(LEGEND BELOW IS LOCATED ON LEFT MARGIN VERTICALLY IN RED INK)
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
(THE NEXT TWO LINES ARE ALSO IN RED INK)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 20, 998
ALLEGHANY FUNDS
171 North Clark Street
Chicago, IL 60601
(800) 992-8151
Website: http://www.alleghanyfunds.chicago-trust.com
PROSPECTUS
November 4, 1998
Alleghany Funds (the "Company") is a no-load, open-end management
investment company which consists of ten separate diversified investment series
designed to offer investors a variety of investment opportunities. This
Prospectus pertains only to Alleghany/Chicago Trust SmallCap Value Fund and
Alleghany/Veredus Aggressive Growth Fund (each a "Fund" and collectively, the
"Funds"). Each Fund has distinct investment objectives and policies.
Alleghany/Chicago Trust SmallCap Value Fund is advised by The Chicago
Trust Company ("Chicago Trust") and Alleghany/Veredus Aggressive Growth Fund is
advised by Veredus Asset Management LLC ("Veredus").
Alleghany/Chicago Trust SmallCap Value Fund seeks long-term total
return through investment primarily in common stocks of small companies, based
on revenues and/or market capitalization, domiciled in the United States which
Chicago Trust believes offer exceptional relative value at attractive prices.
Alleghany/Veredus Aggressive Growth Fund seeks capital appreciation
through investment primarily in equity securities of companies whose earnings
are growing at an accelerating rate.
Shares of each Fund are purchased and redeemed without any purchase or
redemption charge imposed by the Company, although institutions may charge their
customers for services provided in connection with their investments.
Shares of the Funds are not deposits, obligations of, or endorsed by
any bank, and are not insured or guaranteed by any bank, the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency. An
investment in a Fund involves investment risks, including the possible loss of
principal.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in either of the above Funds. Investors
should read and retain this Prospectus for future reference. Additional
information about the Funds is contained in the Statement of Additional
Information dated November 4, 1998, as supplemented from time to time, which has
been filed with the Securities and Exchange Commission ("SEC") and is available
along with other related materials in the SEC's Internet Website
(http://www.sec.gov). The Statement of Additional Information is incorporated by
reference into this Prospectus and is available upon request and without charge
from the Company, at the addresses and telephone numbers below.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Alleghany Funds Investment Advisors:
171 North Clark Street The Chicago Trust Company
Chicago, IL 60601-3294 171 North Clark Street
(800) 992-8151 Chicago, IL 60601-3294
Veredus Asset Management LLC
6900 Bowling Blvd., Suite 250
Louisville, KY 40207
(800) 992-8151
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY................................................... 4
EXPENSE INFORMATION.................................................. 5
INVESTMENT OBJECTIVES AND POLICIES................................... 7
Alleghany/Chicago Trust SmallCap Value Fund................. 7
Alleghany/Veredus Aggressive Growth Fund.................... 7
INVESTMENT STRATEGIES AND RISK CONSIDERATIONS........................ 8
MANAGEMENT OF THE FUNDS.............................................. 13
PORTFOLIO MANAGEMENT METHODS......................................... 14
ADMINISTRATION OF THE FUNDS.......................................... 17
PURCHASE OF SHARES................................................... 18
EXCHANGE OF SHARES................................................... 19
REDEMPTION OF SHARES................................................. 20
ACCOUNT OPTIONS....................................................... 21
DISTRIBUTION PLAN..................................................... 22
NET ASSET VALUE....................................................... 22
DIVIDENDS AND TAXES.................................................... 23
PERFORMANCE OF THE FUNDS............................................... 24
GENERAL INFORMATION.................................................... 24
APPENDIX
DEBT RATINGS............................................................ 26
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE SUCH
AN OFFER OR SOLICITATION. NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS.
<PAGE>
PROSPECTUS SUMMARY
The Funds
The Company is an open-end, management investment company commonly
known as a mutual fund. The Company was established as a Delaware business trust
on September 10, 1993. The Company currently offers ten separate series of
shares. This Prospectus offers only shares of Alleghany/Chicago Trust SmallCap
Value Fund and Alleghany/Veredus Aggressive Growth Fund.
Investment Definitions
Equity Securities--The term "equity securities" as used herein
typically refers to common stock or preferred stock, which represent a
stockholder's equity or ownership of shares in a company.
Debt Securities--Examples of "debt securities" are bills, notes and
bonds, each representing a promise by the issuer to re-pay a debt which is
generally secured by the assets of such issuer. Also in this investment category
are debentures, which are bonds or promissory notes that are backed by the
general credit of the issuer, but not secured by specific assets of such issuer.
Convertible Features--Equity or debt securities purchased by the Funds
may have "convertible" features, whereby they can be exchanged for another class
of securities, according to the terms of their respective issuers.
Short-term Instruments--"Short-term (or money market) instruments" are
generally private or Government obligations with maturities of one year or less
and may include (but are not limited to) certificates of deposit, bankers'
acceptances, corporate commercial paper, and Government obligations.
Derivative Investments--The term "derivatives" has been used to
identify a range and variety of financial categories. In general, a derivative
is commonly defined as a financial instrument whose performance is derived, at
least in part, from the performance of an underlying asset, such as a specific
security or an index of securities. Derivatives, which may be used from time to
time by the Funds and the investment risks associated with such instruments, are
discussed in detail under "INVESTMENT STRATEGIES AND RISK CONSIDERATIONS."
Investment Objectives of the Funds
Alleghany/Chicago Trust SmallCap Value Fund seeks to provide long-term
total return. In seeking to achieve its investment objective, the Fund invests
primarily in common stocks of small companies, based on revenues and/or market
capitalization, domiciled in the United States which Chicago Trust believes
offer exceptional relative value at attractive prices.
Alleghany/Veredus Aggressive Growth Fund seeks capital appreciation. In
seeking to achieve its investment objective, the Fund invests primarily in
equity securities of companies whose earnings are growing at an accelerating
rate.
How to Purchase Shares
The minimum initial investment for regular accounts (other than
Individual Retirement Accounts ("IRAs") and Uniform Gift to Minor Accounts
("UGMAs")) is $2,500 for each Fund, and the minimum subsequent investment is
$50, except for accounts opened through a fund network. In such case, the
minimums of the fund network will apply. The minimum initial investment for IRAs
and UGMAs is $500, and the minimum subsequent investment for IRAs and UGMAs is
$50. The minimum initial and subsequent investment for those enrolled in the
Automatic Investment Plan is $50. The Funds do not impose any sales load,
redemption or exchange fees. Each Fund has a Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"). See
"DISTRIBUTION PLAN." The public offering price for shares of each of the Funds
is the net asset value per share next determined after receipt of a purchase
order in proper form. See "PURCHASE OF SHARES," "ACCOUNT OPTIONS" and "GENERAL
INFORMATION."
How to Redeem Shares
Shares of each Fund may be redeemed at the net asset value per share of the
Fund next determined after receipt of a redemption request in proper form.
Signature guarantees may be required. See "REDEMPTION OF SHARES."
Dividends
Each Fund intends to distribute substantially all of its net investment
income and net realized capital gains, if any, to shareowners. Distributions of
net capital gains, if any, will be made annually. All distributions are
reinvested at net asset value, in additional full and fractional shares of the
respective Fund unless and until the shareowner notifies the Transfer Agent in
writing requesting payments in cash.
Each Fund declares and pays dividends, if any, quarterly.
See "DIVIDENDS AND TAXES."
Management of the Funds
Chicago Trust, 171 North Clark Street, Chicago, Illinois 60601, an
Illinois corporation, provides investment advisory services to the
Alleghany/Chicago Trust SmallCap Value Fund. As of June 30, 1998, Chicago Trust
managed approximately $8.5 billion in assets primarily for pension and profit
sharing accounts, individuals, families, and insurance companies.
Veredus, 6900 Bowling Blvd., Suite 250, Louisville, Kentucky 40207,
provides investment advisory services to Alleghany/Veredus Aggressive Growth
Fund. As of June 30, 1998, Veredus managed approximately $65.7 million in assets
primarily for institutional clients.
First Data Distributors, Inc., 4400 Computer Drive, Westborough,
Massachusetts 01581, serves as the Funds' Distributor. Bankers Trust Company, 16
Wall Street, New York, New York 10005, serves as the Custodian of the Funds'
assets. Chicago Trust serves as the Funds' Administrator. First Data Investor
Services Group, Inc., 53 State Street, Boston, Massachusetts 02109, serves as
the Funds' Sub-Administrator. First Data Investor Services Group, Inc., 4400
Computer Drive, Westborough, Massachusetts 01581, serves as the Funds' Transfer
Agent.
EXPENSE INFORMATION
Shareowner Transaction Expenses for the Fund:
Maximum Sales Load Imposed on Purchases.............................. None
Maximum Sales Load Imposed on Reinvested Dividends................... None
Maximum Deferred Sales Load.......................................... None
Redemption Fees...................................................... None
Exchange Fees........................................................ None
If you want to redeem shares by wire transfer, the Funds' Transfer Agent
charges a fee, currently $20.00, for each wire redemption. Institutions may
independently charge fees for shareowner transactions or for advisory services;
please see their materials for details.
<PAGE>
Estimated Annual Fund Operating Expenses as a Percentage of Average Net Assets:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Expense Ratio
Investment Other After Advisors'
Advisory Fees Expenses Voluntary Fee Waivers
After Voluntary 12b-1 After Voluntary and Reimbursement (1)
FUND (1) Fee Waivers Fees Reimbursements (2)
--------- ----------- ---- ------------------
Alleghany/Chicago Trust 0.60% 0.25% 0.55% 1.40%
SmallCap Value Fund
Alleghany/Veredus 0.60% 0.25% 0.55% 1.40%
Aggressive Growth Fund
</TABLE>
(1) The above table reflects the investment advisors' voluntary undertakings to
waive investment advisory fees and/or reimburse each Fund expenses exceeding the
limits shown. Absent such fee waivers and reimbursement of expenses, the
estimated investment advisory fees, other expenses, and total operating
expenses, respectively, would be as follows: 1.00%, 0.25%, and 0.55% for the
Alleghany/Chicago Trust SmallCap Value Fund and 1.00%, 0.25%, and 0.55% for
Alleghany/Veredus Aggressive Growth Fund.
(2) Other expenses for each Fund are based on estimated amounts for the current
fiscal year.
Long-term shareowners may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
EXAMPLE:
Based on the level of estimated expenses listed above after waivers and
reimbursements, the total expenses relating to an investment of $1,000 would be
as follows, assuming a 5% annual return and redemption at the end of each time
period.
Name of Fund 1 Year 3 Years
- ------------ ------ -------
Alleghany/Chicago Trust SmallCap Value Fund $14 $44
Alleghany/Veredus Aggressive Growth Fund $14 $44
The foregoing tables are designed to assist the investor in
understanding the various costs and expenses that a shareowner will bear
directly or indirectly. While the example assumes a 5% annual return, each
Funds' actual performance will vary and may result in actual returns greater or
less than 5%. The example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
Performance Measures
From time to time, the Funds may advertise performance measures as set
forth under "PERFORMANCE OF THE FUNDS." Performance measures are based on
historical earnings and are not intended to indicate future performance.
Portfolio Turnover
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of purchases or sales of portfolio investments for the
reporting period by the monthly average value of the portfolio investments owned
during the reporting period. The calculation excludes all securities, including
options, whose maturities or expiration dates at the time of acquisition are one
year or less. Portfolio turnover may vary greatly from year to year as well as
within a particular year, and may be affected by cash requirements for
redemption of units and by requirements which enable the Funds to receive
favorable tax treatment. The Alleghany/Chicago Trust SmallCap Value Fund is
expected to have portfolio turnover below 150%. In any event, portfolio turnover
is not expected to exceed 200% in the Alleghany/Chicago Trust SmallCap Value
Fund and 300% in the Alleghany/Veredus Aggressive Growth Fund. A high rate of
portfolio turnover (i.e., over 100%) may result in the realization of
substantial capital gains and involves correspondingly greater transaction
costs.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is fundamental and may not be
changed without a vote of the holders of the majority of the voting securities
of the Fund. Unless otherwise stated in this Prospectus or the Statement of
Additional Information, each Fund's investment policies are not fundamental and
may be changed without shareowner approval. While a non-fundamental policy or
restriction may be changed by the Trustees of the Company without shareowner
approval, the Funds intend to notify shareowners before making any change in any
such policy or restriction. Fundamental policies may not be changed without
shareowner approval.
The Funds strive to attain their investment objectives, but there can,
of course, be no assurance that they will do so. Please refer to the policies
and risk disclosures more fully described under "INVESTMENT STRATEGIES AND RISK
CONSIDERATIONS." Additional investment policies and restrictions are described
in the Statement of Additional Information.
ALLEGHANY/CHICAGO TRUST SMALLCAP VALUE FUND
Alleghany/Chicago Trust SmallCap Value Fund seeks long-term total
return through investment primarily in common stocks of small companies, based
on revenues and/or market capitalization, domiciled in the United States which
Chicago Trust believes offer exceptional relative value and attractive prices.
The Fund's total return will likely be primarily composed of capital
appreciation. The Fund will be invested primarily in equities listed on stock
exchanges or traded in over-the-counter markets in the U.S.
Except for defensive or liquidity purposes, the Fund will invest
substantially all (at least 65%) of its assets in small companies or real estate
investment trusts ("REIT's") domiciled in the U.S. which have market
capitalization (based on aggregate market value of outstanding shares) between
$50 million and $1 billion at the time of investment. Chicago Trust will seek
companies with strong cash flow, good credit, low price to earnings ratio and
good or improving balance sheets. The remainder of its assets (no more than 35%)
may be invested in securities of companies with market capitalizations below $50
million or above $1 billion at the time of investment; and/or in cash and
equivalent securities. The Fund does not currently intend to invest in
securities which, at the time of purchase, are not readily marketable or in
futures or options contracts. The Fund will not engage in short-selling
activities, leverage or portfolio hedging techniques. At any time Chicago Trust
deems it advisable for temporary defensive or liquidity purposes, the Fund may
hold all or a portion of its assets in cash or cash equivalents and invest in,
or hold unlimited amounts of, debt obligations of the United States Government
or its political subdivisions, and money market instruments including repurchase
agreements with maturities of seven days or less and certificates of deposit.
Special Considerations
An investor should be aware that investment in small capitalization
issuers carries more risk than issuers with market capitalization greater than
$1 billion. Generally, small companies rely on limited product lines, financial
resources, and business activities that may make them more susceptible to
setbacks or downturns. In addition, the stock of such companies may be more
thinly traded. As a result, in order to sell this type of security the Fund may
need to dispose of such securities over a long period and accordingly, the
performance of small capitalization issuers may be more volatile.
Please refer to the policies and risk disclosures, as well as the other
specified practices below with respect to the Fund in "INVESTMENT STRATEGIES AND
RISK CONSIDERATIONS."
ALLEGHANY/VEREDUS AGGRESSIVE GROWTH FUND
Alleghany/Veredus Aggressive Growth Fund seeks to provide capital
appreciation through investment primarily in equity securities of companies
whose earnings are growing at an accelerating rate. Typically, the companies
that the Fund invests in will exhibit expanding unit volume growth, new product
development and expanding profit margins. Such companies often experience
increased earnings expectations from the investment community. Veredus will
focus primarily on small capitalization (market capitalization of $1 billion or
less) and mid-size capitalization ($1 to $4 billion market capitalization)
companies.
Veredus generally plans to stay fully invested (subject to liquidity
requirements) in equity securities. The Fund may also invest in U.S. Government
securities of any duration, and may engage in certain option transactions and
investment techniques described below. For temporary defensive purposes under
abnormal market or economic conditions, the Fund may hold all or a portion of
its assets in money market instruments, securities of no-load money market funds
or U.S. Government repurchase agreements. The Fund may also invest in such
instruments at any time to maintain liquidity or pending selection of
investments in accordance with its policies. If the Fund acquires securities of
another investment company, the shareholders of the Fund will be subject to
additional management fees.
By investing primarily in small and mid-size capitalization companies,
the Fund will be subject to the risks associated with such companies. Smaller
capitalization companies may experience higher growth rates and higher failure
rates than do larger capitalization companies. Companies in which the Fund is
likely to invest may have limited product lines, markets or financial resources
and may lack management depth. The trading volume of securities of smaller
capitalization companies is normally less than that of larger capitalization
companies, and, therefore, may disproportionately affect their market price,
tending to make them rise more in response to buying demand and fall more in
response to selling pressure than is the case with larger capitalization
companies.
The Fund may invest in equity securities which consist of common stock,
warrants, rights, preferred stock and common stock equivalents (such as
convertible preferred stock and convertible debentures). Common stocks, the most
familiar type, represent an equity (ownership) interest in a corporation.
Warrants are options to purchase equity securities at a specified price for a
specific time period. Rights are similar to warrants, but normally have a short
duration and are distributed by the issuer to its shareholders. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and on overall market and
economic conditions. The Fund will not invest more than 5% of its net assets in
preferred stock or common stock equivalents.
The Fund may invest up to 20% of its net assets in foreign equity
securities by purchasing American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). ADRs and EDRs are dollar-denominated receipts that
are generally issued in registered form by domestic banks, and represent the
deposit with the bank of a security of a foreign issuer. To the extent that the
Fund does invest in foreign securities, such investments may be subject to
special risks, such as changes in restrictions on foreign currency transactions
and rates of exchange, and changes in the administrations or economic and
monetary policies of foreign governments.
Please refer to the policies and risk disclosures, as well as the other
specified practices below with respect to the Fund in "INVESTMENT STRATEGIES AND
RISK CONSIDERATIONS."
INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
In General
Shareowners should understand that all investments involve risk and
there can be no guarantee against loss resulting from an investment in the
Funds, nor can there be any assurance that the Funds' investment objectives will
be attained. Unless otherwise indicated, all percentage limitations governing
the investments of the Funds apply only at the time of transaction. Accordingly,
if a percentage restriction is adhered to at the time of investment, a later
increase or decrease in the percentage represented by such investment which
results from a relative change in values or from a change in a Fund's total
assets will not be considered a violation.
Government Obligations
Each Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities to the extent described above.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as Ginnie Mae (formerly known as the Government National Mortgage
Association) ("GNMA"), are supported by the full faith and credit of the U.S.
Treasury; others, such as those of Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some Government obligations may be issued as variable or floating-rate
instruments.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period of time the shareowner owns shares of
the Funds.
Money Market Securities
Each Fund may invest in money market securities, including bank
obligations and commercial paper. Bank obligations may include bankers'
acceptances, negotiable certificates of deposit, and non-negotiable time
deposits earning a specified return, issued for a definite period of time by a
U.S. bank that is a member of the Federal Reserve System or is insured by the
Federal Deposit Insurance Corporation, or by a savings and loan association or
savings bank that is insured by the Federal Deposit Insurance Corporation. Bank
obligations also include U.S. dollar-denominated obligations of foreign branches
of U.S. banks or of U.S. branches of foreign banks, all of the same type as
domestic bank obligations. Investments in bank obligations are limited to the
obligations of financial institutions having more than $1 billion in total
assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulations which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional investment
risks, including future political and economic developments, the possible
imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic branches of U.S. banks. Investments in the obligations of U.S. branches
of foreign banks or foreign branches of U.S. banks will be made only when the
investment advisor believes that the credit risk with respect to the investment
is minimal.
Commercial paper may include variable and floating-rate instruments,
which are unsecured instruments that permit the interest on indebtedness
thereunder to vary. Variable-rate instruments provide for periodic adjustments
in the interest rate. Floating-rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating-rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating-rate obligations with the demand
feature, a Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event an issuer of a variable or floating-rate obligation defaulted on its
payment obligation, a Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. Substantial holdings of variable and
floating-rate instruments could reduce portfolio liquidity.
Borrowing
Each Fund may not borrow money or issue senior securities, except as
described in this paragraph. Each Fund may borrow from banks or enter into
reverse repurchase agreements for temporary purposes in amounts up to 10% of the
value of its total assets. The Funds may not mortgage, pledge, or hypothecate
assets, except that each Fund may mortgage, pledge, or hypothecate assets in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the total assets of the Fund.
A Fund will not purchase securities while its borrowings (including reverse
repurchase agreements) exceed 5% of its total assets. A Fund may borrow money as
a temporary measure for extraordinary purposes or to facilitate redemptions.
Neither Fund will borrow money in excess of 25% of the value of its total
assets. The Funds have no intention of increasing their net income through
borrowing. Any borrowing will be done from a bank with the required asset
coverage of at least 300%. In the event that such asset coverage shall at any
time fall below 300%, a Fund shall, within three days thereafter (not including
Sundays or holidays) or such longer period as the Securities and Exchange
Commission ("SEC") may prescribe by rules and regulations, reduce the amount of
its borrowings to such an extent that the asset coverage of such borrowings
shall be at least 300%.
Illiquid Securities
Each Fund may invest up to 15% of their respective net assets in
securities which are illiquid. Illiquid securities will generally include, but
are not limited to: repurchase agreements and time deposits with
notice/termination dates in excess of seven days; unlisted over-the-counter
options; interest rate, currency and mortgage swap agreements; interest rate
caps, floors and collars; and certain securities which are subject to trading
restrictions because they are not registered under the Securities Act of 1933
(the "1933 Act").
Repurchase Agreements
Each Fund may enter into repurchase agreements pursuant to which a Fund
purchases portfolio assets from a bank or broker-dealer concurrently with an
agreement by the seller to repurchase the same assets from the Fund at a later
date at a fixed price. Repurchase agreements are considered, under the 1940 Act,
to be collateralized loans by a Fund to the seller secured by the securities
transferred to the Fund. Repurchase agreements will be fully collateralized by
securities in which the Fund may invest directly. Such collateral will be
marked-to-market daily. If the seller of the underlying security under the
repurchase agreement should default on its obligation to repurchase the
underlying security, a Fund may experience delay or difficulty in exercising its
right to realize upon the security and, in addition, may incur a loss if the
value of the security should decline, as well as disposition costs in
liquidating the security. A Fund must treat each repurchase agreement as a
security for tax diversification purposes and not as cash, a cash equivalent or
receivable.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements with banks and
broker-dealers. Reverse repurchase agreements involve sales by a Fund of
portfolio assets concurrently with an agreement by that Fund to repurchase the
same assets at a later date at a fixed price. During the reverse repurchase
agreement period, a Fund continues to receive principal and interest payments on
these securities. During the time a reverse repurchase agreement is outstanding,
a Fund will maintain a segregated custodial account consisting of cash or liquid
securities having a value at least equal to the resale price. Reverse repurchase
agreements are considered to be borrowings by a Fund, and as such are subject to
the investment limitations discussed above under the sub-section titled
"Borrowing."
Rule 144A Securities
Each Fund may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accordance
with Rule 144A under the 1933 Act. Any such security will not be considered
illiquid so long as it is determined by the investment advisor under guidelines
approved by the Company's Board of Trustees, that an adequate trading market
exists for that security. This investment practice could have the effect of
increasing the level of illiquidity in a Fund during any period that qualified
institutional buyers become uninterested in purchasing these restricted
securities.
Securities of Other Investment Companies
Each Fund may invest in securities issued by other investment companies
which invest in securities in which the particular Fund is permitted to invest
and which determine their net asset value per share based on the amortized cost
or penny-rounding method. In addition, each Fund may invest in securities of
other investment companies within the limits prescribed by the 1940 Act, which
include limits to its investments in securities issued by other investment
companies so that, as determined immediately after a purchase of such securities
is made: (i) not more than 5% of the value of the Fund's total assets will be
invested in the securities of any one investment company; (ii) not more than 10%
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund or Funds as
a whole. Each Fund is subject to additional limitations in these purchases as
described under "INVESTMENT RESTRICTIONS" in the Statement of Additional
Information. As a shareowner of another investment company, a Fund would bear,
along with other shareowners, its pro rata portion of such investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations.
Short-Term Trading
Each Fund may engage in short-term trading. Securities may be sold in
anticipation of a market decline or purchased in anticipation of a market rise
and later sold. In addition, a security may be sold and another purchased at
approximately the same time to take advantage of what a Fund believes to be a
temporary disparity in the normal yield relationship between the two securities.
Such trading may be expected to increase a Fund's portfolio turnover rate and
the expenses incurred in connection with such trading.
Foreign Securities
Alleghany/Veredus Aggressive Growth Fund may invest in foreign equity
securities by purchasing ADRs and EDRs. U.S. dollar-denominated ADRs, which are
traded in the United States on exchanges or over-the-counter, are issued by
domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. ADRs do not
eliminate the risk inherent in investing in the securities of foreign issuers.
However, by investing in ADRs rather than directly in stock of foreign issuers,
a Fund can avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the United
States for many ADRs. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject. EDRs are
receipts evidencing an arrangement with a European bank similar to that for ADRs
and are designed for use in the European securities markets.
Certain ADRs and EDRs, typically those denominated as unsponsored,
require the holders thereof to bear most of the costs of such facilities while
issuers of sponsored facilities normally pay more of the costs thereof. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareowner communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in respect
to the deposited securities, whereas the depositary of a sponsored facility
typically distributes shareowner communications and passes through the voting
rights.
Derivative Investments
The term "derivatives" has been used to identify a range and variety of
financial instruments. In general, a derivative is commonly defined as a
financial instrument whose performance and value are derived, at least in part,
from another source, such as the performance of an underlying asset, or a
specific security, or an index of securities. As is the case with other types of
investments, a Fund's derivative instruments may entail various types and
degrees of risk, depending upon the characteristics of a derivative instrument
and the Fund's overall portfolio.
A Fund permitted the use of derivatives may engage in such practices
for hedging purposes, or to maintain liquidity, or in anticipation of changes in
the composition of its portfolio holdings. No Fund will engage in derivative
investments purely for speculative purposes. A Fund will invest in one or more
derivatives only to the extent that the instrument under consideration is judged
by the investment advisor to be consistent with the Fund's overall investment
objective and policies. In making such judgment, the potential benefits and
risks will be considered in relation to the Fund's other portfolio investments.
Where not specified, investment limitations with respect to a Fund's
derivative instruments will be consistent with such Fund's existing percentage
limitations with respect to its overall investment policies and restrictions.
While not a fundamental policy, the total of all instruments deemed derivative
in nature by the investment advisor will generally not exceed 20% of total
assets for a Fund; however, as this policy is not fundamental, it may be changed
from time to time when deemed appropriate by the Board of Trustees. Listed
below, including risks and policies with respect thereto, are the types of
securities in which certain Funds are permitted to invest which are considered
by the Investment Advisor to be derivative in nature.
1. Options:
Alleghany/Veredus Aggressive Growth Fund, may engage in options,
including those described below.
A call option enables the purchaser, in return for the premium paid, to
purchase securities from the writer of the option at an agreed price up to an
agreed date. The advantage is that the purchaser may hedge against an increase
in the price of securities it ultimately wishes to buy or may take advantage of
a rise in a particular index. A Fund will only purchase call options to the
extent premiums paid on all outstanding call options do not exceed 20% of such
Funds' total assets. A Fund will only sell or write call options on a covered
basis (e.g. on securities it holds in its portfolio).
A put option enables the purchaser of the option, in return for the
premium paid, to sell the security underlying the option to the writer at the
exercise price during the option period, and the writer of the option has the
obligation to purchase the security from the purchaser of the option. The
advantage is that the purchaser can be protected should the market value of the
security decline or should a particular index decline. A Fund will only purchase
put options to the extent that the premiums on all outstanding put options do
not exceed 20% of a Funds' total assets. A Fund will only purchase put options
on a covered basis and write put options on a secured basis. Cash or other
collateral will be held in a segregated account for such options. A Fund will
receive premium income from writing put options, although it may be required,
when the put is exercised, to purchase securities at higher prices than the
current market price. At the time of purchase, a Fund will receive premium
income from writing call options, which may offset the cost of purchasing put
options and may also contribute to a Fund's total return. A Fund may lose
potential market appreciation if the judgment of its investment advisor is
incorrect with respect to interest rates, security prices or the movement of
indices.
An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive cash from the seller equal to
the difference between the closing price of the index and the exercise price of
the option.
Closing transactions essentially let a Fund offset put options or call
options prior to exercise or expiration. If a Fund cannot effect a closing
transaction, it may have to hold a security it would otherwise sell or deliver a
security it might want to hold.
A Fund may use options traded on U.S. exchanges, and to the extent
permitted by law, options traded over-the-counter. It is the position of the SEC
that over-the-counter options are illiquid. Accordingly, a Fund will invest in
such options only to the extent consistent with its 15% limit on investments in
illiquid securities. Please see "General Risk Factors" below and refer to the
Statement of Additional Information for a more detailed discussion of the
applicable risk considerations.
2. Forward Commitments, When-Issued Securities, and Delayed-Delivery
Transactions:
Alleghany/Veredus Aggressive Growth Fund, may purchase or sell
securities on a when-issued or delayed-delivery basis and make contracts to
purchase or sell securities for a fixed price at a future date beyond customary
settlement time. Securities purchased or sold on a when-issued,
delayed-delivery, or forward commitment basis involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
Although a Fund would generally purchase securities on a when-issued,
delayed-delivery, or forward commitment basis with the intention of acquiring
the securities, a Fund may dispose of such securities prior to settlement if its
investment advisor deems it appropriate to do so. Please see "General Risk
Factors" below and refer to the Statement of Additional Information for a more
detailed discussion of the applicable risk considerations.
<PAGE>
General Risk Factors
Options and Forward Contracts:
The primary risks associated with the use of options are: (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the price of options; (ii) losses, which are potentially unlimited, due to
unanticipated market movements; and (iii) the investment advisor's inability to
predict correctly the direction of security prices, interest rates and other
economic factors. For a further discussion, see "INVESTMENT POLICIES AND RISK
CONSIDERATIONS" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
The Board of Trustees
Under Delaware law, the business and affairs of the Company are managed
under the direction of the Board of Trustees. The Statement of Additional
Information contains the name of each Trustee and background information
regarding the Trustees.
The Chicago Trust Company
Chicago Trust provides investment advisory services to
Alleghany/Chicago Trust SmallCap Value Fund. Pursuant to an Investment Advisory
Agreement with the Company, Chicago Trust provides an investment program for the
Fund in accordance with its investment policies, limitations and restrictions,
and furnishes executive, administrative and clerical services required for the
transaction of the Fund's business.
Chicago Trust managed approximately $8.5 billion in assets at June 30,
1998 consisting primarily of pension and profit sharing accounts, and accounts
of high net worth individuals, families and insurance companies. Chicago Trust,
an Illinois corporation, is an indirect and wholly-owned subsidiary of Alleghany
Corporation. Alleghany Corporation, located at Park Avenue Plaza, New York City,
New York 10055, is engaged through its subsidiaries in the business of title
insurance, reinsurance, other financial services and industrial minerals.
For providing investment advisory services, the Fund has agreed to pay
Chicago Trust a monthly fee at an annual rate, exclusive of voluntary fee
waivers, based on its average daily net assets of 1.00%.
Chicago Trust has voluntarily undertaken to reduce its advisory fee and
to reimburse the Fund for operating expenses in excess of 1.40%. Such fee
reimbursement may be terminated or reduced at the discretion of Chicago Trust.
Operating expenses for fee waiver/expense reimbursement purposes do not include
interest, taxes, brokerage charges, litigation or extraordinary items.
Veredus Asset Management LLC
The Investment Advisor for Alleghany/Veredus Aggressive Growth Fund is
Veredus Asset Management LLC, a registered investment advisor located at 6900
Bowling Blvd., Suite 250, Louisville, KY 40207. Veredus was founded in 1998 and
is indirectly partially owned by Alleghany Corporation.
Veredus provides investment advisory services to Alleghany/Veredus
Aggressive Growth Fund. Pursuant to an Investment Advisory Agreement with the
Company, Veredus provides an investment program for the Fund in accordance with
its investment policies, limitations and restrictions, and furnishes executive,
administrative and clerical services required for the transaction of the Fund's
business.
Veredus managed approximately $66 million in assets at June 30, 1998.
For providing investment advisory services, the Fund has agreed to pay
Veredus a monthly fee at an annual rate, exclusive of voluntary fee waivers,
based on its average daily net assets of 1.00%.
Veredus has voluntarily undertaken to reduce its advisory fee and to
reimburse the Fund for operating expenses in excess of 1.40%. Such fee
reimbursement may be terminated or reduced at the discretion of Veredus.
Operating expenses for fee waiver/expense reimbursement purposes do not include
interest, taxes, brokerage charges, litigation or extraordinary items.
PORTFOLIO MANAGEMENT METHODS
Investment Management Teams
Investment decisions for Alleghany/Chicago Trust SmallCap Value Fund
are made by an investment management team at Chicago Trust. The team is headed
by Patricia A. Falkowski, the portfolio manager of the Fund. Ms. Falkowski has
served as President and Chief Investment Officer of Fiduciary Management
Associates, Inc. since 1993.
Investment decisions for Alleghany/Veredus Aggressive Growth Fund are made
by B. Anthony Weber, the portfolio manager of the Fund. B. Anthony Weber has
served as President of Veredus since June 1998. Prior to June 1998, he was the
President of SMC Capital, Inc., another registered investment adviser. Mr. Weber
is responsible for the day-to-day management of the Fund's portfolio. He has
managed equity accounts at SMC Capital, Inc. from the time of its founding in
1993 to the present.
The Chicago Trust Company
The performance objective of Alleghany/Chicago Trust SmallCap Value Fund is
to produce returns above the Russell 2000 Index over the long-term. Stock
selection is the critical component of the equity philosophy. The Fund's overall
approach to investing in small capitalization value stocks is based upon
research performed by its investment advisor which shows that extremely
undervalued companies offer potential for high returns over time and excellent
diversification versus other domestic equity investment styles. This strategy
may under-emphasize widely followed, institutional favorites and result in
holdings of stocks with little "Wall Street" or outside research coverage.
Advantages of investing in distressed and/or neglected issues based on internal,
fundamental research include:
low valuations that offer some downside protection;
lack of institutional ownership that results in return
streams not highly correlated with market indices;
potential for upside surprises that is increased as stocks
exceed minimal expectations and are "discovered" by other
investors; and
low transaction costs based solely on best execution rather than
research commitments.
The companies in which the Fund intends to invest will generally have the
following characteristics:
a market capitalization of less than $1 billion;
a low relative ratio of price to book value per share;
a positive or improving cash flow and other measures of
financial strength; and
a low stock price relative to historical levels.
By following these criteria, the Fund intends to select securities
which can have enhanced appreciation prospects and may provide investment
returns superior to the market as a whole. However, the market value of these
companies' securities tends to be volatile and in the past offered greater
potential for gain as well as loss than securities of larger capitalization
companies.
A key component of the equity process is the sell discipline. Chicago
Trust looks for sale candidates when one or more of the following criteria
exist: (i) deteriorating company fundamentals; (ii) the stock no longer meets
our purchase criteria; (iii) the stock grows by 25% in stock market value in a
short time; and (iv) the price target has been achieved.
The Fund will commence operations on or about November 4, 1998 and therefore has
no operating history. The investment objectives, policies and strategies of the
Alleghany/Chicago Trust SmallCap Value Fund are substantially similar in all
material aspects to the UAM FMA Small Company Portfolio, which has been managed
by Ms. Patricia A. Falkowski. Ms. Falkowski became a managing director at
Chicago Trust on August 24, 1998. She manages the investment program of the
Alleghany/Chicago Trust SmallCap Value Fund and is primarily responsible for the
day-to-day management of the Fund's portfolio. Ms. Falkowski had been chief
investment officer of Fiduciary Management Associates, Inc. since 1992 and
president since 1993. In that capacity Ms. Falkowski was the portfolio manager
for the UAM FMA Small Company Portfolio with full discretionary authority over
the selection of investments for that fund from July 1992 through August 1998.
The UAM FMA Small Company Portfolio Institutional Class Shares had net assets of
$182.7 million as of June 30, 1998. Average annual returns for the one-year,
three-year, five-year, and since July 1, 1992 periods ended June 30, 1998
compared with the performance of the Russell 2000 Index were:
<TABLE>
<CAPTION>
<S> <C> <C>
UAM FMA Small Company Portfolio (1), Russell 2000 Index
(2) (3)
-------------------------------------- --- -----------------------------------------
One Year 23.14% 16.50%
Three Years 25.62 18.86
Five Years 19.19 16.05
Since July 1, 1992 (4) 21.97 17.65
</TABLE>
(1) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
(2) The expense ratio of UAM FMA Small Company Portfolio was capped at
1.03% from July 1, 1992 through June 30, 1998. The expense ratio of the
Alleghany/Chicago Trust SmallCap Value Fund will be capped at 1.40%
beginning at its inception. The returns shown have been restated to
reflect an expense ratio of 1.40% (consistent with the expected expense
cap of the Alleghany/Chicago Trust SmallCap Value Fund).
(3) The Russell 2000 Index is a widely recognized, unmanaged index of
common stocks of the 2,000 smallest companies in the Russell 3000
Index. The Russell 3000 Index is comprised of the 3,000 largest U.S.
companies based on total market capitalization. Each Index is adjusted
to reflect reinvestment of dividends.
(4) The inception date of the UAM FMA Small Company Portfolio was July 31,
1991. Ms. Falkowski began managing the Fund in July of 1992.
Historical performance is not indicative of future performance. The UAM FMA
Small Company Portfolio is a separate fund and its historical performance is not
indicative of the potential performance of the Alleghany/Chicago Trust SmallCap
Value Fund. Share prices and investment returns will fluctuate reflecting market
conditions, as well as changes in company-specific fundamentals of portfolio
securities.
Veredus Asset Management LLC
B. Anthony Weber, President of Veredus, is primarily responsible for
the day-to-day management of the Fund. Prior to forming Veredus in 1998, Mr.
Weber was President and Senior Portfolio Manager of SMC Capital, Inc. (from its
inception in 1993). Prior to that date, he was the portfolio manager primarily
responsible for management of certain accounts, including three common trust
funds, of Shelby County Trust Bank (from July 1, 1989). The performance
information presented below is the performance of a composite of those equity
accounts for which Mr. Weber was primarily responsible for the day-to-day
management (since July 1, 1989) which have investment objectives, policies and
strategies substantially similar to those of the Fund. As of December 31, 1997,
the assets in those accounts totaled approximately $36 million. The composite
does not include performance of The Shelby Fund, a mutual fund for which Mr.
Weber was co-manager.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Managed Accounts S&P 500 Index Russell 2000 Index
---------------- ------------- ------------------
1998* 18.66% 17.71% 4.93%
1997 4.82 33.36 22.36
1996 14.44 22.96 16.50
1995 39.67 37.59 28.44
1994 2.46 1.32 -1.82
1993 14.70 10.08 18.91
1992 32.98 7.64 18.41
1991 42.80 30.48 46.05
1990 -1.04 -3.12 -19.51
1989** 11.67 12.99 1.47
Average Annual Returns***
One Year 24.63% 30.16% 16.50%
Five Years 16.38 23.08 16.05
Since July 1, 1989 19.32 18.35 13.67
<FN>
* 1998 percentages represent the rates of return for the six month period ended June 30, 1998.
** 1989 percentages represent the rates of return for the six month period ended December 31, 1989.
*** Average Annual Returns for the periods ended June 30, 1998, using the
Performance Presentation Standards of the Association for Investment
Management and Research ("AIMR") calculation of performance (see below),
which differs from the standardized SEC calculation.
</FN>
</TABLE>
From July 1, 1989 through December 31, 1991, the performance information
is based on a quarterly, linked time-weighted rate of return calculation method.
Beginning January 1, 1992, the accounts within the composite allowed
participants to contribute on a monthly basis. Therefore, beginning January 1,
1992, the performance information is based on a monthly, liked, time-weighted
rate of return calculation method. The composite rate of return is
market-weighted, reflecting the relative size of each eligible account, at the
beginning of the relevant period. Performance figures reflected are net of
management fees and net of all expenses, including transaction costs and
commissions. Results include the reinvestment of dividends and capital gains.
The presentation of the performance composite complies with the AIMR. The AIMR
calculation of performance differs from the standardized SEC calculation.
The S&P 500 Index is a widely recognized, unmanaged index of market
activity based upon the aggregate performance of a selected portfolio of
publicly traded common stocks, including monthly adjustments to reflect the
reinvestment of dividends and other distributions. The Russell 2000 Index is a
widely recognized index of market activity based on the aggregate performance of
small to mid-sized publicly traded common stocks. Each Index reflects the total
return of securities comprising the Index, including changes in market prices as
well as accrued investment income, which is presumed to be reinvested.
Performance figures for each Index do not reflect deduction of transaction costs
or expenses, including management fees.
The investment objectives, policies and strategies of the
Alleghany/Veredus Aggressive Growth Fund are substantially similar to those of
the managed accounts. The performance of the accounts managed by Veredus does
not represent the historical performance of the Fund and should not be
considered indicative of future performance of the Fund. Results may differ
because of, among other things, differences in brokerage commissions, account
expenses, including management fees (the use of the Fund's expense structure
would have lowered the performance results), the size of positions taken in
relation to account size and diversification of securities, timing of purchases
and sales, and availability of cash for new investments. In addition, the
managed accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the Investment
Company Act and the Internal Revenue Code which, if applicable, may have
adversely affected the performance results of the managed accounts composite.
The results for difference periods may vary.
ADMINISTRATION OF THE FUNDS
The Administrator and Sub-Administrator
Chicago Trust (the "Administrator") acts as the Company's Administrator
pursuant to an Administration Agreement with the Company. For services provided
as Administrator, Chicago Trust receives a fee at the annual rate of: 0.060% of
the first $2 billion of average daily net aggregate assets of the Company;
0.045% of the average daily net assets between $2 billion and $3.5 billion and
0.040% of the average daily net assets in excess of $3.5 billion. Chicago Trust
also receives a custody liaison fee equal to an annual fee per Fund of $10,000
for average daily net assets up to $100 million, $15,000 for average daily net
assets between $100 million and $500 million, and $20,000 for average daily net
assets in excess of $500 million.
Pursuant to a Sub-Administration Agreement, First Data Investor
Services Group, Inc. (the "Sub-Administrator"), 53 State Street, Boston,
Massachusetts 02109, acts as Sub-Administrator and receives a fee from the
Administrator equal to that received by the Administrator as set out above. The
Sub-Administrator also receives a custody liaison fee from Chicago Trust equal
to that received by the Administrator as set out above.
The services provided to the Funds under these Agreements include:
coordinating and monitoring of any third parties furnishing services to the
Funds; providing the necessary office space, equipment and personnel to perform
administrative and clerical functions for the Funds; preparing, filing and
distributing proxy materials, periodic reports to shareowners, registration
statements and other documents; and responding to shareowner inquiries.
The Sub-Administrator also performs certain accounting and pricing
services for the Funds, including the daily calculation of the Funds' respective
net asset values.
The Transfer Agent
First Data Investor Services Group, Inc. (the "Transfer Agent"), 4400
Computer Drive, Westborough, Massachusetts 01581, performs the following duties
in its capacity as Transfer Agent to each Fund: maintains the records of each
shareowner's account; answers shareowner inquiries concerning accounts;
processes purchases and redemptions of Fund shares; acts as dividend and
distribution disbursing agent; and performs other shareowner service functions.
Shareowner inquiries should be addressed to the Transfer Agent at (800)
992-8151.
The Distributor
First Data Distributors, Inc. (the "Distributor"), 4400 Computer Drive,
Westborough, Massachusetts 01581, is the principal underwriter and distributor
of the Funds pursuant to a distribution agreement with the Company.
The Custodian
Bankers Trust Company (the "Custodian"), 16 Wall Street, New York, New
York 10005, is Custodian for the cash and securities of each Fund.
Expenses
Expenses attributable to the Company, but not to a particular Fund,
will be allocated to each Fund thereof on the basis of relative net assets.
Similarly, expenses attributable to a particular Fund, but not to a particular
class thereof, will be allocated to each class thereof on the basis of relative
net assets. General Company expenses may include but are not limited to:
insurance premiums; Trustee fees; expenses of maintaining the Company's legal
existence; and fees of industry organizations. General Fund expenses may include
but are not limited to: audit fees; brokerage commissions; registration of Fund
shares with the SEC and notification fees to the various state securities
commissions; fees of the Funds' Custodian, Administrator, Sub-Administrator and
Transfer Agent or other "service providers"; costs of obtaining quotations of
portfolio securities; and pricing of Fund shares.
Class-specific expenses relating to distribution fee payments
associated with a Rule 12b-1 plan for a particular class of shares and any other
costs relating to implementing or amending such plan (including obtaining
shareowner approval of such plan or any amendment thereto) will be borne solely
by shareowners of such class or classes. Other expense allocations which may
differ among classes, or which are determined by the Trustees to be
class-specific, may include but are not limited to: printing and postage
expenses related to preparing and distributing required documents such as
shareowner reports, prospectuses, and proxy statements to current shareowners of
a specific class; SEC registration fees and state "blue sky" fees incurred by a
specific class; litigation or other legal expenses relating to a specific class;
expenses incurred as a result of issues relating to a specific class; and
different transfer agency fees attributable to a specific class.
Notwithstanding the foregoing, the investment advisor or other service
providers may waive or reimburse the expenses of a specific class or classes to
the extent permitted under Rule 18f-3 under the 1940 Act.
PURCHASE OF SHARES
In General
Shares of each Fund may be purchased directly from the Fund at the net
asset value next determined after receipt of the order in proper form. Shares of
the Funds may be purchased through broker-dealers, banks and trust departments
which may charge the investor a transaction fee or other fee for their services
at time of purchase. Such fees would not otherwise be charged if the shares were
purchased directly from the Funds.
The minimum initial investment for regular accounts (other than IRAs
and UGMAs) is $2,500 for each Fund, and the minimum subsequent investment is
$50, except for accounts opened through a fund network. In such case, the
minimums of the fund network will apply. The minimum initial investment for IRAs
and UGMAs is $500, and the minimum subsequent investment for IRAs and UGMAs is
$50. The minimum initial and subsequent investment for those enrolled in the
Automatic Investment Plan is $50. There is no sales load or charge in connection
with the purchase of shares. The Company reserves the right to reject any
purchase order and to suspend the offering of shares of any Fund. Each Fund also
reserves the right to vary the initial and additional investment minimums, or to
waive the minimum investment requirements for any investor.
Purchase orders for shares of a Fund which are received by the Transfer
Agent or an authorized broker or its designee in proper form, including money
order, check or bank draft by the regular closing time of the New York Stock
Exchange ("NYSE") (currently 4:00 p.m. Eastern time) will be purchased at such
Fund's net asset value determined that day. If you invest by check, or
non-federal funds wire, allow one business day after receipt for conversion into
federal funds. Checks must be made payable to "Alleghany Funds." If you wire
money in the form of federal funds, your money will be invested at the share
price next determined after receipt of the wire. Orders for shares received in
proper form after 4:00 p.m. will be priced at the net asset value determined on
the next day that the NYSE is open for trading.
Each Fund may accept telephone orders from broker-dealers or service
organizations which have been previously approved by a Fund. It is the
responsibility of such broker-dealers or service organizations or their
authorized designees to promptly forward purchase orders and payments for same
to the Company.
Purchases may be made in one of the following ways:
Initial Purchases by Mail
Shares of each Fund may be purchased initially by completing the
application accompanying this Prospectus and mailing it to the Transfer Agent,
together with a check payable to "Alleghany Funds", c/o First Data Investor
Services Group, Inc., P.O. Box 5164, Westborough, Massachusetts 01581. The Funds
will not accept third party checks for the purchase of shares. Third party
checks are those that are made out to someone other than a Fund and are endorsed
over to the Fund.
<PAGE>
Initial Purchases by Wire
An investor desiring to purchase shares of a Fund by wire should call
the Transfer Agent first at (800) 992-8151 and request an account number and
furnish the Fund with your tax identification number. Following such
notification to the Transfer Agent, federal funds and registration instructions
should be wired through the Federal Reserve System to:
BOSTON SAFE DEPOSIT & TRUST
ABA # 011001234
FOR: Alleghany Funds
A/C 140414
FBO "FUND NUMBER"
"SHAREOWNER ACCOUNT NUMBER"
A completed application with original signature(s) of registrant(s)
must be filed with the Transfer Agent immediately subsequent to the initial
wire. Investors should be aware that some banks may impose a wire service fee.
Subsequent Investments
Once an account has been opened, subsequent purchases in the minimum
amounts may be made by mail, bank wire, exchange or by telephone. When making
additional investments by mail, simply return the investment slip from a
previous confirmation or statement with your investment in the envelope
provided. Your check must be made payable to "Alleghany Funds" and mailed to the
Alleghany Funds, P.O. Box 5163, Westborough, Massachusetts 01581. The Funds will
not accept third party checks for the subsequent purchase of shares.
All investments must be made in U.S. dollars, and, to avoid fees and
delays, checks must be drawn only on banks located in the U.S. In order to help
ensure the receipt of good funds, the Company reserves the right to delay
sending your redemption proceeds up to 15 days if you purchased shares by check.
A charge ($20 minimum) will be imposed if any check used for the purchase of
shares is returned. The Funds and the Transfer Agent reserve the right to reject
any purchase order in whole or in part.
EXCHANGE OF SHARES
In General
Shares of any of the Funds within the Company may be exchanged for shares
of the same class of any of the other Funds within the Company. The Company
currently consists of the following Funds: Alleghany/Chicago Trust SmallCap
Value Fund, Alleghany/Veredus Aggressive Growth Fund, Montag & Caldwell Growth
Fund, Chicago Trust Growth & Income Fund, Chicago Trust Talon Fund, Chicago
Trust Balanced Fund, Montag & Caldwell Balanced Fund, Chicago Trust Bond Fund,
Chicago Trust Municipal Bond Fund, and Chicago Trust Money Market Fund.
The exchange privilege is a convenient way to respond to changes in
your investment goals or in market conditions. This privilege is not designed
for frequent trading in response to short-term market fluctuations. You may make
exchanges by mail or by telephone if you have previously elected the telephone
authorization privilege on the application form. The telephone exchange
privilege may be difficult to implement during times of drastic economic or
market changes. The purchase of shares of a Fund through an exchange transaction
is accepted at the net asset value next determined. You should keep in mind that
for tax purposes, an exchange is treated as a redemption and a new purchase,
each at net asset value of the appropriate Fund. The Funds and the Transfer
Agent reserve the right to limit, amend, impose charges upon, terminate or
otherwise modify the exchange privilege on prior written notice to shareowners.
Exchanges may be made only for shares of a Fund then offering its
shares for sale in your state of residence and are subject to the minimum
initial investment requirement. Requests for telephone exchanges must be
received by the Transfer Agent by the close of regular trading on the NYSE
(currently 4:00 p.m. Eastern time) on any day that the NYSE is open for regular
trading.
REDEMPTION OF SHARES
In General
Shares of each Fund may be redeemed without charge on any business day
that the NYSE is open for business. Redemptions will be effective at the net
asset value per share next determined after the receipt by the Transfer Agent of
a redemption request meeting the requirements described below. Each Fund
normally sends redemption proceeds on the next business day, but in any event
redemption proceeds are sent within seven calendar days of receipt of a
redemption request in proper form. However, your redemption proceeds may be
delayed up to 15 days if you purchased the shares to be redeemed by check until
such check has cleared. Payment may also be made by wire directly to any bank
previously designated by the shareowner in a shareowner account application. A
shareowner will be charged $20 for redemptions by wire. Also, please note that
the shareowner's bank may impose a fee for this wire service.
If your account is an Individual Retirement Account (IRA), your
redemption request must be submitted in writing. Please call a customer service
representative at (800-992-8151) to request an IRA Distribution Request form or
for further information.
Except as noted below, redemption requests received in proper form by
the Transfer Agent or an authorized broker or its designee prior to the close of
regular trading hours on the NYSE on any business day that the Fund calculates
its per share net asset value are effective that day.
Redemption requests received after the close of the NYSE are effective
as of the time the net asset value per share is next determined. No redemption
will be processed until the Transfer Agent has received a completed application
with respect to the account.
The Funds will satisfy redemption requests in cash to the fullest
extent feasible, so long as such payments would not, in the opinion of the Board
of Trustees, result in the necessity of a Fund selling assets under
disadvantageous conditions or to the detriment of the remaining shareowners of
the Fund. Pursuant to the Company's Trust Instrument, payment for shares
redeemed may be made either in cash or in-kind, or partly in cash and partly
in-kind. However, the Company has elected pursuant to Rule 18f-1 under the 1940
Act to redeem its shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund, during any ninety-day period for any one
shareowner. Payments in excess of this limit by any of the Funds will also be
made wholly in cash unless the Board of Trustees believes that economic
conditions exist which would make such a practice detrimental to the best
interests of any such Fund. Any portfolio securities paid or distributed in-kind
would be valued as described under "NET ASSET VALUE." In the event that an
in-kind distribution is made, a shareowner may incur additional expenses, such
as the payment of brokerage commissions, on the sale or other disposition of the
securities received from a Fund. In-kind payments need not constitute a
cross-section of the Fund's portfolio.
Minimum Balances
Due to the relatively high cost of maintaining smaller accounts, the
Funds reserve the right to involuntarily redeem shares in any account for its
then current net asset value (which will be promptly paid to the shareowner) if
at any time the total investment does not have a value of at least $50. The
shareowner will be notified that the value of his or her account is less than
the required minimum and will be allowed at least sixty days to bring the value
of the account up to the minimum before the redemption is processed.
Shares may be redeemed in one of the following ways:
Redemptions by Mail
Shareowners may submit a written request for redemption to: Alleghany
Funds, P.O. Box 5164, Westborough, Massachusetts 01581. The request must be in
good order which means that it must: (i) identify the shareowner's account name
and account number; (ii) state the fund name, (iii) state the number of shares
to be redeemed; and (iv) be signed by each registered owner exactly as the
shares are registered.
To prevent fraudulent redemptions, a signature guarantee for the
signature of each person in whose name the account is registered is required on
all written redemption requests over $50,000. A guarantee may be obtained from
any commercial bank, trust company, savings and loan association, federal
savings bank, a member firm of a national securities exchange or other eligible
financial institution. Credit unions must be authorized to issue signature
guarantees; notary public endorsements will not be accepted. The Transfer Agent
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees, guardians, and retirement
plans.
A redemption request will not be deemed to be properly received until the
Transfer Agent receives all required documents in proper form. Questions with
respect to the proper form for redemption requests should be directed to the
Transfer Agent at (800) 992-8151.
Redemptions by Telephone
Shareowners who have so indicated on the application, or have
subsequently arranged in writing to do so, may redeem shares by instructing the
Transfer Agent by telephone at (800) 992-8151.
In order to arrange for redemption by wire or telephone after an
account has been opened, or to change the bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent at the
address listed under "Redemptions by Mail" above. Such requests must be signed
by the shareowner, with signatures guaranteed (see "Redemptions by Mail" for
details regarding signature guarantees). Further documentation may be requested
from corporations, executors, administrators, trustees, or guardians.
The Funds reserve the right to refuse a wire or telephone redemption if
it is believed advisable to do so. Procedures for redeeming Fund shares by wire
or telephone may be modified or terminated at any time by any of the Funds.
Neither the Funds nor any of their service contractors will be liable for any
loss or expense in acting upon telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone instructions are
genuine, the Funds will use such procedures as are considered reasonable,
including requesting a shareowner to correctly state his or her Fund account
number, the name in which his or her account is registered, his or her social
security number, banking institution, bank account number, and the name in which
his or her bank account is registered.
Shares of the Funds may be redeemed through certain broker-dealers, banks
and bank trust departments who may charge the investor a transaction fee or
other fee for their services at the time of redemption. Such fees would not
otherwise be charged if the shares were redeemed from the Company.
ACCOUNT OPTIONS
In General
The following special services are available to shareowners. There are
no charges for the programs noted below and an investor may change or stop these
plans at any time by written notice to the Funds.
Automatic Investment Plan
This service allows you to make regular investments once your account
is established. You simply authorize the automatic withdrawal of funds from your
bank account into the Fund of your choice. The minimum initial and subsequent
investment pursuant to this plan is $50 per month. Your initial account must be
established prior to participating in this plan. Please complete the appropriate
section on the new account application enclosed with this Prospectus.
Systematic Withdrawal Program
The Funds offers a Systematic Withdrawal Program as another option
which may be utilized by an investor who wishes to withdraw funds from his or
her account on a regular basis. To participate in this option, an investor must
either own or purchase shares having a value of $50,000 or more. Automatic
payments by check will be mailed to the investor on either a monthly, quarterly,
semi-annual, or annual basis in amounts of $50 or more. All withdrawals are
processed on the 25th of the month or, if such day is not a business day, on the
next business day and paid promptly thereafter.
Individual Retirement Accounts
An Individual Retirement Account (IRA) is a custodial account created
for the exclusive benefit of you and your beneficiaries. There are many types of
IRAs available including Individual, Spousal, Rollover, SEP-IRA, SIMPLE-IRA,
Roth-Contributory and Roth-Conversion. Because income generated from an IRA is
tax-deferred.
The annual maintenance fee for an IRA is $15.00 per year. This fee will
be paid through an automatic liquidation of shares from your account each
December. You may choose to pay this fee prior to December by sending in a
check. Shareowners with a cumulative balance of $50,000 or more will have IRA
fees waived.
DISTRIBUTION PLAN
The Board of Trustees of the Company has adopted a Plan of Distribution
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act which permits the Class N
shares of each Fund to pay certain expenses associated with the distribution of
its shares. Under the Plan, each Fund may reimburse the Distributor for actual
expenses not exceeding, on an annual basis, 0.25% of a Fund's average daily net
assets.
The Plan authorizes a Fund to compensate the Distributor for the
following: (1) services rendered by the Distributor pursuant to the Distribution
Agreement between the Company and the Distributor; (2) payments the Distributor
makes to financial institutions and industry professionals, such as insurance
companies, investment counselors, accountants, estate planning firms and
broker-dealers, including Chicago Trust and its affiliates and subsidiaries,
Talon Securities, Inc. and the affiliates and subsidiaries of the Distributor
(collectively, "Participating Organizations"), in consideration for distribution
services provided or expenses assumed in connection with distribution
assistance, market research, and promotional services, including, but not
limited to, printing and distributing prospectuses to persons other than current
shareowners of a Fund, printing and distributing advertising and sales
literature and reports to shareowners and prospective shareowners used in
connection with the sale of a Fund's shares, and personnel and communication
equipment used in servicing shareowner accounts and prospective shareowner
inquiries; and (3) payments the Distributor makes to Participating Organizations
pursuant to an agreement to provide administrative support services to the
holders of a Fund's shares. Participating Organizations that are compensated for
distribution services may be required to register as dealers in certain
jurisdictions.
Payments for market research and promotional services may be based in
whole or in part on a percentage of the regular salary expense for those
employees of Participating Organizations engaged in marketing research and
promotional services specifically relating to the distribution of Fund shares
based on the amount of time devoted by such employees to such activities, and
any out-of-pocket expenses associated with the distribution of Fund shares.
All such payments made by a Fund pursuant to the Plan shall be made for
the purpose of selling shares issued by the Fund. Distribution expenses which
are attributable to a particular Fund will be charged against that Fund's
assets. Distribution expenses which are attributable to more than one Fund will
be allocated among the Funds in proportion to their relative net assets.
NET ASSET VALUE
The net asset value per share of each Fund is computed as of the close
of regular trading on the NYSE on each day the NYSE is open for trading. The
NYSE is closed on New Year's Day, Martin Luther King Jr.'s Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
The net asset value per share is computed by adding the value of all
securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. The portfolio securities of each Fund listed or traded on a stock
exchange are valued at the latest sale price. If no sale price is reported, the
mean of the latest bid and asked prices is used. Securities traded
over-the-counter are priced at the mean of the latest bid and asked prices. When
market quotations are not readily available, securities and other assets are
valued at fair value as determined in good faith by the Board of Trustees.
Bonds are valued through valuations obtained from a commercial pricing
service or at the mean of the most recent bid and asked prices provided by
investment dealers in accordance with procedures established by the Board of
Trustees. Options, futures and options on futures are valued at the settlement
price as determined by the appropriate clearing corporation.
DIVIDENDS AND TAXES
Dividends
Dividends, if any, from net investment income will be declared and paid
quarterly by each Fund. Aggregate net profits realized from the sale of
portfolio securities, if any, are distributed at least once each year unless
they are used to offset losses carried forward from prior years, in which case
no such gain will be distributed.
Income dividends and capital gain distributions are reinvested
automatically in additional shares at net asset value, unless you elect to
receive them in cash. Distribution options may be changed at any time by
requesting a change in writing. Any check in payment of dividends or other
distributions which cannot be delivered by the Post Office or which remains
uncashed for a period of more than one year may be reinvested in the
shareowner's account at the then current net asset value and the dividend option
may be changed from cash to reinvest. Dividends are reinvested on the
ex-dividend date (the "ex-date") at the net asset value determined at the close
of business on that date. Please note that shares purchased shortly before the
record date for a dividend or distribution may have the effect of returning
capital although such dividends and distributions are subject to taxes.
Taxes
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code ("the Code"). Such qualification
relieves a Fund of liability for Federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code. Each Fund is treated as a
separate corporate entity for Federal tax purposes. Distributions of any net
investment income and of any net realized short-term capital gains are taxable
to shareowners as ordinary income. Distributions of net capital gain (the excess
of net long-term capital gain over net short-term capital loss) are taxable to
shareowners as long-term capital gain regardless of how long a shareowner may
have held shares of a Fund. The tax treatment of distributions of ordinary
income or capital gains will be the same whether the shareowner reinvests the
distributions or elects to receive them in cash. A distribution will be treated
as paid on December 31 of the current calendar year if it is declared in
October, November or December with a record date in such a month and paid during
January of the following calendar year. Such distributions will be taxable to
shareowners in the calendar year in which the distributions are declared, rather
than the calendar year in which the distributions are received.
Shareowners will be advised annually of the source and tax status of
all distributions for Federal income tax purposes. Dividends and distributions
may be subject to state and local income taxes. Further information regarding
the tax consequences of investing in the Funds is included in the Statement of
Additional Information. The above discussion is intended for general information
only. Investors should consult their own tax advisors for more specific
information on the tax consequences of particular types of distributions.
Redemptions of Fund shares, and the exchange of shares between Funds of
the Company, are taxable events and, accordingly, shareowners may realize
capital gains or losses on these transactions.
Shareowners may be subject to back-up withholding on reportable
dividend and redemption payments ("back-up withholding") if a certified taxpayer
identification number is not on file with the Fund, or if, to the Fund's
knowledge, an incorrect number has been furnished. An individual's taxpayer
identification number is his/her social security number.
<PAGE>
PERFORMANCE OF THE FUNDS
In General
Performance, whether it be "total return" or "average annual total
return" of a Fund, may be advertised to present or prospective shareowners. The
figures are based on historical performance and should not be considered
representative of future results. The value of an investment in a Fund will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost. Performance information for a Fund may be compared to
various unmanaged indices such as the Dow Jones Industrial Average and the S&P
500, and to the performance of other mutual funds tracked by mutual fund rating
services. Further information about the performance of the Funds is included in
the Statement of Additional Information, which may be obtained without charge by
contacting the Fund at (800) 992-8151.
Total Return
Total Return is defined as the change in value of an investment in a
Fund over a particular period, assuming that all distributions have been
reinvested. Thus, total return reflects not only income earned, but also
variations in share prices at the beginning and end of the period. Average
annual total return is determined by computing the annual compound return over a
stated period of time that would have produced a Fund's cumulative total return
over the same period if the Fund's performance had remained constant throughout.
GENERAL INFORMATION
Organization
Each Fund is a separate, diversified, series of the Company, a Delaware
business trust organized pursuant to a Trust Instrument dated September 10,
1993. The Company is registered under the 1940 Act as an open-end management
investment company, commonly known as a mutual fund. The Trustees of the Company
may establish additional series or classes of shares without the approval of
shareowners. The assets of each series belong only to that series, and the
liabilities of each series are borne solely by that series and no other.
Description of Shares
Each Fund is authorized to issue an unlimited number of shares of
beneficial interest without par value. Currently, there is only one class of
shares issued by each Fund which is Class N shares for retail investors. Shares
of each Fund represent equal proportionate interests in the assets of that Fund
only and have identical voting, dividend, redemption, liquidation, and other
rights. All shares issued are fully paid and non-assessable, and shareowners
have no preemptive or other right to subscribe to any additional shares and no
conversion rights. For more information about other Company funds and their
respective class or classes, please call (800) 992-8151.
Voting Rights
Each issued and outstanding full and fractional share of a Fund is
entitled to one full and fractional vote in the Fund. Shares of a Fund
participate equally in regard to dividends, distributions, and liquidations with
respect to that Fund subject to preferences (such as Rule 12b-1 distribution
fees), rights or privileges of any share class. Shareowners have equal
non-cumulative voting rights. Class N shares have exclusive voting rights with
respect to the distribution plan. On any matter submitted to a vote of
shareowners, shares of each Fund will vote separately except when a vote of
shareowners in the aggregate is required by law, or when the Trustees have
determined that the matter affects the interests of more than one Fund, in which
case the shareowners of all such Funds shall be entitled to vote thereon.
Shareowner Meetings
The Trustees of the Company do not intend to hold annual meetings of
shareowners of the Funds. The Trustees have undertaken to the SEC, however, that
they will promptly call a meeting for the purpose of voting upon the question of
removal of any Trustee when requested to do so by not less than 10% of the
outstanding shareowners of the Funds. In addition, subject to certain
conditions, shareowners of the Funds may apply to the Company to communicate
with other shareowners to request a shareowners' meeting to vote upon the
removal of a Trustee or Trustees.
Certain Provisions of Trust Instrument
Under Delaware law, the shareowners of the Funds will not be personally
liable for the obligations of any Fund; a shareowner is entitled to the same
limitation of personal liability extended to shareowners of corporations. To
guard against the risk that the Delaware law might not be applied in other
states, the Trust Instrument requires that every written obligation of the
Company or a Fund contain a statement that such obligation may only be enforced
against the assets of the Company or Fund and provides for indemnification out
of Company or Fund property of any shareowner nevertheless held personally
liable for Company or Fund obligations.
Portfolio Transactions and Brokerage Commissions
The Company will attempt to obtain the best overall price and most
favorable execution of transactions in portfolio securities. However, subject to
policies established by the Board of Trustees of the Company, a Fund may pay a
broker-dealer a commission for effecting a portfolio transaction for a Fund in
excess of the amount of commission another broker-dealer would have charged if
Chicago Trust determines in good faith that the commission paid was reasonable
in relation to the brokerage or research services provided by such
broker-dealer, viewed in terms of that particular transaction or such firm's
overall responsibilities with respect to the clients, including the Fund, as to
which it exercises investment discretion. In selecting and monitoring
broker-dealers and negotiating commissions, consideration will be given to a
broker-dealer's reliability, the quality of its execution services on a
continuing basis and its financial condition.
Subject to the foregoing considerations, preference may be given in
executing portfolio transactions for a Fund to brokers which have sold shares of
that Fund. Any such transactions, however, will comply with Rule 17e-1 under the
1940 Act.
Shareowner Reports and Inquiries
Shareowners will receive Semi-Annual Reports showing portfolio
investments and other information as of April 30 and Annual Reports audited by
independent accountants as of October 31. Shareowners with inquiries should call
the Company at (800) 992-8151 or write to Alleghany Funds, P.O. Box 5164,
Westborough, Massachusetts 01581.
<PAGE>
APPENDIX
Debt Ratings
Moody's Investors Service, Inc. describes classifications of corporate bonds as
follows:
"Aaa" -- These bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" -- These bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" -- These bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" -- These bonds are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba" -- These bonds are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
"B" -- These bonds generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
"Caa" -- These bonds are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
"Ca" -- These bonds represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
"C" -- These bonds are the lowest-rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's may modify a rating of "Aa", "A" or "Baa" by adding numerical modifiers
1, 2, 3 to show relative standing within these categories.
Standard & Poor's Corporation describes classifications of corporate and
municipal debt as follows:
"AAA" -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
"AA" -- These bonds also qualify as high-quality debt obligations. Their
capacity to pay interest and repay principal is very strong, and differs from
the "AAA" issues only in small degree.
"A" -- These bonds have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB" -- These bonds are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher rated categories.
"BB", "B", "CCC", "CC", or "C" -- These bonds are regarded as having
predominantly speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal. "BB" indicates the lowest degree of
speculation and "C" the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major exposures to adverse conditions. Debt rated "BB"
has less near-term vulnerability to default than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to meet
timely interest and principal payments. The "BB" rating category is also used
for debt subordinated to senior debt that is assigned an actual or implied
"BBB-" rating. Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Debt rated "CCC" has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. The rating "CC" is
typically applied to debt subordinated to senior debt which is assigned an
actual or implied "CCC" rating. The rating "C" is typically applied to debt
subordinated to senior debt which is assigned an actual or implied "CCC-" debt
rating.
"CI" -- This rating is reserved for income bonds on which no interest is being
paid.
"D" -- Debt is in default, and payment of interest and/or repayment of principal
is in arrears.
PLUS (+) OR MINUS (-) -- The ratings from "AA" through "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>
INVESTMENT ADVISOR
The Chicago Trust Company
171 North Clark Street
Chicago, IL 60601-3294
Veredus Asset Management LLC
6900 Bowling Blvd., Suite 250
Louisville, KY 40207
ADMINISTRATOR
The Chicago Trust Company
171 North Clark Street
Chicago, IL 60601-3294
CUSTODIAN
Bankers Trust Company
16 Wall Street
New York, NY 10005
For Additional Information about Alleghany Funds, call:
(800) 992-8151
