AMTRUST VALUE FUND
PROSPECTUS October 31, 1996
PO Box 3467 (800) 532-1146
Victoria, TX 77903-3467 (512) 578-7778
AmTrust Investors, Inc., dba AmTrust Value Fund (the "Fund"), is a no-load,
diversified mutual fund that seeks long-term growth of capital. The Fund will
invest substantially all of its assets in common stocks of small- and mid-
capitalization companies when, in the opinion of its investment advisor, the
outlook for such investments is favorable. While investments in companies of
this size may present above average risks, the Fund's investment advisor
believes that these companies have the potential to achieve long-term
earnings growth substantially in excess of the growth of earnings of other
companies. When the investment advisor, AmTrust Capital Resources, Inc. (the
"Advisor"), believes the prevailing market conditions dictate a conservative
position, the Fund may invest its assets in U.S. Government securities and
other short-term, interest bearing instruments.
The Fund does not represent itself to be a complete investment program to
which prudent investors should commit all of their investment capital nor is
it intended for investors whose principal objective is income or conservation
of capital. The Fund will sell and redeem its shares at net asset value. The
Fund does not impose any sales charge fee to buy shares or redemption charge
to redeem shares and does not pay any 12b-1 marketing fees. There is a
$250.00 minimum investment requirement to open an account.
The Prospectus sets forth concisely the information about the Fund that
investors should consider before investing and should be read carefully and
retained for future reference. Additional information about the Fund
contained in the Statement of Additional Information dated October 31, 1996,
which is filed with the Securities and Exchange Commission ("SEC"), is
incorporated by reference in this Prospectus, and is available upon request
and without charge by writing or calling the Fund at the address or telephone
number shown at the top of this page.
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.
This Prospectus does not constitute an offer to sell securities in any state
or other jurisdiction or to any person to whom it is unlawful to make such an
offer in such state or other jurisdiction. No person has been authorized to
give any information or to make any representation other than those contained
in the Prospectus and in the Statement of Additional Information, and if given
or made, such information or representations may not be relied upon as having
been authorized by the Fund or the Advisor.
Page 2
Table of Contents
Fee Table.................... 2 Dividends and Distributions...... 10
Financial Highlights......... 3 How to open an account........... 11
Investment Objective......... 3 How to buy shares................ 12
Investment Restrictions...... 7 How to redeem shares............. 13
Management of the Fund....... 9 Other information about the Fund. 15
Fee Table
Shareholder Transaction Expenses
Sales Load imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 1.50%
12b-1 Fees None
Other Expenses None
Total Fund Operating Expenses 1.50%
Example: 1 Year 3 Years 5 Years 10 years
You would indirectly pay the following
expenses on a $1,000 investment,
assuming a 5% annual return, with
or without redemption at the end of
each period. $15 $48 $83 $183
THE EXPENSES IN THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
The purpose of the preceding table and example is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. These costs and expenses are described in
greater detail under "Advisor Compensation."
Page 3
FINANCIAL HIGHLIGHTS
The following financial highlight information for a share outstanding
throughout each period shown has been audited by the Fund's independent
certified public accountant, Michael S. Klingle CPA, whose report thereon
was unqualified. This financial highlight information should be read in
conjunction with the Fund's financial statements and the notes thereto, which
are incorporated by reference into the Statement of Additional Information and
the prospectus and appear, along with Mr. Klingle's report on such financial
statements, in the Fund's 1996 Annual Report to its shareholders. The annual
report is available to shareholders of the Fund without charge by writing to
the Fund or calling the Fund at 1-800-532-1146 or (512) 578-7778.
For the Fiscal Year Ended
6/30/96 6/30/95
Net Asset Value, Beginning of Period $ 10.84 $ 9.23
Income From Investment Operations:
Net investment income (loss) (0.07) (0.05)
Net realized & unrealized gains (losses)
on securities 0.72 1.66
Total from investment operations 0.65 1.61
Less Distributions:
Distributions from realized gains (0.74) (0.00)
------ ------
Net Asset Value, End of Period $ 10.75 $ 10.84
====== ======
Total return for the period 6.30 % 17.44 %
Ratios/Supplemental Data
Net assets at the end of the period $ 831,631.77 $724,763.01
Ratio of expenses to average net assets 1.22 1.00
Ratio of net investment income (loss) to avg
net assets (0.64) (0.60)
Portfolio turnover rate 87 % 79 %
Average commission rate paid per share .1035 .1040
Shares outstanding at end of period 77,389.622 66,845.421
INVESTMENT OBJECTIVE & POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term growth of capital.
Realization of current income is not considered an investment objective of the
Fund, and any current income realized on the Fund's investments, therefore,
will be incidental to the Fund's objective. There can be no assurance that the
Fund will, in fact, achieve its objective. The Fund's investment objective
may be changed by the Board of Directors without shareholder approval. If
there is a change in the Fund's investment objective, shareholders will
receive written notice at least 30 days prior to the change becoming
effective. Shareholders then should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs.
Page 4
The Fund is subject to certain investment policies and restrictions, described
elsewhere in this prospectus and in the Statement of Additional Information,
which may not be changed without the approval of the shareholders of the Fund.
ACHIEVING THE OBJECTIVE
The Fund will primarily invest in common stocks of small- to mid-
capitalization companies (companies whose market capitalization is less than
$1 billion) listed on a national securities exchange or NASDAQ. Although
investing in smaller companies may subject the Fund to more risks and add more
volatility to the Fund's share price, the Advisor believes that the long-term
rewards of these types of investments outweigh their inherent risks (See
"Investment Risks"). The Advisor does not have pre-set quotas for the portion
or amount of the Fund's assets for investment in small-capitalization
companies as compared to mid-capitalization companies. The only preferences
concerning portfolio security selection is that only companies whose market
capitalization is less than one billion dollars will be considered for further
evaluation and investment. However, once a security has been added to the
Fund's portfolio, the size of that company will no longer have a bearing on
the Advisor's decision to hold or sell that particular security. Investments
will be selected particularly on the basis of an evaluation of factors that
indicate the fundamental investment value of the security, such as asset
value, cash flow, revenues, earnings, debt levels, price-earnings ratios,
price-book value ratios, dividend yield, and perceived future growth prospects
(an approach known as "value investing"). In particular, the Fund intends to
buy stocks that the Advisor feels are undervalued and have future potential
for growth which may not be recognized by the market. Although the Fund may
invest in securities with low price-earnings ratios relative to the ratios of
most major stock indices, that criteria is not paramount in the evaluation of
stocks for potential investment. The Fund may own stocks which do not have
low price-earnings ratios, but whose fundamental value, in the view of the
Advisor, is greater than that reflected by the current market prices of those
stocks (an approach known as "growth investing"). However, the Advisor
intends primarily to use the "value investing" approach to achieve the Fund's
investment objective. The Fund may invest in special situations from time to
time. A special situation arises when, in the opinion of the Advisor, the
securities of a particular company will be recognized and appreciate in value
due to a specific development at that company. Developments creating a special
situation might include, among others, a new product or process, management
change, or a technological breakthrough. Investment in special situations may
carry an additional risk of loss in the event that the anticipated development
does not occur or does not attract the expected attention and thus not produce
an increase in market value.
The Fund may, for temporary, extraordinary or emergency purposes, borrow money
in an amount not to exceed 5% of its total assets. If the Fund borrows money,
it may grant a security interest in portfolio securities to secure the
repayment of the money borrowed.
Page 5
Since the Fund's primary objective is long-term growth of capital, under
normal circumstances, at least 65% of the value of the Fund's total assets
will be invested in equity securities. The Fund may hold U.S. Government
securities or certificates of deposit or put funds on deposit in money market
accounts of commercial banks when, in the Advisor's judgment, a defensive
position is warranted or so that the Fund may receive a return on its idle
cash. If a defensive position is taken by the Advisor, it will only be a
temporary deviation from the Fund's primary objective of growth of capital.
When the Fund maintains a defensive position, investment income will increase
and may constitute a large portion of the return on the Fund, and the Fund
probably will not participate in market advances or declines to the extent
that it would if it were fully invested.
PORTFOLIO TURNOVER
The Fund intends primarily to purchase securities for capital appreciation. If
the Advisor is satisfied with the performance of a security and anticipates
continued appreciation, the Fund will generally retain such security. Changes
in the portfolio will be made whenever the Advisor believes they are
advisable, either as a result of securities in the Fund's portfolio having
reached a price objective, or by reason of developments not foreseen at the
time of the investment decision. Since investment changes usually will be
made without reference to the length of time a security has been held, a
significant number of short-term transactions may result. However, certain
tax rules may restrict the Fund's ability to sell portfolio securities in some
circumstances when a security has been held for an insufficient length of
time. Increased portfolio turnover necessarily results in correspondingly
higher brokerage costs of the Fund and results in realized gains and losses.
Each time the Fund realizes gains, there may be tax consequences to
shareholders in non-deferred accounts. Also, the increased brokerage costs
due to frequent buying and selling by the Fund negatively affects the total
return of the Fund's investments. The rate of portfolio turnover for the year
ended June 30, 1996 was 87% and for the year ended June 30, 1995 was 79%. It
is anticipated that the annual portfolio turnover rate of the Fund will not
exceed 100%. A turnover rate of 100% would occur, for example, if all of the
securities of the Fund were replaced within one year.
INVESTMENT RISKS
Market Risks: The Fund invests primarily in common stocks, and is, therefore,
subject to market risk - the possibility that stock prices generally will
decline over short or even extended periods. Historically, the stock market
tends to be cyclical, having periods in which stock prices generally rise and
periods when stock prices generally decline. The Fund and the net asset value
attributable to its shares are subject to this risk. A generally declining
market increases the risk that the market prices of the Fund's portfolio
securities may decrease even without change in the issuing companies'
fundamental financial and business circumstances.
Page 6
The volatility of the market in general may also affect the Fund's
performance. This volatility can be demonstrated by looking at historical
returns measured by the Standard & Poor's 500 Composite Stock Price Index.
Such a review shows that common stocks have provided annual total returns
(capital appreciation plus dividend income) averaging +10.7% for each
successive 10-year period beginning in 1926 through 1994. The return in
individual years during that period has varied from a low of -43.3% to a high
of +53.9%, reflecting the short-term volatility of stocks prices. Average
return may not be useful for forecasting future returns in any particular
period, as stock returns are quite volatile from year to year.
INVESTMENTS IN SMALL CAPITALIZATION COMPANIES: Common stocks of small
capitalization companies are the Fund's primary investments. Investments in
small capitalization companies, as compared to mid- and large-capitalization
companies, may involve greater risks. Smaller capitalization companies may
have less resources, more limited product lines, and less depth in management.
Less visible companies sometimes have more volatility in the trading of their
shares and thus can cause the Fund's share price to be more volatile.
Investors should also recognize that smaller capitalization companies may rise
or fall in value independently of the broad stock market. Although the Fund
will only invest in companies whose market capitalization is less than $1
billion, the average market capitalization of the Fund's portfolio securities
will normally be between $100 million and $400 million. For this reason, the
Fund is not intended as a complete investment vehicle but rather as an
investment for those who are financially able to assume above average risks
and share price volatility over time. Since capital appreciation in stocks of
small capitalization companies are sometimes slow to materialize, the Fund
should be considered as a long-term investment.
FUND MANAGEMENT RISKS: The Advisor manages the Fund according to the
traditional methods of "active" investment management, which involves the
buying, holding and selling of securities based upon, investment analysis and
investment judgment of the Advisor after the analysis of certain financial and
economic data. The possibility exists that the Fund's Advisor may fail to
achieve its stated objective. The Advisor has been in operation only since
the Fund's inception on August 19, 1993. Its officers and directors had no
experience in the management of a mutual fund investment portfolio prior to
the time of the Fund's inception.
FOREIGN SECURITIES: The Fund may invest in securities of foreign companies
from time to time. Investors should be aware that investments in foreign
securities may present certain risks, including those resulting from
fluctuations in currency exchange rates, and political and economic
developments. Securities of some foreign companies, particularly those
principally doing business in developing countries, are less liquid and more
Page 7
volatile than securities of comparable domestic companies. The Fund will
consider these variables when selecting investments in foreign securities.
The Fund does not intend to use investments in foreign stocks as a primary
means of achieving the Fund's objective.
INVESTMENT RESTRICTIONS
The Fund will not purchase more than 10% of the outstanding voting securities
of any one issuer, and will not invest more than 5% of the market value of its
total assets in securities of any one issuer (except U.S. Government
securities).
Although the Fund has no present plans to limit its size, it will discontinue
sales of its shares if the Advisor believes that a further increase in its
size may adversely affect its ability to achieve its investment objective by
reducing its flexibility in making investments and in effecting portfolio
changes. In the event that sales of the Fund's shares to new shareholders
are discontinued, existing shareholders at that time would be permitted to
continue to purchase additional shares and to reinvest any dividends or
capital gains distributions in additional shares. The Fund reserves the right
to recommence sale of shares to new shareholders at any time it may deem
appropriate after a discontinuation.
The Fund may invest in the securities of foreign companies when these
securities meet its standards of selections. Investments in foreign
securities will primarily be made through, but not restricted to, the
investment in "closed-end" investment companies (mutual funds) whose assets
are primarily invested internationally. The Fund, however, may not invest
more than 10% of the Fund's net assets in other investment companies. See the
Statement of Additional Information for further restrictions concerning
investments in other investment companies.
DERIVATIVE SECURITIES
The Fund is allowed to invest in put or call options. Options are commonly
referred to as "derivative" securities Prospective investors should be aware
that any investment in derivative securities involves a greater risk of
monetary loss. The fact that options become valueless upon expiration means
that an option holder must not only be correct about the direction of an
anticipated price change in the underlying interest, but he must also be
correct about when the price change will occur. Thus, if the price of the
underlying security does not change in the anticipated direction before the
option expires to an extent sufficient to cover the cost of the option, the
investor may lose all or a significant part of his investment in the option.
The significance of this risk to an option holder depends in large part upon
the extent to which the option holder utilizes the leverage of options to
control a larger quantity of the underlying security than he could have
purchased (or sold) directly for the same amount. Although not to be used as
a primary investment strategy, the Advisor may use options as a way to protect
(or "hedge") the Fund's portfolio from short-term swings in the market due to
investor sentiment. The primary type of option which the Advisor will use is
Page 8
the "index option" which is so named because the value or performance of the
option is linked to stock indexes or other financial indicators ("reference
indexes"). Prospective investors should be aware that using index options for
hedging purposes involves special risks. Unless the securities portfolio of
the party using the option exactly mirrors the securities in an underlying
index, the portfolio and the index may respond differently to a given market
influence. Except where the composition of the securities portfolio to be
hedged is very similar to that of an underlying index, index options may best
be understood as a means of reducing some but not all of the risks of a
securities portfolio position. The Advisor will report on the Fund's activity
in derivative securities to the Fund's Board of Directors as necessary. In
addition, the board will review the Advisor's policy for investments in
derivative securities annually. (See the Statement of Additional Information
for basic information concerning the Fund's possible investment in options,
including so-called "index" options).
ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including securities that may or may not be subject to
restrictions on their resale. Investments in illiquid securities involve
certain risks to the extent that the Fund may be unable to dispose of such a
security at the time desired or at a reasonable price or, in some cases, may
be unable to dispose of it at all. Securities which may be resold only to
qualified institutional buyers in accordance with the provisions of Rule 144A
under the Securities Act of 1933 are considered "restricted securities" and
will be considered as illiquid securities and thus be subject to the same
investment restrictions as illiquid securities. Restricted securities are
those securities which are not registered under the Securities Act of 1933 and
which are generally issued in small quantities to institutional or individual
investors. Restricted securities can be sold only in a privately negotiated
transaction or after the filing of a registration statement. The market for
such securities is generally illiquid. In addition, in order to resell a
restricted security, the Fund might have to incur the potentially substantial
expense and delay associated with effecting registration. Since its
inception, the Fund has not invested in any illiquid security and at the
present time does not intend to do so. The Advisor has agreed that before the
Fund invests in illiquid securities, specific approval of the board of
directors will be requested and the appropriateness of the proposed investment
will be determined.
The Fund reserves the right to change any of its policies, practices and
procedures described in the Prospectus, including the Statement of Additional
information, without shareholder approval except for those instances where
shareholder approval is expressly required. The Statement of Additional
Information sets forth a number of additional investment restrictions
applicable to the Fund.
Page 9
MANAGEMENT OF THE FUND
RESPONSIBILITIES OF BOARD OF DIRECTORS
The Fund's Board of Directors sets the broad policies of the Fund, elects its
officers and is responsible for major decisions relating to the Fund's
policies and objectives. The Directors review the performance of the Advisor
and make assessments as to whether the objectives and policies of the Fund are
being met. The Directors will comply with all laws of the State of Texas as
relating to the operation of the Fund. Due to the small asset size of the
Fund, the independent directors were each paid a nominal fee of $100 for there
services during the latest fiscal year ended June 30, 1996.
INVESTMENT ADVISOR
The Fund has an Investment Advisory Agreement with AmTrust Capital Resources
Inc. (referred to herein as the "Advisor"), PO Box 3467, Victoria, TX 77903-
3467. AmTrust Capital Resources, Inc. has served as the Fund's Advisor since
the inception of the Fund on August 19, 1993. Neither the Advisor nor any of
its officers or directors had any prior experience in advising an investment
company prior to commencing to advise the Fund. Mr. Jimmy Baker is President
and Chairman of the Board of the Advisor and owns 50% of the outstanding
voting stock of the Advisor. As of June 30, 1996, Mr. Baker has received no
compensation for services provided to the Advisor. No other person owns in
excess of 10% of the outstanding stock of the Advisor. Currently, the
President is the only individual affecting the day to day management of the
Advisor. Due to these circumstances, the Advisor has insured the life of the
President in order to, in the event of his untimely death, assist in the
continued management of the Fund.
The Advisor furnishes continuous advice and recommendations concerning the
Fund's investments, and is responsible for selecting the broker-dealers who
execute the portfolio transactions for the Fund.
ADVISOR COMPENSATION
Under the Advisory Agreement, the Fund has agreed to compensate the Advisor
for its services by the payment of a monthly fee at a specified annual rate,
one and one-half percent (1.50%) as of June 30, 1996, of the average daily net
asset value of the Fund. The annual rate is based on the previous thirty (30)
day moving average of the Fund's net assets beginning at 1.50% of the first
two million dollars and dropping .05% for specific asset size increases
with a maximum annual rate of 1.25% of assets over ten million dollars. A
copy of the Advisory Agreement is available upon request. The fee is
calculated each day by multiplying the specified annual rate times the
aggregate average daily closing value of the Fund's net assets during the
previous thirty (30) days by a fraction, the numerator of which is one (1) and
the denominator of which is three hundred sixty five (365) or three hundred
sixty six (366) in leap years.
Page 10
Pursuant to the Advisory Agreement, the Fund pays a management fee which is
higher than most investment companies. However, most, if not all, of such
companies also pay much of their other fund expenses, while AmTrust Value
Fund's expenses are limited to the management fee and the usual brokerage
commissions associated with buying and selling securities. AmTrust Capital
Resources, Inc. also acts as the Fund's transfer agent and the dividend paying
agent. The Advisor provides all services to keep, prepare, or file such
accounts, books, records, or other documents as the Fund may be required to
keep under federal or state law, or to provide any similar services with
respect to the daily administration of the Fund. The Advisor also issues
checks to shareholders for redemptions, dividends and capital gains
distributions. During the fiscal year ended June 30, 1996, the Advisor was
paid $8,771.78 for the services provided by it to the Fund.
SHAREHOLDER INQUIRIES
Shareholders can make inquiries about the Fund or their personal account by
calling or writing the Fund at the address or one of the telephone numbers
listed on the cover page.
DIVIDENDS & DISTRIBUTIONS
The Fund will make annual distributions of substantially all of its investment
income and net realized capital gains. If dividends and capital gains
distributions are not automatically reinvested in additional Fund shares,
checks for cash dividends will be mailed to shareholders, usually within ten
days after the record date of the distribution. Distributions are made on a
per-share basis. The value of a share is reduced by the amount of any
dividend or distribution paid.
If shares are purchased shortly before a distribution, the full price of the
shares will be paid and some portion of the price may then be returned to the
shareholder as a taxable dividend or capital gain, depending on the type of
taxpayer. However the cost basis of those shares will increase accordingly.
All dividends and capital gains distributions are subject to taxes (except for
shareholders exempt from income tax) whether such dividends and distributions
are received in cash or reinvested in additional shares of the Fund,
regardless of the length of time the shares have been held. Full information
regarding dividends and capital gains distributions will be sent to
shareholders for tax purposes by January 31 of each year. In addition to
federal taxes, Fund distributions may also be subject to state taxes.
DISTRIBUTION OPTIONS
When opening a new account, you should elect on the new account application
one of the following options as to how distributions will be paid by the Fund.
1) You may reinvest your income dividends and capital gains distributions in
additional shares of the Fund. Unless you affirmatively elect another option,
this option will be automatically elected for you.
2) You may receive your income dividends and capital gains distributions in
cash.
Page 11
3) You may receive either your income dividends or capital gains
distributions in cash and reinvest the other funds payable to you in
additional shares of the Fund.
Distribution options can be changed anytime by writing or calling the Fund no
later than 10 days before the date on which the next distribution will be
paid.
TAXES
The Fund has elected to be taxed under Subchapter M of the Internal Revenue
Code of 1986, which means that since the Fund distributes all of its income,
it pays no income taxes. For federal income tax purposes, dividends paid by
the Fund and distributions from net realized short-term capital gains, whether
received in cash or reinvested in additional shares of the Fund, are taxable
to the shareholders as ordinary income. Distributions paid by the Fund from
net realized long-term capital gains, whether received in cash or in
additional shares of the Fund, are taxable to the shareholders as long-term
capital gains. The capital gain holding period is determined by the length of
time the Fund has held the security and not the length of time you have held
shares in the Fund.
This section is not intended to be a full disclosure of present or proposed
federal income tax laws. There may be other federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your tax advisor.
HOW TO INVEST IN THE AMTRUST VALUE FUND
Complete and sign the New Account Application which is included with this
Prospectus (a special application is required for IRAs and other retirement
plans) and forward that application with your check to:
AmTrust Value Fund
PO Box 3467
Victoria, TX 77903-3467
Make your check payable to AmTrust Investors, Inc. All purchases should be
made in U.S. dollars and checks must be drawn on U.S. banks. Cash will not be
accepted. The minimum initial investment is $250.00. Additional investments
of as little as $50.00 may be made.
The Fund will mail to you, a quarterly statement of your account and a
transaction confirmation statement every time there is any activity in your
account. Each confirmation statement includes a detachable stub to be
included when making additional investments.
Net Asset Value ("NAV")
The net asset value of the Fund shares is determined at the close of the
regular trading session of the New York Stock Exchange (normally 4:00 pm
Eastern time) each day that the Exchange is open. The NAV per share is
determined by dividing the total value of the securities and other assets,
less liabilities, of the Fund, by the total number of shares of the Fund
Page 12
outstanding. Securities are valued at market value (the same closing price
as listed daily in the Wall Street Journal) or, if market information is not
readily available, the fair value of that security as determined in good faith
by the Fund's Board of Directors.
RETIREMENT PLANS
If you are eligible, you may set up your account under a tax-sheltered
retirement plan. These plans let you save for retirement and shelter your
investment income from current taxes. A contribution to these plans may be
deductible from your taxable income, depending upon your personal tax
situation. Distributions from these plans are generally subject to ordinary
income tax, and may be subject to an additional 10% excise tax if withdrawn
prior to age 59 1/2. However, you must start withdrawals no later than April 1
of the year after you reach age 70 1/2. The Fund can be used for the
following retirement plans:
Individual Retirement Accounts (IRA) Keogh (HR - 10)
Simplified Employee Pension Plan (SEP) Section 403(b)(7) Plan
Profit Sharing or Money Purchase Pension Plans
You should consult your tax advisor if you are interested in making an
investment in shares of the Fund through any of these plans. These plans
require the completion of a separate application. Please call 1-800-532-1146
or (512) 578-7778 for additional information about such an application.
HOW TO BUY SHARES
BY MAIL:
Once your Fund account has been established, you may purchase additional
shares ($50 minimum) at any time by sending a check or money order payable to
AmTrust Investors, Inc. Please note your fund account number on the check and
include the remittance stub (or a copy thereof) from one of your confirmation
statements you received in connection with a previous transaction.
PRE-AUTHORIZED PURCHASES:
Shareholder Options allows you to authorize the Fund to debit your bank
account ($50 minimum) for the purchase of Fund shares on or about the 5th or
20th of each month. To establish pre-authorized purchases, complete the
applicable Shareholder Options portion of the enclosed application and
include a voided, unsigned check from the bank account to be debited.
BY TELEPHONE:
If you wish to make purchases of Fund shares by telephone, you must complete
the Shareholder Options portion of the application applicable to telephone
purchases. To receive a specific day's share price, your call must be
received before that day's close of the New York Stock Exchange (See "NAV"
above).
Page 13
PAYING FOR SHARES
Your purchase will be processed at the NAV per share as determined at the
close of the New York Stock Exchange next occurring after your order is
received and accepted. The Fund does not impose a sales or redemption charge
on transactions in shares of the Fund. Payment for telephone purchases will be
paid by a debit to the bank or savings account listed in the Shareholder
Options section of the account registration. If your check or debit does not
clear, the Fund will cancel your purchase and you will be liable for any
losses or fees incurred by the Fund in connection with the attempted purchase.
TAX IDENTIFICATION NUMBER
On the New Account Application or other appropriate form, you must furnish the
Fund with your tax identification number and state whether or not you are
subject to backup withholding, certified under penalties of perjury as
prescribed by the Internal Revenue Code and Regulations. Redemptions, as well
as dividends and capital gains distributions, in an account without a proper
taxpayer identification number will be subject to a 31% federal backup
withholding. In addition to the 31% backup withholding, redemption proceeds on
established accounts will be reduced by $50 to reimburse the Fund for the
penalty that the IRS will impose on the Fund for failure to report your tax
identification number on information reports.
REDEMPTIONS OR REPURCHASE
HOW TO REDEEM SHARES
You may redeem all or part of your shares on any business day. The shares will
be redeemed for a price equal to the next NAV calculated after the Fund has
received your redemption request in good order and meeting all of the
requirements of this Prospectus. Payments will be made within seven days of
receipt of a valid redemption request. If certificates for the shares being
redeemed have been issued, they must be submitted with your redemption request
in order for the request to be considered valid. If your payment for the
shares being redeemed has been made by check or automatic monthly investment,
payment for the redemption will be made immediately after your check clears.
IN WRITING:
To request a redemption in writing, send or fax a letter of instruction to:
AmTrust Value Fund
Attn: Redemption Dept.
PO Box 3467
Victoria, Texas 77903-3467
Fax Number 512-575-5097
Page 14
The letter should specify the number of shares or dollar amount being
redeemed, the account number, the name(s) on the account, your name and your
daytime telephone number. The following requirements also apply to certain
types of accounts:
1)Individual, Joint Accounts: Letter of instruction signed by each person
included in the registration, exactly as the name(s) are shown on the account.
2)Custodian: Letter of instruction signed by the custodian exactly as shown in
the registration and indicating his/her capacity as custodian.
3)Corporation: Letter of instruction signed by the person(s) authorized to act
on the account and a currently certified copy of the corporate resolution.
4)Trust: Letter of instruction signed by the trustee(s). If the name of the
trustee(s) does not appear in the registration of the account, a certificate
of incumbency dated within 60 days must also be submitted.
5)IRA,SEP,KEOGH: Letter of instruction signed by the account owner exactly as
registered. If you do not want Federal Income Tax withheld from your
redemption, your letter must so state that you elect not to have such
withholding apply.
6)Other Pension Plans: Please call the Fund for further instructions.
Redemptions of IRA, SEP, and Keogh plans, if made directly to the account
owner may be subject to 31% back-up withholding. Redemptions payable directly
to a trustee or custodian will not be subject to the 31% back-up withholding.
All of the above requests must include a signature guarantee unless the
exclusion of such requirement was chosen in the account registration. The
Fund reserves the right to require a signature guarantee under any
circumstances. All redemptions in excess of $30,000 will require a signature
guarantee.
BY TELEPHONE:
Redemptions may be made by telephone if this option has been pre-established
by completing the appropriate shareholder's options section of the account
application. To receive a specific day's NAV, your call must be received
before the close of the New York Stock Exchange on that day. Payment for
telephone redemptions will be made within seven days of the request, subject
only to whether the shares being redeemed have been fully paid. There is a
$30,000 maximum on telephone redemptions. If you would like to establish this
option on an existing account, please call for additional information and the
proper form. If telephone redemption and/or waiver of signature guarantee is
established by the shareholder, the shareholder agrees that AmTrust Investors
and their officers or employees may be liable for fraudulent instructions
received, ONLY if the Fund, the officers or employees do not follow certain
procedures required to verify the genuineness of any signature or oral
instructions to redeem, or the authority or competence of the person(s) giving
such instructions. These procedures include but are not limited to, requiring
Page 15
the person(s) making the request to know certain basic information about the
account, such as the account number, federal tax identification number, and
the name and address on the account as registered.
BY THE FUND:
Your account may be terminated by the Fund if you engage in illegal or other
conduct the Board of Directors deems to be detrimental to the Fund. Conduct
deemed to be detrimental might include (1) a purchase or possible redemption
by a shareholder that could make the Fund vulnerable to that shareholder's
individual influence, specifically in an instance in which a shareholder who
owns or will own a large percentage of the Fund's outstanding shares desires
to redeem his or her shares, and the redemption of such shares would cause an
adverse effect on the Fund's shareholders and its net assets, or (2)
conviction of a shareholder for the violation of any State or Federal
securities law.
DELAY OF REDEMPTION PROCEEDS:
The Fund may hold payments on redemptions until the investment being redeemed
has been paid. Unless purchased with a cashiers check, shares will be
considered paid when the check for the purchase has cleared.
FURTHER INFORMATION ABOUT THE FUND
The Fund is incorporated under the laws of the State of Texas as of January
25, 1993. The Fund has a fiscal year that ends on June 30 of each year. The
Fund will hold an annual shareholders' meeting within six (6) months following
the close of each fiscal year.
All inquiries may be made by mail to the Fund's corporate office, or by
telephone to 1-800-532-1146, (For local Victoria area callers: 512-578-7778).
The Fund is an open-end diversified management company under the Investment
Company Act of 1940. The Fund began operations on August 19, 1993. Due to
the short operating history of the Fund, investors will not have the ability
therefore to analyze and evaluate the expertise of the Fund or the Advisor.
The authorized capital stock of the Fund consists of 10,000,000 shares with a
par value per share of $0.001. Each share is entitled to one vote on all
questions and matters that come before the shareholders of the Fund. Shares
have non-cumulative voting rights, which means that the holders of more than
50% of the shares voting for the election of directors can elect all of the
directors of the Fund if they choose to do so, and in such event the holders
of the remaining shares will not be able to elect any person or persons to the
board of directors. The shareholders are not entitled to pre-emptive or other
rights, or to any liquidation preference or other preferences.
Page 1
AMTRUST VALUE FUND - PART B
AmTrust Investors, Inc.
Statement of Additional information
This Statement of Additional information is not a prospectus, but should be
read in conjunction with the Fund's current Prospectus, dated October 31,
1996. A copy of the Prospectus can be obtained free of charge by writing
AmTrust Investors, Inc. PO Box 3467, Victoria, TX 77903-3467 or by calling
(800) 532-1146 or (512) 578-7778.
The Statement of Additional Information is dated October 31, 1996.
Table of Contents
Cover Page ......................................... 1
Investment Objectives & Policies.................... 2
Management of the Fund.............................. 4
Control Persons & Holders of the Fund............... 5
Custodian, Accountant, Transfer Agent............... 6
Brokerage Allocation & Other Practices.............. 6
Calculation and Performance Data.................... 7
Financial Statements................................ 8
Page 2
INVESTMENT OBJECTIVE & POLICIES
The Fund has numerous investment policies to which it will adhere in
attempting to achieve its investment objective. The following policies
supplement the Fund's investment objective and policies as described in the
Prospectus. None of the policies as listed under "Investment Objectives &
Policies" may be changed without shareholder approval.
SENIOR SECURITIES - The Fund will not issue any senior securities, i.e.
securities that give their holders preferential rights over those of the
holders of the common stock of the Fund.
SHORT SALES, PURCHASES ON MARGIN, OPTIONS - The Fund will not participate in
short sales or purchase securities on margin. The Fund may purchase put and
call options. An option is the right either to buy or to sell a specified
amount or value of a particular underlying interest at a fixed exercise price
by exercising the option before its specified expiration date. An option
which gives a right to buy a particular security is a call option, and an
option which gives a right to sell a particular security is a put option.
Calls and puts are distinct types of options, and the buying or selling of one
type generally does not involve the other. Their are risks involved in the
use of options of which a potential investor should be aware. There are
additional risks of investing in options not described in the prospectus. An
option holder who neither sells the option in the secondary market nor
exercises it prior to its expiration will lose his entire investment in the
option. Options are considered "in the money" if (a) for a call option, the
exercise price is lower than the price of the underlying security, and (b) for
a put option, the exercise price is higher than the underlying security. To
be profitable, the option must also be more "in the money" than the original
cost of the option. The more an option is "out of the money" and the shorter
the remaining time to expiration, the greater the risk that an option holder
will lose all or part of his investment in the option. This doesn't mean that
an option must be "in the money" before it can be a profitable investment. It
may be possible for the holder of an option to realize a profit by selling an
option prior to its expiration for more than its original cost, even though
the option never becomes "in the money". The transaction costs incurred in
investing in options are often greater than are the transaction costs
associated with buying the underlying interest or security directly. Thus
profitability is more greatly impacted due to the higher transaction costs.
Potential investors in the Fund should be aware that options are versatile
instruments that can be used in a wide variety of investment strategies. The
Advisor is aware of the risks of investments in options and uses due diligence
in determining when such an investment is appropriate for the Fund.
BORROWING MONEY - The Fund may borrow on a short-term basis for temporary,
extraordinary or emergency purposes. If the Fund borrows money, it may grant
a security interest in portfolio securities to secure the repayment of the
money borrowed. The maximum borrowing is limited to five percent (5%) of the
Fund's net asset value.
Page 3
PURCHASE/SALE OF REAL ESTATE OR REAL ESTATE MORTGAGE LOANS - The Fund may not
acquire an interest in real estate, real estate loans, nor real estate limited
partnerships.
COMMODITIES - The Fund will not acquire an interest in commodities or
commodity contracts, or in oil, gas or mineral leases.
LOANING CASH OR OTHER SECURITIES - The Fund may not purchase non-publicly
offered debt securities. The Fund may not make loans of any kind.
OTHER - The Fund may not invest more than 15% of the Fund's net assets in
illiquid or restricted securities. The Fund will not invest in warrants.
FUNDAMENTAL CONCENTRATION POLICY - The Fund will not invest more than 25% of
the market value of its total assets in securities issued by companies engaged
in the same industry (except U.S. Government securities).
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Fund is allowed to invest in closed-end investment companies. A closed-
end investment company is a mutual fund that issues a fixed number of shares
and is traded on a national securities exchange. Investors should be aware
that the Fund, which has its own operating expenses (see prospectus), may
invest in other funds, which also have operating expenses that may be passed
through to the other fund's shareholders. Shareholders of the Fund should
realize that they would indirectly be incurring some duplicate expenses. The
aggregate investment in other investment companies may not be more than 10% of
the Fund's net assets. The Fund may not acquire more than 3% of the
outstanding stock of an investment company and may not invest more than 5% of
the Funds net assets into any single investment company. Currently, the Fund
does not intend to implement the purchase of "closed-end funds" as a primary
means of achieving the objectives of the Fund.
MANAGEMENT OF THE FUND AND ITS COMPENSATION
The Fund's officers, under the supervision of the Board of Directors, manage
the day-to-day operations of the Fund. The Directors, who are elected
annually by the shareholders, set broad policies for the Fund and choose its
officers. A list of the Directors and Officers of the Fund and a brief
statement of their present positions and principal occupations during the past
five years is set forth below.
Princ Occupation(s)
Position(s) Held Position(s) Held During Past
Name & Address with Fund with the Advisor 5 years
- ----------------------- ---------------- ---------------- ----------------
* (1) Jimmy Baker(a) Director, Pres. Pres.,Director,Fund Mgr CPA
205 Roanoke,Victoria,TX
* (2) Mickey Pachta Director None Attorney at Law
210 Brocton,Victoria, TX
(3) Paul Erdelt Director None Art Director
Star Rt, Garcitas #20,Victoria, TX Comm Advrtisg
* (4) Jesse Baker Director, Sec None Retired Acctant
101 Westchester,Victoria, TX
(5) Paul Teinert Director None CPA
209 Fenway,Victoria, TX Self Employed
* Is also a director or shareholder of the Advisor and is an "interested"
person.
(a) Jimmy Baker is the son of Jesse Baker
AmTrust Capital Resources, Inc.(the "Advisor") acts as the investment advisor
to the Fund. Mr. Jimmy Baker is President and Director of the Advisor and
owns 50% of the Advisor's capital stock. No other shareholder of the Advisor
owns more than 10% of the outstanding shares of the Advisor.
Page 4
The Advisory Agreement sets forth the services to be provided by the Advisor
to the Fund. Pursuant to the Advisory Agreement, the Advisor renders its
advisory services, furnishes office facilities and equipment, provides
clerical, bookkeeping and administrative services for the Fund, provides
shareholder and information services, permits any of its officers or employees
to serve without compensation as directors or officers of the Fund if elected
to such positions and assume the obligations described in the prospectus for
the compensation described below. The Advisor acts as an independent
contractor, and unless otherwise expressly authorized to do so, does not have
authority to act for or represent the Fund in any way or otherwise act as
agent of the Fund. The Advisor maintains the Fund's records and calculates
performance data for the Fund.
The only compensation paid by the Fund to any person is the management
advisory fee paid to the Advisor. Such fee is calculated each day by
multiplying the annual rate, one and one-half percent (1.50%) as of the date
of the prospectus and this Statement of Additional Information, of the
aggregate average daily closing value of the Fund's net assets during the
previous thirty (30) days by a fraction, the numerator of which is one (1) and
the denominator of which is three hundred sixty five (365) or three hundred
sixty six (366) in leap years. No advisory fee was paid until thirty (30)
days after issue of the first shares of the Fund, which occurred on August 12,
1993. The total advisory fee accrued and paid during the fiscal year ended
June 30, 1995 was $6,135.07 The total advisory fee accrued and paid during
the fiscal year ended June 30, 1996 was $8,771.78
The Fund markets its shares on a no-load basis. The Advisor pays the expenses
of the Fund related to the marketing of the Fund's shares. No compensation
will be paid to any underwriters, dealers, or sales personnel, including any
persons who are interested persons of the Fund, in regard to distribution
expenses.
The Fund and its Advisor adheres to a Code of Ethics established pursuant to
Rule 17j-1 (the "Rule") under the Investment Company Act of 1940 (the "Act").
The Rule makes it unlawful for the enumerated persons to engage in fraudulent,
deceitful, or manipulative practices in connection with the purchase or sale
of a security held or to be acquired by the investment company. The Rule
requires every fund and its advisor to adopt a written code of ethics with
provisions reasonably designed to prevent the enumerated persons from engaging
in fraudulent activities prescribed in the Act and to use reasonable
diligence,including instituting procedures to prevent violations of the code.
Although the Code of Ethics required by the Securities and Exchange Commission
is for the purpose of preventing illegal acts, the Board also wishes to
prevent any type of transaction that would appear to be motivated by
information received that would not normally be available to the general
public. The Code of Ethics requires procedures and guidelines substantially
Page 5
similar to those recommended by the mutual fund industry and approved by the
U.S. Securities and Exchange Commission. The integrity and honesty of
personnel are to be closely scrutinized. The Board expects the Fund's
investment objective to be achieved by honest means, without exception, and
for all personnel to invest their personal assets in the same way.
CONTROL PERSONS & PRINCIPAL HOLDERS OF THE FUND'S SHARES
As of June 30, 1996, no shareholder held more than 5% of the Fund's common
stock.
As of June 30, 1995, the officers and directors of the Fund and the Advisor
owned a total of 2,007.413 shares of the Fund ( 3.0% of the total outstanding
shares of the Fund). As of June 30, 1996, they owned a total of 3,293.026
shares (4.23% of the total outstanding shares of the Fund).
CUSTODIAN, ACCOUNTANT, TRANSFER AGENT OF THE FUND
CUSTODIAN -The Fund has chosen to comply with Rule 17f-1 under the Investment
Company Act of 1940 (the "Act"), which specifies certain requirements when the
Fund uses a broker-dealer as the custodian of its securities. The Fund also
complies with Rule 17f-4 of the Act, concerning certain requirements when the
custodian deposits securities in a system for the certain handling of
securities without physical delivery, such as the Depository Trust Company.
The Fund's independent accountant verifies the securities by examination at
the end of each annual and semi-annual fiscal period and at one other time
during the year chosen by the accountant. The accountant makes the necessary
filing, in compliance with Rule 17f-1, after each examination.
ACCOUNTANT - The independent public accountant for the Fund is Michael S.
Klingle, CPA, 119 Amhurst St - Victoria, Tx. Mr. Klingle has provided
auditing services for the Fund since it inception on August 19, 1993.
TRANSFER AGENT AND DIVIDEND PAYING AGENT:
The Advisor provides services as transfer agent and dividend paying agent.
BROKERAGE ALLOCATION & OTHER PRACTICES
The Investment Advisory Agreement (the "Agreement") authorizes the Advisor to
select the brokers that will execute the purchases and sales of the Fund's
portfolio securities and directs the Advisor to use its best efforts to obtain
the best available price and most favorable execution as to all transactions
for the Fund. The Advisor has undertaken to execute each investment
transaction at a price and commission which provides the most favorable total
cost or proceeds reasonably obtainable under the circumstances.
Page 6
In placing portfolio transactions, the Advisor will use its best judgment to
choose the broker most capable of providing the brokerage services necessary
to obtain best available price and most favorable execution. The full range
and quality of brokerage services available will be considered in making these
determinations. In those instances where it is reasonable determined that
more than on broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration may be given to
those brokers which supply investment research and statistical information and
provide other services in addition to execution services to the Fund. The
Fund may at times pay higher commissions in recognition of brokerage services
the Advisor feels is necessary for the achievement of better execution of
certain securities transactions that otherwise might not be available. The
Advisor will only pay such higher commissions if it believes this to be in the
best interest of the Fund. Some brokers who receive such higher commissions
in recognition of brokerage services related to the execution of securities
transactions are also providers of research information to the Fund and/or the
Advisor.
Transactions in portfolio securities will be executed through trades executed
by or through various brokers unrelated to the Fund or the Advisor. From its
inception to date, the Fund has not paid any commissions to anyone affiliated
with the Fund or its Advisor.
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage business on the
basis of sales of its shares which may be through such firms. During the
fiscal years ended June 30, 1995 and June 30, 1996, the Fund paid $16,503.74
and $21,682.88 in brokerage commissions, respectively.
The Fund and the Advisor do not have any agreement or understandings to direct
transactions because of research services provided by any broker.
CALCULATION & PERFORMANCE DATA
All data is calculated through the period ended June 30, 1996
Since Inception(1) 1 Year
Total Return 17.43% 6.30%
Annualized Return 5.78% 6.30%
(1) The Fund began operations on August 19, 1993.
The Fund's total return is calculated for the period ended June 30, 1996 by
assuming the purchase of shares of the Fund at the net asset value at the
beginning of the period. Each dividend or other distribution paid by the Fund
during such period is assumed to have been reinvested at the net asset value
on the reinvestment date. The total number of shares then owned as a result
of this process are valued at the net asset value at the end of the period.
The percentage increase is determined by subtracting the initial value of the
investment from the ending value and dividing the remainder by the initial
Page 7
value. The Fund imposes no sales or other charges which would impact the total
return computation.
The Fund's total return shows its overall dollar or percentage change in
value, including changes in share price and assuming the Fund's dividends and
capital gains distributions are reinvested. A cumulative total return
reflects the Fund's performance over a stated period of time. An average
annual total return reflects the hypothetical annually compounded return that
would have produced the same cumulative return if the Fund's performance had
been constant over the entire period. Total return figures are based on the
overall change in value of a hypothetical investment in the Fund. Because
average annual returns for more than one year tend to smooth out variations in
the Fund's return, investors should recognize that such figures are not the
same as actual year-by-year results.
Fund performance figures are based upon historical results and are not
intended to indicate future performance. The investment return and principal
value of an investment in the Fund will fluctuate so that an investors shares,
when redeemed, may be worth more or less than their original cost.
From time to time in advertisement or sales material, the Fund may discuss its
performance ratings as published by recognized mutual fund statistical
services, such as Lipper Analytical Services, Inc., or by publications or
general interest such as Forbes or Money. In addition, the Fund may compare
its performance to that of other selected mutual funds or recognized stock
market indicators including the Standard & Poor's 500 Stock Index and the
Russell 2000 Index. It should be noted that such performance ratings or
comparisons may be made with funds which may have different investment
restrictions, objectives, policies or techniques than the Fund and that such
other funds or market indicators may be comprised of securities that differ
significantly from the Fund's investments.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the year ended June 30, 1996, including
financial highlights for each of the two fiscal years ended June 30, 1995 and
June 30, 1996, appearing in the AmTrust Value Fund 1996 Annual Report to
Shareholders, and the report thereon of Michael S. Klingle CPA, the
independent accountant for the Fund, also appearing therein, are incorporated
by reference in this Statement of Additional Information. The Fund's 1996
Annual Report to Shareholders is enclosed with this Statement of Additional
Information.
Page 8
PART C - Other Information
Item 24: Financial Statements & Exhibits
a) Financial Statements - See Exhibit 13
b) Exhibits:
1) Corporate Charter & Articles of Incorporation as amended - Exhibit 1
2) Bylaws - Exhibit 2
3) Specimen of security issued by AmTrust Investors, Inc. - Exhibit 3
4) Investment Advisory Contract - Exhibit 4
5) Opinions & consent of counsel - Exhibit 5
6) Consent of Certified Public Accountant & Outside Directors - Exhibit 6
7) Letters of assurances of initial capital - Exhibit 7
8) Voting Trust agreement - N/A
9) Underwriting contract - N/A
10) Director & officer benefit contracts of the Fund - N/A
11) Custodian contracts - Exhibit 11
12) Other Material contracts - N/A
13) Other financial statements omitted from (a) - Exhibit 13
14) Model plan for retirement - N/A
15) Rule 12b-1 Plan - N/A
16) Performance Calculations - N/A
17) Code of Ethics - Exhibit 14
Item 25: Persons Controlled by or Under Common Control with the Fund
No persons directly or indirectly are controlled by or are under common
control with the Fund.
Item 26: Number of Holders of Securities
Number of
Title of Class Record Holders
Common Stock, $.001 par value 133
Page 9
Item 27: Indemnification
The Fund has indemnification agreements with its officers, directors and as
indicated in the Investment Advisor Contract, with the Advisor whereby the
Fund will indemnify those persons against liability to the Fund and/or it's
shareholders under certain circumstances. Indemnification is not allowed in
cases arising out of willful misfeasance, bad faith, gross negligence or
reckless regard of duties. Further, the agreements set out certain procedures
which set forth methods to determine whether redemption shall be made,
indicating a fixed decision on the merits by a court or other body that such
person was not guilty of the above disabling conduct; and/or a vote of the
majority of a quorum of directors who are not interested persons nor parties
to the preceding.
Item 28: Business and Other Connections of Investment Advisor
Mr. Jimmy Baker is President and the director of the Advisor. At the present
time, he holds all offices of the Advisor. As of June 30, 1996, Mr. Baker has
received no compensation for his services to the Advisor. Mr. Baker is a
Certified Public Accountant and has been in public practice as such since
1984. He is currently the President of his incorporated accounting practice.
Mr. Baker and his accounting staff provide accounting services on a daily
basis to the Advisor without compensation. His business address is 109-A
Teakwood, Victoria, Texas 77901.
Item 29: Principal Underwriters
Not applicable
Item 30: Location of Accounts & Records
The accounts and records of the Fund are kept and maintained by the Advisor at
109-A Teakwood, Victoria, TX 77901.
Item 31: Management Services
Not Applicable
Item 32: Undertakings
The Fund undertakes, if requested to do so by at least 10% of the Fund's
outstanding shares, to call a meeting of shareholders for the purpose of
voting upon the question of removal of a director or directors and to assist
in communications with other shareholders as required by Section 16(c) of the
Act.
Page 10
The Fund undertakes to furnish, without charge, the Fund's latest Annual
Report with each delivery of the Fund's current prospectus.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements of effectiveness of this Post-Effective Amendment No. 4 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Victoria,
and State of Texas on the 28th day of October, 1996.
AmTrust Investors, Inc.
Registrant
By:S/ Jimmy Baker
Jimmy Baker, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 4 to this Registration Statement has been signed below
by the following persons in the capacities and on the date indicated.
S/ Jimmy Baker Director October 28, 1996
Jimmy Baker President
S/ Paul Erdelt Director October 28, 1996
Paul Erdelt
S/ Jesse Baker Director October 28, 1996
Jesse Baker Secretary
S/ Mickey Pachta Director October 28, 1996
Mickey Pachta
S/ Paul Teinert Director October 28, 1996
Paul Teinert
[DESCRIPTION] ANNUAL REPORT TO THE SHAREHOLDERS
Dear Shareholders,
The Fund's performance for the fiscal year ended June 30, 1996 ("Fiscal
'96") was disappointing in comparison to the market in general. For Fiscal
'96, the Fund had a total return of 6.30%. Our benchmark, the Russell 2000
Index, returned 23.89% over the same period. The Fund's total return for
each quarter was 10.06%, -7.81%, 0.78%, 3.97% respectively. A closer look at
the performance graph on page 3 reveals that one disastrous quarter severely
hurt the Fund's twelve month performance. Although the Fund's large position
in technology related companies largely contributed to the 10.06% Fiscal 1st
Quarter performance, the technology sell-off at the end of 1995, especially in
small capitalization stocks, wiped out much of the previous quarter's gains.
To be specific, the Fund's portfolio of technology related companies accounted
for a decline of $1.08 in the NAV for the quarter, while the rest of the
portfolio added $0.14.
The previous twelve month period was filled with drastic fluctuations
in the day to day movement of the market. The Fund continued to stay invested
during the downturns and bought more shares of quality stocks while they were
at depressed levels. That strategy paid off in the months ahead when investor
confidence re-entered the market. From January through May, the Fund surged
more than 20%. News then came in June that the economy seemed to be growing
at a much faster rate than previously thought. Good news? Not necessarily.
Good news about the economy is not always good news for stocks. Once again,
fears about inflation and higher interest rates sent the markets and the Fund
reeling. Technology and small-cap stocks took the brunt of the sell-off.
Principle contributors to the Fund's performance during Fiscal '96
were, as mentioned above, stocks in the technology-related sector. One of the
Fund's favorite stocks, ENCAD (maker of wide-format color printers) was the
biggest contributor to the Fund's performance, and was the Fund's largest
stock position on August 26, 1996. The Fund also saw significant appreciation
in Phoenix Network (provider of telecommunication services) which announced
several strategic alliances which will greatly enhance the presence of the
company over the next several years. Bio-technology and healthcare related
companies also contributed to the performance of the Fund, particularly, PLC
Systems, Inc. (maker of heart lasers) and American Biogenetic Sciences (maker
of medical diagnostic products). PLC Systems, Inc., which is now the Fund's
5th largest position, is awaiting FDA approval on it's heart laser technology
which has shown extremely positive results. Disappointments to the Fund was
STM Wireless, Inc., one of the Fund's favorite companies over the last couple
of years. After seeing it's stock price double in 1994 and increase more than
30% in 1995, STM shocked investors when they reported a 4th Quarter loss,
which broke a long string of profitable quarters. Management said it was only
a onetime disruption in operations due to non-recurring events. None the
less, investors punished the stock down over 48%. At the time of the
announcement, STM was the Fund's largest stock position. STM still continues
to be one of the Fund's top 20 holdings. The Instant Publisher (maker of
digital printing products) was hurt by manufacturing problems that all but
halted sales; the stock dropped 75%. Ecogen (an agriculture bio-technology
company) was hurt by the unfavorable farming conditions in the U.S. and lost
more than 60% of it's value. WRT Energy was hurt by depressed natural gas
prices and a mild winter and lost 86% of it's value, most of which came over
a two day period. Weitzer Homebuilders, Inc. reported substantially lower
sales due to the extensive rains in Florida last year; the stock fell more
than 75%.
Although volatility in the stock market is probably here to stay, I
believe that trying to time the ups and downs is very dangerous. Most
investors end up being invested on the way down, then jumping out and missing
the ride back up. So how does the Fund intend to achieve it's object of long-
term growth of capital? By taking advantage of downturns in quality stocks
that have been oversold during a panic- driven market.
Thank you for your continued confidence. Feel free to call me with any
questions or comments about the Fund.
Jimmy Baker
August 26, 1996 President
To the Shareholders and Board of Directors
of AmTrust Investors, Inc.
I have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of AmTrust Investors, Inc. as of June 30, 1996,
and the related statement of operations for the year then ended, the statement
of changes in net assets and the financial highlights for each of the two
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements and
financial highlights based on my audit.
I conducted the audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. My procedures included confirmation of securities owned as of June
30, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
AmTrust Investors, Inc. as of June 30, 1996, the results of operation for the
year then ended, the change in net assets, and the financial highlights for
each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
/S Michael S. Klingle
Certified Public Accountant
August 30, 1996
Victoria, Texas
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of June 30, 1996
Assets:
Investments at market Value (Cost $ 844,364.67) $ 771,318.95
Cash 68,813.04
----------
Total Assets 840,131.99
Liabilities:
Accounts Payable - Mangement Fees 1,113.22
Accounts Payable - Custodial Fees 12.00
Accounst Payable - Investments Bought 7,375.00
--------
Total Liabilities 8,500.22
Net Assets (equivalent to $10.75 per share,
based on 77,389.622 shares outstanding) $ 831,631.77
==========
Net Asset Value Per Share $ 10.75
======
The accompanying notes are an integral part of these financial statements
Statement of Operations
For the Year Ended June 30, 1996
Investment income:
Interest income $ 1,031.78
Dividend income 3,605.67
--------
Total investment income 4,637.45
Operating expenses:
Management fees (Note 2) 8,771.78
Transaction service charge 926.97
Foreign taxes paid 14.91
--------
Total operating expenses 9,713.66
--------
Net investment income (loss) ( 5,076.21)
Net realized and unrealized gain (loss)
on securities: (Note 5)
Realized gain on sale of securities 183,502.21
Change in unrealized depreciation (136,820.19)
-----------
Net realized and unrealized gain on securities 46,682.02
---------
Net increase in net assets resulting from operations $ 41,605.81
=========
The accompanying notes are an integral part of these financial statements
Statement of Changes in Net Assets
For the Years Ended June 30, 1996 and 1995
Increase in Net Assets:
06/30/96 06/30/95
Operations:
Net investment income (loss) $ (5,076.21) (3,730.13)
Net realized gain on securities 183,502.21 22,422.65
Net change in unrealized appreciation
or (depreciation) in securities (136,820.19) 76,892.86
Net increase in net assets from operations 41,605.81 95,585.38
Distributions to shareholders:
From net investment income .00 .00
From net realized gains (.7378 per share) (51,711.04) .00
Net decrease from Distributions (51,711.04) .00
From Capital Share Transactions: (Note 4)
Proceeds from shares issued 65,861.09 227,806.07
Reinvestment of dividends and
capital gains distributions 51,711.04 .00
Payments for shares redeemed (100,598.94) (48,945.88)
Net From Fund Share Transactions 116,973.19 178,860.19
Total Increase in Assets 106,867.96 274,445.57
Net Assets:
Beginning of Year and period 724,763.81 450,318.24
__________ __________
End of Year 831,631.77 724,763.81
========== ==========
The accompanying notes are an integral part of these financial statements
FINANCIAL HIGHLIGHTS
For the Fiscal Year Ended
6/30/96 6/30/95
Net Asset Value, Beginning of Period $10.84 $9.23
Income From Investment Operations:
Net investment income (loss) (0.07) (0.05)
Net realized & unrealized gains (losses) on securities 0.72 1.66
Total from investment operations 0.65 1.61
Less Distributions:
Distributions from realized gains (0.74) (0.00)
------ ------
Net Asset Value, End of Period $10.75 $10.84
====== ======
Total return for the period 6.30% 17.44%
Ratios/Supplemental Data
Net assets at the end of the period $831,631.77 $724,763.01
Ratio of expenses to average net assets 1.22 1.00
Ratio of net investment income (loss) to avg net assets (0.64) (0.60)
Portfolio turnover rate 87% 79%
Average commission rate paid per share .1035 .1040
Shares outstanding at end of period 77,389.622 66,845.421
The accompanying notes are an integral part of these financial statements
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 1996
Shares Value
------ -------
Auto Parts - 1.23%
2,000 HiLo Automotive 9,500
Banking - 5.35%
1,500 TR Financial 41,250
Biotechnology - 13.76%
2,000 Celgene 23,000
2,000 Biotechnology General 16,625
4,000 Hemagen 11,250
2,000 Ecogen 9,500
15,000 Pharmos Corp 29,532
2,000 Medarex 16,250
106,157
Building & Home Improvements- 0.68%
3,000 Weitzer Homebuilders 5,250
Communications Equipment/Services - 13.78%
3,500 STM Wireless 35,000
10,000 Phoenix Network 48,750
3,000 WARP 10 Technologies 22,500
106,250
Computer Software & Services - 5.02%
4,000 Globalink 29,500
2,000 American Software 9,250
38,750
Consumer Products - 0.55%
4,800 Creative Technologies 4,200
Miscellaneous - 7.52%
4,000 NTN Communications 23,500
2,000 The TOPPS Company 11,250
2,000 Invision Technology 23,250
58,000
Computer Equipment/Products - 10.20%
2,000 Bell Microproducts 15,250
2,000 ENCAD 34,000
4,000 Focus Enhancements 10,750
10,000 The Instant Publisher 8,437
1,000 Metatec 10,250
78,687
Electric/Electronic Components - 13.89%
2,000 Irvine Sensors 9,500
1,000 EXAR Corp 13,000
2,000 Transwitch 26,500
4,000 SEEQ Technology 13,250
1,000 Excel Technology 9,250
4,000 Electrosource 3,375
3,000 Videonics 32,250
107,125
Energy - 3.28%
3,000 Gulfwest Oil 9,750
12,000 WRT Energy 3,000
3,000 Panaco 12,562
25,312
Healthcare - 6.78%
3,000 Medical Control, Inc 16,500
3,255 Retirement Care Assoc,Inc 35,805
52,305
Medical Equipment/Supplies - 17.96%
15,000 U.S. Alcohol Testing 36,563
1,000 PLC Systems 22,375
3,000 I-Flow 15,000
1,500 Physicians Comp Network 17,344
1,000 Isolyser 12,000
5,000 Thermogenesis 21,563
3,000 Plasma-Therm 13,688
138,533
Total Portfolio Investments - 100%
( Cost = $844,365) $771,319
Notes to the Financial Statements
Note 1: Significant Accounting Policies
AmTrust Investors, Inc. (the "Fund") was incorporated under the laws of the
State of Texas as of January 25, 1993 as an open-end diversified management
company under the Investment Company Act of 1940. The Fund's inception date
was August 19, 1993. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statement
and highlights.
SECURITY VALUATION: Securities listed on a stock exchange for which market
quotations are readily available are valued at the closing prices on the date
of valuation, or, if no such closing price is available, at the last bid price
quoted on such day. The value of securities and other assets for which no
market quotations are readily available are determined in good faith at fair
value using estimation methods approved by the Board of Directors. Short-term
securities that mature in sixty (60) days or less are valued at amortized
cost, which approximates market value, unless this method does not represent
fair value.
FEDERAL INCOME TAXES: The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to distribute
to shareholders at least annually substantially all of its net income from
dividends and interest payments and substantially all of its net realized
capital gains, if any. Dividends to shareholders are recorded on the
ex-dividend date.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: The Fund follows industry
practice and records security transactions on the trade date. Dividend income
is recognized on an accrual basis. Discounts and premiums on securities
purchased are amortized over the life of the respective securities.
Note 2: Investment Advisory Services
The Fund has entered into an Investment Advisory Agreement with AmTrust
Capital Resources, Inc. for investment management that provides for the
payment of a monthly fee, calculated daily, at the current annual rate of one
and one-half percent (1.5%) of the previous thirty-day moving average of the
daily net assets of the Fund. The Current rate will remain in effect until
the Fund's thirty-day moving average exceeds two million dollars, at which
time the rate will drop by .05%. The rate will continue to drop by .05% for
specific asset size increases in the Fund's thirty-day moving average until
it's greater than ten million dollars, at which time the rate will be fixed
at 1.25% of the Fund's thirty-day moving average. Certain officers and
directors of the Fund are also officers, directors and shareholders of the
Investment Advisor. The Investment Advisor was paid $8,771.78 in management
fees for the period ended June 30, 1996.
Note 3: Distributions to Shareholders
On December 29, 1995, a distribution of $.7378 per share aggregating
$51,711.04 was declared from net realized gains from investment transactions
(including $.3134 per share applicable to short-term gains that are taxable to
shareholders as ordinary income dividends) accumulating through October 31,
1995. The dividend was paid on December 29, 1995, to shareholders of record on
December 29, 1995.
Note 4: Capital Share Transactions
As of June 30, 1996, there were 10,000,000 shares of $.001 par value capital
stock authorized. Transactions in capital stock for the years ended June 30,
1996 and 1995 were as follows:
Year Ended Period Ended
June 30, 1996 June 30, 1995
Total Shares Dollar Amount Total Shares Dollar Amount
Shares Issued 14,494.920 165,861.09 22,857.462 $227,806.07
Shares Issued from reinvestment
of dividends 5,040.057 51,711.04 .000 .00
Shares Redeemed ( 8,990.776) (100,598.94) ( 4,800.730) ( 48,945.88)
----------- ----------- ----------- -----------
Net Increase 10,544.201 116,973.19 18,056.732 $178,860.19
=========== =========== =========== ===========
Note 5: Investment Transactions
Purchases and sales of investment securities were $665,827.37 and $662,466.44,
respectively, for common stocks. Net realized gains on the sale of
Investments (cost basis) for the period ended June 30, 1996, was $183,502.21.
The net gain on investments for the year ended June 30, 1996, was $46,682.02.
This amount represents the net increase in value of investments held during
the year. The net realized gain on investments was entirely from long
transactions. As of June 30, 1996, the gross unrealized appreciation of
securities was $113,018.26, the gross unrealized depreciation was $186,063.98
and the net unrealized depreciation was $73,045.72. There are $114,670.93 in
undistributed net realized gains on investment transactions as of June 30,
1996.
QUESTIONS ABOUT THE FUND:
Q. Why does the Fund's daily NAV (Net Asset Value per share) on some days move
in opposite direction with the stock market in general?
A. The Fund doesn't try to emulate the market but does try to beat the market
over a long period of time by concentrating it's assets in only a few
companies. As of June 30, 1996 the Fund held only 42 stocks in it's
portfolio. The top 10 stocks (listed below) comprised almost 42% of the
Fund's net assets. The top 20 stocks comprised over 66% of the Fund's net
assets. Due to the fact that the Fund's assets are not spread out over
hundreds of stocks, the Fund's daily NAV is dependent on the movement of a
smaller number of stocks.
Top Ten as of June 30, 1996
1. Phoenix Network 5.86% 6. ENCAD 4.08%
2. TR Financial 4.96% 7. Videonics 3.87%
3. US Alcohol Testg 4.39% 8. Pharmos Corp 3.55%
4. Retirement Care 4.30% 9. Globalink 3.54%
5. STM Wireless 4.20% 10. Transwitch 3.18%
Q. Why doesn't the Fund invest in more stocks to spread out the risk and
smooth out the daily volatility of the Fund's NAV?
A. The Fund's investment strategy is to invest in quality companies for
long-term growth. The Fund searches for a few small companies that have
products or technology that can make them become a dominate company in that
area in the next several years. Sometimes that growth takes longer than
expected. The Fund only looks at companies whose stock can conceivably
double or triple over the next two or three years. The Fund then invests a
large percentage of the Fund's assets in that company's stock in order to
maximize the effect on the Fund's NAV. When a substantial upside (or
downside) move takes place in one of the Fund's holdings, it will more
greatly impact the Fund's net asset value.
Q. Why has this strategy not provided the Fund with better-than-market
performance?
A. Until recently, most of the stocks in the Fund's portfolio had not received
much following by Wall Street analyst or brokerage houses. During 1995,
when the Fund lagged the rest of the market, the Fund's largest positions
didn't make any substantial moves and thus the Fund was not able to keep
up with the broad market. The strong earnings during 1995 has since
helped those stocks gain exposure from the investing community. The Fund
surged more than 20% in the first five months of 1996 compared to a less
than 15% rise in the Russell 2000 Index (price change in the index for the
first five months). This was a direct result of a move in the stocks in
the top 20. Unfortunately, when the market began correcting in the first
week of June, those stocks plunged like the rest of the market. Since the
decline was not due to deteriorating fundamentals of the individual
companies, the Fund was buying more shares of these companies at the
depressed levels in June & July and has good reason to believe that they
will once again attain their prior levels.
Q. What causes the market to swing so drastically from day to day?
A. Two things drive the market: Greed and Fear!
PERFORMANCE DATA *
Total Return Avg Annual
12 Months Ended Return Since
6/30/96 Inception(d)
AmTrust Value Fund.(a)......... 6.30% 5.78%
Russell 2000 Small Cap Index(b) 23.89% 14.33%
S&P 500 Index(c)............... 26.00% 16.89%
(a) The Fund began on August 19, 1993. Performance figures are from August
19, 1993 (inception) through June 30, 1996 and includes any applicable
dividends.
(b) The Russell 2000 is an unmanaged index of approximately 2000 small cap
stocks, ranging in value of shares, from $50 million to $600 million.
Since the Fund is a "small cap fund", management of the Fund feels that
Fund performance should more appropriately be compared to the Russell 2000
(Return is the price percentage change of the index during the period,
including any applicable dividends).
(c) The S&P 500 Index is an unmanaged group of stocks considered to be
representative of the stock market in general(Return includes any
applicable dividends).
(d) Average Annual Return from August 19, 1993 until June 30, 1996.
Corporate Headquarters:
109-A Teakwood
Victoria, Texas 77901
(512) 578-7778
(800) 532-1146
Board of Directors:
Jimmy Baker, President
Paul M. Erdelt
Jesse Baker, Jr., Secretary
Paul Teinert
Mickey Pachta
Investment Advisor:
AmTrust Capital Resources, Inc.
109-A Teakwood
Victoria, Texas 77901
Transfer & Dividend Paying Agent:
AmTrust Capital Resources, Inc.
Independent Auditor:
Michael S. Klingle
119 Amhurst
Victoria, Texas 77904
Legal Counsel:
Mickey Pachta
210 Brocton
Victoria, Texas 77904
Retirement Account Trustee:
Sterling Trust Company
PO Box 2526
Waco, Texas 76702
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 844,365
<INVESTMENTS-AT-VALUE> 771,319
<RECEIVABLES> 0
<ASSETS-OTHER> 68,813
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 840,132
<PAYABLE-FOR-SECURITIES> 7,375
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,125
<TOTAL-LIABILITIES> 8,500
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 790,007
<SHARES-COMMON-STOCK> 77,390
<SHARES-COMMON-PRIOR> 66,845
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 114,671
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (73,046)
<NET-ASSETS> 831,632
<DIVIDEND-INCOME> 3,606
<INTEREST-INCOME> 1,032
<OTHER-INCOME> 0
<EXPENSES-NET> 9,714
<NET-INVESTMENT-INCOME> (5,076)
<REALIZED-GAINS-CURRENT> 183,502
<APPREC-INCREASE-CURRENT> (136,820)
<NET-CHANGE-FROM-OPS> 41,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 51,711
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,494
<NUMBER-OF-SHARES-REDEEMED> 8,991
<SHARES-REINVESTED> 5,040
<NET-CHANGE-IN-ASSETS> 106,868
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,714
<AVERAGE-NET-ASSETS> 798,247
<PER-SHARE-NAV-BEGIN> 10.84
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> .72
<PER-SHARE-DIVIDEND> .00
<PER-SHARE-DISTRIBUTIONS> .74
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
INVESTMENT ADVISORY CONTRACT
Effective Date: January 19, 1996
RECITALS
For the mutual consideration as stated below, AmTrust Capital Resources, Inc.
(the "Advisor"), a Texas corporation, agrees to provide certain investment
management services to AmTrust Investors, Inc. (the "Fund"), a no-load,
diversified registered investment management company incorporated in the state
of Texas.
I. SERVICES
INVESTMENT MANAGEMENT
The Advisor will act as the investment advisor for the Fund and will manage
the investment and reinvestment of the assets of the Fund in accordance with
the Fund's investment objectives, policies and limitations, and to administer
its affairs to the extent requested by and subject to the supervision of the
Board of Directors of the Fund for the period and upon the terms herein set
forth. At all times the Advisor will be governed by the objectives and
policies of the Fund as stated in the Fund's current Prospectus, the By-Laws,
and the Articles of Incorporation of the Fund as may from time to time be in
force.
The Advisor further agrees to comply with all laws and procedures of the
Securities and Exchange commission (the "SEC"), the Internal Revenue Service,
the state of Texas, the National Association of Securities Dealers (the
"NASD") and other appropriate agencies and relevant laws regarding the
management and investment selection of registered investment companies. Any
violation of the laws and procedures may be considered a breach of this
contract by the Advisor.
The Advisor also agrees to follow the policies and suggestions of the Fund and
its Board of Directors unless such policies and suggestions would constitute a
material change in this contract or is materially different from objectives
and policies stated in the Registration Statements.
The Advisor accepts such employment and agrees during such period to render
such services, to furnish office facilities and equipment, to provide
clerical, bookkeeping and administrative services for the Fund, to provide
shareholder and information services, to permit any of its officers or
employees to serve without compensation as directors or officers of the Fund
if elected to such positions and to assume the obligations herein set forth
for the compensation herein provided. The advisor shall for all purposes
herein provided be deemed to be an independent contractor, and unless
otherwise expressly provided or authorized, shall have no authority to act for
or represent the Fund in any way or otherwise be deemed an agent of the Fund.
The Advisor agrees to keep appropriate records and calculate performance data
for the Fund and agrees to provide such records and summaries to the Fund, the
public or to other parties in furtherance of the business of the Fund. Such
records and calculations of performance data will be maintained in compliance
with the SEC, the NASD and other such regulatory body, where applicable.
The Advisor shall assume all operating expenses of the Fund except the
investment advisory fees (as described below), and the usual brokerage
commissions and fees associated with buying and selling securities.
The services of the Advisor to the Fund under this Agreement are not to be
deemed exclusive, and the Advisor shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
PERSONNEL
Subject to applicable statutes and regulations, it is understood that
directors, officers, or agents of the Fund are or may be interested in the
Advisor as officers, directors, agents, shareholders or otherwise, and that
the officers, directors, shareholders and agents of the Advisor may be
interested in the Fund otherwise than as a director, officer or agent.
INDEMNIFICATION
The Fund agrees to indemnify and hold harmless the Advisor, directors,
officers, and employees of the Advisor (the "Indemnitees") against any and all
claims arising out of the performance of its duties under this contract with
the exception of loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Advisor in the performance of its obligations
and duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement.
The Fund will advance attorney's fees and other expenses incurred by the
Indemnitees in defending an action upon the undertaking of the indemnitee to
repay the advance so long as either:
1) the Indemnitee provides reasonable security for his undertaking; or
2) a majority of quorum of "disinterested" (as defined by the Investment
Company Act of 1940 (the "Act"), non-party directors of the Fund, or an
independent legal counsel, in a written opinion, shall determine, based
upon a review of readily available facts (as apposed to a full trial-type
inquiry), that there is reason to believe that the Indemnitee ultimately
will be found entitled to indemnification.
Notwithstanding the above, the Fund may properly refuse to advance such fees,
if, upon advice from counsel, it believes that such advance would constitute a
breach of fiduciary duty involving a personal misconduct under section 36 of
the Act or an unlawful and willful conversion of the Fund's assets under
section 37 of the Act.
This Agreement does not provide for indemnification for any claim, whether or
not there is an adjudication of liability, arising by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties as
described in section 17 of the Act ("Disability Conduct") if:
1) a final decision on the merits by a court or other body before whom the
proceeding was brought that the Indemnitee was not liable by reason of
Disability Conduct; or
2) a reasonable determination based upon a review of the facts that the
Indemnitee was liable by reason of the Disability Conduct by:
a) a vote of majority of a quorum of directors who are neither "interested
parties" as defined above and who are not parties to the proceeding or:
b) an independent legal counsel in a written opinion.
FIDELITY BONDING
The Advisor will maintain a fidelity bond in compliance with Rule 17(g)
covering all access persons and insuring the Fund from larceny and
embezzlement. In compliance with the requirements concerning policies that
have a deductible clause, an escrow account has been established in the amount
of the deductible and shall be maintain a balance for at least the amount of
the deductible as stated on the policy. The Advisor will also comply with
Rule 17(g) concerning notice to the independent directors of the Fund
concerning any claim made against the Advisor.
LEGALITY
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
II. COMPENSATION
In consideration for services provided, the Fund agrees to provide the Advisor
an Investment Advisory Fee (the "Fee"). The Fee shall be accrued daily and
paid monthly at a specified annual rate (see "Annual Rate of the Advisory
Fee"), multiplied by the aggregate average daily closing value of the Fund's
Net Asset Value ("NAV") during the previous 30 days. That amount will then be
multiplied by a fraction, the numerator of which is one (1) and the
denominator of which is three hundred and sixty five (365), or if a leap year,
three hundred and sixty-six (366).
ANNUAL RATE OF THE ADVISORY FEE
The specified annual rate will depend on the size of the Fund's average net
assets as calculated during the last thirty (30) days. The following table
sets for the annual rate that the Fund would pay depending on the Fund's
thirty (30) day moving average net assets:
If the average net assets during The Fund would pay an
the last 30 days was advisor fee at the
greater than but less than Annual Rate of
-------------------------------- -----------------------
.00 $2,000,000.00 1.50%
$2,000,000.00 3,000,000.00 1.45%
3,000,000.00 4,000,000.00 1.40%
4,000,000.00 5,000,000.00 1.35%
5,000,000.00 10,000,000.00 1.30%
10,000,000.00 1.25%
III. DURATION
This Agreement shall become effective on approval by the majority vote of the
shareholders at the annual shareholders meeting held on January 19, 1996 and
by the subsequent vote of the majority of the independent of Directors of the
Fund and shall remain in force for at least two (2) years from that date.
This two (2) year effectiveness of the continuance of the Agreement shall
continue only as long as such continuance is specifically approved at least
annually in the manner required by the Investment Company Act of 1940.
IV. TERMINATION
This Agreement shall be terminable upon written notice, by either party giving
sixty (60) days notice. Termination shall be without penalty to either party.
The Fund may effect termination by action of the Board of Directors of the
Fund or by vote of a majority of the outstanding shares of the common stock of
the Fund, accompanied by appropriate notice.
This Agreement may be terminated at any time without the payment of any
penalty by the Board of Directors of the Fund or by vote of a majority of the
outstanding shares of the common stock of the Fund in the event that it shall
have been established by a court of competent jurisdiction that the Advisor or
any officer or director of the Advisor has taken any action which results in a
breach of the covenants of the Advisor set forth herein.
Termination of this Agreement shall not affect the right of the Advisor to
receive payments on any unpaid balance of the compensation described herein
earned prior to such termination.
V. ASSIGNMENT
This Agreement is automatically void upon assignment of the contract by either
party.
IN WITNESS WHEREOF, the Fund and the Advisor have caused this Agreement to be
executed on this 19th day of January, 1996.
On behalf of the Advisor:
S/ Jimmy Baker
Jimmy Baker, Director of the Advisor
On Behalf of the Fund:
S/ Jimmy Baker
Jimmy Baker, Director of the Fund
S/ Jesse Baker
Jesse Baker, Director of the Fund
S/ Mickey Pachta
Mickey Pachta, Director of the Fund
S/ Paul Erdelt
Paul Erdelt, Independent Director of the Fund
S/ Paul Teinert
Paul Teinert, Independent Director of the Fund
