<PAGE> 1
As filed with the Securities and Exchange Commission on October 9, 1998
File No. 2-76762
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 22
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
American Diversified Funds, Inc.
(formerly Rea-Graham Funds, Inc.)
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(Exact Name of Registrant as Specified in Charter)
12100 Wilshire Boulevard
Los Angeles, California 90025
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (310) 442-2660
James Buchanan Rea, Jr.
President
12100 Wilshire Boulevard
Los Angeles, California 90025
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[ ] on _____________ pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1)
[X] 75 days after filing pursuant to Rule 485(a)(2)
[ ] on ______________ pursuant to Rule 485(a)
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Please Send Copy of Communications to:
ROY W. ADAMS, JR., ESQ.
1024 Country Club Drive, Suite 135
Moraga, California 94556
(925) 631-0222
(925) 631-0999 (fax)
[email protected]
<PAGE> 2
CONTENTS OF REGISTRATION STATEMENT
This registration statement contains the following documents:
Facing Sheet
Contents of Registration Statement
Cross-Reference Sheet for Prospectus and Statement of Additional
Information of American Diversified International
Value Fund
Part A - Prospectus for American Diversified International
Value Fund
Part B - Statement of Additional Information for American
Diversified International Value Fund
Part C - Other Information
Signature Page
Exhibits
This Amendment does not relate to the prospectuses or statements of additional
information for American Diversified Global Value Fund.
<PAGE> 3
AMERICAN DIVERSIFIED FUNDS, INC.
AMERICAN DIVERSIFIED INTERNATIONAL VALUE FUND
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO. CAPTION
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PART A
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<S> <C>
1 Cover Page
2 Fee Data
3 Not Applicable
4 The Fund
5 Management of the Fund
5A Performance Information
6 Description of Shares
7 Purchase of Shares
8 Redemption and Repurchase of Shares
9 Not Applicable
PART B
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10 Cover Page
11 Table of Contents
12 General Information and History
13 Investment Objectives and Policies
14 Management of the Fund
15 Principal Shareholders
16 Investment Advisory and Other Services
17 Brokerage Allocation
18 Description of Shares, Part A
19 Purchase, Redemption and Pricing of
Shares
20 Tax Status
21 Principal Underwriter
22 Not Applicable
23 Financial Statements
</TABLE>
<PAGE> 4
PROSPECTUS
DECEMBER __, 1998
AMERICAN DIVERSIFIED
INTERNATIONAL VALUE FUND
12100 WILSHIRE BOULEVARD, SUITE 680, LOS ANGELES, CALIFORNIA 90025
(800) 433-1998, (310) 442-2660
HTTP://WWW.ADFUNDS.COM
American Diversified International Value Fund (the "Fund") is a
separate series of shares of American Diversified Funds, Inc. (the "Company"),
an open-end diversified investment company. The Fund seeks as its investment
objective long-term capital appreciation. The Fund's investment strategies are
based on principles of Benjamin Graham, as interpreted and applied by the Fund's
subadviser, Ladas & Hulings, Inc. (the "Subadviser").
American Diversified Asset Management, Inc. ("ADAM" or the "Adviser")
is the Fund's investment adviser and oversees the investment activities of the
Subadviser. The Subadviser is responsible for the primary day-to-day portfolio
investment management decision making process, for furnishing continuous
investment supervision to the Fund and for management of the Fund's portfolio.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. A Statement of Additional
Information dated December __, 1998, as may be revised, has been filed with the
Securities and Exchange Commission, is incorporated in its entirety by reference
in and made a part of this Prospectus, and is available without charge upon
request to ADAM at the address above. The Securities and Exchange Commission
maintains an Internet website, (http://www.sec.gov), that contains the Statement
of Additional Information material that is incorporated by reference and other
information about the Fund.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, CREDIT UNION, OR AFFILIATED ENTITY, AND ARE NOT FEDERALLY
INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT
RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
<PAGE> 5
FEE DATA
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of public offering price)......... 4.75%
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of average net assets)
Management Fees (after reimbursement)............................................. 0.00%
Rule 12b-1 Fees................................................................... 0.35%
Other Expenses (after reimbursement).............................................. 1.53%
Total Fund Operating Expenses (after reimbursement)............................... 1.88%
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</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period (after reimbursement)............. $ 66 $104 $144 $257
</TABLE>
* The Adviser has agreed voluntarily to limit the Fund's expenses to
1.88% until March 31, 2000. In the absence of the expense reimbursement
management fees, the Adviser estimates that other expenses, and total fund
operating expenses would be 1.00%, 1.78% and 3.13% respectively.
The table above is provided for purposes of assisting current and
prospective shareholders in understanding the various costs and expenses that an
investment in the Fund will bear, directly or indirectly. The Example should not
be considered a representation of past or future expenses, and actual expenses
may be greater or lesser than those shown. The hypothetical annual return of 5%
is used for illustrative purposes only and should not be interpreted as an
estimate that the Fund's annual return will equal that figure, for there can be
no guarantee of the Fund's future performance. For a more detailed discussion of
the Fund's fees and expenses, see the discussion under "Management of the Fund"
below and under "Investment Advisory and Other Services" in the Statement of
Additional Information.
Under rules of the National Association of Securities Dealers, Inc.
(the "NASD"), a Rule 12b-1 fee may be treated as a sales charge for certain
purposes under those rules. Because the Rule 12b-1 fee is an annual fee charged
against the assets of the Fund, long-term shareholders may indirectly pay an
amount that is more than the economic equivalent of the maximum front-end sales
charge permitted by rules of the NASD. See "Management of the Fund-Distribution
Services" below.
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<PAGE> 6
THE FUND
American Diversified International Value Fund is a separate diversified
series of American Diversified Funds, Inc., an open-end investment company
incorporated in Maryland and registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund is intended for long-term investors
who wish to participate in a diversified portfolio seeking undervalued
investment opportunities internationally and who can accept international
investment risk. The Fund has no previous operating history.
INVESTMENT OBJECTIVE AND STRATEGIES. The Fund's investment objective is
long-term capital appreciation. Under normal market conditions, the Fund seeks
to achieve its objective by investing at least 65% of its total assets in equity
securities of companies in at least three different countries outside the United
States that are included in the Morgan Stanley Capital International Europe,
Australia and Far East Index ("MSCI EAFE Index") plus Canada. The Fund generally
invests the remaining 35% of its total assets in a similar manner but may invest
those assets in equity securities of U.S. companies or in debt securities. See
"Investment Policies" and "Risk Considerations" below and "Investment Objectives
and Policies -- Risk Considerations" in the Statement of Additional Information
for more information.
The Fund's investment strategies are based on the principles of the
late Benjamin Graham, professor of investments at Columbia Business School, as
interpreted and applied by the Fund's subadviser, Ladas & Hulings, Inc. Mr.
Graham was the author of Security Analysis and The Intelligent Investor, widely
recognized texts on the fundamental value analysis of common stocks.
Mr. Graham's principles of "value investing," as applied by the
Subadviser, assume that the current price of a company's securities reflects the
securities markets' current expectations, that changing expectations cause the
securities' price to fluctuate, and that over time the securities' price will
fluctuate around its central tendency of value, its so-called long-term
"fundamental" or "intrinsic" value." The Subadviser therefore generally seeks to
purchase equity securities it believes are priced at a discount to or below
their long-term fundamental value.
The Subadviser's strategies include a dividend-yield test that seeks to
determine the historical trading ranges of companies' securities and to identify
companies whose dividend yields are near their highs for the preceding five to
seven years. In addition, the Subadviser normally reviews historic, absolute and
relative ranges of the traditional value analysis factors seeking one or more of
the following characteristics: above-average dividend yield, low stock price in
relation to book value, low price-to-earnings ratio, low price-to-cash flow
ratio, low price-to-sales ratio, low corporate leverage or high
normalized-earnings power. The Subadviser also endeavors to determine which of
these relationships is relevant to a portfolio company or its industry in
determining over-valuation and under-valuation. Prior to buying a company's
securities, the Subadviser generally looks for a "value catalyst" -- some
fundamental change occurring that might cause the securities markets to
recognize the long-term fundamental value. The Subadviser also seeks to sell a
Fund investment as its market price approaches the Subadviser's estimated
fundamental value and reinvest the proceeds in other securities offering a
greater discount to fundamental value.
INVESTMENT POLICIES. For purposes of the Fund's investment policies,
equity securities include common stock, preferred stock, securities representing
the right to acquire stock (such as convertible
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debentures but excluding options or warrants) and American, European and Global
depository receipts for any of the above. Although the Fund tends to invest in
companies with at least three years of business operations listed on securities
exchanges, it also may invest in newer companies or securities traded
over-the-counter. The Fund may invest without limitation in (U. S. or other)
fixed income obligations, including cash equivalents (such as bankers'
acceptances, certificates of deposit, commercial paper, short-term government
and corporate obligations and repurchase agreements), for temporary defensive
purposes if the Subadviser believes market conditions so warrant and for
liquidity. The Fund may enter into forward foreign currency contracts for the
purpose of hedging against foreign currency risk in connection with the purchase
or sale of foreign securities. Except as otherwise indicated, the Fund's
investment objectives and policies are not fundamental and may be changed
without shareholder votes.
The following investment restrictions, however, are fundamental
investment policies that may not be changed without the affirmative vote of the
holders of the lesser of (i) 67% or more of the Fund's shares present at a
shareholders meeting at which more than 50% of the outstanding shares are
present or represented by proxy, or (ii) more than 50% of the Fund's outstanding
shares: The Fund may not invest more than 5% of its total assets in the
securities of any one issuer, nor may it purchase more than 10% of any class of
securities of any one issuer. The Fund may not invest 25% or more of its total
assets in the stock of companies in the same industry (determined by reference
to MSCI World Industry Classifications). The Fund may borrow money from a bank
for temporary or emergency purposes (but not for investment) in amounts not
exceeding 10% of its total assets and may pledge its assets to secure such
borrowings. In addition, the Fund may invest up to 15% of its total assets in
unlisted foreign securities, including not more than 10% of its total assets in
securities with a limited trading market that, in the opinion of the Subadviser,
are liquid and have readily available market quotations. The Fund also may
invest up to 10% of its assets in the securities of other investment companies,
subject to additional restrictions set forth in the Statement of Additional
Information. Shareholders will receive at least 30 days prior written notice of
any changes in the Fund's investment objectives. If there is a change in
investment objective, shareholders should consider whether investment in the
Fund remains appropriate in light of their then current financial position and
needs. There can be no assurance the Fund's investment objective will be
achieved.
RISK CONSIDERATIONS. There are risks in all investments. Accordingly,
there can be no guarantee against loss from an investment in the Fund, and no
assurance that its investment objectives will be realized. The Fund has an
unlimited right to purchase foreign securities listed on a stock exchange, as
well as a limited right to purchase unlisted foreign securities. Investments in
foreign securities may be subject to the possibility of expropriation,
confiscatory taxation or nationalization and political or social instability or
diplomatic developments. Although such foreign forward currency contracts may
reduce the risk of loss to the Fund due to a decline in the value of the
currency that is sold, they also limit any possible gain that might result
should the value of such currency rise. These and other risk considerations are
described further in the Statement of Additional Information.
PURCHASE OF SHARES
Shares of the Fund may be purchased by mailing a completed application
form, which be found immediately following this Prospectus and a check drawn in
U.S. currency on a U.S. bank payable to "American Diversified International
Value Fund" to the Fund's transfer agent, PFPC Inc. (the "Transfer
4
<PAGE> 8
Agent"), 400 Bellevue Parkway, Suite 108, Wilmington, DE 19809. The investment
will be made at the Offering Price of the shares next computed after the
application and check have been received by the Transfer Agent.
Shares also may be purchased through any securities dealer having a
dealer agreement with the Fund's principal underwriter, American Diversified
Asset Management, Inc. (the "Principal Underwriter"), 12100 Wilshire Boulevard,
Los Angeles, California 90025. Dealers may place wire orders with the Transfer
Agent by calling (800) 348-5032 (9:00 a.m. to 5:00 p.m., Eastern time). The
investment then will be made at the Offering Price of the shares next computed
after the Transfer Agent receives the telephone order in proper form.
Certain financial intermediaries ("Purchase Agents") may establish
omnibus accounts with the Fund for purposes of making investments in the Fund
available to their clients. Purchase Agents do not have a dealer agreement with
the Fund's Principal Underwriter and are not acting as dealers in providing this
service to its customers. Purchase Agents may impose additional or different
conditions on the purchase or redemption of a Fund's shares by their customers
and may charge their customers transaction or other account fees on the purchase
and redemption of a Fund's shares. Each Purchase Agent is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions. Shareholders who are customers of Purchase Agents should consult
their Purchase Agent for information regarding these fees and conditions.
The minimum initial purchase is $1,000 ($200 for an Individual
Retirement Account (IRA) or Bank Draft Investing). Each subsequent purchase
requires a $200 minimum ($25 for an IRA or Bank Draft Investing). The minimum
initial and subsequent purchase amount for 403 (b) (7) plans and 401 (k) plans
sponsored by others is $25. Any subscription may be rejected by the Principal
Underwriter or by the Fund in its sole discretion for any reason or no reason.
The Fund reserves the right not to accept checks for more than $50,000 that are
not certified checks or bank checks.
NET ASSET VALUE. The net asset value of the Fund's shares is computed
as of the close of regular trading on each day the New York Stock Exchange is
open for trading, by dividing the value of the Fund's securities plus any cash
or other assets (including accrued dividends and interest) less all liabilities
(including accrued expenses) by the number of shares outstanding, the result
being adjusted to the nearest whole cent.
A security listed or traded on a recognized stock exchange is valued at
its last sales price on the principal exchange on which it is traded prior to
the time when assets are valued. If no sale is reported at that time, the mean
between the last reported bid and asked price is used. In the case of securities
traded on foreign exchanges, if events having a material effect upon the value
of such securities occur between the time their price is determined and the time
the Fund's net asset value is calculated, the securities will be valued at fair
value as determined in good faith by the Board of Directors.
All other securities for which over-the-counter market quotations are
readily available are valued at the mean between the last reported bid and asked
price. Securities for which market quotations are not readily available and
other assets are valued at fair value as determined in good faith by the Board
5
<PAGE> 9
of Directors. For valuation purposes, quotations of foreign securities in
foreign currency are converted to US. dollar equivalents using the foreign
exchange rate in effect either at the close of the stock exchange in the country
where the security is issued and traded (for securities traded on North American
securities exchanges) or at noon New York time following the close of the stock
exchange in the country where the security is issued and traded (for all other
foreign securities). Short-term investments having a maturity of 60 days or less
are valued at cost with accrued interest or discount earned included in interest
receivable.
OFFERING PRICE. The Offering Price on purchases of Fund shares made at
one time by a single purchaser, by an individual, his spouse and their children
under the age of 21, or a by a single trust or fiduciary account, is the net
asset value per share plus a sales commission not exceeding 4.75% of the
Offering Price (equivalent to 4.99% of the net asset value), which is reduced on
larger sales as shown below.
Fund shares may be purchased at net asset value, upon written assurance
that the purchase is made for investment purposes and that the shares will not
be resold except through redemption by the Fund, by (a) officers and directors
of the Fund (and their relatives), (b) officers, directors and employees of the
Principal Underwriter (and their relatives), (c) directors, officers, partners,
or registered representatives (and their relatives) of broker-dealers with a
selling agreement with the Principal Underwriter, and (d) any trust, pension,
profit-sharing or other benefit plan for such persons. There can be no assurance
that such an investor will be sold shares without a sales charge unless at the
time of placing a purchase order the investor (or dealer) makes a written
request for such a sale. Fund shares also may be sold at net asset value when
purchased through a Purchase Agent that does not have a dealer agreement with
the Principal Underwriter and may impose a transaction or other account fee on
purchases and redemption's by its customers.
<TABLE>
<CAPTION>
SALES COMMISSION
AMOUNT OF SINGLE SALE AT OFFERING AS A PERCENTAGE OF AS A PERCENTAGE OF NET PORTION RETAINED
PRICE OFFERING PRICE ASSET VALUE BY DEALER
- -------------------------------------- ------------------ ---------------------- -----------------
<S> <C> <C> <C>
Less than $25,000................... 4.75% 4.99% 4.00%
$25,000 but less than $50,000....... 4.25% 4.44% 3.60%
$50,000 but less than $100,000...... 3.50% 3.63% 3.00%
$100,000 but less than $200,000..... 3.00% 3.09% 2.55%
$200,000 but less than $500,000..... 2.50% 2.56% 2.10%
$500,000 but less than $1,000,000 .. 1.75% 1.78% 1.45%
$1,000,000 or more.................. 0.00% 0.00% *
</TABLE>
*Fund dealers can earn a commission and should contact the Principal Underwriter
for details.
Institutional investors wishing to invest $1,000,000 or more may
purchase Fund shares at net asset value directly from the Principal Underwriter
upon providing written assurance as described in the preceding paragraph.
CUMULATIVE DISCOUNT. The scale of reduced sales commissions applicable
to single sales made at one time of $25,000 or more also may be applied on a
cumulative basis to subsequent sales. For this purpose, shares held in accounts
registered in the name of the investor are combined and the dollar amount of the
subsequent sale is added to the higher of (i) the current net asset value of the
account(s), or (ii) the original purchase amount of any other Fund shares owned
at that time by the investor. The sales commission on the shares being purchased
will then be at the rate applicable to the aggregate. For example, if the
investor held shares valued at $16,000 (or, if valued at less than $16,000, had
been purchased for $16,000) and purchased an additional $10,000 of Fund shares,
the sales commission for the $10,000 purchase would be at the rate of 4.25%.
There can be no assurance that an investor will receive the cumulative quantity
discount to which he may be entitled, unless at the time of placing his purchase
order the investor or his dealer makes a written request for the discount. The
cumulative quantity discount may be amended or terminated at any time.
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<PAGE> 10
LETTER OF INTENT. The foregoing schedule of reduced sales charges also
is available to investors who enter into a written "Letter of Intent"
establishing a total investment goal to be achieved by any number of investments
over a thirteen-month period. Each investment made during the period will
receive the reduced sales commission applicable to the amount represented by the
goal as if it were a single investment. In the event the Letter of Intent goal
is not achieved within the thirteen-month period, the investor will be required
to pay the difference between the sales charge otherwise applicable to the
purchases made during this period and the sales charges actually paid.
The initial purchase under a Letter of Intent must be equal to at least
5% of the stated investment goal. Investors electing to purchase Fund shares
pursuant to a Letter of Intent should see the Statement of Additional
Information under the heading "Purchase, Redemption and Pricing of Shares --
Letter of intent" and should read the Letter of Intent Application immediately
following this Prospectus.
BANK DRAFT INVESTING. Investors can purchase Fund shares regularly each
month by means of a "Bank Draft Investing Plan" with a pre-authorized check
drawn on their checking accounts. The minimum initial purchase of Fund shares by
pre-authorized check is $200, and each subsequent purchase requires a $25
minimum. The full details of this service and the necessary forms may be found
immediately following this Prospectus.
INDIVIDUAL RETIREMENT ACCOUNT. Individuals can invest in Fund shares
through an Individual Retirement Account ("IRA"). Contributions from annual
earnings ($200 initial minimum: $25 subsequent minimum) can be made in any
amount up to $2,000 or, for an individual with a non-working spouse (or spouse
earning less than $250 a year), up to $2,250. If both husband and wife work,
each may contribute up to $2,000 to an IRA. Contributions may not be
tax-deductible depending on the individual's income and participation by the
individual or his spouse in employer sponsored retirement plans. An IRA
application form and disclosure statement may be obtained on request to the
Principal Underwriter.
REDEMPTION AND REPURCHASE OF SHARES
Fund shares may be redeemed upon tender to the Transfer Agent of a
proper written request setting forth the following: (a) signatures of each
registered owner exactly as the shares are registered; (b) the account number of
the shareholder and the number of shares or dollar amount to be redeemed; (c)
signature guarantees, as described below; and (d) any additional documents for
redemption by corporations, partnerships, trusts, estates or other fiduciaries
which, in the judgment of the Transfer Agent, are sufficient to establish the
authority of the person or persons signing the request.
To assure proper redemptions, the signature of each registered
shareholder must be guaranteed by an eligible guarantor institution such as a
commercial bank, credit union, savings association or a member firm of a
national securities exchange who are participants in a medallion program
recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion (STAMP), Stock
Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion
Signature Program (MSP). A notary public is not an eligible guarantor. The
signature guarantee(s) must appear either: (i) on the written request for
redemption, which must clearly identify the exact name (and each name separately
if there is more than one signature) in which the account is registered, the
account number, and the number of shares or the
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<PAGE> 11
dollar amount to be redeemed; or (ii) on a stock power, which may be obtained
from most banks and stockbrokers. PNC Bank, N.A. will provide a signature
guarantee for distribution requests from any IRA account held with the Fund for
which PNC Bank, N.A. acts as custodian. A signature guarantee is not required
for redemptions of $25,000 or less, requested by and payable to all shareholders
of record, to be sent to the address of record for that account.
Shares will be redeemed at the net asset value per share computed after
the tender of the request for redemption in proper form is received by the
Transfer Agent. Payment of the redemption price will be made as soon as
practicable but in any event within seven days after tender of the request for
redemption is received in proper form.
The Fund will accept, from member firms of the New York Stock Exchange,
wire or telephone orders to repurchase shares without a redemption request
signed by the shareholder, provided the member firm agrees to indemnity the
Fund, the Principal Underwriter and the Transfer Agent from liability arising
from the absence of such signature. Forms for the indemnity agreement may be
obtained from the Principal Underwriter.
The Fund may, but is not required to, involuntarily redeem, after 30
days' written notice, the shares of an investor with an aggregate value of less
than $200 at the then current net asset value.
REDEMPTION BY TELEPHONE. Redemptions may be made by telephone if the
"Redemption by Telephone" option is selected in advance. Under this option,
written authority and medallion guarantees for each redemption are required upon
set-up of this option but are not needed at the time of placing individual
redemption orders, and checks are mailed directly to your bank account as
designated on the form. This option cannot be used under a Retirement Plan.
Telephone redemptions will be accepted by the Transfer Agent between the hours
of 9 A.M. and 6 P.M. Eastern time. To establish this option, complete the
Redemption by Telephone Application immediately following this Prospectus. To
add this option to an existing account, you may write or call the Transfer Agent
for the required form. Once established, any changes must be communicated in
writing to Transfer Agent Applications or subsequent changes must be signed by
all shareowners with each signature guaranteed by an eligible guarantor
institution such as a commercial bank, credit union, savings association or a
member firm of a national securities exchange. Further documentation may be
required from corporations, executors, administrators, trustees, guardians or
other fiduciaries. The Fund will employ reasonable procedures to confirm that
instructions received by telephone are genuine, including requiring a form of
personal
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<PAGE> 12
identification prior to acting on instructions. Neither the Fund, the Adviser,
the Subadviser, the Principal Underwriter or the Transfer Agent will be
responsible for the authenticity of withdrawal instructions received by
telephone or liable for any loss, liability, cost or expense for acting upon
such instructions, provided that, pursuant to the Fund's procedures, the
instructions are believed to be genuine. Accordingly, shareholders who elect the
redemption by telephone option bear the risks arising from this option,
including the risk of unauthorized use.
WITHDRAWAL PROGRAM. A shareholder owning or purchasing Fund shares
having $10,000 or more in value at the Offering Price may open a withdrawal
program (the "Program") providing regular quarterly or monthly payments in any
amount requested from shares held in the Program. The Program is described in
the Statement of Additional Information under the heading "Purchase, Redemption
and Pricing of Shares-Withdrawal Program." An application form may be found
immediately following this Prospectus.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS. The business and affairs of the Fund are
managed under the direction of the Company's Board of Directors. Additional
Information about the Directors, as well as the Company's executive officers,
may be found in the Statement of Additional Information under the heading
"Management-Directors and Officers."
INVESTMENT ADVISER. American Diversified Asset Management, Inc., 12100
Wilshire Boulevard, Suite 680, Los Angeles, 90025, is the Fund's investment
adviser and oversees the investment activities of the Subadviser. ADAM is a
wholly-owned subsidiary of American Diversified Holdings, Inc.("ADHI"), a
corporation formed to manage mutual funds in the United States and Europe. ADHI
also is the parent company to American Diversified AG, a German financial
services firm located in Berlin. The Investment Adviser and the Subadviser each
maintain some of the Fund's books and records.
The Fund pays the Adviser a monthly fee equal on the annual basis to 1%
of the first $100,000,000 of the Fund's net assets, 0.75% of such net assets in
excess of $100,000,000 up to $250,000,000, and 0.5% of such net assets in excess
of $250,000,000.
The Investment Advisory Agreement for the Fund was originally approved
by the Company's Directors and by vote of the sole shareholder of the Fund
on [10/23/98], 1998. The Investment Advisory Agreement will continue in effect
until March 31, 2000 and then will continue in effect from year to year if
specifically approved annually by (a) the Directors, acting on behalf of the
Fund, including a majority of the Directors who are not "interested persons" as
defined in the 1940 Act, or (b) by a majority of the outstanding voting
securities of the Fund as defined in the 1940 Act.
The Fund's Investment Advisory Agreement may be terminated without
penalty and at any time, by a similar vote upon not more than 60 days written
notice by ADAM, the Directors, or a majority of the outstanding voting
securities of the Fund as defined in the 1940 Act. Such agreement will
automatically terminate in the event of its assignment, as defined in Section
2(a)(4) of the 1940 Act.
Further information about the Adviser may be found under the
heading "Investment Advisory and Other Services - Investment Adviser" in the
Statement of Additional Information.
SUBADVISER. The Subadviser, Ladas & Hulings, Inc., 8655 E. Via De
Ventura, Suite G-200, Scottsdale, AZ 85258, is an investment adviser registered
with the Securities Exchange Commission. Under the terms of the Sub-Investment
Advisory Agreement, the Subadviser has primary responsibility for the Fund's
day-to-day portfolio management decision making process, for furnishing
continuous investment supervision to the Fund, management of the Fund's
portfolio, including the placing of orders for the purchase and sale of
portfolio securities. The Subadviser relies upon an investment committee
consisting of several of its investment analysts and professionals to conduct
the day-to-day investment management responsibilities of the Fund. William
Hulings, the Subadviser's majority shareholder, serves as President and Senior
Portfolio Manager.
Pursuant to the Sub-Investment Advisory Agreement between ADAM and the
Subadviser, dated [10/23/98], the Subadviser is entitled to fees at the annual
rate of 0.50% of the first $100,000,000 of the Fund's average daily net assets,
0.375% of such net assets in excess of $100,000,000 up to $250,000,000, and
0.25% of such net assets in excess of $250,000,000 as compensation for its
9
<PAGE> 13
services. These fees are payable directly by ADAM from its investment advisory
fees and not by the Fund. Such fees accrue daily to be paid monthly by ADAM.
The Fund's Sub-Investment Advisory Agreement may be terminated without
penalty and at any time, by a similar vote upon not more than 60 nor less than
30 days written notice by ADAM, the Subadviser, the Directors, or a majority of
the outstanding voting securities of the Fund as defined in the 1940 Act. Such
agreement will automatically terminate in the event of its assignment, as
defined in Section 2(a)(4) of the Act.
Further information about the Subadviser may be found under the heading
"Investment Advisory and Other Services - Subadviser" in the Statement of
Additional Information.
DISTRIBUTION SERVICES. Effective [10/23/98], the Fund adopted a Plan of
Distribution (the "Plan") pursuant to which the Fund will pay monthly to its
Principal Underwriter a distribution fee charged against the assets of the Fund
and equal on an annual basis to 0.10% of the Fund's average daily net assets.
The Plan states that, to the extent that amounts paid to the Principal
Underwriter under the Plan exceed amounts expended by the Principal Underwriter
for distribution-related activities for the Fund, such excess will be profit to
the Principal Underwriter. The distribution fee will be paid to the Principal
Underwriter for its services as Principal Underwriter of the Fund's shares in
connection with any activities or expenses primarily intended to result in the
sale of shares of the Fund, including, but not limited to: (1) compensation to
employees of the Principal Underwriter who engage in or support the distribution
of the Fund's shares, including salary, commissions, travel and related
expenses; (2) compensation to and expenses of the Principal Underwriter,
including overhead and telephone expenses, allocable to its activities as
Principal Underwriter of the Fund's shares; (3) payments to broker-dealers,
financial institutions and other persons as compensation for services in
connection with the distribution of shares of the Fund, including promotional
incentives and fees calculated with reference to the average daily net asset
value of shares held by shareholders who have a brokerage or other service
relationship with such broker-dealers or financial institutions; (4) the costs
of printing and distributing prospectuses, statements of additional information,
and reports for other than existing shareholders; (5) payments to consultants
for public relations, marketing, research and promotional services related to
the distribution of the Fund's shares; (6) the costs of preparing, printing and
distributing sales literature and advertising materials; and (7) such other
similar services as the Company's Board of Directors determines to be reasonably
calculated to result in the sale of shares of the Fund. Pursuant to the Plan,
the Principal Underwriter currently pays a service fee to selling brokers equal
on an annual basis to 0.25% of the average aggregate net asset value of
outstanding Fund shares registered in the name of that broker as nominee or held
in a shareholder account that designates that broker as broker of record. The
Fund will pay all costs and expenses in connection with the preparation,
printing and distribution of its Prospectus and Statement of Additional
Information for current shareholders and the implementation and operation of the
Plan, including legal and accounting fees related thereto.
The distribution fee is payable to the Principal Underwriter regardless
of the amounts actually expended by the Principal Underwriter for
distribution-related activities. The distribution fee is calculated and accrued
daily; the Plan provides that, if it is terminated, any distribution expenses
incurred by the Principal Underwriter on behalf of the Fund in excess of
payments of the distribution fee received or accrued through the termination
date are the sole responsibility and liability of the Principal Underwriter, and
are not obligations of the Fund.
10
<PAGE> 14
Further information about the Plan may be found under the heading
"Principal Underwriter-Distribution Plan" in the Statement of Additional
Information.
TRANSFER AND DIVIDEND PAYING AGENT. PFPC Inc., 400 Bellevue Parkway,
Suite 108, Wilmington, DE 19809, serves as transfer agent for the Fund's shares
and acts as the Fund's dividend paying agent.
PRICING SERVICES. American Data Services, Inc. provides certain
administrative services to the Fund, including computation of the net asset
value of the Fund's shares and maintenance of certain of its books and records.
PORTFOLIO BROKERAGE. As a general matter, it is the Fund's policy to
execute purchases and sales of listed portfolio securities through brokers,
including the Principal Underwriter, who provide the best price and execution in
the judgment of the Fund's management. Sales of the Fund's shares by a broker
are a factor that may be taken into account in recommending and in allocating
portfolio transactions to that broker, provided that (1) the broker furnishes
best execution; (2) the allocation conforms to the Fund's brokerage allocation
policies; and (3) in every allocation made to a broker in which the sale of Fund
shares is taken into account, there is no increase in the commissions or other
compensation paid to that broker beyond a reasonable commission or other
compensation based on best execution or best execution plus research services.
Subject to the foregoing as well as compliance with applicable provisions of the
1940 Act and the Fund's written procedures, the Principal Underwriter may
execute purchases and sales of listed securities for the Fund.
A more complete description of the Fund's brokerage allocation policies
may be found under the heading "Brokerage Allocation" in the Statement of
Additional Information.
DESCRIPTION OF SHARES
The Company's authorized capital consists of 20,000,000 shares of
common stock of $1.00 par value per share, all of which are allocated as a
single class of shares and of which ___________ are allocated to the Fund as a
separate series, with the remaining _________shares allocated to American
Diversified Global Value Fund as a separate series. The Directors may from time
to time create other classes or series of shares from the Company's authorized
but unissued shares. Each share of the Fund entitles the holder to participate
equally in dividends, distributions of capital and net assets of the Fund on
liquidation. and to one vote as to any matter on which such share is entitled to
vote. The Fund, as a separate series of the Company's single class of stock,
votes separately on matters affecting only the Fund, and all series of the class
of the Company's capital shares vote on matters affecting all series of the
class or the Company as a whole (e.g., election or removal of directors). The
shares are fully paid and non-assessable when issued and have no preference,
preemptive or conversion rights. The Company's shares have non-cumulative voting
rights, so that the holders of more than 50% of the Company's shares voting for
the election of Directors can elect all the Directors. In that event, the
holders of the remaining shares voting for the election of Directors will not be
able to elect any person to the Board of Directors. As a Maryland corporation,
the Company is not required to hold regular annual meetings of shareholders and
does not intend to do so unless a meeting is required under the 1940 Act or
otherwise.
11
<PAGE> 15
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. The Fund intends normally
to pay dividends representing substantially all of its net investment income and
to distribute any net capital gains. Income dividends and capital gains
distributions paid by the Fund on all of its shares, other than those whose
owners keep them registered in the name of a broker-dealer, are automatically
reinvested in whole or fractional shares of the Fund at net asset value, unless
a shareholder makes a written request to the Transfer Agent for payments in
cash.
TAX INFORMATION. The Fund intends to qualify and elect to be taxed as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). In any fiscal year in which the Fund so
qualifies and distributes substantially all of its net investment income (which
includes, among other items, dividends, interest and the excess, if any, of net
short-term capital gains over net long-term capital losses) and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), the Fund generally will be relieved of federal income tax on such
income. Amounts not distributed by the Fund on a timely basis in accordance with
a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. A distribution will be treated as paid on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid during January of the following
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the year in which the
distributions are received. To avoid application of the excise tax, the Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
Distributions of any net investment income are taxable to shareholders
as ordinary income. Distributions of any net capital gains, designated by the
Fund as capital gain dividends, are taxable to shareholders as long-term capital
gains regardless of the length of time a shareholder may have held shares of the
Fund. The tax treatment of distributions treated as ordinary income or long-term
capital gain will be the same whether the shareholder reinvests the
distributions in additional shares or elects to receive them in cash.
Special tax rules may apply to the Fund's transactions involving
forward foreign currency contracts. Such rules may, among other things, affect
the character of gains or losses realized by the Fund from such transactions and
have the effect of deferring recognition of losses incurred from such
transactions.
Upon the sale, redemption, or other disposition of shares of the Fund,
a shareholder generally will realize a taxable gain or loss, depending upon the
shareholder's basis in the shares. Such gain or loss will be treated as capital
gain or loss if the shares are capital assets in the shareholder's hands and
will be long-term or short-term, depending upon the shareholder's holding period
for the shares. Any loss realized on a sale or exchange will be disallowed to
the extent the shares disposed of are replaced (including shares acquired
pursuant to the automatic reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of Fund
shares held by a shareholder for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends received by
the shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring
shares of the Fund may not be taken into account in determining the gain or loss
on the disposition of those shares. This rule applies where shares of the Fund
are disposed of within 90 days after the date they were purchased
12
<PAGE> 16
and new shares of a regulated investment company are acquired without a sales
charge or at a reduced sales charge. In that case, the gain or loss recognized
on the disposition will be determined by excluding from the tax basis of the
shares disposed of all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. The portion of the sales charge
affected by this rule will be treated as a sales charge paid for the new shares.
Shareholders will be notified each year of the amounts of dividends and
distributions, including the amounts (if any) for that year which have been
designated as long-term capital gain dividends. Dividends and distributions may
also be subject to additional state, local or foreign taxes, depending upon each
shareholder's particular situation. Investors should consult their tax advisers
for specific information on the tax consequences of particular types of
distributions. For additional information relating to taxes, see "Tax Status" in
the Statement of Additional Information.
FUND PERFORMANCE INFORMATION. The Fund may, from time to time, include
its total return in advertisements or reports to shareholders or prospective
investors. Standardized quotations of average annual total return for the Fund
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over a period of 1, 5 and 10 years (up to
the life of the Fund). Standardized total return quotations reflect the
deduction of a proportional share of Fund expenses (on an annual basis),
deduction of the maximum initial sales load, and assume that all dividends and
distributions are reinvested when paid. The Fund also may quote supplementary a
rate of total return that is based on a net amount invested in the Fund (i.e.,
that does not reflect deduction of the maximum initial sales load).
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) the Value Line Composite, NASDAQ, Morgan Stanley
World Index, MSCI EAFE Index, Treasury Note Index, or other unmanaged indices so
that investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives, and assets, or tracked by
other services, companies, publications, or persons who rank mutual funds on
overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment in
the Fund. Unmanaged indices may or may not assume the reinvestment of dividends
but generally do not reflect deductions for administrative and management costs
and expenses.
Performance information for the Fund will reflect only the performance
of a hypothetical investment in the Fund during the particular time period on
which the calculations are based. Performance information should be considered
in light of the Fund's investment objectives and policies, characteristics and
quality of the Fund's portfolio, and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future. For a description of the methods used to determine total return
for the Fund, see the Statement of Additional Information.
SUBADVISER PRIOR PERFORMANCE INFORMATION. Because the Fund has no
operating history, no performance figures for the Fund have been included in
this Prospectus. However, the table below sets forth the composite performance
of all actual, fee-paying, discretionary institutional private accounts
13
<PAGE> 17
managed by the Subadviser that have investment objectives, policies, strategies
and risks substantially the same as those of the Fund (the "International Value
Accounts" or "Accounts"). The Subadviser computed the performance of the
Accounts in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR"), retroactively applied to all time
periods. The Subadviser's independent accountants performed an AIMR "Level II"
verification of these performance figures.
The performance data below represents the prior performance of the
Accounts, not the performance of the Fund. Investors should not consider these
data as an indication of future performance of the Fund or an individual
investor investing in the Fund. In managing the Fund, the Subadviser will employ
substantially the same investment objectives, policies and strategies that the
Subadviser employed in managing the Accounts. However, in managing the Fund, the
Subadviser will be subject to restrictions imposed by the 1940 Act and the Code
that do not apply to the Accounts (e.g., limits on the percentage of assets
invested in securities of issuers in a single industry and requirements on
distributing income to shareholders). The Fund also will incur operating
expenses, such as transfer agency, legal and auditing fees, that are not borne
by the Accounts. In addition, the continuous offering of the Fund's shares and
the Fund's obligation to redeem its shares will likely cause the Fund to
experience cash flows different from those of the Accounts. All of the foregoing
may adversely affect the performance of the Fund and cause it to differ from
that of the Accounts.
<TABLE>
<CAPTION>
TOTAL RETURN(1)(2)
LADAS & HULINGS, INC. LADAS & HULINGS, INC.
INTERNATIONAL INTERNATIONAL
VALUE ACCOUNTS MSCI EAFE(3) VALUE ACCOUNTS MSCI EAFE(3)
---------------------------- ------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1984 10.90% 5.90% 1 YEAR(4) 7.88% 6.10%
1985 26.31% 56.91% 3 Years(4) 12.22% 10.69%
1986 83.51% 70.20% 5 Years(4) 11.97% 10.03%
1987 19.63% 25.25% 7 Years(4) 13.61% 9.83%
1988 24.83% 28.91% 10 Years(4) 14.38% 6.88%
1989 13.39% 11.05%
1990 21.09% -23.34%
1991 35.77% 12.13%
1992 5.07% -12.17%
1993 35.60% 32.56%
1994 -6.60% 7.78%
1995 7.97% 11.21%
1996 14.06% 6.05%
1997 12.02% 1.78%
1998(4) 9.73% 15.93%
</TABLE>
- --------------
(1) AIMR has not been involved with the preparation of, and has not
reviewed, these performance data.
(2) The methodology of calculating the performance differs from that
required to be employed by mutual funds. All returns presented were
calculated on a total return basis and include all dividends and
interest, accrued income and realized and unrealized gains and losses.
All returns reflect the deduction of investment advisory fees, brokerage
commissions and execution costs paid by the Accounts, without provision
for federal or state income taxes. Custodial fees, if any, were not
included in the calculation. Securities transactions are accounted for
on the trade date using accrual accounting. Cash and equivalents were
included in performance returns. The monthly returns of the Subadviser's
composite combined the individual Accounts' returns (calculated on a
time-weighted rate of return that was revalued whenever cash flows
exceed a specified threshhold) by asset-weighing each individual
Account's asset value as of the beginning of the month. Quarterly and
yearly returns were calculated by geometrically linking the
14
<PAGE> 18
monthly and quarterly returns, respectively. The yearly returns were
computed by geometrically linking the returns of each quarter within the
calendar year.
(3) The Morgan Stanley Capital International EAFE Index, an index that is
generally representative of European, Asian and Far East international
markets ("MSCI EAFE Index"), consists of over 1,100 securities listed on
exchanges in Europe, Australia, New Zealand, the Far East. This Index is
a market-value-weighted combination of securities representing at 607 of
the market value of securities in each of 20 countries outside of North
America. This Index reflects the reinvestment of income dividends and
capital gains distributions, if any, but does not reflect fees,
brokerage commissions or other expenses of investing.
(4) Ended June 30, 1998
INQUIRIES: Shareholders' inquiries by mail or telephone should be
addressed to the Principal Underwriter, American Diversified Asset Management,
Inc., 12100 Wilshire Boulevard, Suite 680, Los Angeles, California 90025, (800)
433-1998, or (310) 442-2660.
THE YEAR 2000 ISSUE: The Fund relies extensively on various computer
systems in carrying out its business activities, including the computer systems
employed by the Adviser, the Subadviser, the Transfer Agent and The Chase
Manhattan Bank, the Fund's custodian (collectively, the "Service Providers"). In
this connection, the Fund is aware of the so-called "Year 2000 Issue" which
involves the potential problems that may be confronted by computer systems users
the day after December 31, 1999, when computers using date-sensitive software
must be able to properly identify the Year 2000 in their systems. In the event
that a computer system fails to make the proper identification of the Year 2000,
this could result in a system failure or miscalculations causing disruptions of
operations such as pricing errors and account maintenance failures. The Fund is
working with the Service Providers to take steps that are reasonably designed to
address the Year 2000 Issue with respect to the computer systems relied upon by
the Fund. The Fund has no reason to believe that these steps will not be
sufficient to avoid any material adverse impact on its operations, although
there can be no assurances of this. The costs or consequences of incomplete or
untimely resolution of the Year 2000 Issue are unknown to the Fund and the
Service Providers at this time but could have a material adverse impact on the
operations of the Fund and the Service Providers.
15
<PAGE> 19
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER __, 1998
AMERICAN DIVERSIFIED INTERNATIONAL VALUE FUND
12100 WILSHIRE BOULEVARD, SUITE 680
LOS ANGELES, CALIFORNIA 90025
(800) 433-1998
(310) 442-2660
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF AMERICAN DIVERSIFIED INTERNATIONAL VALUE
FUND DATED DECEMBER __, 1998, WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST
TO THE PRINCIPAL UNDERWRITER, AMERICAN DIVERSIFIED ASSET MANAGEMENT, INC., 12100
WILSHIRE BOULEVARD, SUITE 680, LOS ANGELES, CALIFORNIA 90025, (800) 433-1998, OR
(310) 442-2660, (HTTP://WWW.ADFUNDS.COM).
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
General Information and History ......................................... 2
Investment Objectives and Policies ............................. 2
Investment Policies ............................................ 2
Investment Restrictions ........................................ 2
Risk Considerations ............................................ 4
Management of the Fund .................................................. 5
Principal Shareholders .................................................. 7
Investment Advisory and Other Services .................................. 7
Investment Adviser ............................................. 7
Subadviser ..................................................... 8
Custodian ...................................................... 9
Transfer Agent ................................................. 9
Independent Accountants ........................................ 9
Brokerage Allocation .................................................... 10
Purchase, Redemption and Pricing of Shares .............................. 11
Net Asset Value ................................................ 11
Letter of Intent ............................................... 11
Withdrawal Program ............................................. 12
Individual Retirement Account .................................. 12
Tax Status .............................................................. 12
Principal Underwriter ................................................... 16
Distribution Plan .............................................. 16
Performance Information ........................................ 17
Financial Statements .................................................... 19
</TABLE>
1
<PAGE> 20
GENERAL INFORMATION AND HISTORY
American Diversified International Value Fund is a separate diversified
series of American Diversified Funds, Inc., an open-end investment company
incorporated in Maryland and registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund is intended for long-term investors
who wish to participate in a diversified portfolio seeking undervalued
investment opportunities internationally and who can accept international
investment risk. The Fund has no previous operating history.
The Fund's investment strategies are based on principles of the late
Benjamin Graham, as interpreted and applied by the Fund's subadviser, Ladas &
Hulings, Inc. (the "Subadviser"). Mr. Graham was the author of Security
Analysis and The Intelligent Investor, widely recognized texts on the
fundamental value analysis of common stocks.
American Diversified Asset Management, Inc. ("ADAM" or the "Adviser")
is the Fund's investment adviser and oversees the investment activities of the
Subadviser. The Subadviser is responsible for the primary day-to-day portfolio
investment management decision making process, for furnishing continuous
investment supervision to the Fund and for management of the Fund's portfolio.
For a more detailed discussion of the Fund's fees, expenses,
management and Subadviser, see the following section of the prospectus: "Fee
Data" and "Management of the Fund," and the following section of the Statement
of Additional Information: "Investment Advisory and Other Services."
INVESTMENT OBJECTIVE AND POLICIES
Investment Policies. The investment objective, strategies and
policies of the Fund are described in the Prospectus under the heading "The
Fund - Investment Objectives and Strategies."
Investment Restrictions. The following investment restrictions, except
insofar as otherwise indicated, are fundamental policies which may not be
changed without the affirmative vote of the holders of the lesser of (A) 67% or
more of the Fund's shares present at a shareholders meeting at which more than
50% of the outstanding shares are present or represented by proxy, or (B) more
than 50% of the Fund's outstanding shares. In accordance with these investment
restrictions, the Fund will not:
1. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers, which engage in real estate operations, and
securities which are secured by real estate or interests therein.
2. Purchase or sell commodities or commodity futures contracts, except
that the Fund may enter into foreign currency forward contracts for the purpose
of hedging against foreign currency risk in connection with the purchase or sale
of foreign securities.
3. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in or sponsor such
programs.
4. Write, purchase or sell puts, calls, or combinations thereof.
5. Make short sales of securities.
2
<PAGE> 21
6. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
7. Engage in the underwriting of securities (which for such purposes
does not include any activities pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("1940 Act")).
8. Make loans of money or securities, except (a) by the purchase of a
portion of an issue of publicly distributed debt obligations in which the Fund
may invest consistent with its investment objectives and policies, or (b) by in
repurchase agreements with respect to obligations of the U.S. Government, its
agencies or instrumentality's, maturing in 7 days or less.
9. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes (and not for investment) in amounts not
exceeding 10% (taken at the lower of cost or current value) of its total assets
(not including the amount borrowed).
10. Pledge its assets or assign or otherwise encumber them, except to
secure borrowings effected within the limitations set forth in Restriction 9.
11. Issue senior securities, as defined in the 1940 Act, except
insofar as the Fund may be deemed to have issued a senior security by reason of
(a) entering into any repurchase agreement, or (b) borrowing money in accordance
with Restriction 9.
12. Purchase more than 10% of any class of securities of any one
issuer, including its outstanding voting securities, or invest in any issuer for
the purpose of exercising control or management.
13. Invest more than 15% of the Fund's total assets in securities of
foreign issuers that are not listed on a recognized U.S. or foreign securities
exchange, including no more than 10% of its total assets which may be invested
in securities with a limited trading market.
14. Invest more than 25% of its total net assets in any one industry
(determined by reference to the Morgan Stanley Capital International World
Industry Classifications).
15. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, reorganization or acquisition of
assets, or (b) in the open market where no commission or profit to a sponsor or
dealer other than the customary broker's commission results from such purchase,
in an amount not in excess of 10% of the value of the Fund's total assets.
Whenever any investment policy or investment restriction states a
maximum percentage of the Fund's assets which may be invested in any security or
other property, it is intended that such maximum percentage limitation be
determined immediately after and as a result of the Fund's acquisition of such
security or property. Accordingly, the Fund is not required to dispose of common
stocks due to an increase in percentage resulting from a change in market
values.
Risk Considerations. The Fund may invest in debt securities, including
foreign and domestic corporate and government debt securities. As a general
matter, the current value of debt securities, including U.S. Treasury Notes,
varies inversely with changes in prevailing interest rates. If interest rates
increase after a debt security is purchased, the value of that security will
normally decline. Conversely, should prevailing interest rates decrease after a
debt security is purchased, its market price will normally rise.
3
<PAGE> 22
The Fund may invest in preferred stocks. Preferred stocks are
generally fixed-income securities. Preferred stockholders normally have the
right to receive dividends at a fixed rate when and as declared by the issuer's
board of directors, but do not participate in other amounts available for
distribution by the issuing corporation. Preferred stocks are, however, equity
securities in the sense that they do not represent a liability of the issuer and
therefore do not offer as great a degree of protection of capital or assurance
of continued income as investments in corporate debt securities. In addition,
preferred stocks are subordinated in right of payment to all debt obligations
and creditors of the issuer.
The Fund may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entities the holder to receive interest
generally paid or accrued on debt, or the dividend paid on preferred stock,
until the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have several unique investment characteristics such as
(1) higher yields than common stocks, but lower yields than comparable
nonconvertible securities, (2) a lesser degree of fluctuation in value than the
underlying stock since they have fixed income characteristics, and (3) the
potential for capital appreciation if the market price of the underlying common
stock increases. A convertible security might be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security held by the Fund is called for
redemption, the Fund may be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party.
The Fund also may invest in the securities of other investment
companies. The Subadviser may invest in the securities of closed-end investment
companies that invest in "special situations" (such as in the securities of
foreign issuers) or that in the Subadviser's estimation are undervalued.
Investments in the securities of investment companies are subject to certain
limitations under the 1940 Act. Under the 1940 Act, the Fund may not invest more
than 5% of its total assets in the securities of any one investment company or
acquire more than 3% of the outstanding voting securities of any investment
company. In addition, the Fund may not invest more than 10% of its total assets
in securities issued by other investment companies. If the Fund were to invest
in the securities of an investment company, the Fund's shareholders would bear
not only their proportionate share of the expenses of the Fund (including
operating expenses and the fees paid to the Investment Adviser), but also would
bear indirectly similar expenses of the underlying investment company.
The Fund has an unlimited right to purchase foreign securities listed
on a stock exchange as well as a limited right to purchase unlisted securities.
There may be less publicly available information about foreign companies as
compared to the reports and ratings which are published about companies in the
United States. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to United States companies. Foreign
stock markets have substantially less volume than the New York Stock Exchange,
and securities of foreign companies frequently tend to be less liquid and more
volatile than securities of comparable United States companies. The Fund may
invest up to 15% of its total assets in unlisted foreign securities, including
not more than 10% of its total, assets in securities with a limited trading
market, which, in the opinion of the Investment Adviser, are liquid and have
readily available market quotations. There is less government supervision and
regulation of foreign stock exchanges, brokers and listed companies than in the
United States. Brokerage commissions may be higher for effecting transactions in
foreign securities than is the case for securities of United States companies.
Furthermore, investments in securities of issuers located in foreign countries
may be subject to the possibility of
4
<PAGE> 23
expropriation, confiscatory taxation or nationalization, and could be affected
by political or social instability or diplomatic developments.
The Fund may enter into forward foreign currency contracts for the
purpose of hedging against foreign currency risk in connection with the purchase
or sale of foreign securities. A foreign currency forward contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (usually less than one year) from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
If the Fund entered into a contract for the purchase or sale of a
security denominated in a foreign currency, generally it would also enter into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transaction. In
this manner, the Fund may obtain protection against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and the
foreign currency during the period between the date the security is purchased or
sold and the date upon which payment is made or received, although the Fund also
loses the right to the benefit of any favorable movement in exchange rates
occurring during such period. The settlement period for certain foreign
securities transactions may be longer than the customary period applicable to
most securities settlements that take place in the United States.
MANAGEMENT OF THE FUND
The name, address, principal occupations during the past five years, and other
information with respect to each of the Directors and officers of the Company
are as follows:
<TABLE>
<CAPTION>
Name, Address and Principal Occupations
Officers with Company During Past 5 Years
- --------------------------------------------------------------------------------
<S> <C>
JAMES B. REA, JR.* Director, President, Director and CFO of American
2305 Donella Circle Diversified Asset Management, Inc., investment advisor,
Los Angeles, California broker-dealer, underwriter and distributor.
Chairman of the Board, President and
Secretary
KLAUS CONRADI * Sr. Executive of American Diversified AG
Kurfurstendamm 15 Wertpapierhandelsbank, Berlin, Germany; Director of
Berlin, 10719 Germany American Diversified Holdings, Inc., Professional Banker and
Director Appraiser.
GERALD H. BORDEN Orthodontic Specialist. President of Gerald H. Borden, DDS,
2407 Swanfield Court Inc. of Westlake Village, California.
Thousand Oaks, California
Director
VICTOR MONKE Psychiatrist, Psychoanalyst. Recent President, Southern
6500 Wilshire Boulevard California Psychoanalytic Institute, attending Psychiatrist
Suite 950 Cedars-Sinai Medical Center, Los Angeles, California;
Los Angeles, California Associate Clinical Professor of Psychiatry, University of
Director California at Los Angeles, Formerly
</TABLE>
5
<PAGE> 24
<TABLE>
<S> <C>
General Partner Nebraska Company, real estate management,
Trustee American Psychoanalytic Association and Southern California
Psychoanalytic Institute.
JOHN P. SHELTON Professor Emeritus of Finance at Anderson Graduate School of
12377 Ridge Circle Management, UCLA. Chartered Financial Analyst, Ph.D. in
Los Angeles, California Economics and board member of (1) Paramount Mutual Fund, Los
Director Angeles, CA., (2) Genisco Technology Corp., (electronics),
Anaheim, CA
R. PAUL TOEPPEN President, Toeppen and Company, Los Angeles, California,
1703 Stone Canyon Road management and financial consultants.
Los Angeles, California
Director
JAMES A. TRACY Managing Partner, Tracsam Associates, real estate developer
3723 Brookview Road and manager; formerly Secretary and Treasurer, Barber-Colman
Rockford, Illinois Company (capital goods manufacturer), Rockford, Illinois.
Director
</TABLE>
* Mr. Rea, Jr. and Mr. Conradi are "interested persons" of the Fund (as that
term is defined by the 1940 Act) by virtue of their affiliations with
American Diversified Asset Management, Inc. and American Diversified Holdings,
Inc., respectively. Drs. Borden and Monke and Messrs., Toeppen, Tracy and
Shelton are not "interested persons" of the Fund.
The Directors and officers of the Company who are affiliated with
American Diversified Asset Management, Inc. are not separately compensated for
their services as Directors and officers of the Company. The Company pays each
of its Directors who are not affiliated with American Diversified Asset
Management, Inc. a fee of $200 per Board of Directors meeting attended and $100
per Audit Committee meeting attended, and reimburses their expenses for
attendance at the meetings. For the fiscal year ended March 31, 1998, the
Directors received the following compensation from the Company:
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Accrued Annual From Registrant
Compensation As Part of Fund Benefits Upon and Fund Complex
Name of Director from the Company Expenses Retirement Paid to Directors
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James B. Rea, Jr. None N/A N/A None
Klaus Conradi None N/A N/A None
Gerald H. Borden $1,200 N/A N/A $1,200
J. Victor Monke $ 600 N/A N/A $ 600
John P. Shelton $1,200 N/A N/A $1,200
R. Paul Toeppen $ 800 N/A N/A $ 800
James A. Tracy $1,200 N/A N/A $1,200
</TABLE>
6
<PAGE> 25
PRINCIPAL SHAREHOLDERS
As of ____, 1998, there were____ shares of the Fund outstanding, of
which ______ shares (or ____% of the total outstanding shares) were owned
beneficially, directly or indirectly, controlled or held with power to vote, by
the Directors and officers of the Fund. As of that date, to the knowledge of
management, no person owned beneficially, directly or indirectly, 5% or more of
the outstanding shares, except for James B. Rea, Jr. and members of his
immediate family.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser. American Diversified Asset Management, Inc., 12100
Wilshire Boulevard, Suite 680, Los Angeles, 90025, is the Fund's investment
adviser and oversees the investment activities of the Subadviser. ADAM is a
wholly-owned subsidiary of American Diversified Holdings, Inc. ("ADHI"), a
corporation formed to manage mutual funds in the United States and Europe. ADHI
also is the parent company to American Diversified AG, a German financial
services firm located in Berlin.
Pursuant to an Investment Advisory Agreement (the "Agreement") and a
Sub-Investment Advisory Agreement the Company has retained the Investment
Adviser to oversee the Subadviser to manage the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities, and to furnish the Fund with investment research, advice and
supervision.
The Fund bears all expenses incurred in its operation, including, but
not limited to, charges and expenses of any registrar, custodian, stock transfer
and dividend disbursing agent; brokerage commissions; taxes; registration costs
of the Fund and its shares under federal and state securities laws; the cost and
expense of printing, including typesetting, and distributing prospectuses of the
Fund and supplements thereto to existing shareholders; all expenses of meetings
of shareholders, Directors and committees of Directors, including the fees and
expenses of the Directors and committee members who are not affiliated with the
Investment Adviser; expenses of preparing, printing and mailing of proxy
statements and reports to shareholders; all fees and expenses incident to
services of the custodian and transfer agent, including any plans or programs
insofar as not charged directly to the investors; charges and expenses of any
outside service used for pricing of the Fund's shares; fees and expenses of
legal counsel and of independent accountants; membership dues of industry
associations; interest on borrowing; such office space, facilities, utilities,
equipment and postage as the Fund reasonably requires in the conduct of its
business; insurance premiums on property or personnel (including Directors and
officers) of the Fund, which inure to its benefit; and extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto).
As compensation for the services and facilities furnished to the Fund,
the Fund pays the Adviser a monthly fee equal on an annual basis to 1% of the
first $100,000,000 of the Fund's net assets as of the close of business on the
last business day of each calendar month during the Fund's fiscal year; reduced
to 0.75% of such net assets in excess of $100,000,000 up to $250,000,000; and
0.5% of such net assets in excess of $250,000,000.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Adviser is not liable to the Fund or any of its shareholders for any error of
judgment, mistake of law, or any loss arising out of any investment or for any
other act or omission by the Adviser in the performance of its duties under the
Agreement. The Agreement in no way restricts the Investment Adviser from acting
as investment counselor or adviser to others.
7
<PAGE> 26
The Investment Advisory Agreement for the Fund was approved by the
Directors of the Company and by vote of the shareholders of the Fund on
________, 1998, effective ________, 1998. The Investment Advisory Agreement will
continue in effect until March 31, 2000. It will continue in effect from year to
year if specifically approved annually by (a) the Directors, acting on behalf of
the Fund, including a majority of the Disinterested Directors, or (b) by a
majority of the outstanding voting securities of each class of the Fund as
defined in the 1940 Act.
The Fund's Investment Advisory Agreement may be terminated without
penalty at any time, by a similar vote upon not more than 60 nor less than 30
days written notice by the Adviser, the Directors, or a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act. Such
agreement will automatically terminate in the event of its assignment, as
defined in Section 2(a)(4) of the Act.
The Directors and officers of American Diversified Asset Management,
Inc. are as follows:
<TABLE>
<CAPTION>
Position With Position With
Name Investment Adviser the Company
- ------------------ ------------------------ ----------------------------------
<S> <C> <C>
James B. Rea, Jr. Director, President and Chairman of the Board, President
CFO and Secretary
Frances L. Rea None Treasurer
</TABLE>
Subadviser. The Subadviser, Ladas & Hulings, Inc., 8655 E. Via De
Ventura, Suite G-200, Scottsdale, AZ 85258, is an investment adviser registered
with the Securities Exchange Commission. The Sub-Investment Advisory fees
payable to the Subadviser are to be paid directly by Adviser from its investment
advisory fees. The Subadviser, who provides the primary day-to-day portfolio
investment management decision making process for the Fund, relies upon an
investment committee consisting of its analysts, and portfolio management
professionals to conduct investment management responsibilities for the Fund.
The Subadviser obtains and evaluates such statistical and factual information
and advice relating to the economy, securities markets and specific securities
as it considers necessary or useful continuously to manage the assets of the
Fund in a manner consistent with the Fund's investment objectives and policies
and investment restrictions. The Subadviser also selects brokers and dealers for
execution of the Fund's portfolio transactions. The Investment Adviser and
Subadviser maintain some of the Fund's books and records.
Pursuant to the Sub-Investment Advisory Agreement between the Adviser
and Subadviser, dated __,1998, fees payable under the Sub-Investment Advisory
Agreement will accrue daily and be paid monthly by the Adviser. The
sub-investment advisory fees payable to the Subadviser are to be paid directly
by the Adviser from its investment advisory fees. Therefore the investment
advisory fees for the Fund will not be increased as a result of the
implementation of the Sub-Investment Advisory Agreement. As compensation for its
services, the Adviser will pay the Subadviser at the annual rate of 0.50% of the
first $100,000,000 of the Fund's average daily net assets, 0.375% of such net
assets in excess of $100,000,000 up to $250,000,000, and 0.25% of such net
assets in excess of $250,000,000.
The Sub-Investment Advisory Agreement will continue in effect until
March 31, 2000 and then will continue in effect from year to year if
specifically approved annually by (a) the Directors, acting on behalf of the
Fund, including a majority of the Disinterested Directors, or (b) by a majority
of the outstanding voting securities of each class of the Fund as defined in the
1940 Act.
8
<PAGE> 27
The Fund's Sub-Investment Advisory Agreement may be terminated without
penalty at any time, by a similar vote upon not more than 60 nor less than 30
days written notice by the Adviser, the Subadviser, the Directors, or a majority
of the outstanding voting securities of the Fund as defined in the 1940 Act.
Such agreement will automatically terminate in the event of its assignment, as
defined in Section 2(a)(4) of the Act.
Custodian. The Chase Manhattan Bank, One MetroTech Center, Brooklyn,
New York 11245 serves as custodian of the Fund's assets. The custodian has
entered into agreements with foreign sub-custodians approved by the Directors
pursuant to rules under the 1940 Act. The Fund pays The Chase Manhattan Bank,
N.A. for its services according to a schedule of charges agreed on from time
to time.
Transfer Agent. PFPC Inc., 400 Bellevue Parkway, Suite 108,
Wilmington, DE 19809, serves as transfer agent for the Fund's shares.
Independent Accountants. McGladrey & Pullen, LLP, serves as independent
accountants for the Fund.
BROKERAGE ALLOCATION
The Investment Adviser selects, for the execution of purchases and
sales of the Fund's portfolio securities, brokers and dealers who, in its
opinion, will provide the best combination of price (inclusive of brokerage
commissions) and execution for the Fund's orders. Pursuant to the Agreement, the
Subadviser may consider research provided by a broker-dealer, and a
broker-dealer may receive a fee higher than that which would be charged by
another broker-dealer that does not furnish research services or that furnishes
research services deemed to be of lesser value, so long as the criteria of
Section 28(e) of the Securities Exchange Act of 1934 are met. According to
Section 28(e), a person with investment discretion, such as the Subadviser,
shall not be deemed to have acted unlawfully or to have breached its fiduciary
duty by causing the Fund to pay a higher commission than the lowest available,
if such person makes a good faith determination that the commissions paid are
reasonable in relation to the value of the brokerage and research services
provided, in terms of either a particular transaction or his overall
responsibilities with respect to the accounts as to which he exercises
investment discretion.
As a general matter, it is the Fund's policy to execute purchases and
sales of listed portfolio securities through American Diversified Asset
Management, Inc., except when better price and execution can be obtained
elsewhere. In executing securities transactions for the Fund, it is understood
that American Diversified Asset Management, Inc. will transmit the transaction
to a member firm of the exchange used, of which the member firm will receive a
portion of the commission as the clearing broker and floor trader. The brokerage
commissions to be paid by the Fund to American Diversified Asset Management,
Inc. for executing securities transactions for the Fund's portfolio are
calculated in accordance with procedures adopted by the Company's Board of
Directors, including a majority of the Directors who are not "interested
persons" of the Company or of American Diversified Asset Management, Inc.,
pursuant to Rule 17e-1 under the 1940 Act. Rule 17e-1 requires that such
commissions or other remuneration received by American Diversified Asset
Management, Inc. be reasonable and fair compared to the commissions, fees or
other remuneration received by other brokers in comparable transactions
involving similar securities during a comparable period of time. So long as
American Diversified Asset Management, Inc. can perform its services on such
basis, it will continue to be principal broker for the Fund's transactions in
listed securities. In executing transactions for the Fund, American Diversified
Asset Management, Inc. treats the Fund like any other public customer, and the
9
<PAGE> 28
Fund's orders are accorded priority over those received by American Diversified
Asset Management, Inc. for its own account or for the account of any of its
Directors, officers or employees. No transactions may be effected by the Fund
with American Diversified Asset Management, Inc. acting as principal for its own
account. Over-the-counter purchases and sales normally are made with principal
market makers, except where, in the opinion of the Investment Adviser, better
prices and execution may be obtained on a commission basis or from other
sources.
Directors and officers of the Company who are also Directors and
officers of American Diversified Asset Management, Inc. may receive indirect
benefits from the Fund as a result of the usual and customary brokerage
commissions which American Diversified Asset Management, Inc. may receive for
acting as broker to the Fund in portfolio securities transactions. In approving
the Agreement between the Company and American Diversified Asset Management,
Inc., the Board of Directors took into account that the Agreement does not
provide for a reduction of the investment advisory fee by any portion of the
brokerage generated by portfolio transactions of the Fund which American
Diversified Asset Management, Inc. may receive.
The Investment Adviser may from time to time recommend allocating
brokerage commissions to firms other than American Diversified Asset Management,
Inc., which furnish research and statistical information to the Investment
Adviser or which render services to the Fund which the Investment Adviser is not
required to provide. The supplementary research or other services provided by
such firms is useful in varying degrees and is of indeterminable value. No
formula can be established for the allocation of business to such brokers.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which the Fund's shares may be
purchased and redeemed. See "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Net Asset Value. Because of differences in time zones, trading on
European and Far Eastern securities exchanges and over-the-counter markets is
completed before the close of business on the New York Stock Exchange on each
day when the New York Stock Exchange is open. In addition, European or Far
Eastern securities trading may not take place on all business days in New York,
and likewise may take place on certain days when the New York Stock Exchange is
not open, and on which the Fund's net asset value is not calculated. The Fund
calculates net asset value per share, and therefore effects sales and
redemptions, as of the close of the New York Stock Exchange once on each day on
which that Exchange is open. If events materially affecting the value of foreign
securities occur between the time when their price is determined (as of the
close of the foreign markets) and the time when the Fund's net asset value is
calculated, such securities will be valued at fair value by methods as
determined in good faith by the Board of Directors.
The Board of Directors may suspend the determination of the net asset
value for the whole or any part of any period (1) during which the New York
Stock Exchange is closed other than for customary week-end and holiday closings,
(2) during which trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission, (3) during which an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (4) for such other
periods as the Securities and Exchange Commission may by order permit for the
protection of the holders of the shares.
10
<PAGE> 29
Letter of Intent. The schedule of reduced sales charges also is
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Fund shares from the Principal
Underwriter. Fund shares previously purchased prior to the date of receipt by
the Fund's Transfer Agent of the Letter of Intent and still owned by the
shareholder may also be included in determining the applicable reduction,
provided the dealer or shareholder notifies the Principal Underwriter of such
prior purchase.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of investments over a thirteen-month period.
Each investment made during the period will receive the reduced sales commission
applicable to the amount represented by the goal as if it were a single
investment. A number of shares totaling 5% of the dollar amount of the Letter of
Intent will be held in escrow by the Fund's Transfer Agent in the name of the
shareholder. The initial purchase under a Letter of Intent must be equal to at
least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, or the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. The Principal
Underwriter is authorized by the shareholder to liquidate a sufficient number of
his escrowed shares to obtain such a difference. If the goal is exceeded and
purchases pass the next sales charge level, the sales charge on the entire
amount of the purchase that results in passing that level and on subsequent
purchases will be subject to further reduced sales charges, but there will be no
retroactive reduction of sales charges on previous purchases. At any time while
a Letter of Intent is in effect, a shareholder may, by written notice to the
Principal Underwriter, increase the amount of the stated goal. In that event
shares purchased and still owned by the shareholder will be included in
determining the applicable sales charge reduction. The 5% escrow and minimum
purchase requirements will be applicable to the new stated goal.
Withdrawal Program. A shareholder owning or purchasing Fund shares with
$10,000 or more value at Offering Price may open a Withdrawal Program providing
regular quarterly or monthly payments in any amount requested from shares held
in the Program. Additional shares may be purchased in the Program only in
amounts of $5,000 or more. The Program is voluntary and can be terminated at any
time by either the shareholder or the Fund. There are no service charges for the
program.
Income dividends and capital gains distributions on shares held in a
Program are automatically reinvested in additional whole or fractional shares.
The Program is not an annuity and does not and cannot protect against loss in
declining markets. Amounts paid to a shareholder from the Program represent the
proceeds from redemption of shares, and the value of the shareholder's
investment in the Fund will be reduced to the extent that the payments exceed
any increase in the aggregate value of his shares, including shares purchased
through reinvestment of dividends and distributions. This is particularly apt to
occur in a declining market. For tax purposes, depending upon the shareholder's
cost basis in the shares redeemed, each withdrawal generally will result in a
capital gain or loss.
Individual Retirement Account. Individuals (even if already covered by
a qualified pension or profit-sharing plan, Keogh plan, or Government Plan) can
invest in Fund shares through an Individual Retirement Account under Section 408
of the Internal Revenue Code.
An application form, together with the disclosure statement which the
Internal Revenue Service requires to be furnished, may be obtained on request to
the Principal Underwriter: American Diversified Asset Management, Inc., 12100
Wilshire Boulevard, Suite 680, Los Angeles, California 90025. An IRA which is
established within seven days of the date of receipt of the disclosure statement
may be revoked
11
<PAGE> 30
within seven days after the account is established and the initial contribution
will be refunded. An IRA established more than seven days after the receipt of
the disclosure statement may not be revoked.
Application forms are also available to "rollover" to an IRA in the
Fund, without federal income tax, distributions from a qualified retirement plan
and amounts previously accumulated under any other IRA, which satisfy tax law
requirements for such tax-free rollover treatment. By doing so, federal income
tax, both on the amount rolled over and on any earnings derived from it,
generally will be deferred until distributed from the IRA.
PNC Bank, N.A. charges an annual $10.00 custodian fee for IRAs. PNC
Bank, N.A. may redeem Fund shares held in an IRA in order to pay this fee.
TAX STATUS
The following discussion sets forth additional information summarizing
certain U.S. Federal tax considerations incident to an investment in the Fund.
The Fund intends to continue to qualify and elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").
Generally, in order to qualify as a regulated investment company, the
Fund must, among other things, (1) derive in each taxable year at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies; (2) diversify its holdings so
that, at the end of each quarter of the taxable year, (a) at least 50% of the
value of the Fund's assets is represented by cash, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and M not
more than 25% of the value of its total assets is invested or deemed to be
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies); and (3)
distribute at least 90% of its net investment income (which includes dividends,
interest and net short-term capital gains in excess of net long-term capital
losses) each taxable year.
As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on its net investment income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses) if any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially all of its net
investment income and net capital gains. In addition, amounts not distributed by
the Fund on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent imposition
of the tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses, as prescribed by the Code) for the twelve month period ending on October
31 of the calendar year, and (3) all ordinary income and capital gains for
previous years that are treated under the excise tax rules as not having been
distributed during such years. A distribution will be treated as paid on
December 31 of a calendar year if it is declared by the Fund in October,
November or December of that year to shareholders of record on a date in such a
month and paid during January of the following calendar year. Such distributions
will be taxable to shareholders in the calendar year in which the distributions
are
12
<PAGE> 31
declared, rather than the calendar year in which the distributions are received.
To prevent imposition of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirements.
Dividends paid out of the Fund's net investment income will be taxable
to a shareholder as ordinary income. To the extent such dividends are
attributable to certain dividends received by the Fund from domestic
corporations, they will be eligible for the dividends received deduction
available to shareholders which are corporations, provided that such amounts
otherwise qualify for that deduction and the Fund designates such amounts as
derived from certain dividends from domestic corporations. Net capital gains, if
any, to the extent distributed by the Fund and designated by the Fund as capital
gain dividends, are taxable to shareholders as long-term capital gains,
regardless of how long the shareholder has held the Fund's shares, and are not
eligible for the dividends received deduction. The tax treatment of dividends
and distributions will be the same whether a shareholder reinvests them in
additional shares or elects to receive them in cash.
Because the Fund may invest more than 50% of its total assets in
securities of foreign corporations, the Fund may be eligible to elect to take
advantage of the provisions of Section 853 of the Code, under which a
shareholder will be treated as receiving an additional distribution from the
Fund, in the amount indicated in a notice furnished to him, as his pro rata
portion of income and similar taxes paid to foreign governments with respect to
interest, dividends and gain on the Fund's foreign portfolio investments. The
shareholder then may take his portion of the amount of such foreign taxes paid
as a credit against his federal income tax, subject to certain limitations. If
the shareholder finds it more to his advantage to do so, he may, in the
alternative, treat the foreign tax paid as a deduction from his gross income in
computing his taxable income. No deduction for foreign taxes may be claimed by a
shareholder who computes his tax as an individual and does not itemize
deductions. In addition, foreign income and similar taxes are not generally
deductible by an individual in computing alternative minimum taxable income.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the Fund makes the Section 853
election, the source of the Fund's income flows through to its shareholders.
With respect to the Fund, gains from the sale of securities generally will be
treated as derived from U.S. sources and certain currency fluctuation gains will
be treated as derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income, including foreign
source passive income received from the Fund. In addition, the foreign tax
credit may offset only 90% of the tentative alternative minimum tax imposed on
corporations and individuals, and foreign taxes may not be deducted in computing
minimum taxable income. The foregoing is only a general description of the
foreign tax credit under current law and should not be regarded as exhaustive.
Each shareholder should consult his tax adviser with respect to the availability
of the foreign tax credit.
Certain forward contracts in which the Fund may invest may be "section
1256 contracts." Gains or losses on section 1256 contracts are generally
considered 60% long-term and 40% short-term capital gains or losses ("60/40");
however, foreign currency gains or losses (as discussed below) arising from
forward foreign currency contracts generally are treated as ordinary income or
loss. Also, certain forward foreign currency contracts that are held by the Fund
at the end of each taxable year (and, possibly, on other dates, as required
under the Code) are "marked-to-market" with the result that unrealized gains or
losses are treated as though they were realized.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
13
<PAGE> 32
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of certain securities denominated in a foreign
currency and certain forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase, decrease, or eliminate the amount
of the Fund's net investment income to be distributed to its shareholders as
ordinary income.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Fund of hedging transactions are
not entirely clear. The hedging transactions may increase the amount of
short-term capital gain realized by the Fund which is taxed as ordinary income
when distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased as compared to a
fund that did not engage in such hedging transactions.
Requirements relating to the Fund's status as a regulated investment
company may limit the extent to which the Fund will be able to engage in
transactions in forward contracts.
The Fund may be required to withhold 31% of all distributions and gross
redemption proceeds payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by, or about whom the Fund has been notified by, the
Internal Revenue Service (the "IRS") that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code or in U.S. Treasury Department Regulations generally are exempt from
such backup withholding. Backup withholding is not an additional tax. Any
amounts withheld are credited against each shareholder's U.S. federal tax
liability. The Fund reserves the right not to accept account applications not
accompanied by correct, certified taxpayer identification numbers and such other
information or certifications as the Fund may request pursuant to tax laws and
IRS pronouncements. The Fund also reserves the right to close by redemption
those accounts for which it does not have a correct, certified taxpayer
identification number.
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC for a taxable year if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. If the Fund receives a so-called
"excess distribution" with respect to PFIC stock, the Fund itself will be
subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which
14
<PAGE> 33
the Fund held the PFIC shares. The Fund itself will be subject to tax on the
portion, if any, of an excess distribution that is so allocated to prior Fund
taxable years and an interest factor will be added to the tax, as if the tax had
been payable in such prior taxable years. Certain distributions from a PFIC as
well as gain from the sale of PFIC shares are treated as excess distributions.
Excess distributions are characterized as ordinary income even though, absent
application of the PFIC rules, certain excess distributions might have been
classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, other elections may
become available that would affect the tax treatment of PFIC shares held by the
Fund. The Fund's intention to qualify annually as a regulated investment company
may limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Distributions and redemptions also may be subject to state, local and
foreign taxes depending on each shareholder's particular situation. Shareholders
are advised to consult their tax advisers with respect to the particular tax
consequences to them of an investment in the Fund. Special U.S. tax rules may
apply to investors who are not U.S. citizens. Accordingly, such persons should
consult their tax advisers with respect to the tax consequences to them of an
investment in the Fund.
PRINCIPAL UNDERWRITER
American Diversified Asset Management, Inc., 12100 Wilshire Boulevard,
Suite 680, Los Angeles, California 90025, telephone: (800) 433-1998, or (310)
442-2660, is the Principal Underwriter of the Fund pursuant to an Underwriting
Agreement dated _________,1998, which is subject to renewal each year in
accordance with the provisions of the 1940 Act. The Agreement will terminate
automatically in the event of its assignment. The Principal Underwriter is
relieved of liability for any act or omission in the course of its performance
of the Agreement, in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations.
The Agreement provides that the Principal Underwriter will use its
best efforts to maintain a broad distribution of the Fund's shares among bona
fide investors and may sign dealer agreements with responsible securities
dealers as well as sell to individual investors. The shares are to be sold only
at the Offering Price in effect at the time of sale, with the Fund to receive
not less than the full net asset value of the shares sold. The discount between
the Offering Price and the net asset value may be retained by the Underwriter,
or it may reallow all or any part of such discount to dealers.
The Agreement provides that the Fund shall pay all costs and expenses
incident to registering and qualifying, and maintaining the registration and
qualification of, Fund shares for sale under the Securities Act of 1933 and
under the applicable blue sky laws of the jurisdictions in which the Underwriter
desires to distribute such shares.
15
<PAGE> 34
Distribution Plan. On ________, 1998, the sole shareholders of the
Fund approved a Plan of Distribution for the Fund (the "Plan"), which Plan
became effective _______, 1998. The Plan provides that the Fund will pay monthly
to American Diversified Asset Management, Inc. as Principal Underwriter, a
distribution fee charged against the assets of the Fund and equal on an annual
basis to 0.35% of the Fund's average daily net assets. The distribution fee will
be paid to the Principal Underwriter for its services as distributor of the
Fund's shares in connection with any activities or expenses primarily intended
to result in the sale of shares of the Fund, including, but not limited to: (1)
compensation to employees of the Principal Underwriter who engage in or support
the distribution of the Fund's shares, including salary, commissions, travel and
related expenses; (2) compensation to and expenses of the Principal Underwriter,
including overhead and telephone expenses, allocable to its activities as
distributor of the Fund's shares; (3) payments to broker-dealers, financial
institutions and other persons as compensation for services in connection with
the distribution of shares of the Fund, including promotional incentives and
fees calculated with reference to the average daily net asset value of the
shares held by share-holders who have a brokerage or other service relationship
with such broker-dealers or financial institutions; (4) the costs of printing
and distributing prospectuses, statements of additional information, and reports
for other than existing shareholders; (5) payments to consultants for public
relations, marketing, research and promotional services related to the
distribution of the Fund's shares; (6) the cost of preparing, printing and
distributing sales literature and advertising materials; and (7) such other
similar services as the Fund's Board of Directors determines to be reasonably
calculated to result in the sale of shares of the fund. The Fund will pay all
costs and expenses in connection with preparation, printing, and distribution of
its Prospectus and SAI for current shareholders and the implementation and
operation of the Plan, including legal and accounting fees related thereto.
American Diversified Asset Management, Inc. receives and retains
brokerage commissions with respect to portfolio transactions for the Fund as
described above under "Brokerage Allocation," and, as principal underwriter of
the Fund's shares, also receives the underwriter's portion of the sales load
paid on initial purchases of shares of the Fund. The distribution fee is in
addition to the compensation received by American Diversified Asset Management,
Inc. as adviser for investment advisory services.
The distribution fee is payable to the Principal Underwriter regardless
of the amounts actually expended by the Principal Underwriter for
distribution-related activities. The Plan specifically provides that the amount
of the distribution fee payable to the Principal Underwriter pursuant to the
Plan is not related directly to the expenses incurred by the Principal
Underwriter in providing distribution-related services to the Fund, and that the
Plan does not obligate the Fund to reimburse the Principal Underwriter for such
expenses. The distribution fee is calculated and accrued daily; the Plan
provides that, if it is terminated, any distribution expenses incurred by the
Principal Underwriter on behalf of the Fund in excess of payments of the
distribution fee received or accrued through the termination date are the sole
responsibility and liability of the Principal Underwriter, and are not
obligations of the Fund.
Currently, a service fee and a trail fee will be paid to selling
brokers equal on an annual basis to 0.25% and 0.05%, respectively, of the
average aggregate net asset value of outstanding Fund shares registered in the
name of that broker as nominee or held in a shareholder account that designates
that broker as broker of record.
16
<PAGE> 35
The Plan was approved by the Board of Directors of the Company,
including the unanimous vote of the Directors who are not "interested persons,"
as defined in the 1940 Act, and who have no direct or indirect financial
interest in the operation of the Plan or related agreement (the "Independent
Directors"), on _________, 1998. On a quarterly basis, the Company's Board of
Directors views a report on expenditures under the Plan and the purposes for
which expenditures were made. The Directors conduct an additional, more
extensive, review annually in determining whether the Plan will be continued. By
its terms, continuation of the Plan from year to year is contingent on annual
approval by a majority of the Fund's Directors and by a majority of the
Independent Directors. The Plan may be terminated at any time with respect to
the Fund by vote of a majority of the Independent Directors or a majority of the
outstanding shares of the Fund.
On July 7, 1993, certain amendments to the National Association of
Securities Dealers, Inc. ("NASD") Rules of Fair Practice governing sales charges
that may be imposed on purchases of fund
17
<PAGE> 36
shares became effective. The amendments, among other things, subject the payment
of 12b-1 fees by mutual funds to certain limits which may vary depending on the
existence of other types of sales charges. At its current sales load level, the
maximum asset-based distribution fee that the Fund could impose on shares would
be 0.75% per annum. "Service fees," up to a maximum of 0.25% per annum, would be
exempt from the overall limits on distribution fees. In addition to these annual
limitations, all 12b-1 fees and sales loads paid to the Underwriter would be
subject to an ongoing cap of 6.25% of aggregate net sales. Because the Plan
currently contemplates a 12b-1 fee equal on an annual basis to 0.35%, of which
0.25% would generally meet the definition of a service fee, the NASD rule does
not have a significant impact on the Fund or the Plan. Nevertheless, the Plan
will be reviewed and, if necessary, amended to assure its compliance with the
NASD rules or with any SEC rule amendments that may be adopted.
Performance Information. The Fund may, from time to time, include its
total return in advertisements or reports to shareholders or prospective
investors. Standardized quotations of average annual total return for the Fund
will be expressed in terms of the average annual compounded rate of return for a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the
life of the Fund), calculated pursuant to the following formula: P(l + T)(n)=
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses
(on an annual basis), deduction of the maximum initial sales load, and assume
that all dividends and distributions are reinvested when paid. The Fund also may
quote supplementary a rate of total return that is based on a net amount
invested in the Fund (i.e., that does not reflect deduction of the maximum
initial sales load).
Performance information for the Fund may be compared, in reports and
promotional literature, to: (1) the Value Line Composite, NASDAQ, Morgan Stanley
World Index, Treasury Note Index, or other unmanaged indices so that investors
may compare the Fund's results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities markets in
general; (2) other groups of mutual funds tracked by Lipper Analytical Services,
a widely used independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and (3) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in the Fund. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
18
<PAGE> 37
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objectives and policies, characteristics and
quality of the portfolio, and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.
Miscellaneous. The validity of shares offered hereby will be passed on
by Roy W. Adams, Jr., Attorney At Law, 1024 Country Club Drive, Suite 135,
Moraga, California 94104.
Financial Statements. The Fund has recently commenced operations
and, therefore, has not yet prepared financial statements for public
distribution.
19
<PAGE> 38
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Incorporated by reference to Registration
Statement No. 2-76762
(b) Exhibits:
(1) through (4) are incorporated by reference
to Registration Statement No. 2-76762
(5a) Forms of investment advisory and sub-advisory
agreements for Global Value Fund incorporated
herein by reference to Registration
Statement No. 2-76762
(5b) Form of investment advisory agreement for
International Value Fund
(5c) Form of investment sub-advisory
agreement for International Value Fund
(6) through (10) are incorporated by reference
to Registration Statement No. 2-76762
(11) Consent of McGladrey & Pullen, LLP.
(12) through (15) are incorporated herein by
reference to Registration Statement No.
2-76762
(16) Not Applicable
(17) Incorporated herein by reference to
Registration Statement No. 2-76762
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of
Date Title of Class Record Holders
- ------ -------------- --------------
<S> <C> <C>
September 30, 1998 Common Stock-- ____
Global Value Fund series
September 30, 1998 Common Stock-- ____
International Value Fund
series
</TABLE>
Item 27. Indemnification
Article EIGHTH of Registrant's Articles of Incorporation and
Section 2-418 of the Corporations and Associations Article of
the Annotated Code of Maryland are incorporated by reference.
<PAGE> 39
Item 28. Business and Other Connections of Investment Adviser and its
Officers and Directors
The business and other connections of Registrant's investment
adviser, American Diversified Asset Management, Inc., and
Registrant's subadviser, Ladas & Hulings, Inc., are
described in Parts A and B.
Item 29. Principal Underwriters
(a) Not Applicable.
(b) With respect to each director and officer of the
Principal Underwriter:
<TABLE>
<CAPTION>
Name and Business Address
Position with Registrant Position with Underwriter
- -------------------------- -------------------------
<S> <C>
James Buchanan Rea, Jr. Director, President and Treasurer
Chairman of the Board, President and
12100 Wilshire Blvd.
Secretary
Los Angeles, CA 90025
Frances L. Rea Vice President and Secretary
Treasurer
12100 Wilshire Blvd.
Los Angeles, CA 90025
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder are
maintained as indicated in the possession of The Chase
Manhattan Bank, N.A., One Metro Tech Center, Brooklyn, New
York, 11245 ("Chase"); American Diversified Asset Management,
Inc., 12100 Wilshire Boulevard, , Los Angeles, California
90025 ("ADAM") American Data Services, Inc., 136 Nassau Road,
Huntington,(New York 11743"ADS"); PFPC, 400 Bellevue Parkway,
Wilmington, Delaware,19809 ("PFPC"); or. Dechert Price &
Rhoads, 1775 Eye Street,N.W., Washington, D.C. 20006 ("DPR")
Rule 31a-1
(b)(1)..................................... Chase, ADAM, ADS and PFPC
(b)(2)(A).................................. ADS and PFPC
(b)(2)(B).................................. Chase and ADS
(b)(2)(C).................................. Chase and ADAM
(b)(2)(D).................................. Chase and PFPC
(b)(3)..................................... Not Applicable
(b)(4)..................................... DPR and ADAM
(b)(5)..................................... Chase and ADAM
(b)(6)..................................... Chase and ADAM
(b)(7)..................................... Not Applicable
(b)(8)..................................... ADS
(b)(9)..................................... ADAM
(b)(10).................................... Chase and ADAM
(b)(11).................................... ADAM
<PAGE> 40
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) The Registrant undertakes to furnish each person to
whom a prospectus is delivered a copy of the
Registrant's latest annual report to shareholders,
upon request and without charge, in the event that
the information called for by Item 5A of Form N-1A
has been presented in the Registrant's latest annual
report to shareholders.
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 22 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, in the State of California, on the 8th day of October, 1998.
AMERICAN DIVERSIFIED FUNDS, INC.
By: /s/ JAMES BUCHANAN REA, JR.
----------------------------
James Buchanan Rea, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ JAMES BUCHANAN REA, JR.
__________________________ President, Secretary and October 8, 1998
James Buchanan Rea, Jr. Chairman of the Board
(Principal Executive Officer)
__________________________ Treasurer (Chief Financial October 8, 1998
Frances L. Rea** Officer)
__________________________ Director October 8, 1998
Gerald M. Borden*
__________________________ Director October 8, 1998
John P. Shelton*
__________________________ Director October 8, 1998
J. Victor Monke*
__________________________ Director October 8, 1998
R. Paul Toeppen*
__________________________ Director October 8, 1998
James Tracy*
__________________________ Director October __, 1998
Klaus Conradi
</TABLE>
*By: /s/ James Buchanan Rea, Jr.
-----------------------------
James Buchanan Rea, Jr.
Attorney-in-fact
* Powers of attorney previously filed with Registration Statement No.
2-76762 and Post-Effective Amendment No. 11 to the Registration
Statement.
** Power of attorney previously filed with Post-Effective Amendment No. 11
to the Registration Statement.
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the ___ day of ________, 1998, between AMERICAN
DIVERSIFIED FUNDS, INC. (hereinafter referred to as the "Fund") and AMERICAN
DIVERSIFIED ASSET MANAGEMENT, INC., a corporation organized under the laws of
the State of Nevada (hereinafter referred to as the "Adviser").
1. Management of Fund. The Adviser agrees, during the life of this
Agreement, to (i) furnish the Fund with investment research, advice and
supervision and (ii) continuously furnish the Fund with an investment program
for the assets of the Fund consistent with the provisions of the Articles of
Incorporation of the Fund and the investment policies adopted and declared by
its Board of Directors. The Adviser is not required to furnish any overhead
items or facilities for the Fund, including without limitation trading desk
facilities or daily pricing.
2. Service Providers. In rendering its advisory services to the Fund
pursuant to this Agreement, the Adviser may employ, retain or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing itself or the Fund with such statistical and other factual
information, such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities and other properties and
assets, or such other information, advice or assistance as the Adviser may deem
necessary, appropriate or convenient for the discharge of its overall
responsibilities with respect to the Fund and the other accounts which it or its
affiliates serve as investment adviser.
3. Brokers and Dealers. In addition to being responsible for supplying
recommendations regarding the purchase and sale of securities by the Fund, the
Adviser shall recommend brokers and dealers for execution of the Fund's
portfolio transactions. The foremost consideration in making such
recommendations will be the Fund's obtaining best price and execution.
Secondarily, the Adviser may take into account certain additional services
provided by broker-dealers to the Fund. The Adviser and any person performing
executive, administrative or trading functions for the Fund, whose services are
made available to the Fund by the Adviser, are specifically authorized to
recommend to the Fund that it allocate brokerage and principal business to firms
that provide such services or facilities which, if accepted, might cause the
Fund to pay a member of a securities exchange or any other securities broker or
dealer an amount of commission or "mark-up" for effecting the securities
transaction in excess of the amount of commission, or at a less advantageous
price another member of the exchange, broker or dealer would have charged for
effecting that transaction, if the Adviser or such person determine in good
faith that such amount of commission, or "mark-up", as the case may be, is
reasonable in relation to the value of the brokerage and research (as such
services are defined in Section 28(e) of the securities and Exchange Act of
1934) provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the Adviser's evaluation of such person's overall
responsibilities with respect to accounts as to which the Adviser or such person
exercise
<PAGE> 2
investment discretion (as that term is defined in Section 3(a)(35) of the
Securities Exchange Act of 1934).
4. Purchases and Sales of Fund Securities. The Adviser, its affiliates
or other its investment advisory clients may purchase and/or sell many
securities which are also purchased or sold by the Fund. The orders for all such
securities transactions will be placed for execution by methods so as to be
impartial and fair for all parties and in compliance with all applicable, rules
and regulations.
5. Liability. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Adviser, or of reckless disregard of its
obligations hereunder, the Adviser shall have no liability to the Fund or any
shareholder of the Fund for any error of judgment, mistake of law, or any loss
arising out of any investment or for any other act or omission in the
performance by the Adviser of its duties under this Agreement.
6. Compensation. The Fund agrees, during the life of this Agreement, to
pay to the investment Adviser as compensation for such services a fee of 1/12th
of 1% monthly (equivalent to 1% annually) on the first $100,000,000 of the net
assets of the Fund as of the close of business on the last business day of each
calendar month during the Fund's fiscal year, reduced to 1/12th of .75% monthly
(equivalent to .75% annually) of such net assets in excess of $100,000,000 up to
$250,000,000, and reduced to 1/12th of .5% monthly (equivalent to .5% annually)
of such net assets in excess of $250,000,000.
7. Term. This Agreement shall remain in full force and effect until two
years from the date hereof and thereafter from year to year to the extent such
continuance is approved annually by the Board of Directors of the Fund or by
vote of a majority of the outstanding voting securities of the Fund (as defined
by the Investment Company Act of 1940, as amended (the "1940 Act")) and also, in
either event, approval by a majority of those Directors who are not parties to
the Contract or interested persons of any such party.
8. Termination. This Agreement may be terminated by the Fund or the
Adviser at any time on sixty (60) day's written notice without payment of
penalty, provided that such termination by the Fund shall be directed or
approved by the vote of a majority of the Directors of the Fund in office at the
time or by the vote of a majority of the outstanding voting securities of the
Fund (as defined by the 1940 Act).
9. Assignment. This Agreement shall automatically and immediately
terminate in the event of its assignment (as defined by the 1940 Act).
<PAGE> 3
10. Books and Records. The Adviser will maintain its books and records
or duplicate copies thereof relating to the Fund and will comply with Section 31
of the 1940 Act and the rules thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and attested as of the date
first above written.
AMERICAN DIVERSIFIED FUNDS, INC.,
on behalf of American Diversified
International Value Fund
By______________________________________
James B. Rea, Jr., President
ATTEST:
___________________________________
(Secretary)
AMERICAN DIVERSIFIED ASSET
MANAGEMENT, INC.
By______________________________________
James B. Rea, Jr., President
ATTEST:
___________________________________
(Secretary)
<PAGE> 1
SUB-INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this __ day of __________, 1998, between AMERICAN
DIVERSIFIED ASSET MANAGEMENT, INC. (the "Adviser") and LADAS & HULINGS, INC.
(the "Subadviser").
WHEREAS, American Diversified Funds, Inc. (the "Company") is registered
as an open-end, management investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"); and
WHEREAS, American Diversified International Value Fund (the "Fund") is
a separate investment series of the Company; and
WHEREAS, the Adviser has been appointed investment adviser to the Fund;
and
WHEREAS, the Adviser desires to retain the Subadviser to assist it in
the provision of a continuous investment program for the Fund and the Subadviser
is willing to do so upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Adviser hereby appoints the Subadviser to act as
subadviser to the Fund as permitted by the Adviser's Investment Advisory
Agreement with the Company pertaining to the Fund. Intending to be legally
bound, the Subadviser accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of the Board of
Directors, the Subadviser shall assist the Adviser in providing a continuous
investment program with respect to the Fund's portfolio, including without
limitation investment research and management with respect to all securities and
investments and cash equivalents in the Fund. The Subadviser may, subject to the
Adviser's review, determine the securities and investments to be purchased, sold
or retained by the Fund, and the Subadviser may place orders directly with the
issuer or any broker or dealer for such securities and investments. The Adviser
will provide services under this Agreement in accordance with the Fund's
investment objective, policies and restrictions as stated in the Fund's
prospectus and Statement of Additional Information, which shall be forwarded to
the Subadviser by the Adviser from time to time, and resolutions of the Board of
Directors applicable to the Fund provided those resolutions are communicated to
the Subadviser and a reasonable amount of time is provided in order for it to
comply.
Without limiting the generality of the foregoing, the Subadviser
further agrees that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
<PAGE> 2
(b) will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission under the 1940 Act applicable to
investment advisers to registered investment companies and in addition will
conduct its activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment advisory
activities of the Subadviser;
(c) will place or cause to be placed orders for the Fund
either directly with the issuer or with any broker or dealer. In placing orders
with brokers and dealers, the Subadviser will attempt to obtain prompt execution
of orders in an effective manner at the most favorable price. Consistent with
this obligation and to the extent permitted by the 1940 Act, when the execution
and price offered by two or more brokers or dealers are comparable, the Adviser
may, in its discretion, purchase and sell portfolio securities to and from
brokers and dealers who provide the Adviser with research advice and other
services;
(d) will maintain or cause to be maintained all books and
records with respect to the securities transactions of the Fund and will furnish
the Board of Directors with such periodic and special reports as the Board may
request; and
(e) will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and the
Fund and prior, present, or potential shareholders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder.
3. Services Not Exclusive. Except as provided herein, the services
furnished by the Subadviser hereunder are deemed not to be exclusive, and the
Adviser shall be free to furnish similar services to others so long as its
services under this Agreement are not impaired thereby.
4. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Subadviser hereby agrees that all records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any of such records upon the Company's
request. The Subadviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
5. Expenses. During the term of this Agreement, the Subadviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including without limitation brokerage commissions and other transaction
charges, if any) purchased for the Fund.
6. Compensation. For the services provided and the expenses assumed
with respect to the Fund pursuant to this Agreement, the Subadviser will be
entitled to a fee of 1/12th of .50% monthly (equivalent to .50% annually) on the
first $100,000,000 of the net assets of the Fund as of the close of business on
the last business day of each calendar month during the Fund's fiscal year,
reduced to 1/12th of .375% monthly (equivalent to .375% annually) of such
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net assets in excess of $100,000,000 up to $250,000,000, and reduced to 1/12th
of .25% monthly (equivalent to .25% annually) of such net assets in excess of
$250,000,000.
7. Limitation of Liability. The Subadviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of this Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Subadviser in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement, nothing herein shall in any way constitute a waiver or limitation of
any rights that the Company, the Fund or the Adviser may have under the United
States federal or State securities laws, which may impose liability on persons
who act in good faith.
8. Duration and Termination. Unless sooner terminated, this Agreement
shall continue in full force and effect until two years from the date hereof,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by the
Company's Board of Directors or vote of the lesser of (a) 67% of the shares of
the Fund represented at a meeting if holders of more than 50 % of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50 % of the outstanding shares of the Fund, provided that in either event
its continuance also is approved by a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this Agreement
(the "Independent Directors"), by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable at any time
without penalty, on 60 days' notice, by the Adviser, the Subadviser or by the
Board of Directors or by vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50 % of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50 % of the
outstanding shares of the Fund. This Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).
9. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
10. Governing Law. This Agreement shall be governed by and its
provisions shall be construed in accordance with the laws of the State of
California as applied to agreements between California residents entered into
and performed entirely within the State of California.
11. Possession of Fund Assets. At all times the assets of the Fund
(consisting of all cash, securities and other instruments held by the Fund)
shall remain exclusively under the
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management and control of the Fund's custodian. At no time will the Subadviser
have custody or possession of any such assets of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
AMERICAN DIVERSIFIED ASSET MANAGEMENT, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
LADAS & HULINGS, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
4
<PAGE> 1
EXHIBIT 99.(11)
[LOGO]
[McGLADREY & PULLEN, LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm in the Statement of
Additional Information under the caption "Investment Advisory and Other
Services" included in Post-Effective Amendment No. 22 to the Registration
Statement on Form N-1a File No. 2-76762 of American Diversified Funds, Inc. as
filed with the Securities and Exchange Commission.
/s/ McGLADREY & PULLEN, LLP
-----------------------------
McGladrey & Pullen, LLP
New York, New York
October 8, 1998
