<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
File No. 33-46268
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 8
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10
-------------------------------------
STONE BRIDGE FUNDS, INC.
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: 207-879-1900
-------------------------------------
John Y. Keffer
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Aviva Grossman, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
-------------------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485, paragraph (b)
- ---
X on November 1, 1996 pursuant to Rule 485, paragraph (b)
- ---
60 days after filing pursuant to Rule 485, paragraph (a)
- ---
on [ ] pursuant to Rule 485, paragraph (a)
- ---
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the investment Company
Act of 1940; accordingly, no fee is payable herewith. A Rule 24f-2 Notice for
the Registrant's fiscal year ending June 30, 1996
was filed with the Commission on August 23, 1996.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
PART A
(Prospectus offering shares of Austin Global Equity Fund)
Form N-1A Location in Prospectus
Item No. (Caption)
- --------- ----------------------
Item 1. Cover Page . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . Prospectus Summary
Item 3. Condensed Financial
Information. . . . . . . . . . . . Financial Highlights
Item 4. General Description of
Registrant . . . . . . . . . . . . Prospectus Summary; Investment
Objective and Policies; Other
Information; Appendix
Item 5. Management of the Fund . . . . . . Prospectus Summary; Management
Item 5A. Management's Discussion. . . . . . Not Applicable
Item 6. Capital Stock and
Other Securities . . . . . . . . . Investment Objective and,
Policies; Dividends and Tax
Matters; Other Information
Item 7. Purchase of Securities
Being Offered. . . . . . . . . . . Purchases and Redemptions of
Shares; Other Information -
Determination of Net Asset
Value; Management -
Distribution
Item 8. Redemption or
Repurchase . . . . . . . . . . . . Purchases and Redemptions
of Shares
Item 9. Pending Legal. . . . . . . . . . . Not Applicable
Proceedings
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
PART A
(Prospectus offering shares of Oak Hall Equity Fund)
Form N-1A Location in Prospectus
Item No. (Caption)
- --------- ----------------------
Item 1. Cover Page . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . Prospectus Summary
Item 3. Condensed Financial
Information. . . . . . . . . . . . Financial Highlights
Item 4. General Description of
Registrant . . . . . . . . . . . . Prospectus Summary; Investment
Objective and Policies; Other
Information; Appendix
Item 5. Management of the Fund . . . . . . Prospectus Summary;
Management
Item 5A. Management's Discussion. . . . . . Not Applicable
Item 6. Capital Stock and
Other Securities . . . . . . . . . Investment Objective and,
Policies; Dividends and Tax
Matters; Other Information
Item 7. Purchase of Securities
Being Offered. . . . . . . . . . . Purchases and Redemptions of
Shares; Other Information -
Determination of Net Asset
Value; Management -
Distribution
Item 8. Redemption or
Repurchase . . . . . . . . . . . . Purchases and Redemptions
of Shares
Item 9. Pending Legal. . . . . . . . . . . Not Applicable
Proceedings
<PAGE>
PART B
(SAI offering Shares of Austin Global Equity Fund)
Location in Statement
Form N-1A of Additional Information
Item No. (Caption)
- --------- -------------------------
Item 10. Cover Page . . . . . . . . . . . . Cover Page
Item 11. Table of Contents. . . . . . . . . Cover Page
Item 12. General Information
and History. . . . . . . . . . . . Management
Item 13. Investment Objectives
and Policies . . . . . . . . . . . Investment Policies and
Limitations
Item 14. Management of the
Registrant . . . . . . . . . . . . Management
Item 15. Control Persons and
Principal Holders of
Securities . . . . . . . . . . . . Other Matters
Item 16. Investment Advisory and
Other Services . . . . . . . . . . Management; Custodian;
Other Matters
Item 17. Brokerage Allocation
and Other Practices. . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other
Securities . . . . . . . . . . . . Determination of Net Asset
Value; Other Matters
Item 19. Purchase, Redemption
and Pricing of Securities
Being Offered. . . . . . . . . . . Determination of Net Asset
Value; Additional Purchase and
Redemption Information
Item 20. Tax Status . . . . . . . . . . . . Tax Matters
Item 21. Underwriters . . . . . . . . . . . Management
Item 22. Calculation of
Performance Data . . . . . . . . . Performance Data
Item 23. Financial Statements . . . . . . . Not Applicable
<PAGE>
PART B
(SAI offering Shares of Oak Hall Equity Fund)
Location in Statement
Form N-1A of Additional Information
Item No. (Caption)
- --------- -------------------------
Item 10. Cover Page . . . . . . . . . . . . Cover Page
Item 11. Table of Contents. . . . . . . . . Cover Page
Item 12. General Information
and History. . . . . . . . . . . . Management
Item 13. Investment Objectives
and Policies . . . . . . . . . . . Investment Policies and
Limitations
Item 14. Management of the
Registrant . . . . . . . . . . . . Management
Item 15. Control Persons and
Principal Holders of
Securities . . . . . . . . . . . . Other Matters
Item 16. Investment Advisory and
Other Services . . . . . . . . . . Management; Custodian;
Other Matters
Item 17. Brokerage Allocation
and Other Practices. . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other
Securities . . . . . . . . . . . . Determination of Net Asset
Value; Other Matters
Item 19. Purchase, Redemption
and Pricing of Securities
Being Offered. . . . . . . . . . . Determination of Net Asset
Value; Additional Purchase and
Redemption Information
Item 20. Tax Status . . . . . . . . . . . . Tax Matters
Item 21. Underwriters . . . . . . . . . . . Management
Item 22. Calculation of
Performance Data . . . . . . . . . Performance Data
Item 23. Financial Statements . . . . . . . Not Applicable
<PAGE>
Austin Global Equity Fund
Two Portland Square
Portland, Maine 04101
Account Information and
Shareholder Servicing:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04112
(207) 879-0001
This Prospectus offers shares of the Austin Global Equity Fund (the "Fund"),
which is a diversified portfolio of Stone Bridge Funds, Inc. (the "Company"), an
open-end, management investment company. The investment objective of the Fund
is to seek capital appreciation by investing primarily in a portfolio of common
stock and securities convertible into common stock. Shares of the Fund are
offered to investors without any sales charge, but the Fund may bear certain of
its distribution expenses.
This Prospectus sets forth concisely the information concerning the Fund and the
Company that a prospective investor should know before investing. The Company
has filed with the Securities and Exchange Commission a Statement of Additional
Information dated November 1, 1996, which contains more detailed information
about the Fund and the Company and which is hereby incorporated into this
Prospectus by reference. An investor may obtain a copy of the Statement of
Additional Information without charge by contacting Shareholder Servicing at the
address or phone number listed above.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 1, 1996
<PAGE>
1. PROSPECTUS SUMMARY
SUMMARY OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks capital appreciation by investing primarily in a portfolio
of common stock and securities convertible into common stock. The Fund invests
primarily in issuers based in the United States, Europe, Japan and the Pacific
Basin. See "Investment Objective and Policies."
MANAGEMENT
Austin Investment Management, Inc. (the "Adviser") is the Fund's investment
adviser and makes investment decisions for the Fund. Forum Financial Services,
Inc., the Fund's distributor, supervises the administration of the Fund. See
"Management." The Fund may bear certain expenses in connection with the sale of
its shares. See "Management - Distribution."
PURCHASES AND REDEMPTIONS
Shares of the Fund are offered at the next-determined net asset value
without a sales charge to investors who plan to invest a minimum of $10,000 in
the Fund. Shares of the Fund may be redeemed from the Fund without charge at
their next-determined net asset value. See "Purchases and Redemptions of
Shares."
DIVIDENDS
Dividends representing the net investment income of the Fund are declared
and paid at least annually. Net capital gains realized by the Fund, if any,
also will be distributed annually. Dividends and distributions are reinvested
in additional shares of the Fund unless a shareholder elects to have them paid
in cash. See "Dividends and Tax Matters."
CERTAIN RISK FACTORS
There can be no assurance that the Fund will achieve its investment
objective, and the Fund's net asset value will fluctuate based upon changes in
the value of its portfolio securities. The foreign securities and related
transactions in which the Fund may invest entail certain risks not associated
with investment in domestic securities. See "Foreign Securities." In addition,
the hedging strategies in which the Fund may engage entail additional risks.
See "Hedging Strategies." The Fund is not intended to provide a complete or
balanced investment program for all investors.
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. There are no transaction expenses associated with
purchases, redemptions or exchanges of Fund shares.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Advisory Fees 0.75%
12b-1 Fees 0.00%
Other Expenses 1.75%
----
Total Fund Operating Expenses 2.50%
<PAGE>
The amounts of expenses are based on amounts incurred during the Fund's
most recent fiscal year ending June 30, 1996. Absent certain expense
reimbursements and fee waivers during the most recent fiscal year, the
Investment Advisory Fees and Total Operating Expenses of the Fund would have
been 1.50% and 3.25%, respectively. For a further description of the
various costs and expenses incurred in the Fund's operation, see "Management."
Example
The following is a hypothetical example that indicates the dollar amount of
expenses an investor would pay assuming a $1,000 investment, a 5% annual return,
reinvestment of all dividends and distributions and full redemption at the end
of each period:
1 Year 3 Years 5 Years 10 Years
$25 $78 $133 $284
The example is based on the expenses listed in the "Annual Fund Operating
Expenses" table above. The 5% annual return is not a prediction of and does not
represent the Fund's projected returns; rather, it is required by government
regulation. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN INDICATED.
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following represents selected data for a single share outstanding of
the Fund for the period indicated. The information for the periods ending June
30, 1994, 1995 and 1996 was audited in connection with an audit of the Company's
financial statements by Deloitte & Touche LLP, independent auditors. The
financial statements and auditors' report thereon are contained in the Annual
Report which is incorporated by reference into the Statement of Additional
Information. Further information about the Fund's performance is contained in
the Annual Report, which may be obtained without charge.
Period Ended
June 30 June 30 June 30
1996 1995 1994(a)
---- ---- ------
Beginning Net Asset Value per Share $11.60 $9.80 $10.00
Net Investment (Loss) (0.12) 0.04(c) (0.03)
Net Realized and Unrealized
Investment Gain (Loss) on Investments 1.98 1.76 (0.17)
Distributions from Net Realized Gains (0.27) --- ---
------ ------ -----
Ending Net Asset Value per Share $13.19 $11.60 $9.80
------ ------ -----
------ ------ -----
Ratios to Average Net Assets:
Expenses(b) 2.50% 2.50% 2.36%(d)
Net Investment Income/(Loss) (0.98%) 0.41% (0.83%)(d)
Total Return 16.21% 18.37% (3.57%)(d)
Portfolio Turnover Rate 93.55% 35.31% 2.49%
Average Commission Rate Paid on
Portfolio Investment Transactions $0.0542(e) --- ---
Net Assets at the End of Period
(000's Omitted) $10,326 $8,474 $7,646
(a) For the period December 8, 1993 (commencement of operations) through June
30,1994.
(b) During the period, various fees and expenses were waived and reimbursed,
respectively. Had such waiver and reimbursement not occurred, the ratio of
expenses to average net assets would have been:
Expenses 3.25% 3.19% 4.18%(d)
(c) Calculated using weighted average number of shares outstanding.
(d) Annualized.
(e) Amount represents the average commission per share paid to brokers on the
purchase or sale of equity securities.
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. There can be, of course, no assurance that the Fund will
achieve its investment objective.
<PAGE>
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by investing primarily
in the securities of issuers based in the United States, Europe, Japan and the
Pacific Basin, but it is anticipated that the Fund will generally invest more of
its assets in United States issuers than the issuers of any other country.
During periods of normal market conditions the Fund will have at least 65% of
its total assets invested in securities issued by companies based in three or
more countries and will have at least 65% of its total assets invested in common
stock and securities convertible into common stock.
The Fund intends to invest principally in companies that, in the view of
the Adviser, possess above average growth potential or attractive valuations.
In addition, the Adviser seeks to invest in companies which, in the Adviser's
opinion, are improving but whose improvement has not been fully recognized by
the investment community. In making these investments, the Adviser analyses
various characteristics of the issuers, which may vary from company to company.
The Fund may purchase the shares of small companies whose stock is less actively
traded and which have greater appreciation potential and a correspondingly
higher level of price volatility than larger companies whose shares are actively
traded. Consequently, the Adviser anticipates that the Fund's portfolio will
exhibit a high degree of price fluctuation or volatility when compared to the
market averages. In seeking these investments, the Adviser relies primarily on
analysis of individual companies and analysis of industries and economic trends.
The Fund intends to invest up to 25% of assets in equity securities of companies
in the telecommunications industry. Investments in such companies may be
expected to benefit from global economic growth, scientific developments and
advances in technologies, such as frequency spectrum utilization, satellite
systems, fiber optics, electronic communication, software and others. The Fund
may invest in the securities of issuers in any industry, but the Adviser
emphasizes investments in those industries for which the Adviser believes the
economic cycle is improving. The Fund will not, however, invest more than 25%
of its total assets in any one industry. The securities in which the Fund
invests may be traded on securities exchanges or in the over-the-counter
markets.
CONVERTIBLE SECURITIES. The Fund may invest up to 35% of its assets in
convertible securities, including convertible debt and convertible preferred
stock. Convertible securities are fixed income securities which may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. These securities are usually senior to common
stock in a corporation's capital structure, but usually are subordinated to non-
convertible debt securities.
In general, the value of a convertible security is the higher of its
investment value (its value as a fixed income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the value of a convertible security
generally increases when interest rates decline and generally decreases when
interest rates rise. The value of convertible securities, however, are also
influenced by the value of the underlying common stock.
The Fund will invest only in convertible debt that is rated B or higher by
Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's Corporation
("S&P") and in preferred stock that is rated b or higher by Moody's or B or
higher by S&P. Under normal circumstances, the Fund will not invest 10% or more
of its assets in securities rated below BBB or bbb. The Fund
<PAGE>
may purchase unrated convertible securities if the Adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Securities in the lowest permissible rating categories are characterized by
Moody's as generally lacking characteristics of the desirable investment and by
S&P as being predominantly speculative. The Fund may retain securities whose
rating has been lowered below the lowest permissible rating category (or that
are unrated and determined by the Adviser to be of comparable quality) if the
Adviser determines that retaining such security is in the best interests of the
Fund. A further description of the various rating categories is included in the
Statement of Additional Information.
FOREIGN SECURITIES. The Fund's investments in foreign securities involve
certain risks, such as exchange rate fluctuations, political or economic
instability of the issuer or the country of issue and the possible imposition of
exchange controls, withholding taxes on dividends or interest payments,
confiscatory taxes or expropriation. Foreign securities may also be subject to
greater fluctuations in price than securities of domestic corporations
denominated in U.S. dollars. Foreign securities and their markets may not be as
liquid as domestic securities and their markets, and foreign brokerage
commissions and custody fees are generally higher than those in the United
States. In addition, less information may be publicly available about a foreign
company than about a domestic company, and foreign companies may not be subject
to uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. With respect to its permitted
investments in foreign securities, the Fund does not limit the amount of its
assets that may be invested in one country or denominated in one currency.
The Fund may invest in sponsored and unsponsored American Depository
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depository of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights.
The Fund may utilize foreign currency forward contracts in order to hedge
against uncertainty in the level of future foreign exchange rates. The Fund
will not enter into these contracts for speculative purposes. These contracts
involve an obligation to purchase or sell a specific currency at a specified
future date, usually less than one year from the date of the contract, at a
specified price. The Fund may enter into foreign currency forward contracts to
manage currency risks and to facilitate transactions in foreign securities.
These contracts involve a risk of loss if the Adviser fails to predict currency
values correctly and also involve similar risks to those described under
"Hedging Strategies." The Fund may also buy and sell foreign currency options,
foreign currency futures contracts and options on those futures contracts. See
"Hedging Strategies."
ADDITIONAL INVESTMENT POLICIES
The Fund's investment objective and certain investment limitations that are
deemed to be fundamental, as described in the Statement of Additional
Information, may not be changed without approval of the holders of a majority of
the Fund's outstanding voting securities. A majority of the Fund's outstanding
voting securities means the lesser of 67% of the shares of the
<PAGE>
Fund present or represented at a meeting at which the holders of more than 50%
of the outstanding shares of the Fund are present or represented or more than
50% of the outstanding shares of the Fund. Except as otherwise indicated,
investment policies of the Fund are not deemed to be fundamental and may be
changed by the Board of Directors of the Company (the "Board") without
shareholder approval. As a fundamental policy, the Fund may borrow money for
temporary or emergency purposes (including the meeting of redemption requests),
but not in excess of 33 1/3% of the value of the Fund's total assets. Borrowing
for purposes other than meeting redemption requests will not exceed 5% of the
value of the Fund's total assets.
The Fund may enter into repurchase agreements and lend its securities,
transactions that entail certain risks not associated with direct investments in
securities. For instance, in the event that bankruptcy or similar proceedings
were commenced against a counterparty in these transactions or a counterparty
defaulted on its obligations, the Fund might suffer a loss. Failure by the
other party to deliver a security purchased by the Fund may result in a missed
opportunity to make an alternative investment. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when it believes the counterparties present minimal
credit risks and the income to be earned from the transaction justifies the
attendant risks.
WARRANTS. The Fund may invest in warrants, which are options to purchase
an equity security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. Warrants are
usually issued by the issuer of the security to which they relate. While
warrants may be traded, there is often no secondary market for them and the
prices of warrants do not necessarily correlate with the prices of the
underlying securities. Holders of warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer. The Fund
will limit its purchases of warrants to not more than 5% of the value of its
total assets.
LENDING OF PORTFOLIO SECURITIES. The Fund may from time to time lend
securities from its portfolio to brokers, dealers and other financial
institutions. Securities loans must be continuously secured by cash or
securities issued or guaranteed as to principal and interest by the United
States Government or by any of its agencies and instrumentalities ("U.S.
Government Securities") with a market value, determined daily, at least equal to
the value of the Fund's securities loaned. The Fund receives interest in
respect of securities loans from the borrower or from investing cash collateral.
The Fund may pay fees to arrange the loans. The Fund will not lend portfolio
securities in excess of 33 1/3% of the value of the Fund's total assets.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements,
transactions in which a Fund purchases a security and simultaneously commits to
resell that security to the seller at an agreed-upon price on an agreed-upon
future date, normally one to seven days later. The resale price reflects a
market rate of interest that is not related to the coupon rate or maturity of
the purchased security. The Company's custodian maintains possession of the
underlying collateral, which has a market value, determined daily, at least
equal to the repurchase price, and which consists of the types of securities in
which the Fund may invest directly.
HEDGING STRATEGIES. The Fund may in the future seek to hedge against a
decline in the value of securities owned by it or an increase in the price of
securities which it plans to purchase through the writing and purchase of
exchange-traded and over-the-counter options and the
<PAGE>
purchase and sale of futures contracts and options on those futures contracts.
The Fund may write (sell) covered put and call options and may buy put and call
options on equity securities, foreign currencies and stock indices, such as the
Standard & Poor's 500 Stock Index. In addition, the Fund may buy or sell stock
index and foreign currency futures contracts and may write covered options and
buy options on those contracts. Definitions of these instruments may be found
in the Appendix to this Prospectus. An option is covered if, so long as the
Fund is obligated under the option, it owns an offsetting position in the
underlying security, currency or futures contract or maintains cash, U.S.
Government Securities or other liquid, high-grade debt securities in a
segregated account with a value at all times sufficient to cover the Fund's
obligation under the option.
The Fund will not hedge more than 25% of its total assets by selling
futures contracts, buying put options and writing call options. In addition,
the Fund will not buy futures contracts or write put options whose underlying
value exceeds 25% of the Fund's total assets and will not purchase call options
if the value of purchased call options would exceed 5% of the Fund's total
assets.
The Fund's use of options and futures contracts would subject the Fund to
certain investment risks and transactions cost to which it might not otherwise
be subject. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities or currencies and
fluctuations in the general securities or currency markets; (2) imperfect
correlation between movements in the prices of options, futures contracts or
related options and movements in the price of the securities or currencies
hedged or used for cover; (3) the fact that skills and techniques needed to
trade these instruments are different from those needed to select the other
securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time; (5) the possible need to defer closing out of certain options, futures
contracts and related options to avoid adverse tax consequences; and (6) the
potential for unlimited loss when investing in futures contracts. Other risks
include the inability of the Fund, as the writer of covered call options, to
benefit from the appreciation of the underlying securities above the exercise
price and the possible loss of the entire premium paid for options purchased by
the Fund.
TEMPORARY DEFENSIVE POSITION. When the Adviser believes that business or
financial conditions warrant, the Fund may assume a temporary defensive
position. For temporary defensive purposes, the Fund may invest without limit
in cash or in investment grade cash equivalents, including (i) short-term U.S.
Government Securities, (ii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks, (iii) prime quality
commercial paper, and (iv) repurchase agreements covering any of the securities
in which the Fund may invest directly, and, subject to the limits of the
Investment Company Act of 1940 (the "Investment Company Act"), in money market
mutual funds. During periods when and to the extent that the Fund has assumed a
temporary defensive position, it will not be pursuing its investment objective.
PORTFOLIO TRANSACTIONS. From time to time the Fund may engage in active
short-term trading to take advantage of price movements affecting individual
issues, groups of issues or markets. This will increase the Fund's rate of
turnover and will result in higher total brokerage costs for the Fund. The
Adviser anticipates that the annual turnover in the Fund could be in excess of
50% in future years (but is not expected to equal or exceed 100%). An annual
turnover
<PAGE>
rate of 100% would occur, for example, if all of the securities in the Fund were
replaced once in a period of one year.
The Fund has no obligation to deal with any specific broker or dealer in
the execution of portfolio transactions. Consistent with its policy of
obtaining the best net results, the Fund may conduct brokerage transactions
through certain affiliates of the Adviser. The Board has adopted policies to
ensure that these transactions are reasonable and fair and that the commissions
charged are comparable to those charged by non-affiliated qualified broker-
dealers.
4. MANAGEMENT
The business of the Company is managed under the direction of the Board of
Directors. The Board formulates the general policies of the Fund and generally
meets quarterly to review the results of the Fund, monitor investment activities
and practices and discuss other matters affecting the Fund and the Company.
INVESTMENT ADVISER
Pursuant to an investment advisory agreement with the Company, Austin
Investment Management, Inc. serves as investment adviser of the Fund. Subject
to the general control of the Board, the Adviser makes investment decisions
for the Fund. For its services, the Adviser receives an advisory fee that is
accrued daily and paid monthly. For the fiscal year ended June 30, 1996 the
Adviser received an advisory fee at an annual rate of 0.75% of the average
daily net assets of the Fund after fee waiver. The advisory fee is higher
than that paid by most investment companies of all types to their advisers,
but the Board believes that the fee is appropriate for a global equity fund.
The Adviser, which is located at 375 Park Avenue, New York, New York 10152,
is a registered investment adviser and provides investment management services
to pension plans, endowment funds, institutional and individual accounts. As of
the date of this Prospectus, the Adviser had approximately $115 million of
assets under management and was controlled by Peter Vlachos, president and chief
portfolio manager of the Adviser since its organization in 1989.
Mr. Vlachos has been portfolio manager of the Fund since the Fund's
inception and, as such, is responsible for the day-to-day management of the
Fund's portfolio. Prior to his establishment of the Adviser, Mr. Vlachos was a
portfolio manager at Neuberger & Berman, Inc. Prior thereto, Mr. Vlachos held
various positions at Dreyfus Corp., including president and vice president of
two investment companies managed by Dreyfus with over $2 billion in combined
assets for which he was portfolio manager.
ADMINISTRATION
On behalf of the Fund, the Company has entered into an Administration and
Distribution Agreement with Forum Financial Services, Inc. ("Forum"). As
provided in this agreement, Forum is responsible for the supervision of the
overall management of the Company (including the Company's receipt of services
which the Company is obligated to pay for), providing the Company with general
office facilities and providing persons satisfactory to the Board of Directors
to serve as officers of the Company. For these services, Forum receives a fee
computed and paid monthly at an annual rate of 0.25% of the average daily net
assets of the Fund. Like the Adviser, Forum, in its sole discretion, may waive
all or any portion of its fees.
Forum, which is located at Two Portland Square, Portland, Maine 04101, was
incorporated under the laws of the State of Delaware on February 7, 1986 and as
of the date of this Prospectus
<PAGE>
provided management and administrative services to registered investment
companies and collective investment funds with assets of approximately
$18 billion. Forum is a registered broker-dealer and investment adviser and is
a member of the National Association of Securities Dealers, Inc. As of the date
of this Prospectus, Forum is controlled by John Y. Keffer, President and
Chairman.
DISTRIBUTION
Pursuant to the Administration and Distribution Agreement, Forum acts as
the distributor of the Fund's shares. Under a distribution plan (the "Plan")
adopted by the Board, the Fund may reimburse Forum for the distribution expenses
incurred by Forum on behalf of the Fund. These expenses may include the cost of
advertising and promotional materials, providing prospective shareholders with
the Fund's prospectus, statement of additional information and shareholder
reports, reimbursing the Adviser for its distribution expenses and compensating
others who may provide assistance in distributing shares of the Fund. These
expenses may include costs of Forum's offices such as rent, communications
equipment, employee salaries and overhead costs. The Fund will not reimburse
Forum for any expenses in any fiscal year of the Fund in excess of 0.25% of the
Fund's average daily net assets. During the period in which the Plan and the
related Administration and Distribution Agreement are in effect, the Board will
from time to time determine the amount of distribution expense reimbursement to
be paid. It is anticipated that no distribution fees will be approved by the
Board for the Fund's current fiscal year. Unreimbursed expenses of the
Distributor incurred during a fiscal year of the Company may not be reimbursed
by the Company in future years or after the termination of the Plan or the
Administration and Distribution Agreement.
TRANSFER AGENT
The Company has entered into a Transfer Agency Agreement with Forum
Financial Corp. (the "Transfer Agent") pursuant to which the Transfer Agent acts
as the Fund's transfer agent and dividend disbursing agent. The Transfer Agent
maintains an account for each shareholder of the Company (unless such accounts
are maintained by sub-transfer agents), performs other transfer agency functions
and acts as dividend disbursing agent for the Company. In addition, under a
separate agreement the Transfer Agent performs portfolio accounting services for
the Fund, including determination of the Fund's net asset value.
EXPENSES OF THE COMPANY
The Fund's expenses comprise Company expenses attributable to the Fund,
which are charged to the Fund, and those not attributable to a particular fund
of the Company, which are allocated among the Fund and all other funds of the
Company in proportion to their average net assets. The Company is responsible
for all of its expenses, including: interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the Company's custodian and transfer agent; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Company and maintaining corporate
existence; costs of preparing and printing the Company's prospectuses,
statements of additional information and shareholder reports and delivering them
to existing shareholders; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; compensation of the Company's directors;
compensation of the Company's officers and employees who are not employees of
the Adviser, Forum or their respective affiliates and costs of other personnel
performing services for the Company; costs of corporate meetings; Securities and
Exchange Commission registration fees
<PAGE>
and related expenses; state securities laws registration fees and related
expenses; the fees payable under the Advisory Agreement, the Administration and
Distribution Agreement; and any fees and expenses payable pursuant to the Plan.
The Adviser has agreed to reimburse the Company for certain of the Fund's
operating expenses which in any year exceed the limits prescribed by any state
in which the Fund's shares are qualified for sale.
5. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL
PURCHASES. Shares of the Fund may be purchased without a sales charge at
their net asset value on any weekday except customary national business holidays
and Good Friday ("Fund Business Day"). See "Other Information - Determination
of Net Asset Value."
Shares of the Fund are issued at a price equal to the net asset value per
share next determined after an order in proper form is accepted by the Transfer
Agent. The Fund's net asset value is calculated at 4:00 p.m., Eastern time on
each Fund Business Day. Fund shares become entitled to receive dividends on the
next Fund Business Day after the acceptance of an order.
The Fund reserves the right to reject any subscription for the purchase of
its shares. Stock certificates are issued only to shareholders of record upon
their written request, and no certificates are issued for fractional shares.
REDEMPTIONS. There is no redemption charge, no minimum period of
investment, and no restriction on frequency of redemptions. The date of payment
of redemption proceeds may not be postponed for more than seven days after
shares are tendered to the Transfer Agent for redemption by a shareholder of
record. The right of redemption may not be suspended except in accordance with
the Investment Company Act.
Redemptions are effected at a price equal to the net asset value per share
next determined following acceptance by the Transfer Agent of the redemption
order in proper form (and any supporting documentation which the Transfer Agent
may require). Shares redeemed are not entitled to participate in dividends
declared after the day on which a redemption becomes effective.
Redemption requests will not be effected unless any check used for
investment has been cleared by the shareholder's bank, which may take up to 15
calendar days. This delay may be avoided by investing in the Fund through wire
transfers. Normally redemption proceeds are paid immediately following any
redemption, but in no event later than seven days after redemption, by check
mailed to the shareholder of record at his record address. Shareholders that
wish to redeem shares by Telephone or by Bank Wire must elect these options by
properly completing the appropriate sections of their account application.
PURCHASE AND REDEMPTION PROCEDURES
Investors may obtain the account application necessary to open an account
by writing the Transfer Agent at one of the addresses listed on the cover page
to this prospectus.
There is a $10,000 minimum for initial investments in the Fund and a $2,500
minimum for subsequent purchases, except for individual retirement accounts (See
"Purchases and
<PAGE>
redemptions of Shares - Individual Retirement Accounts"). Shareholders will
receive from the Company periodic statements listing account activity during the
statement period.
The Fund sells and redeems its shares on a continuing basis at the net
asset value of the shares next determined following the receipt by the Transfer
Agent of a purchase or redemption order in proper form including, in the case of
purchases, Federal Funds. An investor's funds will not be accepted or invested
by the Fund during the period before the Fund's receipt of Federal Funds.
INITIAL PURCHASE OF SHARES
MAIL. Investors may send a check made payable to the Company along with a
completed account application to the Transfer Agent at:
Austin Global Equity Fund
P.O. Box 446
Portland, Maine 04112
Checks are accepted at full value subject to collection. If a check does
not clear, the purchase order will be canceled and the investor will be liable
for any losses or fees incurred by the Company, the Transfer Agent or Forum.
BANK WIRE. To make an initial investment in the Fund using the fed wire
system for transmittal of money among banks, an investor should first telephone
the Transfer Agent at (207) 879-0001 to obtain an account number for an initial
investment. The investor should then instruct a member commercial bank to wire
his money immediately to:
The First National Bank of Boston
Boston, Massachusetts
ABA # 011000390
For Credit to: Forum Financial Corp.
Account # 541-54171
Austin Global Equity Fund
(Investor's Name)
(Investor's Account Number)
The investor should then promptly complete and mail the account application.
Any investor planning to wire funds should instruct his bank early in the
day so the wire transfer can be accomplished the same day. There may be a
charge by the investor's bank for transmitting the money by bank wire, and there
also may be a charge for use of Federal Funds. The Company does not charge
investors for the receipt of wire transfers.
THROUGH BROKERS. Shares may be purchased and redeemed through brokers and
other financial institutions that have entered into sales agreements with Forum.
These institutions may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Company. The Company is not responsible for the failure of any institution
to promptly forward these requests.
<PAGE>
Investors who purchase shares will be subject to the procedures of their
institution, which may include charges, limitations, investment minimums, cutoff
times and restrictions in addition to, or different from, those applicable to
shareholders who invest in the Fund directly. These investors should acquaint
themselves with their institution's procedures and should read this Prospectus
in conjunction with any materials and information provided by their institution.
Customers who purchase Fund shares in this manner may or may not be the
shareholder of record and, subject to their institution's and the Fund's
procedures, may have Fund shares transferred into their name. There is
typically a one to five day settlement period for purchases and redemptions
through broker-dealers.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases may be made by mailing a check, by sending a bank wire
or through a broker as indicated above. Shareholders using the wire system for
subsequent purchases should first telephone the Transfer Agent at (207) 879-8909
to notify it of the wire transfer. All payments should clearly indicate the
shareholder's name and account number.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by bank wire must elect these options by properly completing the
appropriate sections of their account application. These privileges may not be
available until several weeks after a shareholder's application is received.
Shares for which certificates have been issued may not be redeemed by telephone.
REDEMPTION BY MAIL. Shareholders may make a redemption in any amount by
sending a written request to the Transfer Agent accompanied by any stock
certificate that may have been issued to the shareholder. All certificates
submitted for redemption must be endorsed by the shareholder with signature
guaranteed and all written requests for redemption must be signed by the
shareholder with signature guaranteed.
TELEPHONE REDEMPTION. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at (207) 879-8909. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, the Company and the Transfer Agent will employ
reasonable procedures to confirm that such instructions are genuine.
Shareholders must provide the Transfer Agent with the shareholder's account
number, the exact name in which the shares are registered and some additional
form of identification such as a password. The Company or the Transfer Agent
may employ other procedures such as recording certain transactions. If such
procedures are followed, neither the Transfer Agent nor the Company will be
liable for any losses due to unauthorized or fraudulent redemption requests.
Shareholders should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone
redemption privilege may be difficult to implement. In response to the
telephone redemption instruction, the Fund will mail a check to the
shareholder's record address or, if the shareholder has elected wire redemption
privileges, wire the proceeds. Shares for which certificates have been issued
may not be redeemed by telephone.
<PAGE>
BANK WIRE REDEMPTION. With respect to any redemption of more than $10,000,
a shareholder may request the Fund to transmit the proceeds by Federal Funds
wire to a bank account designated in writing. To request bank wire redemptions
by telephone, the shareholder must have elected to be able to redeem shares by
telephone.
OTHER REDEMPTION MATTERS. A signature guarantee is required for any
written redemption request and for any endorsement on a stock certificate. In
addition, a signature guarantee also is required for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions or automatic investment or redemption, dividend election, telephone
redemption or exchange option election or any other option election in
connection with the shareholder's account. Signature guarantees may be provided
by any eligible institution, including a bank, a broker, a dealer, a national
securities exchange, a credit union, or a savings association that is authorized
to guarantee signatures, acceptable to the Transfer Agent. Whenever a signature
guarantee is required, each person required to sign for the account must have
his signature guaranteed.
Due to the cost to the Company of maintaining smaller accounts, the Company
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$10,000. The Fund will not redeem accounts that fall below this amount solely
as a result of a reduction in net asset value.
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). The minimum initial investment
for investors opening an IRA or investing through their own IRA is $2,000, and
the minimum subsequent investment is $1,000. Individuals may make tax-
deductible IRA contributions of up to a maximum of $2,000 annually. However,
the deduction will be reduced if the individual or, in the case of a married
individual filing jointly, either the individual or the individual's spouse is
an active participant in an employer-sponsored retirement plan and has adjusted
gross income above certain levels.
6. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of the Fund's net investment income are declared and paid
annually. Net capital gains realized by the Fund, if any, also will be
distributed annually.
Shareholders may choose either to have all dividends reinvested in
additional shares of the Fund or received in cash or to have dividends of net
capital gain reinvested in additional shares of the Fund and dividends of net
investment income paid in cash. All dividends are treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in shares
of the Fund.
Income dividends will be reinvested at the Fund's net asset value as of the
last day of the period with respect to which the dividends are paid. Capital
gain dividends will be reinvested at the net asset value of the Fund on the
payment date for the dividend. All dividends are reinvested unless another
option is selected. All dividends not reinvested will be paid to the
shareholder in cash and may be made more than seven days following the date on
which dividends would otherwise be reinvested.
TAXES
<PAGE>
TAXATION OF THE FUND. The Fund intends to qualify for each fiscal year to
be taxed as a "regulated investment company" under the Internal Revenue Code of
1986 (the "Code"). As such, the Fund will not be liable for Federal income and
excise taxes on the net investment income and capital gains distributed to its
shareholders in accordance with the applicable provisions of the Code. The Fund
intends to distribute all of its net income and net capital gains each year.
Accordingly, the Fund should thereby avoid all Federal income and excise taxes.
SHAREHOLDER TAX MATTERS. Dividends paid by the Fund out of its net
investment income (including realized net short term capital gains) are taxable
to the shareholders of the Fund as ordinary income. Distributions of net long-
term capital gain, if any, realized by the Fund are taxable to the shareholders
as long-term capital gain, regardless of the length of time the shareholder may
have held his shares in the Fund at the time of distribution. A portion of the
Fund's dividends may qualify for the dividends received deduction available to
corporations.
If a shareholder holds shares for six months or less and during that period
receives a distribution taxable to the shareholder as a long-term capital gain,
any loss realized on the sale of the shareholder's shares during that six-month
period would be deemed a long-term loss to the extent of the distribution.
Any dividend or distribution received by a shareholder on shares of the
Fund will have the effect of reducing the net asset value of the shareholder's
shares by the amount of the dividend or distribution. Furthermore, a dividend
or distribution made shortly after the purchase of shares by a shareholder,
although in effect a return of capital to that particular shareholder, would be
taxable to the shareholder as described above.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income or other taxes. Under certain
circumstances, shareholders will be notified of their share of these taxes and
will be required to include that amount as income. In that event, the
shareholder may be entitled to claim a credit or deduction for those taxes.
GENERAL. The Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions and
redemptions) paid to a non-corporate shareholder unless such shareholder
certifies in writing that the social security or tax identification number
provided is correct and that the shareholder is not subject to backup
withholding for prior underreporting to the Internal Revenue Service.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Fund will be mailed to shareholders shortly after the close of each year.
7. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
The Company determines the net asset value per share of the Fund as of 4:00
p.m., Eastern time, on each Fund Business Day by dividing the value of the
Fund's net assets (I.E., the value of its securities and other assets less its
liabilities, including expenses payable or accrued but excluding capital stock
and surplus) by the number of shares outstanding at the time the determination
is made. Securities owned by the Fund for which market quotations are readily
available are valued at current market value, or, in their absence, at fair
value as determined by
<PAGE>
the Board. Purchases and redemptions will be effected at the time of
determination of net asset value next following the receipt of any purchase or
redemption order as described under "Purchases and Redemptions of Shares."
DESCRIPTION OF COMMON STOCK
The Company was incorporated in Maryland on March 6, 1992. The authorized
capital stock of the Company consists of 20 billion shares of stock having a par
value of one-tenth of one cent ($.001) per share. The Board may, without
shareholder approval, divide the authorized stock into an unlimited number of
separate portfolios or series with different investment objectives, policies,
limitations and fee structures and may in the future divide existing series or
portfolios into two or more classes of stock. Currently, all the issued and
outstanding stock of the Company is comprised of two series, the Fund, and one
other series.
Shares issued by the Company have no conversion, subscription or preemptive
rights. Shareholders of the Fund have equal and exclusive rights to dividends
and distributions declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. Voting rights are not cumulative and, with respect
to matters not affecting all funds of the Company, generally only shareholders
of the affected series may vote. Maryland law does not require a registered
investment company to hold annual meetings of shareholders, and it is
anticipated that shareholder meetings will be held only when specifically
required by Federal or state law. Shareholders have available certain
procedures for the removal of Directors. The Company will call a shareholder
meeting for the purpose of removing a Director when 10% of the outstanding
shares call for a meeting, and the Company will assist in certain shareholder
communications. All shares when issued in accordance with the terms of this
Prospectus will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholder.
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or
total return. Both types of performance are based on historical results and are
not intended to indicate future performance. The Fund's yield is a way of
showing the rate of income the Fund earns on its investments as a percentage of
the Fund's share price. To calculate yield, the Fund takes the interest income
it earned from its portfolio of investments for a 30 day period (net of
expenses), divides it by the average number of shares entitled to receive
dividends, and expresses the result as an annualized percentage rate based on
the Fund's share price at the beginning of the 30 day period. The Fund's total
return shows its overall change in value, including changes in share price and
assuming all the Fund's distributions are reinvested. A cumulative total return
reflects the Fund's performance over a stated period of time. An average annual
total return reflects the hypothetical annually compounded return that would
have produced the same cumulative total return if the Fund's performance had
been constant over the entire period. Because average annual returns tend to
smooth out variations in the Fund's returns, shareholders should recognize that
they are not the same as actual year-by-year results. To illustrate the
components of overall performance, the Fund may separate its cumulative and
average annual returns into income results and capital gain or loss.
The Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or CDA/Wiesenberger. In addition, the performance of the Fund may be
compared to recognized indices of market performance. The comparative material
found in the Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.
<PAGE>
APPENDIX
OPTIONS ON EQUITY SECURITIES (sometimes referred to as stock options) - A
call option is a short-term contract pursuant to which the purchaser of the call
option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying
security, upon exercise at the exercise price during the option period.
OPTIONS ON STOCK INDEXES - A stock index assigns relative values to the
stock included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
FOREIGN CURRENCY OPTIONS - A foreign currency option operates in the same
manner as an option on securities. Options on foreign currencies are primarily
traded in the over-the-counter market.
STOCK INDEX FUTURES CONTRACTS - A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the stocks comprising the index is made. Generally contracts are closed out
prior to the expiration date of the contract.
FOREIGN CURRENCY FUTURES CONTRACTS - A foreign currency futures contract is
a bilateral agreement pursuant to which two parties agree to take or make
delivery of a quantity of a foreign currency called for in a contract at a
specified future time and at a specific price. Although these contracts call
for delivery of or acceptance of the foreign currency, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.
OPTIONS ON FUTURES CONTRACTS - Options on futures contracts are similar to
stock options except that an option on a futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
OAK HALL-REGISTERED TRADEMARK- EQUITY FUND
Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
(207) 879-0001
This Prospectus offers shares of the Oak Hall-Registered Trademark- Equity Fund
(the "Fund"), which is a diversified portfolio of Stone Bridge Funds, Inc. (the
"Company"), an open-end, management investment company. The investment
objective of the Fund is to seek capital appreciation by investing primarily in
a portfolio of common stock and securities convertible into common stock.
Shares of the Fund are offered to investors without any sales charge, but the
Fund may bear certain of its distribution expenses.
This Prospectus sets forth concisely the information concerning the Fund and the
Company that a prospective investor should know before investing. The Company
has filed with the Securities and Exchange Commission a Statement of Additional
Information dated November 1, 1996, which contains more detailed information
about the Fund and the Company and which is hereby incorporated into this
Prospectus by reference. An investor may obtain a copy of the Statement of
Additional Information without charge by contacting Shareholder Servicing at the
address or phone number listed above.
Investors should read this Prospectus and retain it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 1, 1996
<PAGE>
1. PROSPECTUS SUMMARY
SUMMARY OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES. The Fund seeks capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. The Fund also may invest up to 30% of its assets in the
securities of foreign companies and may use certain investment techniques, all
of which may entail special risks. See "Investment Objective, Policies and
Limitations."
MANAGEMENT. Oak Hall-Registered Trademark- Capital Advisors, L.P. (the
"Adviser") is the Fund's investment adviser and makes investment decisions for
the Fund. Forum Financial Services, Inc., the Fund's distributor, supervises
the administration of the Fund and the Company. See "Management." The Fund
bears certain expenses in connection with the sale of its shares. See
"Management - Distribution."
PURCHASES AND REDEMPTIONS. Shares of the Fund are offered at the next-
determined net asset value without a sales charge to investors who plan to
invest a minimum of $10,000 in the Fund. Shares of the Fund may be redeemed
from the Fund at their next-determined net asset value on any Fund Business Day.
See "Purchases and Redemptions of Shares."
DIVIDENDS. Dividends representing the net investment income of the Fund are
declared and paid at least annually. Net capital gains realized by the Fund, if
any, also will be distributed annually. Dividends and distributions are
reinvested in additional shares of the Fund unless a shareholder elects to have
them paid in cash. See "Dividends and Tax Matters."
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Certain investments and
investment techniques of the Fund may entail additional risks or have
speculative characteristics. These include investments in small companies whose
securities are not actively traded, investments in debt securities rated below
investment grade, and investments in securities of foreign issuers. See
"Investment Objective, Policies and Limitations." The Fund is not intended to
provide a complete or balanced investment program for all investors.
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. There are no transaction charges associated with purchases and
redemptions.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees 0.31%
12b-1 Fees 0.00%
Other Expenses 1.69%
----
Total Fund Operating Expenses 2.00%
The amounts of expenses are based on amounts incurred during the Fund's most
recent fiscal year ended June 30, 1996. Absent certain expense
reimbursements and fee waivers, during the most recent fiscal year, the
Investment Advisory Fees and Total Operating Expenses of the Fund would have
been 0.75% and 2.44%, respectively. For a further description of the various
costs and expenses incurred in the Fund's operation, see "Management."
<PAGE>
EXAMPLE
The following is a hypothetical example that indicates the dollar amount of
expenses an investor would pay assuming a $1,000 investment, a 5% annual return,
reinvestment of all dividends and distributions and full redemption at the end
of each period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$20 $63 $108 $233
The example is based on the expenses listed in the "Annual Fund Operating
Expenses" table above. The 5% annual return is not a prediction of and does not
represent the Fund's projected returns; rather it is required by government
regulation. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN THOSE INDICATED.
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following represents selected data for a single share outstanding of the
Fund for the periods indicated. The information for the periods ending June 30,
1994, 1995 and 1996 was audited in connection with an audit of the Company's
financial statements by Deloitte & Touche LLP, independent auditors. The
financial statements and auditors' report thereon are contained in the Annual
Report which is incorporated by reference into the Statement of Additional
Information. The information for the period ending June 30, 1993 was audited by
other independent auditors. Further information about the Fund's performance is
contained in the Annual Report, which may be obtained without charge.
<TABLE>
<CAPTION>
Year Ended June 30
1996 1995 1994 1993(a)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Beginning Net Asset Value per Share $11.33 $12.55 $14.30 $10.00
Net Investment (Loss) (0.32)(c) (0.03)(c) (0.09) ---
Net Realized and Unrealized
Investment Gain (Loss) on Investments 2.60 (0.10) (0.52) 4.31
Distributions from Net Realized Gains --- (1.09) (1.14) (0.01)
------ ------ ------ ------
Ending Net Asset Value per Share $13.61 $11.33 $12.55 $14.30
------ ------ ------ ------
------ ------ ------ ------
Ratios to Average Net Assets:
Expenses(b) 2.00% 2.00% 2.01% 1.23%(d)
Net Investment Loss (1.14%) (0.23)% (0.96%) (0.07%)(d)
Total Return 20.12% (1.07)% (5.14%) 45.12%(d)
Portfolio Turnover Rate 157.01% 115.33% 168.61% 187.94%
Average Commission Rate $0.0601(e) --- --- ---
Net Assets at the End of Period
(000's Omitted) $12,257 $16,339 $35,470 $12,581
(a) For the period July 13, 1992 (commencement of operations) through June 30, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had thesewaivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 2.44% 2.00% 2.17% 5.91%(d)
(c) Calculated using the weighted average shares outstanding.
(d) Annualized.
(e) Amount represents the average commission per share paid to brokers on the purchase or sale of equity securities.
</TABLE>
3. INVESTMENT OBJECTIVE, POLICIES, AND LIMITATIONS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. Except during periods when the Fund assumes a temporary
defensive position, the Fund will have at least 65% of its total assets invested
in common stock and securities convertible into common stock. There can be, of
course, no assurance that the Fund will achieve its investment objective.
The Fund intends to invest principally in companies that, in the view of the
Adviser, possess above average growth potential or attractive valuations. The
Adviser seeks to identify and invest
<PAGE>
in companies it believes have a minimum of downside risk and whose stock is
selling at a discount from previous peak prices. In addition, the Adviser seeks
to invest in companies whose fundamental attributes, in the Adviser's opinion,
are improving but whose improvement has not been fully recognized by the
investment community. Consequently, the Adviser anticipates that the Fund's
portfolio will exhibit a high degree of volatility or price fluctuation when
compared to the market averages. In seeking these investments, the Adviser
relies primarily on a company by company analysis (rather than on broader
analysis of industry or economic trends). The Fund may invest in the securities
of issuers in any industry, but the Adviser emphasizes investments in those
industries for which the Adviser believes the economic cycle is improving. The
Fund may purchase the shares of small companies whose stock is less actively
traded and which have greater appreciation potential and a correspondingly
higher level of risk than larger companies whose shares are actively traded.
The securities in which the Fund invests may be traded on securities exchanges
or in the over-the-counter markets.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities,
including convertible debt and convertible preferred stock. The Fund will
invest only in convertible debt that is rated B or higher by Moody's Investors
Service, Inc. ("Moody's") or by Standard & Poor's Corporation ("S&P") and in
preferred stock that is rated b or higher by Moody's or B or higher by S&P. The
Fund may purchase unrated convertible securities if the Adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Securities in the lowest permissible rating categories are characterized by
Moody's as generally lacking characteristics of the desirable investment and by
S&P as being predominantly speculative. In addition, securities in these
categories may involve the same type of risks as the "Debt Securities" described
below, although to a lesser degree. The Fund may retain securities whose rating
has been lowered below the lowest permissible rating category (or that are
unrated and determined by the Adviser to be of comparable quality) if the
Adviser determines that retaining such security is in the best interests of the
Fund.
A further description of the various rating categories is included in the
Statement of Additional Information.
DEBT SECURITIES. The Fund may invest up to 25% of the value of its total assets
in heavily discounted non-investment grade, high risk, corporate debt securities
(commonly referred to as "junk bonds") rated in any category by Moody's or S&P,
or unrated, as an alternative to investing in equity securities. In these
instances, investment selection is based upon the independent research activity
of the Adviser and ratings of generally recognized bond rating agencies, such as
Moody's or S&P. Bonds rated in Moody's lowest rating category, C, are
characterized as having extremely poor prospects of ever attaining any real
investment standing. Bonds rated in S&P's lowest rating category, D, are
characterized as being in default.
Non-investment grade, high risk securities provide poor protection for payment
of principal and interest but have greater potential for capital appreciation
than do higher quality securities. These lower rated securities involve greater
risk of default or price changes due to changes in the issuer's creditworthiness
than do higher quality securities. The market for these securities may be
thinner and less active than that for higher quality securities, which may
affect the price at which the lower rated securities can be sold. In addition,
the market prices of lower rated securities may fluctuate more than the market
prices of higher quality securities and may decline significantly in periods of
general economic difficulty or rising interest rates.
A further description of the various rating categories is included in the
Statement of Additional Information.
<PAGE>
ADDITIONAL INVESTMENT POLICIES
FOREIGN SECURITIES. The Fund may invest up to 30% of the value of its total
assets in securities of foreign issuers, in American Depository Receipts
("ADRs") and in securities denominated in foreign currencies (collectively,
"foreign securities"). Investments in foreign securities involve certain risks,
such as exchange rate fluctuations, political or economic instability of the
issuer or the country of issue and the possible imposition of exchange controls,
withholding taxes on dividends or interest payments, confiscatory taxes or
expropriation. Foreign securities may also be subject to greater fluctuations
in price than securities of domestic corporations denominated in U.S. dollars.
Foreign securities and their markets may not be as liquid as domestic securities
and their markets, and foreign brokerage commissions and custody fees are
generally higher than those in the United States. In addition, less information
may be publicly available about a foreign company than about a domestic company,
and foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. With respect to its permitted investments in foreign securities, the
Fund does not limit the amount of its assets that may be invested in one country
or denominated in one currency.
The Fund may invest in sponsored and unsponsored ADRs, which are receipts issued
by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. Unsponsored ADRs may be created without
the participation of the foreign issuer. Holders of these ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
The Fund may utilize foreign currency forward contracts in order to hedge
against uncertainty in the level of future foreign exchange rates. The Fund
will not enter into these contracts for speculative purposes. These contracts
involve an obligation to purchase or sell a specific currency at a specified
future date, usually less than one year from the date of the contract, at a
specified price. The Fund may enter into foreign currency forward contracts to
manage currency risks and to facilitate transactions in foreign securities.
These contracts involve a risk of loss if the Adviser fails to predict currency
values correctly and also involve similar risks to those described under
"Hedging Strategies." The Fund may also buy and sell foreign currency options
and other derivatives, foreign currency futures contracts and options on those
futures contracts. See "Hedging Strategies."
WARRANTS. The Fund may invest in warrants, which are options to purchase an
equity security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. Warrants are
usually issued by the issuer of the security to which they relate. While
warrants may be traded, there is often no secondary market for them and the
prices of warrants do not necessarily correlate with the prices of the
underlying securities. Holders of warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer. The Fund
will limit its purchases of warrants to not more than 5% of the value of its
total assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities (principally to broker-dealers, except
the Adviser's affiliates, or to institutional investors). These loans must be
callable at any time and will be continuously secured by collateral (cash or
U.S. Government securities) at least equal to the current market value of the
securities loaned. The risks of securities lending are similar to, but slightly
greater
<PAGE>
than, those involved in repurchase agreements. See "Repurchase Agreements"
below. The Fund will limit securities lending to not more than 10% of the value
of its total assets.
HEDGING STRATEGIES. The Fund may in the future seek to hedge against a decline
in the value of securities owned by it or an increase in the price of securities
which it plans to purchase through the writing and purchase of exchange-traded
and over-the-counter options and the purchase and sale of futures contracts and
options on those futures contracts. The Fund may write (sell) covered put and
call options and may buy put and call options on equity securities, foreign
currencies and stock indices, such as the Standard & Poor's 500 Stock Index. In
addition, the Fund may buy or sell stock index and foreign currency futures
contracts and may write covered options and buy options on those contracts.
Definitions of these instruments may be found in the Appendix to this
Prospectus. An option is covered if, so long as the Fund is obligated under the
option, it owns an offsetting position in the underlying security, currency or
futures contract or maintains cash, U.S. Government securities or other liquid,
high-grade debt securities in a segregated account with a value at all times
sufficient to cover the Fund's obligation under the option. A further
description of these investment techniques, including the limitations on their
use, is contained in the Statement of Additional Information.
The Fund's use of options and futures contracts would subject the Fund to
certain investment risks and transactions cost to which it might not otherwise
be subject. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities or currencies and
fluctuations in the general securities or currency markets; (2) imperfect
correlation between movements in the prices of options, futures contracts or
related options and movements in the price of the securities or currencies
hedged or used for cover; (3) the fact that skills and techniques needed to
trade these instruments are different from those needed to select the other
securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time; (5) the possible need to defer closing out of certain options, futures
contracts and related options to avoid adverse tax consequences and (6) the
potential for unlimited loss when investing in futures contracts. Other risks
include the inability of the Fund, as the writer of covered call options, to
benefit from the appreciation of the underlying securities above the exercise
price and the possible loss of the entire premium paid for options purchased by
the Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Fund may purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When such transactions are negotiated, the
price or yield is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. The use of when-issued
transactions and forward commitments enables the Fund to hedge against
anticipated changes in interest rates and prices. If the Adviser were to
forecast incorrectly the direction of interest rate movements, the Fund might be
required to complete its when-issued or forward commitment transactions at
prices below current market values. In other words, the Fund may have paid more
for the securities than the securities are worth on the date the Fund fulfills
its commitment.
REPURCHASE AGREEMENTS. The Fund may seek additional income by investing in
repurchase agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally one day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon market rate which is in
effect for the period of time the buyer's money is invested in the security and
which is not related to the coupon rate on the purchased security. Such
agreements permit the Fund to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of longer-term investments. The Fund
maintains procedures for evaluating and monitoring the creditworthiness of
vendors of repurchase agreements. In addition, the Fund requires continual
<PAGE>
maintenance of collateral held by its custodian in an amount equal to, or in
excess of, the market value of the securities which are the subject of the
agreement. If a vendor defaults on its repurchase obligation, the Fund might
suffer a loss to the extent that the proceeds from the sale of the collateral
were less than the repurchase price. In the event of a vendor's bankruptcy, the
Fund might be delayed in, or prevented from, selling the collateral for the
Fund's benefit.
TEMPORARY DEFENSIVE POSITION. When the Adviser believes that business or
financial conditions warrant, the Fund may assume a temporary defensive
position. For temporary defensive purposes, the Fund may invest without limit
in cash or in investment grade cash equivalents, including (i) short-term
obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities ("U.S. Government Securities"), (ii) prime quality
certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States, (iii) prime
quality commercial paper, and (iv) repurchase agreements covering any of the
securities in which the Fund may invest directly, and, subject to the limits of
the Investment Company Act of 1940 (the "Investment Company Act,") money market
mutual funds. During periods when and to the extent that the Fund has assumed a
temporary defensive position, it will not be pursuing its investment objective.
GENERAL
PORTFOLIO TRANSACTIONS. The frequency of portfolio transactions (the portfolio
turnover rate) will vary from year to year depending on market conditions. From
time to time the Fund may engage in active short-term trading to take advantage
of price movements affecting individual issues, groups of issues or markets.
This will increase the Fund's rate of turnover and will result in higher total
brokerage costs for the Fund. An annual turnover rate of 100% would occur, for
example, if all of the securities in the Fund were replaced once in a period of
one year. The Adviser weighs the anticipated benefits of short-term investments
against these consequences.
The Fund has no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. Consistent with its policy of obtaining
the best net results, the Fund may conduct brokerage transactions through
certain affiliates of the Adviser. The Board of Directors of the Company has
adopted policies, as required by the Investment Company Act, to ensure that
these transactions are reasonable and fair and that the commissions charged are
comparable to those charged by non-affiliated qualified broker-dealers.
CHANGES IN INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the
Fund is a fundamental policy of the Fund and, along with any other policies of
the Fund that are deemed to be fundamental, may not be changed without approval
of the holders of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act. Except as otherwise indicated,
investment policies of the Fund are not deemed to be fundamental and may be
changed by the Board of Directors without share-holder approval.
INVESTMENT LIMITATIONS. The Fund has adopted the following investment
limitations which, except for (5), are fundamental policies of the Fund.
Additional limitations are listed in the Statement of Additional Information.
The Fund may not:
(1) Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests which might require the untimely disposition of
securities). Total borrowings may not exceed 33 1/3% of the Fund's total
assets. Borrowing for purposes other than meeting redemptions may not exceed 5%
of the value of the Fund's total assets at the time the borrowing is made.
Outstanding borrowings in excess of 5% of the value of the Fund's total assets
must be repaid before any subsequent investments are made by the Fund.
(2) Make loans to other persons except for loans of portfolio securities,
through the use of repurchase agreements, and through the purchase of debt
securities that are otherwise permitted investments.
<PAGE>
(3) Purchase the securities of issuers (other than U.S. Government Securities)
conducting their business activity in the same industry if, immediately after
such purchase, the value of investments in such industry would comprise 25% or
more of the value of the Fund's total assets.
(4) Purchase a security if, as a result (a) more than 5% of the Fund's total
assets would be invested in the securities of a single issuer, or (b) the Fund
would own more than 10% of the outstanding voting securities of a single issuer.
This limitation applies only with respect to 75% of the Fund's total assets and
does not apply to U.S. Government Securities.
(5) Invest more than 15% of its net assets in securities that are not readily
marketable, including repurchase agreements maturing in more than seven days.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from a change in the market values of the Fund's assets or
redemptions of Fund shares will not be considered a violation of the limitation.
4. MANAGEMENT
The business of the Company is managed under the direction of the Board of
Directors.
INVESTMENT ADVISER
Oak Hall-Registered Trademark- Capital Advisors, L.P.is the investment adviser
of the Fund pursuant to an Investment Advisory Agreement with the Company.
Subject to the general control of the Board of Directors, the Adviser makes
investment decisions for the Fund. For its services under the Advisory
Agreement, for the fiscal year ended June 30, 1996, the Adviser received an
advisory fee at an annual rate of 0.31% of the average daily net assets of the
Fund after fee waiver. The Adviser's fees are accrued daily and paid monthly.
The Adviser, in its sole discretion, may waive all or any portion of its
advisory fee. Any waiver would have the effect of increasing the Fund's yield
for the period during which the waiver was in effect and would not be recouped
by the Adviser at a later date. The advisory fee is higher than that paid by
most investment companies of all types to their advisers, but the Company
believes that the fee is appropriate for an equity fund.
John C. Hathaway, President and Chief Investment Officer of the Adviser, has
been the Fund's portfolio manager since inception of the Fund. Prior to his
association with the Adviser in May of 1989, Mr. Hathaway was a principal at
Hudson Capital Advisors. Mr. Hathaway has approximately 20 years experience in
the investment management business.
The Adviser, which is located at 24th Floor, 122 East 42nd Street, New York, New
York 10168, is a registered investment adviser and provides investment
management services to pension plans, endowment funds, institutional and
individual accounts. As of the date of this Prospectus, the Adviser had
approximately $200 million of assets under management. The Adviser was
incorporated under the laws of the State of New York in 1984 and is a wholly
owned subsidiary of American Securities Holding Corporation ("ASHC"). ASHC is
wholly owned by a trust, the beneficiaries of which are members of the William
Rosenwald family.
ADMINISTRATION
On behalf of the Fund, the Company has entered into an Administration and
Distribution Agreement with Forum Financial Services, Inc. ("Forum"). As
provided in this agreement, Forum is responsible for the supervision of the
overall management of the Company (including the Company's receipt of services
which the Company is obligated to pay for), providing the Company with general
office facilities and providing persons satisfactory to the Board of Directors
to serve as officers of the Company. For these services, Forum receives a fee
computed and paid monthly at an annual rate of 0.25% of the average daily net
assets of the Fund. Like the Adviser, Forum, in its sole discretion, may waive
all or any portion of its fees.
<PAGE>
Forum, which is located at Two Portland Square, Portland, Maine 04101, was
incorporated under the laws of the State of Delaware on February 7, 1986 and as
of the date hereof provided management and administrative services to registered
investment companies and collective investment funds with assets of
approximately $11.0 billion. Forum is a registered broker-dealer and investment
adviser and is a member of the National Association of Securities Dealers, Inc.
As of the date of this Prospectus, Forum is controlled by John Y. Keffer,
President and Chairman.
DISTRIBUTION
Pursuant to the Administration and Distribution Agreement, Forum acts as the
distributor of the Fund's shares. Under a distribution plan (the "Plan")
adopted by the Board of Directors, the Fund may reimburse Forum for the
distribution expenses incurred by Forum on behalf of the Fund. These expenses
may include the cost of advertising and promotional materials, providing
prospective shareholders with the Fund's prospectus, statement of additional
information and shareholder reports, reimbursing the Adviser for its
distribution expenses and compensating others who may provide assistance in
distributing shares of the Fund. These expenses may include costs of Forum's
offices such as rent, communications equipment, employee salaries and overhead
costs. The Fund will not reimburse Forum for any expenses in any fiscal year of
the Fund in excess of 0.20% of the Fund's average daily net assets. During the
period in which the Plan and the related Administration and Distribution
Agreement are in effect, the Board of Directors will from time to time determine
the amount of distribution expense reimbursement to be paid. Unreimbursed
expenses of the Distributor incurred during a fiscal year of the Company may not
be reimbursed by the Company in future years or after the termination of the
Plan or the Administration and Distribution Agreement.
TRANSFER AGENT
The Company has entered into a Transfer Agency Agreement with Forum Financial
Corp. (the "Transfer Agent") pursuant to which the Transfer Agent acts as the
Fund's transfer agent and dividend disbursing agent. The Transfer Agent
maintains an account for each shareholder of the Company (unless such accounts
are maintained by sub-transfer agents), performs other transfer agency functions
and acts as dividend disbursing agent for the Company. In addition, the
Transfer Agent performs portfolio accounting services for the Fund, including
determination of the Fund's net asset value.
EXPENSES OF THE COMPANY
The Adviser has agreed to reimburse the Company for certain of the Fund's
operating expenses (exclusive of interest, taxes, brokerage, fees and
organization expenses, all to the extent permitted by applicable state law or
regulation) which in any year exceed the limits prescribed by any state in which
the Fund's shares are qualified for sale. The Company may elect not to qualify
its shares for sale in every state. For the purpose of this obligation to
reimburse expenses, the Fund's annual expenses are estimated and accrued daily,
and any appropriate estimated payments will be made by the Adviser monthly.
Subject to the above obligations, the Company has confirmed its obligation to
pay all the Company's other expenses.
5. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL
PURCHASES. Fund shares may be purchased without a sales charge at their net
asset value on any weekday except customary national business holidays and Good
Friday ("Fund Business Day"). See "Determination of Net Asset Value."
<PAGE>
Fund shares are issued at a price equal to the net asset value per share next
determined after an order in proper form, accompanied by funds on deposit at a
Federal Reserve Bank ("Federal Funds"), is received by the Transfer Agent. An
investor's funds will not be accepted or invested by the Fund during the period
before the Fund's receipt of Federal Funds. The Fund's net asset value is
calculated at 4:00 p.m., Eastern time on each Fund Business Day. Fund shares
become entitled to receive dividends on the day after the shares are issued to
an investor.
The Fund reserves the right to reject any subscription for the purchase of its
shares and may, in the Adviser's discretion, accept portfolio securities in lieu
of cash as payment for Fund shares. Stock certificates are issued only to
shareholders of record upon their written request, and no certificates are
issued for fractional shares.
REDEMPTIONS. There is no redemption charge, no minimum period of investment,
and no restriction on frequency of redemptions. The date of payment of
redemption proceeds may not be postponed for more than seven days after shares
are tendered to the Transfer Agent for redemption by a shareholder of record.
The right of redemption may not be suspended except in accordance with the
Investment Company Act.
Redemptions are effected at a price equal to the net asset value per share next
determined following acceptance by the Transfer Agent of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). The Fund's net asset value is calculated at 4:00 p.m., Eastern time on
each Fund Business Day. Shares redeemed are not entitled to participate in
dividends declared after the day on which a redemption becomes effective.
PURCHASE AND REDEMPTION PROCEDURES
Investors may obtain the account application necessary to open an account by
writing the Transfer Agent at the following address:
Oak Hall-Registered Trademark- Equity Fund
P.O. Box 446
Portland, Maine 04112
There is a $10,000 minimum for initial investments in the Fund and a $5,000
minimum for subsequent purchases, except for individual retirement accounts (See
"Individual Retirement Accounts"). Shareholders will receive from the Company
periodic statements listing account activity during the statement period.
The Fund sells and redeems its shares on a continuing basis at their net asset
value next determined following the receipt by the Transfer Agent of a purchase
or redemption order in proper form including, in the case of purchases, Federal
Funds. An investor's funds will not be accepted or invested by the Fund during
the period before the Fund's receipt of Federal Funds.
INITIAL PURCHASE OF SHARES
MAIL. Investors may send a check made payable to the Company along with a
completed account application to the Transfer Agent at the following address;
Oak Hall-Registered Trademark- Equity Fund
P.O. Box 446
Portland, Maine 04112
Checks are accepted at full value subject to collection. Payment by a check
drawn on any member of the Federal Reserve System can normally be converted into
Federal Funds within two business days after receipt of the check. Checks drawn
on some non-member banks may take longer.
BANK WIRE. To make an initial investment in the Fund using the fedwire system
for transmittal of money among banks, an investor should first telephone the
Transfer Agent at 207-879-0001 to
<PAGE>
obtain an account number for an initial investment. The investor should then
instruct a member commercial bank to wire his money immediately to:
The First National Bank of Boston
Boston, Massachusetts
ABA # 011000390
For Credit to: Forum Financial Corp.
Account # 541-54171
Oak Hall Equity Fund
(Investor's Name)
(Investor's Account Number)
The investor should then promptly complete and mail the account application.
Any investor planning to wire funds should instruct his bank early in the day so
the wire transfer can be accomplished the same day. There may be a charge by
the investor's bank for transmitting the money by bank wire, and there also may
be a charge for use of Federal Funds. The Company does not charge investors for
the receipt of wire transfers. Payment in the form of a bank wire received
prior to 4:00 p.m., Eastern time on a Fund Business Day will be treated as a
Federal Funds payment received before that time.
THROUGH BROKERS. Shares may be purchased and redeemed through brokers and other
financial institutions that have entered into sales agreements with Forum.
These institutions may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Company. The Company is not responsible for the failure of any institution
to promptly forward these requests.
Investors who purchase shares will be subject to the procedures of their
institution, which may include charges, limitations, investment minimums, cutoff
times and restrictions in addition to, or different from, those applicable to
shareholders who invest in the Fund directly. These investors should acquaint
themselves with their institution's procedures and should read this Prospectus
in conjunction with any materials and information provided by their institution.
Customers who purchase Fund shares in this manner may or may not be the
shareholder of record and, subject to their institution's and the Fund's
procedures, may have Fund shares transferred into their name. There is
typically a one to five day settlement period for purchases and redemptions
through broker-dealers.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases may be made by mailing a check or by sending a bank wire as
indicated above. Shareholders using the wire system for subsequent purchases
should first telephone the Transfer Agent at 207-879-0001 to notify it of the
wire transfer. All payments should clearly indicate the shareholder's name and
account number.
REDEMPTION OF SHARES
Redemption requests will not be effected unless any check used for investment
has been cleared by the shareholder's bank, which may take up to 15 calendar
days. This delay may be avoided by investing in the Fund through wire
transfers. Normally redemption proceeds are paid immediately following any
redemption, but in no event later than seven days after redemption, by check
mailed to the shareholder of record at his record address. Shareholders that
wish to redeem shares by Telephone or by Bank Wire must elect these options by
properly completing the appropriate sections of their account application. These
privilege may be modified or terminated by the Company at any time.
Due to the cost to the Company of maintaining smaller accounts, the Company
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an
<PAGE>
aggregate net asset value of less than $10,000 ($2,000 for IRAs). The Fund will
not redeem accounts that fall below these amounts solely as a result of a
reduction in net asset value.
REDEMPTION BY MAIL. Shareholders may make a redemption in any amount by sending
a written request to the Transfer Agent accompanied by any stock certificate
that may have been issued to the shareholder. All certificates submitted for
redemption must be endorsed by the shareholder with signature guaranteed and all
written requests for redemption must be signed by the shareholder with signature
guaranteed.
When a signature guarantee is called for, including any instruction to change
the record name or address, the designated bank account, the dividend election,
or the telephone redemption option election on an account, the shareholder
should have "Signature Guaranteed" stamped under his signature and signed by a
commercial bank or trust company, a broker, dealer or securities exchange, a
credit union or a savings association that is authorized to guarantee
signatures.
TELEPHONE REDEMPTION. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at 207-879-0001. In an effort to prevent unauthorized or fraudulent redemption
requests by telephone, the Company and the Transfer Agent will employ reasonable
procedures to confirm that such instructions are genuine. Shareholders must
provide the Transfer Agent with the shareholder's account number, the exact name
in which the shares are registered and some additional form of identification
such as a password. The Company or the Transfer Agent may employ other
procedures such as recording certain transactions. If such procedures are
followed, neither the Transfer Agent nor the Company will be liable for any
losses due to unauthorized or fraudulent redemption requests. Shareholders
should verify the accuracy of telephone instructions immediately upon receipt of
confirmation statements.
During times of drastic economic or market changes, the telephone redemption
privilege may be difficult to implement. In response to the telephone
redemption instruction, the Fund will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. Shares for which certificates have been issued may not be redeemed by
telephone.
BANK WIRE REDEMPTION. With respect to any redemption of more than $10,000, a
shareholder that has elected wire redemption privileges may request the Fund to
transmit the proceeds by Federal Funds wire to a bank account designated on the
shareholder's account application. To request bank wire redemptions by
telephone, the shareholder also must have elected to be able to redeem shares by
telephone.
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be a suitable investment vehicle for part or all of the assets held
in individual retirement accounts ("IRAs"). The minimum initial investment for
investors opening an IRA or investing through their own IRA is $2,000, and the
minimum subsequent investment is $250. Individuals may make tax-deductible IRA
contributions of up to a maximum of $2,000 annually. However, the deduction
will be reduced if the individual or, in the case of a married individual filing
jointly, either the individual or the individual's spouse is an active
participant in an employer-sponsored retirement plan and has adjusted gross
income above certain levels.
6. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of the Fund's net investment income are declared and paid annually.
Net capital gains realized by the Fund, if any, also will be distributed
annually.
Shareholders may choose either to have all dividends reinvested in additional
shares of the Fund or received in cash or to have dividends of net capital gain
reinvested in additional shares of the
<PAGE>
Fund and dividends of net investment income paid in cash. All dividends are
treated in the same manner for Federal income tax purposes whether received in
cash or reinvested in shares of the Fund. All dividends are reinvested unless
another option is selected.
Income dividends will be reinvested at the Fund's net asset value as of the last
day of the period with respect to which the dividends are paid and capital gains
dividends will be reinvested at the net asset value of the Fund on the payment
date for the dividend. Cash payments may be made more than seven days following
the date on which dividends would otherwise be reinvested.
TAXES
The Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986 (the "Code"). As
such, the Fund will not be liable for Federal income and excise taxes on the net
investment income and capital gains distributed to its shareholders in
accordance with the applicable provisions of the Code. The Fund intends to
distribute all of its net income and net capital gains each year. Accordingly,
the Fund should thereby avoid all Federal income and excise taxes.
Dividends paid by the Fund out of its net investment income (including realized
net short term capital gains) are taxable to the shareholders of the Fund as
ordinary income notwithstanding that such dividends are reinvested in additional
shares of the Fund. Distributions of net long-term capital gains, if any,
realized by the Fund are taxable to the shareholders as long-term capital gains,
regardless of the length of time the shareholder may have held his shares in the
Fund at the time of distribution. A portion of the Fund's dividends may qualify
for the dividends received deduction available to corporations.
If a shareholder holds shares for six months or less and during that period
receives a distribution taxable to him as a long-term capital gain, any loss
realized on the sale of his shares during that six-month period would be a long-
term loss to the extent of the distribution. Distributions to shareholders will
be treated in the same manner for Federal income tax purposes whether received
in cash or reinvested in additional shares of the Fund.
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the net asset value of his shares by the amount
of the dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him as
described above.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions and redemptions) paid
to a non-corporate shareholder unless such shareholder certifies in writing that
the social security or tax identification number provided is correct and that
the shareholder is not subject to backup withholding for prior underreporting to
the Internal Revenue Service.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by the Fund will
be mailed to shareholders shortly after the close of each year.
7. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
The Company determines the net asset value per share of the Fund as of 4:00
P.M., Eastern time, on each Fund Business Day by dividing the value of the
Fund's net assets (I.E., the value of its securities and other assets less its
liabilities, including expenses payable or accrued but excluding capital stock
and surplus) by the number of shares outstanding at the time the determination
is made. Securities owned by the Fund for which market quotations are readily
available are valued at current market value, or, in their absence, at fair
value as determined by the Board of
<PAGE>
Directors. Purchases and redemptions will be effected at the time of
determination of net asset value next following the receipt of any purchase or
redemption order as described under "Purchases and Redemptions of Shares."
DESCRIPTION OF COMMON STOCK
The Company was incorporated in Maryland on March 6, 1992. The authorized
capital stock of the Company consists of 20 billion shares of stock having a par
value of one-tenth of one cent ($.001) per share. The Board of Directors may,
without shareholder approval, divide the authorized stock into an unlimited
number of separate portfolios or series with different investment objectives,
policies, limitations and fee structures and may in the future divide existing
series or portfolios into two or more classes of stock. Currently, all the
authorized, issued and outstanding stock of the Company is comprised of two
series, the Fund, and one other series.
Shares issued by the Company have no conversion, subscription or preemptive
rights. Shareholders of the Fund have equal and exclusive rights to dividends
and distributions declared by the Fund and to the net assets of the Fund upon
liquidation and dissolution. Voting rights are not cumulative and, with respect
to matters not affecting all funds of the Company, generally only shareholders
of the affected series may vote. Maryland law does not require a registered
investment company to hold annual meetings of shareholders, and it is
anticipated that, shareholder meetings will be held only when specifically
required by Federal or state law. Shareholders have available certain procedures
for the removal of Directors. The Company will call a shareholder meeting for
the purpose of removing a director when 10% of the outstanding shares call for a
meeting, and the Company will assist in certain shareholder communications. All
shares when issued in accordance with the terms of this Prospectus will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders.
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or total
return. Both types of performance are based on historical results and are not
intended to indicate future performance. The Fund's yield is a way of showing
the rate of income the Fund earns on its investments as a percentage of the
Fund's share price. To calculate yield, the Fund takes the interest income it
earned from its portfolio of investments for a 30 day period (net of expenses),
divides it by the average number of shares entitled to receive dividends, and
expresses the result as an annualized percentage rate based on the Fund's share
price at the beginning of the 30 day period. The Fund's total return shows its
overall change in value, including changes in share price and assuming all the
Fund's distributions are reinvested. A cumulative total return reflects the
Fund's performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in the Fund's returns, shareholders should recognize that they are
not the same as actual year-by-year results. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gain or loss.
The Fund's advertisements may reference ratings and rankings among similar funds
by independent evaluators such as Morningstar, Lipper Analytical Services, Inc.
or CDA/Weisenberger. In addition, the performance of the Fund may be compared to
recognized indices or market performance. The comparative material found in the
Fund's advertisements, sales literature or reports to shareholders may contain
performance ratings. These are not to be considered representative or indicative
of future performance.
<PAGE>
APPENDIX
OPTIONS ON EQUITY SECURITIES - (sometimes referred to as stock options)-A call
option is a short-term contract pursuant to which the purchaser of the call
option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying
security, upon exercise at the exercise price during the option period.
OPTIONS ON STOCK INDEXES - A stock index assigns relative values to the
stock included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
FOREIGN CURRENCY OPTIONS - A foreign currency option operates in the same
manner as an option on securities. Options on foreign currencies are primarily
traded in the over-the-counter market.
STOCK INDEX FUTURES CONTRACTS - A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the stocks comprising the index is made. Generally contracts are closed out
prior to the expiration date of the contract.
FOREIGN CURRENCY FUTURES CONTRACTS - A foreign currency futures contract is
a bilateral agreement pursuant to which two parties agree to take or make
delivery of a quantity of a foreign currency called for in a contract at a
specified future time and at a specific price. Although these contracts call for
delivery of or acceptance of the foreign currency, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery.
OPTIONS ON FUTURES CONTRACTS - Options on futures contracts are similar to
stock options except that an option on a futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
<PAGE>
AUSTIN GLOBAL EQUITY FUND
INVESTMENT ADVISER:
Austin Investment Management, Inc.
375 Park Avenue
New York, New York 10152
(212) 888-9292
ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
(207) 879-0001
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1996
Stone Bridge Funds, Inc. (the "Company") is a registered open-end
investment company. This Statement of Additional Information supplements the
Prospectus offering shares of the Austin Global Equity Fund (the "Fund") and
should be read only in conjunction with the Prospectus, a copy of which may be
obtained by without charge by contacting shareholder servicing at the address
listed above.
TABLE OF CONTENTS
Page
----
1. Investment Policies and Limitations. . . . . . . . . . . . . . 2
2. Performance Data . . . . . . . . . . . . . . . . . . . . . . . 15
3. Management . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4. Determination of Net Asset Value . . . . . . . . . . . . . . . 22
5. Portfolio Transactions . . . . . . . . . . . . . . . . . . . . 23
6. Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7. Additional Purchase and Redemption Information . . . . . . . . 24
8. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 25
9. Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . 26
Appendix A - Description of Securities Ratings
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
1. INVESTMENT POLICIES AND LIMITATIONS
The Fund's investment adviser, Austin Investment Management, Inc. (the
"Adviser"), in determining the composition of the Fund's portfolio, seeks to
distribute investments among various countries, including the United States, and
various geographic regions. In making
<PAGE>
investment decisions, the Adviser considers many factors, including: prospects
for economic growth among the various countries; relative amounts of capital
invested in foreign countries; expected levels of inflation; government policies
influencing business conditions; outlooks for future currency relationships; and
the range of investment opportunities available.
INVESTMENT IN FOREIGN SECURITIES
The Fund invests primarily in issuers based in the United States, Europe,
Japan and the Pacific Basin. The European and Pacific Basin countries in which
issuers will be based are primarily those of Western Europe, such as the United
Kingdom, Germany, France, Italy and the Scandinavian countries, and South Korea,
Australia and New Zealand.
Foreign securities are generally purchased in over-the-counter markets or
on stock exchanges located in the countries in which the respective principal
offices of the issuers of the various securities are located, if that is the
best available market. Foreign securities markets are generally not as
developed or efficient as those in the United States, and securities of foreign
companies may be less liquid and more volatile than securities of comparable
United States companies. Fixed commissions on foreign stock exchanges are
generally higher than negotiated commissions on United States exchanges,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies than in the United
States. Foreign countries may possibly place limitations on the removal of
funds or other assets of the Fund, and diplomatic developments could affect
United States investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, self-sufficiency of natural resources and balance of payments
position.
The dividends and interest payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.
A shareholder otherwise subject to United States federal income taxes may,
subject to certain limitations, be entitled to claim a credit or deduction for
U.S. federal income tax purposes for the shareholder's proportionate share of
foreign taxes paid by the Fund. (See "Tax Matters.")
Although the Fund values its assets daily in terms of U.S. dollars, it will
not normally convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(commonly known as the "spread") between the price at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
Investors should understand that the expense ratio of the Fund can be
expected to be higher than that of other investment companies investing solely
in domestic securities due to, among other things, the greater cost of
maintaining the custody of foreign securities and higher transaction charges,
such as stamp duties and turnover taxes that may be associated with the purchase
and sale of portfolio securities.
<PAGE>
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") are private services that provide ratings of the credit
quality of debt obligations, including convertible securities. A description of
the range of ratings assigned to corporate bonds, including convertible
securities by Moody's and S&P is included in Appendix A to this Statement of
Additional Information. The Fund may use these ratings in determining whether
to purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
securities with the same maturity, interest rate and rating may have different
market prices. Subsequent to its purchase by the Fund, an issue of securities
may cease to be rated or its rating may be reduced. The Adviser will consider
such an event in determining whether the Fund should continue to hold the
obligation. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Although no securities investment is without some risk, investment in
convertible securities generally entails less risk than in the issuer's common
stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The investment value of a convertible security is influenced by changes in
interest rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer and
other factors also may have an effect on the convertible security's investment
value. The conversion value of a convertible security is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the convertible security is
governed principally by its investment value and generally the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. In addition, a convertible security generally will sell
at a premium over its conversion value determined by the extent to which
investors place value on the right to acquire the underlying common stock while
holding a fixed income security.
<PAGE>
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party.
WARRANTS
The Fund may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. To the
extent that the market value of the security that may be purchased upon exercise
of the warrant rises above the exercise price, the value of the warrant will
tend to rise. To the extent that the exercise price equals or exceeds the
market value of such security, the warrants will have little or no market value.
If a warrant is not exercised within the specified time period, it will become
worthless and the Fund will lose the purchase price paid for the warrant and the
right to purchase the underlying security.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve currencies of foreign
countries. In addition, the Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs. Accordingly,
the value of the assets of the Fund as measured in United States dollars may be
affected by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. The Fund may conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into foreign currency forward
contracts ("forward contracts") to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers and involve the risk that the other party to the contract may
fail to deliver currency when due, which could result in losses to the Fund. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Foreign exchange dealers realize a profit
based on the difference between the price at which they buy and sell various
currencies.
The Fund may enter into forward contracts under two circumstances. First,
with respect to specific transactions, when the Fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Fund may be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, the Fund may enter into forward currency contracts in connection
with existing portfolio positions. For example, when the Adviser believes that
the currency of a particular
<PAGE>
foreign country may suffer a substantial decline against the U.S. dollar, the
Fund may enter into a forward contract to sell, for a fixed amount of dollars,
the amount of foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward contracts involve the risk
of inaccurate predictions of currency price movements, which may cause the Fund
to incur losses on these contracts and transaction costs. The Adviser does not
intend to enter into forward contracts on a regular or continuous basis, and
will not do so if, as a result, the Fund will have more than 25% of the value of
its total assets committed to such contracts or the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
At or before the settlement of a forward currency contract, the Fund may
either make delivery of the foreign currency or terminate its contractual
obligation to deliver the foreign currency by purchasing an offsetting contract.
If the Fund chooses to make delivery of the foreign currency, it may be required
to obtain the currency through the conversion of assets of the Fund into the
currency. The Fund may close out a forward contract obligating it to purchase a
foreign currency by selling an offsetting contract. If the Fund engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign
currencies is a global, around-the-clock market.
When required by applicable regulatory guidelines, the Fund will set aside
cash, U.S. Government Securities (as defined in the Prospectus) or other liquid,
high-grade debt securities in a segregated account with its custodian in the
prescribed amount.
HEDGING STRATEGIES
As discussed in the Prospectus, the Adviser may engage in certain options
and futures strategies to attempt to hedge the Fund's portfolio. The
instruments in which the Fund may invest include (i) options on securities,
stock indexes and foreign currencies, (ii) stock index and foreign currency
futures contracts ("futures contracts"), and (iii) options on futures contracts.
Use of these instruments is subject to regulation by the Securities and Exchange
Commission ("SEC"), the several options and futures exchanges upon which options
and futures are traded, and the Commodities Futures Trading Commission ("CFTC").
<PAGE>
The various strategies referred to herein and in the Fund's Prospectus are
intended to illustrate the type of strategies that are available to, and may be
used by, the Adviser in managing the Fund's portfolio. No assurance can be
given, however, that any strategies will succeed.
The Fund will not use leverage in its hedging strategies. In the case of
transactions entered into as a hedge, the Fund will hold securities, currencies
or other options or futures positions whose values are expected to offset
("cover") its obligations thereunder. The Fund will not enter into a hedging
strategy that exposes the Fund to an obligation to another party unless it owns
either (1) an offsetting ("covered") position or (2) cash, U.S. Government
Securities or other liquid, high-grade debt securities with a value sufficient
at all times to cover its potential obligations. When required by applicable
regulatory guidelines, the Fund will set aside cash, U.S. Government Securities
or other liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount. Any assets used for cover or held in a
segregated account cannot be sold or closed out while the hedging strategy is
outstanding, unless they are replaced with similar assets. As a result, there
is a possibility that the use of cover or segregation involving a large
percentage of a Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
The Fund is subject to the following restrictions in its use of options and
futures contracts. The Fund will not (i) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the Fund's
total assets would be hedged through the use of options or futures contracts,
(ii) purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total assets, or (iii) purchase call
options if, as a result, the current value of options premiums for options
purchased would exceed 5% of the Fund's total assets.
OPTIONS STRATEGIES
The Fund may purchase put and call options written by others and write
(sell) put and call options covering specified securities, stock index-related
amounts or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of a security or currency to the writer of the option on or
before a fixed date at a predetermined price. A call option (sometimes called a
"reverse standby commitment") gives the purchaser of the option, upon payment of
a premium, the right to call upon the writer to deliver a specified amount of a
security or currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency or security. The Fund may buy or sell both exchange-traded
and over-the-counter ("OTC") options. The Fund will purchase or write an option
only if that option is traded on a recognized U.S. options exchange or if the
Adviser believes that a liquid secondary market for the option exists. When the
Fund purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the securities or currency
underlying the option. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as the loss of the expected benefit of
the transaction. OTC options and the securities underlying these options
currently are treated as illiquid securities.
The Fund may purchase call options on equity securities that the Adviser
intends to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may
<PAGE>
also be purchased as a means of participating in an anticipated price increase
of a security on a more limited risk basis than would be possible if the
security itself were purchased. In the event of a decline in the price of the
underlying security, use of this strategy would serve to limit the potential
loss to the Fund to the option premium paid; conversely, if the market price of
the underlying security increases above the exercise price and the Fund either
sells or exercises the option, any profit eventually realized will be reduced by
the premium paid. The Fund may similarly purchase put options in order to hedge
against a decline in market value of securities held in its portfolio. The put
enables the Fund to sell the underlying security at the predetermined exercise
price; thus the potential for loss to the Fund is limited to the option premium
paid. If the market price of the underlying security is lower than the exercise
price of the put, any profit the Fund realizes on the sale of the security would
be reduced by the premium paid for the put option less any amount for which the
put may be sold.
The Fund may write covered call options. The Adviser may write call
options when it believes that the market value of the underlying security will
not rise to a value greater than the exercise price plus the premium received.
Call options may also be written to provide limited protection against a
decrease in the market price of a security, in an amount equal to the call
premium received less any transaction costs. The Fund may write covered put
options only to effect closing transactions.
The Fund may purchase and write put and call options on stock indexes in
much the same manner as the equity security options discussed above, except that
stock index options may serve as a hedge against overall fluctuations in the
securities markets (or market sectors) or as a means of participating in an
anticipated price increase in those markets. The effectiveness of hedging
techniques using stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
The Fund may take positions in options on foreign currencies in order to
hedge against the risk of foreign exchange fluctuation on foreign securities the
Fund holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Options Strategies" above
and "Foreign Currency Forward Transactions" which influence foreign exchange
sales and investments generally.
The value of foreign currency options is dependent upon the value of the
foreign currency relative to the U.S. dollar and has no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, the Fund may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for
the underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
<PAGE>
The Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of a stock index option, fluctuations in the
market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options
that expire unexercised have no value. Unless an option purchased by the Fund
is exercised or unless a closing transaction is effected with respect to that
position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, the Fund would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by the Fund may result in material losses to
the Fund.
(4) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to
accept, and the other party agrees to make, delivery of cash, securities or
currencies as called for in the contract at a specified future date and at a
specified price. For stock index futures contracts, delivery is of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the time of the contract and the close of trading of the
contract.
The Fund may sell stock index futures contracts in anticipation of a
general market or market sector decline that may adversely affect the market
values of the Fund's securities. To the extent that the Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that index
could reduce the risks associated with a market decline and thus provide an
alternative to the liquidation of securities positions. The Fund may purchase a
stock index futures contract if a significant market or market sector advance is
anticipated. These purchases would serve as a temporary substitute for the
purchase of individual stocks, which stocks may then be purchased in the future.
<PAGE>
The Fund may purchase call options on a stock index future as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual stock,
in that it can be used as a temporary substitute for a position in the stock
itself. The Fund may purchase a call option on a stock index future to hedge
against a market advance in stocks which the Fund planned to acquire at a future
date. The Fund may also purchase put options on stock index futures contracts.
These purchases are analogous to the purchase of protective puts on individual
stocks, where a level of protection is sought below which no additional economic
loss would be incurred by the Fund. The Fund may write covered call options on
stock index futures contracts as a partial hedge against a decline in the prices
of stocks held in the Fund's portfolio. This is analogous to writing covered
call options on securities.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, the Fund may sell foreign currency futures
contracts when the Adviser anticipates a general weakening of foreign currency
exchange rates that could adversely affect the market values of the Fund's
foreign securities holdings. The Fund may purchase a foreign currency futures
contract to hedge against an anticipated foreign exchange rate increase pending
completion of anticipated transactions. Such a purchase would serve as a
temporary measure to protect the Fund against such increase. The Fund may also
purchase call or put options on foreign currency futures contracts to obtain a
fixed foreign exchange rate at limited risk. The Fund may write call options on
foreign currency futures contracts as a partial hedge against the effects of
declining foreign exchange rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts, rather, the Fund is
required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash or U.S. Government Securities generally
equal to 5% or less of the contract value. This amount is known as initial
margin. Subsequent payments, called variation margin, to and from the broker,
would be made on a daily basis as the value of the futures position varies.
When writing a call on a futures contract, variation margin must be deposited in
accordance with applicable exchange rules. The initial margin in futures
transactions is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, a futures contract or related
option with the same terms as the position held or written. Positions in
futures contracts may be closed only on an exchange or board of trade providing
a secondary market for such futures contracts. For example, futures contracts
on broad-based stock indexes can currently be entered into with respect to the
Standard & Poor's 500 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Stock Index on the New York Futures Exchange, the
Value Line Composite Stock Index on the Kansas City Board of Trade and the Major
Market Index of the Chicago Board of Trade.
<PAGE>
Under certain circumstances, futures exchanges may establish daily limits
in the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. Prices could move to the daily limit for several
consecutive trading days with little or no trading and thereby prevent prompt
liquidation of positions. In such event, it may not be possible for the Fund
to close a position, and in the event of adverse price movements, the Fund would
have to make daily cash payments of variation margin. In addition:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged securities or currencies due to price
distortions in the futures market or otherwise. There may be several reasons
unrelated to the value of the underlying securities or currencies which causes
this situation to occur. As a result, a correct forecast of general market
trends may still not result in successful hedging through the use of futures
contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited life.
The Fund will not trade options on futures contracts on any exchange or board of
trade unless and until, in the Adviser's opinion, the market for such options
has developed sufficiently that the risks in connection with options on futures
transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. In addition, settlement of foreign currency
futures contracts must occur within the country issuing that currency. Thus,
the Fund must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or
<PAGE>
foreign restrictions or regulations regarding the maintenance of foreign banking
arrangements by U.S. residents, and the Fund may be required to pay any fees,
taxes or charges associated with such delivery which are assessed in the issuing
country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
The Fund may invest in certain financial futures contracts and options
contracts in accordance with the policies described in the Prospectus and above.
The Fund will only invest in futures contracts, options on futures contracts and
other options contracts that are subject to the jurisdiction of the CFTC after
filing a notice of eligibility and otherwise complying with the requirements of
Section 4.5 of the rules of the CFTC. Under that section the Fund would be
permitted to purchase such futures or options contracts only for bona fide
hedging purposes within the meaning of the rules of the CFTC; provided, however
that in addition, with respect to positions in commodity futures and option
contracts not for bona fide hedging purposes the Fund represents that the
aggregate initial margin and premiums required to establish these positions
(subject to certain exclusions) will not exceed 5% of the liquidation value of
the Fund's assets after taking into account unrealized profits and losses on any
such contract the Fund has entered into.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and
settlement, no payment is made for the securities purchased and, thus, no
interest accrues to the purchaser from the transaction. However, at the time
the Fund makes a commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction as a purchase and
thereafter reflect the value each day of such securities in determining its net
asset value.
The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond prices, the Fund
might sell securities which it owned on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising
bond prices, the Fund might sell a security and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements, the Fund might be
required to complete such when-issued or forward transactions at prices inferior
to the current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. If the Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss. The Fund will establish and maintain with its custodian a separate
account with cash, U.S. Government Securities or other liquid, high-grade debt
securities in an amount at least equal to
<PAGE>
such commitments. No when-issued or forward commitments will be made by the
Fund if, as a result, more than 10% of the value of the Fund's total assets
would be committed to such transactions.
INVESTMENT COMPANY SECURITIES
In connection with managing its cash positions, the Fund may invest in the
securities of other investment companies that are money market funds within the
limits proscribed by the Investment Company Act of 1940 ("1940 Act"). The Fund
may invest less up to 10% of the value of its net assets in the securities of
money market funds. In addition to the Fund's expenses (including the various
fees), as a shareholder in another investment company, a Fund would bear its pro
rata portion of the other investment company's expenses (including fees).
TEMPORARY DEFENSIVE POSITION
The cash or cash equivalents in which the Fund may invest include (i)
short-term U.S. Government Securities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that are members of the Federal Deposit Insurance
Corporation and whose short term ratings are rated in one of the two highest
rating categories by S&P or Moody's or, if not rated by those agencies,
determined by the Adviser to be of comparable quality, (iii) commercial paper of
prime quality rated A-2 or higher by S&P or Prime-2 or higher by Moody's or, if
not rated by those agencies, determined by the Adviser to be of comparable
quality, and (iv) repurchase agreements covering any of the securities in which
the Fund may invest directly.
FUNDAMENTAL POLICIES
Those policies of the Fund which are deemed to be fundamental may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. A majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act, means the lesser of: (i)
67% of the shares of the Fund present or represented at a shareholders meeting
at which the holders of more than 50% of the shares are present or represented
or (ii) more than 50% of the outstanding shares of the Fund.
INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment limitations which
are in addition to those contained in the Fund's Prospectus and which may not be
changed without shareholder approval. The Fund may not:
(1) Borrow money (including entering into reverse repurchase agreements);
provided that borrowings do not exceed 33 1/3% of the Fund's total assets
(computed immediately after the borrowing).
(2) Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total assets taken
at market value would be invested in securities of issuers conducting their
principal business activity in the same industry.
<PAGE>
(3) Purchase securities, other than U.S. Government Securities, of any one
issuer, if (a) more than 5% of the Fund's total assets taken at market value
would at the time of purchase be invested in the securities of that issuer, or
(b) such purchase would at the time of purchase cause the Fund to hold more than
10% of the outstanding voting securities of that issuer. Up to 75% of the
Fund's total assets may be invested without regard to this limitation.
(4) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, the
Fund may be deemed to be an underwriter for purposes of the Securities Act of
1933.
(5) Make loans to other persons except for loans of portfolio securities
and except through the use of repurchase agreements and through the purchase of
debt securities which are otherwise permissible investments.
(6) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or governmental
entities secured by real estate or interests therein, such as mortgage pass-
throughs and collateralized mortgage obligations, or issued by companies that
invest in real estate or interests therein.
(7) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and currency-related contracts
will not be deemed to be physical commodities.
(8) Issue senior securities except to extent permitted by the 1940 Act.
The Fund has adopted the following nonfundamental investment limitations
that may be changed by the Company's Board of Directors (the "Board of
Directors") without shareholder approval. The Fund may not:
(a) Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the
writing of put and call options, collateralized loans of securities and
collateral arrangements with respect to margin for futures contracts are not
deemed to be pledges or hypothecations for this purpose.
(b) Invest in securities of another registered investment company, except
in connection with a merger, consolidation, acquisition or reorganization; and
except that the Fund may invest in money market funds and privately-issued
mortgage related securities to the extent permitted by the 1940 Act.
(c) Purchase securities on margin, or make short sales of securities
(except short sales against the box), except for the use of short-term credit
necessary for the clearance of purchases and sales of portfolio securities, but
the Fund may make margin deposits in connection with permitted transactions in
options, futures contracts and options on futures contracts.
(d) Invest in securities (other than fully-collateralized debt
obligations) issued by companies that have conducted continuous operations for
less than three years, including the operations of predecessors, unless
guaranteed as to principal and interest by an issuer in whose securities the
Fund could invest, if as a result, more than 5% of the value of the Fund's total
assets would be so invested.
<PAGE>
(e) Invest in or hold securities of any issuer if to the Fund's knowledge
officers and directors of the Company or the Fund's investment adviser,
individually owning beneficially more than 1/2 of 1% of the securities of the
issuer, in the aggregate own more than 5% of the issuer's securities.
(f) Purchase securities for investment while any borrowing equaling 5% or
more of the Fund's total assets is outstanding or borrow money, except for
temporary or emergency purposes (including the meeting of redemption requests),
in an amount exceeding 5% of the value of the Fund's total assets.
(g) Acquire securities or invest in repurchase agreements with respect to
any securities if, as a result, more than (i) 15% of the Fund's net assets
(taken at current value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days and in securities
which are not readily marketable, including securities that are illiquid by
virtue of restrictions on the sale of such securities to the public without
registration under the Securities Act of 1933 ("Restricted Securities") or (ii)
10% of the Fund's total assets would be invested in Restricted Securities.
(h) Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
Except as required by the 1940 Act, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
2. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's net asset value, yield and
total return will fluctuate in response to market conditions and other factors,
and the value of Fund shares when redeemed may be more or less than their
original cost.
For the period beginning December 8, 1993 (the commencement of public
operations) to June 30, 1996, the Fund's average annual total return was 12.35%.
In performance advertising each Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). Each Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Salomon Brothers Bond Index, the
Shearson Lehman Bond Index, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Funds may refer to general market performances over past time periods such as
those published by Ibbotson Associates. In addition, the Funds may refer in
such materials to mutual fund performance rankings and other
<PAGE>
data published by Fund Tracking Companies. Performance advertising may also
refer to discussions of the Funds and comparative mutual fund data and ratings
reported in independent periodicals, such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Fund may advertise total return. Total returns quoted in advertising
reflect all aspects of the Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the Fund's net asset
value per share over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. For example, a
cumulative return of 100% over ten years would produce an average annual return
of 7.18%, which is the steady annual rate that would equal 100% growth on a
compounded basis in ten years. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that the
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual year-
to-year performance of the Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
n
P(1+T) = ERV; where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value (ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 payment made at the beginning of the
applicable period.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total return
above.
3. MANAGEMENT
<PAGE>
The Directors and officers of the Company and their principal occupations
during the past five years are set forth below.
John Y. Keffer, Director and Chairman.
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent)
and Forum Advisors, Inc. (a registered investment adviser). Mr.
Keffer is also a director and/or officer of various registered
investment companies for which Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
Joseph J. Nicholson, Director.
President of WSC Group (a diversified investment services holding
company) and, since 1991, Chief Executive Officer Stone Bridge Trust
Company. His address is 5 Radnor Corporate Center, Suite 555, Radnor,
Pennsylvania 19087.
David B. Pinter, Director.
President since 1984 of Zwicker Electric Company, with which he has
been associated since 1972. His address is 200 Park Avenue South, New
York, New York 10003
Seymour G. Siegel, Director.
Senior Partner at M.R. Weiser & Company (a public accounting firm) of
which he has been associated since 1974. His address is 535 Fifth
Avenue, New York, New York 10017.
Max J. Schwartz, Director.
Partner at the law firm Kramer, Levin, Naftalis & Frankel since 1986.
His address is 919 3rd Avenue, New York, New York 10002.
Max Berueffy, Vice President and Secretary
Counsel, Forum Financial Services, Inc., with which he has been
associated since 1994. Prior thereto, Mr. Berueffy was on the staff
of the U.S. Securities and Exchange Commission for seven years, first
in the appellate branch of the Office of the General Counsel, then as
a counsel to Commissioner Grundfest and finally as a senior special
counsel in the Division of Investment Management. His address is Two
Portland Square, Portland, Maine 04101.
David I. Goldstein, Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been
associated since 1991. Prior thereto, Mr. Goldstein was associated
with the law firm of Kirkpatrick & Lockhart. Mr. Goldstein is also an
officer of various registered
<PAGE>
investment companies for which Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
Michael D. Martins, Treasurer and Assistant Secretary.
Director of Operations, Forum Financial Corp. Prior to that, Mr.
Martins was a Manager of Deloitte & Touche, LLP. Mr. Martins is also
an officer of various registered investment companies for which Forum
Financial Corp. serves as fund accountant and/or transfer agent. His
address is Two Portland Square, Portland, Maine 04101.
Lynn Y. Kelley, Assistant Treasurer
Fund Accounting Manager, Forum Financial Corp., with which she has
been associated since December 1993. Prior to that, Ms. Kelley was
Senior-in-Charge in Fund Accounting with Investors Bank and Trust
Company. Her address is Two Portland Square, Portland, Maine 04101.
John Y. Keffer and Max J. Schwartz are interested persons of the Company as
that term is defined in the 1940 Act.
THE INVESTMENT ADVISER
The Fund's investment adviser, Austin Investment Management, Inc. (the
"Adviser") furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the Fund's investments and effecting
portfolio transactions for the Fund. The Advisory Agreement will remain in
effect for a period of twelve months from the date of its effectiveness and will
continue in effect thereafter only if its continuance is specifically approved
at least annually by the Board of Directors or by vote of the shareholders, and
in either case by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of any such party, at a meeting called
for the purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty by the Company with
respect to the Fund on 60 days' written notice when authorized either by vote of
its shareholders or by a vote of a majority of the Board of Directors, or by the
Adviser on 60 days' written notice to the Company, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to the Fund, the Adviser shall not be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. In addition to receiving its advisory fee from the Fund, the Adviser
may also act and be compensated as investment manager for its clients with
respect to assets which are invested in the Fund. In some instances the Adviser
may elect to credit against any investment management
<PAGE>
fee received from a client who is also a shareholder in the Fund an amount equal
to all or a portion of the fees received by the Adviser or any affiliate of the
Adviser from the Fund with respect to the client's assets invested in the Fund.
The Adviser has agreed to reimburse the Company for certain of the Fund's
operating expenses which in any year exceed the limits prescribed by any state
in which the Fund's shares are qualified for sale. The Company may elect not to
qualify its shares for sale in every state. For the purpose of this obligation
to reimburse expenses, the Fund's annual expenses are estimated and accrued
daily, and any appropriate estimated payments will be made by the Adviser
monthly. Subject to the obligations of the Adviser to reimburse the Company for
its excess expenses, the Company has, under the Advisory Agreement, confirmed
its obligation to pay all its other expenses. The Fund believes that currently
the most restrictive expense ratio limitation imposed by any state is 2-1/2% of
the first $30 million of the Fund's average net asset, 2% of the next $70
million of its average net assets and 1-1/2% of its average net assets in excess
of $100 million. For the Company's fiscal years ended June 30, 1996, 1995 and
1994, the fees payable under the Advisory Agreement were $ 142,592, $123,067 and
$39,923, respectively; $71,023, $56,735 and $39,923 of which, respectively, were
waived by the Adviser.
ADMINISTRATION AND DISTRIBUTION
Forum Financial Services, Inc. ("Forum") supervises the overall management
of the Company (which includes, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent, fund accountant and custodian and arranging for maintenance of
books and records of the Company) pursuant to an Administration and Distribution
Agreement. Forum also provides persons satisfactory to the Board of Directors
to serve as officers of the Company. Those officers, as well as certain other
employees and Directors of the Company, may be directors, officers or employees
of (and persons providing services to the Company may include) Forum, the
Adviser or their respective non-banking affiliates. In addition, under the
Agreement, Forum is directly responsible for managing the Company's regulatory
and legal compliance and overseeing the preparation of its registration
statement.
The Administration and Distribution Agreement will remain in effect for a
period of twelve months from the date of its effectiveness and will continue in
effect thereafter only if its continuance is specifically approved at least
annually by the Board of Directors or by the shareholders and, in either case,
by a majority of the Directors who are not parties to the agreement or
interested persons of any such party and do not have any direct or indirect
financial interest in the agreement.
The Administration and Distribution Agreement terminates automatically if
it is assigned and may be terminated without penalty with respect to the Fund by
vote of the Fund's shareholders or by either party to the agreement on 60 days'
written notice to the Company. The agreement also provides that Forum shall not
be liable for any error of judgment or mistake of law or for any act or omission
in the administration or management of the Company, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
agreement.
Forum also acts as distributor of the Fund's shares pursuant to the
Administration and Distribution Agreement. In accordance with Rule 12b-1
adopted by the Securities and Exchange
<PAGE>
Commission, the Company has adopted a distribution plan ("Plan"), which provides
that all written agreements relating to the Plan must be in a form satisfactory
to the Board of Directors. In addition, the Plan requires the Company and Forum
to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by Forum pursuant to the Plan and identifying
the distribution activities for which those expenditures were made.
The Plan provides that it will remain in effect for one year from the date
of its adoption and thereafter may continue in effect for successive annual
periods provided it is approved by the shareholders or by the Board of
Directors, including a majority of directors who are not interested persons of
the Company and who have no direct or indirect interest in the operation of the
Plan or in any agreement related to the Plan. The Plan further provides that it
may not be amended to increase materially the costs which may be borne by the
Company for distribution pursuant to the Plan without shareholder approval and
that other material amendments of the Plan must be approved by the directors in
the manner described in the preceding sentence. The Plan may be terminated at
any time by a vote of the Board of Directors or, with respect to the Fund, by
the Fund's shareholders.
Until May 31, 1994, Stone Bridge Trust Company ("SBTC"), as administrator,
and Forum, as sub-administrator, supervised the overall management of the
Company, including the administrative duties described above, pursuant to a Co-
Administration Agreement and a Distribution and Administration Agreement,
respectively. Effective June 1, 1994, the Company entered into the current
Administration and Distribution Agreement with Forum under which Forum continues
to provide the administration and distribution services it has provided since
the Fund's inception and assumed the administrative responsibilities formerly
performed by Stone Bridge Trust Company.
For the fiscal year ending June 30, 1994, the administration fees under the
previous Co-Administration Agreement were $3,049, all of which were waived by
SBTC. The fees under the previous Distribution and Administration Agreement,
and the current Administration and Distribution Agreement, were $3605, all of
which were waived by Forum. For the fiscal year ended June 30, 1996 and 1995,
the fees under the Administration and Distribution Agreement were $23,765 and
$23,558, respectively.
TRANSFER AGENT
Forum Financial Corp. (the "Transfer Agent") acts as transfer agent and
dividend disbursing agent of the Company pursuant to a Transfer Agency
Agreement. For its services, the Transfer Agent receives with respect to the
Fund an annual fee of $12,000 plus $25 per shareholder account. Pursuant to a
Fund Accounting Agreement, the Transfer Agent also provides the Fund with
portfolio accounting, including the calculation of the Fund's net asset value.
For these services, the Transfer Agent receives with respect to the Fund an
annual fee ranging from $36,000 to $60,000 depending upon the amount and type of
the Fund's portfolio transactions and positions.
Both the Transfer Agency Agreement and Fund Accounting Agreement were
approved by the Board of Directors, including a majority of the Directors who
are not parties to the respective agreements or interested persons of any such
party, at a meeting called for the purpose of voting on the respective
agreement. Each of these agreements will remain in effect for a period of one
year and will continue in effect thereafter only if its continuance is
specifically
<PAGE>
approved at least annually by the Board of Directors or by a vote of the
shareholders and in either case by a majority of the Directors who are not
parties to the respective agreement or interested persons of any such party, at
a meeting called for the purpose of voting on the respective agreement.
OTHER INFORMATION
As of October 2, 1996, the officers and directors of the Company owned as a
group less than 1% of the outstanding shares of the Fund. Also as of that date,
the following persons owned of record 5% or more of the outstanding shares of
the Fund: Bear Stearns Securities Corp., One Metrotech Center, Brooklyn, New
York 11201-3859 - 93.32%.
4. DETERMINATION OF NET ASSET VALUE
The Company determines the net asset value per share of the Fund as of 4:00
P.M., Eastern time, on Fund Business Days (as defined in the Prospectus), by
dividing the value of the Fund's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) by
the number of shares outstanding at the time the determination is made. The
Company does not determine net asset value on the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
Securities listed or traded on United States or foreign securities
exchanges are valued at the last quoted sales prices on such exchanges prior to
the time when assets are valued. Securities listed or traded on certain foreign
exchanges whose operations are similar to the United States over-the-counter
market are valued at the price within the limits of the latest available current
bid and asked prices deemed best to reflect market value. Listed securities
that are not traded on a particular day, and securities regularly traded in the
over-the-counter market, are valued at the price within the limits of the latest
available current bid and asked prices deemed best to reflect market value. In
instances where market quotations are not readily available, the security is
valued in a manner intended to reflect its fair value. All other securities and
assets are valued in a manner determined to reflect their fair value. For
purposes of determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by any major bank.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of each Fund Business Day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place
in Japanese markets on certain Saturdays and in various foreign markets on days
which are not Fund Business Days in New York and on which the Fund's net asset
value is not calculated. Calculation of the net asset value per share of the
Fund does not take place contemporaneously with the determination of the prices
of the majority of the portfolio securities used in such calculation. Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of the New York Stock Exchange, Inc. will
not be reflected in the Fund's calculation of net asset value unless the it is
<PAGE>
deemed that the particular event would materially affect net asset value, in
which case an adjustment will be made.
5. PORTFOLIO TRANSACTIONS
The Fund generally will effect purchases and sales through brokers who
charge commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund.
Transactions on stock exchanges involve the payment of brokerage
commissions. In transactions on stock exchanges in the United States, these
commissions are negotiated, whereas on foreign stock exchanges these commissions
are generally fixed. In the case of securities traded in the foreign and
domestic over-the-counter markets, there is generally no stated commission, but
the price usually includes an undisclosed commission or markup. In underwritten
offerings, the price includes a disclosed fixed commission or discount. Where
transactions are executed in the over-the-counter market, the Fund will seek to
deal with the primary market makers; but when necessary in order to obtain best
execution, it will utilize the services of others. In all cases the Fund will
attempt to negotiate best execution.
The Fund may not always pay the lowest commission or spread available.
Rather, in determining the amount of commission, including certain dealer
spreads, paid in connection with Fund transactions, the Adviser takes into
account such factors as size of the order, difficulty of execution, efficiency
of the executing broker's facilities (including the services described below)
and any risk assumed by the executing broker. The Adviser may also take into
account payments made by brokers effecting transactions for the Fund (i) to the
Fund or (ii) to other persons on behalf of the Fund for services provided to it
for which it would be obligated to pay.
In addition, the Adviser may give consideration to research services
furnished by brokers to the Adviser for its use and may cause the Fund to pay
these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis may be used by the Adviser in connection
with services to clients other than the Fund, and the Adviser's fee is not
reduced by reason of the Adviser's receipt of the research services.
Investment decisions for the Fund will be made independently from those for
any other account or investment company that is or may in the future become
managed by the Adviser or its affiliates. If, however, the Fund and other
investment companies or accounts managed by the Adviser are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by the Fund or the
size of the position obtainable for the Fund. In addition, when purchases or
sales of the same security for the Fund and for other investment companies and
accounts managed by the Adviser occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price advantages available to
large denomination purchases or sales.
The Fund contemplates that, consistent with the policy of obtaining best
net results, brokerage transactions may be conducted through the Adviser's
affiliates, affiliates of those
<PAGE>
persons or Forum. The Advisory Agreement authorizes the Adviser to so execute
trades. The Board of Directors has adopted procedures in conformity with
applicable rules under the Investment Company Act to ensure that all brokerage
commissions paid to these persons are reasonable and fair. For the Company's
fiscal years ended June 30, 1996, 1995 and 1994 the aggregate brokerage
commissions incurred by the Fund were $22,929, $20,667 and $2,287, of which 0.0%
($0.00) was paid in each year to American Securities Corporation, an affiliate
of the Adviser. During those periods, approximately 0.0% of the total dollar
amount of transactions by the Fund involving the payment of commissions were
effected through American Securities Corporation.
6. CUSTODIAN
Pursuant to a Custodian Agreement (the "Custodian Agreement"), The First
National Bank of Boston, P.O. Box 1959, Boston, Massachusetts, 02105, acts as
the custodian of the Funds' assets. The custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, determining income
and collecting interest on Fund investments. The Fund's custodian employs
foreign subcustodians to provide custody of the Fund's foreign assets in
accordance with applicable regulations. The custodian is paid a fee at an
annual rate of 0.02% of the first $100 million of the average daily net assets
of the Fund, 0.015% on the next $100 million of the average daily net assets of
the Fund and .001% of the average daily net assets over $200 million, and
certain transaction fees.
7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at net
asset value without any sales charge. As of June 30, 1996, the Fund's net asset
value per share was $13.19.
Proceeds of redemptions normally are paid in cash. However, payments may
be made wholly or partly in portfolio securities if the Board of Directors
determines economic conditions exist which would make payment in cash
detrimental to the best interests of the Fund. If payment for shares redeemed
is made wholly or partly in portfolio securities, brokerage costs may be
incurred by the shareholder in converting the securities to cash. The Company
has filed an election with the Securities and Exchange Commission pursuant to
which the Fund may only effect a redemption in portfolio securities if the
particular shareholder is redeeming more than $250,000 or 1% of the Fund's total
net assets, whichever is less, during any 90-day period.
In addition to the situations described in the Prospectus under "Purchases
and Redemptions of Shares," the Company may redeem shares involuntarily to
reimburse the Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to the Fund's shares as provided in the
Prospectus from time to time.
Shareholders' rights of redemption may not be suspended, except (i) for any
period during which the New York Stock Exchange, Inc. is closed (other than
customary weekend and holiday closings) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, (ii) for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by the Fund of its
<PAGE>
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (iii) for such other period as the Securities and Exchange Commission
may by order permit for the protection of the shareholders of the Fund.
8. TAX MATTERS
FOREIGN INCOME TAXES
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of such taxes or exemption from taxes on such
income. It is impossible to know the effective rate of foreign tax in advance
since the amount of the Fund's assets to be invested within various countries
cannot be determined.
U.S. FEDERAL INCOME TAXES
Income received by the Fund from sources within various foreign countries
may be subject to foreign income tax. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of the stock or
securities of foreign corporations, the Fund may elect to "pass through" to the
Fund's shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to that election, shareholders would be required: (i) to include in
gross income, even though not actually received, their respective pro-rata share
of foreign taxes paid by the Fund; and (ii) either to deduct their pro-rata
share of foreign taxes in computing their taxable income, or to use it as a
foreign tax credit against federal income taxes (but not both). No deduction
for foreign taxes could be claimed by a shareholder who does not itemize
deductions.
The Fund may or may not meet the requirements of the Code to "pass through"
to its shareholders foreign income taxes paid. Each shareholder will be
notified after the close of each taxable year of the Fund whether the foreign
taxes paid by the Fund will "pass through" for that year, and, if so, the amount
of each shareholder's pro-rata share (by country) of (i) the foreign taxes paid,
and (ii) the Fund's gross income from foreign sources. Shareholders who are not
liable for Federal income taxes, such as retirement plans qualified under
Section 401 of the Code, will not be affected by any "pass through" of foreign
taxes.
The Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements the
Fund must meet to qualify for such treatment.
The use of certain hedging strategies such as writing and purchasing
options, futures contracts and options on futures contracts and entering into
foreign currency forward contracts and other foreign instruments, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of income received by the Fund in connection therewith.
<PAGE>
Dividends out of net ordinary income and distributions of net short-term
capital gain are eligible, in the case of corporate shareholders, for the
dividends-received deduction, subject to proportionate reduction of the amount
eligible for deduction if the aggregate qualifying dividends received by the
Fund from domestic corporations in any year are less than 100% of its gross
income (excluding long-term capital gain from securities transactions). A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in the Fund more than 45 days. Furthermore, provisions
of the tax law disallow the dividends-received deduction to the extent a
corporation's investment in shares of the Fund is financed with indebtedness.
9. OTHER MATTERS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the
Company are passed upon by Kramer, Levin, Naftalis and Frankel, 919 Third
Avenue, New York, New York 10022. Kramer, Levin, Naftalis & Frankel has
relied upon the opinion of Messrs. Venable, Baetjer and Howard, 1800
Mercantile Bank & Trust Building, 2 Hopkins Plaza, Baltimore, Maryland 21201,
for matters relating to Maryland law.
Deloitte & Touche LLP, Two World Financial Center, New York, New York,
10281, independent auditors, have been selected as auditors for the Company.
THE COMPANY AND ITS SHARES
Currently all the authorized stock of the Company is divided into ten
separate series of Common Stock. Only two series of common stock are currently
offered for sale: Series A Common Stock, which represents interest in the Oak
Hall Equity Fund and Series B Common Stock which represents interest in the
Austin Global Equity Fund.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year ended
June 30, 1996 are included in the Annual Report to Shareholders of the
Company delivered along with this SAI and are incorporated herein by
reference.
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE DEBT)
(a) MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
<PAGE>
Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
(b) STANDARD & POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as
follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas, they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated 'BB' have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated 'B' have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal payments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
Bonds rated 'CCC' have currently identifiable vulnerability to default, and
are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
The 'C' rating may be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued. The rating 'C' is
reserved for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has
filed for bankruptcy. Bonds rated 'D' are in payment default. The 'D' rating
category is used when interest payments or
<PAGE>
principal payments are not made on the date due even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period. The 'D' rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Note: The ratings from AA to CCC may be modified by the addition of a plus
(+) or minus (-) sign to show the relative standing within the rating category.
PREFERRED STOCK
(a) MOODY'S
Moody's rates preferred stock issues as follows:
An issue which is rated aaa is a top-quality preferred stock. This rating
indicates good asset protection and the least risk of dividend impairment among
preferred stock issues.
An issue which is rated "aa" is a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rated "a" is an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue which is rated "baa" is a medium-grade preferred stock, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
An issue which is rated "ba" has speculative elements and its future cannot
be considered well assured. Earnings and asset protection may be very moderate
and not well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor
prospects of ever attaining any real investment standing. This is the lowest
rated class of preferred or preference stock.
(b) STANDARD & POOR'S
Standard & Poor's rates preferred stock issues as follows:
<PAGE>
"AAA" is the highest rating that is assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas if normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC"
the highest degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
To provide more detailed indications of preferred stock quality, the
ratings from "AA" to "B" may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
<PAGE>
OAK HALL EQUITY FUND
Investment Adviser:
Oak Hall Capital Advisors, L.P.
122 East 42nd Street
New York, New York 10005
(800) 622-1996
Account Information and Shareholder Servicing:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
800-625-4255
207-879-0001
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1996
Stone Bridge Funds, Inc. (the "Company") is a registered open-end
investment company. This Statement of Additional Information supplements the
Prospectus offering shares of the Oak Hall Equity Fund (the "Fund") and should
be read only in conjunction with the Prospectus, a copy of which may be obtained
by an investor without charge by contacting shareholder servicing at the address
listed above.
TABLE OF CONTENTS
Page
----
1. Investment Policies and Limitations. . . . . . . . . . . . . 2
2. Performance Data . . . . . . . . . . . . . . . . . . . . . . 14
3. Management . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. Determination of Net Asset Value . . . . . . . . . . . . . . 21
5. Portfolio Transactions . . . . . . . . . . . . . . . . . . . 22
6. Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . 23
7. Additional Purchase and Redemption Information . . . . . . . 23
8. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9. Other Matters. . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix A - Description of Securities Ratings
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. INVESTMENT POLICIES AND LIMITATIONS
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") are private services that provide ratings of the credit
quality of debt obligations, including convertible securities. A description of
the range of ratings assigned to corporate bonds, including convertible
securities by Moody's and S&P is included in Appendix A to this Statement of
Additional Information. The Fund may use these ratings in determining whether
to purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
securities with the same maturity, interest rate and rating may have different
market prices. Subsequent to its purchase by the Fund, an issue of securities
may cease to be rated or its rating may be reduced. Oak Hall Capital Advisors,
L.P. (the "Adviser") will consider such an event in determining whether the Fund
should continue to hold the obligation. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit ratings in response to subsequent events, so that an issuer's
current financial condition may be better or worse than the rating indicates.
LOWER RATED DEBT SECURITIES
The Fund may invest up to 25% of its total assets in heavily discounted
non-investment grade, high risk, corporate debt securities (commonly referred to
as junk bonds). While the market for these high yield debt securities has been
in existence for many years and has weathered previous economic downturns, the
market in recent years has experienced a dramatic increase in the large-scale
use of these securities to fund highly leveraged corporate acquisitions and
restructurings. Accordingly, past experience may not provide an accurate
indication of future performance of the high yield bond market, especially
during periods of economic recession.
The market for lower rated debt securities may be thinner and less active
than that for higher quality securities, which can adversely affect the price at
which these securities can be sold. If market quotations are not available,
these lower rated securities will be valued in accordance with procedures
established by the Company's Board of Directors, including the use of outside
pricing services. Judgment plays a greater role in valuing high yield corporate
debt securities than is the case for securities for which more external sources
for quotations last-sale information are available. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
used by the Fund to value its portfolio securities, and the Fund's ability to
dispose of these lower-rated securities.
The market prices of lower rated securities may fluctuate more than the
prices of higher rated securities and may decline significantly in periods of
general economic difficulty which may follow periods of rising interest rates.
During an economic downturn or a prolonged period of rising interest rates, the
ability of issuers of lower quality debt to service their payment obligations,
meet projected goals, or obtain additional financing may be impaired.
<PAGE>
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Although no securities investment is without some risk, investment
in convertible securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security sells above its
value as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security, convert
it into the underlying common stock or sell it to a third party.
<PAGE>
Convertible securities which are rated b by Moody's generally lack
characteristics of the desirable investment. Convertible securities which are
rated B by S&P are regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation.
WARRANTS
The Fund may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. To the
extent that the market value of the security that may be purchased upon exercise
of the warrant rises above the exercise price, the value of the warrant will
tend to rise. To the extent that the exercise price equals or exceeds the
market value of such security, the warrants will have little or no market value.
If a warrant is not exercised within the specified time period, it will become
worthless and the Fund will lose the purchase price paid for the warrant and the
right to purchase the underlying security. The Fund may not invest more than 2%
of its net assets in warrants not traded on the American or New York Stock
Exchange.
TEMPORARY DEFENSIVE POSITION
When the Adviser believes that business or financial conditions warrant,
the Fund may assume a temporary defensive position. For temporary defensive
purposes, the Fund may invest in cash or in investment grade cash equivalents,
including (i) short-term obligations of the U.S. Government and its agencies or
instrumentalities, (ii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States that have, at the time of investment, total assets in excess of
one billion dollars (or the equivalent in other currencies) and that are members
of the Federal Deposit Insurance Corporation, (iii) commercial paper of prime
quality rated A-2 or higher by S&P or Prime-2 or higher by Moody's or, if not
rated, determined by the Adviser to be of comparable quality, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) money market mutual funds.
FOREIGN CURRENCY FORWARD CONTRACTS
Investments in foreign companies will usually involve currencies of foreign
countries. In addition, the Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs. Accordingly,
the value of the assets of the Fund as measured in United States dollars may be
affected by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. The Fund may conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into foreign currency forward
contracts ("forward contracts") to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price set
at the time of the
<PAGE>
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers
and involve the risk that the other party to the contract may fail to deliver
currency when due, which could result in losses to the Fund. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. Foreign exchange dealers realize a profit based on the
difference between the price at which they buy and sell various currencies.
The Fund may enter into forward contracts under two circumstances. First,
with respect to specific transactions, when the Fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Fund may be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, the Fund may enter into forward currency contracts in connection
with existing portfolio positions. For example, when the Adviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward contracts involve the risk
of inaccurate predictions of currency price movements, which may cause the Fund
to incur losses on these contracts and transaction costs. The Adviser does not
intend to enter into forward contracts on a regular or continuous basis, and
will not do so if, as a result, the Fund will have more than 25% of the value of
its total assets committed to such contracts or the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
At or before the settlement of a forward currency contract, the Fund may
either make delivery of the foreign currency or terminate its contractual
obligation to deliver the foreign currency by purchasing an offsetting contract.
If the Fund chooses to make delivery of the foreign currency, it may be required
to obtain the currency through the conversion of assets of the Fund into the
currency. The Fund may close out a forward contract obligating it to purchase a
foreign currency by selling an offsetting contract. If the Fund engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk
<PAGE>
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain which might result should the value of
such currency increase.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign
currencies is a global, around-the-clock market.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated in a longer term investment decision made with
regard to overall diversification strategies. When required by applicable
regulatory guidelines, the Fund will set aside cash, U.S. Government securities
or other liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount.
HEDGING STRATEGIES
As discussed in the Prospectus, the Adviser may engage in certain options
and futures strategies to attempt to hedge the Fund's portfolio. The
instruments in which the Fund may invest include (i) options on securities,
stock indexes and foreign currencies, (ii) stock index and foreign currency
futures contracts ("futures contracts"), and (iii) options on futures contracts.
Use of these instruments is subject to regulation by the Securities and Exchange
Commission ("SEC"), the several options and futures exchanges upon which options
and futures are traded, and the Commodities Futures Trading Commission ("CFTC").
The various strategies referred to herein and in the Fund's Prospectus are
intended to illustrate the type of strategies that are available to, and may be
used by, the Adviser in managing the Fund's portfolio. No assurance can be
given, however, that any strategies will succeed.
The Fund will not use leverage in its hedging strategies. In the case of
transactions entered into as a hedge, the Fund will hold securities, currencies
or other options or futures positions whose values are expected to offset
("cover") its obligations thereunder. The Fund will not enter into a hedging
strategy that exposes the Fund to an obligation to another party unless it owns
either (1) an offsetting ("covered") position or (2) cash, U.S. Government
securities or other liquid, high-grade debt securities with a value sufficient
at all times to cover its potential obligations. When required by applicable
regulatory guidelines, the Fund will set aside cash, U.S. Government securities
or other liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount. Any assets used for cover or held in a
segregated account cannot be sold or closed out while the hedging strategy is
outstanding, unless they are replaced with similar assets. As a result, there
is a possibility that the use of cover or segregation involving a large
percentage of a Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
The Fund is subject to the following restrictions in its use of options and
futures contracts. The Fund will not (i) sell futures contracts, purchase put
options, or write call options
<PAGE>
if, as a result, more than 25% of the Fund's total assets would be hedged
through the use of options or futures contracts, (ii) purchase futures contracts
or write put options if, as a result, the Fund's total obligations upon
settlement or exercise of purchased futures contracts and written put options
would exceed 25% of its total assets, or (iii) purchase call options if, as a
result, the current value of options premiums for options purchased would exceed
5% of the Fund's total assets.
OPTIONS STRATEGIES. The Fund may purchase put and call options written by
others and write (sell) put and call options covering specified securities,
stock index-related amounts or currencies. A put option (sometimes called a
"standby commitment") gives the buyer of the option, upon payment of a premium,
the right to deliver a specified amount of a security or currency to the writer
of the option on or before a fixed date at a predetermined price. A call option
(sometimes called a "reverse standby commitment") gives the purchaser of the
option, upon payment of a premium, the right to call upon the writer to deliver
a specified amount of a security or currency on or before a fixed date, at a
predetermined price. The predetermined prices may be higher or lower than the
market value of the underlying currency or security. The Fund may buy or sell
both exchange-traded and over-the-counter ("OTC") options. The Fund will
purchase or write an option only if that option is traded on a recognized U.S.
options exchange or if the Adviser believes that a liquid secondary market for
the option exists. When the Fund purchases an OTC option, it relies on the
dealer from which it has purchased the OTC option to make or take delivery of
the securities or currency underlying the option. Failure by the dealer to do
so would result in the loss of the premium paid by the Fund as well as the loss
of the expected benefit of the transaction. OTC options and the securities
underlying these options, currently are treated as illiquid securities.
The Fund may purchase call options on equity securities that the Adviser
intends to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. The Fund may similarly purchase put
options in order to hedge against a decline in market value of securities held
in its portfolio. The put enables the Fund to sell the underlying security at
the predetermined exercise price; thus the potential for loss to the Fund is
limited to the option premium paid. If the market price of the underlying
security is higher than the exercise price of the put, any profit the Fund
realizes on the sale of the security would be reduced by the premium paid for
the put option less any amount for which the put may be sold.
The Fund may write covered call options. The Adviser may write call
options when it believes that the market value of the underlying security will
not rise to a value greater than the exercise price plus the premium received.
Call options may also be written to provide limited protection against a
decrease in the market price of a security, in an amount equal to the call
<PAGE>
premium received less any transaction costs. The Fund may write covered put
options only to effect closing transactions.
The Fund may purchase and write put and call options on stock indexes in
much the same manner as the equity security options discussed above, except that
stock index options may serve as a hedge against overall fluctuations in the
securities markets (or market sectors) or as a means of participating in an
anticipated price increase in those markets. The effectiveness of hedging
techniques using stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Fund may take positions in
options on foreign currencies in order to hedge against the risk of foreign
exchange fluctuation on foreign securities the Fund holds in its portfolio or
which it intends to purchase. Options on foreign currencies are affected by the
factors discussed in "Foreign Currency Forward Transactions" which influence
foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the
foreign currency relative to the U.S. dollar and have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, the Fund may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for
the underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may
effectively terminate its right or obligation under an option contract by
entering into a closing transaction. For instance, if the Fund wished to
terminate its potential obligation to sell securities or currencies under a call
option it had written, a call option of the same type would be purchased by the
Fund. Closing transactions essentially permit the Fund to realize profits or
limit losses on its options positions prior to the exercise or expiration of the
option. In addition:
(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of a stock index option, fluctuations in the
market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options
that expire unexercised have no value. Unless an option purchased by the Fund
is exercised or unless a closing transaction is effected with respect to that
position, a loss will be realized in the amount of the premium paid.
<PAGE>
(3) A position in an exchange listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, the Fund would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by the Fund may result in material losses to
the Fund.
(4) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. A futures contract is a bilateral agreement wherein
one party agrees to accept, and the other party agrees to make, delivery of
cash, securities or currencies as called for in the contract at a specified
future date and at a specified price. For stock index futures contracts,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the time of the contract and the
close of trading of the contract.
The Fund may sell stock index futures contracts in anticipation of a
general market or market sector decline that may adversely affect the market
values of the Fund's securities. To the extent that the Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that index
could reduce the risks associated with a market decline and thus provide an
alternative to the liquidation of securities positions. The Fund may purchase a
stock index futures contract if a significant market or market sector advance is
anticipated. These purchases would serve as a temporary substitute for the
purchase of individual stocks, which stocks may then be purchased in the future.
The Fund may purchase call options on a stock index future as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual stock,
in that it can be used as a temporary substitute for a position in the stock
itself. The Fund may purchase a call option on a stock index future to hedge
against a market advance in stocks which the Fund planned to acquire at a future
date. The Fund may also purchase put options on stock index futures contracts.
These purchases are analogous to the purchase of protective puts on individual
stocks, where a level of protection is sought below which no additional economic
loss would be incurred by the Fund. The Fund may write covered call options on
stock index futures contracts as a partial hedge against a decline in the prices
of stocks held in the Fund's portfolio. This is analogous to writing covered
call options on securities.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, the Fund
<PAGE>
may sell foreign currency futures contracts when the Adviser anticipates a
general weakening of foreign currency exchange rates that could adversely affect
the market values of the Fund's foreign securities holdings. The Fund may
purchase a foreign currency futures contract to hedge against an anticipated
foreign exchange rate increase pending completion of anticipated transactions.
Such a purchase would serve as a temporary measure to protect the Fund against
such increase. The Fund may also purchase call or put options on foreign
currency futures contracts to obtain a fixed foreign exchange rate at limited
risk. The Fund may write call options on foreign currency futures contracts as
a partial hedge against the effects of declining foreign exchange rates on the
value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING.
No price is paid upon entering into futures contracts, rather, the Fund is
required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash or U.S. Government securities generally
equal to 5% or less of the contract value. This amount is known as initial
margin. Subsequent payments, called variation margin, to and from the broker,
would be made on a daily basis as the value of the futures position varies.
When writing a call on a futures contract, variation margin must be deposited in
accordance with applicable exchange rules. The initial margin in futures
transactions is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, a futures contract or related
option with the same terms as the position held or written. Positions in
futures contracts may be closed only on an exchange or board of trade providing
a secondary market for such futures contracts. For example, futures contracts
on broad-based stock indexes can currently be entered into with respect to the
Standard & Poor's 500 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Stock Index on the New York Futures Exchange, the
Value Line Composite Stock Index on the Kansas City Board of Trade and the Major
Market Index of the Chicago Board of Trade.
Under certain circumstances, futures exchanges may establish daily limits
in the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. Prices could move to the daily limit for several
consecutive trading days with little or no trading and thereby prevent prompt
liquidation of positions. In such event, it may not be possible for the Fund
to close a position, and in the event of adverse price movements, the Fund would
have to make daily cash payments of variation margin. In addition:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
<PAGE>
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged securities or currencies due to price
distortions in the futures market or otherwise. There may be several reasons
unrelated to the value of the underlying securities or currencies which causes
this situation to occur. As a result, a correct forecast of general market
trends may still not result in successful hedging through the use of future
contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited life.
The Fund will not trade options on futures contracts on any exchange or board of
trade unless and until, in the Adviser's opinion, the market for such options
has developed sufficiently that the risks in connection with options on futures
transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. In addition, settlement of foreign currency
futures contracts must occur within the country issuing that currency. Thus,
the Fund must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents, and the Fund may
be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
The Fund may invest in certain financial futures contracts and options
contracts in accordance with the policies described in the Prospectus and above.
The Fund will only invest in futures contracts, options on futures contracts and
other options contracts that are subject to the jurisdiction of the CFTC after
filing a notice of eligibility and otherwise complying with the
<PAGE>
requirements of Section 4.5 of the rules of the CFTC. Under that section the
Fund would be permitted to purchase such futures or options contracts only for
bona fide hedging purposes within the meaning of the rules of the CFTC;
provided, however that in addition, with respect to positions in commodity
futures and option contracts not for bona fide hedging purposes the Fund
represents that the aggregate initial margin and premiums required to establish
these positions (subject to certain exclusions) will not exceed 5% of the
liquidation value of the Fund's assets after taking into account unrealized
profits and losses on any such contract the Fund has entered into.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and
settlement, no payment is made for the securities purchased and, thus, no
interest accrues to the purchaser from the transaction. However, at the time
the Fund makes a commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction as a purchase and
thereafter reflect the value each day of such securities in determining its net
asset value.
The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond prices, the Fund
might sell securities which it owned on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising
bond prices, a Fund might sell a security and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements, the Fund might be
required to complete such when-issued or forward transactions at prices inferior
to the current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. If the Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss. The Fund will establish and maintain with its custodian a separate
account with cash, U.S. Government securities or other liquid, high-grade debt
securities in an amount at least equal to such commitments. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event, such as approval of a proposed financing by appropriate municipal
authorities. Any significant commitment of the Fund's assets committed to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. No when-issued
<PAGE>
or forward commitments will be made by the Fund if, as a result, more than 10%
of the value of the Fund's total assets would be committed to such transactions.
The Fund will make commitments for such when-issued transactions only when
it has the intention of actually acquiring the securities. To facilitate such
acquisitions, the Fund will maintain with its custodian a separate account with
cash, U.S. Government securities and other liquid, high-grade debt securities in
an amount at least equal to such commitments. If the Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, incur a gain or loss
due to market fluctuation. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, the Fund will
record the transaction as a purchase and thereafter reflect the value each day
of such securities in determining its net asset value.
INVESTMENT LIMITATIONS
The Fund has adopted the following additional investment limitations which
are fundamental policies of the Fund and may not be changed without shareholder
approval. The Fund may not:
(1) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted to be incurred by the Fund. The deposit in escrow
of securities in connection with the writing of put and call options,
collateralized loans of securities and collateral arrangements with respect
to margin for futures contracts are not deemed to be pledges or
hypothecations for this purpose.
(2) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities,
the Fund may be deemed to be an underwriter for purpose of the Securities
Act of 1933.
(3) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such as
mortgage pass-throughs and collateralized mortgage obligations, or issued
by companies that invest in real estate or interests therein.
(4) Invest in commodities or in commodity contracts, except that, as
described herein and in the Prospectus, the Fund may enter into certain
options, futures contracts and options on those futures contracts.
(5) Purchase securities on margin, or make short sales of securities,
except for the use of short-term credit necessary for the clearance of
purchases and sales of portfolio securities, but the Fund may make margin
deposits in connection with permitted transactions in options, futures and
options on futures.
(6) Invest in securities of another registered investment company, except
in connection with a merger, consolidation, acquisition or reorganization;
and except that the Fund may
<PAGE>
invest in money market funds to the extent permitted by the Investment
Company Act of 1940 ("Investment Company Act").
(7) Invest for the purpose of exercising control over or management of any
company.
(8) Issue senior securities except pursuant to Section 18 of the Investment
Company Act and except that the Fund may borrow money subject to its
investment limitation on borrowing.
(9) Invest in securities (other than fully-collateralized debt obligations)
issued by companies that have conducted continuous operations for less than
three years, including the operations of predecessors, unless guaranteed as
to principal and interest by an issuer in whose securities the Fund could
invest.
(10) Invest in or hold securities of any issuer if officers and directors
of the Company or the Adviser, individually owning beneficially more than
1/2 of 1% of the securities of the issuer, in the aggregate own more than
5% of the issuer's securities.
(11) (i) make investments for the purpose of exercising control over any
issuer or other person or (ii) invest in interests in oil or gas or
interests in other mineral exploration or development programs.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from a change in the market values of the Fund's assets or
redemptions of Fund shares will not be considered a violation of the limitation.
If the Fund were to invest in money market funds as described in limitation (6),
it would indirectly incur its proportionate share of the advisory and other
expenses of the money market fund.
FUNDAMENTAL POLICIES
Those policies of the Fund which are deemed to be fundamental may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. A majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act means the lesser of: (i)
67% of the shares of the Fund present or represented at a shareholders meeting
at which the holders of more than 50% of the shares are present or represented
or (ii) more than 50% of the outstanding shares of the Fund.
2. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's net asset value, yield and
total return will fluctuate in response to market conditions and other factors,
and the value of Fund shares when redeemed may be more or less than their
original cost.
<PAGE>
The Fund's total return for the fiscal year ended June 30, 19956 was
(1.0720.12%). For the period beginning July 13, 1992 (the commencement of
public operations) to June 30, 19956, the Fund's average annual total return was
120.374%.
In performance advertising the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). The Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Salomon Brothers Bond Index, the
Shearson Lehman Bond Index, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Fund may refer to general market performances over past time periods such as
those published by Ibbotson Associates. In addition, the Fund may refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of
the Fund and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Fund may advertise total return. Total returns quoted in advertising
reflect all aspects of the Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the Fund's net asset
value per share over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. For example, a
cumulative return of 100% over ten years would produce an average annual return
of 7.18%, which is the steady annual rate that would equal 100% growth on a
compounded basis in ten years. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that the
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual year-
to-year performance of the Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
n
P(1+T) = ERV; where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
<PAGE>
ERV = ending redeemable value (ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 payment made at the
beginning of the applicable period.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total return
above.
3. MANAGEMENT
The Directors and officers of the Company and their principal occupations
during the past five years are set forth below.
John Y. Keffer, Director and Chairman.
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent)
and Forum Advisors, Inc. (a registered investment adviser). Mr.
Keffer is also a director and/or officer of various registered
investment companies for which Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
Joseph J. Nicholson, Director.
President of WSC Group (a diversified investment services holding
company) and, since 1991, Chief Executive Officer Stone Bridge Trust
Company. His address is 5 Radnor Corporate Center, Suite 555, Radnor,
Pennsylvania 19087.
David B. Pinter, Director.
President since 1984 of Zwicker Electric Company, with which he has
been associated since 1972. His address is 200 Park Avenue South, New
York, New York 10003
<PAGE>
Seymour G. Siegel, Director.
Senior Partner at M.R. Weiser & Company (a public accounting firm) of
which he has been associated since 1974. His address is 535 Fifth
Avenue, New York, New York 10017.
Max J. Schwartz, Director.
Partner at the law firm Kramer, Levin, Naftalis & Frankel since 1986.
His address is 919 3rd Avenue, New York, New York 10002.
Max Berueffy, Vice President and Secretary
Counsel, Forum Financial Services, Inc., with which he has been
associated since 1994. Prior thereto, Mr. Berueffy was on the staff
of the U.S. Securities and Exchange Commission for seven years, first
in the appellate branch of the Office of the General Counsel, then as
a counsel to Commissioner Grundfest and finally as a senior special
counsel in the Division of Investment Management. His address is Two
Portland Square, Portland, Maine 04101.
David I. Goldstein, Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been
associated since 1991. Prior thereto, Mr. Goldstein was associated
with the law firm of Kirkpatrick & Lockhart. Mr. Goldstein is also an
officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
Michael D. Martins, Treasurer and Assistant Secretary.
Director of Operations, Forum Financial Corp. Prior to that, Mr.
Martins was a Manager of Deloitte & Touche, LLP. Mr. Martins is also
an officer of various registered investment companies for which Forum
Financial Corp. serves as fund accountant and/or transfer agent. His
address is Two Portland Square, Portland, Maine 04101.
Lynn Y. Kelley, Assistant Treasurer
Fund Accounting Manager, Forum Financial Corp., with which she has
been associated since December 1993. Prior to that, Ms. Kelley was
Senior-in-Charge in Fund Accounting with Investors Bank and Trust
Company. Her address is Two Portland Square, Portland, Maine 04101.
<PAGE>
John Y. Keffer and Max J. Schwartz are interested persons of the Company as
that term is defined in the Investment Company Act.
THE INVESTMENT ADVISER
The Fund's investment adviser, Oak Hall Capital Advisors, L.P. (the
"Adviser") furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the Fund's investments and effecting
portfolio transactions for the Fund. The Advisory Agreement will remain in
effect for a period of twelve months from the date of its effectiveness and will
continue in effect thereafter only if its continuance is specifically approved
at least annually by the Board of Directors or by vote of the shareholders, and
in either case by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of any such party, at a meeting called
for the purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty by the Company with
respect to the Fund on 60 days' written notice when authorized either by vote of
its shareholders or by a vote of a majority of the Board of Directors, or by the
Adviser on 60 days' written notice to the Company, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to the Fund, the Adviser shall not be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. In addition to receiving its advisory fee from the Fund, the Adviser
may also act and be compensated as investment manager for its clients with
respect to assets which are invested in the Fund. In some instances the Adviser
may elect to credit against any investment management fee received from a client
who is also a shareholder in the Fund an amount equal to all or a portion of the
fees received by the Adviser or any affiliate of the Adviser from the Fund with
respect to the client's assets invested in the Fund.
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreement between the Fund and Oak Hall Capital Advisors, L.P., the
amount of fee that was waived by the Adviser, if any, and the actual fee
received by the Adviser. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
------- ------ --------
Oak Hall Equity Fund
Year Ended June 30, 1996 $198,598 $64,502 $45,755
Year Ended June 30, 1995 194,367 0 194,367
Year Ended June 30, 1994 198,598 29,624 168,974
<PAGE>
ADMINISTRATION AND DISTRIBUTION
Forum Financial Services, Inc. ("Forum") supervises the overall management
of the Company (which includes, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent, fund accountant and custodian and arranging for maintenance of
books and records of the Company) pursuant to an Administration and Distribution
Agreement. Forum also provides persons satisfactory to the Board of Directors
to serve as officers of the Company. Those officers, as well as certain other
employees and Directors of the Company, may be directors, officers or employees
of (and persons providing services to the Company may include) Forum or the
Adviser. In addition, under the Administration and Distribution Agreement,
Forum is directly responsible for managing the Company's regulatory and legal
compliance and overseeing the preparation of its registration statement.
The Administration and Distribution Agreement will remain in effect for a
period of twelve months from the date of its effectiveness and will continue in
effect thereafter only if its continuance is specifically approved at least
annually by the Board of Directors or by the shareholders and, in either case,
by a majority of the Directors who are not parties to the agreement or
interested persons of any such party and do not have any direct or indirect
financial interest in the agreement.
The Administration and Distribution Agreement terminates automatically if
it is assigned and may be terminated without penalty with respect to the Fund by
vote of the Fund's shareholders or by Forum on 60 days' written notice to the
Company. The agreement also provides that Forum shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
administration or management of the Company, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement.
From November 1, 1993 until May 31, 1994, Stone Bridge Trust Company
("SBTC") served as the Fund's administrator, and Forum continued to serve as
sub-administrator. Effective June 1, 1994, the Company entered into the
current Administration and Distribution Agreement with Forum under which
Forum continues to provide the administration and distribution services it
has provided since the Fund's inception and assumed the administrative
responsibilities formerly performed by Stone Bridge Trust Company and WSC
before that.
Under the Co-Administration Agreement with SBTC in effect until May 31,
1994, the fees for the fiscal year ending June 30, 1994, were $3,049, all of
which was waived by SBTC. Under the previous Distribution and Administration
Agreement, and the current Administration and Distribution
<PAGE>
Agreement, with Forum, the fees for the fiscal years ending June 30, 1996,
1995 and 1994, respectively, were $39,040, $75,871 and $3,604. The fees for
the fiscal year ended June 30, 1994 were waived by Forum.
Forum also acts as distributor of the Fund's shares pursuant to the
Distribution and Sub-Administration Agreement. In accordance with Rule 12b-1
adopted by the Securities and Exchange Commission, the Company has adopted a
distribution plan ("Plan"), which provides that all written agreements relating
to the Plan must be in a form satisfactory to the Board of Directors. In
addition, the Plan requires the Company and Forum to prepare, at least
quarterly, written reports setting forth all amounts expended for distribution
purposes by Forum pursuant to the Plan and identifying the distribution
activities for which those expenditures were made.
The Plan provides that it will remain in effect for one year from the date
of its adoption and thereafter may continue in effect for successive annual
periods provided it is approved by the shareholders or by the Board of
Directors, including a majority of directors who are not interested persons of
the Company and who have no direct or indirect interest in the operation of the
Plan or in any agreement related to the Plan. The Plan further provides that it
may not be amended to increase materially the costs which may be borne by the
Company for distribution pursuant to the Plan without shareholder approval and
that other material amendments of the Plan must be approved by the directors in
the manner described in the preceding sentence. The Plan may be terminated at
any time by a vote of the Board of Directors or, with respect to the Fund, by
the Fund's shareholders.
TRANSFER AGENT
Forum Financial Corp. (the "Transfer Agent") acts as transfer agent and
dividend disbursing agent of the Company pursuant to a Transfer Agency
Agreement. For its services, the Transfer Agent receives with respect to the
Fund an annual fee of $12,000 plus $25 per shareholder account. Pursuant to a
Fund Accounting Agreement, the Transfer Agent also provides the Fund with
portfolio accounting, including the calculation of the Fund's net asset value.
For these services, the Transfer Agent receives with respect to the Fund an
annual fee ranging from $36,000 to $60,000 depending upon the amount and type of
the Fund's portfolio transactions and positions.
Both the Transfer Agency Agreement and Fund Accounting Agreement were
approved by the Board of Directors, including a majority of the Directors who
are not parties to the respective agreements or interested persons of any such
party, at a meeting called for the purpose of voting on the respective
agreement. Each of these agreements will remain in effect for a period of one
year and will continue in effect thereafter only if its continuance is
specifically approved at least annually by the Board of Directors or by a vote
of the shareholders and in either case by a majority of the Directors who are
not parties to the respective agreement or interested persons of any such party,
at a meeting called for the purpose of voting on the respective agreement.
<PAGE>
EXPENSES
Subject to the obligations of the Adviser to reimburse the Company for its
excess expenses as described in the Prospectus, the Company has, under the
Advisory Agreement, confirmed its obligation to pay all its other expenses. The
Fund believes that currently the most restrictive expense ratio limitation
imposed by any state is 2-1/2% of the first $30 million of the Fund's average
net asset, 2% of the next $70 million of its average net assets and 1-1/2% of
its average net assets in excess of $100 million.
The Company's expenses include: interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the Company's custodian and transfer agent; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Company and maintaining corporate
existence; costs of preparing and printing the Company's prospectuses,
statements of additional information and shareholder reports and delivering them
to existing shareholders; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; compensation of the Company's directors;
compensation of the Company's officers and employees who are not employees of
the Adviser, SBTC, Forum or their respective affiliates and costs of other
personnel performing services for the Company; costs of corporate meetings;
Securities and Exchange Commission registration fees and related expenses; state
securities laws registration fees and related expenses; the fees payable under
the Advisory Agreement, the Administration Agreement and the Distribution and
Sub-Administration Agreement; and any fees and expenses payable pursuant to the
Plan.
OTHER INFORMATION
As of September 30October 2, 19965, the officers and directors of the
Company owned as a group less than 1.19% of the outstanding shares of the Fund.
Also as of that date, the following persons owned of record 5% or more of the
outstanding shares of the Fund:
Thomas Franck Andrea Straus Mary Ann Wolf
15 Charlton Street 2737 Stevens Street 55 Central Park West
New York, NY 10014 Madison, WI 53705 New York, NY 10023
5.93% 5.898.02% 5.61%
4. DETERMINATION OF NET ASSET VALUE
The Company determines the net asset value per share of the Fund as of 4:00
P.M., Eastern time, on Fund Business Days (as defined in the Prospectus), by
dividing the value of the Fund's net assets (i.e., the value of its securities
and other assets less its liabilities, including
<PAGE>
expenses payable or accrued) by the number of shares outstanding at the time the
determination is made. The Company does not determine net asset value on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Veterans' Day,
Thanksgiving and Christmas.
5. PORTFOLIO TRANSACTIONS
The Fund generally will effect purchases and sales through brokers who
charge commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund.
The Fund may not always pay the lowest commission or spread available.
Rather, in determining the amount of commission, including certain dealer
spreads, paid in connection with Fund transactions, the Adviser takes into
account such factors as size of the order, difficulty of execution, efficiency
of the executing broker's facilities (including the services described below)
and any risk assumed by the executing broker. The Adviser may also take into
account payments made by brokers effecting transactions for the Fund (i) to the
Fund or (ii) to other persons on behalf of the Fund for services provided to it
for which it would be obligated to pay.
In addition, the Adviser may give consideration to research services
furnished by brokers to the Adviser for its use and may cause the Fund to pay
these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis may be used by the Adviser in connection
with services to clients other than the Fund, and the Adviser's fee is not
reduced by reason of the Adviser's receipt of the research services.
Investment decisions for the Fund will be made independently from those for
any other account or investment company that is or may in the future become
managed by the Adviser or its affiliates. If, however, the Fund and other
investment companies or accounts managed by the Adviser are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by the Fund or the
size of the position obtainable for the Fund. In addition, when purchases or
sales of the same security for the Fund and for other investment companies and
accounts managed by the Adviser occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price advantages available to
large denomination purchases or sales.
The Fund contemplates that, consistent with the policy of obtaining best
net results, brokerage transactions may be conducted through the Adviser's
affiliates, affiliates of those persons or Forum. The Advisory Agreement
authorizes the Adviser to so execute trades. The Board of Directors has adopted
procedures in conformity with applicable rules under the Investment Company Act
to ensure that all brokerage commissions paid to these persons are reasonable
and fair. For the Company's fiscal years ended June 30, 1996, 1995 and 1994 the
<PAGE>
aggregate brokerage commissions incurred by the Fund were $198,598, $450,930 and
$405,443, respectively, of which 5.1%, 11.37% and 10.64% ($10,095, $51,250 and
$43,141), respectively, was paid to American Securities Corporation, an
affiliate of the Adviser. During those periods, approximately ___%, 5.66% and
16.59% respectively, of the total dollar amount of transactions by the Fund
involving the payment of commissions were effected through American Securities
Corporation.
6. CUSTODIAN
Pursuant to a Custodian Agreement (the "Custodian Agreement"), The First
National Bank of Boston, P.O. Box 1959, Boston, Massachusetts, 02105, acts as
the custodian of the Funds' assets. The custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, determining income
and collecting interest on Fund investments. The Fund's custodian employs
foreign subcustodians to provide custody of the Fund's foreign assets in
accordance with applicable regulations. The custodian is paid a fee at an
annual rate of 0.02% of the first $100 million of the average daily net assets
of the Fund, 0.015% on the next $100 million of the average daily net assets of
the Fund and .001% of the average daily net assets over $200 million, and
certain transaction fees.
7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at net
asset value without any sales charge. As of June 30, 19965, the Fund's net
asset value was $13.6111.33.
Proceeds of redemptions normally are paid in cash. However, payments may
be made wholly or partly in portfolio securities if the Board of Directors
determines economic conditions exist which would make payment in cash
detrimental to the best interests of the Fund. If payment for shares redeemed
is made wholly or partly in portfolio securities, brokerage costs may be
incurred by the shareholder in converting the securities to cash. The Company
has filed an election with the Securities and Exchange Commission pursuant to
which the Fund may only effect a redemption in portfolio securities if the
particular shareholder is redeeming more than $250,000 or 1% of the Fund's total
net assets, whichever is less, during any 90-day period.
In addition to the situations described in the Prospectus under "Purchases
and Redemptions of Shares," the Company may redeem shares involuntarily to
reimburse the Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to the Fund's shares as provided in the
Prospectus from time to time.
Shareholders' rights of redemption may not be suspended, except (i) for any
period during which the New York Stock Exchange, Inc. is closed (other than
customary weekend and holiday closings) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, (ii) for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by the Fund of its
<PAGE>
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (iii) for such other period as the Securities and Exchange Commission
may by order permit for the protection of the shareholders of the Fund.
Fund shares are normally issued for cash only. In the Adviser's
discretion, however, the Fund may accept portfolio securities that meet the
investment objective and policies of the Fund as payment for Fund shares. The
Fund will only accept securities that (i) are not restricted as to transfer
either by law or liquidity of market and (ii) have a value which is readily
ascertainable (and not established only by valuation procedures).
8. TAXATION
The Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements the
Fund must meet to qualify for such treatment. The information set forth in the
Prospectus and the following discussion relate solely to Federal income taxes on
dividends and distributions by the Fund and assumes that the Fund qualifies as a
regulated investment company. Investors should consult their own counsel for
further details and for the application of state and local tax laws to his or
her particular situation.
A portion of the Fund's net investment income may be eligible for the
dividends received deduction allowed to corporations.
For Federal income tax purposes, when put and call options which the Fund
has purchased expire unexercised, the premiums paid by the Fund give rise to
short or long-term capital losses at the time of expiration (depending on the
length of the exercise period of the put or call). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the security purchased is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the related security are decreased by the premium
paid. When a put or call written by the Fund is exercised, the purchase price
(selling price in the case of a call) of the security is decreased (increased in
the case of a call) for tax purposes by the premium received. There may be
short or long term gains and losses associated with closing purchase or sale
transactions.
In addition, the use of certain hedging strategies such as writing and
purchasing options, futures contracts and options on futures contracts and
entering into foreign currency forward contracts and other foreign instruments,
involves complex rules that will determine for income tax purposes the character
and timing of recognition of income received in connection therewith.
<PAGE>
9. OTHER MATTERS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the
Company are passed upon by Messrs. Kramer, Levin, Naftalis & Frankel, 919
Third Avenue, New York, New York 10022. Kramer, Levin, Naftalis & Frankel
has relied upon the opinion of Messrs. Venable, Baetjer and Howard, 1800
Mercantile Bank & Trust Building, 2 Hopkins Plaza, Baltimore, Maryland 21201,
for matters relating to Maryland law.
Deloitte & Touche LLP, Two World Financial Center, New York, New York,
10281, independent auditors, have been selected as auditors for the Company.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year ended
June 30, 1996 (which are included in the Annual Report to Shareholders) are
delivered along with this Statement of Additional Information and
incorporated herein by reference.
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE DEBT)
(a) MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.
<PAGE>
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
(b) STANDARD & POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as
follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas, they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated 'BB' have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated 'B' have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal payments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
<PAGE>
Bonds rated 'CCC' have currently identifiable vulnerability to default, and
are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
The 'C' rating may be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued. The rating 'Cl' is
reserved for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has
filed for bankruptcy. Bonds rated 'D' are in payment default. The 'D' rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will made during such grace period. The 'D' rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Note: The ratings from AA to CCC may be modified by the addition of a plus
(+) or minus (-) sign to show the relative standing within the rating category.
PREFERRED STOCK
(a) MOODY'S
Moody's rates preferred stock issues as follows:
An issue which is rated aaa is a top-quality preferred stock. This rating
indicates good asset protection and the least risk of dividend impairment among
preferred stock issues.
An issue which is rated "aa" is a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rated "a" is an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue which is rated "baa" is a medium-grade preferred stock, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
An issue which is rated "ba" has speculative elements and its future cannot
be considered well assured. Earnings and asset protection may be very moderate
and not well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
<PAGE>
An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor
prospects of ever attaining any real investment standing. This is the lowest
rated class of preferred or preference stock.
(b) STANDARD & POOR'S
Standard & Poor's rates preferred stock issues as follows:
"AAA" is the highest rating that is assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas if normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC"
the highest degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
<PAGE>
A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
To provide more detailed indications of preferred stock quality, the
ratings from "AA" to "B" may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Included in the Prospectus:
Financial Highlights.
Included in each Statement of Additional Information:
Audited financial statements including: Statements of Assets and
Liabilities, Statements of Operations, Statements of Changes in Net
Assets, Financial Highlights and Portfolio of Investments for the
fiscal year ended June 30, 1996 and Report of Independent Auditors
(the Austin Global Equity Fund Annual Report and the Oak Hall Equity
Fund Annual Report filed with the Commission on September 5 and
September 6, 1996, respectively, pursuant to Rule 30b2-1 under the
Investment Company Act of 1940, as amended) are incorporated herein
by reference.
(b) Exhibits:
(1) Copy of the Articles of Incorporation of the Registrant (filed as
Exhibit 1 to Registrant's Registration Statement on Form N1-A, file
33-46268, filed with the Commission ("Registration Statement") and
incorporated herein by reference).
(2) Copy of By-Laws of the Registrant as now in effect (filed as Exhibit 2
to Registration Statement and incorporated herein by reference).
(3) None.
(4) Form of Certificate for shares of Oak Hall Equity Fund (filed as
Exhibit 4 to Pre-Effective Amendment No. 2 to Registration Statement,
filed with the Commission ("Pre-Effective 2") and incorporated herein
by reference).
(5) (a) Form of Investment Advisory Agreement between Registrant and Oak
Hall Capital Advisors, L.P. (filed as Exhibit 5 (a) to Pre-
Effective Amendment No. 1 to Registration Statement, filed with
the Commission ("Pre-Effective 1") and incorporated herein by
reference).
(b) Form of Investment Advisory Agreement between Registrant and
Austin Investment Management, Inc. (filed as Exhibit (b) to Post-
Effective Amendment No. 2 to Registration Statement, filed with
the Commission ("Post-Effective 2") and incorporated herein by
reference).
(6) Copy of Administration and Distribution Agreement between Registrant
and Forum Financial Services, Inc. (filed as Exhibit (6) to Post-
Effective Amendment No. 5 to Registration Statement, filed with the
Commission on October 31, 1995 ("Post-Effective 5") and incorporated
herein by reference).
(7) None
<PAGE>
(8) Custodian Agreement between Registrant and First National Bank of
Boston (filed as Exhibit 8 to Post-Effective Amendment No. 4 to Registration
Statement ("Post-Effective 4") and incorporated herein by reference).
(9) (a) Copy of Transfer Agency Agreement between Registrant and Forum
Financial Corp. (filed herewithas Exhibit (9)(a) to Post-
Effective 5 and incorporated herein by reference).
(b) Copy of Sub-Administration Agreement between Forum Financial
Services, Inc. and WSC Investment Services, Inc. (filed
herewithas Exhibit (9)(b) to Post-Effective 5 and incorporated
herein by reference).
(c) Copy of Fund Accounting Agreement between Registrant and Forum
Financial Corp. (filed as Exhibit (9)(c) to Post-Effective 5 and
incorporated herein by referenceherewith).
(10) (a) Opinion and consent of Seward & Kissel (filed as Exhibit 10(a) to
Pre-Effective 2 and incoporated herein by reference).
(b) Opinion of Venable, Baetjer and Howard (filed as Exhibit 10(a) to
Pre-Effective 2 and incorporated herein by reference).
(11) (a) Consent of Kramer, Levin, Naftalis & Frankel (filed herewith).
(11) (b) Consent of Independent Auditors
Deloitte & Touche LLP (filed herewith)
(12) None
(13) Investment Representation letter of original purchaser of shares of
Registrant (filed as Exhibit 13 to Pre-Effective 2 and incorporated
herein by reference).
(14) Not Applicable.
(15) (a) Form of Rule 12b-1 Plan to be adopted by the Registrant with
respect to Oak Hall Equity Fund (filed as Exhibit 9(c) to Pre-
Effective 1 and incorporated herein by reference).
(b) Form of Rule 12b-1 Plan to be adopted by the Registrant with
respect to Austin Global Equities Fund (filed as Exhibit 15 (b)
to Post-Effective 2 and incorporated herein by reference).
(16) Schedule for Computation of Performance (filed as Exhibit 16 to Post-
Effective 1 and incorporated herein by reference).
(17) Financial Data Schedules for Austin Global Equity Fund and Oak Hall
Equity Fund pursuant to Rule 483 under the Securities Act of 1933.
Other Exhibits:
(A) Power of Attorney, Seymour G. Siegel, Director of Registrant
(filed herewith).
(B) Power of Attorney, David Pinter, Director of Registrant (filed
herewith).
(C) Power of Attorney, Max J. Schwartz, Director of Registrant (filed
herewith).
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
None
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF SEPTEMBER 30, 1994:
Title of Class Number of Holders
-------------- -----------------
Series A Common Stock
(Oak Hall Equity Fund) 335
Series B Common Stock
(Austin Global Equities Fund) 175
Series C Common Stock 0
Series D Common Stock 0
Series E Common Stock 0
Series F Common Stock 0
Series G Common Stock 0
Series H Common Stock 0
Series I Common Stock 0
Series J Common Stock 0
ITEM 27. INDEMNIFICATION.
In accordance with Section 2-418 of the Maryland General Corporation Law,
Article EIGHTH of the Registrant's Articles of Incorporation (Exhibit 1 hereto)
provides as follows:
(1) To the full extent that limitations on the liability of directors and
officers are permitted by the Maryland General Corporation Law, no director
or officer of the Corporation shall have any liability to the Corporation
or its stockholders for damages. This limitation on liability applies to
events occurring at the time a person serves as a director or officer of
the Corporation whether or not that person is a director or officer at the
time of any proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the full extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The
Corporation shall indemnify and advance expenses to its officers to the
same extent as its directors and may do so to such further extent as is
consistent with law. The Board of Directors may by Bylaw, resolution or
agreement make further provision for indemnification of directors,
officers, employees and agents to the full extent permitted by the Maryland
Corporation Law.
(3) No provision of this Article shall be effective to protect or purport
to protect any director, officer or former director or officer of the
Corporation against any liability to the Corporation or its stockholders to
which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
(4) References to the Maryland General Corporation Law in this Article are
to that law as from time to time amended. No amendment to the charter of
the Corporation shall affect any right of any person under this Article
based on any event, omission or proceeding prior to the amendment.
Section 4 of each Investment Advisory Agreement relates to indemnification
of the investment adviser and states:
The Adviser shall give the Company the benefit of its best judgment and
efforts in rendering its services to the Company and shall not be liable
for error of judgment or
<PAGE>
mistake of law, for any loss arising out of any investment, or in any event
whatsoever, provided that nothing herein shall be deemed to protect, or
purport to protect, the Adviser against any liability to the Company or to
the security holders of the Company to which it would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties hereunder, or by reason of reckless disregard of
its obligations and duties under hereunder.
Section 3(f) of the Distribution and Sub-Administration Agreement and
Distribution and Administration Agreement relates to indemnification of the
distributor and states:
The Company will indemnify, defend and hold FFSI, its several officers and
directors, and any person who controls FFSI within the meaning of Section
15 of the Securities Act (collectively, the "FFSI Indemnitees"), free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection
therewith) which any FFSI Indemnitee may incur, under the Securities Act,
or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Company's Registration
Statement and Prospectus under the Securities Act or arising out of or
based upon any alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that in no event shall anything contained in this
paragraph 3(f) be so construed as to protect FFSI against any liability to
the Company or its security holders to which FFSI would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties, or by reason of its reckless disregard of
its obligations and duties under this Section 3. This agreement to
indemnify FFSI Indemnitees is expressly conditioned upon the Company being
notified of any action brought against any FFSI Indemnitee, such
notification to be given by letter, facsimile transmission or telegram to
the Company and referring to the person against whom such action is brought
within ten days after the summons or other first legal process shall have
been served on such person. The failure so to notify the Company of any
such action shall not relieve the Company from any liability which it may
have to any FFSI Indemnitee otherwise than on account of the
indemnification provided for in this paragraph 3(f). The Company will be
entitled to assume the defense of any suit brought to enforce any such
claim, and to retain counsel of good standing chosen by it and approved by
FFSI. In the event the Company elects to assume the defense of any such
suit and retain counsel of good standing approved by FFSI, the defendants
in such suit shall bear the fees and expenses of any additional counsel
retained by any of them. In the event the Company does not elect to assume
the defense of any such suit, or in case FFSI does not approve of counsel
chosen by the Company or has been advised that it may have available
defenses or claims which are not available to or conflict with those
available to the Company, the Company will reimburse any FFSI Indemnitee
named as defendant in such suit for the fees and expenses of any counsel
retained by any such person. The indemnification provisions contained in
this paragraph 3(f) and the Company's representations and warranties in
this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any FFSI Indemnitee
and shall survive the sale of any Shares made pursuant to subscriptions
obtained by FFSI. The indemnification provisions of this paragraph 3(f)
will inure exclusively to the benefit of the FFSI Indemnitees and their
respective successors and assigns. The Company agrees promptly to notify
FFSI of the commencement of any litigation or proceeding against the
Company in connection with the issue or sale of Shares.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
Oak Hall Capital Advisors, L.P.
The description of Oak Hall Capital Advisors, L.P. under the caption
"Management - Adviser" in the Prospectus and Statement of Additional Information
with respect to the Oak Hall Equity Fund, constituting part of Parts A and B,
respectively, of this Registration Statement are incorporated by reference
herein.
The following are the directors and principal executive officers of Oak
Hall Capital Advisors, L.P., 122 East 42nd Street, New York, New York 10168,
including their business connections which are of a substantial nature.
Alexander G. Anagnos, Director and Portfolio Manager.
Consultant to American Services Corporation and Financial Advisor to
WR Family Associates.
Lewis G. Cole, Director
Partner, the Law firm of Strook, Strook & Lavan
John C. Hathaway, President, Director and Portfolio Manager.
John J. Hock, Executive Vice President.
Charles D. Klein, Portfolio Manager.
Director, American Securities Corporation and Financial Advisor to WR
Family Associates
David P. Steinmann, Executive Vice President, Secretary,
Treasurer and Director.
Administrator, WR Family Associates and Secretary and Treasurer of
American Securities Corporation.
Austin Investment Management, Inc.
The description of Austin Investment Management, Inc. under the caption
"Management - Adviser" in the Prospectus and Statement of Additional
Information with respect to the Austin Global Equities Fund, constituting
part of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
<PAGE>
The following is the director and principal executive officer of Austin
Investment Management, Inc., 375 Park Avenue, New York, New York 10152,
including their business connections which are of a substantial nature.
Peter Vlachos, Director, President, Treasurer and Secretary
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Forum Financial Services, Inc., Registrant's underwriter, serves as
underwriter to Avalon Capital, Inc., Core Trust (Delaware), The CRM
Funds, The Cutler Trust, Forum Funds, Inc., The Milestone Funds,
Monarch Funds, Norwest Advantage Funds, Norwest Select Funds, Schroder
Capital Funds, Inc., Sound Shore Fund, Inc., Stone Bridge Funds, Inc.
and Trans Adviser Funds, Inc.
(b) John Y. Keffer, President and Secretary of Forum Financial Services,
Inc., is the Chairman and President of the Registrant. His business
address is Two Portland Square, Portland, Maine 04101.
(c) Not Applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained at the offices of Forum Financial Services, Inc., 61
Broadway, New York, New York 10006 and Forum Financial Corp., 2 Portland
Square, Portland, Maine 04104. The records required to be maintained under
Rule 31a-1(b)(1) with respect to journals of receipts and deliveries of
securities and receipts and disbursements of cash are by the Registrant's
custodian, as listed under "Custodian" in Part B to this Registration Statement.
The records required to be maintained under Rule 31a-1(b)(5), (6) and (9) are
maintained at the offices of the Registrant's investment advisers, as listed in
Item 28 hereof.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to contain in its Bylaws provisions for assisting
shareholder communications and for the removal of directors substantially
similar to those provided for in Section 16(c) of the Investment Company
Act of 1940, except to the extent such provisions are mandatory or
prohibited under Maryland law.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the fund to which the prospectus relates upon
request and without charge.
<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 Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Portland, State of Maine on the 31st day
of October, 1996.
STONE BRIDGE FUNDS, INC.
By: /s/ John Y. Keffer
--------------------
John Y. Keffer
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 31st day of October, 1996.
SIGNATURES TITLE
(a) Principal Executive Officer
/s/ John Y. Keffer Chairman and President
---------------------------
John Y. Keffer
(b) Principal Financial and
Accounting Officer
/s/ Michael D. Martins Treasurer
---------------------------
Michael D. Martins
(c) A Majority of the Directors
/s/ John Y. Keffer Director
---------------------------
John Y. Keffer
David B. Pinter Director
Seymour G. Siegel Director
Max J. Schwartz Director
/s/ John Y. Keffer
---------------------------
John Y. Keffer
<PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page Number
- ------- -----------
(11) (a) Consent of Kramer, Levin, Naftalis & Frankel
(11) (b) Consent of Independent Auditors
Deloitte & Touche LLP
(17) Financial Data Schedules for Austin Global Equity Fund
and Oak Hall Equity Fund
Other Exhibits
Power of Attorney:
(A) Seymour G. Siegel
(B) David Pinter
(C) Max J. Schwartz
<PAGE>
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, N.Y. 10022-3852
(212) 715-9100
October 30, 1996
Stone Bridge Funds, Inc.
Two Portland Square
Portland, Maine 04101
Re: STONE BRIDGE FUNDS, INC.
Dear Gentlemen:
We hereby consent to the reference of our firm as Counsel in this
Post-Effective Amendment No. 8 to Registration Statement on Form N-1A.
Very truly yours
/s/ Kramer, Levin
Naftalis & Frankel
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-46268 of Stone Bridge Funds, Inc. of our reports dated August
16, 1996, appearing in the Statements of Additional Information, which are a
part of such Registration Statement, and to references to us under the headings
"Financial Highlights" in the Prospectuses, which are a part of such
Registration Statement, and "Counsel and Auditors" in the Statements of
Additional Information.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
October 30, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Austin Global Equity Fund Annual Report
dated 6/30/96 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000884777
<NAME> STONEBRIDGE FUNDS, INC.
<SERIES>
<NUMBER> 02
<NAME> AUSTIN GLOBAL EQUITY FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 9,046,864
<INVESTMENTS-AT-VALUE> 10,611,959
<RECEIVABLES> 26,123
<ASSETS-OTHER> 19,433
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,657,515
<PAYABLE-FOR-SECURITIES> 275,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,535
<TOTAL-LIABILITIES> 331,775
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,809,275
<SHARES-COMMON-STOCK> 783,052
<SHARES-COMMON-PRIOR> 730,568
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 951,370
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,565,095
<NET-ASSETS> 10,325,740
<DIVIDEND-INCOME> 119,618
<INTEREST-INCOME> 30,567
<OTHER-INCOME> 0
<EXPENSES-NET> 238,110
<NET-INVESTMENT-INCOME> (87,925)
<REALIZED-GAINS-CURRENT> 1,258,826
<APPREC-INCREASE-CURRENT> 229,692
<NET-CHANGE-FROM-OPS> 1,400,593
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 199,483
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 68,184
<NUMBER-OF-SHARES-REDEEMED> 32,250
<SHARES-REINVESTED> 16,550
<NET-CHANGE-IN-ASSETS> 1,852,146
<ACCUMULATED-NII-PRIOR> 33,819
<ACCUMULATED-GAINS-PRIOR> (141,792)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 123,067
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 261,728
<AVERAGE-NET-ASSETS> 9,506,159
<PER-SHARE-NAV-BEGIN> 11.60
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> 1.98
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.19
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Oak Hall Equity Fund Annual Report dated
6/30/96 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000884777
<NAME> STONEBRIDGE FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> OAK HALL EQUITY FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 11,286,499
<INVESTMENTS-AT-VALUE> 12,493,351
<RECEIVABLES> 37,088
<ASSETS-OTHER> 11,155
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,541,594
<PAYABLE-FOR-SECURITIES> 161,485
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122,937
<TOTAL-LIABILITIES> 284,422
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,739,359
<SHARES-COMMON-STOCK> 900,879
<SHARES-COMMON-PRIOR> 1,447,196
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,689,039)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,206,852
<NET-ASSETS> 12,257,172
<DIVIDEND-INCOME> 93,483
<INTEREST-INCOME> 33,032
<OTHER-INCOME> 0
<EXPENSES-NET> 294,442
<NET-INVESTMENT-INCOME> (167,927)
<REALIZED-GAINS-CURRENT> 1,994,837
<APPREC-INCREASE-CURRENT> 982,857
<NET-CHANGE-FROM-OPS> 2,809,767
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 195,211
<NUMBER-OF-SHARES-REDEEMED> 741,528
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4,141,981)
<ACCUMULATED-NII-PRIOR> (59,338)
<ACCUMULATED-GAINS-PRIOR> (4,683,876)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 194,367
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 519,313
<AVERAGE-NET-ASSETS> 14,700,911
<PER-SHARE-NAV-BEGIN> 11.33
<PER-SHARE-NII> (.32)
<PER-SHARE-GAIN-APPREC> 2.60
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.61
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
STONE BRIDGE FUNDS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Seymour G. Siegel constitutes and
appoints John Y. Keffer, Max Berueffy, Michael D. Martins and David I.
Goldstein, and each of them, as true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign the Registration Statement
on Form N1-A and any or all amendments thereto of Stone Bridge Funds, Inc. and
to file the same with the Securities and Exchange Commission, granting unto the
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
/s/ Seymour G. Siegel
-------------------------
Seymour G. Siegel
Date: October 26, 1995
<PAGE>
STONE BRIDGE FUNDS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that David Pinter constitutes and
appoints John Y. Keffer, Mark D. Fried and David I. Goldstein and each of them,
as true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Stone Bridge Funds, Inc. and to file the same, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ David B. Pinter
-------------------------
David Pinter
Date: July 1, 1992
<PAGE>
STONE BRIDGE FUNDS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Max J. Schwartz constitutes and
appoints John Y. Keffer, Mark D. Fried and David I. Goldstein and each of them,
as true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign the Registration Statement on Form N1-A and any or all
amendments thereto of Stone Bridge Funds, Inc. and to file the same, with the
Securities and Exchange Commission, granting unto the said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Max J. Schwartz
-------------------------
Max J. Schwartz
Dated: November 2, 1993
