value of the hypothetical $1,000
payment made at the beginning of the base period (reduced
by the maximum sales charge) assuming reinvestment of all
dividends and distributions.
All performance figures are based on historical results and are not intended to
indicate future performance.
FINANCIAL STATEMENTS
Audited financial statements will be filed by a pre-effective amendment.
GLEN RAUCH FUNDS
PART C
OTHER INFORMATION
Item 23. EXHIBITS.
(a) Declaration of Trust
(i) Certificate of Trust--Filed herewith.
(ii) Agreement and Declaration of Trust--To be filed
by amendment.
(b) BylawS - To be filed by amendment.
(c) Instruments Defining Rights of Security Holders-- Incorporated by
reference to the Agreement and Declaration of Trust.
(d) Investment Advisory Agreement-- To be filed by amendment.
(e) Underwriting Agreement-- To be filed by amendment.
(f) Bonus or Profit Sharing Contracts - Not applicable.
(g) Custody Agreement-- To be filed by amendment.
(h) Other Material Contracts
(i) Administration Agreement-- To be filed by amendment.
(ii) Transfer Agent Servicing Agreement-- To be filed by
amendment.
(iii) Fund Accounting Servicing Agreement-- To be filed by
amendment.
(i) Opinion and Consent of Counsel-- To be filed by amendment.
(j) Consent of Independent Public Accountants-- To be filed by amendment.
(k) Omitted Financial Statements - Not applicable.
(l) Agreement Relating to Initial Capital-- To be filed by amendment.
(m) Rule 12b-1 Plan - To be filed by amendment.
(n) Rule 18f-3 Plan - To be filed by amendment.
(o) Reserved.
(p) CODE OF ETHICS
(i) Adviser - To be filed by amendment.
(ii) Company - To be filed by amendment.
(iii) Distributor - To be filed by amendment.
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 X 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 director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, 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.
Glen Rauch Securities, Inc. serves as the investment adviser for the
Registrant. The business and other connections of Glen Rauch Securities, Inc.
are set forth in the Uniform Application for Investment Adviser Registration
("Form ADV") of Glen Rauch Securities, Inc. as filed with the SEC and
incorporated by reference herein.
ITEM 27. PRINCIPAL UNDERWRITER.
(a) Glen Rauch Securities, 44 Wall Street, New York, New York, 10005,
the Distributor for shares of the Registrant, does not act as
principal underwriter for any other fund.
(b) To the best of Registrant's knowledge, the directors and executive
officers of Glen Rauch Securities, Inc. are as follows:
NAME AND PRINCIPAL POSITION AND OFFICES WITH POSITIONS AND OFFICES WITH
BUSINESS ADDRESS GLEN RAUCH SECURITIES, INC. REGISTRANT
------------------- ------------------------------- ----------------------------
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The address of each of the foregoing is 44 Wall Street, New York, New York,
10005.
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 in the following locations:
RECORDS RELATING TO: ARE LOCATED AT:
------------------- ---------------
Registrant's Fund Accounting, Firstar Mutual Fund Services, LLC
Administrator and Transfer Agent 615 East Michigan Street
Milwaukee, WI 53202
Registrant's Investment Adviser Glen Rauch Securities, Inc.
44 Wall Street
New York, NY 10005
Registrant's Custodian Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 54202
Item 29. Management Services not Discussed in Parts A and B.
Not applicable.
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
Prospectus for one or more of the series of the Registrant is delivered with a
copy of the relevant latest annual report to shareholders, upon request and
without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed below on its behalf by the undersigned,
duly authorized, in the City of Milwaukee and the State of Wisconsin on the 12th
day of October, 2000.
GLEN RAUCH FUNDS
BY: /S/ GLEN R. RAUCH
------------------
Glen R. Rauch
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on October 12th, 2000 by the
following persons in the capacities indicated.
SIGNATURE TITLE
/S/ GLEN R. RAUCH President, Trustee and Chairperson
-----------------
Glen R. Rauch
/S/ CHERYL SPINELLA BETSY Trustee, Treasurer and Secretary
------------------------
Cheryl Spinella Betsy
