As Filed With The Securities And Exchange Commission on October 29, 1997.
FILE NOS. 33-46283 and 811-6601
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 7 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 8 (X)
CAPPIELLO-RUSHMORE TRUST
(Exact Name of Registrant as Specified in Charter)
4922 Fairmont Avenue, Bethesda, Maryland 20814
(Address of Principal Executive Offices) (Zip Code)
(301) 657-1500
(Registrant's Telephone Number, Including Area Code)
Timothy N. Coakley
4922 Fairmont Avenue
Bethesda, Maryland 20814
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of rule 485.
X on November 1, 1997 pursuant to paragraph (b) of rule 485.
60 days after filing pursuant to paragraph (a) (1) of rule 485.
on pursuant to paragraph (a) (1) of rule 485.
75 days after filing pursuant to paragraph (a) (2) of rule 485.
on pursuant to paragraph (a) (2) of rule 485.
If appropriate, check the following box:
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of
1940. The Rule 24f-2 Notice for the Registrant's fiscal year ended June 30,
1997 was filed on August 28, 1997.
TOTAL NUMBER OF PAGES____
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CAPPIELLO-RUSHMORE TRUST
REGISTRATION STATEMENT ON FORM N-1A
Cross Reference Sheet
Required By Rule 495(a)
Under The Securities Act of 1933
N-1A Location in
Item No. Registration Statement
Part A: Information Required in Prospectus
1. Cover Page Outside Front Cover Page of
Prospectus
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights;
Performance Data
4. General Description of Registrant Organization of the Trust;
Investment Objectives:
Investment Policies
5. Management of the Fund Management of the Trust
5A. Management's Discussion of Fund Management's Discussion of
Performance Fund Performance
6. Capital Stock and Other Securities Organization of Trust;
Taxes; Dividends and
Distributions
7. Purchase of Securities Being Offered How to Invest in the Fund;
Exchanges; Net Asset Value
8. Redemption or Repurchase How to Redeem an Investment
(Withdrawals); Exchanges
9. Legal Proceedings Not Applicable
Part B: Information Required in
Statement of Additional Information
10. Cover Page Outside Front Cover Page of
Statement of Additional
Information
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objectives and
Policies
14. Management of the Registrant Management of the Trust
15. Control Persons and Principal Holders Principal Holders of
of Securities Securities
16. Investment Advisory and Other Services Investment Advisory and
Other Services
17. Brokerage Allocation Investment Objectives and
Policies
18. Capital Stock and Other Securities Not Applicable
19. Purchase, Redemption and Pricing of Redemptions; Tax-Deferred
Securities Being Offered Retirement Plans; Net Asset
Value
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculations of Performance Data Calculation of Return
Quotations
23. Financial Statements Financial Statements
Part C: Other Information
24. Financial Statements and Exhibits Financial Statements and
Exhibits
25. Persons Controlled by or Under Common Persons Controlled by or
Control Under Common Control
26. Number of Holders of Securities Number of Holders of
Securities
27. Indemnification Indemnification
28. Business and Other Connections of Business and Other
Investment Adviser Connections of Investment
Adviser
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts and
Records
31. Management Services Management Services
32. Undertakings Undertakings
33. Signatures Signatures
<PAGE>
PART A
<PAGE>
CAPPIELLO-RUSHMORE TRUST
UTILITY INCOME FUND
GROWTH FUND
EMERGING GROWTH FUND
4922 Fairmont Avenue, Bethesda, Maryland 20814
(800) 343-3355 (301) 657-1500
The Cappiello-Rushmore Trust (the "Trust") is a no-load, open-
end, non-diversified, management investment company consisting of
four separate funds: the Utility Income Fund, the Growth Fund,
the Emerging Growth Fund, and the Gold Fund. This Prospectus
sets forth concisely the information you should know about the
Trust and the Utility Income Fund, the Growth Fund, and the
Emerging Growth Fund (the "Funds"). Each Fund has its own
investment objectives and policies, and a shareholder's interest
is limited to the Fund in which the shareholder owns shares.
The shares offered by this Prospectus are not deposits or
obligations of any bank, are not endorsed or guaranteed by any
bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other governmental
agency.
ADDITIONAL INFORMATION
Investors should read this Prospectus and retain it for future
reference. This Prospectus is designed to set forth concisely
the information an investor should know before investing in the
Funds. A Statement of Additional Information dated November 1,
1997 containing additional information about the Funds has been
filed with the Securities and Exchange Commission and is
incorporated herein by reference. A copy of the statement may be
obtained, without charge, by writing or telephoning the Trust.
The date of this Prospectus is November 1, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
The following table illustrates all expenses and fees that a
shareholder of the Trust will incur:
Emerging Utility
Growth Growth Income
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested Dividends None None None
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fees None None None
Monthly Account Fee (accounts under $500) $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.50% 0.50% 0.35%
12b-1 Fees None None None
Other Expenses 1.00% 1.00% 0.70%
Total Fund Operating Expenses 1.50% 1.50% 1.05%
EXAMPLE:
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period. The same level of expenses would be incurred if
the investment were held throughout the period indicated.
1 year 3 years 5 years 10 years
Growth Fund $ 15 $ 48 $ 82 $ 179
Emerging Growth Fund 15 48 82 179
Utility Income Fund 11 34 58 128
The purpose of this table is to assist the investor in
understanding the various expenses that an investor will bear
directly or indirectly. The five percent assumed annual return
is for comparison purposes only. As noted above, the Trust
charges no redemption fees. The actual annual return may be more
or less depending on market conditions. The example should not
be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown. For
more complete information about the various costs and expenses,
see "Management of the Trust" in the Prospectus and "Investment
Advisory and Other Services" in the Statement of Additional
Information.
2
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<TABLE>
Cappiello-Rushmore Trust
Financial Highlights
Audited
Utility Income Fund
<CAPTION>
For the Period
For the Year Ended June 30, Ended June 30,
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value-Beginning of Period $ 10.60 $ 9.24 $ 8.39 $ 10.82 $ 10.00
Income from Investment Operations:
Net Investment Income 0.532 0.489 0.555 0.527 0.255
Net Realized and Unrealized Gain
(Loss) on Securities (0.196) 1.391 0.846 (2.421) 0.820
Total from Investment Operations 0.336 1.880 1.401 (1.894) 1.075
Distributions to Shareholders:
From Net Investment Income (0.536) (0.520) (0.551) (0.525) (0.255)
From Net Realized Capital Gain - - - (0.011) -
Total Distributions to Shareholders (0.536) (0.520) (0.551) (0.536) (0.255)
Net Increase (Decrease) in Net Asset Value (0.20) 1.36 0.85 (2.43) 0.82
Net Asset Value-End of Period $ 10.40 $ 10.60 $ 9.24 $ 8.39 $ 10.82
Total Investment Return 3.39% 20.60% 16.62% (18.18)% 9.98%A
Ratios to Average Net Assets:
Expenses 1.05% 1.05% 1.05% 1.05% 1.05%B
Net Investment Income 4.88% 4.82% 6.26% 5.21% 3.31%B
Supplementary Data:
Portfolio Turnover Rate 17.33% 45.11% 147.04% 26.13% 15.93%
Net Assets at End of Period (000s omitted) $ 8,806 $ 15,106 $ 17,151 $ 9,117 $ 8,415
Number of Shares Outstanding at End of
Period (000s omitted) 847 1,425 1,855 1,086 778
Average Commission Rate Paid $ 0.0496C - - - -
A Total Investment Return for periods of less than one year are not annualized.
B Annualized.
C For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate
per share for security trades on which commissions are charged. This amount may vary from period to period and fund
to fund depending on the mix of trades executed in various markets where trading practices and commission rate
structures may differ.
* From commencement of operations October 6, 1992.
The auditors' report is incorporated by reference in the registration statement. The auditors' report and further
information about the performance of the Trust are contained in the annual report to shareholders which may be obtained
without charge by calling or writing the Trust.
</TABLE>
3
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<TABLE>
Cappiello-Rushmore Trust
Financial Highlights
Audited
Growth Fund
<CAPTION>
For the Period
For the Year Ended June 30, Ended June 30,
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value-Beginning of Period $ 17.87 $ 14.64 $ 11.05 $ 10.63 $ 10.00
Income from Investment Operations:
Net Investment Income (Loss) (0.092) (0.069) 0.014 (0.021) 0.012
Net Realized and Unrealized Gain
on Securities 1.831 3.299 3.593 0.444 0.620
Total from Investment Operations 1.739 3.230 3.607 0.423 0.632
Distributions to Shareholders:
From Net Investment Income - - (0.017) (0.003) (0.002)
From Net Realized Capital Gain (0.589) - - - -
Total Distributions to Shareholders (0.589) - (0.017) (0.003) (0.002)
Net Increase (Decrease) in Net Asset Value 1.15 3.23 3.59 0.42 0.63
Net Asset Value-End of Period $ 19.02 $ 17.87 $ 14.64 $ 11.05 $ 10.63
Total Investment Return 10.10 % 22.06 % 32.65 % 3.99 % 6.34%A
Ratios to Average Net Assets:
Expenses 1.50 % 1.50 % 1.50 % 1.50 % 1.50%B
Net Investment Income (Loss) (0.46)% (0.41)% 0.12 % (0.18)% 0.17%B
Supplementary Data:
Portfolio Turnover Rate 41.93 % 74.50 % 70.89 % 119.03 % 21.13 %
Net Assets at End of Period (000s omitted) $ 24,899 $ 31,777 $ 19,337 $ 9,993 $ 3,165
Number of Shares Outstanding at End of
Period (000s omitted) 1,309 1,778 1,321 904 298
Average Commission Rate Paid $ 0.0453C - - - -
A Total Investment Return for periods ofless than one year are not annualized.
B Annualized.
C For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per
share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ.
* From commencement of operations October 6, 1992.
The auditors' report is incorporated by reference in the registration statement. The auditors' report and further information
about the performance of the Trust are contained in the annual report to shareholders which may be obtained without charge by
calling or writing the Trust.
</TABLE>
4
<PAGE>
<TABLE>
Cappiello-Rushmore Trust
Financial Highlights
Audited
Emerging Growth Fund
<CAPTION>
For the Period
For the Year Ended June 30, Ended June 30,
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value-Beginning of Period $ 16.99 $ 14.96 $ 10.41 $ 11.32 $ 10.00
Income from Investment Operations:
Net Investment Income (0.242) (0.161) (0.075) (0.104) (0.050)
Net Realized and Unrealized Gain
(Loss) on Securities (0.243) 2.300 4.625 (0.686) 1.377
Total from Investment Operations (0.485) 2.139 4.550 (0.790) 1.327
Distributions to Shareholders:
From Net Investment Income - - - - -
From Net Realized Capital Gain (2.665) (0.109) - (0.120) (0.007)
Total Distributions to Shareholders (2.665) (0.109) - (0.120) (0.007)
Net Increase (Decrease) in Net Asset Value (3.15) 2.03 4.55 (0.91) 1.32
Net Asset Value-End of Period $ 13.84 $ 16.99 $ 14.96 $ 10.41 $ 11.32
Total Investment Return (2.15)% 14.36 % 43.71 % (7.31)% 13.35 % A
Ratios to Average Net Assets:
Expenses 1.50 % 1.50 % 1.50 % 1.50 % 1.50 % B
Net Investment Income (1.20)% (0.98)% (0.61)% (0.85)% (0.63)% B
Supplementary Data:
Portfolio Turnover Rate 66.16 % 121.22 % 96.11 % 128.13 % 67.90 %
Net Assets at End of Period (000s omitted) $ 20,732 $ 44,985 $ 36,606 $ 18,133 $ 4,750
Number of Shares Outstanding at End of
Period (000s omitted) 1,498 2,647 2,447 1,742 420
Average Commission Rate Paid $ 0.0382C - - - -
A Total Investment Return for periods of less than one year are not annualized.
B Annualized.
C For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per
share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ.
* From commencement of operations October 6, 1992.
The auditors' report is incorporated by reference in the registration statement. The auditors' report and further information
about the performance of the Trust are contained in the annual report to shareholders which may be obtained without charge by
calling or writing the Trust.
</TABLE>
5
<PAGE>
Cappiello-Rushmore Trust
Total Return Comparison
$10,000 Initial Investment
Utility Emerging
Income Fund Growth Fund Growth Fund S&P 500
10/6/92 $10,000 $10,000 $10,000 $10,000
6/30/93 $10,998 $10,634 $11,335 $11,297
6/30/94 $ 8,999 $11,058 $10,506 $11,456
6/30/95 $10,495 $14,668 $15,098 $14,443
6/30/96 $12,657 $17,904 $17,266 $18,213
6/30/97 $13,086 $19,712 $16,895 $24,533
Past performance is not predictive of future performance. The Standard &
Poor's 500 Composite Stock Price Index is an unmanaged stock index and,
unlike the Funds, has no management fee or other operating expenses to
reduce its reported return. Returns are historical and include changes
in principal and reinvested dividends and capital gains.
Cappiello-Rushmore Trust
Average Annual Total Return
Period Ended June 30, 1997
Since Inception
One Year 10/6/92
Cappiello-Rushmore Utility Income Fund 3.39% 5.84%
Cappiello-Rushmore Growth Fund 10.10% 15.48%
Cappiello-Rushmore Emerging Growth Fund (2.15)% 11.78%
6
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Over the past twelve months, economic growth (measured by real
Gross Domestic Product) has averaged a robust 3.1%. Most
recently, in the second quarter of 1997, that growth slowed to
2.7% due primarily to weak consumer spending. Powering this
growth has been the corporate investment boom, primarily business
equipment including computers and allied equipment. This has
been reflected in the improved performance of technology stocks.
This technology boom appears to be improving productivity growth
and holding down prices, thereby allowing the economy to grow at
a faster rate without generating inflationary pressures. Some
evidence of this is reflected in the inflation figures which over
the past few quarters represent the lowest inflation rate that we
have seen since 1965. With such economic positives as a
backdrop, the stock market measured by the major market averages
continued to move forward to record highs. However, beneath the
surface of the stock market were significant "pockets" of
underperformance including gold, utility stocks (particularly
electric utilities), and surprisingly, the dramatic
underperformance of small stocks with the Russell 2000
underperforming the S&P 500 by the widest margin since October of
1990.
The big investment news has not been economic, but tax related.
The new tax act occurred after June 30th but the lower capital
gains tax rate became effective as of May 7, 1997. The following
describes the new tax act and its implications for the market and
investors. The lower capital gains tax favors growth stocks over
the long haul versus income since dividends will be taxed as
ordinary income. Further, the new tax act will be encouraging
for corporate managers to favor share buybacks rather than
increasing dividend payments. This will serve to reduce the
supply of stock available in the marketplace and should be
positive for large and medium-sized capitalization stocks. In
terms of small capitalization stocks, the capital gains tax cut
could spur a period of outperformance by small-cap stocks. Every
time capital gains taxes have been cut since 1978, small-cap
stocks have significantly outperformed the S&P 500.
Cappiello-Rushmore Emerging Growth Fund
The Emerging Growth Fund's investment objective is capital
appreciation through investment in smaller, emerging growth
companies with above-average appreciation potential. Typically,
these companies have market capitalization between $50 million
and $750 million. While equities in fast-growing, dynamic
companies in expanding industries have historically been
excellent vehicles for long-term capital growth, smaller
companies are generally considered riskier investments than
larger, more established companies due to their companies'
greater reliance upon entrepreneurial management talent, less
robust balance sheets, and less established businesses.
Nevertheless, the superior growth prospects of smaller companies
have provided investors the better returns over the long term
reflecting the value and growth of underlying businesses. In the
short term, while these businesses change very little, their
stock prices can change significantly each day. So while small
cap stocks can provide attractive returns over the long term,
they can be rocky in the short term. This proved to be the case
in the past year when the Fund recorded a negative total return
of 2.15%. Compared to the Fund's 14.36% total return of 1996,
this reflected that the smaller rapidly growing stocks had a
tough time from June of 1996 to April of 1997. Since the Spring
of 1996, the Russell 2000 Index of small stocks had been
significantly underperforming the Standard & Poor's 500 Index
which is dominated by large stocks. Prior to this
underperformance period, small cap growth companies had enjoyed a
typical five-and-a-half-year cycle, stretching from October 1990
to peak in May 1996, in which they outperformed their larger
counterparts. Further, pressure from stock redemptions during
this period forced us to sell down our more promising stocks to
raise cash. Falling prices and selling in a declining
environment proved to be a deadly cycle for the Fund's overall
performance. Nevertheless, the Fund produced a number of winning
stocks. Among the best acting stocks in the Emerging Growth's
portfolio as of June 30, 1997 were:
JPM Co. +375.00%
Remec, Inc. +340.63%
World Access, Inc. +156.25%
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National Data Corp +129.60%
Reading & Bates Corp +119.49%
Happily, the small capitalization sector has improved
significantly since the Spring of this year. In May and June of
this year, small caps began their rebound with the Russell 2000
and this is reflected in the recent quarter performance of the
Fund up 12.61% for the quarter ended June 30, 1997. This
performance has continued to date (August 11, 1997).
This recent improvement in small cap stocks after a long period
of underperformance provides a base for optimism for the next
twelve months. While last year demonstrated that small caps tend
to be more volatile than their larger counterparts both down and
now up demonstrates that small caps can compensate for that extra
risk by providing superior returns over the long haul.
Cappiello-Rushmore Growth Fund
The Growth Fund is designed to provide investors with capital
appreciation through investment in larger, established companies
that have demonstrated consistent sales and earnings growth. The
Fund recorded a return of 10.10% for the year marking the third
consecutive year of double digit returns. The performance, while
respectable in a volatile market year, fell short of the fast
moving Standard & Poor's 500 Index. The S&P 500 which is
weighted by market capitalization with the top 50 stocks having
an average capitalization of over $70 billion each and selling at
a price earnings ratio of 24 times earnings with an average
growth rate of 13% annually.
Since the Fund's inception, the focus has been on larger
capitalization growth companies with an emphasis on value.
Investment in this type of company is generally stable, yet
provides substantial long-term capital appreciation potential.
Buying growth stocks for less than their underlying value is a
key consideration of our portfolio management team since this
further reduces long-term risk. This has precluded purchases of
"momentum" type growth stocks which sell at price earnings
multiples of 50% or higher than their growth rates.
While our focus continues to be the technology sector (24.27% of
the portfolio) with names like Sun Microsystems, Inc., Tandem
Computers, and Micron Technology, this sector is now overshadowed
by a new emphasis on Financial Stocks (25.16% of assets) such as
Charles Schwab Corp, Franklin Resources, and Student Loan
Marketing Association. Oil and gas and related energy services
is another new major category representing more than 10% of the
assets including names such as Nuevo Energy and Varco
International. We expect these stocks to do well over the next
twelve months in the current business and interest rate
environment. In redeploying the Fund's assets, we have reduced a
heretofore large portion in retailing and healthcare stocks.
Among the better performing stocks in the portfolio as of June
30, 1997 were:
Student Loan Marketing A ssn. +268.83%
Franklin Resources Inc. +187.59%
Coca Cola Co. +174.05%
Varco International, Inc. +152.15%
American Express Co. +149.93%
Note that only two of our five best performing stocks can be
categorized among the top 50 names in the S&P 500 Index.
Cappiello-Rushmore Utility Income Fund
The Utility Income Fund is structured to provide shareholders
with high dividend income first and capital gains as a
secondary consideration. The Fund's total return for the
year ended June 30, 1997 was 3.9%. The portfolio's net
8
<PAGE>
dividend yield was 5.9%. Part of the disappointing performance
reflected uncertainty in the electric utility sector reflecting
the pressure of state and federal government regulation
toward a more competitive marketplace. Further, the relative
underperformance in the prices of electric utility common
stocks versus bonds and other income securities has been driven
primarily by continued strength in the economy. Historically,
strength in the U.S. economy usually has meant lagging performance
for the utility sector as investors fear that an improving economy
means higher interest rates. Additionally, investors' sentiment
reflects the fact that the sector is unlikely to outperform the
market until the economy slows down considerably. Finally, while
most electric utilities are experiencing savings from cost-cutting
measures now underway, these savings are expected to be partially
offset by increasing competition and accelerated depreciation.
During the year we have taken measures to lessen the Fund's
dependence on electric utility performance. While the electric
and gas utility stocks represent 64.79% of the portfolio,
telephone companies are now 12.74% of the portfolio and a natural
gas distribution company is 5.76% of the portfolio. Telephone
companies such as NYNEX and ALLTEL possess some of the defensive
characteristics of utilities but also offer the growth potential
of telecommunications as a broad-based platform for the
information highway. Additionally, we have begun to diversify
into several non-utility areas which are both undervalued and
paying a higher than average dividend including Crown America
Realty Trust (a Real Estate Investment Trust) constituting 5.83%
of the portfolio and a modest holding in convertible preferred
stock (2.88% of the portfolio).
We continue to believe that electric and gas utilities offer a
solid defensive hedge against a moderating economy and/or a
difficult market environment, which could well develop over the
next twelve months. Additionally, utilities will continue to
manage in order to strengthen their competitive positions
providing capital gains opportunities. Further, we believe that
the electric utility stocks are attractive in terms of
fundamentals which include low price earnings ratios and higher
than average yields. For example, stocks in DLJ Electric Utility
Universe (as of July, 1997) are currently selling at an average
of 11.2 times 1998 earnings estimates, and 1.4 times estimated
1997 book value representing a historically low level.
Outlook for 1997 - 1998
We do not attempt to forecast what the stock market will do or
when. We do attempt to make projections about the economy,
because that is a necessary input to an interest rate forecast.
Our forecast for the next twelve months includes an economic
growth trend of about 3% (measured by GDP) which happens to be
the average of the last fifteen years. So far in 1997, in a
stronger than expected economy, the Consumer Price Index (CPI)
on an annualized basis is up only 2.1%. Our forecast is that
there will be only a modest upward change (perhaps to 2.5%) by
mid-1998. In terms of interest rates, the 30 year Treasury bond
should range between 6-7% with a Fed Fund Rate (the key short
term rate at which banks lend money to other banks) at between
5 1/2 - 6%.
Not since the early days after World War I have economic,
financial, and business conditions together been as favorable as
they have been in recent years and still are today. Continuing
growth in business activity, less government interference, rising
export demand, the strong competitive position of our companies
in world markets, accelerating productivity stemming from rapid
adoption of new technology, all have contributed to this
extraordinary market. In the long run of course, only one thing
matters: the growth of earnings and dividends. That uptrend is
what makes the market rewarding for patient investors. In this
regard, we expect operating earnings on the Dow Industrial
Average to be up about 12%-15% with mid-cap and small cap
companies, on average, exceeding these levels in 1997 - 1998.
Stock valuations continue to be attractive with price earnings
multiples relative to the interest rates and inflation
environment.
Nevertheless, all forecasts are tentative, including this
one. The few negatives in the economy and the stock market
are related to "time." First, the current business cycle
is over seven years old. It is now the third longest in U.S.
economic history. Secondly, the stock market's surge since
the Fall of 1990 rivals the two great bull markets of this
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century both in time and magnitude of gain; specifically,
the U.S. market of the 1920's and the Japanese stock
market of the 1980's. This raises the risk of miscalculation.
Growth may be stronger than expected, putting more pressure
on capacity and other resources and requiring a more aggressive
response from the Federal Reserve. This could occur if global
economic growth rebounds faster than expected. Thirdly,
any increase in productivity growth could be short-lived.
This would be reflected in a rise in inflation causing
investors to lose confidence in the Fed. This would
imply higher interest rates and a decline in stock and bond
prices. In our view, the one major positive that may outweigh
all the possible negatives is the enactment of the new tax
legislation and its effect on investing. The most important part
of the bill is the capital gains tax rate cut. Now if you owned
a stock for 18 months and a day, you can sell and pay a tax of
just 20% on your profits, down from 28%. Investment income such
as dividends and interest are taxed at rates up to 39.6%. This
is a powerful incentive toward long-term investing in stocks.
INVESTMENT OBJECTIVES
The Trust is a no-load, open-end non-diversified management
investment company. The Trust consists of four Funds, each with
a different investment objective. This Prospectus sets forth the
investment objectives of the Growth Fund, the Emerging Growth
Fund, and the Utility Income Fund.
The Growth Fund has an investment objective of capital
appreciation through investment in a professionally managed
portfolio of common stocks, convertible securities, and warrants
to purchase common stock. Any income received on equity
investments will not be significant to the Growth Fund's
objective of capital appreciation.
The Emerging Growth Fund has an investment objective of
capital appreciation through investment in a professionally
managed portfolio consisting primarily of common stocks,
securities convertible into common stocks, and warrants to
purchase common stock of companies having a market capitalization
of approximately $750,000,000 or less and with investment
characteristics such as participation in expanding markets,
increasing return on investment, increasing unit sales volume,
and growth in revenues and earnings per share superior to that of
the average of common stocks comprising indices such as the S&P
500 Index ("emerging growth companies"). Generally, the minimum
capitalization of companies in which the Fund will invest will be
$100,000,000, although the Fund may invest in companies with less
than $100,000,000 in capitalization where the investment adviser
believes an investment in a smaller company presents an
attractive opportunity. At least 65% of the Fund's total assets
will be invested in such emerging growth companies.
Up to 25% of the Fund's assets may be invested in equity
securities of larger-capitalized companies. Also, up to 35% of
the Fund's assets may be invested in investment grade corporate-
debt securities and preferred stocks. These may or may not be
securities of emerging growth companies.
Should any individual bond held by the Fund fall below a rating
of BBB by Standard & Poor's or Baa by Moody's, the investment
adviser will dispose of such bond as soon as reasonably
practicable in light of then existing market and tax
considerations.
The Utility Income Fund has an investment objective of
providing current income with an opportunity for capital
appreciation. The Utility Income Fund intends to concentrate in
the public utility industry. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in
securities of public utility companies. The Utility Income Fund
will have substantial investment in the gas and electric public
utilities industries which have certain characteristics and risks
of which investors should be aware. Such characteristics
include: the difficulty of obtaining adequate returns on invested
capital in spite of frequent rate increases; the difficulty of
financing large construction programs during inflationary
periods; restrictions on operations and increased costs and
delays attributable to environmental considerations; difficulties
of the capital markets in absorbing utility debt and equity
securities; difficulties in obtaining fuel for electric
generation at reasonable prices; difficulty in obtaining natural gas
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for resale; risks associated with construction and operation
of nuclear power plants and general effects of energy conservation.
There is no assurance that any Fund will achieve its stated
objective.
These objectives are fundamental and cannot be changed without
the approval of a majority of a Fund's shareholders.
INVESTMENT POLICIES
The Funds invest primarily in common stocks. The Growth Fund and
Emerging Growth Fund will invest in securities which the
investment adviser believes offer favorable prospects for capital
growth. Current income will not be a significant consideration.
The Utility Income Fund will invest in securities of companies
engaged in the public utilities industry that in the opinion of
the investment adviser offer above average potential for growth
in earnings and dividends. "Public Utility Industry" includes
the manufacture, production, generation, transmission and sale of
natural gas, electricity or water. The term also includes
issuers engaged in the communications field including entities
such as telephone, telegraph, satellite, microwave and other
companies providing communication facilities for the public
benefit, but not those in public broadcasting. Although each
Fund intends to invest primarily in common stocks, they may also
invest in securities convertible into common stocks (including
corporate notes, bonds and preferred stocks) when, in the opinion
of the investment adviser, such convertible securities may be
purchased at prices favorable relative to the common stock
itself. The Funds may also enter into repurchase agreements and
may lend portfolio securities.
Public utility companies generally carry a higher level of debt
than companies in other industries. As a result, interest
expense is a significant factor in determining the profitability
of such companies, resulting in the prices of their securities
being more sensitive to changes in interest rates than to other
economic factors. In addition, because these companies operate
as government sponsored monopolies, their earnings are relatively
stable, although they are also impacted by the general level of
economic activity in their service areas. For these reasons,
public utility company securities tend to be less volatile than
other securities and may offer less potential for capital
appreciation than other companies, at least in the short term.
The investment adviser believes that the characteristics of
convertible securities make them suitable investments for an
investment company seeking capital appreciation. These
characteristics include the potential for capital appreciation if
the value of the underlying common stock increases, the
relatively high yield received from dividends and decreased risks
of decline in value, relative to the underlying common stock due
to their fixed income nature.
In selecting convertible securities for the Funds, the following
factors will be considered by the investment adviser: (1) the
investment adviser's own evaluation of the basic underlying value
of the assets and business of the issuers of the securities; (2)
the interest or dividend income generated by the securities; (3)
the potential for capital appreciation of the securities and the
underlying common stocks; (4) the prices of the securities
relative to the underlying common stocks; (5) whether the
securities are entitled to the benefits of sinking funds or other
protective conditions; (6) the existence of any anti-dilution
protections of the security; (7) the diversification of the
Fund's portfolio as to issuers; and (8) a rating of BBB or higher
by Standard & Poor's or Baa by Moody's.
The Funds may from time to time for temporary defensive purposes
invest in high grade, short-term corporate debt instruments,
short-term U.S. Treasury or agency securities or money market
investment companies. Such investment will be made when, in the
opinion of the investment adviser, the outlook for the equity
market is unfavorable and/or suitable equity securities are not
available, or to provide short-term liquidity.
All policies of the Funds not specified as fundamental are not
fundamental and may be changed by the Board of Trustees without
shareholder approval.
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IMPLEMENTATION OF POLICIES
Each of the Funds utilizes a number of investment practices and
techniques in an effort to achieve its investment objective.
Foreign Securities
Each of the Funds may invest up to 20% of its total assets in
securities of foreign issuers which are traded on a recognized
U.S. securities exchange or in dollar denominated American
Depository Receipts ("ADRs"). Investment in foreign securities
involves certain risks including those resulting from
fluctuations in foreign exchange rates (although the Funds will
only purchase dollar denominated securities and will not be
required to make foreign currency translations in valuing the
securities holdings), future political and economic developments
or other foreign governmental laws or restrictions and reduced
availability of public information concerning issuers, and the
lack of comparability of regulatory practices and requirements
applicable to domestic issuers. In addition, securities of some
foreign issuers may be less liquid and their prices more volatile
than those of securities of comparable U.S. issuers.
Option Transactions
The Growth Fund and the Utility Income Fund may write (sell)
covered call options and secured put options on optionable
securities from time to time on such portion of its portfolio,
without limit, as the investment adviser determines is
appropriate in seeking to achieve the Fund's investment
objective. The Emerging Growth Fund will not engage in option
transactions. By writing a call option, the Funds become
obligated during the term of the option to deliver the securities
underlying the option at the exercise price if the option is
exercised. By writing a put option the Funds may become
obligated during the term of the option to purchase the
securities underlying the option at the exercise price. A
covered call option is one in which the Fund owns the underlying
securities. The Funds will be considered secured in respect to
put options they write if they maintain on deposit with their
custodian bank in a segregated account, liquid high quality debt
securities having a value equal to the exercise value of the
option.
During the period of a covered call option, the Fund (as writer)
has the opportunity for capital appreciation above the exercise
price of such option should the market price of the underlying
security increase, but it retains the risk of loss should the
price of the underlying security decline. As the writer of a
covered put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise
price higher than its current market value, resulting in a
potential capital loss unless the security subsequently
appreciates in value.
Repurchase Agreements
Each Fund may invest in repurchase agreements. A repurchase
agreement occurs when, at the time the fund purchases an interest-
bearing obligation, the seller (a bank or broker-dealer) agrees
to repurchase it on a specified date in the future at an agreed
upon price. The repurchase price reflects an agreed-upon
interest rate during the time the Fund's money is invested in the
security. The Fund's risk is the ability of the seller to pay
the agreed-upon price on the delivery date. In the opinion of
the investment adviser, the risk is minimal because the security
purchased constitutes security for the repurchase obligation, and
repurchase agreements can be considered as loans collateralized
by the security purchased. However, the Fund may incur costs in
disposing of the collateral, which would reduce the amount
realized thereon. If the seller seeks relief under the
bankruptcy laws, the disposition of the collateral may be delayed
or limited. The Trust's investment adviser has established
procedures to evaluate the credit-worthiness of the other parties
to repurchase agreements.
No Fund will invest more than 10% of its assets in repurchase
agreements maturing in more than seven days.
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Lending Portfolio Securities
Each of the Funds may lend its investment securities to qualified
institutional investors for the purpose of realizing additional
income. Loans of securities by a Fund will be collateralized by
cash, letters of credit or securities issued or guaranteed by the
U.S. government or its agencies. The collateral will equal at
least 102% of the current market value, marked to market daily.
Short Sales
The Funds may engage in short sales if, at the time of the short
sale, the Fund owns or has the right to acquire an equal amount
of the security being sold at no additional cost ("selling short
against the box").
The Fund may make a short sale for purposes of satisfying certain
tests applicable to regulated investment companies under the
Internal Revenue Code.
Borrowing Money
Each Fund may borrow money from a bank but only for temporary or
emergency purposes up to a limit of 5% of its total assets. A
Fund would borrow money only to meet redemption requests prior to
the settlement of securities already sold.
Portfolio Turnover
Although each of the Funds generally seeks to invest for the long
term, they retain the right to sell securities regardless of how
long they have been held. The investment adviser expects the
portfolio turnover of each of the Funds will not exceed 75%.
INVESTMENT RISKS
As mutual funds investing primarily in common stocks, the Funds
are subject to market risk -- i.e., the possibility that stock
prices in general will decline over short or even extended
periods. The stock market tends to be cyclical, with periods
when stock prices generally rise and periods when stock prices
generally decline.
Growth stocks, which are the Growth Fund's primary investment,
are likely to be even more volatile than the stock market as a
whole. Among the reasons for this volatility is small or
negligible dividends generally paid by such companies and the
greater business uncertainty associated with rapidly growing
firms. In addition to their potentially greater volatility,
growth stocks may fluctuate independently of the broad stock
market. As a result, investors in the Growth Fund may experience
greater price fluctuations in their investment than experienced
by the stock market in general and such fluctuations may be
independent of movements in the broad stock market.
Certain securities which may be held by the Emerging Growth Fund
may be closely held with only a small proportion of their
outstanding securities owned by the general public. Such
securities may have limited trading markets and may be subject to
wide price fluctuations. The Fund may invest in companies that
have relatively small revenues, low market share or a limited
market for their products or services. In addition, they may
lack depth of management talent. As a result of these and other
factors, such emerging growth companies could suffer substantial
losses which could cause the net asset value of the Fund to
fluctuate significantly. Consequently, the Emerging Growth Fund
should not be considered by investors where safety of capital is
a major concern, or where such investors are unable or unwilling
to assume the risk of loss.
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The Utility Income Fund invests in the securities of companies
that have certain unique characteristics of which potential
investors should be aware. These characteristics may include:
potentially hostile regulatory commissions which may create
difficulty in obtaining adequate returns on invested capital;
difficulty or high cost of obtaining financing for construction
programs during inflationary periods; increased costs, delays and
restrictions on operations due to environmental regulations;
risks associated with the contraction and operation of nuclear
power plants, and the effects of energy conservation.
Each Fund's classification as a "non-diversified" investment
company means that the proportion of the Fund's assets that may
be invested in the securities of a single issuer is not limited
by the Investment Company Act of 1940. However, each Fund
intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), which requires
that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's total assets (a
diversified investment company would be so limited with respect
to 75% of such market value) be invested in cash, U.S. government
securities, the securities of other regulated investment
companies and other securities, with such securities of any one
issuer limited for the purposes of this calculation to an amount
not greater than 5% of the value of Fund's total assets and 10%
of the outstanding voting securities of any one issuer, and (ii)
not more than 25% of the value of its total assets be invested in
the securities of any one issuer (other than U.S. government
securities or the securities of other regulated investment
companies). Because a relatively high percentage of a Fund's
assets may be invested in the securities of a limited number of
issuers, primarily within the same industry or economic sector, a
Fund's portfolio securities may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
MANAGEMENT OF THE TRUST
Investment Adviser
The Trust receives investment advisory services from McCullough,
Andrews & Cappiello, Inc. ("MAC"), whose principal location is
101 California Street, Suite 4250, San Francisco, California
94111 and who has an office at Greenspring Station, Suite 250,
10751 Falls Road, Lutherville, Maryland 21093. Pursuant to the
investment advisory contract between the Trust and MAC, the
Growth Fund and the Emerging Growth Fund pay MAC an investment
advisory fee at an annual rate of 0.50% of the net assets of each
Fund. The Utility Income Fund pays MAC at an annual rate of
0.35% of the net assets of the Fund. MAC manages the investment
and reinvestment of the assets of each Fund in accordance with
its investment objective, policies and limitations, subject to
the general supervision and control of the Trust's officers and
Board of Trustees. MAC bears all costs associated with providing
these services. The three principals of MAC collectively provide
portfolio management.
MAC is owned by its three principals: Robert F. McCullough,
C.P.A., David H. Andrews, C.F.A. and Frank A. Cappiello. In
addition to providing investment advisory services to the Trust,
MAC manages investment portfolios for employee retirement plans,
charitable foundations, endowments, taxable corporations and
individuals.
Robert F. McCullough, C.P.A., is Chairman of MAC. He is a
graduate of Santa Clara University and has been a Certified
Public Accountant with a major public accounting firm, principal
of a stock brokerage firm and portfolio manager for one of the
Franklin Funds. He is past President of the Board of Regents of
Santa Clara University and is also a past President of the
University's Alumni Association. He has served as a board member
and officer of numerous charitable institutions. He is a member
of the American Institute of C.P.A.s and the California Society
of C.P.A.s.
David H. Andrews, C.F.A., is Vice Chairman of MAC. He has
been a research analyst at investment institutions, head
of regional research for a major stock brokerage firm
and portfolio manager for a mutual fund. He is a Chartered
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Financial Analyst (C.F.A.) and past President of the Security
Analysts of San Francisco. He is a graduate of Harvard
University and Stanford University's Graduate School of Business.
Frank A. Cappiello has been President of MAC since September 1983
and is Chairman of the Board of Trustees of the Trust. Mr.
Cappiello has been involved in the securities business for more
than twenty-five years. He has been manager of institutional
research for a major stock brokerage firm and Financial Vice
President of an insurance holding company with responsibility for
managing assets of more than $700 million. In 1981 - 1982, he
was Chairman of the Financial Analysts Federation, with more than
15,000 security analysts members in the United States and Canada.
Mr. Cappiello is currently a Member of the Advisory Investment
Council that oversees the Maryland State Retirement System Fund.
He also regularly appears in the television program "Wall Street
Week in Review with Louis Rukeyser" and is author of three books
"Finding the Next Superstock," "From Main Street to Wall Street"
and "The Complete Guide to Closed End Funds." Mr. Cappiello is a
graduate of the University of Notre Dame and Harvard University's
Graduate School of Business Administration. He is currently
Adjunct Visiting Professor of Finance at Loyola College in
Baltimore.
Investment decisions made on behalf of the Funds by MAC are made
by committee. No one employee of MAC is primarily responsible
for making investment recommendations to the committee. Certain
officers and trustees of the Trust are affiliated with MAC.
Administrative Services
The Trust has contracted with Money Management Associates
("Administrator"), 1001 Grand Isle Way, Palm Beach Gardens,
Florida 33418, to provide administrative services to the Trust.
Under the administrative services agreement with the
Administrator, the Trust pays a fee at the annual rate of 1.00%
of the daily net assets of the Growth and Emerging Growth Funds,
and 0.70% of the daily net assets of the Utility Income Fund.
Except for the investment advisory fee and any extraordinary
legal expenses or interest expenses, there are no additional
expenses to the Funds. Certain officers and trustees of the
Trust are affiliated with the Administrator.
Certain of these administrative services are provided by Rushmore
Trust and Savings, FSB ("RTS"), 4922 Fairmont Avenue, Bethesda,
Maryland 20814, a majority-owned subsidiary of the Administrator,
under a subcontractual agreement with the Administrator. These
services include transfer agency functions, dividend disbursing
and other shareholder services and custody of the Trust's assets.
As custodian, RTS holds the portfolio securities of each Fund and
keeps all necessary related accounts and records.
PERFORMANCE DATA
From time to time, each Fund may advertise its yield which
reflects the rate of income the applicable Fund earns on its
investments as a percentage of its price per share. All yield
figures are based on historical earnings and are not intended to
indicate future performance. Each Fund's yield is computed by
dividing the interest and dividend income it earned on its
investments for a 30-day period, less expenses, by the average
number of shares outstanding during the period. The figure is
expressed as an annualized percentage rate based on the Fund's
net asset value at the end of the 30-day period.
The Funds may also from time to time include total return in
advertisements or reports to shareholders or prospective
shareholders. Quotations of average annual total return for the
Funds will be expressed in terms of the average annual compounded
rate of return on a hypothetical investment in the Fund over a
period of at least one, five and ten years (up to the life of the
Fund) (the ending date of the period will be stated). Total
return is calculated from two factors: the amount of dividends
earned by each share and by the increase or decrease in value of
the Fund's share price.
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In addition to the foregoing, each Fund may advertise its total
return over different periods of time by means of aggregate, year-
by-year, or other types of total return figures. For more
information concerning the calculation of performance data, see
"Calculation of Return Quotations" in the Statement of Additional
Information.
Performance information for the Funds contained in reports and
promotional literature may be compared to various unmanaged
indices, including the S&P 500 Index, the Dow Jones Industrial
Average or the Dow Jones Utility Average. Such unmanaged indices
may assume the reinvestment of dividends but generally do not
reflect deductions for operating costs and expenses. The indices
used for performance comparison will be available in general
financial publications. In addition, a Fund's total return may
be compared to the performance of other mutual funds as published
by such organizations as Morningstar, Lipper Analytical Services,
Inc. and CDA Investment Technologies, Inc., among others.
HOW TO INVEST IN THE TRUST
The minimum initial investment is $2,500 which may be divided
among the separate Funds with a minimum investment of $500 in any
one Fund. Retirement accounts may be opened with a $500 minimum
investment. Redemptions which bring the account balance below
$500 may result in the imposition of the low balance account fee
(see "Low Balance Account Fee"). The fee is not imposed on tax-
deferred retirement accounts. The shares of the Funds are
offered at the daily public offering price which is the net asset
value per share (see "Net Asset Value") next computed after
receipt of your order. There is no minimum amount for subsequent
investments.
Investment in any Fund can be made directly with the Fund or
through third parties such as broker-dealers, banks or other
financial institutions that purchase securities for their
customers. Such third parties may charge their customers a fee
in connection with services offered to customers. When an
authorized third party accepts an order, the Fund will be deemed
to have received the order. Orders accepted by an authorized
third party will be priced at the Fund's net asset value next
computed after acceptance. When shares are purchased through
third parties, the third party, rather than the customer, may be
the shareholder of record of the shares. Investors who do not
wish to receive the services of a third party may invest directly
with the Trust without charge by mail or by bank wire, as
described below. The Administrator pays for the distribution of
the Funds' shares.
The Fund reserves the right to reject any purchase order. All
accounts will be held in book-entry form. No certificates for
shares will be issued.
By Mail: Complete an application and make a check payable to
"Cappiello-Rushmore Trust." Mail the check along with the
application, to:
Cappiello-Rushmore Trust
4922 Fairmont Avenue
Bethesda, Maryland 20814
Purchases by check will normally be credited to an account within
one business day after receipt of payment. Foreign checks will
not be accepted. Be certain to specify the allocation of your
purchase among the Funds.
By Bank Wire: Request a wire transfer to:
Rushmore Trust and Savings, FSB
Bethesda, Maryland
Routing Number 0550-71084
For Account of Cappiello-Rushmore Trust
Account Number 029385770
AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE, YOU
MUST TELEPHONE THE FUND AT (800) 343-3355 OR (301) 657-1500
BETWEEN 8:30 A.M. AND 4:00 P.M., EASTERN TIME AND TELL US
THE AMOUNT YOU TRANSFERRED AND THE NAME OF THE BANK SENDING THE
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TRANSFER. YOUR BANK MAY CHARGE A FEE FOR SUCH SERVICES. IF THE
PURCHASE IS CANCELED BECAUSE YOUR WIRE TRANSFER IS NOT RECEIVED,
YOU MAY BE LIABLE FOR ANY LOSS THE FUND MAY INCUR.
Purchase orders which do not specify the Fund in which an
investment is to be made will be invested in the Utility Income
Fund.
HOW TO REDEEM AN INVESTMENT
(WITHDRAWALS)
On any day the Trust is open for business, an investor may
withdraw all or any portion of his investment by redeeming shares
at the next determined net asset value per share after receipt of
the order by writing the Trust or by telephoning (800) 622-1386
or (301) 657-1510 between 8:30 A.M. and 4:00 P.M., Eastern time.
Telephone redemption privileges may be terminated or modified by
the Trust upon 60 days notice to all shareholders of the Fund.
Telephone redemption requests cannot be accepted after 4:00 P.M.
Eastern time. The privilege to initiate redemption transactions
by telephone will be made available to Fund shareholders
automatically.
Telephone redemptions will only be sent to the address of record
or to bank accounts specified in the account application. When
acting on instructions believed to be genuine, the Fund will not
be liable for any loss resulting from a fraudulent telephone
redemption request and the investor would bear the risk of any
such loss.
The Fund will employ reasonable procedures to confirm that
redemption instructions communicated by telephone are genuine;
and, if the Fund does not employ such procedures, then the Fund
may be liable for any losses due to unauthorized or fraudulent
instructions. The Fund follows specific procedures for
transactions initiated by telephone, including among others,
requiring some form of personal identification prior to acting on
instructions received by telephone, providing written
confirmation not later than five business days after such
transactions, and/or tape recording of telephone transactions.
The proceeds of redemptions will be sent directly to the
investor's address of record. If the investor requests payment
of redemptions to a third party or to a location other than his
address of record listed on the account application, the request
must be in writing and the investor's signature must be
guaranteed by an eligible institution. Eligible institutions
generally include banking institutions, securities exchanges,
associations, agencies, or broker/dealers, and "STAMP" program
participants. There are no fees charged for redemptions.
The Fund will redeem its shares at a redemption price equal to
their net asset value as next computed following the receipt of a
request for redemption. Payment for the redemption price will be
made within seven days after the Fund's receipt of the request
for redemption. For investments that have been made by check,
payment on withdrawal requests may be delayed for up to ten
business days from the purchase date or until the check clears,
whichever occurs first. This delay is necessary to assure the
Fund that investments made by checks are good funds. The
proceeds of the redemption will be forwarded promptly upon
confirmation of receipt of good funds.
The right of redemption may also be suspended, or the date of
payment postponed, (a) for any period during which the New York
Stock Exchange is closed (other than customary weekend or holiday
closings); or (b) when trading on the Exchange is restricted, or
an emergency exists, as determined by the Securities and Exchange
Commission ("Commission"), so that disposal of the Fund's
investments for determination of net asset value is not
reasonably practicable; or (c) for such other periods as the
Commission, by order, may permit for protection of the Fund's
investors. Investors should also be aware that telephone
redemptions or exchanges may be difficult to implement in a
timely manner during periods of drastic economic or market
changes. If such conditions occur, redemption or exchange orders
can be made by mail.
EXCHANGES
The Trust is composed of four separate Funds. Investors
may invest in one or more of the Funds, and may exchange
shares in one Fund for shares of another Fund at their relative
net asset values. The Fund's shares may be exchanged,
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without cost, for shares of Fund for Government Investors,
Fund for Tax-Free Investors, Inc., The Rushmore Fund, Inc.
or American Gas Index Fund, Inc. Exchanges may be made by
telephone or letter. Written requests should be sent to
Cappiello-Rushmore Trust, 4922 Fairmont Avenue, Bethesda,
Maryland 20814 and be signed by the record owner or owners.
Telephone exchange requests may be made by calling the Fund
at (800) 622-1386 or (301) 657-1510 between 8:30 A.M. and
4:00 P.M., Eastern time. Exchanges will be effected at
the respective net asset values of the Funds involved
as next determined after receipt of the exchange request. To
implement an exchange, shareholders should provide the following
information: account registration including address and number,
taxpayer identification number, number, percentage or dollar
value of shares to be redeemed, name and account number of the
Fund to which the investment is to be transferred. Exchanges may
be made only if they are between identically registered accounts.
The exchange privilege is available only in states where the
exchange may legally be made.
Telephone exchange privileges may be terminated or modified by
the Trust upon 60 days notice to all shareholders of the Funds.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus, a
charge of $5 per month may be imposed on any account whose
average daily balance for the month is below $500. The fee will
continue to be imposed during months when the account balance
remains below $500. This fee will be paid to the Administrator.
The fee will not be imposed on tax-sheltered retirement plans or
accounts established under the Uniform Gifts or Transfers to
Minors Act. Because of the administrative expense of handling
small accounts, the Trust reserves the right to involuntarily
redeem an investor's account which falls below $500 due to
redemptions or exchanges after providing 60 days written notice.
The Fund may also assess a charge of $10 for items returned for
insufficient or uncollectible funds.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Defined Contribution Plans
(Profit-Sharing Plans)
Defined Contribution Plans
(Money Purchase Plans)
Section 401(k) Plans
Section 403(b) Plans
Additional information regarding these accounts may be obtained
by contacting the Trust.
DISTRIBUTIONS
All dividends and capital gain distributions of each Fund will be
reinvested in additional shares of such Fund (including
fractional shares where necessary) at net asset value, unless you
elect on your application form or in writing, not less than five
full business days prior to the record date for a particular
dividend or distribution, to receive such dividend or
distribution in cash. If you elect to receive distributions in
cash, your election will be effective until you give other
written instructions to the applicable Fund for a change of
elections five days prior to such change.
The Growth Fund and the Emerging Growth Fund intend to distribute
all of their net investment income annually in December. Net
capital gains are intended to be distributed annually in
December.
The Utility Income Fund intends to distribute substantially all
of its net investment income quarterly and all of its net capital
gains annually in December.
The timing and amount of all dividends and distributions are
subject to the discretion of the Board of Trustees.
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NET ASSET VALUE
The price of a Fund's shares on any given day is its net asset
value ("NAV"). For any given day, this figure is computed by
dividing the total market value of the Fund's investments and
other assets on that day, less any liabilities, by the number of
Fund shares outstanding. The net asset value per share of the
Fund is determined at 4:00 P.M. Eastern time on each day the New
York Stock Exchange is open for trading. The Fund's net asset
value will fluctuate and Fund shares are not insured against
reduction in NAV.
The Fund values its portfolio securities based on their market
value. Each security held by the Fund, which is listed on a
securities exchange and for which market quotations are
available, is valued at the last quoted sale price for a given
day, or if a sale is not reported for that date, at the mean
between the most recent quoted bid and asked prices. Price
information on each listed security is taken from the exchange
where the security is primarily traded. Unlisted securities for
which market quotations are readily available are valued at the
closing sales prices. The value of assets for which no
quotations are readily available (including any restricted
securities) are valued at fair value as determined in good faith
by RTS, as custodian, pursuant to Board of Trustees guidelines.
Securities may be valued on the basis of prices provided by
pricing services when such prices are believed to reflect fair
market value.
TAXES
Each Fund will seek to qualify for treatment as a regulated
investment company (a "RIC") under Subchapter M of the Internal
Revenue Code. If a Fund qualifies as a RIC, such Fund will not
be liable for Federal income taxes to the extent its earnings are
distributed within the time periods specified in the Code. To
qualify as a RIC under the Code, a Fund must satisfy certain
requirements, including the requirement that the Fund receive at
least 90% of its gross income each year from dividends, interest,
payments with respect to securities loans, gains from the sale or
other disposition of securities or foreign currencies, or other
income derived with respect to such Fund's investments in stock,
securities, and foreign currencies (the "90% Test"), and that the
Fund derive less than 30% of such Fund's gross income from the
sale or other disposition of any of the following instruments
which was held less than three months (the "30% Test"): (i)
stock or securities; (ii) options, futures, or forward contracts;
or (iii) foreign currencies (or options, futures, or forward
contracts on such foreign currencies). Provided that the Fund
(i) is a RIC and (ii) distributes at least 90% of its net
investment income (including, for this purpose, net realized
short-term capital gains), the Fund will not be liable for
Federal income taxes to the extent the Fund's net investment
income and the Fund's net realized long- and short-term capital
gains, if any, are distributed to the shareholders of the Fund.
To avoid an excise tax on its undistributed income, each Fund
must generally distribute at least 98% of its income, including
its net long-term capital gains.
The larger the volume of redemptions or exchanges of a Fund's
shares the more difficult it will be for the Fund to satisfy the
30% Test. To minimize the risk of failing the 30% Test, each
Fund intends to satisfy obligations in connection with
redemptions and exchanges first by using available cash or
borrowing facilities and by selling securities that have been
held for at least three months or as to which there will be a
loss or the smallest gain. If a Fund also must sell securities
that have been held for less than three months, then, to the
extent possible, the Fund will seek to conduct such sales in a
manner that will allow such sales to qualify for a special
provision in the Code that excludes from the 30% Test any gains
resulting from sales made as a result of "abnormal redemptions."
Notwithstanding these actions, there can be no assurance that the
Fund will be able to satisfy the 30% Test. For additional
information concerning this special Code provision, see "Taxes"
in the Statement of Additional Information.
Dividends paid by a Fund are taxable to shareholders whether such
dividends and distributions are reinvested in shares of the Fund
or are received in cash. Under current law, dividends derived
from interest and dividends received by the Fund, together with
distributions of any short-term capital gains, are taxable to
individual shareholders as ordinary income at Federal income tax
rates of up to 39.6%.
Under current law, distributions of net long-term gains, if any,
realized by a Fund and designated as capital gains distributions
will be taxed to shareholders as long-term capital gains
regardless of the length of time the shares have been held.
Currently, long-term capital gains of individual investors are
taxed at a maximum rate of 28%. Statements as to the Federal tax
status of shareholders' dividends and distributions will be
mailed annually. Shareholders should consult their tax advisers
concerning the tax status of the Fund's dividends in their own
states and localities.
19
<PAGE>
Ordinary dividends paid to corporate or individual residents of
foreign countries are generally subject to a 30% withholding tax.
The rate of withholding tax may be reduced if the United States
has an income tax treaty with the foreign country where the
recipient resides. Capital gains distributions received by
foreign investors should, in most cases, be exempt from U.S. tax.
A foreign investor will be required to provide the Fund with
supporting documentation in order for the Fund to apply a reduced
rate or exemption from U.S. withholding tax.
Shareholders are required by law to certify that their tax
identification number is correct and that they are not subject to
back-up withholding. In the absence of this certification, a
Fund is required to withhold taxes at the rate of 31% on
dividends, capital gains distributions and redemptions.
Shareholders who are non-resident aliens may be subject to a
withholding tax on dividends earned.
ORGANIZATION OF THE TRUST
The Trust was organized as a business trust under the laws of
Delaware on March 12, 1992 and may issue an unlimited number of
shares of beneficial interest in one or more investment
portfolios or funds. While only shares of four Funds are
presently being offered, the Board of Trustees may authorize the
issuance of shares of additional funds if deemed desirable.
Shares of all Funds have equal noncumulative voting rights as to
dividends, assets and liquidation of such Fund. Under Delaware
law, the debts or other obligations that exist with respect to a
particular Fund of the Trust are enforceable against the assets
of such Fund only and not against the assets of the Trust
generally.
The Trust is not required to hold annual shareholders' meetings.
It will, however, hold special meetings as required or deemed
desirable by the Board of Trustees for such purposes as electing
trustees, changing fundamental policies or approving an
investment advisory contract. Shareholders will vote by Fund and
not in the aggregate except when voting in the aggregate is
permitted under the Investment Company Act of 1940, such as for
the election of Trustees. Matters that affect only one Fund may
include changing the Fund's fundamental investment policies or
changing the investment advisory contract as the contract relates
to that Fund.
A meeting may also be called by shareholders holding at least 10%
of the shares entitled to vote at the meeting for the purpose of
voting upon the removal of Trustees.
20
<PAGE>
CONTENTS
Page
Fee Table
Financial Highlights
Management's Discussion of
Fund Performance
Investment Objectives
Investment Policies
Implementation of Policies
Investment Risks
Management of the Trust
Performance Data
How to Invest in the Trust
How to Redeem an Investment
(Withdrawals)
Exchanges
Transaction Charges
Tax-Sheltered Retirement Plans
Distributions
Net Asset Value
Taxes
Organization of the Trust
[ART]
CAPPIELLO
RUSHMORE
PROSPECTUS
Utility Income Fund
Growth Fund
Emerging Growth Fund
November 1, 1997
21
<PAGE>
CAPPIELLO-RUSHMORE TRUST
GOLD FUND
4922 Fairmont Avenue
Bethesda, Maryland 20814
(800) 343-3355 (301) 657-1500
The Cappiello-Rushmore Trust (the "Trust") is a no-load, open-
end, non-diversified, management investment company consisting of
four separate funds: the Gold Fund, the Growth Fund, the
Emerging Growth Fund, and the Utility Income Fund. This
Prospectus sets forth concisely the information you should know
about the Trust and the Gold Fund (the "Fund"). The investment
objective of the Fund is to provide capital appreciation. The
Fund seeks to attain capital appreciation by investing primarily
in (i) the equity securities of companies principally engaged in
the mining, exploration, fabrication, processing, marketing, and
distribution of or dealing or investing in gold and operating
companies principally engaged in financing, managing,
controlling, or operating companies engaged in these activities,
and (ii) gold bullion and coins. The Fund also may invest in (i)
the equity securities of companies principally engaged in the
foregoing activities with respect to silver, platinum, and other
precious metals and in diamonds and other precious minerals, and
(ii) silver or other precious metal bullion and coins. Although
current income may be realized, it is not an investment objective
of the Fund.
The shares offered by this Prospectus are not deposits or
obligations of any bank, are not endorsed or guaranteed by any
bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other governmental
agency.
ADDITIONAL INFORMATION
Investors should read this Prospectus and retain it for future
reference. This Prospectus is designed to set forth concisely
the information an investor should know before investing in the
Fund. A Statement of Additional Information dated November 1,
1997, containing additional information about the Fund, has been
filed with the Securities and Exchange Commission and is
incorporated herein by reference. A copy of the statement may be
obtained, without charge, by writing or telephoning the Trust.
The date of this Prospectus is November 1, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
The following table illustrates all expenses and fees that a
shareholder of the Fund will incur:
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Monthly Account Fee (accounts under $500) $5.00
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.70%
12b-1 Fees None
Other Expenses 1.00%
Total Fund Operating Expenses 1.70%
EXAMPLE:
Assuming a hypothetical investment of $1,000, a five-percent
annual return, and redemption at the end of each time period, an
investor in the Fund would pay transaction and operating expenses
at the end of each year as follows:
1 year 3 years 5 years 10 years
$17 $54 $92 $201
The same level of expenses would be incurred if the investment
were held throughout the period indicated.
The preceding table is provided to assist the investor in
understanding the various costs and expenses that the investor
will incur directly or indirectly. The five-percent assumed
annual return is for comparison purposes only. The actual return
may be more or less depending on market conditions. The actual
expenses an investor incurs will depend on the amount invested
and on the actual growth rate of the Fund. For further
information regarding management fees, see "Management of the
Trust" in this Prospectus and in the Statement of Additional
Information.
2
<PAGE>
<TABLE>
Cappiello-Rushmore Trust
Financial Highlights
Audited
Gold Fund
<CAPTION>
For the Year For the Period
Ended June 30, Ended June 30,
1997 1996 1995 1994*
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value-Beginning of Period $ 9.93 $ 9.89 $ 9.52 $ 10.00
Income from Investment Operations:
Net Investment Income (0.078) (0.060) (0.047) (0.008)
Net Realized and Unrealized Gain
(Loss) on Securities (2.832) 0.100 0.417 (0.472)
Total from Investment Operations (2.910) 0.040 0.370 (0.480)
Distributions to Shareholders:
From Net Investment Income - - - -
From Net Realized Capital Gain - - - -
Total Distributions to Shareholders - - - -
Net Increase (Decrease) in Net Asset Value (2.91) 0.04 0.37 (0.48)
Net Asset Value-End of Period $ 7.02 $ 9.93 $ 9.89 $ 9.52
Total Investment Return (29.41)% 0.40 % 3.89 % (4.80)%A
Ratios to Average Net Assets:
Expenses 1.70 % 1.70 % 1.70 % 1.68 % B
Net Investment Loss (0.76)% (0.59)% (0.51)% (0.25)% B
Supplementary Data:
Portfolio Turnover Rate 108.47 % 59.06 % 51.23 % 22.85 %
Net Assets at End of Period (000s omitted) $ 3,409 $ 6,122 $ 6,796 $ 6,395
Number of Shares Outstanding at End of
Period (000s omitted) 485 616 687 672
Average Commission Rate Paid $ 0.0477C - - -
A Total Investment Return for periods of less than one year are not annualized.
B Annualized.
C For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission
rate per share for security trades on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets where trading practices and commission
rate structures may differ.
* From commencement of operations March 7, 1994.
The auditors' report is incorporated by reference in the registration statement. The auditors' report and further
information about the performance of the Trust are contained in the annual report to shareholders which may be obtained
without charge by calling or writing the Trust.
</TABLE>
3
<PAGE>
Cappiello-Rushmore Trust
Total Return Comparison
$10,000 Initial Investment
Gold Fund S&P 500 Philadelphia Exchange
Gold & Silver Index
(XAU)
3/07/94 $10,000 $10,000 $10,000
6/30/94 $ 9,520 $ 9,605 $ 9,560
6/30/95 $ 9,890 $12,109 $ 9,970
6/30/96 $ 9,930 $15,269 $10,266
6/30/97 $ 7,020 $20,567 $ 7,914
Past performance is not predictive of future performance. The
Standard & Poor's 500 Composite Stock Price Index and the
Philadelphia Exchange Gold and Silver Index are unmanaged indices
and, unlike the Fund, have no management fees or other operating
expenses to reduce their reported returns. Returns are
historical and include changes in principal and reinvested
dividends and capital gains.
Cappiello-Rushmore Trust
Average Annual Total Return
Year Ended June 30, 1997
Since Inception
One Year 3/7/94
Cappiello-Rushmore Gold Fund (29.31) % (10.12)%
4
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The Gold Fund seeks capital appreciation through investment in
securities of companies engaged in the mining or processing of
gold and other precious metals throughout the world. Particular
emphasis is placed on companies who are expanding production from
current operations and/or seeking new discoveries.
During the past twelve months, both the price of gold and the
performance of the Gold Fund has been disappointing with the Fund
showing a one year performance of (29.31)% and gold selling at
its lowest point since 1985 when it traded down to $285 an ounce.
The most recent sell-off in gold and gold stocks reflects the
actions of the Australian central bank in selling 167 tonnes of
gold which equates to two-thirds of that country's reserve. This
was surprising since Australia was not viewed as a potential
seller and reinforced the growing belief that other central banks
may be considering gold sales. In addition to the threat of
future central bank sales, there are three other factors that
have come together to depress the price of gold: the surging
stock markets around the world, low inflation, and the strong
dollar. Despite reasonably strong supply/demand fundamentals
(including rising demand for the metal in Asia and South America,
and increased industrial and jewelry usage), sentiment toward
gold continues to be negative due to the belief of the
inevitability of future central banks sales.
Our view is that the threat of future sales is exaggerated and
that the European Monetary Union (EMU) will require strong gold
backing to inspire confidence in the EMU's forthcoming currency,
the Euro. Further, history tells us that the reason for holding
gold has never been to outperform financial assets but as a hedge
against inflation as well as other economic and political risks.
Typically, gold is a metal that a well diversified investor wants
to focus on when everyone hates it. This appears to be one of
those times for gold stocks.
INVESTMENT OBJECTIVE AND POLICIES
The Cappiello-Rushmore Trust is a no-load, open-end non-
diversified management investment company consisting of four
separate funds. The Trust's Gold Fund has an investment objective
of capital appreciation. At least 65% of the total assets of the
Fund are normally invested in (i) the equity securities of
companies principally engaged in the mining, exploration,
fabrication, processing, marketing, and distribution of or
dealing or investing in gold and operating companies principally
engaged in financing, managing, controlling, or operating
companies engaged in these activities, and (ii) gold bullion and
coins. The Fund also may invest in (i) the equity securities of
companies principally engaged in the foregoing activities with
respect to silver, platinum, and other precious metals and in
diamonds and other precious minerals, and (ii) silver or other
precious metal bullion and coins. Any income received on equity
investments will be incidental to the Fund's objective of capital
appreciation.
Equity securities in which the Fund invests include common
stocks, securities convertible into common stocks, preferred
stocks, and warrants. A company is considered to be principally
engaged in metals-related or minerals-related activities if that
company derives more than 50% of the company income from such
activities or devotes more than 50% of the company's assets to
such activities.
The Fund may invest in precious metals futures contracts and
options thereupon. Futures contracts and options may be used for
several reasons: to maintain cash reserves while simulating full
investment, to facilitate trading, to reduce transaction costs,
or to seek higher investment returns when a futures contract is
priced more attractively than the underlying equity security.
The Fund may purchase and sell futures contracts and options on
futures contracts only to the extent that obligations underlying
such contracts or transactions represent not more than 20% of the
Fund's assets.
Bullion and coins are bought from and sold to only domestic and
foreign banks, regulated domestic commodities exchanges, exchanges
affiliated with a regulated domestic stock exchange, and dealers
who are members of, or who are affiliated with members of, a regulated
domestic commodities exchange, in accordance with applicable investment
5
<PAGE>
laws. Gold, silver, platinum, and palladium bullion are not purchased
in any form that is not readily marketable. Coins are not purchased
for their numismatic value and are not considered for purchase if
such coins cannot be bought or sold in an active market. Any
bullion or coins purchased by the Fund are delivered to and
stored with a qualified custodian bank in the United States.
Bullion and coins do not generate income and offer only the
potential for capital appreciation or depreciation, and that, in
these transactions, the Fund may encounter higher custody and
transaction costs than those normally associated with the
ownership of securities, as well as shipping and insurance costs.
The Fund may attempt to minimize the costs associated with actual
custody of bullion or coins by the use of receipts or
certificates representing ownership interests in these precious
metals.
The Fund's investment objective and its policy to invest at least
65% of its assets in the equity securities of issuers engaged in
gold-related business and gold bullion are fundamental policies
and may not be changed without the affirmative vote of the
majority of the outstanding shares of the Fund. All other
investment policies of the Fund not specified as fundamental may
be changed by the Board of Trustees of the Trust without approval
of the shareholders. Of course, there can be no assurance that
the Fund will achieve its stated investment objective.
SPECIALIZED INVESTMENT PRACTICES AND RISKS
Metals-related investments and minerals-related investments are
considered speculative and are impacted by a host of world-wide
economic, financial, and political factors. Historically, the
price of gold and precious metals have been subject to wide price
movements caused by political as well as economic factors, and,
accordingly, prices of equity securities of companies involved in
precious metals-related and minerals-related industries have been
volatile. Such fluctuation and volatility may be due to changes
in inflation or in expectations regarding inflation in various
countries, the availability of supplies of such precious metals
and minerals, changes in industrial and commercial demand, metal
and mineral sales by governments, central banks, or international
agencies, investment speculation, monetary and other economic
policies of various governments, and governmental restrictions on
the private ownership of certain precious metals and minerals.
Such price volatility in precious metals and minerals prices will
have a similar effect on the Fund's share prices.
Investment in Foreign Securities
The Fund has no limit on investment in securities of foreign
issuers. However, the Fund may not invest more than 20% of its
total assets in such securities not traded on a recognized U.S.
securities exchange or in dollar denominated American Depository
Receipts ("ADR's"). Investing in foreign companies may involve
risks not typically associated with investing in United States'
companies. There is generally less publicly available
information about foreign companies and other issuers comparable
to reports and ratings that are published about issuers in the
United States. Foreign issuers are also not subject to uniform
accounting and auditing and financial reporting standards,
practices and requirements comparable to those applicable to
United States issuers.
Foreign securities markets are generally not as developed or as
efficient as those in the United States. While growing in
volume, they usually have substantially less volume than the New
York Stock Exchange, and securities of some foreign issuers are
less liquid and more volatile than securities of comparable
United States issuers. Fixed commissions on foreign exchanges
are generally higher than negotiated commission on United States
exchanges, although the Fund will endeavor to achieve the most
favorable net results on its portfolio transaction. There is
generally less government supervision and regulation of
securities exchanges, brokers and listed issuers than in the
United Sates.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the removal
of funds or other assets of the Fund, political or social instability,
or diplomatic developments which could affect United States
investment in those countries. Moreover, individual foreign
economies may differ favorable or unfavorably from the United States'
6
<PAGE>
economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position.
The dividends and interest payable in certain 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 his or her proportionate share of
taxes paid by the Fund.
At the present time, there are five major producers of gold
bullion. In order of magnitude they are: the Republic of South
Africa, the former Union of Soviet Socialist Republics, Canada,
the United States, and Australia. Political and economic
conditions in these countries may have a direct effect on the
mining, distribution, and price of gold and sales of central bank
gold holdings.
The successful management of the Fund's portfolio may be more
dependent upon the skills and expertise of the Fund's investment
adviser than is the case for most mutual funds because of the
need to evaluate the factors identified above.
Investments in Futures Contracts and Options
Precious metals futures contracts are standardized exchange-
traded obligations. These contracts give the owner the right to
buy or sell precious metals at a future date at a predetermined
price. When purchasing or selling a metals futures contract, or
an option thereupon, the Fund either maintains with its custodian
bank (and marks-to-market on a daily basis) a segregated account
consisting of cash, U.S. Government securities, or other liquid
high-grade debt securities that, when added to any amounts
deposited with a futures commission merchant as margin, are equal
to the market value of the futures contract or otherwise "covers"
its position.
Gold futures contracts trade on the Commodity Exchange, Inc. in
New York, the Chicago Board of Trade, the New York Mercantile
Exchange, and the Mid America Commodity Exchange. It cannot be
guaranteed that a liquid market for such contracts will exist at
all times. Metals futures contracts also are subject to other
substantial risks and the effectiveness of the Fund's investment
activities relating to metals futures depends to a large extent
on the ability of the Fund's investment adviser to predict the
price movement of the futures selected. Whether the Fund
realizes a gain or loss from such activities, and from options
and other futures activities, therefore, depends generally upon
movement in the level of precious metals prices and the stocks of
metals-related issuers and the Fund's investment adviser's
ability to predict correctly the direction of these prices,
interest rates, and other economic factors. In contrast to a
long position, where the Fund's loss from the position cannot
exceed the cost of that position, the extent of the Fund's loss
from investing in futures transactions is potentially unlimited.
Options on gold and precious metals futures contracts entitle the
holder to buy and sell the underlying futures contract at a
specific price. Unlike futures contracts, the potential loss of
owning an option on a futures contract is limited to the initial
purchase price. Although a premium is paid for the option
contract, the purchase and sale of such contracts may, at times,
be of a more beneficial interest to the Fund than a purchase of a
futures contract. Options have a limited life span and are
extremely volatile and the potential for loss is great. Options
on gold and precious metals futures contracts are traded on the
Commodity Exchange, Inc. in New York.
Other risks associated with the use of futures contracts and
options are: (i) imperfect correlation between the change in the
market value of the underlying commodity and the prices of futures
contracts and options with the result that futures and options may
fail as hedging techniques in cases where the price movements of the
securities underlying the futures and options do not follow the
price movements of the Fund's portfolio securities subject to a
hedge; and (ii) possible lack of a liquid secondary market for a
futures position when liquidation of that position is desired
with the result that the Fund will likely be unable to control losses
by closing its position where a liquid secondary market does not exist.
7
<PAGE>
The risk that the Fund will be unable to close out a futures
position will be minimized by entering into such transactions
on a national exchange with an active and liquid secondary market.
In addition, because of the margin deposits normally required in
futures trading, a high degree of leverage is typical of a futures
trading account. As a result, a relatively small price movement
in a futures contract may result in substantial losses to the Fund.
Index Options Transactions
The Fund also may purchase and write put and call options on
stock indexes listed on national securities exchange or traded in
the over-the-counter market as an investment vehicle for the
purposes of realizing the Fund's investment objective or for the
purpose of hedging the Fund's portfolio. Transactions will be
restricted to those index options which are based on the common
stock of metals-related or minerals-related issuers. Currently
the only index options based on the common stock of metals-
related and minerals-related issuers is traded on the
Philadelphia Stock Exchange. A stock index fluctuates with
changes in the market value of the stocks included in the index.
Options on stock indexes give the holder the right to receive an
amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon
which the option is based being greater than (in the case of
call) or less than (in the case of a put) the exercise price of
the option. The amount of cash, if any, that will be received by
the option holder will be the difference between the closing
price of the index and the exercise price of the option,
multiplied by a specified dollar multiple. The writer (seller)
of the option is obligated, in return for the premiums received,
to make payment to the option holder of this amount.
Index options are subject to risks, including the risk of
imperfect correlation between the option price and the value of
the underlying securities comprising the index and the risk that
there might not be a liquid secondary market for the option. The
Fund does not enter into an option position that exposes the Fund
to an obligation to another party, unless the Fund either (i)
owns an offsetting position in securities or other options or
(ii) maintains with its custodian bank (and marks-to-market on a
daily basis) a segregated account consisting of cash, U.S.
Government securities, or other liquid high-grade debt securities
that, when added to the premiums deposited with respect to the
option, are equal to the market value of the underlying stock
index.
All domestic index option exchanges have established limitations
governing the maximum number of call or put options on the same
index which may be bought or written (sold) by a single investor,
whether acting alone or in concert with others (regardless of
whether such options are written on the same or different
exchanges or are held or written on one or more accounts or
through one or more brokers). Under these limitations, the
option positions of all investment companies advised by the same
investment advisor are combined for purposes of these limits. An
exchange may order the liquidation of positions and may impose
other sanctions or restrictions. These limitations may restrict
the number of listed options which the Fund may buy or sell. The
Fund's investment adviser intends to comply with all of these
limitations.
The Fund's investment adviser intends to utilize index options as
a technique to leverage the Fund's portfolio. If the Fund's
investment adviser is correct in its assessment of the future
direction of stock prices, the Fund share price will be enhanced.
If the Fund's investment adviser has the Fund take a position in
options and stock prices move in a direction contrary to the
forecast of the Fund's investment adviser, however, the Fund
would incur greater loss than the Fund would have incurred
without the options position.
Options on Securities
In an effort to enhance performance and to hedge the Fund's
risk exposure, the Fund may also write (sell) covered call
and secured put options with respect to certain of the Fund's
portfolio securities, at such time and from time to time,
as the Fund's investment adviser shall determine to be
appropriate and consistent with the investment objective of
the Fund. A covered call option means that the Fund owns
the underlying security on which the option is written. By
8
<PAGE>
writing a call option, the Fund may became obligated during
the term of the option to deliver the securities underlying
the option at the exercise price if the option is exercised.
A secured put option means that the Fund has and maintains
on deposit with its custodian bank cash or U.S. Government
securities having a value equal to the exercise value
of the option. By writing a put option, the Fund may become
obligated during the term of the option to purchase the
securities underlying the option at the exercise price. Options
written by the Fund are conducted only on recognized securities
exchanges.
The principal reason for writing call option on stocks held by
the Fund is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the
underlying securities alone. In return for the call premium, the
call option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise
price so long as the option remains open, but retains the risk of
loss should the price of the security decline. Conversely, the
put option writer will realize a profit, in the form of the
premium, so long as the price of the underlying security remains
above the exercise price, but may realize a loss if the price of
the underlying security falls because of the put writer's
obligation to purchase the underling security from the buyer of
the put option at the exercise price at any time during the
option period. If an option expires, the writer realizes a gain
in the amount of the premium. In the case of a covered call
option, however, any such gain may be wholly or partly offset by
a decline in the market value of the underlying security during
the option period. If a call option is exercised, the writer
realizes a gain or loss from the sale of the underlying security.
If a put option is exercised, the writer must fulfill his
obligation to purchase the underlying security at the exercise
price, which usually will exceed the then market value of the
underlying security.
The writing of option contracts is a highly specialized activity
which involves investment techniques and risks different from
those ordinarily associated with investment companies, although
the Fund's investment adviser believes that the writing of
covered call options listed on an exchange, where the Fund owns
the underlying security, tends to reduce such risks. The option
writer forgoes the opportunity to profit from an increase in
market price of the underlying security above the exercise price
so long as the option remains open. Securities for the Fund's
portfolio will continue to be bought and sold solely on the basis
of investment considerations and appropriateness to the
fulfillment of the Fund's objectives, without regard to the
Fund's policy on writing options.
Lending Portfolio Securities
The Fund may lend its investment securities to qualified
institutional investors for the purpose of realizing additional
income. Loans of securities by the Fund will be collateralized
by cash, letters of credit, or securities issued or guaranteed by
the U.S. Government or its agencies and instrumentalities. The
collateral will equal at least 102% of the current market value,
marked-to-market daily.
The Fund will enter into securities lending and repurchase
transactions only with parties who meet credit worthiness
standards approved by the Trust's Board of Trustees. In the
event of a default or bankruptcy by a seller or borrower, the
Fund will promptly liquidate collateral. However, the exercise
of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any
sale of collateral on a default of the seller or borrower were
less than the seller's or borrower's obligation, the Fund could
suffer a loss.
Short Sales
The Funds may engage in short sales if, at the time of the short
sale, the Fund owns or has the right to acquire an equal amount
of the security being sold at no additional cost ("selling short
against the box").
The Fund may make a short sale for purposes of satisfying certain
tests applicable to regulated investment companies under the
Internal Revenue Code.
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Borrowing Money
The Fund may borrow money from a bank but only for temporary or
emergency purposes up to a limit of 5% of the Fund's total
assets. The Fund borrows money only to meet redemption requests
prior to the settlement of securities already sold.
Temporary Defensive Positions
For defensive purposes during any period of market weakness or of
uncertain market or economic conditions, or for liquidity, the
Fund may temporarily invest in securities of the U.S. Government
and its agencies and instrumentalities, commercial paper, various
bank debt instruments, money market funds, and repurchase
agreements. A repurchase agreement occurs when, at the time the
Fund purchases an interest-bearing obligation, the seller (a bank
or broker-dealer) agrees to repurchase the obligation on a
specific date in the future at an agreed-upon price. The
repurchase price reflects an agreed-upon interest rate during the
time the Fund's money is invested in the security. The Fund's
investment in repurchase agreements is subject to the risk that
the seller will not be able to pay the agreed-upon price on the
delivery date. In the opinion of the Fund's investment adviser,
the risk is minimal because the security purchased constitutes
security for the repurchase obligation, and repurchase agreements
can be considered as loans, collateralized by the security
purchased. However, the Fund may incur costs in disposing of the
collateral, which would reduce the amount realized thereon. If
the seller seeks relief under the bankruptcy laws, the
disposition of the collateral may be delayed or limited. The
Fund's investment adviser has established procedures to evaluate
the credit-worthiness of the other parties to repurchase
agreements. The Fund will invest no more than 10% of its assets
in repurchase agreements maturing in more than seven days.
FUND CLASSIFICATION
The Fund's classification as a "non-diversified" investment
company means that the proportion of the Fund's assets that may
be invested in the securities of a single issuer is not limited
by the Investment Company Act of 1940, as amended (the "1940
Act"). However, the Fund intends to conduct its operations so as
to qualify as a "regulated investment company" for purposes of
the Code which requires that, at the end of each quarter of the
taxable year, (i) at least 50% of the market value of the Fund's
total assets (a diversified investment company would be so
limited with respect to 75% of such market value) be invested in
cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such
securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities
of any one issuer, and (ii) not more than 25% of the value of the
Fund's total assets be invested in the securities of any one
issuer (other than U.S. Government securities or the securities
of other regulated investment companies). Because a relatively-
high percentage of the Fund's assets may be invested in the
securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment
companies) or in the securities of a limited number of issuers,
primarily within the same industry or economic sector, the Fund's
portfolio securities may be more susceptible to any single
economic, political, or regulatory occurrence than the portfolio
securities of a diversified investment company.
PORTFOLIO TURNOVER AND EXECUTION
The investment activities by the Fund related to options and
futures contracts may result in a considerable amount of
securities trading. Brokerage commissions are normally paid on
options and common stock transactions. A higher portfolio
turnover on transactions involving commissions will lead to
higher expenses. It is the policy of the Fund to obtain the best
price and execution for all of its security transactions.
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Although the Fund generally seeks to invest for the long term,
the Fund retains the right to sell securities regardless of how
long the securities have been held. The Fund's investment
adviser expects that the portfolio turnover of the Fund will not
exceed 75% annually.
MANAGEMENT OF THE TRUST
Investment Adviser
The Fund receives investment advisory services from McCullough,
Andrews & Cappiello, Inc. ("MAC"), whose principal location is
101 California Street, Suite 4250, San Francisco, California
94111, and who has an office at Greenspring Station, Suite 250,
10751 Falls Road, Lutherville, Maryland 21093. Pursuant to the
investment advisory contract between the Trust and MAC, the Fund
pays MAC an investment advisory fee at an annual rate of 0.70% of
the Fund's net assets. MAC manages the investment and
reinvestment of the assets of the Fund in accordance with the
Fund's investment objective, policies, and limitations, subject
to the general supervision and control of the Trust's officers
and Board of Trustees. MAC bears all costs associated with
providing these services. The three principals of MAC
collectively provide portfolio management.
MAC is owned by its three principals: Robert F. McCullough,
C.P.A., David H. Andrews, C.F.A., and Frank A. Cappiello. In
addition to providing investment advisory services to the Trust,
MAC manages investment portfolios for employee retirement plans,
charitable foundations, endowments, taxable corporations, and
individuals.
Robert F. McCullough, C.P.A., is Chairman of MAC. He is a
graduate of Santa Clara University and has been a Certified
Public Accountant with a major public accounting firm, principal
of a stock brokerage firm and portfolio manager for one of the
Franklin Funds. He is past President of the Board of Regents of
Santa Clara University and is also a past President of the
University's Alumni Association. He has served as a board member
and officer of numerous charitable institutions. He is a member
of the American Institute of C.P.A.s and the California Society
of C.P.A.s.
David H. Andrews, C.F.A., Vice Chairman of MAC (since 1970), has
been a research analyst at investment institutions, head of
regional research for a major stock brokerage firm, and portfolio
manager for a mutual fund. He is a Chartered Financial Analyst
("C.F.A.") and past President of the Security Analysts of San
Francisco. He is a graduate of Harvard University and Stanford
University's Graduate School of Business.
Frank A. Cappiello has been President of MAC since September 1983
and is Chairman of the Board of Trustees of the Trust. Mr.
Cappiello has been involved in the securities business for more
than twenty-five years. He has been a manager of an
institutional research division for a major stock brokerage firm
and Financial Vice President of an insurance holding company with
responsibility for managing assets of more than $700 million. In
1981 - 1982, he was Chairman of the Financial Analysts
Federation, with more than 15,000 security analysts members in
the United States and Canada.
Mr. Cappiello is currently a Member of the Advisory Investment
Council that oversees the Maryland State Retirement System Fund.
He also regularly appears in the television program "Wall Street
Week in Review with Louis Rukeyser" and is author of three books,
"Finding the Next Superstock," "From Main Street to Wall Street,"
and "The Complete Guide to Closed End Funds." Mr. Cappiello is a
graduate of the University of Notre Dame and Harvard University's
Graduate School of Business Administration. He is currently
Adjunct Visiting Professor of Finance at Loyola College in
Baltimore.
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Investment decisions made on behalf of the Funds by MAC are made
by committee. No one employee of MAC is primarily responsible
for making investment recommendations to the committee. Certain
officers and trustees of the Trust are affiliated with MAC.
Administrative Services
The Trust has contracted with Money Management Associates
("Administrator"), 1001 Grand Isle Way, Palm Beach Gardens,
Florida 33418, to provide administrative services to the Trust.
Under the administrative services agreement with the
Administrator, the Trust pays a fee at the annual rate of 1.00%
of the daily net assets of the Fund. Except for the investment
advisory fee and any extraordinary legal expenses or interest
expenses, there are no additional expenses to the Fund. Certain
officers and trustees of the Trust are affiliated with the
Administrator.
Certain of these administrative services are provided by Rushmore
Trust and Savings, FSB ("RTS"), 4922 Fairmont Avenue, Bethesda,
Maryland 20814, a majority-owned subsidiary of the Administrator,
under a subcontractual agreement with the Administrator. These
services include transfer agency functions, dividend disbursing
and other shareholder services and custody of the Trust's assets.
As custodian, RTS holds the portfolio securities of each Fund and
keeps all necessary related accounts and records.
PERFORMANCE DATA
From time to time, the Fund may advertise its yield which
reflects the rate of income that the Fund earns on its
investments as a percentage of its price per share. All yield
figures are based on historical earnings and are not intended to
indicate future performance. The Fund's yield is computed by
dividing the interest and dividend income it earned on its
investments for a 30-day period, less expenses, by the average
number of shares outstanding during the period. The figure is
expressed as an annualized percentage rate based on the Fund's
net asset value at the end of the 30-day period.
The Fund from time to time may also include total return in
advertisements or reports to shareholders or prospective
shareholders. Quotations of average annual total return for the
Fund will be expressed in terms of the average annual compounded
rate of return on a hypothetical investment in the Fund over a
period of at least one, five, and ten years (up to the life of
the Fund) (the ending date of the period will be stated). Total
return is calculated from two factors: the amount of dividends
earned by each share and by the increase or decrease in value of
the Fund's share price.
In addition to the foregoing, the Fund may advertise its total
return over different periods of time by means of aggregate, year-
by-year, or other types of total return figures. For more
information concerning the calculation of performance data, see
"Calculation of Return Quotations" in the Statement of Additional
Information.
Performance information for the Fund contained in reports and
promotional literature may be compared to various unmanaged
indices, including the Standard & Poor's 500 Stock Index, the Dow
Jones Industrial Average, or the Dow Jones Utility Average. Such
unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for operating costs and
expenses. The indices used for performance comparison will be
available in general financial publications. In addition, the
Fund's total return may be compared to the performance of other
mutual funds as published by such organizations as Morningstar,
Lipper Analytical Services, Inc., and CDA Investment
Technologies, Inc., among others.
HOW TO INVEST IN THE TRUST
The minimum initial investment in the Trust is $2,500, which may be
divided among the four separate portfolios of the Trust, the Gold Fund,
the Growth Fund, the Emerging Growth Fund, and the Utility Income
Fund (collectively, the "Funds"), with a minimum investment of $500
in any one Fund. Retirement accounts may be opened with a $500
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minimum investment. Redemptions which bring the account
balance below $500 may result in the imposition of the low
balance account fee. The fee is not imposed on tax-deferred
retirement accounts (see "Low Balance Account Fee"). The
shares of the Funds are offered at the daily public offering
price which is the net asset value per share next computed after
receipt of the investor's order (see "Net Asset Value"). There
is no minimum amount for subsequent investments. The Trust
reserves the right to reject any purchase order. All accounts
will be held in book-entry form. No certificates for shares will
be issued.
Investment in any Fund can be made directly with the Fund or
through third parties such as broker-dealers, banks or other
financial institutions that purchase securities for their
customers. Such third parties may charge their customers a fee
in connection with services offered to customers. When an
authorized third party accepts an order, the Fund will be deemed
to have received the order. Orders accepted by an authorized
third party will be priced at the Fund's net asset value next
computed after acceptance. When shares are purchased through
third parties, the third party, rather than the customer, may be
the shareholder of record of the shares. Investors who do not
wish to receive the services of a third party may invest directly
with the Trust without charge by mail or by bank wire, as
described below. The Administrator pays for the distribution of
the Funds' shares.
By Mail: Complete an application and make a check payable to
"Cappiello-Rushmore Trust-Gold Fund". Mail the check along with
the application, to:
Cappiello-Rushmore Trust
4922 Fairmont Avenue
Bethesda, Maryland 20814
By Bank Wire: Request a wire transfer to:
Rushmore Trust and Savings, FSB
Bethesda, Maryland 20814
Routing Number 0550-71084
For Account of Cappiello-Rushmore Trust
Account Number 029385770
After instructing your bank to transfer money by wire, you must
telephone the Fund at (800) 343-3355 or (301) 657-1500 between
8:30 A.M. and 4:00 P.M. Eastern time, and tell us the amount you
transferred and the name of the bank sending the transfer. Your
bank may charge a fee for such services. If the purchase is
canceled because your wire transfer is not received, you may be
liable for any loss the Fund may incur.
Shares of the Fund are sold at a price based on the net asset
value next calculated after receipt of a purchase order in good
form. If a purchase order is received by the Fund at or prior to
the close of regular trading of the New York Stock Exchange (the
"NYSE") (normally 4:00 P.M. Eastern time) on any business day,
the purchase of Fund shares is executed at the offering price
determined as of the closing time that day. If the purchase
order is received after the close of regular trading on the NYSE,
the purchase of Fund shares will be affected on the next business
day. When purchases are made by check, the Fund may hold the
proceeds of redemptions until the Fund's transfer agent is
reasonably satisfied that the purchase payment in Federal funds
has been collected (which can take up to ten business days or
until the check clears, whichever occurs first). An investor may
avoid a delay in receiving redemption proceeds by purchasing
shares with a certified check. Foreign checks will not be
accepted. Be certain to specify the allocation of your purchase
among the Funds.
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HOW TO REDEEM AN INVESTMENT (WITHDRAWALS)
On any day the Trust is open for business, an investor may
withdraw all or any portion of his investment by redeeming shares
at the next determined net asset value per share after receipt of
the order by writing the Trust or by telephoning (800) 622-1386
or (301) 657-1510 between 8:30 A.M. and 4:00 P.M. Eastern time.
Telephone redemption privileges may be terminated or modified by
the Trust upon 60 days notice to all shareholders of the Fund.
Telephone redemption requests cannot be accepted after 4:00 P.M.
Eastern time.
The privilege to initiate redemption transactions by telephone
will be made available to Fund shareholders automatically.
Telephone redemptions will only be sent to the address of record
or to bank accounts specified in the account application. When
acting on instructions believed to be genuine, the Fund will not
be liable for any loss resulting from a fraudulent telephone
redemption request and the investor would bear the risk of any
such loss. The Fund will employ reasonable procedures to confirm
that redemption instructions communicated by telephone are
genuine; and if the Fund does not employ such procedures, then
the Fund may be liable for any losses due to unauthorized or
fraudulent instructions. The Fund follows specific procedures for
transactions initiated by telephone, including, among others,
requiring some form of personal identification prior to acting
upon instructions received by telephone, providing written
confirmation not later than five business days after such
transactions, and/or tape recording of telephone transactions.
The proceeds of redemptions will be sent directly to the
investor's address of record. If the investor requests payment
of redemptions to a third party or to a location other than the
investor's address of record listed on the account application,
the request must be in writing and the investor's signature must
be guaranteed by an eligible institution. Eligible institutions
generally include banking institutions, securities exchanges,
associations, agencies, or broker/dealers, and "STAMP" program
participants. There are no fees charged for redemptions.
The Fund will redeem its shares at a redemption price equal to
the net asset value of the shares as next computed following the
receipt of a request for redemption. Payment for the redemption
price will be made within seven days after the Fund's receipt of
the request for redemption. For investments that have been made
by check, payment on withdrawal requests may be delayed for up to
ten business days from the purchase date or until the check
clears, whichever occurs first. This delay is necessary to
assure the Fund that investments made by checks are good funds.
The proceeds of the redemption will be forwarded promptly upon
confirmation of receipt of good funds.
The right of redemption may also be suspended, or the date of
payment postponed: (a) for any period during which the NYSE is
closed (other than customary weekend or holiday closings); or (b)
when trading on the NYSE is restricted, or an emergency exists,
as determined by the Commission, so that disposal of the Fund's
investments for determination of net asset value is not
reasonably practicable; or (c) for such other periods as the
Commission, by order, may permit for protection of the Fund's
investors. Investors should also be aware that telephone
redemptions or exchanges may be difficult to implement in a
timely manner during periods of drastic economic or market
changes. If such conditions occur, redemption or exchange orders
can be made by mail.
EXCHANGES
The Trust is composed of four separate Funds. Investors may
invest in one or more of the Funds, and may exchange shares in
one Fund for shares of another Fund at their relative net asset
values. The Fund's shares may be exchanged, without cost, for
shares of Fund for Government Investors, Fund for Tax-Free
Investors, Inc., The Rushmore Fund, Inc. or American Gas Index
Fund, Inc. Exchanges may be made by telephone or letter.
Written requests should be sent to Cappiello-Rushmore Trust, 4922
Fairmont Avenue, Bethesda, Maryland 20814 and be signed by the
record owner or owners. Telephone exchange requests also may be
made by calling the Fund at (800) 622-1386 or (301) 657-1510
between 8:30 A.M. and 4:00 P.M. Eastern time. Exchanges will be
effected at the respective net asset values of the Funds involved
as next determined after receipt of the exchange request. To
implement an exchange, shareholders should provide the following
information: account registration including address and number,
taxpayer identification number, number, percentage or dollar
value of shares to be redeemed, name and account number of the
Fund to which the investment is to be transferred. Exchanges may
be made only if the exchanges are between identically-registered
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<PAGE>
accounts. The exchange privilege is available only in states
where the exchange may legally be made. Telephone exchange
privileges may be terminated or modified by the Trust upon 60
days notice to all shareholders of the Funds.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus, a
charge of $5 per month may be imposed on any account whose
average daily balance for the month is below $500. The fee will
continue to be imposed during months when the account balance
remains below $500. This fee will be paid to the Administrator.
The fee will not be imposed on tax-sheltered retirement plans or
accounts established under the Uniform Gifts or Transfers to
Minors Act. Because of the administrative expense of handling
small accounts, the Trust reserves the right to involuntarily
redeem an investor's account which falls below $500 due to
redemptions or exchanges after providing 60 days written notice.
The Fund may also assess a charge of $10 for items returned for
insufficient or uncollectible funds.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Defined Contribution Plans (Profit-Sharing Plans)
Defined Contribution Plans
(Money Purchase Plans)
Section 401(k) Plans
Section 403(b) Plans
Additional information regarding these accounts may be obtained
by contacting the Trust.
DIVIDENDS AND DISTRIBUTIONS
All dividends and capital gain distributions will be reinvested
in additional shares of the Fund (including fractional shares
where necessary) at net asset value, unless you elect on your
application form or in writing, not less than five full business
days prior to the record date for a particular dividend or
distribution, to receive such dividend or distribution in cash.
If you elect to receive distributions in cash, your election will
be effective until you give other written instructions to the
Fund for a change of elections five days prior to such change.
Dividends and distributions are taxable to shareholders, as
discussed below, whether such dividends are reinvested in shares
of the Fund or are received in cash. Statements of account will
be sent to shareholders at least quarterly.
The Fund intends to distribute all net investment income and net
capital gains annually in December.
The timing and amount of all dividends and distributions are
subject to the discretion of the Board of Trustees.
NET ASSET VALUE
The price of the Fund's shares on any given day is its net asset
value ("NAV"). For any given day, this figure is computed by
dividing the total market value of the Fund's investments and
other assets on that day, less any liabilities, by the number of
Fund shares outstanding. The net asset value per share of the
Fund is determined daily at 4:00 P.M. Eastern time, except on
customary national business holidays which result in the closing
of the NYSE and on weekends. The Fund's net asset value will
fluctuate and Fund shares are not insured against reduction in
net asset value.
The Fund values its portfolio securities based on the market
values of such securities. Each security held by the Fund which
is listed on a securities exchange, and for which market
quotations are available, is valued at the last quoted sale price
for a given day, or, if a sale is not reported for that date, at
the mean between the most recent quoted bid and asked prices.
Price information on each listed security is taken from the
exchange where the security is primarily traded. Unlisted
securities for which market quotations are readily available
are valued at the closing sales prices. The value of assets
for which no quotations are readily available (including
any restricted securities) are valued at fair value as
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determined in good faith by the Custodian pursuant to Board of
Trustees guidelines. Securities may be valued on the basis of
prices provided by pricing services when such prices are believed
to reflect fair market value. Gold and other precious metals are
valued daily at fair market value, based upon price quotations in
common use, in such manner as the Board of Trustees from time to
time (not less frequently than quarterly) determines in good
faith to reflect most accurately their fair market value.
TAXES
The Fund intends to qualify for treatment as a regulated
investment company under Subchapter M of the Internal Revenue
Code. If the Fund (i) qualifies as a regulated investment
company and (ii) distributes at least 90% of its net investment
income (including, for this purpose, net realized short-term
capital gains), the Fund will not be liable for Federal income
taxes to the extent its net investment income and its net
realized long-term and short-term capital gains, if any, are
distributed to the Fund's shareholders within the time periods
specified in the Code. To avoid an excise tax on its
undistributed income, the Fund must generally distribute at least
98% of its income, including its net long-term capital gains.
To qualify as a regulated investment company under the Code, the
Fund must satisfy certain requirements, including the
requirements that the Fund receive at least 90% of its gross
income each year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of
securities or foreign currencies, or other income derived with
respect to the Fund's investments in stock, securities, and
foreign currencies (the "90% Test"), and that the Fund derive
less than 30% of the Fund's gross income from the sale or other
disposition of any of the following instruments which was held
less than three months (the "30% Test"): (i) stock or securities;
(ii) options, futures, or forward contracts; or (iii) foreign
currencies (or options, futures, or forward contracts on such
foreign securities).
Satisfaction of the 90% Test will impose limitations on the
investment strategies that may be pursued by the Fund. Income
from investments in precious metals, minerals, and coins will not
be qualifying income for purposes of the 90% Test. Therefore,
the Fund will seek to limit its investment transactions in
precious metals, minerals, and coins so as to avoid a violation
of the 90% Test.
Under current law, dividends derived from interest and dividends
received by the Fund, together with distributions of any short-
terms capital gains, are taxable to the shareholders as ordinary
income at Federal income tax rates of up to 39.6% whether or not
such dividends and distributions are reinvested in shares of the
Fund or are received in cash.
The larger the volume of redemptions or exchanges of the Fund's
shares the more difficult it will be for the Fund to satisfy the
30% Test. To minimize the risk of failing the 30% Test, the Fund
intends to satisfy obligations in connection with redemptions and
exchanges first by using available cash or borrowing facilities
and by selling securities that have been held for at least three
months or as to which there will be a loss or the smallest gain.
If the Fund also must sell securities that have been held for
less than three months, then, to the extent possible, the Fund
will seek to conduct such sales in a manner that will allow such
sales to qualify for a special provision in the Code that
excludes from the 30% Test any gains resulting from sales made as
a result of "abnormal redemptions." Notwithstanding these
actions, there can be no assurance that the Fund will be able to
satisfy the 30% Test. For additional information concerning this
special Code provision, see "Taxes" in the Statement of
Additional Information.
Under current law, distributions of net long-term gains, if any,
realized by the Fund and designated as capital gains
distributions will be taxed to shareholders as long-term capital
gains regardless of the length of time the shares have been held.
Currently, long-term capital gains of individual investors are
taxed at Federal income tax rates of up to 28%. Statements as to
the Federal tax status of shareholders' dividends and
distributions will be mailed annually. Shareholders should
consult their tax advisors concerning the tax status of the
Fund's dividends in their own states and localities.
Ordinary dividends paid to corporate or individual residents of foreign
countries are generally subject to a 30% withholding tax. The rate of
withholding tax may be reduced if the United States has an income tax
treaty with the foreign country where the recipient resides. Capital
gains distributions received by foreign investors should, in most
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cases, be exempt from U.S. tax. A foreign investor will be required
to provide the Fund with supporting documentation in order for the
Fund to apply a reduced rate or exemption from U.S. withholding tax.
Shareholders are required by law to certify that their tax
identification number is correct and that they are not subject to
back-up withholding. In the absence of this certification, a
Fund is required to withhold taxes at the rate of 31% on
dividends, capital gains distributions, and redemptions.
Shareholders who are non-resident aliens may be subject to a
withholding tax on dividends earned.
ORGANIZATION OF THE TRUST
The Trust was organized as a business trust under the laws of
Delaware on March 12, 1992, and may issue an unlimited number of
shares of beneficial interest in one or more investment
portfolios or Funds. While only shares of four Funds are
presently being offered, the Board of Trustees may authorize the
issuance of shares of additional Funds if deemed desirable.
Shares of each Fund have equal noncumulative voting rights as to
dividends, assets and liquidation of such Fund. Under Delaware
law, the debts or other obligations that exist with respect to a
particular Fund of the Trust are enforceable against the assets
of such Fund only and not against the assets of the Trust
generally.
The Trust is not required to hold annual shareholders' meetings.
The Trust will, however, hold special meetings as required or
deemed desirable by the Board of Trustees for such purposes as
electing trustees, changing fundamental policies or approving an
investment advisory contract. Shareholders will vote by Fund and
not in the aggregate except when voting in the aggregate is
permitted under the 1940 Act, such as for the election of
Trustees. Matters that affect only one Fund may include changing
the Fund's fundamental investment policies or changing the
investment advisory contract as the contract relates to that
Fund.
A meeting may also be called by shareholders holding at least 10%
of the shares entitled to vote at the meeting for the purpose of
voting upon the removal of Trustees.
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CONTENTS
Page
Fee Table
Financial Highlights
Management's Discussion of
Fund Performance
Investment Objective and Policies
Specialized Investment Practices
and Risks
Fund Classification
Portfolio Turnover and Execution
Management of the Trust
Performance Data
How to Invest in the Trust
How to Redeem an Investment
(Withdrawals)
Exchanges
Transaction Charges
Tax-Sheltered Retirement Plans
Dividends and Distributions
Net Asset Value
Taxes
Organization of the Trust
[ART]
CAPPIELLO
RUSHMORE
PROSPECTUS
Gold Fund
November 1, 1997
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PART B
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CAPPIELLO-RUSHMORE TRUST
Growth Fund
Emerging Growth Fund
Utility Income Fund
Gold Fund
4922 Fairmont Avenue, Bethesda, Maryland 20814
(800) 343-3355
(301) 657-1500
STATEMENT OF ADDITIONAL INFORMATION
The Cappiello-Rushmore Trust (the "Trust") is a no-load, open-
end, non-diversified management investment company consisting of
four separate funds: the Utility Income Fund, the Growth Fund,
the Emerging Growth Fund, and the Gold Fund (the "Funds"). Each
Fund has its own investment objectives and policies, and a
shareholder's interest is limited to the Fund in which the
shareholder owns shares.
This Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Trust's prospectuses,
each dated November 1, 1997. Copies of the Trust's prospectuses
may be obtained without charge by writing or telephoning the
Trust at the above address or telephone number.
The date of this Statement of Additional Information is
November 1, 1997.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Cross Reference to Related Item in Prospectuses
Page in
Growth Fund,
Emerging
Page in Growth Fund,
Statement of Page in and Utility
Additional Gold Fund Income Fund
Information Prospectus Prospectus
Investment Objectives and Policies
Investment Limitations
Redemption of Shares
Tax-Deferred Retirement Plans
Management of the Trust
Principal Holders of Securities
Calculation of Return Quotations
Investment Advisory and Other Services
Net Asset Value
Taxes
Auditors and Custodian
Financial Statements
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INVESTMENT POLICIES
Repurchase Agreements
Each Fund of the Trust may invest in repurchase agreements with
commercial banks, brokers or dealers either for defensive
purposes due to market conditions or to generate income from its
excess cash balances. A repurchase agreement is an agreement
under which the Fund acquires a money market instrument
(generally a security issued by the U.S. government or an agency
thereof, a banker's acceptance or a certificate of deposit) from
a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally, the next
business day). A repurchase agreement may be considered a loan
collateralized by securities. The resale price reflects an
agreed upon interest rate effective for the period the instrument
is held by the Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities
acquired by the Fund (including accrued interest earned thereon)
must have a total value in excess of the value of the repurchase
agreement and are held by the Trust's custodian bank until
repurchased. In addition, the Board of Trustees will monitor the
Trusts' repurchase agreement transactions generally and will
establish guidelines and standards for review of the
creditworthiness of any bank, broker or dealer party to a
repurchase agreement with the Trust. No more than an aggregate
of 10% of a Fund's assets, at the time of investment, will be
invested in repurchase agreements having maturities longer than
seven days.
The use of repurchase agreements involves certain risks. For
example, if the other party to the agreement defaults on its
obligations to repurchase the underlying security at a time when
the value of the security has declined, the Fund may incur a loss
upon disposition of the security. If the other party to the
agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a court
may determine that the underlying security is collateral for a
loan by the Fund not within the control of the Fund and therefore
the Fund may not be able to substantiate its interest in the
underlying security and may be deemed an unsecured creditor of
the other party to the agreement. While the Trust's management
acknowledges these risks, it is expected that they can be
controlled through careful monitoring procedures.
Lending of Securities
Each Fund of the Trust may lend its securities to qualified
institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales,
avoiding failures to deliver securities or completing arbitrage
operations. By lending its portfolio securities, a Fund attempts
to increase its net investment income through the receipt of
interest on the loan. Any gain or loss in the market price of
the securities loaned that might occur during the term of the
loan would be for the account of the Fund. The Fund may lend its
portfolio securities to qualified brokers, dealers, banks or
other financial institutions, so long as the terms, the structure
and the aggregate amount of such loans are not inconsistent with
the Investment Company Act of 1940, or the Rules and Regulations
or interpretations of the Securities and Exchange Commission (the
"Commission") thereunder, which currently requires that (a) the
borrower pledge and maintain with the Trust collateral consisting
of cash, a letter of credit issued by a domestic U.S. bank or
securities issued or guaranteed by the United States government
having at all times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral
whenever the price of the securities loaned rises (i.e., the
borrower "marks to the market" on a daily basis), (c) the loan be
made subject to termination by the Trust at any time and (d) the
Fund receives reasonable interest on the loan (which may include
the Fund's investing any cash collateral in interest bearing
short-term investments), any distribution on the loaned
securities and any increase in their market value. Loan
arrangements made by the Trust will comply with all other
applicable regulatory requirements, including the rules of the
New York Stock Exchange, which rules presently require the
borrower, after notice, to redeliver the securities within the
normal settlement time of five business days. All relevant facts
and circumstances, including the creditworthiness of the broker,
dealer or institution, will be considered in making decisions
with respect to the lending of securities, subject to review by
the Board of Trustees.
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At the present time, the Staff of the Commission does not object
if an investment company pays reasonable negotiated fees in
connection with loaned securities, so long as such fees are set
forth in a written contract and approved by the investment
company's trustees. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting
an investment on loan, the loan must be called and the securities
voted.
A Fund will enter into securities lending and repurchase
transactions only with parties who meet credit worthiness
standards approved by the Fund's Board of Trustees. In the event
of a default or bankruptcy by a seller or borrower, the Fund will
promptly liquidate collateral. However, the exercise of the
Fund's right to liquidate such collateral could involve certain
costs or delays and, to the extent that proceeds from any sale of
collateral on a default of the seller or borrower were less than
the seller's or borrower's obligation, the Fund could suffer a
loss.
Options Transactions
Purchasing Call and Put Options. The Growth Fund and Utility
Income Fund could purchase call options to protect (i.e., hedge)
against anticipated increases in the prices of securities it
wishes to acquire. Alternatively, call options could be purchased
for capital appreciation. Since the premium paid for a call
option is typically a small fraction of the price of the
underlying security, a given amount of funds will purchase call
options covering a much larger quantity of such security than
could be purchased directly. Before purchasing call options, the
Funds could benefit from any significant increase in the price of
the underlying security to a greater extent then had it invested
the same amount in the security directly. However, because of
the very high volatility of option premiums, the Fund would bear
a significant risk of losing the entire premium if the price of
the underlying security did not rise sufficiently, or if it did
not do so before the option expired.
Conversely, put options could be purchased to protect (i.e.,
hedge) against anticipated declines in the market value of either
specific portfolio securities or of the Funds' assets generally.
Alternatively, put options could be purchased for capital
appreciation in anticipation of a price decline in the underlying
security and a corresponding increase of put options for capital
risk appreciation involves the same significant risk of loss as
described above for call options.
In any case, the purchase of options for capital appreciation
would increase the Funds' volatility by increasing the impact of
changes in the market price of the underlying securities on the
Funds' net asset value.
The Registrant does not intend to invest more than 5% of the
assets of any Fund in purchasing put or call options.
Writing Call and Put Options. The Growth Fund, the Utility
Income Fund, and the Gold Fund may write (sell) covered call
options and secured put options. The Emerging Growth Fund will
not engage in option transactions. By writing a call option, the
Funds become obligated during the term of the option to deliver
the securities underlying the option at the exercise price if the
option is exercised. By writing a put option, the Funds become
obligated during the term of the option to purchase the
securities underlying the option at the exercise price. The
Funds will be considered secured in respect to put options they
write if they maintain on deposit with their custodian bank
liquid high quality debt securities having a value equal to the
exercise value of the option.
During the term of the option, the writer may be assigned an
exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver,
in the case of a call, or take delivery of, in the case of a put,
the underlying security against payment of the exercise price.
This obligation terminates upon expiration of the option, or at
such time that the writer effects a closing purchase transaction
by purchasing an option covering the same underlying security and
having the same exercise price and expiration date the one
previously sold. Once an option has been exercised, the writer
of the option may not execute a closing purchase transaction. To
secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is required to
deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the
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"OCC"), an institution created to interpose itself between
buyers and sellers of options. The OCC assumes the other side of
every purchase and sale transaction on an exchange and, by doing
so, gives its guarantee to the transaction.
The principal reason for writing call options on stocks held by
the Growth Fund and the Utility Income Fund is to attempt to
realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return
for the premium, the call option writer has given up the
opportunity for profit from a price increase in the underlying
security above the exercise price so long as the option remains
open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a
profit, in the form of the premium, so long as the price of the
underlying security remains above the exercise price, but assumes
an obligation to purchase the underlying security from the buyer
of the put option at the exercise price, even though the security
may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the
amount of the premium. Such a gain may, in the case of a covered
call option, be offset by a decline in the market value of the
underlying security during the option period. If a call option
is exercised, the writer realizes a gain or loss from the sale of
the underlying security. If a put option is exercised, the
writer must fulfill his obligation to purchase the underlying
security at the exercise price, which will usually exceed the
then market value of the underlying security.
Investment in Foreign Securities
Each Fund, other than the Gold Fund, may invest up to 20% of its
total assets in securities of foreign issuers which are traded on
a recognized U.S. securities exchange or in dollar denominated
American Depository Receipts ("ADR's"). The Gold Fund has no
limit on investment in securities of foreign issuers but may not
invest more than 20% of its total assets in such securities not
traded on a recognized U.S. securities exchange or in dollar
denominated American Depository Receipts ("ADR's"). Investing in
foreign companies may involve risks not typically associated with
investing in United States' companies. There is generally less
publicly available information about foreign companies and other
issuers comparable to reports and ratings that are published
about issuers in the United States. Foreign issuers are also not
subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to
those applicable to United States issuers.
Foreign securities markets are generally not as developed or as
efficient as those in the United States. While growing in
volume, they usually have substantially less volume than the New
York Stock Exchange, and securities of some foreign issuers are
less liquid and more volatile than securities of comparable
United States issuers. Fixed commissions on foreign exchanges
are generally higher than negotiated commission on United States
exchanges, although each Fund will endeavor to achieve the most
favorable net results on its portfolio transaction. There is
generally less government supervision and regulation of
securities exchanges, brokers and listed issuers than in the
United Sates.
With respect to certain foreign countries, there is the
possibility of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, limitations
on the removal of funds or other assets of the Funds, political
or social instability, or diplomatic developments which could
affect United States investment in those countries. Moreover,
individual foreign economies may differ favorable or unfavorably
from the United States' economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
The dividends and interest payable in certain foreign portfolio
securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to
the Funds' 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 his or her proportionate share of
taxes paid by each of the Funds.
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Futures Contracts on Metals and Related Options
The Gold Fund may enter into a metals futures contract or a
related option in order to profit from fluctuations in the price
of the metal without necessarily buying or selling the metal or
other portfolio assets. For example, if the Fund expects gold
prices to increase, the Fund might purchase gold futures
contracts in anticipation of the future purchase of gold or gold-
related securities. Such a purchase would have much the same
effect as the Fund actually buying gold. If gold prices increase
as anticipated, the value of the gold futures contracts would
increase at approximately the same rate.
No consideration is paid or received by the Fund upon the
purchase of a metals futures contract. Initially, the Fund will
be required to deposit with a broker an initial margin amount in
cash equivalents, such as U.S. Government securities or high-
grade debt obligations. This initial margin amount is subject to
change by the exchange on which the contract is traded and
brokers may require a higher amount. The initial margin is in
the nature of a performance bond or good faith deposit on the
contract and is returned to the Fund upon termination of the
futures contract, assuming that all of the Fund's contractual
obligations have been satisfied. Subsequent payments to and from
the broker (known as maintenance margin) will be made daily as
the price of the commodity underlying the futures contract
fluctuates, making the Fund's positions in the futures contract
more or less valuable. This process is known as "marking-to-
market." Because the value of an option on a futures contract is
fixed at the point of sale, there are no daily cash payments by
the purchaser to reflect changes in the value of the underlying
contract, however, the value of the option does change daily and
that change would be reflected in the net asset value of the
Fund.
There are several risks in connection with the use of metals
futures contracts and related options. Successful use of futures
contracts and related options by the Fund is subject to the
ability of the Fund's investment adviser to predict correctly
movements in the price of the commodity and other factors
affecting markets for the commodity. These predictions involve
skills and techniques that are different from those generally
involved in the management of the Fund. In addition, there can
be no assurance that there will be a correlation between
movements in the price of futures contracts or an option on a
futures contract and movements in the price of the underlying
assets.
At any time prior to the expiration of a futures contract or an
option on a futures contract, the Fund may elect to close the
position by taking an opposite position, which will operate to
terminate the Fund's existing position in the contract.
Positions in futures contracts and options on futures contracts
may be closed out only on the exchange on which the futures
contracts and related options were entered into (or through a
linked exchange). Although the Fund intends to purchase futures
contracts and related options only if there is an active market
for the contracts or the related options, there is no assurance
that an active market will exist for the contracts or the related
options at any particular time. Most futures exchanges limit the
amount of fluctuation that is permitted in futures contract
prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that
day at a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
the Fund to substantial losses. In such event, and in the event
of adverse price movements, the Fund would be required to make
daily cash payments of maintenance margin, and an increase, if
any, in the value of the portion of the portfolio being hedged
may partially or completely offset losses on the futures
contract. As described above, however, there is no guarantee
that the price of the assets being hedged will, in fact,
correlate with the price movements in a futures contract or an
option thereon and, thus, provide an offset to losses on the
futures contract or the related option.
If the Fund has hedged against the possibility of a change in the
price of the commodity adversely affecting the value of the
Fund's assets, and prices move in a direction opposite to that
which was anticipated, the Fund will probably lose part or all of
the benefit of the increased value of the assets hedged because
of offsetting losses in the Fund's futures positions. In addition,
in such a situation, if the Fund has insufficient cash, the Fund might
have to sell assets to meet daily maintenance margin requirements at a
time when it would be disadvantageous for the Fund to do so. These sales
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of assets could, but will not necessarily, be at increased prices
which reflect the change in the value of the underlying commodity.
Portfolio Transactions
Brokerage commissions will normally be paid on a Fund's common
stock. A high portfolio turnover as a result of stock
transactions will lead to higher portfolio expenses. Management,
however, anticipates that portfolio turnover will not exceed 75%
annually.
As provided in the Management Contract between the Trust and
McCullough, Andrews, & Cappiello, Inc. ("MAC"), MAC makes
investment decisions and decisions as to the execution of
portfolio transactions for each Fund. Transactions on stock
exchanges and other agency transactions involve the payment by a
Fund of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-
the-counter markets. The best price available is sought by MAC.
This price may or may not include an undisclosed dealer
commission or markup. In underwritten offerings, the price paid
by a Fund includes a fixed commission or discount retained by the
underwriter or dealer.
MAC, in effecting purchases and sales of portfolio securities for
the account of a Fund, places orders for the purchase and sale of
portfolio securities in such a manner as in its opinion will
offer the best price and market for the execution of each
transaction. In selecting broker-dealers and in negotiating
commission, MAC considers several factors including the size of
and difficulty of the order, the firm's reliability, its
financial conditions, its general execution and operational
capabilities, and the brokerage and research services furnished
by such firms to MAC. The term "brokerage and research services"
includes advice as to the value of securities, the advisability
of purchasing or selling securities, the availability of
securities or purchasers or sellers of securities, and furnishing
analyses and reports concerning issuers, industries, securities,
economic factors and trends and portfolio strategy. MAC is not
authorized when placing portfolio transactions for a Fund to pay
a brokerage commission (to the extent applicable) in excess of
that which another broker might have charged for effecting the
same transaction on account of the receipt of brokerage and
research services, except that MAC may do so to obtain better
execution of a particular transaction. Although certain
brokerage and research services from brokers and dealers are
useful to the Funds and MAC, it is the opinion of MAC that such
information is only supplementary to MAC's own research effort,
since the information must still be analyzed, weighed and
reviewed by MAC's staff. Such information may be useful to MAC
in providing services to clients other than the Trust and not all
such information is used by MAC in connection with the Trust.
Conversely, such information provided to MAC by brokers and
dealers through whom the other clients of MAC effect securities
transactions may be useful to MAC in providing services to the
Trust. While MAC is responsible for the placement of the Trust's
transactions, the policies and practices of MAC in this regard
must be consistent with the foregoing and will at all times be
subject to review by the Board of Trustees of the Trust.
INVESTMENT LIMITATIONS
The following restrictions and fundamental policies cannot be
changed without approval of the holders of a majority of the
outstanding shares of each portfolio (as defined in the
Investment Company Act of 1940).
Each Fund may not under any circumstances:
1. change its investment objective;
2. lend money to any person except (i) by purchasing a
portion of an issue of short-term debt securities or similar
obligations (including repurchase agreements) which are
publicly distributed or customarily purchased by institutional
invests, and (ii) as provided under "Lending of Securities";
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3. purchase securities on margin or sell securities
short except that a Fund may sell short against the box;
4. borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then only in amounts
not exceeding 5% of the total assets of a Fund, taken at
market value;
5. issue senior securities or mortgage, pledge, hypothecate
or otherwise encumber its assets, except insofar as any Fund
may be deemed to have issued a senior security by reason of
borrowing money in accordance with restriction (4), (ii) that
the Fund may issue senior securities in connection with
foreign currency exchange transactions and transactions in
options, futures, options on futures, and other similar
investments, and (iii) as otherwise permitted herein;
6. underwrite the securities of other issuers;
7. invest for the purpose of controlling management of any
company;
8. invest its assets in securities of other investment
companies except by purchase in the open market involving only
customary broker's commission or as part of a merger,
consolidation, reorganization or purchase of assets approved
by the portfolio's shareholders; or
9. invest in commodities or purchase real estate, although it
may purchase securities of companies which deal in real estate
or interest therein, except that this shall not prevent the
Gold Fund from (i) trading in futures contracts and options on
futures contracts or (ii) investing in precious metals and
precious minerals.
In addition, the Growth and Emerging Growth Funds will not
concentrate in any particular industry.
The following restrictions are not fundamental and may be changed
by the Board of Trustees:
Each Fund may not:
1. purchase more than 10% of the outstanding voting securities of
any company;
2. purchase or retain securities of an issuer if those
officers and Trustees of the Trust owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
3. invest more than 5% of total assets in securities of
companies which have (with predecessor) a record of less than
three years' continuous operation;
4. invest in oil, gas or mineral leases or exploration or
development programs;
5. purchase or acquire the security of another investment company
if immediately after such purchase or acquisition more than
three percent of the total outstanding stock of such
investment company is owned by the Fund and all affiliated
persons of the Fund unless such purchase or acquisition is
otherwise permitted under the Investment Company Act of 1940;
6. invest more than 5% of the value of the Fund's net assets
in warrants valued at lower of cost or market. Included
within that amount, but not to exceed 2% of the value of the
Fund's net assets, may be warrants which are not listed on the
New York or American Stock Exchange;
7. purchase restricted securities if the value of its aggregate
investment will exceed 10% of its total assets.
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8. purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of
companies which invest in real estate).
The above-mentioned investment limitations are considered at the
time investment securities are purchased.
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date
of payment (i) during any period that the New York Stock Exchange
is closed, or trading on the Exchange is restricted as determined
by the Commission, (ii) during any period when an emergency
exists as defined by the rules of the Commission as a result of
which it is not reasonably practical for the Trust to dispose of
securities owned by it, or fairly to determine the value of its
assets, and (iii) for such other periods as the Commission may
permit.
The Trust has made an election with the Commission to pay in cash
all redemptions requested by any shareholder of record limited in
amount during any 90-day period to the lesser of $250,000 or 1%
of the net assets of a Fund at the beginning of such period.
Such commitment is irrevocable without the prior approval of the
Commission. Redemptions in excess of the above limit may be paid
on whole or in part, in investment securities or in cash, as the
Trustees may deem advisable; however, payment will be made wholly
in cash unless the Trustees believe that economic or market
conditions exist which would make such a practice detrimental to
the best interests of the Trust. If redemptions are paid in
investment securities, such securities will be valued as set
forth in the Prospectus under "Net Asset Value" and a redeeming
shareholder would normally incur brokerage expenses if he
converted these securities to cash.
TAX-DEFERRED RETIREMENT PLANS
Four tax-deferred retirement plans are available to investors.
Forms for establishing retirement plan accounts are available by
writing or calling the Fund at 1-800-532-2268 or 301-951-6963.
An annual maintenance fee and an account liquidation fee is
charged on all such accounts.
Individual Retirement Accounts (IRAs)
Regular, "rollover" and Simplified Employee Pension (SEP) IRA
accounts are available. Regular IRA contributions may be wholly
or partially deductible for Federal income tax purposes depending
on the investor's adjusted gross income and whether the investor
is a participant in a employer sponsored retirement plan.
Pension/Profit Sharing Plans
The Fund offers defined contribution plans suitable for self-
employed individuals or businesses. A separate account may be
established for each employee. Statutory vesting options are
contained in these plans.
401(k) Plans
A 401(k) plan is available for businesses. Such plans provide
for both employee and employer contributions and are adopted in
conjunction with a Fund profit-sharing plan. The Fund does not
act, however as administrator for 401(k) plans. Administration
of a 401(k) plan would be the responsibility of the sponsoring
organization.
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403(b) Plans
A 403(b) plan is available for qualifying non-profit, tax-exempt
organizations such as public education institutions, medical or
church organizations. Separate amounts are established for each
employee and savings and earnings accumulate tax-deferred until
withdrawn. Typically, employees do not contribute to 403(b)
plans.
MANAGEMENT OF THE TRUST
The names and addresses of the trustees and officers of the
Trust, together with information as to their principal business
occupations during the past five years, are set forth below.
*Frank A. Cappiello, 71 - Trustee. Chairman of the Board.
President of McCullough, Andrews & Cappiello, Inc., registered
investment advisers since 1983. Address: Greenspring Station,
Suite 250, 10751 Falls Road, Lutherville, MD 21093.
Peter J. DeAngelis, 61 - Trustee. President of PDA Associates,
Inc., a financial consulting and investment firm, since 1974;
President of Dow Beaters, Inc., a registered investment advisor,
since 1977. Address: P.O. Box 284, Ironia, NJ 07945
*Daniel L. O'Connor, 55 - Trustee. President and Treasurer.
General Partner of Money Management Associates, a registered
investment adviser, since 1975. Address: 1001 Grand Isle Way,
Palm Beach Gardens, FL 33418.
Bruce C. Ellis, 52 - Trustee. Vice President, LottoPhone, Inc.,
a telephone state lottery service, since September 1991. Vice
President, Shoppers' Express, December 1987 - December 1991.
Address: 7108 Heathwood Court, Bethesda, MD 20817
Jeffrey R. Ellis, 52 - Trustee. Vice President, LottoPhone,
Inc., a telephone state lottery service, since September 1993.
Vice President, Shoppers' Express, December 1988 - December 1992.
Address: 513 Kerry Lane, Virginia Beach, Virginia 23451.
Dr. Peter B. Petersen, 65 - Trustee. Professor of Management and
Organization Theory, Johns Hopkins University since 1979.
Address: Johns Hopkins University, Division of Business and
Management, 201 North Charles Street, Baltimore, MD 21201-4114.
*David H. Andrews, CFA, 68 - Vice President. Vice Chairman of
McCullough, Andrews & Cappiello, Inc. since 1991. Address 101
California Street, San Francisco, CA 94111.
*Robert F. McCullough, CPA, 65 - Vice President. Chairman of
McCullough, Andrews & Cappiello, Inc. since 1983. Address: 101
California Street, San Francisco, CA 94111.
*Timothy N. Coakley, CPA, 30 - Vice President since 1994. Chief
Financial Officer, Rushmore Trust and Savings, FSB since 1995.
Formerly Audit Manager, Deloitte & Touche LLP until 1994.
Address: 4922 Fairmont Avenue, Bethesda, MD 20814.
* Edward J. Karpowicz, CPA, 34 - Controller since July 1997.
Treasurer, Bankers Finance Investment Management Corp., August
1993 to June 1997. Senior Accountant, Ernst & Young, September
1989 to February 1993. Address: 4922 Fairmont Avenue, Bethesda,
MD 20814.
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*Stephenie E. Adams, 28 - Secretary. Manager, Fund
Administration and Marketing, Rushmore Services, Inc., from July
1994 to Present. Regional Sales Coordinator, Media General
Cable, from June 1993 to June 1994. Graduate Student,
Northwestern University, Evanston, Illinois, M.S., from September
1991 to December 1992. Address: 4922 Fairmont Avenue, Bethesda,
MD 20814.
* Indicates interested person
PRINCIPAL HOLDERS OF SECURITIES
On September 29, 1997, there were outstanding 768,764, 1,400,497,
2,135,987, and 784,999 shares of the Utility Income Fund, the
Growth Fund, the Emerging Growth Fund, and the Gold Fund,
respectively. Charles Schwab & Co., San Francisco, California
owned for the benefit of others 41.5%, 17.7%, 31.4%, and 17.1% of
the outstanding shares of the Utility Income Fund, the Growth
Fund, the Emerging Growth Fund, and the Gold Fund, respectively.
National Automobile Dealers Association, McLean, Virginia, owned
20.0% of the outstanding shares of the Growth Fund. National
Financial Services Corporation, New York, New York, owned for the
benefit of others, 16.0% of the outstanding shares of the
Emerging Growth Fund. Donaldson, Lufkin and Jenrette, Jersey
City, New Jersey owned for the benefit of others 35.4% of the
outstanding shares of the Gold Fund. Officers and Trustees of
the Trust, as a group, own less than 1% of the shares
outstanding.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of the
Funds to that of other mutual funds and to other relevant market
indices in advertisements or in reports to shareholders,
performance may be stated in terms of total return. Under the
rules of the Securities and Exchange Commission ("SEC Rules"),
Fund advertising performance must include total return quotes
calculated 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 (1, 5, or 10); and
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1, 5, or 10
year periods at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising
will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the
advertising for publication, and will cover 1, 5, and 10 year
periods or a shorter period dating from the effectiveness of the
Registration Statement of the Funds. In calculating the ending
redeemable value, all dividends and distributions by the Funds
are assumed to have been reinvested at net asset value as
described in the Funds' Prospectus on the reinvestment dates
during the period. Total return, or "T" in the formula above, is
computed by finding the average annual compounded rates of return
over the 1, 5, and 10 year periods (or fractional portion
thereof) that would equate the initial amount invested to the
ending redeemable value.
The Funds, from time to time, also may include in such
advertising a total return figure that is not calculated
according to the formula set forth above in order to compare
more accurately the performance of the Funds with other measures
of investment return. For example, in comparing the total
return of the Funds with data published by Lipper Analytical
Services, Inc., or with the performance of the Standard & Poor's
500 Stock Index or the Dow Jones Industrial Average,
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<PAGE>
the Funds calculate their aggregate total return for the
specified periods of time by assuming the investment of
$10,000 in a Fund's shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the
reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending
value and by dividing the remainder by the beginning value. Such
alternative total return information will be given no greater
prominence in such advertising than the information prescribed
under SEC Rules.
The average annual compounded rates of return for the one year
period ended June 30, 1997, assuming the reinvestment of all
dividends and distributions, for the Growth Fund, Emerging Growth
Fund, Utility Income Fund, and Gold Fund were 10.10%, (2.15)%,
3.39%, and (29.31)%, respectively. The average annual compounded
rates of return, assuming the reinvestment of all dividends and
distributions, for the Growth Fund, Emerging Growth Fund, and
Utility Income Fund were 15.48%, 11.78%, and 5.84%, respectively,
for the period commencing October 6, 1992 and ending June 30,
1997, and for the Gold Fund was (10.12)% for the period
commencing March 7, 1994 and ending June 30, 1997.
In addition to the total return quotations discussed above, the
Funds also may advertise their yield based on a thirty-day (or
one month) period ended on the date of the most recent balance
sheet included in the Trust's Registration Statement, computed by
dividing the net investment income per share of a Fund earned
during the period by the maximum offering price per Fund share on
the last day of the period, according to the following formula:
6
YIELD = 2[(a-b/cd+1) -1]
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
INVESTMENT ADVISORY AND
OTHER SERVICES
The four Funds of the Trust receive investment advisory services
from McCullough, Andrews & Cappiello, Inc., whose principal
location is 101 California Street, Suite 4250, San Francisco,
California 94111 and who has an office at Greenspring Station,
Suite 250, 10751 Falls Road, Lutherville, Maryland 21093.
Pursuant to the investment advisory contract between the Trust
and MAC, the Growth Fund and the Emerging Growth Fund pay MAC an
investment advisory fee at an annual rate of 0.50% of the net
assets of each Fund. The Utility Income Fund pays MAC at an
annual rate of 0.35% of the net assets of the Fund. The Gold
Fund pays MAC at an annual rate of 0.70% of the net assets of the
Fund. MAC manages the investment and reinvestment of the assets
of each Fund in accordance with its investment objective,
policies and limitations, subject to the general supervision and
control of the Trust's officers and Board of Trustees. MAC bears
all costs associated with providing these services. For the
fiscal years ended June 30, 1997, 1996, and 1995, the Funds paid
the following investment advisory fees to MAC:
1997 1996 1995
Growth Fund $ 129,484 $ 137,107 $ 67,000
Emerging Growth Fund $ 151,476 $ 253,800 $ 126,202
Utility Income Fund $ 38,223 $ 61,055 $ 55,310
Gold Fund $ 34,904 $ 53,459 $ 44,448
12
<PAGE>
MAC is owned by its three principals: Robert F. McCullough,
C.P.A., David H. Andrews, C.F.A., and Frank A. Cappiello. In
addition to providing investment advisory services to the Trust,
MAC manages investment portfolios for employee retirement plans,
charitable foundations, endowments, taxable corporations and
individuals.
The Trust has contracted with Money Management Associates
("Administrator"), 1001 Grand Isle Way, Palm Beach Gardens,
Florida 33418, to provide administrative services to the Trust.
Under the administrative services agreement with the
Administrator, the Trust pays a fee at the annual rate of 1.00%
of the daily net assets of the Growth, Emerging Growth and Gold
Funds, and 0.70% of the daily net assets of the Utility Income
Fund. For the fiscal years ended June 30, 1997, 1996, and 1995,
the Funds paid the following administrative services:
1997 1996 1995
Growth Fund $ 258,968 $ 274,215 $ 134,001
Emerging Growth Fund $ 302,952 $ 507,600 $ 252,403
Utility Income Fund $ 76,447 $ 122,110 $ 110,619
Gold Fund $ 49,863 $ 76,369 $ 63,496
The Administrator is responsible for all costs of the Funds
except for the investment advisory fee, extraordinary legal
expenses and interest. The Administrator pays costs of
registration of the Trust and the Funds' shares with the
Securities and Exchange Commission and the various states, all
expenses of dividend and transfer agent services, outside
auditing and legal fees, costs of maintenance of business trust
existence, preparation of prospectuses including printing and
distribution thereof to existing and potential shareholders,
shareholder reports, shareholder meetings, portfolio pricing
services and all costs incurred in providing the custodial
services.
Certain of these administrative services are provided by Rushmore
Trust and Savings, FSB ("RTS"), 4922 Fairmont Avenue, Bethesda,
Maryland 20814, a majority-owned subsidiary of the Administrator,
under a subcontractual agreement with the Administrator. These
services include transfer agency functions, dividend disbursing
and other shareholder services and custody of the Trust's assets.
The investment advisory agreement and the administrative services
agreement described above continue in effect from year to year,
if specifically approved at least annually by a vote cast in
person at a meeting called for such purpose of a majority of the
Trustees, and a majority of the Trustees who are not "interested
persons" as defined in the 1940 Act ("Independent Trustees").
The contracts may be terminated by either party thereto, by the
Independent Trustees of the Trust or by a vote of the holders of
a majority of the outstanding securities of a Fund at any time,
without penalty, upon 60 days' written notice, and automatically
terminates in the event of an assignment. Termination will not
affect the right of the Adviser or the Administrator to receive
payment of any unpaid balance of the compensation earned prior to
termination.
NET ASSET VALUE
The net asset value of each Fund's shares will be determined
daily as of 4:00 P.M., Eastern time, except on customary national
business holidays which result in the closing of the New York
Stock Exchange and on weekends. The net asset value per share of
a Fund is calculated by dividing the Fund's net worth by the
number of outstanding shares. Listed securities will be valued
at their last sales price on the New York Stock Exchange and
other major exchanges. Over-the-counter securities shall be
valued at their last sales price. Options and futures contracts
are valued at the last sales price as of the close of trading on
the applicable exchanges. If market quotations are not readily
available, the Board of Trustees will value the portfolios'
securities in good faith. Gold and other precious metals are
valued daily at fair market value, based upon price quotations in
common use, in such manner as the Trustees from time to time (not
less frequently than quarterly) determines in good faith to most
accurately reflect their fair value. The Trustees will
13
<PAGE>
periodically review these methods of valuation and recommend
changes which may be necessary to assure that the portfolios'
instruments are valued at fair value.
TAXES
Each Fund will seek to qualify for treatment as a regulated
investment company (a "RIC") under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"). Provided
that a Fund (i) is a RIC and (ii) distributes at least 90% of its
net investment income (including, for this purpose, net realized
short-term capital gains), the Fund will not be liable for
Federal income taxes to the extent its net investment income and
its net realized long- and short-term capital gains, if any, are
distributed to the Fund's shareholders. To avoid an excise tax
on its undistributed income, each Fund must generally distribute
at least 98% of its income, including its net long-term capital
gains. One of several requirements for RIC qualification is that
the Fund must receive at least 90% of its gross income each year
from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities or
foreign currencies, or other income derived with respect to the
Fund's investments in stock, securities, and foreign currencies
(the "90% Test").
In addition, under the Code, a Fund will not qualify as a RIC for
any taxable year if more than 30% of the Fund's gross income for
that year is derived from gains on the sale of securities held
less than three months (the "30% Test"). These requirements may
also restrict the extent of a Fund's activities in option and
other portfolio transactions. Specifically, the 30% Test will
limit the extent to which a Fund may: (i) sell securities held
for less than three months; (ii) write options which expire in
less than three months; and (iii) effect closing transactions
with respect to call or put options that have been written or
purchased within the preceding three months. Finally, as
discussed below, this 30% Test requirement also may limit
investments by a Fund in futures contracts and options on stock
indexes, securities, and futures contracts.
When the Gold Fund is required to sell securities to meet
significant redemptions or exchanges, the Gold Fund may enter
into futures contracts as a hedge against price declines in the
securities to be sold. Gains realized by the Gold Fund upon
closing out the Gold Fund's position in these contracts are
subject to the 30% Test. Ordinarily, these gains could not be
offset by declines in the value of the hedged securities for
purposes of the 30% Test. Section 851(g)(1) of the Code,
however, provides that, in the case of a "designated hedge," for
purposes of the 30% Test, increases and decreases in value
(during the period of the hedge) of positions which are part of
the hedge are to be netted. Section 851(g)(2) of the Code
provides that a "designated hedge" exists when: (i) the
taxpayer's risk of loss with respect to any position in property
is reduced by reason of a contractual obligation to sell
substantially identical property; and (ii) the taxpayer clearly
identifies the positions which are part of the hedge in the
manner prescribed in Internal Revenue Service ("IRS")
regulations.
IRS regulations have not yet been issued specifying how this
identification requirement can be satisfied. The legislative
history with respect to Section 851(g) states that, prior to
issuance of regulations, the identification requirement is
satisfied either by: (i) placing the positions that are part of
the hedge in a separate account that is maintained by a broker,
futures commission merchant ("FCM"), custodian, or similar
person, and that is designated as a hedging account, provided
that such person maintaining such account makes notations
identifying the hedged and hedging positions and the date on
which the hedge is established; or (ii) the designation by such a
broker, FCM, custodian, or similar person of such positions as a
hedge for purposes of these provisions, provided that the RIC is
provided with a written confirmation stating the date that the
hedge is established and identifying the hedged and hedging
positions.
When the Gold Fund enters into futures contracts to hedge
against price declines of securities to be sold, the Gold
Fund may identify such securities and contracts as a hedge
so as to qualify under Section 851(g)(1) of the Code. There
can be no assurances, however, that the Gold Fund (or such
Fund's agents) will be able to comply with the identification
requirements that may be contained in future IRS regulations.
Moreover, the netting rule of Section 851(g)(1) is
14
<PAGE>
available only if the securities to be sold and the property
subject to the futures contracts constitute "substantially
identical" property. The Gold Fund generally intends to sell
pro rata the securities being hedged, but it is unclear whether
the securities and the futures contracts would constitute
"substantially identical" property.
To minimize the risk that it will not satisfy the 30% Test
because of frequent redemptions and exchanges of shares that may
occur, each Fund will seek to meet its obligations in connection
with redemptions and exchanges without the realization of gains
on the sales of stock or securities, options, futures or forward
contracts, or foreign currencies (or options, futures contracts,
or forward contracts on such foreign currencies). In this
regard, each Fund will seek (consistent with its investment
strategies) to use available cash, proceeds of borrowing
facilities, proceeds of the sale of stock or securities, options,
futures or forward contracts, or foreign currencies (or options,
futures contracts, or forward contracts on such foreign
currencies) that have been held for three months or more, and the
proceeds of the sale of such assets that produce either no gain
or the smallest amount of such gain.
Section 851(h)(3) of the Code also provides a special rule for
series mutual funds with respect to the 30% Test. Pursuant to
Section 851(h)(3), a RIC that is part of a series fund will not
fail the 30% Test as a result of sales made within five days of
"abnormal redemptions" if: (i) the sum of the percentages for
abnormal redemptions exceeds 30%; and (ii) the RIC of which such
fund is a part would meet the 30% Test if all the funds of the
investment company were treated as a single corporation.
Abnormal redemptions are defined as redemptions which occur on
any day when net redemptions exceed one percent of net asset
value. If abnormal redemptions require a Fund to sell securities
with a holding period of less than three months, the Fund intends
to make those sales within five days of such redemptions so as to
qualify for the exclusion afforded by Section 851(h)(3) of the
Code if it is possible to do so.
If a Fund does not satisfy the 30% Test for any taxable year of
the Fund, that Fund will not qualify as a RIC for that year. If
a Fund fails to qualify as a RIC for any taxable year, the Fund
would be taxed in the same manner as an ordinary corporation. In
that event, the Fund would not be entitled to deduct the
distributions which the Fund had paid to shareholders and, thus,
would incur a corporate income tax liability on all of the Fund's
taxable income whether or not distributed. The imposition of
corporate income taxes on the Fund would directly reduce the
return to an investor from an investment in the Fund.
In the event of a failure by a Fund to qualify as a RIC, the
Fund's distributions, to the extent such distributions are
derived from the Fund's current or accumulated earnings and
profits, would constitute dividends that would be taxable to
shareholders as ordinary income and would be eligible for the
dividends-received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions
that might have been treated in the shareholder's hands as long-
term capital gains, as discussed below, had the Fund qualified as
a RIC.
If a Fund were to fail to qualify as a RIC for one or more
taxable years, the Fund could then qualify (or re-qualify) as a
RIC for a subsequent taxable year only if the Fund had
distributed to the Fund's shareholders a taxable dividend equal
to the full amount of any earnings or profits (less the interest
charge mentioned below, if applicable) attributable to such
period. The Fund might also be required to pay to the IRS
interest on 50% of such accumulated earnings and profits. In
addition, pursuant to the Code and an interpretative notice
issued by the IRS, if the Fund should fail to qualify as a RIC
and should thereafter seek to re-qualify as a RIC, the Fund may
be subject to tax on the excess (if any) of the fair market of
the Fund's assets over the Fund's basis in such assets, as of the
day immediately before the first taxable year for which the Fund
seeks to re-qualify as a RIC.
If a Fund determines that it will not qualify as a RIC under
Subchapter M of the Code, the Fund will establish procedures to
reflect the anticipated tax liability in its net asset value.
As a RIC, each Fund will not be subject to Federal income taxes
on the net investment income and capital gains that it
distributes to its shareholders. The distribution of net
investment income and capital gains will be taxable to
15
<PAGE>
shareholders regardless of whether the shareholder elects to
receive these distributions in cash or in additional shares.
Distributions reported to shareholders as long-term capital gains
shall be taxable as such, regardless of how long the shareholder
has owned the shares. Shareholders of a Fund will be notified
annually by the Trust as to the Federal tax status of all
distributions made by the Fund. Distributions may be subject to
state and local taxes.
A Fund has available to it a number of elections under the Code
concerning the treatment of option transactions for tax purposes.
The Fund will utilize the tax treatment most favorable to a
majority of investors in the Fund. Taxation of these
transactions will vary according to the elections made by the
Fund. These tax considerations may have an impact on investment
decisions made by the Fund.
If a call option written by a Fund expires, the amount of the
premium received by such Fund for the option will be short-term
capital gain to such Fund. If such an option is closed by a
Fund, any gain or loss realized by the Fund as a result of the
closing purchase transaction will be short-term capital gain or
loss to such Fund. If the holder of a call option exercises its
right under the option, any gain or loss realized by the Fund
upon the sale of the underlying security pursuant to such
exercise will be short-term or long-term capital gain or loss to
the Fund depending on such Fund's holding period for the
underlying security.
With respect to call options purchased by a Fund, such Fund will
realize short-term or long-term capital gain or loss if such
option is sold and will realize short-term or long-term capital
loss if the option is allowed to expire depending on such Fund's
holding period for the call option. If such a call option is
exercised, the amount paid by the Fund for the option will be
added to the basis of the stock so acquired.
A Fund in its operations may also utilize options on stock
indexes. Options on broadbased stock indexes are classified as
nonequity options under the Code. As such, gains and losses
resulting from the expiration, exercise, or closing of such
nonequity options, as well as gains and losses resulting from
futures contract transactions, will be treated as long-term
capital gain or loss to the extent of 60% thereof and short-term
capital gain or loss to the extent of 40% thereof (hereinafter
blended gain or loss). In addition, any option held by a Fund on
the last day of a fiscal year will be treated as sold for market
value on that date, and gain or loss recognized as a result of
such deemed sale will be blended gain or loss.
A Fund's trading strategies involving nonequity options on stock
indexes may constitute "straddle" transactions. "Straddles" may
effect the taxation of such instruments and may cause the
postponement of recognition of losses incurred in certain closing
transactions.
A Fund's transactions in options could, under some circumstances,
preclude the Fund's qualifying for the special tax treatment
available to investment companies meeting the requirements of
Subchapter M of the Code. However, it is the intention of each
Fund's management to limit gains from such investments to less
than 10% of the gross income of the Fund during any fiscal year
in order to maintain this qualification.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, independent certified public accountants,
are the auditors of the Trust and are responsible for auditing
the annual financial statements of the Trust. Rushmore Trust and
Savings, FSB, Bethesda, Maryland, acts as the custodian for the
Trust and is responsible for safeguarding and controlling the
Trust's cash and securities, handling the securities and
collecting interest on the Fund's investments.
16
<PAGE>
FINANCIAL STATEMENTS
The Financial Statements (audited) of the Trust for the fiscal
year ended June 30, 1997, are incorporated by reference from the
Trust's 1997 Annual Report to Shareholders. Copies of the
Trust's Annual Report may be obtained without charge by
contacting the Trust at 4922 Fairmont Avenue, Bethesda, Maryland
20814, or by telephoning the Trust at (800) 622-1386 or
(301) 657- 1510.
17
<PAGE>
ANNUAL REPORT, June 30, 1997
CAPPIELLO
RUSHMORE FUNDS Cappiello-Rushmore Trust
4922 Fairmont Avenue, Bethesda, Maryland 20814
(800) 622-1386 (301) 657-1510
Dear Fellow Investor:
This is the Cappiello-Rushmore Trust's fifth annual report. The Funds'
performances for the fiscal year ended June 30, 1997 were as follows:
Total Return Comparison
(Average annual total return for the period ended June 30, 1997)
Since
One Year Inception*
Cappiello-Rushmore Growth Fund 10.10% 15.48%
Cappiello-Rushmore Emerging Growth Fund (2.15)% 11.78%
Cappiello-Rushmore Utility Income Fund 3.39% 5.84%
Standard & Poor's 500 Index 34.70% 20.85%
Cappiello-Rushmore Gold Fund (29.31)% (10.12)%
Philadelphia Exchange Gold & Silver Index (XAU) (22.76)% (20.70)%
Returns are historical and include changes in principal and reinvested
dividends and capital gains. Your return and principal will vary and
you may have a gain or loss when you sell shares.
*Inception dates: October 6, 1992 for Emerging Growth Fund, Growth
Fund and Utility Income Fund; Gold Fund inception March 7, 1994.
Summary
Over the past twelve months, economic growth (measured by real Gross
Domestic Product) has averaged a robust 3.1%. Most recently, in the
second quarter of 1997, that growth slowed to 2.7% due primarily to
weak consumer spending. Powering this growth has been the corporate
investment boom, primarily business equipment including computers and
allied equipment. This has been reflected in the improved performance
of technology stocks. This technology boom appears to be improving
productivity growth and holding down prices thereby allowing the
economy to grow at a faster rate without generating inflationary
pressures. Some evidence of this is reflected in the inflation
figures which over the past few quarters represent the lowest
inflation rate that we have seen since 1965. With such economic
positives as a backdrop, the stock market measured by the major market
averages continued to move forward to record highs. However, beneath
the surface of the stock market were significant "pockets" of
underperformance including gold, utility stocks (particularly electric
utilities), and surprisingly, the dramatic underperformance of small
stocks with the Russell 2000 underperforming the S&P 500 by the widest
margin since October of 1990.
The big investment news has not been economic, but tax related. The
new tax act occurred after June 30th but the lower capital gains tax
rate became effective as of May 7, 1997. The following describes the
new tax act and its implications for the market and investors. The
lower capital gains tax favors growth stocks over the long haul
<PAGE>
versus income since dividends will be taxed as ordinary income. Further,
the new tax act will be encouraging for corporate managers to favor share
buy-backs rather than increasing dividend payments. This will serve
to reduce the supply of stock available in the marketplace and should
be positive for large and medium-sized capitalization stocks. In
terms of small capitalization stocks, the capital gains tax cut could
spur a period of outperformance by small-cap stocks. Every time
capital gains taxes have been cut since 1978, small-cap stocks have
significantly outperformed the S&P 500.
The Cappiello-Rushmore Emerging Growth Fund
The Emerging Growth Fund's investment objective is capital
appreciation through investment in smaller, emerging growth companies
with above-average appreciation potential. Typically, these companies
have market capitalization between $50 million and $750 million.
While equities in fast-growing, dynamic companies in expanding
industries have historically been excellent vehicles for long-term
capital growth, smaller companies are generally considered riskier
investments than larger, more established companies due to their
companies' greater reliance upon entrepreneurial management talent,
less robust balance sheets, and less established businesses.
Nevertheless, the superior growth prospects of smaller companies have
provided investors the better returns over the long term reflecting
the value and growth of underlying businesses. In the short term,
while these businesses change very little, their stock prices can
change significantly each day. So while small-cap stocks can provide
attractive returns over the long term, they can be rocky in the short
term. This proved to be the case in the past year when the Fund
recorded a negative total return of (2.15)%. Compared to the Fund's
14.36% total return of 1996, this reflected that the smaller rapidly
growing stocks had a tough time from June of 1996 to April of 1997.
Since the Spring of 1996, the Russell 2000 Index of small stocks had
been significantly underperforming the Standard & Poor's 500 Index
which is dominated by large stocks. Prior to this underperformance
period, small-cap growth companies had enjoyed a typical five-and-a-
half-year cycle, stretching from October 1990 to peak in May 1996, in
which they outperformed their larger counterparts. Further, pressure
from stock redemptions during this period forced us to sell down our
more promising stocks to raise cash. Failing prices and selling in a
declining environment proved to be a deadly cycle for the Fund's
overall performance. Nevertheless the Fund produced a number of
winning stocks. Among the best acting stocks in the Emerging Growth's
portfolio as of June 30, 1997 were:
JPM Co. + 375.00%
Remec, Inc. + 340.63%
World Access, Inc. + 156.25%
National Data Corp. + 129.60%
Reading & Bates Corp. + 119.49%
Happily, the small capitalization sector has improved significantly
since the Spring of this year. In May and June of this year, small
caps began their rebound with the Russell 2000 and this is reflected
in the recent quarter performance of the Fund up 12.61% for the
quarter ended June 30, 1997. This performance has continued to date
(August 11, 1997).
This recent improvement in small-cap stocks after a long period of
underperformance provides a base for optimism for the next twelve
months. While last year demonstrated that small caps tend to be more
volatile than their larger counterparts both down and now up
demonstrates that small caps can compensate for that extra risk by
providing superior returns over the long haul.
The Cappiello-Rushmore Growth Fund
The Growth Fund is designed to provide investors with capital appreciation
through investment in larger, established companies that have demonstrated
consistent sales and earnings growth. The Fund recorded a return
2
<PAGE>
of 10.10% for the year marking the third consecutive year of double-digit
returns. The performance, while respectable in a volatile market year,
fell short of the fast moving Standard & Poor's 500 Index. The S&P 500
which is weighted by market capitalization with the top 50 stocks having
an average capitalization of over $70 billion each and selling at a
price/earnings ratio of 24 times earnings with an average growth rate of
13% annually.
Since the Fund's inception, the focus has been on larger
capitalization growth companies with an emphasis on value.
Investment in this type of company is generally stable, yet provides
substantial long-term capital appreciation potential. Buying growth
stocks for less than their underlying value is a key consideration of
our portfolio management team since this further reduces long-term
risk. This has precluded purchases of "momentum" type growth stocks
which sell at price/earnings multiples of 50% or higher than their
growth rates.
While our focus continues to be the technology sector (24.27% of
the portfolio) with names like Sun Microsystems, Inc., Tandem
Computers, and Micron Technology, this sector is now overshadowed by
a new emphasis on financial stocks (25.16% of assets) such as Charles
Schwab Corp, Franklin Resources, and Student Loan Marketing
Association. Oil and gas and related energy services is another new
major category representing more than 10% of the assets including
names such as Nuevo Energy and Varco International. We expect these
stocks to do well over the next twelve months in the current business
and interest rate environment. In redeploying the Funds assets, we
have reduced a heretofore large portion in retailing and healthcare
stocks. Among the better performing stocks in the portfolio as of
June 30, 1997 were:
Student Loan Marketing Assn. + 268.83%
Franklin Resources, Inc. + 187.59%
Coca Cola Co. + 174.05%
Varco International, Inc. + 152.15%
American Express Co. + 149.93%
Note that only two of our five best performing stocks can be
categorized among the top 50 names in the S&P 500 Index.
The Cappiello-Rushmore Utility Income Fund
The Utility Income Fund is structured to provide shareholders with
high dividend income first and capital gains as a secondary
consideration. The Fund's total return for the year ended June 30,
1997 was 3.39%. The portfolio's net dividend yield was 5.9%. Part of
the disappointing performance reflected uncertainty in the electric
utility sector reflecting the pressure of state and federal
government regulation toward a more competitive marketplace. Further
the relative underperformance in the prices of electric utility
common stocks versus bonds and other income securities has been
driven primarily by continued strength in the economy. Historically,
strength in the U.S. economy usually has meant lagging performance
for the utility sector as investors fear that an improving economy
means higher interest rates. Additionally, investors sentiment
reflects the fact that the sector is unlikely to outperform the
market until the economy slows down, considerably. Finally, while
most electric utilities are experiencing savings from cost-cutting
measures now underway, these savings are expected to be partially
offset by increasing competition and accelerated depreciation.
During the year we have taken measures to lessen the Fund's
dependence on electric utility performance. While the electric and
gas utility stocks represent 64.79% of the portfolio, telephone
companies are now 12.74% of the portfolio and a natural gas
distribution company is 5.76% of the portfolio. Telephone companies
such as NYNEX and ALLTEL possess some of the defensive characteristics
of utilities but also offer the growth potential of telecommunications
as a broad-based platform for the information highway. Additionally,
we have begun to diversify into several non-utility areas which
are both undervalued and paying a higher than average dividend
3
<PAGE>
including Crown America Realty Trust (a Real Estate Investment
Trust) constituting 5.83% of the portfolio and a modest holding in
convertible preferred stock (2.88% of the portfolio).
We continue to believe that electric and gas utilities offer a solid
defensive hedge against a moderating economy and/or a difficult
market environment, which could well develop over the next twelve
months. Additionally, utilities will continue to manage in order to
strengthen their competitive positions providing capital gains
opportunities. Further, we believe that the electric utility stocks
are attractive in terms of fundamentals which include low price
earnings ratios and higher than average yields. For example, stocks
in DLJ Electric Utility Universe (as of July, 1997) are currently
selling at an average of 11.2 times 1998 earnings estimates, and 1.4
times estimated 1997 book value representing a historically low
level.
The Cappiello-Rushmore Gold Fund
The Gold Fund seeks capital appreciation through investment in
securities of companies engaged in the mining or processing of gold
and other precious metals throughout the world. Particular emphasis
is placed on companies who are expanding production from current
operations and/or seeking new discoveries.
During the past twelve months, both the price of gold and the
performance of the Gold Fund has been disappointing with the Fund
showing a one-year performance of (29.31)% and gold selling at its
lowest point since 1985 when it traded down to $285 an ounce. The
most recent sell-off in gold and gold stocks reflects the actions of
the Australian central bank in selling 167 tonnes of gold which
equates to two-thirds of that country's reserve. This was
surprising since Australia was not viewed as a potential seller and
reinforced the growing belief that other central banks may be
considering gold sales. In addition to the threat of future central
bank sales, there are three other factors that have come together to
depress the price of gold: the surging stock markets around the
world, low inflation, and the strong dollar. Despite reasonably
strong supply/demand fundamentals (including rising demand for the
metal in Asia and South America, and increased industrial and
jewelry usage), sentiment toward gold continues to be negative due
to the belief of the inevitability of future central banks sales.
Our view is that the threat of future sales is exaggerated and that
the European Monetary Union (EMU) will require strong gold backing
to inspire confidence in the EMU's forthcoming currency, the Euro.
Further, history tells us that the reason for holding gold has never
been to outperform financial assets but as a hedge against inflation
as well as other economic and political risks. Typically, gold is a
metal that a well diversified investor wants to focus on when
everyone hates it. This appears to be one of those times for gold
stocks.
Outlook for 1997 - 1998
We do not attempt to forecast what the stock market will do or
when. We do attempt to make projections about the economy, because
that is a necessary input to an interest rate forecast. Our
forecast for the next twelve months includes an economic growth
trend of about 3% (measured by GDP) which happens to be the average
of the last fifteen years. So far in 1997, in a stronger than
expected economy, the Consumer Price Index (CPI) on an annualized
basis is up only 2.1%. Our forecast is that there will be only a
modest upward change (perhaps to 2.5%) by mid-1998. In terms of
interest rates, the 30-year Treasury bond should range between 6-7%
(30 year Treasury Bond) with a Fed Fund Rate (the key short term
rate at which banks lend money to other banks) at between 5 1/2 - 6%.
Not since the early days after World War One have economic,
financial, and business conditions together been as favorable as
they have been in recent years and still are today. Continuing
growth in business activity, less government interference, rising
export demand, the strong competitive position of our companies
in world markets, accelerating productivity stemming from rapid
adoption of new technology all have contributed to this
extraordinary market. In the long run of course, only one
thing matters: the growth of earnings and dividends. That
4
<PAGE>
uptrend is what makes the market rewarding for patient investors.
In this regard, we expect operating earnings on the Dow Industrial
Average to be up about 12% to 15% with mid-cap and small-cap companies,
on average, exceeding these levels in 1997 through 1998. Stock
valuations continue to be attractive with price/earnings multiples
relative to the interest rates and inflation environment.
Nevertheless, all forecasts are tentative, including this
one. The few negatives in the economy and the stock market are
related to "time." First, the current business cycle is over seven
years old. It is now the third longest in U.S. economic history.
Secondly, the stock market's surge since the Fall of 1990 rivals the
two great bull markets of this century both in time and magnitude of
gain; specifically, the U.S. market of the 1920's and the Japanese
stock market of the 1980's. This raises the risk of miscalculation.
Growth may be stronger than expected, putting more pressure on
capacity and other resources and requiring a more aggressive
response from the Federal Reserve. This could occur if global
economic growth rebounds faster than expected. Thirdly, any
increase in productivity growth could be short-lived. This would be
reflected in a rise in inflation causing investors to lose
confidence in the Fed. This would imply higher interest rates and a
decline in stock and bond prices. In our view, the one major
positive that may outweigh all the possible negatives is the
enactment of the new tax legislation and its effect on investing as
noted in the "Summary" section. The most important part of the bill
is the capital gains tax rate cut. Now if you owned a stock for 18
months and a day, you can sell and pay a tax of just 20% on your
profits down from 28%. Investment income such as dividends and
interest are taxed at rates up to 39.6%. This is a powerful
incentive toward long-term investing in stocks.
As always, thank you for your continued support.
/s/ Frank A. Cappiello
Frank A. Cappiello
Chairman, Cappiello-Rushmore Trust
August 11, 1997
5
<PAGE>
<TABLE>
June 30, 1997 Cappiello-Rushmore Trust
PORTFOLIOS OF INVESTMENTS
UTILITY INCOME FUND GROWTH FUND
<CAPTION>
Market Value Market Value
Shares (Note 1) Shares (Note 1)
<S> <C> <S> <C>
COMMON STOCKS - 89.12% of Total COMMON STOCKS - 92.78% of Total
Investments Investments
Gas and Electric - 64.79% Beverages - 5.79%
15,000 Allegheny Power System, Inc. $ 400,313 20,000 Coca Cola Co. $1,350,000
14,000 CMS Energy Corp. 493,500
15,000 DTE Energy Holding Co. 414,375 Computer and Business
14,500 Interstate Power Co. 415,062 Equipment - 7.98%
25,000 Long Island Lighting Co. 575,000 20,000 Sun Microsystems,Inc.* 744,376
10,400 Peoples Energy Corp. 389,350 55,000 Tandem Computers,Inc.* 1,113,750
18,000 Potomac Electric Power Co. 416,250 1,858,126
10,000 Public Service Co. of Colorado 415,000
19,000 Southern Co. 415,625 Computer Software Information
17,000 TNP Enterprises, Inc. 394,188 Processing - 8.03%
11,400 Union Electric Co. 429,637 29,600 Reynolds and Reynolds Co. 466,200
15,000 United Illuminating Co. 463,125 26,000 Shared Medical Systems Corp. 1,404,000
22,000 Washington Water Power Co. 431,750 1,870,200
5,653,175 Consumer Electronics - 1.52%
Natural Gas Distribution - 5.76% 15,000 VLSI Technology, Inc.* 354,375
20,000 Washington Gas Light Co. 502,500 Containers and Packaging - 1.63%
Real Estate Investment Trusts - 5.83% 8,000 Sealed Air Corp.* 380,000
55,000 Crown American Realty Trust 508,750 Diversified Electronics - 10.31%
Telephone - 12.74% 20,000 General Motors Corp. Class H 1,155,000
16,000 ALLTEL Corp. 535,000 150,000 Gulf Canada Resources Ltd.* 1,246,875
10,000 NYNEX Corp. 576,250 2,401,875
1,111,250 Financial - 25.16%
Total Common Stocks 15,000 American Express Co. 1,117,500
(Cost $6,659,158) 7,775,675 35,000 Charles Schwab Corp. 1,424,063
26,500 Franklin Resources,Inc. 1,922,906
CONVERTIBLE PREFERRED 11,000 Student Loan Marketing Assn. 1,397,000
STOCKS - 2.88% 5,861,469
5,000 Sea Containers, Ltd. Conv. Pfd.
$4.00 (Cost $222,400) 251,250 Healthcare - 5.13%
MONEY MARKET FUNDS - 8.00% 10,000 Pfizer, Inc. 1,195,000
697,872 Fund for Government Investors Oil and Gas - 3.87%
(Cost $697,872) 697,872 22,000 Nuevo Energy Co.* 902,000
Total Investments - 100.00% Oil and Gas Services - 5.81%
(Cost $7,579,430) $8,724,797 42,000 Varco International,Inc.* 1,354,500
==========
Personal Products - 2.31%
20,300 Nu Skin Asia Pacific,Inc.* 537,950
*Non-income producing.
See Notes to Financial Statements.
6
</TABLE>
<PAGE>
<TABLE>
June 30, 1997 Cappiello-Rushmore Trust
PORTFOLIOS OF INVESTMENTS (continued)
GROWTH FUND (continued) EMERGING GROWTH FUND
<CAPTION>
Market Value Market Value
Shares (Note 1) Shares (Note 1)
<S> <C> <S> <C>
COMMON STOCKS (continued) COMMON STOCKS - 90.64% of Total
Semiconductors/Components - 6.74% Investments
15,000 Micron Technology, Inc. $ 599,063 Communications Products - 0.89%
31,700 National Semiconductor 7,500 Remec, Inc.* $ 176,250
Corp.* 970,812 Computer and Business
1,569,875 Equipment - 1.36%
Transportation - 8.50% 25,000 Larscom, Inc., Class A* 268,750
32,000 KLM Royal Dutch Airlines 988,000 Computer Software - 1.52%
35,250 Pittston Burlington Group 991,406 15,000 Planning Sciences International
PLC ADR* 86,250
1,979,406 35,000 Premis Corp.* 71,095
Total Common Stocks 21,200 Quadramed Corp.* 143,100
(Cost $13,415,565) 21,614,776 300,445
Computer Software Information
WARRANTS - 5.57% Processing - 4.65%
97,000 Federated Department 17,000 Shared Medical Systems Corp. 918,000
Stores, Inc.
WTS C* (Cost $614,392) 1,297,375 Electronics - 1.69%
MONEY MARKET FUNDS - 1.65% 57,000 Laser Power Corp.* 334,875
385,857 Fund for Government Healthcare Products - 12.33%
Investors 60,000 IBAH, Inc.* 213,750
40,000 Immune Response Corp.* 305,000
(Cost $385,857) 385,857 30,000 I-STAT Corp.* 513,750
Total Investments - 100.00% 59,000 KV Pharmaceutical Co.,
(Cost $14,415,814) $23,298,008 Class A * 977,187
=========== 30,000 Nexstar Pharmaceuticals* 427,500
2,437,187
Information Processing - 7.67%
35,000 National Data Corp. 1,515,938
Lodging - 3.05%
72,000 Candlewood Hotel Co., Inc.* 603,000
Manufacturing - 1.88%
31,000 Alyn Corp.* 372,000
Merchandising/Retail - 13.48%
49,800 Braun Fashions Corp.* 423,300
90,000 Charming Shoppes, Inc.* 469,692
117,700 National Media Corp.* 765,050
55,000 Paul Harris Stores, Inc.* 921,250
89,232 Score Board, Inc.* 83,655
2,662,947
Oil and Gas Services - 6.77%
50,000 Reading and Bates Corp.* 1,337,500
ADR American Depository Receipt
* Non-income producing.
See Notes to Financial Statements.
7
</TABLE>
<PAGE>
<TABLE>
June 30, 1997 Cappiello-Rushmore Trust
PORTFOLIOS OF INVESTMENTS (continued)
EMERGING GROWTH FUND (continued) GOLD FUND
<CAPTION>
Market Value Market Value
Shares (Note 1) Shares (Note 1)
<S> <C> <S> <C>
COMMON STOCKS (continued) COMMON STOCKS - 89.01% of Total
Semiconductors/Components - 6.65% Investments
50,000 PMC Sierra, Inc.* $ 1,312,500 Metals and Mining
Service - 4.66% Domestic - 39.52%
115,000 Forensic Technologies 27,000 Amax Gold, Inc.* $ 165,375
International Corp.* 920,000 35,000 Battle Mountain Gold Co. 199,062
Telecommunications - 14.05% 25,000 Crown Resources Corp.* 159,375
20,000 Celeritek, Inc.* 250,000 13,000 Homestake Mining Co. 169,813
36,200 Hungarian Telephone and 10,000 Newmont Mining Corp. 390,000
Cable* 316,750 15,500 Stillwater Mining Co.* 344,875
20,000 JPM Co.* 712,500 1,428,500
73,000 World Access, Inc.* 1,496,500
2,775,750 Foreign - 49.49%
12,000 Aber Resources, Ltd.* 168,000
Transportation - 9.99% 10,000 Agnico Eagle Mines, Ltd. 96,250
25,000 Hub Group, Inc. Class A* 753,125 7,000 Barrick Gold Corp. 154,000
32,000 Pittston Burlington Group 900,000 14,000 Cambior, Inc. 158,375
125,000 Worldcorp, Inc. Holding Co.* 320,313 28,000 Golden Star Resources, Ltd.* 227,500
1,973,438 30,000 Kinross Gold Corp.* 135,000
Total Common Stocks 6,000 Lihir Gold, Ltd.* 197,250
(Cost $13,744,472) 17,908,580 60,000 Miramar Mining Corp.* 221,250
10,000 Placer Dome, Inc. 163,750
CONVERTIBLE PREFERRED 200,000 Rea Gold Corp.* 125,000
STOCKS - 7.04% 60,000 Royal Oak Mines, Inc.* 142,500
208,080 Mesa, Inc. 8% Conv. Pfd. 1,788,875
Class A (Cost $707,854) 1,391,535 Total Common Stocks
WARRANTS - 0.20% (Cost $3,931,025) 3,217,375
28,000 Barringer Technologies, Inc. MONEY MARKET FUNDS - 10.99%
WTS* (Cost $1,400) 40,250 397,342 Fund for Government Investors
MONEY MARKET FUNDS - 2.12% (Cost $397,342) 397,342
418,256 Fund for Government Total Investments - 100.00%
Investors (Cost $418,256) 418,256 (Cost $4,328,367) $3,614,717
==========
Total Investments - 100.00%
(Cost $14,871,982) $19,758,621
===========
*Non-income producing.
See Notes to Financial Statements.
8
</TABLE>
<PAGE>
<TABLE>
June 30, 1997 Cappiello-Rushmore Trust
STATEMENTS OF ASSETS AND LIABILITIES
<CAPTION>
Utility Emerging
Income Fund Growth Fund Growth Fund Gold Fund
<S> <C> <C> <C> <C>
ASSETS
Securities at Cost $7,579,430 $14,415,814 $14,871,982 $4,328,367
Securities at Value (Note 1) $8,724,797 $23,298,008 $19,758,621 $3,614,717
Receivable for Securities Sold 59,924 1,659,590 1,233,775 -
Receivable for Shares Sold 1,025 11,285 6,619 2,675
Dividends Receivable 44,850 10,645 3,570 -
Interest Receivable 887 1,054 2,022 1,927
Total Assets 8,831,483 24,980,582 21,004,607 3,619,319
LIABILITIES
Investment Advisory Fee Payable 2,494 10,137 8,564 2,279
Administrative Fee Payable 4,989 20,274 17,128 3,256
Payable for Securities Purchased - - 41,750 -
Liability for Shares Redeemed 7,346 50,797 205,253 205,159
Other Fees Payable 2 - 83 81
Dividends Payable 10,641 - - -
Total Liabilities 25,472 81,208 272,778 210,775
NET ASSETS $8,806,011 $24,899,374 $20,731,829 $3,408,544
Shares Outstanding 846,722 1,308,875 1,497,533 485,392
Net Asset Value Per Share $10.40 $19.02 $13.84 $7.02
See Notes to Financial Statements.
9
</TABLE>
<PAGE>
<TABLE>
For the Year Ended June 30, 1997 Cappiello-Rushmore Trust
STATEMENTS OF OPERATIONS
<CAPTION>
Utility Emerging
Income Fund Growth Fund Growth Fund Gold Fund
<S> <C> <C> <C> <C>
Investment Income
Interest $ 5,501 $ 69,735 $ 36,966 $ 25,195
Dividends 641,749 198,458 54,049 21,919
Total Investment Income 647,250 268,193 91,015 47,114
Expenses
Investment Advisory Fee (Note 2) 38,223 129,484 151,476 34,904
Administrative Fee (Note 2) 76,447 258,968 302,952 49,863
Other Fees 2 - 83 81
Total Expenses 114,672 388,452 454,511 84,848
Net Investment Income (Loss) 532,578 (120,259) (363,496) (37,734)
Net Realized Gain (Loss) on
Investment Transactions 462,173 (90,376) (650,708) (527,830)
Net Change in Unrealized Appreciation/
Depreciation of Investments (763,657) 2,092,216 (414,690) (1,066,830)
Net Gain (Loss) on Investments (301,484) 2,001,840 (1,065,398) (1,594,660)
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 231,094 $1,881,581 $(1,428,894) $(1,632,394)
========= =========== ============ ============
See Notes to Financial Statements.
10
</TABLE>
<PAGE>
<TABLE>
Cappiello-Rushmore Trust
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Utility
Income Fund Growth Fund
For the Years Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
From Investment Activities
Net Investment Income (Loss) $ 532,578 $ 840,420 $ (120,259) $ (113,708)
Net Realized Gain (Loss) on Investment Transactions 462,173 1,027,583 (90,376) 1,720,027
Net Change in Unrealized Appreciation/Depreciation of
Investments (763,657) 1,280,283 2,092,216 3,405,681
Net Increase in Net Assets Resulting from
Operations 231,094 3,148,286 1,881,581 5,012,000
Distributions to Shareholders
From Net Investment Income (540,376) (839,386) - -
From Net Realized Gain on Investments - - (890,035) -
Total Distributions to Shareholders (540,376) (839,386) (890,035) -
From Share Transactions
Net Proceeds from Sales of Shares 2,791,305 22,326,670 24,857,946 36,733,251
Reinvestment of Distributions 429,181 671,443 862,676 -
Cost of Shares Redeemed (9,211,322) (27,351,733) (33,589,710) (29,304,990)
Net Increase (Decrease) in Net Assets Resulting
from Share Transactions (5,990,836) (4,353,620) (7,869,088) 7,428,261
Total Increase (Decrease) In Net Assets (6,300,118) (2,044,720) (6,877,542) 12,440,261
Net Assets - Beginning of Year 15,106,129 17,150,849 31,776,916 19,336,655
Net Assets - End of Year $ 8,806,011 $ 15,106,129 $ 24,899,374 $ 31,776,916
=========== ============ ============ ============
Shares
Sold 272,300 2,216,170 1,435,617 2,234,071
Issued in Reinvestment of Distributions 42,219 64,781 50,332 -
Redeemed (892,574) (2,711,615) (1,955,558) (1,776,492)
Net Increase (Decrease) in Shares (578,055) (430,664) (469,609) 457,579
============ ============ ============= ============
See Notes to Financial Statements.
11
</TABLE>
<PAGE>
<TABLE>
Cappiello-Rushmore Trust
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<CAPTION>
Emerging
Growth Fund Gold Fund
For the Years Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
From Investment Activities
Net Investment Loss $ (363,496) $ (498,532) $ (37,734) $ (44,769)
Net Realized Gain (Loss) on Investment Transactions (650,708) 6,135,405 (527,830) 322,082
Net Change in Unrealized Appreciation/Depreciation
of Investments (414,690) (1,388,307) (1,066,830) (185,846)
Net Increase (Decrease) in Net Assets Resulting
from Operations (1,428,894) 4,248,566 (1,632,394) 91,467
Distributions to Shareholders
From Net Investment Income - - - -
From Net Realized Gain on Investments (5,065,773) (344,847) - -
Total Distributions to Shareholders (5,065,773) (344,847) - -
From Share Transactions
Net Proceeds from Sales of Shares 61,065,491 133,412,070 30,042,821 32,770,950
Reinvestment of Distributions 4,754,104 291,283 - -
Cost of Shares Redeemed (83,578,594) (129,227,353) (31,124,263) (33,535,892)
Net Increase (Decrease) in Net Assets Resulting
from Share Transactions (17,758,999) 4,476,000 (1,081,442) (764,942)
Total Increase (Decrease) in Net Assets (24,253,666) 8,379,719 (2,713,836) (673,475)
Net Assets - Beginning of Year 44,985,495 36,605,776 6,122,380 6,795,855
Net Assets - End of Year $ 20,731,829 $ 44,985,495 $ 3,408,544 $ 6,122,380
Shares
Sold 4,123,530 8,118,604 3,355,585 3,126,181
Issued in Reinvestment of Distributions 359,071 18,518 - -
Redeemed (5,632,148) (7,936,795) (3,486,619) (3,196,969)
Net Increase (Decrease) in Shares (1,149,547) 200,327 (131,034) (70,788)
============= ============= ============ ============
See Notes to Financial Statements.
12
</TABLE>
<PAGE>
<TABLE>
Cappiello-Rushmore Trust
FINANCIAL HIGHLIGHTS
Utility Income Fund
<CAPTION>
For the
For the Years Ended June 30, Period Ended
------------------------------------------ June 30,
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Period $ 10.60 $ 9.24 $ 8.39 $ 10.82 $ 10.00
Income from Investment Operations:
Net Investment Income 0.532 0.489 0.555 0.527 0.255
Net Realized and Unrealized Gain (Loss)
on Securities (0.196) 1.391 0.846 (2.421) 0.820
Total from Investment Operations 0.336 1.880 1.401 (1.894) 1.075
Distributions to Shareholders:
From Net Investment Income (0.536) (0.520) (0.551) (0.525) (0.255)
From Net Realized Capital Gain - - - (0.011) -
Total Distributions to Shareholders (0.536) (0.520) (0.551) (0.536) (0.255)
Net Increase (Decrease) in Net Asset Value (0.20) 1.36 0.85 (2.43) 0.82
Net Asset Value - End of Period $ 10.40 $ 10.60 $ 9.24 $ 8.39 $ 10.82
======== ======= ======== ======== =======
Total Investment Return 3.39% 20.60% 16.62% (18.18)% 9.98%A
Ratios to Average Net Assets:
Expenses 1.05% 1.05% 1.05% 1.05% 1.05%B
Net Investment Income 4.88% 4.82% 6.26% 5.21% 3.31%B
Supplementary Data:
Portfolio Turnover Rate 17.33% 45.11% 147.04% 26.13% 15.93%
Net Assets at End of Period (000's omitted) $ 8,806 $15,106 $17,151 $ 9,117 $ 8,415
Number of Shares Outstanding at End of
Period (000's omitted) 847 1,425 1,855 1,086 778
Average Commission Rate Paid $0.0496C - - - -
A Total Investment Return for periods of less than one year are not annualized.
B Annualized.
C For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for security trades on which commissions are charged. This
amount may vary from period to period and fund to fund depending on the mix of trades executed
in various markets where trading practices and commission rate structures may differ.
*From Commencement of Operations October 6, 1992.
See Notes to Financial Statements.
13
</TABLE>
<PAGE>
<TABLE>
Cappiello-Rushmore Trust
FINANCIAL HIGHLIGHTS (continued)
Growth Fund
<CAPTION>
For the
For the Years Ended June 30, Period Ended
----------------------------------------- June 30,
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Period $ 17.87 $ 14.64 $ 11.05 $ 10.63 $ 10.00
Income from Investment Operations:
Net Investment Income (Loss) (0.092) (0.069) 0.014 (0.021) 0.012
Net Realized and Unrealized Gain on
Securities 1.831 3.299 3.593 0.444 0.620
Total from Investment Operations 1.739 3.230 3.607 0.423 0.632
Distributions to Shareholders:
From Net Investment Income - - (0.017) (0.003) (0.002)
From Net Realized Capital Gain (0.589) - - - -
Total Distributions to Shareholders (0.589) - (0.017) (0.003) (0.002)
Net Increase in Net Asset Value 1.15 3.23 3.59 0.42 0.63
Net Asset Value - End of Period $ 19.02 $ 17.87 $ 14.64 $ 11.05 $ 10.63
======= ======= ======== ======= ========
Total Investment Return 10.10% 22.06% 32.65% 3.99% 6.34%A
Ratios to Average Net Assets:
Expenses 1.50% 1.50% 1.50% 1.50% 1.50%B
Net Investment Income (Loss) (0.46)% (0.41)% 0.12% (0.18)% 0.17%B
Supplementary Data:
Portfolio Turnover Rate 41.93% 74.50% 70.89% 119.03% 21.13%
Net Assets at End of Period (000's omitted) $24,899 $31,777 $19,337 $ 9,993 $ 3,165
Number of Shares Outstanding at End of
Period (000's omitted) 1,309 1,778 1,321 904 298
Average Commission Rate Paid $0.0453C - - - -
A Total Investment Return for periods of less than one year are not annualized.
B Annualized.
C For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for security trades on which commissions are charged. This
amount may vary from period to period and fund to fund depending on the mix of trades executed
in various markets where trading practices and commission rate structures may differ.
*From Commencement of Operations October 6, 1992.
See Notes to Financial Statements.
14
</TABLE>
<PAGE>
<TABLE>
Cappiello-Rushmore Trust
FINANCIAL HIGHLIGHTS (continued)
Emerging Growth Fund
<CAPTION>
For the
For the Years Ended June 30, Period Ended
--------------------------------------- June 30,
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Period $ 16.99 $ 14.96 $ 10.41 $ 11.32 $ 10.00
Income from Investment Operations:
Net Investment Loss (0.242) (0.161) (0.075) (0.104) (0.050)
Net Realized and Unrealized Gain (Loss)
on Securities (0.243) 2.300 4.625 (0.686) 1.377
Total from Investment Operations (0.485) 2.139 4.550 (0.790) 1.327
Distributions to Shareholders:
From Net Investment Income - - - - -
From Net Realized Capital Gain (2.665) (0.109) - (0.120) (0.007)
Total Distributions to Shareholders (2.665) (0.109) - (0.120) (0.007)
Net Increase (Decrease) in Net Asset Value (3.15) 2.03 4.55 (0.91) 1.32
Net Asset Value - End of Period $ 13.84 $ 16.99 $ 14.96 $ 10.41 $ 11.32
======= ======= ======= ======= =======
Total Investment Return (2.15)% 14.36% 43.71% (7.31)% 13.35%A
Ratios to Average Net Assets:
Expenses 1.50% 1.50% 1.50% 1.50% 1.50%B
Net Investment Loss (1.20)% (0.98)% (0.61)% (0.85)% (0.63)%B
Supplementary Data:
Portfolio Turnover Rate 66.16% 121.22% 96.11% 128.13% 67.90%
Net Assets at End of Period (000's omitted) $20,732 $44,985 $36,606 $18,133 $ 4,750
Number of Shares Outstanding at End of
Period (000's omitted) 1,498 2,647 2,447 1,742 420
Average Commission Rate Paid $0.0382C - - - -
A Total Investment Return for periods of less than one year are not annualized.
B Annualized.
C For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for security trades on which commissions are charged. This
amount may vary from period to period and fund to fund depending on the mix of trades executed
in various markets where trading practices and commission rate structures may differ.
* From Commencement of Operations October 6, 1992.
See Notes to Financial Statements.
15
</TABLE>
<PAGE>
<TABLE>
Cappiello-Rushmore Trust
FINANCIAL HIGHLIGHTS (continued)
Gold Fund
<CAPTION>
For the Years Ended For the
June 30, Period Ended
------------------------------------ June 30,
1997 1996 1995 1994*
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Period $ 9.93 $ 9.89 $ 9.52 $ 10.00
Income from Investment Operations:
Net Investment Loss (0.078) (0.060) (0.047) (0.008)
Net Realized and Unrealized Gain (Loss)
on Securities (2.832) 0.100 0.417 (0.472)
Total from Investment Operations (2.910) 0.040 0.370 (0.480)
Distributions to Shareholders:
From Net Investment Income - - - -
From Net Realized Capital Gain - - - -
Total Distributions to Shareholders - - - -
Net Increase (Decrease) in Net Asset Value (2.91) 0.04 0.37 (0.48)
Net Asset Value - End of Period $ 7.02 $ 9.93 $ 9.89 $ 9.52
========== ========= ========= ==========
Total Investment Return (29.31)% 0.40% 3.89% (4.80)%A
Ratios to Average Net Assets:
Expenses 1.70% 1.70% 1.70% 1.68%B
Net Investment Loss (0.76)% (0.59)% (0.51)% (0.25)%B
Supplementary Data:
Portfolio Turnover Rate 108.47% 59.06% 51.23% 22.85%
Net Assets at End of Period (000's omitted) $ 3,409 $ 6,122 $ 6,796 $ 6,395
Number of Shares Outstanding at End of
Period (000's omitted) 485 616 687 672
Average Commission Rate Paid $ 0.0477C - - -
A Total Investment Return for periods of less than one year are not annualized.
B Annualized.
C For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for security trades on which commissions are charged.This
amount may vary from period to period and fund to fund depending on the mix of trades executed
in various markets where trading practices and commission rate structures may differ.
* From Commencement of Operations March 7, 1994.
See Notes to Financial Statements.
16
</TABLE>
<PAGE>
June 30, 1997 Cappiello-Rushmore Trust
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Cappiello-Rushmore Trust (the "Trust") is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 as a
no-load, open-end investment company and is authorized to issue an
unlimited number of shares. The Trust consists of four separate portfolios
(the "Funds"), each with a different investment objective. The financial
statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain estimates
and assumptions at the date of the financial statements. The following is
a summary of significant accounting policies which the Funds follow:
(a) Listed securities are valued at the last sales price of the New
York Stock Exchange and other major exchanges. Over-the-Counter
securities are valued at the last sales price. If market quotations are
not readily available, the Board of Trustees will value the Funds'
securities in good faith. The trustees will periodically review this
method of valuation and recommend changes which may be necessary to
assure that the Funds' instruments are valued at fair value.
(b) Security transactions are recorded on the trade date (the date the
order to buy or sell is executed). Interest income is accrued on a
daily basis. Dividend income is recorded on the ex-dividend date.
Realized gains and losses from securities transactions are computed on
an identified cost basis.
(c) Dividends from net investment income are declared and paid
annually in the Growth, Emerging Growth and Gold Funds and quarterly in
the Utility Income Fund. Dividends are reinvested in additional shares
unless shareholders request payment in cash. Net capital gains, if any,
are distributed annually.
(d) For Federal income tax purposes, each Fund of the Trust is treated
as a separate corporation. Each Fund intends to comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies and distribute all net investment income, if any,
and realized capital gains to their shareholders. Therefore, no Federal
income tax provision is required.
2. Investment Advisory Fees and Other Transactions with Affiliates
Investment advisory services are provided by McCullough, Andrews and
Cappiello, Inc., (the "Adviser"). Under an agreement with the Adviser, the
Trust pays a fee at the annual rate of 0.50% of the daily net assets of the
Growth and Emerging Growth Funds, 0.70% of the daily net assets of the Gold
Fund and 0.35% of the daily net assets of the Utility Income Fund. Certain
Officers and Trustees of the Trust are affiliated with the Adviser.
The Trust has contracted with Money Management Associates (the
"Administrator") to provide Administrative services to the Trust. Under the
administrative services agreement with the Administrator, the Trust pays a
fee at the annual rate of 1.00% of the daily net assets of the Growth,
Emerging Growth and Gold Funds, and 0.70% of the daily net assets of the
Utility Income Fund. Certain Officers and Trustees of the Trust are
affiliated with the Administrator.
Certain of these administrative services are provided by Rushmore Trust
and Savings, FSB ("Rushmore Trust"), a majority-owned subsidiary of the
Administrator, under a subcontractual agreement with the Administrator.
These services include transfer agency functions, dividend disbursing and
other shareholder services and custody of the Trust's assets.
Each fund of the Trust invests excess cash in Fund for Government
Investors, a money market mutual fund. Certain Officers and Trustees of
Fund for Government Investors are affiliated with the Trust.
3. Securities Transactions
For the year ended June 30, 1997, purchases and sales (including
maturities) of securities (excluding short-term securities) were as follows:
Utility Emerging
Income Fund Growth Fund Growth Fund Gold Fund
Purchases $1,849,821 $10,168,712 $19,416,491 $4,870,854
========== =========== =========== ==========
Sales $7,476,774 $19,934,882 $42,423,001 $5,648,444
========== =========== =========== ==========
17
<PAGE>
June 30, 1997 Cappiello-Rushmore Trust
4. Net Unrealized Appreciation/Depreciation of Investments
Net unrealized appreciation (depreciation) as of June 30, 1997, based on
the cost for Federal income tax purposes is as follows:
<TABLE>
<CAPTION>
Utility Emerging
Income Fund Growth Fund Growth Fund Gold Fund
<S> <C> <C> <C> <C>
Gross Unrealized Appreciation $1,204,447 $ 8,980,474 $ 6,796,449 $ 141,985
Gross Unrealized Depreciation (90,105) (98,280) (2,253,125) (959,266)
---------- ----------- ----------- -----------
Net Unrealized Appreciation (Depreciation) $1,114,342 $ 8,882,194 $ 4,543,324 $ (817,281)
========== =========== =========== ===========
Cost of Investments for Federal Income Tax Purposes $7,610,455 $14,415,814 $15,215,297 $4,431,998
========== =========== =========== ===========
</TABLE>
5. Net Assets At June 30, 1997, net assets consisted of the following:
<TABLE>
<CAPTION>
Utility Emerging
Income Fund Growth Fund Growth Fund Gold Fund
<S> <C> <C> <C> <C>
Paid-in-Capital $7,845,045 $16,110,219 $17,812,292 $ 6,600,798
Undistributed Net Investment Income 2,325 - - -
Accumulated Net Realized Loss on Investments (186,726) (93,039) (1,967,102) (2,478,604)
Net Unrealized Appreciation (Depreciation) on Investments 1,145,367 8,882,194 4,886,639 (713,650)
---------- ----------- ----------- -----------
Net Assets $8,806,011 $24,899,374 $20,731,829 $ 3,408,544
========== =========== =========== ===========
</TABLE>
6. Federal Income Tax
Permanent differences between tax and financial reporting of net
investment income and realized gains are reclassified to paid-in-capital.
As of June 30, 1997, net investment losses and accumulated net realized
losses were reclassified to paid-in-capital as follows:
<TABLE>
<CAPTION>
Utility Emerging
Income Fund Growth Fund Growth Fund Gold Fund
<S> <C> <C> <C> <C>
Net Investment Losses - $ 120,259 $ 363,496 $ 37,734
Net Accumulated Net Realized Loss - 1,258,147 2,400,444 2,089,392
</TABLE>
At June 30, 1997, for Federal income tax purposes, the following Funds
had capital loss carryovers which may be applied against future net taxable
realized gains of each succeeding year until the earlier of its utilization
or its expiration:
Utility Emerging
Expires June 30, Income Fund Growth Fund Growth Fund Gold Fund
1998 - - - $1,010,282
1999 - - $ 657,715 -
2000 - - - 434,866
2001 - - 287,195 281,566
2003 $155,713 - - -
2005 - $93,039 678,880 648,259
-------- -------- ---------- ----------
Total $155,713 $93,039 $1,623,790 $2,374,973
======== ======= ========== ==========
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
of Cappiello-Rushmore Trust:
We have audited the statements of assets and liabilities, including the
portfolios of investments, of the Utility Income, Growth, Emerging Growth
and Gold Funds of Cappiello-Rushmore Trust as of June 30, 1997, the related
statements of operations, changes in net assets and the financial
highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned at June 30, 1997 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Utility
Income, Growth, Emerging Growth and Gold Funds of Cappiello-Rushmore Trust
as of June 30, 1997, the results of their operations, the changes in their
net assets, and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Washington, DC
August 8, 1997
19
<PAGE>
CAPPIELLO
RUSHMORE FUNDS
CAPPIELLO-RUSHMORE
TRUST
Annual Report
June 30, 1997
<PAGE>
PART C
<PAGE>
PART C
OTHER INFORMATION
Cappiello-Rushmore Trust
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial statements: The following financial
statements are incorporated by reference in Part B of this
registration statement amendment.
Statement of Net Assets as of June 30, 1997
Statement of Operations for the year ended June 30, 1997
Statements of Changes in Net Assets for the years ended
June 30, 1997 and June 30, 1996
Financial Highlights for the years ended June 30, 1997,
1996, 1995, 1994 and 1993
No Statement of Sources of Net Assets will be included
because the full amount of net assets on June 30, 1997
represents cash received from issuance of shares (less
cost of shares redeemed). See Statements of Changes in
Net Assets.
b. Exhibits:
11 Consent of Deloitte & Touche LLP independent auditors
for Registrant
16 Calculation of Total Return
24 Power of Attorney
27 Financial Data Schedule
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Approximate Number of
Shareholders of Record
Title of Class at September 29, 1997
Common Stock, $.001 par value
Utility Income Fund 557
Growth Fund 1,156
Emerging Growth 1,290
Gold Fund 340
C-1
<PAGE>
ITEM 27. INDEMNIFICATION
Pursuant to Delaware Code Ann. title 12 3817, a
Delaware business trust may provide in its governing
instrument for the indemnification of its officers and
trustees from and against any and all claims and demands
whatsoever. Article X, Section 10.02 of the Declaration
of Trust states that the Trust shall indemnify any present
or former trustee or officer to the fullest extent
permitted by law against liability, and all expenses
reasonably incurred by him or her in connection with any
claim, action, suit or proceeding in which he or she is
involved by virtue of his or her service as a trustee,
officer or both, and against any amount incurred in
settlement thereof. Indemnification will not be provided
to a person adjudged by a court or other adjudicatory body
either to be liable to the Trust or its shareholders by
reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of his or her duties (collectively,
"disabling conduct"), or not to have acted in good faith
in the reasonable belief that his or her action was in the
best interest of the Trust. In the event of a settlement,
no indemnification may be provided unless there has been a
determination, as specified in the Declaration of Trust,
that the officer or trustee did not engage in disabling
conduct.
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 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 of 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 ADVISER
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITER
Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The physical location of all accounts, books and
records required to be maintained and preserved pursuant
to Section 31(a) of the Investment Company Act of 1940, as
amended, and Rules 31-a-1 and 31-a-2 thereunder, is 4922
Fairmont Avenue, Bethesda, Maryland 20814.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
None
C-2
<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 the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the city of Bethesda in the State of Maryland
on the 27th day of October, 1997.
Cappiello-Rushmore Trust
By:
/s/ Frank A. Cappiello*
Frank A. Cappiello, Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Name Title Date
/s/ Frank A. Cappiello* Chairman of the October 27, 1997
Frank A. Cappiello Board, Trustee
/s/ Daniel L. O'Connor* President, October 27, 1997
Daniel L. O'Connor Treasurer, Trustee
/s/ Bruce C. Ellis* Trustee October 27, 1997
Bruce C. Ellis
/s/ Peter J. DeAngelis* Trustee October 27, 1997
Peter J. DeAngelis
/s/ Dr. Peter B. Petersen* Trustee October 27, 1997
Dr. Peter B. Petersen
/s/ Jeffrey R. Ellis Trustee October 27, 1997
Jeffrey R. Ellis
*Timothy N. Coakley, Attorney-in-Fact
Exhibit 11
Consent of Deloitte & Touche LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
Cappiello-Rushmore Trust:
We consent to the incorporation by reference in Post-Effective
Amendment No. 7 to Registration Statement Nos. 33-46283 and
811-6601 of our report dated August 8, 1997 appearing in the Annual
Report of Cappiello-Rushmore Trust for the year ended June 30,
1997, and to the reference to us under the caption "Financial
Highlights" appearing in the Prospectus, which is also a part of
such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Washington, D.C.
October 24, 1997
Exhibit 16
Calculation of Total Return
<PAGE>
CAPPIELLO-RUSHMORE TRUST
Total Return Calculations
One Year Ended June 30, 1997 Since Inception
I. Cappiello-Rushmore Growth October 6, 1992 (inception) to
Fund June 30, 1997
n n
P (1+T) = ERV P (1+T) = ERV
ERV = $11,009 ERV = $19,711
n = 1 n = 4.73
T = 10.10% T = 15.41%
II. Cappiello-Rushmore Emerging
Growth Fund
n n
P (1+T) = ERV P (1+T) = ERV
ERV = $9,785 ERV = $16,943
n = 1 n = 4.73
T = (2.15)% T = 11.78%
III. Cappiello-Rushmore Utility
Income Fund
n n
P (1+T) = ERV P (1+T) = ERV
ERV = $10,339 ERV = $13,083
n = 1 n = 4.73
T = 3.39% T = 5.84%
IV. Cappiello-Rushmore Gold Fund March 7, 1994 (inception) to
June 30, 1997
n n
P (1+T) = ERV P (1+T) = ERV
ERV = $7,069 ERV = $7,020
n = 1 n = 3.318
T = (29.31)% T = (10.12)%
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Timothy N. Coakley and Linda R. Paisley, and each of
them, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and
in his or her name, place, and stead, in and all of his or her
capacities as a Trustee of Cappiello-Rushmore Trust (the
"Trust"), a Maryland corporation, to sign on his or her behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act
of 1933, as amended, and/or the Investment Company Act of 1940,
as amended, filed by the Trust and any amendments and supplements
thereto, and other documents in connection therewith, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the U.S. Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and
each of them, 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 as to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, and each of
them, may lawfully do or cause to be done by virtue hereof. This
power of attorney hereby revokes any and all powers of attorney
previously granted by the undersigned in connection with the
aforementioned matters.
DATED this 27th day of October, 1997.
/s/ Jeffrey R. Ellis
Jeffrey R. Ellis
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000885113
<NAME> CAPPIELLO-RUSHMORE TRUST
<SERIES>
<NUMBER> 1
<NAME> UTILITY INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 7,579,430
<INVESTMENTS-AT-VALUE> 8,724,797
<RECEIVABLES> 106,686
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,831,483
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,472
<TOTAL-LIABILITIES> 25,472
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,845,045
<SHARES-COMMON-STOCK> 846,722
<SHARES-COMMON-PRIOR> 1,424,777
<ACCUMULATED-NII-CURRENT> 2,325
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (186,726)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,145,367
<NET-ASSETS> 8,806,011
<DIVIDEND-INCOME> 641,749
<INTEREST-INCOME> 5,501
<OTHER-INCOME> 0
<EXPENSES-NET> (114,672)
<NET-INVESTMENT-INCOME> 532,578
<REALIZED-GAINS-CURRENT> 462,173
<APPREC-INCREASE-CURRENT> (763,657)
<NET-CHANGE-FROM-OPS> 231,094
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (540,376)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 272,300
<NUMBER-OF-SHARES-REDEEMED> (892,574)
<SHARES-REINVESTED> 42,219
<NET-CHANGE-IN-ASSETS> (6,300,118)
<ACCUMULATED-NII-PRIOR> 10,123
<ACCUMULATED-GAINS-PRIOR> (648,899)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38,223
<INTEREST-EXPENSE> 2
<GROSS-EXPENSE> 114,672
<AVERAGE-NET-ASSETS> 10,920,867
<PER-SHARE-NAV-BEGIN> 10.600
<PER-SHARE-NII> 0.532
<PER-SHARE-GAIN-APPREC> (0.196)
<PER-SHARE-DIVIDEND> (0.536)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.400
<EXPENSE-RATIO> 1.050
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000885113
<NAME> CAPPIELLO-RUSHMORE TRUST
<SERIES>
<NUMBER> 2
<NAME> GROWTH FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 14,415,814
<INVESTMENTS-AT-VALUE> 23,298,008
<RECEIVABLES> 1,682,574
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,980,582
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81,208
<TOTAL-LIABILITIES> 81,208
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,110,219
<SHARES-COMMON-STOCK> 1,308,875
<SHARES-COMMON-PRIOR> 1,778,484
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (93,039)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,882,194
<NET-ASSETS> 24,899,374
<DIVIDEND-INCOME> 198,458
<INTEREST-INCOME> 69,735
<OTHER-INCOME> 0
<EXPENSES-NET> (388,452)
<NET-INVESTMENT-INCOME> (120,259)
<REALIZED-GAINS-CURRENT> (90,376)
<APPREC-INCREASE-CURRENT> 2,092,216
<NET-CHANGE-FROM-OPS> 1,881,581
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (890,035)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,435,617
<NUMBER-OF-SHARES-REDEEMED> (1,955,558)
<SHARES-REINVESTED> 50,332
<NET-CHANGE-IN-ASSETS> (6,877,542)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,145,519
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 129,484
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 388,452
<AVERAGE-NET-ASSETS> 25,896,813
<PER-SHARE-NAV-BEGIN> 17.870
<PER-SHARE-NII> (0.092)
<PER-SHARE-GAIN-APPREC> 1.831
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (0.589)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.020
<EXPENSE-RATIO> 1.500
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000885113
<NAME> CAPPIELLO-RUSHMORE TRUST
<SERIES>
<NUMBER> 3
<NAME> EMERGING GROWTH FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
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