Rule 497(c)
File No. 33-46283
CAPPIELLO-RUSHMORE TRUST
UTILITY INCOME FUND
GROWTH FUND
EMERGING GROWTH FUND
Prospectus
November 1, 1998
The Cappiello-Rushmore Trust (the "Trust") is a no-load mutual fund complex with
four separate investment portfolios, three of which (the "Funds") are described
in this Prospectus. This Prospectus contains important information about these
Funds. Please read this Prospectus before investing and keep this Prospectus on
file for future reference.
Neither the securities and exchange commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
Risk and Return Summary.................................................
Investments, Risks, and Performance..................................
Risk/Return Bar Chart and Table......................................
Performance Table....................................................
Fees and Expenses of the Funds..........................................
Investment Objectives, Principal Investment Strategies,
and Related Risks.......................................................
Cappiello-Rushmore Utility Income Fund...............................
Cappiello-Rushmore Growth Fund.......................................
Cappiello-Rushmore Emerging Growth Fund..............................
A Review of Risk Considerations......................................
Management's Discussion of Fund Performances............................
Cappiello-Rushmore Utility Income Fund..............................
Cappiello-Rushmore Growth Fund......................................
Cappiello-Rushmore Emerging Growth Fund..............................
Market Outlook......................................................
Performance Comparison..............................................
Shareholder Information.................................................
How to Invest In the Funds...........................................
How to Redeem Your Investment........................................
Additional Information About the Funds..................................
Exchanging Fund Shares...............................................
Pricing of Fund Shares...............................................
Dividends and Distributions..........................................
Tax Consequences of Investing In the Funds...........................
Management, Organization, and Capital Structure.........................
Investment Adviser...................................................
Year 2000 Preparations...............................................
Financial Highlights....................................................
2
<PAGE>
RISK and RETURN SUMMARY
Investments, Risks, and Performance
Cappiello-Rushmore Utility Income Fund
Fund Investment Objective
The Utility Income Fund's investment objective is to provide high current
income, with capital appreciation a secondary consideration.
Principal Fund Investment Strategies
The Utility Income Fund seeks to achieve its objective by investing up to 65% of
its total assets in the equity securities of public utility companies and may
also invest in the bonds of public utility companies. We invest primarily in the
equity securities of electric utility companies and, to a lesser extent, in gas
utility companies. The Fund also may invest up to 35% of its total assets in the
securities of telecommunications companies. The Fund also may invest up to 20%
of its total assets in the securities of foreign issuers which are traded on a
recognized U.S. securities exchange or in dollar-denominated American Depository
Receipts ("ADRs"). The Fund's investments may include common stocks, preferred
stocks, and convertible securities of both U.S. and foreign issuers.
Principal Risks of Investing In the Utility Income Fund
The main risks that could adversely affect the value of the Utility Income
Fund's shares and the total return on your investment in this Fund stem from the
Fund's concentration policies. As with any stock-oriented fund, the value of
your investment in the Fund will rise or fall depending on the performance of
individual securities as well as stock market movements. Because the Fund
concentrates its investments in the public utilities industry, and within that
industry may focus on a single sector, the electric utilities sector, the
performance of this Fund is subject to the risk that the public utilities
industry, and in particular the electric utilities sector of that industry, will
underperform the market as a whole. Rising interest rates or deteriorating
economic conditions may impair the performance of utility companies' securities.
Further, adverse rate regulation can result in a decline in utility company
sales and earnings. To the extent that the Fund may invest in the securities of
foreign issuers, the Fund also will be subject to foreign company risks, such as
changes in currency exchange rates, inadequate disclosure of company
information, and political instability.
Cappiello-Rushmore Growth Fund
Fund Investment Objective
The Growth Fund's investment objective is long-term capital appreciation.
Principal Fund Investment Strategies
The Growth Fund seeks to achieve its objective by investing at least 65% of its
total assets in stocks of larger-capitalization growth companies (i.e.,
companies that have the potential to increase earnings faster than the overall
market and whose total market value is more than $5.0 billion).
Larger-capitalization companies usually are established companies with a track
record of sales and earnings. From these large capitalization companies, we
select companies that we believe have the potential to increase earnings faster
than the overall market. The Fund's stock investments may include common stocks,
preferred stocks, and convertible securities of both U.S. and foreign issuers.
We invest primarily in the common stocks of U.S. companies, but also may invest
up to 20% of the Fund's total assets in foreign securities which are traded on a
recognized U.S. securities exchange or in dollar-denominated ADRs.
3
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Principal Risks of Investing In the Growth Fund
The main risks that could adversely affect the value of the Growth Fund's shares
and the total return on your investment in this Fund are that the growth in
earnings and the rates of return of the growth companies in which the Fund
invests suddenly slow or stop so that the prices of these companies fall. In
addition, while larger-company stocks tend to be less volatile than smaller
company stocks, the value of your investment in the Fund will rise or fall
depending on the performance of individual securities as well as stock market
movements. These larger companies also may be slower to innovate or respond to
changing conditions than smaller companies.
Cappiello-Rushmore Emerging Growth Fund
Fund Investment Objective
The Emerging Growth Fund's investment objective is long-term capital
appreciation.
Principal Fund Investment Strategies
The Emerging Growth Fund seeks to achieve its objective by investing at least
65% of its total assets in the stocks and convertible securities of emerging
growth companies (i.e., companies that have the potential to increase earnings
faster than the overall market and whose total market capitalization is less
than $750 million). The Fund invests mainly in the common stocks of U.S.
emerging growth companies, but also may invest up to 20% of the Fund's total
assets in foreign emerging growth companies which are traded on a recognized
U.S. securities exchange or in dollar-denominated ADRs. We may also invest up to
25% of the Fund's assets in stock and related securities of larger-capitalized
companies and up to 35% of the Fund's assets in investment-grade corporate debt
securities and preferred stocks, regardless of whether these securities are
issued by emerging growth companies.
Principal Risks of Investing In the Emerging Growth Fund
The main risks of smaller-capitalization emerging growth companies that could
adversely affect the value of the Emerging Growth Fund's shares and the total
return on your investment in this Fund are that the growth in earnings and the
rates of return of the emerging growth companies in which the Fund invests
suddenly slow or stop so that the prices of these companies fall and also that:
o Smaller-capitalization companies are usually younger and less
established with a relatively-short record of sales and
earnings.
o Because of their size, smaller companies may lack the depth of
financial and management resources to weather economic or
financial turmoil.
o Smaller companies tend to be more volatile in their sales and
earnings performance, as well as in their stock price.
o Because stocks of smaller companies usually trade in lower
volumes than stocks of larger companies, these stocks may be
more vulnerable to market risk and may be harder to sell than
stocks of larger companies.
Loss of money is a risk of investing in the Cappiello-Rushmore Funds. An
investment in the Funds is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
4
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Risk/Return Bar Chart and Table
The chart and table below show the annual calendar-year returns and the
performance of the Funds. Each Fund commenced operations on October 6, 1992, and
has a fiscal year-end of June 30th. The information in the chart and the table
provides some indication of the risks of investing in the Funds by showing
changes in Fund performance from year to year and by showing how each Fund's
average annual returns for 1 year and 5 years compare with the performance of
both the Standard & Poor's 500 IndexTM (a widely-recognized, broad-based measure
of stock market performance) and the Russell 2000 Index (a more-narrowly based
index of stock market performance).
The chart and the table below assume the reinvestment of dividends and
distributions. How the Funds have performed in the past does not necessarily
indicate how the Funds will perform in the future.
The chart immediately below shows the annual total return of the Funds for each
calendar year from 1993 through 1997. The table that follows the chart compares
each Fund's average annual total returns for 1 year and 5 years with those of
the Standard & Poor's 500 Index and the Russell 2000 Index for periods ended
December 31, 1997, the most-recently completely calendar year.
Annual Total Return Chart
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Year Ended Utility Income Growth Emerging
(as of) Fund Fund Growth Fund
- -------------------- --------------- ------------ ------------
<S> <C> <C> <C>
December 31, 1993 6% 14% 23%
December 31, 1994 (13%) 5% (7%)
December 31, 1995 30% 37% 36%
December 31, 1996 4% 7% 2%
December 31, 1997 25% 22% 5%
</TABLE>
Notes to Annual Total Return Chart:
1. The year-to-date total returns for the Trust's most-recent fiscal quarter
(ended September 30, 1998) for the Utility Income Fund, the Growth Fund,
and the Emerging Growth Fund are 3.00%, -16.56%, and -25.66%,
respectively.
2. The highest quarterly returns of the three Funds since the inception of
the Trust on October 6, 1992, are as follows: the Utility Income Fund,
14.73% (in the 4th Quarter of 1997); the Growth Fund, 18.77% (in the 3rd
Quarter of 1997); and the Emerging Growth Fund, 23.05% (in the 3rd Quarter
of 1997).
3. The lowest quarterly returns of the three Funds, since the inception of
the Trust on October 6, 1992, are as follows: the Utility Income Fund,
-10.32% (in the 1st Quarter of 1994); the Growth Fund, -7.79% (in the 4th
Quarter of 1997); and the Emerging Growth Fund, -17.85% (in the 4th
Quarter of 1997).
5
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Performance Table
Average Annual Total Returns
(for Periods Ended December 31, 1997)
<TABLE>
<CAPTION>
Utility
Income Emerging S&P 500 Russell 2000
Fund Growth Fund Growth Fund IndexTM Index
--------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
One Year 25.25% 22.17% 4.72% 33.36% 22.36%
Five Years 9.31% 16.51% 10.61% 20.27% 16.40%
</TABLE>
FEES and EXPENSES of the FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
<TABLE>
<CAPTION>
Utility Emerging
Income Growth Growth
Fund Fund Fund
------ ------ -------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.35% 0.50% 0.50%
Other Expenses 0.70% 1.00% 1.00%
----- ----- -----
Total Annual Fund Operating Expenses 1.05% 1.50% 1.50%
----- ----- -----
</TABLE>
If your monthly account balance per Fund averages $500 or less due to
redemptions you may be charged a $5 fee.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time periods
indicated below and then redeem all of your shares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Utility Income Fund $ 107 $ 334 $ 579 $ 1,283
Growth Fund 153 474 818 1,791
Emerging Growth Fund 153 474 818 1,791
</TABLE>
6
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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES, and RELATED RISKS
Cappiello-Rushmore Utility Income Fund
Fund Investment Objective
The Utility Income Fund's investment objective is to provide high current
income, with capital appreciation a secondary consideration.
Principal Fund Investment Strategies
The Utility Income Fund seeks to achieve its objective by investing up to 65% of
its total assets in the equity securities of public utility companies and may
also invest in the bonds of public utility companies. We invest primarily in the
equity securities of electric utility companies and, to a lesser extent, in gas
utility companies. The Fund also may invest up to 35% of its total assets in the
securities of telecommunications companies. The Fund also may invest up to 20%
of its total assets in the securities of foreign issuers which are traded on a
recognized U.S. securities exchange or in dollar-denominated ADRs. The Fund's
investments may include common stocks, preferred stocks, and convertible
securities of both U.S. and foreign issuers. The Fund, to a lesser extent, may
also purchase U.S. Government securities and enter into repurchase agreements.
In the stock selection process, we seek to identify the ability of a utility
company to earn and pay an increasing stream of dividends. We use a number of
computer screens to identify stocks that appear to be favorably priced on the
basis of dividend yield and that may benefit from the current market and
economic environment. We then review these stocks for factors that could be
reflected in a rise in dividends and stock price such as: (i) favorable earnings
and dividend trends, including cash flow (net earnings plus depreciation), which
is critical to future dividends; (ii) reasonable utility rate regulations; (iii)
growing service area and/or market; and (iv) non-regulated earnings sources.
We usually sell a company's stock when that company's "fundamentals" (i.e., the
company's capital structure, operating characteristics, pre-tax profit margins,
and return on stockholders' equity) change for the worse. Generally, company
stock will also be sold when the stock price of the company experiences
significant, unexplained declines.
The Fund, from time to time, may take temporary defensive measures that are
inconsistent with the Fund's principle investment strategies in attempting to
respond to adverse market, economic, political, or other conditions. Thus, the
Fund may temporarily invest all or part of its assets in cash or cash
equivalents, which include, but are not limited to short-term money market
instruments, U.S. Government securities, certificates of deposit, bankers'
acceptances, or repurchase agreements secured by U.S. Government securities. The
effect of taking these temporary defensive positions is that the Fund may not
achieve its investment objective.
Principal Risks of Investing In the Utility Income Fund
The main risks that could adversely affect the value of the Utility Income
Fund's shares and the total return on your investment in this Fund stem from the
Fund's concentration policies. As with any stock-oriented fund, the value of
your investment in the Fund will rise or fall depending on the performance of
individual securities as well as stock market movements. Because the Fund
concentrates its investments in the public utilities industry, and within that
industry may focus on a single sector, the electric utilities sector, the
performance of this Fund is subject to the risk that the public utilities
industry, and in particular the electric utilities sector of that industry, will
underperform the market as a whole. Since the Fund focuses on a single sector,
the Fund's performance largely depends on that sector's performance, which may
differ from that of the overall public utilities industry. Rising interest rates
or deteriorating economic conditions may hurt the performance of utility
companies' stocks. Further, adverse rate regulation can result in a decline in
utility company sales and earnings. To the extent that the Fund may invest in
the securities of foreign issuers, the Fund also will be subject to foreign
company risks, such as changes in currency exchange rates, inadequate disclosure
of company information, and political instability.
7
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Cappiello-Rushmore Growth Fund
Fund Investment Objective
The Growth Fund's investment objective is long-term capital appreciation.
Principal Fund Investment Strategies
The Growth Fund seeks to achieve its objective by investing at least 65% of its
total assets in stocks of larger-capitalization growth companies.
Larger-capitalization companies usually are established companies with a track
record of sales and earnings. From these large capitalization companies, we
select companies that we believe have the potential to increase earnings faster
than the overall market. The Fund's stock investments may include common stocks,
preferred stocks, and convertible securities of both U.S. and foreign issuers.
We invest primarily in the common stocks of U.S. companies, but also may invest
up to 20% of the Fund's total assets in foreign securities which are traded on a
recognized U.S. securities exchange or in dollar-denominated ADRs. We also may
engage in other investment practices designed to seek either to enhance the
Fund's returns or to protect the portfolio from losses. For example, the Fund
may also invest up to 10% of its total assets in warrants, preferred stocks, and
convertible debt securities, and up to 5% of its total assets in certain
"high-yield" securities (i.e., below investment-grade corporate bonds, commonly
known as "junk bonds," and which are subject to greater risks, including default
risks, than those found in higher-rated securities). The Fund, to a lesser
extent, may also purchase U.S. Government securities and enter into repurchase
agreements.
In the stock selection process, we look for growth companies that are growing or
have the potential to grow faster than the S&P 500 IndexTM. The nucleus of the
Growth Fund's portfolio will usually be stocks with lower price-earnings ratios
and above average yields. In selecting a stock for inclusion in the portfolio,
we employ computer screens to identify stocks with attractive fundamentals and
valuations. We then review those companies seeking a catalyst for action, i.e.,
factors that could indicate a future rise in stock prices, such as a new or
changed management or a new product. These computer screens are employed to
determine: (i) fundamentals such as sales and earnings growth; and (ii) relative
valuations (those stocks that appear to be attractively priced compared to the
fundamentals).
We usually sell a company's stock when that company no longer is considered a
growth company, when that company shows deteriorating fundamentals, or when the
stock price of the company experiences significant, unexplained declines.
The Fund, from time to time, may take temporary defensive measures that are
inconsistent with the Fund's principle investment strategies in attempting to
respond to adverse market, economic, political, or other conditions. Thus, the
Fund may temporarily invest all or part of its assets in cash or cash
equivalents. The effect of taking these temporary defensive positions is that
the Fund may not achieve its investment objective.
As an anticipated result of these principal investment strategies, the Growth
Fund may engage in the active and frequent trading of portfolio securities. This
increased portfolio turnover for the Fund could produce high brokerage costs for
the Fund and result in taxable distributions to Fund shareholders.
Principal Risks of Investing In the Growth Fund
The main risks that could adversely affect the value of the Growth Fund's shares
and the total return on your investment in this Fund are that the growth in
earnings and the rates of return of the growth companies in which the Fund
invests suddenly slow or stop so that the prices of these companies fall. In
addition, while larger company stocks tend to be less volatile than smaller
company stocks, the value of your investment in the Fund will rise or fall
depending on the performance of individual securities as well as stock market
movements. Because of their size, larger companies usually have financial and
managerial resources to offset adversity. These larger companies, however, also
may be slower to innovate or respond to changing conditions than smaller
companies.
8
<PAGE>
Cappiello-Rushmore Emerging Growth Fund
Fund Investment Objective
The Emerging Growth Fund's investment objective is long-term capital
appreciation.
Principal Fund Investment Strategies
The Emerging Growth Fund seeks to achieve its objective by investing at least
65% of its total assets in the stocks and securities convertible into common
stocks and warrants of emerging companies with market capitalization of less
than $750 million. We search for those smaller companies that show or have the
potential to show rapid growth, but are not yet widely recognized. We also may
invest in older, established companies that, due to new products, rising sales,
expanding market, or other corporate changes, may have the potential of
increasing earnings growth. The Fund invests mainly in the common stocks of U.S.
companies, but also may invest up to 20% of the Fund's total assets in foreign
emerging growth companies which are traded on a recognized U.S. securities
exchange or in dollar-denominated ADRs. We may also invest up to 25% of the
Fund's assets in stock and related securities of larger-capitalized companies
and up to 35% of the Fund's assets in investment-grade corporate debt securities
and preferred stocks, regardless of whether these securities are issued by
emerging growth companies.
The Emerging Growth Fund may also invest up to 10% of its total assets in
warrants, preferred stocks, and convertible debt securities, and up to 5% of its
total assets in certain high-yield securities. The Fund may also engage in other
investment practices designed to seek to either enhance the Fund's returns or
protect the portfolio from losses. The Fund, to a lesser extent, may also
purchase U.S. Government securities and enter into repurchase agreements.
In selecting a stock for inclusion in the portfolio, we employ computer screens
to identify stocks with attractive fundamentals and valuations. A catalyst for
action is sought. These computer screens are employed to determine: (i)
fundamentals such as sales and earnings growth; and (ii) relative valuations
(those stocks that appear to be attractively priced compared to fundamentals).
We usually sell a company's stock when that company no longer is considered an
emerging growth company, when that company shows deteriorating fundamentals, or
when the stock price of the company experiences significant, unexplained
declines.
The Fund, from time to time, may take temporary defensive measures that are
inconsistent with the Fund's principle investment strategies in attempting to
respond to adverse market, economic, political, or other conditions. Thus, the
Fund may temporarily invest all or part of its assets in cash or cash
equivalents. The effect of taking these temporary defensive positions is that
the Fund may not achieve its investment objective.
As an anticipated result of these principal investment strategies, the Emerging
Growth Fund may engage in the active and frequent trading of portfolio
securities. This increased portfolio turnover for the Fund could produce high
brokerage costs for the Fund and result in taxable distributions to Fund
shareholders.
Principal Risks of Investing In the Emerging Growth Fund
The main risks of smaller-capitalization emerging growth companies that could
adversely affect the value of the Emerging Growth Fund's shares and the total
return on your investment in this Fund are that the growth in earnings and the
rates of return of the emerging growth companies in which the Fund invests
suddenly slow or stop so that the prices of these companies fall and also that:
o Smaller-capitalization companies are usually younger and less
established with a relatively-short record of sales and
earnings.
o Because of their size, smaller companies may lack the depth of
financial and management resources to weather economic or
financial turmoil. For the same reason, however, smaller
companies may have more flexibility and are usually quicker to
innovate or respond to changing conditions when compared to
larger capitalized companies.
9
<PAGE>
o Smaller companies tend to be more volatile in their sales and
earnings performance, as well as in their stock price.
o Because stocks of smaller companies usually trade in lower
volumes than stocks of larger companies, these stocks may be
more vulnerable to market risk and may be harder to sell than
stocks of larger companies.
A Review of Risk Considerations
Risk In General
The risks of a fund are usually defined by the fund's individual securities,
overall portfolio, and investment tactics. Over longer periods of time, stocks
have been among the most successful investments available to the public.
Nevertheless, stocks do fluctuate in price. Accordingly, there is a risk you
could lose as well as make money by investing in the Cappiello-Rushmore Funds.
As with any fund, there is no guarantee that the performance of the Funds will
be positive over any period of time, either short term or long term.
Additional Risks
In addition to the specific principal risks identified above for each of the
Funds, a Fund also may encounter the following broad-based risks:
Fund Risk -- The possibility that a Fund's performance during a
specific period may not meet or exceed that of the market as a whole.
Concentration Risk -- The risk that the particular industry in which
the Fund may focus its investments will underperform the market as a whole.
Sector Risk -- The risk that the particular economic sector in which a
Fund may focus its investments will underperform the market as a whole. To the
extent that a Fund's investments are concentrated in issuers conducting business
in the same economic sector, the Fund is subject to the risks of investing in
that sector, including legislative or regulatory changes, adverse market
conditions, and/or increased competition.
Market Risk -- The possibility that stock prices in general will
decline over short, or even extended, periods of time. Stock markets tend to be
cyclical, with periods when stock prices generally rise and periods when stock
prices generally decline. Investors have noticed that when the stock market
surges up, many stocks post higher prices. On the other hand, when the stock
market falls sharply, many common stocks will drop even more sharply. A change
in market psychology can cause a security's price to decline irrespective of any
truly fundamental change in the company itself.
Interest Rate Risk -- The risk of a rise in interest rates that usually
depresses the prices of fixed-income type securities and often of equities as
well. In the short run, high interest rates reduce interest-sensitive investment
spending. Interest rate uncertainty is related to various factors. Among these
factors are swings in money growth, uncertainty about the policies of the
Federal Reserve Board, and inflationary expectations.
Small-Issuer Risk -- Small- and medium-capitalization companies may be
more vulnerable than larger, more-established organizations to adverse business
or economic developments. In particular, small-capitalization companies may have
limited product lines, markets, and financial resources, and also may be
dependent upon a relatively-small management group. These securities may be
traded over-the-counter or listed on an exchange and may not pay dividends.
Event Risk -- The possibility that corporate securities may suffer
substantial declines in market value due to corporate restructurings. While
event risk may be high for certain corporate securities held by a Fund, event
risk in the aggregate should be low because of each Fund's varied holdings.
Foreign Company Risks -- Investments in foreign securities involve
additional risks, such as changes in currency exchange rates, inadequate
disclosure of company information, and political instability. Some additional
significant risks associated with investing in foreign companies include:
10
<PAGE>
o Volatility -- Investments in securities of foreign companies can
be more volatile than investments in U.S. companies. Diplomatic,
political, or economic developments could affect investments in
foreign companies.
o Regulatory Environment -- Foreign companies generally are not
subject to uniform accounting, auditing, and financial reporting
standards comparable to those applicable to U.S. domestic
companies. Foreign issuers may be subject to different
accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic issuers. There is generally less
government regulation of listed companies abroad than in the
United States.
Money Market Investment Risk -- Under adverse market conditions, one or
more of the Funds could invest some or even all of its assets in money market
securities. Although each Fund's objective would be to attempt to avoid losses,
this defensive tactic, if employed in a significant way, could have the effect
of reducing the benefit from any upswing in the market.
MANAGEMENT'S DISCUSSION
OF FUND PERFORMANCE
During the past twelve months, the stock market, as measured by the major
indices, moved to new all time highs propelled by a still growing economy,
falling inflation expectations, and lower interest rates. The effect of the
Asian crisis impacted stock prices in October 1997 and in early Spring of 1998
as the second wave of Asian economic woes affected some sectors of the economy.
One of the results of this crisis has been the two-tiered nature of the stock
market where "size" did count in producing the better investment returns as
nervous investors sought liquidity and safety in the large capitalization
stocks. Further, individual stock performances seemed to be directly related to
size rather than value, earnings growth, or management capability. More
remarkable has been foreign investment in the U.S. market. As the Asian crisis
began to become apparent about a year ago, it generated a flight of capital from
troubled Asian markets into the U.S. and, to a lesser extent, Europe. Most of
this foreign inflow sought liquidity and the money flowed into index funds (in
the case of equities) and U.S. Treasury securities. The latter helped to push
rates down, particularly on the 30-year Treasury Bond.
Cappiello-Rushmore Utility Income Fund
The Utility Income Fund is managed to provide shareholders with a
relatively-high dividend yield. Capital gains growth is a secondary
consideration. Nevertheless, for the fiscal-year ended June 30, 1998, the Fund's
overall total return was 25.55%, a satisfying mix of both capital appreciation
and an above-average dividend yield.
During the year, we accomplished some diversification from electric utilities
into more attractive valuations in telecommunications as well as non-utility
sectors. Nevertheless, electric utilities still comprise 46.4% of the portfolio
with telecommunication stocks at 22.1% and natural gas at 5.4% of the portfolio.
The best performing stocks from June 30, 1997 to June 30, 1998, were ALLTEL
Corp. (up 39%), TNP Enterprises Inc. (up 33%), and Southern Company (up 27%).
We continue to exercise discipline in evaluating utility stocks for purchase,
stressing five factors:
o Yield (relative to other utilities and the overall market)
o Company Management (particularly important in a deregulating
industry)
o Financial Strength
o Future Dividend Growth
o Level of Risk
The uncertainties associated with deregulated markets will continue to pose an
operating risk for the electric utility industry. As utilities search for new
sectors of profitability, competition for new projects is increasing.
Acquisition through privatization is also an alternative to the
increasingly-competitive domestic power market.
11
<PAGE>
Cappiello-Rushmore Growth Fund
The Growth Fund seeks capital appreciation by investing in larger-established
companies with favorable relationships between price/earnings ratios and growth
rates. This approach resulted in a satisfying return of 20.72% for the year
marking the fourth consecutive year of double-digit returns. Among the best
acting stocks for the year ended June 30, 1998, were Federated Department Store
warrants, Class "C" (up 119%), GM Hughes Electronics Corporation (up 59%), and
American Express Company (up 53%). The largest sector positions are financial
services (25.5% of the portfolio), health care (11.9% of the portfolio), and
computer hardware and equipment (10.1% of the portfolio).
Larger capitalization stocks fared well during the year, outperforming smaller
issues as investors placed a premium on the liquidity of larger stocks. This
preference reflected the prevailing economic conditions of slowing (but still
growing) corporate earnings, moderately-declining interest rates, and healthy
fund inflows into stocks. We continue to invest in well-managed, growing, and
profitable businesses that we believe will benefit from long-term trends such as
economic and demographic changes. These trends usually result in increases in
demand for products and services and offer profitable business opportunities.
One example is the demographic trend of the aging of America. The elderly
population is growing much more rapidly than the general population and this
group has increasingly required more health care. Consequently, we have focused
on health care stocks, which comprise 11.9% of the portfolio. A second trend
relates to the "baby boomer" group. As they approach their forties and early
fifties, "baby boomers" have gradually recognized the need to save and invest.
Our concentration in this area includes finance companies such as American
Express Company, Franklin Resources, Inc., and Charles Schwab Corp. This sector
comprises 25.5% of the portfolio.
During the year, we added to our telecommunication position with the addition of
Frontier Corporation and to the retail sector with the purchase of Talbots, Inc.
Cappiello-Rushmore Emerging Growth Fund
The Emerging Growth Fund recorded a slightly negative 0.14% investment
performance for the fiscal year ended June 30, 1998. This disappointing
performance was reflective of the small-capitalization stock sector during the
twelve months ended June 30, 1998, in which small cap stocks significantly
underperformed their larger peers. The last time that small companies
outperformed the S&P 500 IndexTM was in 1991 and 1992. Since then, the group has
lagged the larger stock indices. This lag in smaller stocks has persisted
despite the fact that many of these companies have good earnings momentum,
established products, capable and seasoned management, and solid balance sheets.
Yet, despite these factors, small stocks continued to sell at growing discounts.
The answer to the discrepancy seems to be "liquidity" -- the desire of
institutional investors to put incoming cash to work in buying the
big-capitalization stocks where large amounts of stock can be bought (and sold)
without significantly disturbing the price of stocks. "Liquidity" rather than
valuation seems to be the rule in investment decisions for the past eight
months. Put another way, the stocks comprising the largest 10% of indices like
the Dow Jones Industrial Average, the S&P 500 IndexTM, and the Russell 2000
Index have received the major portion of institutional flows over the past
months.
We ended fiscal year 1998 with the portfolio focused in three major sectors: (1)
health care is the largest sector at 22.0% of the portfolio followed by (2)
technology (computer, electronic, and telecommunication) and (3) retailing.
Since we continue to believe the U.S. health care system is moving to one of
managed care, health care stocks now constitute 22.0% of the portfolio. Our
health care stocks have performed well. Our largest position is KV
Pharmaceutical Co. (A) showing a cost of $293,949 and a market value of
$1,244,375 as of June 30, 1998.
During the year, we sought to reduce risk associated with individual securities
by positioning more of the portfolio into lower P/E stocks. These stocks
represent solid values whose price we believe more than adequately reflects any
possible earnings disappointments.
Among the best performing stocks during the year were FTI Consulting, Inc. (up
113%), KV Pharmaceutical Co. (A) (up 105%), and Immune Response Corp. (up 97%).
New names in the portfolio in fiscal year 1998 are Bay Networks, Inc. (up 30%)
and Steven Madden, Ltd. (up 27%).
12
<PAGE>
The Salomon/Smith Barney Emerging Growth Index Stocks are now at price earnings
levels not seen since 1979, during the market crash of 1987, and during the 1990
recession. Future prospects for emerging growth stocks look promising,
particularly from these depressed levels. Looking ahead to the next six to
twelve months, we believe that the momentum of the earnings growth rate of
smaller companies will continue to be favorable. These companies can have an
advantage in a growing economy with their unique ability to adapt relatively
swiftly to changing conditions. Lower inventories, limited product lines, and
leaner management also give small companies strategic flexibility and enable
these companies to respond more rapidly to new opportunities in the marketplace.
Additionally, small companies with promising products or services, or that
operate in dynamic industries, have the potential for more rapid earnings growth
than larger companies. Further, because their international exposure is usually
limited, small companies are not as likely to be affected by fluctuations in
earnings from overseas operations. For this reason, we believe the smaller stock
values are even more compelling for the balance of 1998 and 1999, particularly
in comparison to the slowing growth rates of the large multi-national exporting
companies.
Finally, we continue to be optimistic about the Fund's prospects. Many of our
holdings sell at attractive valuations relative to their expected growth rates.
For some time, investors have largely failed to fully appreciate the values in
the small capitalization sector. However, with a continued moderate economic
recovery and low inflation, small niche companies which can increase their
earnings and sell at historically low valuations should ultimately be sought by
investors.
Market Outlook
While interest rates remain low and consumer confidence is reaching previous
high levels, mutual fund cash inflows have moderated and the momentum in
industrial production is unlikely to accelerate. Currently, the overriding issue
for the market is the outlook for corporate profits. Profits depend on the
outlook for the economy and the extent of the Asian effect over the next six
months. Unquestionably, Asia has slowed the economy and corporate profits,
particularly in the technology sector. A stronger dollar has also slowed
exports. These factors are expected to persist, but not enough to produce
weakness in other sectors such as business investment. Some counterbalance to
this weakness will be consumer spending (which is likely to continue its upward
trend), bolstered by "real" wage growth and the refinancing of home mortgages to
lower rates. We believe the underlying environment is still very positive for
equities and this should push the market higher in this fiscal year. Slow growth
with modest inflation should maintain earnings growth and keep interest rates
within a narrow range.
Finally, we believe it is more important to evaluate each company individually
rather than focusing on general market trends. Forecasting the direction or
general level of the stock market is difficult, if not impossible. Many of the
best investors of this century made a point of not focusing too much on the
level of the market. Investors are best served by emphasizing the fundamentals
and buying companies with sustainable earnings growth at reasonable valuations.
If this is done consistently, relatively good returns should be generated over
time.
Performance Comparison
Assuming a $10,000 initial investment, the following graph compares the total
returns of the Funds to the performance of the S&P 500 IndexTM and Russell 2000
Index since the Funds began operating on October 6, 1992. Please remember that
past performance does not necessarily reflect how the Funds may perform in the
future.
13
<PAGE>
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Account Value Utility Emerging
Total Return Income Growth Growth S&P 500 Russell 2000
(as of) Fund Fund Fund IndexTM Index
- ---------------------- ----------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
October 6, 1992 $10,000 $10,000 $10,000 $10,000 $10,000
June 30, 1993 $10,998 $10,634 $11,335 $11,297 $11,871
June 30, 1994 $ 8,998 $11,058 $10,506 $11,455 $12,386
June 30, 1995 $10,493 $14,667 $15,141 $14,442 $14,877
June 30, 1996 $12,655 $17,904 $17,315 $18,197 $18,431
June 30, 1997 $13,083 $19,711 $16,943 $24,511 $21,441
June 30, 1998 $16,425 $23,794 $16,919 $31,904 $24,980
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns as of June 30, 1998
Utility Income Growth Emerging
Fund Fund Growth Fund
------------- ------ -----------
<S> <C> <C> <C>
One Year 25.55% 20.72% (0.14)%
Five Year 8.35% 17.48% 8.34%
Since Inception 9.04% 16.32% 9.60%
</TABLE>
SHAREHOLDER INFORMATION
How to Invest In the Funds
Facts To Know Before You Invest:
o The minimum initial investment in each Fund is $2,500
o Retirement accounts may be opened with a $500 minimum investment
o There are no minimum amounts for subsequent investments
o There are no sales charges
o The Funds reserve the right to reject any purchase order
o All shares are electronically recorded; certificated shares are
not available
o A $10 fee may be charged for items returned for insufficient or
uncollectible
14
<PAGE>
Purchasing Shares:
By Mail
Complete an application and make a check payable to "Cappiello-Rushmore
Trust." Send your completed and signed application and check drawn on a
U.S. bank to:
Cappiello-Rushmore Trust
4922 Fairmont Avenue
Bethesda, Maryland 208l4
By Bank Wire
Speak to the branch manager of your bank. Request a transfer of federal
funds to Rushmore Trust and Savings, FSB, instructing your bank to wire
transfer the money before 4:00 P.M., Eastern Time, to:
Rushmore Trust and Savings, FSB
Bethesda, Maryland
Routing # 0550-71084
Specify the Fund name, your account number (if assigned), and the name(s)
in which the account is registered.
After instructing your bank to transfer federal funds, you must telephone
Shareholder Services at (800) 622- 1386 or (301) 657-1510 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. Remember that it is important to complete the wire transfer
before 4:00 P.M., Eastern Time.
Through Brokers
You may invest in the Fund by purchasing shares through registered
broker-dealers, banks, or other financial institutions that purchase
securities for their customers. Please note that these third parties may
charge a fee for their services.
How To Redeem Your Investment
Redeeming Shares:
By Telephone (1-800-622-1386)
As a Fund shareholder, you will automatically receive telephone redemption
privileges. If you choose to redeem your investment by telephone, please
contact Shareholder Services at 1-800-622-1386 between the hours of 8:30
A.M. and 4:30 P.M., Eastern Time. For your protection, we will take
measures to verify your identity by requiring some form of personal
identification prior to acting on telephone instructions and may also
record telephone transactions. A written confirmation will be mailed to you
within five business days after your redemption. Please note that we may
terminate or modify telephone redemption privileges upon 60 days notice.
By Mail or Fax
Mail your instructions for Fax your instructions for
redemption to: redemption to:
Rushmore Trust and Savings, FSB (301) 657-1520
4922 Fairmont Avenue Attn: Shareholder Services
Bethesda, MD 20814
Attn: Shareholder Services
15
<PAGE>
Include the following information in your redemption request:
o the name of the Fund and account number you are redeeming from
o your name(s) and address as it appears on your account
o the dollar amount or number of shares you wish to redeem
o your signature(s) as it appears on your account
o a daytime telephone number
Additional Information You Should Know When You Redeem
There are no fees charged for redemptions.
o You may receive redemption proceeds by bank wire, check, or
through the Automated Clearing House System (ACH). When the amount
to be redeemed is at least $5,000, we will, upon instruction, wire
transfer the amount to your commercial bank or brokerage account
specified in your account application. For amounts less than
$5,000, you may have redemption proceeds deposited directly into
an account specified on the account application or request that a
redemption check be delivered by mail to your address of record.
o If you request payment of redemptions to a third party or to a
location other than an address on record, the request must be in
writing and your 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).
o Normally, payment for all shares redeemed will be issued within
one business day. However, withdrawal requests on investments that
have been made by check may be delayed up to ten calendar days
following the investment or until the check clears, whichever
occurs first. This delay is necessary to assure us that
investments made by check are good funds. You will receive
redemption proceeds promptly upon confirmation of receipt of good
funds.
o If your monthly Fund account balance averages $500 or less due to
redemptions, you may be charged a $5 fee. The fee will not be
imposed on tax-sheltered retirement plans or accounts established
under the Uniform Gifts or Transfers to Minors Acts. Additionally,
we reserve the right to redeem involuntarily those accounts which
fall below $500 after providing 60 days written notice.
o The right of redemption may be suspended, or the date of payment
postponed, during the following periods: (a) periods during which
the New York Stock Exchange (the "NYSE") is closed (other than
customary weekend or holiday closings); (b) periods when trading
on the NYSE is restricted, or an emergency exists, as determined
by the Securities and Exchange Commission ("SEC"), so that
disposal of a Fund's investments or determination of net asset
value is not reasonably practicable; or (c) for such other periods
as the SEC, by order, may permit for protection of the Fund's
investors.
16
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
Exchanging Fund Shares
The Trust is comprised of four separate Cappiello-Rushmore Funds, three of
which, the Utility Income, Growth, and Emerging Growth Funds, are described in
this Prospectus. The fourth Cappiello-Rushmore Fund, the Gold Fund, is described
in a separate prospectus.
You may exchange shares of one Cappiello-Rushmore Fund, without cost, for shares
of another Cappiello-Rushmore Fund, or may choose to exchange, without cost,
Cappiello-Rushmore Fund shares for shares of any of the following Rushmore
Funds: Fund for Government Investors, Fund for Tax-Free Investors, Inc., The
Rushmore Fund, Inc., or American Gas Index Fund, Inc. The registration for both
accounts must be identical, and you should obtain a current prospectus for the
fund into which you are exchanging by calling 1-800-343-3355. Exchanges will be
effected at the respective net asset values of the Funds involved as next
determined after receipt of the exchange request. The Funds may change or cancel
their exchange policies at any time, upon 60 days' notice to shareholders.
Effective immediately, the Cappiello-Rushmore Gold Fund no longer will accept
purchase orders for new shares, and Gold Fund shares are no longer available
through the Trust's exchange privilege. Trust shareholders may continue to
exchange their Gold Fund shares for shares of other Rushmore Funds, including
shares of the three Funds in the Cappiello-Rushmore Trust other than the Gold
Fund, in accordance with the terms of the Trust's exchange privilege.
Pricing of Fund Shares
The price of a Fund's shares on any given day is the Fund's net asset value per
share. This figure is computed by dividing the total market value of the Fund's
investments and other assets, less any liabilities, by the number of Fund shares
outstanding. The net asset value per share of each Fund is determined as of 4:00
P.M., Eastern Time, on days when the NYSE is open for business. Orders accepted
by the Trust directly or by an authorized third party will be priced at the
Fund's net asset values next computed after orders are received. This means that
if you place a purchase or redemption order after 4:00 P.M., Eastern Time, this
order will be effected at the next calculation of net asset value, normally 4:00
P.M. the next business day.
Each of the Funds values its portfolio securities based on the market value of
these securities. Each security held by the Funds, and which is listed on a
securities exchange, is valued at the last quoted sale price on the NYSE and
other major exchanges for a given day. Price information on each listed security
is taken from the exchange where the security is primarily traded.
Over-the-counter securities are 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. 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 in good faith by the Board of Trustees or
at the direction of the Trustees.
If a Fund has portfolio securities that are primarily listed on foreign
exchanges that trade on weekends or other days when the Fund does not price its
shares, then the net asset value of the Fund's shares may change on days when
shareholders of the Fund will not be able to purchase or redeem the Fund's
shares.
Dividends and Distributions
All dividends and capital gain distributions of each Fund will be reinvested in
additional Fund shares (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.
Although the timing and amount of all dividends and distributions are subject to
the discretion of the Board of Trustees, the distribution schedule for the Funds
is as follows:
17
<PAGE>
o If you own shares of the Growth and/or Emerging Growth Funds, net
investment income and net capital gains will be distributed annually in
December.
o If you are a shareholder of the Utility Income Fund, you will receive
net investment income quarterly. Capital gains will be distributed
annually in December.
Tax Consequences of Investing In the Funds
Taxability of Distributions
The Funds intend to meet the requirements for being tax-qualified regulated
investment companies. As long as the Funds meet these requirements, the Funds
pay no federal income tax on the earnings distributed to shareholders. The Funds
intend to distribute all of their earnings to their shareholders. Dividends and
capital gains distributions you receive from any Cappiello-Rushmore Fund,
whether reinvested or taken as cash, are generally considered taxable to you as
ordinary income or as capital gains income. Each of the Funds expects that its
distributions to shareholders, as a result of the Fund's investment objective
and strategies, will consist primarily of dividends on ordinary income or
capital gains. The Form 1099 that is mailed to you each January details your
dividends and their federal tax category. You should verify your tax liability
with your tax professional.
Taxability of Transactions
Any time you sell or exchange shares of the Funds, this transaction is
considered a taxable event for you. For example, if you exchange shares of one
Fund for shares of another, the transaction would be treated as a sale.
Consequently, any gain resulting from the transaction would be subject to
federal income tax.
MANAGEMENT, ORGANIZATION,
and CAPITAL STRUCTURE
Investment Adviser
McCullough, Andrews & Cappiello, Inc.
Main Office East Coast Office
Suite 4250 Suite 250
101 California Street 10751 Falls Road
San Francisco, CA 94111 Lutherville, MD 21093
McCullough, Andrews & Cappiello, Inc. (the "Adviser") has served as the
investment adviser to the Funds since their inception on October 6, 1992. For
the advisory services performed, the Adviser received the following fees during
the Funds' fiscal year ended June 30, 1998:
<TABLE>
<CAPTION>
Utility Income Fund Growth Fund Emerging Growth Fund
-------------------- ------------- --------------------
<S> <C> <C> <C>
Advisory Fees Paid as a
Percentage of Net Assets 0.35% 0.50% 0.50%
</TABLE>
18
<PAGE>
Portfolio Managers
Frank A. Cappiello and Robert F. McCullough, C.P.A., manage the Funds and have
done so since their inception in October, 1992. Mr. McCullough is Chairman of
the Board of the Adviser and Mr. Cappiello is President. Both have been in the
investment business for more than thirty years.
Mr. McCullough is a graduate of Santa Clara University and is a member of the
American Institute of CPAs and the California Society of CPAs.
Mr. Cappiello is a graduate of the University of Notre Dame (A.B.) and Harvard
University (M.B.A.) He is past President of the Baltimore Security Analysts
Society and former Trustee of the Maryland State Retirement Systems.
Year 2000 Preparations
The day-to-day operations of the Trust are dependent upon the Trust's service
providers, principally the Adviser, Money Management Associates, Rushmore Trust
and Savings, FSB, and Rushmore Services, Inc. (collectively, the "Servicers"),
and upon the smooth functioning of the computer systems that they utilize. Many
computer systems currently cannot properly recognize or process date-sensitive
information relating to the year 2000 and beyond. Like other mutual funds and
financial and business organizations around the world, the Trust, therefore,
could be adversely affected if the computer systems used by these Servicers, and
their vendors, do not properly process and calculate date-related information
and data on and after January 1, 2000. The Servicers have been evaluating the
impact that the year 2000 issue may have on the computer systems that they
utilize and are making appropriate modifications to these systems in order to
assure that they will be prepared for the year 2000. The Trust and the Servicers
expect that any further modifications to their computer systems necessary to
address the year 2000 issue will be made and tested in a timely manner. The
Servicers also are working with their outside vendors, and other persons whose
systems are linked to those of the Trust and the Servicers, to obtain
satisfactory assurances regarding the year 2000 issue. The costs of this systems
remediation will not be paid directly by the Trust. Inadequate remediation could
have an adverse effect on the Trust's operations, including pricing and
securities trading and settlement, and the provision of shareholder services.
Although, at this time, there can be no assurance that the remedial action taken
by the Servicers will be sufficient or timely, the Servicers do not anticipate
that the transition to the 21st century will have a material impact on the
ability of the Servicers to continue to service the Trust at current levels.
19
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you understand
each Fund's financial performance for the past 5 years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in the Funds (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the financial statements of the Funds, is included in the annual report for the
Funds, which is available upon request.
<TABLE>
<CAPTION>
Utility Income Fund Growth Fund
For the Year Ended June 30, For the Year Ended June 30,
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value --
Beginning of Period $ 10.40 $ 10.60 $ 9.24 $ 8.39 $ 10.82 $ 19.02 $ 17.87 $ 14.64 $ 11.05 $ 10.63
------- -------- ------- ------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net Investment Income 0.47 0.53 0.49 0.55 0.53 (0.18) (0.09) (0.07) 0.01 (0.02)
(Loss)
Net Realized and
Unrealized Gain (Loss)
on Securities 2.17 (0.19) 1.39 0.85 (2.42) (4.12) 1.83 3.30 3.60 0.44
------ ------ ---- ---- ------ ------ ---- ---- ---- ----
Total from Investment
Operations 2.64 0.34 1.88 1.40 (1.89) 3.94 1.74 3.23 3.61 0.42
------ ---- ---- ---- ------ ------ ---- ---- ---- ----
Less Distributions:
Dividends (from net
investment income) (0.48) (0.54) (0.52) (0.55) (0.53) -- -- -- (0.02) --
Distributions (from
capital gains) -- -- -- -- (0.01) -- (0.59) -- -- --
--------- --------- --------- --------- ------ --------- ------ --------- --------- ---------
Total Distribution to
Shareholders (0.48) (0.54) (0.52) (0.55) (0.54) -- (0.59) -- (0.02) --
------ ------ ------ ------ ------ -------- ------ --------- ------ ---------
Net Asset Value -- End
of Period $ 12.56 $ 10.40 $ 10.60 $ 9.24 $ 8.39 $ 22.96 $ 19.02 $ 17.87 $ 14.64 $ 11.05
Total Investment Return 25.55% 3.39% 20.60% 16.62% (18.18)% 20.72% 10.10% 22.06% 32.65% 3.99%
Ratios and Supplemental
Data:
Net Assets -- End of
Period (000s Omitted $ 9,799 $8,806 $15,106 $17,151 $9,117 $24,831 $24,899 $31,777 $19,337 $9,993
Ratio of Expenses to
Average Net Assets 1.05% 1.05% 1.05% 1.05% 1.05% 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of Net Income to
Average Net Assets 4.01% 4.88% 4.82% 6.26% 5.21% (0.74)% (0.46)% (0.41)% 0.12% (0.18)%
Portfolio Turnover Rate 29.45% 17.33% 45.11% 147.04% 26.13% 65.08% 41.93% 74.50% 70.89% 119.03%
</TABLE>
A The per share amount does not coincide with the net realized and unrealized
loss for the year because of the timing of sales and redemptions of Fund
shares and the amounts of per share realized and unrealized gain and loss
at such time.
20
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
The following financial highlights tables are intended to help you understand
each Fund's financial performance for the past 5 years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in the Funds (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the financial statements of the Funds, is included in the annual report for the
Funds, which is available upon request.
<TABLE>
<CAPTION>
Emerging Growth Fund
For the Year Ended June 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value --
Beginning of Period $13.84 $ 16.99 $ 14.96 $ 10.41 $ 11.32
------ -------- -------- -------- --------
Income from Investment
Operations:
Net Investment Income
(Loss) (0.21) (0.24) (0.16) (0.08) (0.10)
Net Realized and
Unrealized Gain (Loss
on Securities 0.19A (0.24) 2.30 4.63 (0.69)
---- ------ ---- ---- ------
Total from Investment
Operations (0.02) (0.48) 2.14 4.55 (0.79)
-------- ------ ---- ---- ------
Less Distributions:
Dividends (from net
investment income) -- -- -- -- --
Distributions (from
capital gains) -- (2.67) (0.11) -- (0.12)
-------- ------ ------ -------- ------
Total Distribution to
Shareholders -- (2.67) (0.11) -- (0.12)
-------- ------ ------ --------- ------
Net Asset Value -- End
of Period $13.82 $ 13.84 $ 16.99 $ 14.96 $ 10.41
Total Investment Return (0.14)% (2.15)% 14.36% 43.71% (7.31)%
Ratios and Supplemental
Data:
Net Assets -- End of
Period (000s Omitted 14,159 $20,732 $44,985 $36,606 $18,133
Ratio of Expenses to
Average Net Assets 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of Net Income to
Average Net Assets (1.07)% (1.20)% (0.98)% 0.61% (0.85)%
Portfolio Turnover Rate 121.20% 66.16% 121.22% 96.11% 128.13%
</TABLE>
A The per share amount does not coincide with the net realized and unrealized
loss for the year because of the timing of sales and redemptions of Fund
shares and the amounts of per share realized and unrealized gain and loss
at such time.
21
<PAGE>
In addition to this prospectus, the following information is available to assist
you in making an investment decision:
Information Available Upon Request Description
Statement of Additional Information A document that includes additional
information about the Funds.
Annual and Semi-Annual Reports Bi-annual reports that contain
information about the investments of
the Funds. These reports also
discuss the market conditions and
investment strategies that
significantly affected the Funds'
performances during their last
fiscal year.
There are a variety of ways to receive the above information upon your request
and without charge. To receive the above information or to request other
information about the Trust, or to make shareholder inquiries, you may contact
the Cappiello-Rushmore Trust directly by telephone, at 1-800-343-3355, or visit
our internet site at http://www.rushmorefunds.com, or you may send a written
request to the Trust's offices, at 4922 Fairmont Avenue, Bethesda, Maryland
20814. Additional information about the Funds can also be reviewed and copied at
the Securities and Exchange Commission's Public Reference Room in Washington D.
C. (for hours of operation please call the Commission at 1-800-SEC-0330). You
may also obtain copies of the information by visiting the Commission's internet
site at http://www.sec.gov, or, upon payment of a duplicating fee, by writing
the Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D. C. 20549-6009.
Cappiello-Rushmore Trust Investment Company Act File No. 811-6601
22
<PAGE>
Rule 497(c)
File No. 33-46283
CAPPIELLO-RUSHMORE TRUST
GOLD FUND
Prospectus
November 1, 1998
The Cappiello-Rushmore Trust (the "Trust") is a no-load mutual fund complex with
four separate investment portfolios, one of which (the "Fund") is described in
this Prospectus. This Prospectus contains important information about this Fund.
Please read this Prospectus before investing and keep this Prospectus on file
for future reference.
Effective immediately, the Gold Fund no longer will accept purchase orders for
new shares, and Gold Fund shares are no longer available through the Trust's
exchange privilege. Trust shareholders may continue to exchange their Gold Fund
shares for shares of other Rushmore Funds, including shares of the other three
Funds in the Cappiello-Rushmore Trust, in accordance with the terms of the
Trust's exchange privilege.
Neither the securities and exchange commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
Risk and Return Summary................................................
Investments, Risks, and Performance.................................
Risk/Return Bar Chart and Table.....................................
Performance Table...................................................
Fees and Expenses of the Fund..........................................
Investment Objectives, Principal Investment Strategies,
and Related Risks......................................................
A Review of Risk Considerations.....................................
Management's Discussion of Fund Performances...........................
Market Outlook......................................................
Performance Comparison..............................................
Shareholder Information................................................
How to Invest In the Funds..........................................
How to Redeem Your Investment.......................................
Additional Information About the Funds.................................
Exchanging Fund Shares..............................................
Pricing of Fund Shares..............................................
Dividends and Distributions.........................................
Tax Consequences of Investing In the Fund...........................
Management, Organization, and Capital Structure........................
Investment Adviser..................................................
Year 2000 Preparations..............................................
Financial Highlights...................................................
2
<PAGE>
RISK and RETURN SUMMARY
Investments, Risks, and Performance
Fund Investment Objective
The Gold Fund's investment objective is long-term capital appreciation.
Principal Fund Investment Strategies
The Gold Fund seeks to achieve its objective by investing at least 65% of its
total assets in the stocks of companies that engage in gold and other precious
metal-related activities. Other precious metals include silver, platinum, and
palladium, and also diamonds and other precious minerals, as well as silver or
other precious metal bullion and coins. Precious metal activities include
mining, exploration, fabrication, processing, marketing, and distribution. Also
included are companies dealing or investing in gold and operating companies
principally engaged in financing, managing, controlling, or operating companies
engaged in these activities. The Fund invests mainly in the common stock of U.S.
and foreign gold and precious metal-related companies. The Fund has no limit on
investment in the securities of foreign issuers, but does not invest more than
20% of its total assets in those foreign securities which are not traded on a
recognized U.S. securities exchange or in dollar-denominated American Depository
Receipts ("ADRs"). The Fund, to a lesser extent, may also invest in warrants,
preferred stock, and convertible debt securities, as well as bullion, coins and
precious metals, futures contacts, and options.
Principal Risks of Investing In the Gold Fund
The main risks that could adversely affect the value of the Gold Fund's shares
and the total return on your investment in this Fund stem from the Fund's
concentration policies. As with any stock-oriented fund, the value of your
investment in the Fund will rise or fall depending on the performance of
individual securities as well as stock market movements. Because the Fund
concentrates its investments in the precious metals-related securities industry,
the performance of the Fund is subject to the risk that this industry will
underperform the market as a whole. To the extent that the Fund may invest in
the securities of foreign issuers, the Fund also will be subject to foreign
company risks, such as changes in currency exchange rates, inadequate disclosure
of company information, and political instability. The stocks of precious
metals-related companies also carry higher risks than the stocks of other
companies, in particular the risk of wide price movements due to a variety of
economic and political factors, including:
o changes in inflation or in expectations regarding inflation in various
countries
o the availability of supplies of precious metals and minerals
o changes in industrial and commercial demand
o metal and mineral sales by governments, central banks, or
international agencies
o investment speculation
o monetary and other economic policies of various governments
o governmental restrictions on the private ownership of certain precious
metals and minerals
Loss of money is a risk of investing in the Gold Fund. An investment in the Fund
is not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Risk/Return Bar Chart and Table
The chart and table below show the annual calendar-year returns and the
performance of the Fund, which commenced operations on March 7, 1994, and whose
fiscal year-end is June 30th. The information in the chart and the table
provides some indication of the risks of investing in the Fund by showing
changes in Fund performance from year to year and by showing how the Fund's
average annual returns for 1 year and 3 years compare with the performance of
the Philadelphia Stock Exchange Gold and Silver IndexTM (the "XAU Index") (a
capitalization-weighted index featuring eleven widely-held securities in the
gold and silver mining and production industry or companies investing in such
mining and production companies).
3
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The chart and the table below assume the reinvestment of dividends and
distributions. How the Fund has performed in the past does not necessarily
indicate how the Fund will perform in the future.
The chart immediately below shows the annual total return of the Fund for each
calendar year from 1995 through 1997. The table that follows the chart compares
the Fund's average annual total returns for 1 year and 3 years with those of the
XAU Index for periods ended December 31, 1997, the most-recently completely
calendar year.
Annual Total Return Chart
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Year Ended
(as of) Gold Fund
- ------------------- -----------
<S> <C>
December 31, 1995 4%
December 31, 1996 (6%)
December 31, 1997 (45%)
</TABLE>
Notes to Annual Total Return Chart:
1. The year-to-date total return for the Trust's most-recent fiscal quarter
(ended September 30, 1998) for the Gold Fund is -0.43%
2. The highest and lowest quarterly returns for the Gold Fund since the
inception of the Fund on March 7, 1994, are 20.74% (in the 1st Quarter of
1996) and -32.18% (in the 4th Quarter of 1997), respectively.
Performance Table
Average Annual Total Returns
(for Periods Ended December 31, 1997)
<TABLE>
<CAPTION>
Gold Fund XAU Index
--------- ---------
<S> <C> <C>
One Year (1997) (45.22)% (36.46)%
Three Years (1995-1997) (18.87)% (12.13)%
</TABLE>
4
<PAGE>
FEES and EXPENSES of the FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.70%
Other Expenses 1.00%
-----
Total Annual Fund Operating Expenses 1.70%
-----
If your monthly account balance per Fund averages $500 or less due to
redemptions you may be charged a $5 fee.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated below and then redeem all of your shares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C>
$ 173 $ 536 $ 923 $ 2,009
</TABLE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES, and RELATED RISKS
Fund Investment Objective
The Gold Fund's investment objective is long-term capital appreciation.
Principal Fund Investment Strategies
The Gold Fund seeks to achieve its objective by investing at least 65% of its
total assets in the stocks of companies that engage in gold and other precious
metals activities. Other precious metals include silver, platinum, and
palladium, and also diamonds and other precious minerals, as well as silver or
other precious metal bullion and coins. Precious metal activities include
mining, exploration, fabrication, processing, marketing, and distribution. Also
included are companies dealing or investing in gold and operating companies
principally engaged in financing, managing, controlling, or operating companies
engaged in these activities. The Fund invests mainly in the common stock of U.S.
and foreign gold and precious metal-related companies. The Fund has no limit on
investment in the securities of foreign issuers, but does not invest more than
20% of its total assets in those foreign securities which are not traded on a
recognized U.S. securities exchange or in dollar-denominated ADRs. The Fund, to
a lesser extent, may also invest in warrants, preferred stock, and convertible
debt securities, as well as bullion, coins and precious metals, futures
contacts, and options. The Fund, to a lesser extent, may also purchase U.S.
Government securities and enter into repurchase agreements. The Fund does not
invest for income.
5
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In selecting stocks, we look for companies that have: (i) steady growth in both
sales and earnings; (ii) extensive ore bodies and efficient mining operations
(where appropriate); and (iii) low melting and refinery costs with adequate
capital to continue to maintain and expand operations.
We usually sell a company's stock when that company's "fundamentals" (i.e., the
company's capital structure, operating characteristics, pre-tax profit margins,
and return on stockholders' equity) change for the worse. Generally, company
stock will also be sold when the stock price of the company experiences
significant, unexplained declines.
The Fund, from time to time, may take temporary defensive measures that are
inconsistent with the Fund's principle investment strategies in attempting to
respond to adverse market, economic, political, or other conditions. Thus, the
Fund may temporarily invest all or part of its assets in cash or cash
equivalents, which include, but are not limited to short-term money market
instruments, U.S. Government securities, certificates of deposit, bankers'
acceptances, or repurchase agreements secured by U.S. Government securities. The
effect of taking these temporary defensive positions is that the Fund may not
achieve its investment objective.
As an anticipated result of these principal investment strategies, the Gold Fund
may engage in the active and frequent trading of portfolio securities. This
increased portfolio turnover for the Fund could produce high brokerage costs for
the Fund and result in taxable distributions to Fund shareholders.
Principal Risks of Investing In the Gold Fund
The main risks that could adversely affect the value of the Gold Fund's shares
and the total return on your investment in this Fund stem from the Fund's
concentration policies. As with any stock-oriented fund, the value of your
investment in the Fund will rise or fall depending on the performance of
individual securities as well as stock market movements. Because the Fund
concentrates its investments in the precious metals-related securities industry,
the performance of the Fund is subject to the risk that this industry will
underperform the market as a whole. To the extent that the Fund may invest in
the securities of foreign issuers, the Fund also will be subject to foreign
company risks, such as changes in currency exchange rates, inadequate disclosure
of company information, and political instability. The stocks of precious
metals-related companies also carry higher risks than the stocks of other
companies, in particular the risk of wide price movements due to a variety of
economic and political factors, including:
o changes in inflation or in expectations regarding inflation in various
countries
o the availability of supplies of precious metals and minerals
o changes in industrial and commercial demand
o metal and mineral sales by governments, central banks, or
international agencies
o investment speculation
o monetary and other economic policies of various governments
o governmental restrictions on the private ownership of certain precious
metals and minerals
A Review of Risk Considerations
Risk In General
The risks of a fund are usually defined by the fund's individual securities,
overall portfolio, and investment tactics. Over longer periods of time, stocks
have been among the most successful investments available to the public.
Nevertheless, stocks do fluctuate in price. Accordingly, there is a risk you
could lose as well as make money by investing in the Cappiello-Rushmore Gold
Fund. As with any fund, there is no guarantee that the performance of the Gold
Fund will be positive over any period of time, either short term or long term.
6
<PAGE>
Additional Risks
In addition to the specific principal risks of the Gold Fund identified above,
the Fund also may encounter the following broad-based risks:
Fund Risk -- The possibility that the Fund's performance during a
specific period may not meet or exceed that of the market as a whole.
Concentration Risk -- The risk that the particular industry in which
the Fund may focus its investments will underperform the market as a whole.
Sector Risk -- The risk that the particular economic sector in which
the Fund may focus its investments will underperform the market as a whole. To
the extent that the Fund's investments are concentrated in issuers conducting
business in the same economic sector, the Fund is subject to the risks of
investing in that sector, including legislative or regulatory changes, adverse
market conditions, and/or increased competition.
Market Risk -- The possibility that stock prices in general will
decline over short, or even extended, periods of time. Stock markets tend to be
cyclical, with periods when stock prices generally rise and periods when stock
prices generally decline. Investors have noticed that when the stock market
surges up, many stocks post higher prices. On the other hand, when the stock
market falls sharply, many common stocks will drop even more sharply. A change
in market psychology can cause a security's price to decline irrespective of any
truly fundamental change in the company itself.
Interest Rate Risk -- The risk of a rise in interest rates that usually
depresses the prices of fixed-income type securities and often of equities as
well. In the short run, high interest rates reduce interest-sensitive investment
spending. Interest rate uncertainty is related to various factors. Among these
factors are swings in money growth, uncertainty about the policies of the
Federal Reserve Board, and inflationary expectations.
Foreign Company Risks -- Investments in foreign securities involve
additional risks, such as changes in currency exchange rates, inadequate
disclosure of company information, and political instability. Some additional
significant risks associated with investing in foreign companies include:
o Volatility -- Investments in securities of foreign companies can
be more volatile than investments in U.S. companies. Diplomatic,
political, or economic developments could affect investments in
foreign companies.
o Regulatory Environment -- Foreign companies generally are not
subject to uniform accounting, auditing, and financial reporting
standards comparable to those applicable to U.S. domestic
companies. Foreign issuers may be subject to different
accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic issuers. There is generally less
government regulation of listed companies abroad than in the
United States.
Leveraging Risk -- Leveraging activities include, among other things,
borrowing and the use of options and futures contracts. The risks associated
with leveraging activities include:
o The success of a leveraging strategy may depend on an ability to
predict movements in the prices of individual securities,
fluctuations in markets, and movements in interest rates.
o Leveraging may result in the Fund experiencing losses over
certain ranges in the market that exceed losses experienced by a
non-leveraged fund.
7
<PAGE>
o There may be an imperfect or no correlation between the changes
in market value of the securities held by the Fund and the prices
of futures contracts and options on futures contracts.
o Although the Fund will purchase only exchange-traded futures
contracts and options, due to market conditions there may not be
a liquid secondary market for a futures contract or an option. As
a result, the Fund may be unable to close out its futures or
options contracts at a time which is advantageous to the Fund.
o Trading restrictions or limitations may be imposed by an
exchange, and government regulations may restrict trading in
futures contracts and options.
Event Risk -- The possibility that corporate securities may suffer
substantial declines in market value due to corporate restructurings. While
event risk may be high for certain corporate securities held by the Fund, event
risk in the aggregate should be low because of the Fund's varied holdings.
Small-Issuer Risk -- Small- and medium-capitalization companies may be
more vulnerable than larger, more-established organizations to adverse business
or economic developments. In particular, small-capitalization companies may have
limited product lines, markets, and financial resources, and also may be
dependent upon a relatively-small management group. These securities may be
traded over-the-counter or listed on an exchange and may not pay dividends.
Money Market Investment Risk -- Under adverse market conditions, the
Fund could invest some or even all of its assets in money market securities.
Although the Fund's objective would be to attempt to avoid losses, this
defensive tactic, if employed in a significant way, could have the effect of
reducing the benefit from any upswing in the market.
MANAGEMENT'S DISCUSSION
OF FUND PERFORMANCE
During the past twelve months, the stock market, as measured by the major
indices, moved to new all time highs propelled by a still growing economy,
falling inflation expectations, and lower interest rates. The effect of the
Asian crisis impacted stock prices in October 1997 and in early Spring of 1998
as the second wave of Asian economic woes affected some sectors of the economy.
One of the results of this crisis has been the two-tiered nature of the stock
market where "size" did count in producing the better investment returns as
nervous investors sought liquidity and safety in the large capitalization
stocks. Further, individual stock performances seemed to be directly related to
size rather than value, earnings growth, or management capability. More
remarkable has been foreign investment in the U.S. market. As the Asian crisis
began to become apparent about a year ago, it generated a flight of capital from
troubled Asian markets into the U.S. and, to a lesser extent, Europe. Most of
this foreign inflow sought liquidity and the money flowed into index funds (in
the case of equities) and U.S. Treasury securities. The latter helped to push
rates down, particularly on the 30-year Treasury Bond.
The factors that materially affected performance of the Gold Fund during the
fiscal year ended June 30, 1998 were:
o Market conditions for gold (both bullion gold shares and
derivatives relative to these shares) can be characterized as
poor for most of the entire fiscal year
o The sale and possibilities of future sales of gold bullion by
several central banks including Australia (sale) and Switzerland
(possible reduction of gold as backing for the Swiss Franc)
8
<PAGE>
o European Monetary Union (EMU) limited gold backing of new
currency and placed no restrictions on future gold reserves
o The benign rate of inflation both in the U.S. and abroad,
particularly Europe
o Weakness in Asian demand also translated into weakness in foreign
purchases of platinum, silver, and gold jewelry by Asians as well
as weakness in precious metal buying for industrial uses
o BRE-X Scandal was a continuing demoralizing event
o Inability to raise capital forced marginal companies to abandon
projects or close properties
o Foreign currency weakness served to limit interest in precious
metals
In this difficult environment, we took steps to lower risks in the portfolio by
shifting from the smaller precious metal stocks to larger-capitalization and
more-diversified producers. Reflecting this change, two of our best performing
stocks were Stillwater Mining Company (up 22%) and Battle Mountain Gold (up 4%).
The outlook for precious metals and the Fund's prospects for the fiscal year
ending June 30, 1999, is mixed. Some of the negative forces will likely continue
in 1999. However, new events and changed perceptions may lead to improved
conditions for the industry, as follows:
o The new European Central Bank may place a moratorium (or limit)
on the sale of gold by its member nations
o Asian stability may develop which could weaken the dollar versus
the yen and other currencies leading to a more attractive gold
price
o Inflation may become a larger force and a fear than in the past
several years
o Gold production shortfall in 1997 and likely again in 1998
relative to demand should eventually lead to higher price levels;
the situation will be magnified as the gold industry lacks
financial resources to build production going forward
We believe that the time will come when the forces of supply and demand come to
the fore and will be reinforced with diminishing reliance on paper reserves such
as the dollar. In summary, 1999 may see the reversal in the forces that have
depressed the price of gold and other precious metals.
Market Outlook
While interest rates remain low and consumer confidence is reaching previous
high levels, mutual fund cash inflows have moderated and the momentum in
industrial production is unlikely to accelerate. Currently, the overriding issue
for the market is the outlook for corporate profits. Profits depend on the
outlook for the economy and the extent of the Asian effect over the next six
months. Unquestionably, Asia has slowed the economy and corporate profits,
particularly in the technology sector. A stronger dollar has also slowed
exports. These factors are expected to persist, but not enough to produce
weakness in other sectors such as business investment. Some counterbalance to
this weakness will be consumer spending (which is likely to continue its upward
trend), bolstered by "real" wage growth and the refinancing of home mortgages to
lower rates. We believe the underlying environment is still very positive for
equities and this should push the market higher in this fiscal year. Slow growth
with modest inflation should maintain earnings growth and keep interest rates
within a narrow range.
Finally, we believe it is more important to evaluate each company individually
rather than focusing on general market trends. Forecasting the direction or
general level of the stock market is difficult, if not impossible. Many of the
best investors of this century made a point of not focusing too much on the
level of the market. Investors are best served by emphasizing the fundamentals
and buying companies with sustainable earnings growth at reasonable valuations.
If this is done consistently, relatively good returns should be generated over
time.
9
<PAGE>
Performance Comparison
Assuming a $10,000 initial investment, the following graph compares the Fund's
total returns to the performance of the Philadelphia Exchange Gold and Silver
Index since the Fund began operating on March 7, 1994. Please remember that past
performance does not necessarily reflect how the Fund may perform in the future.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Acccount Value
Total Return Gold Philadelphia Exchange
(as of) Fund Gold and Silver Index
-------------- ------- ----------------------
<S> <C> <C>
March 7, 1994 $10,000 $10,000
June 30, 1994 $ 9,520 $ 9,560
June 30, 1995 $ 9,890 $ 9,970
June 30, 1996 $ 9,930 $10,266
June 30, 1997 $ 7,020 $ 7,914
June 30, 1998 $ 4,660 $ 5,937
</TABLE>
Average Annual Total Returns as of June 30, 1998
One Year (33.62)%
Since Inception (16.21)%
SHAREHOLDER INFORMATION
How to Invest In the Fund
Facts To Know Before You Invest:
o The minimum initial investment in is $2,500
o Retirement accounts may be opened with a $500 minimum investment
o There are no minimum amounts for subsequent investments
o There are no sales charges
o The Funds reserve the right to reject any purchase order
o All shares are electronically recorded; certificated shares are
not available
o A $10 fee may be charged for items returned for insufficient or
uncollectible funds
10
<PAGE>
Purchasing Shares:
By Mail
Complete an application and make a check payable to "Cappiello-Rushmore
Trust." Send your completed and signed application and check drawn on a
U.S. bank to:
Cappiello-Rushmore Trust
4922 Fairmont Avenue
Bethesda, Maryland 208l4
By Bank Wire
Speak to the branch manager of your bank. Request a transfer of federal
funds to Rushmore Trust and Savings, FSB, instructing your bank to wire
transfer the money before 4:00 P.M., Eastern Time, to:
Rushmore Trust and Savings, FSB
Bethesda, Maryland
Routing # 0550-71084
Specify the Fund name, your account number (if assigned), and the name(s)
in which the account is registered.
After instructing your bank to transfer federal funds, you must telephone
Shareholder Services at (800) 622-1386 or (301) 657-1510 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. Remember that it is important to complete the wire transfer
before 4:00 P.M., Eastern Time.
Through Brokers
You may invest in the Fund by purchasing shares through registered
broker-dealers, banks, or other financial institutions that purchase
securities for their customers. Please note that these third parties may
charge a fee for their services.
How To Redeem Your Investment
Redeeming Shares:
By Telephone (1-800-622-1386)
As a Fund shareholder, you will automatically receive telephone redemption
privileges. If you choose to redeem your investment by telephone, please
contact Shareholder Services at 1-800-622-1386 between the hours of 8:30
A.M. and 4:30 P.M., Eastern Time. For your protection, we will take
measures to verify your identity by requiring some form of personal
11
<PAGE>
identification prior to acting on telephone instructions and may also
record telephone transactions. A written confirmation will be mailed to you
within five business days after your redemption. Please note that we may
terminate or modify telephone redemption privileges upon 60 days notice.
By Mail or Fax
Mail your instructions for Fax your instructions for
redemption to: redemption to:
Rushmore Trust and Savings, FSB (301) 657-1520
4922 Fairmont Avenue Attn: Shareholder Services
Bethesda, MD 20814
Attn: Shareholder Services
Include the following information in your redemption request:
o the name of the Fund and account number you are redeeming from
o your name(s) and address as it appears on your account
o the dollar amount or number of shares you wish to redeem
o your signature(s) as it appears on your account
o a daytime telephone number
Additional Information You Should Know When You Redeem
There are no fees charged for redemptions.
o You may receive redemption proceeds by bank wire, check, or
through the Automated Clearing House System (ACH). When the amount
to be redeemed is at least $5,000, we will, upon instruction, wire
transfer the amount to your commercial bank or brokerage account
specified in your account application. For amounts less than
$5,000, you may have redemption proceeds deposited directly into
an account specified on the account application or request that a
redemption check be delivered by mail to your address of record.
o If you request payment of redemptions to a third party or to a
location other than an address on record, the request must be in
writing and your 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).
o Normally, payment for all shares redeemed will be issued within
one business day. However, withdrawal requests on investments that
have been made by check may be delayed up to ten calendar days
following the investment or until the check clears, whichever
occurs first. This delay is necessary to assure us that
investments made by check are good funds. You will receive
redemption proceeds promptly upon confirmation of receipt of good
funds.
12
<PAGE>
o If your monthly Fund account balance averages $500 or less due to
redemptions, you may be charged a $5 fee. The fee will not be
imposed on tax-sheltered retirement plans or accounts established
under the Uniform Gifts or Transfers to Minors Acts. Additionally,
we reserve the right to redeem involuntarily those accounts which
fall below $500 after providing 60 days written notice.
o The right of redemption may be suspended, or the date of payment
postponed, during the following periods: (a) periods during which
the New York Stock Exchange ("NYSE") is closed (other than
customary weekend or holiday closings); (b) periods when trading
on the NYSE is restricted, or an emergency exists, as determined
by the Securities and Exchange Commission ("SEC"), so that
disposal of the Fund's investments or determination of net asset
value is not reasonably practicable; or (c) for such other periods
as the SEC, by order, may permit for protection of the Fund's
investors.
ADDITIONAL INFORMATION ABOUT THE FUND
Exchanging Fund Shares
The Trust is comprised for four separate Cappiello-Rushmore Funds, one of which,
the Gold Fund, is described in this Prospectus. The three other
Cappiello-Rushmore Funds, the Utility Income, Growth, and Emerging Growth Funds,
are described in a separate prospectus.
You may exchange shares of one Cappiello-Rushmore Fund, without cost, for shares
of another Cappiello-Rushmore Fund, or may choose to exchange, without cost,
Cappiello-Rushmore Fund shares for shares of any of the following Rushmore
Funds: Fund for Government Investors, Fund for Tax-Free Investors, Inc., The
Rushmore Fund, Inc., or American Gas Index Fund, Inc. The registration for both
accounts must be identical, and you should obtain a current prospectus for the
fund into which you are exchanging by calling 1-800-343-3355. Exchanges will be
effected at the respective net asset values of the Funds involved as next
determined after receipt of the exchange request. The Fund may change or cancel
their exchange policies at any time, upon 60 days' notice to shareholders.
Effective immediately, the Cappiello-Rushmore Gold Fund no longer will accept
purchase orders for new shares, and Gold Fund shares are no longer available
through the Trust's exchange privilege. Trust shareholders may continue to
exchange their Gold Fund shares for shares of other Rushmore Funds, including
shares of the three Funds in the Cappiello-Rushmore Trust other than the Gold
Fund, in accordance with the terms of the Trust's exchange privilege.
Pricing of Fund Shares
The price of the Fund's shares on any given day is the Fund's net asset value
per share. This figure is computed by dividing the total market value of the
Fund's investments and other assets, less any liabilities, by the number of Fund
shares outstanding. The net asset value per share of the Fund is determined as
of 4:00 P.M., Eastern Time, on days when the NYSE is open for business. Orders
accepted by the Trust directly or by an authorized third party will be priced at
the Fund's net asset values next computed after orders are received. This means
that if you place a purchase or redemption order after 4:00 P.M., Eastern Time,
this order will be effected at the next calculation of net asset value, normally
4:00 P.M. the next business day.
13
<PAGE>
The Fund values its portfolio securities based on the market value of these
securities. Each security held by the Fund, and which is listed on a securities
exchange, is valued at the last quoted sale price on the NYSE and other major
exchanges for a given day. Price information on each listed security is taken
from the exchange where the security is primarily traded. Over-the-counter
securities are 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. Gold and other precious metals are valued daily at fair market value,
based upon price quotations in common use. 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 in good faith by the Board of
Trustees or at the direction of the Trustees.
If a Fund has portfolio securities that are primarily listed on foreign
exchanges that trade on weekends or other days when the Fund does not price its
shares, then the net asset value of the Fund's shares may change on days when
shareholders of the Fund will not be able to purchase or redeem the Fund's
shares.
Dividends and Distributions
All dividends and capital gain distributions of the Fund will be reinvested in
additional Fund shares (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.
Although the timing and amount of all dividends and distributions are subject to
the discretion of the Board of Trustees, the Fund intends to distribute all net
investment income and net capital gains annually in December.
Tax Consequences of Investing In the Fund
Taxability of Distributions
The Fund intends to meet the requirements for being a tax-qualified regulated
investment company. As long as the Fund meets these requirements, the Fund pays
no federal income tax on the earnings distributed to shareholders. The Fund
intends to distribute all of its earnings to its shareholders. Dividends and
capital gains distributions you receive, whether reinvested or taken as cash,
are generally considered taxable to you as ordinary income or as capital gains
income. The Fund expects that its distributions to shareholders, as a result of
the Fund's investment objective and strategies, will consist primarily of
dividends on ordinary income or capital gains. The Form 1099 that is mailed to
you each January details your dividends and their federal tax category. You
should verify your tax liability with your tax professional.
Taxability of Transactions
Any time you sell or exchange shares of the Fund, this transaction is considered
a taxable event for you. For example, if you exchange shares of the Gold Fund
for shares of another Cappiello-Rushmore Fund, the transaction would be treated
as a sale. Consequently, any gain resulting from the transaction would be
subject to federal income tax.
14
<PAGE>
MANAGEMENT, ORGANIZATION,
and CAPITAL STRUCTURE
Investment Adviser
McCullough, Andrews & Cappiello, Inc.
Main Office East Coast Office
Suite 4250 Suite 250
101 California Street 10751 Falls Road
San Francisco, CA 94111 Lutherville, MD
21093
McCullough, Andrews & Cappiello, Inc. (the "Adviser") has served as the Fund's
investment adviser since its inception on March 7, 1994. For the advisory
services performed, the Adviser received 0.70% of the average net assets of the
Fund for the fiscal year ended June 30, 1998.
Portfolio Manager
David H. Andrews, C.F.A., is the portfolio manager for the Fund. Mr. Andrews is
the Vice Chairman the Adviser and has managed the Fund since its inception. Mr.
Andrews has been in the securities business for more than forty years and is a
Chartered Financial Analyst (C.F.A.) and past President of the Security Analysts
of San Francisco. He is a graduate of Harvard College and the Stanford Graduate
School of Business.
Year 2000 Preparations
The day-to-day operations of the Trust are dependent upon the Trust's service
providers, principally the Adviser, Money Management Associates, Rushmore Trust
and Savings, FSB, and Rushmore Services, Inc. (collectively, the "Servicers"),
and upon the smooth functioning of the computer systems that they utilize. Many
computer systems currently cannot properly recognize or process date-sensitive
information relating to the year 2000 and beyond. Like other mutual funds and
financial and business organizations around the world, the Trust, therefore,
could be adversely affected if the computer systems used by these Servicers, and
their vendors, do not properly process and calculate date-related information
and data on and after January 1, 2000. The Servicers have been evaluating the
impact that the year 2000 issue may have on the computer systems that they
utilize and are making appropriate modifications to these systems in order to
assure that they will be prepared for the year 2000. The Trust and the Servicers
expect that any further modifications to their computer systems necessary to
address the year 2000 issue will be made and tested in a timely manner. The
Servicers also are working with their outside vendors, and other persons whose
systems are linked to those of the Trust and the Servicers, to obtain
satisfactory assurances regarding the year 2000 issue. The costs of this systems
remediation will not be paid directly by the Trust. Inadequate remediation could
have an adverse effect on the Trust's operations, including pricing and
securities trading and settlement, and the provision of shareholder services.
Although, at this time, there can be no assurance that the remedial action taken
by the Servicers will be sufficient or timely, the Servicers do not anticipate
that the transition to the 21st century will have a material impact on the
ability of the Servicers to continue to service the Trust at current levels.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since it commenced operations in 1994. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
For the
Period
For the Year Ended
Ended June 30, June 30,
-------------------------------------------------- ---------
1998 1997 1996 1995 1994*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value--Beginning of Period............ $ 7.02 $ 9.93 $ 9.89 $ 9.52 $ 10.00
--------
Income from Investment Operations:
Net Investment Loss......................... (0.05) (0.08) (0.06) (0.05) (0.01)
Net Realized and Unrealized Gain
(Loss) on Securities...................... (2.31) (2.83) 0.10 0.42 (0.47)
------- ------- ------ ----- ------
Total from Investment Operations.......... (2.36) (2.91) 0.04 0.37 (0.48)
--------- ------- ------ ----- ------
Less Distributions:
Dividends (from net investment income) ---- -- -- -- --
Distributions (from capital gains) -- -- -- -- --
------- ------- ------ ----- -----
Total Distributions to Shareholders....... -- -- -- -- --
------- ------- ------ ----- ------
Net Asset Value--End of Period................ $ 4.66 $ 7.02 $ 9.93 $ 9.89 $ 9.52
============= ============= =============== ============= ================
Total Investment Return........................ (33.62)% (29.41) % 0.40 % 3.89 % (4.80) %A
Ratios and Supplemental Data:
Net Assets--End of Period (000s omitted)..... $ 2,187 $3,409 $6,122 $6,796 $6,395
Ratio of Expenses to Average Net Assets...... 1.70% 1.70 % 1.70 % 1.70 % 1.68 % B
Ratio of Net Loss to Average Net Assets...... (0.74)% (0.76) % (0.59) % (0.51) % (0.25) % B
Portfolio Turnover Rate...................... 56.49% 108.47 % 59.06 % 51.23 % 22.85 %
</TABLE>
* The Gold Fund commenced operations on March 7, 1994.
A Total Investment Return for periods of less than one year are not annualized.
B Annualized.
16
<PAGE>
In addition to this prospectus, the following information is available to assist
you in making an investment decision:
Information Available Upon Request Description
Statement of Additional Information A document that includes additional
information about the Fund.
Annual and Semi-Annual Reports Bi-annual reports that contain
information about the Fund's
investments. These reports also
discuss the market conditions and
investment strategies that
significantly affected the Fund's
performance during its last
fiscal year.
There are a variety of ways to receive the above information upon your request
and without charge. To receive the above information, or to request other
information above the Trust, or to make shareholder inquiries, you may contact
the Cappiello-Rushmore Trust directly by telephone, at 1-800-343-3355, or visit
our internet site at http://www.rushmorefunds.com, or you may send a written
request to the Trust's offices, at 4922 Fairmont Avenue, Bethesda, Maryland
20814. Additional information about the Funds can also be reviewed and copied at
the Securities and Exchange Commission's Public Reference Room in Washington D.
C. (for hours of operation please call the Commission at 1-800-SEC-0330). You
may also obtain copies of the information by visiting the Commission's internet
site at http://www.sec.gov, or, upon payment of a duplicating fee, by writing
the Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D. C. 20549-6009.
Cappiello-Rushmore Trust Investment Company Act File No. 811-6601
17
<PAGE>
Rule 497(c)
File No. 33-46283
CAPPIELLO-RUSHMORE TRUST
Utility Income Fund
Growth Fund
Emerging Growth Fund
Gold Fund
4922 Fairmont Avenue, Bethesda, Maryland 20814
(800) 343-3355
(301) 657-1500
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1998
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Trust's Prospectuses, each dated November 1, 1998.
Copies of the Prospectuses may be obtained without charge by writing or
telephoning the Trust at the above address or telephone numbers.
The audited financial statements of the Trust, for the Trust's fiscal year ended
June 30, 1998, are included in the Trust's 1998 Annual Report to Shareholders,
which has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. Copies of the Trust's 1998 Annual Report are
available, without charge, by request by writing or telephoning the Trust at the
above address or telephone numbers.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page in
Utility
Income Fund,
Growth Fund,
Page in and
Statement of Page in Emerging
Additional Gold Fund Growth Fund
Information Prospectus Prospectus
------------ ---------- -----------
<S> <C> <C> <C>
Trust Description, Investments, and Risks
Investment Policies
Investment Limitations
Management of the Trust
Control Persons and Principal Holders of
Securities
Investment Advisory and Other Services
Brokerage Allocation and Portfolio Transactions
Taxation of the Funds
Calculation of Performance Data
Financial Statements
2
<PAGE>
Trust Description, Investments, and Risks
The Cappiello-Rushmore Trust is an open-end, management investment company
organized as a business trust under the laws of Delaware on March 12, 1992. The
following are the investment strategies and risks associated with investing in
the four Cappiello-Rushmore Funds (collectively, the "Funds"), each of which
Funds is diversified under the Investment Company Act of 1940: the Utility
Income Fund, the Growth Fund, the Emerging Growth Fund, and the Gold Fund.
Investment Policies
Repurchase Agreements
What is a Repurchase Agreement?
A repurchase agreement is an agreement where a Fund acquires a money market
instrument from a commercial bank or broker/dealer with the understanding
that the Fund will sell the instrument back at an agreed-upon price and
date (normally, the next business day). Essentially, a repurchase agreement
may be considered a loan backed by securities. The resale price reflects an
agreed-upon interest rate effective for the period the instrument is held
by the Fund. In these transactions, the value of the securities acquired by
the Fund (including accrued interest earned) must be greater than the value
of the repurchase agreement itself. The securities are held by the Fund's
custodian bank until repurchased.
Why Would a Fund Use Repurchase Agreements?
Each Fund may invest in repurchase agreements with commercial banks,
brokers or dealers: (i) for defensive purposes due to market conditions; or
(ii) to generate income from a Fund's excess cash balances.
The Board of Trustees will monitor each Fund's repurchase agreement
transactions and will review the creditworthiness of any party to a
repurchase agreement with the Funds. 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.
Risks of Repurchase Agreements
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 when the security is sold. 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. Consequently, 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 these
risks can be controlled through monitoring procedures.
3
<PAGE>
Lending of Securities
Each Fund may lend its securities to qualified institutional investors (i.e.,
brokers, dealers, banks or other financial institutions) 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.
Why Would a Fund Lend Its Securities?
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.
To lend securities, the following requirements must be met:
1. the borrower must 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 federal
government having at least equal the value of the securities
loaned;
2. the borrower must add to the collateral whenever the price of the
securities loaned rises;
3. the Fund must be able to terminate the loan at any time; and
4. the Fund should receive 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 the market value of the loaned
securities.
Risks of Lending
A Fund will enter into securities lending and repurchase transactions only
with parties who meet creditworthiness 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.
Investment in Foreign Securities
The Utility Income, Growth, and Emerging Growth Funds may invest up to 20% of
their 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").
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 ADRs.
Risks of Investing In Foreign Issuers
Investing in foreign companies involves risks not typically associated with
investing in U.S. companies, including the following risks:
4
<PAGE>
1. There is generally less publicly-available information about
foreign companies compared to reports and ratings that are
published about issuers in the United States.
2. Foreign issuers also are not subject to uniform accounting and
auditing and financial reporting standards, practices, and
requirements comparable to those applicable to United States
issuers.
3. Foreign securities markets are generally not as developed or
as efficient as those in the United States. While growing in
volume, these markets usually have substantially less volume
than the New York Stock Exchange.
4. Securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers.
5. Fixed commissions on foreign exchanges are generally higher
than negotiated commissions on United States exchanges,
although each Fund will endeavor to achieve the most favorable
net results on its portfolio transactions.
6. There is generally less government supervision and regulation
of securities exchanges, brokers, and listed issuers than in
the United States.
7. 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 U.S. investment in those
countries.
8. 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.
9. 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.
Options Transactions
Purchasing Call and Put Options
The Growth Fund and Utility Income Fund may purchase call options to
protect against anticipated increases in the prices of securities each Fund
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
money will purchase call options covering a much larger quantity of this
security than could be purchased directly.
5
<PAGE>
By purchasing call options, these Funds could benefit from any significant
increase in the price of the underlying security to a greater extent then
if the Funds invested the same amount in the security directly. However,
because of the extremely high volatility of option premiums, there is a
significant risk of losing the entire premium if the price of the
underlying security does not rise sufficiently, or if this price does not
rise before the option expires.
Conversely, put options could be purchased to protect against anticipated
declines in the market value of either specific portfolio securities or of
a Fund's assets generally. Alternatively, put options could be purchased
for capital appreciation in anticipation of a price decline in the
underlying security. 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 a Fund's volatility by increasing the impact of changes in the
market price of the underlying securities on the Fund's net asset value.
The Trust 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
covered call options and secured put options (the Emerging Growth Fund will
not engage in any option transactions).
By writing a call option, a Fund becomes 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, a Fund becomes obligated during the term of the
option to purchase the securities underlying the option at the exercise
price. The Fund will be considered secured in respect to put options the
Fund writes if the Fund maintains on deposit with its 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 the time the seller effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the
same exercise price and expiration date as the option 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 "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.
6
<PAGE>
Why Do The Funds Use Call and Put Options?
The principal reason for writing call options on stocks held by the Growth
Fund, the Utility Income Fund, and the Gold 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
market value of the underlying security.
Futures Contracts on Metals and Related Options - Gold Fund
Why Would the Gold Fund Purchase 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 a 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.
How Are The Contracts Purchased?
No consideration is paid or received by the Gold 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.
7
<PAGE>
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 Gold Fund to
substantial losses. In this 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 protected 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 protected will, in fact, correlate with
the price movements in a futures contract or option, and provide an offset
to losses as intended.
If the Gold Fund's investment adviser wants to protect the Fund 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 of assets could be at
increased prices which reflect the change in the value of the underlying
commodity.
Risks of Engaging In Metals Futures Contracts and Related Options
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 Gold Fund is subject to the ability of the Fund's
investment adviser to correctly predict 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 Gold 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 Gold 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.
High Yield Securities
Each of the Growth Fund and the Emerging Growth Fund may invest up to 5% of its
total assets in "high-yield" securities. As described below, high-yield
securities are below investment-grade corporate bonds, commonly known as "junk
bonds," and which are subject to greater risks, including default risks, than
those found in higher-rated securities.
8
<PAGE>
The high-yield corporate bonds primarily purchased by a Fund will be rated in
below investment-grade categories by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Ratings Group ("Standard & Poor's") ("Ba" or lower by
Moody's, "BB" or lower by Standard and Poor's). Neither Fund invests in
securities rated lower than "Caa" by Moody's or "CCC" by Standard & Poor's;
these ratings are applied to issues which are predominantly speculative and may
be in default or as to which there may be present elements of danger with
respect to principal and/or interest. Neither Fund invests in issues which are
in default. A Fund may invest in unrated securities when the Fund's investment
adviser believes that the financial condition of the issuer or the protection
afforded by the terms of the securities limits risk to a level similar to that
of securities eligible for purchase by the Fund rated in below investment-grade
categories by Moody's or Standard & Poor's (between "Ba" and "Caa" ratings by
Moody's and between "BB" and "CCC" ratings by Standard & Poor's). If the
investment rating of a high-yield corporate security in which a Fund is invested
is downgraded to below "Caa" by Moody's or "CCC" by Standard & Poor's, the Fund
will sell the downgraded security as soon as practicable and when the Fund's
investment adviser considers it desirable to do so. See Appendix A to this
Statement of Additional Information for a specific description of each corporate
bond rating category.
The high-yield securities in which a Fund invests offer a wide range of
maturities (from less than one year to thirty years) and yields. These
securities include short-term bonds or notes (maturing in less than three
years), intermediate-term bonds or notes (maturing in three to ten years), and
long-term bonds (maturing in more than ten years). While there are no
limitations on the average maturity of the securities held by the Fund, the
Fund's average portfolio maturity will ordinarily be six years.
Both credit and market risks are increased by the Fund's investment in debt
securities rated below the top four grades by Standard & Poor's or Moody's and
comparable unrated debt securities. Below investment-grade bonds by Moody's
(categories "Ba," "B," "Caa") are of poorer quality and may have speculative
characteristics. Bonds rated "Caa" may be in default or there may be present
elements of danger with respect to principal or interest. Below investment-grade
bonds rated by Standard & Poor's (categories "BB," "B," "CCC") include those
which are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with their
terms; "BB" indicates the lowest degree of speculation and "CCC" indicates a
high degree of speculation. While these bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
To the extent that a Fund invests in high-yield securities, the share price and
yield of the Fund may be expected to fluctuate more than in the case of mutual
funds that invest in higher-quality, shorter-term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of below investment-grade securities experiencing increased financial
stress, which could adversely affect their ability to service their principal,
interest, and dividend obligations, meet projected business goals, and obtain
additional financing. In this regard, it should be noted that, while the market
for high-yield corporate bonds has been in existence for many years and from
time to time has experienced economic downturns in recent years, this market has
involved a significant increase in the use of high-yield corporate debt
securities to fund highly-leveraged corporate acquisitions and restructurings.
Past experience may not, therefore, provide an accurate indication of future
performance of the high-yield bond market, particularly during periods of
economic recession. Furthermore, expenses incurred to recover an investment by a
Fund in a defaulted security may adversely affect the Fund's net asset value.
Finally, the secondary market for high-yield securities may be less liquid than
the market for higher-quality securities. The reduced liquidity of the secondary
market for high-yield securities may adversely affect the market price of, and
the ability of the Fund to value, particular securities at certain times,
thereby making it difficult to make specific valuation determinations.
Investment Limitations
The following policies cannot be changed without approval of the holders of a
majority of the outstanding shares of each Fund.
9
<PAGE>
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 investors; and (ii) as provided under
"Lending of Securities;"
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: (i) insofar as any Fund may be deemed to
have issued a senior security by reason of borrowing money in
accordance with restriction (4), above; (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 a Fund 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. As disclosed in the Trust's Prospectuses, the Utilities
Income Fund may concentrate in the public utilities industry and the Gold Fund
may concentrate in the gold and precious metals-related 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;
10
<PAGE>
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 3% of the
total outstanding stock of such investment company is owned by the
Fund and all affiliated persons of the Fund, unless this 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 Stock Exchange or the
American Stock Exchange;
7. purchase restricted securities if the value of the Fund's aggregate
investment will exceed 10% of the Fund's total assets; or
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. If a percentage restriction is adhered to by a Fund at
the time of an investment, a later increase or decrease in the investment's
percentage of the value of the Fund's total assets resulting from a change in
these values or assets will not constitute a violation of the percentage
restriction.
11
<PAGE>
Management of the Trust
The Trust is governed by a Board of Trustees. The Trustees are responsible for
overseeing the management of the Trust's business affairs and play a vital role
in protecting the interests of Fund shareholders. Among other things, the
Trustees approve and review the Trust's contracts and other arrangements and
monitor Fund performance and operations. 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.
</TABLE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name, Age, Address With Trust During Past 5 Years
- ---------------------- ---------------------- -----------------------
<S> <C> <C>
Frank A. Cappiello*, 72 Chairman of the President of McCullough, Andrews & Cappiello, Inc.,
Greenspring Station Board and Trustee the Trust's investment adviser, since 1983.
Suite 250
10751 Falls Road
Lutherville, MD 21093
Daniel L. O'Connor*, 56 President, General Partner of Money Management Associates,
1001 Grand Isle Way Treasurer, and registered investment adviser of the Rushmore Funds,
Palm Beach Gardens, FL 33418 Trustee since 1975. Director, Rushmore Trust and Savings, FSB,
the Trust's transfer agent and custodian. Director on
four Rushmore Fund Boards.
Peter J. DeAngelis, 62 Trustee President of PDA Associates, Inc., a financial consulting
P.O. Box 284 and investment firm, since 1974; President of Dow
Ironia, NJ 07945 Beaters, Inc., a registered investment advisor, since
1977.
Bruce C. Ellis,** 53 Trustee A private investor in start-up companies. Vice President,
7108 Heathwood Court LottoPhone, Inc., a telephone state lottery service,
Bethesda, MD 20817 September 1991-1995. Director, The Torray Fund, since
1994; Director, the Sheppard Fund, since 1994; Director
on three Rushmore Fund Boards.
Jeffrey R. Ellis,** 53 Trustee Executive Vice President, Buddy Systems, Inc., a
513 Kerry Lane manufacturing-marketing company, Virginia Beach,
Virginia Beach, VA 23451 Virginia, since January, 1996; Vice President,
LottoPhone, Inc., a telephone state lottery service,
September 1993-1995. Director on three Rushmore
Fund Boards.
Dr. Peter B. Petersen, 66 Trustee Professor of Management and Organization Theory,
Johns Hopkins University Division Johns Hopkins University since 1979.
of Business and Management
201 North Charles Street
Baltimore, MD 21201-4114
12
<PAGE>
Position Held Principal Occupation(s)
Name, Age, Address With Trust During Past 5 Years
- ---------------------- ---------------------- -----------------------
David H. Andrews, CFA*, 69 Vice President Vice Chairman of McCullough, Andrews & Cappiello,
101 California Street Inc., the Trust's investment adviser, since 1991.
San Francisco, CA 94111
Robert F. McCullough, CPA*, 66 Vice President Chairman of McCullough, Andrews & Cappiello, Inc.,
101 California Street the Trust's investment adviser, since 1983.
San Francisco, CA 94111
Timothy N. Coakley, CPA*, 31 Vice President Chief Financial Officer and Treasurer, Rushmore Trust
4922 Fairmont Avenue and Savings, FSB, since 1995. Vice President of four
Bethesda, MD 20814 Rushmore Funds and the Cappiello-Rushmore Trust
(collectively, the "Funds"). Controller of the Funds,
1995-1997. Formerly Audit Manager, Deloitte &
Touche LLP until 1994.
Edward J. Karpowicz, CPA*, 35 Controller Vice President of Rushmore Trust and Savings, FSB,
4922 Fairmont Avenue since 1997. Controller of the Funds. Treasurer, Bankers
Bethesda, MD 20814 Finance Investment Management Corp., August 1993 to
June 1997. Senior Accountant, Ernst & Young,
September 1989 to February 1993.
Stephenie E. Adams*, 29 Secretary Secretary of three Rushmore Funds and the Cappiello-
4922 Fairmont Avenue Rushmore Trust. Assistant Secretary of one Rushmore
Bethesda, MD 20814 Fund. 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.
</TABLE>
* Indicates an "interested" person. An interested person has any one of
several close business or family ties to the Trust, the Trust's investment
adviser, or an affiliated company of the Trust.
** Bruce C. Ellis and Jeffrey R. Ellis are brothers.
The aggregate compensation paid to each of the Trustees of the Trust serving
during the fiscal year ended June 30, 1998, is set forth in the table below:
<TABLE>
<CAPTION>
Pension or
Retirement Benefits Estimated Annual
Name of Person Aggregate Accrued as Part of Benefits Upon
& Position Compensation Trust's Expenses Retirement
-------------- ------------- ------------------- -----------------
<S> <C> <C> <C>
Frank A. Cappiello,*
Chairman of the Board of Trustees $0 $0 $0
13
<PAGE>
Daniel L. O'Connor,*
President, Treasurer, and Trustee $0 $0 $0
Peter J. DeAngelis,
Trustee $2,000 $0 $0
Bruce C. Ellis,
Trustee $2,000 $0 $0
Jeffrey R. Ellis,
Trustee $2,000 $0 $0
Dr. Peter B. Peterson,
Trustee $2,000 $0 $0
</TABLE>
* Indicates an "interested" person. An interested person has any one
of several close business or family ties to the Trust, the Trust's
adviser, or an affiliated company of the Trust.
Control Persons and Principal Holders of Securities
As of October 20, 1998, the following persons were the only persons who were
record owners or, to the knowledge of the Trust, beneficial owners of 5% or more
of the shares of the Funds.
<TABLE>
<CAPTION>
Controlling Party or
Shares Principal Holder of Securities
Fund Outstanding Address % Owned
- ---------------------------- ---------------- -------------------------------------- -----------------------
<S> <C> <C> <C>
Utility Income Fund 686,353.457 Charles Schwab & Co., Inc. 36.186% 1/
101 California Street
San Francisco, CA 94101
Growth Fund 888,144.256 Charles Schwab & Co., Inc. 21.872% 1/
101 California Street
San Francisco, CA 94101
National Financial Services Corporation 5.030% 1/
82 Devonshire Street
Boston, MA 02109
Emerging Growth Fund 1,729,563.045 Donaldson Lufkin Jenrette Securities Corp. 30.847% 1/
One Pershing Plaza
Jersey City, NJ 07399
Charles Schwab & Co., Inc. 18.093% 1/
101 California Street
San Francisco, CA 94101
National Investor Services Corporation 11.845% 1/
55 Water Street
New York, NY 10041-3299
National Financial Services Corporation 7.403% 1/
82 Devonshire Street
Boston, MA 02109
14
<PAGE>
Gold Fund 434,622.302 Charles Schwab & Co., Inc. 23.962% 1/
101 California Street
San Francisco, CA 94101
National Financial Services Corporation 8.996% 1/
82 Devonshire Street
Boston, MA 02109
Harold H. Cleaveland, Jr. 7.589% 2/
3435 Westheimer Street
Houston, TX 77027
</TABLE>
1/ Record owner only.
2/ Beneficial owner only.
As of the date of this Statement of Additional Information, the Officers and
Trustees of the Trust, as a group, owned, of record and beneficially, less than
1% of the outstanding shares of each Fund.
Investment Advisory and Other Services
Investment Adviser
The four Funds of the Trust receive investment advisory services from
McCullough, Andrews & Cappiello, Inc. (the "Adviser"), 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 the Adviser, the Growth Fund and the Emerging Growth Fund each pays the
Adviser an investment advisory fee at an annual rate of 0.50% of the net assets
of the respective Fund; the Utility Income Fund pays the Adviser an investment
advisory fee at an annual rate of 0.35% of the net assets of that Fund; and the
Gold Fund pays the Adviser an investment advisory fee at an annual rate of 0.70%
of the net assets of that Fund. The Adviser manages the investment and
reinvestment of the assets of each Fund in accordance with that Fund's
investment objective, policies, and limitations, subject to the general
supervision and control of the Trust's Officers and the Board of Trustees. The
Adviser bears all costs associated with providing these services. For the fiscal
years ended June 30, 1998, 1997, and 1996, the Funds paid the following
investment advisory fees to the Adviser:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Utility Income Fund $ 34,737 $ 38,223 $ 61,055
Growth Fund $130,057 $ 129,484 $ 137,107
Emerging Growth Fund $100,453 $ 151,476 $ 137,207
Gold Fund $ 20,816 $ 34,904 $ 53,459
</TABLE>
The Adviser 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, the Adviser also manages investment
portfolios for employee retirement plans, charitable foundations, endowments,
taxable corporations, and individuals.
15
<PAGE>
Administrator
The Trust has contracted with Money Management Associates (the "Administrator"),
1001 Grand Isle Way, Palm Beach Gardens, Florida 33418, to provide
administrative services to the Trust. Under the administrative services
agreement between the Trust and the Administrator, each of the Growth Fund, the
Emerging Growth Fund, and the Gold Fund pays the Administrator a fee at an
annual rate of 1.00% of the daily net assets of these respective Funds, and the
Utility Income Fund pays the Administrator a fee at an annual rate of 0.70% of
the daily net assets of that Fund. The Administrator is responsible for all
costs of the Funds except for the investment advisory fee, extraordinary legal
expenses, and interest. Specifically, the Administrator pays costs of
registration of the Trust and the Fund shares with the Securities and Exchange
Commission (the "SEC") 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 to existing and potential shareholders, shareholder reports,
shareholder meetings, and portfolio pricing services, and all costs incurred in
providing the custodial services.
For the fiscal years ended June 30, 1998, 1997, and 1996, the Trust paid the
following administrative services fees to the Administrator:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Utility Income Fund $ 69,475 $ 76,447 $ 122,110
Growth Fund $260,115 $ 258,968 $ 274,215
Emerging Growth Fund $200,000 $ 302,952 $ 507,600
Gold Fund $ 29,737 $ 49,863 $ 76,369
</TABLE>
Under a subcontractual agreement, the Administrator has engaged Rushmore Trust
and Savings, FSB ("RTS"), 4922 Fairmont Avenue, Bethesda, Maryland 20814, a
majority-held subsidiary of the Administrator, to provide transfer agency,
dividend disbursing, and other shareholder services to the Trust. Under a
separate subcontractual agreement, the Administrator also has engaged Rushmore
Services, Inc. ("RSI"), 4922 Fairmont Avenue, Bethesda, Maryland 20814, a
wholly-owned subsidiary of the Administrator, to provide administrative services
to the Funds.
Custodian and Independent Public Accountant
RTS is the Trust's custodian and is responsible for safeguarding and controlling
the Trust's cash and securities, handling the securities, and collecting
interest on the Funds' investments.
Independent certified public accountants, Deloitte & Touche LLP, 1900 M Street,
N.W., Washington, D.C. 20036- 3564, are responsible for auditing the annual
financial statements of the Trust.
Brokerage Allocation and Portfolio Transactions
Orders placed for the Funds are either agency transactions with a negotiated
commission or principal transactions at a net transaction price. Underwritings
have a fixed commission.
The Adviser is responsible for placing all orders for the purchase and sale of
portfolio securities for the Funds. The Adviser, in effecting purchases and
sales for the Funds, seeks out the best price and market for the execution of
each order. The Adviser has no formula for the distribution of the brokerage
business, and the Adviser's intention is to place orders for the purchase and
sale of securities with the primary objective of obtaining the most favorable
overall results for the Funds. The cost of securities transactions for the Funds
will consist primarily of brokerage commissions or dealer or underwriter
spreads. Bonds and money market instruments are generally traded on a net basis
and do not normally involve either brokerage commissions or transfer taxes.
16
<PAGE>
Occasionally, securities may be purchased directly from issuer. For securities
traded primarily in the over-the-counter market, the Adviser, where possible,
will deal directly with dealers who make a market in the securities unless
better prices and execution are available elsewhere. These dealers usually act
as principals for their own account.
In selecting brokers or dealers through whom to effect transactions, the Adviser
will give consideration to a number of factors, including price, dealer spread
or commission, if any, the reliability, integrity, and financial condition of
the broker-dealer, the size of the transaction, and the difficulty of execution.
Consideration of these factors by the Adviser, either in terms of a particular
transaction or the Adviser's overall responsibilities with respect to the Funds
and any other accounts managed by the Adviser, could result in a Fund paying a
commission or spread on a transaction that is in excess of the amount of
commission or spread another broker-dealer might have charged for executing the
same transaction. In selecting brokers and dealers, the Adviser also will give
consideration to the value and quality of any research, statistical, quotation,
or valuation services provided by the broker or dealer. In placing a purchase or
sale order, the Adviser may use a broker whose commission in effecting the
transaction is higher than that of some other broker if the Adviser determines
in good faith that the amount of higher commission is reasonable in relation to
the value of the brokerage and research services provided by this broker, viewed
in terms of either the particular transaction or the Adviser's overall
responsibilities with respect to the Funds and any other accounts managed by the
Adviser. Brokerage and research services provided by brokers and dealers to the
Adviser (in addition to the Adviser's own research efforts) include advice,
either directly or through publications or writings, as to the value of
securities, the advisability of purchasing or selling securities, the
availability of securities or purchasers of sellers of securities, and analyses
and reports concerning issuers, industries, securities, economic factors and
trends, and portfolio strategy, as well as technical market commentary, economic
commentary and forecasts, and additional company research. When placing orders
for a Fund, the Adviser is not authorized to pay a commission in excess of that
which another broker might have charged for doing the same transactions solely
on account of the receipt of research services. A higher-cost broker-dealer will
not be selected, however, solely on the basis of sale volume, but rather will be
selected in accordance with the criteria set forth above.
To the extent research services are used by the Adviser in rendering investment
advice to the Funds, these services would tend to reduce the Adviser's expenses.
The Adviser, however, does not believe that an exact dollar value can be
assigned to these services. Research services received by the Adviser from
brokers or dealers executing transactions for the Funds will be available and
utilized also for the benefit of other portfolios managed by the Adviser.
Similarly, orders for the Adviser's non-Fund accounts may result in research
utilized by the Funds.
The Adviser manages a number of accounts other than the Funds. Although
investment recommendations or determinations for each Fund will be made by the
Adviser independently from the investment recommendations and determinations
made by the Adviser for any other account, investments deemed appropriate for a
Fund by the Adviser may also be deemed appropriate by the Adviser for other
accounts, so that the same security may be purchased or sold at or about the
same time for both a Fund and other accounts. In these circumstances, the
Adviser may determine that orders for the purchase or sale of the same security
for a Fund and one or more other accounts should be combined, in which event the
transactions will be priced and allocated in a manner deemed by the Adviser to
be equitable and in the best interests of the Fund and such other accounts.
While, in some instances, combined orders could adversely affect the price or
volume of a security, the Trust believes that its participation in these
transactions on balance will produce better overall results for the Funds.
<TABLE>
<CAPTION>
Brokerage Commissions Paid
(for the Period Ended June 30)
Utility Income Emerging Growth
Fund Growth Fund Fund Gold Fund
---- ----------- ---- ---------
<S> <C> <C> <C>
1998 $ 8,580 $50,162 $ 66,419 $15,770
1997 $16,832 $72,861 $ 70,456 $41,300
1996 $41,140 $77,043 $118,798 $42,749
</TABLE>
17
<PAGE>
Each of the Fund's assets have decreased each year since 1996. Therefore, the
above trade commissions (which are predominantly based on asset size) have also
decreased.
Taxation of the Funds
Each Fund currently is qualified, and will seek to continue to qualify, as a
regulated investment company (a "RIC") under Subchapter M of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"). As a RIC, each Fund will not be
subject to federal income taxes on the net investment income and capital gains
that the Fund distributes to its shareholders. The distribution of net
investment income and capital gains by a Fund to a Fund shareholder will be
taxable to the shareholder regardless of whether the shareholder elects to
receive these distributions in cash or in additional shares. Distributions
reported to a Fund shareholder 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.
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 a
shareholder would receive from an investment in the Fund.
Calculation of Performance Data
Average Annual Total 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 (the "SEC Rules"),
Fund advertising stating performance must include total return quotes calculated
according to the following formula:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
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 Prospectuses for the Funds 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.
18
<PAGE>
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 IndexTM, the Philadelphia Stock
Exchange Gold and Silver Index, or the Dow Jones Industrial Average, as
appropriate, 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, assuming the reinvestment of all
dividends and distributions, for each Cappiello-Rushmore Fund, as of June 30,
1998, are as follows:
<TABLE>
<CAPTION>
1 Year 5 Years Since Inception
------ ------- ---------------
<S> <C> <C> <C>
Growth Fund 20.72 % 17.48% 16.32 %
Emerging Growth Fund (0.14)% 8.34% 9.60 %
Utility Income Fund 25.55 % 8.35% 9.04 %
Gold Fund (33.62)% n/a (16.21)%
</TABLE>
Computation of Yield
In addition to the total return quotations discussed above, each of the Funds
also may advertise its 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:
YIELD = 2[(a-b/cd+1)6-1]
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.
Financial Statements
Copies of the Trust's audited financial statements for the fiscal year ended
June 30, 1998, 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.
19
<PAGE>
APPENDIX A
Bond Ratings
Below is a description of Standard & Poor's Ratings Group ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's") bond rating categories. Each of
the Growth Fund and the Emerging Growth Fund may invest up to 5% of its total
assets in bonds rated "BB" or lower by Standard & Poor's and/or "Ba" or lower by
Moody's.
Standard & Poor's Ratings
Group Corporate Bond Ratings
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated "AA" also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
these bonds differ from "AAA" issues only in small degree.
A -- Bonds rated "A" have a strong capacity to pay principal and interest,
although these bonds are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capability to pay
principal and interest. Whereas these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, these bonds face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B -- Bonds rated "B" have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC -- Bonds rated "CCC" have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, these bonds are not likely
to have the capacity to pay interest and repay principal.
Moody's Investors Service, Inc.
Corporate Bond Ratings
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. These bonds carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, these changes as can be visualized are most unlikely to
impair the fundamentally strong position of these issues.
A-1
<PAGE>
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, these bonds comprise what are generally known as
high grade bonds. These bonds are rated lower than the best bonds because
margins of protections may not be as large as in "Aaa" securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long term risk appear somewhat larger than in
"Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations (i.e., these
bonds are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. These bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B -- Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
A-2
<PAGE>