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<TABLE>
<S> <C> <C>
CLASS A SHARES
HUDSON CAPITAL CLASS B SHARES
APPRECIATION FUND 110 Wall Street
(A Series of The Fahnestock Funds) New York, New York 10005
</TABLE>
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PROSPECTUS
April 15, 1997
Hudson Capital Appreciation Fund (the 'Fund') is the first (and, to date, the
only) series of The Fahnestock Funds, a Massachusetts business trust (the
'Trust'). The Trust is an open-end diversified management investment company
commonly known as a mutual fund. The Fund seeks long term growth through capital
appreciation by investing primarily in equity securities. Current income is a
secondary consideration.
The Fund issues three classes of shares, of which two, Class A and Class B, are
offered by this Prospectus. (See 'How to Buy Shares.')
<TABLE>
<S> <C>
-- Class A shares are sold with an initial maximum sales charge of 4.50%.
-- Class B shares are sold without an initial sales charge but are subject to a contingent deferred sales
charge ('CDSC') depending on the length of time between purchase and redemption.
-- Class A and Class B shares pay different ongoing fees under their respective distribution plans. See
'Management of the Fund -- How the Fund's Class A and Class B Shares are Distributed.'
</TABLE>
The third class of shares, Class N shares, are offered by a different
prospectus. (See 'Other Matters -- Description of the Fund's Shares.')
This Prospectus sets forth information about the Fund that an investor in Class
A or Class B shares ought to know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated April 15, 1997 has been filed with
the Securities and Exchange Commission and is incorporated by reference into
this Prospectus. A copy can be obtained free of charge upon request by writing
or telephoning: Fahnestock & Co. Inc., 110 Wall Street, New York, NY 10005,
1-800-221-5588.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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<S> <C>
Expense Information.............................................................................................. 3
Financial Highlights............................................................................................. 5
Organization of the Fund......................................................................................... 6
Investment Objective, Policies and Risk Considerations........................................................... 6
Management of the Fund........................................................................................... 9
Distributions to Shareholders and Taxation....................................................................... 13
Computation of Net Asset Value................................................................................... 14
How to Buy Shares................................................................................................ 15
How to Redeem Shares............................................................................................. 18
Additional Services and Programs................................................................................. 20
Performance Information.......................................................................................... 20
Other Matters.................................................................................................... 20
</TABLE>
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EXPENSE INFORMATION
The following information reflects the costs and expenses an investor may expect
to incur, either directly or indirectly, as a holder of Class A or Class B
shares of the Fund, based upon the maximum sales charge that may be incurred at
the time of purchase or redemption, as applicable, and the Fund's projected
annual operating expenses.
SHAREHOLDER TRANSACTION EXPENSE
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) 4.50%(1) 0%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price) 0% 0%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) 0%(1) 5.00%(2)
Redemption Fees (as a percentage of amount redeemed, if applicable) 0% 0%
</TABLE>
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(1) The sales charge set forth in the above table is the maximum charge imposed
on purchases of Class A shares; investors may pay actual charges less than
4.50%, depending upon the amount invested. Class A purchases of $1 million
or more are not subject to an initial sales charge; however, a contingent
deferred sales charge of 1% may be imposed on redemptions within 18 months
following such a purchase. See 'How to Buy Shares.'
(2) This charge is the maximum applicable to redemptions of Class B shares;
investors may pay actual charges that are lower, as described under 'How to
Buy Shares.'
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<S> <C> <C>
Management Fee(3) 1.00% 1.00%
12b-1 Fees .50%(4) 1.00%
Other Expenses (After fee waiver/expense reimbursement)(5) 0.50% 0.50%(6)
------- -------
Total Fund Operating Expenses (After fee waiver/expense reimbursement) 2.00% 2.50%
</TABLE>
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(3) The Investment Management Agreement, as amended effective February 23, 1993,
provides for a management fee at a reduced rate of 0.75% per annum with
respect to assets of the Fund in excess of $25,000,000. To date the Fund's
net assets have not exceeded $25,000,000.
(4) The Class A 12b-1 fee is payable with respect to assets of the Fund,
attributable to Class A shares, which have been continuously included in
its portfolio for four years or less as of the Fund's most recent fiscal
year-end, and is based on the average daily net asset value of those assets
during such period; no 12b-1 fee will be paid with respect to assets of the
Fund that are attributable to Class A
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shares and which have been continuously included in its portfolio for more
than four years as of the Fund's most recent fiscal year-end, calculated on
a first-in, first-out basis. (See 'How the Fund's Class A Shares and Class B
Shares are Distributed.')
(5) 'Other Expenses' in the above table include fees for shareholder services,
custodial fees, legal and accounting fees, printing costs and registration
fees and give effect to expense reimbursements that are expected to remain
in effect during the current fiscal year ending December 31, 1997.
(6) Other expenses with respect to Class B shares are estimated at the
applicable maximum; the Fund has no history of operation with respect to
Class B shares. For a more detailed description of 'Other Expenses,' see
'Management of the Fund -- The Fund's Expenses.'
The purpose of the above table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly. The management fees referred to above and nature of services
provided are more fully explained in this prospectus under the section
'Management of the Fund' and in the Statement of Additional Information under
the caption 'Investment Advisory and Other Services.'
Fahnestock & Co., Inc. ('Fahnestock'), the Fund's distributor, has concluded
that the combination of sales charges imposed on purchases or redemptions and
the asset-based charges pursuant to Rule 12b-1 are within the guidelines
established by the National Association of Securities Dealers, Inc. ('NASD').
However long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD rules.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in Class A or Class B shares of the Fund. These
amounts assume reinvestment of all dividends and distributions, payment of the
maximum initial or contingent deferred sales charge and payment by the Fund of
operating expenses at the levels set forth in the table above, and are also
based upon the following assumptions:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------- ----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
You would pay the following expenses for
the period of years indicated on a $1,000
investment, assuming 5% annual return and
redemption at the end of each time period. $64 $75 $105 $108 $148 $143 $267 $284
------- ------- ------- ------- ------- ------- ------- -------
You would pay the following expenses on
the same investment, assuming no
redemption at the end of each time
period. $64 $25 $105 $ 78 $148 $133 $267 $284
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
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THIS EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR
FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN;
MOREOVER, THE ACTUAL RATE OF ANNUAL RETURN WILL VARY AND MAY BE GREATER OR
LESSER THAN THE ASSUMED RATE OF 5%.
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FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)
The following table has been audited by the Fund's independent auditors, whose
reports thereon were unqualified. This information should be read in conjunction
with the financial statements and related notes which appear in the Fund's
annual report to shareholders and which are incorporated by reference into the
Statement of Additional Information. The information below was audited by Ernst
& Young LLP for the period from March 5, 1991 to December 31, 1991 and for the
year ended December 31, 1992 and Coopers & Lybrand L.L.P. for the years ended
December 31, 1993, 1994, 1995, and 1996.
<TABLE>
<CAPTION>
MARCH 5, 1991
CLASS A SHARES (COMMENCEMENT
------------------------------------------------------------------------ OF OPERATIONS)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36 $ 10.00
Income from investment
operations:
Net investment income/(loss)
(net)........................ (0.10) (0.03) (0.06) (0.13) (0.05) 0.01
Net realized and unrealized
gains (losses) on
investments.................. 4.72 2.09 (1.48) 2.25 1.02 1.74
------------ ------------ ------------ ------------ ------------ --------------
Total income/(loss) from
investment operations.... 4.62 2.06 (1.54) 2.12 0.97 1.75
Less dividends paid to
shareholders:
Dividends paid from net
realized gains on
investments.................. (3.02) (1.62) (1.23) (0.33) (0.40) (0.39)
------------ ------------ ------------ ------------ ------------ --------------
Net asset value, end of
period....................... $ 12.99 $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36
------------ ------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ ------------ --------------
Total return....................... 40.68% 18.94% (11.22)% 17.77% 8.54% 17.50%
Ratios/Supplemented
Data:
Net assets, end of period
(000)........................ $ 15,671 $ 12,097 $ 15,874 $ 19,227 $ 16,993 $ 11,987
Ratio of expenses to average
net assets................... 2.50%`D' 2.50%`D' 2.49%`D' 2.49%`D' 2.50%`D' 2.48%*`D'
Ratio of net investment income
(loss) to average net
assets....................... (1.13)%`D' (0.16)%`D' (0.46)%`D' (1.00)%`D' (0.48)%`D' 0.11%*`D'
Average Commission rate paid... $ 0.0597`D'`D' -- -- -- -- --
Portfolio turnover rate........ 85.37% 197.71% 194.55% 154.18% 256.84% 250.85%
</TABLE>
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* Annualized
`D' The ratios of expenses and investment income/(loss) (net) to average net
assets are net of expenses voluntarily reimbursed by the Adviser,
Administrator and Distributor in the amount of 1.00%, .92%, .27%, .25%,
1.10% and .56%, respectively.
`D'`D' For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
or sales of equity securities.
Class B shares were not offered during the periods shown.
Further information about the Fund's performance is contained in the Fund's
annual report, dated December 31, 1996, which can be obtained free of charge.
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ORGANIZATION OF THE FUND
The Fund is the initial (and, to date, only) series of shares of beneficial
interest (hereinafter referred to simply as 'shares') of The Fahnestock Funds
(the 'Trust') which is a diversified open-end management investment company
created as a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on August 29, 1990 by Fahnestock, the Fund's Administrator and
principal distributor.
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund seeks long term growth through capital appreciation by investing
primarily in equity securities. Current income is a secondary consideration. The
Fund may not always achieve its objective, but it expects to follow the
investment strategy described in the following paragraphs.
The Fund seeks to achieve its objective by investing primarily in common stocks
and securities convertible into common stock. When, in the judgment of Hudson
Capital Advisors, Inc. (the 'Adviser'), a defensive investment posture is
appropriate because of market conditions or there are temporarily no investment
opportunities in common stocks or securities convertible into common stocks
which are appropriate for the Fund, the Fund may invest up to 100% of its assets
in short-term debt securities as a temporary alternative to equity securities.
Such investments may be in United States Government securities, certificates of
deposit of major banks, commercial paper rated in the top two ratings of a
nationally recognized statistical rating organization or in a money market fund,
including a money market fund which the Adviser may manage in the future. Since
the return on a money market fund may be less than would be available through a
direct investment in the securities comprising its portfolio and will involve
payment of duplicative management and other fees, such purchases will be made
only in accordance with guidelines established by the Board of Trustees designed
to ensure that purchases of shares of a money market fund will be undertaken
only when it is in the best interest of the Fund and complies with limitations
established by the Investment Company Act of 1940, as amended (the '1940 Act').
In establishing these guidelines, the Trustees will consider whether the Adviser
should be paid a management fee by the Fund with respect to the assets invested
in such money market fund. Investing in such short-term debt securities as a
defensive or temporary investment approach does not constitute a change in the
Fund's investment objective and will be subject to any guidelines which the
Trustees may establish.
In choosing investments for the portfolio, the Adviser uses the following
primary criteria for selection of securities:
1. Earnings growth. The Adviser attempts to identify companies with strong
fundamentals, a history of profitable operations, and the likelihood of
continued earnings growth. Within this group, the Adviser seeks to invest in
companies showing earnings growth which the Adviser anticipates will be higher
than investors generally expect. Higher earnings could be generated internally
by, for example, a new product, a new service, or a new management with a
dynamic program for growth. Higher earnings could also result from events
external to the company, such as a lowering of the costs of materials important
to its operations or an exceptional increase in demand for its products. Since
factors such as the foregoing sometimes have greater impact on the share prices
of smaller companies, the Adviser will frequently place greater emphasis on
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the ownership of such companies. Historically, companies enjoying growth have
been particularly attractive in a cycle of general market increases, because, in
the view of the Adviser, higher than average earnings often tend to result in
higher than average price-earning ratios during such periods with the likely
result of greater appreciation in prices of the shares of such companies.
In addition to the foregoing considerations, the Adviser will attempt to
identify companies whose stock prices do not adequately reflect underlying
values and growth potential. There can be many reasons why a stock's price is
depressed, such as investor perception about the company's industry or sector
that is not relevant to the particular company, temporary impairment of the
company's financial condition, or short-term earnings disappointments which the
company is taking appropriate steps to address. In each case, the Adviser will
focus on the company's 'staying power,' the strength of its balance sheet, and
the long-term fundamentals of its industry. Again, this selection process often
leads to small-capitalization companies. Because the marketplace generally
devotes less research and attention to small companies, the Adviser believes
that it is more likely to find underlying values that are not yet recognized.
However, the Fund generally will also hold mid-size and larger-capitalization
companies to balance the somewhat-greater price volatility that may be
experienced by companies with smaller capitalization.
2. Corporate events. In addition to the criteria described above, the Adviser
will endeavor to identify companies that are likely to experience changes not
only in material costs, products, markets, management style, or investors'
perception of their value but also in the structure of the company itself, such
as the acquisition of another company, the likelihood that the company itself
will be acquired, the sale or discontinuance of divisions that have failed to
contribute sufficiently (or at all) to earnings, a company's tender offer for
its own stock, a spin-off of part of the company through a distribution of
shares to its shareholders that permits the market to appraise each segment of
the company separately, a sale of assets followed by a distribution of a part or
all of the proceeds to shareholders, or even dissolution of the company followed
by a distribution of assets or proceeds of sale to the shareholders.
Ideally, the Adviser will endeavor to identify companies where all of these
types of change may occur, since such instances may offer more than one
opportunity to realize appreciation.
Foreign Securities
In seeking to achieve its objective, the Fund may, to a minor degree, and in no
event with respect to more than 10% of its assets at the time of purchase,
invest in foreign securities. Foreign securities usually are denominated in
foreign currencies, which means their value will be affected by changes in the
strength of foreign currencies relative to the U.S. dollar, as well as the other
factors that affect security prices. Foreign companies are not subject to
accounting standards or governmental supervision comparable to United States
companies and there often is less publicly available information about their
operations. There generally is less governmental regulation of foreign
securities markets, and security trading practices abroad may offer less
protection to investors such as the Fund. Foreign securities can also be
affected by political or financial instability abroad, and may be less liquid or
more volatile than domestic investments. These investments may be in the form of
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American Depositary Receipts, which typically are issued by a U.S. bank or trust
company to evidence ownership of underlying securities issued by a foreign
operation. American Depositary Receipts are not necessarily denominated in the
same currency as the underlying securities.
Warrants
A warrant confers upon its holder the right to purchase an amount of securities
at a particular time and price. Because a warrant does not carry with it the
right to dividends or voting rights with respect to the securities which it
entitles a holder to purchase, and because it does not represent any rights in
the assets of the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Lending of Securities
The Fund may lend its portfolio securities to broker-dealers and other financial
institutions pursuant to agreements requiring that the loans be continuously
collateralized by cash, letters of credit or U.S. Government securities of a
value equal to at least the fair market value of the securities loaned. These
loans will not be made if as a result the aggregate of all outstanding loans
exceeds 30 percent of the value of the Fund's total assets taken at current
value.
Other Investment Policies, Restrictions and Risk Considerations
A fundamental policy of management is to spread the Fund's investments among a
number of industry groups without concentration in any particular industry; the
Fund will not purchase a security if 25% or more of its total assets would be
invested in a particular industry.
In order to limit investment risks, portfolio securities are sold when they
reach a predetermined price objective, or when a change in relative valuation
occurs, or when a deterioration in company or industry fundamentals is
anticipated or occurs. In addition, the percentage of the Fund's assets invested
in cash or temporary investments is increased when investment alternatives, such
as U.S. Government securities and money market instruments, offer better overall
returns than equities. When, in the opinion of the Adviser, current market or
economic conditions warrant, the Fund temporarily may retain cash or invest in
preferred stock, nonconvertible bonds or other fixed-income securities. During
those periods the Fund may tend to emphasize investment in securities of issuers
which the Adviser believes offer the possibility of a corporate event, since
changes of this nature can result in gains even when the overall equity market
is weak. Purchases and sales of securities will be made whenever necessary in
the management's view to achieve the objective of the Fund. It is anticipated
that portfolio turnover will normally not exceed 100% in the future. See page 5
for prior turnover rates. (A 100% rate of portfolio turnover is normally
considered to be high.) A high rate of portfolio turnover will increase the
Fund's brokerage expenses and may increase the amount of taxable short-term
gains realized by the Fund. The Fund does not expect to realize significant
gains from selling securities held less than three months.
The Statement of Additional Information contains more information about the
Fund's investment policies and also identifies the restrictions on the Fund's
investment activities, which provide that the Fund shall not, among other
things:
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-- Invest more than 5% of its total assets, taken at market value, in the
securities of any one issuer other than the United States Government, or
purchase more than 10% of the voting securities or of any other class of
securities of any one issuer.
-- Purchase securities of any company with a record of less than three years'
continuous operation if such purchase would cause the Fund's investments in all
such companies taken at cost to exceed 5% of the Fund's total assets taken at
market value.
The investment objective and restrictions referred to above are fundamental and
may not be changed without approval of a majority of the outstanding voting
securities of the Fund. The Statement of Additional Information contains a
complete description of the Fund's restrictions and policies relating to the
investment of its assets and its activities.
MANAGEMENT OF THE FUND
The business of the Fund is managed by its Trustees. The Trustees elect officers
who are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees.
How the Fund Receives Investment Advice. The Trust has entered into an
Investment Management Agreement with the Adviser with respect to the Fund, under
which the Adviser, subject to the direction of the Trustees, provides the Fund
with a continuous investment program consistent with the Fund's stated
investment objective and policies and is responsible for the management of the
Fund's assets. In addition to providing investment advice to the Fund, the
officers and employees of the Adviser are responsible for the investment and
reinvestment of the Fund's assets, subject to the overall authority of the
Trustees.
Effective October 1, 1995, James Gerson became portfolio manager of the Fund
with primary responsibility for day-to-day management of the portfolio. Mr.
Gerson is a Senior Vice President of Hudson Capital Advisors, Inc., the Fund's
Investment Manager, as well as of Fahnestock & Co., Inc. From April 1993 until
October 1994, he was a Senior Vice President and Managing Director of
Fahnestock's Corporate Finance Department. From October 1994 to September 1995,
he was an Equity Research Analyst with Fahnestock. From 1986 until he joined
Fahnestock & Co., Inc., he was associated with other investment banking firms in
the following capacities: February 1992 to April 1993 -- Senior Vice President
and Managing Director, Corporate Finance, of Reich & Co.; and January 1986 to
February 1992 -- Senior Vice President and Managing Director, Corporate Finance,
of Josephthal & Co. and its successor companies. In these positions he
concentrated on analyzing and structuring corporate financing for public
companies, with particular emphasis on 'small-cap' companies.
Mr. Gerson uses his familiarity with the market for small-cap securities, as
well as larger companies, in seeking to achieve the Fund's investment objective,
policies and risk considerations.
Performance information about the Fund from its inception through December 31,
1996 is contained in the Fund's Annual Report filed with the Securities and
Exchange Commission. A copy of the Annual Report may be obtained free of charge
upon written or phone request from Fahnestock & Co., Inc., 110 Wall Street, New
York, NY 10005, telephone 1-800-221-5588. This performance is not necessarily
indicative of
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results that would have been achieved if Mr. Gerson had been managing the Fund
during the same period.
Pursuant to the Investment Management Agreement, the Fund pays the Adviser an
annual management fee equal to one percent of the Fund's average annual net
assets up to $25 million and 0.75% of annual average net assets in excess of $25
million. The management fee is accrued daily and paid quarterly and is based on
the average of the daily net asset values of the Fund during the preceding
quarter.
The Adviser, a corporation organized in 1986 under the laws of New York, located
at 780 Third Avenue, New York, NY 10017, currently has approximately $30,000,000
in assets under management in its capacity as investment adviser. The Adviser is
a wholly-owned subsidiary of Fahnestock Viner Holdings, Inc., a corporation
organized and existing under the laws of the province of Ontario, Canada, whose
non-voting shares are listed on the New York Stock Exchange and the Toronto
Stock Exchange, and approximately 95% of whose voting securities are held by
officers and directors of Fahnestock Viner Holdings, Inc.
To reduce the potential risk of an adverse effect on the Fund's portfolio,
written policies have been adopted by the Trust, the Fund and the Adviser to
restrict securities trading in personal accounts of the portfolio managers and
other affiliated personnel who normally have access to information on portfolio
transactions. These policies comply in all material respects with the
recommendations of the Investment Company Institute.
How the Fund Receives Administrative Services. The Trust has entered into an
Administration Agreement with Fahnestock pursuant to which Fahnestock provides
certain administrative services to the Fund and its shareholders. Under the
Administration Agreement, Fahnestock provides the Trust and the Fund with office
space, supplies and other facilities required for the business of the Fund.
Fahnestock pays the compensation of all officers and employees of the Trust and
pays the expenses of clerical services related to the administration of the
Trust and the Fund. Fahnestock has entered into a Sub-Administration Agreement
with Federated Services Company (the 'Sub-Administrator'), which has extensive
experience in the mutual fund industry, to perform these services. Pursuant to
the Sub-Administration Agreement, Fahnestock is responsible for any fees and
out-of-pocket expenses due to the Sub-Administrator. The Fund pays no
administrative fee to Fahnestock or the Sub-Administrator.
The Fund's Expenses. The Adviser has voluntarily undertaken to limit expenses
applicable to the Class B shares to 2.5% and to 2.0% with respect to the other
Classes of shares. If the expenses of a Class exceed the applicable limit, the
Adviser has undertaken to reimburse the Fund for any such excess amount, limited
to an amount not greater than the portion of the advisory fee reflecting the
proportion of the Fund's assets attributable to that Class. The Adviser has
undertaken to pay any reimbursements on the same schedule as the Fund is
required to pay the advisory fee, provided that if, at the end of the fiscal
year, Class expenses do not exceed the applicable annual expense limits, the
Fund will reimburse the Adviser for monies paid by the Adviser during the course
of the fiscal year. This is a voluntary undertaking on the part of the Adviser,
which reserves the right to modify or withdraw it with respect to any Class at
any time without notice. The expenses of printing
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prospectuses used in selling Fund shares and other sales literature, as well as
certain other sales-related charges, all of which may be eligible for
reimbursement under the Fund's 12b-1 Plans, are borne by Fahnestock.
All expenses which are not specifically undertaken to be paid by the Adviser or
Fahnestock and which are incurred in the operation of the Fund (including fees
of Trustees of the Trust who are not 'interested persons,' as such term is
defined in the 1940 Act) and the continuous public offering of the shares of the
Fund are borne by the Fund, including the cost of printing and engraving share
certificates, the expenses relating to the determination of the net asset value
of shares of the Fund, the expenses of the continuing registration and
qualification of shares for sale, the cost of prospectuses distributed to
shareholders, the charges for custodians, transfer agents, registrars and other
agents, and auditing and legal expenses.
At present, the only expenses that are allocated specifically to one or more
Classes are expenses under the Distribution Plans. However, the Trustees reserve
the right to allocate certain other expenses ('Class Expenses') to specific
Classes as they deem appropriate. In any case, Class Expenses would be limited
to distribution fees, shareholder servicing fees, transfer agency fees
identified by the Transfer Agent as attributable specifically to holders of
particular Classes of shares; printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectus and proxy
materials to current shareholders; registration fees paid to the Securities and
Exchange Commission and to state securities commissions; expenses related to
administrative personnel and services as required to support holders of specific
Classes of shares; legal or accounting fees relating solely to a particular
Class or Classes; and Trustees' fees incurred in connection with issues relating
solely to a particular Class or Classes.
Brokerage Transactions. Securities for the Fund's portfolio will at all times be
bought and sold solely on the basis of investment considerations and
appropriateness to the fulfillment of the Fund's objective. The primary
consideration in placing portfolio security transactions is execution at the
most favorable prices, consistent with best execution. All orders for
transactions in securities on behalf of the Fund are placed with broker-dealers
selected by the Adviser. Fahnestock & Co. Inc., which is also the Distributor of
shares of the Fund, may serve as the Fund's broker in effecting portfolio
transactions on national securities exchanges and retain commissions in
accordance with certain regulations of the Securities and Exchange Commission,
including Rule 17e-1 under the 1940 Act. In addition, the Adviser may select
broker-dealers that provide it with research services and may cause the Fund to
pay these broker-dealers commissions that exceed those that other broker-dealers
may have charged, if it views the commissions as reasonable in relation to the
value of the brokerage and/or research services received consistent with best
execution. Consistent with the foregoing primary consideration, the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. and such
other policies as the Trustees may determine, the Adviser may consider sales of
shares of the Fund and of any other series of The Fahnestock Funds as a factor
in the selection of other broker-dealers to execute the Fund's portfolio
transactions. (For further discussion of brokerage allocation, see the Statement
of Additional Information.)
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How the Fund's Class A and Class B Shares are Distributed. The Trust has entered
into a Distribution Agreement with Fahnestock, under which Fahnestock is
obligated to use its best efforts on behalf of the Fund to sell, and accept
orders for the purchase of, shares of the Fund. Fahnestock may, from time to
time, enter into selling agreements with other selected broker-dealers ('Selling
Dealers') who have agreed to sell Class A and/or Class B shares of the Fund.
Fahnestock is a member of the National Association of Securities Dealers, Inc.
and of the New York, American and other principal national securities exchanges.
The Fund is a series of The Fahnestock Funds, which has adopted plans of
distribution ('Plans') pursuant to Rule 12b-1 under the 1940 Act, under which it
may reimburse Fahnestock for the expenses Fahnestock bears in distributing
shares of a particular Class of the Fund or providing for services to
shareholders of that Class. Under the Plan for Class A shares, the Fund may
reimburse Fahnestock for distribution and service expenses at an annual rate not
exceeding 0.50 percent of the average daily net value of the Fund's assets
attributable to Class A shares which have been continuously included in its
portfolio for four years or less. No reimbursement for distribution expenses
will be payable during the Fund's fiscal year with respect to assets of the Fund
which have been continuously included in its portfolio for more than four years,
as measured by the net asset value of Class A shares of the Fund which have been
continuously outstanding for four years or more as of the last day of its
preceding fiscal year. In calculating the number of shares which have been
outstanding for four years or more, the Fund will treat all redemptions in a
particular shareholder's account as having been made from those shares which
have been outstanding for the longest period of time, a method of accounting
commonly referred to as 'first-in, first-out.' With respect to Class B shares,
the Fund may reimburse Fahnestock at the maximum annual rate of 0.25 percent of
the average daily net asset value of the Class for the expenses of providing
personal service to Class B shareholders or the maintenance of Class B
shareholder accounts, or for payments by Fahnestock to others for such
activities, and at the maximum annual rate of .75 percent for expenses incurred
in distributing Class B shares. In both cases there is no limit on the length of
the period such net assets have been invested in the Fund.
Expenses incurred by Fahnestock during a year may exceed the amount available
for reimbursement under a Distribution Plan. Such excess expenses may be carried
forward and sought to be reimbursed in future years. Interest at the prevailing
broker loan rate may be charged to the Fund on any expenses carried forward. At
the date of this Prospectus, no excess expenses are being carried forward under
any Plan.
Expenses incurred in connection with promotional activities will be identified
to the Class involved, although it is anticipated that some promotional
activities may be conducted in respect of all Classes in common, with the result
that expenses incurred in connection with those activities will not be
identifiable to any particular Class. In the latter case, expenses will be
allocated among the Classes on the basis of their relative net assets.
Continuance of each Plan is subject to annual approval by a majority of the
Trustees and a majority of the Trustees who are not 'interested persons' of the
Fund and who have no direct or
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<PAGE>
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indirect financial interest in the operation of the Plans or any related
agreement ('Rule 12b-1 Trustees'). Each of the Plans requires that quarterly
written reports of amounts spent under such Plan and the purposes of such
expenditures be furnished to and reviewed by the Trustees. No Plan may be
amended to increase materially the amount which may be spent thereunder without
approval by a majority of the outstanding shares of the Class subject to that
Plan. All material amendments of a Plan will require approval by a majority of
the Fund's Trustees and of the Rule 12b-1 Trustees. A Plan may be terminated at
any time by vote of either a majority of the Rule 12b-1 Trustees or a majority
of the outstanding shares of the Class subject to that Plan.
Fahnestock, a New York corporation, is a wholly-owned subsidiary of Fahnestock
Viner Holdings, Inc. and has its principal office at 110 Wall Street, New York,
NY 10005. Albert G. Lowenthal, Chairman of the Board of Trustees of the Trust
and President, a Principal and a Director of the Adviser, is Chairman of the
Board of Directors, Chief Executive Officer and Chief Financial Officer of
Fahnestock. Michael Mendelson, who is President and a Trustee of the Trust, is
Managing Director of Fahnestock Asset Management, a division of Fahnestock.
Richard Wohlman, who is Treasurer of the Trust, is Comptroller of Fahnestock.
Transfer and Dividend Agent. Investors Fiduciary Trust Company, located at 127
West 10th Street, Kansas City, Missouri, 64105 serves as the Fund's Transfer
Agent and, as such, automatically opens and maintains an account for each new
investor in shares of the Fund. Under this arrangement, share certificates are
not delivered to individual shareholders unless a written request is received by
the Transfer Agent from the shareholder and then only to the extent of the
number of whole shares owned or requested. Fractional interests in shares, to
three decimal places, are reflected in the shareholder's account. Shareholders
will receive statements reflecting transactions in their accounts and account
balances. Shareholders should retain their account statements in order to
calculate the taxes on any gains or losses realized from redemption of the
Fund's shares. Fahnestock or the Transfer Agent can provide account transcripts
for past periods but shareholders may be required to pay a fee to receive such
transcripts.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXATION
Distributions. The Fund expects to distribute substantially all of its net
taxable investment income at least annually and substantially all of its net
realized capital gains, if any, annually. Unless a shareholder indicates on the
applicable document at the time of initial investment or subsequently in writing
to the transfer agent that dividends and distributions are to be paid in cash,
dividends and distributions will automatically be reinvested in additional
shares of the same Class at net asset value and will not be subject to an
initial or contingent deferred sales charge.
Each Class will be treated separately in determining the amounts of dividends
and distributions payable to holders of its shares. The Classes may have
different dividend and distribution rates because of their differing expense
levels; however, dividends and distributions paid to each Class of shares will
be declared and paid at the same time and will be determined in the same manner
as those paid to each other Class.
Dividends declared by the Fund and distributed to shareholders of record in
October, November or December of any year will be treated for
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Federal income tax purposes as having been received by shareholders in that
year, so long as the dividends are paid before February 1 of the following year.
Federal Taxes. The Fund has qualified as a 'regulated investment company' under
Subchapter M of the Internal Revenue Code (the 'Code') and intends to continue
to so qualify in the future. As such, and by complying with the applicable
provisions of the Code, the Fund will not be subject to Federal income tax on
taxable income (including realized capital gains) which is distributed to
shareholders.
Distributions from the Fund representing net investment income and any net
short-term capital gains, as computed for Federal income tax purposes, will be
taxable to shareholders as ordinary income whether such distributions are
distributed as cash payments or reinvested in additional shares of the Fund.
Distributions from the Fund representing net long-term capital gains, as
computed for Federal income tax purposes, whether such distributions are
distributed as cash payments or reinvested in additional shares, will be taxable
to the shareholders as long-term capital gains regardless of the length of time
a shareholder has held his shares. Long-term capital gains of individuals are
taxed at a maximum rate of 28% rather than the maximum rate applicable to
ordinary income for individuals (currently 39.6%). Net long term capital gains
of corporations are taxed at the rates applicable to ordinary income. In
general, only dividends from the Fund that reflect its dividend income from
United States corporations may, subject to certain limitations, qualify for the
Federal dividends-received deduction for corporate shareholders.
The Fund may be required to withhold for Federal income tax purposes 31%
('backup withholding') of the taxable distributions and the proceeds of
redemptions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification numbers or to make required certifications, or
who have been notified by the Internal Revenue Service that they are subject to
back-up withholding. Corporate shareholders and certain other shareholders
specified in the Code are exempt from back-up withholding.
Shortly after the end of each taxable year, shareholders will receive a written
notice designating the amount of the year's distributions and the Federal income
tax treatment by shareholders of amounts distributed by the Fund, including
amounts includable in income as described in the preceding paragraph.
State and Local Taxes. Depending on the residence of the shareholder for tax
purposes, distributions may also be subject to state and local taxes.
Shareholders should consult their own tax advisers as to the Federal, state and
local tax consequences of ownership of shares of the Fund in their particular
circumstances.
COMPUTATION OF NET ASSET VALUE
The Fund's net asset value per share is computed as of the close of business on
the New York Stock Exchange (generally at 4:00 p.m. New York time) on each day
on which the Exchange is open for unrestricted trading.
The net asset value per share is determined by dividing the total current market
value of the assets of the Fund attributable to each Class of shares, less the
liabilities allocable to that Class,
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by the total number of shares of the Class outstanding at the time of
determination. The Trustees have determined to value the Fund's securities
traded on a national securities exchange at the price of the last sale on such
exchange on the date as of which assets are valued. If no sale has occurred on
the date as of which assets are valued, or if the security is traded only in the
over-the-counter market, it will normally be valued at its current bid price.
Debt securities having a remaining maturity of 60 days or less may be valued at
amortized cost, which approximates market value. These instruments may include
government securities, corporate debt securities and money market instruments,
such as bank certificates of deposit and commercial paper. Portfolio securities
for which current quotations are not readily available are valued at fair value
as determined in good faith by the Trustees.
HOW TO BUY SHARES
GENERAL
Investors may buy Class A or Class B shares of the Fund through representatives
of Fahnestock or the Selling Dealers. Investors may be charged a fee if they
purchase Class A or Class B shares through a broker or agent. Initial orders are
reviewed when they are received by Fahnestock or the Selling Dealers and, if
they are accompanied by all appropriate information or are made through an
existing brokerage account, the order is accepted by Fahnestock. The minimum
initial investment in either class is $1,000 and all purchases must be made in
U.S. dollars. Thereafter, additional investments may be made in amounts of $250
or more as the shareholder elects. (These minimums do not apply to retirement
plans. See 'Retirement Plans' below.)
CLASS A SHARES
The offering price of Class A shares will be the net asset value per share next
determined after acceptance of the purchase order plus a sales load as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE CONCESSION TO
AS A AS A SELLING DEALERS
AMOUNT OF PERCENTAGE OF PERCENTAGE OF AS A
PURCHASE THE THE PERCENTAGE OF THE
(INCLUDING SALES CHARGE) AMOUNT INVESTED OFFERING PRICE OFFERING PRICE*
- -------------------------------------------------- --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $100,000................................ 4.71 4.50 4.00
$100,000 but less than $250,000................... 3.63 3.50 3.00
$250,000 but less than $500,000................... 2.56 2.50 2.00
$500,000 but less than $1 million................. 2.04 2.00 1.50
$1 million or more................................ ** ** **
</TABLE>
(footnotes on next page)
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(footnotes from previous page)
* Fahnestock may, from time to time, at its own expense, provide promotional
incentives to certain Selling Dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Fund. Selling Dealers
to whom 90% or more of the entire sales load is reallowed may be deemed to be
underwriters as that term is defined under the Securities Act of 1933.
Fahnestock retains the entire sales load on any retail sales made by it.
** No initial sales charge is payable on purchases of $1 million or more, but a
contingent deferred sales charge, payable to Fahnestock, of 1.00% is imposed
on redemptions within 18 months. Fahnestock will pay Selling Dealers who
initiate and are responsible for purchases of $1 million or more a commission
as follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million,
plus 0.20% on the next $2 million and 0.08% on the excess over $5 million.
Class A shares acquired in a purchase of $1 million or more will be subject to a
contingent deferred sales charge (a 'CDSC') of 1.00% if redeemed within 18
months of purchase. With the exception of differing applicable holding periods,
the same procedures and conditions, including waivers of the CDSC, will apply to
the CDSC for $1 million purchases of Class A shares as apply to the CDSC for
Class B shares.
The sales charge may be reduced if an investor combines his purchases with those
of certain individuals or entities (Combination Privilege) or already owns
shares (Accumulation Privilege). (See Statement of Additional Information,
'Methods of Obtaining Reduced Sales Charge' or ask your sales representative.)
In addition, the foregoing schedule of reduced sales charges will also be
available to investors who enter into a written Letter of Intent providing for
the purchase, within a 13-month period, of Class A shares of the Fund. Class A
shares previously purchased during a 90-day period prior to the date of receipt
by the Fund of the Letter of Intent and still owned by the shareholder may also
be included in determining the applicable reduction.
Class A shares may be sold without a sales charge to Trustees or officers of the
Fund, and directors or officers of the Adviser, Fahnestock, Selling Dealers, or
Fahnestock Viner Holdings, Inc. or its affiliates, to the bona fide full-time
employees and their relatives, retired employees or sales representatives of any
of the foregoing who have acted as such for not less than 90 days, or members of
the families of bona fide full-time employees or sales representatives of
Fahnestock, or to any trust, pension, profit sharing or other benefit plan for
such persons. Such sales will be made upon written assurance by the purchaser
that the purchase is made for investment purposes and that the shares will not
be resold except through redemption by the issuer. Class A shares may also be
purchased without a sales charge by any state, county, or city, or any
instrumentality, department, authority or agency thereof, which is prohibited by
applicable investment laws from paying a sales charge or commission in
connection with the purchase of shares of any registered management investment
company (hereinafter 'an eligible governmental authority'). If an investment by
an eligible governmental authority at net asset value is made through a Selling
Dealer or a
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registered representative of Fahnestock, Fahnestock may make a payment, out of
its own resources, to such Selling Dealer or registered representative in an
amount not to exceed 0.25% of the amount invested. Finally, Class A shares may
also be purchased without a sales charge by a broker-dealer, bank or other
financial services institution, as shareholder of record, on behalf of (i)
investment advisers or financial planners trading for their own accounts or the
accounts of their clients and who charge a management, consulting or other fee
for their services, and clients of such investment advisers or financial
planners trading for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of the record holder.
Additional information relating to the methods of obtaining reduced sales loads
is contained in the Fund's Statement of Additional Information and may be
obtained from a registered representative of Fahnestock or a Selling Dealer.
Retirement Plans. Investors may use the Fund as a funding medium for various
types of qualified retirement plans, including Individual Retirement Accounts,
Keogh Plans (H.R. 10), Pension and Profit Sharing Plans, Tax Sheltered Annuity
Retirement Plans, and 401(k) Plans. The initial investment minimum for any of
the above will be $1,000. Contributions to such plans are subject to prevailing
amount limits set by the Internal Revenue Code and may be deducted within limits
set by the Code.
Investors may purchase Class A shares at net asset value, without imposition of
a sales charge, to the extent that the investment represents (a) the proceeds
from the redemption made within the preceding 60 days of shares of another
mutual fund not affiliated with Hudson Capital Advisers, Inc., whose shares were
purchased subject to a sales charge, or (b) the net proceeds of the sale within
the preceding 60 days of shares of any closed-end investment company. When
making a purchase at net asset value pursuant to these provisions, the investor
must forward to Fahnestock either the redemption check representing the proceeds
of the mutual fund shares redeemed, or a copy of the confirmation from the other
mutual fund showing the redemption transaction, or a copy of the confirmation
showing the sale of the shares of the closed-end company.
Automatic Investment. The Fund offers an Automatic Investment Plan whereby the
Fund's transfer agent, Investors Fiduciary Trust Company (IFTC), is permitted
through preauthorized checks of $250 or more to charge the regular bank account
of a shareholder on a regular basis to provide systematic additions to the Fund
account of the shareholder. While there is no charge to shareholders for this
service, a charge of $10 will be deducted from a shareholder's Fund account for
checks returned for insufficient funds. A shareholder's Automatic Investment
Plan may be terminated at any time without charge or penalty by the shareholder,
the Fund, IFTC or Fahnestock. Further information regarding the Automatic
Investment Plan may be obtained through any Fahnestock account representative.
Additional Information. Investors should refer to the Statement of Additional
Information for more complete information about how to purchase shares of the
Fund. Investors can also obtain additional information from a representative of
Fahnestock or a Selling Dealer.
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CLASS B SHARES
Because it will normally be preferable to an investor who qualifies for reduced
initial sales charges to purchase Class A shares rather than Class B shares,
Fahnestock will reject any purchase order greater than $250,000 for Class B
shares.
There is no initial sales charge on purchases of Class B shares, but a CDSC may
be charged on any redemption that causes the current value of the shareholder's
Class B share account to fall below the amount of purchase payments made during
a six-year holding period. There is no CDSC on redemptions of (i) shares that
represent appreciation of the original investment or (ii) shares purchased
through reinvestment of dividends and distributions. The amount of the CDSC is
based on the length of time shares are held, according to the following table:
<TABLE>
<CAPTION>
YEARS SHARES ARE HELD CDSC
- ------------------------------------------------- ----
<S> <C>
Less than one.................................... 5%
One but less than two............................ 4%
Two but less than four........................... 3%
Four but less than five.......................... 2%
Five but less than six........................... 1%
Six or more...................................... 0%
</TABLE>
For purposes of calculating the applicable CDSC, it is assumed that redemptions
are made first of Class B shares to which the CDSC does not apply, then of Class
B shares that have been held the longest; this will result in the lowest
applicable charge.
No CDSC will be charged on redemptions of Class B shares that would have
qualified for a waiver of the initial sales charge had they been purchased as
Class A shares. In addition, no CDSC will be charged on (i) Systematic
Withdrawal Plan payments that do not exceed on an annual basis 12% of the value
of the shareholder's investment in Class B shares at the time the shareholder
elects to participate in the Systematic Withdrawal Plan, (ii) redemptions of
shares in connection with certain required post-retirement withdrawals from a
retirement plan or (iii) redemptions following the death or disability of a
shareholder. It is the responsibility of a shareholder redeeming shares
otherwise subject to a CDSC but qualifying for one of the foregoing waivers to
assert this status at the time of the redemption and to provide satisfactory
evidence of such qualification.
HOW TO REDEEM SHARES
Through Fahnestock or a Selling Dealer. Shares of the Fund may be redeemed
through Fahnestock or your Selling Dealer. Redemptions, net of any applicable
CDSC, will be made at the net asset value next determined after receipt of any
such order by Fahnestock or the Selling Dealer. Certificates, if any, in proper
form for redemption or any required stock powers should be presented or sent to
Fahnestock or your Selling Dealer no later than the close of business of the day
on which the redemption order is placed. Investors may be charged a fee if they
redeem Class A or Class B shares through a broker or agent.
Written Request. Any shareholder of record may require the Fund to redeem his
shares by making written application to the transfer agent. Such application
must be signed by the shareholder as his name appears on the records of the Fund
and must be accompanied by any share certificates issued for shares being
redeemed or a stock power if no such certificates were issued. A stock power is
a written instrument executed by a shareholder in order to facilitate the legal
transfer of shares of the Fund. Share certificates must be
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<PAGE>
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duly endorsed for transfer. Signatures on share certificates and stock powers
must be guaranteed, except that (subject to the restriction in the next
sentence) a signature guarantee will not be required for a redemption of less
than $5,000 where the redemption proceeds are sent to a shareholder of record at
the shareholder's address of record. A redemption request must be accompanied by
a signature guarantee if the shareholder's address of record has changed within
the past 30 days. A signature guarantee is a widely accepted way to protect you
and the transfer agent by verifying the signature on your request. The following
institutions may provide you with an acceptable signature guarantee: a U.S.
bank, trust company, credit union or savings association, a foreign bank that
has a New York correspondent bank (which correspondent bank must be named by the
guarantor), a U.S. registered securities broker or dealer (including a broker or
dealer in municipal securities or U.S. government securities), a U.S. national
securities exchange, a registered securities association or a clearing agency. A
notary public is not an acceptable signature guarantor. Redemptions, net of any
applicable CDSC, will be effected at the net asset value next determined after
receipt by the Transfer Agent of such application and certificates or stock
powers, if any, in proper form for redemption.
General. Payment for shares redeemed will ordinarily be made on the next
business day after the redemption is effected. However, the Fund reserves the
right to pay redemption proceeds within seven days after the order is effected
if, in its judgment, immediate payment would adversely affect the Fund. In
addition, at various times the Trust may be requested to redeem Fund shares for
which it has not yet received good payment. Accordingly, the Trust may delay the
mailing of a redemption draft for up to 10 business days from the payment date
or until such time as it has assured itself that good payment (e.g., cash in
hand) has been collected for the purchase of such shares, whichever occurs
first.
The Trust may suspend the right of redemption of Fund shares and may postpone
payment for redeemed Fund shares when the New York Stock Exchange is closed for
other than weekends or holidays, or if permitted by the rules of the Securities
and Exchange Commission during periods when trading on the Exchange is
restricted or during an emergency which makes it impractical for the Trust to
dispose of the Fund's securities or fairly to determine the value of its net
assets, or during any other period permitted by the Securities and Exchange
Commission for the protection of investors.
Due to the proportionately high cost of maintaining smaller accounts, the Trust
reserves the right to redeem all shares in a Fund account which has a value of
less than $500 as the result of redemptions (except accounts which constitute
the assets of retirement plans and Individual Retirement Accounts) and to mail
the proceeds to the shareholder. Shareholders will be notified before these
redemptions are to be made and will have 30 days to purchase additional shares
to bring their accounts up to the required minimum.
The redemption price of shares of the Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of the redemption, and gain or loss may be recognized for
Federal income tax purposes.
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ADDITIONAL SERVICES AND PROGRAMS
Systematic Withdrawal Plan. This service enables a shareholder with an account
value of $10,000 or more automatically to receive or make periodic payments from
the Fund at no cost. A shareholder may elect to receive or make as many payments
as he wants. Payments may be made monthly, quarterly, semi-annually or annually
in varying amounts, but not less than $100 each. Payments may be made to the
shareholder, another individual, a bank or any other designated entity. This
service is particularly useful in paying regular bills and disbursing funds from
retirements plans in compliance with IRS regulations.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional Class A shares of the Fund would be disadvantageous to a shareholder
because of the sales load payable on such purchases. A Systematic Withdrawal
Plan may be established by completing an application form available from
Fahnestock or your Selling Dealer and requires that all dividends and
distributions be taken in additional shares of the Fund. See the Statement of
Additional Information, 'Additional Services and Programs.'
Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund may, within two years after the date of redemption, reinvest any part of
the redemption proceeds in Class A shares without payment of a sales load. A
shareholder should notify Fahnestock or the Selling Dealer in writing of an
intention to exercise the reinvestment privilege. If the shareholder reinvests
in the Fund within thirty (30) days, any loss realized on the redemption will
not be recognized for Federal income tax purposes as to the number of shares
acquired under the reinvestment privilege except through an adjustment in the
tax basis of the so-acquired shares.
Additional Information. Shareholders should refer to the Statement of Additional
Information for more complete information on the additional services and
programs available to shareholders of the Fund. Additional information is also
available from a registered representative of Fahnestock or a Selling Dealer.
PERFORMANCE INFORMATION
From time to time the Fund may publish its 'total return' for each Class of
shares. Total return figures are based on historical earnings and are not
intended to indicate future performance. The 'total return' of a Class refers to
the average annual compounded rates of return over periods of 1, 5, and 10 years
(which periods will be stated in the publication) that would compare the initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment. The calculation assumes the reinvestment of all
dividends and distributions, and reflects all recurring fees that are charged to
all shareholder accounts and nonrecurring charges, if any, including, unless
otherwise stated, maximum applicable initial or contingent deferred sales
charges.
If the total return calculation includes the maximum sales charge of 4.50% or
the maximum CDSC of 5.00%, investment or redemption at a lower sales charge
would increase this performance measure correspondingly. See the information
under the caption 'How to Buy Shares' for information on reduced sales charges.
The principal value of an investment will fluctuate so that the value of the
investment, when redeemed, may be more or less than the original investment.
OTHER MATTERS
Description of the Fund's Shares. The Fund is the initial (and, to date, the
only) series of shares of
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beneficial interest of The Fahnestock Funds, a Massachusetts business trust
which was created on August 29, 1990 under the laws of the Commonwealth of
Massachusetts and has an unlimited number of authorized shares of beneficial
interest. The Fund currently offers three classes of shares -- A, B and N. The
Classes differ with respect to their sales charges and other expenses, which may
affect their performance. Only shares of Classes A and B are offered by this
prospectus. Investors can obtain information about Class N Shares, which are
also offered to the public, or a Class N prospectus by calling Fahnestock at
1-800-800-9168.
All shares have equal rights as to voting, except as to matters (such as a Plan
of Distribution) that affect only some but not all Classes, or which have
different consequences for different Classes, in which case the matter will be
submitted to a separate vote of each affected Class. All Classes have equal
rights to redemption and liquidation at their respective net asset values,
subject to any applicable CDSC. Dividends may vary as between the classes to the
extent that different expenses are allocated to specific Classes. All shares
issued and outstanding are fully paid and nonassessable by the Fund and the
Trust and are redeemable at net asset value at the option of shareholders,
subject to any applicable CDSC. Shares have no preemptive or conversion rights
and are freely transferable. Certificates for shares will not be issued unless
requested in writing by an investor.
When matters are submitted for shareholder vote, shareholders of each series of
The Fahnestock Funds, including the Fund, will have one vote for each full share
held and proportional, fractional votes for each fractional share held.
Shareholders of all series of The Fahnestock Funds will vote collectively on
certain matters affecting all series, such as the election of Trustees and the
selection of accountants; shareholders of one series are not entitled to vote on
a matter that does not affect that series but that does require a separate vote
of another series, such as a particular series' investment management agreement.
As noted above, different classes will vote separately on matters affecting only
a particular class, or having different effects on different classes. Neither
the Trust nor the Fund intends to hold annual meetings. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of accountants. However, pursuant to the By-Laws of the Trust, the
holders of at least 10 percent of the shares outstanding and entitled to vote
may require a special meeting of shareholders to be held for any purpose,
including removal of a Trustee from office. Shareholders of the Trust may remove
a Trustee by the affirmative vote of a majority of the outstanding voting
shares. In addition, the Board of Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees holding office at that time were elected by
shareholders. The Trustees may call special shareholder meetings of one or more
(including all) series or Classes of shares for such purposes as electing or
removing Trustees, changing fundamental policies or adopting new management
agreements.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. The Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts, obligations or affairs of the Trust. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any
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<PAGE>
<PAGE>
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shareholder of the Fund held personally liable by reason of being or having been
a shareholder. Liability of a shareholder of the Fund is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Transfer Agent. Investors Fiduciary Trust Company, 127 West 10th Street, Kansas
City, Missouri 64105, acts as transfer agent for the Fund; in this capacity, it
maintains the record of each transaction of a shareholder with respect to shares
of the Fund. A Shareholder may obtain information about his account by
consulting his sales representative or calling the transfer agent at
1-800-367-0068.
Custody of Portfolio. Portfolio securities of the Fund are held pursuant to a
custodian agreement by Investors Fiduciary Trust Company, as custodian; eligible
securities may be held in the book entry system for U.S. government securities
maintained by the Federal Reserve System or deposited with the Depository Trust
Company.
Registration Statement. This Prospectus omits certain information contained in
the Statement of Additional Information and Part C of the Registration Statement
which the Fund has filed with the Securities and Exchange Commission. The Fund's
Statement of Additional Information is incorporated by reference into this
Prospectus. A copy of the Fund's Statement of Additional Information can be
obtained upon request free of charge by writing or telephoning Fahnestock. You
may obtain a copy of Part C of the Registration Statement from the Securities
and Exchange Commission upon payment of the prescribed fee.
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HUDSON CAPITAL
APPRECIATION FUND
(A Series of The Fahnestock Funds)
110 Wall Street
New York, New York 10005
Telephone (800) 221-5588
INVESTMENT ADVISER
Hudson Capital Advisors, Inc.
780 Third Avenue
New York, New York 10017
PRINCIPAL DISTRIBUTOR
Fahnestock & Co. Inc.
110 Wall Street
New York, New York 10005
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
1100 Main Street, Suite 900
Kansas City, Missouri 64105
LEGAL COUNSEL
Faith Colish, A Professional Corporation
63 Wall Street
New York, New York 10005
[LOGO]
PROSPECTUS CLASS A SHARES
April 15, 1997 CLASS B SHARES
A mutual fund seeking to achieve long-term growth of capital through investment
in equity securities.
[LOGO]
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<PAGE>
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<TABLE>
<S> <C>
HUDSON CAPITAL CLASS N SHARES
APPRECIATION FUND 110 Wall Street
(A Series of The Fahnestock Funds) New York, New York 10005
</TABLE>
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PROSPECTUS
April 15, 1997
Hudson Capital Appreciation Fund (the 'Fund') is the first (and, to date, the
only) series of The Fahnestock Funds, a Massachusetts business trust (the
'Trust'). The Trust is an open-end diversified management investment company
commonly known as a mutual fund. The Fund seeks long term growth through capital
appreciation by investing primarily in equity securities. Current income is a
secondary consideration.
The Fund issues three classes of shares. Class N shares are offered by this
Prospectus and are sold at net asset value without a sales charge. (See 'How to
Buy Shares.') They are subject to an ongoing distribution and shareholder
services fee. See 'Management of the Fund -- How the Fund's Class N Shares are
Distributed.'
Class A and Class B shares of the Fund are offered by a different prospectus.
(See 'Other Matters -- Description of the Fund's Shares.')
This Prospectus sets forth information about the Fund that an investor in Class
N shares ought to know before investing. It should be read and retained for
future reference.
A Statement of Additional Information dated April 15, 1997 has been filed with
the Securities and Exchange Commission and is incorporated by reference into
this Prospectus. A copy can be obtained free of charge upon request by writing
or telephoning: Fahnestock & Co. Inc., 110 Wall Street, New York, NY 10005,
1-800-221-5588.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Information.............................................................................................. 3
Financial Highlights............................................................................................. 5
Organization of the Fund......................................................................................... 6
Investment Objective, Policies and Risk Considerations........................................................... 6
Management of the Fund........................................................................................... 9
Distributions to Shareholders and Taxation....................................................................... 13
Computation of Net Asset Value................................................................................... 14
How to Buy Shares................................................................................................ 14
How to Redeem Shares............................................................................................. 16
Additional Services and Programs................................................................................. 18
Performance Information.......................................................................................... 18
Other Matters.................................................................................................... 18
</TABLE>
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EXPENSE INFORMATION
The following information reflects the costs and expenses an investor may expect
to incur, either directly or indirectly, as a holder of Class N shares of the
Fund, based upon the Fund's projected annual operating expenses.
SHAREHOLDER TRANSACTION EXPENSE
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 0%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price) 0%
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) 0%
Redemption Fees (as a percentage of amount redeemed, if applicable) 0%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<S> <C> <C>
Management Fee(1) 1.00%
12b-1 Fees 0.25%
Other Expenses (After fee waiver/expense reimbursement)(2) 0.75%
------- -------
Total Fund Operating Expenses (After fee waiver/expense reimbursement) 2.00%
</TABLE>
------------------------------------------------------------
(1) The Investment Management Agreement, as amended effective February 23, 1993,
provides for a management fee at a reduced rate of 0.75% per annum with
respect to assets of the Fund in excess of $25,000,000. To date the Fund's
net assets have not exceeded $25,000,000.
(2) Expenses with respect to Class N shares are estimated at the applicable
maximum; the Fund has no history of operation with respect to Class N
shares. 'Other Expenses' in the above table include fees for shareholder
services, custodial fees, legal and accounting fees, printing costs and
registration fees and give effect to expense reimbursements that are
expected to remain in effect during the current fiscal year ending December
31, 1997. For a more detailed description of 'Other Expenses,' see
'Management of the Fund -- The Fund's Expenses.'
The purpose of the above table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly. The management fees referred to above and nature of services
provided are more fully explained in this prospectus under the section
'Management of the Fund' and in the Statement of Additional Information under
the caption 'Investment Advisory and Other Services.'
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Fahnestock & Co., Inc. ('Fahnestock'), the Fund's distributor, has concluded
that the asset-based charges pursuant to Rule 12b-1 are within the guidelines
established by the National Association of Securities Dealers, Inc. ('NASD').
However long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD rules.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in Class N shares of the Fund. These amounts assume
reinvestment of all dividends and distributions and payment by the Fund of
operating expenses at the levels set forth in the table above, and are also
based upon the following assumptions:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
----------------- -----------------
<S> <C> <C>
You would pay the following expenses for the period of years indicated on
a $1,000 investment, assuming 5% annual return and redemption at the end
of each time period. $20 $63
</TABLE>
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THIS EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR
FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN;
MOREOVER, THE ACTUAL RATE OF ANNUAL RETURN WILL VARY AND MAY BE GREATER OR
LESSER THAN THE ASSUMED RATE OF 5%.
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FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED)
The following table has been audited by the Fund's independent auditors, whose
reports thereon were unqualified. This information should be read in conjunction
with the financial statements and related notes which appear in the Fund's
annual report to shareholders and which are incorporated by reference into the
Statement of Additional Information. The information below was audited by Ernst
& Young LLP for the period from March 5, 1991 to December 31, 1991 and for the
year ended December 31, 1992 and Coopers & Lybrand L.L.P. for the years ended
December 31, 1993, 1994, 1995, and 1996. It pertains only to Class A shares, the
only Class of shares of the Fund outstanding during the periods shown.
<TABLE>
<CAPTION>
MARCH 5, 1991
CLASS A SHARES (COMMENCEMENT
------------------------------------------------------------------------ OF OPERATIONS)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36 $ 10.00
Income from investment
operations:
Net investment income/(loss)
(net)........................ (0.10) (0.03) (0.06) (0.13) (0.05) 0.01
Net realized and unrealized
gains (losses) on
investments.................. 4.72 2.09 (1.48) 2.25 1.02 1.74
------------ ------------ ------------ ------------ ------------ --------------
Total income/(loss) from
investment operations.... 4.62 2.06 (1.54) 2.12 0.97 1.75
Less dividends paid to
shareholders:
Dividends paid from net
realized gains on
investments.................. (3.02) (1.62) (1.23) (0.33) (0.40) (0.39)
------------ ------------ ------------ ------------ ------------ --------------
Net asset value, end of
period....................... $ 12.99 $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36
------------ ------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ ------------ --------------
Total return....................... 40.68% 18.94% (11.22)% 17.77% 8.54% 17.50%
Ratios/Supplemented
Data:
Net assets, end of period
(000)........................ $ 15,671 $ 12,097 $ 15,874 $ 19,227 $ 16,993 $ 11,987
Ratio of expenses to average
net assets................... 2.50%`D' 2.50%`D' 2.49%`D' 2.49%`D' 2.50%`D' 2.48%*`D'
Ratio of net investment income
(loss) to average net
assets....................... (1.13%)`D' (0.16)%`D' (0.46)%`D' (1.00)%`D' (0.48)%`D' 0.11%*`D'
Average commission rate paid... $ 0.0597`D'`D' -- -- -- -- --
Portfolio turnover rate........ 85.37% 197.71% 194.55% 154.18% 256.84% 250.85%
</TABLE>
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* Annualized
`D' The ratios of expenses and investment income/(loss) (net) to average net
assets are net of expenses voluntarily reimbursed by the Adviser,
Administrator and Distributor in the amount of 1.00%, .92%, .27%, .25%,
1.10% and .56%, respectively.
`D'`D' For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
or sales of equity seurities.
Further information about the Fund's performance is contained in the Fund's
annual report, dated December 31, 1996, which can be obtained free of charge.
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-5-
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ORGANIZATION OF THE FUND
The Fund is the initial (and, to date, only) series of shares of beneficial
interest (hereinafter referred to simply as 'shares') of The Fahnestock Funds
(the 'Trust') which is a diversified open-end management investment company
created as a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on August 29, 1990 by Fahnestock, the Fund's Administrator and
principal distributor.
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund seeks long term growth through capital appreciation by investing
primarily in equity securities. Current income is a secondary consideration. The
Fund may not always achieve its objective, but it expects to follow the
investment strategy described in the following paragraphs.
The Fund seeks to achieve its objective by investing primarily in common stocks
and securities convertible into common stock. When, in the judgment of Hudson
Capital Advisors, Inc. (the 'Adviser'), a defensive investment posture is
appropriate because of market conditions or there are temporarily no investment
opportunities in common stocks or securities convertible into common stocks
which are appropriate for the Fund, the Fund may invest up to 100% of its assets
in short-term debt securities as a temporary alternative to equity securities.
Such investments may be in United States Government securities, certificates of
deposit of major banks, commercial paper rated in the top two ratings of a
nationally recognized statistical rating organization or in a money market fund,
including a money market fund which the Adviser may manage in the future. Since
the return on a money market fund may be less than would be available through a
direct investment in the securities comprising its portfolio and will involve
payment of duplicative management and other fees, such purchases will be made
only in accordance with guidelines established by the Board of Trustees designed
to ensure that purchases of shares of a money market fund will be undertaken
only when it is in the best interest of the Fund and complies with limitations
established by the Investment Company Act of 1940, as amended (the '1940 Act').
In establishing these guidelines, the Trustees will consider whether the Adviser
should be paid a management fee by the Fund with respect to the assets invested
in such money market fund. Investing in such short-term debt securities as a
defensive or temporary investment approach does not constitute a change in the
Fund's investment objective and will be subject to any guidelines which the
Trustees may establish.
In choosing investments for the portfolio, the Adviser uses the following
primary criteria for selection of securities:
1. Earnings growth. The Adviser attempts to identify companies with strong
fundamentals, a history of profitable operations, and the likelihood of
continued earnings growth. Within this group, the Adviser seeks to invest in
companies showing earnings growth which the Adviser anticipates will be higher
than investors generally expect. Higher earnings could be generated internally
by, for example, a new product, a new service, or a new management with a
dynamic program for growth. Higher earnings could also result from events
external to the company, such as a lowering of the costs of materials important
to its operations or an exceptional increase in demand for its products. Since
factors such as the foregoing sometimes have greater impact on the share prices
of smaller companies, the Adviser will frequently place greater emphasis on
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-6-
<PAGE>
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the ownership of such companies. Historically, companies enjoying growth have
been particularly attractive in a cycle of general market increases, because, in
the view of the Adviser, higher than average earnings often tend to result in
higher than average price-earning ratios during such periods with the likely
result of greater appreciation in prices of the shares of such companies.
In addition to the foregoing considerations, the Adviser will attempt to
identify companies whose stock prices do not adequately reflect underlying
values and growth potential. There can be many reasons why a stock's price is
depressed, such as investor perception about the company's industry or sector
that is not relevant to the particular company, temporary impairment of the
company's financial condition, or short-term earnings disappointments which the
company is taking appropriate steps to address. In each case, the Adviser will
focus on the company's 'staying power,' the strength of its balance sheet, and
the long-term fundamentals of its industry. Again, this selection process often
leads to small-capitalization companies. Because the marketplace generally
devotes less research and attention to small companies, the Adviser believes
that it is more likely to find underlying values that are not yet recognized.
However, the Fund generally will also hold mid-size and larger-capitalization
companies to balance the somewhat-greater price volatility that may be
experienced by companies with smaller capitalization.
2. Corporate events. In addition to the criteria described above, the Adviser
will endeavor to identify companies that are likely to experience changes not
only in material costs, products, markets, management style, or investors'
perception of their value but also in the structure of the company itself, such
as the acquisition of another company, the likelihood that the company itself
will be acquired, the sale or discontinuance of divisions that have failed to
contribute sufficiently (or at all) to earnings, a company's tender offer for
its own stock, a spin-off of part of the company through a distribution of
shares to its shareholders that permits the market to appraise each segment of
the company separately, a sale of assets followed by a distribution of a part or
all of the proceeds to shareholders, or even dissolution of the company followed
by a distribution of assets or proceeds of sale to the shareholders.
Ideally, the Adviser will endeavor to identify companies where all of these
types of change may occur, since such instances may offer more than one
opportunity to realize appreciation.
Foreign Securities
In seeking to achieve its objective, the Fund may, to a minor degree, and in no
event with respect to more than 10% of its assets at the time of purchase,
invest in foreign securities. Foreign securities usually are denominated in
foreign currencies, which means their value will be affected by changes in the
strength of foreign currencies relative to the U.S. dollar, as well as the other
factors that affect security prices. Foreign companies are not subject to
accounting standards or governmental supervision comparable to United States
companies and there often is less publicly available information about their
operations. There generally is less governmental regulation of foreign
securities markets, and security trading practices abroad may offer less
protection to investors such as the Fund. Foreign securities can also be
affected by political or financial instability abroad, and may be less liquid or
more volatile than domestic investments. These investments may be in the form of
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<PAGE>
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American Depositary Receipts, which typically are issued by a U.S. bank or trust
company to evidence ownership of underlying securities issued by a foreign
operation. American Depositary Receipts are not necessarily denominated in the
same currency as the underlying securities.
Warrants
A warrant confers upon its holder the right to purchase an amount of securities
at a particular time and price. Because a warrant does not carry with it the
right to dividends or voting rights with respect to the securities which it
entitles a holder to purchase, and because it does not represent any rights in
the assets of the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Lending of Securities
The Fund may lend its portfolio securities to broker-dealers and other financial
institutions pursuant to agreements requiring that the loans be continuously
collateralized by cash, letters of credit or U.S. Government securities of a
value equal to at least the fair market value of the securities loaned. These
loans will not be made if as a result the aggregate of all outstanding loans
exceeds 30 percent of the value of the Fund's total assets taken at current
value.
Other Investment Policies, Restrictions and Risk Considerations
A fundamental policy of management is to spread the Fund's investments among a
number of industry groups without concentration in any particular industry; the
Fund will not purchase a security if 25% or more of its total assets would be
invested in a particular industry.
In order to limit investment risks, portfolio securities are sold when they
reach a predetermined price objective, or when a change in relative valuation
occurs, or when a deterioration in company or industry fundamentals is
anticipated or occurs. In addition, the percentage of the Fund's assets invested
in cash or temporary investments is increased when investment alternatives, such
as U.S. Government securities and money market instruments, offer better overall
returns than equities. When, in the opinion of the Adviser, current market or
economic conditions warrant, the Fund temporarily may retain cash or invest in
preferred stock, nonconvertible bonds or other fixed-income securities. During
those periods the Fund may tend to emphasize investment in securities of issuers
which the Adviser believes offer the possibility of a corporate event, since
changes of this nature can result in gains even when the overall equity market
is weak. Purchases and sales of securities will be made whenever necessary in
the management's view to achieve the objective of the Fund. It is anticipated
that portfolio turnover will normally not exceed 100% in the future. See page 5
for prior turnover rates. (A 100% rate of portfolio turnover is normally
considered to be high.) A high rate of portfolio turnover will increase the
Fund's brokerage expenses and may increase the amount of taxable short-term
gains realized by the Fund. The Fund does not expect to realize significant
gains from selling securities held less than three months.
The Statement of Additional Information contains more information about the
Fund's investment policies and also identifies the restrictions on the Fund's
investment activities, which provide that the Fund shall not, among other
things:
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<PAGE>
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-- Invest more than 5% of its total assets, taken at market value, in the
securities of any one issuer other than the United States Government, or
purchase more than 10% of the voting securities or of any other class of
securities of any one issuer.
-- Purchase securities of any company with a record of less than three years'
continuous operation if such purchase would cause the Fund's investments in all
such companies taken at cost to exceed 5% of the Fund's total assets taken at
market value.
The investment objective and restrictions referred to above are fundamental and
may not be changed without approval of a majority of the outstanding voting
securities of the Fund. The Statement of Additional Information contains a
complete description of the Fund's restrictions and policies relating to the
investment of its assets and its activities.
MANAGEMENT OF THE FUND
The business of the Fund is managed by its Trustees. The Trustees elect officers
who are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees.
How the Fund Receives Investment Advice. The Trust has entered into an
Investment Management Agreement with the Adviser with respect to the Fund, under
which the Adviser, subject to the direction of the Trustees, provides the Fund
with a continuous investment program consistent with the Fund's stated
investment objective and policies and is responsible for the management of the
Fund's assets. In addition to providing investment advice to the Fund, the
officers and employees of the Adviser are responsible for the investment and
reinvestment of the Fund's assets, subject to the overall authority of the
Trustees.
Effective October 1, 1995, James Gerson became portfolio manager of the Fund
with primary responsibility for day-to-day management of the portfolio. Mr.
Gerson is a Senior Vice President of Hudson Capital Advisors, Inc., the Fund's
Investment Manager, as well as of Fahnestock & Co., Inc. From April 1993 until
October 1994, he was a Senior Vice President and Managing Director of
Fahnestock's Corporate Finance Department. From October 1994 to September 1995,
he was an Equity Research Analyst with Fahnestock. From 1986 until he joined
Fahnestock & Co., Inc., he was associated with other investment banking firms in
the following capacities: February 1992 to April 1993 -- Senior Vice President
and Managing Director, Corporate Finance, of Reich & Co.; and January 1986 to
February 1992 -- Senior Vice President and Managing Director, Corporate Finance,
of Josephthal & Co. and its successor companies. In these positions he
concentrated on analyzing and structuring corporate financing for public
companies, with particular emphasis on 'small-cap' companies.
Mr. Gerson uses his familiarity with the market for small-cap securities, as
well as larger companies, in seeking to achieve the Fund's investment objective,
policies and risk considerations.
Performance information about the Fund from its inception through December 31,
1996 is contained in the Fund's Annual Report filed with the Securities and
Exchange Commission. A copy of the Annual Report may be obtained free of charge
upon written or phone request from Fahnestock & Co., Inc., 110 Wall Street, New
York, NY 10005, telephone 1-800-221-5588. This performance is not necessarily
indicative of results that would have been achieved if Mr.
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Gerson had been managing the Fund during the same period.
Pursuant to the Investment Management Agreement, the Fund pays the Adviser an
annual management fee equal to one percent of the Fund's average annual net
assets up to $25 million (which is higher than the management fee paid by most
investment companies) and 0.75% of annual average net assets in excess of $25
million. The management fee is accrued daily and paid quarterly and is based on
the average of the daily net asset values of the Fund during the preceding
quarter.
The Adviser, a corporation organized in 1986 under the laws of New York, located
at 780 Third Avenue, New York, NY 10017, currently has approximately $30,000,000
in assets under management in its capacity as investment adviser. The Adviser is
a wholly-owned subsidiary of Fahnestock Viner Holdings, Inc., a corporation
organized and existing under the laws of the province of Ontario, Canada, whose
non-voting shares are listed on the New York Stock Exchange and the Toronto
Stock Exchange, and approximately 95% of whose voting securities are held by
officers and directors of Fahnestock Viner Holdings, Inc.
To reduce the potential risk of an adverse effect on the Fund's portfolio,
written policies have been adopted by the Trust, the Fund and the Adviser to
restrict securities trading in personal accounts of the portfolio managers and
other affiliated personnel who normally have access to information on portfolio
transactions. These policies comply in all material respects with the
recommendations of the Investment Company Institute.
How the Fund Receives Administrative Services. The Trust has entered into an
Administration Agreement with Fahnestock pursuant to which Fahnestock provides
certain administrative services to the Fund and its shareholders. Under the
Administration Agreement, Fahnestock provides the Trust and the Fund with office
space, supplies and other facilities required for the business of the Fund.
Fahnestock pays the compensation of all officers and employees of the Trust and
pays the expenses of clerical services related to the administration of the
Trust and the Fund. Fahnestock has entered into a Sub-Administration Agreement
with Federated Services Company (the 'Sub-Administrator'), which has extensive
experience in the mutual fund industry, to perform these services. Pursuant to
the Sub-Administration Agreement, Fahnestock is responsible for any fees and
out-of-pocket expenses due to the Sub-Administrator. The Fund pays no
administrative fee to Fahnestock or the Sub-Administrator.
The Fund's Expenses. The Adviser has voluntarily undertaken to limit expenses
applicable to the Class B shares to 2.5% and to 2.0% with respect to the other
Classes of shares, including Class N shares. If the expenses of a Class exceed
the applicable limit, the Adviser has undertaken to reimburse the Fund for any
such excess amount, limited to an amount not greater than the portion of the
advisory fee reflecting the proportion of the Fund's assets attributable to that
Class. The Adviser has undertaken to pay any reimbursements on the same schedule
as the Fund is required to pay the advisory fee, provided that if, at the end of
the fiscal year, class expenses do not exceed the applicable annual expense
limits, the Fund will reimburse the Adviser for monies paid by the Adviser
during the course of the fiscal year. This is a voluntary undertaking on the
part of the Adviser, which reserves the right to modify or withdraw it with
respect to any Class at any time without notice. The expenses of printing
prospectuses used in selling Fund shares and other sales literature, as
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well as certain other sales-related charges, all of which may be eligible for
reimbursement under the Fund's 12b-1 Plan, are borne by Fahnestock.
All expenses which are not specifically undertaken to be paid by the Adviser or
Fahnestock and which are incurred in the operation of the Fund (including fees
of Trustees of the Trust who are not 'interested persons,' as such term is
defined in the 1940 Act) and the continuous public offering of the shares of the
Fund are borne by the Fund, including the cost of printing and engraving share
certificates, the expenses relating to the determination of the net asset value
of shares of the Fund, the expenses of the continuing registration and
qualification of shares for sale, the cost of prospectuses distributed to
shareholders, the charges for custodians, transfer agents, registrars and other
agents, and auditing and legal expenses.
At present, the only expenses that are allocated specifically to one or more
Classes are expenses under the Distribution Plans. However, the Trustees reserve
the right to allocate certain other expenses ('Class Expenses') to specific
Classes as they deem appropriate. In any case, Class Expenses would be limited
to distribution fees, shareholder servicing fees, transfer agency fees
identified by the Transfer Agent as attributable specifically to holders of
particular Classes of shares; printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectus and proxy
materials to current shareholders; registration fees paid to the Securities and
Exchange Commission and to state securities commissions; expenses related to
administrative personnel and services as required to support holders of specific
Classes of shares; legal or accounting fees relating solely to a particular
Class or Classes; and Trustees' fees incurred in connection with issues relating
solely to a particular Class or Classes.
Brokerage Transactions. Securities for the Fund's portfolio will at all times be
bought and sold solely on the basis of investment considerations and
appropriateness to the fulfillment of the Fund's objective. The primary
consideration in placing portfolio security transactions is execution at the
most favorable prices, consistent with best execution. All orders for
transactions in securities on behalf of the Fund are placed with broker-dealers
selected by the Adviser. Fahnestock & Co. Inc., which is also the Distributor of
shares of the Fund, may serve as the Fund's broker in effecting portfolio
transactions on national securities exchanges and retain commissions in
accordance with certain regulations of the Securities and Exchange Commission,
including Rule 17e-1 under the 1940 Act. In addition, the Adviser may select
broker-dealers that provide it with research services and may cause the Fund to
pay these broker-dealers commissions that exceed those that other broker-dealers
may have charged, if it views the commissions as reasonable in relation to the
value of the brokerage and/or research services received consistent with best
execution. Consistent with the foregoing primary consideration, the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. and such
other policies as the Trustees may determine, the Adviser may consider sales of
shares of the Fund and of any other series of The Fahnestock Funds as a factor
in the selection of other broker-dealers to execute the Fund's portfolio
transactions. (For further discussion of brokerage allocation, see the Statement
of Additional Information.)
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How the Fund's Class N Shares are Distributed. The Trust has entered into a
Distribution Agreement with Fahnestock, under which Fahnestock is obligated to
use its best efforts on behalf of the Fund to sell, and accept orders for the
purchase of, shares of the Fund. Fahnestock may, from time to time, enter into
selling agreements with selected broker-dealers ('Selling Dealers') who have
agreed to sell Class N shares of the Fund. Fahnestock is a member of the
National Association of Securities Dealers, Inc. and of the New York, American
and other principal national securities exchanges.
The Fund is a series of The Fahnestock Funds, which has adopted plans of
distribution ('Plans') pursuant to Rule 12b-1 under the 1940 Act, under which it
may reimburse Fahnestock for the expenses Fahnestock bears in distributing
shares of a particular Class of the Fund or providing for services to
shareholders of that Class. Under the Plan for Class N shares the Fund may pay
Fahnestock a fee at the maximum annual rate of 0.25 percent of the average daily
net asset value of the Class to reimburse Fahnestock for its expenses in
distributing Class N shares or providing personal service to Class N
shareholders or the maintenance of Class N shareholder accounts, or for payments
by Fahnestock to others for such activities.
Expenses incurred by Fahnestock during a year may exceed the amount available
for reimbursement under a Distribution Plan. Such excess expenses may be carried
forward and sought to be reimbursed in future years. Interest at the prevailing
broker loan rate may be charged to the Fund on any expenses carried forward. At
the date of this Prospectus, no excess expenses are being carried forward under
any Plan.
Expenses incurred in connection with activities covered by the Plans will be
identified to the Class involved, although it is anticipated that some
activities may be conducted in respect of all Classes in common, with the result
that expenses incurred in connection with those activities will not be
identifiable to any particular Class. In the latter case, expenses will be
allocated among the Classes on the basis of their relative net assets.
Continuance of each Plan is subject to annual approval by a majority of the
Trustees and a majority of the Trustees who are not 'interested persons' of the
Fund and who have no direct or indirect financial interest in the operation of
the Plans or any related agreement ('Rule 12b-1 Trustees'). Each of the Plans
requires that quarterly written reports of amounts spent under such Plan and the
purposes of such expenditures be furnished to and reviewed by the Trustees. No
Plan may be amended to increase materially the amount which may be spent
thereunder without approval by a majority of the outstanding shares of the Class
subject to that Plan. All material amendments of a Plan will require approval by
a majority of the Fund's Trustees and of the Rule 12b-1 Trustees. A Plan may be
terminated at any time by vote of either a majority of the Rule 12b-1 Trustees
or a majority of the outstanding shares of the Class subject to that Plan.
Fahnestock, a New York corporation, is a wholly-owned subsidiary of Fahnestock
Viner Holdings, Inc. and has its principal office at 110 Wall Street, New York,
NY 10005. Albert G. Lowenthal, Chairman of the Board of Trustees of the Trust
and President, a Principal and a Director of the Adviser, is Chairman of the
Board of Directors, Chief Executive Officer and Chief Financial Officer of
Fahnestock. Michael Mendelson, who is President and a Trustee of the Trust, is
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Managing Director of Fahnestock Asset Management, a division of Fahnestock.
Richard Wohlman, who is Treasurer of the Trust, is Comptroller of Fahnestock.
Transfer and Dividend Agent. Investors Fiduciary Trust Company, located at 127
West 10th Street, Kansas City, Missouri, 64105 serves as the Fund's Transfer
Agent and, as such, automatically opens and maintains an account for each new
investor in shares of the Fund. Under this arrangement, share certificates are
not delivered to individual shareholders unless a written request is received by
the Transfer Agent from the shareholder and then only to the extent of the
number of whole shares owned or requested. Fractional interests in shares, to
three decimal places, are reflected in the shareholder's account. Shareholders
will receive statements reflecting transactions in their accounts and account
balances. Shareholders should retain their account statements in order to
calculate the taxes on any gains or losses realized from redemption of the
Fund's shares. Fahnestock or the Transfer Agent can provide account transcripts
for past periods but shareholders may be required to pay a fee to receive such
transcripts.
DISTRIBUTIONS TO SHAREHOLDERS AND TAXATION
Distributions. The Fund expects to distribute substantially all of its net
taxable investment income at least annually and substantially all of its net
realized capital gains, if any, annually. Unless a shareholder indicates on the
applicable document at the time of initial investment or subsequently in writing
to the transfer agent that dividends and distributions are to be paid in cash,
dividends and distributions will automatically be reinvested in additional
shares of the same Class at net asset value and will not be subject to an
initial or contingent deferred sales charge.
Each Class will be treated separately in determining the amounts of dividends
and distributions payable to holders of its shares. The Classes may have
different dividend and distribution rates because of their differing expense
levels; however, dividends and distributions paid to each Class of shares will
be declared and paid at the same time and will be determined in the same manner
as those paid to each other Class.
Dividends declared by the Fund and distributed to shareholders of record in
October, November or December of any year will be treated for Federal income tax
purposes as having been received by shareholders in that year, so long as the
dividends are paid before February 1 of the following year.
Federal Taxes. The Fund has qualified as a 'regulated investment company' under
Subchapter M of the Internal Revenue Code (the 'Code') and intends to continue
to so qualify in the future. As such, and by complying with the applicable
provisions of the Code, the Fund will not be subject to Federal income tax on
taxable income (including realized capital gains) which is distributed to
shareholders.
Distributions from the Fund representing net investment income and any net
short-term capital gains, as computed for Federal income tax purposes, will be
taxable to shareholders as ordinary income whether such distributions are
distributed as cash payments or reinvested in additional shares of the Fund.
Distributions from the Fund representing net long-term capital gains, as
computed for Federal income tax purposes, whether such distributions are
distributed as cash payments or reinvested in additional shares, will be taxable
to the sharehold-
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ers as long-term capital gains regardless of the length of time a shareholder
has held his shares. Long-term capital gains of individuals are taxed at a
maximum rate of 28% rather than the maximum rate applicable to ordinary income
for individuals (currently 39.6%). Net long term capital gains of corporations
are taxed at the rates applicable to ordinary income. In general, only dividends
from the Fund that reflect its dividend income from United States corporations
may, subject to certain limitations, qualify for the Federal dividends-received
deduction for corporate shareholders.
The Fund may be required to withhold for Federal income tax purposes 31%
('backup withholding') of the taxable distributions and the proceeds of
redemptions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification numbers or to make required certifications, or
who have been notified by the Internal Revenue Service that they are subject to
back-up withholding. Corporate shareholders and certain other shareholders
specified in the Code are exempt from back-up withholding.
Shortly after the end of each taxable year, shareholders will receive a written
notice designating the amount of the year's distributions and the Federal income
tax treatment by shareholders of amounts distributed by the Fund, including
amounts includable in income as described in the preceding paragraph.
State and Local Taxes. Depending on the residence of the shareholder for tax
purposes, distributions may also be subject to state and local taxes.
Shareholders should consult their own tax advisers as to the Federal, state and
local tax consequences of ownership of shares of the Fund in their particular
circumstances.
COMPUTATION OF NET ASSET VALUE
The Fund's net asset value per share is computed as of the close of business on
the New York Stock Exchange (generally at 4:00 p.m. New York time) on each day
on which the Exchange is open for unrestricted trading.
The net asset value per share is determined by dividing the total current market
value of the assets of the Fund attributable to each Class of shares, less the
liabilities allocable to that Class, by the total number of shares of the Class
outstanding at the time of determination. The Trustees have determined to value
the Fund's securities traded on a national securities exchange at the price of
the last sale on such exchange on the date as of which assets are valued. If no
sale has occurred on the date as of which assets are valued, or if the security
is traded only in the over-the-counter market, it will normally be valued at its
current bid price. Debt securities having a remaining maturity of 60 days or
less may be valued at amortized cost, which approximates market value. These
instruments may include government securities, corporate debt securities and
money market instruments, such as bank certificates of deposit and commercial
paper. Portfolio securities for which current quotations are not readily
available are valued at fair value as determined in good faith by the Trustees.
HOW TO BUY SHARES
GENERAL
Investors may buy Class N shares of the Fund through representatives of
Fahnestock or the Selling Dealers. Investors may be charged a fee if they
purchase Class N shares through a broker or agent. Initial orders are reviewed
when they
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are received by Fahnestock or the Selling Dealers and, if they are accompanied
by all appropriate information or are made through an existing brokerage
account, the order is accepted by Fahnestock. The minimum initial investment in
either class is $1,000 and all purchases must be made in U.S. dollars.
Thereafter, additional investments may be made in amounts of $250 or more as the
shareholder elects. (These minimums do not apply to retirement plans. See
'Retirement Plans' below.)
The offering price of Class N shares will be the net asset value per share next
determined after acceptance of the purchase order.
Retirement Plans. Investors may use the Fund as a funding medium for various
types of qualified retirement plans, including Individual Retirement Accounts,
Keogh Plans (H.R. 10), Pension and Profit Sharing Plans, Tax Sheltered Annuity
Retirement Plans, and 401(k) Plans. The initial investment minimum for any of
the above will be $1,000. Contributions to such plans are subject to prevailing
amount limits set by the Internal Revenue Code and may be deducted within limits
set by the Code.
Automatic Investment. The Fund offers an Automatic Investment Plan whereby the
Fund's transfer agent, Investors Fiduciary Trust Company (IFTC), is permitted
through preauthorized checks of $250 or more to charge the regular bank account
of a shareholder on a regular basis to provide systematic additions to the Fund
account of the shareholder. While there is no charge to shareholders for this
service, a charge of $10 will be deducted from a shareholder's Fund account for
checks returned for insufficient funds. A shareholder's Automatic Investment
Plan may be terminated at any time without charge or penalty by the shareholder,
the Fund, IFTC or Fahnestock. Further information regarding the Automatic
Investment Plan may be obtained through any Fahnestock account representative.
Additional Information. Investors should refer to the Statement of Additional
Information for more complete information about how to purchase shares of the
Fund. Investors can also obtain additional information from a representative of
Fahnestock or a Selling Dealer.
Purchases Through Processing Organizations. Investors may also be able to
purchase Class N shares through brokers and other financial intermediaries which
make shares of the Fund and other mutual funds available to their customers
without the payment of transaction fees for purchases and redemptions. Other
financial intermediaries (together with the former institutions, 'Processing
Organizations') may impose certain conditions on their clients or customers that
invest in Class N shares, which are in addition to or different from those
described in this Prospectus, and may charge their clients or customers direct
fees. Processing Organizations may modify or waive certain features of the Fund,
such as the initial and subsequent investment minimums, and may impose
transaction or administrative charges or other direct fees which would not be
imposed on purchases directly through Fahnestock. Accordingly, a client or
customer of a Processing Organization should read this Prospectus in light of
the terms of the client's or customer's account with the Processing
Organization. Processing Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Funds in
accordance with their agreements with
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clients or customers. Processing Organizations that have entered into agreements
with the Fund or Fahnestock may enter confirmed purchase orders on behalf of
clients and customers, with payment to follow not later than the Fund's pricing
of Class N shares on the following business day. If payment is not received by
such time, the Processing Organization could be held liable for resulting fees
or losses.
Pursuant to its distribution plan for Class N shares, the Fund may, through
Fahnestock, pay Processing Organizations with whom it or Fahnestock has entered
into agreeements a service fee, for administration, subaccounting and/or other
shareholder services (for a fuller description of such services, see
'Distribution Agreement and Plans' in the Statement of Additional Information),
generally up to .25% of the average annual value of accounts maintained by such
Processing Organizations. Fahnestock may supplement such service fees from its
own resources. The aggregate service fee payable to any one Processing
Organization will be determined based upon a number of factors, including the
nature and quality of the services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Processing Organization. Servicing arrangements between the Fund or Fahnestock
and a Processing Organization may provide for processing of purchases and
redemptions by telephone and wire transfer.
HOW TO REDEEM SHARES
Through Fahnestock or a Selling Dealer. Shares of the Fund may be redeemed
through Fahnestock or your Selling Dealer. Redemptions of Class N shares will be
made at the net asset value next determined after receipt of any such order by
Fahnestock or the Selling Dealer. Certificates, if any, in proper form for
redemption or any required stock powers should be presented or sent to
Fahnestock or your Selling Dealer no later than the close of business of the day
on which the redemption order is placed. Investors may be charged a fee if they
redeem Class N shares through a broker or agent.
Written Request. Any shareholder of record may require the Fund to redeem his
shares by making written application to the transfer agent. Such application
must be signed by the shareholder as his name appears on the records of the Fund
and must be accompanied by any share certificates issued for shares being
redeemed or a stock power if no such certificates were issued. A stock power is
a written instrument executed by a shareholder in order to facilitate the legal
transfer of shares of the Fund. Share certificates must be duly endorsed for
transfer. Signatures on share certificates and stock powers must be guaranteed,
except that (subject to the restriction in the next sentence) a signature
guarantee will not be required for a redemption of less than $5,000 where the
redemption proceeds are sent to a shareholder of record at the shareholder's
address of record. A redemption request must be accompanied by a signature
guarantee if the shareholder's address of record has changed within the past 30
days. A signature guarantee is a widely accepted way to protect you and the
transfer agent by verifying the signature on your request. The following
institutions may provide you with an acceptable signature guarantee: a U.S.
bank, trust company, credit union or savings association, a foreign bank that
has a New York correspondent bank (which correspondent bank must be named by the
guarantor), a U.S. regis-
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tered securities broker or dealer (including a broker or dealer in municipal
securities or U.S. government securities), a U.S. national securities exchange,
a registered securities association or a clearing agency. A notary public is not
an acceptable signature guarantor. Redemptions will be effected at the net asset
value next determined after receipt by the Transfer Agent of such application
and certificates or stock powers, if any, in proper form for redemption.
Redemption by Telephone. Class N Shares that are not represented by share
certificates may also be redeemed by telephone by calling 1-800-367-0068. To
redeem Class N Shares by telephone, a shareholder must have completed and
returned to the Transfer Agent an account application electing the telephone
redemption privilege. A shareholder should be aware that redemption by telephone
may involve giving up a measure of security that is provided by written
redemptions. Neither the Fund, Fahnestock nor the Transfer Agent will be liable
for following redemption instructions received by telephone that it reasonably
believes to be genuine; reasonable procedures will be employed to confirm the
genuineness of such instructions, including the requesting of specific personal
information from the caller and the provision of written confirmation of
telephone transactions. Telephone calls requesting redemptions may also be
recorded. Proceeds of telephone redemptions will be sent only to the
shareholder's address of record, and telephone redemption is not available to a
shareholder whose address of record has changed within the past 30 days. During
periods of unusual economic or market activity, it may be difficult to effect
redemptions by telephone; if a shareholder is unable to contact the Transfer
Agent by telephone, the redemption request may be effected in writing.
General. Payment for shares redeemed will ordinarily be made on the next
business day after the redemption is effected. However, the Fund reserves the
right to pay redemption proceeds within seven days after the order is effected
if, in its judgment, immediate payment would adversely affect the Fund. In
addition, at various times the Trust may be requested to redeem Fund shares for
which it has not yet received good payment. Accordingly, the Trust may delay the
mailing of a redemption draft for up to 10 business days from the payment date
or until such time as it has assured itself that good payment (e.g., cash in
hand) has been collected for the purchase of such shares, whichever occurs
first.
The Trust may suspend the right of redemption of Fund shares and may postpone
payment for redeemed Fund shares when the New York Stock Exchange is closed for
other than weekends or holidays, or if permitted by the rules of the Securities
and Exchange Commission during periods when trading on the Exchange is
restricted or during an emergency which makes it impractical for the Trust to
dispose of the Fund's securities or fairly to determine the value of its net
assets, or during any other period permitted by the Securities and Exchange
Commission for the protection of investors.
Due to the proportionately high cost of maintaining smaller accounts, the Trust
reserves the right to redeem all shares in a Fund account which has a value of
less than $500 as the result of redemptions (except accounts which constitute
the assets of retirement plans and Individual Retirement Accounts) and to mail
the proceeds to the shareholder. Shareholders will be notified before these
redemptions are to be made and will have 30 days to purchase additional shares
to bring their accounts up to the required minimum.
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The redemption price of shares of the Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of the redemption, and gain or loss may be recognized for
Federal income tax purposes.
ADDITIONAL SERVICES AND PROGRAMS
Systematic Withdrawal Plan. This service enables a shareholder with an account
value of $10,000 or more automatically to receive or make periodic payments from
the Fund at no cost. A shareholder may elect to receive or make as many payments
as he wants. Payments may be made monthly, quarterly, semi-annually or annually
in varying amounts, but not less than $100 each. Payments may be made to the
shareholder, another individual, a bank or any other designated entity. This
service is particularly useful in paying regular bills and disbursing funds from
retirements plans in compliance with IRS regulations.
A Systematic Withdrawal Plan may be established by completing an application
form available from Fahnestock or your Selling Dealer and requires that all
dividends and distributions be taken in additional shares of the Fund. See the
Statement of Additional Information, 'Additional Services and Programs.'
Additional Information. Shareholders should refer to the Statement of Additional
Information for more complete information on the additional services and
programs available to shareholders of the Fund. Additional information is also
available from a registered representative of Fahnestock or a Selling Dealer.
PERFORMANCE INFORMATION
From time to time the Fund may publish its 'total return' for each Class of
shares. Total return figures are based on historical earnings and are not
intended to indicate future performance. The 'total return' of a Class refers to
the average annual compounded rates of return over periods of 1, 5, and 10 years
(which periods will be stated in the publication) that would compare the initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment. The calculation assumes the reinvestment of all
dividends and distributions, and reflects all recurring fees that are charged to
all shareholder accounts and nonrecurring charges, if any, including, unless
otherwise stated, maximum applicable initial or contingent deferred sales
charges.
The principal value of an investment will fluctuate so that the value of the
investment, when redeemed, may be more or less than the original investment.
OTHER MATTERS
Description of the Fund's Shares. The Fund is the initial (and, to date, the
only) series of shares of beneficial interest of The Fahnestock Funds, a
Massachusetts business trust which was created on August 29, 1990 under the laws
of the Commonwealth of Massachusetts and has an unlimited number of authorized
shares of beneficial interest. The Fund currently offers three classes of
shares -- A, B and N. The Classes differ with respect to their sales charges and
other expenses, which may affect their performance. Only Class N shares are
offered by this prospectus. Investors can obtain information about Class A and
Class B shares, which are also offered to the public, or a prospectus describing
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those classes by calling Fahnestock at 1-800-800-9168.
All shares have equal rights as to voting, except as to matters (such as a Plan
of Distribution) that affect only some but not all Classes, or which have
different consequences for different Classes, in which case the matter will be
submitted to a separate vote of each affected Class. All Classes have equal
rights to redemption and liquidation at their respective net asset values,
subject to any applicable CDSC. Dividends may vary as between the classes to the
extent that different expenses are allocated to specific Classes. All shares
issued and outstanding are fully paid and nonassessable by the Fund and the
Trust and are redeemable at net asset value at the option of shareholders,
subject to any applicable CDSC. Shares have no preemptive or conversion rights
and are freely transferable. Certificates for shares will not be issued unless
requested in writing by an investor.
When matters are submitted for shareholder vote, shareholders of each series of
The Fahnestock Funds, including the Fund, will have one vote for each full share
held and proportional, fractional votes for each fractional share held.
Shareholders of all series of The Fahnestock Funds will vote collectively on
certain matters affecting all series, such as the election of Trustees and the
selection of accountants; shareholders of one series are not entitled to vote on
a matter that does not affect that series but that does require a separate vote
of another series, such as a particular series' investment management agreement.
As noted above, different classes will vote separately on matters affecting only
a particular class, or having different effects on different classes. Neither
the Trust nor the Fund intends to hold annual meetings. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of accountants. However, pursuant to the By-Laws of the Trust, the
holders of at least 10 percent of the shares outstanding and entitled to vote
may require a special meeting of shareholders to be held for any purpose,
including removal of a Trustee from office. Shareholders of the Trust may remove
a Trustee by the affirmative vote of a majority of the outstanding voting
shares. In addition, the Board of Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees holding office at that time were elected by
shareholders. The Trustees may call special shareholder meetings of one or more
(including all) series or Classes of shares for such purposes as electing or
removing Trustees, changing fundamental policies or adopting new management
agreements.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. The Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts, obligations or affairs of the Trust. The
Declaration of Trust also provides for indemnification out of the Fund's assets
for all losses and expenses of any shareholder of the Fund held personally
liable by reason of being or having been a shareholder. Liability of a
shareholder of the Fund is limited to circumstances in which the Fund itself
would be unable to meet its obligations.
Transfer Agent. Investors Fiduciary Trust Company, 127 West 10th Street, Kansas
City, Missouri 64105, acts as transfer agent for the Fund; in this capacity, it
maintains the record of each transaction of a shareholder with respect to shares
of the Fund. A Shareholder may obtain information about his account by
consulting his
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sales representative or calling the transfer agent at 1-800-367-0068.
Custody of Portfolio. Portfolio securities of the Fund are held pursuant to a
custodian agreement by Investors Fiduciary Trust Company, as custodian; eligible
securities may be held in the book entry system for U.S. government securities
maintained by the Federal Reserve System or deposited with the Depository Trust
Company.
Registration Statement. This Prospectus omits certain information contained in
the Statement of Additional Information and Part C of the Registration Statement
which the Fund has filed with the Securities and Exchange Commission. The Fund's
Statement of Additional Information is incorporated by reference into this
Prospectus. A copy of the Fund's Statement of Additional Information can be
obtained upon request free of charge by writing or telephoning Fahnestock. You
may obtain a copy of Part C of the Registration Statement from the Securities
and Exchange Commission upon payment of the prescribed fee.
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HUDSON CAPITAL
APPRECIATION FUND
(A Series of The Fahnestock Funds)
110 Wall Street
New York, New York 10005
Telephone (800) 221-5588
INVESTMENT ADVISER
Hudson Capital Advisors, Inc.
780 Third Avenue
New York, New York 10017
PRINCIPAL DISTRIBUTOR
Fahnestock & Co. Inc.
110 Wall Street
New York, New York 10005
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
1100 Main Street, Suite 900
Kansas City, Missouri 64105
LEGAL COUNSEL
Faith Colish, A Professional Corporation
63 Wall Street
New York, New York 10005
[LOGO]
PROSPECTUS CLASS N SHARES
April 15, 1997
A mutual fund seeking to achieve long-term growth of capital through investment
in equity securities.
[LOGO]
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<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 15, 1997
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<TABLE>
<S> <C>
HUDSON CAPITAL
APPRECIATION FUND 110 Wall Street
(A Series of The Fahnestock Funds) New York, New York 10005
Class A Shares
Class B Shares
Class N Shares
</TABLE>
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This Statement of Additional Information provides information about Hudson
Capital Appreciation Fund (the 'Fund') in addition to the information that is
contained in the Fund's Prospectus dated April 15, 1997. (Unless otherwise
indicated, references in this Statement of Additional Information to the Fund's
Prospectus apply equally to the Prospectus for Class N shares and to the
Prospectus for Class A and Class B shares.) This Statement of Additional
Information is not a prospectus. It should be read in conjunction with the
Fund's Prospectus, a copy of which can be obtained upon request free of charge
by writing or telephoning the Fund's Distributor at the address and telephone
number below.
<TABLE>
<CAPTION>
INVESTMENT ADVISER: DISTRIBUTOR:
- ------------------- ------------
<S> <C>
Hudson Capital Advisors, Inc. Fahnestock & Co., Inc.
780 Third Avenue 110 Wall Street
New York, New York 10017 New York, New York 10005
Telephone: 1-212-644-3200 Telephone: 1-800-221-5588
</TABLE>
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<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCED TO
STATEMENT OF CAPTIONS IN
ADDITIONAL PROSPECTUS
INFORMATION
------------- CLASS A/B CLASS N
PAGE PAGE PAGE
------------- --------- -------
<S> <C> <C> <C>
Organization of the Fund........................................... 3 6 6
Investment Objective and Policies.................................. 3 6 6
Investment Restrictions............................................ 4 8 8
Management of the Fund............................................. 5 9 9
Investment Advisory and Other Services............................. 7 9 9
Distribution Agreement and Plans................................... 8 12 12
Methods of Obtaining Reduced Sales Charge on Class A Shares........ 10 15 --
Special Redemptions................................................ 11 18 16
Additional Services and Programs................................... 11 20 18
Taxes.............................................................. 12 14 13
Taxation of Fund Investments....................................... 14 14 13
Calculation of Performance......................................... 14 20 18
Portfolio Transactions and Brokerage............................... 14 11 11
Custody of Portfolio............................................... 16 22 20
Independent Auditors and Counsel................................... 16 5 5
Financial Statements............................................... 16 5 5
</TABLE>
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ORGANIZATION OF THE FUND
Hudson Capital Appreciation Fund (the 'Fund') is the first (and, to date, the
only) series of the shares of beneficial interest of The Fahnestock Funds, a
diversified open-end management investment company organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts. The Trust
was created under the laws of Massachusetts on August 29, 1990.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to achieve long-term growth through
capital appreciation by investing primarily in equity securities. Current income
is a secondary consideration.
The types of securities the Fund invests in are more fully described in the
Prospectus. This section contains supplemental information concerning the types
of securities and other instruments in which the Fund may invest, the investment
policies and portfolio strategies that the Fund may utilize and certain risks
associated with those investments, policies and strategies.
ADDITIONAL INFORMATION ON INVESTMENT PRACTICES
U.S. Government Securities
Examples of the types of U.S. Government securities that the Fund may hold
include, in addition to those described in the Prospectus, U.S. Treasury Bills,
the obligations of the Federal Housing Administration, Farmers Home
Administration, Small Business Administration, General Services Administration,
Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks and the Maritime Administration.
Lending of Securities
The Fund has the authority to lend securities to brokers, dealers and other
financial organizations. The Fund will not lend securities to the Adviser,
Fahnestock or their affiliates. By lending its securities, the Fund can increase
its income by continuing to receive interest on the loaned securities as well as
by either investing the cash collateral in short term securities or obtaining
yield in the form of interest paid by the borrower when U.S. Government
securities are used as collateral. The Fund will adhere to the following
conditions whenever its securities are loaned: (a) the Fund must receive at
least 100 percent cash collateral or equivalent securities from the borrower;
(b) the borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(c) the Fund must be able to terminate the loan at any time; (d) the Fund must
receive reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities and any increase in market value;
(e) the Fund may pay only reasonable custodian fees in connection with the loan;
and (f) voting rights on the loaned securities may pass to the borrower;
provided, however, that if a material event adversely affecting the investment
occurs, the Board of Trustees must terminate the loan and regain the right to
vote the securities.
Purchases and sales of securities will be made whenever necessary in the
management's view to achieve the objectives of the Fund. The Adviser expects
that the Fund, in pursuing its objectives, will experience portfolio turnover of
not in excess of 100% and intends to keep
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turnover to a minimum consistent with such objectives. The Adviser believes that
unsettled market and economic conditions during certain periods may require
greater portfolio turnover in pursuing the Fund's objectives than would
otherwise be the case. The Fund's portfolio turnover rates for the fiscal years
ended December 31, 1995 and 1996 were 197.71% and 85.37%, respectively. The
difference in rates for the two years is primarily due to the differing
investment approaches and strategies of the Fund's current portfolio manager,
who began managing the Fund's portfolio late in 1995, and his predecessor.
The investment objectives of the Fund as stated above and the following
investment restrictions will not be changed without approval of a majority of
outstanding voting securities of the Fund, which, as used in the Prospectus and
under the Investment Company Act of 1940, as amended, means approval of the
lesser of (1) the holders of 67% or more of the shares of the Fund represented
at a meeting if the holders of more than 50% of outstanding shares are present
in person or by proxy or (2) the holders of more than 50% of the outstanding
shares.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. The Fund may not:
(1) Purchase securities on margin, or purchase real estate or interests therein,
commodities or commodity contracts (including futures contracts) or make loans
except through the purchase of bonds and other marketable obligations of
corporate enterprises.
(2) Invest more than 5% of its total assets, taken at market value, in the
securities of any one issuer other than the United States Government, or
purchase more than 10% of the voting securities or of any other class of
securities of any one issuer.
(3) Engage in the underwriting of securities of other issuers, except to the
extent that the Fund may be deemed to be an underwriter in selling, as part of
an offering registered under the Securities Act of 1933, as amended, securities
which it has acquired.
(4) Effect a short sale of any security.
(5) Purchase securities of any company with a record of less than three years'
continuous operation if such purchase would cause the Fund's investments in all
such companies, taken at cost, to exceed 5% of the Fund's total assets taken at
market value.
(6) Borrow money, except that the Fund may borrow from banks as a temporary
measure for emergency purposes where such borrowings would not exceed either (i)
33 1/3% of total assets of the Fund taken at market or other fair value less
liabilities other than borrowings, or (ii) 10% of its total assets taken at
cost; or pledge, mortgage, or hypothecate its assets taken at market value to an
extent greater than 15% of the Fund's total assets taken at cost. (The Fund does
not expect to borrow more than 5% of its total net assets at any one time and
will not purchase securities during any period when borrowings exceed 5% of its
total assets.)
(7) Invest for the purpose of exercising control over or management of any
company.
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(8) Invest more than 10% of the Fund's total assets in the securities of other
investment companies. (The Investment Company Act of 1940, as amended, provides
additional limitations on investment in securities of investment companies.)
(9) Invest in oil, gas or other mineral exploration or development programs,
except that the Fund may invest in the securities of companies that invest in or
sponsor those programs.
(10) Purchase or retain securities of any issuer if those officers and trustees
of the Fund or the officers and directors of its investment adviser owning
individually more than one-half of one percent of the securities of such issuer,
together own more than 5% of such issuer, or purchase from or sell to any of its
officers and trustees or investment adviser, its principal distributor of the
officers and directors of its investment adviser or principal distributor,
portfolio securities of the Fund.
(11) Purchase restricted securities which are subject to legal or contractual
delays in or restriction on resale if as a result more than 5% in market value
of the assets of the Fund would be invested in such securities. (The Fund does
not intend to acquire securities which are illiquid at the time of purchase.)
The percentage limitations contained in the restrictions listed above apply at
the time of purchases of securities. If a percentage restriction is adhered to
at the time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a violation of
such restriction.
MANAGEMENT OF THE FUND
The business of the Fund is managed by its Trustees. They elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers of the Fund and Trustees of
the Trust are also officers and directors of the Fund's investment adviser,
Hudson Capital Advisors, Inc. ('the Adviser'), or officers and directors of the
Fund's principal distributor, Fahnestock & Co., Inc. ('Fahnestock').
The names and ages of the Trustees and officers of the Fund and their principal
occupations for the past five years follows. An asterisk (*) indicates Trustees
who are 'interested persons' of the Fund (as defined by the 1940 Act). Unless
otherwise indicated, the address of each Trustee and officer is 110 Wall Street,
New York, New York 10005.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH THE FUND AND PRINCIPAL OCCUPATION
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<S> <C>
Albert G. Lowenthal, 52* Trustee, Chairman of the Board and Chief Executive Officer of the Fund. Mr.
Lowenthal is Chairman of the Board, Chief Executive Officer and Chief Financial
Officer of Fahnestock and its parent, Fahnestock Viner Holdings Inc. He is also
the General Partner of Phase II Financial LTD., a limited partnership, Chairman of
Freedom Investments, Inc., a broker-dealer, and is President, Director and a
Principal of the Adviser.
</TABLE>
(list continued on next page)
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(list continued from previous page)
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH THE FUND AND PRINCIPAL OCCUPATION
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<S> <C>
Michael Mendelson, 55* Trustee and President of the Fund. Mr. Mendelson is Managing Director of
Fahnestock Asset Management, a division of Fahnestock. He was formerly President
and Director of Fahnestock and Senior Vice President, E.F. Hutton & Co. (New York,
NY), a former securities firm.
Keith Gunzenhauser, 63 Trustee. Mr. Gunzenhauser is retired. He was formerly Executive Vice
2649 360th Street President -- Finance and Chief Investment Officer, Central Life Assurance Company
Van Meter, IA 50261 (Des Moines, IA).
Richard E. Landau, 53 Trustee. Mr. Landau is a private investor. He was formerly Managing Director and
4490 Riverwatch Drive Vice Chairman of Angeles Corporation (Los Angeles, CA), a holding company whose
#201 Bonita Bay subsidiaries manage securities, real estate, oil and natural gas investment
Bonita Springs, FL 33923 programs and mutual fund assets, and Chairman of the Board of Quinoco Resources,
Inc. and Quinoco Oil and Gas, Inc. (New York, NY).
James D. McQuaid, 59 Trustee. Mr. McQuaid is a consultant and was formerly the Chief Executive Officer
5 Oak Brook Drive of Metromail Corporation (Chicago, IL), a direct mail company.
Apt. S101
Oakbrook, IL 60521
James D. Gerson, 53 Senior Vice President and Portfolio Manager of the Fund. Mr. Gerson is also Senior
Vice President of Fahnestock and of the Adviser, since October 1, 1995. Previously
he was Equity Research Analyst with Fahnestock (October 1994-September 1995) and
Senior Vice President and Managing Director of Fahnestock's Corporate Finance
Department (April 1993-October 1994). Prior to joining Fahnestock he was with
Reich & Co. (February 1992-April 1993) and Josephthal & Co. (January 1986-February
1992).
Richard Wohlman, 52 Treasurer. Mr. Wohlman is Comptroller and Chief Financial Officer of Fahnestock
and was previously Assistant Comptroller of that firm.
Russell L. Pollack, 43 Secretary. Mr. Pollack has been Benefits Director and Manager-Corporate Tax of
Fahnestock since 1989.
</TABLE>
As of the close of business on April 7, 1997, the trustees and officers of the
Trust beneficially owned as a group 7.86% of the outstanding shares of Hudson
Capital Appreciation Fund. Included in this amount are 6.58% of the Fund's
outstanding shares beneficially owned by Mr. Gerson and his family; otherwise,
neither the Trust nor management of the Trust is aware of any shareholder who
beneficially owned 5% or more of the Fund's shares as of that date.
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Officers and Trustees of the Trust who are also officers or employees of
Fahnestock or the Adviser receive no remuneration from the Trust. Each other
Trustee receives an annual fee of $3,000 in addition to a fee of $750 for each
Board meeting attended, and is reimbursed for travel and out-of-pocket expenses.
For the fiscal year ended December 31, 1996, aggregate Trustee fees paid to
Trustees who are not officers or employees of Fahnestock or the Adviser were as
follows:
Keith Gunzenhauser $6000
Richard E. Landau $6000
James D. McQuaid $6000
The Trust has no bonus, profit sharing, pension or retirement plans.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Fund's Prospectus under the caption 'How the Fund Receives
Investment Advice,' the Fund has entered into an investment management agreement
with the Adviser (the 'Management Agreement'), under which the Adviser provides
the Fund with a continuous investment program, consistent with the Fund's stated
investment objective and policies. The Adviser is responsible for the management
of the Fund's portfolio assets.
No person other than the Adviser and its directors and employees regularly
furnishes advice to the Fund with respect to the desirability of the Fund's
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical information, and information regarding general economic
factors and trends, from Fahnestock.
Under the terms of the Management Agreement between the Trust and the Adviser
and the Administration Agreement between the Trust and Fahnestock, the Adviser
and Fahnestock provide the Fund with office space, supplies and other facilities
required for the business of the Fund. The Adviser and Fahnestock pay the
compensation of all officers and employees of the Trust and the Fund and pay the
expenses of clerical services relating to the administration of the Trust and
the Fund.
As discussed in the Prospectus and as provided in the Management Agreement, the
Fund pays the Adviser an investment management fee, which is accrued daily and
is paid quarterly, that is approximately equal, on an annual basis, to 1.00% of
the average of the daily net assets of the Fund up to $25 million and 0.75% of
annual average net assets in excess of $25 million.
For the fiscal year ended December 31, 1994, the Fund incurred investment
management fees of $175,266. The Adviser waived $47,465 of the investment
management fee.
For the fiscal year ended December 31, 1995, the Fund incurred investment
management fees of $143,793. The Adviser waived $132,225 of the investment
management fee.
For the fiscal year ended December 31, 1996, the Fund incurred investment
management fees of $133,239. The Adviser waived $133,239 of the investment
management fee.
From time to time the Adviser, in its sole discretion and as it deems
appropriate, may assume certain expenses of the Fund while retaining the ability
to be reimbursed by the Fund for such amounts prior to the end of the fiscal
year. This will have the effect of lowering the Fund's overall expense ratio and
of increasing yield to investors, or the converse, at the time such amounts are
assumed or reimbursed as the case may be. The Adviser will not be reimbursed
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for such amounts if such action would violate the provisions of the Fund's
applicable expense limitations. The Adviser reserves the right to request the
Trustees to authorize in subsequent years recovery of prior expense
reimbursements or waived fees.
Pursuant to the Management Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Management Agreement.
The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act.
Under the Management Agreement, the Fund may use the name 'Hudson' or any name
derived from or similar to it only for so long as the Agreement or any
extension, renewal or amendment thereof remains in effect. If the Management
Agreement is no longer in effect with respect to the Fund, the Fund (to the
extent that it lawfully can) will cease to use such a name or any other name
indicating that it is advised by or otherwise connected with the Adviser. In
addition, Fahnestock may grant the nonexclusive right to use the name Fahnestock
or any similar name to any other corporation or entity, including but not
limited to any investment company of which Fahnestock or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the distributor or the investment adviser.
DISTRIBUTION AGREEMENT AND PLANS
The Board of Trustees has adopted Plans of Distribution (the 'Plans') pursuant
to Rule 12b-1 under the Act and has approved a distribution agreement (the
'Distribution Agreement') under which Fahnestock serves as distributor of shares
of the Fund. Under the Distribution Agreement, Fahnestock is obligated to use
its best efforts to sell shares on behalf of the Fund. Fahnestock accepts orders
for the purchase of shares of the Fund which are continually offered at net
asset value next determined plus any applicable sales charge. Fahnestock is
authorized to receive compensation in the form of a sales charge in connection
with the sale of Class A shares of the Fund and certain redemptions of Class A
and Class B shares. These charges are listed in the Fund's Prospectus for Class
A and Class B shares. Fahnestock may enter into selling agreements with other
selected broker-dealers who agree to sell shares of the Fund.
Expenses incurred by Fahnestock during a year may exceed the amount available
for reimbursement under a Plan. Such excess expenses may be carried forward and
sought to be reimbursed in future years. Interest at the prevailing broker loan
rate may be charged to the Fund on any expenses carried forward. These expenses
and interest will be reflected as current expenses on the Fund's statement of
operations for the year in which these amounts become accounting liabilities,
which is expected to be the year in which they are actually paid. Although the
Board of Trustees may change this policy, payments
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under the Plans currently are applied first to distribution expenses incurred in
the current year and then, up to the maximum amount permitted under the Plans,
to previously incurred but unreimbursed expenses carried forward and interest
thereon. Fahnestock has acknowledged that payments under each Plan are subject
to the approval of the Board of Trustees and that the Fund is not contractually
obligated to make payments in any amount at any time, including those in
reimbursement of Fahnestock, for expenses and interest thereon incurred in a
prior year.
Under their terms, the Plans remain in effect so long as their continuance is
approved at least annually by a vote of the Board of Trustees, including a
majority of the Trustees who have no direct or indirect financial interest in
the operation of the Plans or the Distribution Agreement (the 'Qualified
Trustees'). No Plan may be amended to increase materially the amount to be spent
under the Plan without approval of the affected Class of shareholders, and all
material amendments of a Plan must also be approved by the Qualified Trustees in
the manner described above. A Plan may be terminated at any time, without
penalty, by vote of a majority of the Qualified Trustees or by a vote of a
majority of the outstanding shares of the Class affected. Each Plan requires
that Fahnestock provide the Board of Trustees quarterly written reports of
amounts spent under the Plan and the purposes for which such expenditures were
made.
Each of the Plans provides for reimbursement of distribution expenses incurred
by Fahnestock with respect to the applicable Class of shares, including, but not
limited to, (a) continuing compensation to Fahnestock's account representatives
and others who engage in or support distribution of shares of the Class; (b)
payments to persons who service shareholder accounts of the Class, including,
but not limited to, answering routine inquiries regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's transfer agent; (c) costs relating to the
formation and implementation of marketing and promotional activities, including,
but not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising; (d) costs of printing and
distributing prospectuses, statements of additional information and annual or
semi-annual reports of the Fund to prospective investors in the Class; (e) costs
involved in preparing, printing and distributing sales literature pertaining to
shares of the Class; and (f) costs involved in obtaining whatever information
analyses and reports with respect to marketing and promotional activities that
the Fund may, from time to time, deem advisable. The Class B and Class N Plans
also provide for reimbursement of shareholder service expenses, a separate
category of expenses described as payments to broker-dealers and other persons
and organizations pursuant to arrangements whereby such persons provide various
shareholder services to holders of Class B or Class N shares, as the case may
be, including but not limited to answering inquiries regarding the Fund;
assistance in changing dividend options, account designations and addresses;
performance of subaccounting; establishment and maintenance of shareholder
accounts and records; assistance in processing purchase and redemption
transactions; providing periodic statements showing a Class B or Class N
shareholder's account balance; and the integration of such statements with those
of other transactions and balances in the shareholder's other accounts serviced
by such person. The
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Plan for Class N shares also contains a 'defensive' provision, which provides,
in effect, that if payments out of its own resources by Fahnestock or the Fund's
investment adviser for distribution or shareholder services are deemed to
represent indirect payments by the Fund that are primarily intended to result in
sales of Class N shares, such indirect payments are authorized by the Plan.
In considering the adoption of each Plan, the Board of Trustees considered a
variety of factors and was advised by counsel to the Fund (who is not counsel to
Fahnestock or Hudson). The Board considered the factors suggested in the public
releases issued by the SEC in connection with the proposal and adoption of Rule
12b-1, and concluded, in the exercise of their business judgment and in light of
their fiduciary duties under state law and the Act, that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
During the year ended December 31, 1996, only the Plan for Class A shares was in
effect. Under that Plan, the fund reimbursed distribution expenses of $66,620,
of which $38,287, $5,724, and $22,609, respectively, were spent for sales force
trailer commissions, marketing, and on reserve.
METHODS OF OBTAINING REDUCED SALES CHARGES ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Fund's Prospectus for the Class A and Class B shares. Methods
of qualifying for reduced sales charges referred to generally in that Prospectus
of the Fund are described in detail below.
Combination Privilege
In calculating the sales charge applicable to purchases made at one time, the
purchases will be combined if made by (a) an individual, his spouse and their
children under the age of 21, purchasing securities for his or their own
account, (b) a trustee or other fiduciary purchasing for a single trust estate
or single fiduciary account and (c) certain groups of four or more individuals
making use of salary deductions or similar group methods of payment whose funds
are combined for the purchase of mutual fund shares. Further information about
combined purchases, including certain restrictions on combined group purchases,
is available from a representative of Fahnestock or Selling Dealer.
Sales to Persons Affiliated With the Fund
Class A shares of the Fund may be sold without a sales charge to officers of the
Fund and Trustees of the Trust, and directors or officers of the Adviser,
Fahnestock, Fahnestock Viner Holdings, Inc. or Selling Dealers or affiliates of
any of them, or to the bona fide, full-time employees and their relatives,
retired employees, or sales representatives of any of the foregoing who have
acted as such for not less than 90 days, or to any trust, pension,
profit-sharing or other benefit plan for such persons. Such sales will be made
only upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the shares will not be resold except through
redemption by the issuer. Such sales are made without a sales load to promote
good will with employees and others with whom the Trust has business
relationships and because the sales effort, if any, involved in making such
sales is negligible. Such sales may be registered solely in the name of the
eligible party or in the names of the eligible party and his immediate family
members.
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Accumulation Privilege
An investor (including investors combining purchases) who is already a
shareholder may also obtain the benefit of a reduced sales charge by taking into
account not only the money then being invested but also the net asset value of
all the shares of the Fund already held by such person. If the net asset value
of all the shares already held plus the gross investment amount of the current
purchase exceeds a point in the schedule of sales charges at which the charge is
reduced to a lower percentage, the entire current purchase is eligible for the
reduced charge. For example, an investment of $5,000 in shares of the Fund, if
made at a time when the net asset value of funds already held is $100,000, would
result in a sales load of 3.50% of the offering price.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. If a shareholder sells portfolio
securities received in this fashion he would incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has, however, elected to
be governed by Rule 18f-1 under the Investment Company Act of 1940, as amended.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net assets at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Systematic Withdrawal Plan
As described briefly in the Fund's Prospectus, the Fund permits the
establishment of a Systematic Withdrawal Plan. Payments under this Plan
represent proceeds arising from the redemption of Fund shares. Since the
redemption price of the shares of the Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
Plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with the purchases of additional shares of the Fund could be
disadvantageous to a shareholder because of the sales charge payable on such
purchases and because redemptions are taxable events. Therefore, a shareholder
will not be permitted to purchase Class A shares of the Fund (except for
investments of $5,000 or more) at the same time as a Systematic Withdrawal Plan
is in effect. The Fund reserves the right to modify or discontinue the
Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice
to such shareholder, or to discontinue the availability of such Plan in the
future. The shareholder may terminate the Plan at any time by giving proper
notice to Fahnestock or the Transfer Agent.
Reinvestment Privilege
A shareholder who has redeemed Class A shares of the Fund may, within two years
after the date of redemption, reinvest any part of the redemption proceeds in
the Fund without payment of a sales load. The Fund may modify or terminate the
reinvestment privilege at any time.
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A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes. Any gain or loss realized is recognized for such purposes
even if the reinvestment privilege is exercised. If the shareholder reinvests in
the Fund within thirty (30) days, any loss realized on the redemption will not
be recognized for Federal income tax purposes as to the number of shares
acquired under the reinvestment privilege except through an adjustment in the
tax basis of the so-acquired shares.
Any loss realized by a shareholder on the redemption or other disposition of
Fund shares which have been held by such shareholder for six months or less will
be treated for tax purposes as a long-term capital loss to the extent of any
capital gains distributions received by the shareholder with respect to such
shares.
TAXES
Set forth below is a summary of certain general Federal income tax
considerations which may affect the Fund and its shareholders. As the summary is
not intended as a substitute for individual tax planning, investors are urged to
consult their own tax advisers with specific reference to their particular
Federal, state or local tax situations.
Tax Status of the Fund
The Fund has qualified as a 'regulated investment company' under Subchapter M of
the Internal Revenue Code (the 'Code'). The Fund will be treated as a separate
taxpayer for Federal income tax purposes. Accordingly, the amounts of investment
income and capital gains that are subject to tax will be determined separately
for the Fund and the Fund must separately meet the diversification, income and
distribution requirements for qualification as a 'regulated investment company'
within the meaning of the Internal Revenue Code of 1986.
A qualified Fund will not be liable for Federal income tax on any investment
income or capital gains that it distributes to its shareholders, if at least 90%
of its investment income for the taxable year is so distributed. (Amounts
reinvested automatically in additional shares of a Fund will be treated as
distributed to its shareholders.) In addition, in order to avoid a four percent
excise tax, the Fund must distribute, or be treated as having distributed,
before each January 1, at least 98 percent of its ordinary income earned during
the prior calendar year and 98 percent of the net capital gains earned during
the twelve months ending on the preceding October 31.
The requirements for qualification as a regulated investment company include two
significant rules as to investment results. First, the Fund must earn at least
90 percent of its gross income from dividends, interest, payments with respect
to securities loans, gains from the disposition of equity or debt securities and
income or gains from options on securities (the '90 percent test'). Second, the
Fund must earn less than 30 percent of its gross income from gains on securities
held less than 3 months (the '30 percent test'). The Fund does not expect the
90% test to significantly affect its investment policy. The 30 percent test will
restrict the extent to which the Fund may: (i) sell securities held for less
than three months; (ii) write options that expire in less than three months;
(iii) close options that were written or purchased within the preceding three
months; and (iv) hold certain options during the fourth quarter of its taxable
year.
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Taxation of Shareholders
Long term capital gains are taxed at a maximum rate of 28% rather than the
maximum rate applicable to ordinary income for individuals (currently 39.6%).
Capital losses are deductible only against capital gains, plus for individuals,
up to $3,000 of ordinary income. If a shareholder who receives a distribution
taxable as long-term capital gain with respect to shares of a Fund redeems or
exchanges the shares before holding them (unhedged) for more than six months,
loss on the redemption or exchange, up to the amount of the distribution, will
be treated as a long-term capital loss.
Dividends of investment income from the Fund may qualify for the Federal
dividends-received deduction for corporate shareholders only to the extent of
the aggregate amount of dividends received by the Fund from U.S. corporations.
The Fund must hold stock for more than 45 days (90 days in the case of certain
preferred stock), without hedging its investment in the stock in certain ways,
for dividends paid on the stock to be eligible dividends.
If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income as of the later of (a) the date such stock became ex-
dividend with respect to such dividends (i.e., the date on which a buyer of the
stock would not be entitled to receive the declared, but unpaid, dividends) or
(b) the date the Fund acquired such stock. Accordingly, in order to satisfy its
income distribution requirements, the Fund may be required to pay dividends
based on anticipated earnings, and a shareholder may receive dividends in an
earlier year than would otherwise be the case. If a shareholder (a) incurs a
sales charge in acquiring Fund shares, (b) disposes of those shares within
ninety days and (c) acquires shares in a mutual fund for which the otherwise
applicable sales charge is reduced by reason of reinvestment right (i.e., an
exchange privilege), the original sales charge increases the shareholder's tax
basis in the original shares only to the extent that the otherwise applicable
sales charge for the second acquisition is not reduced. The portion of the
original sales charge that does not increase the shareholder's tax basis in the
original shares would be treated as incurred with respect to the second
acquisition and, as a general rule, would increase the shareholder's tax basis
in the newly acquired shares. Furthermore, the same rule also applies to a
disposition of the newly acquired shares made within ninety days of the second
acquisition. This provision prevents a shareholder from immediately deducting
the sales charge by shifting his investment in a family of mutual funds.
Backup Withholding
In general, if a shareholder who is taxed as an individual cannot certify that
he has given his correct taxpayer identification number to the Fund and that he
is not subject to backup withholding, he will be subject to a 31 percent Federal
backup withholding tax on Fund dividends and distributions and the proceeds of
redemptions or exchanges of Fund shares. (An individual's taxpayer
identification number is his social security number.) The backup withholding tax
is not an additional tax and may be credited against a shareholder's regular
Federal income tax liability.
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TAXATION OF FUND INVESTMENTS
Capital Gains
When the Fund sells a security, the resulting gain or loss will generally be
capital gain or loss and will be long-term capital gain or loss if the Fund has
held the security for more than one year. If the Fund acquires a debt security
at a discount, however, the portion of any gain upon its sale or redemption that
reflects the accrued market discount will be taxed as ordinary income, rather
than capital gain.
Foreign Taxes
Because the Fund will invest no more than 10% of its assets in foreign
securities, shareholders will not receive credits against their Federal income
tax due for foreign taxes paid by the Fund, if any.
CALCULATION OF PERFORMANCE
The Fund's total return is computed by finding the average annual compounded
rate of return over the 1, 5 and 10 year periods that would equate the initial
amount invested to the ending redeemable value according to the following
formula:
ERV = P(1xT)'pp'n
where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1, 5 and 10 year periods (as fractional portion thereof),
assuming reinvestment of all dividends and distributions.
This calculation assumes that the maximum current applicable sales charge is
imposed upon purchase or redemption, as the case may be and also assumes that
all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
The performance of the Fund and of each Class of its shares is not fixed or
guaranteed. Performance quotations should not be considered to be
representations of performance of the Fund for any period in the future. The
performance of any Class is a function of many factors including its earnings,
expenses and number of outstanding shares. Fluctuating market conditions;
purchases, sales and maturities of portfolio securities; sales and redemptions
of shares of beneficial interest; and changes in operating expenses are all
examples of items that can increase or decrease the performance of each Class.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser, within the policy
established by its investment committee and subject to review by the officers of
the Fund. In effecting securities transactions, the Adviser generally seeks to
obtain the best price and execution of orders. Commission rates, being a
component of price, are considered together with other relevant factors. The
Adviser will use Fahnestock, of which the Adviser's direct parent, Fahnestock
Viner Holdings, Inc., is the direct sole shareholder, as its principal broker
where, in the judgment of the Adviser, Fahnestock will be able to obtain a price
and execution at least as favorable as other qualified brokers. All transactions
through Fahnestock are made in
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accordance with guidelines established by the Board of Trustees. The Fund may
not purchase from Fahnestock securities of underwritten offerings in which
Fahnestock participates as an underwriter. The Fund may, however, purchase
securities from other members of underwriting syndicates of which Fahnestock is
a member, but only in accordance with the policy set forth below and procedures
adopted and reviewed periodically by the Trustees.
During the years ended December 31, 1996, 1995 and 1994, the Fund paid $3,180,
$9,338, and $35,000, respectively, in brokerage commissions to Fahnestock.
During 1996, transactions effected by Fahnestock represented 14% of the Fund's
transactions involving the payment of brokerage commissions.
Orders for purchases and sales of securities are placed in a manner which, in
the opinion of the officers of the Fund, will offer the best price and market
for the execution of each such transaction. Purchases from underwriters of
portfolio securities may include a commission or commission paid by the issuer
and transactions with dealers serving as market makers reflect a 'spread.'
Investments in debt securities are generally traded on a net basis through
dealers acting for their own accounts as principals and not as brokers; no
brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Within the framework of this policy, the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. and such
other policies as the Trustees may determine, the Adviser may consider sales of
shares of the Fund as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions.
The Adviser will be governed in the selection of brokers and dealers, and the
negotiation of brokerage commission rates and dealer spreads, by the reliability
and quality of the services, including primarily the availability and value of
research information and to a lesser extent statistical assistance furnished to
the Adviser of the Fund, and their value and expected contribution to the
performance of the Fund. It may not be possible to place a dollar value on
information and services to be received from brokers and dealers, since they are
only supplementary to the research efforts of the Adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Adviser or other advisory clients of the Adviser and, conversely,
brokerage commissions and spreads paid by other advisory clients of the Adviser
may result in research information and statistical assistance beneficial to the
Fund. The Fund will make no binding commitment to allocate amounts of portfolio
transactions. While the Adviser will be primarily responsible for the allocation
of the Fund's brokerage business, the policies and practices of the Adviser in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker-dealer which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker-dealer would have charged for effecting that transaction. This
prac-
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tice is subject to a good faith determination by the Trustees that such
commission is reasonable in light of the brokerage and research services
provided and to such policies as the Trustees may adopt from time to time.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and Investors Fiduciary Trust Company, 127 West 10th Street,
Kansas City, Missouri 64105 (the 'Custodian'). Under the custodian agreement,
the Custodian performs custody and portfolio and accounting services for the
Trust and the Fund.
INDEPENDENT AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P., the independent auditor of the Trust, audits and
renders an opinion on the Fund's annual financial statements.
Faith Colish, A Professional Corporation, serves as counsel for the Fund.
FINANCIAL STATEMENTS
The Fahnestock Funds hereby incorporates by reference the financial statements
of Hudson Capital Appreciation Fund, together with the Report of Independent
Accountants thereon, all of which are contained in its Annual Report to
Shareholders for the fiscal year ended December 31, 1996. The Fund will provide
a copy of the Annual Report to each person who requests a copy of this Statement
of Additional Information. The Fund will also furnish a copy of the Annual
Report without charge to any shareholder upon request directed to the Fund at
the address or telephone number given on the cover page of this Statement of
Additional Information.
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STATEMENT OF DIFFERENCES
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The dagger symbol shall be expressed as 'D'
Characters normally expressed as superscript shall be preceded by 'pp'
