<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGISTRATION NO. 33-87494
POST-EFFECTIVE AMENDMENT NO. 5
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-8906
AMENDMENT NO. 6
THE LAKE FOREST FUNDS
One Westminster Place
Lake Forest, IL 60045-1821
847-295-5700
Agent for Service:
Sheldon Stein
D'Ancona & Pflaum LLC
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601-4205
(312) 602-2014
It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b)
----
on (date), pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)
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X on April 21, 1999 pursuant to paragraph (a) of Rule 485
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THE LAKE FOREST FUNDS (formerly Lake Forest Trust)
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM SECTION IN PROSPECTUS
- ---- ---------------------
<S> <C>
1 .......Cover Page; Back Cover
2 .......Lake Forest Core Equity Fund An Overview; Lake Forest Money Market Fund
an Overview; Past Performance
3 .......Fees and Expenses of the Funds; Annual Operating Expenses
4 .......The Funds In-depth, Investment Objectives and Strategies, Management of
the Funds, Investment Policies and Techniques and Risk Considerations,
General Information
5 .......Not Applicable
6 .......Dividends and Distribution, Taxes, Management of the Funds, General
Information
7 .......Cover Page, How to Invest in Each Fund, Exchange Privilege, Share Price
Calculation, Management of the Funds; How to Redeem Shares
8 .......Not Applicable
9 .......Financial Highlights
</TABLE>
<TABLE>
<CAPTION>
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
- ---- -----------------------
<S> <C>
10 ......Cover Page; Table of Contents
11 ......Description of the Trust
12 ......Additional Information About Fund Investments and Risk Considerations,
Investment Limitations
13 ......The Management Agreement, Trustees and Officers, Trustee Compensation
14 ......Description of the Trust
15 ......The Management Agreement, Custodian, Transfer Agent, Accountants
16 ......Portfolio Transactions and Brokerage
17 ......Description of the Trust
18 ......Included in Prospectus
19 ......Included in the Prospectus
20 ......None
21 ......Determination of Share Price; Investment Performance
</TABLE>
<PAGE> 3
LAKE FOREST FUNDS
NO-LOAD MUTUAL FUNDS
LAKE FOREST CORE EQUITY FUND
LAKE FOREST MONEY MARKET FUND
PROSPECTUS JULY 1, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities nor has the Securities and Exchange Commission determined whether
this prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
LAKE FOREST CORE EQUITY FUND--AN OVERVIEW 1
LAKE FOREST MONEY MARKET FUND--AN OVERVIEW 2
PAST PERFORMANCE 3
FEES AND EXPENSES OF THE FUNDS 5
THE FUNDS--IN DEPTH 6
INVESTMENT OBJECTIVES AND STRATEGIES 6
INVESTMENT POLICIES AND TECHNIQUES AND RISK CONSIDERATIONS 7
FINANCIAL HIGHLIGHTS 10
GENERAL INFORMATION 12
HOW TO INVEST IN EACH FUND 12
EXCHANGE PRIVILEGE 14
HOW TO REDEEM SHARES 15
SHARE PRICE CALCULATION 16
DIVIDENDS AND DISTRIBUTIONS 17
TAXES 17
MANAGEMENT OF THE FUNDS 18
PERFORMANCE INFORMATION 19
</TABLE>
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<PAGE> 5
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.
LAKE FOREST CORE EQUITY FUND--AN OVERVIEW
Investment Objective and Principal Investment Strategy
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 Core Equity Fund seeks to achieve this investment objective
by investing primarily in a broad range of equity securities of large,
established companies (those with a market capitalization above $1 billion)
which its Adviser, Boberski & Company, believes have above average prospects for
appreciation. The Fund will also invest in dividend paying stocks in order to
generate a combination of current income and long term capital appreciation.
Principal Risks
Although the Adviser makes every effort to achieve the Equity Fund's
investment objective, you may lose money if you buy its shares. The following
are the principal risks associated with an investment in the Fund:
o Market risk. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having
little or nothing to do with the issuer of stock.
o Company risk: The price of a common stock varies with the success and
failure of its issuer. As a result, the success of the companies in which
the Fund invests largely determines the Fund's performance.
o Interest rate risk: The value of fixed income securities, which the Fund
purchases decline because of an increase in interest rates.
o Credit risk. The value of fixed income securities which the Fund purchases
may decline if the issuer of the security experiences difficulty in making
timely interest and principal payments.
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LAKE FOREST MONEY MARKET FUND--AN OVERVIEW
Investment Objective and Principal Investment Strategy
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.
Principal Risks
Because the Lake Forest Money Market Fund invests exclusively in
short-term U.S. Government Securities, it incurs a minimum of interest rate and
credit risk. However, there is also some risk that the issuer of a security held
by the Fund will fail to make a payment when it is due. The primary risk of
investing in the Fund is that the dividends which it pays to investors are not
stable. When interest rates increase, the Fund's dividends should increase. When
interest rates decrease the Fund's dividends should decrease.
- -------------------------------------------------------------------------------
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. Purchasing shares of the Funds involves
investment risks, including the possible loss of principal. Moreover, there can
be no assurance that the Money Market Fund will be able to maintain a stable net
asset value of $1.00 per share.
- -------------------------------------------------------------------------------
2
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PAST PERFORMANCE
The bar charts and the tables below provide an indication of the risks
of investing in the Equity Fund and Money Market Fund by showing the changes in
each Fund's performance for each year since the Funds' inception and by
presenting each Fund's average annual returns for the one, three and since
inception periods. For the Equity Fund, the table compares its performance to
that of the S&P 500(R), a widely recognized unmanaged index of stock
performance. How the Funds have performed in the past is not necessarily an
indication of how the Funds will perform in the future.
LAKE FOREST CORE EQUITY FUND
Year-by-Year Total Returns for each full calendar year since 1996
[GRAPH]
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ending December 31, 1998)
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
PAST ONE YEAR PAST THREE YEARS LIFE OF FUND
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
LAKE FOREST CORE EQUITY FUND
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
S&P 500
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
3
<PAGE> 8
LAKE FOREST MONEY MARKET FUND
Year-by-Year Total Returns for each full calendar year since 1996
The above chart does not reflect a fee waiver. The Money Market Fund's returns
without the fee waiver for 1996, 1997 and 1998 calendar years would have been
4.90%, 5.07% and 5.00%, respectively.
[GRAPH]
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ending December 31, 1998)
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
PAST ONE YEAR PAST THREE YEARS LIFE OF FUND
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
LAKE FOREST MONEY MARKET FUND
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
Lake Forest Money Market Fund 7-Day SEC Yield
(as of )
4
<PAGE> 9
FEES AND EXPENSES OF THE FUNDS
The tables below describe the fees and expenses the Funds pay and that
you bear indirectly if you buy and hold shares in the Equity Fund or Money
Market Fund. Both Funds are true "no-load" funds. You do not pay a sales charge
when you buy or sell shares and you are not charged a 12b-1 distribution fee.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------------------------- ----------------------------------------------
Lake Forest Core Equity Fund Lake Forest Money Market Fund
- ----------------------------------- ------------------------------------- ----------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) None None
Imposed on Purchases
- ----------------------------------- ------------------------------------- ----------------------------------------------
Maximum Deferred sales Charge None None
(Load)
- ----------------------------------- ------------------------------------- ----------------------------------------------
Maximum Sales Charge (Load) you None None
Pay on Reinvested Dividends
- ----------------------------------- ------------------------------------- ----------------------------------------------
Redemption Fees None* None*
- ----------------------------------- ------------------------------------- ----------------------------------------------
Exchange Fees** $5.00 $5.00
- ----------------------------------- ------------------------------------- ----------------------------------------------
Wire Transfer Fees** $15.00 $15.00
- ----------------------------------- ------------------------------------- ----------------------------------------------
</TABLE>
*You will be charged by the Fund 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
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.
These fees may be waived at anytime. However, such waivers are
voluntary and shall not be deemed as an obligation to continue to waive the fees
in the future.
ANNUAL FUND OPERATING EXPENSES FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
(Expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
- ---------------------------------- --------------------------------------- -------------------------------------------
Lake Forest Core Equity Fund Lake Forest Money Market Fund
- ---------------------------------- --------------------------------------- -------------------------------------------
<S> <C> <C>
Management Fee 1.25% 0.5%*
- ---------------------------------- --------------------------------------- -------------------------------------------
Distribution (12b-1) fees None None
- ---------------------------------- --------------------------------------- -------------------------------------------
Other Expenses** None None
- ---------------------------------- --------------------------------------- -------------------------------------------
Total Fund Operating Expenses 1.25% 0.50%
- ---------------------------------- --------------------------------------- -------------------------------------------
</TABLE>
5
<PAGE> 10
*The Adviser has waived the Management Fee over 0.125% for the Money
Market Fund for an indeterminate period of time.
**Pursuant to the Management Agreement, the Adviser pays all of each
Fund's operating expenses except interest, taxes, brokerage commissions and
extraordinary expenses.
Cost Comparison Examples
The examples below illustrate the expenses you would incur on a $10,000
investment in the Equity Fund or Money Market Fund based on each Fund's current
level of expenses. The examples assume that each Fund earned an annual return of
5% over the periods shown and you redeem your shares at the end of each time
period.
<TABLE>
<CAPTION>
- ----------------------------- ------------------ ----------------------- ---------------------- ----------------------
1 year 3 year 5 years 10 years
- ----------------------------- ------------------ ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Lake Forest Core Equity Fund
- ----------------------------- ------------------ ----------------------- ---------------------- ----------------------
Lake Forest Market Money
Fund
- ----------------------------- ------------------ ----------------------- ---------------------- ----------------------
</TABLE>
These examples are hypothetical and are included for the purpose of
comparing the Funds' expenses with other mutual funds. They do not represent
estimates of futures expenses or returns, either of may be greater or less than
the amounts shown.
THE FUNDS--IN DEPTH
Lake Forest Core Equity Fund and Lake Forest Money Market Fund
(collectively 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 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. The Fund also will invest in dividend paying stocks for current
income as well as long term capital appreciation.
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<PAGE> 11
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 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 marketability.
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 shall 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.
PRINCIPAL INVESTMENT POLICIES AND TECHNIQUES AND RISK CONSIDERATIONS
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.
7
<PAGE> 12
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.
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 an 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.
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.
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
8
<PAGE> 13
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 Firstar Bank, N.A. (the
Trust's Custodian), other banks with assets of $1 billion or more and registered
securities dealers determined by the 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.
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.
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<PAGE> 14
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Funds' financial performance for during the Funds' history. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund, assuming reinvestment of all dividends and distributions. This
information has been audited by McCurdy & Associates CPA's, Inc., the Funds'
independent certified accountants, whose report, along with the Funds' financial
statements, are included in the Annual Report, which is available upon request.
LAKE FOREST CORE EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED FEBRUARY ENDED FEBRUARY
FEBRUARY 28, 1999 FEBRUARY 28, 1998 28, 1997 29, 1996
----------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................... $ 20.04 $ 17.34 $ 15.00
Income from investment operations
Net investment income ................................... 0.31 0.39 0.56
Net realized gain on investments ........................ 5.83 3.07 2.13
----------- --------- ---------
Total from investment operations ........................ 6.14 3.46 2.69
Less distributions
Dividends from net investment income .................... (0.29) (0.37) (0.15)
Dividends from capital gains ............................ 0.00 (0.39) (0.20)
----------- --------- ---------
Net asset value - end of period ......................... $ 25.89 $ 20.04 $ 17.34
=========== ========= =========
Total Return ............................................ 30.87% 20.65% 18.59%
Ratios/supplemental data
Net assets, end of period (in 000's) .................... 7,890 2,592 1,016
Ratio of expenses to average net assets ................. 1.19% 1.00% 0.45%
Ratio of net investment income to average net assets .... 1.32% 2.10% 3.89%
Portfolio turnover rate ................................. 0.00% 0 129.77%
Average commission rate per share ....................... $ 0.1125 $ 0.13
</TABLE>
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LAKE FOREST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED FEBRUARY ENDED FEBRUARY
FEBRUARY 28, 1999 FEBRUARY 28, 1998 28, 1997 29, 1996
----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period ................. $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income ................................. 0.05 0.05 0.06
Net realized gain on investments ...................... 0.00 0.00 0.00
---------- ---------- ----------
Total from investment operations ...................... 0.05 0.05 0.06
Less distributions
Dividends from net investment income .................. (0.05) (0.05) (0.06)
Dividends from capital gains .......................... 0.00 0.00 0.00
---------- ---------- ----------
Net asset value - end of period ....................... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Return .......................................... 5.51% 5.13% 5.50%
Ratios/supplemental data
Net assets, end of period (in 000's) .................. 5,332 3,016 1,787
Ratio of expenses to average net assets ............... 0.125% 0.125% 0.08%
Ratio of net investment income to average net assets .. 5.38% 5.13% 5.50%
Portfolio turnover rate ............................... 0.00% 0.00% 0.00%
</TABLE>
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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.
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 Firstar 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).
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<PAGE> 17
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:
<TABLE>
<CAPTION>
FOR THE LAKE FOREST CORE EQUITY FUND: FOR THE LAKE FOREST MONEY MARKET FUND:
<S> <C>
Firstar Bank, N.A., CINTI/TRUST Firstar Bank, N.A. CINTI/TRUST
ABA #0420-0001-3 ABA #0420-0001-3
Attn: Lake Forest Core Equity Fund Attn: Lake Forest Money Market Fund
DDA # 483609095 DDA # 483609129
Account Name Account Name
(write in shareholder name) (write in shareholder name)
Shareholder Account # Shareholder Account #
(write in account #) (write in account #)
</TABLE>
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.
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
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<PAGE> 18
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 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.
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<PAGE> 19
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.
150 Motor Parkway #109
Hauppauge, New York 11788-5108
"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 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
15
<PAGE> 20
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 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
16
<PAGE> 21
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 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.
17
<PAGE> 22
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 business activities of the Trust.
Like other mutual funds, the Trust retains various organizations to perform
specialized services. It retains the Adviser, Boberski & Company, One
Westminster Place, Lake Forest, Illinois 60045 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. Currently, the Adviser voluntarily waives the fee for the Money
Market Fund over 0.125%. There is no agreement to continue this reduction for
any particular period of time. 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
18
<PAGE> 23
shareholders to the extent these institutions are allowed to do so by applicable
statute, rule or regulation.
American Data Services, Inc., 150 Motor Parkway #109, Hauppauge, New
York 11788-5108 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 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> 24
INVESTMENT ADVISER
Boberski & Company
One Westminster Place
Lake Forest, Illinois 60045
CUSTODIAN (ALL INITIAL AND SUBSEQUENT PURCHASES)
The Lake Forest Funds
c/o Firstar 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.
150 Motor Parkway #109
Hauppauge, New York 11788-5108
(800) 592-7722
AUDITORS
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, Ohio 44145
LEGAL COUNSEL
D'Ancona & Pflaum LLC
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601-4205
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.
THE LAKE FOREST FUNDS
c/o American Data Services, Inc.
150 Motor Parkway #109
Hauppauge, New York 11788-5108
(800) 592-7722
20
<PAGE> 25
[BACK COVER]
Additional information about the Lake Forest Funds' investments is
available in the Funds' annual and semi-annual reports to shareholders. In the
Funds' annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected their performance during its
last fiscal year.
You can find more detailed information about the Lake Forest Funds in
the Statement of Additional Information, dated July 1, 1999, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which are
incorporated by reference into this Prospectus. To receive your free copy of a
Statement of Additional Information, or any of the annual or semi-annual
reports, or if you have questions about investing in the Funds, write to us at:
THE LAKE FOREST FUNDS
c/o American Data Services, Inc.
150 Motor Parkway #109
Hauppauge, New York 11788-5108
Or call our toll-free number: (800) 592-7722
Or visit our Web site at www.lakeforestfunds.com
You can find reports and other information about the Funds on the SEC
Web site (http://www.sec.gov), or you can get copies of this information, after
payment of a duplicating fee, by writing to the Public Reference Section of the
SEC, Washington, D.C. 20549-6009. Information about the Funds, including their
Statements of Additional Information, can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. For information on the Public
Reference Room, call the SEC at 1-800-SEC-0330.
Investment Company Act file number 811-8906
21
<PAGE> 26
LAKE FOREST FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1999
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, 1999. The Funds' February 28, 1999 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 P.O. Box 5536 Hauppauge, New York
11788-0132, or by calling 1-800-592-7722.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF THE TRUST..........................................................................................2
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS.............................................3
INVESTMENT LIMITATIONS............................................................................................8
THE MANAGEMENT AGREEMENT.........................................................................................10
TRUSTEES AND OFFICERS............................................................................................10
TRUSTEE COMPENSATION.............................................................................................11
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................................12
DETERMINATION OF SHARE PRICE.....................................................................................13
INVESTMENT PERFORMANCE...........................................................................................13
CUSTODIAN........................................................................................................14
TRANSFER AGENT...................................................................................................14
ACCOUNTANTS......................................................................................................14
LEGAL COUNSEL....................................................................................................15
FINANCIAL STATEMENTS.............................................................................................15
</TABLE>
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<PAGE> 27
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 June 9, 1999, the following persons owned five percent (5%) or
more of the Equity Fund:
As of June 9, 1999, the following persons owned five percent (5%) or
more of the Money Market Fund:
As of June 9, 1999, the officers, directors and members of the advisory
board of the Trust owned ___% of the Core Equity Fund and ____% of the Money
Market Fund.
2
<PAGE> 28
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. 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
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.
3
<PAGE> 29
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.
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
4
<PAGE> 30
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.
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.
5
<PAGE> 31
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. 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 marked-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.
G. 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.
H. 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 Firstar Bank, N.A. (the
Trust's Custodian), other banks with assets of $1 billion or more and registered
6
<PAGE> 32
securities dealers determined by the 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.
I. 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.
J. 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.
K. 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).
L. 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
7
<PAGE> 33
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.
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
8
<PAGE> 34
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.
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.
9
<PAGE> 35
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 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. Currently, the Adviser voluntarily waives the fees for the
Money Market Fund over 0.125%. There is no agreement to continue this reduction
for any particular period of time.
During the years ended February 28, 1997, February 28, 1998 and
February 28, 1999 the Core Equity Fund paid advisory fees of $16,291, $59,603,
and _______ respectively. During the same periods, the Money Market Fund paid
advisory fees of $2,671, $5,957, and _______ 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 purchase from time to time
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 Trusts' Board of Directors has general supervisory responsibilities of the
Lake Forest Funds and supervises the investment adviser's activities.
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.
10
<PAGE> 36
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
*Irving V. Boberski President, Treasurer, Secretary and Trustee
Robert E. Alfe Trustee
Gary M. Patyk Trustee
</TABLE>
The ages as of April 15, 1999, 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., 59, 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, 59, 582 Oakwood Avenue, Lake Forest, Illinois, is an
architect and builder, and the President of Alfe Development Corporation, a real
estate development company.
Gary M. Patyk, 59, 8225 W. Center St. Apt. #1, Milwaukee, Wisconsin
53222, has been a consultant with LA-Z-BOY Furniture Galleries since 1997. From
1995 to 1997, he was a consultant with Transworld Systems, Inc., an accounts
receivable recovery firm, since 1995. Prior 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
Aggregate Retirement Estimated Annual Total Compensation
Compensation From Benefits Accrued Benefits Upon From Trust (the Trust
Trust* As Part of Trust Retirement is not in a Fund
Name Expenses Complex)*
- ---------------------------------------- -------------------- ------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
Robert E. Alfe $1,000 0 0 $1,000
- ---------------------------------------- -------------------- ------------------- ------------------ -----------------------
Irving V. Boberski 0 0 0 0
- ---------------------------------------- -------------------- ------------------- ------------------ -----------------------
Philip M. Hackbarth** $1,000 0 0 $1,000
- ---------------------------------------- -------------------- ------------------- ------------------ -----------------------
Gary M. Patyk $1,000 0 0 1,000
- ---------------------------------------- -------------------- ------------------- ------------------ -----------------------
</TABLE>
* Under the Management Agreement, the Adviser pays these fees.
** Philip M. Hackbarth resigned as a Trustee as of February 1, 1999.
11
<PAGE> 37
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 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.
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<PAGE> 38
During the fiscal year ended February 28, 1999, the Core Equity Fund
paid brokerage commissions in the aggregate amount of $______. 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, 1999.
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.
INVESTMENT PERFORMANCE
The Core Equity Funds' total return for the fiscal years ended February
28, 1999, February 28, 1998, February 28, 1997 and February 29, 1996 was
________, 30.87%, 20.65% and 18.59%, respectively.
The Money Market Fund's current and effective yields for the seven day
period ended February 28, 1999 were ___% and _____%, respectively. The Money
Market Fund's current and effective yields for the seven day period ended
February 28, 1998 were 5.48% and 5.63%, respectively. The 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:
<TABLE>
<CAPTION>
P(1+T)n=ERV
<S> <C> <C> <C>
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.
</TABLE>
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
13
<PAGE> 39
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: effective yield = [(base period return + 1) 365/7] - 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.
CUSTODIAN
Firstar 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., P.O. Box 5536, Hauppauge, New York
11788-0132, 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
14
<PAGE> 40
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, 111 E. Wacker Drive, Suite 2800,
Chicago, Illinois 60601 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, 1999.
15
<PAGE> 41
THE LAKE FOREST FUNDS
PART C. OTHER INFORMATION
Item 23. EXHIBITS
(a) Conformed copy of the Declaration of Trust,
incorporated by reference to Post-Effective Amendment
No. 2, File No. 33-87494.
(b) By-Laws, as amended, incorporated by reference to
Post-Effective Amendment No. 2, File No. 33-87494.
(c) Not Applicable.
(d) Investment Management Agreement, as amended July 1,
1997, incorporated by reference to Post-Effective
Amendment No. 3, File No. 33-87494.
(e) Not Applicable
(f) Not Applicable
(g) Custodian Agreement, incorporated by reference to
Post-Effective Amendment No. 2, File No. 33-87494.
(h) Administrative Agreement, incorporated by reference
to Exhibit 5(c) to Post-Effective Amendment No. 2,
File No. 33-87494.
Transfer Agency Agreement, incorporated by reference
to Post-Effective Amendment No. 2, File No. 33-87494.
(i) Opinion and Consent of Counsel, to be filed with the
485(b) filing.
(j) Consent of McCurdy & Associates C.P.A.'s, Inc., to be
filed with the 485(b) filing.
Report of McCurdy & Associates C.P.A.'s, Inc., to be
filed with the 485(b) filing.
(k) Financial Statements
Included in Part B:
(1) Statement of Assets and Liabilities for the Core
Equity Fund as of February 28, 1999.
<PAGE> 42
(2) Report of Independent Public Accountant, to be filed
with the 485(b) filing.
(3) Statement of Assets and Liabilities for the Money
Market Fund as of February 28, 1999, to be filed with
the 485(b) filing.
(4) Statement of Operations for the Core Equity Fund for
the period ended February 28, 1999, to be filed with
the 485(b) filing.
(5) Statement of Operations for the Money Market Fund for
the period ended February 28, 1999, to be filed with
the 485(b) filing.
(6) Notes to Financial Statements, to be filed with the
485(b) filing.
(l) Letter from initial shareholder, incorporated by
reference to Post-Effective Amendment No. 2, File No.
33-87494.
(m) Not Applicable
(n) Schedule for Computation of Each Performance
Quotation, incorporated by reference to
Post-Effective Amendment No. 2, File No. 33-87494.
(o) Model Plan used in Establishment of IRA/SEP,
incorporated by reference to Post-Effective Amendment
No. 2, File No. 33-87494
Powers of Attorney, incorporated by reference to
Post-Effective Amendment No. 2, File No. 33-87494.
Item 24. Persons Controlled by or Under Common Control with the Registrant
None.
Item 25. Indemnification
(a) Article VI of the Registrant's Declaration of Trust provides
for indemnification of officers and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers,
etc. Subject to and except as otherwise provided in the
Securities Act of 1933, as amended, and the 1940 Act, the
Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as
directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise (hereinafter
2
<PAGE> 43
referred to as a "Covered Person") against all liabilities,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense
or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative
or legislative body, in which such Covered Person may be or
may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, and except that no
Covered Person shall be indemnified against any liability to
the Trust or its Shareholders to which such Covered Person
would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's
office.
Section 6.5 Advances of Expenses. The Trust shall
advance attorneys' fees or other expenses incurred by a
Covered Person in defending a proceeding to the full extent
permitted by the Securities Act of 1933, as amended, the 1940
Act, and Ohio Revised Code Chapter 1707, as amended. In the
event any of these laws conflict with Ohio Revised Code
Section 1701.13(E), as amended, these laws, and not Ohio
Revised Code Section 1701.13(E), shall govern.
Section 6.6 Indemnification Not Exclusive, etc. The
right of indemnification provided by this Article VI shall not
be exclusive of or affect any other rights to which any such
Covered Person may be entitled. As used in this Article VI,
"Covered Person" shall include such person's heirs, executors
and administrators. Nothing contained in this article shall
affect any rights to indemnification to which personnel of the
Trust, other than Trustees and officers, and other persons may
be entitled by contract or otherwise under law, nor the power
of the Trust to purchase and maintain liability insurance on
behalf of any such person.
The Registrant may not pay for insurance which protects the
Trustees and officers against liabilities rising from action
involving willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
their offices.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the
provisions of Ohio law and the Agreement and Declaration of
the Registrant or the By-Laws of the Registrant, or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other
3
<PAGE> 44
than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Trust
in the successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of Investment Adviser
A. Boberski & Company (the "Adviser") is a registered investment adviser.
It has engaged in no other business during the past three fiscal years
of the Trust.
B. The Directors and officers of the Adviser have had no other business
connections during the past three years except that Irving V. Boberski
is also President and a Director of Boberski Capital Markets, One
Westminster Place, Lake Forest, Illinois 60045-1821.
Item 27. Principal Underwriters
None.
Item 28. Location of Accounts and Records
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at One
Westminster Place, Lake Forest, Illinois 60045-1821 and/or by the
Registrant's Custodian, Firstar Bank, N.A., 425 Walnut Street,
Cincinnati, Ohio 45202 or transfer and shareholder service agent,
American Data Services, Inc., 150 Motor Parkway, Suite 109, Hauppauge,
NY 11788-5108.
Item 29. Management Services Not Discussed in Parts A or B
None.
Item 30. Undertakings
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
4
<PAGE> 45
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of Illinois, on the
21 day of April, 1999.
THE LAKE FOREST FUNDS
By: /s/ Sheldon R. Stein
--------------------------
Sheldon R. Stein
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Irving V. Boberski* President, Chief Financial April 21, 1999
- ------------------- Officer and Trustee
Irving V. Boberski*
Robert E. Alfe* Trustee April 21, 1999
- ---------------
Robert E. Alfe*
Gary M. Patyk* Trustee April 21, 1999
- --------------
Gary M. Patyk*
*By: /s/ Sheldon R. Stein
--------------------
Sheldon R. Stein
Attorney-in-Fact
*Sheldon R. Stein signs this document on behalf of the Registrant and the
foregoing Officers and Trustees pursuant to the power of attorney filed as
Exhibit 17 to Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form N1-A.
