GINTEL FUND
PROSPECTUS
May 5, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
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Risk/Return Summary: Investments, Risks and Performance....................... 1
Investment Objective................................................. 1
Principal Investment Strategies...................................... 1
Principal Risks of Investing......................................... 1
Bar Chart............................................................ 1
Performance Table.................................................... 2
Fee Table..................................................................... 2
Principal Investment Strategies and Related Risks............................. 3
Principal Strategies................................................. 3
Other Investment Strategies.......................................... 3
Principal Risks of Investing in the Fund ............................ 3
Management of the Fund........................................................ 4
Investment Adviser................................................... 4
Portfolio Managers................................................... 4
Administrative Services Agreement.................................... 5
Shareholder Information....................................................... 5
Pricing of Fund Shares............................................... 5
Purchase of Fund Shares.............................................. 5
Redemption of Fund Shares............................................ 7
Dividends and Distributions.......................................... 9
Tax Matters.......................................................... 9
Financial Highlights..........................................................10
<PAGE>
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
Investment Objective
The Fund's investment objective is capital appreciation.
Principal Investment Strategies
The Fund seeks capital appreciation by focusing on a limited number of
securities rather than broadly diversifying its portfolio. The Fund will invest
primarily in the equity securities of U.S. companies whose shares are listed or
traded on major U.S. stock exchanges or in the over-the counter market.
The Fund seeks to maximize capital appreciation by using a bottom-up approach to
select growth and value securities with long-term investment opportunities
through careful research and then allocating a meaningful portion of portfolio
assets to these selections.
Principal Risks of Investing
The Fund is subject to the risks related to investing in equity securities. The
value of the Fund's portfolio will change with the movement of the market as
well as activities of the individual companies in the Fund's portfolio.
Therefore, you may lose money by investing in this Fund if any of these occur:
o the stock market goes down; or
o a stock or stocks in the Fund's portfolio do not perform as well as
expected.
In addition, the Fund is "non-diversified" which means that the Fund could have
a portfolio with as few as twelve issuers. To the extent that the Fund invests
in a small number of issuers, an investment in the Fund may involve a greater
risk of losing money than an investment in a diversified fund.
Bar Chart
The bar chart below shows the risks of investing in the Fund by showing changes
in the Fund's performance from year to year beginning January 1, 1989, through
December 31, 1998. Past performance is not an indication of future performance.
The Fund's annual total return for 1998 was -10.95%. The Fund's annual total
return for 1997 was 29.22%. The Fund's annual total return for 1996 was 31.04%.
The Fund's annual total return for 1995 was 30.97%. The Fund's annual total
return for 1994 was -16.46%. The Fund's annual total return for 1993 was 2.04%.
The Fund's annual total return for 1992 was 24.70%. The Fund's annual total
return for 1991 was 15.57%. The Fund's annual total return for 1990 was -6.66%.
The Fund's annual total return for 1989 was 23.81%.
The Fund's highest quarterly return was 30.4% (for the quarter ended 12/31/98).
The lowest quarterly return was -33.4% (for the quarter ended 9/30/98).
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<PAGE>
Performance Table
The following table shows the Fund's average annual returns for 1, 5 and 10
years compared with those of the Russell 2000. Past performance is not an
indication of future performance.
<TABLE>
<CAPTION>
============================================================================================
Average Annual Total One Five Ten
Returns for Period Ending Year Years Years
December 31, 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gintel Fund* -11.0% 10.5% 10.9%
- --------------------------------------------------------------------------------------------
Russell 2000** -2.6% 11.9% 12.9%
============================================================================================
* Results are net of expenses, with dividends and capital gains
reinvested.
** The Russell 2000 excludes the 1,000 largest companies included
in the Russell 3000. The average capitalization of companies
included in the Russell 2000 is $467.3 million. The Russell
3000 is a weighted index of the 3,000 largest U.S. companies
based on total market capitalization.
FEE TABLE
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES
(Fees paid directly from your investment)
Maximum Sales Charge Imposed on Purchases None
Maximum Deferred Sales Charge None
Maximum Sales Charge Imposed on Reinvested Dividends None
Redemption Fee on Shares Held 45 days or less
(as a percentage of amount redeemed)* 3.0%
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from the Fund's assets, as a percentage of net assets)
Management Fees 1.00%
12b-1 Fees 0.00%
Other Expenses** 0.72%
Total Annual Expenses 1.72%
</TABLE>
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*The redemption fee is paid to the Fund to reimburse it for expenses and costs
associated with redemptions.
**Excludes imputed brokerage commissions which are paid by Gintel & Co. under
the Fund's Administrative Services Agreement.
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<PAGE>
Example of Expenses
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that (i) you redeem all of your shares at the end of each
period; (ii) your investment has a 5% return each year; and (iii) the Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your cost would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$170 $540 $930 $2,030
This example does not reflect reinvested dividends. The purpose of the above
table is to assist you in understanding the various costs and expenses that an
investor in the Fund would bear directly or indirectly.
PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Principal Strategies
The Fund's investment adviser performs research to identify and select
reasonably-priced investment opportunities that the investment adviser believes
have exceptional underlying potential or have been overlooked in the
marketplace. Using a bottom-up approach the Fund focuses on individual stocks of
companies with top management talent and balance sheet strength that will
generate significant earnings increases and market value within an 18 to 36
month time frame. The Fund's investment adviser may place significant portions
of portfolio assets in these stocks where the investment adviser believes there
is an opportunity for capital appreciation.
Other Investment Strategies
When market conditions warrant or for cash management purposes, the Fund may
hold all or a portion of its assets in commercial paper, cash or cash
equivalents and repurchase agreements. This may reduce the benefit from any
upswing in the market and may cause the Fund not to achieve its investment
objective.
Principal Risks of Investing in the Fund
Investing in the Fund involves certain risks which are described below. We
cannot guarantee that the Fund will meet its investment objective or that it
will perform as it has in the past. You may lose money if you invest in the
Fund.
o A Market Risk. The market value of a security may go up or
down, sometimes rapidly and unpredictably. These fluctuations
may cause a security to be worth less than it was at the time
of purchase. Market risk applies to individual securities, a
particular sector or the entire economy.
o Manager Risk. Fund management affects Fund performance. A Fund
may lose money if the investment adviser's investment strategy
does not achieve the Fund's objective or the investment
adviser does not implement the strategy properly.
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<PAGE>
o Year 2000 Risk. The Fund or its service providers could be
disrupted by problems in their computer systems related to the
Year 2000. The Fund's investment adviser has taken steps that
it reasonably believes are designed to adequately address the
Year 2000 issue as it relates to the operation of the Fund. In
addition, the Fund's major service providers have assured the
investment adviser that they have taken comparable steps.
Neither the Fund nor its major service providers can assure
that these steps will be sufficient to avoid any adverse
affects from the Year 2000 issue.
o Equity Securities Risk. The prices of the equity securities in
which the Fund invests change in response to many factors,
including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity.
MANAGEMENT OF THE FUND
Investment Adviser
Gintel Asset Management, Inc., 6 Greenwich Office Park, Greenwich, Connecticut
06831, is the investment adviser of the Fund (the "Investment Adviser"). Since
1971, the Investment Adviser has been managing discretionary investment accounts
for individual investors, corporate pension funds and profit sharing plans,
charitable foundations, universities and others. The Investment Adviser
identifies and analyzes possible investments for the Fund and determines the
amount, timing, and form of such investments. The Investment Adviser regularly
monitors and reviews the Fund's portfolio and recommends the ultimate
disposition of such investments. The Investment Adviser is also responsible for
the purchase and sale of securities in the Fund's portfolio, subject to the
policies set forth by the Board of Trustees. For the year ending December 31,
1998, the Fund paid a monthly advisory fee calculated at an annual rate of 1.0%
of the Fund's average daily net assets.
Portfolio Managers
Robert M. Gintel has spent his entire business career in the investment industry
with more than 40 years of experience as a professional investor. Since 1971,
Mr. Gintel has been Chairman and Chief Executive Officer of Gintel Asset
Management, Inc. Since 1969, he has also been a Senior Partner and founder of
Gintel & Co., a member of the New York Stock Exchange and associate member of
the American Stock Exchange. Mr. Gintel has been Chairman of the Board and Chief
Executive Officer of Gintel Fund since its inception in 1981. He holds a B.A.
degree from Columbia College and an M.B.A. from the Harvard Business School. Mr.
Gintel has served on the Board of Directors of several New York Stock Exchange
listed corporations. Mr. Gintel has lectured and written articles on investments
and has appeared on Wall Street Week as well as other television and radio
programs.
Edward F. Carroll joined Gintel Asset Management, Inc. in 1983 and is a General
Partner of Gintel & Co. Previously, Mr. Carroll had his own consulting firm
specializing in global energy issues and was on the staff of the Ford
Foundation, where he was directly responsible for all energy-related
investments. Mr. Carroll's 39-year career includes experience as an analyst with
the Wall Street firms, Halle & Steiglitz, Henry Hentz & Company, and E. F.
Hutton. He holds
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<PAGE>
a B.G.S. degree from the University of Connecticut.
Administrative Services Agreement
The Administrative Services Agreement between the Fund and Gintel & Co. (the
"Distributor") provides that in consideration for the services provided by the
Distributor and the payment by the Distributor of substantially all of the
Fund's expenses, including but not limited to brokerage commissions, charges for
custody, fund accounting, transfer agency, administration, registration,
printing, legal counsel, independent accountants, shareholder and trustee
meeting expenses and insurance (but excluding the Investment Adviser's fees, the
fees paid to the disinterested Trustees, certain transaction costs, interest,
taxes and extraordinary expenses), the Distributor will receive a fee based on
average daily net assets. The Distributor will pay for any distribution-related
expenses out of its own sources, including legitimate profits from the
administrative services fee received from the Fund.
SHAREHOLDER INFORMATION
Pricing of Fund Shares
The offering price of each Fund share is the net asset value ("NAV") per share
next determined after your application is received by Chase Global Funds
Services Company. The NAV per share is calculated as follows:
NAV = Total Assets Less Liabilities
-----------------------------
Number of Shares Outstanding
The Fund determines its NAV per share as of the end of regular trading hours on
the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on days that the
New York Stock Exchange is open.
Purchase of Fund Shares
You pay no sales charges or commissions when you purchase Fund shares. No share
certificates will be issued unless requested in writing. The Fund reserves the
right, in its sole discretion, to reject any subscription for shares of the
Fund.
Tax-Sheltered Retirement Plans
The Fund makes available Keogh and IRA Plans, including IRA's set up under a
Simplified Employee Pension Plan ("SEP-IRAs") and IRA "Rollover Accounts."
Please call the Fund to obtain further information and forms to purchase shares
in conjunction with tax-sheltered retirement plans. You should consult a tax
adviser regarding the tax consequences of adopting such plans.
Minimum Initial Investments.
o Non-Retirement Accounts $5,000
o Retirement Accounts: IRA and Keogh $2,000
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The Fund may reduce or waive the minimum investment requirements in some cases.
There is no minimum for additional investments.
By Mail. You may purchase shares of the Fund by sending a completed application
(included with this Prospectus or obtainable from the Fund) and check payable to
"Gintel Group" to:
Gintel Group
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Applications sent to the Fund will be forwarded to Chase Global Funds Services
Company and will not be effective until received by Chase Global Funds Services
Company. Chase Global Funds Services Company will charge you $25.00 for each
returned check for insufficient funds.
For IRA and Keogh subscriptions, please contact the Fund for special forms.
By Exchange. If you authorized telephone exchange in the application, you may
exchange shares of the Fund for shares of any other fund with which the Fund has
an exchange arrangement.
o The new account must be established with the same name(s), address, and
tax identification number as the other account and must meet that
fund's minimum initial investment.
o You may execute a purchase by exchange by mail or telephone, but must
comply with the purchase and redemption procedures set forth in this
Prospectus.
o Chase Global Funds Services Company and the Fund will use reasonable
procedures (such as requesting personal identification) to ensure that
the caller is properly authorized. If reasonable procedures are
followed then neither Chase Global Funds Services Company nor the Fund
will be liable for acting upon your instructions, regardless of the
authority or absence thereof of the person giving the instructions, or
for any loss, expense, or cost arising out of any exchange by
telephone, whether or not properly authorized and directed. You will
bear the risk of loss.
o You should verify the accuracy of telephone transactions immediately
after you receive your confirmation statement.
By Wire. To purchase by wire, call Chase Global Funds Services Company at (800)
344-3092 for instructions and wire control number. You must then wire Federal
funds and registration instructions to:
Chase Manhattan Bank N.A.
ABA #021000021
Gintel Group
DDA #910-2-732980
For Further Credit to:
Gintel Fund Account Registration
[including account name, number and control number]
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<PAGE>
By Automatic Investment Plan. You may purchase shares on a regular basis, (the
first, the fifteenth, or the first and fifteenth of each month), by
automatically transferring a specified dollar amount ($100 minimum) from your
regular checking or NOW account to your specified Gintel Group Account. Please
contact the Fund to obtain special forms required for this automatic investment
plan.
Through Securities Dealers. You may also purchase shares of the Fund through
registered securities dealers who have entered into selected dealer agreements
with the Distributor. A dealer who agrees to process an order on your behalf may
charge you a fee for this service.
Redemption of Fund Shares
The redemption value of Fund shares is the NAV per share next determined after
the redemption request is received. There is no assurance that the NAV on
redemption will be greater than the NAV that you paid on purchase.
By Mail. You may redeem shares of the Fund by sending a written redemption
request to:
Gintel Group
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Any written request sent to the Fund will be forwarded to Chase Global Funds
Services Company and the effective date of the redemption request will be when
the request is received by Chase Global Funds Services Company in proper form.
Your request must include the following:
o The Fund name, the account number, and the number of shares or the
dollar amount to be redeemed and signed by all registered owners
exactly as their names appear on the account.
o Signatures must be guaranteed by an eligible guarantor institution.
Please contact the Transfer Agent at (800) 344-3092 for information
about obtaining a signature guarantee. A notarization and
acknowledgement by a notary public is not an acceptable signature
guarantee.
o Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, corporations, pension and profit sharing plans
and other organizations. You should contact Chase Global Funds Services
Company at (800) 344-3092 for further information on the specific
documentation required.
o If you were issued share certificates, you must endorse the
certificates and include them in the redemption request.
The Fund will pay you for redeemed shares as soon as practicable, but in no
event later than 7 business days after receipt of redemption notification. The
Fund will pay by check, unless you arrange for the redemption proceeds to be
sent by Federal fund wire to a designated bank
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<PAGE>
account. There is a wire charge (currently $8.00 per wire) for redemption by
wire. The wire charge will be deducted from the account. Please contact Chase
Global Funds Services Company at (800) 344-3092 to obtain further information on
this service and the related charges.
By Telephone. If you authorized telephone redemptions in the application you may
redeem shares by telephone instructions to Chase Global Funds Services Company.
o Chase Global Funds Services Company will wire the redemption proceeds
to the bank and bank account number specified in the application or
mail the proceeds to the address of record.
o Redemptions of less than $1,000 will be mailed.
o Redemptions by wire will be charged a wire fee (currently $8.00 per
wire) which will be deducted from the account. Any change in the bank
account specified in the application must be made in writing with a
signature guarantee as described above for redemptions by mail.
o Chase Global Funds Services Company and the Fund will use reasonable
procedures (such as requesting personal identification) to ensure that
the caller is properly authorized. If reasonable procedures are
followed then neither Chase Global Funds Services Company nor the Fund
will be liable for acting upon such instructions, regardless of the
authority or absence thereof of the person giving the instructions, or
for any loss, expense, or cost arising out of any redemptions by
telephone, whether or not properly authorized and directed.
Automatic Withdrawals. You may establish a Systematic Withdrawal Plan if you own
shares of the Fund with a value of $10,000 or more. You may request a declining
balance withdrawal, a fixed dollar withdrawal, a fixed share withdrawal, or a
fixed percentage withdrawal (based on the current value of the account) on a
monthly, quarterly, semi-annual or annual basis. When you reach age 59 1/2 and
begin to receive distributions from an IRA or other retirement plan invested in
the Fund, you can arrange to have regular monthly, quarterly or annual
redemptions made under the Systematic Withdrawal Plan. In this case it is not
necessary for the account value to be $10,000 or more. Please contact the Fund
to obtain further information on establishing a Systematic Withdrawal Plan.
Through Securities Dealers. You may also redeem shares of the Fund through
registered securities dealers who have entered into selected dealer agreements
with the Distributor. A dealer who agrees to process an order on your behalf may
charge you a fee for this service.
Redemption Issues
o Redemption Fee. There is a redemption fee of 3.0% of the value of the
shares being redeemed from the Fund if the shares are redeemed within
45 days of purchase. The redemption fee is paid to the Fund to
reimburse it for expenses and costs associated with redemptions.
o Small Accounts. With the exception of IRA or Keogh accounts, the Fund
reserves the right to close accounts that have dropped below $2,500 in
value for a period of three
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<PAGE>
months or longer other than as a result of a decline in the NAV per
share. You will be given 60 days' prior notice of this redemption.
During that period you may purchase additional shares to avoid the
redemption. However, the Fund does not presently contemplate making
such redemptions.
o Check Clearance. If you purchase shares by check, the Fund will wait up
to 15 days for your check to clear before accepting your redemption
request.
Suspension of Redemptions
The Fund may suspend at any time redemption of shares or payment when the New
York Stock Exchange is closed.
The Fund may also suspend redemption of shares or payment, as permitted by the
Securities and Exchange Commission, when:
o trading on the New York Stock Exchange is restricted; or
o an emergency exists which makes it impractical to either dispose
of securities or make a fair determination of NAV.
Dividends and Distributions
Your ordinary income dividends and capital gains distributions will be
automatically reinvested at NAV. You may choose to have dividends and
distributions paid to you in cash by notifying Chase Global Funds Services
Company in writing at least 30 days before the record date.
Tax Matters
The Fund intends to continue to qualify as a regulated investment company, which
means that it pays no federal income tax on the earnings or capital gains it
distributes to its shareholders. We provide this tax information for your
general information. You should consult your own tax adviser about the tax
consequences of investing in the Fund.
o Ordinary dividends from the Fund are taxable as ordinary income
and dividends from the Fund's long-term capital gains are taxable
as capital gain.
o Dividends are treated in the same manner for federal income tax
purposes whether you receive them in the form of cash or
additional shares. They may also be subject to state and local
taxes.
o Certain dividends paid to you in January will be taxable as if
they had been paid the previous December.
o We will mail you tax statements every January showing the amounts
and tax status of the distributions you received.
o When you sell (redeem) or exchange shares of a Fund, you must
recognize any gain or loss.
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<PAGE>
o Because your tax treatment depends on your purchase price and tax
position, you should keep your regular account statements for use
in determining your tax.
o You should review the more detailed discussion of federal income
tax considerations in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single share of the Fund. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund assuming reinvestment of all dividends and distributions. Richard A.
Eisner & Company, LLP has audited this information. Richard A. Eisner & Company
LLP's report along with further detail on the Fund's financial statements are
included in the Annual Report which is available upon request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 21.78 $ 18.10 $ 15.37 $ 12.46 $ 15.11
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income .12 .12 .37 (.01) .04
Net gains or losses on securities (2.71) 5.13 4.40 3.86 (2.53)
--------- --------- --------- --------- ---------
Total from investment income (loss) (2.59) 5.25 4.77 3.85 (2.49)
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income .11 .15 .35 .01 .04
Distributions from capital gains 2.90 1.42 1.69 .93 .12
--------- --------- --------- --------- ---------
Total distributions 3.01 1.57 2.04 .94 .16
--------- --------- --------- --------- ---------
Net asset value, end of year $ 16.18 $ 21.78 $ 18.10 $ 15.37 $ 12.46
========= ========= ========= ========= =========
Total Return -11.00% 29.20% 31.00% 31.00% -16.50%
Ratio/supplemental data:
Net assets, end of year (in thousands) $144,419 $180,724 $147,906 $96,739 $88,277
Ratio of expenses to average net assets 1.70%* 1.80%* 1.80%* 2.30%* 2.40%*
Ratio of net income to average net assets 0.60% 0.80% 2.20% (.10%) .30%
</TABLE>
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* The Fund's expense ratio for 1994-1995 includes brokerage commissions on
portfolio transactions paid for
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<PAGE>
under the Fund's Administrative Services fee and, therefore, may appear
higher than those of other mutual funds. Other mutual funds do not include
brokerage commissions in their operating expenses, but instead add them to
the cost of securities purchased or deduct them from the proceeds of
securities sold. Beginning in 1996 the Fund changed its accounting
presentation to extract imputed brokerage commissions from its expense
ratio in order to make it easier to compare the Fund to other funds which
do not have a similar fee structure. Based upon the imputed brokerage
commission calculation, the average commission rate per share paid for the
last three years ended December 31 was: $.0658 in 1998, $.0845 in 1997,
and $.0845 in 1996.
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<PAGE>
[back cover]
Statement of Additional Information. The Statement of Additional Information
provides a more complete discussion about the Fund and is incorporated by
reference into this prospectus, which means that it is considered a part of this
prospectus.
Annual, Semi-Annual and Quarterly Reports. The annual, semi-annual and quarterly
reports to shareholders contain additional information about the Fund's
investments, including a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
To Review or Obtain this Information. You may call (800) 243-5808 or (203)
622-6400 to (i) obtain a free copy of the Statement of Additional Information,
(ii) obtain a free copy of the annual and semi-annual reports, (iii) request
other information about the Fund, or (iv) make any other inquiries about the
Fund. This information may be reviewed and copied at the Public Reference Room
of the Securities and Exchange Commission in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling (800)
SEC-0330. Copies of this information may also be obtained for a fee by writing
the Public Reference Room of the Securities and Exchange Commission, Washington,
D.C. 20549-6009. Information about the Fund is also available on SEC's World
Wide Web site at http://www.sec.gov.
The Fund's registration number under the Investment Company Act of 1940 is
811-03115.
Investment Adviser
Gintel Asset Management, Inc.
6 Greenwich Office Park
Greenwich, CT 06831
Shareholder Servicing Agent
Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
1-800-344-3092
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<PAGE>
Statement of Additional Information
May 5, 1999
GINTEL FUND
This Statement of Additional Information ("SAI") is not a prospectus.
It should be read in conjunction with Gintel Fund's current Prospectus (the
"Prospectus"), which is dated May 5, 1999. This SAI is incorporated by reference
in its entirety into the Prospectus. A copy of the Prospectus may be obtained by
writing Gintel Asset Management, Inc. (the "Investment Adviser") at 6 Greenwich
Office Park, Greenwich, CT 06831 or calling (800) 243-5808 or (203) 622-6400.
TABLE OF CONTENTS
Page
----
General Information........................................................... 2
Investment Objective, Policies and Risks...................................... 2
Investment Restrictions....................................................... 3
Management.................................................................... 5
Investment Adviser and Investment Advisory Agreement.......................... 8
Code of Ethics................................................................ 9
Administrative Services Agreement............................................. 9
Portfolio Transactions and Brokerage..........................................11
Allocation of Investments.....................................................12
Computation of Net Asset Value................................................12
Tax Matters...................................................................13
Performance Information.......................................................19
Shareholder Reports...........................................................19
Financial Statements..........................................................20
Organization and Description of Shares of the Fund............................20
Custodian, Transfer Agent and Dividend Paying Agent...........................20
Counsel and Auditors..........................................................21
<PAGE>
GENERAL INFORMATION
Gintel Fund (the "Fund") is an open-end, non-diversified management
investment company. Much of the information contained in this SAI expands on
subjects discussed in the Prospectus. No investment in shares of the Fund should
be made without first reading the Prospectus.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The following information supplements, and should be read in
conjunction with, the section in the Prospectus entitled "Investment Objective,
Principal Strategies and Related Risks."
Investment Objective and Policies
The Fund's investment objective is capital appreciation. The Fund will
invest primarily in equity securities (common stocks or securities convertible
into common stock of U.S. companies). The Fund may invest in all types of debt
securities, in any proportion, including debt obligations of the U.S. Treasury,
its agencies and instrumentalities, bonds, notes, mortgage securities,
government and government agency obligations, zero coupon securities,
convertible securities, commercial paper and repurchase agreements. The Fund may
also invest up to 20% of its total assets in foreign securities, but has no
current intention to do so.
Risks of Investing in Foreign Securities
The following risks apply to the Fund to the extent the Fund invests in
foreign securities.
Currency Risk. The net asset value of the Fund may be adversely affected by a
change in the exchange rate between the U.S. Dollar and the currencies in which
the Fund's securities are denominated.
Stock Exchange and Market Risk. Foreign stock exchanges generally have less
volume than U.S. stock exchanges. Therefore, it may be more difficult to buy or
sell shares of foreign securities, which increases the volatility of share
prices on such markets.
Legal System and Regulation Risk. Foreign countries have different legal systems
and different regulations concerning financial disclosure, accounting and
auditing standards. Corporate financial information that would be disclosed
under U.S. law may not be available. Foreign accounting and auditing standards
may render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards. Additionally, government
oversight of foreign stock exchanges and brokerage industries may be less
stringent than in the U.S.
Expropriation Risk. Certain foreign governments may expropriate the Fund's
investments either directly by restricting the Fund's ability to sell a security
or by imposing exchange controls that restrict the sale of a currency or
indirectly by taxing the Fund's investments at such high levels as to constitute
confiscation of the security.
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<PAGE>
Risks of Investing in Debt Securities
The following risks apply to the Fund to the extent the Fund invests in
debt securities.
Interest Rate Risk. The value of a debt security changes in the opposite
direction from a change in interest rates. Accordingly, the value of a debt
security typically declines when interest rates rise. In general, debt
securities with longer maturities are more sensitive to changes in interest
rates.
Credit Risk. The issuer of a debt security may be unable to make timely payments
of principal or interest, or may default on the debt.
Unlike the investment objective and the investment restrictions set forth
below (see "Investment Restrictions"), which may not be changed without
shareholder approval, the Fund has the right to modify the investment policies
described above (not including the Fund's investment objective) without
shareholder approval. However, the Fund does not presently contemplate making
any such modifications.
Risks of Leveraging
The Fund may borrow money to purchase additional securities. Such borrowings are
limited so that immediately after the value of assets (including borrowings)
less liabilities (not including borrowings) is at least three times the amount
of the borrowings. Should the Fund, for any reason, have borrowings that do not
meet the above test then, within three business days, the Fund must reduce such
borrowings so as to meet the necessary test. Under such a circumstance, the Fund
may have to liquidate portfolio securities at a time when it is disadvantageous
to do so. Gains made with additional funds borrowed will generally cause the net
asset value of the Fund's shares to rise faster than could be the case without
borrowings. Conversely, if investment results fail to cover the cost of
borrowings, the net asset value of the Fund could decrease faster than if there
had been no borrowings.
INVESTMENT RESTRICTIONS
The Fund has the following restrictions:
(1) with respect to 50% of its assets, the Fund may
not invest more than 5% of its total assets, at market value, in the
securities of one issuer (except the securities of the United States
Government) and may not purchase 10% of the outstanding voting
securities of a single issuer.
(2) with respect to the other 50% of its assets, the
Fund may not invest more than 25% of the market value of its total
assets in a single issuer.
These two restrictions, hypothetically, could give rise to a portfolio
with as few as twelve issuers. To the extent that the Fund's assets are
invested in a smaller number of issuers,
- 3 -
<PAGE>
there may be a greater risk in an investment in the Fund than in a
diversified investment company.
In addition, the Fund will not:
(1) borrow money except that the Fund may, from time
to time, borrow money to the maximum extent permitted by the Investment Company
Act of 1940, as amended (the "1940 Act") from banks at prevailing interest rates
and invest the funds in additional securities. The Fund's borrowings are limited
so that immediately after such borrowings the value of assets (including
borrowings) less liabilities (not including borrowings) is at least three times
the amount of the borrowings.
(2) make loans of money or securities other than (i)
through the purchase of securities in accordance with the Fund's investment
objectives, and (ii) by lending portfolio securities in an amount not to exceed
10% of the Fund's total assets.
(3) buy or sell commodities or commodity futures
contracts.
(4) underwrite securities.
(5) make short sales, except short sales made
"against the box" to defer recognition of taxable gains or losses and
in special arbitrage situations.
(6) invest for the purpose of exercising control or
management.
(7) invest more than 5% of its total assets in the
securities of other investment companies or purchase more than 3% of
any other investment company's securities./1/
(8) invest in restricted securities (securities that
must be registered under the Securities Act of 1933, as amended, before they may
be offered and sold to the public).
(9) participate in a joint investment account.
(10) issue senior securities.
(11) concentrate 25% or more of its investments in a
particular industry.
These investment restrictions may not be changed without approval by a
vote of a majority of the Fund's outstanding voting securities. Under the 1940
Act, such approval requires
- ------------------
/1/ To the extent the Fund invests in other investment companies, duplicate
fees may be incurred.
- 4 -
<PAGE>
the affirmative vote, at a meeting of shareholders of the lesser of (a) more
than 50% of the Fund's outstanding shares, or (b) at least 67% of shares present
or represented at the meeting, provided that the holders of more than 50% of the
Fund's outstanding shares are present in person or represented by proxy.
Except for the restrictions relating to borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of investment,
a later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
While not fundamental policies, the Fund undertakes to comply with the
following investment restrictions:
(a) investments which are not readily marketable are limited
to 15% of the Fund's average net assets at the time of purchase;
(b) the Fund may not purchase securities on margin;
(c) the Fund may loan portfolio securities if collateral
values are continuously maintained at no less than 100% by "marking to market"
daily and the practice is fair, just and equitable as determined by a finding
that adequate provision has been made for margin calls, termination of the loan,
reasonable servicing fees (including finder's fees), voting rights and dividend
rights; and
(d) the Fund will not purchase or sell real property
(including limited partnership interests, but excluding readily marketable
interests in real estate investment trusts or readily marketable securities of
companies which invest in real estate).
MANAGEMENT
Responsibility for management of the Fund is vested in the Board of
Trustees. The Board approves all significant agreements between the Fund and all
persons or companies that furnish services to the Fund, including the Investment
Advisory Agreement and Administrative Services Agreement. The Trustees elect the
Officers of the Fund to supervise actively the day to day operations of the
Fund. The Trustees and Officers of the Fund and their principal occupations for
the past five years are listed below. Unless otherwise indicated the address of
each Trustee and Executive Officer is 6 Greenwich Office Park, Greenwich, CT
06831:
- 5 -
<PAGE>
Trustees and Officers
<TABLE>
<CAPTION>
Name, Address and Age Position Principal Occupation
--------------------- -------- --------------------
<S> <C> <C>
Robert M. Gintel (71)* Chairman of the Board, Chief Chairman and Chief Executive Officer of
Executive Officer, and Trustee Gintel Asset Management, Inc. since
1971; Senior Partner of Gintel & Co.
Limited Partnership, a member firm of
the New York Stock Exchange, Inc. and
an associate member firm of the
American Stock Exchange, Inc. since
June 1969; Chairman of the Board, Chief
Executive Officer and Trustee of the
Fund since November 1980.
Thomas H. Lenagh (79) Trustee Financial Consultant; formerly Chairman
13 Allen's Corner Road and Trustee, Chief Executive Officer of
Flemington, NJ 08822 Greiner Engineering Co. (consulting
engineers); financial advisor to various
institutions since January 1980; special
advisor to the Aspen Institute (research
institute) from September 1979 until
September 1980 and Financial Vice
President of the Aspen Institute from
September 1978 until September 1979;
previously Treasurer and financial advisor
to the Ford Foundation and director of
Cluster B registered investment
companies managed by Merrill Lynch
Asset Management, Inc.; and director of
Adams Express Co. (closed-end
investment company), USLife Corp.
(insurance company), ICN Biomedics,
Inc. (pharmaceutical comany), SCI
Systems, Inc. (computer peripherals),
Irvine Sensors Corp. (infrared sensing
device manufacturer), CML Inc.,
(specialty retailing), Clemente Global
(investment company), and Rexhall, Inc.
(motor home manufacturer); Trustee of
the Fund since December 1980.
- 6 -
<PAGE>
Francis J. Palamara (73) Trustee Business Consultant; previously Director
3110 E. Maryland Avenue and Executive President of ARA Services,
Phoenix, AZ 85064 Inc. (provides various services for
industry, institutions and government);
formerly director and Executive Vice
president of the Pittston Company
(holding company for coal and other
interests); from 1972 until 1978,
Executive Vice President and Chief
Operating Officer of the New York Stock
Exchange, Inc.; director of XTRA
Corporation (intermodal equipment
leasing) and Glenmede Fund (a regulated
investment company); Trustee of the
Fund since January 1981.
Russel R. Taylor (81) Trustee Associate Professor of Management,
31 Indian Point Lane College of New Rochelle, since 1977;
Riverside, CT 06878 founder and Director of Russel Taylor,
Inc. (manufacturer of women's fashion)
since 1963; Trustee of the Fund since
December 1985.
Stephen G. Stavrides (52)* Trustee Director, President and Treasurer of
Gintel Asset Management, Inc.; General
Partner of Gintel & Co. Limited
Partnership; President and Treasurer of
the Fund; previously Corporate
Administrator of Poten & Partners, Inc.
(an energy and ocean transportation
brokerage and consulting firm); from
1972-1980, Vice President of various
groups in the D. K. Ludwig organization
(shipping conglomerate); and Director of
Home Savings in Houston from 1978-
1980; Trustee of the Fund since
December 1981.
Donna K. Grippe (42) Secretary and Secretary and Assistant Treasurer;
Assistant Treasurer previously, Manager of the Fund
Accounting for American Investors
Fund, Inc., American Investors Income
Fund, Inc., and American Investors
Money Market Fund, Inc.
</TABLE>
- --------------------
*Interested person as defined in the 1940 Act.
On February 28, 1999, Robert M. Gintel and his family, Trustees of the
Fund and employees of the Investment Adviser and Gintel & Co. owned directly or
beneficially 2,240,441 shares with a market value of $40,808,639 representing
27.9% of the Fund's outstanding shares.
- 7 -
<PAGE>
As of February 28, 1999, Trustees and Officers as a group beneficially
owned 1,723,831 shares of the Fund's common stock which represented 19.9% of the
Fund's outstanding shares.
Remuneration of Trustees
Each Trustee who is not an "interested person" of the Fund receives an
annual fee of $16,500 plus expenses from the Fund for each meeting of the Board
and of shareholders which he attends. The Chairman of the Audit Committee
receives an additional annual fee of $2,500.
Set forth below is information regarding compensation paid the period
from January 1, 1998 through December 31, 1998:
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Estimated
Compensation Accrued Annual Total
from as Part of Benefits Compensation
Gintel Fund Upon from
Name and Position Fund Expenses Retirement Gintel Fund
----------------- ---- -------- ---------- -----------
<S> <C> <C> <C> <C>
Robert M. Gintel (Trustee, Chairman & -0- $ 0 $ 0 -0-
C.E.O.)
Thomas H. Lenagh (Trustee) $16,500 $ 0 $ 0 $16,500
Francis J. Palamara (Trustee & Chairman $19,000 $ 0 $ 0 $19,000
of Audit Committee)
Stephen G. Stavrides (Trustee & President) -0- $ 0 $ 0 -0-
Russel R. Taylor (Trustee) $16,500 $ 0 $ 0 $16,500
</TABLE>
INVESTMENT ADVISER AND
INVESTMENT ADVISORY AGREEMENT
The Fund and Gintel Asset Management, Inc. (the "Investment Adviser")
entered into an investment advisory agreement (the "Advisory Agreement") on
September 6, 1986. Robert M. Gintel owns all the outstanding shares of the
Investment Adviser.
Under the Advisory Agreement, the Fund pays all of its expenses,
including the costs incurred in connection with its maintenance of its
registration under the Securities Act of 1933, as amended, and the 1940 Act,
printing and mailing prospectuses to shareholders, transfer taxes on the sales
of portfolio securities, brokerage commissions, custodial and shareholder
transfer charges, legal and auditing expenses, preparation of shareholder
reports, trustees' fees and expenses, and expenses of trustee and shareholder
meetings.
The Advisory Agreement may be terminated without penalty on 60 days'
written notice by a vote of the majority of the Fund's Board of Trustees or by
the Investment Adviser, or by holders or a majority of the Fund's outstanding
shares. The Advisory Agreement was initially
- 8 -
<PAGE>
approved by the Fund's Board of Trustees on September 6, 1986 including the
affirmative vote of a majority of the trustees who were not parties to the
Advisory Agreement nor interested persons of any such party, and by the sole
shareholder of the Fund on September 6, 1986. The Advisory Agreement continues
from year-to-year provided it is approved at least annually, in the manner
stipulated in the 1940 Act. This requires that the Advisory Agreement and any
renewal be approved by a vote of the majority of the Fund's Trustees who are not
parties thereto or interested persons of any such party, cast in person at a
meeting specifically called for the purpose of voting on such approval.
For the fiscal years ended December 31, 1998, 1997 and 1996, the Fund
paid fees to the Investment Adviser of $1,625,557, $1,616,405 and $1,147,450,
respectively.
CODE OF ETHICS
The Codes of Ethics of the Fund and the Investment Adviser prohibit all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of the Fund's planned portfolio
transactions. The objective of the Codes of Ethics of both the Investment
Adviser and the Fund is that their operations are not to the detriment of the
Fund's shareholders. Both organizations maintain careful monitoring of
compliance with the Codes of Ethics.
ADMINISTRATIVE SERVICES AGREEMENT
The Administrative Services Agreement (the "Services Agreement") dated
August 24, 1992, provides that in consideration for the services to be provided
by Gintel & Co. (the "Distributor") and the payment by the Distributor of
substantially all of the Fund's expenses currently paid by the Fund directly
(except the Investment Adviser's fees, the fees paid to the disinterested
Trustees, certain transaction costs and expenses, interest, taxes and
extraordinary expenses) the Distributor will receive a fee calculated daily and
paid monthly in arrears based on average daily net assets during the preceding
month at an annual rate of 1.25% of the first $50 million of the average daily
net assets of the Fund; 1.125% of next $50 million of average daily net assets;
and 1.0% of the average daily net assets in excess of $100 million. The Fund's
administrative services fee is higher than that of most other funds which have
an administrator; however, most other funds bear certain of their own expenses
that will be borne by the Distributor on behalf of the Fund.
The Services Agreement also permits the Distributor, at its sole
discretion, to use a portion of its fee, in an amount not to exceed 0.25% of the
Fund's average daily net assets, to compensate itself as well as certain other
registered broker-dealers or financial institutions for certain shareholder
servicing activities. Therefore, the Services Agreement provides that the
Distributor may, from time to time, pay a shareholder servicing fee to certain
registered brokers, including itself for services provided in connection with
the processing of orders for purchase or redemption of the Fund's shares and
certain other persons or entities for furnishing services to specific
shareholder accounts. In addition, the Distributor may use income from sources
other than its fee to compensate persons for distribution and shareholder
servicing or to pay for other distribution-related expenses.
- 9 -
<PAGE>
Pursuant to the terms of the Services Agreement, the Distributor will
furnish, without cost to the Fund, offices and office services for the Fund, the
services of the President, Secretary, Treasurer and one or more Vice Presidents
of the Fund, and such other personnel and facilities as are required for the
proper conduct of the Fund's affairs and to carry out their obligations under
the Services Agreement. In addition, the Distributor shall be responsible for
all brokerage commissions in connection with the purchase or sale of the Fund's
portfolio securities (excluding applicable transaction costs such as Securities
and Exchange Commission fees, exchange fees and certain sales and transfer taxes
which will be paid by the Fund). However, brokerage commissions paid on trades
executed through non-affiliated brokers will continue to be paid by the Fund and
reimbursed by the Distributor. The Distributor or the Investment Adviser will
pay for all expenses incurred regarding the printing and distribution of
prospectuses and any other promotional or sales literature used by the
Distributor or the Investment Adviser or furnished by the Distributor or the
Investment Adviser to purchasers in connection with the public offering of the
Fund's shares, the expenses of advertising in connection with such public
offering and legal expenses in connection with the foregoing.
Except as set forth below, the Distributor shall pay all expenses of
the Fund, including, without limitations: the charges and expenses of any
registrar, custodian, sub-custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and any stock
transfer, dividend or accounting agent or agents appointed by the Fund; all fees
payable by the Fund to federal, state or other governmental agencies; the costs
and expenses of engraving or printing stock certificates, if any, representing
shares of the Fund; all costs and expenses in connection with the registration
and maintenance of registration of the Fund and its shares with the Securities
and Exchange Commission and various states and other jurisdictions (including
filing and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders and to potential shareholders of the Fund; all expenses of
shareholders' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; all expenses incident to the payment of
any dividend, distribution, withdrawal or redemption, whether in shares or in
cash; charges and expenses of any outside service used for pricing of the Fund's
shares; routine fees and expenses of legal counsel and of independent
accountants, in connection with any matter relating to the Fund; postage;
insurance premiums on property or personnel (including officers and trustees) of
the Fund which inure to its benefit; and all other charges and costs of the
Fund's operations unless otherwise explicitly assumed by the Fund. The Fund is
responsible for the payment of the following expenses not borne by the
Distributor: (i) the investment advisory fees paid to the Investment Adviser
pursuant to the Advisory Agreement with the Fund, (ii) the fees of the Trustees
who are not "interested persons" of the Fund, as defined by the 1940 Act, and
travel and related expenses of trustees for attendance at trustee and
shareholder meetings, (iii) certain transaction costs and expenses such as
regulatory agency fees and certain sales and transfer taxes, (iv) interest, (v)
taxes and (vi) extraordinary expenses, if any, including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto. Expenses which are attributable to the Fund are charged against
the income of the Fund in determining net income for dividend purposes.
- 10 -
<PAGE>
For the fiscal years ended December 31, 1998, 1997 and 1996, the Fund
paid fees to the Distributor of $1,813,057, $1,803,905 and $1,318,188,
respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Board of Trustees, decisions to buy
and sell securities for the Fund are made by the Investment Adviser. The Board
of Trustees has authorized the Fund to use Gintel & Co. Limited Partnership
("Gintel & Co."), on an agency basis, to supervise and to effect a substantial
amount of the portfolio transactions which are executed on the New York and
American Stock Exchanges, Foreign or Regional Exchanges where relevant, or which
are traded in the over-the-counter market. All such transactions will be subject
to the maximum discount which is presently extended by Gintel & Co. to other
unaffiliated accounts of the Investment Adviser. Under the Services Agreement
described above, brokerage commissions are paid by Gintel & Co. out of the fee
it receives under such agreement.
Although the Fund does not directly pay brokerage commissions, it may
be considered to be paying commissions and therefore the Board of Trustees has
adopted certain procedures incorporating the standard of Rule 17e-1 of the 1940
Act. This Rule requires that the commissions paid must be "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time." The Rule and the procedures also
contain review requirements and require the Investment Adviser to furnish
reports to the Trustees and to maintain records in connection with such reviews.
The Investment Adviser is further authorized to allocate the orders
placed by it on behalf of the Fund to such unaffiliated brokers who also provide
research or statistical material, or other services to the Fund or the
Investment Adviser for the Fund's use. Such allocation shall be in such amounts
and proportions as the Investment Adviser shall determine and the Investment
Adviser will report on said allocations regularly to the Board of Trustees
indicating the unaffiliated brokers to whom such allocations have been made and
the basis therefor. In addition, the Investment Adviser may consider sale of
shares of the Fund as a factor in the selection of unaffiliated brokers to
execute portfolio transactions for the Fund, subject to the requirements of best
net price and most favorable execution.
In selecting a broker to execute each particular transaction, the
Investment Adviser will take the following into consideration: the best net
price available; the reliability, integrity and financial condition of the
broker; the size and difficulty in executing the order; and the value of the
expected contribution of the broker to the investment performance of the Fund on
a continuing basis. Accordingly, the cost of the brokerage commissions on a
transaction for the Fund may be greater than that available from other brokers
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies and procedures as the Board
of Trustees may determine, the Investment Adviser shall not be deemed to have
acted unlawfully or to have breached any duty solely by reason of its having
caused an unaffiliated broker that provides research services to the Investment
Adviser for the Fund's use to be paid an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if
- 11 -
<PAGE>
the Investment Adviser determines in good faith that such amount of commission
was reasonable in relation to the value of the research service provided by such
broker viewed in terms of either that particular transaction or the Investment
Adviser's ongoing responsibilities with respect to the Fund. Under the Services
Agreement, however, the Distributor and not the Fund pays all brokerage
commissions on securities transactions.
ALLOCATION OF INVESTMENTS
The Investment Adviser has other advisory clients which include
investment companies and individuals, trusts, pension and profit sharing funds,
some of which have similar investment objectives to the Fund. As such, there
will be times when the Investment Adviser may recommend purchases and/or sales
of the same portfolio securities for the Fund and its other clients. In such
circumstances, it will be the policy of the Investment Adviser to allocate
purchases and sales among the Fund and its other clients in a manner which the
Investment Adviser deems equitable, taking into consideration such factors as
size of account, concentration of holdings, investment objectives, tax status,
cash availability, purchase cost, holding period and other pertinent factors
relative to each account. Simultaneous transactions could adversely affect the
ability of the Fund to obtain or dispose of the full amount of a security which
it seeks to purchase or sell or the price at which such security can be
purchased or sold.
COMPUTATION OF NET ASSET VALUE
The Fund determines the net asset value of its shares at the close of
the New York Stock Exchange (the "Exchange"), currently 4 p.m., on each day that
the Exchange is open for business and on such other days as there is sufficient
trading in the Fund's securities to affect materially its net asset value per
share except for New Year's Day, Dr. Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. Subscriptions to purchase shares of the Fund received prior to the
close of trading on the Exchange, currently 4 p.m., are confirmed at the net
asset value determined that day or on the business day next succeeding the date
of receipt, if such orders are received after the close of trading. The net
asset value per share is determined by dividing the market value of the Fund's
securities as of the close of trading plus any cash or other assets (including
dividends and accrued interest receivable) less all liabilities (including
accrued expenses), by the number of shares outstanding. Portfolio securities are
valued at the last sale price on the securities exchange or national securities
market on which such securities primarily are traded. Securities not listed on
an exchange or national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked prices.
Any securities or other assets for which recent market quotations are not
readily available are valued at fair value as determined in good faith by the
Board of Trustees. Short-term obligations are valued at amortized costs.
Expenses and fees, including the management fee, are accrued daily and taken
into account for the purpose of determining the net asset value of the Fund
shares.
Generally, trading in non-U.S. securities, as well as corporate bonds,
U.S. government securities, money market instruments and repurchase agreements,
is substantially completed each day at various times prior to the close of the
Exchange. The values of such securities used in computing the net asset value of
the shares of the Fund are determined as of such times. Foreign
- 12 -
<PAGE>
currency exchange rates are also generally determined prior to the close of the
Exchange. Occasionally, events affecting the value of securities and such
exchange rates may occur between the times at which they are determined and the
close of the Exchange, which will not be reflected in the computation of net
asset value. If during such periods events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined in good faith by the trustees.
For purposes of determining the net asset value per share of the Fund
all assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the mean between the bid and offer prices of such
currencies against U.S. dollars quoted by any major bank.
TAX MATTERS
The following is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
Qualification as Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company for
federal income tax purposes under subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, the Fund is
not subject to federal income tax on the portion of its net investment income
(i.e., taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income (i.e., the excess of capital gains over
capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year (the "Distribution Requirement"),
and satisfies certain other requirements of the Code that are described below.
Distributions by the Fund may during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and will
therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) 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 regulated
investment company'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 general, gain or loss recognized by the Fund on the disposition of
an asset will be capital gain or loss. In addition, gain will be recognized as a
result of certain constructive sales, including short sales "against the box."
However, gain recognized on the disposition of a debt
- 13 -
<PAGE>
obligation (other than a municipal obligation) purchased by the Fund at a market
discount (generally, at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of the Code Section 988, gain or loss recognized on
the disposition of a debt obligation denominated in a foreign currency or an
option with respect thereto (but only to the extent attributable to changes in
foreign currency exchange rates), and gain or loss recognized on the disposition
of a foreign currency forward contract, futures contract, option or similar
financial instrument, or of foreign currency itself, except for regulated
futures contracts or non-equity options subject to Code Section 1256 (unless the
Fund elects otherwise), will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short-sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which
term generally excludes a situation where the asset is stock and the Fund grants
a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto or (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
- 14 -
<PAGE>
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the
dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company 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 (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purpose, a regulated investment company is treated as having
distributed any amount of which it is subject to income tax for any taxable year
ending in such a calendar year.
For purposes of this excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding 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 the 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 investment
company taxable 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 deductions
for corporations 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. Net capital gain that is distributed and designated as a capital
gain dividend 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. The Code provides, however, that under certain conditions
only 50% (58% for alternative
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minimum tax purposes) of the capital gain recognized upon the Fund's disposition
of domestic "small business" stock will be subject to tax.
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 corporations (other than corporations, such as "S" corporations, which are
not eligible for the deduction because of their special characteristics and
other than for purposes of special taxes such as the accumulated earnings tax
and the personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend (1)
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),
excluding for this purpose, under the rules of Code Section 246(c)(3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) 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 (3) to the
extent the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (i) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
share of the Fund or (ii) by application of Code Section 246(b) which in general
limits the dividends-received deduction to 70% of the shareholder's taxable
income (determined without regard to the dividends-received deduction and
certain other items).
Alternative minimum tax ("AMT"), imposed in addition to, but only to
the extent it exceeds, the regular tax, is computed at a maximum marginal rate
of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess
of the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. For purposes of the corporate 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 corporation's AMTI.
However, a corporate shareholder 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,
which are used in computing an additional corporate preference item (i.e., 75%
of the excess of a corporate taxpayer's adjusted current earnings over
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<PAGE>
its AMTI (determined without regard to this item and the AMT net operating loss
deduction) includable in AMTI.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
may entitle the Fund to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known.
Distributions by the Fund which 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 shares;
any excess will be treated as gain from the sale of his 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 (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. 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 a calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has failed
to provide a correct taxpayer identification number, (2) who is subject to
backup withholding for failure properly to report the receipt of interest or
dividend income properly, or (3) who has failed to certify to the Fund that it
is not subject to backup withholding or that it is an "exempt recipient" (such
as a corporation).
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the 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
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<PAGE>
the sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of the Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. Long-term capital gain recognized by an
individual shareholder will be taxed at the lowest rates applicable to capital
gains if the holder has held such shares for more than 18 months at the time of
the sale. However, any capital loss arising from the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holdings period rules of Code Section 246(c)(3)
and (4) generally will apply in determining the holding period of shares.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnerships ("foreign shareholder") depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower applicable treaty rate) upon the gross amount of the
dividend. Such a foreign shareholder would generally be exempt from U.S. federal
income tax on gains realized on the sale of shares of the Fund, 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 U.S. 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 U.S. federal income tax at the rates applicable to U.S.
citizens or corporations.
In the case of foreign noncorporate shareholders, other than
corporations, the Fund may be required to withhold U.S. 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.
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<PAGE>
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this SAI. 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.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies may differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investment in the Fund.
PERFORMANCE INFORMATION
For the purposes of quoting and comparing the performance of the Fund
to that of other mutual funds and to stock or other relevant indices in
advertisements or in reports to shareholders, performance will be stated in
terms of total return, rather than in terms of yield. Under the rules of the
Securities and Exchange Commission, funds advertising performance must include
total return quotes calculated 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 (1, 5 or 10)
ERV = Ending Redeemable Value of a hypothetical
$1,000 payment made at the beginning of
the 1, 5 or 10 year periods at the end of
the 1, 5, 10 year periods (or fractional
portion thereof).
Under the foregoing formula the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one, five, and ten year periods or a shorter period dating from the
effectiveness of the Fund's registration statement. Total return, or "T" in the
formula above, is computed by finding the average annual compounded rates of
return over the 1, 5 and 10 year periods (or fractional portion thereof) that
would equate the initial amount invested to the Ending Redeemable Value.
SHAREHOLDER REPORTS
Shareholders will receive reports at least semi-annually showing the
Fund's holdings and other information. In addition, shareholders will receive
annual financial statements audited by Richard A. Eisner & Company, LLP, the
Fund's independent auditors.
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<PAGE>
FINANCIAL STATEMENTS
The Financial Statements for the year ended December 31, 1998, are
hereby incorporated by reference from the Fund's 1998 Annual Report to
Shareholders.
ORGANIZATION AND DESCRIPTION OF SHARES OF THE FUND
On September 6, 1986, the Fund reorganized as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts and filed its
Declaration of Trust on July 29, 1986. Under the terms of the Massachusetts
General Corporation Law, the Fund may indemnify any person who was or is a
trustee, officer or employee of the Fund to the maximum extent permitted by the
Massachusetts General Corporation Law; provided, however, that any such
indemnification (unless ordered by a court) shall be made by the Fund only as
authorized in the specific case upon a determination that indemnification of
such persons is proper in the circumstances. Such determination shall be made
(i) by the Board of Trustees, by a majority vote of a quorum which consists of
trustees who are neither "interested persons" of the Fund as defined in Section
2(a)(19) of the 1940 Act, nor parties to the proceeding, or (ii) if the required
quorum is not obtainable or if a quorum of such trustees so directs by
independent legal counsel in a written opinion. No indemnification will be
provided by the Fund to any trustee or officer of the Fund for any liability to
the Fund or its shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Trustees are permitted to issue an unlimited number of shares of
beneficial interest in the Fund in an unlimited number of series of shares. Each
share has one vote and shares equally in dividends and distributions when and if
declared by the Fund and in the Fund's net assets upon liquidation. All shares,
declared by the Fund and in the Fund's net assets upon liquidation. All shares,
when issued, are fully paid and nonassessable. There are no preemptive,
conversion or exchange rights. Shares of the Fund do not have cumulative voting
rights and, as such, holders of at least 50% of the shares voting for trustees
can elect all trustees and the remaining shareholders would not be able to elect
any trustees. The Board of Trustees may classify or reclassify any unissued
shares of the Fund into shares of any series by setting or changing in any one
or more respects, from time to time, prior to the issuance of such shares, the
preference, conversion or other rights, voting powers, restrictions, limitations
as to dividends, or qualifications of such shares. Any such classification or
reclassification will comply with the provisions of the 1940 Act.
There will not normally be annual shareholder's meetings. The trustees
will promptly call a shareholder's meeting to remove a trustee(s) when requested
to do so in writing by record holders of not less than 10% of the Fund's
outstanding shares.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT
The transfer agent and dividend paying agent of the Fund is Chase
Global Funds Services Company, P.O. Box 2798, Boston, MA 02208-2798, and the
custodian for all cash and securities of the Fund is Chase Manhattan Bank, N.A.,
3 Chase MetroTech Center, Brooklyn, New York 11245.
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COUNSEL AND AUDITORS
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New
York 10022 is counsel to the Fund. Richard A. Eisner & Company, LLP, 575 Madison
Avenue, New York, New York 10022 has been appointed independent auditors for the
Fund. These firms provide similar services to the Investment Adviser and Gintel
& Co.
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