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Filed pursuant to
Rule 497(c)
File Nos. 33-54762
811-7348
The Diaz-Verson Funds Inc.
1200 Brookstone Centre Parkway
Columbus, Georgia 31904
DIAZ-VERSON AMERICAS EQUITY FUND
DIAZ-VERSON AMERICAS EQUITY FUND (the "Fund") is a portfolio of The Diaz-Verson
Funds Inc., a diversified open-end management investment company, which
provides a convenient way to invest in a professionally managed portfolio of
securities. The Fund seeks to provide long-term capital growth through
investments primarily in common stocks of issuers located in the Americas
(defined as North America, Central America, South America and island nations
adjacent to those continents). The Fund is offered on a no-load basis.
The Fund's Adviser is DIAZ-VERSON CAPITAL INVESTMENTS, INC. (the "Adviser"),
1200 Brookstone Centre Parkway, Suite 105, Columbus, Georgia 31904, a
registered investment adviser under the Investment Advisers Act of 1940. The
Adviser's President is Salvador Diaz-Verson, Jr., an experienced global money
manager.
This Prospectus sets forth concisely the information about the Fund that you
should know before investing. It should be read and retained for future
reference.
A Statement of Additional Information, dated April 29, 1996, about the Fund has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. A copy is available without charge by calling the Fund's
distributor, Performance Funds Distributor, Inc. (the "Distributor"), at
1-800-343-5133.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is April 29, 1996.
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Table of Contents
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<CAPTION>
Caption Page
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Shareholder and Fund Expenses and Costs . . . . . . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Investment Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Short-Term Investment and Repurchase Agreements . . . . . . . . . . . . 10
Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Options on Securities, Currencies and Indexes . . . . . . . . . . . . . 12
Futures Contracts and Options . . . . . . . . . . . . . . . . . . . . . 12
Forward Foreign Currency Exchange Contracts . . . . . . . . . . . . . . 13
Guidelines for Engaging in Futures and Options Activities . . . . . . . 15
Delayed Delivery and When-Issued Transactions . . . . . . . . . . . . . 15
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Investment Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Automatic Reinvestment of Dividends and
Capital Gains Distributions . . . . . . . . . . . . . . . . . . . . . . 21
Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . . . 22
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . 23
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . 24
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Shareholder Servicing Agent, Dividend Paying Agent and Registrar . . . . 25
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Legal Counsel and Independent Auditors . . . . . . . . . . . . . . . . . 25
Organization of the Fund . . . . . . . . . . . . . . . . . . . . . . . . 26
Distribution Services Agreement . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Statement of
Additional Information incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given, or made, such information or
representations must not be relied upon as having been authorized by the Fund
or the Distributor. This Prospectus does not constitute an offering by the
Fund or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.
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Prospectus Summary
The following summary is qualified in its entirety by
the detailed information appearing elsewhere in this
Prospectus.
The Fund: Diaz-Verson Americas Equity Fund (the "Fund")
is a portfolio of The Diaz-Verson Funds Inc.,
an open-end, diversified management
investment company organized as a Maryland
corporation on November 18, 1992, commonly
referred to as a mutual fund. The Fund is
offered on a no-load basis.
Investment Objective: The Fund is designed to seek long-term
capital growth by investing in equity
securities traded on organized exchanges in
the Americas.
Offering of Shares: Shares of the Fund are offered at net asset
value. Purchases may be made through the
Distributor or an authorized broker or
financial institution, by mail or by wire.
See "Purchase of Shares" and "Redemption of
Shares" for more information as to how shares
may be purchased and redeemed.
Minimum Investment: Minimum initial investment is $1,000; minimum
subsequent investment is $250 except as
indicated herein. See "Purchase of Shares."
Adviser: Diaz-Verson Capital Investments, Inc., a
registered investment adviser currently
managing $85 million in assets on a
discretionary basis, acts as Adviser to the
Fund.
Shareholder Services: Investment Account Statement Mailed Quarterly
Automatic Reinvestment of Dividends and
Capital Gains Distributions
Automatic Investment Program
Retirement Plans
Federal Funds Wire Service for Purchases and
Redemptions
See "Shareholder Services" for more
information concerning each of these services.
Investment Risks: Investments in obligations of foreign
entities and securities denominated in
foreign currencies involve risks not
typically involved in domestic investments.
Such risks include fluctuations in foreign
exchange rates, less publicly available
information about foreign financial
instruments, less liquidity resulting from
substantially less volume, more volatile
prices and generally less government
supervision of foreign securities markets and
issuers. Investment in Latin America
(defined as nations in the Western Hemisphere
excluding Canada and the United States)
involves certain special considerations, such
as restrictions on foreign investment and
possible temporary restrictions on foreign
capital remittances, limited liquidity and
small market capitalization of the Latin
American securities markets, currency
devaluations, high inflation, government
involvement in the economy and political
uncertainty, which are not typically
associated with investments in the United
States. The Fund may experience high
portfolio turnover, see "Investment Risks."
Additionally, the operating expense ratio of
the Fund can be expected to be higher than
that of an investment company investing
exclusively in U.S. securities due to higher
transaction and custodial costs.
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Shareholder and Fund Expenses and Costs
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested
Dividends and Capital Gains None
Deferred Sales Load None
Redemption Fees* None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after expense reimbursement 0.00%
and waiver)
12b-1 Fees 0.25
Other Expenses (after expense
reimbursement) 2.25
----
TOTAL FUND OPERATING EXPENSES 2.50%
=====
</TABLE>
* An $8 service fee is charged for redemption by wire.
EXAMPLE:
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=========================================================================================================
1 year 3 years 5 years 10 years
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You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period: $25.63 $78.76 $134.53 $286.26
=========================================================================================================
</TABLE>
The foregoing table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
amount shown for "Management Fees" reflects a reduction of fees payable to the
Adviser. Without this reduction, "Management Fees" would be 1.00%. The
Adviser has voluntarily agreed to waive its fee for, and to reimburse expenses
of, the Fund in an amount that operates to limit annual operating expenses for
the year ending December 31, 1996 to not more than 2.50% of average daily net
assets. Total Operating Expenses for fiscal 1996 would be an estimated 9.71%
and Other Expenses would be an estimated 8.46% absent any fee reimbursements.
For a further discussion of fees, see "Management of the Fund," "Additional
Information -- Administrator" and "-- Distribution Services Agreement" herein.
The figures reflected in the foregoing Example should not be considered a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown.
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Financial Highlights
The table below sets forth certain information covering the Fund's net
investment results for the periods indicated. The information set forth in the
table has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. Further financial data, related notes and the auditors' report are
contained in the Statement of Additional Information, which is available upon
request.
<TABLE>
<CAPTION>
For the period
March 23, 1993
(commencement of
For the year ended For the year ended operations) through
Per Share Operating Performance December 31, 1995 December 31, 1994 December 31, 1993
------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.12 $12.95 $10.00
Income (Loss) from Investment Operations:
Net investment loss* (0.01) (0.16) (0.05)
Dividends and Distributions to
Shareholders from realized gain on
investments* -- (0.87) --
Net realized and unrealized gain/(loss) on
investments and foreign currency
transactions 0.24 (2.80) 3.00
---- ------ ----
Total Income/(Loss) from Investment Operations 0.23 (3.83) 2.95
---- ------ ----
Net asset value, end of period $9.35 $9.12 $12.95
===== ===== ======
Total return 2.52% (26.68)% 29.50%***
Ratios/Supplemental Data:
Net assets, end of period (in 000's) $5,641 $5,562 $6,341
Ratio of Net Investment Loss to
Average Net Assets (0.14)% (1.37)% (0.63)%
Ratio of Expenses net of reimbursement
to Average Net Assets 2.50% 2.44% 2.25%**
Ratio of Expenses before effect of
reimbursement to Average Net Assets 7.96% 6.52% 7.34%**
Portfolio turnover rate 142% 164% 82%
</TABLE>
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* Per share data based upon average monthly shares outstanding.
** Annualized.
*** Not annualized.
Further information regarding the Fund's performance is contained in the Fund's
Annual Report, a copy of which may be obtained without charge.
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Management of the Fund
Diaz-Verson Capital Investments, Inc. (the "Adviser") serves as the Adviser to
the Fund and directs investments of the Fund pursuant to an Investment Advisory
Agreement dated March 2, 1993 (the "Advisory Agreement").
Under the terms of the Advisory Agreement, and at the direction of the Board of
Directors, the Adviser maintains records and furnishes or causes to be
furnished all required reports or other information concerning the Fund to the
extent such records, reports and other information are not maintained by the
Administrator, Shareholder Servicing Agent, Custodian or other agents.
Under the Advisory Agreement with the Fund, the Adviser also provides order
placement facilities for the Fund and pays all compensation of Directors and
officers of the Fund who are affiliated persons of the Adviser. The Adviser or
its affiliates also furnishes the Fund, without charge, management supervision
and assistance and office facilities and provides persons satisfactory to the
Fund's Board of Directors to serve as the Fund's officers and managers of the
day-to-day operations. The Fund pays the Adviser fees at the annual rate of 1%
of the average daily net asset value of the Fund. This rate is higher than
that paid by most mutual funds. The fee is accrued daily and paid monthly.
The Advisory Agreement continues in effect from year to year provided such
continuance is specifically approved at least annually by a vote of the
majority of those members of the Board of Directors who are neither parties to
the Advisory Agreement nor interested persons of the Adviser within the meaning
of the Investment Company Act of 1940 (the "1940 Act"). Pursuant to the
Advisory Agreement, the Adviser made arrangements to limit the Fund's total
annual expense ratio during fiscal 1995 to no more than 2.50%. Under this
agreement, $298,751 (less distribution expenses of $19,222) of the expenses
incurred by the Fund through December 31, 1995, was reimbursed by the Adviser.
In addition, the Adviser has voluntarily agreed to waive its fee for, and to
reimburse expenses of, the Fund in an amount that operates to limit annual
operating expenses to not more than 2.50% of average daily net assets for the
current fiscal year.
Diaz-Verson Capital Investments, Inc., the Adviser, is a professional
investment management firm founded in 1991. Mr. Salvador Diaz-Verson, Jr. is
the President and sole stockholder of the Adviser. Mr. Diaz-Verson, Jr., as
Vice-President of Investments and then Chief Investment Officer of AFLAC, Inc.,
an insurance company, has had 17 years experience managing portfolios of
securities of companies located in the United States, Canada, Japan, Taiwan,
Korea, Germany and the United Kingdom. As of March 31, 1996, the Adviser had
discretionary management authority with respect to approximately $85 million of
assets. The principal business address of the Adviser is 1200 Brookstone
Centre Parkway, Suite 105, Columbus, Georgia 31904.
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Since the Fund commenced operations on March 23, 1993, Mr. Diaz-Verson and Mr.
Michael K. Majure have been the persons employed by the Adviser who are
primarily responsible for the day-to-day management of the Fund's portfolio.
Mr. Diaz-Verson has been President of the Adviser since 1991 and served from
1981 to 1991 as President of American Family Corporation, a multinational
insurance company. Mr. Majure has been Executive Vice President of the Adviser
since 1991. He was Vice President of American Family Corporation from 1989
through 1991.
Investment Objectives and Policies
The investment objective of the Fund is long-term capital growth. There is no
assurance that the investment objective will be met. This investment objective
is a fundamental policy and can only be changed by vote of a majority of the
Fund's outstanding shares. The term "majority of outstanding shares" means the
vote of (i) 67% or more of the Fund's shares present at a meeting, if more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.
Except as otherwise may be specifically stated herein, the Fund's other
investment policies are not considered fundamental and may be changed by the
Board of Directors at any time without a shareholder vote.
The Fund is designed for investors who seek to participate in the formation and
growth of the Latin American equity markets, while attempting to maintain the
stability and liquidity of the United States and Canadian equity markets.
The major factors driving the development of stock markets in Latin America can
be summarized as follows:
1. The removal or reduction of barriers to foreign investors.
2. The trend toward elimination of capital repatriation barriers.
3. The development of regional trade agreements.
4. The prospects for increased trade with the United States and
Canada as trading agreements between these countries continue
to develop.
The Fund attempts to assure liquidity and provide some stability by also
investing in the United States and Canada. Additionally, the expected
continued increase in trade associated with the North American Free Trade
Agreement will provide an expanded consumer base for the United States and
Canada.
The Fund will normally be as fully invested as practicable in common stocks,
but also may invest in warrants and rights to purchase common stocks and debt
securities, and
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<PAGE> 8
preferred stocks convertible into common stocks which, in the Adviser's
opinion, are undervalued in the marketplace at the time of purchase. All of
the common stocks in which the Fund invests will be of issuers located in the
Americas (defined as North America (including Canada and the United States),
Central America, South America, and island nations adjacent to those
continents. As used herein, issuers located in the Americas shall mean (i) a
company the principal securities trading market for which is located in the
Americas (currently, the following countries have organized exchanges for
public trading -- Argentina, Barbados, Brazil, Canada, Chile, Colombia, Costa
Rica, Jamaica, Mexico, Peru, Trinidad and Tobago, Uruguay, and the United
States, and other exchanges may be added in the future); (ii) a company that
(alone or on a consolidated basis) derives 50% or more of its total revenue
from either goods produced, sales made or services performed in the Americas;
or (iii) a company organized under the laws of, and with a principal office in,
the Americas.
In selecting securities for the Fund, the Adviser evaluates factors it believes
affect the capital appreciation potential of such securities. Such factors
include the appreciation prospects of the general financial markets in the
issuer's country, the relative value of the issuer compared to its own trading
history and the market in the issuer's country, the change in the rate of
growth evidenced by market movements in the issuer's securities, and likely
currency impacts. Dividend and interest income is incidental to the growth of
capital. The Adviser shifts portfolio holdings between countries and industry
sectors based on its analysis of the capital appreciation prospects of the
issuer and each country's market prospects. In allocating the Fund's
investments, the Adviser continuously assesses economic and business conditions
while trying to identify underlying trends. These conditions include economic
growth rates, business prospects for particular industries and companies,
securities prices, interest rates, currency exchange rates, and trade and
payments balances, as well as political developments, including changes in
governmental, fiscal, monetary, regulatory and labor policies.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of issuers located in the Americas. The balance of the
Fund's assets may be held in cash or invested in other securities, including
preferred stock, common stock equivalents, options, futures and various
corporate debt instruments denominated in various currencies. With regard to
debt instruments, it is the intention of the Fund to include in the portfolio
only securities of the top three categories of S&P, "AAA, AA, A," or Moody's,
"Aaa, Aa, A."
The Fund may also purchase securities of foreign issuers traded in the United
States, including sponsored American Depositary Receipts ("ADR's"). ADR's are
certificates that are issued by a United States bank or trust company, which
represent the right to receive securities of a foreign issuer deposited in a
foreign subsidiary, branch or correspondent of that bank or trust company.
Generally, ADR's in registered form are designed for use in United States
securities markets. Foreign brokerage commissions and custodial expenses are
generally higher than in the United States. Dividend collection fees on
foreign securities and ADR's are generally higher than on U.S.
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<PAGE> 9
securities, and dividends and interest may be subject to foreign withholding
tax at the source which may or may not be permitted to be passed through to
U.S. shareholders.
The Fund may also invest up to 5% of its assets, calculated as of the time of
purchase, in warrants. The Fund may purchase and sell put or call options on
securities and foreign currencies and enter into forward foreign currency
exchange contracts. See "Other Investment Practices -- Options on Securities,
Currencies and Indexes." During defensive periods, when in the Adviser's
opinion market conditions so warrant, or when there are negative developments
that could affect share prices worldwide, the Fund may invest up to 100% of its
assets in money market instruments. See "Other Investment Practices --
Short-Term Investment and Repurchase Agreements." The Fund may invest in
closed-end investment companies to the extent permitted by the 1940 Act as set
forth under "Investment Restrictions" below, and in so doing, will be subject
to duplicative fees and expenses.
For a description of certain permitted investments and the above ratings, see
"Description of Permitted Investments" and "Appendix." Additional information
may also be found in the Statement of Additional Information.
Investment Risks
The Fund invests primarily in equity securities, which fluctuate in value.
Therefore, shares of the Fund will fluctuate in value. The net asset value of
the Fund's shares, to the extent the Fund invests in fixed income securities,
is affected by changes in the general level of interest rates. When interest
rates decline, the value of a fund of fixed income securities can be expected
to rise. Conversely, when interest rates rise, the value of a fund of fixed
income securities can be expected to decline.
In addition, the Fund invests in the securities of non-U.S. issuers, which have
risks that are different from the risks associated with investments in the
securities of U.S. issuers. These risks include fluctuations in foreign
exchange rates, which may be substantial and sudden, foreign political and
economic developments, and the possible imposition of exchange controls or
other foreign or United States governmental laws or restrictions applicable to
such investments. Investment in Latin America involves certain special
considerations, such as restrictions on foreign investment and possible
temporary restrictions on foreign capital remittances, limited liquidity and
small market capitalization of the Latin American securities markets, currency
devaluations, high inflation, government involvement in the economy and
political uncertainty, which are not typically associated with investments in
the United States. Certain of the Fund's investments may be of securities in
issuers located in countries having repatriation restrictions. Investment in
securities subject to repatriation restrictions of more than seven days will be
considered illiquid securities and will be subject to the Fund's overall 15%
limitation on investment in illiquid securities.
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<PAGE> 10
Since the Fund may invest in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates may
affect the value of investments in the Fund and the unrealized appreciation or
depreciation of investments insofar as United States investors are concerned.
There can be no assurance that a currency devaluation such as the one that
occurred in Mexico beginning in December 1994 will not occur in other countries
in which the Fund invests. Changes in foreign currency exchange rates relative
to the U.S. dollar will affect the U.S. dollar value of the Fund's assets
denominated by that currency and the Fund's net asset value. Foreign currency
exchange rates are determined by forces of supply and demand on the foreign
exchange markets. Moreover, individual foreign economies may differ favorably
or unfavorably from the United States economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a United States instrument and foreign entities may not
be subject to accounting, auditing, and financial reporting standards and
requirements comparable to those of the United States. There is generally less
governmental supervision and regulation for exchanges, financial institutions
and issuers in foreign countries than there is in the United States. Moreover,
certain foreign investments may be subject to foreign withholding taxes.
Investors may be able to deduct such taxes in computing their taxable income or
use such amounts as credits against their United States income taxes. Foreign
financial markets, while growing in volume, generally have substantially less
volume than United States markets, and securities of any foreign companies are
less liquid and their prices more volatile than securities of comparable
domestic companies. Foreign markets also have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of Fund
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the Fund security or, if the Fund has
entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than with transactions in United States
securities. For this reason, the operating expense ratio of the Fund is higher
than for an investment company that invests solely in U.S. securities.
It is anticipated that under normal conditions the annual rate of portfolio
turnover of the Fund may exceed 200%. This rate of turnover will likely result
in higher brokerage commissions and higher levels of realized gains than if the
turnover rate was lower and may subject investors to higher levels of taxable
gains. In addition, investment in
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<PAGE> 11
securities traded in non-U.S. markets may involve higher brokerage, custody and
settlement costs. For the fiscal year ended December 31, 1995, the Fund's
portfolio turnover rate was 142%.
The Fund may engage in various strategies as described below under "Other
Investment Practices" to seek to increase its return through the use of options
on portfolio securities and to hedge its portfolio against movements in the
securities markets and exchange rates between currencies by the use of options,
futures and options thereon. Use of such strategies involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject of
the hedge. There can be no assurance that a liquid secondary market for
options and futures contracts will exist at any specific time. Because of the
nature of its investments, the Fund is designed for long-term investors who can
bear the risk of international investments. An investment in the Fund should
not be considered a complete investment program.
Other Investment Practices
SHORT-TERM INVESTMENT AND REPURCHASE AGREEMENTS
The Fund may establish and maintain reserves, without limitation, as the
Adviser deems advisable, for temporary defensive purposes. The Fund's reserves
may be invested in domestic as well as foreign money market instruments,
including, but not limited to, governmental obligations, certificates of
deposit, bankers' acceptances, commercial paper, short-term corporate debt
securities and repurchase agreements. With respect to repurchase agreements, no
more than 15% of the Fund's net assets may be invested in illiquid investments,
including repurchase agreements with maturities exceeding seven days. The Fund
may enter into repurchase agreements pertaining to U.S. government securities
with member banks of the Federal Reserve System or with primary dealers (as
designated by the Federal Reserve Bank of New York) of such securities. There
is no percentage restriction on the Fund's ability to enter into repurchase
agreements with maturities of seven days or less. A repurchase agreement
arises when a buyer, such as the Fund, purchases a security and simultaneously
agrees to resell it to the vendor at an agreed upon future date, normally one
day or a few days later. The resale price is greater than the purchase price,
reflecting an agreed upon interest rate which is effective for the period of
time the buyer's money is invested in the security and which is related to the
current market rate rather than the coupon rate on the purchased security.
Such agreements permit the Fund to keep all of its assets at work while
retaining overnight flexibility in pursuit of investments of a longer-term
nature. The Fund must maintain with its Custodian for its account in the
Federal Reserve/Treasury Book Entry System, collateral in an amount equal to,
or in
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<PAGE> 12
excess of, the resale price. In the event of a vendor's bankruptcy, the Fund
may be delayed in, or prevented from, selling the collateral for the Fund's
benefit. The Fund's Board of Directors has established procedures which enable
the Adviser to monitor the creditworthiness of the dealers with which the Fund
enters into a repurchase agreement transaction. These procedures are
periodically reviewed by the Board.
HEDGING
The Fund has the authority to hedge against company, market, interest rate and
currency exchange rate risks pursuant to guidelines adopted by the Board of
Directors. These guidelines may be modified by the Directors without
shareholder vote. Use of hedging instruments by the Fund is also subject to
the applicable regulations of the Securities and Exchange Commission (the
"Commission"), the exchanges upon which options and futures are traded, the
Commodity Futures Trading Commission (the "CFTC") and the various state
regulatory authorities. In particular, the Fund has made certain
representations to the CFTC, among them that it will use futures contracts and
options on futures contracts solely for bona fide hedging transactions and that
it will not enter into futures contracts or options on futures contracts for
which the aggregate initial margin and premiums exceed 5% of the Fund's total
assets.
The Adviser may at times seek to hedge against a decline in the value of
securities included in the Fund's portfolio or against an increase in the price
of securities which the Adviser plans to purchase for the Fund. The ability of
the Fund to engage in the options and futures strategies described below will
depend on the availability of liquid markets for such instruments. It is
impossible to predict the level of trading activity that may exist in various
types of options or futures. Therefore, no assurance can be given that the
Fund will be able to use these instruments effectively. Furthermore, the
Fund's ability to engage in options and futures transactions may be limited by
tax considerations. Although the Fund will only engage in options and futures
transactions for hedging purposes and not for speculation, such transactions
involve certain risks which are described below.
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<PAGE> 13
OPTIONS ON SECURITIES, CURRENCIES AND INDEXES
Call Writing. The Fund may write covered call options on its underlying
portfolio securities, whether equity or debt, on stock or bond indexes and on
currencies in which the Fund invests, in each case, up to 50% of the assets of
the Fund. Covered call writing may be used for hedging purposes, for closing
long call positions in the Fund and for achieving incremental income. A call
option will be considered covered if the Fund (a) owns the security or currency
underlying the written option, (b) holds a call option on the underlying
security, currency or index with a similar exercise price or (c) maintains
sufficient cash, cash equivalents or liquid high grade securities.
Put Writing. The Fund may write covered put options on up to 50% of its
assets. This technique will be used when the Fund seeks to purchase a
security, or group of securities in the case of an index option, at a price
equal to or less than the prevailing market price at the time of the put sale.
The Fund may also sell covered puts for achieving incremental income. A put
will be considered covered if a Fund (a) maintains cash, cash equivalents or
liquid, high grade debt obligations in an amount sufficient to cover the
exercise price of the option, (b) holds a put option on the underlying security
with an exercise price equal to or greater than the exercise price of the
written put or (c) where the exercise price of the purchased put is lower than
that of the written put, the Fund maintains sufficient cash, cash equivalents
or liquid high grade debt obligations equal to the difference. Puts may also
be written in order to close long put positions.
Purchasing Calls and Puts. In order to fix the cost of future purchases, the
Fund may purchase calls on equity and debt securities that the Adviser intends
to include in the Fund's portfolio. Calls may also be used to participate in
an anticipated price increase of a security without taking on the full risk
associated with actually purchasing the underlying security. The Fund may
purchase puts to hedge against a decline in the market value of portfolio
securities.
FUTURES CONTRACTS AND OPTIONS
The Fund may buy and sell stock index futures contracts or related options in
anticipation of general market or market sector movements that may adversely
affect the market value of the Fund's portfolio. The Fund may use interest
rate futures and options thereon to hedge its portfolio against expected
adverse changes in the general level of interest rates or against expected
adverse performance of a particular maturity sector. The Fund may also
purchase and write puts and calls on stock index futures or fixed income
futures in the same manner as the options on securities, indexes and currencies
discussed above.
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<PAGE> 14
Hedging with Currency Futures and Related Options. The Fund may sell currency
futures contracts to hedge against an anticipated decline in the foreign
exchange rate of a currency in which portfolio securities are denominated. The
Fund may purchase currency futures contracts to hedge against a rise in foreign
exchange rates pending investment in non-U.S. securities. The Fund may
purchase and write call and put options on currency futures contracts in the
same manner as described above. See "-- Options on Securities, Currencies and
Indexes."
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward contracts as a hedge against future
fluctuations in foreign exchange rates. A forward foreign currency exchange
contract ("forward contract") involves an obligation to purchase or sell a
fixed amount of U.S. dollars or foreign currency at a future date, which may be
any fixed number of days from the date of the contract agreed upon by the
parties, at the price set at the time of the contract. The Fund may enter into
forward contracts under various circumstances. For example, the Fund may enter
into a forward contract for the purchase or sale of a security denominated in a
foreign currency in order to lock in the price of the security in U.S. dollars
or some other foreign currency which the Fund is holding. By entering into a
forward contract for the purchase or sale of a fixed amount of U.S. dollars or
other currency, for the amount of foreign currency involved in the underlying
security transactions, the Fund will be able to protect itself against any
adverse movements in exchange rates between the time the security is purchased
or sold and the date on which payment is made or received. The Fund may also
purchase a forward contract to hedge against an anticipated rise in a currency
versus the U.S. dollar or other currency, pending investment in a security
denominated in that currency.
At other times, when, for example, it is believed that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar or some other foreign currency, the Fund may enter into a forward
contract to sell, for a fixed amount of U.S. dollars or other currency, the
amount of foreign currency approximating the value of some or all of the Fund's
portfolio securities (or securities which the Fund purchased for its portfolio)
denominated in such foreign currency. Under similar circumstances, the Fund
may enter into a forward contract to sell, for a fixed amount of U.S. dollars
or other currency, an amount of foreign currency other than the currency in
which the securities to be hedged are denominated approximating the value of
some or all of the portfolio securities to be hedged. This method of hedging,
called cross-hedging, will be used when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem. The Fund is permitted to enter
into forward contracts with respect to currencies in which certain of its
portfolio securities are denominated and on which options have been written.
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<PAGE> 15
In certain of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated
falls (rises) in value with respect to the currency which is being purchased
(or sold), then the Fund may have realized fewer gains than had the Fund not
entered into the forward contracts. Moreover, the precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible, since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures.
Risks Associated with Hedging Instruments. The Fund's ability to hedge
effectively all or a portion of its securities depends upon the ability of the
Adviser to predict correctly the degree to which price movements of securities
held in the Fund's portfolio correlate to the price movements of the relevant
hedging instruments. In addition, the effectiveness of any hedging strategy
using index options, index futures, interest rate options or interest rate
futures depends upon the correlation between the components of the underlying
index and the securities held by the Fund. The effective use of options and
futures contracts also depends on the Fund's ability to terminate options and
futures positions as desired. Although the Fund will take such positions only
if the Adviser believes there is a sufficiently liquid market for the option or
futures contract, there is no assurance that the Fund will be able to effect
closing transactions at any particular time or at an acceptable price. If the
Fund cannot close a futures position, or if limitations imposed by an exchange
or board of trade on which futures contracts are traded prevent the Fund from
closing out a contract, the Fund may incur a loss or may be forced to make or
take delivery of the underlying securities or currencies at a disadvantageous
time.
In addition, the purchase of a futures contract involves the risk that the Fund
could lose more than the original margin deposit required to initiate the
transaction. The purchase of call or put options on futures contracts involves
less potential risk because the maximum amount at risk is the premium paid for
the options plus transaction costs. Although the maximum amount at risk when
the Fund purchases an option on a security, currency, index or futures contract
is the premium paid for the option plus transaction costs, there may be
circumstances when the purchase of an option would result in a loss to the
Fund, whereas the purchase of the underlying security, currency or futures
contract would not, such as when there is no movement in the level of the
underlying security, currency or futures contract. The value of an options or
futures position relating to a non-U.S. currency may vary with changes in the
value of either the currency involved or the U.S. dollar or both and has no
relationship to the investment merits of individual non-U.S. securities held in
a hedged investment portfolio.
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<PAGE> 16
GUIDELINES FOR ENGAGING IN FUTURES AND OPTIONS ACTIVITIES
Options on equity securities will be purchased or written only if such options
are traded on regulated U.S. or foreign exchanges or boards of trade. Options
on debt securities, currencies and indexes will be purchased or written only
when the Adviser believes that there exists a sufficiently liquid secondary
market for these options. The Fund will write only covered options and all
such options will remain covered so long as the Fund is obligated under the
option. The Fund may purchase put and call options provided that the value of
all options held by the Fund does not exceed 5% of the Fund's total assets. The
Fund will collateralize the purchase of futures contracts or related options by
setting aside cash or cash equivalents (such as U.S. Treasury bills) equal to
the market value of the futures positions, thereby insuring that the use of
such futures contracts and options is unleveraged. Futures contracts and
related options will not be purchased if immediately thereafter more than 30%
of the Fund's total assets would be so committed to the consummation of such
contracts.
DELAYED DELIVERY AND WHEN-ISSUED TRANSACTIONS
The Fund may purchase or sell portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions involve a
commitment by the Fund to purchase or sell securities with payment and delivery
to take place in the future in order to secure what is considered to be an
advantageous price or yield to the Fund at the time of entering into the
transaction. The value of fixed income securities to be delivered in the
future will fluctuate as interest rates vary. Because the Fund is required to
set aside cash or liquid high grade securities of at least equal value to its
commitments to purchase when-issued or delayed delivery securities, commitments
to purchase when-issued or delayed delivery securities shall not exceed 25% of
the value of its assets.
To the extent the Fund engages in when-issued or delayed purchases, it will do
so for the purpose of acquiring portfolio securities consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities. The Fund, however,
reserves the right to sell these securities before the settlement date, if
deemed advisable.
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<PAGE> 17
Investment Restrictions
The Fund may not: (1) invest more than 25% of its total assets (taken at
market value at the time of each investment) in the securities of issuers in
any particular industry (this restriction, however, does not apply to
securities issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities; it does, however, apply to obligations of a foreign
government unless the Commission permits their exclusion); (2) make investments
for the purpose of exercising control or management; (3) purchase securities of
other investment companies, except in connection with a merger, consolidation,
acquisition or reorganization (provided, however, that the Fund may purchase
securities of closed-end investment companies if, immediately thereafter, not
more than (i) 3% of the total outstanding voting stock of any one such company
is owned in the aggregate by the Fund, (ii) 5% of the Fund's total assets,
taken at market value, would be invested in any one such company, or (iii) 10%
of the Fund's total assets, taken at market value, would be invested in such
companies' securities); (4) purchase or sell (i) real estate or real estate
mortgage loans (this restriction shall not apply to securities secured by real
estate or an interest therein or issued by companies which invest in real
estate or interests therein); (ii) commodities or commodity contracts (the Fund
may, however, deal in forward foreign exchange contracts between currencies and
may purchase and sell interest rate and currency options, futures contracts and
related options and indexed commercial paper); or (iii) interests or leases in
oil, gas or other mineral exploration or development programs (such restriction
shall not apply to securities issued by companies which invest in oil, gas or
other mineral exploration or development programs); (5) purchase any securities
on margin, except for use of short-term credit necessary for clearance of
purchases and sales of portfolio securities (the deposit or payment by the Fund
of initial or variation margin in connection with futures contracts or options
transactions is not considered the purchase of a security on margin); (6) make
short sales of securities; (7) make loans to other persons, provided that the
Fund may engage in repurchase transactions as set forth above (the purchase of
a portion of an issue of bonds, debentures or other debt securities and
investment in governmental and supranational obligations, short-term commercial
paper, certificates of deposit, and bankers' acceptances shall not be deemed to
be the making of a loan); (8) borrow amounts in excess of 25% of its total
assets taken at market value (including the amount borrowed), and then only
from banks as a temporary measure for extraordinary or emergency purposes,
including to meet redemptions or to settle securities transactions and provided
further that no additional investments shall be made while borrowings exceed 5%
of total assets; and (9) invest greater than 15% of its net assets in
securities which cannot be readily resold or are illiquid because of legal or
contractual restrictions or are not otherwise readily marketable. Restriction
Nos. 1, 4, 7 and 8 are fundamental policies which may not be changed by the
Board of Directors without a shareholder vote. The remaining restrictions
listed above are not fundamental policies and may be changed by the Board
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<PAGE> 18
of Directors without a shareholder vote, to the extent permitted by applicable
law, including rules of the Commission.
As a diversified investment company under the 1940 Act, the Fund may not
purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Fund would be invested in the securities of such issuer, or more than 10%
of the issuer's securities would be owned by the Fund; provided, however, that
the Fund may invest up to 25% of its total assets without regard to this
restriction as permitted by applicable law.
Purchase of Shares
Shares of the Fund are offered on a no-load basis continuously for sale through
the Distributor, the Fund and other eligible securities dealers, banks and
qualified financial institutions who have signed a selling or service agreement
with the Distributor or the Fund. Shares of the Fund may be purchased from
these securities dealers and banks or by mailing a purchase order directly to
the Fund's Shareholder Servicing Agent, Furman Selz LLC. The minimum initial
purchase is $1,000 and the minimum subsequent purchase is $250 except that for
retirement plans, the minimum initial purchase is $250 and the minimum
subsequent purchase is $100.
The applicable offering price for purchase orders is based upon the net asset
value of the Fund next determined after receipt of the purchase order by the
Distributor prior to the determination of net asset value (4:15 P.M. New York
City time) and subsequently transmitted to Furman Selz LLC. Orders so
transmitted prior to the close of the business day (which is currently 5:00
P.M. New York City time) will become effective as of that day. Orders received
after such times shall be deemed received on the next business day.
Any order may be rejected by the Fund. The Fund may suspend the continuous
offering of shares to the general public at any time in response to conditions
in the securities markets or otherwise and may thereafter resume such offering
from time to time. Neither the Fund nor any eligible dealer or bank is
permitted to withhold placing orders to benefit themselves by a price change.
An investment may be made using any of the following methods:
THROUGH AN AUTHORIZED BROKER, BANK OR SERVICE ORGANIZATION. Shares are
available to new and existing shareholders through authorized brokers, banks
and service organizations ("agents"). To make an investment using this method,
simply complete a Purchase Application and contact your agent with instructions
as to the amount you
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<PAGE> 19
wish to invest. Your agent will then contact Furman Selz LLC to place the
order on your behalf on that day.
Orders received by your broker, bank or service organization for the Fund in
proper order prior to the determination of net asset value (4:15 P.M. New York
City time) and transmitted to Furman Selz LLC prior to the close of its
business day (which is currently 5:00 P.M. New York City time), will become
effective that day. Agents who receive orders are obligated to transmit them
promptly. You should receive written confirmation of your order within a few
days from your agent.
BY WIRE. Investments may be made directly through the use of wire transfers of
Federal funds. Contact your bank and request it to wire Federal funds to the
Fund. In most cases, your bank either will be a member of the Federal Reserve
banking system or have a relationship with a bank that is. Your bank will
normally charge you a fee for handling the transaction. To purchase shares by
a Federal funds wire, please first contact Furman Selz Mutual Funds Client
Services. They will establish a record of information for the wire to insure
the correct processing of funds. You can reach the Wire Desk at
1-800-343-5133.
Then, have your bank wire funds using the following instructions:
Investors Fiduciary Trust Company
Kansas City, Missouri 64105
ABA #1010-0362-1
Account #751-2996
Further Credit to: (Diaz-Verson Americas
Equity Fund)
As long as you have received the Prospectus, you may establish a new regular
account through the Wire Desk. When new accounts are established by wire, the
distribution options will be set to reinvest all distributions. The Social
Security or tax identification number ("TIN") will not be certified until a
signed application is received. Completed applications should be forwarded
immediately to Furman Selz LLC. With the application, the shareholder can
specify other distribution options and add any special features offered by the
Fund. Should any dividend distributions or redemptions be paid before the
application is received, they will be subject to 31% Federal tax withholding.
AUTOMATIC INVESTMENT PROGRAM. An eligible shareholder may also participate in
the Fund's Automatic Investment Program, an investment plan that automatically
debits money from the shareholder's bank account and invests it in the Fund
through the use of electronic funds transfers or automatic bank drafts.
Shareholders may elect to make subsequent investments by transfers of a minimum
of $50 on the fifth or twentieth day of each month into their established Fund
account. Contact the Fund for more information about the Fund's Automatic
Investment Program.
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<PAGE> 20
CERTIFICATES. In the interest of economy and convenience, physical stock
certificates representing the Fund's shares will not be issued unless requested
in writing directly to the Fund's Shareholder Servicing Agent. Shares of the
Fund are recorded on a stock register by the Shareholder Servicing Agent and
shareholders who do not elect to receive stock certificates have the same
rights of ownership as if certificates had been issued to them. Redemptions
and exchanges by shareholders who hold certificates may take longer to effect
than similar transactions involving non-certificated shares because the
physical delivery and processing of properly executed certificates is required.
Accordingly, the Fund strongly recommends that shareholders do not request
issuance of certificates. Wire and telephone redemptions of shares held in
certificate form are not permitted and the shares represented thereby will not
be reported on brokerage or bank statements sent to clients. See "Redemption of
Shares" below.
Redemption of Shares
Fund shares may be redeemed without charge at net asset value and redemption
proceeds will be paid within seven days of the receipt of a redemption request.
Shareholders who maintain accounts at an eligible broker-dealer or bank may
redeem shares through such dealer or bank; all other shareholders must redeem
Fund shares through the Shareholder Servicing Agent.
REDEMPTION THROUGH AN ELIGIBLE BROKER-DEALER OR BANK. Fund shareholders who
maintain accounts at an eligible broker-dealer or bank may submit redemption
requests to their account representative at such firms in person or by
telephone, mail or wire. As the Fund's agent, these dealers may honor a
redemption request by repurchasing Fund shares from a redeeming shareholder at
the shares' net asset value next computed after receipt of the request by the
Shareholder Servicing Agent. Within seven days after receipt of the redemption
request, proceeds will be paid by check or credited to the shareholder's
brokerage or bank account at the election of the shareholder. Eligible
broker-dealers or banks are responsible for promptly forwarding redemption
requests to the Shareholder Servicing Agent, Furman Selz LLC, 230 Park Avenue,
New York, New York 10169. See "Shareholder Services" and "Additional
Information -- Shareholder Servicing Agent, Dividend Paying Agent and
Registrar."
REDEMPTION THROUGH THE SHAREHOLDER SERVICING AGENT. Fund shareholders who do
not maintain accounts at eligible broker-dealers or banks or who wish to redeem
shares for which certificates have been issued must redeem their shares through
the Shareholder Servicing Agent by mail; other shareholders may also redeem
Fund shares through the Shareholder Servicing Agent by mail. Shareholders
should mail redemption requests directly to the Shareholder Servicing Agent,
Furman Selz LLC, 230 Park Avenue, New York, New York 10169. A redemption
request will be executed at the net asset value next computed after it is
received in "good order." "Good order" means that the request must be
accompanied by the following: (1) a letter of instruction or a stock
assignment specifying the number of shares or amount of investment to be
redeemed
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<PAGE> 21
(or that all shares credited to a Fund account be redeemed), signed by all
registered owners of the shares in the exact names in which they are
registered; (2) other supporting legal documents in the case of estates,
trusts, guardianships, custodianships, partnerships and corporations; and (3)
duly endorsed share certificates, if any. Shareholders are responsible for
ensuring that a request for redemption is received in "good order."
REDEMPTION BY TELEPHONE. Provided the Telephone Redemption Option has been
authorized, a redemption of shares may be requested by calling the Fund at
1-800-343-5133 and requesting that the redemption proceeds be mailed to the
primary registration address or wired per the authorized instructions. Shares
cannot be redeemed by telephone if share certificates are held for those
shares. If the Telephone Redemption Option is authorized, the Fund and its
Shareholder Servicing Agent may act on telephone instructions from any person
representing himself or herself to be a shareholder and believed by the Fund or
its Shareholder Servicing Agent to be genuine. The Shareholder Servicing
Agent's records of such instructions are binding and shareholders, not the Fund
or its Shareholder Servicing Agent, bear the risk of loss in the event of
unauthorized instructions reasonably believed by the Fund or its Shareholder
Servicing Agent to be genuine. The Fund will employ reasonable procedures to
confirm that instructions communicated are genuine and, if it does not, it may
be liable for any losses due to unauthorized or fraudulent instructions. The
procedures employed by the Fund in connection with transactions initiated by
telephone include tape recording instructions and requiring some form of
personal identification prior to acting upon instructions received by
telephone.
SIGNATURE GUARANTEES. To protect shareholder accounts, the Fund and
its Shareholder Servicing Agent from fraud, signature guarantees are required
to enable the Fund to verify the identity of the person who has authorized a
redemption from an account. Signature guarantees are required for (1)
redemptions where the proceeds are to be sent to someone other than the
registered shareholder(s) and the registered address, and (2) share transfer
requests. Signature guarantees may be obtained from certain eligible financial
institutions, including but not limited to, the following: banks, trust
companies, credit unions, securities brokers and dealers, savings and loan
associations and participants in the Securities and Transfer Association
Medallion Program ("STAMP"), the Stock Exchange Medallion Program ("SEMP") or
the New York Stock Exchange Medallion Signature Program ("MSP"). Shareholders
may contact the Fund at 1-800-348-5133 for further details.
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds Fund shares in
non-certificate form may elect to have redemption proceeds of $5,000 or more
wired to the shareholder's brokerage account or a commercial bank account
designated by the shareholder. The administrative fee for this service is
$8.00. Shareholders interested in this option should contact their account
representative or the Shareholder Servicing Agent for more information.
Similarly, questions about redemption requirements should be referred to the
shareholder's account representative or to the Shareholder Servicing Agent if
the shares are not held in a brokerage or bank account. Because the Fund
incurs certain fixed costs in maintaining shareholder accounts, the Fund
reserves the right to redeem shareholder accounts of less than $500. If the
Fund elects to redeem such shares, it will notify the shareholder of its
intention to do so and provide the shareholder with an opportunity to increase
the amount invested to $500 or more within 60 days of the notice. The Fund
will not redeem accounts that fall below $500 solely as a result of a reduction
in net asset value per share. If a shareholder requests that the Fund redeem
shares for which good payment has not yet been received, the Fund may delay
payment of redemption proceeds until it has assured itself that good payment
has been received. In the case of purchases by check, it can take up to eight
days to ascertain whether good payment has been received.
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<PAGE> 22
Shareholder Services
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Shareholder Servicing Agent
has an Investment Account and will receive quarterly statements from the
Shareholder Servicing Agent showing any reinvestments of dividends and capital
gains distributions and any other activity in the account since the preceding
statement. Shareholders will also receive separate confirmations for each
purchase or sale transaction other than reinvestments of dividends and capital
gains distributions. A shareholder may make additions to his Investment
Account at any time by mailing a check directly to the Shareholder Servicing
Agent. Shareholders may also maintain their accounts through eligible
broker-dealers or banks. Upon the transfer of shares out of a brokerage
account, an Investment Account in the transferring shareholder's name may be
opened at the Shareholder Servicing Agent. Shareholders considering
transferring a tax-deferred retirement account from one brokerage account to
another brokerage firm or financial institution should be aware that, if the
firm to which the retirement account is to be transferred will not take
delivery of shares of the Fund, the shareholder must either redeem the shares
so that the cash proceeds can be transferred to the account at the new firm, or
such shareholder must continue to maintain a retirement account at the original
brokerage firm or financial institution for those shares or open an Investment
Account to be maintained at the Shareholder Servicing Agent for the retirement
account.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS DISTRIBUTIONS
Unless a shareholder elects to do otherwise, all dividends and capital gains
distributions from the Fund will be automatically reinvested in additional full
and fractional Fund shares. Shareholders who do not wish to have dividends and
distributions automatically reinvested in Fund shares, may choose between two
options:
(1) automatic reinvestment of capital gains distributions in Fund shares
and payment of dividends in cash; or
(2) payment of all dividends and distributions in cash.
Shareholders may change this election at any time by notifying their account
representative if the account is maintained at an eligible broker-dealer or
bank or by
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<PAGE> 23
calling the Shareholder Servicing Agent. Dividends and distributions will be
reinvested at the Fund's per share net asset value at 4:15 P.M. New York City
time on the payment date established for the dividend or distribution.
RETIREMENT PLANS
Shares are available for purchase in connection with retirement plans including
Qualified Retirement Plans, such as profit-sharing and money-purchase plans for
corporations and self employed individuals, and 401(k) Plans and Defined
Benefit Plans.
Dividends, Distributions and Taxes
Since inception, the Fund has qualified for and elected treatment as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), so as to be relieved of Federal income tax on that part
of its investment company taxable income (consisting generally of net
investment income, income from certain foreign currency transactions and any
excess of net short-term capital gains over net long-term capital loss) and net
capital gain that is annually distributed to its shareholders. The Fund will
continue to so qualify and elect treatment as a regulated investment company so
long as it remains in the best interests of its shareholders to do so.
The Fund distributes annually substantially all net capital gains (the excess
of net long-term capital gains over net short-term capital losses), any net
realized gains from foreign currency transactions, net investment income and
the excess, if any, of net short-term capital gains over net long-term capital
losses. The Fund may make additional distributions, if necessary, to avoid a 4%
Federal excise tax on certain undistributed income and capital gains. Certain
distributions paid by the Fund in January of a given year will be taxable to
shareholders as if received on December 31 of the prior year.
Dividends from the investment company's taxable income (whether paid in cash or
reinvested in additional Fund shares) are taxable to shareholders as ordinary
income. Distributions to shareholders properly designated as capital gain
dividends (whether paid in cash or reinvested in additional Fund shares) are
taxable to shareholders as long-term capital gains, regardless of how long they
have held their Fund shares. The maximum regular income tax rate for
non-corporate taxpayers is currently 39.6%. However, net long-term capital
gains of such taxpayers are generally subject to a maximum income tax rate of
28%. The maximum regular income tax rate for a
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<PAGE> 24
corporate taxpayer is currently 35% for ordinary income, net short-term capital
gains and net long-term capital gains.
The Fund is required to withhold as "backup withholding" 31% of all dividends,
capital gain distributions and redemption proceeds payable to any individuals
and certain other non-corporate shareholders who do not provide the Fund with a
correct taxpayer identification number and certain required certifications or
who are otherwise subject to backup withholding. Upon a redemption of Fund
shares a shareholder will ordinarily recognize a taxable gain or loss, subject
to certain Federal tax rules. The Fund anticipates that it will be subject to
foreign withholding taxes for which it may, in certain years, be able to pass
through a credit or deduction to its shareholders.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and shareholders. See the
Statement of Additional Information for a further discussion including a
discussion of tax considerations for foreign shareholders. In addition to those
considerations, there may be other Federal, state, local, or foreign tax
considerations applicable to a particular investor. Prospective shareholders
are therefore urged to consult their tax advisers with respect to the effects
of the investment on their own tax situations.
Additional Information
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined by the Administrator once daily
at 4:15 P.M. New York City time, following the close of trading on the New York
Stock Exchange on each day during which the New York Stock Exchange is open for
trading. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing rates as
quoted by one or more banks or dealers on the afternoon of valuation. The net
asset value per share for the Fund is computed by dividing the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares outstanding at such time,
rounded to the nearest cent. Portfolio securities and options positions for
which market quotations are readily available are stated at the last sale price
reported by the principal exchange for each such security as of the exchange's
close of business. Securities and options for which no sale has taken place
during the day and securities which are not listed on an exchange are valued at
the mean of the current closing bid and asked prices. Foreign market closing
prices are translated into U.S. dollar values at the mean of the bid and asked
prices for the particular foreign currency last quoted on the valuation date.
Short-term investments denominated in U.S. dollars that will
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<PAGE> 25
mature in 60 days or less are stated at amortized cost; short-term investments
denominated in foreign currencies are stated at amortized cost as determined in
the foreign currency, translated to U.S. dollars at the current day's exchange
rate. All other securities and assets for which there is no such quotation or
valuation are valued at their fair value as determined in good faith by the
Board of Directors, although the actual calculations may be made by persons
acting pursuant to the direction of the Board of Directors. The assets of the
Fund may also be valued on the basis of valuations provided by a pricing
service approved by the Board of Directors. All expenses, including the fees
payable to the Administrator and the Adviser, and the distribution fee payable
to the Distributor, are accrued daily.
PERFORMANCE INFORMATION
From time to time, in advertisements to prospective investors or reports to
shareholders, the Fund may compare its performance, in terms of its total
return to that of other mutual funds with similar investment objectives, and/or
to various published indices which are widely used as benchmarks. The Fund may
also compare its performance to rankings prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors and
ranks the performance of mutual funds, and to rankings prepared by other
national financial publications. The Fund's average annual total return is
computed by finding the average annual compounded rates of return for the most
recently completed fiscal year and the period since the commencement of
operations through the most recently completed quarter. It is based on a
hypothetical $1,000 initial payment less any applicable sales charge, while
assuming reinvestment of all dividends and distributions, and with recognition
of all recurring charges. The Fund may also utilize a total return computed in
the same manner but for differing periods, without annualizing the total
return. For purposes of the yield calculation, yield to maturity of each debt
obligation in the Fund's portfolio is determined based on a modified market
value method of amortization. In computing net investment income all recurring
charges are recognized. In calculating performance results, initial sales
charges, if any, are taken into account, but other non-recurring charges are
not. Total return or yield information may be useful in reviewing the Fund's
performance and for providing a basis for comparison with other investment
alternatives. However, since the performance of the Fund changes in response
to fluctuations in market conditions, interest rates, currency fluctuations and
Fund expenses, no performance quotation should be considered a representation
as to the Fund's performance for any future period. Current performance for the
Fund may be obtained by calling the Shareholder Servicing Agent at the
telephone number listed on the cover of the Prospectus.
ADMINISTRATOR
The Fund employs Furman Selz LLC (formerly known as Furman Selz Incorporated)
as Administrator (the "Administrator") under an administration contract, as
amended January 1, 1996 (the "Administration Contract"), to provide
administrative services to the Fund. The services provided by the
Administrator under the Administration Contract are subject to the supervision
of the officers and Directors of
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<PAGE> 26
the Fund, and include day-to-day administration of matters related to the
corporate existence of the Fund, maintenance of its records and preparation of
reports. For these services, the Fund pays a monthly fee at the annual rate of
0.15% of the average daily net assets of the Fund subject to a minimum fee of
$150,000 annually.
SHAREHOLDER SERVICING AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
The Fund delegates to Furman Selz LLC its duties relating to the various
shareholder services made available to each shareholder, including performance
of transfer agency functions. In addition to acting as the Shareholder
Servicing Agent for the Fund, Furman Selz LLC also acts as Dividend Paying
Agent and as Registrar for the Fund. The principal address of Furman Selz LLC
is 230 Park Avenue, New York, New York 10169.
CUSTODIAN
State Street Bank and Trust Company acts as custodian for the Fund. Rules
adopted under the 1940 Act permit the Fund to maintain its non-U.S. securities
and cash in the custody of certain eligible banks and securities depositories.
Pursuant to such Rules, the Fund's non-U.S. securities and cash are held by its
sub-custodians who have been approved by the Board of Directors of the Fund in
accordance with the rules of the Commission. Selection of the sub-custodians
has been made by the Directors following a consideration of a number of
factors, including, but not limited to, the reliability and financial stability
of the institution, the ability of the institution to perform capable custodial
services for the Fund, the reputation of the institution in its national
market, the political and economic stability of the countries in which the
sub-custodians will be located, and risks of potential nationalization or
expropriation of Fund assets. In addition, the 1940 Act requires that non-U.S.
sub-custodians, among other requirements, have shareholder equity in excess of
$200 million, have no lien on the assets of the Fund and maintain adequate
accessible records. The fees of sub-custodians holding assets outside the U.S.
are generally higher than those charged for assets held in the U.S.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103, acts
as counsel to the Fund. KPMG Peat Marwick LLP, 345 Park Avenue, New York, New
York 10154, acts as independent auditors to the Fund.
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<PAGE> 27
ORGANIZATION OF THE FUND
The Diaz-Verson Funds Inc. ("D-V Funds") was incorporated in Maryland on
November 18, 1992 and is registered with the Commission under the 1940 Act as a
diversified open-end investment company commonly known as a mutual fund. D-V
Funds may from time to time issue shares of one or more of its portfolios.
Only shares of one such portfolio, the Fund, are being offered by this
Prospectus. The business and affairs of D-V Funds are managed under the
direction of its board of directors.
D-V Funds has an authorized capitalization of 100 million shares of $0.001 par
value common stock. Each share of D-V Funds entitles the shareholder to
participate equally in dividends and distributions declared and in net assets
upon liquidation or dissolution remaining after satisfaction of outstanding
liabilities, except expenses related to the distribution of the shares will be
borne solely by D-V Funds. Shares issued are fully-paid and non-assessable by
D-V Funds.
Maryland law does not require annual meetings of shareholders except under
certain specified circumstances, and it is anticipated that shareholder
meetings will be held only when required by Federal or Maryland law.
Shareholders do have the right under the Articles of Incorporation to call a
vote for the removal of Directors. D-V Funds will be required to call a
special meeting of shareholders in accordance with the requirements of the 1940
Act to seek approval of new management and advisory arrangements, of a material
increase in distribution or account maintenance fees or of a change in
fundamental policies, objectives or restrictions.
DISTRIBUTION SERVICES AGREEMENT
Performance Funds Distributor, Inc., a wholly-owned subsidiary of Furman Selz
LLC, acts as Principal Underwriter and Distributor for the Fund. Rule 12b-1
adopted by the Securities and Exchange Commission under the 1940 Act permits an
investment company to directly or indirectly pay expenses associated with the
distribution of its shares (the "distribution expenses") in accordance with a
plan adopted by the Fund's Board of Directors ("12b-1 Plan"). Pursuant to such
rule, the Directors of the Fund have approved, and the Fund has entered into, a
Distribution Services Agreement (the "Distribution Agreement") with Performance
Funds Distributor, Inc. under which the Fund may pay a distribution services
fee to the Distributor or others at an annual rate of up to 0.25 of 1% of the
aggregate average daily net assets of the Fund.
The Distribution Agreement provides that the Distributor will use the
distribution services fee received from the Fund, in part, for payments (i) to
compensate broker-dealers or other persons for providing distribution
assistance, (ii) to otherwise promote the sale of shares of the Fund such as by
paying for the preparation, printing and distribution of prospectuses for other
than current shareholders and sales literature or other promotional activities,
and (iii) to compensate banks and other qualified financial institutions for
providing administrative, accounting and shareholder liaison services with
respect to the Fund's shareholders. Some payments under the Distribution
Agreement are used to compensate broker-dealers based on assets maintained in
the Fund by their customers. Distribution services fees are accrued daily and
paid monthly,
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<PAGE> 28
and are charged as expenses of the Fund as accrued. Distribution services fees
received from the Fund will not be used to pay any interest expenses, carrying
charges or other financial costs.
In adopting the Distribution Agreement, the Directors of the Fund determined
that there was a reasonable likelihood that the Distribution Agreement would
benefit the Fund and the shareholders. Information with respect to
distribution revenues and expenses will be presented to the Directors each year
for their consideration in connection with their deliberations as to the
continuance of the Distribution Agreement. In the review of the Distribution
Agreement, the Directors will be asked to take into consideration expenses
incurred in connection with the distribution of shares. All material
amendments to the Distribution Agreement require the approval of the Directors.
An amendment to increase materially the amount to be spent for distribution
requires shareholder approval as well.
The Distribution Agreement also provides that the Distributor may enter into
related servicing agreements appointing various firms, such as broker-dealers
or banks, to provide all or any portion of the foregoing services for their
customers or clients through the Fund. The Distributor may enter into servicing
agreements with banks and others, including the Adviser or its affiliates, to
provide such services, except for certain underwriting or distribution services
which banks may be prohibited from providing under the Glass-Steagall Act for
their clients that desire to purchase any of the Fund's shares. If the
Glass-Steagall Act should prevent banks from acting in any capacity or
providing any of the described services, the Directors of the Fund will
consider what action, if any, is appropriate to provide efficient servicing for
Fund shareholders. It is not anticipated that the termination of any bank
relationship would result in a financial loss to shareholders or affect the
Fund's net asset value.
The administrative and accounting services provided by banks and other
qualified financial institutions may include, but are not limited to,
establishing and maintaining shareholder accounts, sub-accounting, processing
of purchase and redemption orders, sending confirmation of transactions,
forwarding financial reports and other communications to shareholders and
responding to shareholder inquiries regarding the Fund. The State of Texas
requires that shares of the Fund may be sold in the state only by dealers or
other financial institutions that are registered there as broker-dealers.
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<PAGE> 29
<TABLE>
<S> <C> <C>
* ADVISER
Diaz-Verson Capital Investments, Inc. 1200 Brookstone Centre Parkway, Suite 105
Columbus, Georgia 31904
* ADMINISTRATOR AND SHAREHOLDER SERVICING AGENT
Furman Selz LLC 230 Park Avenue
New York, New York 10169
* CUSTODIAN
State Street Bank P.O. Box 1713
and Trust Company Boston, Massachusetts 02105-1713
* LEGAL COUNSEL
Fulbright & Jaworski L.L.P. 666 Fifth Avenue
New York, New York 10103
* INDEPENDENT AUDITORS
KPMG Peat Marwick LLP 345 Park Avenue
New York, New York 10154
* DISTRIBUTOR
Performance Funds Distributor, Inc. 230 Park Avenue
New York, New York 10169
</TABLE>
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<PAGE> 30
DIAZ-VERSON
AMERICAS EQUITY FUND
ADVISER
DIAZ-VERSON CAPITAL INVESTMENTS, INC.
1200 BROOKSTONE CENTRE PARKWAY
SUITE 105
COLUMBUS, GEORGIA 31904
For more information call the Fund's Distributor at 1-800-343-5133.
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<PAGE> 31
Filed pursuant to
Rule 497(c)
1933 Act File Number 33-54762
1940 Act File Number 811-7348
STATEMENT OF ADDITIONAL INFORMATION
DIAZ-VERSON AMERICAS EQUITY FUND
1200 Brookstone Centre Parkway, Suite 105
Columbus, Georgia 31904
A Portfolio of The Diaz-Verson Funds Inc.
April 29, 1996
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current Prospectus for Diaz-Verson Americas Equity Fund
("the Fund"), dated April 29, 1996 (the "Prospectus"). Much of the information
contained in this Statement of Additional Information expands upon the subjects
discussed in the Prospectus. No investment in shares of the Fund (the
"Shares") should be made without first reading the Prospectus. A copy of the
Prospectus for the Fund may be obtained at no charge by writing Diaz-Verson
Americas Equity Fund, 1200 Brookstone Centre Parkway, Suite 105, Columbus,
Georgia, 31904 or by calling the Fund's Distributor, Performance Funds
Distributor, Inc. at 1-800-343-5133.
<PAGE> 32
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . 1
RISK FACTORS -- INVESTING IN FOREIGN SECURITIES . . . . . . . . . . . 1
FOREIGN CURRENCY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 2
FUTURES AND OPTIONS TRANSACTIONS . . . . . . . . . . . . . . . . . . 3
REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 4
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT ADVISORY SERVICES . . . . . . . . . . . . . . . . . . . . 7
THE DISTRIBUTOR AND DISTRIBUTION OF THE SHARES . . . . . . . . . . . 8
TRANSFER AGENCY, ADMINISTRATION SERVICES
AND FUND ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . 10
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . 10
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . 12
VALUATION OF THE SHARES . . . . . . . . . . . . . . . . . . . . . . . 14
TAX-SHELTERED RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . 15
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Taxation of the Fund -- In General . . . . . . . . . . . . . 15
Taxation of the Fund's Investments . . . . . . . . . . . . . 16
Taxation of the Shareholders . . . . . . . . . . . . . . . . 18
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 20
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 21
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . 21
Independent Accountants . . . . . . . . . . . . . . . . . . 21
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . F-1
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
i
<PAGE> 33
GENERAL INFORMATION
The Diaz-Verson Funds Inc. is an open-end management investment
company organized as a corporation under the laws of the State of Maryland on
November 18, 1992, which at present is comprised of one portfolio of
securities, Diaz-Verson Americas Equity Fund (the "Fund"). The Board of
Directors has authority to create additional portfolios, each of which may
issue separate classes of shares. The Fund is classified as a diversified fund
under the Investment Company Act of 1940 and is offered on a no-load basis.
INVESTMENT OBJECTIVES AND POLICIES
The Fund may invest in common stocks and equivalents (such as
convertible debt securities and warrants), preferred stocks and bonds and debt
obligations of domestic and foreign companies. The Fund may buy and sell
financial futures contracts and options on financial futures contracts, which
may include bond and stock index futures contracts and foreign currency futures
contracts. The Fund may purchase or sell put or call options on securities and
foreign currencies.
Investments may be made from time to time in companies in developing
countries as well as in developed countries. Although there is no universally
accepted definition, a developing country is generally considered by the
Adviser to be a country which is in the initial state of industrialization.
Shareholders should be aware that investing in the equity and fixed income
markets of developing countries involves exposure to unstable governments,
economies based on only a few industries and securities markets which trade a
small number of securities.
Securities markets of developing countries tend to be more volatile
than the markets of developed countries; however, such markets have in the past
provided the opportunity for higher rates of return to investors. The Appendix
to this Statement of Additional Information contains an explanation of the
rating categories of Moody's Investors Service and Standard & Poor's
Corporation relating to the fixed-income securities and preferred stocks in
which the Fund may invest, including a description of the risks associated with
each category.
RISK FACTORS -- INVESTING IN FOREIGN SECURITIES
Investors should recognize that investing in foreign securities
involves certain special considerations which are not typically associated with
investing in United States securities. Since investments in foreign companies
will frequently involve currencies of foreign countries and since the Fund
holds securities and funds in foreign currencies, the Fund may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, if any, and may incur costs in connection
<PAGE> 34
with conversions between various currencies. Most foreign stock markets, while
growing in volume of trading activity, have substantially less volume than the
New York Stock Exchange and securities of some foreign companies are therefore
less liquid and more volatile than securities of comparable domestic companies.
Similarly, volume and liquidity in most foreign bond markets are less than in
the United States and, at times, volatility of price can be greater than in the
United States. Fixed commissions on foreign securities exchanges are generally
higher than negotiated commissions on United States exchanges, although the
Fund endeavors to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, brokers and listed companies in foreign countries than in
the United States. In addition, with respect to certain foreign countries,
there is the possibility of exchange control restrictions, expropriation or
confiscatory taxation, and political, economic or social instability, which
could affect investments in those countries.
Foreign securities such as those purchased by the Fund may be subject
to foreign government taxes, higher custodian fees and dividend collection fees
which could reduce the yield on such securities. Trading in futures contracts
traded on foreign commodity exchanges may be subject to the same or similar
risks as trading in foreign securities.
FOREIGN CURRENCY TRANSACTIONS
Under normal circumstances, consideration of the prospects for
currency exchange rates will be incorporated into the long-term investment
decisions made for the Fund with regard to overall diversification strategies.
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may do so from time to time and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer. The Fund may use
forward contracts, along with futures contracts and put and call options, to
"lock in" the U.S. dollar price of a security bought or sold and as part of its
overall hedging strategy. The Fund will conduct its foreign currency exchange
transactions, either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or through purchasing put and call
options on, or by entering into futures contracts or forward contracts to
purchase or sell foreign currencies. See "Futures And Options Transactions."
A forward foreign currency contract, like a futures contract, involves
an obligation to purchase or sell a specific amount of currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. Unlike
foreign currency futures contracts, which are standardized exchange-traded
contracts, forward currency contracts are usually traded in the interbank
market conducted directly between currency traders
2
<PAGE> 35
(usually large commercial banks) and their customers. A forward currency
contract generally has no deposit requirement and no commissions are charged at
any stage for such trades.
The Adviser does not intend to commit more than 5% of the total assets
of the Fund, computed at market value at the time of commitment, to forward
currency contracts for hedging purposes; nor will the Fund be committed to
deliver under such contracts an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. The Fund's Custodian will place cash or liquid equity or debt
securities into a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of forward
foreign currency contracts. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of the Fund's commitments with respect to such contracts. At maturity
of a forward currency contract, the Fund may either sell the portfolio security
and make delivery of the foreign currency, or it may retain the security and
terminate its contractual obligation to deliver the foreign currency prior to
maturity by purchasing an "offsetting" contract with the same currency trade
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. There can be no assurance, however, that the Fund will be
able to effect such a closing purchase transaction.
It is impossible to forecast the market value of a particular
portfolio security at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been movement in forward currency contract prices. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may invest in options on futures contracts. Compared to the
purchase or sale of futures contracts, the purchase and sale of options on
futures contracts involves less potential risk to the Fund because the maximum
exposure is the amount of the premiums paid for the options.
The use of financial futures contracts and options on such futures
contracts may reduce the Fund's exposure to fluctuations in the prices of
portfolio securities and may prevent losses if the prices of such securities
decline. Similarly, such investments may
3
<PAGE> 36
protect the Fund against fluctuation in the value of securities in which the
Fund is about to invest.
The use of financial futures contracts and options on such futures
contracts as hedging instruments involves several risks. First, there can be
no assurance that the prices of the futures contracts or options and the hedged
security will move as anticipated. If prices do not move as anticipated, the
Fund may incur a loss on its investment. Second, investments in options,
futures contracts and options on futures contracts may reduce the gains which
would otherwise be realized from the sale of the underlying securities which
are being hedged. Third, positions in futures contracts and options can be
closed out only on an exchange that provides a market for those instruments.
There can be no assurance that such a market will exist for a particular
futures contract or option. If the Fund cannot close out an exchange traded
futures contract or option which it holds, it would have to perform its
contract obligation or exercise its option to realize any profit and would
incur transaction costs on the sale of the underlying assets.
REPURCHASE AGREEMENTS
The Fund will not enter into a repurchase agreement with a maturity of
more than seven business days if, as a result, more than 15% of the value of
the Fund's net assets would then be invested in such repurchase agreements and
other illiquid securities. The Fund will only enter into a repurchase
agreement where (i) the underlying securities are of the type which the Fund's
investment policies would allow it to purchase directly, (ii) the market value
of the underlying security, including accrued interest, will be at all times
equal or exceed the value of the repurchase agreement, and (iii) payment for
the underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent.
4
<PAGE> 37
INVESTMENT RESTRICTIONS
The Fund may not:
1. Invest more than 25% of its total assets (taken at market
value at the time of each investment) in the securities of issuers in any
particular industry. This restriction will not apply to securities issued or
guaranteed by the U.S. Government or by its agencies or instrumentalities, but
will apply to obligations of a foreign government unless the Securities and
Exchange Commission permits their exclusion;
2. Make investments for the purpose of exercising control or
management;
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization or by
purchase of securities of closed-end investment companies and only if
immediately thereafter not more than (i) 3% of the total outstanding voting
stock of any one such company is owned by the Fund, (ii) 5% of the Fund's total
assets, taken at market value, would be invested in any one such company, or
(iii) 10% of the Fund's total assets, taken at market value, would be invested
in such companies' securities;
4. Purchase or sell real estate or real estate mortgage loans
(provided that such restriction shall not apply to securities secured by real
estate or an interest therein or issued by companies which invest in real
estate or interests therein), commodities or commodity contracts (except that
the Fund may deal in forward foreign exchange between currencies and the Fund
may purchase and sell interest rate and currency options, futures contracts and
related options and indexed notes and commercial paper), or interests or leases
in oil, gas or other mineral exploration or development programs (provided that
such restriction shall not apply to securities issued by companies which invest
in oil, gas or other mineral exploration or development programs);
5. Purchase any securities on margin, except for use of
short-term credit necessary for clearance of purchases and sales of portfolio
securities (the deposit or payment by the Fund of initial or variation margin
in connection with futures contracts or options transactions is not considered
the purchase of a security on margin);
6. Make short sales of securities or maintain a short position or
invest in put, call, straddle or spread options (this restriction does not
apply to interest rate and currency options and options on futures contracts);
7. Make loans to other persons, provided that the Fund may engage
in repurchase transactions as set forth above and provided further that the
purchase of a portion of an issue of bonds, debentures or other debt securities
and investment in governmental and supranational obligations, short-term
commercial paper, certificates of deposit and bankers' acceptances shall not be
deemed to be the making of a loan;
5
<PAGE> 38
8. Borrow amounts in excess of 25% of its total assets taken at
market value (including the amount borrowed), and then only from banks as a
temporary measure for extraordinary or emergency purposes, including to meet
redemptions or to settle securities transactions and provided further that no
additional investments shall be made while borrowings exceed 5% of total
assets;
9. Invest in securities which cannot be readily resold or are
illiquid because of legal or contractual restrictions or are not otherwise
readily marketable if, regarding all such securities, more than 15% of its net
assets, taken at market value, would be invested in such securities;
10. Issue senior securities except insofar as the Fund may be
deemed to have issued a senior security by reason of borrowing money in
accordance with restrictions described above;
11. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may purchase or sell puts and calls
on foreign currencies and on domestic and foreign securities as described in
the Prospectus;
12. Underwrite any issue of securities (except to the extent that
the Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
13. Invest more than 5% of its total assets in warrants. Warrants
acquired in units or attached to securities are not included in this
restriction;
14. Purchase or retain a security of any issuer if any of the
officers or Directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer, or if such persons taken
together own more than 5% of the securities of such issuer;
15. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if as a result more than 5% of
the total assets of the Fund would be invested in the securities of such
issuer; or more than 10% of the issuer's securities would be owned by the Fund;
provided, however, that the Fund may invest up to 25% of its total assets
without regard to this restriction as permitted by applicable law;
16. Invest more than 15% of its net assets in issuers which,
together with predecessors, have an operating history of less than three years.
Restriction Nos. 1, 4, 7, 8, 10, 12 and 15 are fundamental policies
which may not be changed by the Board of Directors without a shareholder vote.
The remaining restrictions listed above are not fundamental policies and may be
changed by the Board of Directors without a shareholder vote, to the extent
permitted by applicable law, including rules of the Commission.
6
<PAGE> 39
If a percentage restriction is adhered to at the time of the
investment, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of net assets will not be
considered a violation of any of the foregoing restrictions. The Fund shall,
however, reduce its holdings of illiquid securities in an orderly fashion in
order to maintain adequate liquidity.
INVESTMENT ADVISORY SERVICES
The investment adviser of the Fund is Diaz-Verson Capital Investments,
Inc. (the "Adviser"), a Georgia corporation, pursuant to an Investment Advisory
Agreement with the Fund dated as of March 2, 1993 (the "Advisory Agreement").
The Adviser furnishes an investment program for the Fund and determines,
subject to the overall supervision and review of the Board of Directors, what
investments should be purchased, sold and held.
The Adviser provides the Fund with office space, facilities and
certain business equipment and provides the services of consultants, executive
and clerical personnel for administering the affairs of the Fund. The Adviser
compensates all executive and clerical personnel and Directors of the Fund if
such persons are employees or affiliates of the Adviser or its affiliates. The
advisory fee is computed daily and paid monthly.
The expenses borne by the Fund include: the charges and expenses of
the shareholder servicing and dividend disbursing agent; custodian fees and
expenses; legal, auditors' and accountants' fees and expenses; brokerage
commissions for portfolio transactions; taxes, if any; the advisory fee;
extraordinary expenses (as determined by the Directors of the Fund); expenses
of shareholder and Director meetings, and of preparing, printing and mailing
proxy statements, reports and other communications to shareholders; expenses of
preparing and setting in type prospectuses and periodic reports and expenses of
mailing them to current shareholders; expenses of registering and qualifying
shares for sale (including compensation of the Adviser's employees in relation
to the time spent on such matters); expenses relating to the Plan of
Distribution (Rule 12b-1 Plan); fees of Directors who are not "interested
persons" of the Adviser; membership dues of the Investment Company Institute;
fidelity bond and errors and omissions insurance premiums; the cost of
maintaining the books and records of the Fund; and any other charges and fees
not specifically enumerated as an obligation of the Distributor or Adviser.
The Advisory Agreement provides that the fee payable to the Adviser
will be reduced to the extent expenses of the Fund exceed certain limits as
specified in the Prospectus and those expenses in excess of certain expense
limitations required by state regulation and that the Adviser will make other
arrangements to limit expenses in accordance with applicable expense
limitations unless the Fund has obtained an appropriate waiver of such expense
limitations or expense items from a particular state authority. Under the
Advisory Agreement, the maximum annual expenses which the Fund may be required
to bear, inclusive of the advisory fee but exclusive of interest, taxes,
brokerage fees, Rule 12b-1 Plan distribution payments and extraordinary items,
7
<PAGE> 40
may not exceed the lowest expense limitation imposed by any state in which the
Fund is registered or the specified Prospectus expense limit, whichever is
lower. The amount of the advisory fee to be paid to the Adviser each month
will be reduced by the amount, if any, by which the annualized expenses of the
Fund for that month exceed the foregoing limitations. At the end of the fiscal
year, if the aggregate annual expenses of a Fund exceed the amount permissible
under the foregoing limitations, then the Adviser will be required promptly to
return to such Fund monthly advisory fees previously received during such
fiscal year equal to the total amount by which expenses exceed the amount of
the limitations, and, if necessary, make any other arrangements necessary to
maintain the Fund's expenses within such limitations. If aggregate annual
expenses are within the limitations, however, any excess amount previously
withheld will be paid by the Adviser. From March 23, 1993 (commencement of
operations) through the fiscal period ended December 31, 1993 and for the
fiscal years ended December 31, 1994 and 1995, the Fund incurred advisory fees
of $36,941, $62,145 and $54,726, respectively. For the current fiscal year,
the Adviser has voluntarily agreed to waive its fee for, and to reimburse
expenses of, the Fund in an amount that operates to limit annual operating
expenses to not more than [2.50]% of average daily net assets. For the fiscal
year ended December 31, 1995, the Adviser reimbursed the Fund $298,751 (less
distribution expenses of $19,222).
The Advisory Agreement has been approved by the Board of Directors of
the Fund, including a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of any such party, at a meeting held
on March 7, 1995. The Advisory Agreement provides that it shall continue in
effect from year to year with respect to the Fund as long as it is approved at
least annually (i) by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the Investment Company Act of 1940, as amended (the
"Act")) or (ii) by a vote of a majority of the Directors of the Fund including
a vote of a majority of the Directors who are not parties to the Advisory
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated on 60 days' written notice by either party and will
terminate automatically if it is assigned within the meaning of the Act.
Mr. Salvador Diaz-Verson, Jr. is President of the Adviser as well of
the Fund. Mr. Michael K. Majure is Executive Vice President of the Adviser as
well as Vice-President, Secretary and Treasurer of the Fund.
THE DISTRIBUTOR AND DISTRIBUTION OF THE SHARES
Shares of the Fund are offered on a continuous basis and are
distributed through Performance Funds Distributor, Inc., 230 Park Avenue, New
York, New York 10169 (the "Distributor"), a wholly-owned subsidiary of Furman
Selz LLC. The Board of Directors of the Fund has approved a Distribution
Agreement appointing the Distributor as distributor of shares of the Fund.
8
<PAGE> 41
The Distribution Agreement provides that the Distributor will pay all
fees and expenses in connection with printing and distributing of prospectuses
and reports for use in offering and selling shares of the Fund and preparing,
printing and distributing advertising or promotional materials. The Fund will
pay all fees and expenses in connection with registering and qualifying their
shares under federal and state securities laws.
To compensate the Distributor for the services which it provides and
for the expenses it bears under the Distribution Agreement, the Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. Fees paid by the Fund under the Plan will be used for promotional and
distribution expenses incurred only during the applicable year. Pursuant to
the Plan, the Board of Directors is provided quarterly with a written report of
the amounts expended under the Plan and the purpose for which such expenditures
were made. The Board of Directors reviews such reports on a quarterly basis.
From March 23, 1993 (commencement of operations) through the fiscal year ended
December 31, 1993 and for the fiscal years ended December 31, 1994 and 1995,
the Fund incurred distribution expenses of $18,471, $31,073 and $19,222,
respectively. The entire amount for 1995 was spent on the printing and mailing
of prospectuses to other than current shareholders.
The Plan was most recently approved by the Board of Directors of the
Fund, including a majority of the Directors who are not "interested persons" of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan, cast in person at a meeting called for the purpose of voting on
such Plan on March 6, 1996. The Plan continues in effect as to the Fund,
provided such continuance is approved annually by a vote of the Directors in
accordance with the Act. The Plan may not be amended to increase materially
the amount to be spent for the services described therein without approval of
the shareholders of the Fund, and all material amendments of the Plan must also
be approved by the Directors in the manner described above. The Plan may be
terminated at any time, without payment of any penalty, by vote of a majority
of the Directors who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the operation of the Plan, or by a
vote of a majority of the outstanding voting securities of the Fund (as defined
in the Act) on not more than 30 days' written notice to any other party to the
Plan. The Plan will automatically terminate in the event of its assignment (as
defined in the Act). So long as the Plan is in effect, the election and
nomination of Directors who are not "interested persons" of the Fund shall be
committed to the discretion of the Directors who are not "interested persons."
The Directors have determined that, in their judgment, there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders. The Fund
will preserve copies of the Plan and any agreement or report made pursuant to
Rule 12b-1 under the Act, for a period of not less than six years from the date
of the Plan or such agreement or report, the first two years in an easily
accessible place.
9
<PAGE> 42
TRANSFER AGENCY, ADMINISTRATION SERVICES
AND FUND ACCOUNTING
Furman Selz LLC has been retained by the Fund to perform shareholder
servicing, registrar and transfer agent functions for the Fund pursuant to an
agreement with the Fund (the "Services Agreement"). Furman Selz LLC has also
been retained pursuant to separate agreements to perform certain Fund and
shareholder accounting and administrative functions (the "Administration
Agreement") and certain fund accounting services (the "Fund Accounting
Agreement") on behalf of the Fund. For the fiscal year ended December 31,
1995, the Fund paid $7,254 in transfer agency costs, $24,000 in administration
fees, and incurred $31,562 in fund accounting fees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities
and other investments for the Fund, the selection of brokers and dealers to
effect the transactions and the negotiation of brokerage commissions, if any.
In transactions on stock and commodity exchanges in the United States, these
commissions are negotiated, whereas on foreign stock and commodity exchanges
these commissions are generally fixed and are generally higher than brokerage
commissions in the United States. In the case of securities traded on the
over-the-counter markets, there are generally no stated commissions, but the
price usually includes an undisclosed commission or markup. In underwritten
offerings, the price includes a disclosed, fixed commission or discount. The
Fund may invest in obligations which are normally traded on a "principal"
rather than agency basis. This may be done through a dealer (e.g., securities
firm or bank) who buys or sells for its own account rather than as an agent for
another client, or directly with the issuer. A dealer's profit, if any, is the
difference, or spread, between the dealer's purchase and sale price for the
obligation.
In purchasing and selling the Fund's portfolio investments, it is the
Adviser's policy to obtain quality execution at the most favorable prices
through responsible broker-dealers. In selecting broker-dealers, the Adviser
will consider various relevant factors, including, but not limited to: the
size and type of the transaction; the nature and character of the markets for
the security or asset to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer's firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions.
The Adviser may cause the Fund to pay a broker-dealer who furnishes
brokerage and/or research services a commission that is in excess of the
commission another broker-dealer would have received for executing the
transaction if it is determined that such commission is reasonable in relation
to the value of the brokerage and/or research services as defined in Section
28(e) of the Securities Exchange Act of 1934 which have been provided. Such
research services may include, among other things, analyses and reports
concerning issuers, industries, securities, economic factors and trends, and
10
<PAGE> 43
portfolio strategy. Any such research and other information provided by
brokers to the Adviser is considered to be in addition to and not in lieu of
services required to be performed by the Adviser under its Advisory Agreement
with the Fund. The research services provided by broker-dealers can be useful
to the Adviser in serving its other clients or clients of the Adviser's
affiliates. The Board of Directors periodically reviews the Adviser's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the Fund and reviews the commissions paid
by the Fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the Fund.
Investment decisions for the Fund are made independently from those of
the other investment accounts managed by the Adviser or affiliated companies.
Occasions may arise, however, when the same investment decision is made for
more than one client's account. It is the practice of the Adviser to allocate
such purchases or sales insofar as feasible among its several clients or the
clients of its affiliates in a manner it deems equitable. The principal
factors which the Adviser considers in making such allocations are the relative
investment objectives of the clients, the relative size of the portfolio
holdings of the same or comparable securities and the then availability in the
particular account of funds for investment. Portfolio securities held by one
client of the Adviser may also be held by one or more of its other clients or
by clients of its affiliates. When two or more of its clients or clients of
its affiliates are engaged in the simultaneous sale or purchase of securities,
transactions are allocated as to amount in accordance with formulae deemed to
be equitable as to each client. There may be circumstances when purchases or
sales of portfolio securities for one or more clients will have an adverse
effect on other clients.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Board may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection
of broker-dealers to execute portfolio transactions for the Fund. From March
23, 1993 (commencement of operations) through the fiscal period ended December
31, 1993 and for the fiscal years ended December 31, 1994 and 1995, the Fund
paid brokerage commissions of $60,118, $65,825 and $67,904, respectively.
While it is the policy of the Fund generally not to engage in trading
for short-term gains, the Fund will effect portfolio transactions without
regard to the holding period (subject to compliance with certain tax
requirements for qualification as a regulated investment company) if, in the
judgment of the Adviser, such transactions are advisable in light of a change
in circumstances of a particular company, within a particular industry or
country, or in general market, economic or political conditions. The Fund
anticipates that its annual portfolio turnover rate may in some years exceed
200%. The Fund may pay a greater amount in brokerage commissions than similar
size funds with a lower turnover rate. In addition, since the Fund may have a
high rate of portfolio turnover, the Fund may realize capital gains or losses
more quickly. Capital gains will be distributed annually to the shareholders.
Capital losses cannot be distributed to shareholders but may be used to offset
capital gains at the Fund level and carried forward for up to eight years to
the extent there are no gains to offset for a
11
<PAGE> 44
particular year. See "Taxes" both in the Prospectus and in this Statement of
Additional Information. The portfolio turnover rate of the Fund may vary
significantly from year to year.
DIRECTORS AND OFFICERS
The Directors and officers of the Fund, their addresses, positions
with the Fund and principal occupations during the past five years are set
forth below.
<TABLE>
<S> <C> <C>
SALVADOR DIAZ-VERSON, JR.* 43 President and Director of the Fund.
1200 Brookstone Centre Parkway President of the Adviser from 1991 to
Suite 105 present. President of American
Columbus, GA 31904 Family Corp., a multinational
insurance company, from 1986 to 1991.
MICHAEL K. MAJURE* 38 Vice President, Secretary, Treasurer
1200 Brookstone Centre Parkway and Director of the Fund. Executive
Suite 105 Vice President of the Adviser from
Columbus, GA 31904 1991 to present. Vice President of
American Family Corp. from 1989
through 1991.
OTTO J. REICH 50 Director of the Fund. Director of
The Brock Group The Brock Group, Ltd. since January
1155 Connecticut Ave., N.W. 1990. Alternate U.S. Representative
Washington, D.C. 20036 to the UN Human Rights Commission
from 1991 to 1992. U.S. Ambassador
to Venezuela from May 1986 to July
1989.
WENDY S. RUDOLPH, ESQ. 41 Director of the Fund. Member, Caplin
2836 Albemarle Street, N.W. & Drysdale, Chartered, a law firm,
Washington, D.C. 20008 from February 1986 to August 1991.
Attorney in private practice
since 1991.
SCOTT KOSER 26 Assistant Secretary of the Fund since
1200 Brookstone Centre Parkway inception. Attending college prior
Suite 105 to such time.
Columbus, GA 31904
SHERYL HIRSCHFELD 35 Assistant Secretary of the Fund.
237 Park Avenue Director, Corporate Secretary
New York, NY 10017 Services, Furman Selz LLC since
November 1994. Formerly Assistant to
the Corporate Secretary and General
Counsel at the Dreyfus Corporation
from 1982 to November 1994.
GORDON FORRESTER 35 Assistant Treasurer of the Fund.
237 Park Avenue Managing Director of Furman Selz LLC
New York, NY 10017 since 1987.
</TABLE>
- -------------------
* An "interested person" as defined in the Act.
12
<PAGE> 45
As of April 4, 1996, the officers and Directors as a group owned
approximately 10.10% of the outstanding shares of the Fund.
The fees for non-interested directors, currently $4,000 per year and
$1,000 for each meeting attended, are paid by the Fund. The Board of Directors
has an Audit Committee, comprised of Otto J. Reich and Wendy Rudolph, which
reviews the audits of the Fund and recommends firms to serve as independent
auditors of the Fund. For the fiscal year ended December 31, 1995, the Fund
paid the following in directors' fees:
COMPENSATION TABLE
(for the fiscal year ended December 31, 1995)
<TABLE>
<CAPTION>
=============================================================================================================
Name of Director Aggregate Pension or Retirement Estimated Total Compensation
Compensation Benefits Accrued as Annual from Registrant &
from Registrant Part of Fund Expenses Benefits upon Fund Complex
Retirement
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salvador $0 $0 $0 $0
Diaz-Verson, Jr.
- -------------------------------------------------------------------------------------------------------------
Michael K. Majure 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Otto J. Reich 8,500 0 0 8,500
- -------------------------------------------------------------------------------------------------------------
Wendy S. Rudolph 8,500 0 0 8,500
=============================================================================================================
</TABLE>
As of April 4, 1996, the following individuals or entities owned both
beneficially and of record 5% or more of the outstanding shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER SHARES PERCENTAGE
- ----------- ------ ----------
<S> <C> <C>
Diaz-Verson Capital Investments, Inc. 326,903 54.78%
1200 Brookstone Centre Parkway
Columbus, GA 31904-2954
Salvador Diaz-Verson & John 54,484 9.13%
Shelby Amos Cottee
U/W/O John B. Amos
1200 Brookstone Centre Parkway
Columbus, GA 31904-2954
Robert A. Patillo 57,699 9.67%
1990 Lakeside Parkway
Suite 150
Tucker, GA 30084-5868
</TABLE>
Diaz-Verson Capital Investments, Inc. ("DVC") is listed above as
owning beneficially 54.78% of the outstanding shares of the Fund and is thus a
"Control
13
<PAGE> 46
Person" as that term is defined in the Act. As a result, DVC, a Georgia
corporation, would have the ability to approve any shareholder measure
requiring the approval of a majority of the outstanding shares of the Fund.
Directors and employees of the Fund and the Adviser are permitted to engage in
personal securities transactions subject to the restrictions and procedures
contained in the Fund's Code of Ethics, which was approved by the Boards of
Directors of the Fund and the Adviser.
VALUATION OF THE SHARES
The net asset value per share of the Fund is computed by dividing the
value of all of the Fund's securities plus cash and other assets, less
liabilities, by the number of shares outstanding. The net asset value per
share is computed as of the close of the New York Stock Exchange, Monday
through Friday, exclusive of national business holidays. The Fund will be
closed on the following national business holidays: New Years Day,
Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas. Shares of the Fund are sold at the public
offering price which is determined once each day the Fund is open for business
and is the net asset value per share.
The value of a financial futures contract equals the unrealized gain
or loss on the contract that is determined by marking it to the current
settlement price for a like contract acquired on the day on which the commodity
futures contract is being valued. A settlement price may not be used if the
market makes a limit move with respect to the financial futures contract.
Securities or futures contracts for which market quotations are readily
available are valued at market value, which is currently determined using the
last reported sale price. If no sales are reported as in the case of most
securities traded over-the-counter, securities are valued at the mean of their
bid and asked prices at the close of trading on the New York Stock Exchange
(the "Exchange"). In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated by or under the
authority of the Board of Directors as the primary market. Short-term
investments having a maturity of 60 days or less are valued at amortized cost,
which approximates market. Options are valued at the last sale price unless
the last sale price does not fall within the bid and ask prices at the close of
the market, at which time the mean of the bid and ask prices is used. All
other securities for which market quotations are not readily available are
valued at their fair market value as determined in good faith by the Directors.
Foreign securities or futures contracts quoted in foreign currencies are valued
at appropriately translated foreign market closing prices or as the Board of
Directors may prescribe.
Generally, trading in foreign securities and futures contracts, as
well as corporate bonds, United States Government securities and money market
instruments, is substantially completed each day at various times prior to the
close of the Exchange. The values of such securities used in determining the
net asset value of the shares of the Fund may be computed as of such times.
Foreign currency exchange rates are also generally determined prior to the
close of the Exchange. Occasionally, events affecting the value of such
securities and such exchange rates may occur between such times and
14
<PAGE> 47
the close of the Exchange which will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair market value as determined in good faith by the Directors.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers the following prototype tax-sheltered retirement plans
through which shares may be purchased: (1) IRA's (including "rollovers" from
existing retirement plans) for individuals and their spouses; (2) SEP-IRA's;
and (3) Qualified Retirement Plans for self-employed individuals (Keogh Plans).
Shares of the Fund may also be purchased by other Qualified Retirement Plans
such as profit-sharing and money purchase plans for corporations, 401(k) Plans
and by Defined Benefit Plans. Investors Fiduciary Trust Company ("IFTC") acts
as the trustee and/or custodian (the "Trustee") under the retirement plans
offered by the Fund. Persons who wish to establish a tax-sheltered retirement
plan should consult their own tax advisers or attorneys regarding their
eligibility to do so and the laws applicable thereto, such as the fiduciary
responsibility provisions and diversification requirements and the reporting
and disclosure obligations under the Employee Retirement Income Security Act of
1974. The Fund is not responsible for compliance with such laws. Further
information regarding the retirement plans, including applications and fee
schedules, may be obtained upon request to the Fund.
TAXES
TAXATION OF THE FUND -- IN GENERAL
The Fund is a separate entity for federal income tax purposes and,
from its inception, the Fund has qualified and elected to be treated for each
taxable year as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund intends to
continue to so qualify and elect to be treated as a regulated investment
company so long as to do so is in the best interests of its shareholders. To
so qualify, the Fund, among other things, (a) derives at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; (b) derives less than 30% of its gross income from
the sale or other disposition of any of the following which was held less than
three months (the "30% test"): (i) stock or securities; (ii) options, futures
or forward contracts (other than on foreign currencies) or (iii) foreign
currencies (or options, futures or forward contracts on foreign currencies) but
only if such currencies (or options, future or forward contracts) are not
directly related to the Fund's principal business of investing in stock or
securities; and (c) satisfies certain asset diversification requirements.
15
<PAGE> 48
In addition, the Fund satisfies the distribution requirements of the
Code, including the requirement that it distribute at least 90% of its
investment company taxable income annually. By qualifying (and electing to be
treated) as a regulated investment company, the Fund is not subject to federal
income tax on its investment company taxable income and net capital gain that
it distributes to shareholders. However, if for any taxable year the Fund does
not satisfy the requirements of Subchapter M of the Code, all of its taxable
income (including net capital gains) will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will be taxable to shareholders as ordinary income to the
extent of the Fund's current or accumulated earnings or profits.
The Fund is liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year the Fund must
distribute (i) at least 98% of its ordinary income realized during such
calendar year, (ii) at least 98% of its capital gain net income for the twelve
month period ending on October 31 (or December 31, if the Fund so elects), and
(iii) any income or gain from the prior year that was neither distributed to
shareholders nor taxed to the Fund for such year. The Fund intends to make
sufficient distributions to avoid this 4% excise tax.
As long as the Fund qualifies as a regulated investment company for
United States federal income tax purposes and distributes all of its investment
company taxable income and net capital gain, it will not be subject to any
corporate income or excise taxes in the State of Maryland.
TAXATION OF THE FUND'S INVESTMENTS
Ordinarily, gains and losses realized from portfolio transactions are
treated as capital gain or loss. However, all or a portion of the gain or loss
from the disposition of non-U.S. dollar denominated securities (including debt
instruments, certain financial forward, futures and option contracts, and
certain preferred stock) may be treated as ordinary income or loss under
Section 988 of the Code. In addition, all or a portion of the gain realized
from the disposition of market discount bonds is treated as ordinary income
under Section 1276 of the Code. Generally, a market discount bond is defined
as any bond with a remaining maturity of greater than one year acquired by the
Fund after April 30, 1993, and after its original issuance, at a price below
its face or accreted value. Finally, all or a portion of the gain realized
from engaging in "conversion transactions" is treated as ordinary income under
Section 1258 of the Code. "Conversion transactions" are defined to include
certain forward, futures, option and straddle transactions, transactions
marketed or sold to produce capital gains, or transactions described in
Treasury regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss the Fund realizes
from certain future or forward contracts and options transactions is treated as
60% long-term capital gain or loss and 40% short-term capital gain or loss.
Gain or loss arises upon exercise or lapse of such contracts and options as
well as from closing transactions. In addition, any such contracts or options
remaining unexercised at the end of the Fund's taxable
16
<PAGE> 49
year are treated as sold for their then fair market value, resulting in
additional gain or loss to the Fund characterized in the manner described
above.
Offsetting positions held by the Fund involving certain financial
forward, futures or options contracts (including certain foreign currency
forward contracts or options) may constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Sections 1092 and 1258 of the
Code, which, in certain circumstances, override or modify the provisions of
Sections 1256 and 988. If the Fund were treated as entering into "straddles"
by reason of its engaging in certain forward contracts or options transactions,
such "straddles" would be characterized as "mixed straddles" if the forward
contracts or options transactions comprising a part of such "straddles" were
governed by Section 1256. The Fund may make one or more elections with
respect to "mixed straddles." Depending on which election is made, if any, the
results to the Fund may differ. If no election is made to the extent the
"straddle" rules apply to positions established by the Fund, losses realized by
the Fund will be deferred to the extent of unrealized gain in the offsetting
position. Moreover, as a result of the "straddle" rules, short-term capital
loss on "straddle" positions may be recharacterized as long-term capital loss,
and long-term capital gains may be treated as short-term capital gains.
In order to qualify as a regulated investment company, the Fund must
derive less than 30% of its annual gross income as gain from the sale or other
disposition of securities or other investments held less than three months and
will limit its activities in options, futures contracts, options on futures,
forward contracts and transactions subject to Section 988 of the Code to the
extent necessary to comply with this requirement.
If the Fund invests in any non-U.S. corporation that either satisfies
(i) the "passive income test" (e.g., receives at least 75% of its annual gross
income from passive sources, such as sources that produce interest, dividend,
rental, royalty or capital gain income) or (ii) the "passive asset test" (e.g.,
at least 50% of its assets consist of assets which produce passive income)
("passive foreign investment company") and that does not distribute its income
on a regular basis, the Fund could be subject to federal income tax and
additional interest charges on "excess distributions" received from such
company or gain from the sale of stock in such company, even if all income or
gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. If the Fund were to invest in the stock of a passive
foreign investment company and elect to treat such company as a "qualified
electing fund" under the Code (and the company agreed to adhere to certain
information reporting requirements), in lieu of the foregoing requirements, the
Fund would be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if not
distributed to the Fund, and such amounts would be subject to the 90% and
calendar year distribution requirements described above even if the Fund
received no money to distribute. To satisfy those distribution requirements,
the Fund would have to use cash from other sources, including proceeds from the
disposition of its assets. Accordingly, the Fund will limit its investments in
such passive foreign investment
17
<PAGE> 50
companies and will undertake appropriate actions to limit its tax liability, if
any, with respect to such investments.
TAXATION OF THE SHAREHOLDERS
Distributions of net investment income and the excess of net
short-term capital gain over net long-term capital loss are taxable as ordinary
income to shareholders. Distributions of net capital gain (the excess of net
long-term capital gain over net short-term capital loss) are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of the Fund have been held by such shareholders. Any loss realized upon
a taxable disposition of shares within six months from the date of their
purchase is treated as a long-term capital loss to the extent of any long-term
capital gain distributions received by shareholders during such period.
Distributions of net investment income and capital gain net income are
taxable as described above whether received in cash or reinvested in additional
shares. A shareholder's tax basis in each share received from the Fund is
equal to the fair market value of such share on the payment date.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's tax basis, such distribution nevertheless is taxable to the
shareholder as ordinary income or long-term capital gain as described above,
even though, from an investment standpoint, it may constitute a partial return
of capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of any forthcoming
distribution. Those investors purchasing shares just prior to a distribution
receive a return of investment upon such distribution which is nevertheless
taxable to them.
Upon a redemption of Fund shares, a shareholder ordinarily recognizes
a taxable gain or loss depending upon the difference between the amount
realized and his tax basis in his Fund shares. Such gain or loss is treated as
a capital gain or loss if the shares are held as capital assets and is
long-term or short-term depending upon whether the shareholder's holding period
exceeds one year. A sales load paid in purchasing shares of the Fund cannot be
taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of the Fund are subsequently acquired without payment of a sales load
pursuant to the 30-day reinvestment privilege. Such load results in an increase
in the shareholder's tax basis in the shares subsequently acquired. Moreover,
any loss realized upon a taxable disposition of shares within six months from
the date of their purchase is treated as a long-term capital loss to the extent
of long-term capital gain distributions received from the Fund during such
six-month period. Finally, all or a portion of any loss realized upon a
taxable disposition of Fund shares may be disallowed if other shares of the
same Fund are purchased (including a purchase by automatic reinvestment) within
30 days before or after such disposition. In such a case, the tax basis of the
shares acquired is adjusted to reflect the disallowed loss.
18
<PAGE> 51
Income received by the Fund may give rise to withholding and other
taxes imposed by foreign countries. If more than 50% of the value of the
Fund's assets at the close of a taxable year consists of securities of foreign
corporations, the Fund may make an election that will permit shareholders to
take a credit (or, if more advantageous, a deduction) for foreign income taxes
paid by the Fund, subject to limitations contained in the Code. Investors
would then include in gross income both dividends paid to the shareholders and
the foreign taxes paid by the Fund on its foreign investments. The Fund cannot
assure investors that they will be eligible for the foreign tax credit. The
Fund will advise the shareholders annually of their share of any creditable
foreign taxes paid by the Fund.
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation or
foreign partnership (a "Foreign Shareholder") depends, in part, on whether the
Foreign Shareholder's income from the Fund is "effectively connected" with a
U.S. trade or business carried on by such shareholder.
If the Foreign Shareholder is not a resident alien and the income from
the Fund is not effectively connected with a U.S. trade or business carried on
by the Foreign Shareholder, Fund distributions other than net capital gains
distributions and distributions not out of earnings and profits are subject to
a 30% (or lower treaty rate) U.S. withholding tax. Furthermore, such Foreign
Shareholders are subject to an increased U.S. tax on their income if the Fund
elects (as described above) to "pass through" amounts of foreign taxes paid by
the Fund due to the fact that such Foreign Shareholders are not able to claim a
credit or deduction with respect to the foreign taxes treated as having been
paid by them. Net capital gain distributions to, and capital gains realized by,
such a Foreign Shareholder upon the sale of shares or receipt of distributions
which are in excess of its tax basis and not made from earnings and profits are
not subject to U.S. tax unless the Foreign Shareholder is an individual and is
present in the United States for 183 days or more during the taxable year in
which the gain was realized. Foreign Shareholders may also be subject to 31%
backup withholding unless appropriate certification is provided.
If a shareholder is a resident alien or if dividends or distributions
from the Fund are effectively connected with a U.S. trade or business carried
on by the shareholder, then Fund distributions and any gains realized with
respect to the shares are subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations, as appropriate.
The value of shares held by an individual Foreign Shareholder, even
though he is a nonresident at his death, is includible in his gross estate for
U.S. federal estate tax purposes.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
above. Such shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
Shareholders are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund
19
<PAGE> 52
is or is not effectively connected with a U.S. trade or business carried on by
them, (b) whether they may claim the benefits of an applicable tax treaty, and
(c) any other tax consequences to them of an investment in the Fund.
The foregoing discussion is a general summary of certain of the
current federal income tax laws affecting the Fund and investors in the shares.
The discussion does not purport to deal with all of the federal income tax
consequences applicable to the Fund, or to all categories of investors, some of
which may be subject to special rules. Investors should consult their own
advisors regarding the tax consequences, including state and local tax
consequences to them of investment in the Fund. Foreign investors should also
consult their tax advisers with respect to the applicability of a 30%
withholding tax (which may be reduced or eliminated under certain income tax
treaties) upon Fund distributions of ordinary income.
PERFORMANCE INFORMATION
The Fund may advertise its performance in terms of average annual
total return for 1, 5 and 10 year periods, or for such lesser periods as the
Fund has been in existence. Average annual total return is computed by finding
the average annual compounded rates of return over the periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
n
P(1+T) = ERV
<TABLE>
<S> <C> <C> <C>
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 year or period.
</TABLE>
The calculation assumes an initial $1,000 payment and assumes all
dividends and distributions by the Fund are reinvested at the price stated in
the Prospectus on the reinvestment dates during the period, and includes all
recurring fees that are charged to all shareholder accounts.
20
<PAGE> 53
The Fund may also advertise performance in terms of aggregate total
return. Aggregate total return for a specified period of time is determined by
ascertaining the percentage change in the net asset value of shares of the Fund
initially acquired assuming reinvestment of dividends and distributions and
without giving effect to the length of time of the investment according to the
following formula:
[(B-A)/A] (100) = ATR
<TABLE>
<S> <C> <C> <C>
Where: A = initial investment
B = value at end of specified period
ATR = aggregate total return.
</TABLE>
The calculation assumes all distributions by the Fund are reinvested
at the price stated in the Prospectus on the reinvestment dates during the
period, and includes all recurring fees that are charged to all shareholder
accounts. For the fiscal year ended December 31, 1995, the Fund's total return
was 2.52%.
ADDITIONAL INFORMATION
CUSTODIAN
State Street Bank and Trust Company is the custodian of the Fund's
portfolio securities, cash, coins and bullion. The Custodian is authorized,
upon the approval of the Fund, to establish credits or debits in dollars or
foreign currencies with, and to cause portfolio securities of the Fund to be
held by, its overseas branches or subsidiaries, and foreign banks and foreign
securities depositories which qualify as eligible foreign custodians under the
rules adopted by the Securities and Exchange Commission.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP serves as the Fund's independent accountants.
21
<PAGE> 54
DIAZ-VERSON AMERICAS EQUITY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares Cost (note 1)
- ----------- ---------- ----------
<C> <S> <C> <C>
COMMON STOCKS -- 84.33%
SOUTH AMERICA
ARGENTINA -- 18.40%
4,000 Buenos Aires Embotellado -- ADR+............................... $ 98,360 $ 82,500
(Bottler & marketer of Pepsi-Cola beverages)
45,000 ++Compania Interamericana de Automobile........................ 206,632 233,766
(Automaker)
59,000 Comercial del Plata S.A. ...................................... 154,797 156,194
(Oil and public services company)
33,000 Nobleza Piccardo S.A. ......................................... 148,105 125,275
(Tobacco producer and cigarette maker)
4,400 Telefonica de Argentina -- ADR+................................ 105,960 119,900
(Telecommunications)
7,700 Transportadora Gas Sur -- ADR+................................. 84,518 99,137
(Transporter of natural gas)
10,200 YPF Sociedad Anonima Cl D -- ADR+ ............................. 210,680 220,575
(Producer & developer of natural gas)
---------- ----------
Total Argentina................................................ 1,009,052 1,037,347
---------- ----------
CHILE -- 14.26%
4,200 A.F.P. Provida S.A. -- ADR+.................................... 100,053 116,025
(Financial services)
5,000 Chile Fund, Inc. .............................................. 111,075 130,000
(Regulated investment company)
1,400 Compania Telecommunicacion de Chile S.A. -- ADR+............... 98,126 116,025
(Telecommunications)
3,100 Embotelladora Andina S.A. -- ADR+.............................. 97,154 111,987
(Tobacco producer and cigarette maker)
4,900 Empresa Nacional de Electridad S.A. -- ADR+.................... 99,178 111,475
(Utilities)
3,900 Enersis S.A. -- ADR+........................................... 98,827 111,150
(Utilities)
4,000 Madeco S.A. -- ADR+............................................ 89,798 108,000
(Metal fabricator)
---------- ----------
Total Chile.................................................... 694,211 804,662
---------- ----------
VENEZUELA -- 0.34%
50,000 Siderurgica Venezolana Sivensa, Saica Saca .................... 17,450 19,056
(Conglomerate -- steel; automotive parts; wire products)
---------- ----------
Total Venezuela................................................ 17,450 19,056
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-1
<PAGE> 55
DIAZ-VERSON AMERICAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares Cost (note 1)
- ----------- ---------- ----------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
NORTH AMERICA
CANADA -- 50.19%
6,800 Abitibi Price, Inc. ........................................... $ 118,696 $ 97,766
(Forest products & paper)
2,600 Agnico Eagle Mines, Ltd. ...................................... 34,307 32,619
(Mining)
8,200 Atco, Ltd. Cl 1 ............................................... 86,377 112,637
(Utilities -- telecommunications)
7,100 BCE, Inc. ..................................................... 236,511 245,769
(Telecommunications)
10,400 Bombardier, Inc. Cl A ......................................... 89,739 139,048
(Manufacturing)
8,200 Brascan, Ltd. Cl A ............................................ 139,880 144,176
(Telecommunications)
15,200 Bruncor, Inc. ................................................. 264,650 244,982
(Telecommunications)
290,500 ++Campbell Resources, Inc. .................................... 191,388 280,923
(Mining)
6,300 Canadian Utilities, Ltd. Cl A ................................. 116,349 120,000
(Utilities)
5,100 ++Cognos, Inc. ................................................ 90,705 228,379
(Computer software/services)
10,800 Dofasco, Inc. ................................................. 138,081 136,484
(Iron/steel producer)
30,500 Doman Industries Ltd. Cl B..................................... 281,366 212,271
(Forest products & paper)
21,400 Donohue, Inc., Cl A............................................ 238,411 250,842
(Manufacturer of newsprint, market pulp, & lumber)
40,900 ++Emco, Ltd. .................................................. 201,729 145,322
(Manufacturer & distributor of building & home
improvement products)
1,600 Fletcher Challenge Canada, Ltd., Cl A.......................... 25,729 25,495
(Energy & forest products)
4,700 Fortis, Inc.................................................... 89,286 93,828
(Utilities -- electric)
16,300 Glamis Gold, Ltd. ............................................. 110,531 105,980
(Mining)
24,300 Hollinger, Inc................................................. 219,948 180,247
(Publishing/printing)
4,400 ++International Forest Products, Ltd., Cl A.................... 41,198 34,652
(Forest products & paper)
---------- ----------
Total Canada................................................... 2,714,881 2,831,420
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 56
DIAZ-VERSON AMERICAS EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/ Market
Face Value
Amount Cost (note 1)
- ----------- ---------- ----------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
NORTH AMERICA -- (CONTINUED)
MEXICO -- 1.14%
36,119* ++Aristos Cl B (a)............................................. $ 138,800 $ 61,698
(Conglomerate)
748 *Video Prima CP................................................ 4,109 2,760
(Retailer of videocassettes)
---------- ----------
Total Mexico................................................... 142,909 64,458
---------- ----------
Total Common Stocks............................................ 4,578,503 4,756,943
---------- ----------
Total Investments in Securities................................ 4,578,503 4,756,943
---------- ----------
REPURCHASE AGREEMENTS -- 11.29%
637,000 State Street Bank & Trust Co., Repo 2.25%, due 01/02/96........ 637,000 637,000
Proceeds at maturity, $637,159 (collateralized by: $585,000
U.S. Treasury Note 8.00%, 08/15/1999)
---------- ----------
Total Repurchase Agreements.................................... 637,000 637,000
---------- ----------
TOTAL INVESTMENTS -- 95.62%.................................... $5,215,503+++ 5,393,943
=========
CASH AND OTHER ASSETS, NET OF LIABILITIES -- 4.38%............. 247,007
----------
NET ASSETS -- 100.00%.......................................... $5,640,950
=========
NET ASSET VALUE PER SHARE (603,556 SHARES OUTSTANDING)......... $9.35
=====
- ---------------
* Illiquid securities.
++ Non-income producing security.
(a) Fair value as determined by the Board of Directors.
+ American Depository Receipts.
+++ For Federal Income Tax purposes:
Aggregate cost............................................................. $5,215,503
=========
Gross unrealized appreciation.............................................. $ 515,999
Gross unrealized depreciation.............................................. (337,559)
----------
Net unrealized appreciation................................................ $ 178,440
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 57
DIAZ-VERSON AMERICAS EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(Cost $4,578,503) (note 1)................................................ $4,756,943
Repurchase agreements (cost $637,000)........................................ 637,000
Cash (including foreign currency)............................................ 738
Receivable from adviser (note 3)............................................. 238,830
Dividends receivable......................................................... 16,262
Interest receivable.......................................................... 277
Deferred organizational expenses (note 1).................................... 56,034
Other assets................................................................. 9,405
----------
TOTAL ASSETS......................................................... 5,715,489
----------
LIABILITIES:
Payable for fund shares redeemed............................................. 982
Organizational expenses payable.............................................. 5,070
Administration fee payable (note 3).......................................... 2,000
Other accrued expenses....................................................... 66,487
----------
TOTAL LIABILITIES.................................................... 74,539
----------
NET ASSETS........................................................... $5,640,950
==========
NET ASSETS CONSIST OF:
Shares of Capital Stock, $0.001 par value,
603,556 issued and outstanding (note 2)................................... $ 604
Additional paid-in capital................................................... 6,034,737
Undistributed net investment income.......................................... 291
Net realized loss on investments............................................. (573,049)
Net unrealized appreciation on investments and foreign currency.............. 178,367
----------
NET ASSETS........................................................... $5,640,950
==========
$9.35
NET ASSET VALUE PER SHARE ($5,640,950 / 603,556)..................... ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 58
DIAZ-VERSON AMERICAS EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $9,665)........................ $ 97,659
Interest...................................................................... 21,931
Income from affiliates........................................................ 9,648
----------
TOTAL INCOME.......................................................... 129,238
----------
EXPENSES:
Custodian fees and expenses................................................... 59,656
Investment management fees (note 3)........................................... 54,726
Reports to shareholders....................................................... 52,070
Legal fees.................................................................... 47,343
Insurance..................................................................... 44,225
Fund accounting fees and expenses (note 3).................................... 31,562
Audit fees.................................................................... 28,000
Amortization of organizational expenses (note 1).............................. 25,185
Administration services fees (note 3)......................................... 24,000
Registration fees............................................................. 21,900
Distribution expenses (note 3)................................................ 19,222
Directors' fees............................................................... 17,000
Transfer agent fees and expenses (note 3)..................................... 7,254
Miscellaneous................................................................. 3,737
----------
TOTAL EXPENSES........................................................ 435,880
----------
LESS FUND EXPENSES REIMBURSED BY ADVISER (note 3)..................... (298,751)
----------
NET EXPENSES.......................................................... 137,129
----------
NET INVESTMENT LOSS................................................... (7,891)
----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain on investments.............................................. 527,001
Net realized loss on foreign currency transactions............................ (974,525)
----------
Net realized loss............................................................. (447,524)
NET CHANGE IN UNREALIZED APPRECIATION ON:
Investments:
Net change in unrealized appreciation on investments....................... 539,359
Translation of other assets denominated in foreign currencies.............. 147
----------
Net realized and unrealized gain on investments and foreign currency
transactions............................................................... 91,982
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $ 84,091
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 59
DIAZ-VERSON AMERICAS EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss......................................... $ (7,891) $ (85,151)
Net realized gain/(loss) on investments and foreign currency
transactions............................................... (447,524) 353,254
Net increase/(decrease) in unrealized appreciation on
investments and foreign currency.......................... 539,506 (1,822,413)
---------- -----------
Net increase/(decrease) in net assets resulting from
operations.................................................. 84,091 (1,554,310)
Dividends and distributions to shareholders from:
Realized gain on investments................................ -- (450,060)
---------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... -- (450,060)
---------- -----------
Increase/(decrease) in net assets from capital share
transactions (note 2)........................................ (5,190) 1,225,520
---------- -----------
Net increase/(decrease) in net assets.......................... 78,901 (778,850)
NET ASSETS:
Beginning of period............................................ 5,562,049 6,340,899
---------- -----------
End of period.................................................. $5,640,950 $ 5,562,049
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 60
DIAZ-VERSON AMERICAS EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES. Diaz-Verson Americas Equity Fund (the
"Fund") is a portfolio of The Diaz-Verson Funds Inc., an open-end, diversified,
series management investment company organized as a Maryland corporation on
November 18, 1992. Prior to March 23, 1993, the Fund had no operations other
than the sale of 10,000 shares of common stock for $100,000 to Diaz-Verson
Capital Investments, Inc. (the "Adviser") on March 1, 1993. The Fund seeks to
provide long-term capital growth through investments primarily in common stocks
of issuers located in the Americas (defined as North America, Central America,
South America and island nations adjacent to those continents).
The following is a summary of the significant accounting policies followed
by the Fund in preparation of the financial statements.
Security Valuation: Portfolio securities and option positions for which
market quotations are readily available are stated at the last sale price
reported by the principal exchange for each such security as of the
exchange's close of business. Securities and options for which no sale has
taken place during the day and securities which are not listed on an
exchange are valued at the mean of the current bid and asked prices. Foreign
market closing prices are translated into U.S. dollar values using a
composite of particular foreign currencies last quoted on the valuation
date. Short-term investments denominated in U.S. dollars that will mature in
60 days or less are stated at amortized cost; short-term investments
denominated in foreign currencies are stated at the amortized cost as
determined in the foreign currency, translated to U.S. dollars at the
current day's exchange rate. Securities for which quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors, although the actual calculations may be made by persons
acting pursuant to or at the direction of the Board of Directors. The assets
of the Fund may also be valued on the basis of valuations provided by a
pricing service approved by the Board of Directors.
Investment Securities Transactions and Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on
sales of investments are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date, or as soon thereafter when the
information becomes publicly available. Interest income is recorded on an
accrual basis. Such dividend income and interest income is recorded before
non-U.S. withholding tax. Non-U.S. withholding tax is recorded as a
reduction of income.
Foreign Currency Transactions: The books and records of the Fund are
maintained in U.S. dollars as follows:
(i) market value of investment securities and other assets and liabilities
at the exchange rate on the valuation date, and
(ii) purchases and sales of investment securities, income and expenses at
the exchange rate prevailing on the respective date of such
transactions.
The resultant exchange gains and losses are included as net realized and
unrealized gains and losses in the Statement of Operations.
Dividends to Shareholders: Dividends from net investment income are declared
and paid annually. Distributions of net realized gains are normally declared
and paid at least annually.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax provision is required.
At December 31, 1995, the Fund has a capital loss carryover of approximately
$568,129 which will expire at December 31, 2003. The capital loss carryover
will be available to offset future realized gains on securities transactions
to the extent provided for in the Internal Revenue Code.
Dividends and interest from non-U.S. sources received by the Fund are
generally subject to non-U.S. withholding taxes at rates ranging up to 25%.
Such withholding taxes may be reduced or eliminated under the
F-7
<PAGE> 61
DIAZ-VERSON AMERICAS EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
terms of applicable U.S. income tax treaties, and the Fund undertakes those
procedural steps required to claim the benefits of such treaties. If more
than 50% in value of the Fund's total assets at the close of any taxable
year consists of stocks or securities of non-U.S. issuers, the Fund is
permitted and may elect to treat any non-U.S. taxes paid or accrued by it as
though it were paid by its shareholders.
In accordance with Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies, book and tax basis
differences relating to shareholder distributions and other permanent book
and tax differences are reclassified to undistributed net investment income.
As of December 31, 1995, the cumulative effect of such differences, is
represented by a decrease in paid in capital of $64,614, an increase in
undistributed net investment income of $93,333 and an increase in
accumulated net realized loss of $28,719. Net investment income, net
realized gains, and net assets were not affected by this change.
Deferred Organization Costs: The Fund incurred expenses of $126,000 in
connection with the organization of the Fund. These costs have been deferred
and are being amortized ratably on a straight line basis over a period of
sixty months from the date the Fund commenced investment operations.
Use of Estimates: Estimates and assumptions are required to be made
regarding assets, liabilities, and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ from these amounts.
2. CAPITAL STOCK TRANSACTIONS. The Diaz-Verson Funds Inc. has an authorized
capitalization of 100 million shares of $0.001 par value common stock.
Transactions were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Beginning balance........... 609,828 $6,118,528 489,550 $4,893,008
------- ---------- ------- ----------
Shares sold................. 74,446 654,522 161,979 1,750,071
Shares redeemed............. (80,718) (659,712) (41,701) (524,551)
------- ---------- ------- ----------
Net increase/(decrease)..... (6,272) (5,190) 120,278 1,225,520
------- ---------- ------- ----------
Ending balance.............. 603,556 $6,113,338 609,828 $6,118,528
======= ========= ======= =========
</TABLE>
3. COMMITMENTS AND RELATED AGREEMENTS. Adviser: Diaz-Verson Capital
Investments, Inc. (the "Adviser") serves as the Adviser for the Fund and directs
investments of the Fund pursuant to the Investment Advisory Agreement dated
March 2, 1993 (the "Advisory Agreement"). Under the Advisory Agreement with the
Fund, the Adviser also provides order placement facilities for the Fund and pays
all compensation of Directors and officers of the Fund who are affiliated with
the Adviser. The Adviser or its affiliates also furnish the Fund without charge,
management supervision and assistance and office facilities and provides persons
satisfactory to the Fund's Board of Directors to serve as the Fund's officers
and managers of day-to-day operations. The Fund pays the Adviser fees at the
annual rate of 1% of the average daily net assets of the Fund. The Fund incurred
$54,726 in investment management fees for the year ended December 31, 1995.
The Advisory Agreement also provides that the Adviser will make arrangements to
limit the Fund's total annual expense ratio to no more than 2.50% (prior to June
9, 1994, expense ratio was 2.25%). Pursuant to this agreement,
F-8
<PAGE> 62
DIAZ-VERSON AMERICAS EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
for the year ended December 31, 1995, $298,751 (less distribution expenses of
$19,222) was reimbursed by the Adviser.
Certain of the states in which the shares of the Fund are qualified for sale
impose limitations on the expenses of funds. If, in any fiscal year, the total
expenses of the Fund (excluding taxes, interest, distribution expenses,
brokerage commissions, certain portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the advisory and
administrative services fees) exceed the expense limitations applicable to the
Fund imposed by the securities regulations of any state, the Adviser will pay or
reimburse the Fund to the extent of advisory earned fees. Due to the expense cap
of 2.50%, no such amounts were required to be reimbursed for the year ended
December 31, 1995.
Administrator: Furman Selz LLC (the "Administrator") serves as the Fund's
administrator under an Administration Contract. The Administrator's services
include day-to-day administration of matters related to the corporate existence
of the Fund, maintenance of the records and preparation of reports, subject to
the supervision of the officers and the Directors of the Fund. For these
services, the Fund pays a monthly fee, at the annual rate of .15% of the average
daily net assets of the Fund, subject to a minimum fee of $24,000 annually. For
the year ended December 31, 1995, the Administrator earned a fee of $24,000. As
of January 1, 1996 the minimum annual fee to be paid to the Administrator was
increased to $150,000, which includes fund accounting and transfer agent
services.
Shareholder Servicing Agent, Dividend Paying Agent and Registrar: Furman Selz
LLC acts as the Fund's transfer agent. In addition to acting as the Shareholder
Servicing Agent for the Fund, Furman Selz LLC also acts as Dividend Paying Agent
and Registrar for the Fund. For these services, the Fund paid Furman Selz LLC a
fee of $15.00 per shareholder account per year, plus out-of-pocket expenses.
Fund Accounting Agreement: The Fund has approved a Fund Accounting Agreement
with Furman Selz LLC whereby Furman Selz LLC keeps current accounting records,
including calculation of net asset value. For these services, the Fund pays
Furman Selz LLC $30,000 annually, payable monthly. The Fund incurred $31,562 in
fund accounting fees and expenses for the year ended December 31, 1995.
Distribution Services Agreement: Pursuant to Rule 12b-1 of the Investment
Company Act of 1940, the Fund has entered into a Distribution Services Agreement
(the "Distribution Agreement") with Performance Funds Distributor, Inc. (the
"Distributor"), an affiliate of Furman Selz LLC. The Fund may pay a distribution
services fee to the Distributor at an annual rate of .25 (prior to May 1, 1995
the rate was .50) of 1% of the aggregate average daily net assets of the Fund.
For the year ended December 31, 1995, the Fund incurred $19,222 in distribution
expenses.
4. REPURCHASE AGREEMENTS. The Fund is permitted to enter into repurchase
agreements pertaining to U.S. Government securities with member banks of the
Federal Reserve System or with primary dealers (as designated by the Federal
Reserve Bank of New York) of such securities. The Fund must maintain with its
Custodian for its account in the Federal Treasury Book Entry System, collateral
in an amount equal to, or in excess of, the resale price. In the event of a
counterparty's bankruptcy, the Fund may be delayed in, or prevented from,
selling the collateral for the Fund's benefit.
5. PURCHASES AND SALES OF SECURITIES. The cost of purchases and proceeds from
sales of securities, other than short-term investments, for the year ended
December 31, 1995 were $7,535,083 and $6,583,628, respectively.
6. CONCENTRATION OF RISK. The Fund invests in obligations of foreign entities
and securities denominated in foreign currencies that involve risk not typically
involved in domestic investments. Such risks include fluctuations in foreign
exchange rates, ability to convert proceeds into U.S. dollars, less publicly
available information about foreign financial instruments, less liquidity
resulting from substantially less trading volume, more volatile prices and
generally less government supervision of foreign securities markets and issuers.
F-9
<PAGE> 63
DIAZ-VERSON AMERICAS EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 23, 1993
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) THROUGH
PER SHARE OPERATING PERFORMANCE DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
- --------------------------------------- ----------------- -------------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period... $ 9.12 $12.95 $10.00
----------------- -------- --------
Income (loss) from investment
operations:
Net investment loss+................. (0.01) (0.16) (0.05)
Dividends and distributions to
shareholders from:
realized gain on investments+........ -- (0.87) --
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions......................... 0.24 (2.80) 3.00
----------------- -------- --------
Total income (loss) from investment
operations........................... 0.23 (3.83) 2.95
----------------- -------- --------
Net asset value, end of period......... $ 9.35 $ 9.12 $12.95
=============== ================= =================
Total return......................... 2.52% (26.68)% 29.50%++
Net assets, end of period (in
000's)............................ $ 5,641 $5,562 $6,341
Ratios to average net
assets/supplemental data:
Net investment (loss)................ (0.14)% (1.37)% (0.63)%
Expenses net of reimbursement........ 2.50%+++ 2.44% 2.25%*
Portfolio turnover rate.............. 142% 164% 82%
</TABLE>
- ---------------
+ Per share data based upon average monthly shares outstanding.
++ Not annualized.
+++Ratios of expenses before effect of reimbursements were 7.96%, 6.52% and
7.34% (annualized), respectively.
* Annualized.
F-10
<PAGE> 64
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Diaz-Verson Americas Equity Fund
We have audited the accompanying statement of assets and liabilities of
Diaz-Verson Americas Equity Fund, including the portfolio of investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the two years in the
period then ended and for the period from March 23, 1993 (commencement of
operations) through December 31, 1993. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit incudes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Diaz-Verson Americas Equity Fund as of December 31, 1995, and the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the two years in the period then ended and for the period from March 23, 1993
(commencement of operations) through December 31, 1993, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
February 16, 1996
<PAGE> 65
APPENDIX
CORPORATE BOND RATINGS
Moody's Investors Service, Inc. Corporate Bond Ratings:
Aaa -- Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be greater or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they 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. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
Standard & Poor's Corporate Bond Ratings:
AAA -- Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A-1
<PAGE> 66
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's Commercial Paper Ratings:
A is the highest commercial paper rating category utilized by S&P,
which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and
has superior management.
Moody's Investors Service, Inc. Commercial Paper Ratings:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
Leading market positions in well established industries; high rates of return
on funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earnings coverage
of fixed financial charges and high internal cash generation; well established
access to a range of financial markets and assured sources of alternate
liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
A-2
<PAGE> 67
Fitch-1, Fitch-2, Duff 1 and Duff 2 Commercial Paper Ratings:
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an
assurance of timely payment only slightly less in degree than the strongest
issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment; excellent
liquidity factors supported by strong fundamental protection factors; and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets.
PREFERRED STOCK RATINGS
Moody's Investors Service, Inc. Preferred Stock Ratings:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of convertible preferred
stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper
medium-grade preferred stock. While risks are judged to be somewhat greater
than in the aaa and aa classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be medium-grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
ba -- An issue which is rated ba is considered to have speculative
elements, and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on
dividend payments. This rating classification does not purport to indicate the
future status of payment.
A-3
<PAGE> 68
ca -- An issue which is rated ca is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payment.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard & Poor's Preferred Stock Ratings:
AAA -- This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA.
A -- An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effect of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments
for a preferred stock in this category than for issues in the A category.
BB, B, CCC -- Preferred stocks rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
A-4
