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PROSPECTUS JULY 1, 1997
THE LAKE FOREST FUNDS
The Lake Forest Funds is a family of two no-load mutual funds that offers you
different investment opportunities. The Funds and their specific investment
objectives are listed below.
NO-LOAD MUTUAL FUNDS
The Lake Forest Funds are true "no-load" investments which means that there
are no sales charges, commissions or Rule 12b-1 fees. The minimum initial
investment for each fund is $2,500 ($1,000 for tax sheltered plans such as IRAs
or Medical Savings Accounts (MSAs)).
LAKE FOREST CORE EQUITY FUND
The investment objective of the Lake Forest Core Equity Fund is to provide
long term capital appreciation together with current income. The Fund seeks to
achieve its objective by investing primarily in a broad range of equity
securities of large, established companies believed by its Adviser, Boberski &
Company, to have above average prospects for appreciation.
LAKE FOREST MONEY MARKET FUND
The investment objective of the Lake Forest Money Market Fund is to provide
the highest level of current income consistent with liquidity and security of
principal. The Fund is a U.S. government money market fund designed for the
short term cash balances of corporations, institutions and individuals. It
invests exclusively in U.S. government obligations and repurchase agreements
fully collateralized by U.S. government obligations.
An investment in the Lake Forest Money Market Fund is neither insured nor
guaranteed by the U.S. Government, and there can be no assurance that the Fund
will be able to maintain a stable net asset value of $1.00 per share. Shares of
the Funds are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank, and are not insured by the Federal Deposit Insurance
Corporation (FDIC), the Federal Reserve Board or any other government agency,
entity, or person. The purchase of Fund shares involves investment risks,
including the possible loss of principal.
This Prospectus concisely sets forth the information a prospective investor
ought to know before investing and should be retained for future reference. A
Statement of Additional Information dated July 1, 1997 has been filed with the
Securities and Exchange Commission, and is incorporated herein by reference. The
Statement of Additional Information can be obtained upon request without charge
by contacting the Transfer Agent's office listed below.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE LAKE FOREST FUNDS
c/o American Data Services, Inc.
24 W. Carver Street
Huntington, New York 11743
(800) 592-7722
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SUMMARY OF FUND EXPENSES
The tables below are provided to assist an investor in understanding the
direct and indirect expenses that an investor may incur as a shareholder in the
Funds. The expense information for the Core Equity Fund has been restated to
reflect current fees. The expenses are expressed as a percentage of average net
assets. The Example should not be considered a representation of future Fund
performance or expenses, both of which may vary.
The Funds are true no-load funds and, accordingly, shareholders do not pay
any sales charge or commission upon purchase or redemption of shares of the
Funds and the Funds do not pay any distribution fees under a Rule 12b-1 Plan.
Unlike most other mutual funds, the Funds do not pay directly for transfer
agency, pricing, custodial, auditing or legal services, nor do they pay directly
any general administrative or other operating expenses. The Adviser pays all of
the expenses of each Fund except brokerage, taxes, interest and extraordinary
expenses.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CORE MONEY
EQUITY MARKET
FUND FUND
------ ------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases..................... NONE NONE
Maximum Sales Load Imposed on Reinvested Dividends.......... NONE NONE
Deferred Sales Load......................................... NONE NONE
Redemption Fees............................................. * *
Exchange Fees**............................................. $ 5.00 $ 5.00
Wire Transfer Fees**........................................ $15.00 $15.00
</TABLE>
- ---------------
* You will be charged a redemption fee of 0.10% of the net asset value of
shares held less than 30 days.
** These fees are charged to shareholders by the Custodian and/or the Transfer
Agent. The fees reflected above are based on current fee schedules and may
change at any time.
In addition, shareholders who maintain balances below the required minimum
balance may be subject to a $5.00 charge per month that the account is below the
required minimum. See "How to Redeem Shares -- Additional Information" for more
information.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets after fee
waivers, if any)
<TABLE>
<S> <C> <C>
Management Fees(1).......................................... 1.25% 0.125%
12b-1 Charges............................................... NONE NONE
Other Expenses(2)........................................... NONE NONE
Total Fund Operating Expenses............................... 1.25% 0.125%
</TABLE>
- ---------------
(1) The Adviser has agreed to cap the Management Fees at 0.125% for the Money
Market Fund at least through the fiscal year ending February 28, 1998.
Without such a cap, the Management Fees would have been 0.50% and Total Fund
Operating Expenses would have been 0.50%.
(2) Pursuant to the Management Agreement, the Adviser pays all of each Fund's
operating expenses except interest, taxes, brokerage commissions and
extraordinary expenses.
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Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Core Equity Fund............................... $13 $40 $69 $151
Money Market Fund.............................. $ 1 $ 4 $ 7 $ 16
</TABLE>
Note: Expenses for the Core Equity Fund have been restated to reflect current
fees.
THE FUNDS
Lake Forest Core Equity Fund and Lake Forest Money Market Fund (the
"Funds") are series of The Lake Forest Funds (the "Trust") organized as an Ohio
business trust on November 23, 1994. The Trust is an open-end investment company
which commenced operations on March 1, 1995. The investment adviser to the Funds
is Boberski & Company (the "Adviser").
INVESTMENT OBJECTIVES AND STRATEGIES
The descriptions that follow are designed to help you choose the Fund that
best fits your investment objectives. You may want to pursue more than one
objective by investing in more than one Fund.
LAKE FOREST CORE EQUITY FUND
The investment objective of the Lake Forest Core Equity Fund (the "Equity
Fund") is to provide long term capital appreciation together with current
income. The Fund seeks to achieve this objective by investing primarily in a
broad range of equity securities of large, established companies (those with a
market capitalization above $1 billion) which the Adviser believes have above
average prospects for appreciation, based on certain fundamental and technical
standards of selection. However, the Fund will also invest in dividend paying
stocks, and it is expected that the Fund will generate a combination of current
income and long term capital appreciation.
The Fund is intended to be a core equity portfolio designed for investors
with a long term wealth building horizon and is particularly suitable for
retirement and educational funds. The Adviser seeks to limit investment risk by
diversifying the Fund's investments across a broad range of industries and
companies, and by investing primarily in larger companies with a history of
attractive dividend yields, low price-earnings ratios and strong cash flows. The
Adviser will particularly seek large, well capitalized companies which the
Adviser believes to have the potential to compete in the global marketplace.
While the Fund ordinarily will invest in common stocks of established U.S.
companies, it may invest in foreign companies through the purchase of American
Depository Receipts.
Under normal circumstances, at least 65% of the total assets of the Fund
will be invested in equity securities. The Adviser generally intends to stay
fully invested (subject to liquidity requirements and defensive purposes) in
common stock and common stock equivalents (such as rights, warrants and
securities convertible into common stocks) regardless of the movement of stock
prices. However, the Fund may invest in preferred stocks, bonds, corporate debt
and U.S. government obligations when the Adviser believes that these securities
offer opportunities to further the Fund's investment objective. The Fund
normally will invest primarily in
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common stocks of established companies that have a record of at least three
years continuous operation, and whose securities, in the opinion of the Adviser,
enjoy a fair degree of marketability. Most equity securities in the Fund's
portfolio are listed on major stock exchanges or traded over-the-counter.
For temporary defensive purposes, the Fund may hold all or a portion of its
assets in money market instruments, securities of money market registered
investment companies or repurchase agreements collateralized by U.S. government
obligations. The Fund may also make such investments at any time to maintain
liquidity or pending selection of investments in accordance with its policies.
LAKE FOREST MONEY MARKET FUND
The investment objective of the Lake Forest Money Market Fund is to provide
the highest level of current income consistent with liquidity and security of
principal. The Fund is a U.S. government money market fund designed for the
investment of short-term cash reserves, and the Adviser believes it is
appropriate for corporations, pension and profit sharing plans, and other
institutional and individual investors.
In seeking its objective, the Fund will invest exclusively in obligations
issued or guaranteed as to principal and interest by the United States
government, its agencies or instrumentalities ("U.S. government securities") as
well as repurchase agreements involving these securities. The Fund seeks to
maintain a stable net asset value of $1.00 per share pursuant to a rule of the
Securities and Exchange Commission, which requires that the Fund's portfolio
meet certain maturity, quality and diversification standards (see "Share Price
Calculation").
To the extent that it is feasible to do so, the Adviser intends to invest
in U.S. government securities which are, by federal statute, exempt from state
and local taxes. Such securities are subject to federal taxation. However, the
Fund will not be fully invested in securities that are exempt from state and
local taxes. Shareholders should consult their own tax advisors regarding the
tax ramifications of an investment in the Money Market Fund.
GENERAL
As all investment securities are subject to inherent market risks and
fluctuations in value due to earnings, economic and political conditions and
other factors, neither Fund can give any assurance that its investment objective
will be achieved. Current yields or rates of total return quoted by a Fund may
be higher or lower than past quotations, and there can be no assurance that any
current yield or rate of total return will be maintained.
See "Investment Policies and Techniques and Risk Considerations" for more
information.
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FINANCIAL HIGHLIGHTS
The following table provides you with information about the history of the
Funds' shares. The table is included as supplementary information to the Funds'
financial statements which are included in the February 28, 1997 Annual Report
which may be obtained by writing or calling the Fund. The Funds' financial
statements have been audited by the Funds' independent certified accountants,
whose unqualified opinion therein is contained in the Annual Report.
LAKE FOREST CORE EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
Net asset value -- beginning of period...................... $17.34 $ 15.00
Income from investment operations
Net investment income....................................... 0.39 0.56
Net realized gain on investments............................ 3.07 2.13
------ -------
Total from investment operations............................ 3.46 2.69
Less distributions
Dividends from net investment income........................ (0.37) (0.15)
Dividends from capital gains................................ (0.39) (0.20)
------ -------
Net asset value -- end of period............................ $20.04 $ 17.34
====== =======
Total Return................................................ 20.65% 18.59%
Ratios/supplemental data
Net assets, end of period (in 000's)........................ 2,592 1,016
Ratio of expenses to average net assets..................... 1.00% 0.45%
Ratio of net investment income to average net assets........ 2.10% 3.89%
Portfolio turnover rate..................................... 0 129.77%
Average commission rate per share........................... $ 0.13
</TABLE>
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LAKE FOREST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
Net asset value -- beginning of period...................... $ 1.00 $ 1.00
Income from investment operations
Net investment income....................................... 0.05 0.06
Net realized gain on investments............................ 0.00 0.00
------ ------
Total from investment operations............................ 0.05 0.06
Less distributions
Dividends from net investment income........................ (0.05) (0.06)
Dividends from capital gains................................ 0.00 0.00
------ ------
Net asset value -- end of period............................ $ 1.00 $ 1.00
====== ======
Total Return................................................ 5.13% 5.50%
Ratios/supplemental data
Net assets, end of period (in 000's)........................ 3,016 1,787
Ratio of expenses to average net assets..................... 0.125% 0.08%
Ratio of net investment income to average net assets........ 5.13% 5.50%
Portfolio turnover rate..................................... 0.00% 0.00%
</TABLE>
INVESTMENT POLICIES AND TECHNIQUES AND RISK CONSIDERATIONS
This section contains general information about various types of securities
and investment techniques. Each Fund may invest in any security or employ any
investment technique described in this section unless specifically noted
otherwise.
EQUITY SECURITIES
Under normal conditions, the Equity Fund will invest at least 65% of its
total assets in equity securities. Equity securities consist of common stock,
preferred stock and common stock equivalents (such as convertible preferred
stock, convertible debentures, rights and warrants) and investment companies
which invest primarily in the above.
Convertible preferred stock is preferred stock that can be converted into
common stock pursuant to its terms. Convertible debentures are debt instruments
that can be converted into common stock pursuant to their terms. The Adviser
intends to invest only in convertible debentures rated A or higher by Standard &
Poor's Corporation ("S&P") or by Moody's Investors Services, Inc. ("Moody's").
Warrants are options to purchase equity securities at a specified price valid
for a specific time period. Rights are similar to warrants, but normally have a
shorter duration and are distributed by the issuer to its shareholders. The Fund
may not invest more than 5% of its net assets at the time of purchase in rights
and warrants.
Equity securities include common stocks and common stock equivalents of
domestic real estate investment trusts and other companies which operate as real
estate corporations or which have a significant portion of their assets in real
estate. Neither Fund will acquire any direct ownership of real estate.
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The Equity Fund may invest in foreign equity securities through the
purchase of American Depository Receipts. American Depository Receipts are
certificates of ownership issued by a U.S. bank as a convenience to the
investors in lieu of the underlying shares which it holds in custody. To the
extent that the Equity 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.
FIXED-INCOME SECURITIES
Each Fund may invest in fixed-income securities. Fixed-income securities
include corporate debt securities, U.S. government securities, mortgage-related
securities, repurchase agreements and participation interests in such
securities. The Money Market Fund will not invest in corporate debt securities,
and the Equity Fund will only invest in corporate debt securities rated A or
higher by S&P or Moody's.
Fixed-income securities are generally considered to be interest rate
sensitive, which means that their value will generally decrease when interest
rates rise and increase when interest rates fall. Securities with shorter
maturities, while offering lower yields, generally provide greater price
stability than longer term securities and are less affected by changes in
interest rates.
U.S. GOVERNMENT SECURITIES -- Each Fund may invest in U.S. government
securities. U.S. government securities may be backed by the credit of the
government as a whole or only by the issuing agency. U.S. Treasury bonds, notes,
and bills and some agency securities, such as those issued by the Federal
Housing Administration and the Government National Mortgage Association (GNMA),
are backed by the full faith and credit of the U.S. government as to payment of
principal and interest and are the highest quality government securities. Other
securities issued by U.S. government agencies or instrumentalities, such as
securities issued by the Federal Home Loan Banks and the Federal Home Loan
Mortgage Corporation (FHLMC), are supported only by the credit of the agency
that issued them, and not by the U.S. government. Securities issued by the
Federal Farm Credit System, the Federal Land Banks, and the Federal National
Mortgage Association (FNMA) are supported by the agency's right to borrow money
from the U.S. Treasury under certain circumstances, but are not backed by the
full faith and credit of the U.S. government.
MORTGAGE-RELATED SECURITIES -- One form of U.S. government securities in
which each Fund may invest is mortgage-related securities. Mortgage-related
securities include securities representing interests in a pool of mortgages.
These securities, including securities issued by FNMA, GNMA and FHLMC, provide
investors with payments consisting of both interest and principal as the
mortgages in the underlying mortgage pools are repaid. The Funds will only
invest in pools of mortgage loans assembled for sale to investors by agencies or
instrumentalities of the U.S. government. Unscheduled or early payments on the
underlying mortgages may shorten the securities' effective maturities.
Other types of securities representing interests in a pool of mortgage
loans are known as collateralized mortgage obligations (CMOs) and real estate
mortgage investment conduits (REMICs) and multi-class pass-throughs. CMOs and
REMICs are debt instruments collateralized by pools of mortgage loans or other
mortgage-backed securities. Multiclass pass-through securities are equity
interests in a trust composed of mortgage loans or other mortgage-backed
securities. Payments of principal and interest on underlying collateral provide
the funds to pay debt service on the CMO or REMIC or make scheduled
distributions on the multi-class pass-through securities. The Funds will only
invest in CMOs, REMICs and multi-class pass-through securities (collectively
"CMOs" unless the context indicates otherwise) issued by agencies or
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instrumentalities of the U.S. government (such as FHLMC). Neither Fund will
invest in "stripped" CMOs, which represent only the income portion or the
principal portion of the CMO.
CMOs are issued with a variety of classes or "tranches," which have
different maturities and are often retired in sequence. One or more tranches of
a CMO may have coupon rates which reset periodically at a specified increment
over an index such as the London Interbank Offered Rate ("LIBOR"). These
"floating rate CMOs," typically are issued with lifetime "caps" on their coupon
rate, which means that there is a ceiling beyond which the coupon rate may not
be increased. The yield of some floating rate CMOs varies in excess of the
change in the index, which would cause the value of such CMOs to fluctuate
significantly once rates reach the cap.
REMICs, which have elected to be treated as such under the Internal Revenue
Code, are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs in
that they issue multiple classes of securities. As with other CMOs, the
mortgages which collateralize the REMICs in which a Fund may invest include
mortgages backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
The average life of securities representing interests in pools of mortgage
loans is likely to be substantially less than the original maturity of the
mortgage pools as a result of prepayments or foreclosures of such mortgages.
Prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest, and have the effect of reducing future
payments. To the extent the mortgages underlying a security representing an
interest in a pool of mortgages are prepaid, a Fund may experience a loss (if
the price at which the respective security was acquired by the Fund was at a
premium over par, which represents the price at which the security will be
redeemed upon prepayment). In addition, prepayments of such securities held by a
Fund will reduce the share price of the Fund to the extent the market value of
the securities at the time of prepayment exceeds their par value. Furthermore,
the prices of mortgage-related securities can be significantly affected by
changes in interest rates. Prepayments may occur with greater frequency in
periods of declining mortgage rates because, among other reasons, it may be
possible for mortgagors to refinance their outstanding mortgages at lower
interest rates. In such periods, it is likely that any prepayment proceeds would
be reinvested by a Fund at lower rates of return. Investment in such securities
could also subject the Funds to "maturity extension risk" which is the
possibility that rising interest rates may cause prepayments to occur at a
slower than expected rate. This particular risk may effectively change a
security which was considered a short or immediate-term security at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities.
INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS -- A repurchase agreement is a short-term investment
in which the purchaser (i.e., a Fund) acquires ownership of a U.S. Government
security (which may be of any maturity) and the seller agrees to repurchase the
security at a future time at a set price, thereby determining the yield during
the purchaser's holding period (usually not more than seven days from the date
of purchase). Any repurchase transaction in which a Fund engages will require
full collateralization of the seller's obligation during the entire term of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller, a Fund could experience both delays in liquidating the underlying
security and losses in value ("counter-party credit risk"). However, both Funds
intend to enter into repurchase agreements only with Star Bank, N.A. (the
Trust's Custodian), other banks with assets of $1 billion or more and registered
securities dealers determined by the
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Adviser (subject to review by the Board of Trustees) to be creditworthy. The
Adviser monitors the creditworthiness of the banks and securities dealers with
which a Fund engages in repurchase transactions, and a Fund will not invest more
than 5% of its net assets in illiquid securities, including repurchase
agreements maturing in more than seven days. The Funds seek to avoid
counter-party credit risk by purchasing their securities outright whenever
possible.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS -- Each Fund may buy and
sell securities on a when-issued or delayed delivery basis, with payment and
delivery taking place at a future date. The price and interest rate that will be
received on the securities are each fixed at the time the buyer enters into the
commitment. A Fund may enter into such forward commitments if it holds, and
maintains until the settlement date in a separate account at the Trust's
Custodian, cash or U.S. government securities in an amount sufficient to meet
the purchase price. Forward commitments involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date. Any change
in value could increase fluctuations in a Fund's share price and yield. Although
a Fund will generally enter into forward commitments with the intention of
acquiring securities for its portfolio, a Fund may dispose of a commitment prior
to the settlement if the Adviser deems it appropriate to do so.
FLOATING AND VARIABLE RATE OBLIGATIONS -- Each Fund may invest in floating
and variable rate obligations. Floating rate obligations have an interest rate
which is fixed to a specified interest rate, such as a bank prime rate, and is
automatically adjusted when the specified interest rate changes. Variable rate
obligations have an interest rate which is adjusted at specified intervals to a
specified interest rate. Periodic interest rate adjustments help stabilize the
obligations' market values.
A Fund may purchase these obligations from the issuers or may purchase
participation interests in pools of these obligations from banks or other
financial institutions. Variable and floating rate obligations may carry demand
features that permit a Fund to sell the obligations back to the issuers or to
financial intermediaries at par value plus accrued interest upon short notice at
any time or prior to specific dates. The inability of the issuer or financial
intermediary to repurchase an obligation on demand could affect the liquidity of
the Fund's portfolio. Frequently, obligations with demand features are secured
by letters of credit or comparable guarantees.
BORROWING -- A Fund may borrow money for temporary or emergency purposes in
an amount not exceeding 33 1/3% of the value of the Fund's total assets
(calculated after such borrowing). Borrowings other than from banks are limited
to 5% of total assets (calculated before such borrowing).
LOANS OF PORTFOLIO SECURITIES -- Each Fund may make short and long term
loans of its portfolio securities. Under the lending policy authorized by the
Board of Trustees and implemented by the Adviser in response to requests of
broker-dealers or institutional investors which the Adviser deems qualified, the
borrower must agree to maintain collateral with the Fund, in the form of cash or
U.S. government securities, on a daily mark-to-market basis in an amount at
least equal to 100% of the value of the loaned securities. The Fund will
continue to receive dividends or interest on the loaned securities and may
terminate such loans at any time or reacquire such securities in time to vote on
any matter which the Board of Trustees determines to be material. With respect
to loans of securities, there is the risk that the borrower may fail to return
the loaned securities or that the borrower may not be able to provide additional
collateral.
OPTIONS TRANSACTIONS
The Equity Fund may write covered put and call options on individual
securities, write covered put and call options on stock indices traded on a
securities exchange and engage in related closing transactions. A put
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<PAGE> 10
(call) option on a security is an agreement to buy (sell) a particular portfolio
security if the option is exercised at a specified price, or before a set date.
An option on a stock index gives the holder the right to receive, upon
exercising the option, a cash settlement amount based on the difference between
the exercise price and the value of the underlying stock index. To cover the
potential obligations involved in these option transactions, the Fund will own
the underlying equity security (for a call option); will segregate with the
Custodian high grade liquid debt obligations equal to the option exercise price
(for a put option); or (for an option on a stock index) will either hold a
portfolio of stocks substantially replicating the movement of the index or, to
the extent the Fund does not hold such a portfolio, will segregate with the
Custodian high grade liquid debt obligations equal to the market value of the
stock index option, marked to market daily. Risks associated with writing
options include the possible inability to effect closing transactions at
favorable prices and an appreciation limit on the securities set aside for
settlement, as well as (in the case of an option on a stock index) exposure to
an indeterminate liability. There is no assurance of liquidity in the secondary
market for purposes of closing out option positions. Also, the Equity Fund may
purchase put and call options on individual securities and on stock indices for
the purpose of hedging against the risk of unfavorable price movements adversely
affecting the value of the Fund's portfolio securities or securities the Fund
intends to buy. The Fund may also sell put and call options in closing
transactions.
OTHER INVESTMENTS
Subject to applicable restrictions under the Investment Company Act of
1940, (i) each Fund is permitted to invest in other no-load investment companies
at any time, but neither Fund will invest in the other Fund, and (ii) each Fund
may engage in short sales if, at the time of the short sale, the Fund owns or
has the right to obtain an equal amount of the security being sold short at no
additional cost. If a Fund acquires securities of another investment company,
the shareholders of the Fund may be subject to duplicative management fees on
the assets invested in such other investment company.
GENERAL INFORMATION
FUNDAMENTAL POLICIES. The investment limitations set forth in the Statement
of Additional Information as fundamental policies may not be changed without the
affirmative vote of the majority of the outstanding shares of the applicable
Fund. The investment objective of each Fund and all policies not specified as
fundamental may be changed by the Board of Trustees without the affirmative vote
of a majority of the outstanding shares of the Fund. Any change in objective may
result in the Fund having an investment objective different from the objective
which the shareholders considered appropriate at the time of investment in the
Fund. Except for the limitations on borrowing, percentage restrictions apply as
of the time of an investment and without regard to later increases or decreases
in the value of securities or total net assets.
PORTFOLIO TURNOVER. Neither Fund intends to purchase or sell securities for
short term trading purposes. Each Fund will, however, sell any portfolio
security (without regard to the length of time it has been held) when the
Adviser believes that market conditions, creditworthiness factors or general
economic conditions warrant such action.
SHAREHOLDER RIGHTS. Any Trustee of the Trust may be removed by vote of the
shareholders holding not less than two-thirds of the outstanding shares of the
Trust. The Trust does not hold an annual meeting of shareholders. When matters
are submitted to shareholders for a vote, each shareholder is entitled to one
vote for each whole share he owns and fractional votes for fractional shares he
owns. All shares of a Fund have equal voting rights and liquidation rights.
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HOW TO INVEST IN EACH FUND
Subject to a minimum initial investment of $2,500 for each Fund ($1,000 for
tax sheltered accounts such as IRAs, MSAs and similar accounts) and minimum
subsequent investments of $500, you may invest any amount you choose, as often
as you want, in either Fund. You may diversify your investments by choosing a
combination of the Funds for your investment program.
INITIAL PURCHASE
BY MAIL -- You may purchase shares of each Fund by completing and signing
the investment application form which accompanies this Prospectus and mailing
it, in proper form, together with a check (subject to the above minimum amounts)
made payable to The Lake Forest Funds, and sent to the Custodian at:
The Lake Forest Funds
c/o Star Bank, N.A.
P.O. Box 640244
Cincinnati, Ohio 45264-0244
Please identify the Fund(s) in which you wish to invest.
Your purchase of shares of the Lake Forest Core Equity Fund will be
effected at the next share price calculated after receipt of your investment.
Your order for shares of the Lake Forest Money Market Fund will not be complete
until the Fund has received federal funds. If a check for purchase of shares is
not drawn on federal funds, shares will be purchased at the next share price
calculated after the check is converted into federal funds (normally two days or
less).
BY WIRE -- You may also purchase shares of each Fund by wiring federal
funds from your bank, which may charge you a fee for doing so. If money is to be
wired, you must call American Data Services, Inc., the Funds' Transfer Agent, at
(800) 592-7722 and provide the following information:
FOR THE LAKE FOREST CORE EQUITY FUND:
Star Bank, N.A., CINTI/TRUST
ABA #0420-0001-3
Attn: Lake Forest Core Equity Fund
DDA # 483609095
Account Name
- -------------------------------------
(write in shareholder name)
Shareholder Account #
----------------------------
(write in account #)
FOR THE LAKE FOREST MONEY MARKET FUND:
Star Bank, N.A. CINTI/TRUST
ABA #0420-0001-3
Attn: Lake Forest Money Market Fund
DDA # 483609129
Account Name
- -------------------------------------
(write in shareholder name)
Shareholder Account #
- ----------------------------
(write in account #)
You are required to mail a signed application to the Transfer Agent at the
above address in order to complete your initial wire purchase. Wire orders will
be accepted only on a day on which the Funds and the Custodian and Transfer
Agent are open for business. A wire purchase will not be considered made until
the wired money is received and the purchase is accepted by the Funds. Any
delays which may occur in wiring money, including delays which may occur in
processing by the banks, are not the responsibility of the Funds or the Transfer
Agent. The Transfer Agent or the Custodian may charge you a fee for wire
transfers. Currently that fee is a total of $15.00. Any charges for wire
transfers will be deducted from your Fund account by redemption of shares. Your
bank may also charge you a fee for this service.
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<PAGE> 12
ADDITIONAL INVESTMENTS
You may purchase additional shares of either Fund at any time (minimum of
$500) by mail or wire. Each additional purchase request must contain your name,
the name of your account(s), your account number(s), and the Fund(s) in which
you wish to invest. Checks should be made payable to The Lake Forest Funds and
should be sent to the Custodian's address. A bank wire should be sent as
outlined above.
AUTOMATIC INVESTMENT OPTION
You may arrange to make additional investments ($100 minimum) automatically
on a monthly or bi-monthly basis by transfers from your checking account. You
must complete the Optional Automatic Investment Plan section of the investment
application and provide the Trust with a voided check to institute this option.
You may terminate this automatic investment program at any time, and the Fund
may modify or terminate the plan at any time.
TAX SHELTERED PLANS
Since the Funds are oriented to longer term investments, shares of the
Funds may be an appropriate investment medium for tax sheltered retirement
plans, including: individual retirement plans (IRAs); Medical Savings Accounts
(MSAs); simplified employee pensions (SEPs); 401(k) plans; qualified corporate
pension and profit sharing plans (for employees); tax deferred investment plans
(for employees of public school systems and certain types of charitable
organizations); and other qualified retirement plans. You should contact the
Transfer Agent for the procedure to open an IRA or SEP plan, as well as more
specific information regarding these retirement plan options. Consultation with
an attorney or tax adviser regarding these plans is advisable. Custodial fees
for tax sheltered accounts will be paid by the shareholder by redemption of
sufficient shares of the Fund from the account unless the fees are paid directly
to the custodian. You can obtain information about the custodial fees from the
Transfer Agent.
OTHER PURCHASE INFORMATION
Dividends begin to accrue after you become a shareholder. The Funds do not
issue share certificates. All shares are held in non-certificate form registered
on the books of the Fund and the Fund's Transfer Agent for the account of the
shareholder. The Funds reserve the right to limit the amount of purchases and to
refuse to sell to any person. If your check or wire does not clear, you will be
charged $20.00 and will be responsible for any loss incurred. If you are already
a shareholder, the Fund can redeem shares from any identically registered
account in either Fund as reimbursement for any loss incurred. You may be
prohibited or restricted from making future purchases in either Fund.
EXCHANGE PRIVILEGE
As a shareholder in any Fund, you may exchange shares valued at $1,000 or
more for shares of any other Fund in the Trust. An exchange may be made by
written request signed by all registered owners of the account mailed to the
Transfer Agent. Exchanges may also be requested by calling the Transfer Agent if
you have completed the Optional Telephone Redemption and Exchange section of the
investment application (see "How to Redeem Shares -- By Telephone" for
information about liability for losses due to unauthorized or fraudulent
instructions). Requests for exchanges received prior to close of trading on the
New York Stock Exchange (currently 4:00 p.m. New York Time) will be processed at
the next determined net asset value as of
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<PAGE> 13
the close of business on the same day. You will be charged a fee by the Transfer
Agent for each exchange. Currently such fees are $5.00 per exchange per account.
An exchange is made by redeeming shares of one Fund and using the proceeds
to buy shares of another Fund, with the net asset value for the redemption and
the purchase calculated on the same day. See "How To Redeem Shares." An exchange
results in a sale of shares for federal income tax purposes. If you make use of
the exchange privilege, you may realize either a long term or short term capital
gain or loss on the shares redeemed.
Before making an exchange, you should consider the investment objective of
the Fund to be purchased. If your exchange creates a new account, you must
satisfy the requirements of the Fund in which shares are being purchased. You
may make an exchange to a new account or an existing account; however, the
account ownerships must be identical. Exchanges may be made only in states where
an exchange may legally be made. The Funds reserve the right to terminate or
modify the exchange privilege in the future upon 60 days prior notice to the
shareholders. If your account is subject to backup withholding, you may not use
the exchange privilege.
Because excessive trading can hurt the Funds' performance and shareholders,
the Funds also reserve the right to temporarily or permanently terminate, with
or without advance notice, the exchange privilege of any investor who makes
excessive use of the exchange privilege (e.g. more than five exchanges per
calendar year). Your exchanges may be restricted or refused if a Fund receives
or anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges with a "market timer" strategy may
be disruptive to the Funds.
HOW TO REDEEM SHARES
BY MAIL -- You may redeem any part of your account in either Fund by mail.
All redemptions will be made at the net asset value determined after the
redemption request has been received by the Transfer Agent in proper order. The
proceeds of the redemption may be more or less than the purchase price of your
shares, depending on the market value of the Fund's securities at the time of
your redemption. You will be charged a redemption fee of 0.10% of the net asset
value of shares held less than 30 days.
Your request should be addressed to:
The Lake Forest Funds
c/o American Data Services, Inc.
24 W. Carver Street
Huntington, New York 11743
"Proper order" means your request for a redemption must include your letter
of instruction, including the Fund name, account number, account name(s), the
address and the dollar amount or number of shares you wish to redeem. This
request must be signed by all registered share owner(s) in the exact name(s) and
any special capacity in which they are registered. For all redemptions, the
Funds require that signatures be guaranteed by a bank or member firm of a
national securities exchange. Signature guarantees are for the protection of
shareholders. At the discretion of a Fund or the Transfer Agent, a shareholder,
prior to redemption, may be required to furnish additional legal documents to
insure proper authorization.
BY TELEPHONE -- You may request a redemption of your shares in either Fund
by calling the Transfer Agent and requesting that proceeds be mailed to you or
wired to your bank or brokerage firm. You must first
13
<PAGE> 14
complete the Optional Telephone Redemption and Exchange section of the
investment application to institute this option. The redemption will be effected
at the next determined share price. The proceeds will then be made payable to
the registered shareholder and mailed to the address registered on the account,
or wired to your bank or brokerage firm, as authorized by you on your
application. The Transfer Agent and the Custodian may charge you a fee for wire
transfers. Currently that fee is a total of $15.00. Any charges for wire
redemptions will be deducted from your Fund account by redemption of shares.
The Funds, the Adviser, the Transfer Agent and the Custodian are not liable
for following redemption or exchange instructions communicated by telephone that
they reasonably believe to be genuine. However, if they do not employ reasonable
procedures to confirm that telephone instructions are genuine, they may be
liable for any losses due to unauthorized or fraudulent instructions. Procedures
employed will include recording telephone instructions and requiring a form of
personal identification from the caller. The telephone redemption and exchange
procedures may be terminated at any time by the Funds or the Transfer Agent.
During periods of extreme market activity it is possible that shareholders may
encounter some difficulty in telephoning the Funds, although neither the Funds
nor the Transfer Agent have ever experienced difficulties in receiving and in a
timely fashion responding to telephone requests for redemptions or exchanges. If
you are unable to reach the Funds by telephone, you may request a redemption or
exchange by mail or facsimile.
BY SYSTEMATIC WITHDRAWAL PLAN -- As another convenience, the Funds offer a
Systematic Withdrawal Program whereby shareholders may request that a check
drawn in a predetermined amount be sent to them each month or calendar quarter.
A shareholder's account must have Fund shares with a value of at least $10,000
in order to start a Systematic Withdrawal Program, and the minimum amount that
may be withdrawn each month or quarter under the Systematic Withdrawal Program
is $100. This Program may be terminated by a shareholder or the Funds at any
time without charge or penalty and will become effective five business days
following receipt of your instructions. Shares will be sold within 3 business
days before month-end. A withdrawal under the Systematic Withdrawal Program
involves a redemption of shares, and may result in a gain or loss for federal
income tax purposes. In addition, if the amount withdrawn exceeds the dividends
credited to the shareholder's account, the account ultimately may be depleted.
ADDITIONAL INFORMATION -- If you are not certain of the requirements for a
redemption please call the Transfer Agent at (800) 592-7722. The Funds charge an
account closing fee of $15.00. Redemptions specifying a certain date or share
price cannot be accepted and will be returned. We will mail or wire you the
proceeds on or before the fifth business day following the redemption. However,
payment for redemption made against shares purchased by check (other than
exchanges into the other Fund) will be made only after the check has been
collected, which normally may take up to fifteen days. Also, when the New York
Stock Exchange is closed (or when trading is restricted) for any reason other
than its customary weekend or holiday closing or under any emergency
circumstances, as determined by the Securities and Exchange Commission, we may
suspend redemptions or postpone payment dates.
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to require any shareholder to redeem all
of his or her shares in the Fund on 30 days' written notice from the date the
value of his or her shares in the Fund is less than $2,500, or such other
minimum amount as the Fund may determine from time to time. A fee of $5.00 per
month may be charged to accounts (except IRAs and Medical Savings Accounts)
that, due to shareholder redemptions, fall below $2,500. Such fee will be paid
to the Adviser. An involuntary redemption constitutes a sale. You should consult
your tax adviser concerning the tax consequences of involuntary redemptions. A
shareholder may increase the value of his or her shares in the Fund to the
minimum amount within the 30 day period. Each share of each Fund is subject to
redemption
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<PAGE> 15
at any time if the Board of Trustees determines in its sole discretion that
failure to so redeem may have materially adverse consequences to all or any of
the shareholders of the Trust or any Fund of the Trust.
SHARE PRICE CALCULATION
The share price (net asset value) of the Equity Fund is calculated once
daily, as of the close of trading on the New York Stock Exchange (4:00 p.m., New
York Time), on any day when the New York Stock Exchange and the Custodian are
open for business. The net asset value of shares of the Money Market Fund is
calculated twice daily as of 12:00 p.m. and 4:00 p.m., New York Time, on any day
when the New York Stock Exchange and the Custodian are open for business. The
price of the shares of a Fund will also be calculated on other days if there is
sufficient trading in the Fund's portfolio securities that its net asset value
might be materially affected. The net asset value per share of each Fund is
computed by dividing the sum of the value of the securities held by the Fund
plus any cash or other assets minus all liabilities (including estimated accrued
expenses) by the total number of shares outstanding at such time, rounded to the
nearest cent. For the Money Market Fund, this is known as the penny- rounding
method of pricing.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when the last bid
price does not accurately reflect the current value of the security. All other
securities for which over-the-counter market quotations are readily available
are valued at their last bid price. When market quotations are not readily
available, when it is determined that the last bid price does not accurately
reflect the current value or when restricted securities are being valued, such
securities are valued as determined in good faith by a pricing committee, in
conformity with guidelines adopted by and subject to review of the Board of
Trustees of the Trust.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when the
Adviser believes such prices accurately reflect the fair market value of such
securities. A pricing service utilizes electronic data processing techniques
based on yield spreads relating to securities with similar characteristics to
determine prices for normal institutional-size trading units of debt securities
without regard to sale or bid prices. When prices are not readily available from
a pricing service, or when restricted or illiquid securities are being valued,
securities are valued at fair value as determined in good faith by a pricing
committee, subject to review of the Board of Trustees. Short term investments in
fixed income securities with maturities of less than 60 days when acquired, or
which subsequently are within 60 days of maturity, are valued (except for the
Money Market Fund) by using the amortized cost method of valuation, which the
Board has determined will represent fair value.
The Money Market Fund seeks to maintain a stable net asset value of $1.00
per share pursuant to Rule 2a-7 under the Investment Company Act of 1940. In
accordance with Rule 2a-7, the Fund will maintain a dollar-weighted average
portfolio of 90 days or less, purchase only instruments having remaining
maturities of 397 days or less (except for U.S. Government securities, which may
have remaining maturities of 762 days or less) and invest only in U.S. dollar
denominated securities determined in accordance with procedures established by
the Board of Trustees to present minimal credit risks.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment
income as dividends to its shareholders. The Equity Fund intends to declare and
pay dividends on a quarterly basis, and the Money
15
<PAGE> 16
Market Fund intends to declare dividends daily and pay them monthly. Each Fund
intends to distribute its net long term capital gains at least once a year and
its net short term capital gains at least once a year. Income dividends and
capital gain distributions are automatically reinvested in additional shares at
the net asset value per share on the distribution date. An election to receive a
cash payment of dividends and/or capital gain distributions may be made in the
application to purchase shares or by separate written notice to the Transfer
Agent. Shareholders will receive a confirmation statement reflecting the payment
and reinvestment of dividends and summarizing all other transactions. If cash
payment is requested, a check normally will be mailed within five business days
after the payable date. If you withdraw your entire account, all dividends
accrued to the time of withdrawal, including the day of withdrawal, will be paid
at that time. You may elect to have distributions on shares held in IRAs and
403(b) plans paid in cash only if you are 59 1/2 years old or permanently and
totally disabled or if you otherwise qualify under the applicable plan.
TAXES
This section is not intended to be a full discussion of all the aspects of
the federal income tax law and its effects on shareholders. Shareholders are
urged to consult their own tax advisers regarding specific questions as to
federal, state or local taxes, the tax effect of distributions and withdrawals
from the Fund and the use of the Exchange Privilege.
Each Fund intends to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended. By so qualifying, a Fund
will not be subject to federal income taxes to the extent that it distributes
substantially all of its net investment income and any realized capital gains.
For federal income tax purposes, each Fund is treated as a separate entity
for the purpose of computing taxable net income and net realized capital gains
and losses. Dividends paid by each Fund from ordinary income and short-term
capital gains are taxable to shareholders as ordinary income, but may be
eligible in part for the dividends received deduction for corporations. Any
distributions designated as being made from net realized long term capital gains
are taxable to shareholders as long term capital gains regardless of the holding
period of the shareholder. Distributions are taxable whether received in cash or
reinvested in additional shares.
A dividend received shortly after the purchase of shares reduces the net
asset value of the shares by the amount of the dividend, and although in effect
a return of capital, such dividend will be taxable to the shareholder. If a
shareholder realizes a loss on the sale or exchange of any shares held for six
months or less and if the shareholder received a capital gain distribution
during such six-month period, then the loss is treated as a long-term capital
loss to the extent of the capital gain distribution.
Each Fund will mail to each shareholder after the close of the calendar
year a statement setting forth the federal income tax status of distributions
made during the year. Dividends and capital gains distributions may also be
subject to state and local taxes.
If for any reason you don't provide the Funds with your correct Social
Security or Tax I.D. number (or certify that you are not subject to backup
withholding), the Funds are required by the Code to withhold 31% of taxable
dividends and proceeds of certain exchanges and redemptions.
MANAGEMENT OF THE FUNDS
Each Fund is a diversified series of The Lake Forest Funds, an open-end
management investment company organized as an Ohio business trust on November
23, 1994. The Board of Trustees supervises the
16
<PAGE> 17
business activities of the Trust. Like other mutual funds, the Trust retains
various organizations to perform specialized services. It retains Boberski &
Company, One Westminster Place, Lake Forest, Illinois 60045 (the "Adviser") to
manage the Trust's investments and its business affairs. The Adviser is an
Illinois-based company of which Irving V. Boberski is the controlling
shareholder. Mr. Boberski is responsible for the day-to-day management of the
portfolio of each Fund. He is the President, Chief Financial Officer, Treasurer
and a Trustee of the Trust, and President, Treasurer, and a Director of the
Adviser. The Adviser, founded by Mr. Boberski in 1966, also provides investment
advice to individuals and institutions.
The Adviser is paid a monthly fee for its services to the Equity Fund at an
annual rate of 1.25% of the Equity Fund's average daily net assets. For its
services to the Money Market Fund, the Adviser is authorized to receive a
monthly fee at an annual rate of 0.50% of the Money Market Fund's average daily
net assets. The Adviser has agreed to cap the fee for the Money Market Fund at
0.125% at least through the fiscal year ending February 28, 1998. The Adviser
pays all of the expenses of each Fund except brokerage, taxes, interest and
extraordinary expenses. The Adviser will also receive any fee charged to
shareholders whose accounts have fallen below $2,500 due to shareholder
redemptions. The Adviser may waive all or a part of its fee, at any time, at its
sole discretion, but such action shall not obligate the Adviser to waive fees at
any time. Subject to its obligation to seek the best qualitative execution, the
Adviser may give consideration to sales of shares of the Trust as a factor in
the selection of brokers and dealers to execute portfolio transactions. The
Adviser (not the Funds) may pay fees to certain persons based on investments
made and maintained by investors such persons have referred to the Funds. The
Adviser (not the Funds) also may pay certain financial institutions (which may
include banks, securities dealers and other industry professionals) a "servicing
fee" for performing certain administrative servicing functions for Fund
shareholders to the extent these institutions are allowed to do so by applicable
statute, rule or regulation.
American Data Services, Inc., 24 West Carver Street, Huntington, New York,
serves as the Funds' Administrator. The Administrator provides for preparation
and maintenance of accounting and financial data, coordination with third
parties furnishing services to the Funds, state regulatory filings, and other
management services. American Data Services also serves as Transfer Agent for
the Funds. As discussed above, American Data Services is paid by the Adviser and
not by the Trust.
PERFORMANCE INFORMATION
Each Fund may periodically advertise "average annual total return." The
"average annual total return" of a Fund refers to the average annual compounded
rate of return over the stated period that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment. The calculation of "average annual total return" assumes the
reinvestment of all dividends and distributions.
Each Fund may also periodically advertise its total return over various
periods in addition to the value of a $10,000 investment (made on the date of
the initial public offering of the Fund's shares) as of the end of a specified
period. The "total return" for a Fund refers to the percentage change in the
value of an account between the beginning and end of the stated period, assuming
no activity in the account other than reinvestment of dividends and capital
gains distributions.
The Money Market Fund may periodically advertise its "yield" and "effective
yield." The "yield" of the Fund refers to the income generated by an investment
in the Fund over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the
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<PAGE> 18
income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The Funds may also include in advertisements data comparing performance
with other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc. or the Donoghue
Organization, Inc.). Performance information may be quoted numerically or may be
presented in a table, graph or other illustration. In addition, Fund performance
may be compared to well-known indices of market performance including the
Standard & Poor's (S&P) 500 Index or the Dow Jones Industrial Average. The
Funds' Annual Report contains additional performance information. The Report is
available upon request and without charge from the Funds' Transfer Agent.
The advertised performance data of each Fund is based on historical
performance and is not intended to indicate future performance. Yields and rates
of total return quoted by a Fund may be higher or lower than past quotations,
and there can be no assurance that any yield or rate of total return will be
maintained. The principal value of an investment in the Equity Fund will
fluctuate so that a shareholder's shares, when redeemed, may be worth more or
less than the shareholder's original investment.
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<PAGE> 19
INVESTMENT ADVISER
Boberski & Company
One Westminster Place
Lake Forest, Illinois 60045
CUSTODIAN (ALL INITIAL AND SUBSEQUENT PURCHASES)
The Lake Forest Funds
c/o Star Bank, N.A.
P.O. Box 640244
Cincinnati, Ohio 45264-0244
TRANSFER AGENT (ALL REDEMPTION AND EXCHANGE REQUESTS AND SHAREHOLDER INQUIRIES)
American Data Services, Inc.
24 W. Carver Street
Huntington, New York 11743
(800) 592-7722
AUDITORS
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, Ohio 44145
LEGAL COUNSEL
D'Ancona & Pflaum
30 N. LaSalle Street
Chicago, Illinois 60602
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
either Fund. This Prospectus does not constitute an offer by either Fund to sell
its shares in any state to any person to whom it is unlawful to make such offer
in such state.
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<PAGE> 20
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES.................................... 2
THE FUNDS................................................... 3
INVESTMENT OBJECTIVES AND STRATEGIES........................ 3
FINANCIAL HIGHLIGHTS........................................ 5
INVESTMENT POLICIES AND TECHNIQUES AND RISK
CONSIDERATIONS............................................ 6
GENERAL INFORMATION......................................... 10
HOW TO INVEST IN EACH FUND.................................. 11
EXCHANGE PRIVILEGE.......................................... 12
HOW TO REDEEM SHARES........................................ 13
SHARE PRICE CALCULATION..................................... 15
DIVIDENDS AND DISTRIBUTIONS................................. 15
TAXES....................................................... 16
MANAGEMENT OF THE FUNDS..................................... 16
PERFORMANCE INFORMATION..................................... 17
</TABLE>
<PAGE> 21
THE LAKE FOREST FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1997
LAKE FOREST CORE EQUITY FUND
LAKE FOREST MONEY MARKET FUND
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Prospectus of The Lake Forest Funds
dated July 1, 1997. The Funds' February 28, 1997 Annual Report accompanies
this Statement of Additional Information. The financial statements appearing
in the Annual Report are incorporated herein by reference. A copy of the
Prospectus can be obtained by writing the Transfer Agent at 24 W. Carver
Street, Huntington, New York 11743, or by calling 1-800-592-7722.
<PAGE> 22
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
DESCRIPTION OF THE TRUST ................................................. 1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS .... 1
INVESTMENT LIMITATIONS ................................................... 3
THE MANAGEMENT AGREEMENT ................................................. 4
TRUSTEES AND OFFICERS .................................................... 5
TRUSTEE COMPENSATION ..................................................... 6
PORTFOLIO TRANSACTIONS AND BROKERAGE ..................................... 6
DETERMINATION OF SHARE PRICE ............................................. 7
INVESTMENT PERFORMANCE ................................................... 7
CUSTODIAN ................................................................ 8
TRANSFER AGENT ........................................................... 8
ACCOUNTANTS .............................................................. 9
LEGAL COUNSEL ............................................................ 9
FINANCIAL STATEMENTS ..................................................... 9
</TABLE>
i
<PAGE> 23
DESCRIPTION OF THE TRUST
The Lake Forest Funds (the "Trust") is an open-end investment company
established under the laws of Ohio by an Agreement and Declaration of Trust
dated November 23, 1994 (the "Trust Agreement"). The Trust Agreement permits
the Trustees to issue an unlimited number of shares of beneficial interest of
separate series without par value. Shares of two series have been authorized,
which shares constitute the interests in Lake Forest Core Equity Fund (the
"Equity Fund") and Lake Forest Money Market Fund (the "Money Market Fund").
Each share of a series represents an equal proportionate interest in
the assets and liabilities belonging to that series with each other share of
that series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not
have cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares
of any series into a greater or lesser number of shares of that series so long
as the proportionate beneficial interest in the assets belonging to that series
and the rights of shares of any other series are in no way affected. In case
of any liquidation of a series, the holders of shares of the series being
liquidated will be entitled to receive as a class a distribution out of the
assets, net of the liabilities, belonging to that series. Expenses
attributable to any series are borne by that series. Any general expenses of
the Trust not readily identifiable as belonging to a particular series are
allocated by or under the direction of the Trustees in such manner as the
Trustees determine to be fair and equitable. No shareholder is liable to
further calls or to assessment by the Trust without his or her express consent.
Upon sixty days prior written notice to shareholders, a Fund may make
redemption payments in whole or in part in securities or other property if the
Trustees determine that existing conditions make cash payments undesirable.
For other information concerning the purchase and redemption of shares of the
Funds, see "How to Invest in Each Fund," "How to Redeem Shares" and "Exchange
Privilege" in the Prospectus. For a description of the methods used to
determine the share price and value of each Fund's assets, see "Share Price
Calculation" in the Prospectus.
As of April 15, 1997, no person owned five percent (5%) or more of the
Equity Fund.
As of April 15, 1997, the following persons owned five percent (5%) or
more of the Money Market Fund:
Thomas L. Tabern, 1247 High Point Lane, Northbrook, IL 60062 -
17.158%; Stephen W. Bolander and John W. Brunner Trustees for Eric Bolander
Construction Co. Inc. Employer's Profit Sharing Trust, 625 W. Winchester Road,
Libertyville, IL 60048 - 12.940%; Robert L. Pasquesi as Trustee for Pasquesi
Sheppard LLC Profit Sharing Trust, 585 Bank La., Lake Forest, IL 60045-10.113%;
Lynn A. Boberski, One Westminster Place, Lake Forest, IL 60045 - 9.577%; Lake
Forest Knights of Columbus Charities, Inc., P.O. Box 507, Lake Forest, IL 60045
- - 6.575%.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the
investments a Fund may make and some of the techniques it may use, as described
in the Prospectus (see "Investment Objectives and Strategies" and "Investment
Policies and Techniques and Risk Considerations").
A. Mortgage-Related Securities. Government-related organizations
which issue mortgage-related securities include the Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"). Securities issued by
GNMA and FNMA are fully modified pass through securities, i.e., the timely
payment of principal and interest is guaranteed by the issuer. FHLMC
securities are modified pass through securities, i.e., the timely payment of
interest is guaranteed by FHLMC, principal is passed through as collected but
payment thereof is guaranteed not later than one year after it becomes payable.
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<PAGE> 24
B. Corporate Debt Securities. Corporate debt securities are long
and short term debt obligations issued by companies (such as publicly issued
and privately placed bonds, notes and commercial paper). The Adviser intends
to invest Equity Fund assets only in corporate debt securities rated A or
higher by Standard & Poor's Corporation ("S&P") or Moody's Investors Services,
Inc. ("Moody's"), or if unrated, determined by the Adviser to be of comparable
quality. Debt securities rated A or higher are in the three highest ratings
categories and generally have adequate to strong protection of principal and
interest payments.
C. Forward Commitments. Each Fund will direct its Custodian to
place cash, U.S. government securities or other liquid high grade debt
obligations in a separate account of the Trust in an amount equal to the
commitments of the Fund to purchase securities as a result of its forward
commitment agreement obligations. With respect to forward commitments to sell
securities, the Fund will direct the Custodian to place the securities in a
separate account. When a separate account is maintained in connection with
forward commitment transactions to purchase securities, the securities
deposited in the separate account will be valued daily at market for the
purpose of determining the adequacy of the securities in the account. If the
market value of such securities declines, additional cash, U.S. government
securities or liquid high grade debt obligations will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's commitments to purchase securities. To the extent funds are in a
separate account, they will not be available for new investment or to meet
redemptions.
Securities purchased on a forward commitment basis and the
securities held in each Fund's portfolio are subject to changes in market value
based upon the public's perception of the creditworthiness of the issuer and
changes in the level of interest rates (which will generally result in all of
those securities changing in value in the same way, i.e., all those securities
experiencing appreciation when interest rates decline and depreciation when
interest rates rise). Therefore, if in order to achieve a higher level of
income, the Fund remains substantially fully invested at the same time that it
has purchased securities on a forward commitment basis, there will be a
possibility that the market value of the Fund's assets will have greater
fluctuation.
With respect to 75% of the total assets of each Fund, the
value of the Fund's commitments to purchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund, may
not exceed 5% of the value of the Fund's total assets at the time the
commitment to purchase such securities is made; provided, however, that this
restriction does not apply to U.S. government securities or repurchase
agreements with respect thereto. In addition, each Fund will maintain an asset
coverage of 300% for all of its borrowings. Subject to the foregoing
restrictions, there is no limit on the percentage of the Fund's total assets
which may be committed to such purchases.
D. Option Transactions. The Equity Fund may engage in option
transactions involving individual securities and market indices. An option
involves either (a) the right or the obligation to buy or sell a specific
instrument at a specific price until the expiration date of the option, or (b)
the right to receive payments or the obligation to make payments representing
the difference between the closing price of a market index and the exercise
price of the option expressed in dollars times a specified multiple until the
expiration date of the option. Options are sold (written) on securities and
market indices. The purchaser of an option on a security pays the seller (the
writer) a premium for the right granted but is not obligated to buy or sell the
underlying security. The purchaser of an option on a market index pays the
seller a premium for the right granted, and in return the seller of such an
option is obligated to make the payment. A writer of an option may terminate
the obligation prior to expiration of the option by making an offsetting
purchase of an identical option. Options are traded on organized exchanges and
in the over-the-counter market. Options on securities which the Fund sells
(writes) will be covered or secured, which means that it will own the
underlying security (for a call option); will segregate with the Custodian high
quality liquid debt obligations equal to the option exercise price (for a put
option); or (for an option on a stock index) will hold a portfolio of
securities substantially replicating the movement of the index (or, to the
extent it does not hold such a portfolio, will maintain a segregated account
with the Custodian of high quality liquid debt obligations equal to the market
value of the option, marked to market daily). When the Fund writes options, it
may be required to maintain a margin account, to pledge the underlying
securities or U.S. government securities or to deposit liquid high quality debt
obligations in a separate account with the Custodian.
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<PAGE> 25
The purchase and writing of options involves certain risks. The
purchase of options limits the Fund's potential loss to the amount of the
premium paid and can afford the Fund the opportunity to profit from favorable
movements in the price of an underlying security to a greater extent than if
transactions were effected in the security directly. However, the purchase of
an option could result in the Fund losing a greater percentage of its
investment than if the transaction were effected directly. When the Fund
writes a covered call option, it will receive a premium, but it will give up
the opportunity to profit from a price increase in the underlying security
above the exercise price as long as its obligation as a writer continues, and
it will retain the risk of loss should the price of the security decline. When
the Fund writes a covered put option, it will receive a premium, but it will
assume the risk of loss should the price of the underlying security fall below
the exercise price. When the Fund writes a covered put option on a stock
index, it will assume the risk that the price of the index will fall below the
exercise price, in which case the Fund may be required to enter into a closing
transaction at a loss. An analogous risk would apply if the Fund writes a call
option on a stock index and the price of the index rises above the exercise
price.
E. Illiquid Securities. The portfolio of each Fund may contain
illiquid securities. Illiquid securities generally include securities which
cannot be disposed of promptly and in the ordinary course of business without
taking a reduced price. Securities may be illiquid due to contractual or legal
restrictions on resale or lack of a ready market. The following securities
are considered to be illiquid: repurchase agreements and time deposits
maturing in more than seven days, options traded in the over-the-counter
market, nonpublicly offered securities, CMOs for which there is no established
market, restricted securities, and mortgage-related securities which cannot be
disposed of within seven days in the usual course of business without taking a
reduced price. The Adviser and the Trustees will continually monitor the
secondary markets for mortgage-related securities and are responsible for
making the determination of which securities are considered to be illiquid.
Neither Fund will invest more than 5% of its net assets in illiquid securities.
F. Other Investment Companies. Each Fund is permitted to invest
in other investment companies at any time so long as such investment meets the
requirements under the Investment Company Act of 1940. Currently, these are
that such investment does not cause a Fund to (a) have more than 5% of the
value of its total assets invested in any one such company, (b) have more than
10% of the Fund's total assets invested in such companies, or (c) own more than
3% of the total outstanding voting stock of any such company.
INVESTMENT LIMITATIONS
Fundamental Investment Restrictions. The investment restrictions
described below are fundamental and may not be changed without the affirmative
vote of a majority of the outstanding shares of the applicable Fund. As used
in the Prospectus and this Statement of Additional Information, the term
"majority" of the outstanding shares of the Trust (or of any series) means the
lesser of (1) 67% or more of the outstanding shares of the Trust (or the
applicable series) present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust (or applicable series) are present or
represented at such meeting; or (2) more than 50% of the outstanding shares of
the Trust (or the applicable series).
1. Borrowing Money. The Funds will not borrow money, except (a)
from a bank, provided that immediately after such borrowing there is an asset
coverage of 300% for all borrowings of the Fund; or (b) from a bank or other
persons for temporary purposes only, provided that such temporary borrowings
are in an amount not exceeding 5% of the Fund's total assets at the time when
the borrowing is made. This limitation does not preclude a Fund from entering
into reverse repurchase transactions, provided that the Fund has an asset
coverage of 300% for all borrowings and repurchase commitments of the Fund
pursuant to reverse repurchase transactions.
2. Senior Securities. The Funds will not issue senior
securities. This limitation is not applicable to activities that may be deemed
to involve the issuance or sale of a senior security by the Fund, provided that
the Fund's engagement in such activities is (a) consistent with or permitted by
the Investment Company Act of 1940, as amended, the rules and regulations
promulgated thereunder or interpretations of the Securities and Exchange
Commission or its staff and (b) as described in the Prospectus and this
Statement of Additional Information.
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<PAGE> 26
3. Underwriting. The Funds will not act as underwriter of
securities issued by other persons. This limitation is not applicable to the
extent that, in connection with the disposition of portfolio securities
(including restricted securities), the Fund may be deemed an underwriter under
certain federal securities laws.
4. Real Estate. The Funds will not purchase or sell real estate.
This limitation is not applicable to investments in marketable securities which
are secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies which are engaged in the real estate business or have a significant
portion of their assets in real estate (including real estate investment
trusts).
5. Commodities. The Funds will not purchase or sell commodities
unless acquired as a result of ownership of securities or other investments.
This limitation does not preclude a Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Funds will not make loans to other persons, except
(a) by loaning portfolio securities, (b) by engaging in repurchase agreements,
or (c) by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. Neither Fund will invest 25% or more of its
total assets in a particular industry. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
Non-Fundamental Investment Restrictions. The following policies have
been adopted by the Trust with respect to each Fund and may be changed at any
time by the Board of Trustees without shareholder approval.
1. Pledging. A Fund will not mortgage, pledge, hypothecate or in
any manner transfer, as security for indebtedness, any assets of the Fund
except as may be necessary in connection with borrowings described in
limitation (1) above. Margin deposits, security interests, liens and
collateral arrangements with respect to transactions involving options, futures
contracts, short sales and other permitted investments and techniques are not
deemed to be a mortgage, pledge or hypothecation of assets for purposes of this
limitation.
2. Borrowing. A Fund will not purchase any security while
borrowings (including reverse repurchase agreements) representing more than 5%
of its total assets are outstanding.
3. Margin Purchases. A Fund will not purchase securities or
evidences of interest thereon on "margin." This limitation is not applicable
to short term credit obtained by the Fund for the clearance of purchases and
sales or redemption of securities, or to arrangements with respect to
transactions involving options, futures contracts, short sales and other
permitted investments and techniques.
4. Short Sales. A Fund will not effect short sales of securities
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short.
5. Options. A Fund will not purchase or sell puts, calls,
options or straddles except as described in the Prospectus and this Statement
of Additional Information.
6. Illiquid Investments. A Fund will not invest more than 5% of
its net assets in securities for which there are legal or contractual
restrictions on resale and other illiquid securities.
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<PAGE> 27
Except for the limitations on borrowing set forth above, all
percentage restrictions, whether fundamental or non-fundamental, apply as of
the time of an investment without regard to any later fluctuations in the value
of portfolio securities or other assets.
THE MANAGEMENT AGREEMENT
Under the terms of the management agreement (the "Agreement"), the
Adviser, Boberski & Company, One Westminster Place, Lake Forest, Illinois,
manages the Funds' investments subject to approval of the Board of Trustees and
pays all of the operating expenses of the Funds except brokerage, taxes,
interest and extraordinary expenses. Although the Agreement states that the
Funds are responsible for payment of expenses incurred in connection with the
organization and initial registration of their shares, the Adviser has paid all
of those expenses and has agreed not to seek reimbursement for such expenses.
As compensation for its management services and agreement to pay the Funds'
expenses, the Funds are obligated to pay the Adviser a fee computed
and accrued daily and paid monthly at an annual rate of 1.25% of the average
daily net assets of the Equity Fund and 0.50% of the average daily net assets
of the Money Market Fund. The Adviser has agreed to cap the fee paid by the
Money Market Fund at 0.125% at least through the end of the fiscal year ending
February 28, 1998. The Adviser may waive all or part of its fee, at any time,
and at its sole discretion, but such action shall not obligate the Adviser to
waive any fees in the future.
During the years ended February 29, 1996 and February 28, 1997 the
Core Equity Fund paid advisory fees of $2,770 and $16,291, respectively.
During the same periods, the Money Market Fund paid advisory fees of $921 and
$2,671, respectively.
The Adviser retains the right to use the name "Lake Forest" in
connection with another investment company or business enterprise with which
the Adviser is or may become associated. The Trust's right to use the name
"Lake Forest" automatically ceases thirty days after termination of the
Agreement and may be withdrawn by the Adviser on thirty days written notice.
The Adviser may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Funds believes
that the Glass-Steagall Act should not preclude a bank from providing such
services. However, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If
a bank were prohibited from continuing to perform all or a part of such
services, the Adviser believes that there would be no material impact on the
Funds or their shareholders. Banks may charge their customers fees for
offering these services to the extent permitted by applicable regulatory
authorities, and the overall return to those shareholders availing themselves
of the bank services will be lower than to those shareholders who do not. The
Funds may from time to time purchase securities issued by banks which provide
such services; however, in selecting investments for the Funds, no preference
will be shown for such securities.
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Trust are
shown below. Each Trustee who is an "interested person" of the Trust, as
defined in the Investment Company Act of 1940, is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
*Irving V. Boberski President, Treasurer, Secretary and Trustee
Robert E. Alfe Trustee
Philip M. Hackbarth Trustee
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
Gary M. Patyk Trustee
</TABLE>
The ages as of April 15, 1997, the addresses and the principal
occupations of the executive officers and Trustees of the Trust during the past
five years are set forth below:
Irving V. Boberski, Ph.D., 57, One Westminster Place, Lake Forest,
Illinois, is the founder and president of Boberski & Company, the Fund's
Investment Adviser, an investment counseling firm organized in 1966. He is
also the founder and president of Boberski Capital Markets, Inc., a commodity
trading adviser engaged in institutional hedging and arbitrage, that was
organized in 1981. From 1964 to 1992 he was, successively: director, chairman
of the management committee, president and CEO, and chairman of the board of
directors of Avondale Federal Savings Bank. He has also served as a
professional economist and adviser to a number of business organizations,
industry trade groups, government agencies and philanthropic organizations.
Robert E. Alfe, 57, 582 Oakwood Avenue, Lake Forest, Illinois, is an
architect and builder, and the President of Alfe Development Corporation, a
real estate development company.
Philip M. Hackbarth, 61, 140 South Dearborn Street, Suite 404,
Chicago, Illinois, is an attorney in private practice.
Gary M. Patyk, 57, 777 West Glencoe Place, Suite 111, Milwaukee,
Wisconsin 53127, has been a consultant with Transworld Systems, Inc., an
accounts receivable recovery firm, since 1995. From 1990 to 1995, he was a
consultant with Trend Consulting, a general business consulting firm.
TRUSTEE COMPENSATION
The compensation paid to the Trustees of the Trust during the last
fiscal year is set forth in the following table:
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated Total Compensation
Aggregate Accrued As Part Annual Benefits From Trust (the
Compensation of Trust Upon Trust is not in a
Name From Trust* Expenses Retirement Fund Complex)*
---- ------------ --------------- --------------- ----------------------
<S> <C> <C> <C> <C>
Robert E. Alfe $1,500 0 0 $1,500
Irving V. Boberski 0 0 0 0
Philip M. Hackbarth $1,500 0 0 $1,500
Gary M. Patyk $1,500 0 0 1,500
</TABLE>
* Under the Management Agreement the Adviser pays these fees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for the Trust's portfolio decisions and the placing
of the Trust's portfolio transactions. In placing portfolio transactions, the
Adviser seeks the best qualitative execution for the Trust, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and
6
<PAGE> 29
responsiveness of the broker or dealer and the brokerage and research services
provided by the broker or dealer. The Adviser generally seeks favorable prices
and commission rates that are reasonable in relation to the benefits received.
The Adviser is specifically authorized to select brokers or dealers
who also provide brokerage and research services to the Trust and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to
other accounts over which it exercises investment discretion.
Research services include supplemental research, securities and
economic analyses, statistical services and information with respect to the
availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other
information furnished by brokers through whom the Trust effects securities
transactions may also be used by the Adviser in servicing all of its accounts.
Similarly, research and information provided by brokers or dealers serving
other clients may be useful to the Adviser in connection with its services to
the Trust. Although research services and other information are useful to the
Trust and the Adviser, it is not possible to place a dollar value on the
research and other information received. It is the opinion of the Board of
Trustees and the Adviser that the review and study of the research and other
information will not reduce the overall cost to the Adviser of performing its
duties to the Trust under the Agreement.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities
are normally purchased directly from the issuer, an underwriter or a market
maker. Purchases include a concession paid by the issuer to the underwriter
and the purchase price paid to market makers may include the spread between the
bid and asked prices.
To the extent that the Trust and another of the Adviser's clients seek
to acquire the same security at about the same time, the Trust may not be able
to acquire as large a position in such security as it desires or it may have to
pay a higher price for the security. Similarly, the Trust may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the other client desires to sell the same
portfolio security at the same time. On the other hand, if the same securities
are bought or sold at the same time by more than one client, the resulting
participation in volume transactions could produce better executions for the
Trust. In the event that more than one client wants to purchase or sell the
same security on a given date, the purchases and sales will normally be made by
random client selection.
During the fiscal year ended February 28, 1997, the Core Equity Fund
paid brokerage commissions in the aggregate amount of $2,893. Since money
market transactions are usually principal transactions with issuers or dealers
the Money Market Fund ordinarily pays no brokerage commissions. The Fund paid
no commissions during the fiscal year ended February 28, 1997.
DETERMINATION OF SHARE PRICE
The prices (net asset values) of the shares of each Fund are
determined as of 4:00 p.m., New York Time (and the price of the Money Market
Fund is also determined as of 12:00 p.m., New York Time) on each day the Trust
is open for business and on any other day on which there is sufficient trading
in the Fund's securities to materially affect the net asset value. The Trust
is open for business on every day except Saturdays, Sundays and the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. For a description of
the methods used to determine the net asset value (share price), see "Share
Price Calculation" in the Prospectus.
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<PAGE> 30
INVESTMENT PERFORMANCE
The Core Equity Funds' total return for the fiscal years ended
February 28, 1997 and February 29, 1996 was 20.65% and 18.59%, respectively.
The Money Market Fund's current and effective yields for the seven day
period ended February 28, 1997 were 5.09% and 5.22% respectively. The current
and effective yields for the seven day period ended February 29, 1996 were
5.05% and 5.18% respectively.
"Average annual total return," as defined by the Securities and
Exchange Commission, is computed by finding the average annual compounded rates
of return (over the one and five year periods and the period from initial
public offering through the end of a Fund's most recent fiscal year) that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
n
P(1+T) =ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
applicable period of the hypothetical $1,000
investment made at the beginning of the
applicable period.
The computation assumes that all dividends and distributions are
reinvested at the net asset value on the reinvestment dates and that a complete
redemption occurs at the end of the applicable period.
Current yield for the Money Market Fund is computed by determining the
net change in the value of a hypothetical pre-existing account with a balance
of one share at the beginning of a seven calendar day period (the "Base
Period") and dividing the net change by the value of the account at the
beginning of the Base Period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent. Effective yield is
computed by compounding the base period return, according to the following
formula: 365/7
effective yield = [(base period return + 1) ] - 1.
A Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time
periods used in calculating non-standardized investment performance should be
considered when comparing the Fund's performance to those of other investment
companies or investment vehicles. The risks associated with the Fund's
investment objective, policies and techniques should also be considered. At
any time in the future, investment performance may be higher or lower than past
performance, and there can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of the Funds
may be compared to indices of broad groups of unmanaged securities considered
to be representative of or similar to the portfolio holdings of the appropriate
Fund or considered to be representative of the stock market in general. The
Funds may use the Standard & Poor's 500 Stock Index or the Dow Jones Industrial
Average.
In addition, the performance of either Fund may be compared to other
groups of mutual funds tracked by any widely used independent research firm
which ranks mutual funds by overall performance, investment objectives and
assets, such as Lipper Analytical Services, Inc., Morningstar, Inc. or the IBC
Financial Data, Inc. The objectives, policies, limitations and expenses of
other mutual funds in a group may not be the same as those of the applicable
Fund. Performance rankings and ratings reported periodically in national
financial publications such as Barron's and Fortune also may be used.
8
<PAGE> 31
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is Custodian of
each Fund's investments. The Custodian acts as each Fund's depository,
safekeeps its portfolio securities, collects all income and other payments with
respect hereto, disburses funds at the Fund's request and maintains records in
connection with its duties.
TRANSFER AGENT
American Data Services, Inc., 24 W. Carver Street, Huntington, New
York 11743, acts as each Fund's transfer agent and, in such capacity, maintains
the records of each shareholder's account, answers shareholders' inquiries
concerning their accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent and performs other
accounting and shareholder service functions. In addition, American Data
Services, Inc. provides each Fund with certain monthly reports, record-keeping
and other management-related services.
ACCOUNTANTS
The firm of McCurdy & Associates CPA's, Inc., 27955 Clemens Road,
Westlake, Ohio 44145, has been selected as independent public accountants for
the Trust. McCurdy & Associates performs an annual audit of the Funds'
financial statements and provides financial, tax and accounting consulting
services as requested.
LEGAL COUNSEL
The firm of D'Ancona & Pflaum, 30 N. LaSalle Street, Chicago, Illinois
60602 acts as legal counsel to the Funds.
FINANCIAL STATEMENTS
The Financial Statements are incorporated herein by reference to the
Funds' Annual Report for the fiscal year ended February 28, 1997.
9
