<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY , 1997, (TO
BE EFFECTIVE ON APRIL , 1997)
SECURITIES ACT FILE NO. 33-36697
INVESTMENT COMPANY ACT FILE NO. 811-6166
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 7 [x]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 9 [x]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
THE FAHNESTOCK FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
<TABLE>
<S> <C>
110 WALL STREET
NEW YORK, NEW YORK 10005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 668-8000
------------------------
ALBERT G. LOWENTHAL
FAHNESTOCK & CO. INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
FAITH COLISH, A PROFESSIONAL CORPORATION
63 WALL STREET
NEW YORK, NEW YORK 10005
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B), OR
[ ] ON (DATE) PURSUANT TO PARAGRAPH (B), OR
[x] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A), OR
[ ] ON (DATE) PURSUANT TO PARAGRAPH (A) OF RULE 485
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED
AMOUNT MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES BEING REGISTERED REGISTERED PER UNIT* OFFERING PRICE** FEE
<S> <C> <C> <C> <C>
Class A Shares of Beneficial Interest, $.01 par value.......... $ $ None
Class B Shares of Beneficial Interest, $.01 par value..........
Class N Shares of Beneficial Interest, $.01 par value..........
</TABLE>
* Estimated solely for the purposes of determining the amount of the
registration fee based on the net asset value per share of such securities on
, 1997.
** Calculated pursuant to Rule 24e-2(a) under the Investment Company Act of
1940. During the fiscal year ended December 31, 1996, shares were
redeemed. Of this total, $ (representing the aggregate redemption
price of of such redeemed shares), was used for reduction made by
the issuer with respect to Rule 24f-2 for such fiscal year and $
is being used for 'reduction' in this amendment. of such shares were
previously so used in filings pursuant to Rule 24e-2(a) with respect to the
current fiscal year ending December 31, 1997.
---------------------------
DECLARATION PURSUANT TO RULE 24F-2
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES OF EACH SERIES OF
ITS SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE PER SHARE, UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (a)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE RULE 24F-2 NOTICE FOR REGISTRANT'S FISCAL
PERIOD ENDING DECEMBER 31, 1996 WAS FILED ON FEBRUARY , 1997.
________________________________________________________________________________
<PAGE>
<PAGE>
HUDSON CAPITAL APPRECIATION FUND
FORM N-1A
CROSS REFERENCE SHEET
(REFERENCES TO PROSPECTUS HEADINGS APPLY TO BOTH PROSPECTUSES)
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADING
- -------- ---------------------------------------------------------
<C> <S> <C>
1. Cover Page................................... Cover Page
2. Synopsis..................................... Expense Information
3. Condensed Financial Information.............. Expense Information and Financial Highlights
4. General Description of Registrant............ Cover Page; Organization of the Fund; Investment
Objectives and Policies; and Additional Information
5. Management of the Fund....................... Management of the Fund; and Investment Objectives and
Policies
6. Capital Stock and Other Securities........... Distributions to Shareholders and Taxation; and
Additional Information
7. Purchase of Securities Being Offered......... Cover Page; Management of the Fund; Net Asset Value; How
to Buy Shares; and Dividends, Distributions and Taxes
8. Redemption or Repurchase..................... How to Redeem Shares
9. Pending Legal Proceedings.................... Not applicable
10. Cover Page................................... Cover Page
11. Table of Contents............................ Contents
12. General Information and History.............. Organization of the Fund; Management of the Fund
<CAPTION>
PART B. HEADING IN STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
- -------- ---------------------------------------------------------
13. Investment Objectives and Policies........... Investment Objectives and Policies
14. Management of the Fund....................... Management
15. Control Persons and Principal Holders of
Securities................................. See in the Prospectus 'Additional Information'
16. Investment Advisory and Other Services....... Management; Purchases and Redemptions; See in the
Prospectus 'Management of the Fund'
17. Brokerage Allocation and Other Practices..... Investment Objectives and Policies
18. Capital Stock and Other Securities........... See in the Prospectus 'Management of the Fund'
19. Purchase, Redemption and Pricing of
Securities Being Offered................... Purchases and Redemptions
20. Tax Status................................... Taxes
21. Underwriters................................. Purchases and Redemptions; See in the Prospectus
'Purchase of Shares'
22. Calculations of Yield Quotations of Money
Market Funds............................... Not applicable
23. Financial Statements......................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
<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
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
April , 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.
</TABLE>
The third class of shares, Class N shares, are offered by a different
prospectus.
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 , 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights............................................................................................. 3
Expense Information.............................................................................................. 4
Organization of the Fund......................................................................................... 6
Investment Objective, Policies and Risk Considerations........................................................... 6
Management of the Fund........................................................................................... 9
Distributions to Shareholders and Taxation....................................................................... 14
Computation of Net Asset Value................................................................................... 15
How to Buy Shares................................................................................................ 15
How to Redeem Shares............................................................................................. 19
Additional Services and Programs................................................................................. 20
Performance Information.......................................................................................... 20
Other Matters.................................................................................................... 21
</TABLE>
MISSOURI RISK DISCLOSURE. Prospective Missouri investors should note that the
Fund may invest in the securities of companies showing unusual earnings growth
and undergoing structural changes. In addition, the Fund anticipates that in the
future portfolio turnover will normally not exceed 175%. See the table on page 3
for information regarding prior turnover rates. It is the opinion of the
Missouri Securities Commissioner that such activities may result in higher risks
and costs to the Fund. See 'Investment Objective, Policies and Risk
Considerations.'
- --------------------------------------------------------------------------------
-2-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(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....................... $ 10.95 $ 13.72 $ 11.93 $ 11.36 $ 10.00
Income from investment
operations:
Net investment income/(loss)
(net)........................ (0.03) (0.06) (0.13) (0.05) 0.01
Net realized and unrealized
gains (losses) on
investments.................. 2.09 (1.48) 2.25 1.02 1.74
------------ ------------ ------------ ------------ ------------ --------------
Total income/(loss) from
investment operations.... 2.05 (1.54) 2.12 0.97 1.75
Less dividends paid to
shareholders:
Dividends paid from net
realized gains on
investments.................. (1.62) (1.23) (0.33) (0.40) (0.39)
------------ ------------ ------------ ------------ ------------ --------------
Net asset value, end of
period....................... $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36
------------ ------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ ------------ --------------
Total return....................... 18.94% (11.22)% 17.77% 8.54% 17.50%
Ratios/Supplemented
Data:
Net assets, end of period
(000)........................ $ 12,097 $ 15,874 $ 19,227 $ 16,993 $ 11,987
Ratio of expenses to average
net assets................... 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....................... (0.16)%`D' (0.46)%`D' (1.00)%`D' (0.48)%`D' 0.11%*`D'
Portfolio turnover rate........ 197.71% 194.55% 154.18% 256.84% 250.85%
</TABLE>
- ------------
* 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 .92%, .27%, .25%, 1.10% and
.56%, respectively.
Class B shares were not offered during the periods shown.
- --------------------------------------------------------------------------------
-3-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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%* 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% 5.00%**
Redemption Fees (as a percentage of amount redeemed, if applicable) 0% 0%
</TABLE>
------------------------------------------------------------
* The sales charge set forth in the above table is the maximum charge
imposed on purchases of shares; investors may pay actual charges less than
4.50%, depending upon the amount invested in Class A shares. 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.'
** 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*** 1.00% 1.00%
12b-1 Fees .50%**** 1.00%
Other Expenses (After fee waiver/expense reimbursement) 0.50% 0.50%`D'
------- -------
Total Fund Operating Expenses 2.00% 2.50%
</TABLE>
------------------------------------------------------------
*** The management fee is higher than that paid by most other investment
companies. 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.
**** 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
- --------------------------------------------------------------------------------
-4-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
attributable to Class A 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
Shares Are Distributed.')
`D' 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.
`D' '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 of % for
the Fund's fiscal year ended December 31, 1996.
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. the Fund's principal 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
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.`D' $69 $ $ 119 $ $ 172 $ $ 316 $
------- ------- ------- ------- ------- ------- ------- -------
You would pay the following expenses
on the same investment, assuming
no redemption at the end of each
time period. $ $ $ $ $ $ $ $
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
------------------------------------------------------------
`D' 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%.
- --------------------------------------------------------------------------------
-5-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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 will attempt 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 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
rating service 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 a second
management fee in addition to the Fund's own management fee, 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
- --------------------------------------------------------------------------------
-6-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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 reduction of liquidity
of the company (but not its publicly-traded stock), 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
- --------------------------------------------------------------------------------
-7-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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. For so
long as the Fund's shares are sold in states so requiring, the Fund will limit
its purchase of warrants to five percent of its net assets, with no more than
two percent of its net assets to be invested in warrants not listed on the New
York Stock Exchange or the American Stock Exchange. The acquisition of warrants
in units or attached to other securities is not subject to these restrictions.
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 management, 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 175% in the future. See page 3
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
- --------------------------------------------------------------------------------
-8-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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:
-- 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 (having market
capitalization of less than $100 million).
Mr. Gerson uses his familiarity with the market for small-cap securities in
seeking to achieve the
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Fund's investment objective, policies and risk considerations.
Performance information about the Fund from its inception through December 31,
1995 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. 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 805 Third Avenue, New York, NY 10022, currently has approximately
$ in assets under management in its capacity as investment adviser
to primarily institutional clients, including a portion of the assets of a
registered open-end investment company which has no other relationship with the
Adviser or its affiliates. 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 publicly
traded in the over-the-counter market and listed on the National Association of
Securities Dealers Automated Quotations System, 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 the Sub-Administrator.
The Fund's Expenses. All expenses of the Fund, including the advisory fee and
the administration
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fee, are subject to compliance with applicable state expense limitations. At the
date of this Prospectus, there are no such limitations applicable to the Fund.
The Adviser has voluntarily agreed 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 agreed 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 agreed 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. The
expenses of printing prospectuses used in selling Fund shares and other sales
literature, as well as certain other sales-related charges, all of which are
eligible for payment under the Fund's 12b-1 Plan, are borne by Fahnestock.
All expenses which are not specifically agreed 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
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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.)
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 including, but not limited to,
continuing compensation to Fahnestock's account representatives and others who
engage in or support distribution of shares; compensation to persons who service
shareholder accounts by, for instance, answering routine telephone inquiries and
processing shareholder transactions; costs related to the formulation and
implementation of marketing and promotional activities, including direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; costs of printing and distributing prospectuses and reports to
prospective shareholders; costs involved in preparing, printing and distributing
sales literature; and costs involved in obtaining whatever information, analysis
and reports with respect to marketing and promotional activities that Fahnestock
deems advisable. Under the Plan for Class A shares, the Fund may reimburse
Fahnestock for distribution 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,
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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 other distribution expenses. In both cases there is no limit on the
length of the period such net assets have been invested in the Fund.
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 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.
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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
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
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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 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.) Purchases by check written upon a bank
situated outside the United States may be delayed until United States funds are
received and a collection charge may be imposed by the transfer agent to defray
the cost of conversion to U.S. funds.
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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>
- ------------
* 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.
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Class A shares may be sold without 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 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 above plans are not subject to minimum
restrictions on initial or subsequent investments. 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.
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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.
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.
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HOW TO REDEEM SHARES
Through Fahnestock or A Selling Dealer. Shares of the Fund may be redeemed
through Fahnestock or your Selling Dealer. Redemptions 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 duly endorsed for
transfer. Signatures on share certificates and stock powers must be guaranteed,
except that 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 signature guarantee is a widely accepted
way to protect you and the transfer agent by verifying the signature on your
request. Only the following institutions may provide you with an acceptable
signature guarantee: a commercial bank that is a member of FDIC or a trust
company, or a member firm of a U.S. stock exchange. (A foreign bank must
indicate name of its New York correspondent bank.) 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 within seven (7)
days after receipt by a Selling Dealer, Fahnestock or the Transfer Agent of the
redemption application, in good order, and any necessary certificates or stock
powers. However, 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 check 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
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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.
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 load of 4.50%,
investment at a lower sales load would increase this performance measure
correspondingly. See the information under the caption 'How to Buy
Shares -- Class A
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Shares' for information on reduced sales loads. 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. 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 Clases.
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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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.
805 Third Avenue
New York, New York 10022
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.
1301 Avenue of the Americas
New York, New York 10019
LEGAL COUNSEL
Faith Colish, A Professional Corporation
63 Wall Street
New York, New York 10005
[LOGO]
PROSPECTUS CLASS A SHARES
, 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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<TABLE>
<S> <C>
HUDSON CAPITAL
APPRECIATION FUND 110 Wall Street
(A Series of The Fahnestock Funds) New York, New York 10005
CLASS N SHARES
</TABLE>
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PROSPECTUS
April , 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.'):
Class A and Class B shares of the Fund are offered by a different prospectus.
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 , 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
<TABLE>
<S> <C>
Financial Highlights............................................................................................. 3
Expense Information.............................................................................................. 4
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............................................................................................. 15
Additional Services and Programs................................................................................. 16
Performance Information.......................................................................................... 17
Other Matters.................................................................................................... 17
</TABLE>
MISSOURI RISK DISCLOSURE. Prospective Missouri investors should note that the
Fund may invest in the securities of companies showing unusual earnings growth
and undergoing structural changes. In addition, the Fund anticipates that in the
future portfolio turnover will normally not exceed 175%. See the table on page 3
for information regarding prior turnover rates. It is the opinion of the
Missouri Securities Commissioner that such activities may result in higher risks
and costs to the Fund. See 'Investment Objective, Policies and Risk
Considerations.'
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FINANCIAL HIGHLIGHTS
(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....................... $ 10.95 $ 13.72 $ 11.93 $ 11.36 $ 10.00
Income from investment
operations:
Net investment income/(loss)
(net)........................ (0.03) (0.06) (0.13) (0.05) 0.01
Net realized and unrealized
gains (losses) on
investments.................. 2.09 (1.48) 2.25 1.02 1.74
------------ ------------ ------------ ------------ ------------ --------------
Total income/(loss) from
investment operations.... 2.05 (1.54) 2.12 0.97 1.75
Less dividends paid to
shareholders:
Dividends paid from net
realized gains on
investments.................. (1.62) (1.23) (0.33) (0.40) (0.39)
------------ ------------ ------------ ------------ ------------ --------------
Net asset value, end of
period....................... $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36
------------ ------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ ------------ --------------
Total return....................... 18.94% (11.22)% 17.77% 8.54% 17.50%
Ratios/Supplemented
Data:
Net assets, end of period
(000)........................ $ 12,097 $ 15,874 $ 19,227 $ 16,993 $ 11,987
Ratio of expenses to average
net assets................... 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....................... (0.16)%`D' (0.46)%`D' (1.00)%`D' (0.48)%`D' 0.11%*`D'
Portfolio turnover rate........ 197.71% 194.55% 154.18% 256.84% 250.85%
</TABLE>
- ------------
* 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 .92%, .27%, .25%, 1.10% and
.56%, respectively.
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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> <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* 1.00%
12b-1 Fees 0.25%
Other Expenses (After fee waiver/expense reimbursement)** 0.75%
------- -------
Total Fund Operating Expenses 2.00%
</TABLE>
------------------------------------------------------------
* The management fee is higher than that paid by most other investment
companies. 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.
** 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 of % for the Fund's fiscal
year ended December 31, 1996.
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. the Fund's principal 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
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 5 YEARS 10 YEARS
----------------- ----------------- ----------------- -----------------
<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.`D' $ $ $ $
------- ------- ------- -------
</TABLE>
------------------------------------------------------------
`D' 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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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 will attempt 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 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
rating service 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 a second
management fee in addition to the Fund's own management fee, 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 reduction of liquidity
of the company (but not its publicly-traded stock), 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. For so
long as the Fund's shares are sold in states so requiring, the Fund will limit
its purchase of warrants to five percent of its net assets, with no more than
two percent of its net assets to be invested in warrants not listed on the New
York Stock Exchange or the American Stock Exchange. The acquisition of warrants
in units or attached to other securities is not subject to these restrictions.
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 management, 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 175% in the future. See page 3
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
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<PAGE>
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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:
-- 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 (having market
capitalization of less than $100 million).
Mr. Gerson uses his familiarity with the market for small-cap securities in
seeking to achieve the
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Fund's investment objective, policies and risk considerations.
Performance information about the Fund from its inception through December 31,
1995 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. 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 805 Third Avenue, New York, NY 10022, currently has approximately
$ in assets under management in its capacity as investment adviser
to primarily institutional clients, including a portion of the assets of a
registered open-end investment company which has no other relationship with the
Adviser or its affiliates. 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 publicly
traded in the over-the-counter market and listed on the National Association of
Securities Dealers Automated Quotations System, 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 the Sub-Administrator.
The Fund's Expenses. All expenses of the Fund, including the advisory fee and
the administration fee, are subject to compliance with applicable state expense
limitations. At the date of this Prospectus, there are no such limitations
applicable to the Fund. The Adviser has voluntarily
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agreed 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 agreed 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 agreed 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. The
expenses of printing prospectuses used in selling Fund shares and other sales
literature, as well as certain other sales-related charges, all of which are
eligible for payment under the Fund's 12b-1 Plan, are borne by Fahnestock.
All expenses which are not specifically agreed 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
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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.)
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. Under the Plan for Class N shares the
Fund may pay Fahnestock a service fee 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 N shareholders or the maintenance of Class N
shareholder accounts, or for payments by Fahnestock to others for such
activities.
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
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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 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
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.
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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, 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.
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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 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.) Purchases by check written upon a bank
situated outside the United States may be delayed until United States funds are
received and a collection charge may be imposed by the transfer agent to defray
the cost of conversion to U.S. funds.
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 above plans are not subject to minimum
restrictions on initial or subsequent investments. 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.
HOW TO REDEEM SHARES
Through Fahnestock or A Selling Dealer. Shares of the Fund may be redeemed
through Fahnestock or your Selling Dealer. Redemptions 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.
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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 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 signature guarantee is a widely accepted
way to protect you and the transfer agent by verifying the signature on your
request. Only the following institutions may provide you with an acceptable
signature guarantee: a commercial bank that is a member of FDIC or a trust
company, or a member firm of a U.S. stock exchange. (A foreign bank must
indicate name of its New York correspondent bank.) 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.
General. Payment for shares redeemed will ordinarily be made within seven (7)
days after receipt by a Selling Dealer, Fahnestock or the Transfer Agent of the
redemption application, in good order, and any necessary certificates or stock
powers. However, 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 check 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.
ADDITIONAL SERVICES AND PROGRAMS
Systematic Withdrawal Plan. This service enables a shareholder with an account
value of
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$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. 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 Clases.
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.
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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 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.
805 Third Avenue
New York, New York 10022
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.
1301 Avenue of the Americas
New York, New York 10019
LEGAL COUNSEL
Faith Colish, A Professional Corporation
63 Wall Street
New York, New York 10005
[LOGO]
PROSPECTUS CLASS N SHARES
, 1997
A mutual fund seeking to achieve long-term growth of capital through investment
in equity securities.
[LOGO]
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STATEMENT OF ADDITIONAL INFORMATION
DATED ,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
</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 , 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.
805 Third Avenue 110 Wall Street
New York, New York 10022 New York, New York 10005
Telephone: 1-212-644-3200 Telephone: 1-800-221-5588
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TABLE OF CONTENTS
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STATEMENT OF CROSS-REFERENCED
ADDITIONAL TO CAPTIONS IN
INFORMATION PROSPECTUS
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Organization of the Fund............................................................ 3
Investment Objective and Policies................................................... 3
Investment Restrictions............................................................. 4
Management of the Fund.............................................................. 5
Investment Advisory and Other Services.............................................. 7
Distribution Agreements............................................................. 8
Methods of Obtaining Reduced Sales Charge on Class A Shares......................... 9
Special Redemptions................................................................. 10
Additional Services and Programs.................................................... 10
Taxes............................................................................... 11
Taxation of Fund Investments........................................................ 13
Calculation of Performance.......................................................... 13
Portfolio Transactions and Brokerage................................................ 14
Custody of Portfolio................................................................ 15
Independent Auditors................................................................ 15
Financial Statements................................................................ 15
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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 175% 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 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.
(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
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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. The Fund may make commitments more restrictive than the
restrictions listed above so as to permit the sale of shares of the Fund in
certain states. Should the Fund determine that such commitment is no longer in
the best interests of the Fund and its shareholders, the Fund will revoke the
commitment by terminating the sale of shares of the Fund in the state involved.
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 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.
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NAME AND ADDRESS PRINCIPAL OCCUPATION
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Albert G. Lowenthal* 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.
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NAME AND ADDRESS PRINCIPAL OCCUPATION
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Michael Mendelson* 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 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 Trustee. Mr. Landau is a private investor. He was formerly Managing Director and
4490 Riverwatch Drive #201 Benita Vice Chairman of Angeles Corporation (Los Angeles, CA), a holding company whose
Springs, FL 33923 subsidiaries manage securities, real estate, oil and natural gas investment
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 Trustee. Mr. McQuaid is a consultant and was formerly the Chief Executive Officer
Metromail Corporation of Metromail Corporation (Chicago, IL), a direct mail company.
360 E. 22nd Street
Lombard, IL 60148-4924
James D. Gerson Senior Vice President and Portfolio Manager of the Fund. Mr. Gerson is also Senior
19 W. 95th Street Vice President of Fahnestock and of the Adviser, since October 1, 1995. Previously
New York, NY 10025 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 Treasurer. Mr. Wohlman is Comptroller and Chief Financial Officer of Fahnestock
and was previously Assistant Comptroller of that firm.
Russell L. Pollack Secretary. Mr. Pollack has been Benefits Director and Manager-Corporate Tax of
Fahnestock since 1989.
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No trustee or officer of the Trust beneficially owned, either individually or as
a group, more than 1% of the outstanding shares of Hudson Capital Appreciation
Fund, and neither the Trust nor management of the Trust is aware of any
shareholder who beneficially owned 5% or more of Hudson Capital Appreciation
Fund as of the close of business on , 1997.
Officers and Trustees of the Trust who are also officers or employees of
Fahnestock or the
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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, Trustees who were not officers or employees
of Fahnestock or the Adviser were entitled to fees and expenses, as a group,
totalling $ . 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. Until December 1, 1992 the
Fund also paid Fahnestock an administration fee which was accrued daily and paid
monthly, that was approximately equal, on an annual basis, to 0.1% of the
average daily net assets of the Fund, but not less than $2,500 per month.
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 $ . The Adviser waived $ 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
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case may be. The Adviser will not be reimbursed 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 AGREEMENTS
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 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.
Distribution expenses incurred by Fahnestock during a year may exceed the amount
available for reimbursement under the 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. 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
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are actually paid. Although the Board of Trustees may change this policy,
payments under the Distribution Plans currently are applied first to
distribution expenses incurred in the current year and then, up to the maximum
amount permitted under the Distribution Plans, to previously incurred but
unreimbursed expenses carried forward and interest thereon. Fahnestock has
acknowledged that payments under each Distribution 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 Agreements (the 'Qualified
Trustees'). No Plan may be amended to increase materially the amount to be spent
for the services provided by Fahnestock 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.
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 this 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.
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 sales charge to officers of the
Fund and Trustees of the Trust, and directors or officers of the Adviser,
Fahnestock, Fahnestock Viner Holdings,
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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.
Accumulation Privilege
Investors (including investors combining purchases) who are already shareholders
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. There-
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fore, a shareholder will not be permitted to purchase 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.
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.
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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.
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
deduct-
- --------------------------------------------------------------------------------
-12-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
ing 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.
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 the Fund 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 Fund's performance.
- --------------------------------------------------------------------------------
-13-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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 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.
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
- --------------------------------------------------------------------------------
-14-
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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 practice
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.
- --------------------------------------------------------------------------------
-15-
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements included in Registration Statement:
(i) Financial Highlights included in Part A.
(ii) Incorporated by reference under 'Financial Statements' in Part B:
Statement of Investments and Statement of Assets and Liabilities
as of December 31, 1996; Statement of Operations for the Year
ended December 31, 1996; Statement of Changes in Net Assets for
the years ended December 31, 1995 and 1996; Financial Highlights
for the years ended December 31, 1994, 1995 and 1996; Notes to
Financial Statements; and the Reports of Coopers & Lybrand
L.L.P., Independent Auditors, dated February 13, 1995, February
6, 1996 and , 1997.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1 -- Amended and Restated Declaration of Trust of Registrant`D'
2 -- Amended and Restated By-Laws`D'
3 -- Not applicable
4.1 -- Specimen copy of certificate for Class A shares issued by Registrant**
4.2 -- Specimen copy of certificate for Class B shares issued by Registrant`D'
4.3 -- Specimen copy of certificate for Class N shares issued by Registrant`D'
5.1 -- Investment Management Agreement effective February 23, 1993****
6 -- Amended and Restated Distribution Agreement`D'
7 -- Not applicable
8 -- Custody Agreement***
9(a) -- Transfer Agency Agreement***
9(b) -- Administration Agreement***
9(c) -- Sub-Administration Agreement`D'
10 -- Opinion and Consent of Gaston & Snow**
11 -- Opinion and Consent of Coopers & Lybrand L.L.P.`D'
12 -- Not applicable
13 -- Not applicable
14 -- Not applicable
15.1 -- Plan of Distribution with respect to Class A shares***
15.2 -- Plan of Distribution with respect to Class B shares`D'
15.3 -- Plan of Distribution with respect to Class N shares`D'
18 -- Form of Rule 18f-3 Plan
</TABLE>
- ------------
** Incorporated by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A filed on January 22,
1991.
*** Incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A filed on April 29,
1992.
**** Incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A filed on February 26,
1993.
`D' To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of , 1997 there were record holders of Registrant's Class A
shares of beneficial interest, par value $.01 per share and no holders of any
other class of shares.
C-1
<PAGE>
<PAGE>
ITEM 27. INDEMNIFICATION
Incorporated by reference to Item 27 of Part C of Pre-Effective Amendment
No. 2 to Registrant's Registration Statement filed on January 22, 1991.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER
Hudson Capital Advisors, Inc. ('Hudson'), a wholly-owned subsidiary of
Fahnestock Viner Holdings, Inc., serves as Investment Manager to Registrant.
Hudson acts as investment manager primarily for institutional clients and is one
of the managers of the Managers Fund, a registered management open-end
investment company. Listed below are the names of all of the directors and
officers of Hudson as of , 1997, their positions with the Registrant,
if any, and, under the heading 'Other Business Activities and Principal Business
Addresses', any business, profession, vocation or employment of a substantial
nature (other than the business of Hudson) in which they have been engaged for
their own account or in the capacity of director, officer, employee, partner or
trustee during the past two fiscal years of Hudson.
<TABLE>
<CAPTION>
NAME AND POSITION POSITION WITH
WITH HUDSON REGISTRANT OTHER BUSINESSES, ETC.
- ------------------------------------ ---------------------- ----------------------------------------------
<S> <C> <C>
Albert G. Lowenthal Trustee, Chairman of Chairman of Board of Directors, Chief
President and Director Board of Trustees, and Executive Officer and Chief Financial Officer
Chief Executive of Fahnestock & Co., Inc., its holding company
Officer parent, Fahnestock Viner Holdings, Inc. and
its affiliated companies.
A. W. Oughtred None Solicitor, Borden & Elliot; Director of
Director Fahnestock & Co., Inc. and its affiliated
companies.
E. K. Roberts None President, Fahnestock Viner Holdings, Inc.;
Director, Treasurer and Secretary Treasurer and Director, Fahnestock & Co., Inc.
and Director of its affiliated companies.
K. A. Roberts None Vice Chairman and Director, Fahnestock Viner
Director Holdings, Inc., Director, Fahnestock & Co.,
Inc. and its affiliated companies.
Howard W. Shawn None None
Director, Senior Vice President,
Principal
James D. Gerson Senior Vice President Director, Ag Services of America, Inc.,
Senior Vice President and Portfolio Manager American Power Conversion Corporation,
Computer Outsourcing Services, Inc.,
Conceptronic Inc., Energy Research Corp., and
Hilite Industries, Inc.
</TABLE>
C-2
<PAGE>
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Not applicable
(b) The following information is provided with respect to each director and
officer of Fahnestock as of , 1997.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH FAHNESTOCK WITH REGISTRANT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Albert G. Lowenthal Chairman of the Board of Directors, Trustee, Chairman of the Board of
Chief Executive Officer, and Chief Trustees, and Chief Executive
Financial Officer Officer
Michael Mendelson Managing Director of Fahnestock Trustee
Asset Management, a division of
Fahnestock & Co., Inc.
Richard Wohlman Comptroller Treasurer and Chief Financial
Officer
Russell L. Pollack Benefits Director and Manager, Secretary
Corporate Tax
Robert M. Neuhoff Executive Vice President N/A
Kenneth A. Roberts Director N/A
Fahnestock Viner
Holdings, Inc.
P.O. Box 16
Suite 1204
Guardian of Canada Tower
181 University Ave.
Toronto, Ontario M5H 3M7
James D. Gerson Senior Vice President Senior Vice President and Portfolio
Manager
Elaine Kells Roberts Treasurer and Director N/A
Fahnestock Viner
Holdings, Inc.
P.O. Box 16/Suite 1204
Guardian of Canada Tower
181 University Ave.
Toronto, Ontario M5H 3M7
Angus Winn Oughtred Director N/A
Borden & Elliot
40 King Street West
Toronto, Canada M5H 3Y4
</TABLE>
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) Hudson Capital Advisors, Inc.
780 Third Avenue
New York, NY 10017
(2) The Fahnestock Funds
110 Wall Street
New York, New York 10005
(3) Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
- ------------
* Except as otherwise indicated, principal business address is 110 Wall Street,
New York, NY 10005.
C-3
<PAGE>
<PAGE>
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
32(c) A brief discussion of relevant market conditions and the investment
strategies and techniques pursued by the Fund's investment adviser, that
materially affected the performance of the Fund during its fiscal year ended
December 31, 1996, and a line graph comparing the initial account value and
subsequent account values at the end of each fiscal year from inception (1991)
to the present to the Standard & Poor's Composite Index of 500 Stocks (including
income) are contained in the Fund's Annual Report to shareholders for the year
ended December 31, 1996. The Fund undertakes to furnish to each person to whom a
prospectus is delivered a copy of said annual report upon request and without
charge.
C-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 6th day of February, 1997.
THE FAHNESTOCK FUNDS
By /s/ MICHAEL MENDELSON
...................................
MICHAEL MENDELSON, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------------ -----------------
<C> <S> <C>
By /s/ MICHAEL MENDELSON Trustee, Chairman of Board of Trustees (Chief February 6, 1997
......................................... Executive Officer)
ALBERT G. LOWENTHAL,
AS OFFICER AND TRUSTEE
AND NOT INDIVIDUALLY,
BY MICHAEL MENDELSON,
ATTORNEY-IN-ACT
/s/ RICHARD WOHLMAN Treasurer (Chief Financial and Accounting February 6, 1997
......................................... Officer)
RICHARD WOHLMAN,
AS OFFICER AND NOT
INDIVIDUALLY
/s/ MICHAEL MENDELSON Trustee and President February 6, 1997
.........................................
MICHAEL MENDELSON,
AS OFFICER AND TRUSTEE
AND NOT INDIVIDUALLY
By /s/ MICHAEL MENDELSON Trustee February 6, 1997
.........................................
KEITH GUNZENHAUSER,
AS TRUSTEE ONLY AND
NOT INDIVIDUALLY, BY
MICHAEL MENDELSON,
ATTORNEY-IN-FACT
By /s/ MICHAEL MENDELSON Trustee February 6, 1997
.........................................
RICHARD E. LANDAU
AS TRUSTEE ONLY AND
NOT INDIVIDUALLY, BY
MICHAEL MENDELSON,
ATTORNEY-IN-FACT
By /s/ MICHAEL MENDELSON Trustee February 6, 1997
.........................................
JAMES D. MCQUAID,
AS TRUSTEE ONLY AND
NOT INDIVIDUALLY, BY
MICHAEL MENDELSON,
ATTORNEY-IN-FACT
</TABLE>
C-5
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE NUMBER
IN SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERING SYSTEM
- ----------- ------------------------------------------------------------------------------------- ----------------
<C> <S> <C>
1 -- Amended and Restated Declaration of Trust of Registrant`D'........................
2 -- Amended and Restated By-Laws`D'...................................................
3 -- Not applicable....................................................................
4.1 -- Specimen copy of certificate for Class A shares issued by Registrant**............
4.2 -- Specimen copy of certificate for Class B shares issued by Registrant`D'...........
4.3 -- Specimen copy of certificate for Class N shares issued by Registrant`D'...........
5.1 -- Investment Management Agreement effective February 23, 1993****...................
6 -- Amended and Restated Distribution Agreement`D'....................................
7 -- Not applicable....................................................................
8 -- Custody Agreement***..............................................................
9(a) -- Transfer Agency Agreement***......................................................
9(b) -- Administration Agreement***.......................................................
9(c) -- Sub-Administration Agreement`D'...................................................
10 -- Opinion and Consent of Gaston & Snow**............................................
11 -- Opinion and Consent of Coopers & Lybrand L.L.P.`D'................................
12 -- Not applicable....................................................................
13 -- Not applicable....................................................................
14 -- Not applicable....................................................................
15.1 -- Plan of Distribution with respect to Class A shares***............................
15.2 -- Plan of Distribution with respect to Class B shares`D'............................
15.3 -- Plan of Distribution with respect to Class N shares`D'............................
18 -- Form of Rule 18f-3 Plan...........................................................
</TABLE>
- ------------
** Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on January 22, 1991.
*** Incorporated by reference to Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A filed on April 29, 1992.
**** Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A filed on February 26, 1993.
`D'To be filed by amendment.
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as 'D'
Characters normally expressed as superscript shall be preceeded by 'pp'
C-6
<PAGE>
<PAGE>
FORM OF RULE 18f-3 PLAN
EXHIBIT 18
THE FAHNESTOCK FUNDS
PLAN PURSUANT TO INVESTMENT COMPANY ACT RULE 18f-3
___________________________, 1997
WHEREAS, to date The Fahnestock Funds, a Massachusetts business trust (the
"Trust") has issued only one class of shares, representing interests in its
Hudson Capital Appreciation Fund portfolio (the "Fund"), which shares have been
offered and sold only by Fahnestock & Co., Inc. ("Fahnestock"), as Distributor,
with a current maximum sales load of 4.5% of the public offering price and with
respect to which the Trust has adopted a Plan of Distribution (the "Current
Plan of Distribution") under Investment Company Act Rule 12b-1 providing for
reimbursement of certain distribution expenses in an amount not to exceed 0.50%
of the daily average annual net asset value of certain assets of the Fund; and
WHEREAS, the Trust's Board of Trustees has determined that it is in the
interest of the Trust and its shareholders to increase sales of Fund shares so
as to achieve economies of scale and facilitate the efficient operation of the
Fund and the management of the Fund's portfolio, and to hold and attract a high
quality of personnel; and
WHEREAS, the Board of Trustees has determined that it is therefore in the
interest of the Trust, the Fund, and its current and future shareholders to
create additional classes of shares with different arrangements for shareholder
services or the distribution of shares, or both;
NOW, THEREFORE, the following Plan is hereby adopted pursuant to Investment
Company Act Rule 18f-3.
1. Classes of Shares.
The Trust is hereby authorized to issue the following classes of shares of
the Fund, having the characteristics set forth below:
1.1 Class A.
The class of Fund shares heretofore issued by the Trust is hereby
designated Class A Shares. It shall continue to have the following
characteristics:
1.1.1 Initial Sales charge. The Class A Shares shall be subject to a
sales charge at the time of sale as stated in the then current
prospectus of the Fund with respect to said Class A Shares.
1
<PAGE>
<PAGE>
Said sales charges may be waived or reduced under the conditions
specified from time to time in the Fund's then current Registration
Statement on Form N-1A (the "Registration Statement"). Class A
Shares as to which the initial sales charge has been waived may
be subject to a contingent deferred sales charge under
circumstances specified in the Registration Statement.
1.1.2 12b-1 Plan. The Current Distribution Plan shall continue to apply
to the Class A Shares.
1.1.3 Distribution. The Class A Shares shall continue to be sold by
Fahnestock and any other broker-dealers with whom Fahnestock may
enter into a Selected Dealer's Agreement.
1.1.4 Conversion. The Class A Shares shall not be convertible into any
other class of shares of the Trust.
1.2 Class B.
The Trust shall issue Class B Shares of the Fund, which shall have the
following characteristics:
1.2.1 Initial Sales charge. The Class B Shares shall be sold at net asset
value and shall not be subject to a sales charge at the time of
sale.
2
<PAGE>
<PAGE>
1.2.2 Contingent Deferred Sales Charge ("CDSC"). The Class B Shares shall
be subject to a CDSC as specified in the then current prospectus of
the Fund with respect to said Class B Shares. The CDSC may be
waived under the conditions specified from time to time in the
Registration Statement.
1.2.3 12b-1 Plan. The Class B Shares shall be subject to a Plan of
Distribution under Investment Company Act Rule 12b-1 which shall
provide for a reimbursement to Fahnestock (a) at a maximum annual
rate of 0.25% of the average daily net asset value of the Fund
attributable to the Class B Shares for expenses of providing
personal service to Class B shareholders or the maintenance of
Class B shareholder accounts, or payments by Fahnestock to others
for such activities, and (b) at a maximum annual rate of 0.75% of
the average daily net asset value of the Fund attributable to the
Class B Shares for other distribution expenses related to Class B
Shares.
1.2.4 Distribution. The Class B Shares shall be sold by Fahnestock and
any other broker-dealers with whom Fahnestock may enter into a
Selected Dealer's Agreement.
1.2.5 Conversion. The Class B Shares shall not be convertible into any
other class of shares of the Trust.
3
<PAGE>
<PAGE>
1.3 No-Load Class.
The Trust shall issue a No-Load class of shares of the Fund, which may
also be referred to as "Class N Shares," and which shall have the
following characteristics:
1.3.1 Initial Sales charge. The Class N Shares shall be sold at net asset
value and shall not be subject to a sales charge at the time of
sale.
1.3.2 Contingent Deferred Sales Charge ("CDSC"). The Class N Shares shall
not be subject to a CDSC upon redemption.
1.3.3 12b-1 Plan. The Class N Shares shall be issued pursuant to a
Distribution Plan providing for reimbursement of expenses at a
maximum annual rate of 0.25% of the average net assets of
the Fund attributable to the Class N Shares.
1.3.4 Distributor. Fahnestock shall be the principal underwriter of the
No-Load Shares, which shall be offered to the public directly and
through arrangements with other broker-dealers selected by
Fahnestock and approved by the Board of Trustees of the Trust from
time to time.
1.3.5 Conversion. The Class N Shares shall not be convertible into any
other class of shares of the Trust.
4
<PAGE>
<PAGE>
2. Allocation of Expenses.
Except as expressly set forth above and as hereinafter provided, each class
shall bear the expenses of the operation of the Fund based on the respective
average daily net asset value of such class. In addition to expenses that are
borne specifically by the separate Classes under their respective
Distribution Plans, the Trustees may allocate certain other expenses ("Class
Expenses") to specific Classes as they deem appropriate. Class Expenses shall
be limited to 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, prospectuses 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. Expenses may be
waived or reimbursed by the Fund's investment adviser, principal underwriter,
or any other provider of services to the Fund.
3. Voting Rights.
Each share, regardless of class, shall be entitled to one vote on any matter
submitted to the vote of shareholders, provided, however, that if any matter
would affect a particular class differently from any other class, each class
shall vote separately on such matter, and provided, further, that a matter
that affects some, but not all, classes, shall be submitted to a vote of only
the class or classes affected.
4. Allocation of Income and Realized and Unrealized Capital Gains and Losses.
Subject to the provisions of Section 2 of this Plan relating to allocation of
expenses, all items of income, and all realized and unrealized capital gains
and losses shall be allocated to each class in direct proportion to the
respective net asset value of such class in relation to the net asset value
of the Fund.
5. Amendment of Plan.
This Plan may be amended from time to time by a majority vote of the Board of
Trustees, including a majority of the Trustees who are not "interested
persons" of the Fund, provided that no such amendment shall adversely affect
the holders of any outstanding shares of the Trust without the vote of a
majority of the holders of such class.
5
<PAGE>
