MATRIX ADVISORS VALUE FUND, INC.
SUPPLEMENT DATED JUNE 16, 2000
TO PROSPECTUS DATED OCTOBER 29, 1999
1. Effective July 3, 2000, the Fund's Transfer Agent will be:
ICA Fund Services Corp.
4455 East Camelback Road
Suite E261
Phoenix, AZ 8501 8
The Transfer Agent's toll-free telephone number is 1-800-576-8229.
All correspondence, purchases by check and written redemption requests should be
mailed to the address noted above.
If you are purchasing shares by wire, please telephone the Transfer Agent at the
toll-free number listed above before you send money to receive wiring
instructions.
2. Effective April 3, 2000, the name of the fund was changed to MATRIX ADVISORS
VALUE FUND, INC.
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MATRIX ADVISORS VALUE FUND, INC.
747 THIRD AVENUE, 31ST FLOOR
NEW YORK, NY 10017
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 29, 1999
AS AMENDED JUNE 16, 2000
This Statement of Additional Information ("SAI") is not a prospectus
and it should be read in conjunction with the Prospectus dated October 29, 1999,
as may be revised, of Matrix Advisors Value Fund, Inc. (the "Fund"). Matrix
Asset Advisors, Inc. (the "Advisor") is the advisor to the Fund. A copy of the
Fund's Prospectus is available by calling (212) 486-2004.
TABLE OF CONTENTS
The Fund ................................................................. B-2
Investment Objective and Policies ........................................ B-2
Investment Restrictions .................................................. B-6
Directors and Officers ................................................... B-7
The Fund's Investment Advisor ............................................ B-8
Execution of Portfolio Transactions ...................................... B-9
Portfolio Turnover ....................................................... B-11
Additional Purchase and Redemption Information ........................... B-11
Distributions and Tax Information ........................................ B-13
Determination of Share Price ............................................. B-14
Performance Information .................................................. B-14
General Information ...................................................... B-15
Financial Statements ..................................................... B-16
Appendix ................................................................. B-17
B-1
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THE FUND
The Fund is an open-end management investment company organized as a
Maryland corporation. The Fund is registered with the SEC as a management
investment company. Such a registration does not involve supervision of the
management or policies of the Fund. The Prospectus of the Fund and this SAI omit
certain of the information contained in the Registration Statement filed with
the SEC. Copies of such information may be obtained from the SEC upon payment of
the prescribed fee.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a mutual fund with the investment objective of seeking to
achieve a total rate of return which is comprised of capital appreciation and
current income. The following discussion supplements the discussion of the
Fund's investment objective and policies as set forth in the Prospectus. There
can be no assurance the objective of the Fund will be attained.
On April 3, the Fund changed its name from LMH/Matrix Value Fund, Inc.
to Matrix Advisors Value Fund, Inc.
PREFERRED STOCK
The Fund may invest in preferred stocks. A preferred stock is a blend
of the characteristics of a bond and common stock. It can offer the higher yield
of a bond and has priority over common stock in equity ownership, but does not
have the seniority of a bond and, unlike common stock, its participation in the
issuer's growth may be limited. Preferred stock has preference over common stock
in the receipt of dividends and in any residual assets after payment to
creditors should the issuer be dissolved. Although the dividend is set at a
fixed annual rate, in some circumstances it can be changed or omitted by the
issuer.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities (bonds, notes,
debentures, preferred stock and other securities convertible income common
stocks ) that may offer higher income than the common stocks into which they are
convertible. The convertible securities in which the Fund may invest include
fixed-income or zero coupon debt securities, which may be converted or exchanged
at a rated or determinable exchange ratio into underlying shares of common
stock. Prior to their conversion, convertible securities may have
characteristics similar to non-convertible debt securities. While convertible
securities generally offer lower yields than non-convertible debt securities of
similar quality, their prices may reflect changes in the value of the underlying
common stock. Convertible securities generally entail less credit risk than the
issuer's common stock.
INVESTMENT COMPANIES
The Fund may invest in shares of other investment companies in pursuit
of its investment objective. This may include investment in money market mutual
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funds in connection with the Fund's management of daily cash positions. In
addition to the advisory and operational fees the Fund bears directly in
connection with its own operation, the Fund and its shareholders will also bear
the pro rata portion of each other investment company's advisory and operational
expenses.
FOREIGN SECURITIES
The Fund may invest up to 10% of its total assets in securities of
foreign issuers that are listed and traded on national securities exchanges or
traded over-the-counter in the United States.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and diversification and balance of
payments position. The internal politics of some foreign countries may not be as
stable as those of the United States. Governments in some foreign countries also
continue to participate to a significant degree, through ownership interest or
regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are affected by the
trade policies and economic conditions of their trading partners. If these
trading partners enacted protectionist trade legislation, it could have a
significant adverse effect upon the securities markets of such countries.
CURRENCY FLUCTUATIONS. The Fund may invest in securities denominated in
foreign currencies. A change in the value of any such currency against the U.S.
dollar will result in a corresponding change in the U.S. dollar value of the
Fund's assets denominated in that currency. Such changes will also affect the
Fund's income. The value of the Fund's assets may also be affected by currency
restrictions and exchange control regulations enacted from time to time.
EURO CONVERSION. Several European countries adopted a single uniform
currency known as the "euro," effective January 1, 1999. The euro conversion,
that will take place over a seve period, could have potential adverse effects on
the Fund's ability to value its portfolio holdings in foreign securities, and
could increase the costs associated with the Fund's operations. The Fund and the
Advisor are working with providers of services to the Fund in the areas of
clearance and settlement of trade to avoid any material impact on the Fund due
to the euro conversion; there can be no assurance, however, that the steps taken
will be sufficient to avoid any adverse impact on the Fund.
MARKET CHARACTERISTICS. The Advisor expects that many foreign
securities in which the Fund invests will be purchased in over-the-counter
markets or on exchanges located in the countries in which the principal offices
of the issuers of the various securities are located, if that is the best
available market. Foreign exchanges and markets may be more volatile than those
in the United States. While growing, they usually have substantially less volume
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than U.S. markets, and the Fund's foreign securities may be less liquid and more
volatile than U.S. securities. Also, settlement practices for transactions in
foreign markets may differ from those in United States markets, and may include
delays beyond periods customary in the United States. Foreign security trading
practices, including those involving securities settlement where Fund assets may
be released prior to receipt of payment or securities, may expose the Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest and dividends payable on some of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to Fund shareholders.
COSTS. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
OPTIONS ON SECURITIES
The Fund may write (sell) covered call options on its portfolio
securities ("covered options") in an attempt to enhance gain, although it has no
present intention to do so and may only do so to the extent of up to 5% of its
net assets.
When the Fund writes a covered call option, it gives the purchaser of
the option the right, upon exercise of the option, to buy the underlying
security at the price specified in the option (the "exercise price") at any time
during the option period, generally ranging up to nine months. If the option
expires unexercised, the Fund will realize income to the extent of the amount
received for the option (the "premium"). If the call option is exercised, a
decision over which the Fund has no control, the Fund must sell the underlying
security to the option holder at the exercise price. By writing a covered
option, the Fund forgoes, in exchange for the premium less the commission ("net
premium") the opportunity to profit during the option period from an increase in
the market value of the underlying security above the exercise price.
The Fund may terminate its obligation as writer of a call option by
purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is
called a "closing purchase transaction."
Closing purchase transactions enable the Fund immediately to realize
gains or minimize losses on its options positions. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
option, or at any particular time, and for some options no secondary market may
exist. In addition, stock index prices may be distorted by interruptions in the
trading of securities of certain companies or of issuers in certain industries,
which could disrupt trading in option positions on such indices and preclude the
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Fund from closing out its options positions. If the Fund is unable to effect a
closing purchase transaction with respect to options it has written, it will not
be able to terminate its obligations or minimize its losses under such options
prior to their expiration.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements may take place in the underlying markets that cannot be
reflected in the options markets.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The
Fund may hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar- denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances,
the Fund also may make interest-bearing time or other interest-bearing deposits
in commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of
its assets in commercial paper and short-term notes. Commercial paper consists
of unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by the Advisor to be of
comparable quality. These rating symbols are described in the Appendix.
B-5
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INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. Purchase any securities which would cause more than 5% of the Fund's
total assets at the time of such purchase to be invested in the securities of
any issuer, but this limitation does not apply to obligations issued or
guaranteed by the U.S. Government;
2. Purchase any securities which would cause the Fund at the time of
such purchase to own more than 10% of the outstanding voting securities of any
class of any issuer, but this limitation does not apply to obligations issued or
guaranteed by the U.S. Government;
3. Purchase any securities which would cause more than 25% of the
Fund's total assets at the time of such purchase to be concentrated in the
securities of issuers engaged in any one industry;
4. Invest in companies for the purpose of exercising management or
control;
5. Purchase or sell real estate, although the Fund may invest in the
readily marketable securities of companies whose business involves the purchase
or sale of real estate;
6. Purchase or sell commodities or commodities contracts;
7. Purchase the securities of any investment company, except (i) in the
open market where no profit to a sponsor or dealer other than customary
brokerage commissions results from such purchases or (ii) if acquired in
connection with a plan of reorganization;
8. Purchase securities on margin;
9. Effect short sales of any securities;
10. Make loans, except by the acquisition of a portion of an issue of
publicly traded bonds, debentures, notes, and other debt securities;
11. Borrow money, except for temporary emergency purposes in amounts
not in excess of 5% of the Fund's total assets;
12. Mortgage, pledge or hypothecate securities;
13. Act as an underwriter of securities except insofar as the Fund
might technically be deemed an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities;
14. Purchase or retain the securities of any issuer if the Fund's
officers or directors, or those of the Advisor, who each own 0.5% of the
outstanding securities of such issuer, together own beneficially more than 5% of
such securities; or
15. Issue any class of securities senior to any other class of
securities.
B-6
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As a matter of operating but not fundamental policy, which can be
changed without shareholder approval, the Fund may not purchase any securities
which would cause more than 5% of the Fund's net assets at the time of such
purchase to be invested in securities which may not be publicly sold without
registration under the Securities Act of 1933 or are otherwise not readily
marketable. If such policy were to be changed, such investments would be limited
to no more than 15% of net assets.
If a percentage restriction set forth in the prospectus or in this SAI
is adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except with respect to borrowing or the purchase
of restricted or illiquid securities.
DIRECTORS AND OFFICERS
The directors and officers of the Fund are as follows:
Name and Address and Principal
Occupations During the Past Five Yrs. Offices With the Fund
------------------------------------- ---------------------
David A. Katz, CFA, Age 36* President, Secretary, and Treasurer
747 Third Avenue
New York, NY 10017
Mr. Katz is President and Chief Investment Officer of Matrix Asset Advisors, the
Fund's Advisor, and portfolio manager of the Fund. He has been associated with
the Advisor and its predecessor since its founding in 1986.
Robert M. Rosencrans, Age 70 Director
331 Round Hill Rd.
Greenwich, CT 06830
Mr. Rosencrans has been President of Columbia International, Inc. since 1984.
From 1962 to 1984 he was President and Chief Executive Officer of United Artists
Cablesystems Corporation.
T. Michael Tucker, Age 55 Director
218 South Pear Street
Blountstown, FL 32424
Mr. Tucker is the owner of T. Michael Tucker, a certified public accounting firm
which he established in 1977.
Larry D. Kieszek, Age 47 Director
222 Northeast First Street
Gainesville, FL 32601
Mr. Kieszek is Managing Partner of Purvis, Gray & Company, a certified public
accounting firm with which he has been associated since 1974.
----------
* Mr. Katz is an "interested person" of the Fund within the meaning of the
Investment Company Act of 1940 (the "1940 Act").
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All Directors who are not interested persons are entitled to receive a
fee of $500 per meeting plus expenses of attending Board of Directors meetings.
With respect to meetings held during the fiscal year ended June 30, 1999, the
Directors did not receive fees or expense reimbursement.
The Directors and officers of the Fund as a group may be deemed to own
beneficially less than 1% of Fund shares outstanding as of the date of this SAI.
THE FUND'S INVESTMENT ADVISOR
Matrix Asset Advisors, Inc. (the "Advisor") serves as the Fund's
Advisor under an Advisory Agreement, which provides that the Advisor will obtain
and evaluate information relating to the economy, industries, businesses,
securities markets and securities, formulate a continuing program for the
management of the Fund's assets in a manner consistent with its investment
objective, and implement this program by selecting on a discretionary basis the
securities to be purchased or sold by the Fund and placing orders for such
purchases and sales. In addition, the Advisor provides for the Fund's office
needs, supervises the maintenance of the Fund's books and records, provides the
Fund with persons competent to perform all of these executive and administrative
functions, supervises and coordinates the activities of the Fund's institutional
and other agents (e.g., custodian, transfer agent, independent accountants,
outside legal counsel), and permits its officers and employees to serve as
directors and officers of the Fund, all without additional cost to the Fund.
Certain directors and officers of the Advisor presently serve as directors or
officers of the Fund. The Advisor has retained, at its own expense, Investment
Company Administration LLC, 560 Hudson St., Hackensack, NJ 07601, to assist it
in providing the Fund with certain administrative s
The Fund pays all other expenses incurred in the operation of the Fund,
except as provided below, including taxes, fees and commissions, bookkeeping
expenses, share issuance expenses, expenses of redemption of shares, charges of
its custodian and transfer agent, costs of preparing and printing reports and
prospectuses for the Fund's existing shareholders, registration fees, auditing
and legal expenses, and expenses and fees of outside directors.
The Advisor also has agreed to pay the fees and expenses of printing
and distributing reports or prospectuses prepared for the Fund in connection
with the offering or sale of its shares, of preparing and setting in type,
printing and mailing all advertising and sales literature and all other expenses
in connection with the offer and sale of Fund shares not specifically allocated
to the Fund.
The Advisory Agreement continues in effect from year to year, if such
continuation is specifically approved at least annually by the Fund's Board of
Directors at a meeting called for that purpose, or by vote of the holders of a
majority of the Fund's shares, and in either case, also by a vote of a majority
of the Fund's shares and in either case, also by a vote of a majority of
directors who are not "interested persons" of the Advisor or the Fund within the
meaning of the Investment Company Act of 1940. The Advisory Agreement is subject
to termination by either party without penalty on 60 days' written notice to the
other and terminates automatically in the event of its assignment.
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The Advisory Agreement provides that neither the Advisor, its
directors, officers or employees, nor certain other persons performing specific
functions for the Fund, shall be liable to the Fund, except for any loss
resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
The Fund has agreed to pay the Advisor, as compensation for all
services rendered, staff and facilities provided and expenses paid or assumed
(excluding organizational costs), an annual fee, payable monthly, of 1.00% of
the Fund's average daily net assets. Heine Management Group, Inc. served as
Advisor to the Fund from its inception until April 18, 1997, when shareholders
approved the Investment Advisory Agreement with the Advisor. For the fiscal year
ended June 30, 1999, investment advisory fees of $92,001 were incurred, of which
$51,319 were waived by the Advisor. For the same period, the Advisor reimbursed
the Fund an additional $2,000 in expenses. For the fiscal year ended June 30,
1998, investment advisory fees of $92,091 were incurred, of which $52,397 were
waived by the Advisor. For the fiscal year ended June 30, 1997, investment
advisory fees of $75,679 were incurred, of which $38,128 were waived by Heine
Management and the Advisor.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Fund and which broker-dealers are
eligible to execute the Fund's portfolio transactions. Purchases and sales of
securities in the over-the-counter market will generally be executed directly
with a "market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own accounts. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
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In placing portfolio transactions, the Advisor will use its reasonable
efforts to choose broker- dealers capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers which furnish or supply research and statistical
information to the Advisor that it may lawfully and appropriately use in its
investment advisory capacities, as well as provide other services in addition to
execution services. The Advisor considers such information, which is in addition
to and not in lieu of the services required to be performed by it under its
Agreement with the Fund, to be useful in varying degrees, but of indeterminable
value. Portfolio transactions may be placed with broker-dealers who sell shares
of the Fund subject to rules adopted by the National Association of Securities
Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds ("Funds") managed or advised by the
Advisor. Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts or Funds.
In such event, the position of the Fund and such client account(s) or Funds in
the same issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts or Funds seeks to acquire the same security as the Fund at
the same time, the Fund may not be able to acquire as large a portion of such
security as it desires, or it may have to pay a higher price or obtain a lower
yield for such security. Similarly, the Fund may not be able to obtain as high a
price for, or as large an execution of, an order to sell any particular security
at the same time. If one or more of such client accounts or Funds simultaneously
purchases or sells the same security that the Fund is purchasing or selling,
each day's transactions in such security will be allocated between the F and all
such client accounts or Funds in a manner deemed equitable by the Advisor,
taking into account the respective sizes of the accounts and the amount being
purchased or sold. It is recognized that in some cases this system could have a
detrimental effect on the price or value of the security insofar as the Fund is
concerned. In other cases, however, it is believed that the ability of the Fund
to participate in volume transactions may produce better executions for the
Fund.
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The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
brokers solely for selling shares of the Fund, although the Fund may consider
the sale of shares as a factor in allocating brokerage. However, as stated
above, broker-dealers who execute brokerage transactions may effect purchase of
shares of the Fund for their customers.
For the fiscal year ended June 30, 1999, the Fund paid $13,223 in
brokerage commissions. For the fiscal years ended June 30, 1998 and 1997, the
Fund paid brokerage commissions of $23,617 and $38,079, respectively. All such
commissions were paid to persons unaffiliated with the Fund or the Advisor.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in the Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. See "Execution of Portfolio
Transactions." For the fiscal years ended June 30, 1999 and 1998, the Fund had a
portfolio turnover rate of 33% and 68%, respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in
the Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
The public offering price of Fund shares is the net asset value. The
Fund receives the net asset value. Shares are purchased at the public offering
price next determined after the Transfer Agent receives your order in proper
form as discussed in the Fund's Prospectus. In most cases, in order to receive
that day's public offering price, the Transfer Agent must receive your order in
proper form before the close of regular trading on the New York Stock Exchange
("NYSE"), normally 4:00 p.m., Eastern time.
The NYSE annually announces the days on which it will not be open for
trading. The most recent announcement indicates that it will not be open on the
following days: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the NYSE may close on days not included in that
announcement.
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The Fund may suspend the right of redemption: (a) for any period during
which the New York Stock Exchange ("NYSE") is closed, or the Securities and
Exchange Commission ("SEC") determines that trading on the NYSE is restricted;
(b) when there is an emergency as determined by the SEC as a result of which it
is not practicable for the Fund to dispose of its securities; or ( c) for such
other period as the SEC may by order permit for the protection of the Fund's
shareholders.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular
trading.
DELIVERY OF REDEMPTION PROCEEDS
Payments to shareholders for shares of the Fund redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the SEC or
the NYSE is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Fund's shareholders. Under
unusual circumstances, the Fund may suspend redemptions, or postpone payment for
more than seven days, but only as authorized by SEC rules.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption or repurchase.
REDEMPTIONS-IN-KIND
The Fund has made an election pursuant to Rule 18f-1 under the 1940 Act
which obligates it to pay in cash all redemptions to any shareholder of record
unless a shareholder requests a redemption, within a 90 day period, of shares
having a value in excess of (i) $250,000, or (ii) 1% of the Fund's net asset
value, whichever is less. In this case, the Fund is permitted to pay the
redemption price in whole or in part by a distribution of securities from its
portfolio. In that event, the value of the securities distributed would be equal
to the amount redeemed, determined at the same time, and in the same manner, as
the redemption price is determined. Shareholders who receive redemption payments
in securities may incur brokerage costs in converting the securities they
receive into cash.
AUTOMATIC INVESTMENT PLAN
As discussed in the Prospectus, the Fund provides an Automatic
Investment Plan for the convenience of investors who wish to purchase shares of
the Fund on a regular basis. All record keeping and custodial costs of the
Automatic Investment Plan are paid by the Fund. The market value of the Fund's
shares is subject to fluctuation, so before undertaking any plan for systematic
investment, the investor should keep in mind that this plan does not assure a
profit nor protect against depreciation in declining markets.
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DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually. Also, the Fund expects
to distribute any undistributed net investment income on or about December 31 of
each year. Any net capital gains realized through the period ended October 31 of
each year will also be distributed by December 31 of each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
TAX INFORMATION
The Fund intends to continue to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code, and, as such, will pay
no Federal income taxes on net income or net realized capital gains distributed
to shareholders. Consistent with requirements for qualification as a regulated
investment company, the Fund intends to distribute each year substantially all
of its net investment income and net profits received from sales of portfolio
securities, after offsetting against these profits any available capital loss
carryforwards. The availability of net income for dividends is dependent on the
level of the Fund's income and expenses, and the actual amount and timing of any
dividend or distribution is subject to the discretion of the Fund's Board of
Directors.
Under current law, ordinary income dividends received by corporate
shareholders may be eligible for the 70% dividends-received deduction for
corporations. The dividends-received deduction for corporations will apply to
that portion of the ordinary income dividend designated by the Fund as
qualifying for the dividends-received deduction. Any distributions made by the
Fund will not be eligible for the dividends-received deduction with respect to
shares which are held by the shareholder for 45 days or less. Capital gain
distributions do not qualify for the dividends- received deduction.
Investors should carefully consider the impact of buying Fund shares
just before the declaration of an income dividend or capital gains distribution.
Any such dividend or distribution paid shortly after a purchase of shares will
reduce the net asset value of the shares by the amount of the dividend or
distribution. The dividend or distribution, though in effect a return of
capital, would be taxable as ordinary income.
Investors will recognize gain or loss upon the redemption of shares of
the Fund. Such gain or loss will be capital gain or loss if the shares were held
as capital assets by the investor. Such capital gain or loss will be long-term
or short-term depending upon the investor's holding period for such shares.
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The Fund is subject to a non-deductible 4% excise tax on the excess of
required distributions over the amounts actually distributed by the Fund on a
calendar year basis. The Fund expects to declare and pay such distributions of
net investment income and capital gains as may be necessary to avoid the
application of this excise tax. The foregoing is a summary discussion of the
federal income tax consequences based on federal income tax laws and regulations
is believed to be in effect on the date of this SAI. This discussion is not
intended to be comprehensive and investors are urged to consult their tax
advisors concerning specific questions regarding federal, state and local
taxation.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of public
trading on the NYSE (normally 4:00 p.m., Eastern time) on each day that the NYSE
is open for trading. The Fund does not expect to determine the net asset value
of its shares on any day when the NYSE is not open for trading even if there is
sufficient trading in its portfolio securities on such days to materially affect
the net asset value per share. However, the net asset value of the Fund's shares
may be determined on days the NYSE is closed or at times other than 4:00 p.m. if
the Board of Directors decides it is necessary.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Directors of the
Trust shall determine in good faith to reflect the security's fair value. All
other assets of the Fund are valued in such manner as the Board of Directors in
good faith deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
As indicated in the prospectus, from time to time the Fund may include
its average total return and other total return data in advertisements or
information furnished to present or prospective shareholders. Total return
figures are based on the Fund's historical performance and are not intended to
indicate future performance.
The Fund's total return may be compared to relevant indices and indices
published by statistical data gathering organizations that track performance of
mutual funds, such as the Russell 2000 Index, the Standard & Poor's 500 Index
and The Value Line Index. The Russell 2000 Index is composed of U.S. publicly
traded stocks of domestic companies that rank from 1000 to 3000 by market
capitalization and is widely regarded in the industry as the premier measure of
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small cap stocks. The Standards & Poor's 500 Index is an unmanaged stock index
that measures the performance of 500 domestic large cap companies. The Value
Line Index is an unmanaged index os 1,700 equally weighted companies. In
addition, the Fund may compare its performance to a composite index which the
Advisor has determined reflects the asset composition of the Fund's portfolio,
such as the All Cap Index. The All Cap Index is a composite calculated based on
l/3 performance of the S&P 500 (cap weighted), 1/3 Value Line and l/3 Russell
2000. From time to time, evaluations of the Fund's performance by independent
sources, such as Morningstar Overall Rating, may also be used in advertisements
and in information furnished to present or prospective investors in the Fund.
Morningstar proprietary ratings reflect historical risk-adjusted performance of
all funds which are in a Morningstar category, such as mid cap value funds.
Subject to change every month, a fund's rating is based on its three-year, and
(when available) five- and ten-year average annual total returns (with fee
adjustments) in excess of 90-day Treasury bill returns, and a risk factor that
reflects fund performance below 90-day Treasury bill returns.
Average annual total return quotations for the specified periods are
computed rates of return ("T") (based on net investment income and any realized
and unrealized capital gains or losses on portfolio investments over such
periods) that would equate the initial amount invested ("P") to the redeemable
value of such investment at the end of each period ("ERV"), over a period of
time ["n"], according to the following formula:
n
P (1 + T) = ERV
The Fund may also quote aggregate total return performance data.
Aggregate total return data generally will be higher than average annual total
return data since the aggregate rate of return reflects performance over a
longer period of time. The Fund's average annual total return for the period
July 3, 1996 through June 30, 1999 was 17.80%. The Fund's total return for the
fiscal year ended June 30, 1999 was 19.78%. Prior to July 3, 1996, the Fund was
advised by another investment advisor. Certain fees and expenses of the Fund
have been reimbursed during this period.
Accordingly, return figures are higher than they would have been had such fees
and expenses not been reimbursed.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Firstar Institutional Custody Services, located at 425 Walnut St.,
Cincinnati, Ohio 45201 acts as Custodian of the securities and other assets of
the Fund. ICA Fund Services Corp. 4455 East Camelback Road, Suite E261, Phoenix,
AZ 85018 acts as the Fund's transfer and shareholder service agent. The
Custodian and Transfer Agent do not participate in decisions relating to the
purchase and sale of securities by the Fund.
Swidler Berlin Shereff Friedman, LLP, 919 Third Avenue, New York, NY
10022, serves as counsel to the Fund. Tait, Weller & Baker, 8 Penn Center Plaza,
Philadelphia, PA 19103, serves as the Fund's independent accountants.
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On October 1, 1999, the following persons owned 5% or more of the
Fund's outstanding voting securities:
Charles Schwab & Co., Inc. Special Custody Account for Benefit of
Customers, San Francisco, CA 94104-4122 - 35.12%.
Star Bank, N/A, Custodian P. S. Brooks IRA, Tarrytown, NY 10591 - 6.16%
The Fund's shares are denominated "Common Stock, $.01 par value."
Shares have no premptive rights and are fully paid and non-assessable. Shares
have non-cumulative voting rights, which means the holders of more than 50% of
the shares voting for the election of directors can elect all of the directors
if they choose to do so, in which event the holders of the remaining less than
50% of the shares voting for the election of directors will not be able to elect
any directors.
Shareholders are entitled to one vote for each share held and
fractional votes for fractional shares held and will vote on any matter
submitted to a shareholder vote. The Fund does not intend to hold meetings of
shareholders in any year in which the 1940 Act does not require shareholders to
act upon any of the following matters: (i) election of directors; (ii) approval
of an investment advisory agreement; (iii) approval of a distribution agreement;
(iv) ratification of selection of independent accountants.
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for the fiscal year
ended June 30, 1999 s a separate document supplied with this SAI and the
financial statements, accompanying notes and report of independent accountants
appearing therein are incorporated by reference in this SAI.
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APPENDIX
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1--Issuers (or related supporting institutions) rated "Prime-1"
have a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in w industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2"
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
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