<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL , 1998 (TO BE
EFFECTIVE ON MAY 1, 1998)
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.
[x]Post-Effective Amendment No. 10
and/or
[ ]REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x]Amendment No. 12
(Check appropriate box or boxes)
----------------
THE FAHNESTOCK FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
125 Broad Street 10004
New York, New York (Zip Code)
(Address of Principal Executive
Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 668-8000
Albert G. Lowenthal
Fahnestock & Co. Inc
125 Broad Street
New York, New York 10004
(NAME AND ADDRESS OF AGENT FOR SERVICES)
----------------
Copies to:
Faith Colish, A Professional Corporation
63 Wall Street
New York, New York 10005
Continuous
(APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b), or
[x] on May 1, 1998 pursuant to paragraph (b), or
[ ] 60 day after filing pursuant to paragraph (a), or
[ ] on (date) pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered Class A, Class B and Class N Shares of
Beneficial Interest, ($0.01 par value)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
-------- ------------------
<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 Objective
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
<CAPTION>
PART B
ITEM NO. HEADING IN STATEMENT OF ADDITIONAL INFORMATION
-------- ----------------------------------------------
<S> <C>
10.Cover Page.............................. Cover Page
11.Table of Contents....................... Contents
12.General Information and History......... Organization of the Fund; Management of the Fund
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 Investment Objectives and Policies
Practices............................
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.Calculation of Performance Data......... Calculation of Performance
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>
- --------------------------------------------------------------------------------
HUDSON CAPITAL CLASS A SHARES
APPRECIATION FUND CLASS B SHARES
(A Series of The Fahnestock Funds)
125 Broad Street
New York, New York 10004
================================================================================
PROSPECTUS
May 1, 1998
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.")
-- Class A Shares are sold with an initial maximum sales charge of 4.50%.
-- Class B Shares are sold without an initial sales charge but are subject
to a contingent deferred sales charge ("CDSC") depending on the length of
time between purchase and redemption.
-- Class A and Class B Shares pay different ongoing fees under their
respective distribution plans. See "Management of the Fund--How the
Fund's Class A and Class B Shares are Distributed."
The third class of shares, Class N shares, are offered by a different
prospectus. (See "Other Matters-- Description of the Fund's Shares.")
This Prospectus sets forth information about the Fund that an investor in Class
A or Class B Shares ought to know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated May 1, 1998 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., 125 Broad Street, New York, NY 10004, 1-
800-800-9141.
- --------------------------------------------------------------------------------
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 OF ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Information...................................... 3
Financial Highlights..................................... 5
Organization of the Fund................................. 7
Investment Objective, Policies and Risk Considerations... 7
Management of the Fund................................... 10
Distributions to Shareholders and Taxation............... 14
Computation of Net Asset Value........................... 15
How to Buy Shares........................................ 17
How to Redeem Shares..................................... 20
Additional Services and Programs......................... 21
Performance Information.................................. 22
Other Matters............................................ 23
</TABLE>
- --------------------------------------------------------------------------------
-2-
<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.
<TABLE>
<CAPTION>
Shareholder Transaction Expense
- -------------------------------
Class A Class B
Shares1 Shares
------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50% 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as applicable) 1.00% 5.00%2
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) 0% 0%
Redemption Fees (as a percentage of amount redeemed,
if applicable) 0% 0%
</TABLE>
------------------------------------------------
1 The sales charge set forth in the above table is the maximum charge imposed on
purchases of Class A Shares; investors may pay actual charges less than 4.50%,
depending upon the amount invested. Class A purchases of $1 million or more
are not subject to an initial sales charge; however, a contingent deferred
sales charge of 1% may be imposed on redemptions within 18 months following
such a purchase. Purchases of less than $1 million are not subject to a
contingent deferred sales charge. See "How to Buy Shares."
2 This charge is the maximum applicable to redemptions of Class B Shares;
investors may pay actual charges that are lower, as described under "How to
Buy Shares."
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average daily net assets)
Class A Class B
------- -------
<S> <C> <C>
Management Fee3 1.00% 1.00%
12b-1 Fees 0.50%4 1.00%
Other Expenses (After fee waiver/expense reimbursement)5 0.50% 0.50%
Total Fund Operating Expenses (After fee waiver/expense
reimbursement) 2.00% 2.50%
</TABLE>
------------------------------------------------
3 The Investment Management Agreement, as amended effective February 23, 1993,
provides for a management fee at a reduced rate of 0.75% per annum with
respect to assets of the Fund in excess of $25,000,000. As of April 23, 1998,
the Fund's net assets were approximately $44,000,000.
4 The Class A 12b-1 fee is payable with respect to assets of the Fund,
attributable to Class A Shares, which have been continuously included in its
portfolio for four years or less as of the Fund's most recent
- --------------------------------------------------------------------------------
-3-
<PAGE>
- --------------------------------------------------------------------------------
fiscal year-end, and is based on the average daily net asset value of those
assets during such period; no 12b-1 fee will be paid with respect to assets of
the Fund that are attributable to Class A Shares and which have been
continuously included in its portfolio for more than four years as of the
Fund's most recent fiscal year-end, calculated on a first-in, first-out basis.
(See "How the Fund's Class A Shares and Class B Shares are Distributed.")
5 "Other Expenses" in the above table include fees for shareholder services,
custodial fees, legal and accounting fees, printing costs and registration
fees and give effect to expense reimbursements that are expected to remain in
effect during the current fiscal year ending December 31, 1998.
The purpose of the above table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly. The management fees referred to above and nature of services
provided are more fully explained in this prospectus under the section
"Management of the Fund" and in the Statement of Additional Information under
the caption "Investment Advisory and Other Services."
Fahnestock & Co. Inc. ("Fahnestock"), the Fund's distributor, has concluded that
the combination of sales charges imposed on purchases or redemptions and the
asset-based charges pursuant to Rule 12b-1 are within the guidelines established
by the National Association of Securities Dealers, Inc. ("NASD"). However long-
term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by NASD rules.
Example
- -------
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in Class A or Class B Shares of the Fund. These
amounts assume reinvestment of all dividends and distributions, payment of the
maximum initial or contingent deferred sales charge and payment by the Fund of
operating expenses at the levels set forth in the table above, and are also
based upon the following assumptions:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------- ---------------- ---------------- ----------------
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
You would pay the following expenses for
the period of years indicated on a $1,000
investment, assuming 5% annual return and
redemption at the end of each time period. $64 $75 $105 $108 $148 $143 $267 $284
You would pay the following expenses on the
same investment, assuming no redemption
at the end of each time period. $64 $25 $105 $ 78 $148 $133 $267 $284
--- --- ---- ---- ---- ---- ---- ----
</TABLE>
------------------------------------------------
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%.
- --------------------------------------------------------------------------------
-4-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--Class A Shares
(for a share outstanding throughout the periods indicated)
The following table has been audited by the Fund's independent accountants,
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 Coopers & Lybrand L.L.P. for the years ended December 31, 1997, 1996, 1995,
1994 and 1993 and by Ernst & Young LLP for the year ended December 31, 1992 and
for the period March 5, 1991 to December 31, 1991.
<TABLE>
<CAPTION>
March 5, 1991
Class A Shares (Commencement
---------------------------------------------------------------------------------------- of Operations)
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993 1992 1991
------------ ------------ ------------ --------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 12.99 $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36 $ 10.00
Income from investment
operations:
Net investment income/
(loss) (0.21)** (0.10) (0.03) (0.06) (0.13) (0.05) 0.01
Net realized and
unrealized gains
(losses) on
investments 5.67 4.72 2.09 (1.48) 2.25 1.02 1.74
---------- --------- --------- --------- --------- --------- --------
Total income/(loss)
from investment
operations 5.46 4.62 2.06 (1.54) 2.12 0.97 1.75
Less dividends paid to
shareholders:
Dividends paid from net
realized gains on
investments (2.27) (3.02) (1.62) (1.23) (0.33) (0.40) (0.39)
---------- --------- --------- --------- --------- --------- --------
Net asset value, end of
period $ 16.18 $ 12.99 $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36
========== ========= ========= ========= ========= ========= ========
Total return 42.88% 40.68% 18.94% (11.22)% 17.77% 8.54% 17.50%
Ratios/Supplemental
Data:
Net assets, end of
period (000) $ 29,325 $ 15,671 $ 12,097 $ 15,874 $ 19,227 $ 16,993 $ 11,987
Ratio of expenses to
average net assets 2.03%+*** 2.50%+ 2.50%+ 2.49%+ 2.49%+ 2.50%+ 2.48%*+
Ratio of net investment
income (loss) to
average net assets (1.38%)+ (1.13)%+ (0.16)%+ (0.46)%+ (1.00)%+ (0.48)%+ 0.11%*+
Average commission
rate paid++ $ 0.0600 $ 0.0597 -- -- -- -- --
Portfolio turnover rate 50.46% 85.37% 197.71% 194.55% 154.18% 256.84% 250.85%
- ----------
</TABLE>
* Annualized
** Per share information presented is based on the average number of shares
outstanding.
*** Effective February 1
+ The ratios of expenses and investment income/(loss) (net) to average net
assets are net of expenses voluntarily reimbursed by the Adviser,
Administrator and Distributor in the amount of 1.04%, 1.00%, .92%, .27%,
.25%, 1.10% and .56%, respectively.
++ For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases or
sales of equity securities.
Further information about the Fund's performance is contained in the Fund's
annual report, dated December 31, 1997, which can be obtained free of charge.
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--Class B Shares
(for a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period Ended
December 31,
1997*
-------------
<S> <C>
Net asset value, beginning of period $ 13.54
Income from investment operations:
Net investment loss (0.09)**
Net realized and unrealized gain on investments 4.93
-----------
Total income from investment operations 4.84
Less dividends paid to shareholders:
Dividends paid from net realized gains on investments (2.27)
-----------
Net asset value, end of period $ 16.11
-----------
Total return 36.54%
Ratios/Supplemental Data:
Net assets, end of period (000 omitted) $ 2,125
Ratio of expenses to average net assets 2.50%+***
Ratio of net investment loss to average net assets (0.77%)+***
Average commission rate paid $ 0.0600
Portfolio turnover rate 50.46%
</TABLE>
__________
* Reflects operations from April 17, 1997 (date of initial public offering) to
December 31, 1997.
** Per share information presented is based on the average number of shares
outstanding.
*** Annualized
+ The ratios of expenses and net investment loss to average net assets are net
of expenses voluntarily reimbursed by the Advisor, Administrator and
Distributor in the amount of 1.04%
Further information about the Fund's performance is contained in the Fund's
annual report, dated December 31, 1997, which can be obtained free of charge.
- --------------------------------------------------------------------------------
-6-
<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 seeks to achieve its objective by investing primarily in common stocks
and securities convertible into common stock, including warrants. While it is
the intention of Hudson Capital Advisors, Inc. (the "Adviser") for the Fund to
remain "fully invested" in common stocks, there may be occasion where the Fund
may invest up to 100% of its assets in short-term debt securities as a temporary
alternative to equity securities. Such investments may be in United States
Government securities, certificates of deposit of major banks, overnight time
deposits, commercial paper rated in the top two ratings of a nationally
recognized statistical rating organization or in a money market fund, including
a money market fund which the Adviser may manage in the future. Since the return
on a money market fund may be less than would be available through a direct
investment in the securities comprising its portfolio and will involve payment
of duplicative management and other fees, such purchases will be made only in
accordance with guidelines established by the Board of Trustees designed to
ensure that purchases of shares of a money market fund will be undertaken only
when it is in the best interest of the Fund and complies with limitations
established by the Investment Company Act of 1940, as amended (the "1940 Act").
In establishing these guidelines, the Trustees will consider whether the Adviser
should be paid a management fee by the Fund with respect to the assets invested
in such money market fund. Investing in such short-term debt securities as a
defensive or temporary investment approach does not constitute a change in the
Fund's investment objective and will be subject to any guidelines which the
Trustees may establish.
In choosing investments for the portfolio, the Adviser uses the following
primary criteria for selection of securites:
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 the
ownership of such companies. Historically, companies enjoying
- --------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------
growth have been particularly attractive in a cycle of general market increases,
because, in the view of the Adviser, higher than average earnings often tend to
result in higher than average price-earning ratios during such periods with the
likely result of greater appreciation in prices of the shares of such companies.
In addition to the foregoing considerations, the Adviser will attempt to
identify companies whose stock prices do not adequately reflect underlying
values and growth potential. There can be many reasons why a stock's price is
depressed, such as investor perception about the company's industry or sector
that is not relevant to the particular company, temporary impairment of the
company's financial condition, or short-term earnings disappointments which the
company is taking appropriate steps to address. In each case, the Adviser will
focus on the company's "staying power," the strength of its balance sheet, and
the long-term fundamentals of its industry. Again, this selection process often
leads to small-capitalization companies. Because the marketplace generally
devotes less research and attention to small companies, the Adviser believes
that it is more likely to find underlying values that are not yet recognized.
However, the Fund generally will also hold mid-size and larger-capitalization
companies to balance the somewhat-greater price volatility that may be
experienced by companies with smaller capitalization.
2. Corporate events. In addition to the criteria described above, the Adviser
----------------
will endeavor to identify companies that are likely to experience changes not
only in material costs, products, markets, management style, or investors'
perception of their value but also in the structure of the company itself, such
as the acquisition of another company, the likelihood that the company itself
will be acquired, the sale or discontinuance of divisions that have failed to
contribute sufficiently (or at all) to earnings, a company's tender offer for
its own stock, a spin-off of part of the company through a distribution of
shares to its shareholders that permits the market to appraise each segment of
the company separately, a sale of assets followed by a distribution of a part or
all of the proceeds to shareholders, or even dissolution of the company followed
by a distribution of assets or proceeds of sale to the shareholders.
Ideally, the Adviser will endeavor to identify companies where all of these
types of change may occur, since such instances may offer more than one
opportunity to realize appreciation.
Foreign Securities
In seeking to achieve its objective, the Fund may, to a minor degree, and in no
event with respect to more than 10% of its assets at the time of purchase,
invest in foreign securities. Foreign securities usually are denominated in
foreign currencies, which means their value will be affected by changes in the
strength of foreign currencies relative to the U.S. dollar, as well as the other
factors that affect security prices. Foreign companies are not subject to
accounting standards or governmental supervision comparable to United States
companies and there often is less publicly available information about their
operations. There generally is less governmental regulation of foreign
securities markets, and security trading practices abroad may offer less
protection to investors such as the Fund. Foreign securities can also be
affected by political or financial instability abroad, and may be less liquid or
more volatile than domestic investments. These investments may be in the form of
American Depositary Receipts, which typically are issued by a U.S.
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
bank or trust company to evidence ownership of underlying securities issued by a
foreign operation. American Depositary Receipts are not necessarily denominated
in the same currency as the underlying securities.
Warrants
A warrant confers upon its holder the right to purchase an amount of securities
at a particular time and price. Because a warrant does not carry with it the
right to dividends or voting rights with respect to the securities which it
entitles a holder to purchase, and because it does not represent any rights in
the assets of the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Lending of Securities
The Fund may lend its portfolio securities to broker-dealers and other financial
institutions pursuant to agreements requiring that the loans be continuously
collateralized by cash, letters of credit or U.S. Government securities of a
value equal to at least the fair market value of the securities loaned. These
loans will not be made if as a result the aggregate of all outstanding loans
exceeds 30 percent of the value of the Fund's total assets taken at current
value.
Other Investment Policies, Restrictions and Risk Considerations
A fundamental policy of management is to spread the Fund's investments among a
number of industry groups without concentration in any particular industry; the
Fund will not purchase a security if 25% or more of its total assets would be
invested in a particular industry.
In order to limit investment risks, portfolio securities are sold when they
reach a predetermined price objective, or when a change in relative valuation
occurs, or when a deterioration in company or industry fundamentals is
anticipated or occurs. In addition, the percentage of the Fund's assets invested
in cash or temporary investments is increased when investment alternatives, such
as U.S. Government securities and money market instruments, including repurchase
agreements, offer better overall returns than equities. When, in the opinion of
the Adviser, current market or economic conditions warrant, the Fund temporarily
may retain cash or invest in preferred stock, nonconvertible bonds or other
fixed-income securities. During those periods the Fund may tend to emphasize
investment in securities of issuers which the Adviser believes offer the
possibility of a corporate event, since changes of this nature can result in
gains even when the overall equity market is weak. Purchases and sales of
securities will be made whenever necessary in the management's view to achieve
the objective of the Fund. It is anticipated that portfolio turnover will
normally not exceed 100% in the future. See page 5 for prior turnover rates. (A
100% rate of portfolio turnover is normally considered to be high.) A high rate
of portfolio turnover will increase the Fund's brokerage expenses and may
increase the amount of taxable short-term gains realized by the Fund.
The 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:
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
- --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.
Year 2000
The management services provided to the Fund by the Adviser, and the services
provided by Fahnestock and the transfer agent, Investors Fiduciary Trust Company
("IFTC"), to shareholders, depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot distinguish the year
2000 from the year 1900 because of the way dates are encoded and calculated.
That failure could have a negative impact on handling securities trades, pricing
and account services. The Adviser, Fahnestock and IFTC have been actively
working on necessary changes to their computer systems to deal with the year
2000 and expect that their systems will be adapted in time for that event,
although there cannot be assurance of success at this time.
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 theTrustees.
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. 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. Mr. Gerson uses his familiarity with
the market for small-cap securities, as well as larger companies, in seeking to
achieve the Fund's investment objective, policies and risk considerations.
Performance information about the Fund from its inception through December 31,
1997 is
- --------------------------------------------------------------------------------
-10-
<PAGE>
- --------------------------------------------------------------------------------
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., 125 Broad Street, New
York, NY 10004, telephone 1-800-800-9141. 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 780 Third Avenue, New York, NY 10017, currently has approximately $63,000,000
in assets under management in its capacity as investment adviser. The Adviser is
a wholly-owned subsidiary of Fahnestock Viner Holdings, Inc., a corporation
organized and existing under the laws of the province of Ontario, Canada, whose
non-voting shares are listed on the New York Stock Exchange and the Toronto
Stock Exchange, and approximately 95% of whose voting securities are held by
officers and directors of Fahnestock Viner Holdings, Inc.
To reduce the potential risk of an adverse effect on the Fund's portfolio,
written policies have been adopted by the Trust, the Fund and the Adviser to
restrict securities trading in personal accounts of the portfolio managers and
other affiliated personnel who normally have access to information on portfolio
transactions for the Fund. These policies are substantially based on the
recommendations of the Investment Company Institute.
How the Fund Receives Administrative Services. The Trust has entered into an
Administration Agreement with Fahnestock pursuant to which Fahnestock provides
certain administrative services to the Fund and its shareholders. Under the
Administration Agreement, Fahnestock provides the Trust and the Fund with office
space, supplies and other facilities required for the business of the Fund.
Fahnestock pays the compensation of all officers and employees of the Trust and
pays the expenses of clerical services related to the administration of the
Trust and the Fund. Fahnestock has entered into a Sub-Administration Agreement
with Federated Services Company (the "Sub-Administrator"), which has extensive
experience in the mutual fund industry, to perform these services. Pursuant to
the Sub-Administration Agreement, Fahnestock is responsible for any fees and
out-of-pocket expenses due to the Sub-Administrator. The Fund pays no
administrative fee to Fahnestock or the Sub-Administrator.
The Fund's Expenses. The Adviser has voluntarily undertaken to limit expenses
applicable to the Class B Shares to 2.5% and to 2.0% with respect to the other
Classes of shares. If the expenses of a Class exceed the applicable limit, the
Adviser has undertaken to reimburse the Fund for any such excess amount. The
Adviser has undertaken to pay any reimbursements on the same schedule as the
Fund is required to pay the advisory fee, provided that if, at the end of the
fiscal year, Class expenses do not exceed the applicable annual expense limits,
the Fund will reimburse the Adviser for monies paid by the Adviser during the
- --------------------------------------------------------------------------------
-11-
<PAGE>
- --------------------------------------------------------------------------------
course of the fiscal year. This is a voluntary undertaking on the part of the
Adviser, which reserves the right to modify or withdraw it with respect to any
Class at any time without notice. The expenses of printing prospectuses used in
selling Fund shares and other sales literature, as well as certain other sales-
related charges, all of which may be eligible for reimbursement under the Fund's
12b-1 Plans, are borne by Fahnestock.
All expenses which are not specifically undertaken to be paid by the Adviser or
Fahnestock and which are incurred in the operation of the Fund (including fees
of Trustees of the Trust who are not "interested persons," as such term is
defined in the 1940 Act) and the continuous public offering of the shares of the
Fund are borne by the Fund, including the cost of printing and engraving share
certificates, the expenses relating to the determination of the net asset value
of shares of the Fund, the expenses of the continuing registration and
qualification of shares for sale, the cost of prospectuses distributed to
shareholders, the charges for custodians, transfer agents, registrars and other
agents, and auditing and legal expenses.
At present, the only expenses that are allocated specifically to one or more
Classes are expenses under the Distribution Plans. However, the Trustees reserve
the right to allocate certain other expenses ("Class Expenses") to specific
Classes as they deem appropriate. In any case, Class Expenses would be limited
to distribution fees, shareholder servicing fees, transfer agency fees
identified by the Transfer Agent as attributable specifically to holders of
particular Classes of shares; printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectus and proxy
materials to current shareholders; registration and notice 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, which is also the Distributor of shares of
the Fund, may serve as the Fund's broker in effecting portfolio transactions on
national securities exchanges and retain commissions in accordance with certain
regulations of the Securities and Exchange Commission, including Rule 17e-1
under the 1940 Act. In addition, the Adviser may select broker-dealers that
provide it with research services and may cause the Fund to pay these broker-
dealers commissions that exceed those that other broker-dealers may have
charged, if it views the commissions as reasonable in relation to the value of
the brokerage and/or research services received consistent with best execution.
Consistent with the foregoing primary consideration, the Rules of 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
- --------------------------------------------------------------------------------
-12-
<PAGE>
- --------------------------------------------------------------------------------
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 has entered 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 and may enter
into such agreements with other Selling Dealers in the future.
The Fund is a series of The Fahnestock Funds, which has adopted plans of
distribution ("Plans") pursuant to Rule 12b-1 under the 1940 Act, under which it
may reimburse Fahnestock for the expenses Fahnestock bears in distributing
shares of a particular Class of the Fund or providing for services to
shareholders of that Class.
Under the Plan for Class A Shares, the Fund may reimburse Fahnestock for
distribution and service expenses at an annual rate not exceeding 0.50 percent
of the average daily net value of the Fund's assets attributable to Class A
Shares which have been continuously included in its portfolio for four calendar
years or less. No reimbursement for distribution expenses will be payable during
the Fund's fiscal year with respect to assets of the Fund that 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 continuously outstanding for
four years or more as of the last day of its preceding fiscal year. In
calculating the number of shares outstanding for four years or more, the Fund
will treat all redemptions in a particular shareholder's account as having been
made from those shares which have been outstanding for the longest period of
time, a method of accounting commonly referred to as "first-in, first-out."
With respect to Class B Shares, the Fund may reimburse Fahnestock at the maximum
annual rate of 0.25 percent of the average daily net asset value of the Class
for the expenses of providing personal service to Class B shareholders or the
maintenance of Class B shareholder accounts, or for payments by Fahnestock to
others for such activities, and at the maximum annual rate of .75 percent for
expenses incurred in distributing Class B shares. In both cases there is no
limit on the length of the period such net assets have been invested in the
Fund.
Expenses incurred by Fahnestock during a year may exceed the amount available
for reimbursement under a Distribution Plan. Such excess expenses may be carried
forward and sought to be reimbursed in future years. Interest at the prevailing
broker loan rate may be charged to the Fund on any expenses carried forward. At
the date of this Prospectus, no excess expenses are being carried forward under
any Plan.
Expenses incurred in connection with promotional activities will be identified
to the Class involved, although it is anticipated that some promotional
activities may be conducted in respect of all Classes in common, with the result
that expenses incurred in connection with those activities will not be
identifiable to any particular Class. In the latter case, expenses will be
allocated among the Classes on the basis of their relative net assets.
Continuance of each Plan is subject to annual approval by a majority of the
Trustees, and
- --------------------------------------------------------------------------------
-13-
<PAGE>
- --------------------------------------------------------------------------------
separately by 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 that 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 125 Broad Street, New York,
NY 10004. 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 and Chief Executive 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 Chief Financial Officer of Fahnestock.
Transfer and Dividend Agent. Investors Fiduciary Trust Company, located at 111
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 ANDTAXATION
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.
- --------------------------------------------------------------------------------
-14-
<PAGE>
- --------------------------------------------------------------------------------
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 calendar year, so long
as the dividends are paid before February 1 of the following year.
Federal Taxes. The Fund has qualified as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code") and intends to continue
to so qualify in the future. As such, and by complying with the applicable
provisions of the Code, the Fund will not be subject to Federal income tax on
taxable income (including realized capital gains) which is distributed to
shareholders.
Distributions from the Fund representing net investment income and any net
short-term capital gains, as computed for Federal income tax purposes, will be
taxable to shareholders as ordinary income whether such distributions are
distributed as cash payments or reinvested in additional shares of the Fund.
Distributions from the Fund representing net long-term capital gains, as
computed for Federal income tax purposes, whether such distributions are
distributed as cash payments or reinvested in additional shares, will be taxable
to the shareholders as long-term capital gains regardless of the length of time
a shareholder has held his shares. Mid-term and long-term capital gains of
individuals are taxed at a maximum rate of 28% and 20%, respectively, rather
than the maximum rate applicable to ordinary income for individuals (currently
39.6%). 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 calendar 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 ("NYSE") (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
- --------------------------------------------------------------------------------
-15-
<PAGE>
- --------------------------------------------------------------------------------
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 U.S. 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.
Foreign securities are valued at the last sale price or the principal exchange
or in the principal over-the-counter market in which such securities are traded,
as of the close of regular trading on the NYSE on the day the securities are
being valued or, if there are no sales, at the last available bid price on that
day. If the Adviser believes that the price of a security obtained by this
method does not represent the amount that the Adviser reasonably expects to
receive on a current sale of the security, the security is valued at fair value
as determined in good faith by the Trustees.
- --------------------------------------------------------------------------------
-16-
<PAGE>
- --------------------------------------------------------------------------------
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. Each initial order
is reviewed when it is received by Fahnestock or a Selling Dealer and, if it is
accompanied by all appropriate information or is 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 $50 or
more as the shareholder elects. (These minimums do not apply to retirement plans
or investments made through the Systematic Investment Plan. See "Retirement
Plans" and "Systematic Investment" below.)
Class A Shares
The offering price of Class A Shares will be the net asset value per share next
determined after acceptance of the purchase order plus a sales load as follows:
<TABLE>
<CAPTION>
Sales Charge Sales Charge Concession to
as a as a Selling Dealers
Amount of Percentage Percentage as a
Purchase of the of 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.
- --------------------------------------------------------------------------------
-17-
<PAGE>
- --------------------------------------------------------------------------------
Class A Shares acquired in a purchase of $1 million or more will be subject to a
contingent deferred sales charge (a "CDSC") of 1.00% if redeemed within 18
months of purchase. With the exception of differing applicable holding periods,
the same procedures and conditions, including waivers of the CDSC, will apply to
the CDSC for $1 million purchases of Class A Shares as apply to the CDSC for
Class B Shares.
The sales charge may be reduced if an investor combines his purchases with those
of certain individuals or entities (Combination Privilege) or already owns
shares (Accumulation Privilege). (See Statement of Additional Information,
"Methods of Obtaining Reduced Sales Charge" or ask your sales representative.)
In addition, the foregoing schedule of reduced sales charges will also be
available to investors who enter into a written Letter of Intent providing for
the purchase, within a 13-month period, of Class A Shares of the Fund. Class A
shares previously purchased during a 90-day period prior to the date of receipt
by the Fund of the Letter of Intent and still owned by the shareholder may also
be included in determining the applicable reduction.
Class A Shares may be sold without a sales charge to Trustees or officers of the
Fund, and directors or officers of the Adviser, Fahnestock, Selling Dealers, or
Fahnestock Viner Holdings, Inc. or its affiliates, to the bona fide full-time
employees and their relatives, retired employees or sales representatives of any
of the foregoing who have acted as such for not less than 90 days, or members of
the families of bona fide full-time employees or sales representatives of Fahne-
stock, 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.
Wrap Accounts. Some dealers offer their clients a "wrap account" service under
which the clients pay only a "wrap fee" and do not pay commissions or similar
charges. If a dealer has entered into a Dealer Wrap Agreement with Fahnestock to
purchase Class A shares solely for its clients with whom it has wrap accounts or
similar arrangements, the Class A shares may be sold at net asset value, without
imposition of a sales charge and without being subject to any CDSC at
redemption.
- --------------------------------------------------------------------------------
-18-
<PAGE>
- --------------------------------------------------------------------------------
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, such as Individual Retirement Accounts,
including ROTH IRAs and Education IRAs, Keogh Plans (H.R. 10), Pension and
Profit Sharing Plans, Tax Sheltered Annuity Retirement Plans, and 401(k) Plans.
The initial investment minimum for these retirement plans is $1,000 except that
the initial investment minimum for Education IRAs is $500. Thereafter, the
minimum additional investment is $50. 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.
Systematic Investment. The Fund offers a Systematic Investment Plan under which
the Fund's transfer agent, IFTC, is permitted through the Automated Clearing
House to charge a shareholder's regular bank account on a regular, predetermined
basis to transfer systematic additions to the shareholder's Fund account. The
initial minimum investment for a Systematic Investment Plan is $100 and each
subsequent transfer must be at least $50 on a monthly or quarterly basis. While
there is no charge to shareholders for this service, a charge of $10 will be
deducted from a shareholder's Fund account if a systematic withdrawal is
rejected by the bank for insufficient funds. (This charge will be waived for
Retirement Plan accounts.) A shareholder's Systematic Investment Plan may be
terminated at any time without charge or penalty by the shareholder, the Fund,
IFTC or Fahnestock. Further information about the Systematic Investment Plan may
be obtained through any Fahnestock account representative or any other broker
who offers the Fund's shares.
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:
- --------------------------------------------------------------------------------
-19-
<PAGE>
- --------------------------------------------------------------------------------
Years Shares are Held CDSC
- --------------------- ----
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%
For purposes of calculating the applicable CDSC, it is assumed that redemptions
are made first ofClass B Shares to which the CDSC does not apply, then of Class
B Shares that have been heldthe 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.
Wrap Accounts. If a dealer has entered into a Dealer Wrap Agreement with
Fahnestock to purchase Class B Shares solely for its clients with whom it has
wrap accounts or similar arrangements (see Wrap Accounts, page___), the Class B
Shares may be sold without being subject to any CDSC at redemption.
Fahnestock will pay a concession or discount equal to 4% of the net asset value
of all Class B Shares sold through Selling Dealers, and other NASDmembers, with
whom it has entered into a written agreement providing for such concession.
Neither Fahnestock nor the Fund has any special compensation arrangements with
any Selling Dealers.
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, net of any applicable
CDSC, will be made at the net asset value next determined after receipt of any
such order by Fahnestock or the Selling Dealer. Certificates, if any, in proper
form for redemption or any required stock powers should be presented or sent to
Fahnestock or your Selling Dealer no later than the close of business of the day
on which the redemption order is placed. Investors may be charged a fee if they
redeem Class A or Class B Shares through a broker or agent.
Written Request. Any shareholder of record may require the Fund to redeem his or
her shares by making written application to IFTC. 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
- --------------------------------------------------------------------------------
-20-
<PAGE>
- --------------------------------------------------------------------------------
shares of the Fund. Share certificates must be duly endorsed for transfer.
Signatures on share certificates and stock powers must be guaranteed, except
that (subject to the restriction in the next sentence) a signature guarantee
will not be required for a redemption of less than $5,000 where the redemption
proceeds are sent to a shareholder of record at the shareholder's address of
record. A redemption request must be accompanied by a signature guarantee if the
shareholder's address of record has changed within the past 30 days. A signature
guarantee is a widely accepted way to protect you and IFTC by verifying the
signature on your request. The following institutions may provide you with an
acceptable signature guarantee: a U.S. bank, trust company, credit union or
savings association, a foreign bank that has a New York correspondent bank
(which correspondent bank must be named by the guarantor), a U.S. registered
securities broker or dealer (including a broker or dealer in municipal
securities or U.S. government securities), a U.S. national securities exchange,
a registered securities association or a clearing agency. A notary public is not
an acceptable signature guarantor. Redemptions, net of any applicable CDSC, will
be effected at the net asset value next determined after receipt by IFTC of such
application and certificates or stock powers, if any, in proper form for
redemption.
General. Payment for shares redeemed will ordinarily be made on the next
business day after the redemption is effected. However, the Fund reserves the
right to pay redemption proceeds within seven days after the order is effected
if, in its judgment, immediate payment would adversely affect the Fund. In
addition, at various times the Trust may be requested to redeem Fund shares for
which it has not yet received good payment. Accordingly, the Trust may delay the
mailing of a redemption draft for up to 10 business days from the payment date
or until such time as it has assured itself that good payment (e.g., cash in
hand) has been collected for the purchase of such shares, whichever occurs
first.
The Trust may suspend the right of redemption of Fund shares and may postpone
payment for redeemed Fund shares when the NYSE 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 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 $10,000
- --------------------------------------------------------------------------------
-21-
<PAGE>
- --------------------------------------------------------------------------------
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. Similarly effecting
withdrawls of more than 12% per annum of the value of the purchase investment
under a Systematic Withdrawal Plan concurrently with purchase of additional
Class B shares of the Fund could be disadvantageous to a shareholder because of
the CDSC payable on such withdrawals. 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 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 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 registered representatives of Fahnestock or a Selling Dealer.
PERFORMANCE INFORMATION
From time to time the Fund may publish its "total return" for each Class of
shares. Total return figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of a Class refers to
the average annual compounded rates of return over periods of 1, 5, and 10 years
(which periods will be stated in the publication) that would compare the initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment. The calculation assumes the reinvestment of all
dividends and distributions, and reflects all recurring fees that are charged to
all shareholder accounts and nonrecurring charges, if any, including, unless
otherwise stated, maximum applicable initial or contingent deferred sales
charges.
If the total return calculation includes the maximum sales charge of 4.50% or
the maximum CDSC of 5.00%, investment or redemption at a lower sales charge
would increase this performance measure correspondingly. See the information
under the caption "How to Buy Shares" for information on reduced sales charges.
The principal value of an investment will fluctuate so
- --------------------------------------------------------------------------------
-22-
<PAGE>
- --------------------------------------------------------------------------------
that the value of the investment, when redeemed, may be more or less than the
original investment.
OTHER MATTERS
Description of the Fund's Shares. The Fund is the initial (and, to date, the
only) series of shares of beneficial interest of The Fahnestock Funds, a
Massachusetts business trust which was created on August 29, 1990 under the laws
of the Commonwealth of Massachusetts and has an unlimited number of authorized
shares of beneficial interest. The Fund currently offers three classes of
shares--A, B and N. The Classes differ with respect to their sales charges and
other expenses, which may affect their performance. Only shares of Classes A and
B are offered by this prospectus. Investors can obtain information about Class N
Shares or a Class N prospectus by calling Fahnestock at 1-800-800-9141.
All shares have equal voting rights, except as to matters (such as a Plan of
Distribution) that affect only some but not all Classes, or which have different
consequences for different Classes, in which case the matter will be submitted
to a separate vote of each affected Class. All Classes have equal rights to
redemption and liquidation at their respective net asset values, subject to any
applicable CDSC. Dividends may vary as between the classes to the extent that
different expenses are allocated to specific Classes. All shares issued and
outstanding are fully paid and nonassessable by the Fund and the Trust and are
redeemable at net asset value at the option of shareholders, subject to any
applicable CDSC. Shares have no preemptive or conversion rights and are freely
transferable. Certificates for shares will not be issued unless requested in
writing by an investor.
When matters are submitted for shareholder vote, shareholders of each series of
The Fahnestock Funds, including the Fund, will have one vote for each full share
held and proportional, fractional votes for each fractional share held.
Shareholders of all series of The Fahnestock Funds will vote collectively on
certain matters affecting all series, such as the election of Trustees and the
selection of accountants; shareholders of one series are not entitled to vote on
a matter that does not affect that series but that does require a separate vote
of another series, such as a particular series' investment management agreement.
As noted above, different classes will vote separately on matters affecting only
a particular class, or having different effects on different classes. Neither
the Trust nor the Fund intends to hold annual meetings. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of accountants. However, pursuant to the By-Laws of the Trust, the
holders of at least 10 percent of the shares outstanding and entitled to vote
may require a special meeting of shareholders to be held for any purpose,
including removal of a Trustee from office. Shareholders of the Trust may remove
a Trustee by the affirmative vote of a majority of the outstanding voting
shares. In addition, the Board of Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees holding office at that time were elected by
shareholders. The Trustees may call special shareholder meetings of one or more
(including all) series or Classes of shares for such purposes as electing or
removing Trustees, changing fundamental policies or adopting new management
agreements.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. The Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts, obligations or affairs of the
- --------------------------------------------------------------------------------
-23-
<PAGE>
- --------------------------------------------------------------------------------
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 itsobligations.
Transfer Agent. Investors Fiduciary Trust Company, 111 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 or her 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.
- --------------------------------------------------------------------------------
-24-
<PAGE>
================================================================================
Hudson Capital
Appreciation Fund
(A Series of The Fahnestock Funds)
125 Broad Street
New York, New York 10004
Telephone (800) 800-9141
Investment Adviser
Hudson Capital Advisors, Inc.
780 Third Avenue
New York, New York 10017
Principal Distributor
Fahnestock & Co. Inc.
125 Broad Street
New York, New York 10004
Custodian and Transfer Agent
Investors Fiduciary Trust Company
111 West 10th Street
Kansas City, Missouri 64105
1-800-367-0068
Independent Accountants
Coopers & Lybrand L.L.P.
1100 Main Street, Suite 900
Kansas City, Missouri 64105
Legal Counsel
Faith Colish, A Professional Corporation
63 Wall Street
New York, New York 10005
HUDSON CAPITAL
APPRECIATION
FUND
Prospectus Class A Shares
May 1, 1998 Class B Shares
A mutual fund seeking to achieve long-term
growth of capital through investment in equity
securities.
[LOGO OF FAHNESTOCK]
================================================================================
-25-
<PAGE>
- --------------------------------------------------------------------------------
HUDSON CAPITAL CLASS N SHARES
APPRECIATION FUND
(A Series of The Fahnestock Funds)
CLASS N SHARES
125 Broad Street
New York, New York 10004
================================================================================
PROSPECTUS
May 1, 1998
Hudson Capital Appreciation Fund (the "Fund") is the first (and, to date, the
only) series of The Fahnestock Funds, a Massachusetts business trust (the
"Trust"). The Trust is an open-end diversified management investment company
commonly known as a mutual fund. The Fund seeks long term growth through
capital appreciation by investing primarily in equity securities. Current
income is a secondary consideration.
The Fund issues three classes of shares. Class N shares are offered by this
Prospectus and are sold at net asset value without a sales charge. (See "How to
Buy Shares.") They are subject to an ongoing distribution and shareholder
services fee. See "Management of the Fund--How the Fund's Class N Shares are
Distributed."
Class A and Class B Shares of the Fund are offered by a different prospectus.
(See "Other Matters--Description of the Fund's Shares.")
This Prospectus sets forth information about the Fund that an investor in Class
N shares ought to know before investing. It should be read and retained for
future reference.
A Statement of Additional Information dated May 1, 1998 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., 125 Broad Street, New York, NY 10004, 1-
800-800-9141.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPROVED 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 COUNTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Information.......................................... 3
Financial Highlights......................................... 5
Organization of the Fund..................................... 7
Investment Objective, Policies and Risk Considerations....... 7
Management of the Fund....................................... 10
Distributions to Shareholders and Taxation................... 14
Computation of Net Asset Value............................... 15
How to Buy Shares............................................ 16
How to Redeem Shares......................................... 17
Additional Services and Programs............................. 19
Performance Information...................................... 19
Other Matters................................................ 20
</TABLE>
- --------------------------------------------------------------------------------
-2-
<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 N shares of the
Fund, based upon the Fund's projected annual operating expenses.
Shareholder Transaction Expense
- -------------------------------
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as applicable) 0%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) 0%
Redemption Fees (as a percentage of amount redeemed,
if applicable) 0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
Management Fee /1/ 1.00%
12b-1 Fees 0.25%
Other Expenses (After fee waiver/expense reimbursement)/2/ 0.75%
Total Fund Operating Expenses (After fee waiver/expense
reimbursement) 2.00%
</TABLE>
----------------------------------------
/1/ The Investment Management Agreement, as amended effective February 23,
1993, provides for a management fee at a reduced rate of 0.75% per annum
with respect to assets of the Fund in excess of $25,000,000. As of April
23, 1998, the Fund's net assets were approximately $44,000,000.
/2/ "Other Expenses" in the above table include fees for shareholder services,
custodial fees, legal and accounting fees, printing costs and registration
fees and give effect to expense reimbursements that are expected to remain
in effect during the current fiscal year ending December 31, 1998. For a
more detailed description of "Other Expenses," see "Management of the
Fund--The Fund's Expenses."
The purpose of the above table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly. The management fees referred to above and nature of services
provided are more fully explained in this prospectus under the section
"Management of the Fund" and in the Statement of Additional Information under
the caption "Investment Advisory and Other Services."
- --------------------------------------------------------------------------------
-3-
<PAGE>
- --------------------------------------------------------------------------------
Fahnestock & Co., Inc. ("Fahnestock"), the Fund's distributor, has concluded
that the asset-based charges pursuant to Rule 12b-1 are within the guidelines
established by the National Association of Securities Dealers, Inc. ("NASD").
However long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD rules.
Example
- -------
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in Class N shares of the Fund. These amounts assume
reinvestment of all dividends and distributions and payment by the Fund of
operating expenses at the levels set forth in the table above, and are also
based upon the following assumptions:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <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. $20 $63 $108 $233
</TABLE>
------------------------------------------------
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%.
- --------------------------------------------------------------------------------
-4-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--Class A Shares
(for a share outstanding throughout the periods indicated)
The following table has been audited by the Fund's independent accountants,
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 Coopers & Lybrand L.L.P. for the years ended December 31, 1997, 1996, 1995,
1994 and 1993 and by Ernst & Young, LLP for the year ended December 31, 1992 and
for the period March 5, 1991 to December 31, 1991.
<TABLE>
<CAPTION>
March 5, 1991
(Commencement
Class A Shares of Operations)
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993 1992 1991
------------ ------------ ------------ -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 12.99 $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36 $ 10.00
Income from investment
operations:
Net investment income/
(loss) (0.21)** (0.10) (0.03) (0.06) (0.13) (0.05) 0.01
Net realized and
unrealized gains
(losses) on
investments 5.67 4.72 2.09 (1.48) 2.25 1.02 1.74
--------- --------- --------- --------- --------- --------- --------
Total income/(loss)
from investment
operations 5.46 4.62 2.06 (1.54) 2.12 0.97 1.75
Less dividends paid to
shareholders:
Dividends paid from net
realized gains on
investments (2.27) (3.02) (1.62) (1.23) (0.33) (0.40) (0.39)
--------- --------- --------- --------- --------- --------- --------
Net asset value, end of
period $ 16.18 $ 12.99 $ 11.39 $ 10.95 $ 13.72 $ 11.93 $ 11.36
========= ========= ========= ========= ========= ========= ========
Total return 42.88% 40.68% 18.94% (11.22)% 17.77% 8.54% 17.50%
Ratios/Supplemental
Data:
Net assets, end of
period (000) $ 29,325 $ 15,671 $ 12,097 $ 15,874 $ 19,227 $ 16,993 $ 11,987
Ratio of expenses to
average net assets 2.03%+ 2.50%+ 2.50%+ 2.49%+ 2.49%+ 2.50%+ 2.48%*+
Ratio of net investment
income (loss) to
average net assets (1.38%)+ (1.13)%+ (0.16)%+ (0.46)%+ (1.00)%+ (0.48)%+ 0.11%*+
Average commission
rate paid++ $ 0.0600 $ 0.0597 -- -- -- -- --
Portfolio turnover rate 50.46% 85.37% 197.71% 194.55% 154.18% 256.84% 250.85%
- ----------
</TABLE>
* Annualized
** Per share information presented is based on the average number of shares
outstanding.
+ The ratios of expenses and investment income/(loss) (net) to average net
assets are net of expenses voluntarily reimbursed by the Adviser,
Administrator and Distributor in the amount of 1.04%, 1.00%, .92%, .27%,
.25%, 1.10% and .56%, respectively.
++ For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases or
sales of equity securities.
Further information about the Fund's performance is contained in the Fund's
annual report, dated December 31, 1997, which can be obtained free of
charge.
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--Class N Shares
(for a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period Ended
December 31,
1997*
-------------
<S> <C>
Net asset value, beginning of period $ 13.54
Income from investment operations:
Net investment loss (0.18)**
Net realized and unrealized gain on investments 5.59
------------
Total income from investment operations 5.41
Less dividends paid to shareholders:
Dividends paid from net realized gains on investments (2.77)
------------
Net asset value, end of period $ 16.18
============
Total return 37.09%
Ratios/Supplemental Data:
Net assets, end of period (000 omitted) $ 5,846
Ratio of expenses to average net assets 2.00%+***
Ratio of net investment loss to average net assets (1.48%)+***
Average commission rate paid $ 0.0600
Portfolio turnover rate 50.46%
</TABLE>
__________
* Reflects operations from April 17, 1997 (date of initial public offering) to
December 31, 1997.
** Per share information presented is based on the average number of shares
outstanding.
*** Annualized
+ The ratios of expenses and net investment loss to average net assets are
net of expenses voluntarily reimbursed by the Advisor, Administrator and
Distributor in the amount of 1.04%.
Further information about the Fund's performance is contained in the Fund's
annual report, dated December 31, 1997, which can be obtained free of
charge.
- --------------------------------------------------------------------------------
-6-
<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 seeks to achieve its objective by investing primarily in common stocks
and securities convertible into common stock, including warrants. While it is
the intention of Hudson Capital Advisors, Inc. (the "Adviser") for the Fund to
remain "fully invested" in common stocks, there may be occasion where the Fund
may invest up to 100% of its assets in short-term debt securities as a temporary
alternative to equity securities. Such investments may be in United States
Government securities, certificates of deposit of major banks, overnight time
deposits commercial paper rated in the top two ratings of a nationally
recognized statistical rating organization or in a money market fund, including
a money market fund which the Adviser may manage in the future. Since the return
on a money market fund may be less than would be available through a direct
investment in the securities comprising its portfolio and will involve payment
of duplicative management and other fees, such purchases will be made only in
accordance with guidelines established by the Board of Trustees designed to
ensure that purchases of shares of a money market fund will be undertaken only
when it is in the best interest of the Fund and complies with limitations
established by the Investment Company Act of 1940, as amended (the "1940 Act").
In establishing these guidelines, the Trustees will consider whether the Adviser
should be paid a management fee by the Fund with respect to the assets invested
in such money market fund. Investing in such short-term debt securities as a
defensive or temporary investment approach does not constitute a change in the
Fund's investment objective and will be subject to any guidelines which the
Trustees may establish.
In choosing investments for the portfolio, the Adviser uses the following
primary criteria for selection of securities:
1. Earnings growth. The Adviser attempts to identify companies with strong
----------------
fundamentals, a history of profitable operations, and the likelihood of
continued earnings growth. Within this group, the Adviser seeks to invest in
companies showing earnings growth which the Adviser anticipates will be higher
than investors generally expect. Higher earnings could be generated internally
by, for example, a new product, a new service, or a new management with a
dynamic program for growth. Higher earnings could also result from events
external to the company, such as a lowering of the costs of materials important
to its operations or an exceptional increase in demand for its products. Since
factors such as the foregoing sometimes have greater impact on the share prices
of smaller companies, the Adviser will frequently place greater emphasis on the
ownership of such companies. Historically, companies enjoying growth have been
particularly attractive in a cycle
- --------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------
of general market increases, because, in the view of the Adviser, higher than
average earnings often tend to result in higher than average price-earning
ratios during such periods with the likely result of greater appreciation in
prices of the shares of such companies.
In addition to the foregoing considerations, the Adviser will attempt to
identify companies whose stock prices do not adequately reflect underlying
values and growth potential. There can be many reasons why a stock's price is
depressed, such as investor perception about the company's industry or sector
that is not relevant to the particular company, temporary impairment of the
company's financial condition, or short-term earnings disappointments which the
company is taking appropriate steps to address. In each case, the Adviser will
focus on the company's "staying power," the strength of its balance sheet, and
the long-term fundamentals of its industry. Again, this selection process often
leads to small-capitalization companies. Because the marketplace generally
devotes less research and attention to small companies, the Adviser believes
that it is more likely to find underlying values that are not yet recognized.
However, the Fund generally will also hold mid-size and larger-capitalization
companies to balance the somewhat-greater price volatility that may be
experienced by companies with smaller capitalization.
2. Corporate events. In addition to the criteria described above, the Adviser
-----------------
will endeavor to identify companies that are likely to experience changes not
only in material costs, products, markets, management style, or investors'
perception of their value but also in the structure of the company itself, such
as the acquisition of another company, the likelihood that the company itself
will be acquired, the sale or discontinuance of divisions that have failed to
contribute sufficiently (or at all) to earnings, a company's tender offer for
its own stock, a spin-off of part of the company through a distribution of
shares to its shareholders that permits the market to appraise each segment of
the company separately, a sale of assets followed by a distribution of a part or
all of the proceeds to shareholders, or even dissolution of the company followed
by a distribution of assets or proceeds of sale to the shareholders.
Ideally, the Adviser will endeavor to identify companies where all of these
types of change may occur, since such instances may offer more than one
opportunity to realize appreciation.
Foreign Securities
In seeking to achieve its objective, the Fund may, to a minor degree, and in no
event with respect to more than 10% of its assets at the time of purchase,
invest in foreign securities. Foreign securities usually are denominated in
foreign currencies, which means their value will be affected by changes in the
strength of foreign currencies relative to the U.S. dollar, as well as the other
factors that affect security prices. Foreign companies are not subject to
accounting standards or governmental supervision comparable to United States
companies and there often is less publicly available information about their
operations. There generally is less governmental regulation of foreign
securities markets, and security trading practices abroad may offer less
protection to investors such as the Fund. Foreign securities can also be
affected by political or financial instability abroad, and may be less liquid or
more volatile than domestic investments. These investments may be in the form of
American Depositary Receipts, which typically are issued by a U.S. bank or trust
company to evidence ownership of
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
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
as a particular time and price. Because a warrant does not carry with it the
right to dividends or voting rights with respect to the securities which it
entitles a holder to purchase, and because it does not represent any rights in
the assets of the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Lending of Securities
The Fund may lend its portfolio securities to broker-dealers and other financial
institutions pursuant to agreements requiring that the loans be continuously
collateralized by cash, letters of credit or U.S. Government securities of a
value equal to at least the fair market value of the securities loaned. These
loans will not be made if as a result the aggregate of all outstanding loans
exceeds 30 percent of the value of the Fund's total assets taken at current
value.
Other Investment Policies, Restrictions and Risk Considerations
A fundamental policy of management is to spread the Fund's investments among a
number of industry groups without concentration in any particular industry; the
Fund will not purchase a security if 25% or more of its total assets would be
invested in a particular industry.
In order to limit investment risks, portfolio securities are sold when they
reach a predetermined price objective, or when a change in relative valuation
occurs, or when a deterioration in company or industry fundamentals is
anticipated or occurs. In addition, the percentage of the Fund's assets invested
in cash or temporary investments is increased when investment alternatives, such
as U.S. Government securities and money market instruments, including repurchase
agreements, offer better overall returns than equities. When, in the opinion of
the Adviser, current market or economic conditions warrant, the Fund temporarily
may retain cash or invest in preferred stock, nonconvertible bonds or other
fixed-income securities. During those periods the Fund may tend to emphasize
investment in securities of issuers which the Adviser believes offer the
possibility of a corporate event, since changes of this nature can result in
gains even when the overall equity market is weak. Purchases and sales of
securities will be made whenever necessary in the management's view to achieve
the objective of the Fund. It is anticipated that portfolio turnover will
normally not exceed 100% in the future. See page 5 for prior turnover rates. (A
100% rate of portfolio turnover is normally considered to be high.) A high rate
of portfolio turnover will increase the Fund's brokerage expenses and may
increase the amount of taxable short-term gains realized by the Fund.
The Statement of Additional Information contains more information about the
Fund's investment policies and also identifies the restrictions on the
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
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.
Year 2000
The management services provided to the Fund by the Adviser, and the services
provided by Fahnestock and the transfer agent, Investors Fiduciary Trust Company
("IFTC"), to shareholders, depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot distinguish the year
2000 from the year 1900 because of the way dates are encoded and calculated.
That failure could have a negative impact on handling securities trades, pricing
and account services. The Adviser, Fahnestock and IFTC have been actively
working on necessary changes to their computer systems to deal with the year
2000 and expect that their systems will be adapted in time for that event,
although there cannot be assurance of success at this time.
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. 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.
Mr. Gerson uses his familiarity with the market for small-cap securities, as
well as larger companies, in seeking to achieve the Fund's investment objective,
policies and risk considerations.
- --------------------------------------------------------------------------------
-10-
<PAGE>
- --------------------------------------------------------------------------------
Performance information about the Fund from its inception through December 31,
1997 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., 125 Broad Street, New
York, NY 10004, telephone 1-800-800-9141. 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 780 Third Avenue, New York, NY 10017, currently has approximately $63,000,000
in assets under management in its capacity as investment adviser. The Adviser is
a wholly-owned subsidiary of Fahnestock Viner Holdings, Inc., a corporation
organized and existing under the laws of the province of Ontario, Canada, whose
non-voting shares are listed on the New York Stock Exchange and the Toronto
Stock Exchange, and approximately 95% of whose voting securities are held by
officers and directors of Fahnestock Viner Holdings, Inc.
To reduce the potential risk of an adverse effect on the Fund's portfolio,
written policies have been adopted by the Trust, the Fund and the Adviser to
restrict securities trading in personal accounts of the portfolio managers and
other affiliated personnel who normally have access to information on portfolio
transactions for the Fund. These policies are substantially based on the
recommendations of the Investment Company Institute.
How the Fund Receives Administrative Services. The Trust has entered into an
Administration Agreement with Fahnestock pursuant to which Fahnestock provides
certain administrative services to the Fund and its shareholders. Under the
Administration Agreement, Fahnestock provides the Trust and the Fund with office
space, supplies and other facilities required for the business of the Fund.
Fahnestock pays the compensation of all officers and employees of the Trust and
pays the expenses of clerical services related to the administration of the
Trust and the Fund. Fahnestock has entered into a Sub-Administration Agreement
with Federated Services Company (the "Sub-Administrator"), which has extensive
experience in the mutual fund industry, to perform these services. Pursuant to
the Sub-Administration Agreement, Fahnestock is responsible for any fees and
out-of-pocket expenses due to the Sub-Administrator. The Fund pays no
administrative fee to Fahnestock or the Sub-Administrator.
The Fund's Expenses. The Adviser has voluntarily undertaken to limit expenses
applicable to the Class B Shares to 2.5% and to 2.0% with respect to the other
Classes of shares, including Class N shares. If the expenses of a Class exceed
the applicable limit, the Adviser has undertaken to reimburse the Fund for any
such excess amount. The Adviser has undertaken to pay any
- --------------------------------------------------------------------------------
-11-
<PAGE>
- --------------------------------------------------------------------------------
reimbursements on the same schedule as the Fund is required to pay the advisory
fee, provided that if, at the end of the fiscal year, Class expenses do not
exceed the applicable annual expense limits, the Fund will reimburse the Adviser
for monies paid by the Adviser during the course of the fiscal year. This is a
voluntary undertaking on the part of the Adviser, which reserves the right to
modify or withdraw it with respect to any Class at any time without notice. The
expenses of printing prospectuses used in selling Fund shares and other sales
literature, as well as certain other sales-related charges, all of which may be
eligible for reimbursement under the Fund's 12b-1 Plan, are borne by
Fahnestock.
All expenses which are not specifically undertaken to be paid by the Adviser or
Fahnestock and which are incurred in the operation of the Fund (including fees
of Trustees of the Trust who are not "interested persons," as such term is
defined in the 1940 Act) and the continuous public offering of the shares of the
Fund are borne by the Fund, including the cost of printing and engraving share
certificates, the expenses relating to the determination of the net asset value
of shares of the Fund, the expenses of the continuing registration and
qualification of shares for sale, the cost of prospectuses distributed to
shareholders, the charges for custodians, transfer agents, registrars and other
agents, and auditing and legal expenses.
At present, the only expenses that are allocated specifically to one or more
Classes are expenses under the Distribution Plans. However, the Trustees reserve
the right to allocate certain other expenses ("Class Expenses") to specific
Classes as they deem appropriate. In any case, Class Expenses would be limited
to distribution fees, shareholder servicing fees, transfer agency fees
identified by the Transfer Agent as attributable specifically to holders of
particular Classes of shares; printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectus and proxy
materials to current shareholders; registration and notice 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, which is also the Distributor of shares of
the Fund, may serve as the Fund's broker in effecting portfolio transactions on
national securities exchanges and retain commissions in accordance with certain
regulations of the Securities and Exchange Commission, including Rule 17e-1
under the 1940 Act. In addition, the Adviser may select broker-dealers that
provide it with research services and may cause the Fund to pay these broker-
dealers commissions that exceed those that other broker-dealers may have
charged, if it views the commissions as reasonable in relation to the value of
the brokerage and/or research services received consistent with best execution.
Consistent with the foregoing primary consideration, the Rules of the National
Association of
- --------------------------------------------------------------------------------
-12-
<PAGE>
- --------------------------------------------------------------------------------
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 has entered 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 and may enter into such agreements with other
Selling Dealers in the future.
The Fund is a series of The Fahnestock Funds, which has adopted plans of
distribution ("Plans") pursuant to Rule 12b-1 under the 1940 Act, under which it
may reimburse Fahnestock for the expenses Fahnestock bears in distributing
shares of a particular Class of the Fund or providing for services to
shareholders of that Class. Under the Plan for Class N shares the Fund may pay
Fahnestock a fee at the maximum annual rate of 0.25 percent of the average daily
net asset value of the Class to reimburse Fahnestock for its expenses in
distributing Class N shares or providing personal service to Class N
shareholders or the maintenance of Class N shareholder accounts, or for payments
by Fahnestock to others for such activities.
Expenses incurred by Fahnestock during a year may exceed the amount available
for reimbursement under a Distribution Plan. Such excess expenses may be carried
forward and sought to be reimbursed in future years. Interest at the prevailing
broker loan rate may be charged to the Fund on any expenses carried forward. At
the date of this Prospectus, no excess expenses are being carried forward under
any Plan.
Expenses incurred in connection with 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 separately by 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 that 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.
- --------------------------------------------------------------------------------
-13-
<PAGE>
- --------------------------------------------------------------------------------
Fahnestock, a New York corporation, is a wholly-owned subsidiary of Fahnestock
Viner Holdings, Inc. and has its principal office at 125 Broad Street, New York,
NY 10004. 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 and Chief Executive 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 Chief Financial Officer of Fahnestock.
Transfer and Dividend Agent. Investors Fiduciary Trust Company, located at 111
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 calendar year, so long
as the dividends are paid before February 1 of the following year.
Federal Taxes. The Fund has qualified as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code") and intends to continue
to so qualify in the future. As such, and by complying with the applicable
provisions of the Code, the Fund will not be subject to Federal income tax on
taxable income (including realized capital gains) which is distributed to
shareholders.
Distributions from the Fund representing net investment income and any net
short-term capital gains, as computed for Federal income tax
- --------------------------------------------------------------------------------
-14-
<PAGE>
- --------------------------------------------------------------------------------
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. Mid-term and long-term capital gains of
individuals are taxed at a maximum rate of 28% and 20%, respectively, rather
than the maximum rate applicable to ordinary income for individuals (currently
39.6%). 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 calendar 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 U.S. 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
- --------------------------------------------------------------------------------
-15-
<PAGE>
- --------------------------------------------------------------------------------
valued at fair value as determined in good faith by the Trustees.
Foreign securities are valued at the last sale price on the principal exchange
or in the principal over-the-counter market in which such securities are traded,
as of the close of regular trading on the NYSE on the day the securities are
being valued or, if there are no sales, at the last available bid price on that
day. If the Adviser believes that the price of a security obtained by this
method does not represent the amount that the Adviser reasonably expects to
receive on a current sale of the security, the security is valued at fair value
as determined in good faith by the Trustees.
HOW TO BUY SHARES
General
Investors may buy Class N shares of the Fund through representatives of
Fahnestock or the Selling Dealers. Investors may be charged a fee if they
purchase Class N shares through a broker or agent. Each initial order is
reviewed when it is received by Fahnestock or a Selling Dealer and, if it is
accompanied by all appropriate information or is 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 $50 or
more as the shareholder elects. (These minimums do not apply to retirement plans
or investments made through the Systematic Investment Plan. See "Retirement
Plans" and "Systematic Investment" below.)
The offering price of Class N shares will be the net asset value per share next
determined after acceptance of the purchase order.
Retirement Plans. Investors may use the Fund as a funding medium for various
types of qualified retirement plans, such as Individual Retirement Accounts,
including ROTH IRAs and Education IRAs, Keogh Plans (H.R. 10), Pension and
Profit Sharing Plans, Tax Sheltered Annuity Retirement Plans, and 401(k) Plans.
The initial investment minimum for these retirement plans is $1,000 except that
the initial investment minimum for Education IRAs is $500. Thereafter, the
minimum additional investment is $50. 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.
Systematic Investment. The Fund offers a Systematic Investment Plan under which
the Fund's transfer agent, Investors Fiduciary Trust Company (IFTC), is
permitted through the Automated Clearing House to charge a shareholder's regular
bank account on a regular, predetermined basis to transfer systematic additions
to the shareholder's Fund account. The initial minimum investment for a
Systematic Investment Plan is $100 and each subsequent transfer must be at least
$50 on a monthly or quarterly basis. While there is no charge to shareholders
for this service, a charge of $10 will be deducted from a shareholder's Fund
account if a systematic withdrawal is rejected by the bank for insufficient
funds. (This charge will be waived for Retirement Plan accounts.) A
shareholder's Systematic Investment Plan may be terminated at any time without
charge or penalty by the shareholder, the Fund, IFTC or Fahnestock. Further
information about the Systematic Investment Plan may be obtained through any
Fahnestock account representative or any other broker who offers the Fund's
shares.
- --------------------------------------------------------------------------------
-16-
<PAGE>
- --------------------------------------------------------------------------------
Purchases Through Processing Organizations. Investors may also be able to
purchase Class N shares through brokers and other financial intermediaries which
make shares of the Fund and other mutual funds available to their customers
without the payment of transaction fees for purchases and redemptions. Other
financial intermediaries (together with the former institutions, "Processing
Organizations") may impose certain conditions on their clients or customers that
invest in Class N shares, which are in addition to or different from those
described in this Prospectus, and may charge their clients or customers direct
fees. Processing Organizations may modify or waive certain features of the Fund,
such as the initial and subsequent investment minimums, and may impose
transaction or administrative charges or other direct fees which would not be
imposed on purchases directly through Fahnestock. Accordingly, a client or
customer of a Processing Organization should read this Prospectus in light
of the terms of the client's or customer's account with the Processing
Organization. Processing Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Funds in
accordance with their agreements with clients or customers. Processing
Organizations that have entered into agreements with the Fund or Fahnestock may
enter confirmed purchase orders on behalf of clients and customers, with payment
to follow not later than the Fund's pricing of Class N shares on the following
business day. If payment is not received by such time, the Processing
Organization could be held liable for resulting fees or losses.
Pursuant to its distribution plan for Class N shares, the Fund may, through
Fahnestock, pay Processing Organizations with whom it or Fahnestock has entered
into agreements a service fee, for administration, subaccounting and/or other
shareholder services (for a fuller description of such services, see
"Distribution Agreement and Plans" in the Statement of Additional Information),
generally up to .25% of the average annual value of accounts maintained by such
Processing Organizations. Fahnestock may supplement such service fees from its
own resources. The aggregate service fee payable to any one Processing
Organization will be determined based upon a number of factors, including the
nature and quality of the services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Processing Organization. Servicing arrangements between the Fund or Fahnestock
and a Processing Organization may provide for processing of purchases and
redemptions by telephone and wire transfer.
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 of Class N shares will be
made at the net asset value next determined after receipt of any such order by
Fahnestock or the Selling Dealer. Certificates, if any, in proper form for
redemption or any required stock powers should be presented or sent to
Fahnestock or your Selling Dealer no later than the close of business of the day
on which the redemption order is placed. Investors may be charged a fee if they
redeem Class N shares through a broker or agent.
- --------------------------------------------------------------------------------
-17-
<PAGE>
- --------------------------------------------------------------------------------
Written Request. Any shareholder of record may require the Fund to redeem his or
her shares by making written application to IFTC. Such application must be
signed by the shareholder as his name appears on the records of the Fund and
must be accompanied by any share certificates issued for shares being redeemed
or a stock power if no such certificates were issued. A stock power is a written
instrument executed by a shareholder in order to facilitate the legal transfer
of shares of the Fund. Share certificates must be duly endorsed for transfer.
Signatures on share certificates and stock powers must be guaranteed, except
that (subject to the restriction in the next sentence) a signature guarantee
will not be required for a redemption of less than $5,000 where the redemption
proceeds are sent to a shareholder of record at the shareholder's address of
record. A redemption request must be accompanied by a signature guarantee if the
shareholder's address of record has changed within the past 30 days. A signature
guarantee is a widely accepted way to protect you and IFTC by verifying the
signature on your request. The following institutions may provide you with an
acceptable signature guarantee: a U.S. bank, trust company, credit union or
savings association, a foreign bank that has a New York correspondent bank
(which correspondent bank must be named by the guarantor), a U.S. registered
securities broker or dealer (including a broker or dealer in municipal
securities or U.S. government securities), a U.S. national securities exchange,
a registered securities association or a clearing agency. A notary public is not
an acceptable signature guarantor. Redemptions will be effected at the net asset
value next determined after receipt by IFTC of such application and certificates
or stock powers, if any, in proper form for redemption.
Redemption by Telephone. Class N Shares that are not represented by share
certificates may also be redeemed by telephone by calling 1-800-367-0068. To
redeem Class N Shares by telephone, a shareholder must have completed and
returned to IFTC an account application electing the telephone redemption
privilege. A shareholder should be aware that redemption by telephone may
involve giving up a measure of security that is provided by written redemptions.
Neither the Fund, Fahnestock nor IFTC will be liable for following redemption
instructions received by telephone that it reasonably believes to be genuine;
reasonable procedures will be employed to confirm the genuineness of such
instructions, including the requesting of specific personal information from the
caller and the provision of written confirmation of telephone transactions.
Telephone calls requesting redemptions may also be recorded. Proceeds of
telephone redemptions will be sent only to the shareholder's address of record,
and telephone redemption is not available to a shareholder whose address of
record has changed within the past 30 days. During periods of unusual economic
or market activity, it may be difficult to effect redemptions by telephone; if a
shareholder is unable to contact IFTC by telephone, the redemption request may
be effected in writing.
General. Payment for shares redeemed will ordinarily be made on the next
business day after the redemption is effected. However, the Fund reserves the
right to pay redemption proceeds within seven days after the order is effected
if, in its judgment, immediate payment would adversely affect the Fund. In
addition, at various times the Trust may be requested to redeem Fund shares for
which it has not yet received good payment. Accordingly, the Trust may delay the
mailing of a redemption draft for up to 10 business days from
- --------------------------------------------------------------------------------
-18-
<PAGE>
- --------------------------------------------------------------------------------
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 NYSE 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 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 $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 registered representatives 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,
- --------------------------------------------------------------------------------
-19-
<PAGE>
- --------------------------------------------------------------------------------
if any, including, unless otherwise stated, maximum applicable initial or
contingent deferred sales charges.
The principal value of an investment will fluctuate so that the value of the
investment, when redeemed, may be more or less than the original investment.
OTHER MATTERS
Description of the Fund's Shares. The Fund is the initial (and, to date, the
only) series of shares of beneficial interest of The Fahnestock Funds, a
Massachusetts business trust which was created on August 29, 1990 under the laws
of the Commonwealth of Massachusetts and has an unlimited number of authorized
shares of beneficial interest. The Fund currently offers three classes of
shares--A, B and N. The Classes differ with respect to their sales charges and
other expenses, which may affect their performance. Only Class N shares are
offered by this prospectus. Investors can obtain information about Class A and
Class B Shares or a Class A and B prospectus describing those classes by calling
Fahnestock at 1-800-800-9141.
All shares have equal voting rights, except as to matters (such as a Plan of
Distribution) that affect only some but not all Classes, or which have different
consequences for different Classes, in which case the matter will be submitted
to a separate vote of each affected Class. All Classes have equal rights to
redemption and liquidation at their respective net asset values, subject to any
applicable CDSC. Dividends may vary as between the classes to the extent that
different expenses are allocated to specific Classes. All shares issued and
outstanding are fully paid and nonassessable by the Fund and the Trust and are
redeemable at net asset value at the option of shareholders, subject to any
applicable CDSC. Shares have no preemptive or conversion rights and are freely
transferable. Certificates for shares will not be issued unless requested in
writing by an investor.
When matters are submitted for shareholder vote, shareholders of each series of
The Fahnestock Funds, including the Fund, will have one vote for each full share
held and proportional, fractional votes for each fractional share held.
Shareholders of all series of The Fahnestock Funds will vote collectively on
certain matters affecting all series, such as the election of Trustees and the
selection of accountants; shareholders of one series are not entitled to vote on
a matter that does not affect that series but that does require a separate vote
of another series, such as a particular series" investment management agreement.
As noted above, different classes will vote separately on matters affecting only
a particular class, or having different effects on different classes. Neither
the Trust nor the Fund intends to hold annual meetings. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of accountants. However, pursuant to the By-Laws of the Trust, the
holders of at least 10 percent of the shares outstanding and entitled to vote
may require a special meeting of shareholders to be held for any purpose,
including removal of a Trustee from office. Shareholders of the Trust may remove
a Trustee by the affirmative vote of a majority of the outstanding voting
shares. In addition, the Board of Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees holding office at that time were elected by
shareholders. The Trustees may call special shareholder meetings of one or more
(including all) series or Classes of shares for such purposes as electing or
removing Trustees, changing
- --------------------------------------------------------------------------------
-20-
<PAGE>
- --------------------------------------------------------------------------------
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 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, 111 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 or her 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.
- --------------------------------------------------------------------------------
-21-
<PAGE>
================================================================================
Hudson Capital
Appreciation Fund
(A Series of The Fahnestock Funds)
125 Broad Street
New York, New York 10004
Telephone (800) 800-9141
Investment Adviser
Hudson Capital Advisors, Inc.
780 Third Avenue
New York, New York 10017
Principal Distributor
Fahnestock & Co. Inc.
125 Broad Street
New York, New York 10004
Custodian and Transfer Agent
Investors Fiduciary Trust Company
111 West 10th Street
Kansas City, Missouri 64105
1-800-367-0068
Independent Accountants
Coopers & Lybrand L.L.P.
1100 Main Street, Suite 900
Kansas City, Missouri 64105
Legal Counsel
Faith Colish, A Professional Corporation
63 Wall Street
New York, New York 10005
HUDSON CAPITAL
APPRECIATION
FUND
Prospectus Class N Shares
May 1, 1998
A mutual fund seeking to achieve long-term
growth of capital through investment
in equity securities.
[LOGO OF FAHNESTOCK]
================================================================================
-22-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED May 1, 1998
- --------------------------------------------------------------------------------
HUDSON CAPITAL
APPRECIATION FUND
(A Series of The Fahnestock Funds)
Class A Shares
Class B Shares
Class N Shares
125 Broad Street
New York, New York 10004
==============================================================================
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 May 1, 1998. (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.
Investment Adviser: Distributor:
- ------------------- ------------
Hudson Capital Advisors, Inc. Fahnestock & Co., Inc.
780 Third Avenue 125 Broad Street
New York, New York 10017 New York, New York 10004
Telephone: 1-212-644-3200 Telephone: 1-800-800-9141
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Statement Cross-Referenced to
of Additional Captions in Prospectus
Information Class A/B Class N
Page Page Page
------------- ----------------------- -----------------
<S> <C> <C> <C>
Organization of the Fund....................... 3 7 6
Investment Objective and Policies.............. 3 7 6
Investment Restrictions........................ 4 9 8
Management of the Fund......................... 5 10 9
Investment Advisory and Other Services......... 7 9 9
Distribution Agreement and Plans............... 8 12 12
Methods of Obtaining Reduced Sales Charges on
Class A Shares................................. 10 15 --
Special Redemptions............................ 11 18 16
Additional Services and Programs............... 11 20 18
Taxes.......................................... 12 14 13
Taxation of Fund Investments................... 13 14 13
Calculation of Performance..................... 14 20 18
Portfolio Transactions and Brokerage........... 14 11 11
Custody of Portfolio........................... 15 22 20
Independent Accountants and Counsel............ 15 5 5
Financial Statements........................... 16 5 5
</TABLE>
- --------------------------------------------------------------------------------
-2-
<PAGE>
- --------------------------------------------------------------------------------
ORGANIZATION OF THE FUND
Hudson Capital Appreciation Fund (the "Fund") is the first (and, to date, the
only) series of the shares of beneficial interest of The Fahnestock Funds, a
diversified open-end management investment company organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts. The Trust
was created under the laws of Massachusetts on August 29, 1990.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to achieve long-term growth through
capital appreciation by investing primarily in equity securities. Current income
is a secondary consideration.
The types of securities the Fund invests in are more fully described in the
Prospectus. This section contains supplemental information concerning the types
of securities and other instruments in which the Fund may invest, the investment
policies and portfolio strategies that the Fund may utilize and certain risks
associated with those investments, policies and strategies.
ADDITIONAL INFORMATION ON
INVESTMENT PRACTICES
U.S. Government Securities
Examples of the types of U.S. Government securities that the Fund may hold
include, in addition to those described in the Prospectus, U.S. Treasury Bills,
the obligations of the Federal Housing Administration, Farmers Home
Administration, Small Business Administration, General Services Administration,
Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks and the Maritime Administration.
Lending of Securities
The Fund has the authority to lend securities to brokers, dealers and other
financial organizations. The Fund will not lend securities to the Adviser,
Fahnestock or their affiliates. By lending its securities, the Fund can increase
its income by continuing to receive interest on the loaned securities as well as
by either investing the cash collateral in short term securities or obtaining
yield in the form of interest paid by the borrower when U.S. Government
securities are used as collateral. The Fund will adhere to the following
conditions whenever its securities are loaned: (a) the Fund must receive at
least 100 percent cash collateral or equivalent securities from the borrower;
(b) the borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(c) the Fund must be able to terminate the loan at any time; (d) the Fund must
receive reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities and any increase in market value;
(e) the Fund may pay only reasonable custodian fees in connection with the loan;
and (f) voting rights on the loaned securities may pass to the borrower;
provided, however, that if a material event adversely affecting the investment
occurs, the Board of Trustees must terminate the loan and regain the right to
vote the securities.
Purchases and sales of securities will be made whenever necessary in the
management's view to achieve the objectives of the Fund. The Adviser expects
that the Fund, in pursuing its objectives, will experience portfolio turnover of
not in excess of 100% and intends to keep turnover to a
- --------------------------------------------------------------------------------
-3-
<PAGE>
- --------------------------------------------------------------------------------
minimum consistent with such objectives. The Adviser believes that unsettled
market and economic conditions during certain periods may require greater
portfolio turnover in pursuing the Fund's objectives than would otherwise be the
case.
The Fund's portfolio turnover rates for the fiscal years ended December 31, 1996
and 1997 were 85.37% and 50.46%, respectively. The difference in rates for the
two years is primarily due to the differing investment approaches and strategies
of the Fund's current portfolio manager, who began managing the Fund's portfolio
late in 1995, and his predecessor. The investment objectives of the Fund as
stated above and the following investment restrictions will not be changed
without approval of a majority of outstanding voting securities of the Fund,
which, as used in the Prospectus and under the Investment Company Act of 1940,
as amended ("1940 Act"), 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)
331/3% 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.
- --------------------------------------------------------------------------------
-4-
<PAGE>
- --------------------------------------------------------------------------------
(8) Invest more than 10% of the Fund's total assets in the securities of other
investment companies. (The 1940 Act provides additional limitations on
investment in securities of investment companies.)
(9) Invest in oil, gas or other mineral exploration or development programs,
except that the Fund may invest in the securities of companies that invest in or
sponsor those programs.
(10) Purchase or retain securities of any issuer if those officers and trustees
of the Fund or the officers and directors of its investment adviser owning
individually more than one-half of one percent of the securities of such issuer,
together own more than 5% of such issuer, or purchase from or sell to any of its
officers and trustees or investment adviser, its principal distributor of the
officers and directors of its investment adviser or principal distributor,
portfolio securities of the Fund.
(11) Purchase restricted securities which are subject to legal or contractual
delays in or restriction on resale if as a result more than 5% in market value
of the assets of the Fund would be invested in such securities. (The Fund does
not intend to acquire securities which are illiquid at the time of purchase.)
The percentage limitations contained in the restrictions listed above apply at
the time of purchases of securities. If a percentage restriction is adhered to
at the time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a violation of
such restriction.
MANAGEMENT OF THE FUND
The business of the Fund is managed by its Trustees. They elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers of the Fund and Trustees of
the Trust are also officers and directors of the Fund's investment adviser,
Hudson Capital Advisors, Inc. ("the Adviser"), or officers and directors of the
Fund's principal distributor, Fahnestock & Co., Inc. ("Fahnestock").
The names and ages of the Trustees and officers of the Fund and their principal
occupations for the past five years follows. An asterisk (*) indicates Trustees
who are "interested persons" of the Fund (as defined by the 1940 Act). Unless
otherwise indicated, the address of each Trustee and officer is 110 Wall Street,
New York, New York 10005.
Name, Address and Age Position with the Fund and Principal Occupation during
the Past 5 Years
Albert G. Lowenthal, 53* Trustee, Chairman of the Board and Chief Executive
Officer of the Fund. Mr. Lowenthal is Chairman of the
Board, and Chief Executive 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, President of Pace Securities,
Inc., a broker-dealer, and is President, Director and
a Principal of the Adviser.
(list continued on next page)
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
(list continued on previous page)
Name, Address and Age Position with the Fund and Principal Occupation during
the Past 5 Years
Michael Mendelson, 56* 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.
Keith Gunzenhauser, 64 Trustee. Mr. Gunzenhauser is retired. He was formerly
2649 360th Street Executive Vice President--Finance and Chief
Van Meter, IA 50261 Investment Officer, Central Life Assurance Company
(Des Moines, IA).
Richard E. Landau, 54 Trustee. Mr. Landau is a private investor.
4490 Riverwatch Drive
#201 Bonita Bay
Bonita Springs, FL 33923
James D. McQuaid, 60 Trustee. Mr. McQuaid is a consultant and was formerly
c/o Metromail Corp. the Chief Executive Officer of Metromail Corporation
360 E. 22nd Street (Chicago, IL), a direct mail company. He is also a
Lombard, IL 60148 stockbroker at of MFM Asset Management; a broker-
dealer.
James D. Gerson, 54 Senior Vice President and Portfolio Manager of the
Fund. Mr. Gerson is also Senior Vice President of
Fahnestock and of the Adviser, since October 1, 1995.
Previously he was Equity Research Analyst with
Fahnestock (October 1994-September 1995) and Senior
Vice President and Managing Director of Fahnestock's
Corporate Finance Department (April 1993-October
1994).
Richard Wohlman, 53 Treasurer. Mr. Wohlman is Chief Financial Officer of
Fahnestock.
Russell L. Pollack, 44 Secretary. Mr. Pollack has been Benefits Director and
Manager-Corporate Tax of Fahnestock since 1989.
*Messrs. Lowenthal and Mendelson are "interested persons" of the Fund, as
defined in the 1940 Act.
As of the close of business on April 16, 1998, the trustees and officers of the
Trust beneficially owned as a group 3.8% of the outstanding shares of Hudson
Capital Appreciation Fund. Neither the Trust nor management of the Trust is
aware of any shareholder who beneficially owned 5% or more of the Fund's shares
as of that date.
Officers and Trustees of the Trust who are also officers or employees of
Fahnestock or the Adviser receive no remuneration from the Trust. Each other
Trustee receives an annual fee of $3,000 in addition to a fee of $750 for each
Board meeting attended, and is reimbursed for travel and out-of-pocket expenses.
For the fiscal
- --------------------------------------------------------------------------------
-6-
<PAGE>
- --------------------------------------------------------------------------------
year ended December 31, 1997, each Trustee who is not an officer
or employee of Fahnestock or the Adviser was paid a Trustee fee of $6,000.
The Trust has no bonus, profit sharing, pension or retirement plans.
INVESTMENT ADVISORY AND OTHER
SERVICES
As described in the Fund's Prospectus under the caption "How the Fund Receives
Investment Advice," the Fund has entered into an investment management agreement
with the Adviser (the "Management Agreement"), under which the Adviser provides
the Fund with a continuous investment program, consistent with the Fund's stated
investment objective and policies. The Adviser is responsible for the management
of the Fund's portfolio assets.
No person other than the Adviser and its directors and employees regularly
furnishes advice to the Fund with respect to the desirability of the Fund's
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical information, and information regarding general economic
factors and trends, from Fahnestock.
Under the terms of the Management Agreement between the Trust and the Adviser
and the Administration Agreement between the Trust and Fahnestock, the Adviser
and Fahnestock provide the Fund with office space, supplies and other facilities
required for the business of the Fund. The Adviser and Fahnestock pay the
compensation of all officers and employees of the Trust and the Fund and pay the
expenses of clerical services relating to the administration of the Trust and
the Fund.
As discussed in the Prospectus and as provided in the Management Agreement, the
Fund pays the Adviser an investment management fee, which is accrued daily and
is paid quarterly, that is approximately equal, on an annual basis, to 1.00% of
the average of the daily net assets of the Fund up to $25 million and 0.75% of
annual average net assets in excess of $25 million.
For the fiscal year ended December 31, 1995, the Fund incurred investment
management fees of $143,793. The Adviser waived $132,225 of the investment
management fee.
For the fiscal year ended December 31, 1996, the Fund incurred investment
management fees of $133,239. The Adviser waived all of the investment management
fee.
For the fiscal year ended December 31, 1997, the Fund incurred investment
management fees of $252,355. The Adviser waived all of the investment management
fee and reimbursed the Fund $11,496 for operating expenses.
From time to time the Adviser, in its sole discretion and as it deems
appropriate, may assume certain expenses of the Fund while retaining the ability
to be reimbursed by the Fund for such amounts prior to the end of the fiscal
year. This will have the effect of lowering the Fund's overall expense ratio and
of increasing yield to investors, or the converse, at the time such amounts are
assumed or reimbursed as the case may be. The Adviser will not be reimbursed 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
- --------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------
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 1940 Act.
Under the Management Agreement, the Fund may use the name "Hudson" or any name
derived from or similar to it only for so long as the Agreement or any
extension, renewal or amendment thereof remains in effect. If the Management
Agreement is no longer in effect with respect to the Fund, the Fund (to the
extent that it lawfully can) will cease to use such a name or any other name
indicating that it is advised by or otherwise connected with the Adviser. In
addition, Fahnestock may grant the nonexclusive right to use the name Fahnestock
or any similar name to any other corporation or entity, including but not
limited to any investment company of which Fahnestock or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the distributor or the investment adviser.
DISTRIBUTION AGREEMENT AND PLANS
The Board of Trustees has adopted Plans of Distribution (the "Plans") pursuant
to Rule 12b-1 under the 1940 Act and has approved a distribution agreement (the
"Distribution Agreement") under which Fahnestock serves as distributor of shares
of the Fund. Under the Distribution Agreement, Fahnestock is obligated to use
its best efforts to sell shares on behalf of the Fund. Fahnestock accepts orders
for the purchase of shares of the Fund which are continually offered at net
asset value next determined plus any applicable sales charge. Fahnestock is
authorized to receive compensation in the form of a sales charge in connection
with the sale of Class A Shares of the Fund and certain redemptions of Class A
and Class B Shares. These charges are listed in the Fund's Prospectus for Class
A and Class B Shares. Fahnestock has entered into selling agreements with
selected broker-dealers who agree to sell shares of the Fund and may enter into
agreements with other selected broker-dealers.
Expenses incurred by Fahnestock during a year may exceed the amount available
for reimbursement under a Plan. Such excess expenses may be carried forward and
sought to be reimbursed in future years. Interest at the prevailing broker loan
rate may be charged to the Fund on any expenses carried forward. These expenses
and interest will be reflected as current expenses on the Fund's statement of
operations for the year in which these amounts become accounting liabilities,
which is expected to be the year in which they are actually paid. Although the
Board of Trustees may change this policy, payments under the Plans currently are
applied first to distribution expenses incurred in the current year and then, up
to the maximum amount permitted under the Plans, to previously incurred but
unreimbursed expenses carried forward and interest thereon. Fahnestock has
acknowledged that payments under each Plan are subject to the approval of the
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
Board of Trustees and that the Fund is not contractually obligated to make
payments in any amount at any time, including those in reimbursement of
Fahnestock, for expenses and interest thereon incurred in a prior year.
Under their terms, the Plans remain in effect so long as their continuance is
approved at least annually by a vote of the Board of Trustees, including a
majority of the Trustees who have no direct or indirect financial interest in
the operation of the Plans or the Distribution Agreement (the "Qualified
Trustees"). No Plan may be amended to increase materially the amount to be spent
under the Plan without approval of the affected Class of shareholders, and all
material amendments of a Plan must also be approved by the Qualified Trustees in
the manner described above. A Plan may be terminated at any time, without
penalty, by vote of a majority of the Qualified Trustees or by a vote of a
majority of the outstanding shares of the Class affected. Each Plan requires
that Fahnestock provide the Board of Trustees quarterly written reports of
amounts spent under the Plan and the purposes for which such expenditures were
made.
Each of the Plans provides for reimbursement of distribution expenses incurred
by Fahnestock with respect to the applicable Class of shares, including, but not
limited to, (a) continuing compensation to Fahnestock's account representatives
and others who engage in or support distribution of shares of the Class; (b)
payments to persons who service shareholder accounts of the Class, including,
but not limited to, answering routine inquiries regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's transfer agent; (c) costs relating to the
formation and implementation of marketing and promotional activities, including,
but not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising; (d) costs of printing and
distributing prospectuses, statements of additional information and annual or
semi-annual reports of the Fund to prospective investors in the Class; (e) costs
involved in preparing, printing and distributing sales literature pertaining to
shares of the Class; and (f) costs involved in obtaining whatever information
analyses and reports with respect to marketing and promotional activities that
the Fund may, from time to time, deem advisable. The Class B and Class N Plans
also provide for reimbursement of shareholder service expenses, a separate
category of expenses described as payments to broker-dealers and other persons
and organizations pursuant to arrangements whereby such persons provide various
shareholder services to holders of Class B or Class N shares, as the case may
be, including but not limited to answering inquiries regarding the Fund;
assistance in changing dividend options, account designations and addresses;
performance of subaccounting; establishment and maintenance of shareholder
accounts and records; assistance in processing purchase and redemption
transactions; providing periodic statements showing a Class B or Class N
shareholder's account balance; and the integration of such statements with those
of other transactions and balances in the shareholder's other accounts serviced
by such person. The Plan for Class N shares also contains a "defensive"
provision, which provides, in effect, that if payments out of its own resources
by Fahnestock or the Fund's investment adviser for distribution or shareholder
services are deemed to represent indirect payments by the Fund that are
primarily intended to result in sales of Class N shares, such indirect payments
are authorized by the Plan.
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
In considering the adoption of each Plan, the Board of Trustees considered a
variety of factors and was advised by counsel to the Fund (who is not counsel to
Fahnestock or Hudson). The Board considered the factors suggested in the public
releases issued by the SEC in connection with the proposal and adoption of Rule
12b-1, and concluded, in the exercise of their business judgment and in light of
their fiduciary duties under state law and the Act, that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
For the year ended December 31, 1997 the Fund reimbursed distribution expenses,
attributable to Class A Shares, in the amount of $121,419, of which $53,140 and
$68,279, respectively, were spent for sales force trailer commissions and
marketing, leaving $19,716 for future expenses. For the same period there were
no distribution or shareholder services expenses reimbursed from the Class B or
Class N plans; $6,411 and $4,728, respectively, remained available for future
expenses.
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 or her spouse and
their children under the age of 21, purchasing securities for his, her, or their
own account, (b) a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account and (c) certain groups of four or more
individuals making use of salary deductions or similar group methods of payment
whose funds are combined for the purchase of mutual fund shares. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from a representative of Fahnestock or Selling
Dealer.
Sales to Persons Affiliated With the Fund
Class A Shares of the Fund may be sold without a sales charge to officers of the
Fund and Trustees of the Trust, and directors or officers of the Adviser,
Fahnestock, Fahnestock Viner Holdings, Inc. or Selling Dealers or affiliates of
any of them, or to the bona fide, full-time employees and their relatives,
retired employees, or sales representatives of any of the foregoing who have
acted as such for not less than 90 days, or to any trust, pension, profit-
sharing or other benefit plan for such persons. Such sales will be made only
upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the shares will not be resold except through
redemption by the issuer. Such sales are made without a sales load to promote
good will with employees and others with whom the Trust has business
relationships and because the sales effort, if any, involved in making such
sales is negligible. Such sales may be registered solely in the name of the
eligible party or in the names of the eligible party and his or her immediate
family members.
Accumulation Privilege
An investor (including investors combining purchases) who is already a
shareholder may also obtain the benefit of a reduced sales charge by taking into
account not only the money then being
- --------------------------------------------------------------------------------
-10-
<PAGE>
- --------------------------------------------------------------------------------
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 1940 Act, as amended. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the lesser of
$250,000 or 1% of the Fund's net assets at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Systematic Withdrawal Plan
As described briefly in the Fund's Prospectus, the Fund permits the
establishment of a Systematic Withdrawal Plan. Payments under this Plan
represent proceeds arising from the redemption of Fund shares. Since the
redemption price of the shares of the Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
Plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with the purchases of additional shares of the Fund could be
disadvantageous to a shareholder because of the sales charge payable on such
purchases and because redemptions are taxable events. Therefore, a shareholder
will not be permitted to purchase Class A Shares of the Fund (except for
investments of $5,000 or more) at the same time as a Systematic Withdrawal Plan
is in effect. Similarly, effecting withdrawals of more than 12% per annum of the
value of the purchase investment under a Systematic Withdrawal Plan,
concurrently with the purchases of additional Class B Shares of the Fund, could
be disadvantageous to a shareholder because of the CDSC payable on such
withdrawals. 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
- --------------------------------------------------------------------------------
-11-
<PAGE>
- --------------------------------------------------------------------------------
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.
Among other requirements, to qualify as a regulated investment company, 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 Fund does
not expect this test to have a significant effect on its investment policy.
Taxation of Shareholders
Long term capital gains are taxed at a maximum rate of 20% 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
- --------------------------------------------------------------------------------
-12-
<PAGE>
- --------------------------------------------------------------------------------
deduction for corporate shareholders only to the extent of the aggregate amount
of dividends received by the Fund from U.S. corporations. The Fund must hold
stock for more than 45 days (90 days in the case of certain preferred stock),
without hedging its investment in the stock in certain ways, for dividends paid
on the stock to be eligible dividends. If the Fund is the holder of record of
any stock on the record date for any dividends payable with respect to such
stock, such dividends are included in the Fund's gross income as of the later of
(a) the date such stock became ex-dividend with respect to such dividends (i.e.,
the date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and a
shareholder may receive dividends in an earlier year than would otherwise be the
case. If a shareholder (a) incurs a sales charge in acquiring Fund shares, (b)
disposes of those shares within ninety days and (c) acquires shares in a mutual
fund for which the otherwise applicable sales charge is reduced by reason of
reinvestment right (i.e., an exchange privilege), the original sales charge
increases the shareholder's tax basis in the original shares only to the extent
that the otherwise applicable sales charge for the second acquisition is not
reduced. The portion of the original sales charge that does not increase the
shareholder's tax basis in the original shares would be treated as incurred with
respect to the second acquisition and, as a general rule, would increase the
shareholder's tax basis in the newly acquired shares. Furthermore, the same rule
also applies to a disposition of the newly acquired shares made within ninety
days of the second acquisition. This provision prevents a shareholder from
immediately deducting the sales charge by shifting his investment in a family of
mutual funds.
Backup Withholding
In general, if a shareholder who is taxed as an individual cannot certify that
he has given his correct taxpayer identification number to the Fund and that he
is not subject to backup withholding, he will be subject to a 31% 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.
- --------------------------------------------------------------------------------
-13-
<PAGE>
- --------------------------------------------------------------------------------
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)/n/
where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1, 5 and 10 year periods (as fractional portion thereof),
assuming reinvestment of all dividends and distributions.
This calculation assumes that the maximum current applicable sales charge is
imposed upon purchase or redemption, as the case may be and also assumes that
all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
The performance of the Fund and of each Class of its shares is not fixed or
guaranteed. Performance quotations should not be considered to be
representations of performance of the Fund for any period in the future. The
performance of any Class is a function of many factors including its earnings,
expenses and number of outstanding shares. Fluctuating market conditions;
purchases, sales and maturities of portfolio securities; sales and redemptions
of shares of beneficial interest; and changes in operating expenses are all
examples of items that can increase or decrease the performance of each Class.
PORTFOLIO TRANSACTIONS AND
BROKERAGE
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser, within the policy
established by its investment committee and subject to review by the officers of
the Fund. In effecting securities transactions, the Adviser generally seeks to
obtain the best price and execution of orders. Commission rates, being a
component of price, are considered together with other relevant factors. The
Adviser will use Fahnestock, of which the Adviser's direct parent, Fahnestock
Viner Holdings, Inc., is the direct sole shareholder, as its principal broker
where, in the judgment of the Adviser, Fahnestock will be able to obtain a price
and execution at least as favorable as other qualified brokers. All transactions
through Fahnestock are made in accordance with guidelines established by the
Board of Trustees. The Fund may not purchase from Fahnestock securities of
underwritten offerings in which Fahnestock participates as an underwriter. The
Fund may, however, purchase securities from other members of underwriting
syndicates of which Fahnestock is a member, but only in accordance with the
policy set forth below and procedures adopted and reviewed periodically by the
Trustees.
During the years ended December 31, 1997, 1996 and 1995, the Fund paid $0,
$3,180, and $9,338, respectively, in brokerage commissions to Fahnestock. During
1997, Fahnestock did not effect any of the Fund's transactions involving the
payment of brokerage commissions.
Orders for purchases and sales of securities are placed in a manner which, in
the opinion of the
- --------------------------------------------------------------------------------
-14-
<PAGE>
- --------------------------------------------------------------------------------
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 the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees may determine, the Adviser may consider sales of shares of the Fund as
a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.
The Adviser will be governed in the selection of brokers and dealers, and the
negotiation of brokerage commission rates and dealer spreads, by the reliability
and quality of the services, including primarily the availability and value of
research information and to a lesser extent statistical assistance furnished to
the Adviser of the Fund, and their value and expected contribution to the
performance of the Fund. It may not be possible to place a dollar value on
information and services to be received from brokers and dealers, since they are
only supplementary to the research efforts of the Adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Adviser or other advisory clients of the Adviser and, conversely,
brokerage commissions and spreads paid by other advisory clients of the Adviser
may result in research information and statistical assistance beneficial to the
Fund. The Fund will make no binding commitment to allocate amounts of portfolio
transactions. While the Adviser will be primarily responsible for the allocation
of the Fund's brokerage business, the policies and practices of the Adviser in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker-dealer which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker-dealer would have charged for effecting that transaction. This 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, 111 West 10th Street,
Kansas City, Missouri 64105 (the "Custodian"). Under the custodian agreement,
the Custodian performs custody, portfolio and accounting services for the Trust
and the Fund.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P., the independent accountant of the Trust, audits and
renders an
- --------------------------------------------------------------------------------
-15-
<PAGE>
- --------------------------------------------------------------------------------
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, 1997. 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.
- --------------------------------------------------------------------------------
-16-
<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, 1997; Statement of Operations for the Year
ended December 31, 1997; Statement of Changes in Net Assets for
the years ended December 31, 1996 and 1997; Financial Highlights
for the years ended December 31, 1995, 1996 and 1997; Notes to
Financial Statements; and the Reports of Coopers & Lybrand L.L.P.,
Independent Auditors, dated February 6, 1996, February 17, 1997
and February 18, 1998.
(b)Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<C> <C> <S>
1 -- Amended and Restated Declaration of Trust of Registrant****
2 -- Amended and Restated By-Laws****
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****
4.3 -- Specimen copy of certificate for Class N shares issued by
Registrant****
5 -- Investment Management Agreement effective February 23, 1993***
6 -- Amended and Restated Distribution Agreement****
7 -- Not applicable
8 -- Custody Agreement**
9(a) -- Transfer Agency Agreement**
9(b) -- Administration Agreement**
9(c) -- Sub-Administration Agreement****
10 -- Opinion and Consent of Gaston & Snow*
11 -- Consent of Coopers & Lybrand L.L.P.
12 -- Not applicable
13 -- Not applicable
14 -- Model IRA Plan
15.1 -- Amended and Restated Plan of Distribution with respect to
Class A shares****
15.2 -- Plan of Distribution with respect to Class B shares****
15.3 -- Plan of Distribution with respect to Class N shares****
16 -- Not applicable
17 -- Financial Data Schedule
18 -- 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.
**** Incorporated by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A filed on April 15, 1997.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of April 23, 1998 there were the following number of record holders of
Registrant's shares of beneficial interest, par value $.01 per share:
<TABLE>
<CAPTION>
NUMBER OF
CLASS RECORD HOLDERS
----- --------------
<S> <C>
Class A....................................................... 1,383
Class B....................................................... 261
Class N....................................................... 147
</TABLE>
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. Listed
below are the names of all of the directors and officers of Hudson as of April
23, 1998, 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.
----------------- ------------- ----------------------
<C> <C> <S>
Albert G. Lowenthal Trustee, Chairman of Chairman of Board of
President and Director Board of Trustees, and Directors, Chief Executive
Chief Executive Officer Officer and Chief Financial
Officer of Fahnestock & Co.,
Inc., its holding company
parent, Fahnestock Viner
Holdings, Inc. and its
affiliated companies.
A. W. Oughtred None Solicitor, Borden & Elliot;
Director Director of Fahnestock & Co.,
Inc. and its affiliated
companies.
E. K. Roberts None President, Fahnestock Viner
Director, Treasurer Holdings, Inc.; Treasurer and
and Secretary Director, Fahnestock & Co.,
Inc. and Director of its
affiliated companies.
James D. Gerson Senior Vice President Director, Ag Services of
Senior Vice President and Portfolio Manager America, Inc., American Power
Conversion Corporation,
Computer Outsourcing Services,
Inc. Conceptronic Inc., Energy
Research Corp., and Hilite
Industries, Inc., and various
non-public companies.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Not applicable
C-2
<PAGE>
(b) The following information is provided with respect to each director and
officer of Fahnestock as of April , 1998.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH FAHNESTOCK WITH REGISTRANT
------------------ --------------------- ---------------------
<C> <C> <S>
Albert G. Lowenthal Chairman or the Board of Trustee,
Directors and Chief Executive Chairman of
Officer the
Board of
Trustees, and
Chief
Executive
Officer
Michael Mendelson Managing Director of Fahnestock Trustee,
Asset Management a division of President
Fahnestock & Co., Inc.
Richard Wohlman Chief Financial Officer Treasurer
Russell L. Pollack Benefits Director and Manager, Secretary
Corporate Tax
Robert M. Neuhoff Executive Vice President N/A
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 MSH 3M7
Angus Winn Oughtred Director N/A
Borden & Elliot
40 King Street West
Toronto, Canada MSH 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 125 Broad Street New York, New York 10004
(3) Investors Fiduciary Trust Company 111 West 10th Street Kansas City,
Missouri 64105
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
Not applicable
- --------
* Except as otherwise indicated, principal business address is 125 Broad
Street, New York, NY 10004.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment 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 27th day of April, 1998.
THE FAHNESTOCK FUNDS
By /s/ Albert G. Lowenthal
_______________________________
Albert G. Lowenthal, Chairman
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
--------- ----- ----
<S> <C> <C>
/s/ Albert G. Lowenthal Trustee, Chairman of Board of April 27, 1998
__________________________ Trustees (Chief Executive
Albert G. Lowenthal Officer)
an officer and Trustee
and not individually
/s/ Richard Wohlman Treasurer (Chief Financial April 27, 1998
__________________________ and Accounting Officer)
Richard Wohlman
an officer and not
individually
/s/ Michael Mendelson Trustee and President April 27, 1998
__________________________
Michael Mendelson,
an officer and Trustee
and not individually
/s/ Keith Gunzenhauser Trustee April 27, 1998
__________________________
Keith Gunzenhauser
as Trustee only and
not individually
/s/ Richard E. Landau Trustee April 27, 1998
__________________________
Richard E. Landau
as Trustee only and
not individually
/s/ James D. McQuaid Trustee April 27, 1998
__________________________
James D. McQuaid
as Trustee only and
not individually
</TABLE>
C-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE NUMBER
IN SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERING SYSTEM
----------- ---------------------- ----------------
<C> <C> <S> <C>
1 -- Amended and Restated Declaration of Trust of
Registrant****..............................
2 -- Amended and Restated By-Laws****............
3 -- Not applicable..............................
4.1 -- Specimen copy of certificate of Class A
shares issued by Registrant****.............
4.2 -- Specimen copy of certificate of Class B
shares issued by Registrant****.............
4.3 -- Specimen copy of certificate of Class N
shares issued by Registrant****.............
5 -- Investment Management Agreement effective
February 23, 1993***........................
6 -- Amended and Restated Distribution
Agreement****...............................
7 -- Not applicable..............................
8 -- Custody Agreement**.........................
9(a) -- Transfer Agency Agreement**.................
9(b) -- Administration Agreement**..................
9(c) -- Sub-Administration Agreement****............
10 -- Opinion and Consent of Gaston & Snow*.......
11 -- Consent of Coopers & Lybrand L.L.P..........
12 -- Not applicable..............................
13 -- Not applicable..............................
14 -- Model IRA Plan..............................
15.1 -- Amended and Restated Plan of Distribution
with respect to Class A shares****..........
15.2 -- Plan of Distribution with respect to Class B
shares****..................................
15.3 -- Plan of Distribution with respect to Class N
shares****..................................
16 -- Not applicable..............................
17 -- Financial Data Schedule.....................
18 -- 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.
**** Incorporated by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A filed on April 15, 1997.
C-5
<PAGE>
Exhibit 11
Consent of Independent Accountants
We consent to the incorporation by reference in Post-Effective Amendment No. 10
to the Registration Statement under the Securities Act of 1933 (File No.
33-36697) and in Post-Effective Amendment No. 12 to the Registration Statement
under the Investment Company Act of 1940 of the Hudson Capital Appreciation Fund
(a series of the Fahnestock Funds) on Form N-1A of our report dated February 18,
1998 on our audit of the financial statements and financial highlights of the
Hudson Capital Appreciation Fund, which report included in the Annual Report to
Shareholders for the year ended December 31, 1997 which is incorporated by
reference in the Post-Effective Amendment to each Registration Statement. We
also consent to the reference in the Statement of Additional Information to our
Firm under the caption "Independent Accountants."
/s/ Coopers & Lybrand LLP
Kansas City, Missouri
April 28, 1998
<PAGE>
Exhibit 14
HUDSON CAPITAL APPRECIATION FUND
UNIVERSAL INDIVIDUAL RETIREMENT ACCOUNT
INFORMATION KIT
(EFFECTIVE JANUARY 1, 1998)
<PAGE>
Hudson Capital Appreciation Fund
--------------------------------
Universal IRA Information Kit
-----------------------------
INTRODUCTION
- ------------
What's New In The World Of IRA's
An Individual Retirement Account ("IRA") has always provided an attractive
means to save money for the future on a tax-advantaged basis. Recent changes to
Federal tax law have now made the IRA an even more flexible investment and
savings vehicle. Among the new changes is the creation of the Roth Individual
Retirement Account ("Roth IRA"), which will be available for use after January
1, 1998. Under a Roth IRA, the earnings and interest on an individual's
nondeductible contributions grow without being taxed, and distributions may be
tax-free under certain circumstances. Most taxpayers (except for those with very
high income levels) will be eligible to contribute to a Roth IRA. A Roth IRA can
be used instead of a Traditional IRA, to replace an existing Traditional IRA, or
complement a Traditional IRA you wish to continue maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible to
convert existing IRAs into Roth IRAs. The details on conversion are found in the
description of Roth IRAs in this booklet.
Congress has also made significant changes to Traditional IRAs. First,
Congress increased the income levels at which IRA holders who participate in
employer-sponsored retirement plans can make deductible Traditional IRA
contributions. Also the rules for deductible contributions by an IRA holder
whose spouse is a participant in an employer-sponsored retirement plan have been
liberalized. Second, the 10% penalty tax for premature withdrawals (before age
59 1/2) will no longer apply in the case of withdrawals to pay certain higher
education expenses or certain first-time homebuyer expenses.
What's in This Kit?
In this Kit you will find detailed information about Roth IRAs and about
the changes that have been made to Traditional IRAs. You will also find
everything you need to establish and maintain either a Regular or Roth IRA, or
to convert all or part of an existing Traditional IRA to a Roth IRA.
The first section of this Kit contains the instructions and forms you will
need to open a new Regular or Roth IRA, to transfer from another IRA to a Hudson
Capital Appreciation Fund IRA, or to convert a Traditional IRA to a Roth IRA.
The second section of this Kit contains our Universal IRA Disclosure
Statement. The Disclosure Statement is divided into three parts:
. Part One describes the basic rules and benefits which are specifically
applicable to your Traditional IRA.
. Part Two describes the basic rules and benefits which are specifically
applicable to your Roth IRA.
. Part Three describes important rules and information applicable to all
IRAs.
The third section of this Kit contains the Universal IRA Custodial
Agreement. The Custodial Agreement is also divided into three parts:
. Part One contains provisions specifically applicable to Traditional
IRAs.
. Part Two contains provisions specifically applicable to Roth IRAs.
. Part Three contains provisions applicable to all IRAs (Regular and
Roth).
This Universal Individual Retirement Custodial Account Kit contains
information and forms for both Traditional IRAs and Roth IRAs. However, you may
use the Adoption Agreement in this Kit to establish only one Traditional IRA or
one Roth IRA; separate Adoption Agreements must be completed if you want to
establish multiple (Roth or Regular) IRA accounts.
1
<PAGE>
What's the Difference Between a Traditional IRA and a Roth IRA?
With a Traditional IRA, an individual can contribute up to $2,000 per year
and may be able to deduct the contribution from taxable income, reducing income
taxes. Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Non deductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59 1/2 are assessed a 10% penalty in addition to income tax, unless an
exception applies.
With a Roth IRA, the contribution limits are essentially the same as
Traditional IRAs, but there is no tax deduction for contributions. All dividends
and investment growth in the account are tax-free. Most important with a Roth
IRA: there is no income tax on qualified withdrawals from your Roth IRA.
Additionally, unlike a Traditional IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70 1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
The following chart highlights some of the major differences between a
Traditional IRA and a Roth IRA:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Characteristics Regular Roth
IRA IRA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eligibility Individuals (and their spouses) who receive Individuals (and their spouses) who receive
compensation compensation
Individuals age 70 1/2 and over may not Individuals age 70 1/2 and over may
contribute contribute
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Treatment of Contributions Subject to limitations, contributions are No deduction permitted for amounts
deductible contributed
- ------------------------------------------------------------------------------------------------------------------------------------
Contribution Limits Individuals may contribute up to $2,000 Individuals may generally contribute up to
annually (or 100% of compensation, $2,000 (or 100% of compensation,
if less) if less)
Deductibility depends on income level for Ability to contribute phases out at income
individuals who are active participants levels of $95,000 to $110,000
in an employer-sponsored retirement (individual taxpayer) and $150,000 to
plan $160,000 (married taxpayers)
Overall limit for contributions to all IRAs
(Regular and Roth combined) is $2,000
annually (or 100% of compensation,
if less)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Earnings and interest are not taxed when Earnings and interest are not taxed when
received by your IRA received by your IRA
- ------------------------------------------------------------------------------------------------------------------------------------
Rollover/Conversions Individual may rollover amounts held in Rollovers from other Roth IRAs or
employer-sponsored retirement Traditional IRAs only
arrangements (401(k), SEP IRA, etc.) Amounts rolled over (or converted) from
tax free to Traditional IRA another Traditional IRA are subject to
income tax in the year rolled over or
converted
Tax on amounts rolled over or converted in
1998 is spread over four year period
(1998-2001)
- ------------------------------------------------------------------------------------------------------------------------------------
Withdrawals Total (principal + earnings) taxable as Not taxable as long as a qualified
income in year withdrawn (except for distribution--generally, account open
any prior non-deductible contributions) for 5 years, and age 59 1/2
Minimum withdrawals must begin after age Minimum withdrawals not required after
70 1/2 age 70 1/2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Is a Roth or a Traditional IRA Right For Me?
We cannot act as your legal or tax advisor and so we cannot tell you which
kind of IRA is right for you. The information contained in this Kit is intended
to provide you with the basic information and material you will need if you
decide whether a Regular or Roth IRA is better for you, or if you want to
convert an existing Traditional IRA to a Roth IRA. We suggest that you consult
with your accountant, lawyer or other tax advisor, or with a qualified financial
planner, to determine whether you should open a Regular or Roth IRA or convert
any or all of an existing Traditional IRA to a Roth IRA. Your tax advisor can
also advise you as to the state tax consequences that may affect whether a
Regular or Roth IRA is right for you.
2
<PAGE>
SEPs and SIMPLEs.
The Hudson Capital Appreciation Fund Traditional IRA may be used in
connection with a simplified employee pension (SEP) plan maintained by your
employer. To establish a Traditional IRA as part of your Employer's SEP plan,
complete the Adoption Agreement for a Traditional IRA, indicating in the proper
box that the IRA is part of a SEP plan. A Roth IRA should not be used in
connection with a SEP plan.
A Roth IRA may not be used as part of an employer SIMPLE IRA plan. A
Traditional IRA may be used, but only after an individual has been participating
for two or more years (for the first two years, only a special SIMPLE IRA may be
used). SIMPLE IRA plans were added by the 1996 tax law to provide an easy and
inexpensive way for small employers to provide retirement benefits for their
employees. If you are interested in a SIMPLE IRA plan at your place of
employment, call or write to the number or address given at the end of the
Disclosure Statement portion of this Kit.
Other Points to Note.
The Disclosure Statement in this Kit provides you with the basic
information that you should know about Hudson Capital Appreciation Fund
Traditional IRAs and Roth IRAs. The Disclosure Statement provides general
information about the governing rules for these IRAs and the benefits and
features offered through each type of IRA. However, the Hudson Capital
Appreciation Fund Adoption Agreement and the Custodial Agreement, are the
primary documents controlling the terms and conditions of your personal Hudson
Capital Appreciation Fund Regular or Roth IRA, and these shall govern in the
case of any difference with the Disclosure Statement.
You or your when used throughout this Kit refer to the person for whom the
Hudson Capital Appreciation Fund Regular or Roth IRA is established. A Roth IRA
is either an Hudson Capital Appreciation Fund Roth IRA or any Roth IRA
established by any other financial institution. A Traditional IRA is any non-
Roth IRA offered by Hudson Capital Appreciation Fund or any other financial
institution.
3
<PAGE>
Hudson Capital Appreciation Fund
UNIVERSAL IRA DISCLOSURE STATEMENT
Part One: Description of Traditional IRAs
-----------------------------------------
SPECIAL NOTE
Part One of the Disclosure Statement describes the rules applicable to
Traditional IRAs beginning January 1, 1998. IRAs described in these pages are
called "Traditional IRAs" to distinguish them from the new "Roth IRAs" first
available starting in 1998. Roth IRAs are described in Part Two of this
Disclosure Statement.
For Traditional IRA contributions for 1997 (including contributions made
up to April 15, 1998 but designated as contributions for 1997), there are
different rules for determining the deductibility of your contribution on your
federal tax return. For contributions for 1997, the "active participant" limits
on deductibility (described below) apply if either spouse is an active
------
participant in an employer-sponsored plan. Also, the adjusted gross income
("AGI") levels for partially deductible or nondeductible Traditional IRA
contributions (described below) are lower for 1997 ($25,000 for single
taxpayers, with no deduction if your AGI is above $35,000; and $40,000 for
married taxpayers filing jointly, with no deduction if your AGI is above
$50,000). Also, the exceptions to the 10% early withdrawal penalty for
withdrawals to pay certain higher education or first-time homebuyer expenses do
not apply to withdrawals in 1997.
This Part One of the Disclosure Statement describes Traditional IRAs. It
does not describe Roth IRAs, a new type of IRA available starting in 1998.
Contributions to a Roth IRA are not deductible (regardless of your AGI), but
withdrawals that meet certain requirements are not subject to federal income
tax, so that dividends and investment growth on amounts held in the Roth IRA
can escape federal income tax. Please see Part Two of this Disclosure Statement
if you are interested in learning more about Roth IRAs.
Traditional IRAs described in this Disclosure Statement may be used as part
of a simplified employee pension (SEP) plan maintained by your employer. Under
a SEP your employer may make contributions to your Traditional IRA, and these
contributions may exceed the normal limits on Traditional IRA contributions.
This Disclosure Statement does not describe IRAs established in connection with
a SIMPLE IRA program maintained by your employer. Employers provide special
explanatory materials for accounts established as part of a SIMPLE IRA program.
Traditional IRAs may be used in connection with a SIMPLE IRA program, but for
the first two years of participation a special SIMPLE IRA (not a Traditional
IRA) is required.
YOUR TRADITIONAL IRA
This Part One contains information about your Regular Individual Retirement
Custodial Account with Hudson Capital Appreciation Fund as Custodian. A
Traditional IRA gives you several tax benefits. Earnings on the assets held in
your Traditional IRA are not subject to federal income tax until withdrawn by
you. You may be able to deduct all or part of your Traditional IRA contribution
on your federal income tax return. State income tax treatment of your
Traditional IRA may differ from federal treatment; ask your state tax
department or your personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important
additional information, including information on how to revoke your Traditional
IRA, investments and prohibited transactions, fees and expenses, and certain
tax requirements.
ELIGIBILITY
What are the eligibility requirements for a Traditional IRA?
You are eligible to establish and contribute to a Traditional IRA for
a year if:
. You received compensation (or earned income if you are self employed)
during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
. You did not reach age 70 1/2 during the year.
Can I Contribute to a Traditional IRA for my Spouse?
For each year before the year when your spouse attains age 70 1/2, you can
contribute to a separate Traditional IRA for your spouse, regardless of whether
your spouse had any compensation or earned income in that year. This is called
a "spousal IRA." To make a contribution to a Regular IRA for your spouse, you
must file a joint tax return for the year with your spouse. For a spousal IRA,
your spouse must set up a different Traditional IRA, separate from yours, to
which you contribute.
CONTRIBUTIONS
When Can I Make Contributions to a Regular IRA?
You may make a contribution to your existing Traditional IRA or establish
a new Traditional IRA for a taxable year by the due date (not including any
---
extensions) for your federal income tax return for the year. Usually this is
April 15 of the following year.
How Much Can I Contribute to my Traditional IRA?
For each year when you are eligible (see above), you can contribute up to
the lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). However, under the tax laws, all or a portion of your
contribution may not be deductible.
If you and your spouse have spousal Traditional IRAs, each spouse may
contribute up to $2,000 to his or her IRA for a year as long as the combined
compensation of both spouses for the year (as shown on your joint income
tax return) is at least $4,000. If the combined compensation of both spouses
is less than $4,000, the spouse with the higher amount of compensation may
contribute up to that spouse's compensation amount, or $2,000 if less. The
spouse with the lower compensation amount may contribute any amount up to
that spouse's compensation plus any excess of the other spouse's compensation
over the other spouse's IRA contribution. However, the maximum contribution
to either spouse's Traditional IRA is $2,000 for the year.
4
<PAGE>
If you (or your spouse) establish a new Roth IRA and make contributions to
both your Traditional IRA and a Roth IRA, the combined limit on contributions to
both your (or your spouse's) Traditional IRA and Roth IRA for a single calendar
year is $2,000.
How Do I Know If my Contribution is Tax Deductible?
The deductibility of your contribution depends upon whether you are an
active participant in any employer-sponsored retirement plan. If you are not an
active participant, the entire contribution to your Traditional IRA is
deductible.
If you are an active participant in an employer-sponsored plan, your
Traditional IRA contribution may still be completely or partly deductible on
your tax return. This depends on the amount of your income (see below).
Similarly, the deductibility of a contribution to a Traditional IRA for
your spouse depends upon whether your spouse is an active participant in any
employer-sponsored retirement plan. If your spouse is not an active participant,
the contribution to your spouse's Traditional IRA will be deductible. If your
spouse is an active participant, the Traditional IRA contribution will be
completely, partly or not deductible depending upon your combined income.
An exception to the preceding rules applies to high-income married
taxpayers, where one spouse is an active participant in an employer-sponsored
retirement plan and the other spouse is not. A contribution to the non-active
participant spouse's Traditional IRA will be only partly deductible at an
adjusted gross income level on the joint tax return of $150,000, and the
deductibility will be phased out as described below over the next $10,000 so
that there will be no deduction at all with an adjusted gross income level of
$160,000 or higher.
How do I Determine My or My Spouse's "Active Participant" status?
Your (or your spouse's) Form W-2 should indicate if you (or your spouse)
were an active participant in an employer-sponsored retirement plan for a year.
If you have a question, you should ask your employer or the plan administrator.
In addition, regardless of income level, your spouse's "active participant"
status will not affect the deductibility of your contributions to your
Traditional IRA if you and your spouse file separate tax returns for the taxable
year and you lived apart at all times during the taxable year.
What are the Deduction Restrictions for Active Participants?
If you (or your spouse) are an active participant in an employer plan
during a year, the contribution to your Traditional IRA (or your spouse's
Traditional IRA) may be completely, partly or not deductible depending upon your
filing status and your amount of adjusted gross income ("AGI"). If AGI is any
amount up to the lower limit, the contribution is deductible. If your AGI falls
between the lower limit and the upper limit, the contribution is partly
deductible. If your AGI falls above the upper limit, the contribution is not
deductible.
FOR ACTIVE PARTICIPANTS - 1998
-----------------------------------------------------------------
If You Are If You Are Then Your Regular
Single Married Filing Jointly IRA Contribution is
-----------------------------------------------------------------
Up to Up to Fully
Lower Limit Lower Limit Deductible
($30,000 for 1998) ($50,000 for 1998)
---------------------------------------------------------------
Adjusted More than Lower Limit More than Lower Limit Partly
Gross but less than but less than Deductible
Income Upper Limit Upper Limit
(AGI) Level ($40,000 for 1998) ($60,000 for 1998)
-----------------------------------------------------------------
Upper Limit or more Upper Limit or more Not
Deductible
-----------------------------------------------------------------
5
<PAGE>
The Lower Limit and the Upper Limit will change for 1999 and later years. The
Lower Limit and Upper Limit for these years are shown in the following table.
Substitute the correct Lower Limit and Upper Limit in the table above to
determine deductibility in any particular year. (Note: if you are married but
filing separate returns, your Lower Limit is always zero and your Upper Limit is
always $10,000).
TABLE OF LOWER AND UPPER LIMITS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Single Married
Filing Jointly
- --------------------------------------------------------------------------------
Lower Limit Upper Limit Lower Limit Upper Limit
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $31,000 $41,000 $51,000 $61,000
2000 $32,000 $42,000 $52,000 $62,000
2001 $33,000 $43,000 $53,000 $63,000
2002 $34,000 $44,000 $54,000 $64,000
2003 $40,000 $50,000 $60,000 $70,000
2004 $45,000 $55,000 $65,000 $75,000
2005 $50,000 $60,000 $70,000 $80,000
2006 $50,000 $60,000 $75,000 $85,000
2007 and $50,000 $60,000 $80,000 $100,000
later
- --------------------------------------------------------------------------------
</TABLE>
How do I Calculate my Deduction If I Fall in the "Partly Deductible" Range?
If your AGI falls in the partly deductible range, you must calculate the
portion of your contribution that is deductible. To do this, multiply your
contribution by a fraction. The numerator is the amount by which your AGI
exceeds the lower limit (for 1998; $30,000 if single, or $50,000 if married
filing jointly). The denominator is $10,000 (note that the denominator for
married joint filers is $20,000 starting in 2007). Subtract this from your
contribution and then round down to the nearest $10. The deductible amount is
the greater of the amount calculated or $200 (provided you contributed at least
$200). If your contribution was less than $200, then the entire contribution is
deductible.
For example, assume that you make a $2,000 contribution to your Traditional
IRA in 1998, a year in which you are an active participant in your employer's
retirement plan. Also assume that your AGI is $57,555 and you are married,
filing jointly. You would calculate the deductible portion of your contribution
this way:
1. The amount by which your AGI exceeds the lower limit of the partly-
deductible range:
($57,555-$50,000) = $7,555
2. Divide this by $10,000: $ 7,555
------- = 0.7555
$10,000
3. Multiply this by your contribution limit:
0.7555 x $2,000 = $1,511
4. Subtract this from your contribution:
($2,000-$1,551) = $489
5. Round this down to the nearest $10: = $480
6. Your deductible contribution is the greater of this amount or $200.
Even though part or all of your contribution is not deductible, you may still
contribute to your Traditional IRA ( and your spouse may contribute to your
spouse's Traditional IRA) up to the limit on contributions. When you file your
tax return for the year, you must designate the amount of non-deductible
contributions to your Traditional IRA for the year. See IRS Form 8606.
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
What Happens If I Contribute more than Allowed to my Traditional IRA?
The maximum contribution you can make to a Regular IRA generally is $2,000
or 100% of compensation or earned income, whichever is less. Any amount
contributed to the IRA above the maximum is considered an "excess contribution."
The excess is calculated using your contribution limit, not the deductible
------------ ----------
limit. An excess contribution is subject to excise tax of 6% for each year it
remains in the IRA.
6
<PAGE>
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty. To do
so, you must withdraw the excess and any earnings on the excess before the due
date (including extensions) for filing your federal income tax return for the
year for which you made the excess contribution. A deduction should not be taken
for any excess contribution. The earnings must be included in your income for
the tax year for which the contribution was made and may be subject to a 10%
premature withdrawal tax if you have not reached age 59 1/2.
What Happens if I Don't Correct the Excess Contribution by
the Tax Return Due Date?
Any excess contribution not withdrawn by the tax return due date (including
any extensions) for the year for which the contribution was made will be subject
to the 6% excise tax. There will be an additional 6% excise tax for each
subsequent year the excess remains in your account.
Under limited circumstances, you may correct an excess contribution after
tax filing time by withdrawing the excess contribution (leaving the earnings in
the account). This withdrawal will not be includable in income nor will it be
subject to any premature withdrawal penalty if (1) your contributions to all
Traditional IRAs do not exceed $2,000 and (2) you did not take a deduction for
the excess amount (or you file an amended return (Form 1040X) which removes the
excess deduction).
How are Excess Contributions Treated if None of the
Preceding Rules Apply?
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includable in taxable income and may be subject to a 10% premature
withdrawal penalty. No deduction will be allowed for the excess contribution for
the year in which it is made.
Excess contributions may be corrected in a subsequent year to the extent
that you contribute less than your maximum amount. As the prior excess
contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years. Also, you may be
able to take an income tax deduction for the amount of excess that was reduced
or eliminated, depending on whether you would be able to take a deduction if you
had instead contributed the same amount.
Are the Earnings on My Traditional IRA Funds Taxed?
Any dividends on or growth of the investments held in your Traditional IRA
are generally exempt from federal income taxes and will not be taxed until
withdrawn by you, unless the tax exempt status of your Traditional IRA is
revoked (this is described in Part Three of this Disclosure Statement).
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my
Employer's Retirement Plan into a Traditional IRA?
Almost all distributions from employer plans or 403(b) arrangements (for
employees of tax-exempt employers) are eligible for rollover to a Traditional
IRA. The main exceptions are payments over the lifetime or life expectancy of
the participant (or participant and a designated beneficiary), installment
payments for a period of 10 years or more, required distributions (generally the
rules require distributions starting at age 70 1/2 or for certain employees
starting at retirement, if later), and payments of employee after-tax
contributions.
If you are eligible to receive a distribution from a tax qualified retirement
plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your Traditional IRA. This is a called a "direct
rollover." Or, you may receive the distribution and make a regular rollover to
your Traditional IRA within 60 days. By making a direct rollover or a regular
rollover, you can defer income taxes on the amount rolled over until you
subsequently make withdrawals from your IRA.
The maximum amount you may roll over is the amount of employer
contributions and earnings distributed. You may not roll over any after-tax
employee contributions you made to the employer retirement plan. If you are over
age 70 1/2 and are required to take minimum distributions under the tax laws,
you may not roll over any amount required to be distributed to you under the
minimum distributions rules. Also, if you are receiving periodic payments over
your or your and your designated beneficiary's life expectancy or for a period
of at least 10 years, you may not roll over these payments. A rollover to a
regular IRA must be completed within 60 days after the distribution from the
employee retirement plan to be valid.
NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD 20% OF
YOUR DISTRIBUTION for federal income taxes UNLESS you elect a direct rollover.
Your plan or 403(b) sponsor is required to provide you with information about
direct and traditional rollovers and withholding taxes before you receive your
distribution and must comply with your directions to make a direct rollover.
The rules governing rollovers are complicated. Be sure to consult your tax
advisor or the IRS if you have a question about rollovers.
Once I Have Rolled Over a Plan Distribution into a
Traditional IRA, Can I Subsequently Roll Over into another
Employer's Qualified Retirement Plan?
Yes. Part or all of an eligible distribution received from a qualified plan
may be transferred from the Traditional IRA holding it to another qualified
plan. However, the IRA must have no assets other than those which were
previously distributed to you from the qualified plan. Specifically, the IRA
cannot contain any contributions by you (or your spouse). Also, the new
qualified plan must accept rollovers. Similar rules apply to Traditional IRAs
established with rollovers from 403(b) arrangements.
Can I Make a Traditional Rollover from my Traditional IRA
to another Traditional IRA?
You may make a rollover from one Traditional IRA to another Traditional IRA
you have or you establish to receive the rollover. Such a rollover must be
completed within 60 days after the withdrawal from your first Traditional IRA.
After making a traditional rollover form one Traditional IRA to another, you
must wait a full year (365 days) before you can make another such rollover.
(However, you can instruct a Traditional IRA custodian to transfer amounts
directly to another Traditional IRA custodian; such a direct transfer does not
count as a rollover.)
7
<PAGE>
What Happens If I Combine Rollover Contributions With My Normal Contributions
In One IRA?
If you wish to make both a normal annual contribution and a rollover
contribution, you may with to open two separate Traditional IRAs by completing
two Adoption Agreements and two sets of forms. You should consult a tax advisor
before making your annual contribution to the IRA you established with rollover
contributions (or make a rollover contribution to the IRA to which you make
your annual contributions). This is because combining your annual contributions
and rollover contributions originating from an employer plan distribution would
prohibit the future rollover out of the IRA into another qualified plan. If
despite this, you still wish to combine a rollover contribution and the IRA
holding your annual contributions, you should establish the account as a
Traditional IRA on the Adoption Agreement (not a Rollover IRA or Direct
Rollover IRA) and make the contributions to that account.
How Do Rollovers Affect my Contribution or Deduction Limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, rollovers are not deductible and they do not affect your
deduction limits as described above.
What About Converting My Traditional IRA to a Roth IRA?
The rules for converting a Traditional IRA to a new Roth IRA, or making a
rollover from a Traditional IRA to a new Roth IRA, are described in Part Two
below.
WITHDRAWALS
When can I make withdrawals from my Traditional IRA?
You may withdraw from your Traditional IRA at any time. However,
withdrawals before age 59 1/2 may be subject to a 10% penalty tax in addition to
regular income taxes (see below).
When must I start making withdrawals?
If you have not withdrawn your entire IRA by the April 1 following the
year in which you reach 70 1/2, you must make minimum withdrawals in order to
avoid penalty taxes. The rule allowing certain employees to postpone
distributions from an employer qualified plan until actual retirement (even if
this is after age 70 1/2) does not apply to Traditional IRAs.
---
The minimum withdrawal amount is determined by dividing the balance in your
Traditional IRA (or IRAs) by your life expectancy or the combined life
expectancy of you and your designated beneficiary. The minimum withdrawal rules
are complex. Consult your tax advisor for assistance.
The penalty tax is 50% of the difference between the minimum withdrawal
amount and your actual withdrawals during a year. The IRS may waive or reduce
the penalty tax if you can show that your failure to make the required minimum
withdrawals was due to reasonable cause and you are taking reasonable steps to
remedy the problem.
How Are Withdrawals From My Traditional IRA Taxed?
Amounts withdrawn by you are includable in your gross income in the taxable
year that you receive them, and are taxable as ordinary income. Lump sum
withdrawals from a Traditional IRA are not eligible for averaging treatment
currently available to certain lump sum distributions from qualified employer
retirement plans.
Since the purpose of a Traditional IRA is to accumulate funds for
retirement, your receipt or use of any portion of your Traditional IRA before
you attain age 59 1/2 generally will be considered as an early withdrawal and
subject to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if:
. The distribution was a result of your death or disability.
. The purpose of the withdrawal is to pay certain higher education expenses
for yourself or your spouse, child, or grandchild. Qualifying expenses
include tuition, fees, books, supplies and equipment required for attendance
at a post-secondary educational institution. Room and board expenses
may qualify if the student is attending at least half-time.
. The withdrawal is used to pay eligible first-time homebuyer expenses. These
are the costs of purchasing, building or rebuilding a principal residence
(including customary settlement, financing or closing costs). The purchaser
may be you, your spouse, or a child, grandchild, parent or grandparent of
you or your spouse. An individual is considered a "first-time homebuyer" if
the individual (or the individual's spouse, if married) did not have an
ownership interest in a principal residence during the two-year period
immediately preceding the acquisition in question. The withdrawal must be
used for eligible expenses within 120 days after the withdrawal. (If there
is an unexpected delay, or cancellation of the home acquisition, a
withdrawal may be redeposited as a rollover).
. There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
. The distribution is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives
or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10%
penalty tax may apply. The 10% penalty will not apply if you make no change in
the series of payments until the end of five years or until you reach age
59 1/2, whichever is later. If you make a change before then, the penalty will
apply. For example, if you begin receiving payments at age 50 under a
withdrawal program providing for substantially equal payments over your life
expectancy, and at age 58 you elect to receive the remaining amount in your
Traditional IRA in a lump-sum, the 10% penalty tax will apply to the lump sum
and to the amounts previously paid to you before age 59 1/2.
. The distribution does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid during a
year are deductible if they are greater than 7 1/2% of your adjusted gross
income for that year).
. The distribution does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies
only if you have been
8
<PAGE>
unemployed and received federal or state unemployment compensation payments
for at least 12 weeks; this exception applies to distributions during the
year in which you received the unemployment compensation and during the
following year, but not to any distributions received after you have been
reemployed for at least 60 days.
How are Nondeductible Contributions Taxed When They are Withdrawn?
A withdrawal of nondeductible contributions (not including earnings) will
be tax-free. However, if you made both deductible and nondeductible
contributions to your Traditional IRA, then each distribution will be treated
as partly a return of your nondeductible contributions (not taxable) and partly
a distribution of deductible contributions and earnings (taxable). The
nontaxable amount is the portion of the amount withdrawn which bears the same
ratio as your total nondeductible Traditional IRA contributions bear to the
total balance of all your Traditional IRAs (including rollover IRAs and SEPs,
but not including Roth IRAs).
For example, assume that you made the following Traditional IRA
contributions:
Year Deductible Nondeductible
---- ---------- -------------
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 $1,000
------ ------
$5,000 $2,000
In addition assume that your Traditional IRA has total investment earnings
through 1998 of $1,000. During 1998 you withdraw $500. Your total account
balance as of 12-31-98 is $7,500 as shown below.
Deductible Contributions $5,000
Nondeductible Contributions $2,000
Earnings On IRA $1,000
Less 1998 Withdrawal $ 500
------
Total Account Balance as of 12/31/98 $7,500
To determine the nontaxable portion of your 1998 withdrawal, the total
1998 withdrawal ($500) must be multiplied by a fraction. The numerator of
the fraction is the total of all nondeductible contributions remaining in
the account before the 1998 withdrawal ($2,000). The denominator is the
total account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500)
or $8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000 x $500 = $ 125
--------------------------- ------
Total Account Balance $8,000
Thus, $125 of the $500 withdrawal in 1998 will not be included in your
taxable income. The remaining $375 will be taxable for 1998. In addition,
for future calculations the remaining nondeductible contribution total will
be $2,000 minus $125, or $1,875.
A loss in your Traditional IRA investment may be deductible. You should
consult your tax advisor for further details on the appropriate calculation
for this deduction if applicable.
Is there a penalty tax on certain large withdrawals or accumulations in
my IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals
from all retirement accounts (including IRAs, 401(k) or other employer
retirement plans, 403(b) arrangements and others) in a year exceeding a
specified amount (initially $150,000 per year). Also, there was a 15% estate
tax penalty on excess accumulations remaining in IRAs and other tax-favored
arrangements upon your death. These 15% penalty taxes have been repealed.
--------
Important: Please see Part Three below which contains important information
- ---------
applicable to all Hudson Capital Appreciation Fund IRAs.
---
9
<PAGE>
Part Two: Description of Roth IRAs
----------------------------------
SPECIAL NOTE
Part Two of the Disclosure Statement describes the rules generally
applicable to Roth IRAs beginning January 1, 1998.
Roth IRAs are a new kind of IRA available for the first time in 1998.
Contributions to a Roth IRA for 1997 are not permitted. Contributions to
---
a Roth IRA are not tax-deductible, but withdrawals that meet certain
requirements are not subject to federal income taxes. This makes the dividends
on and growth of the investments held in your Roth IRA tax-free for federal
income tax purposes if the requirements are met.
Traditional IRAs, which have existed since 1975, are still available.
Contributions to a Traditional IRA may be tax-deductible. Earnings and gains
on amounts while held in a Traditional IRA are tax-deferred. Withdrawals are
subject to federal income tax (except for prior after-tax contributions
which may be recovered without additional federal income tax).
This Part Two does not describe Traditional IRAs. If you wish to review
information about Traditional IRAs, please see Part One of this Disclosure
Statement.
This Disclosure Statement also does not describe IRAs established in
connection with a SIMPLE IRA program or a Simplified Employee Pension (SEP)
plan maintained by your employer. Roth IRAs may not be used in connection
with a SIMPLE IRA program or a SEP plan.
YOUR ROTH IRA
Your Roth IRA gives you several tax benefits. While contributions to
a Roth IRA are not deductible, dividends on and growth of the assets held
in your Roth IRA are not subject to federal income tax. Withdrawals by you
from your Roth IRA are excluded from your income for federal income tax
purposes if certain requirements (described below) are met. State income
tax treatment of your Roth IRA may differ from federal treatment; ask your
state tax department or your personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important
additional information, including information on how to revoke your Roth
IRA, investments and prohibited transactions, fees and expenses and certain
tax requirements.
ELIGIBILITY
What are the eligibility requirements for a Roth IRA?
Starting with 1998, you are eligible to establish and contribute to
a Roth IRA for a year if you received compensation (or earned income if
you are self employed) during the year for personal services you rendered.
If you received taxable alimony, this is treated like compensation for IRA
purposes.
In contrast to a Traditional IRA, with a Roth IRA you may continue
making contributions after you reach age 70 1/2.
Can I Contribute to a Roth IRA for my Spouse?
Starting with 1998, if you meet the eligibility requirements you can
not only contribute to your own Roth IRA, but also to a separate Roth IRA
for your spouse out of your compensation or earned income, regardless of
whether your spouse had any compensation or earned income in that year.
This is called a "spousal Roth IRA." To make a contribution to a Roth IRA
for your spouse, you must file a joint tax return for the year with your
spouse. For a spousal Roth IRA, your spouse must set up a different Roth
IRA, separate from yours, to which you contribute.
Of course, if your spouse has compensation or earned income, your spouse
can establish his or her own Roth IRA and make contributions to it in
accordance with the rules and limits described in this Part Two of the
Disclosure Statement.
CONTRIBUTIONS
When Can I Make Contributions to a Roth IRA?
You may make a contribution to your Roth IRA or establish a new Roth
IRA for a taxable year by the due date (not including any extensions) for
---
your federal income tax return for the year. Usually this is April 15 of
the following year. For example, you will have until April 15, 1999 to
establish and make a contribution to a Roth IRA for 1998.
Caution: Since Roth IRAs are available starting January 1, 1998, you
may not make a contribution by April 15, 1998 to a Roth IRA for 1997.
How Much Can I Contribute to my Roth IRA?
For each year when you are eligible (see above), you can contribute
up to the lesser of $2,000 or 100% of your compensation (or earned income,
if you are self-employed).
Annual contributions may be made only to a Roth IRA annual contribution
account which does not contain converted or transferred funds from a
Traditional IRA.
Your Roth IRA limit is reduced by any contributions for the same year
to a Traditional IRA. For example, assuming you have at least $2,000 in
compensation or earned income, if you contribute $500 to your Traditional
IRA for 1998, your maximum Roth IRA contribution for 1998 will be $1,500.
If you and your spouse have spousal Roth IRAs, each spouse may contribute
up to $2,000 to his or her Roth IRA for a year as long as the combined
compensation of both spouses for the year (as shown on your joint income
tax return) is at least $4,000. If the combined compensation of both spouses
is less than $4,000, the spouse with the higher amount of compensation may
contribute up to that spouse's compensation amount, or $2,000 if less. The
spouse with the lower compensation amount may contribute any amount up to
that spouse's compensation plus any excess of the other spouse's compensation
over the other spouse's Roth IRA contribution. However, the maximum
contribution to either spouse's Roth IRA is $2,000 for the year.
As noted above, the spousal Roth IRA limits are reduced by any
contributions for the same calendar year to a Traditional IRA maintained
by you or your spouse.
10
<PAGE>
For taxpayers with high income levels, the contribution limits may
be reduced (see below).
Are Contributions to a Roth IRA Tax Deductible?
Contributions to a Roth IRA are not deductible. This is a major difference
---
between Roth IRAs and Traditional IRAs. Contributions to a Traditional IRA
may be deductible on your federal income tax return depending on whether
or not you are an active participant in an employer-sponsored plan and on
your income level.
Are the Earnings on my Roth IRA Funds Taxed?
Any dividends on or growth of investments held in your Roth IRA are
generally exempt from federal income taxes and will not be taxed until
withdrawn by you, unless the tax exempt status of your Roth IRA is revoked.
If the withdrawal qualifies as a tax-free withdrawal (see below), amounts
reflecting earnings or growth of assets in your Roth IRA will not be subject
to federal income tax.
Which is Better, a Roth IRA or a Traditional IRA?
This will depend upon your individual situation. A Roth IRA may be better
if you are an active participant in an employer-sponsored plan and your
adjusted gross income is too high to make a deductible IRA contribution
(but not too high to make a Roth IRA contribution). Also, the benefits of
a Roth IRA vs. a Traditional IRA may depend upon a number of other factors
including: your current income tax bracket vs. your expected income tax
bracket when you make withdrawals from your IRA, whether you expect to be
able to make nontaxable withdrawals from your Roth IRA (see below), how
long you expect to leave your contributions in the IRA, how much you expect
the IRA to earn in the meantime, and possible future tax law changes.
Consult a qualified tax or financial advisor for assistance on this
question.
Are there Any Restrictions on Contributions to my Roth IRA?
Taxpayers with very high income levels may not be able to contribute
to a Roth IRA at all, or their contribution may be limited to an amount
less than $2,000. This depends upon your filing status and the amount of
your adjusted gross income (AGI). The following table shows how the
contribution limits are restricted:
ROTH IRA CONTRIBUTION LIMITS
------------------------------------------------------------------
If You Are If You Are Then You May Make
Single Taxpayer Married Filing Jointly
------------------------------------------------------------------
------------------------------------------------------------------
Up to Up to Full
$95,000 $150,000 Contribution
------------------------------------------------------------------
Adjusted More than $95,000 More than $150,000 Reduced Contribution (see
Gross but less than but less than explanation below)
Income $110,000 $160,000
(AGI) Level
------------------------------------------------------------------
$110,000 $160,000 Zero (No Contribution)
and up and up
------------------------------------------------------------------
Note: If you are a married taxpayer filing separately, your maximum
Roth IRA contribution limit phases out over the first $15,000 of adjusted
gross income. If your AGI is $15,000 or more, you may not contribute to a
Roth IRA for the year. (Note: Pending legislation in Congress may reduce
this number from $15,000 to $10,000. Consult your tax advisor or the IRS
for the latest developments.)
How do I Calculate my Limit if I Fall in the "Reduced Contribution" Range?
If your AGI falls in the reduced contribution range, you must calculate
your contribution limit. To do this, multiply your normal contribution limit
($2,000 or your compensation if less) by a fraction. The numerator is the
amount by which your AGI exceeds the lower limit of the reduced contribution
range ($95,000 if single, or $150,000 if married filing jointly). The
denominator is $15,000 (single taxpayers) or $10,000 (married filing jointly).
Subtract this from your normal limit and then round down to the nearest $10.
The contribution limit is the greater of the amount calculated or $200.
For example, assume that your AGI for the year is $157,555 and you are
married, filing jointly. You would calculate your Roth IRA contribution limit
this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range:
($157,555 - $150,000) = $7,555
2. Divide this by $10,000: $7,555
-------
$10,000 = 0.7555
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit:
($2,000 - $1,511) = $489
5. Round this down to the nearest $10 - $480
6. Your contribution limit is the greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Traditional IRA. If you fall in the
reduced contribution range, the reduction formula applies to the Roth IRA
contribution limit left after subtracting your contribution for the year
to a Traditional IRA.
11
<PAGE>
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available
to all taxpayers even if they don't itemize. Instructions to calculate your
AGI are provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of
Roth IRA contribution limits. First, if you are making a deductible
contribution for the year to a Traditional IRA, your AGI is reduced by the
amount of the deduction. Second, if you are converting a Traditional IRA
to a Roth IRA in a year (see below), the amount includable in your income
as a result of the conversion is not considered AGI when computing your
Roth IRA contribution limit for the year. (Note: a bill pending in Congress
might affect the first rule--consult your tax advisor or the IRS for the
latest developments.)
What Happens if I Contribute more than Allowed to my Roth IRA?
The maximum contribution you can make to a Roth IRA generally is $2,000
or 100% of compensation or earned income, whichever is less. As noted above,
your maximum is reduced by the amount of any contribution to a Traditional
IRA for the same year and may be further reduced if you have high AGI. Any
amount contributed to the Roth IRA above the maximum is considered an "excess
contribution."
Any excess contribution is subject to excise tax of 6% for each year
it remains in the Roth IRA.
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty.
To do so, you must withdraw the excess and any earnings on the excess before
the due date (including extensions) for filing your federal income tax return
for the year for which you made the excess contribution. The earnings must
be included in your income for the tax year for which the contribution was
made and may be subject to a 10% premature withdrawal tax if you have not
reached age 59 1/2 (unless an exception to the 10% penalty tax applies).
What Happens if I Don't Correct the Excess Contribution by the Tax Return
Due Date?
Any excess contribution not withdrawn by the tax return due date
(including any extensions) for the year for which the contribution was made
will be subject to the 6% excise tax. There will be an additional 6% excise
tax for each subsequent year the excess remains in your account.
For subsequent years, you may reduce the excess contributions in your
account by making a withdrawal equal to the excess. Earnings need not be
withdrawn. To the extent that no earnings are withdrawn, the withdrawal
will not be subject to income taxes or possible penalties for premature
withdrawals before age 59 1/2. Excess contributions may also be corrected
in a subsequent year to the extent that you contribute less than your Roth
IRA contribution limit for the subsequent year. As the prior excess
contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years.
CONVERSION OF EXISTING TRADITIONAL IRA
Can I convert an Existing Traditional IRA into a Roth IRA?
Yes, starting in 1998 you can convert an existing Traditional IRA into
a Roth IRA if you meet the adjusted gross income (AGI) limits described
below. Conversion may be accomplished either by establishing a Roth IRA
and then transferring the amount in your Traditional IRA you wish to convert
to the new Roth IRA. Or, if you want to convert an existing Traditional
IRA with Hudson Capital Appreciation Fund as custodian to a Roth IRA, you
may give us directions to convert.
You are eligible to convert a Traditional IRA to a Roth IRA if, for
the year of the conversion, your AGI is $100,000 or less. The same limit
applies to married and single taxpayers, and the limit is not indexed to
cost-of-living increases. Married taxpayers are eligible to convert a
Traditional IRA to a Roth IRA only if they file a joint income tax return;
married taxpayers filing separately are not eligible to convert.
Note: No contributions other than Roth IRA conversion contributions
made during the same tax year may be deposited in a single Roth IRA conversion
account.
Caution: You should be extremely cautious in converting an existing
IRA into a Roth IRA early in a year if there is any possibility that your
AGI for the year will exceed $100,000. Although a bill pending in Congress
would permit you to transfer amounts back to your Traditional IRA if your
AGI exceeds $100,000, under the current rules, if you have already converted
during a year and you turn out to have more than $100,000 of AGI, there
may be adverse tax results for you. Consult your tax advisor or the IRS
for the latest developments.
What are the Tax Results from Converting?
The taxable amount in your Traditional IRA you convert to a Roth IRA
will be considered taxable income on your federal income tax return for
the year of the conversion. All amounts in a Traditional IRA are taxable
except for your prior non-deductible contributions to the Traditional IRA.
If you make the conversion during 1998, the taxable income is spread
over four years. In other words, you would include one quarter of the taxable
amount on your federal income tax return for 1998, 1999, 2000 and 2001.
Should I convert my Traditional IRA to a Roth IRA?
Only you can answer this question, in consultation with your tax or
financial advisors. A number of factors, including the following, may be
relevant. Conversions may be advantageous if you expect to leave the converted
funds on deposit in your Roth IRA for at least five years and to be able
to withdraw the funds under circumstances that will not be taxable (see
below). The benefits of converting will also depend on whether you expect
to be in the same tax bracket when you withdraw from your Roth IRA as you
are now. Also, conversion is based upon an assumption that Congress will
not change the tax rules for withdrawals from Roth IRAs in the future, but
this cannot be guaranteed.
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my Employer's
Retirement Plan into a Roth IRA?
Distributions from qualified employer-sponsored retirement plans or
403(b) arrangements (for employees of tax-exempt employers) are not eligible
---
for rollover or direct transfer to a Roth IRA. However, in certain
circumstances it may be possible to make a direct rollover of an eligible
distribution to a Traditional IRA and then to convert the Traditional IRA
to a Roth IRA (see above). Consult your tax or financial advisor for further
information on this possibility.
12
<PAGE>
Can I Make a Rollover from my Roth IRA to another Roth IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have
or you establish to receive the rollover. Such a rollover must be completed
within 60 days after the withdrawal from your first Roth IRA. After making
a rollover from one Roth IRA to another, you must wait a full year (365
days) before you can make another such rollover. (However, you can instruct
a Roth IRA custodian to transfer amounts directly to another Roth IRA
custodian; such a direct transfer does not count as a rollover.)
How Do Rollovers Affect my Roth IRA Contribution Limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, you may make a rollover from one Roth IRA to another
even during a year when you are not eligible to contribute to a Roth IRA
(for example, because your AGI for that year is too high).
WITHDRAWALS
When can I make withdrawals from my Roth IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal
meets the requirements discussed below, it is tax-free. This means that
you pay no federal income tax even though the withdrawal includes earnings
or gains on your contributions while they were held in your Roth IRA.
When must I start making withdrawals?
There are no rules on when you must start making withdrawals from your
Roth IRA or on minimum required withdrawal amounts for any particular year
during your lifetime. Unlike Traditional IRAs, you are not required to start
making withdrawals from a Roth IRA by the April 1 following the year in
which you reach age 70 1/2.
After your death, there are IRS rules on the timing and amount of
distributions. In general, the amount in your Roth IRA must be distributed
by the end of the fifth year after your death. However, distributions to
a designated beneficiary that begin by the end of the year following the
year of your death and that are paid over the life expectancy of the
beneficiary satisfy the rules. Also, if your surviving spouse is your
designated beneficiary, the spouse may defer the start of distributions
until you would have reached age 70 1/2 had you lived.
What are the requirements for a tax-free withdrawal?
To be tax-free, a withdrawal from your Roth IRA must meet two
requirements. First, the Roth IRA must have been open for 5 or more years
before the withdrawal. Second, at least one of the following conditions
must be satisfied:
. You are age 59 1/2 or older when you make the withdrawal.
. The withdrawal is made by your beneficiary after you die.
. You are disabled (as defined in the IRS rules) when you make the withdrawal.
. You are using the withdrawal to cover eligible first time homebuyer
expenses. These are the costs of purchasing, building or rebuilding a
principal residence (including customary settlement, financing or closing
costs). The purchaser may be you, your spouse or a child, grandchild,
parent or grandparent of you or your spouse. An individual is considered
a "first-time homebuyer" if the individual (or the individual's spouse,
if married) did not have an ownership interest in a principal residence
during the two-year period immediately preceding the acquisition in
question. The withdrawal must be used for eligible expenses within 120
days after the withdrawal (if there is an unexpected delay, or cancellation
of the home acquisition, a withdrawal may be redeposited as a rollover).
. There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
For a Roth IRA that you set up with amounts rolled over or converted
from a Traditional IRA, the 5 year period begins with the year in which
the conversion or rollover was made. (Note: a bill pending in Congress might
affect this rule--consult your tax advisor or the IRS for the latest
developments.)
For a Roth IRA that you started with a normal contribution, the 5 year
period starts with the year for which you make the initial normal contribution.
How Are Withdrawals From My Roth IRA Taxed If the Tax-Free Requirements
are not Met?
If the qualified withdrawal requirements are not met, a withdrawal
consisting of your own prior contribution amounts to your Roth IRA will
not be considered taxable income in the year you receive it, nor will the
10% penalty apply. To the extent that the nonqualified withdrawal consists
of dividends or gains while your contributions were held in your Roth IRA,
the withdrawal is includable in your gross income in the taxable year you
receive it, and may be subject to the 10% withdrawal penalty. All amounts
withdrawn from your Roth IRA are considered withdrawals of your contributions
until you have withdrawn the entire amount you have contributed. After that,
all amounts withdrawn are considered taxable withdrawals of dividends and
gains.
Note that, for purposes of determining what portion of any distribution
is includable in income, all of your Roth IRA accounts are considered as
one single account. Amounts withdrawn from any one Roth IRA account are
deemed to be withdrawn from contributions first. Since all your Roth IRAs
are considered to be one account for this purpose, withdrawals from Roth
IRA accounts are not considered to be from earnings or interest until an
amount equal to all contributions made to all of an individual's Roth IRA
--- ---
accounts is withdrawn. The following example illustrates this:
A single individual contributes $1,000 a year to his Hudson Capital
Appreciation Fund Roth IRA account and $1,000 a year to the Brand X Roth
IRA account over a period of ten years. At the end of 10 years his account
balances are as follows:
Principal Earnings
Contributions
Hudson Capital
Appreciation Fund $10,000 $10,000
Roth IRA
Brand X Roth IRA $10,000 $10,000
------- -------
Total $20,000 $20,000
13
<PAGE>
At the end of 10 years, this person has $40,000 in both Roth IRA accounts,
of which $20,000 represents his contributions (aggregated) and $20,000
represents his earnings (aggregated). This individual, who is 40, withdraws
$15,000 from his Brand X Roth IRA (not a qualified withdrawal). We look
to the aggregate amount of all principal contributions - in this case $20,000
- - to determine if the withdrawal is from contributions, and thus non-taxable.
In this example, there is no ($0) taxable income as a result of this
withdrawal because the $15,000 withdrawal is less than the total amount
of aggregated contributions ($20,000). If this individual then withdrew
$15,000 from his Hudson Capital Appreciation Fund Roth IRA, $5,000 would
not be taxable (the remaining aggregate contributions) and $10,000 would
be treated as taxable income for the year of the withdrawal, subject to
regular income taxes and the 10% premature withdrawal penalty (unless an
exception applies).
Note: If passed, a bill currently pending in Congress will change the rules
and the results discussed above. Under the proposed legislation, in general,
separate Roth IRAs established for annual contributions and conversions
for separate years are not aggregated as explained above to determine the
tax on withdrawals. See your tax advisor for more information and the latest
developments.
Taxable withdrawals of dividends and gains from a Roth IRA are treated
as ordinary income. Withdrawals of taxable amounts from a Roth IRA are not
eligible for averaging treatment currently available to certain lump sum
distributions from qualified employer-sponsored retirement plans, nor are
such withdrawals eligible for taxable gains tax treatment.
Your receipt of any taxable withdrawal from your Roth IRA before you
attain age 59 1/2 generally will be considered as an early withdrawal and
subject to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the
following exceptions applies:
. The withdrawal was a result of your death or disability.
. The withdrawal is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint
lives or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments,
the 10% penalty tax will apply. For example, if you begin receiving
payments at age 50 under a withdrawal program providing for substantially
equal payments over your life expectancy, and at age 58 you elect to
withdraw the remaining amount in your Roth IRA in a lump-sum, the 10%
penalty tax will apply to the lump sum and to the amounts previously
paid to you before age 59 1/2 to the extent they were includable in
your taxable income.
. The withdrawal is used to pay eligible higher education expenses.
These are expenses for tuition, fees, books, and supplies required
to attend an institution for post-secondary education. Room and
board expenses are also eligible for a student attending at least
half-time. The student may be you, your spouse, or your child or
grandchild. However, expenses that are paid for with a scholarship
or other educational assistance payment are not eligible expenses.
. The withdrawal is used to cover taxable income for the year of the
withdrawal, subject to regular income taxes and the 10% premature
withdrawal penalty (unless and exception applies).
. The withdrawal is used to cover eligible first time homebuyer expenses
(as described above in the discussion of tax-free withdrawals).
. The withdrawal does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid
during a year are deductible if they are greater than 7 1/2% of
your adjusted gross income for that year).
. The withdrawal does not exceed the amount you paid for health insurance
coverage for yourself, spouse and dependents. This exception applies
only if you have been unemployed and received federal or state
unemployment compensation payments for at least 12 weeks; this
exception applies to distributions during the year in which you
received the unemployment compensation and during the following
year, but not to any distributions received after you have been
reemployed for at least 60 days.
What About the 15 percent Penalty Tax?
The rule imposing a 15% penalty tax on very large withdrawals from
tax-favored arrangements (including IRA, 403(b) arrangements and qualified
employer-sponsored plans), or on excess amounts remaining in such tax-favored
arrangements at your death, has been repealed. This 15% tax no longer applies.
--------
Important: The discussion of the tax rules for Roth IRAs in this Disclosure
- ---------
Statement is based upon the best available information. However, Roth IRAs
are new under the tax laws, and the IRS has not issued regulations or rulings
on the operation and tax treatment of Roth IRA accounts. Also, if enacted,
legislation now pending in Congress will change some of the rules. Therefore,
you should consult your tax advisor for the latest developments or for advice
about how maintaining a Roth IRA will affect your personal tax or financial
situation.
Also, please see Part Three below which contains important information
applicable to all Hudson Capital Appreciation Fund IRAs.
---
14
<PAGE>
Part Three: Rules for All IRAs (Traditional and Roth)
-----------------------------------------------------
GENERAL INFORMATION
IRA Requirements
All IRAs must meet certain requirements. Contributions generally must be
made in cash. The IRA trustee or custodian must be a bank or other person who
has been approved by the Secretary of the Treasury. Your contributions may not
be invested in life insurance or collectibles or be commingled with other
property except in a common trust or investment fund. Your interest in the
account must be nonforfeitable at all times. You may obtain further information
on IRAs from any district office of the Internal Revenue Service.
May I Revoke My IRA?
You may revoke a newly established Regular or Roth IRA at any time within
seven days after the date on which you receive this Disclosure Statement. A
Regular or Roth IRA established more than seven days after the date of your
receipt of this Disclosure Statement may not be revoked.
To revoke your Regular or Roth IRA, mail or deliver a written notice of
revocation to the Custodian at the address which appears at the end of this
Disclosure Statement. Mailed notice will be deemed given on the date that it is
postmarked (or, if sent by certified or registered mail, on the date of
certification or registration). If you revoke your Regular or Roth IRA within
the seven-day period, you are entitled to a return of the entire amount you
originally contributed into your Regular or Roth IRA, without adjustment for
such items as sales charges, administrative expenses or fluctuations in market
value.
INVESTMENTS
How Are My IRA Contributions Invested?
You control the investment and reinvestment of contributions to your
Regular or Roth IRA. Investments must be in one or more of the Fund(s) available
from time to time as listed in the Adoption Agreement for your Regular or Roth
IRA or in an investment selection form provided with your Adoption Agreement or
from the Fund Distributor or Service Company. You direct the investment of your
IRA by giving your investment instructions to the Distributor or Service Company
for the Fund(s). Since you control the investment of your Regular or Roth IRA,
you are responsible for any losses; neither the Custodian, the Distributor nor
the Service Company has any responsibility for any loss or diminution in value
occasioned by your exercise of investment control. Transactions for your Regular
or Roth IRA will generally be at the applicable public offering price or net
asset value for shares of the Fund(s) involved next established after the
Distributor or the Service Company (whichever may apply) receives proper
investment instructions from you; consult the current prospectus for the Fund(s)
involved for additional information.
Before making any investment, read carefully the current prospectus for any
Fund you are considering as an investment for your Traditional IRA or Roth IRA.
The prospectus will contain information about the Fund's investment objectives
and policies, as well as any minimum initial investment or minimum balance
requirements and any sales, redemption or other charges.
Because you control the selection of investments for your Regular or Roth
IRA and because mutual fund shares fluctuate in value, the growth in value of
your Regular or Roth IRA cannot be guaranteed or projected.
Are There Any Restrictions on the Use of my IRA Assets?
The tax-exempt status of your Regular or Roth IRA will be revoked if you
engage in any of the prohibited transactions listed in Section 4975 of the tax
code. Upon such revocation, your Regular or Roth IRA is treated as
distributing its assets to you. The taxable portion of the amount in your IRA
will be subject to income tax (unless, in the case of a Roth IRA, the
requirements for a tax-free withdrawal are satisfied). Also, you may be subject
to a 10% penalty tax on the taxable amount as a premature withdrawal if you have
not yet reached the age of 59 1/2.
Any investment in a collectible (for example, rare stamps) by your Regular
or Roth IRA is treated as a withdrawal; the only exception involves certain
types of government-sponsored coins or certain types of precious metal bullion.
What Is A Prohibited Transaction?
Generally, a prohibited transaction is any improper use of the assets in
your Regular or Roth IRA. Some examples of prohibited transactions are:
. Direct or indirect sale or exchange of property between you and your
Regular or Roth IRA.
. Transfer of any property from your Regular or Roth IRA to yourself or
from yourself to your Regular or Roth IRA.
Your Regular or Roth IRA could lose its tax exempt status if you use all or
part of your interest in your Regular or Roth IRA as security for a loan or
borrow any money from your Regular or Roth IRA. Any portion of your Regular or
Roth IRA used as security for a loan will be treated as a distribution in the
year in which the money is borrowed. This amount may be taxable and you may also
be subject to the 10% premature withdrawal penalty on the taxable amount.
FEES AND EXPENSES
Custodian's Fees
The fees charged by the Custodian for maintaining either a Traditional IRA
or a Roth IRA are listed in the Adoption Agreement.
General Fee Policies
. Fees may be paid by you directly, or the
15
<PAGE>
Custodian may deduct them from your Regular or Roth IRA.
. Fees may be changed upon 30 days written notice to you.
. The full annual maintenance fee will be charged for any calendar
year during which you have a Regular or Roth IRA with us. This fee
is not prorated for periods of less than one full year.
. If provided for in this Disclosure Statement or the Adoption
Agreement, termination fees are charged when your account is
closed whether the funds are distributed to you or transferred to
a successor custodian or trustee.
. The Custodian may charge you for its reasonable expenses for
services not covered by its fee schedule.
Other Charges
There may be sales or other charges associated with the purchase or
redemption of shares of a Fund in which your Traditional IRA or Roth IRA is
invested. Before investing, be sure to read carefully the current prospectus of
any Fund you are considering as an investment for your Traditional IRA or Roth
IRA for a description of applicable charges.
TAX MATTERS
What IRA Reports does the Custodian Issue?
The Custodian will report all withdrawals to the IRS and the recipient on
the appropriate form. For reporting purposes, a direct transfer of assets to a
successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your account and
the amount of any rollover (including conversions of a Traditional IRA to a Roth
IRA) or regular contribution made during a calendar year, as well as the tax
year for which a contribution is made. Unless the Custodian receives an
indication from you to the contrary, it will treat any amount as a contribution
for the tax year in which it is received. It is most important that a
--------------
contribution between January and April 15th for the prior year be clearly
designated as such.
What Tax Information Must I Report to the IRS?
You must file Form 5329 with the IRS for each taxable year for which you
made an excess contribution or you take a premature withdrawal that is subject
to the 10% penalty tax, or you withdraw less than the minimum amount required
from your Traditional IRA. If your beneficiary fails to make required minimum
withdrawals from your Regular or Roth IRA after your death, your beneficiary may
be subject to an excise tax and be required to file Form 5329.
For Traditional IRAs, you must also report each nondeductible contribution
to the IRS by designating it a nondeductible contribution on your tax return.
Use Form 8606. In addition, for any year in which you make a nondeductible
contribution or take a withdrawal, you must include additional information on
your tax return. The information required includes: (1) the amount of your
nondeductible contributions for that year; (2) the amount of withdrawals from
Traditional IRAs in that year; (3) the amount by which your total nondeductible
contributions for all the years exceed the total amount of your distributions
previously excluded from gross income; and (4) the total value of all your
Traditional IRAs as of the end of the year. If you fail to report any of this
information, the IRS will assume that all your contributions were deductible.
This will result in the taxation of the portion of your withdrawals that should
be treated as a nontaxable return of your nondeductible contributions.
Which Withdrawals Are Subject to Withholding?
Roth IRA
Federal income tax will be withheld at a flat rate of 10% of any taxable
withdrawal from your Roth IRA, unless you elect not to have tax withheld.
Withdrawals from a Roth IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
Traditional IRA
Federal income tax will be withheld at a flat rate of 10% from any
withdrawal from your Traditional IRA, unless you elect not to have tax withheld.
Withdrawals from a Traditional IRA are not subject to the mandatory 20% income
tax withholding that applies to most distributions from qualified plans or
403(b) accounts that are not directly rolled over to another plan or IRA.
ACCOUNT TERMINATION
You may terminate your Traditional IRA or Roth IRA at any time after its
establishment by sending a completed withdrawal form (or other withdrawal
instructions in a form acceptable to the Custodian), or a transfer authorization
form, to:
Investors Fiduciary Trust Company
C/O Fahnestock Funds
P.O. Box 419960
Kansas City, MO 64141-6960
Your Traditional IRA or Roth IRA with Hudson Capital Appreciation Fund will
terminate upon the first to occur of the following:
. The date your properly executed withdrawal form or instructions (as
described above) withdrawing your total Traditional IRA or Roth IRA
balance is received and accepted by the Custodian or, if later, the
termination date specified in the withdrawal form.
. The date the Traditional IRA or Roth IRA ceases to qualify under
the tax code. This will be deemed a termination.
. The transfer of the Traditional IRA or Roth IRA to another
custodian/trustee.
. The rollover of the amounts in the Traditional IRA or Roth IRA to
another custodian/trustee.
Any outstanding fees must be received prior to such a termination of your
account.
The amount you receive from your IRA upon termination of the account will
be treated as a withdrawal, and thus the rules relating to Traditional IRA or
Roth IRA withdrawals will apply. For example, if the IRA is terminated before
you reach age 59 1/2, the 10% early withdrawal penalty may apply to the taxable
amount you receive.
16
<PAGE>
IRA DOCUMENTS
Traditional IRA
The terms contained in Articles I to VII of Part One of the Hudson Capital
Appreciation Fund Universal Individual Retirement Custodial Account document
have been promulgated by the IRS in Form 5305-A for use in establishing a
Traditional IRA Custodial Account that meets the requirements of Code Section
408(a) for a valid Traditional IRA. This IRS approval relates only to the form
of Articles I to VII and is not an approval of the merits of the Traditional IRA
or of any investment permitted by the Traditional IRA.
Roth IRA
The terms contained in Articles I to VII of Part Two of the Hudson Capital
Appreciation Fund Universal Individual Retirement Account Custodial Agreement
have been promulgated by the IRS in Form 5305-RA for use in establishing a Roth
IRA Custodial Account that meets the requirements of Code Section 408A for a
valid Roth IRA. This IRS approval relates only to the form of Articles I to VII
and is not an approval of the merits of the Roth IRA or of any investment
permitted by the Roth IRA.
Based on our legal advice relating to current tax laws and IRS meetings,
Hudson Capital Appreciation Fund believes that the use of a Universal Individual
Retirement Account Information Kit such as this, containing information and
documents for both a Traditional IRA or a Roth IRA, will be acceptable to the
IRS. However, if the IRS makes a ruling, or if Congress enacts legislation,
regarding the use of different documentation, Hudson Capital Appreciation Fund
will forward to you new documentation for your Traditional IRA or a Roth IRA (as
appropriate) for you to read and, if necessary, an appropriate new Adoption
Agreement to sign. By adopting a Traditional IRA or a Roth IRA using these
materials, you acknowledge this possibility and agree to this procedure if
necessary. In all cases, to the extent permitted, Investors Fiduciary Trust
Company will treat your IRA as being opened on the date your account was opened
using the Adoption Agreement in this Kit.
ADDITIONAL INFORMATION
For additional information you may write to the following address or call the
following telephone number.
Investors Fiduciary Trust Company
C/O Fahnestock Funds
P.O. Box 419960
Kansas City, MO 64141-6960
(800) 367-0068
17
<PAGE>
Universal Individual
--------------------
Retirement Account Custodial Agreement
--------------------------------------
Part One: Provisions applicable to Traditional IRAs
---------------------------------------------------
The following provisions of Articles I to VII are in the form promulgated
by the Internal Revenue Service in Form 5305-A for use in establishing an
individual retirement custodial account.
Article I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described in
section 408(k).
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold, silver, and platinum
coins, coins issued under the laws of any state, and certain bullion.
Article IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to
begin to the Depositor under paragraph 3, or to the surviving spouse under
paragraph 4, other than in the case of a life annuity, life expectancies shall
be recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date, the April
1 following the calendar year end in which the Depositor reaches age 70 1/2. By
that date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified
period that may not be longer than the Depositor's life
expectancy.
(e) Equal or substantially equal annual payments over a specified
period that may not be longer than the joint life and last
survivor expectancy of the Depositor and his or her designated
beneficiary.
4. If the Depositor dies before his or her entire interest is distributed
to him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest
has begun, the entire remaining interest will, at the election of
the Depositor or, if the Depositor has not so elected, at the
election of the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following
the year of the Depositor's death. If, however, the
beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31
of the year in which the Depositor would have turned age
70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun
on the Depositor's required beginning date, even though payments
may actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash
18
<PAGE>
contributions or rollover contributions may be accepted in
the account.
5. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual payment for
each year, divide the Depositor's entire interest in the custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy of
the Depositor and the Depositor's designated beneficiary, or the life expectancy
of the designated beneficiary, whichever applies.) In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designated
beneficiary as of their birthdays in the year the Depositor reaches age 70 1/2.
In the case of a distribution in accordance with paragraph 4(b)(ii), determine
life expectancy using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
Article V.
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be made
with the consent of the persons whose signatures appear on the Adoption
Agreement.
19
<PAGE>
Part Two: Provisions applicable to Roth IRAs
--------------------------------------------
The following provisions of Articles I to VII are in the form promulgated
by the Internal Revenue Service in Form S305-RA for use in establishing a Roth
Individual Retirement Custodial Account.
Article I
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except
in the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum
amount of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will
be accepted.
Article IA
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single Depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married Depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married Depositor who files separately, between $0 and $10,000. In
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
Article II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver, and
platinum coins, coins issued under the laws of any state, and certain
bullion.
Article IV
1. If the Depositor dies before his or her entire interest is distributed to
him or her and the Depositor's surviving spouse is not the sole beneficiary,
the entire remaining interest will, at the election of the Depositor or, if
the Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated
beneficiary starting no later than December 31 of the year following the
year of the Depositor's death.
If distributions do not begin by the date described in (b),
distribution method (a) will apply.
2. In the case of distribution method 1(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the designated beneficiary using
the attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence and subtract 1
for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's date of
death, such spouse will then be treated as the Depositor.
Article V
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under sections 408(i) and
408A(d)(3)(E), and Regulations sections 1.408-5 and 1.408-6, and under
guidance published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
Article VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
Article VII
This agreement will be amended from time to time to comply with the
provisions of the Code, related regulations, and other published guidance. Other
amendments may be made with the consent of the persons whose signatures appear
below.
20
<PAGE>
Part Three: Provisions applicable to both Traditional IRAs
----------------------------------------------------------
and Roth IRAs
-------------
Article VIII
1. As used in this Article VIII the following terms have the following
meanings:
"Account" or "Custodial Account" means the individual retirement account
established using the terms of either Part One or Part Two and, in either event,
Part Three of this Universal Individual Retirement Account Custodial Agreement
and the Adoption Agreement signed by the Depositor. The Account may be a Regular
Individual Retirement Account or a Roth Individual Retirement Account, as
specified by the Depositor. See Section 24 below.
"Custodian" means Hudson Capital Appreciation Fund.
"Fund" means any registered investment company which is advised, sponsored
or distributed by Sponsor; provided, however, that such a mutual fund or
registered investment company must be legally offered for sale in the state of
the Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to
serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder to
the Distributor may be performed by the Fund(s) or by an entity that has a
contract to perform management or investment advisory services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform various
administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor (if any)
or by an entity specified in the second preceding paragraph.
"Sponsor" means Fahnestock Funds.
2. The Depositor may revoke the Custodial Account established hereunder by
mailing or delivering a written notice of revocation to the Custodian within
seven days after the Depositor receives the Disclosure Statement related to the
Custodial Account. Mailed notice is treated as given to the Custodian on date of
the postmark (or on the date of Post Office certification or registration in the
case of notice sent by certified or registered mail). Upon timely revocation,
the Depositor's initial contribution will be returned, without adjustment for
administrative expenses, commissions or sales charges, fluctuations in market
value or other changes.
The Depositor may certify in the Adoption Agreement that the Depositor
received the Disclosure Statement related to the Custodial Account at least
seven days before the Depositor signed the Adoption Agreement to establish the
Custodial Account, and the Custodian may rely upon such certification.
3. All contributions to the Custodial Account shall be invested and
reinvested in full and fractional shares of one or more Funds. Such investments
shall be made in such proportions and/or in such amounts as Depositor from time
to time in the Adoption Agreement or by other written notice to the Service
Company (in such form as may be acceptable to the Service Company) may direct.
The Service Company shall be responsible for promptly transmitting all
investment directions by the Depositor for the purchase or sale of shares of one
or more Funds hereunder to the Funds' transfer agent for execution. However, if
investment directions with respect to the investment of any contribution
hereunder are not received from the Depositor as required or, if received, are
unclear or incomplete in the opinion of the Service Company, the contribution
will be returned to the Depositor, or will be held uninvested (or invested in a
money market fund if available) pending clarification or completion by the
Depositor, in either case without liability for interest or for loss of income
or appreciation. If any other directions or other orders by the Depositor with
respect to the sale or purchase of shares of one more Funds for the Custodial
Account are unclear or incomplete in the opinion of the Service Company, the
Service Company will refrain from carrying out such investment directions or
from executing any such sale or purchase, without liability for loss of income
or for appreciation or depreciation of any asset, pending receipt of
clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum
initial or additional investment or minimum balance rules applicable to a Fund
as described in its prospectus.
All dividends and capital gains or other distributions received on the
shares of any Fund held in the Depositor's Account shall be (unless received in
additional shares) reinvested in full and fractional shares of such Fund (or of
any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum
balance and other exchange rules applicable to a Fund, the Depositor may at any
time direct the Service Company to exchange all or a specified portion of the
shares of a Fund in the Depositor's Account for shares and fractional shares of
one or more other Funds. The Depositor shall give such directions by written
notice acceptable to the Service Company, and the Service Company will process
such directions as soon as practicable after receipt thereof (subject to the
second paragraph of Section 3 of this Article VIII).
5. Any purchase or redemption of shares of a Fund for or from the
Depositor's Account will be effected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Service Company has transmitted the Depositor's
investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or
from the Depositor's Account will be subject to any applicable sales, redemption
or other charge as described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Depositor's Custodial Account. Any
account maintained in connection herewith shall be in the name of the Custodian
for the benefit of the Depositor. All assets of the Custodial Account shall be
registered in
21
<PAGE>
the name of the Custodian or of a suitable nominee. The books and records of the
Custodian shall show that all such investments are part of the Custodial
Account.
The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the Custodial Account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the Account
hereunder will be deemed to satisfy the Custodian's record keeping
responsibilities therefor. The Service Company agrees to furnish the Custodian
with any information the Custodian requires to carry out the Custodian's record
keeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with respect
to the investment and reinvestment of Depositor's Custodial Account, nor shall
such parties be liable for any loss or diminution in value which results from
Depositor's exercise of investment control over his Custodial Account. Depositor
shall have and exercise exclusive responsibility for and control over the
investment of the assets of his Custodial Account, and neither Custodian nor any
other such party shall have any duty to question his directions in that regard
or to advise him regarding the purchase, retention or sale of shares of one or
more Funds for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with respect
to the Custodial Account on a form acceptable to the Custodian and the Service
Company. The investment advisor's appointment will be in effect until written
notice to the contrary is received by the Custodian and the Service Company.
While an investment advisor's appointment is in effect, the investment advisor
may issue investment directions or may issue orders for the sale or purchase of
shares of one or more Funds to the Service Company, and the Service Company will
be fully protected in carrying out such investment directions or orders to the
same extent as if they had been given by the Depositor.
The Depositor's appointment of any investment advisor will also be deemed
to be instructions to the Custodian and the Service Company to pay such
investment advisor's fees to the investment advisor from the Custodial Account
hereunder without additional authorization by the Depositor or the Custodian.
9. Distribution of the assets of the Custodial Account shall be made at
such time and in such form as Depositor (or the Beneficiary if Depositor is
deceased) shall elect by written order to the Custodian. Depositor acknowledges
that any distribution of a taxable amount from the Custodial Account (except for
distribution on account of Depositor's disability or death, return of an "excess
contribution" referred to in Code Section 4973, or a "rollover" from this
Custodial Account) made earlier than age 59 1/2 may subject Depositor to an
"additional tax on early distributions" under Code Section 72(t) unless an
exception to such additional tax is applicable. For that purpose, Depositor will
be considered disabled if Depositor can prove, as provided in Code Section
72(m)(7), that Depositor is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or be of long-continued and indefinite duration.
It is the responsibility of the Depositor (or the Beneficiary) by appropriate
distribution instructions to the Custodian to insure that any applicable
distribution requirements of Code Section 401(a)(9) and Article IV above are
met. If the Depositor (or Beneficiary) does not direct the Custodian to make
distributions from the Custodial Account by the time that such distributions are
required to commence in accordance with such distribution requirements, the
Custodian (and Service Company) shall assume that the Depositor (or Beneficiary)
is meeting the minimum distribution requirements from another individual
retirement arrangement maintained by the Depositor (or Beneficiary) and the
Custodian and Service Company shall be fully protected in so doing. The
Depositor (or the Depositor's surviving spouse) may elect to comply with the
distribution requirements in Article IV using the recalculation of life
expectancy method, or may elect that the life expectancy of the Depositor and/or
the Depositor's surviving spouse, as applicable, will not be recalculated; any
such election may be in such form as the Depositor (or surviving spouse)
provides (including the calculation of minimum distribution amounts in
accordance with a method that does not provide for recalculation of the life
expectancy of one or both of the Depositor and surviving spouse and instructions
for withdrawals to the Custodian in accordance with such method).
Notwithstanding paragraph 2 of Article IV, unless an election to have life
expectancies recalculated annually is made by the time distributions are
required to begin, life expectancies shall not be recalculated. Neither the
Custodian nor any other party providing services to the Custodial Account
assumes any responsibility for the tax treatment of any distribution from the
Custodial Account; such responsibility rests solely with the person ordering the
distribution.
10. The Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the Custodian may
reasonably request. Also, before making any distribution or honoring any
assignment of the Custodial Account, Custodian shall be furnished with any and
all applications, certificates, tax waivers, signature guarantees and other
documents (including proof of any legal representative's authority) deemed
necessary or advisable by Custodian, but Custodian shall not be responsible for
complying with any order or instruction which appears on its face to be genuine,
or for refusing to comply if not satisfied it is genuine, and Custodian has no
duty of further inquiry. Any distributions from the Account may be mailed,
first-class postage prepaid, to the last known address of the person who is to
receive such distribution, as shown on the Custodian's records, and such
distribution shall to the extent thereof completely discharge the Custodian's
liability for such payment.
11. (a) The Term "Beneficiary" means the person or persons designated as
such by the "designating person" (as defined below) on a form
acceptable to the Custodian for use in connection with the
Custodial Account, signed by the designating person, and filed
with the Custodian. The form may name individuals, trusts,
estates, or other entities as either primary or contingent
beneficiaries. However, if the designation does not effectively
dispose of the entire Custodial Account as of the time
distribution is to commence, the term "Beneficiary" shall then
mean the designating person's estate with respect to the assets of
the Custodial Account not disposed of by the designation form. The
form last accepted by the Custodian before such distribution is to
commence, provided it was received by the Custodian (or deposited
in the U.S. Mail or with a reputable delivery service) during the
designating person's lifetime, shall be controlling and, whether
or not fully dispositive of the Custodial Account, thereupon shall
revoke all such forms previously filed by that person. The term
"designating person" means Depositor during his/her lifetime;
after Depositor's death, it also means Depositor's spouse, but
only if the spouse elects to treat the Custodial Account as the
spouse's own Custodial Account in accordance with applicable
provisions of the Code.
(b) When and after distributions from the Custodial
22
<PAGE>
Account to Depositor's Beneficiary commence, all rights and
obligations assigned to Depositor hereunder shall inure to, and
be enjoyed and exercised by, Beneficiary instead of Depositor.
12. (a) The Depositor agrees to provide information to the Custodian
at such time and in such manner as may be necessary for the
Custodian to prepare any reports required under Section 408(i) or
Section 408A(d)(3)(E) of the Code and the regulations thereunder
or otherwise.
(b) The Custodian or the Service Company will submit reports to
the Internal Revenue Service and the Depositor at such time and
manner and containing such information as is prescribed by the
Internal Revenue Service.
(c) The Depositor, Custodian and Service Company shall furnish
to each other such information relevant to the Custodial Account
as may be required under the Code and any regulations issued or
forms adopted by the Treasury Department thereunder or as may
otherwise be necessary for the administration of the Custodial
Account.
(d) The Depositor shall file any reports to the Internal Revenue
Service which are required of him by law (including Form 5329),
and neither the Custodian nor Service Company shall have
any duty to advise Depositor concerning or monitor Depositor's
compliance with such requirement.
13. (a) Depositor retains the right to amend this Custodial Account
document in any respect at any time, effective on a stated
date which shall be at least 60 days after giving written
notice of the amendment (including its exact terms) to Custodian
by registered or certified mail, unless Custodian waives notice
as to such amendment. If the Custodian does not wish to continue
serving as such under this Custodial Account document as so
amended, it may resign in accordance with Section 17 below.
(b) Depositor delegates to the Custodian the Depositor's right
so to amend, provided (i) the Custodian does not change the
investments available under this Custodial Agreement and (ii)
the Custodian amends in the same manner all agreements comparable
to this one, having the same Custodian, permitting comparable
investments, and under which such power has been delegated
to it; this includes the power to amend retroactively if
necessary or appropriate in the opinion of the Custodian in order
to conform this Custodial Account to pertinent provisions of the
Code and other laws or successor provisions of law, or to obtain a
governmental ruling that such requirements are met, to adopt a
prototype or master form of agreement in substitution for this
Agreement, or as otherwise may be advisable in the opinion of the
Custodian. Such an amendment by the Custodian shall be
communicated in writing to Depositor, and Depositor shall be
deemed to have consented thereto unless, within 30 days after such
communication to Depositor is mailed, Depositor either (i) gives
Custodian a written order for a complete distribution or transfer
of this Custodial Account, or (ii) removes the Custodian and
appoints a successor under Section 17 below.
Pending the adoption of any amendment necessary or desirable
to conform this Custodial Account document to the requirements
of any amendment to any applicable provision of the Internal
Revenue Code or regulations or rulings thereunder, the Custodian
and the Service Company may operate the Depositor's Custodial
Account in accordance with such requirements to the extent
that the Custodian and/or the Service Company deem necessary
to preserve the tax benefits of the Account.
(c) Notwithstanding the provisions of subsections (a) and (b)
above, no amendment shall increase the responsibilities or
duties of Custodian without its prior written consent.
(d) This Section 13 shall not be construed to restrict the
Custodian's right to substitute fee schedules in the manner
provided by Section 16 below, and no such substitution shall
be deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this Agreement
is terminated or if, within 30 days (or such longer time as
Custodian may agree) after resignation or removal of Custodian
under Section 17, Depositor or Sponsor, as the case may be,
has not appointed a successor which has accepted such
appointment. Termination of the Custodial Account shall be
effected by distributing all assets thereof in a single payment
in cash or in kind to Depositor, subject to Custodian's right
to reserve funds as provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial
account document shall have no further force and effect (except
for Sections 15(f), 17(b) and (c) hereof which shall survive
the termination of the Custodial Account and this document),
and Custodian shall be relieved from all further liability
hereunder or with respect to the Custodial Account and all
assets thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more
contractors or service providers to carry out any of its
functions and may compensate them from the Custodial Account
for expenses attendant to those functions. In the event of
such appointment, all rights and privileges of the Custodian
under this Agreement shall pass through to such contractors
or service providers who shall be entitled to enforce them
as if a named party.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Depositor
and for dealing with or forwarding the same to the transfer
agent for the Fund(s).
(c) The parties do not intend to confer any fiduciary duties on
Custodian or Service Company (or any other party providing
services to the Custodial Account), and none shall be implied.
Neither shall be liable (or assumes any responsibility) for
the collection of contributions, the proper amount, time or
tax treatment of any contribution to the Custodial Account
or the propriety of any contributions under this Agreement,
or the purpose, time, amount (including any minimum distribution
amounts), tax treatment or propriety of any
23
<PAGE>
distribution hereunder, which matters are the sole responsibility
of Depositor and Depositor's Beneficiary.
(d) Not later than 60 days after the close of each calendar year
(or after the Custodian's resignation or removal), the Custodian
or Service Company shall file with Depositor a written report
or reports reflecting the transactions effected by it during
such period and the assets of the Custodial Account at its
close. Upon the expiration of 60 days after such a report
is sent to Depositor (or Beneficiary), the Custodian or Service
Company shall be forever released and discharged from all
liability and accountability to anyone with respect to
transactions shown in or reflected by such report except with
respect to any such acts or transactions as to which Depositor
shall have filed written objections with the Custodian or
Service Company within such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered,
to Depositor all notices, prospectuses, financial statements
and other reports to shareholders, proxies and proxy soliciting
materials relating to the shares of the Fund(s) credited
to the Custodial Account. No shares shall be voted, and no
other action shall be taken pursuant to such documents, except
upon receipt of adequate written instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company,
Distributor, the Fund(s), Sponsor and Custodian and save them
harmless from any and all liability whatsoever which may arise
either (i) in connection with this Agreement and the matters
which it contemplates, except that which arises directly out
of the Service Company's, Distributor's, Fund's, Sponsor's
or Custodian's bad faith, gross negligence or willful misconduct,
(ii) with respect to making or failing to make any distribution,
other than for failure to make distribution in accordance
with an order therefor which is in full compliance with Section
10, or (iii) actions taken or omitted in good faith by such
parties. Neither Service Company nor Custodian shall be obligated
or expected to commence or defend any legal action or proceeding
in connection with this Agreement or such matters unless agreed
upon by that party and Depositor, and unless fully indemnified
for so doing to that party's satisfaction.
(g) The Custodian and Service Company shall each be responsible
solely for performance of those duties expressly assigned
to it in this Agreement, and neither assumes any responsibility
as to duties assigned to anyone else hereunder or by operation
of law.
(h) The Custodian and Service Company may each conclusively rely
upon and shall be protected in acting upon any written order
from Depositor or Beneficiary, or any investment advisor
appointed under Section 8, or any other notice, request, consent,
certificate or other instrument or paper believed by it to
be genuine and to have been properly executed, and so long
as it acts in good faith, in taking or omitting to take any
other action in reliance thereon. In addition, Custodian will
carry out the requirements of any apparently valid court order
relating to the Custodial Account and will incur no liability
or responsibility for so doing.
16. (a) The Custodian, in consideration of its services under this
Agreement, shall receive the fees specified on the applicable
fee schedule. The fee schedule originally applicable shall
be the one specified in the Adoption Agreement or Disclosure
Statement, as applicable. The Custodian may substitute a
different fee schedule at any time upon 30 days' written notice
to Depositor. The Custodian shall also receive reasonable
fees for any services not contemplated by any applicable fee
schedule and either deemed by it to be necessary or desirable
or requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes
of any kind whatsoever, including transfer taxes incurred
in connection with the investment or reinvestment of the assets
of the Custodial Account, that may be levied or assessed in
respect to such assets, and all other administrative expenses
incurred by the Custodian in the performance of its duties
(including fees for legal services rendered to it in connection
with the Custodial Account) shall be charged to the Custodial
Account. If the Custodian is required to pay any such amount,
the Depositor (or Beneficiary) shall promptly upon notice
thereof reimburse the Custodian.
(c) All such fees and taxes and other administrative expenses
charged to the Custodial Account shall be collected either
from the amount of any contribution or distribution to or
from the Account, or (at the option of the person entitled
to collect such amounts) to the extent possible under the
circumstances by the conversion into cash of sufficient shares
of one or more Funds held in the Custodial Account (without
liability for any loss incurred thereby). Notwithstanding
the foregoing, the Custodian or Service Company may make demand
upon the Depositor for payment of the amount of such fees,
taxes and other administrative expenses. Fees which remain
outstanding after 60 days may be subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor
or Sponsor, as the case may be, may remove it from its office
hereunder. Such notice, to be effective, shall designate a
successor custodian and shall be accompanied by the successor's
written acceptance. The Custodian also may at any time resign
upon 30 days' prior written notice to Sponsor, whereupon the
Sponsor shall notify the Depositor (or Beneficiary) and shall
appoint a successor to the Custodian. In connection with its
resignation hereunder, the Custodian may, but is not required
to, designate a successor custodian by written notice to the
Sponsor or Depositor (or Beneficiary), and the Sponsor or
Depositor (or Beneficiary) will be deemed to have consented
to such successor unless the Sponsor or Depositor (or
Beneficiary) designates a different successor custodian and
provides written notice thereof together with such a different
successor's written acceptance by such date as the Custodian
specifies in its original notice to the Sponsor or Depositor
(or Beneficiary) (provided that the Sponsor or Depositor (or
Beneficiary) will have a minimum of 30 days to designate a
different successor).
(b) The successor custodian shall be a bank, insured credit union,
or other person satisfactory to the Secretary of the Treasury
under Code Section 408(a)(2). Upon
24
<PAGE>
receipt by Custodian of written acceptance by its successor of
such successor's appointment, Custodian shall transfer and pay
over to such successor the assets of the Custodial Account and
all records (or copies thereof) of Custodian pertaining thereto,
provided that the successor custodian agrees not to dispose of
any such records without the Custodian's consent. Custodian is
authorized, however, to reserve such sum of money or property as
it may deem advisable for payment of all its fees, compensation,
costs, and expenses, or for payment of any other liabilities
constituting a charge on or against the assets of the Custodial
Account or on or against the Custodian, with any balance of
such reserve remaining after the payment of all such items
to be paid over to the successor custodian.
(c) Any Custodian shall not be liable for the acts or omissions
of its predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and
sections thereof shall mean the same as amended from time to time, including
successors to such sections.
19. Except where otherwise specifically required in this Agreement,
any notice from Custodian to any person provided for in this Agreement shall
be effective if sent by first-class mail to such person at that person's
last address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right
or power to anticipate any part of the Custodial Account or to sell, assign,
transfer, pledge or hypothecate any part thereof. The Custodial Account
shall not be liable for the debts of Depositor or Depositor's Beneficiary
or subject to any seizure, attachment, execution or other legal process
in respect thereof except to the extent required by law. At no time shall
it be possible for any part of the assets of the Custodial Account to be
used for or diverted to purposes other than for the exclusive benefit of
the Depositor or his/her Beneficiary except to the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in
and shall be construed and administered in accordance with the laws of the
state where the principal offices of the Custodian are located. Any action
involving the Custodian brought by any other party must be brought in a
state or federal court in such state.
If in the Adoption Agreement, Depositor designates that the Custodial
Account is a Traditional IRA, this Agreement is intended to qualify under
Code Section 408(a) as an individual retirement Custodial Account and to
entitle Depositor to the retirement savings deduction under Code Section
219 if available. If in the Adoption Agreement Depositor designates that
the Custodial Account is a Roth IRA, this Agreement is intended to qualify
under Code Section 408A as a Roth individual retirement Custodial Account
and to entitle Depositor to the tax-free withdrawal of amounts from the
Custodial Account to the extent permitted in such Code section.
If any provision hereof is subject to more than one interpretation
or any term used herein is subject to more than one construction, such
ambiguity shall be resolved in favor of that interpretation or construction
which is consistent with the intent expressed in whichever of the two preceding
sentences is applicable.
However, the Custodian shall not be responsible for whether or not
such intentions are achieved through use of this Agreement, and Depositor
is referred to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding
the legal consequences (including but not limited to federal and state tax
matters) of entering into this Agreement, contributing to the Custodial
Account, and ordering Custodian to make distributions from the Account.
Depositor acknowledges that Custodian and Service Company (and any company
associated therewith) are prohibited by law from rendering such advice.
23. If any provision of any document governing the Custodial Account
provides for notice, instructions or other communications from one party
to another in writing, to the extent provided for in the procedures of the
Custodian, Service Company or another party, any such notice, instructions
or other communications may be given by telephonic, computer, other electronic
or other means, and the requirement for written notice will be deemed
satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) If in the Adoption Agreement the Depositor designated the
Custodial Account as a Traditional IRA under Code Section
408(a), the provisions of Part One and Part Three of this
Agreement and the provisions of the Adoption Agreement are
the legal documents governing the Depositor's Custodial Account.
(b) If in the Adoption Agreement the Depositor designated the
Custodial Account as a Roth IRA under Code Section 408A, the
provisions of Part Two and Part Three of this Agreement and
the provisions of the Adoption Agreement are the legal documents
governing the Depositor's Custodial Account.
(c) In the Adoption Agreement the Depositor must designate the
Custodian Account as either a Roth IRA or a Traditional IRA,
and a separate account will be established for such IRA. One
Custodial Account may not serve as a Roth IRA and a Traditional
IRA (through the use of subaccounts or otherwise).
25. Articles I through VII of Part One of this Agreement are in the
form promulgated by the Internal Revenue Service as Form 5305-A. It is
anticipated that, if and when the Internal Revenue Service promulgates changes
to Form 5305-A, the Custodian will amend this Agreement correspondingly.
Articles I through VII of Part Two of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-RA. It is anticipated
that, if and when the Internal Revenue Service promulgates changes to Form
5305-RA, the Custodian will amend this Agreement correspondingly.
The Internal Revenue Service has endorsed the use of documentation
permitting a Depositor to establish either a Traditional IRA or Roth IRA
(but not both using a single Adoption Agreement), and this Kit complies
with the requirements of the IRS guidance for such use. If the Internal
Revenue Service subsequently determines that such an approach is not
permissible, or that the use of a "combined" Adoption Agreement does not
establish a valid Traditional IRA or a Roth IRA (as the case may be), the
Custodian will furnish the Depositor with replacement documents and the
Depositor will if necessary sign such replacement documents. Depositor
acknowledges and agrees to such procedures and to cooperate with Custodian
to preserve the intended tax treatment of the Account.
26. If the Depositor maintains an Individual Retirement Account under
Code section 408(a), Depositor may convert or transfer such
25
<PAGE>
other IRA to a Roth IRA under Code section 408A using the terms of this
Agreement and the Adoption Agreement by completing and executing the Adoption
Agreement and giving suitable directions to the Custodian and the custodian or
trustee of such other IRA. Alternatively, the Depositor may convert or transfer
such other IRA to a Roth IRA by use of a reply card or by telephonic, computer
or electronic means in accordance with procedures adopted by the Custodian or
Service Company intended to meet the requirements of Code section 408A, and the
Depositor will be deemed to have executed the Adoption Agreement and adopted the
provisions of this Agreement and the Adoption Agreement in accordance with such
procedures.
27. The Depositor acknowledges that he or she has received and read the
current prospectus for each Fund in which his or her Account is invested and the
Individual Retirement Account Disclosure Statement related to the Account. The
Depositor represents under penalties of perjury that his or her Social Security
number (or other Taxpayer Identification Number) as stated in the Adoption
Agreement is correct.
26
<PAGE>
HUDSON CAPITAL APPRECIATION FUND
For Assistance in completing this application, please call 1-800-367-0068
Mailing Address:
IFTC
C/O Fahnestock Funds
P.O. Box 419960
Kansas City, MO 64141-6960
-----
A
-----
Traditional/SEP/ROTH IRA Application
IRA Application (Form A)
To open an IRA, complete and sign this application. If your spouse also wishes
to open an IRA, request an additional IRA Application from an IFTC
representative or simply photocopy this blank application. The IRS requires that
each person have a separate IRA account
Transfer Form (Optional-Form B)
To transfer IRA assets from another bank, broker or mutual fund company,
complete this form. Please attach a complete copy of the most recent statement
for the account, be sure to use a separate form for each. Additional forms are
available from IFTC or you can photocopy the blank form.
Direct Rollover Form (Optional-Form C)
This form is to be used to inform Hudson Capital Appreciation Fund of your
intention to invest a direct rollover from your qualified retirement plan.
================================================================================
1. Account Registration - PLEASE PRINT or TYPE
================================================================================
_______________________________________________________________________________
First Name Middle Initial Last Name
_______________________________________________________________________________
Address
_______________________________________________________________________________
City State Zip Code
_______________________________________________________________________________
Social Security # Date of Birth
( ) ( )
_______________________________________________________________________________
Daytime Phone # Evening Phone #
================================================================================
2. Type of Account - please check-mark IRA type
================================================================================
[ ] Traditional IRA [ ] Roth Contribution IRA [ ] Simplified Employee
Pension (SEP) IRA
[ ] Rollover IRA [ ] Roth Converted IRA [ ] SAR SEP (plan
established before
1997)
================================================================================
3. Fund Selection (minimum initial investment $1000, unless participating in the
systematic investment plan, Section 6.)
================================================================================
Please choose a class of shares.
[ ] Class A [ ] Class B [ ] Class N
Please choose one of the following
[ ] Current Year-Amount $_______ [ ] Prior Year Amount $_______
- -------------------------------------------------------------------------------
Type of Investment:
[ ] Traditional IRA, contribution year __________
[ ] Roth contribution IRA, contribution year __________
[ ] Roth converted IRA from existing Hudson Capital
Appreciation Fund, Traditional IRA Account # __________
[ ] Roth converted IRA from a Traditional IRA with another
custodian, must complete Transfer Form (Form B)
If converting a Traditional IRA to a Roth IRA, I elect not to
have federal income tax withholding unless this box is checked:
[ ] Withhold at 10% (or __________% (insert percentage))
[ ] Transfer of existing IRA, same type as selected in Section 2,
must complete Transfer Form (Form B)
[ ] 60 day rollover from a previous plan, same type as
selected in Section 2.
[ ] 60 day rollover from a qualified employer plan or 403(b)
[ ] Direct rollover from previous qualified employer plan or 403(b)
plan must complete Direct Rollover Form (Form C)
[ ] SEP IRA, contribution year __________
- -------------------------------------------------------------------------------
================================================================================
4. Designation of Beneficiary
================================================================================
Primary Beneficiary(ies): (if no percentage is specified, primary beneficiaries
will share the account balance equally.)
A. B.
_______________________________________ _______________________________________
Relationship % of Amount Relationship % of Amount
_______________________________________ _______________________________________
Name Name
_______________________________________ _______________________________________
Address Address
_______________________________________ _______________________________________
City State Zip Code City State Zip Code
_______________________________________ _______________________________________
Social Security # Date of Birth Social Security # Date of Birth
Secondary Beneficiary(ies): (A secondary beneficiary will receive account
proceeds only if all primary beneficiaries
predecease the account holder)
A. B.
_______________________________________ _______________________________________
Relationship % of Amount Relationship % of Amount
_______________________________________ _______________________________________
Name Name
_______________________________________ _______________________________________
Address Address
_______________________________________ _______________________________________
City State Zip Code City State Zip Code
_______________________________________ _______________________________________
Social Security # Date of Birth Social Security # Date of Birth
(If more space is needed for beneficiaries please provide above information on
each, on a separate sheet of paper.)
================================================================================
5. Broker/Dealer or Financial Advisor Information
================================================================================
The section should be completed if shares are being purchased through a Dealer
or if a Financial Advisor is to receive account information.
_______________________________________ _______________________________________
Dealer Name Address of Office Serving Account
_______________________________________ _______________________________________
Address of Main Office, if Any City State Zip Code
_______________________________________ _______________________________________
City State Zip Code Registered Representative
Name and Number
CONTINUED ON BACK
<PAGE>
================================================================================
6. Systematic Investment Plan/Bank Account Authorization (optional)
================================================================================
In order to make investing easier, you may elect to have a specified amount
automatically transferred from your bank account, listed below, and invested in
your Hudson Capital Appreciation Fund Account. The minimum initial investment
for the systematic investment plan is $100 and each subsequent transfer
thereafter must be at least $50. Simply designate how much you wish to transfer
and the day you would like to credit it to your account. You may invest
automatically each month or quarter by completing the following information,
attaching a voided unsigned check and returning it to Hudson Capital
Appreciation Fund (c/o IFTC).
[ ] Monthly [ ] Quarterly (Januay, April, July, October)
Transfer $____________________ from my bank account [ ] On or about the 5th
[ ] On or about the 20th
Important Note: IRA contributions made through the Hudson Capital Appreciation
Fund will be credited as contributions for the year in which the shares are
purchased. If you wish to make a prior year contribution, please check the
appropriate box(es) below indicating which month(s) are to be coded as prior
year contributions:
[ ] January [ ] February [ ] March [ ] *April
*If you wish to make prior year contributions in April, your investment date
selection must be on or prior to April 10.
Bank Account Authorization:
Note: your bank must be a member of the Automated Clearing House (ACH) and your
bank may also impose a fee for the wire, and one common name must appear on both
your Hudson Capital Appreciation Fund account registration and your bank account
registration.
This bank account is a [ ] Checking Account [ ] Savings Account
( )
_______________________________________ _______________________________________
Name of Financial Institution Phone Number
_______________________________________ _______________________________________
Address of Financial Institution City State Zip Code
_______________________________________ _______________________________________
Name(s) on Bank Account Bank Account #
_______________________________________
Routing Number (This is a nine digit
number and can be found in the lower
left-hand corner of your bank check.)
As a convenience to me, I request and authorize you to make debits from the
above bank account in conjunction with the option(s) checked above, made by and
payable to the order of Hudson Capital Appreciation Fund. This authority is to
remain in effect until revoked by me and, until you actually receive such
notice, I agree you shall be fully protected in honoring any such transaction. I
further agree that if any such transaction is dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability whatsoever. I also understand that Hudson Capital may make additional
attempts to debit my account if the initial attempt fails and that I will be
liable for any associated costs. This option(s), if exercised, shall become a
part of the attached application and the terms, representations and conditions
thereof.
X
______________________________________________________________________
Depositor's signature Date
YOU MUST ATTACH A VOIDED CHECK OR DEPOSIT SLIP, YOUR REQUEST CANNOT BE PROCESSED
WITHOUT IT.
================================================================================
7. Annual Administrative Fee - select an option
================================================================================
Annual IRA Fee Program - You can choose to pay your $12 IRA custodial fees on an
annual basis. You may repay these fees now by including them with your
investment check. If you do not pay your fee by check on or before December 1,
your fee will be deducted from your account at the end of the year.
Annual Fee Payment Program
$12 per tax payer identification number [ ] Fee included
================================================================================
8. Spousal Consent - (For use in community or marital property states)
================================================================================
(This Section should be reviewed if the accountholder is married and is
designating a beneficiary other than the spouse. It is the accountholder's
responsibility to determine if this section applies. The accountholder may need
to consult legal counsel. Neither the Custodian nor the Sponsor are liable for
any consequences resulting from a failure of the accountholder to provide proper
spousal consent.)
I am the spouse of the above named accountholder. I acknowledge that I have
received a full and reasonable disclosure of my spouse's property and financial
obligations. Due to any possible consequences of giving up my community property
interest in this IRA, I have been advised to see a tax professional or legal
advisor.
I hereby consent to the beneficiary designation(s) indicated above. I assume
full responsibility for any adverse consequence that may result. No tax or legal
advice was given to me by the Custodian or Sponsor.
_______________________________________ _______________________________________
Signature of Spouse Date Signature of Witness for Spouse Date
================================================================================
9. Signatures (Important: Please read before signing)
================================================================================
We cannot process this application if section below is not signed. By signing
the Application establishing a Hudson Capital Appreciation Fund IRA, the
undersigned; (1) establishes an Individual Retirement Account pursuant to the
Internal Revenue Code of 1986, as amended, and in accordance with all the terms
of the Custodial Agreement on Form 5305A or Form 5305-RA, as applicable; (2)
certifies that all contributions to the IRA meet the requirements of the Code
governing such contributions; (3) appoints Investors Fiduciary Trust Company
(IFTC), or its successors, as Custodian of the Account; (4) and has received and
read the Prospectus for the investment selected, agree to its terms and
understands that by signing below hereby ratifies any instructions given on this
account from the account owner and agrees that neither Hudson Capital
Appreciation Fund nor the Transfer Agent, IFTC, will be liable for any loss,
cost, or expense for acting upon such instructions reasonably believed to be
genuine and in accordance with the procedures described in the Prospectus of
Hudson Capital Appreciation Fund (Series of the Fahnestock Funds). I understand
that shares of the Fund are not deposits in, obligations of, or guaranteed by
any bank and are not insured by the FDIC, the Federal Reserve Board, or any
other agency.
If the Depositor has indicated a Traditional IRA Rollover or Direct Rollover
above, Depositor certifies that the contribution does not include any employee
contributions to any qualified plan (other than accumulated deductible employee
contributions) or 403(b) arrangement; that any assets transferred in kind by
Depositor are the same assets received by the Depositor in the distribution
being rolled over; if the distribution is from another Traditional IRA, that
Depositor has not made another rollover within the one-year period immediately
preceding this rollover; that such distribution was received within the IRA
prescribed time for making the rollover to this Account; and that no portion of
the amount rolled over is a required minimum distribution under the required
distribution rules.
If Depositor has indicated a Conversion or a Rollover of an existing Traditional
IRA to a Roth IRA, Depositor acknowledges that the amount converted will be
treated as taxable income (except for prior nondeductible contributions) for
federal income tax purposes. If Depositor has indicated a Rollover from another
Roth IRA, Depositor certifies that the information given above is correct and
acknowledges that adverse tax consequences or penalties could result from giving
incorrect information.
Depositor has received and read the applicable sections of the Universal
Individual Retirement Account Disclosure Statement relating to this Account
(including the Custodian's fee schedule), the Custodial Account document, and
the "Instructions" pertaining to this application.
Depositor acknowledges and understands that the beneficiaries named herein may
be changed or revoked at any time by filing a new designation in writing with
the Custodian. All forms must be acceptable to the Custodian and dated and
signed by the Depositor.
Custodian Acceptance. Investors
Fiduciary Trust Company will accept
appointment as Custodian of the
Depositor's Account. However, this
_______________________________________ Agreement is not binding upon the
Signature of Depositor Date Custodian until the Depositor has
received a statement of the
If the Depositor is a minor under the transaction. Receipt by the Depositor
laws of the Depositor's state of of a confirmation of the purchase of
residence, a parent or guardian must the Fund shares indicated above will
sign the Adoption Agreement. Until the serve as notification of Investors
Depositor reaches the age of majority, Fiduciary Trust Company's acceptance of
the parent or guardian will exercise appointment as Custodian of the
the powers and duties of the Depositor. Depositor's Account.
(If Guardian provide evidence of
appointment) INVESTORS FIDUCIARY TRUST COMPANY
_______________________________________
Signature of Custodian
[ ] Parent [ ] Guardian
Mail To:
Send to the following address Investment Fiduciary Trust Co. (IFTC)
_____________________________ C/O Fahnestock Funds
This completed IRA application. PO Box 419960
Voided bank check or deposit slip Kansas City, MO 54141-6960
if applicable. (800) 367-0068
One check made payable to
Hudson Capital Appreciation Fund. Overnight To:
Investors Fiduciary Trust Co. (IFTC)
C/O Fahnestock Funds
1004 Baltimore 6th Floor
Kansas City, MO 64105
(800) 367-0068
01/30/98
<PAGE>
HUDSON CAPITAL APPRECIATION FUND
For assistance in completing this application, please call 1-800-367-0068
Mailing Address:
IFTC
C/O Fahnestock Funds
P.O. Box 419960
Kansas City, MO 64141-6960
-----
B
-----
Individual Retirement Account Transfer Request
You may use this form to direct a transfer from an IRA or qualified plan with
another Custodian to an account with Hudson Capital Appreciation Fund. This IRA
Transfer (Form B) must be accompanied by an IRA Application (Form A).
Please complete sections 1, 2, 3, 4, and 5 return to: IFTC,
C/O Fahnestock Funds, P.O. Box 419960, Kansas City, MO 64141-6960
================================================================================
1. Participant Information
================================================================================
_______________________________________________________________________________
First Name Middle Initial Last Name
_______________________________________________________________________________
Address
_______________________________________________________________________________
City State Zip Code
_______________________________________________________________________________
Social Security # Date of Birth
( ) ( )
_______________________________________________________________________________
Daytime Phone # Evening Phone #
================================================================================
2. Information About Your Financial Institution - PLEASE PRINT or TYPE
================================================================================
_______________________________________________________________________________
Name of Financial Institution Account Number
_______________________________________________________________________________
Address of Financial Institution
_______________________________________________________________________________
City State Zip Code
_______________________________________________________________________________
Account Representative Name Financial Institution Phone Number
================================================================================
3. Instructions to My Current Custodian
================================================================================
I have established a Hudson Capital Appreciation Fund Individual Retirement
Account with Investors Fiduciary Trust Company as Custodian. Please transfer or
withdraw assets from my account in your custody in the following manner and
send a check payable to Investors Fiduciary Trust Company (IFTC) Individual
Retirement Account FBO my name and social security number. Mail to IFTC, C/O
Fahnestock Funds, P.O. Box 419960, Kansas City, MO 64141-6960.
An IRA plan has been established in my name with the Hudson Capital Appreciation
Fund. I direct you to either (choose one): Minimum initial investment is $1000
unless participating in the systematic investment plan, minimum initial $100
and each subsequent transfer thereafter must be at least $50.
[ ] Liquidate all of the assets, or
[ ] Liquidate a portion of assets $ __________ or __________ %
from my IRA in fund ____________________________________
Type of Account to be transferred (check one)
[ ] Traditional IRA
[ ] Roth IRA (direct rollover form my current qualified plan or 403(b))
[ ] Roth Contribution IRA Account (please provide the account
start date __________)
[ ] Roth Converted IRA Account (please provide the account
start date __________)
[ ] SEP IRA
[ ] SAR-SEP IRA (For plans established prior to 1/1/97)
*Note: You may not transfer from a Roth IRA to a Traditional IRA or a simplified
employee pension (SEP) IRA. Transfers to a Traditional IRA or SEP IRA may be
made from another Traditional IRA or SEP IRA, direct rollover from a qualified
employer plan, 403(b) arrangement, or a SIMPLE IRA account (but not until at
lest 2 years after the first contribution to your SIMPLE IRA account).
Transfer to a Roth IRA are possible only from another Roth IRA or from a
Traditional IRA, not from other types of tax-deferred accounts. A conversion
from a Traditional IRA will trigger federal income tax on the taxable amount
converted from the Traditional IRA.
[ ] If converting a Traditional IRA to a Roth IRA, I elect not to have
federal income tax withholding unless this box is checked; withhold
at 10% (or __________ % (insert percentage))
================================================================================
4. Certificate of Deposit IRA (optional)
================================================================================
Select one option below
[ ] Liquidate prior to maturity date. I am aware that I may incur a
penalty for early withdrawal.
[ ] Liquidate at maturity. (Maturity date must be within 60 days. If
the maturity date is less than 15 days from the date of this
request, you may want to contact your custodian bank to prevent
automatic reinvestment of the account.)
CONTINUED ON BACK
<PAGE>
================================================================================
5. Information About Your Fund Account
================================================================================
Hudson Capital Appreciation Fund,
please invest my fund into class [ ] Class A [ ] Class B [ ] Class N
I acknowledge receipt of a Prospectus for Hudson Capital Appreciation Fund and
agree to be bound by the terms of the Prospectus
X ( )
________________________________________________________________________________
Signature Daytime Phone Number
________________________________________________________________________________
Name (please print) Existing Hudson Capital Appreciation
Fund IRA Account Number, if any
SIGNATURE GUARANTEE MAY BE REQUIRED BY YOUR CURRENT CUSTODIAN.
================================================================================
6. Notice to Employer, Trustee, Custodian or Insurance Carrier - TO BE COMPLETED
BY INVESTORS FIDUCIARY TRUST COMPANY
================================================================================
Dear Sir/Madam:
An IRA account has been established with Hudson Capital Appreciation Fund in the
name of the above referenced participant. Custodian, Investors Fiduciary Trust
Company, accepts the transfer requested. Accordingly, please transfer cash, as
directed above, payable as follows:
IFTC FBO____________________________________________________________________IRA
Participant Name
P.O. Box 419121
Kansas City, MO 64141-6960
Please contact an account representative at 1-800-367-0068 if you have any
questions.
ACCEPTED:
INVESTORS FIDUCIARY TRUST COMPANY
________________________________________________________________________________
Authorized Signature
01/30/98
<PAGE>
HUDSON CAPITAL APPRECIATION FUND
For assistance in completing this application, please call 1-800-367-0068
Mailing Address:
IFTC
C/O Fahnestock Funds
P.O. Box 419960
Kansas City, MO 64141-6960
-----
C
-----
Individual Retirement Account Direct Rollover Form
Dear Shareholder:
This form is to be used to inform Hudson Capital Appreciation Fund of your
intention to invest a direct rollover from your qualified retirement plan,
403(b) annuity or 403(b)(7) custodial account. IT IS NOT A SUBSTITUTE FOR
YOUR EMPLOYER'S OR CURRENT ACCOUNT HOLDER'S DISTRIBUTION FORM. If you have
a preexisting rollover account with Hudson Capital Appreciation Fund, please
provide the account number in Section 2. If not, you must also enclose a
completed IRA Application (Form A) with this form. Hudson Capital Appreciation
Fund will complete Section 4 acknowledging to your employer or current account
holder that we are ready to receive your direct rollover. PLEASE CONTACT
YOUR EMPLOYER OR CURRENT ACCOUNT HOLDER IMMEDIATELY FOR FURTHER INSTRUCTIONS,
FAILURE TO DO SO MAY CAUSE LENGTHY DELAYS IN PROCESSING YOUR REQUEST. If
you have any questions or need assistance, call 1-800-367-0068.
Send all completed documentation to: IFTC, C/O Fahnestock Funds, P.O. Box
419960, Kansas City, MO 64141-6960
================================================================================
1. Participant Information
================================================================================
_______________________________________________________________________________
First Name Middle Initial Last Name
_______________________________________________________________________________
Address
_______________________________________________________________________________
City State Zip Code
_______________________________________________________________________________
Social Security # Date of Birth
( ) ( )
_______________________________________________________________________________
Daytime Phone # Evening Phone #
================================================================================
2. Information About Your Retirement Plan - please enclose a copy of a recent
statement
================================================================================
_______________________________________________________________________________
Name of Employer, Custodian or Insurance Carrier
( )
_______________________________________________________________________________
Name of Contact Person Telephone
_______________________________________________________________________________
Street Address
_______________________________________________________________________________
City State Zip Code
_______________________________________________________________________________
Account Number
================================================================================
3. Information About Your Fund Account
================================================================================
Hudson Capital Appreciation Fund,
please invest my fund into class [ ] Class A [ ] Class B [ ] Class N
Minimum initial investment is $1000 unless participating in the systematic
investment plan, minimum initial $100 and each subsequent transfer thereafter
must be at least $50.
I acknowledge receipt of a Prospectus for the above named Fund and agree
to be bound by the terms of the Prospectus.
X ( )
________________________________________________________________________________
Signature Daytime Phone Number
________________________________________________________________________________
Name (please print) Existing Hudson Capital Appreciation
IRA Account Number
SIGNATURE GUARANTEE MAY BE REQUIRED BY YOUR CURRENT CUSTODIAN.
================================================================================
4. Notice to Employer, Custodian or Insurance Carrier - TO BE COMPLETED
BY INVESTORS FIDUCIARY TRUST COMPANY
================================================================================
Dear Sir/Madam:
An IRA account has been established for the above-named individual, Hudson
Capital Appreciation Fund's Custodian, Investors Fiduciary Trust Company,
hereby agrees to serve as Custodian for the account of the above-named
individual and, in that capacity, agrees to receive the direct rollover
of the assets listed in Section 3. Please make check payable as follows:
IFTC FBO____________________________________________________________________IRA
Participants Name
P.O. Box 419121
Kansas City, MO 64141-6960
Please contact an account representative at 1-800-367-0068 if you have any
questions.
ACCEPTED:
INVESTOR FIDUCIARY TRUST COMPANY
________________________________________________________________________________
Authorized Signature
01/30/98
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 011
[NAME] THE FAHNESTOCK FUNDS HUDSON CAPITAL APPRECIATION FUND--A
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[INVESTMENTS-AT-COST] 30,871,831
[INVESTMENTS-AT-VALUE] 37,365,330
[RECEIVABLES] 476,112
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 37,843,442
[PAYABLE-FOR-SECURITIES] 5,500
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 541,560
[TOTAL-LIABILITIES] 547,080
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 30,880,894
[SHARES-COMMON-STOCK] 1,812,846
[SHARES-COMMON-PRIOR] 1,320,487
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (347,769)
[ACCUMULATED-NET-GAINS] 269,756
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,493,490
[NET-ASSETS] 29,325,173
[DIVIDEND-INCOME] 47,975
[INTEREST-INCOME] 120,382
[OTHER-INCOME] 0
[EXPENSES-NET] 518,126
[NET-INVESTMENT-INCOME] (347,769)
[REALIZED-GAINS-CURRENT] 4,616,862
[APPREC-INCREASE-CURRENT] 3,300,867
[NET-CHANGE-FROM-OPS] 7,568,960
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 3,480,078
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 643,522
[NUMBER-OF-SHARES-REDEEMED] 251,609
[SHARES-REINVESTED] 215,020
[NET-CHANGE-IN-ASSETS] 21,825,662
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 2,083,827
[OVERDISTRIB-NII-PRIOR] (132,565)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 262,355
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 779,977
[AVERAGE-NET-ASSETS] 25,208,000
[PER-SHARE-NAV-BEGIN] 12,990
[PER-SHARE-NII] (0.210)
[PER-SHARE-GAIN-APPREC] 5,670
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 2.270
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 18.180
[EXPENSE-RATIO] 2.03
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.000
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 012
[NAME] THE FAHNESTOCK FUND HUDSON CAPITAL APPRECIATION FUND--B
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[INVESTMENTS-AT-COST] 30,871,831
[INVESTMENTS-AT-VALUE] 37,365,330
[RECEIVABLES] 478,112
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 37,843,442
[PAYABLE-FOR-SECURITIES] 5,500
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 541,560
[TOTAL-LIABILITIES] 547,060
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 30,880,894
[SHARES-COMMON-STOCK] 131,929
[SHARES-COMMON-PRIOR] 19,371
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (347,789)
[ACCUMULATED-NET-GAINS] 269,758
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 8,483,489
[NET-ASSETS] 2,125,491
[DIVIDEND-INCOME] 47,975
[INTEREST-INCOME] 120,382
[OTHER-INCOME] 0
[EXPENSES-NET] 516,126
[NET-INVESTMENT-INCOME] (347,789)
[REALIZED-GAINS-CURRENT] 4,615,852
[APPREC-INCREASE-CURRENT] 3,300,887
[NET-CHANGE-FROM-OPS] 7,568,980
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 233,027
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 118,105
[NUMBER-OF-SHARES-REDEEMED] 1,130
[SHARES-REINVESTED] 14,954
[NET-CHANGE-IN-ASSETS] 21,625,662
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 2,083,827
[OVERDISTRIB-NII-PRIOR] (132,565)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 252,355
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 779,977
[AVERAGE-NET-ASSETS] 25,208,000
[PER-SHARE-NAV-BEGIN] 13,540
[PER-SHARE-NII] (0.090)
[PER-SHARE-GAIN-APPREC] 4.830
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 2.270
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 16,110
[EXPENSE-RATIO] 2.60
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.000
</TABLE>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 013
[NAME] THE FAHNESTOCK FUNDS HUDSON CAPITAL APPRECIATION FUND--N
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[INVESTMENTS-AT-COST] 30,871,831
[INVESTMENTS-AT-VALUE] 37,365,330
[RECEIVABLES] 478,112
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 37,843,442
[PAYABLE-FOR-SECURITIES] 5,500
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 541,560
[TOTAL-LIABILITIES] 547,060
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 30,880,894
[SHARES-COMMON-STOCK] 361,383
[SHARES-COMMON-PRIOR] 11,012
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (347,769)
[ACCUMULATED-NET-GAINS] 269,758
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,483,498
[NET-ASSETS] 5,845,718
[DIVIDEND-INCOME] 47,975
[INTEREST-INCOME] 120,382
[OTHER-INCOME] 0
[EXPENSES-NET] 516,126
[NET-INVESTMENT-INCOME] (347,768)
[REALIZED-GAINS-CURRENT] 4,615,862
[APPREC-INCREASE-CURRENT] 3,300,887
[NET-CHANGE-FROM-OPS] 7,568,880
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 649,346
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 366,089
[NUMBER-OF-SHARES-REDEEMED] 66,402
[SHARES-REINVESTED] 41,696
[NET-CHANGE-IN-ASSETS] 21,625,662
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 2,083,827
[OVERDISTRIB-NII-PRIOR] (132,565)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 252,355
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 779,977
[AVERAGE-NET-ASSETS] 25,208,000
[PER-SHARE-NAV-BEGIN] 13,540
[PER-SHARE-NII] (0.180)
[PER-SHARE-GAIN-APPREC] 5.590
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 2.770
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 18,160
[EXPENSE-RATIO] 2.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.000
</TABLE>
