FAM
VALUE FUND
EQUITY-INCOME FUND
PROSPECTUS
MAY 3, 1999
The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon the adequacy of
this Prospectus. Any representation to the
contrary is a criminal offense.
FAM FUNDS
P.O. Box 399
Cobleskill, NY 12043
(800) 932-3271
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TABLE OF CONTENTS
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Page
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RISK/RETURN SUMMARY AND FUND EXPENSES ..................................... 1
Investment Objectives ..................................................... 1
Principal Investment Strategies ........................................... 1
Principal Investment Risks ................................................ 1
Who May Want to Invest? ................................................... 2
HOW HAS EACH FUND PERFORMED IN THE PAST? .................................. 2
Performance Bar Chart ............................................. 2
Best/Worst quarter: ............................................... 3
Average Annual Total Returns ...................................... 3
Fees and Expenses of the Funds ............................................ 3
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS .......... 4
Risks ..................................................................... 5
The Investment Adviser .................................................... 6
Pricing Fund Shares ....................................................... 7
How To Purchase Shares .................................................... 7
Redemption of Shares ...................................................... 9
Information on Distributions and Taxes .................................... 10
Dividends and Other Distributions ......................................... 10
Tax Information............................................................ 10
The Year 2000 Issue ....................................................... 11
Financial Highlights ...................................................... 11
FAM Value Fund .................................................... 12
FAM Equity-Income Fund ............................................ 13
To Obtain Additional Information .......................................... 14
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RISK/RETURN SUMMARY AND FUND EXPENSES
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INVESTMENT OBJECTIVES
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WHAT IS THE GOAL OF THE FAM VALUE FUND AND FAM EQUITY-INCOME FUND?
FAM VALUE FUND's investment objective is to maximize long-term total return on
capital.
FAM EQUITY-INCOME FUND has the investment objective of providing current income,
as well as long term capital appreciation by investing primarily in
income-producing equity securities.
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PRINCIPAL INVESTMENT STRATEGIES
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HOW DOES EACH FUND PLAN TO REACH ITS GOAL?
FAM VALUE FUND seeks to achieve its investment objective by investing in a
diversified portfolio of common stocks of U.S. companies and in securities that
are convertible into common stocks, such as convertible bonds and convertible
preferred stock.
FAM EQUITY-INCOME FUND seeks to achieve its investment objective by investing in
a diversified portfolio of common stocks of U.S. companies and in securities
that are convertible into common stocks, such as convertible bonds and
convertible preferred stock. The Fund also seeks to provide current income by
investing at least 65% of its total assets in income-producing stocks that pay
dividends.
Fenimore Asset Management, Inc., the investment adviser to each Fund ("FAM" or
"Fenimore") employs a 'value approach' in making its common stock selections.
This approach is based on FAM's belief that at any given point in time the stock
price of a company may sell below the company's 'true business worth'. Factors
considered in evaluating the true business worth include the company's current
earnings and FAM's opinion as to its future earnings potential. After
identifying a company whose securities are determined to have a favorable
price-to-value relationship, FAM plans to invest in such securities until the
'true business value' nears the market price of the company's securities.
Some of the securities in which the Funds invest are issued by smaller and newer
companies which may not be well known to the general public or may not have
strong institutional ownership or recognition. Before investing in these smaller
companies FAM places considerable emphasis upon evaluating the company's
management through personal conversations and/or meetings with company
officials. Conversations and meetings of this type continue throughout FAM's
interest in the company.
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PRINCIPAL INVESTMENT RISKS
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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
The principal risks of investing in the Funds are: stock market risk, stock
selection risk and small-cap risk.
Stock market risk refers to the fact that the value of stocks fluctuate in
response to the activities of individual companies and to general stock market
and economic conditions. As a result, the value of your investment in either
Fund will fluctuate in response to stock market conditions and you could
therefore lose money on your investment in a Fund or your investment in a Fund
could underperform other investments.
Stock selection risk refers to the fact that FAM utilizes a 'value approach' to
stock selection, as discussed above, and there is a risk that the stocks
selected by FAM may not realize their intrinsic value or their price may go down
over time.
Small-cap risk refers to the fact that FAM often focuses on the stocks of
smaller companies for certain of each Fund's investments. The stock prices of
these small-cap companies can fluctuate more than the stocks of larger companies
and they may not correspond to changes in the stock market in general.
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WHO MAY WANT TO INVEST?
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Consider investing in FAM Value Fund or FAM Equity-Income Fund if you:
-- are investing for long term goals
-- want potential capital appreciation and are willing to accept
higher risk associated with investing in stocks
-- want professional portfolio management
FAM Funds are not appropriate for anyone:
-- whose intention is to capitalize on short term market fluctuations,
or who would sell your Fund shares due to short term market
fluctuations
-- seeking safety of principal
AS WITH ALL MUTUAL FUNDS, THERE IS NO GUARANTEE THAT FAM VALUE FUND OR FAM
EQUITY-INCOME FUND WILL ACHIEVE IT'S GOALS.
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HOW HAS EACH FUND PERFORMED IN THE PAST?
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The two charts that appear below show how FAM Value Fund and FAM Equity-Income
Fund have performed in the past. As always, keep in mind that a Fund's past
performance is no indication of what future returns will be.
THE PERFORMANCE BAR CHART shows the FAM Funds' actual performance for each
calendar year since FAM Value Fund was established in 1987, and FAM
Equity-Income Fund in 1996. It indicates risk by illustrating how much returns
can differ from one year to the next.
FAM VALUE FUND FAM EQUITY-INCOME FUND
1988 35.5 1997 26.9
1889 20.3 1998 4.7
1990 - 5.4
1991 47.6
1992 25.1
1993 0.2
1994 6.8
1995 19.7
1996 11.2
1997 39.1
1998 6.2
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BEST QUARTER/WORST QUARTER A Fund can also experience performance swings, as
shown in the following tables which show the best and worst calendar quarter
returns during the years depicted in the chart.
FFAM VALUE FUND FAM EQUITY-INCOME FUND
best quarter: Q1 1991 20.8% best quarter: Q2 1997 10.7%
worst quarter: Q3 1990 -15.5% worst quarter: Q3 1998 -10.0%
AVERAGE ANNUAL TOTAL RETURNS
This table compares the performance of each Fund to the Russell 2000 Index, our
primary comparative index which is an unmanaged index that measures the
performance of the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies based on total market capitalization. The information presented is as
of December 31, 1998.
1 YEAR 5 YEARS 10 YEARS
FAM Value Fund 6.2% 16.0% 16.1%
Russell 2000 -2.6% 11.9% 12.9%
1 YEAR SINCE INCEPTION (4/1/96)
FAM Equity-Income Fund 4.7% 15.5%
Russell 2000 -2.6% 10.7%
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FEES AND EXPENSES OF THE FUNDS
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WHAT FEES OR EXPENSES WILL I PAY?
This table describes the fees and expenses that you pay if you buy and hold
shares of the Funds.
Shareholder FAM
Fees (fees paid FAM Equity-
directly from Value Income
your investment) Fund Fund
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Maximum Sales
Charge (load) on Purchase none none
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Maximum Deferred
Sales Charge (load) none none
Annual Fund Operating
Expenses (expenses that
are deducted
from Fund assets)
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Management Fees 1.00% 1.00%
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Distribution and
Service (12b-1) Fees none none
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Other Expenses 0.19% 1.09%
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Total Annual Fund
Operating Expenses 1.19% 2.09%
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Fee Waiver and/or
Expense Reimbursement none* 0.59%
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NET EXPENSES 1.19% 1.50%
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* FAM has entered into a contractual expense limitation agreement with FAM
Equity-Income Fund to limit the total operating expenses of the Fund to 1.50% of
its average daily net assets for its current fiscal year. Without this expense
limitation agreement, the total operating expenses for FAM Equity-Income would
have been 2.09% for the year ended December 31, 1998. FAM has also entered into
a contractual expense limitation agreement with FAM Value Fund which would limit
that Fund's total operating expenses to 1.29% of its average daily net assets
for its current fiscal year. After December 31, 1999, each of these expense
limitations may be terminated, continued, or modified by FAM in its sole
discretion
EXPENSE EXAMPLE
Use this table to compare fees and expenses of the Funds with those of other
mutual funds. This Example illustrates the amount of fees and expenses you would
pay, and assumes the following:
-- $10,000 investment
-- 5% annual return
-- redemption at the end of each period
-- no changes in the Fund's operating expenses
-- reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
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1 3 5 10
YEAR YEARS YEARS YEARS
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FAM Value Fund $121 $378 $ 654 $1,443
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FAM Equity-Income
Fund $153 $598 $1,070 $2,374
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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
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INVESTMENT OBJECTIVES
FAM VALUE FUND seeks to maximize long-term total return on capital.
FAM EQUITY-INCOME FUND seeks to provide you with current income as well as long
term capital appreciation by investing primarily in income-producing equity
securities.
The investment objective of each Fund is a fundamental policy which may not be
changed without a majority vote of a Fund's shareholders.
PRINCIPAL INVESTMENT STRATEGIES
FAM's investment philosophy is to seek out well-managed, financially sound
companies that it considers to be undervalued in the marketplace. Utilizing
investment principles based on the teachings of Benjamin Graham, whose book
Security Analysis provides the foundation for value investing, FAM is
categorized as a bottom-up manager. As such, FAM focuses on identifying,
analyzing and selecting individual companies that meet FAM's long-term growth
expectations.
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Under normal market conditions the FAM Funds will attempt to remain fully
invested in common stocks and securities that are convertible into common
stocks, such as convertible bonds and convertible preferred stock. To the extent
that the Funds invest in convertible stocks, the Funds will acquire only those
convertibles securities which have an S&P rating of A or better.
In addition, the Funds may invest in those money market funds which restrict
themselves to investments in investment grade short term fixed securities,
primarily U.S. Treasury and government agency securities. The Funds may also
invest in the common stocks of real estate investment trusts.
For temporary defensive purposes, the Funds may invest all of their assets in
fixed-income securities. Generally, the Funds only intend to invest in
fixed-income securities when, in FAM's opinion, common stocks are too risky in
relationship to their anticipated rewards and fixed-income securities are
considered a good alternative. During such temporary periods the Funds might not
achieve their stated investment objectives.
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RISKS
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The principal risks of investing in the Funds are as follows:
STOCK MARKET RISK. The value of stocks fluctuate in response to the activities
of individual companies and general stock market and economic conditions. Stock
prices may decline over short or extended periods of time. Stocks are more
volatile and riskier than some other forms of investment, such as short term,
high grade fixed-income securities.
STOCK SELECTION RISK. The value stocks chosen for the Funds are subject to the
risk that the market may never realize their intrinsic value or12 their prices
may go down. While the Funds' investments in value stocks may limit their
downside risk over time, the Funds may produce more modest gains
than riskier stock funds as a trade off for this potentially lower risk.
SMALL-CAP RISK. Small capitalization companies may not have the size, resources
or other assets of large capitalization companies. These small capitalization
companies may be subject to greater market risks and fluctuations in value than
large capitalization companies and may not correspond to changes in the stock
market in general.
The value of your investment will go up and down, which means that you could
lose money. You should consider an investment in the FAM Funds as a long term
investment.
AN INVESTMENT IN FAM FUNDS IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
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THE INVESTMENT ADVISER
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The Investment Adviser to FAM Funds is Fenimore Asset Management, Inc.,
('Fenimore'), which is a New York corporation majority owned by Thomas O. Putnam
and located at 111 N. Grand Street, Cobleskill, NY 12043. Fenimore has been
continuously offering advisory and consulting services under contract since 1975
to individuals, pension, profit sharing, IRA and Keogh plans, corporations and
non-profit organizations generally located in a service area that includes the
continental United States. Mr. Putnam, Fenimore's principal investment
professional, was born in 1944. He has been actively employed as an investment
adviser since 1974 and holds responsibilities for Fenimore's investment
management and research activities. Mr. Putnam is the sole shareholder of FAM
Shareholder Services, Inc., each Fund's shareholder servicing agent.
Mr. Putnam co-manages both FAM Value Fund and FAM Equity-income Fund. Diane C.
Van Buren, co-manager of FAM Value Fund, is employed by Fenimore as Investment
Manager Associate. She has been actively involved in investment and portfolio
management and research activities since 1980.
Paul C. Hogan, CFA, is co-manager of FAM Equity-Income. He is also employed by
Fenimore as Investment Research Analyst. He has been actively involved in
investment research since 1991.
Fenimore employs a staff of experienced investment professionals to manage
assets for other corporate and individual clients.
As principal officer of Fenimore, Mr. Putnam serves as President and Chairman of
the Board of Trustees of Fenimore Asset Management Trust. Under the terms of the
investment advisory contract, Fenimore receives a monthly fee from each Fund
equal to 1% per annum of the average daily market value of its net assets. The
rate is consistent with that being charged by Fenimore to manage its other
client accounts and has been established in recognition that Fenimore has agreed
to assume certain expenses, including all distribution expenses of the Funds.
FAM Funds and Fenimore have jointly adopted a Code of Ethics which places
certain express restrictions on the personal trading practices of personnel of
both FAM Funds and Fenimore. This Code of Ethics complies in all material
respects with the recommendations set forth in the 1994 Report of the Advisory
Group on Personal Investing of the Investment Company Institute. In addition,
FAM Funds and Fenimore have developed procedures that provide for the
administration and enforcement of the Code through the continuous monitoring of
personal trading practices.
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PRICING FUND SHARES
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The share price (also called "Net Asset Value" or NAV per share) is calculated
each day at the close of regular trading on the New York Stock Exchange and on
such days as there is sufficient trading in a Fund's portfolio of securities.
Securities in each Fund's portfolio will ordinarily be valued based upon market
quotes. If market quotations are not available, securities or other assets will
be valued by a method which the Board of Trustees believes most accurately
reflects fair value. To calculate the NAV, a Fund's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding.
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HOW TO PURCHASE SHARES
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FUND PURCHASES AND TRADE DATE
To establish an account, complete and sign the appropriate application and mail
it, along with your check to FAM Funds, P.O. Box 399, Cobleskill, NY 12043.
Checks should be made payable to the appropriate fund. Please be sure to provide
your Social Security or taxpayer identification number. Cash will not be
accepted. Any applications received not following the above guidelines will be
returned.
The date on which your purchase is credited is your trade date. For purchases
made by check or Federal Funds wire and received by the close of regular trading
on the New York Stock Exchange (generally 4:00 p.m. Eastern time) the trade date
is the date of receipt. For purchases received after the close of regular
trading on the Exchange the trade date is the next business day. Shares are
purchased at the Net Asset Value ("NAV") determined on your trade date.
FAM reserves the right to reject purchase applications or to terminate the
offering of shares made by this Prospectus if, in the opinion of the Board of
Trustees, such termination and/or rejection would be in the best interest of
existing shareholders. In the event that your check does not clear, your
order(s) will be canceled and you may be liable for losses or fees incurred, or
both. FAM has a policy of waiving the minimum initial investment for Fund
trustees, and employees and affiliated persons (including family members) of
FAM.
All applications to purchase Fund shares are subject to acceptance by FAM and
are not binding until so accepted. FAM does not accept telephone orders for the
purchase of shares, and it reserves the right to reject applications in whole or
in part.
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ACCOUNT MINIMUMS
To begin an investment in the FAM Funds the following minimum initial
investments must be met. All sub-sequent investments to an existing account
require a minimum of $50.
FAM EQUITY-
FAM VALUE FUND INCOME FUND*
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To open a new account $2,000 $10,000
To open a new retirement account
{IRA, Roth IRA, SEP, SIMPLE Plan or 403(b)(7)} $ 100 $ 2,000
To open a Uniform Transfer to Minors (UTMA) or
Uniform Gift to Minors (UGMA) account $ 500 $10,000
To open a new account with FAMVest** $ 500 $10,000
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* Due to the investment objective of FAM Equity-Income Fund, minimum
investments in this Fund are higher than those of FAM Value Fund.
** FAMVest is FAM Funds' Automatic Investment Plan which requires the systematic
addition of at least $50 per month, as described below. Please refer to
"Redemption of Shares" on page 9.
WIRE INSTRUCTIONS
If you wish to wire funds to establish a new account, please use the following
instructions. Investors establishing new accounts by wire should first forward
their completed Account Application to FAM Funds stating that the account will
be established by wire transfer and the expected date and amount of the
transfer. Further information regarding wire transfers is available by calling
(800) 932-3271. FAM must have receipt of a wire transfer no later than 4:00 P.M.
in order for the purchase to be made that same business day.
FAM Value Fund: FAM Equity-Income Fund:
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Key Bank of New York Key Bank of New York
ABA #021300077 ABA #021300077
For further credit to account For further credit to account
#32531 000 6565 #32531 001 8610
FAM Value Fund FAM Equity-Income Fund
Fund Investment for: Fund Investment for:
(Name and/or Account Number) (Name and/or Account Number)
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If you wish to wire funds to an existing account, please use the same
instructions listed above.
IRA AND RETIREMENT ACCOUNTS
An individual having earned income and her or his spouse may each have one or
more Individual Retirement Accounts, or "IRAs", the number and amounts limited
only by the maximum allowed contribution per year. Existing IRA accounts may be
rolled over or transferred at any time into a new IRA account, which may be
invested in Fund shares. Firstar Bank, N.A., is empowered and agrees to act as
custodian of shares purchased. Monies deposited into an IRA account may be
invested in shares of one of the Funds upon the filing of the appropriate forms.
Forms establishing traditional IRAs, Roth IRAs, Education IRAs, SEP- IRAs,
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SIMPLE Plans and 403(b)(7) plans are available by calling FAM Funds at (800)
932-3271. There is no maintenance fee. Investors are urged to consult with a tax
advisor in connection with the establishment of retirement plans.
Monies or deposits into other types of retirement plans and/or Keogh accounts
may also be invested in FAM Fund shares. However, the qualification and
certification of such plans must first be prearranged by the investor's own tax
specialists who would assist and oversee all plan compliance requirements.
Although FAM endeavors to provide assistance to those investors interested in
such plans, it neither offers nor possesses the necessary professional skills or
knowledge regarding the establishment or compliance maintenance of retirement
plans. Therefore, it is recommended that professional counsel be retained by the
investor before investing such monies in shares of FAM Funds.
No signature guarantee is required if a shareholder elects to transfer an IRA,
SEP IRA, Roth IRA, Education IRA, SIMPLE Plan, or 403(b)(7) plan to another
custodian or in the event of a mandatory distribution.
PURCHASES THROUGH SELECTED DEALERS
Certain Selected Dealers may effect transactions of the FAM Funds. FAM may
accept orders from broker-dealers who have been previously approved by the
Funds. It is the responsibility of such broker-dealers to promptly forward
purchase or redemption orders to the Funds. Although there is no sales charge
levied directly by the Funds, broker-dealers may charge the investor a
transaction-based fee for their services at either the time of purchase or the
time of redemption. Such charges may vary amongst broker-dealers but in all
cases will be retained by the broker-dealer and not remitted to the FAM Funds or
FAM. FAM may make payments to such companies out of its own resources to
compensate these companies for certain administrative services provided in
connection with the Funds. Shareholders who wish to transact through a
broker-dealer should contact FAM at (800) 932-3271 for further information.
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REDEMPTION OF SHARES
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Shareholders wishing to redeem shares may tender them to FAM any business day by
executing a written request for redemption, in good order as described below,
and delivering the request by mail or by hand to the Funds, 111 North Grand
Street, P.O. Box 399, Cobleskill, NY 12043. FAM offers no telephone redemptions.
DEFINITION OF GOOD ORDER: Good order means that the written redemption request
must include the following:
1. The Fund account number, name, and Social Security or Tax I.D. number.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees are required if the value of shares being redeemed
exceeds $25,000; or if payment is to be sent to an address other than
the address of record; or if payment is to be made payable to a payee
other than the shareholder; or if there has been an address change in
the last 30 days.
5. Certificates, if any are held, signed and containing a proper signature
guarantee.
6. Other supporting legal documentation that might be required, in the case
of retirement plans, corporations, trusts, estates and certain other
accounts.
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Shareholders requesting redemption proceeds to be wired from FAM will incur a $8
wire fee charged by the Funds' custodian.
Shareholders may sell all or any portion of their shares on any such business
day that NAV is calculated. Such shares will be redeemed by FAM at the next such
calculation after such redemption request is received by FAM. When a redemption
occurs shortly after a recent purchase made by check, FAM Funds may hold the
redemption proceeds beyond 7 days but only until the purchase check clears,
which may take up to 15 days or more. IF YOU ANTICIPATE REDEMPTIONS SOON AFTER
YOU PURCHASE YOUR SHARES, YOU ARE ADVISED TO WIRE FUNDS TO AVOID DELAY.
FAM reserves the right, however, to withhold payment up to seven (7) days if
necessary to protect the interests and assets of the Funds and their
shareholders. In the event the New York Stock Exchange is closed for any reason
other than normal weekend or holiday closing or if trading on that exchange is
restricted for any reason, or in the event of any emergency circumstances as
determined by the Securities and Exchange Commission, the Board of Trustees
shall have the authority and may suspend redemptions or postpone payment dates
accordingly.
Redemption of shares, whether it be a normal voluntary redemption or an
involuntary redemption, may result in the shareholder realizing a taxable
capital gain or loss.
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INFORMATION ON DISTRIBUTIONS AND TAXES
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DIVIDENDS AND OTHER DISTRIBUTIONS
ALL NET INVESTMENT INCOME AND REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS.
A capital gain or loss is the difference between the purchase and sale price of
a security. If a Fund has net capital gains for the year they are usually
declared and paid in December to shareholders of record on a specified date that
month.
Dividend and capital gain distributions are reinvested in additional Fund shares
in your account unless you select another option on your account application
form. Investors who want dividend and/or capital gains distributions sent to
them in cash rather than invested in additional shares must arrange this by
making a request to FAM. The request must be in written form acceptable to FAM.
Unless investors request cash distributions in writing at least 7 business days
prior to the distribution, or on the Account Application, all dividends and
other distributions will be reinvested automatically in additional shares of the
funds. Capital gains, if any, will be distributed in December.
The value of your shares will be reduced by the amount of dividends and
distributions. If you purchase shares shortly before the record date for a
dividend or the distribution of capital gains, you will pay the full price for
the shares and receive some portion of the price back as a taxable dividend or
distribution.
TAX INFORMATION
Dividends are taxed as ordinary income. Distributions designated by a Fund as
long-term capital gain distributions will be taxable to you at your long-term
capital gains rate, regardless of how long you have held your Fund shares. An
exchange of Fund shares for shares of another fund is considered a sale, and
gains from any sale or exchange may be subject to federal and state taxes.
Dividends generally are taxable in the year in which they are paid, even if they
appear on your account statement the following year. Dividends and distributions
are treated the same for federal income tax
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purposes, whether you receive them in cash or in additional shares of the Fund.
Depending on your residence for tax purposes, distributions may also be subject
to state and local taxes.
If you hold shares through a tax-deferred account, such as a retirement plan,
income and gains will not be taxable each year. Instead, the taxable portion of
amounts you hold in a tax-deferred account will generally be subject to tax only
when they are distributed from the account.
You will be notified in January each year about the federal tax status of
distributions made by the Funds.
The Funds are required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Funds with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
This tax discussion is meant only as a general summary. Because everyone's tax
situation is unique, you should consult your tax professional about particular
consequences to you of investing in the Funds.
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THE YEAR 2000 ISSUE
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The Funds rely extensively on various computer systems in carrying out their
business activities, including the computer systems employed by their service
providers, such as Fenimore Asset Management, Inc. as the investment adviser and
manager of the Funds, FAM Shareholder Services, Inc. as the shareholder
servicing agent and Firstar Bank, N.A. as custodian (collectively, the "Service
Providers"). In this connection, the Funds are 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
system. In the event that a computer system fails to make the proper
identification of the Year 2000, this could result in a system failure of
miscalculations causing disruptions of operations such as pricing errors and
account maintenance failures. The Funds are 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 Funds. A project team has
been established to proactively address these issues. The Funds have no reason
to believe that these steps will not be sufficient to avoid any material adverse
impact on the Funds, although there can be no assurance of this. The cost or
consequences of incomplete or untimely resolution of the Year 2000 Issue are
unknown to the Funds and the Service Providers at this time but could have a
material adverse impact on the operations of the Funds and Service Providers. In
addition, the Year 2000 Issue may adversely affect companies in which the Funds
invest where, for example, such companies incur substantial costs to address the
Year 2000 Issue or suffer losses caused by the failure to adequately or timely
do so.
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FINANCIAL HIGHLIGHTS
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The financial highlights table below provides information about each Fund's
financial history and are expressed in one share outstanding throughout each
fiscal year. Each table is part of the Fund's financial statements which are
included in its annual report and are incorporated by reference in the Statement
of Additional Information, which is available upon request. The total returns in
the table represent the rate that an investor would have earned or lost on an
investment in the Fund, assuming reinvestment of all dividends and
distributions. The financial statements in the annual report were audited by the
Funds' independent accountants, McGladrey & Pullen, LLP.
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FAM VALUE FUND
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<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
PER SHARE INFORMATION YEARS ENDED DECEMBER 31,
(For a share outstanding throughout
the year) 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 35.76 $ 26.53 $ 24.58 $ 21.04 $ 20.40
Income from investment operations:
Net investment income ............... .20 0.08 0.18 0.21 0.12
Net realized and unrealized gain
on investments ................... 1.94 10.29 2.58 3.94 1.27
Total from investment operations .... 2.14 10.37 2.76 4.15 1.39
Less distributions:
Dividends from net investment income (.20) (0.08) (0.18) (0.21) (0.12)
Distributions from net realized gains (3.26) (1.06) (0.63) (0.40) (0.63)
Total distributions ................. (3.46) (1.14) (0.81) (0.61) (0.75)
Change in net asset value for the year ...... (1.32) 9.23 1.95 3.54 0.64
Net asset value, end of year ................ $ 34.44 $ 35.76 $ 26.53 $ 24.58 $ 21.04
TOTAL RETURn ................................ 6.19% 39.06% 11.23% 19.71% 6.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) .............. $ 379,269 $ 333,159 $ 253,378 $ 267,158 $ 210,579
Ratios of expenses to average net assets 1.19% 1.24% 1.27% 1.25% 1.39%
Ratio of net investment income to average
net assets ........................ 0.57% 0.25% 0.64% 0.92% 0.58%
Portfolio turnover rate ..................... 16.67% 9.47% 12.48% 9.67% 2.15%
</TABLE>
12
<PAGE>
----------------------
FAM EQUITY-INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
APRIL 1, 1996
PER SHARE INFORMATION YEARS ENDED DECEMBER 31, (INCEPTION) TO
(For a share outstanding throughout the year) 1998 1997 DECEMBER 31, 1996
---------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year .......... $ 13.20 $ 10.99 $ 10.00
Income from investment operations:
Net investment income ............... 0.28 0.27 0.19
Net realized and unrealized gain
on investments ................... 0.33 2.65 0.99
Total from investment operations .... 0.61 2.92 1.18
Less distributions:
Dividends from net investment income (0.28) (0.27) (0.19)
Distributions from net realized gains -- (.44) --
Total distributions ................. (0.28) (.71) (0.19)
Change in net asset value for the year ...... 0.33 2.21 0.99
Net asset value, end of year ................ $ 13.53 $ 13.20 $ 10.99
TOTAL RETURN* ................................ 4.67% 26.90% 15.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000s) .............. $ 6,725 $ 4,386 $ 2,539
Ratio of expenses to average
net assets, total ................. 2.09% 2.50% 5.04%
Ratio of expenses to average net assets, net of fees waived and
expenses assumed by advisor ....... 1.50% 1.50% 1.50%
Ratio of net investment income to average
net assets ........................ 2.17% 2.27% 3.05%
Portfolio turnover rate ..................... 10.55% 15.63% 0.00%
<FN>
*Annualized for periods of less than one year.
</FN>
</TABLE>
13
<PAGE>
--------------------------------
TO OBTAIN ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
If you would like additional information or would like to make inquiries about
FAM Value Fund or FAM Equity-Income Fund, free reports on the Funds are
available upon request from and inquiries may be directed to:
FAM Funds
Address 111 North Grand Street
Cobleskill, NY 12043
Telephone Number 1 (800) 932-3271
Website Address www.famfunds.com
SHAREHOLDER REPORTS
Each Fund's Annual Report and Semi-Annual Report contains additional information
about the Fund's investments. The Fund's Annual Report contains a discussion of
the market conditions and investment strategies that significantly affected the
performance of the Fund during the last fiscal year. Both the Annual Report and
the Semi-Annual Report also contain fund performance information, financial
statements and complete portfolio holdings.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains more comprehensive information on the Funds. The SAI is
incorporated by reference into this prospectus which makes it legally part of
this prospectus.
Information may also be obtained from the Securities and Exchange Commission for
the cost of a duplicating fee. These documents are also available to view at the
SEC's public reference room in Washington, DC.
Securities and Exchange Commission
Washington, DC 20549-0330
Telephone Number (800) SEC-0330
Website www.sec.gov
Investment Company Act File No. 811-4750
<PAGE>
Fam Funds
111 North Grand Street
P.O. Box 399
Cobleskill, NY 12043
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
FAM FUNDS
- -------------------------------------------------------------------------------
111 North Grand Street, P.O. Box 399, Cobleskill, NY 12043
Telephone Number (800)-932-3271
A "FAM"ILY of NO-LOAD FUNDS
May 3, 1999
- -------------------------------------------------------------------------------
FAM FUNDS ["FAM"], a family of no-load mutual funds, currently offers two
diversified open-end, no-load mutual funds, FAM Value Fund and FAM Equity-Income
Fund. Each Fund is a separate investment series of Fenimore Asset Management
Trust which is registered with the Securities and Exchange Commission ( SEC ) as
an open-end management inestment company.
This Statement of Additional Information is not a Prospectus but rather should
be read in conjunction with the Prospectus dated the same date. A copy may be
obtained without charge from FAM by calling or writing its corporate offices at
the address and telephone number herein noted.
Table of Contents
Investment Objective and Policies 2
Investment Restrictions 3
History and Background of Investment Advisor 5
Board of Trustees and Officers 7
Brokerage Allocations 8
Net Asset Value Calculation 8
Purchase of Shares 9
Redemption of Shares 10
Performance Information 11
Financial Statements 11
Certain Federal Income Tax Considerations 12
Appendix 13
Investment Advisor:
Fenimore Asset Management, Inc.
118 North Grand Street
Cobleskill, NY 12043
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
FAM offers two mutual funds with distinctly different investment objectives. FAM
Value Fund has an investment objective to maximize long term total return on
capital. FAM Equity-Income has an investment objective of providing current
income as well as long term capital appreciation by investing primarily (at
least 65% of it total assets) in income-producing equity securities. Normally
investments will be concentrated in common stocks unless the stock market
environment has risen to a point where the advisor to the Fund, Fenimore Asset
Management, Inc., ("Fenimore"), can no longer find securities that have been
determined by FAM to be undervalued. During such periods investments will be
made in fixed-income investments until such time as more attractive common
stocks can be found for purchase.
It is the opinion of FAM that the objectives of its funds are achievable when
common stocks can be purchased near to, or at, a discount from their true
business worth. Specifically, FAM will be seeking to invest assets in companies
that may have some or all of the following characteristics: (a) low
price-to-earnings multiples relative to the market as a whole, based upon
current and/or potential future earnings of the company; (b) high total returns
on capital and with low debt structures; and (c) sell at a market price per
share that is near or at a discount to the per share book value -- an accounting
measure of economic worth. Although the objective is to select stocks with these
characteristics, FAM is aware that it is unrealistic to assume that each
selection will have all or even several of the above characteristics.
FAM believes that the success of a stock that has some of the above
characteristics is dependent upon and invariably a reflection of the quality of
management. Therefore, FAM spends time in an attempt to assess management's
ability prior to making a commitment to its shares with Fund assets. The
assessment may include an analysis of historical financial achievements of the
company, direct discussions with management by telephone or in person,
visitations to the company, conversations with security analysts who actively
follow the company for investment brokerage firms, and discussions with
competitors, suppliers, and customers of the company. While FAM feels this
assessment technique to be clearly instrumental to the success of the
investment, it should be recognized that judgments made by FAM are purely
subjective in nature. Therefore, there can be no assurance that FAM will be
successful in achieving its investment objectives for the Funds.
It is FAM's belief that the objectives of its funds can only be achieved
consistently over a long investment horizon. Typically, this will mean that a
stock may be held for a three-to-five year period or longer if FAM, by its own
determination, feels that the recognition of true business worth has not yet
been attained in the stock's current market quotation. Thus, the Funds serve
little purpose for investors who wish to take advantage of short term
fluctuations in net asset values per share.
From time to time, FAM may also choose to invest some or all of its assets in
fixed-income investments of the types more fully described in the Funds
Prospectus dated this same date. Such investments will be purchased and held
during periods when FAM is unable to find stocks that it believes have return
expectations commensurate with the risks that must be assumed by their continued
retention.
2
<PAGE>
FAM recognizes that while the Funds remain small in size FAM may have greater
flexibility in achieving its objectives. However, as the Funds grows in size, it
may become more difficult for FAM to find securities to invest in that meet the
objectives of the Funds. This may also occur during periods when the stock
market in general has been rising for a long period of time. Therefore, FAM
reserves unto itself the right to limit the asset size of its Funds by
discontinuing sales of its shares at any time. The Board of Trustees of FAM
Funds may suspend sales whenever, in its collective wisdom, it believes it
necessary in order for FAM to continue to adhere to its stated objectives, or
that for other reasons it would be in the best interests of Fund shareholders to
do so. While sales are suspended, existing shareholder accounts will be able to
continue to reinvest their dividends and will be able to continue to redeem
their shares.
It should be clear to investors in FAM Funds that FAM believes income is an
important factor in achieving its objecives. Fenimore is aware that annual
distributions of capital gains and dividend/interest income earned on shares may
result in a shareholder paying additional federal, state and/or local income
taxes. (See Certain Federal Income Tax Considerations on Page 15). Tax deferred
portfolios, like IRA and pension monies, are ideally suited for investment in
shares of FAM Funds for these reasons.
At the present time FAM has no authority to write, buy or sell options or
futures against its share positions and any change in this investment approach
would be considered a material change and must first be obtained from
shareholders by consent of a majority of the votes cast. It has no plans at this
time to deal in the options markets or to seek authorization from shareholders
to do so.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions which cannot be changed or
amended unless approved by the vote of a majority of its outstanding shares in
accordance with requirements under the Investment Company Act of 1940.
Accordingly, no FAM Fund will:
(A) Invest in the purchase and sale of real estate.
(B) Invest in commodities or commodity contracts, restricted
securities, mortgages, or in oil, gas, mineral or other exploration or
development programs.
(C) Borrow money, except for temporary purposes, and then only in
amounts not to exceed in the aggregate 5% of the market value of its
total assets taken at the time of such borrowing.
3
<PAGE>
(D) Invest more of its assets than is permitted under regulations in
securities of other registered investment companies, which restricts
such investments to a limit of 5% of Fund assets in any one registered
investment company, and 10% overall in all registered investment
companies, in no event to exceed 3% of the outstanding shares of any
single registered investment company.
(E) Invest more than 5% of its total assets at the time of purchase in
securities of companies that have been in business or been in continuous
operation less than 3 years, including the operations of any
predecessor.
(F) Invest or deal in securities which do not have quoted markets.
(G) Own more than 10% of the outstanding voting securities of any one
issuer or company, nor will it, with at least 75% of its total assets,
invest more than 5% of its assets in any single issue, valued at the
time of purchase. This restriction shall not be applicable for
investments in U.S. government or agency securities.
(H) Invest more than 25% of its assets valued at the time of purchase in
any one industry or similar group of companies, except U.S. government
securities.
(I) Maintain margin accounts, will not purchase its investments on
credit or margin, and will not leverage its investments, except for
normal transaction obligations during settlement periods.
(J) Make any investment for the purpose of obtaining, exercising or for
planning to exercise voting control of subject company.
(K) Sell securities short.
(L) Underwrite or deal in offerings of securities of other issuers as a
sponsor or underwriter in any way. (Note: FAM may be deemed an
underwriter of securities when it serves as distributor of its own
shares for sale to or purchase from its shareholders.)
(M) Make loans to others or issue senior securities. For these purposes
the purchase of publicly distributed indebtedness of any kind is
excluded and not considered to be making a loan.
In regard to the restriction marked as item (D) above, FAM plans to utilize
computerized cash management services offered by its custodian, which services
presently include reinvesting overnight and short term cash balances in shares
of other registered investment companies, better known as "money market funds",
whose primary objective is safety of principal and maximum current income from
holding highly liquid, short term, fixed investments, principally U.S.
government and agency issues. FAM will not be acquiring such shares as permanent
investments but rather will be utilizing such services solely for convenience
and efficiency as it tries to keep short term monies invested at interest only
until such time as more permanent reinvestment can practically be made in the
ordinary course of business. In any case, FAM shall not invest a greater
percentage of its assets than is permitted by regulation, which is presently 5%
of its total assets in any single fund nor more than
4
<PAGE>
10% of its total assets in funds overall.
HISTORY AND BACKGROUND OF INVESTMENT ADVISOR
The investment advisor to the FAM Funds is Fenimore Asset Management, Inc.,
("Fenimore"). The company is a New York corporation presently in business and
practicing as an "Investment Advisor" and registered under the Investment
Advisors Act of 1940 with the Securities and Exchange Commission and with the
New York State Attorney General. Fenimore is majority owned by Mr. Thomas O.
Putnam, its principal officer, who is also the principal officer and a trustee
of FAM Funds. FAM was incorporated November 20, 1974, and has been continuously
offering investment advisory services since the date of its formation under the
direction and control of Mr. Putnam. The principal activity of Fenimore since
1974 has been to provide investment advisory and consulting services under
contract to individuals, pension, profit-sharing, IRA and Keogh retirement
plans, corporations, and non-profit organizations generally located in the
service area that includes the continental U.S.
Mr. Thomas O. Putnam, Fenimore's principal investment professional, has been
employed or active as an investment advisor since 1974, managing investment
accounts for clients. He has held responsibilities as President and Director of
Fenimore's investment management and research activities. Mr. Putnam completed
his undergraduate studies at the University of Rochester, Rochester, NY, from
which he earned a Bachelor of Arts Degree in Economics in 1966. He completed
graduate work at Tulane University, New Orleans, Louisiana, from which he
received an MBA in 1968. Diane C. Van Buren, co-manager of FAM Value Fund, is
employed by Fenimore as Investment Management Associate. She has been actively
involved in investment and portfolio management and research activities since
1980. Paul C. Hogan, CFA, co-manager of FAM Equity-Income, is also employed by
Fenimore as Investment Research Analyst. He has been actively involved in
investment research activities since 1991. Fenimore employs a staff of
experienced investment professionals to manage assets for other corporate and
individual clients.
Since 1974, Fenimore, under the control and supervision of Mr. Putnam, has
utilized a value investment approach for each client and/or each account. In the
opinion of Fenimore, the objectives of FAM Funds can only be met if companies
can be purchased at a significant discount from what Fenimore views as their
true business worth. In this regard a company is researched almost as if the
entire company could be purchased at current stock market prices. Although it
will never be the intention of FAM to purchase controlling interests in any such
company, it is Fenimore s belief that this fundamental valuation approach
removes emotionality from the investment decision-making process and minimizes
the long term risk of the investment. Fundamental to this approach is the
seeking of securities of companies that have: (1) demonstrated records of
above-average growth of sales and earnings over the past 5 to 10 year span and
are selling at a price which Fenimore believes is at a discount from the true
business worth of the company; (2) become severely depressed in the market
because of adverse publicity and are thus selling at a deep discount to the
perceived future potential value of the company; (3) the capability of achieving
accelerated growth of earnings and the current price understates this potential.
Future values may be 100% or more of the current price of the stock and
recognition of these values may take two to five years or longer to be realized
5
<PAGE>
in the stock market.
It is the intention of Fenimore to advise FAM to attempt to follow a similar,
though not exactly identical, approach. The primary difference is expected to be
that FAM will be freer to sell shares of issues that have achieved price targets
and intends to do so, regardless of tax implications. Investment portfolios for
individuals tend to be more constrained by such tax considerations under
existing tax laws, thus turnover is most often at a rate that is well below
published investment industry averages.
Fenimore will not invest assets of any other managed account in shares of FAM
Funds except as directed in writing by a person unaffiliated to the Funds or to
Fenimore, having authority to make such direction. Fenimore, as investment
advisor to the FAM Funds, renders such services under contract that provides for
payment to Fenimore of a fee, calculated daily and paid monthly, at the rate of
1% per annum of each Funds net assets, which rate is consistent with that being
charged by Fenimore to manage its other client accounts but which is higher than
the fee charged by most other investment companies. This contract is subject to
the approval annually by FAM Fund's Board of Trustees and is terminable upon 30
days written notice, one party to the other.
With respect to FAM Value Fund, the total investment advisory fees paid by FAM
Value Fund to Fenimore during each of the last three fiscal years is as follows:
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
December 31, 1998 December 31, 1997 December 31, 1996
- ----------------- ----------------- -----------------
$3,488,163 $2,687,138 $2,578,433
With respect to FAM Equity-Income Fund, the total investment advisory fees
earned by Fenimore and the amount of investment advisory fees waived by Fenimore
during each of the last thre fiscal years is as follows:
Period From
Fiscal Year Fiscal Year April 1, 1996
Ended Ended (inception) to
December 31, 1998 December 31, 1997 December 31, 1996
- ----------------- ----------------- -----------------
Fees Fees Fees Fees Fees Fees
Earned Waived Earned Waived Earned Waived
- ------ ------ ------ ------ ------ ------
$57,897 $34,478 $33,560 $33,560 $12,076 $12,076
Each FAM Fund is responsible for the fees of independent accountants, brokerage
fees and the cost of a surety bond, as required by the Investment Company Act of
1940. Expenses of "interested" trustees shall always remain the responsibility
of the investment advisor. FAM is responsible for the cost of its operation,
including routine administrative expenses of mailing proxies and shareholder
notices/reports, computer services and for record-keeping the shareholder
ledgers and books. All employees of the investment advisor who perform duties
for FAM shall remain employees of the investment advisor, who shall bear all
employment costs of such staff. If Fenimore ceases to operate for any reason or
assigns the contract, such contract is automatically terminated.
6
<PAGE>
BOARD OF TRUSTEES
Overall responsibility for management of the FAM Funds rests with Their Board of
Trustees, which is elected by the shareholders of the Funds. The Trustees elect
the officers of the Funds to actively supervise the day-to-day operations of the
Funds.
The names of Board of Trustees of the FAM Funds, and their respective duties and
affiliations are as follows:
Primary Occupation;
Name, Address, and Age Business Affiliations Position with the Fund
- -------------------------------------------------------------------------
Thomas O. Putnam* Chairman, Treasurer Chairman of Board
P.O. Box 310 Fenimore Asset Mgmt. President
Cobleskill, NY 12043
Age: 54
Diane C. Van Buren* Investment Management Secretary
P. O. Box 310 Associate, Fenimore Trustee
Cobleskill, NY 12043 Asset Mgmt.
Age: 41
John W. Krueger, CLU* General Agent, Trustee
P.O. Box 389 Krueger Ross Agency:
Albany, NY 12201 Director, Fenimore Asset Mgmt.
Age: 60
Bernard H. Zais, CLU President, Zais Group Trustee
PO Box 630
Colchester, VT 05446
Age: 83
Roger A. Hannay President, Trustee
2440 Airport Road Hannay Reels, Inc.
Westerlo, NY 12193
Age: 57
Joseph J. Bulmer Retired President, Trustee
7 Sultana Street Hudson Valley Community
Saratoga Springs, College
NY 12866
Age: 70
Fred "Chico" Lager Business Consultant; Trustee
831 Williston Road Director, Whole Foods
Williston, VT 05495 Market, Inc., Austin, TX;
Age: 44 Retired President
and Chief Executive
Officer of Ben & Jerry's
Homemade, Inc.
*Interested persons as defined under the 1940 Act.
Officers and Trustees of the FAM Funds own less than 1% of each Fund s shares
outstanding.
Trustees of the FAM Funds not employed by Fenimore receive from FAM Funds a fee
of $800 for each Board of Trustees meeting, $4,000 annual retainer, $500 for
each committee meeting, and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. The $4,000 annual retainer is paid
exclusively with shares of each Fund such that the Trustees receive on an annual
basis $2,000 in FAM Value Fund shares and $2,000 in FAM Equity-Income shares.
Trustees who are employees of Fenimore do not receive compensation from FAM
Funds.
7
<PAGE>
For the fiscal year ended December 31, 1998, the Trustees received the following
compensation from the Funds and from certain other investment companies (if
applicable) that have the same investment advisor as the Fund or an investment
advisor that is an affiliated person of the Fund's investment advisor:
Name of Aggregate Pension or Est. Annual Total
Trustee Compensation Retirement Benefits upon Compensation
from the Funds Benefits Retirement from Registrant
Accrued as Part and Fund
of Fund Complex
Expenses (2 Funds) Paid
to Trustees
- ------- ------------- --------------- ------------- --------------
Thomas O. $0 $0 $0 $0
Putnam
John W. $8,700 $0 $0 $8,700
Krueger
Bernard H. $8,200 $0 $0 $8,200
Zais
Roger A. $8,700 $0 $0 $8,700
Hannay
Joseph J. $7,200 $0 $0 $7,200
Bulmer.
Diane C. $0 $0 $0 $0
Van Buren
Fred $8,700 $0 $0 $8,700
Lager
BROKERAGE ALLOCATIONS
It is Fenimore's policy to allocate brokerage business to the best advantage and
benefit of its shareholders. All securities transactions are made so as to
obtain the most efficient execution at the lowest transaction cost. Nothing in
this policy, however, is to be construed to prohibit Fenimore from allocating
transactions to firms whose brokerage charges may include the cost of providing
investment advisory or research or other legally permitted services which
Fenimore deems to be necessary and/or valuable to the successful management of
its assets. Each buy or sell order will be placed according to the type, size
and kind of order involved and as each condition may demand, so as to attempt to
secure the best result for Fenimore and Fund shareholders, all factors
considered. For the fiscal years ending December 31, 1998, 1997, and 1996
respectively, aggregate commissions paid totalled $104,286, $100,098 and
$119,849 for FAM Value Fund. With respect to FAM Equity-Income, for the fiscal
year ending December 31, 1996, aggregate commissions paid totalled $3,217; for
the fiscal year ending December 31, 1997, aggregate commissions paid totalled
$2,124, and for the fiscal year ending December 31, 1998, the aggregate
commissions paid totalled $5,860. No commissions were paid by either Fund to
any affiliated parties.
8
<PAGE>
NET ASSET VALUE CALCULATION
The net asset value per share is computed by dividing the aggregate market value
of a Fund s assets daily, less its liabilities, by the number of portfolio
shares outstanding. Portfolio securities are valued and net asset value per
share is determined as of the close of business on the New York Stock Exchange
("NYSE"), which currently is 4:00 p.m. (New York City time), on each day the New
York Stock Exchange is open and on any other day in which there is a sufficient
degree of trading in Fund portfolio securities that the current net asset value
per share might be materially affected by changes in portfolio securities
values. NYSE trading is closed weekends and holidays, which are listed as New
Years Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
Portfolio securities listed on an organized exchange are valued on the basis of
the last sale on the date the valuation is made. Securities that are not traded
on that day, and for which market quotations are otherwise readily available,
and over-the-counter securities for which market quotations are readily
available, are valued on the basis of the bid price at the close of business on
that date. Securities and other assets for which market quotations are not
readily available or have not traded are valued at fair value as determined by
procedures established by the Board of Trustees. Notwithstanding the above,
bonds and other fixed-income securities may be valued on the basis of prices
determined by procedures established by the Board of Trustees if it is the
belief of the Board of Trustees that such price determination more fairly
reflects the fair value of such securities. Money market instruments are valued
at amortized cost which approximates market value unless the Board of Trustees
determines that such is not a fair value.
The sale of shares of FAM Funds will be suspended during periods when the
determination of its net asset value is suspended pursuant to rules or orders of
the Securities and Exchange Commission, or may be suspended by the Board of
Trustees whenever in its sole judgment it believes it is in the best interest of
shareholders to do so.
9
<PAGE>
PURCHASE OF SHARES
To begin an investment in FAM Funds the following minimum initial investments
must be met. All subsequent investments to an existing account require a minimum
of $50.
<TABLE>
<S> <C> <C>
FAM Value Fund FAM Equity-Income Fund*
- -------------------------------------------------------------------------------
To open a new account $2,000 $10,000
To open a new retirement account
{IRA, SEP, or 403(b)(7)} $ 100 $2,000
To open a Uniform Transfer to Minors (UTMA) or
Uniform Transfer to Minors (UGMA) account $ 500 $10,000
To open a new account with FAMVest** $ 500 $10,000
<FN>
*Due to the investment objective of FAM Equity-Income Fund, minimum
investments in this Fund are higher than those of FAM Value Fund.
**FAMVest is FAM Fund's Automatic Investment Plan which requires the
systematic addition of at least $50 per month, as described below. Please refer
to "Redemption of Shares" on page 13. To begin an investment in the Fund the
following minimum initial investments must be met depending on account type. All
subsequent investments to an existing account require a minimum of $50.
</FN>
</TABLE>
To establish an account, complete and sign the appropriate application and mail
it, along with your check to FAM Funds, P.O. Box 399, Cobleskill, NY 12043.
Checks should be made payable to the appropriate fund. A copy of the application
form is available to prospective investors upon request to FAM Funds, which is
the sole distributor of Fund shares. The offering price of such purchases will
be at the net asset value per share next determined after receipt by FAM of a
valid purchase order. The date on which the application is accepted by FAM and
the net asset value determination at the close of business on that date shall
determine the purchase price and shall normally be the purchase date for shares.
FAM reserves the right to withhold or reject requests for purchases for any
reason, including uncollectible funds. Cash will not be accepted. In the event
of a cancellation of any purchase due to uncollectible funds, the purchaser
shall be liable for all administrative costs incurred and for all other losses
or charges for such invalid transfer and/or purchase.
Subsequent Purchases: Purchases of shares made subsequent to an initial purchase
may be made by mail to FAM at its current address. All subsequent purchases must
be made in amounts of no less than $50, and such amounts shall be due and
payable in good funds to FAM on the purchase date.
Reinvestment: FAM Funds will automatically reinvest all dividend distributions
to shareholders in additional shares of the Fund at net asset value as next
determined as of the close of business on the payment date of such dividend
distribution, unless otherwise instructed by the shareholder in writing prior to
the record date for such distributions.
Fractional Shares: When share purchases or redemptions are made or when cash is
requested by
10
<PAGE>
a shareholder, shares will be issued or redeemed respectively, in fractions of
a share, calculated to the third decimal place. (Example: $2,000 invested in
shares at a net asset value of $11.76 per share will purchase 170.068 shares.)
REDEMPTION OF SHARES
Shareholders may sell all or a portion of their shares to FAM on any day that
NAV is calculated and such redemptions will be made in the manner as described
in detail in the Funds Prospectus. All redemptions are subject to the terms and
conditions as set forth therein. FAM shall have the right to refuse payment to
any registered shareholder until all legal documentation necessary for a
complete and lawful transfer is in the possession of FAM or its agents, to the
complete satisfaction of FAM Funds and its Board of Trustees.
PERFORMANCE INFORMATION
The Funds may, from time to time, include their total return in advertisements
or reports to Shareholders or prospective investors. Quotations of average
annual total return for each Fund will be expressed in terms of the average
annual compounded rate of return of a hypothetical investment in the Fund over
periods of one, five and ten years (up to the life of the Fund) calculated
pursuant to the following formula: P(1 + 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, and
assume that all dividends and distributions are reinvested when paid. FAM Value
Fund's average annual total return for the one-, five-, and ten-year periods
ended December 31, 1998 and for the period from commencement of operations on
January 2, 1987 through December 31, 1998 was 6.2%, 16.0%, 16.1% and 14.3%
respectively. FAM Equity-Income Fund's total return for the one year period
ended December 31, 1998 was 4.7% and its lifetime average annual total return
for the period from April 1, 1996 (inception) to December 31, 1998 was 15.5%.
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Quotations of yield for a FAM Fund will be computed by dividing the net
investment income per share earned by the Fund during a 30-day period by the
maximum offering price per share on the last day of the period, according to the
following formula:
6
Yield = 2[(a-b+1)-1]
--
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding during the
period that were entitled to receive dividends.
d = maximum offering price per Share on the last day of the period.
FAM Equity-Income Fund's yield for the 30-day period ended December 31, 1998 was
____.
Performance information for any FAM Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, the Dow
Jones Industrial Average, or other unmanaged indices so that investors may
compare Fund results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities market 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 assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for the Funds reflect only the performance of a
hypothetical investment in the Funds during the particular time period on which
the calculation are based. Performance information should be considered in light
of the Fund's investment objective 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.
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FINANCIAL STATEMENTS
The Financial Statements of each Fund are included in the 1998 Annual Report to
Shareholders and are incorporated by reference into this Statement of Additional
Information. Copies of the Financial Statements may be obtained upon request and
without charge from FAM at the address and telephone provided on the cover of
this Statement of Additional Information.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as state, local and foreign tax
consequences.
TAX STATUS OF THE FUNDS
Each Fund intends to be taxed as a regulated investment company under Subchapter
M of the Code. Accordingly, each Fund must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to certain 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; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of the Fund's total assets is represented
by cash and cash items, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, 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 (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, a Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. Each Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, each 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) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, each Fund intends to make distributions in accordance with the
calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a calendar year if it
is declared by a Fund in October, November or December of that year with a
record date in such a month and paid by the Fund 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 calendar year in which
the distributions are received.
FUND INVESTMENTS
Certain debt securities acquired by a Fund may be treated as debt securities
that were originally issued at a discount. Very generally, original issue
discount is defined as the difference between the price at which a security was
issued and its stated redemption price at maturity. Although no cash income on
account of such discount is actually received by a Fund, original issue discount
that accrues on a debt security in a given year generally is treated for federal
income tax purposes as interest and, therefore, such income would be subject to
the regulated investment company distribution requirement. Some debt securities
may be purchased by a Fund at a discount that exceeds the original issue
discount on such debt securities, if any; this additional discount represents
market discount for federal income tax purposes.
If a Fund purchases a debt security at a price lower than the stated redemption
price of such debt security, the excess of the stated redemption price over the
purchase price is "market discount". The Fund may be required to include a
portion of such market discount as ordinary income in each taxable year in which
the Fund owns an interest in the debt security and receives a principal payment
on it. The Fund may be required to allocate the principal payment first to the
portion of the market discount on the debt security that has accrued but has not
previously been includable in income. In general, the amount of market discount
that must be included for each period is equal to the lesser of (i) the amount
of market discount accruing during such period (plus any accrued market discount
for prior periods not previously taken into account) or (ii) the amount of the
principal payment with respect to such period. Generally, market discount
accrues on a daily basis for each day the debt security is held by the Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the Fund, at a constant yield to maturity which takes into account
the semi-annual compounding of interest. Gain realized on the disposition of a
market discount obligation must be recognized as ordinary income (not capital
gain) to the extent of the "accrued market discount."
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a shareholder
as ordinary income, whether paid in cash or reinvested in Fund shares. Dividends
paid by a Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
The excess of net long-term capital gains over the short-term capital losses
realized and distributed by a Fund, whether paid in cash or reinvested in Fund
shares, will generally be taxable to shareholders as long-term capital gain,
regardless of how long a shareholder has held Fund shares.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
DISPOSITIONS
Upon a redemption, sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending upon his or her basis in the shares. A gain or
loss will be treated as capital gain or loss if the shares are capital assets in
the shareholder's hands, and the rate of tax will depend upon the shareholder's
holding period for the shares. Any loss realized on a redemption, sale or
exchange will be disallowed to the extent the shares disposed of are replaced
(including through reinvestment of dividends) 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. If a shareholder holds Fund shares for six months or less and
during that period receives a distribution taxable to the shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term loss to the extent of such distribution.
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APPENDIX
Bond Rating Categories as Defined by Standard & Poor's (S & P) are quoted in
part and inserted herein for the information of potential investors in the FAM
Funds as a reference as follows:
An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligers such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform any audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended or withdrawn as a result of
changes in, or availability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligor;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors rights.
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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