Reg. ICA No. 811-
File No. 33-91428
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 2 |X|
Post-Effective Amendment No. |_|
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 2 |X|
LM CAPITAL INVESTMENTS, INC.
(Exact Name of Registrant as Specified in Charter)
515 North Flagler Drive, Suite 1704
West Palm Beach, Florida 33401
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (407) 833-9700
Susan Penry-Williams, Esq.
Louis S. Citron, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
(Name and Address of Agent for Service)
Copy to:
Mr. Leslie M. Corley
515 North Flagler Drive, Suite 1704
West Palm Beach, Florida 33401
Approximate date of proposed public offering: As soon as practicable
after this registration statement becomes effective.
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS-REFERENCE SHEET
(Pursuant to Rule 404 showing location in each form of
Prospectus of the responses to the Items in Part A and location in each form of
Prospectus and the Statement of Additional Information of the responses to the
Items in Part B of Form N-1A).
LM CAPITAL ACCESS FUND
LM CAPITAL TRUE VALUE FUND
LM CAPITAL INTERNATIONAL FUND
LM VENTURE CAPITAL ACCESS FUND
Item Number
Form N-1A,
Part A Prospectus Caption
1 Front Cover Page
2(a) Summary
(b) Summary
3(a) Not Applicable
(b) Not Applicable
(c) Summary
(d) Not Applicable
4(a) General Information;
Investment Objectives,
Policies & Risks
(c) Investment Objectives,
Policies & Risks; Additional
Investment Strategies,
Policies & Risks
5(a) Management and Operations
of the Funds
(b) Management and Operations
of the Funds
(c) Management and Operations
of the Funds
(d) Management and Operations
of the Funds
(e) Management and Operations
of the Funds
<PAGE>
Item Number
Form N-1A,
Part A Prospectus Caption
(f) Management and Operations
of the Funds
(g) Management and Operations
of the Funds
6(a) General Information
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) Cover Page
(f) Dividends, Distributions and
Tax Matters
(g) Dividends, Distributions and
Tax Matters
7(a) How to Purchase Shares
(b) Terms and Conditions of
Purchase
(c) Terms and Conditions of
Purchase; Reduced Initial
Sales Charge
(d) How to Purchase Shares
(e) Not Applicable
(f) Management and Operations
of the Funds
8(a) How to Redeem Shares
(b) How to Redeem Shares
(c) Not Applicable
(d) How to Redeem Shares
9 Not Applicable
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<PAGE>
LM CAPITAL ACCESS FUND
LM CAPITAL TRUE VALUE FUND
LM CAPITAL INTERNATIONAL FUND
LM VENTURE CAPITAL ACCESS FUND
Item Number Statement of Additional
Part B Information Caption
10 Front Cover Page
11 Front Cover Page
12 Not Applicable
13 Investment Strategies and Risks;
Investment Restrictions
14 The Management of the Funds
15(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
16(a) Investment Adviser and
Advisory Agreement
(b) Investment Adviser and
Advisory Agreement
(c) Distribution Agreement and
Distribution and Service Plans
(d) See Prospectus - Management and
Operations of the Funds
(e) Investment Adviser and Advisory
Agreement
(f) Distribution Agreement and
Distribution and Service Plans
(g) Not Applicable
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<PAGE>
Item Number
Form N-1A, Statement of Additional
Part B Information Caption
(h) See Prospectus - General Information
(i) Not Applicable
17 Portfolio Transactions and Brokerage
18 Description of the Fund
19(a) Additional Purchase and Redemption
of Shares
(b) Computation of Net Asset Value
(c) Not Applicable
20 Tax Matters
21(a) Distribution Agreement and
Distribution and Service Plan
(b) Not Applicable
(c) Not Applicable
22 Performance Calculation
23 Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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<PAGE>
LM CAPITAL MUTUAL FUNDS
LM CAPITAL ACCESS FUND
LM CAPITAL TRUE VALUE FUND
LM CAPITAL INTERNATIONAL FUND
LM VENTURE CAPITAL ACCESS FUND
LM CAPITAL INVESTMENTS, INC.
515 North Flagler Drive, Suite 1704
West Palm Beach, Florida 33401
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About This Prospectus
This Prospectus sets forth information concerning LM Capital Investments, Inc.,
an open-end management investment company that currently offers shares through
four series of mutual funds (the " Funds"). Each of the Funds is a series of LM
Capital Investments, Inc.:
LM CAPITAL ACCESS FUND (the "ACCESS FUND"), a money market mutual fund; LM
CAPITAL TRUE VALUE FUND (the "TRUE VALUE FUND"), a U.S. equities mutual fund; LM
CAPITAL INTERNATIONAL FUND (the "INTERNATIONAL FUND"), an international mutual
fund; LM VENTURE CAPITAL ACCESS FUND (the "VENTURE CAPITAL ACCESS FUND"), an
equity mutual fund.
This Prospectus, dated , 1996, is designed to provide you with information that
you should know before investing, and to help you decide if the Access Fund, the
True Value Fund , the International Fund or the Venture Capital Access Fund meet
your investment objectives.
Please read this Prospectus carefully before investing and keep it for future
reference. A Statement of Additional Information, dated , 1996, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The Statement of Additional Information is available without charge
upon request by calling 1-800-37-LMCAP (1-800-375- 6227).
Investment Objectives
The ACCESS FUND's investment objective is to provide maximum current income from
short-term money market securities while preserving capital and maintaining
liquidity.
The TRUE VALUE FUND'S investment objective is to provide long-term growth of
capital. The True Value Fund seeks to achieve its objective by investing
primarily in a non-diversified portfolio of common stocks believed to be
undervalued in the market place.
The INTERNATIONAL FUND'S investment objective is to provide long-term growth of
capital. The International Fund seeks to achieve its objective by investing
primarily in a non-diversified portfolio of equity securities of companies
located primarily outside the United States which are considered to have strong
earnings momentum.
The VENTURE CAPITAL ACCESS FUND'S investment objective is to provide long-term
growth of capital. The Venture Capital Access Fund seeks to achieve its
objective by investing primarily in a non-diversified portfolio of equity
securities of companies in their early and evolving stages of venture capital
development.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, A BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THERE IS NO ASSURANCE THAT THE ACCESS FUND WILL MAINTAIN A STABLE $1.00 SHARE
PRICE.
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LIKE ALL MUTUAL FUNDS THESE SECURITIES HAVE NOT BEEN APPROVED
<PAGE>
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Summary
The Venture Capital Access Funds
Purchasing Shares
Summary of Fund Expenses
The Investment Adviser
Exchange Privileges, Distributions, Redeeming Shares
Investment Objectives, Policies & Risks
LM Capital Access Fund
LM Capital True Value Fund
LM Capital International Fund
LM Venture Capital Access Fund
Risk Considerations
Additional Investment Strategies, Policies & Risks
Management and Operations of the Funds
How to Purchase Shares
How to Redeem Shares
Terms and Conditions of Purchase
Reduced Initial Sales Charge
Dividends, Distributions and Tax Matters
General Information
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SUMMARY
THE FUNDS
LM Capital Investments, Inc. ("LM Capital Investments") is a Maryland
corporation organized as an open-end, series, management investment company.
Currently, LM Capital Investments offers four separate series funds: LM Capital
Access Fund (the "Access Fund"), LM Capital True Value Fund (the "True Value
Fund") , LM Capital International Fund (the "International Fund") and LM Venture
Capital Access Fund (the "Venture Capital Access Fund") (collectively, the
"Funds").
PURCHASING SHARES
Shares of the Funds are offered by this Prospectus at net asset value plus any
applicable initial sales charge. With regard to the True Value Fund , the
International Fund and the Venture Capital Access Fund, the minimum initial
investment is $2,500 and the minimum additional investment is $250; the minimum
initial and additional investment through an Individual Retirement Account is
$250. With regard to the Access Fund, the minimum initial and additional
investment is $250. The Distributor of the Funds' shares is LM Capital
Securities, Inc. ("LM Capital Securities" or the "Distributor").
Investors who make their initial investment directly through participating
securities dealers may have their "free-credit" cash balances automatically
invested in Access Fund shares. See "How to Purchase Shares."
SUMMARY OF FUND EXPENSES
The expense summary below was developed for use by all mutual funds to help an
investor make investment decisions. This expense information should be
considered along with other important information in this Prospectus, including
each Fund's investment objective.
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<PAGE>
A. SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Venture
Capital
Access Value Int'l Access
----------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C>
Sales Charge Imposed on Purchases none 4.50% 4.50% 4.50%
Sales Charge Imposed on Reinvested Dividends none none none none
Deferred Sales Charge Imposed on Redemptions none none none none
Redemption Fee none none none none
Exchange Fee none none none none
</TABLE>
B. ESTIMATED ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
Venture
Capital
(as a percentage of average net assets) Access Value Int'l Access
--- - ---------- -- ------- --- ------- ------------- ------------- ----------- ------
<S> <C> <C> <C> <C>
Advisory Fee*. .% 1.50% 1.50% 1.50%
12b-1 Fee .% .25% .25% .25%
Other Expenses** .% .% .% .%
Total Fund Operating Expenses .% .% .% .%
</TABLE>
* As a result of distribution fees, a long-term shareholder in the
True Value Fund, the International Fund and the Venture Capital Access
Fund may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the Rules of the National
Association of Securities Dealers, Inc.
**These expenses include legal fees, accounting fees, transfer agent,
administrative fees, shareholder servicing fees, and custodial fees.
C. EXAMPLE: You would pay the following expenses on a $1,000
investment in a Fund, assuming (1) a 5% annual return and (2)
full redemption at the end of each time period:
One Three
Year Years
- ----------------------------------------------------------------------------
Access Fund $ $
True Value Fund $ $
International Fund $ $
Venture Capital Access Fund $ $
THE 5% RETURN AND EXPENSES SHOULD NOT BE CONSIDERED INDICATIONS OF ACTUAL OR
EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF WHICH MAY VARY.
EXPLANATION OF TABLE: The purpose of the table is to assist you in understanding
the various costs and expenses that an investor in a Fund would bear directly or
indirectly. "Shareholder Transaction Expenses" represent charges paid when an
investor purchases, redeems or exchanges shares of a Fund. The "Estimated Annual
Fund Operating Expenses" summary shows the advisory fee, Rule 12b-1 fee and
other operating expenses incurred by each Fund. The "Example" set forth above
assumes that all dividends and other distributions are reinvested and that the
percentages under "Estimated Annual Fund Operating Expenses" remain the same in
the years shown.
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<PAGE>
THE INVESTMENT ADVISER
LM Capital Corporation ("LM Capital" or the "Investment Adviser") serves as the
Funds' investment adviser. Under the terms of each Fund's Investment Advisory
Agreement (the "Advisory Agreement"), the Investment Adviser supervises all
aspects of a Fund's operations and provides investment advisory services to the
Fund. As compensation for these services, the Investment Adviser receives a fee
based on each Fund's respective average daily net assets. LM Capital currently
manages partnerships for institutional investors which invest in closely held
leveraged buyout investments and publicly traded securities. See "Management of
the Funds."
EXCHANGE PRIVILEGES
Shareholders of a Fund may exchange their shares for the shares of any of the
other Funds, subject to the policies and procedures set forth in this
Prospectus. See "How to Redeem Shares - Exchange Privilege."
DISTRIBUTIONS
The Access Fund declares dividends on a daily basis and pays them monthly. The
True Value Fund , the International Fund and the Venture Capital Access Fund
currently declare and pay dividends from net investment income, if any, on a
semiannual basis, and make distributions of realized capital gains, if any, on
an annual basis. Dividends and distributions of the Funds may be paid by check,
or reinvested in additional shares of the Funds, including, subject to certain
conditions, in shares of a Fund other than the Fund making the distribution. See
"Dividends, Distributions and Tax Matters."
REDEEMING SHARES
Shareholders may redeem all or a portion of their shares at net asset value at
any time and without charge. See "How to Redeem Shares."
PERFORMANCE
Each Fund may advertise total return, which presents its overall change in
value, including changes in share price and assuming all the Fund's dividends
and capital gain distributions are reinvested. A cumulative total return
reflects a Fund's performance over a stated period of time. Average annual total
return figures are annualized and, therefore, represent the average annual
percentage change over the period in question. To illustrate the components of
overall performance, the Funds may separate their cumulative and average annual
returns into income results and capital gains or losses.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information and can be expected to fluctuate from time
to time and is not necessarily indicative of future results. Accordingly, the
yield information may not provide a basis for comparison with investments which
pay a fixed rate of interest for a stated period of time. Yield is a function of
the type and quality of a Fund's investments, the Fund's maturity and the
operating expense ratio of the Fund. A shareholder's investment in a Fund is not
insured or guaranteed. These factors should be carefully considered by the
investor before making an investment in a Fund.
From time to time, LM Capital Investments or its affiliates may provide
information including, but not limited to, general economic conditions,
comparative performance data and rankings with respect to comparable investments
for the same period and for unmanaged market indices such as the Dow Jones
Industrial Average and the Standard and Poor's 500, and information from
recognized independent sources including Investors Business Daily, Money,
Forbes, Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Wiesenberger Investment Companies Services, Frank Russell Company, Mutual Fund
Values, Morningstar, Mutual Fund Forecaster, Barron's, The Wall Street Journal,
Private Equity Analyst and Schabacker Investment Management, Inc.
The performance of the Funds will vary from time to time and past results are
not necessarily representative of future results. A Fund's performance is a
function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating
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<PAGE>
expenses of the Fund as well as by general market conditions.
INVESTMENT OBJECTIVES, POLICIES & RISKS
The investment objective of each Fund is deemed to be fundamental and may not be
changed without the approval of a majority of a Fund's outstanding shares (as
defined by the Investment Company Act of 1940, as amended (the "1940 Act")).
Each Fund's investment policies are non-fundamental and may be changed by a
majority of the Fund's Board of Directors. Individuals considering the purchase
of shares of a Fund should recognize that there are risks in the ownership of
any security and that no assurance can be given that a Fund will attain its
investment objective.
LM CAPITAL ACCESS FUND
The ACCESS FUND'S investment objective is to provide maximum current income from
short-term money market securities while preserving capital and maintaining
liquidity.
To achieve its investment objective, the Access Fund invests at least 80% of its
assets in: (1) obligations issued, or guaranteed as to interest and principal,
by the government of the United States or any agency or instrumentality thereof;
(2) U.S. dollar denominated time deposits, certificates of deposit and bankers'
acceptances of U.S. banks and their London and Nassau branches and of U.S.
branches of foreign banks, provided that the bank has total assets of at least
one billion dollars; (3) commercial paper of U.S. corporations; or (4)
repurchase agreements under which the Fund may acquire an underlying debt
instrument for a relatively short period subject to the obligation of the seller
to repurchase, and of the Access Fund to resell, at a fixed price. The Access
Fund will enter into repurchase agreements only with commercial banks and
dealers in U.S. government securities. Repurchase agreements when entered into
with dealers, will be fully collateralized including the interest earned thereon
during the entire term of the agreement.
The Access Fund will limit its investments to securities with remaining
maturities of 397 days or less and maintain a dollar-weighted average maturity
of 90 days or less. In addition, the Access Fund may purchase only high quality
securities that present minimal credit risks. To meet this quality criterion, a
short-term security must be either a U.S. government security or considered a
"first-tier" security. First tier securities have received the highest rating by
at least two nationally recognized statistical rating organizations ("NRSROs"),
or, if only rated by one NRSRO, are rated in the highest rating category by that
NRSRO, or, if unrated, are determined by LM Capital (under the supervision of
and pursuant to guidelines established by the Board of Directors) to be of
comparable quality to a rated security that meets the foregoing quality
standards. See Appendix A of the Statement of Additional Information for
information concerning debt ratings. The Access Fund does not invest in
derivatives.
LM CAPITAL TRUE VALUE FUND
The TRUE VALUE FUND'S investment objective is to provide long-term growth of
capital. The True Value Fund seeks to achieve its objective by investing
primarily in a non-diversified portfolio of common stocks believed to be
undervalued in the market place. The True Value Fund also invests in closely
held securities which have limited marketability in order to participate in
leveraged buyout investments arranged or identified by the Investment Adviser as
having the potential for significant capital appreciation. The True Value Fund
will limit its investments in leveraged buyout securities and other illiquid
investments to 15% of its net assets.
To achieve its objectives, the True Value Fund intends to invest no less than
65% of its total assets in common stock of United States companies with a low
ratio market price to earnings or assets. Such companies may possess valuable
franchises or strong market position that, the Investment Adviser believes,
currently are not valued by the public into the price of such
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<PAGE>
companies. Such companies could also be in businesses which the public market
does not accord premium value due to earnings disappointment or lack of industry
popularity, or because such investments are in young, growing, or emerging
companies which the Investment Adviser believes face better prospects or favor
in the marketplace. The Investment Adviser seeks to make investments in
companies that have socially responsible policies concerning equal employment
opportunity and environmental matters, that contribute to the quality of life,
and that rate well in terms of product safety and employee relations.
While the True Value Fund invests primarily in common stocks, it also has the
ability to purchase convertible securities and investment grade, as well as
non-investment grade, debt obligations that may produce capital appreciation.
The True Value Fund will limit its investments in non-investment grade debt,
commonly known as "junk bonds", to less than 35% of its net assets. "Investment
grade" securities are those rated within the four highest quality grades as
determined by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"). Securities rated Aaa by Moody's and AAA by S&P are judged
to be of the best quality and carry the smallest degree of risk. Securities
rated Baa by Moody's and BBB by S&P lack high quality investment characteristics
and, in fact, have speculative characteristics as well.
Finally, the True Value Fund may invest up to 20% of its total assets in common
stock of foreign companies or purchase American Depository Receipts (ADRs),
which are certificates issued by U.S. banks representing the right to receive
securities of a foreign issuer deposited with that bank or a correspondent bank.
The True Value Fund also may invest up to 5% of its net assets in repurchase
agreements which are fully collateralized by obligations of the U.S. government
or obligations of its agencies or instrumentalities, or short-term money market
securities.
LM CAPITAL INTERNATIONAL FUND
The INTERNATIONAL FUND'S investment objective is to provide long-term growth of
capital. The International Fund seeks to achieve its objective by investing
primarily in a non-diversified portfolio of equity securities of companies
located primarily outside the United States which are considered to have the
potential for strong earnings momentum. A company will be deemed by the
Investment Adviser to have the potential for strong earnings momentum if the
Investment Adviser believes such company is likely to benefit from changes or
trends brought about by social, economic, technological, demographic and
legislative developments. The International Fund also invests in closely held
securities which have limited marketability in order to participate in leveraged
buyout investments arranged or identified by the Investment Adviser as having
the potential for significant capital appreciation. The International Fund will
limit its investment in leveraged buyout securities and other illiquid
investments to 15% of its net assets.
To achieve its objective, the International Fund will invest at least 80% of its
total assets in equity securities in companies outside the United States. Under
normal market conditions, equity securities, for purposes of the 80% policy,
will be limited to common and preferred stocks (including American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs") for such
securities), special classes of shares available only to foreign persons in such
markets that restrict the ownership of certain classes of equity to nationals or
residents of the country, convertible preferred stocks, and convertible
investment grade instruments.
In addition, the International Fund may invest up to 20% of its total assets in
equity securities of companies located in emerging market countries. An emerging
market is any country that the World Bank has determined to have a low or middle
income economy and may include every country in the world except the United
States, Australia, Canada, Japan, New Zealand and most countries located in
Western Europe such as Belgium, Denmark, France, Germany,
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<PAGE>
Great Britain, Italy, the Netherlands, Norway, Spain, Sweden and Switzerland.
The International Fund generally will seek to diversify its investments broadly
among issuers in many countries. However, the International Fund will under
normal market conditions be invested at all times in equity securities of
companies located in at least three countries outside of the United States. The
International Fund may invest a substantial portion of its assets in one or more
of such countries.
LM VENTURE CAPITAL
ACCESS FUND
Because of the nature of the VENTURE CAPITAL ACCESS FUND'S investments and
certain strategies it may use, such as investing in Private Investments (as
defined below), an investment in the Venture Capital Access Fund should be
considered only for the most aggressive portion of an investor's portfolio and
may not be appropriate for all investors.
The Venture Capital Access Fund's investment objective is long term growth of
capital. The Venture Capital Access Fund pursues its investment objective by
investing primarily in a non-
diversified portfolio of equity securities of companies in their early and
evolving stages of venture capital development. Although the Venture Capital
Access Fund may invest up to 15% of its assets in private venture capital
investments, the Venture Capital Access Fund is not designed primarily to
provide venture capital financing. Rather, under normal market conditions, the
Venture Capital Access Fund will invest at least 65% of its assets in equity
securities of "companies in venture capital stages of development". Such a
company has already received venture capital financing, or (a) is in the early
stages of its existence or the early stages of developing a new product or
service; (b) has participated in or might be positioned for a restructuring or
recapitalization of the company; or (c) is a company which LM Capital believes
is positioned to benefit from venture capital financing techniques. [within a
three year time frame. Should such venture capital financing fail to occur
within a three year period under (c) above, and if [n]either (a) or (b) above do
[not] apply, the Venture Capital Access Fund will sell such investment within
three years from the date of purchase.] [The investment of venture capital
financing, distribution of such company's securities to venture capital
investors or initial public offering ("IPO"), whichever is later, will have been
made within ten years prior to the Venture Capital Access Fund's purchase of the
company's securities.]
LM Capital believes that venture capital participation in a company's capital
structure can lead to capital appreciation potential above those of many older,
established companies not positioned for venture capital development. Venture
capitalists finance start up companies, companies in the early stages of
developing new products or services, and companies undergoing a restructuring or
recapitalization. Venture capitalists may hold substantial positions in
companies that have been acquired at prices significantly below the initial
offering price. This may create a potential adverse impact in the short term on
the market price of a company's stock due to sales in the open market by a
venture capitalist or others who acquired the stock at lower prices prior to the
IPO. LM Capital will consider the impact of such sales in selecting investments,
as well as the possible involvement of venture capitalists in the affairs of the
companies in which the Venture Capital Access Fund invests.
Venture capitalists may be individuals or funds organized by venture capitalists
which are typically offered to large institutions, such as pension funds and
endowments, and other accredited investors. The Venture Capital Access Fund will
seek to make investments in companies it believes are attractive to its current
or prospective venture capital investors.
LM Capital has experience in researching and structuring venture capital
investments in small and medium sized companies, companies in the early stages
of development, venture capital
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<PAGE>
financed companies, and companies positioned for venture capital development.
Its chief investment officer, Leslie M. Corley, has almost 25 years of
experience in managing investments in publicly-traded and venture capital
investments. During his career, Mr. Corley directed the investment of over $1
billion in aggregate value of venture capital investments. He began his career
at Fidelity Investments in Boston, earning a reputation for value oriented
performance in the bear market of 1974-75, before directing venture capital
investments for Kelso & Company from 1981-88.
Up to 15% of the Venture Capital Access Fund's assets may be invested in United
States or foreign private companies or limited partnerships formed to invest in
such private companies ("Private Investments"). These Private Investments shall
be in equity or debt securities of (a) companies in the venture capital stage of
development (b) companies engaged in special situations or changes in corporate
control, including leveraged buyouts, or (c) in other private companies facing
venture capital prospects. LM Capital believes the Venture Capital Access Fund's
participation in Private Investments offers individual investors a unique
opportunity to participate in venture capital investments, providing access to
investment opportunities typically available only to pension funds and other
large institutional and accredited investors.
The Venture Capital Access Fund may invest up to 35% of its assets in exchange
traded and over the counter securities that do not meet the definition of
venture capital companies with regard to market capitalization. Up to 15% of the
Venture Capital Access Fund's assets, may be invested, directly or indirectly,
in private venture capital investments. Publicly traded investments could
include securities of issuers engaged at the time of purchase in "special
situations", such as a leveraged buyout, restructuring or recapitalization; an
acquisition, consolidation, merger or tender offer, a change in corporate
control, or an investment by a venture capitalist.
The Venture Capital Access Fund may hold securities of companies of any size,
and will not limit the capitalizations of companies in which it invests. Due to
the nature of the venture capital companies the Venture Capital Access Fund will
seek to invest in, it is anticipated that the average market capitalization of
the Venture Capital Access Fund's investments may exceed $1 billion at the time
of investment. Although the Venture Capital Access Fund will invest primarily in
U.S. companies, up to 20% of the Venture Capital Access Fund's assets may be
invested in securities of companies based in foreign countries. Equity
securities in which the Venture Capital Access Fund will invest are common
stock, preferred stock, warrants, securities convertible or exchangeable into
common stock, and partnership interests.
The Venture Capital Access Fund may engage in a variety of strategies to reduce
risk or enhance return including engaging in short selling (see "Additional
Investment Strategies, Policies and Risks"). The current market value of the
securities sold short will not exceed 10% of the Fund's assets.
RISK CONSIDERATIONS
An investor should be aware that there are risks associated with certain
investment techniques and strategies employed by the True Value Fund , the
International Fund and the Venture Capital Access Fund, including those relating
to investments in foreign securities. Risks related to investment in foreign
securities include among others currency fluctuations, expropriation,
confiscation, diplomatic developments, social instability, and withholding
dividends at the source. The emerging markets in which the International Fund
invests expose an investor to additional risks, including: (i) a lack of
liquidity and increased price volatility due to the small size of the markets
for securities; (ii) national policies which restrict investments in issuers;
(iii) the absence of developed legal structures governing private or foreign
investment and private property; and (iv) currency blockage. In addition, the
True Value Fund , the International Fund and the Venture Capital Access Fund
invest in securities that may not be popular during certain market cycles, and
may be subject to volatile price
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<PAGE>
changes.
The True Value Fund will invest in debt instruments that may be deemed to be
below investment grade. These instruments (i) entail greater risks of untimely
interest and principal payments, default, and price volatility than investment
grade securities, (ii) may present problems of liquidity and valuation, and
(iii) are less sensitive to interest rate changes than higher-rated investments,
but more sensitive to adverse economic changes or individual corporate
development. See Appendix A of the Statement of Additional Information for more
information concerning debt ratings.
The Venture Capital Access Fund will invest in private venture capital
investments and in United States or foreign companies or limited partnerships
formed to invest in such private companies and will engage in short selling.
With regard to the Access Fund, an investment in the Access Fund is neither
insured nor guaranteed by the U.S. government, and there is no assurance that
the Fund will be able to maintain a stable net asset value of $1.00 per share.
See "Additional Investment Strategies, Policies & Risks" in this Prospectus.
ADDITIONAL INVESTMENT STRATEGIES, POLICIES & RISKS
BORROWING
The Funds may borrow funds for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, the Funds would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the price at which the Fund is obligated to
repurchase the securities.
The Funds also may borrow money from banks (including their custodian bank) or
from other lenders to the extent permitted under applicable law, for temporary
or emergency purposes and to meet redemptions and may pledge their assets to
secure such borrowings.
SECURITIES LENDING
In order to generate additional income, the Funds may, from time to time, lend
their portfolio securities to broker-dealers, banks or institutional borrowers
of securities. Although the Funds will receive at least 100% collateral in the
form of cash or U.S. government securities, lending securities may subject a
Fund to certain risks, such as delays or the inability to regain the securities
in the event the borrower were to default on its lending agreement or enter into
bankruptcy.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. Pursuant to such
agreements, the Funds would buy portfolio securities from financial institutions
such as banks and broker dealers, and agree to sell them at a mutually
agreed-upon price. The Funds will not invest in repurchase agreements with
maturities in excess of seven days.
WHEN-ISSUED AND DELAYED
DELIVERY PURCHASES AND SALES OF
SECURITIES
The Funds may purchase securities on a when issued basis and may purchase or
sell securities on a delayed delivery basis. When such transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date which may be a month
or more after the date of the transaction. The market value for securities
purchased in this manner may change before the delivery date, which could affect
the market value of the Fund's assets. Ordinarily, the Funds will not earn
interest on securities purchased before they are delivered.
ILLIQUID SECURITIES
No Fund will invest more than 15% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of seven days.
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<PAGE>
RESTRICTED SECURITIES
The Funds may invest in securities that are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933 (the
"1933 Act"). These securities are sometimes referred to as private placements.
Although securities which may be resold only to "qualified institutional buyers"
in accordance with the provisions of Rule 144A under the 1933 Act are
technically considered "restricted securities," each of the Funds may purchase
Rule 144A securities, along with other restricted securities, without regard to
the limitation on investments in illiquid securities described above provided
that a determination is made by the Investment Adviser, subject to the
supervision of the Funds' Board of Directors, that such securities have a
readily available trading market.
FUTURES AND OPTIONS TRANSACTIONS
The International , True Value and Venture Capital Access Funds may purchase and
sell various kinds of futures contracts and write and purchase call options and
purchase put options on such futures contracts, stock indexes or equity
securities; they may also enter into closing purchase and sale transactions with
respect to any of such contracts and options.
The use of futures and options involves certain transaction costs and risks.
While a Fund will establish a future or option position only if there appears to
be a liquid secondary market therefor, there can be no assurance that such a
market will exist for any particular futures or option contract at any specific
time. In addition, the trading of futures and options on indexes involves the
additional risk of imperfect correlation between movements in the future or
option price and the value of the underlying index. Finally, it may not be
possible to close out a position held by a Fund, which could require that the
Fund purchase or sell the instrument underlying the position, make or receive a
cash settlement, or meet ongoing variation margin requirements.
FORWARD FOREIGN CURRENCY
EXCHANGE CONTRACTS
The International Fund , the True Value Fund and the Venture Capital Access Fund
may purchase or sell forward foreign currency exchange contracts ("forward
contracts") in order to manage fluctuations in currency exchange rates. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. Unanticipated changes in
currency prices may result in poorer overall performance for a Fund than if it
had not entered into such contracts.
SHORT SALES
The Venture Capital Access Fund may engage in the technique of short selling.
When the Investment Adviser anticipates that the price of a security will
decline, it may sell the security short and borrow the same security from a
broker or other institution to complete the sale. The Venture Capital Access
Fund may make a profit or incur a loss depending upon whether the market price
of the security decreases or increases between the date of the short sale and
the date on which the Venture Capital Access Fund must replace the borrowed
security.
All short sales must be fully collateralized, and the Venture Capital Access
Fund will not sell securities short if, immediately after and as a result of the
sale, the value of all securities sold short by the Venture Capital Access Fund
exceeds 25% of its total assets. The Venture Capital Access Fund limits short
sales of any one issuer's securities to 2% of its total assets and to 2% of any
one class of the issuer's securities.
PORTFOLIO TURNOVER
It is anticipated that the annual portfolio turnover rates for the True Value
Fund the International Fund and the Venture Capital Access Fund should not
exceed 100% , 150% and ___% respectively. A higher rate of portfolio turnover
will result in higher transaction costs, including brokerage commissions. Also,
to the extent that portfolio turnover results in net realized capital gains to a
Fund, the portion of the Fund's distributions constituting taxable capital gains
may increase.
TEMPORARY INVESTMENTS
The True Value Fund , the International Fund and the Venture Capital Access Fund
do not
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intend to engage in short-term trading on an ongoing basis. However, when in the
Investment Adviser's opinion, abnormal economic or market conditions warrant a
temporary defensive position, a Fund may invest up to 100% of its assets in U.S.
government securities such as Treasury bills, notes and bonds; cash; or
certificates of deposit, time deposits, bankers' acceptances and other
"first-tier" as described herein, short-term debt instruments.
MANAGEMENT AND OPERATIONS OF THE FUNDS
GOVERNANCE
The overall management of the business and affairs of the Funds is vested in LM
Capital Investments' Board of Directors. The Board of Directors approves all
significant agreements between LM Capital Investments, on behalf of the Funds,
and persons or companies furnishing services to the Funds, including the Funds'
investment advisory agreement with LM Capital, the Funds' agreement with LM
Capital Securities regarding distribution of the Funds' shares, and other
service providers. The day-to-day operations of each Fund are delegated to the
officers of LM Capital Investments and to LM Capital, subject always to the
objectives and policies of the Funds and to the general supervision of LM
Capital Investments' Board of Directors.
INVESTMENT ADVISER AND
ADVISORY AGREEMENTS
LM Capital, 515 North Flagler Drive, Suite 1704, West Palm Beach, Florida 33401,
serves as the investment adviser to the Funds. Although LM Capital has no
previous experience in advising a mutual fund, LM Capital has operated as an
investment firm specializing in closely held leveraged buyout investments and
investments in publicly traded securities since 1988. LM Capital currently
manages two privately placed limited partnerships for institutional investors
and individuals, and its principals have realized average annual investment
returns of over 50% in closely held leveraged buyout investments over the last
ten years. These results are not intended to predict or suggest the return to be
experienced by an investment in any of the Mutual Funds. Results may differ
because of, among other things, differences in investment objectives and
policies, investment strategies, diversification of securities and level of risk
within the portfolios, brokerage commissions, account expenses (including
investment advisory fees), timing of purchases and sales, and availability of
cash for new investments.
The Funds' portfolio manager is Leslie M. Corley, LM Capital's founder and chief
investment officer. Mr. Corley is assisted by Armand Batocabe and Ricardo Corley
in finding publicly traded securities which are consistent with investment
strategies followed by LM Capital's buyout efforts. Mr. Leslie M. Corley has
over 25 years of investment experience and currently manages LM Capital Fund,
L.P., a leveraged buyout limited partnership formed in 1988, and LM Capital Fund
II, L.P., a leveraged buyout limited partnership formed in 1994. Prior to
founding LM Capital, Mr. Corley was a general partner for seven years with Kelso
& Company, a noted leveraged buyout firm. Mr. Corley began his career as a
securities analyst with Fidelity Management & Research Company in Boston, a
position he held for five years. Subsequently, he was manager of mergers and
acquisitions with Norton Simon, Inc. for four years prior to joining Kelso &
Company. Mr. Corley earned an MBA from Harvard Business School and a B.S. with
high honors in Aeronautical & Astronautical Engineering from the University of
Illinois.
Under the terms of each Fund's Advisory Agreement, LM Capital supervises all
aspects of a Fund's operations and provides investment advisory services to the
Fund, including the purchase and sale of securities in each Fund's portfolio
subject at all times to the policies set forth by the Board of Directors. LM
Capital is registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940.
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<PAGE>
LM Capital receives a fee from both the True Value Fund , the International Fund
and the Venture Capital Access Fund, payable monthly, for the performance of its
services at an annual rate of 1.50% on the first $100 million of the average
daily net assets of each Fund, respectively, and 1.25% of each Fund's average
daily net assets in excess of $100 million. LM Capital receives a fee from the
Access Fund, payable monthly, for the performance of its services at an annual
rate of [0.50%] of its average daily net assets. The fee for each Fund is
accrued daily for purposes of determining the offering and redemption price of
its shares. The advisory fee is higher than those paid by most investment
companies, but the Board of Directors believes it to be reasonable in light of
the services the Funds receive thereunder.
LM Capital may, from time to time, voluntarily agree to defer or waive fees or
absorb some or all of the expenses of the Funds. To the extent LM Capital should
defer fees or absorb expenses, it may seek repayment of such deferred or
absorbed expenses at a later date so long as the overall expenses of the
applicable Fund are not greater than the Total Fund Operating Expenses
percentage found in the table of Annual Fund Operating Expenses.
SUB-ADVISER AND SUB-ADVISORY
AGREEMENT
Pursuant to a Sub-Advisory Agreement, __________ [insert address] ("SoGen"),
provides portfolio advisory services to LM Capital Investments with regard to
the International Fund. SoGen [insert background history pertaining to SoGen].
[Insert name and qualifications, including work history during the previous five
years, of the Portfolio Manager who will be managing the International Fund].
Under the terms of the Sub-Advisory Agreement, LM Capital Investments has
delegated to SoGen the authority to make and execute investment decisions,
including but not limited to purchasing and selling securities, for the
International Fund within the parameters of the Fund's investment objectives,
policies, and restrictions. All investment decisions of SoGen are subject to
review by LM Capital Investments and the Fund's Board of Directors. Pursuant to
the Sub-Advisory Agreement, LM Capital has agreed to pay SoGen [insert fee
structure].
DISTRIBUTOR, DISTRIBUTION PLAN
AND RELATED AGREEMENTS
LM Capital Securities, Inc., a registered broker-dealer affiliate of LM Capital,
serves as the Distributor of the shares of the Funds. The address of LM Capital
Securities is 515 North Flagler Drive, Suite 1704, West Palm Beach, Florida
33401. Certain officers of LM Capital Investments are affiliated with LM Capital
Securities and LM Capital. Under the terms of each Fund's Distribution
Agreement, LM Capital Securities has the exclusive right to distribute shares of
the Funds through affiliated broker-dealers and through other broker-dealers or
financial institutions with whom LM Capital Securities has entered into selected
dealer agreements.
Each Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act, whereby a Fund may pay up to 0.25% per annum of its average
daily net assets to Shareholder Service Agents and who sell shares of the Funds
on an agency basis, for the purpose of financing any activity which is primarily
intended to result in the sale of shares of the Funds, including but not limited
to: preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; printing of prospectuses
and statements of additional information (and supplements thereto) and reports
for other than existing shareholders; supplemental payments to dealers under a
dealer incentive program; and costs of administering the Plan. For additional
information concerning the operation of the Plan, see "Distribution Agreement
and Marketing Plan" in the Statement of Additional Information.
ADMINISTRATOR AND
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement, Forum Financial Services, Inc., 61
Broadway, Suite 2770, New York, New York 10006 ("Forum"), serves as
administrator of the Funds. Under the Administration Agreement, Forum supervises
the administration of all aspects of the Funds' operations, including the
provision of general office facilities and, at the Funds'
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<PAGE>
expense, the provision of services of persons necessary to perform such
supervisory, administrative and clerical functions as are needed to effectively
operate the Funds. For these services and facilities, Forum receives a fee
computed and paid monthly at an annual rate of .25% of the average daily net
assets of each Fund, subject to an annual minimum fee of $_____ per a Fund.
TRANSFER AGENT AND DIVIDEND
PAYING AGENT
Forum Financial Corp. ("FFC"), 61 Broadway, Suite 2770, New York, New York
10006, serves as the Funds' transfer agent and dividend paying agent. FFC
maintains an account for each shareholder of the Funds (unless such accounts are
maintained by sub-transfer agents or processing agents) and performs other
transfer agency and related functions. For these services, FFC will receive an
annual fee of $____ plus account charges. The Funds will also reimburse FFC for
certain expenses incurred on behalf of the Funds.
BROKERAGE ALLOCATION
The Investment Adviser, subject to obtaining the best price and execution, may
allocate brokerage transactions in a manner that takes into account the sale of
shares of the Fund. Generally, the primary consideration in placing portfolio
securities transactions with broker-dealers for execution is to obtain, and
maintain the availability of, execution at the best net price available and in
the most effective manner possible. The Funds' brokerage allocation policies may
permit the Funds to pay a broker-dealer which furnishes research services a
higher commission than that which might be charged by another broker-dealer
which does not furnish research services, provided that such commission is
deemed reasonable in relation to the value of the services provided to the Fund
by such broker-dealer. For a complete discussion of portfolio transactions and
brokerage allocation, see "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
HOW TO PURCHASE SHARES
HOW TO OPEN AN ACCOUNT
An investor may purchase shares of a Fund by submitting a fully completed and
signed New Account Application form directly to LM Capital Securities or through
any dealer authorized by LM Capital Securities to sell shares of the Funds. An
authorized dealer may charge a transaction fee for the purchase. LM Capital
Securities' mailing address is: 515 North Flagler Drive, Suite 1704, West Palm
Beach, Florida 33401. A New Account Application accompanies this Prospectus.
Checks mailed directly to LM Capital Securities should be payable to the Fund in
which the purchaser intends to invest.
The minimum investment for initial purchases of the True Value Fund , the
International Fund and the Venture Capital Access Fund is $2,500 except for
certain retirement accounts. The minimum initial investment for an Individual
Retirement Account ("IRA") for such Funds is $250. With regard to the Access
Fund, the minimum initial investment for all accounts is $250. There are no
minimum initial investment requirements for participants in money-
purchase/profit-sharing plans, 401(k) plans, IRA/SEP, 403(b) plans or 457 (state
deferred compensation) plans, or for investment of dividends and distributions
of the Funds into any existing account. If you have any questions or need extra
applications call 1-800-37-LMCAP.
HOW TO PURCHASE ADDITIONAL
SHARES
Additional shares may be purchased directly through LM Capital Securities or
through any dealer who has entered into an agreement with LM Capital Securities.
Checks mailed directly to LM Capital Securities should be payable to the Fund in
which the purchaser intends to invest and should be accompanied by the stub from
the confirmation form previously sent to the shareholder or include a letter
giving the shareholder's name and account number.
The minimum investment for additional purchases of the True Value Fund , the
International Fund and the Venture Capital Access Fund is $250. The minimum
additional investment for investment through an IRA is $250. There are no
minimum additional investment requirements for participants in
money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b)
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<PAGE>
or 457 plans. With regard to the Access Fund, the minimum additional investment
for all accounts is $250. There are no minimum investment requirements for
investment of dividends and distributions of the Funds into any existing
account.
To purchase additional shares of a Fund by a wire transfer of funds, the
following wire instructions should be used:
ABA
Attn:
DDA _- -_
Fund Name/Reference Number
Shareholder Name
Shareholder Account Number
If wires are received after 4:15 PM Eastern time or during a bank holiday,
purchases will be confirmed at the price determined on the next business day of
the applicable Fund.
PRE-AUTHORIZED INVESTMENT
PLAN
An investor may establish a pre-authorized investment plan whereby the
investor's personal bank account is automatically debited and Fund account
automatically credited with additional full and fractional shares. This plan may
be authorized by attaching a canceled check to the Account Application form and
completing the appropriate section of such form. Through the pre-authorized
investment plan, the minimum initial investment is $250 and the minimum
subsequent monthly investment is $25.
SWEEP PRIVILEGE
Investors who make their initial investments directly through participating
securities dealers may have their "free-credit" cash balances automatically
invested in Access Fund shares. "Free-credit" cash balances begin to earn
dividends on the first day following the date that the share purchase or
exchange order is effected and through the date that a redemption order is
effected. For further information and details, contact your participating
securities dealer.
HOW TO REDEEM SHARES
DIRECT REDEMPTION
Shares of a Fund may be redeemed directly through LM Capital Securities or
through any dealer who has entered into an agreement with LM Capital Securities.
There is no redemption fee imposed when shares are redeemed; however, dealers
may charge a transaction fee for the redemption.
REDEMPTIONS BY MAIL
Redemption requests may be made in writing and sent to either the transfer agent
or LM Capital Securities. Requests for redemption must include: (a) signatures
of each registered owner exactly as the shares are registered; (b) the Fund ,
account number and number of shares to be redeemed; (c) share certificates,
either properly endorsed or accompanied by a duly executed stock power, for the
shares to be redeemed if such certificates have been issued and the shares are
not in the custody of the transfer agent; (d) signature guarantees, as described
below; and (e) any additional documents that may be required for redemption by
corporations, partnerships, trusts, or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.
In addition to these requirements, shareholders who have invested in a Fund to
establish an IRA should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59 1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
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<PAGE>
REDEMPTIONS BY TELEPHONE
Shareholders may request a redemption by telephone by calling 1-800-37-LMCAP if
they have selected this option on their New Account Application or if they have
completed the telephone redemption authorization form obtainable from LM Capital
Securities. The telephone redemption feature can be used only if: (a) the
redemption proceeds are to be mailed to the pre-authorized bank account as
indicated on the New Account Application or subsequent authorization; (b) there
has been no change of address of record on the account within the preceding 30
days; (c) the shares to be redeemed are not in certificate form; (d) the person
requesting the redemption can provide proper identification information; and (e)
the proceeds of the redemption do not exceed $25,000. Accounts in LM Capital
Securities' prototype retirement plans (such as IRA and IRA-SEP) or 403(b) plans
are not eligible for the telephone redemption option. LM Capital Securities has
made arrangements with certain dealers and investment advisers to accept
telephone instructions for the redemption of shares. LM Capital Securities
reserves the right to impose conditions on these dealers and investment
advisers, including the condition that they enter into agreements (which contain
additional conditions with respect to the redemption of shares) with LM Capital
Securities.
In order to protect itself and shareholders from liability for unauthorized or
fraudulent telephone transactions, the Mutual Funds will use reasonable
procedures in an attempt to verify the identity of a person making a telephone
redemption request. The Mutual Funds reserve the right to refuse a telephone
redemption request if it believes that the person making the request is not the
record owner of the shares being redeemed, or is not authorized by the
shareholder to request the redemption. Shareholders will be promptly notified of
any refused request for a telephone redemption. As long as these normal
identification procedures are followed, neither the Mutual Funds nor its agents
will be liable for any loss, liability or cost which results from acting upon
instructions of a person believed to be a shareholder with respect to the
telephone redemption privilege.
REDEMPTIONS BY CHECK
Shareholders of the Access Fund may effect redemptions by check. Check writing
privileges allow checks to be drawn, without a fee, in any amount of $______or
more. A fee of $______ will be imposed upon checks drawn in amounts less than
$______. Checks in amounts over $______ will not be honored. Shareholders are
entitled to dividends up until the day on which the check is presented to the
agent bank for payment.
Checks drawn on insufficient funds will be returned to the payee and a fee of
$______will be imposed. In addition, a fee of $______ will be imposed for stop
payment orders.
PAYMENT OF REDEEMED AMOUNT
Payment of the proceeds of redeemed shares will be made as soon as practicable,
normally within seven days following the redemption date. A charge for special
handling (such as wiring of funds or expedited delivery services) may be made by
the transfer agent. The right of redemption may not be suspended or the date of
payment upon redemption postponed except under unusual circumstances such as
when trading on the New York Stock Exchange is restricted or suspended. Payment
of the proceeds of redemptions relating to shares for which checks sent in
payment have not yet cleared will be delayed until it is determined that the
check has cleared, which may take up to fifteen days from the date that the
check is received.
SIGNATURE GUARANTEES
A signature guarantee is designed to protect the investor, the Funds, LM Capital
Securities, and their agents by verifying the signature of each investor seeking
to redeem or exchange shares of a Fund. Signature guarantees are required in the
following circumstances: (1) redemptions by mail of $25,000 or more; (2)
redemptions by mail if the proceeds are to be paid to someone other than the
name(s) in which the account is registered; (3) written redemptions requesting
proceeds to be sent by wire; (4) redemptions requesting proceeds to be sent to a
new address or an address that has been changed within the past 30 days; (5)
requests to transfer the registration of shares to another owner; (6) telephone
exchange and telephone redemption authorizations of $25,000 or more; (7) changes
in previously designated
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wiring instructions; and (8) written redemptions or exchanges of shares
previously reported as lost, whether or not the redemption amount is under
$25,000 or the proceeds are to be sent to the address of record. These
requirements may be waived or modified upon notice to shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the Securities and
Exchange Commission, and further provided that such guarantor institution is
listed in one of the reference guides contained in the transfer agent's current
Signature Guarantee Standards and Procedures. For information regarding whether
a particular institution or organization qualifies as an "eligible guarantor
institution," an investor should contact the Client Services Department of LM
Capital Securities.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for shares of the other Funds described in
this Prospectus. When a shareholder exchanges shares of the Access Fund for
shares of the True Value Fund , the International Fund or the Venture Capital
Access Fund, such exchanges will be subject to the applicable initial sales
charge. Because the True Value Fund , the International Fund and the Venture
Capital Access Fund each have initial sales charges, exchanges between such
Funds will not be subject to an initial sales charge.
Exchanges will be made at the next determined Net Asset Value ("NAV") after the
exchange request is received by the transfer agent. You may exchange shares by
calling either your investment professional or LM Capital Securities on any
Business Day at 1-800-37-LMCAP. When making an exchange or opening an account in
the "other" Fund by exchange, the registration and tax identification numbers of
the two accounts must be identical. In order to open an account through
exchange, the minimum initial investment amounts must be satisfied.
Each exchange may produce a gain or loss for tax purposes. The Funds reserve the
right to refuse any specific purchase order, including certain purchases by
exchange if, in LM Capital's opinion, a Fund would be unable to invest
effectively in accordance with its investment objective and policies, or would
otherwise be affected adversely. Although the Funds will attempt to give prior
notice whenever it is reasonably possible to do so, they may impose these
restrictions at any time. The Funds reserve the right to modify or withdraw the
exchange privilege upon 60 days written notice and to suspend the offering of
shares of any Fund without notice to shareholders.
TERMS AND CONDITIONS OF PURCHASE
DETERMINATION OF NET ASSET
VALUE
The net asset value per share (or share price) of the Funds is determined as of
4:15 PM. Eastern time on each "business day" of the Funds as defined below. The
net asset value per share is calculated by subtracting a Fund's liabilities from
its assets and dividing the result by the total number of Fund shares
outstanding. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the supervision
of the Fund's officers and in accordance with methods which are specifically
authorized by its governing Board of Directors. Short-term obligations with
maturities of 60 days or less are valued at amortized cost as reflecting fair
value.
TIMING AND PRICING OF PURCHASE
AND REDEMPTION ORDERS
An investor whose purchase or redemption order is received by the Transfer Agent
by 4:15 PM Eastern time will acquire or redeem shares at the net asset value set
as of that day. An investor whose purchase or redemption order is received by
the Transfer Agent after 4:15 PM Eastern time will acquire or redeem shares at
the net asset value set as of the next trading day. LM Capital Securities is not
responsible for any delay caused by dealers in forwarding a purchase or
redemption order to the Transfer Agent. Any loss resulting from the dealer's
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<PAGE>
failure to submit an order on a timely basis and within the prescribed time
frame will be borne by that dealer. A "business day" of the Fund is any day on
which the New York Stock Exchange is open for business. It is expected that the
New York Stock Exchange will be closed during the next twelve months on
Saturdays and Sundays and on the days on which New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day are observed by the New York Stock Exchange. The Funds will not
accept requests which specify a particular date for purchase or redemption of
shares or any other special conditions.
PURCHASES BY CHECK
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. If the check does not clear, then the investor will be
responsible for any resulting loss to a Fund or to LM Capital Securities.
INITIAL SALES CHARGES AND DEALER
CONCESSIONS
Shares of a Fund may be purchased at its net asset value plus, in the case of
the True Value Fund , the International Fund and the Venture Capital Access
Fund, an initial sales charge. The following tables show the initial sales
charge and dealer concession at various investment levels for the True Value
Fund , the International Fund and the Venture Capital Access Fund. There is no
initial sales charge imposed on sales of the Access Fund.
Charge Up To Investment Of % Offering Price % Dealer Concession
- -------------------------- ---------------- -------------------
$25,000 4.50% 3.50%
$50,000 4.25% 3.25%
$75,000 4.00% 3.00%
$100,000 3.50% 2.75%
$250,000 2.50% 2.00%
$500,000 1.50% 1.00%
$1,000,000 1.00% 0.75%
$2,500,000 0.75% 0.50%
$5,000,000 0.50% 0.25%
$5,000,000+ 0.00% 0.00%
Initial sales charges vary with the size of the purchase as shown above. The
reduced initial charges apply to the aggregate of purchases of the Funds made at
one time by "any person", which term includes an individual, spouse and children
under the age of 21, or a trustee or other fiduciary of a trust, estate or
fiduciary account.
Upon notice to dealers with whom it has a sales agreement, LM Capital Securities
may reallow up to the full applicable sales charge and such dealer may be deemed
an "underwriter" under the Securities Act of 1933, as amended, during such
periods. The Distributor may, from time to time, provide promotional incentives
to certain dealers whose representatives have sold or are expected to sell
significant amounts of one or all of the Funds. At various times, the
Distributor may implement programs under which a dealer's sales force may be
eligible to win cash or material awards for certain sales efforts or under which
the Distributor will reallow an amount not exceeding the total applicable sales
charge on the sales generated by the dealer during such programs to any dealer
that sponsors sales contests or recognition programs conforming to criteria
established by the Distributor or participates in sales programs sponsored by
the Distributor. The Distributor may provide marketing services to dealers with
whom it has sales agreements, consisting of written informational material
relating to sales incentive campaigns conducted by such dealers for their
representatives.
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<PAGE>
PURCHASES AT NET ASSET VALUE
There is no initial sales charge for "Qualified Persons", which are the
following: (a) active or retired Directors, officers, partners or employees
(their spouses and children under age 21) of (i) the Investment Adviser and
Distributor or any affiliates or subsidiaries thereof (the Directors, officers
or employees of which shall also include their parents and siblings for all
purchases of Fund shares), (ii) dealers having a selected dealer agreement with
the Distributor, or (iii) trade organizations to which the Investment Adviser or
an affiliate belongs, and (b) trustees or custodians of any qualified retirement
plan or IRA established for the benefit of a person in (a) above.
Purchases of Fund shares also may be made with no initial sales charge through a
registered investment adviser who has registered with the Securities and
Exchange Commission or appropriate state authorities and who (a) clears such
Fund share transaction through a broker/dealer, bank or trust company, (each of
whom may impose transaction fees with respect to such transaction), or (b)
purchases Fund shares for its own account, or for an account for which the
investment adviser has discretion and is authorized to make investment
decisions.
In addition, no initial sales charge will apply to any purchase of a Fund by an
investor (a) through a 401 (k) Plan sponsored by the Investment Adviser or the
Distributor, through a 401 (k) Plan sponsored by an institution which has a
custodial relationship with the Fund's Custodian or through a discount
broker-dealer which imposes a transaction charge with respect to such purchase
or (b) through a tax-free rollover or transfer of assets provided the IRA is
sponsored by the Funds' Custodian and the contribution for the tax-free rollover
or transfer of assets is a distribution from any tax qualified retirement plan
where any portion of the investor-participant's account was invested in any of
the Funds.
Finally, shares of the Funds may be purchased at net asset value by persons who
have, within the previous 30 days, redeemed their shares of the Fund. The amount
which may be purchased at net asset value is limited to an amount up to, but not
exceeding, the net amount of redemption proceeds. Such purchases may also be
handled by a securities dealer, who may charge the shareholder a fee for this
service.
The Funds reserve the right to cease offering shares for sale at any time or to
reject any order for the purchase of shares.
REDUCED INITIAL SALES CHARGE
CUMULATIVE QUANTITY DISCOUNT
Shares of the Funds may be purchased by any person at a reduced initial sales
charge which is determined by (a) aggregating the dollar amount of the new
purchase and the greater of the purchaser's total (i) net asset value or (ii)
cost of all shares of the Fund or other Funds of LM Capital Investments acquired
by exchange from such other Fund, provided such Fund charged an initial sales
load at the time of the exchange then held by such person and (b) applying the
initial sales charge applicable to such aggregate. The privilege of the
cumulative quantity discount is subject to modification or discontinuance at any
time with respect to all shares purchased thereunder.
GROUP PURCHASES
An individual who is a member of a qualified group (as hereinafter defined) may
also purchase shares of the Funds at the reduced initial sales charge applicable
to the group taken as a whole. The reduced initial sales charge is based upon
the aggregate dollar value of shares purchased and still owned by the group plus
the securities currently being purchased and is determined as stated under
"Cumulative Quantity Discount". For example, if members of the group had
previously invested and still held $90,000 of Fund shares and now were investing
$15,000, the initial sales charge would be 3.5%. In order to obtain such
discount, the purchaser or investment dealer must provide the transfer agent
with sufficient information, including the purchaser's total cost, at the time
of purchase to permit verification that the purchaser qualifies
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<PAGE>
for a cumulative quantity discount, and confirmation that the order is subject
to such verification. Information concerning the current initial sales charge
applicable to a group may be obtained by contacting the Transfer Agent.
A qualified group is one which: (a) has been in existence for more than six
months; (b) has a purpose other than acquiring Fund shares at a discount; and
(c) satisfies uniform criteria which enables the Distributor to realize
economies of scale in its costs of distributing the shares. A qualified group
must have more than 10 members, must be available to arrange for group meetings
between representatives of the Funds and the members, and must agree to include
sales and other materials related to the Funds in its publications and mailings
to members at reduced or no cost to the Distributor. This privilege is subject
to modification or discontinuance at any time with respect to all shares
purchased thereafter.
LETTER OF INTENT
Investors may also qualify for reduced initial sales charges by signing a Letter
of Intent (the "LOI"). This enables an investor to aggregate purchases of a Fund
with the purchases of any other Fund of LM Capital Investments acquired by
exchange, during a 13-month period. The initial sales charge is based on the
total amount invested during the 13-month period. All shares of the Funds
currently owned by the investor, plus the new Fund purchases, if any, will be
credited as purchases (at their current offering prices on the date the LOI is
signed) toward completion of the LOI. A 90-day back-dating period can be used to
include earlier purchases at the investor's cost. The 13-month period would then
begin on the date of the first purchase during the 90-day period. No retroactive
adjustment will be made if purchases exceed the amount indicated in the LOI. A
shareholder must notify the transfer agent or Distributor whenever a purchase is
being made pursuant to an LOI.
The LOI is not a binding obligation on the investor to purchase the amount
indicated; however, on the initial purchase, if required (or subsequent
purchases if necessary), 5% of the dollar amount specified in the LOI will be
held in escrow by the transfer agent in shares registered in the investor's name
in order to assure payment of the proper initial sales charge. If total
purchases pursuant to the LOI (less any dispositions and exclusive of
distributions on such shares automatically reinvested) are less than the amount
specified, the investor will be requested to remit to the transfer agent an
amount equal to the difference between the initial sales charge and the initial
sales charge applicable to the aggregate purchases actually made. If not
remitted within 20 days after written request, an appropriate number of escrowed
shares will be redeemed in order to realize the difference. Investors will be
paid distributions, either in additional shares or cash, upon such escrowed
shares.
DIVIDENDS, DISTRIBUTIONS & TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
The Access Fund declares dividends daily and pays dividends monthly. Net
investment income of the True Value Fund , the International Fund and the
Venture Capital Access Fund are declared and paid semiannually, normally in June
and December. The True Value Fund , the International Fund and the Venture
Capital Access Fund distribute all or substantially all of their net long term
capital gains (if any) to shareholders in December. It is not expected that the
Access Fund will have capital gains to distribute since the Fund intends to hold
its securities until maturity.
All dividends and distributions of a Fund are automatically reinvested on the
ex-dividend date in full and fractional shares of such Fund. Dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. Shareholders may elect, by written notice to LM Capital
Securities, to receive such distributions, or the dividend portion thereof, in
cash, or to invest such dividends and distributions in additional shares,
including, subject to certain conditions, of a Fund other than the Fund making
the distribution.
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<PAGE>
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to LM Capital Securities and are effective as
to any subsequent payment if such notice is received by LM Capital Securities
prior to the record date of such payment. Any dividend and distribution election
remains in effect until LM Capital Securities receives a revised written
election by the shareholder.
TAX MATTERS
The Funds intend to qualify as regulated investment companies by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), including the requirements with respect to diversification of
assets, distribution of income and sources of income. It is each Fund's policy
to distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) in accordance with the timing
requirements imposed by the Code, so that each Fund will satisfy the
distribution requirement of Subchapter M and not be subject to Federal income
taxes or the 4% excise tax.
Distributions by a Fund of its net investment income (including foreign currency
gains and losses) and the excess, if any, of its net short-term capital gain
over its net long-term capital loss are taxable to shareholders as ordinary
income. Distributions by a Fund of the excess, if any, of its net long-term
capital gain over its net short-term capital loss are designated as capital gain
dividends and are taxable to shareholders as long-term capital gains, regardless
of the length of time shareholders have held their shares.
Distributions by a Fund which are taxable to shareholders as ordinary income are
treated as dividends for Federal income tax purposes, but in any year only a
portion of such dividends paid by the True Value Fund and the Venture Capital
Access Fund (which cannot exceed the aggregate amount of qualifying dividends
from domestic corporations received by the Fund during the year) may qualify for
the 70% dividends-received deduction for corporate shareholders.
If a Fund fails to satisfy any of the Code requirements for qualification as a
regulated investment company, it will be taxed at regular corporate tax rates on
all its taxable income (including capital gains) without any deduction for
distributions to shareholders, and distributions to shareholders will be taxable
as ordinary dividends (even if derived from the Fund's net long-term capital
gains) to the extent of the Fund's current and accumulated earnings and profits.
Distributions to shareholders will be treated in the same manner for Federal
income tax purposes whether shareholders elect to receive them in cash or
reinvest them in additional shares. In general, shareholders take distributions
into account in the year in which they are made. However, shareholders are
required to treat certain distributions made during January as having been paid
by the Fund and received by shareholders on December 31 of the preceding year. A
statement setting forth the Federal income tax status of all distributions made
(or deemed made) during the year, and any foreign taxes "passed-through" to
shareholders, will be sent to shareholders promptly after the end of each year.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the record date of an ordinary income dividend or capital
gain dividend. Those investors purchasing shares just prior to an ordinary
income or capital gain dividend will be taxed on the entire amount of the
dividend received, even though the net asset value per share on the date of such
purchase reflected the amount of such dividend.
If a shareholder is a non-resident alien or foreign entity shareholder, ordinary
income dividends paid to such shareholder generally will be subject to United
States withholding tax at a rate of 30% (or lower rate under an applicable
treaty). We urge non-United States shareholders to consult their own tax adviser
concerning the applicability of the United States
- 20 -
<PAGE>
withholding tax.
Under the back-up withholding rules of the Code, shareholders may be subject to
31% withholding of Federal income tax on ordinary income dividends, capital gain
dividends and redemption payments made by the Funds. In order to avoid this
back-up withholding, shareholders must provide the Fund with a correct taxpayer
identification number (which for an individual is usually his Social Security
number) and certify that the shareholder is a corporation or otherwise exempt
from or not subject to back-up withholding.
The foregoing discussion of Federal income tax consequences is based on tax laws
and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, shareholders should also review the more detailed
discussion of Federal income tax considerations relevant to the Fund that is
contained in the Statement of Additional Information. In addition, shareholders
should consult with their own tax adviser as to the tax consequences of
investments in a Fund, including the application of state and local taxes which
may differ from the Federal income tax consequences described above.
GENERAL INFORMATION
ABOUT THE FUNDS
Each Fund is a separate series of shares of LM Capital Investments, a Maryland
Corporation incorporated on January 21, 1994 and registered under the 1940 Act,
as amended. Each Fund operates as a diversified, open-end management investment
company and expects to be treated as a regulated investment company for federal
income tax purposes. The Funds continuously offer new shares for sale to the
public and stand ready to redeem their outstanding shares for cash at their net
asset value.
CODE OF ETHICS
The Code of Ethics of the Investment Adviser and the Funds prohibits all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of the Funds' planned portfolio
transactions. The objective of the Code of Ethics of both the Funds and
Investment Adviser is that their operations with respect to the Funds be carried
out for the exclusive benefit of the Funds' shareholders. Both organizations
maintain careful monitoring of compliance with the Code of Ethics.
INDEPENDENT ACCOUNTANTS
_______________ serves as Independent Accountants to LM Capital Investments.
Generally, the Independent Accountants will audit the financial statement and
the financial highlights of the Funds, as well as provide reports to the
Directors.
CUSTODIAN
_______________ serves as the Custodian of the Funds. Generally, the Custodian
holds the securities, cash and other assets of the Funds.
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<PAGE>
INVESTMENT ADVISER
LM Capital Corporation
515 North Flager Drive, Suite 1704
West Palm Beach, FL 33401
PRINCIPAL UNDERWRITER & SERVICE ADMINISTRATOR
LM Capital Securities, Inc.
515 North Flagler Drive, Suite 1704
West Palm Beach, Florida 33401
INDEPENDENT AUDITORS
TRANSFER AGENT & CUSTODIAN
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
BOARD OF DIRECTORS
J. BRUCE LLEWELLYN
Chairman & Chief Executive Officer, Philadelphia Coca Cola Bottling Co., and
Queen City Broadcasting Co. Chairman, U.S. Small Business Administration
Advisory Committee on Small Business Director, Chemical Banking Corporation,
Adolph Coors Brewing Company, C-Span, Essence Communications, Inc., QVC/Home
Shopping Network, Inc., International Peace Academy, Museum of Television and
Radio, New York Law School, and New York Medical College New York, NY
LOUIS J. GANEM
Retired former Assistant National Sales Manager for
John Hancock Mutual Funds
West Palm Beach, FL
JOHN HALL
President, Miami Ventures Management Company
A wholly owned subsidiary of The Beacon Council
Miami, FL
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
LM CAPITAL INVESTMENTS, INC.
152 West 57th Street
New York, New York 10019
LM CAPITAL INVESTMENTS, INC., a Maryland corporation, is an open-end management
investment company that currently offers shares through four series funds: LM
CAPITAL ACCESS FUND (the "Access Fund"); LM CAPITAL TRUE VALUE FUND (the "True
Value Fund") ; LM CAPITAL INTERNATIONAL FUND (the "International Fund") and LM
VENTURE CAPITAL ACCESS FUND (the "Venture Capital Access Fund") (individually, a
Fund and collectively, the Funds). The Access Fund's investment objective is to
provide maximum current income from short-term money market securities while
preserving capital and maintaining liquidity. The True Value Fund's investment
objective is to provide long-term growth of capital. The True Value Fund seeks
to achieve its objective by investing primarily in a non-diversified portfolio
of common stocks believed to be undervalued in the marketplace. The
International Fund's investment objective is to provide long-term growth of
capital. The International Fund seeks to achieve its objective by investing
primarily in a non-diversified portfolio of equity securities of companies
located primarily outside the United States which are considered to have strong
earnings momentum. The Venture Capital Access Fund's investment objective is to
provide long-term growth of capital. The Venture Capital Access Fund seeks to
achieve its objective by investing primarily in equity securities of companies
in their early and evolving stages of venture capital development. AN INVESTMENT
IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES GOVERNMENT.
THERE IS NO ASSURANCE THAT THE ACCESS FUND WILL MAINTAIN A STABLE $1.00 SHARE
PRICE. This Statement of Additional Information is not a prospectus but should
be read in conjunction with the current prospectus dated _______________, 1996
(the "Prospectus"), pursuant to which the Access Fund, the True Value Fund, the
International Fund and the Venture Capital Access Fund (collectively, the
"Funds") are offered. Please retain this document for future reference.
To obtain the Prospectus please call the Funds at 1-800-37-LMCAP
Table of Contents
Page No.
Investment Strategies and Risks.................................................
Investment Restrictions.........................................................
Portfolio Transactions and Brokerage............................................
Computation of Net Asset Value..................................................
Performance Calculation.........................................................
Additional Purchase and Redemption Information..................................
Tax Matters.....................................................................
The Management of the Fund......................................................
Investment Adviser and Advisory Agreements......................................
Distribution Agreement and Distribution and Service Plan ......................
Description of the Fund.........................................................
Financial Statements............................................................
Investment Adviser
LM Capital Corporation
Distributor
LM Capital Securities, Inc.
Custodian
Transfer Agent
Counsel
Kramer, Levin, Naftalis & Frankel
Independent Accountants
Dated: ___________, 1996
<PAGE>
INVESTMENT STRATEGIES AND RISKS
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO ALL FUNDS
1. LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, each Fund may lend its portfolio securities in an amount up to 33-1/3%
of its total assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made to any companies
affiliated with the _________. The borrower at all times during the loan must
maintain with the lending Fund cash or cash equivalent collateral equal in value
at all times to at least 100% of the value of the securities loaned. During the
time portfolio securities are on loan, the borrower pays the Fund any dividends
or interest paid on such securities, and the Fund may invest the cash collateral
and earn additional income, or it may receive an agreed-upon amount of interest
income from the borrower who has delivered equivalent collateral. Loans are
subject to termination at the option of the lending Fund or the borrower at any
time. A Fund will have the right to regain record ownership of loaned securities
to exercise beneficial rights, such as voting rights and subscription rights. A
Fund may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the income earned on the cash to the
borrower or placing broker. There is the risk of failure by the borrower to
return the securities involved in such transaction.
2. REPURCHASE AGREEMENTS. The Funds may enter into repurchase
agreements. Under a repurchase agreement, a Fund acquires a debt instrument for
a relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and such Fund to resell such debt
instrument at a fixed price. The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective for the period
of time during which the Fund's money is invested. A Fund's risk is limited to
the ability of the seller to pay the agreed-upon sum upon the delivery date.
When a Fund enters into a repurchase agreement, it obtains collateral having a
value at least equal to the amount of the purchase price. Repurchase agreements
can be considered loans as defined by the Investment Company Act of 1940, as
amended (the "1940 Act") collateralized by the underlying securities. The return
on the collateral may be more or less than that from the repurchase agreement.
The securities underlying a repurchase agreement will be marked to market every
business day and the value of the collateral maintained will at least equal to
the value of the loan, including the accrued interest earned. In evaluating
whether to enter into a repurchase agreement, the creditworthiness of the seller
will be carefully considered. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss.
3. ILLIQUID SECURITIES. The Funds have adopted the following investment
policy, which may be changed by the vote of the Board of Directors. A Fund will
not invest in illiquid securities if immediately after such investment more than
15% of the Fund's net assets (taken at market value) would be invested in such
securities. This limitation may be subject to additional restrictions imposed by
jurisdictions in which the Funds' shares are offered for sale. For this purpose,
illiquid securities include (a) securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale, (b) participation interests in loans that are not subject to puts, and
(c) repurchase agreements not terminable within seven days.
4. RESTRICTED SECURITIES. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended ("Securities Act"). Securities that have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly
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<PAGE>
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act applicable to resales of certain securities to qualified institutional
buyers.
A Fund may invest up to 15% of its total assets in restricted
securities issued under Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public offering".
Section 4(2) instruments are restricted in the sense that they can only be
resold through the issuing dealer and only to institutional investors; they
cannot be resold to the general public without registration.
The Investment Adviser will monitor the liquidity of restricted
securities in the Funds' portfolios under the supervision of the Funds'
Directors. In reaching liquidity decisions, the Investment Adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
5. U.S. GOVERNMENT SECURITIES. The Funds may purchase securities of the
U.S. Government, its agencies and instrumentalities. U.S. Government securities
include direct obligations issued by the United States Treasury, such as
Treasury bills, certificates of indebtedness, notes and bonds. U.S. Government
agencies and instrumentalities that issue or guarantee securities include, but
are not limited to, the Federal Home Loan Bank, the Federal National Mortgage
Association and the Student Loan Marketing Association. Except for U.S. Treasury
securities, obligations of U.S. Government agencies and instrumentalities may or
may not be supported by the full faith and credit of the United States. Some,
such as those of the Federal Home Loan Bank, are backed by the right of the
issuer to borrow from the Treasury; others by discretionary authority of the
U.S. Government to purchase the agencies' obligations; while still others, such
as the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitment.
6. "WHEN-ISSUED" AND DELAYED DELIVERY TRANSACTIONS. The Funds may
purchase securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" basis. Although a Fund will enter into such
transactions for the purpose of acquiring securities for its portfolio or, in
the case of the True Value Fund, the International Fund and the Venture Capital
Access Fund, for delivery pursuant
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<PAGE>
to options contracts they have entered into, a Fund may dispose of a commitment
prior to settlement. "When-issued" or "delayed delivery" refers to securities
whose terms and indenture are available and for which a market exists, but which
are not available for immediate delivery. When such transactions are negotiated,
the price (which is generally expressed in yield terms) is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. The Funds do not intend to make such purchases for speculative
purposes. Such securities may bear interest at a lower rate than longer-term
securities. The commitment to purchase a security for which payment will be made
on a future date may be deemed a separate security and involve a risk of loss if
the value of the security declines prior to the settlement date. During the
period between commitment by a Fund and settlement (generally within two months
but not to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the transaction.
Such securities are subject to market fluctuation; the value at delivery may be
less than the purchase price. The Fund will maintain a segregated account with
its custodian, consisting of cash, U.S. Government securities or other high
grade debt obligations at least equal to the value of purchase commitments until
payment is made.
The Funds will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of entering
into the obligation. When a Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure of the buyer or seller to do so may result
in the Fund losing the opportunity to obtain a price and yield considered to be
advantageous. At the time a Fund makes a commitment to purchase or sell a
security on a when-issued or forward commitment basis, it records the
transaction and reflects the value of the security purchased, or if a sale, the
proceeds to be received, in determining its net asset value. If a Fund chooses
to (i) dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a forward
commitment, it may incur a gain or loss.
When-issued transactions and forward commitments allow the Funds a
technique to use against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, a Fund might
sell securities in its portfolio on a forward commitment basis to attempt to
limit its exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, a Fund might sell portfolio securities and purchase the
same or similar securities on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields. Changes in interest rates
before settlement in a direction other than that expected by the Investment
Adviser will affect the value of such securities and may cause a loss to a Fund.
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<PAGE>
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO THE TRUE VALUE FUND , THE
INTERNATIONAL FUND AND THE VENTURE CAPITAL ACCESS FUND
1. FORWARDS, FUTURES AND OPTIONS.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Value Fund ,
International Fund and the Venture Capital Access Fund may purchase covered put
options to protect their portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
in its underlying security by the premium paid for the put option and by
transaction costs, but it will retain the ability to benefit from future
increases in market value.
Each of the Funds may also purchase covered call options to hedge
against an increase in prices of securities it wants ultimately to buy. Such
hedge protection is provided during the life of the call option since a Fund, as
holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. By using call options in this manner, a Fund will
reduce any profit it might have realized had it bought the underlying security
at the time it purchased the call option by the premium paid for the call option
and by transactions costs, but it limits the loss it will suffer if the security
declines in value to such premium and transaction costs.
The Funds may also purchase put or call options on futures contracts or
stock index futures contracts. Futures contracts and stock index futures
contracts are described below.
WRITING COVERED CALL OPTIONS ON SECURITIES. The True Value Fund ,
International Fund and the Venture Capital Access Fund may write covered call
options on optionable securities of the types in which they are permitted to
invest from time to time as determined appropriate in seeking to attain its
objective. Call options written by a Fund gives the holder the right to buy the
underlying securities from a Fund at a stated exercise price.
A Fund will receive a premium for writing a covered call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a covered call option, a
Fund limits its opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option.
A Fund may terminate an option that it has written prior to the
option's expiration by entering into a closing purchase transaction in which an
option is purchased having the same terms as the option written. The Fund will
realize a profit or loss from such transaction if the cost of such transaction
is less or more than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Fund.
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FUTURES CONTRACTS. The True Value Fund , International Fund and the
Venture Capital Access Fund may enter into futures contracts. The purpose of
entering into a futures contract is to protect a Fund from fluctuations in the
value of its portfolio securities or to hedge against an increase in prices of
certain securities without necessarily buying or selling the securities. Of
course, because the value of portfolio securities will far exceed the value of
the futures contracts sold by a Fund, an increase in the value of the futures
contracts could only mitigate but not totally offset the decline in the value of
a Fund's assets. No consideration is paid or received by a Fund upon entering
into a futures contract. Upon entering into a futures contract, a Fund will be
required to deposit in a segregated account with its custodian an amount of cash
or cash equivalents, such as U.S. Government securities or high grade debt
obligations, equal to approximately 1% to 10% of the contract amount (this
amount is subject to change by the exchange on which the contract is traded and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the price of the currency or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking-to-market."
At any time prior to the expiration of a futures contract, the Fund may elect to
close the position by taking an opposite position, which will operate to
terminate the Fund's existing position in the contract.
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts is subject to the
ability of Fund management to predict correctly movements in the price of the
securities or currencies underlying the particular hedge. These predictions and,
thus, the use of futures contracts involve skills and techniques that are
different from those involved in the management of the portfolio securities
being hedged. In addition, there can be no assurance that there will be a
correlation between movements in the price of the underlying securities and
movements in the price of the securities which are the subject of the hedge. A
decision concerning whether, when and how to hedge involves the exercise of
skill and judgment and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior or trends in interest rates.
Positions in futures contracts may be closed out only on the exchange
on which they were entered into (or through a linked exchange). No secondary
market for such contracts exists. Although the Funds intend to enter into
futures contracts only if there is an active market for such contracts, there is
no assurance that an active market will exist for the contracts at any
particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. It is possible that futures contract prices could
move to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting a Fund to substantial losses. In such event, and in the event of
adverse price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the Fund's securities being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
If a Fund has hedged against the possibility of an event adversely
affecting the value of securities held in its portfolio and that event does not
occur, the Fund will lose part or all of the benefit of the increased value of
securities which it has hedged because it will have offsetting losses in its
futures positions. Losses incurred in hedging transactions and the costs of
these transactions will affect a Fund's performance. In
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addition, in such situations, if the Fund had insufficient cash, it might have
to sell securities to meet daily variation margin requirements at a time when it
would be disadvantageous to do so. These sales of securities could, but will not
necessarily, be at increased prices which reflect the change in interest rates
or currency values, as the case may be.
A Fund may not enter into futures transactions if the sum of the amount
of initial margin deposits on its existing futures contracts would exceed 5% of
the fair market value of the Fund's total assets. A Fund will not use leverage
when it enters into long futures contracts and for each such long position the
Fund will deposit cash or cash equivalents, such as U.S. Government securities
or high grade debt obligations, having a value equal to the underlying commodity
value of the contract as collateral with its custodian in a segregated account.
STOCK INDEX FUTURES CONTRACTS. The True Value Fund , International Fund
and Venture Capital Access Fund may enter into stock index futures contracts. A
Fund will enter into these transactions for bona fide hedging purposes, i.e., in
order to hedge against changes in prices of the Fund's securities. A stock index
futures contract is an agreement pursuant to which one party agrees to deliver
to the other an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of securities is made. If general stock market prices are
expected to rise, a Fund might purchase a stock index futures contract as a
hedge against an increase in prices of particular equity securities it wanted
ultimately to buy. If in fact the stock index did rise, the price of the equity
securities intended to be purchased might also increase, but that increase would
be offset in part by the increase in the value of the Fund's futures contract
resulting from the increase in the index. On the other hand, if general stock
market prices are expected to decline, a Fund might sell a futures contract on
the index. If that index did in fact decline, the value of some or all of the
equity securities held by the Fund might also be expected to decline, but that
decrease would be offset in part by the increase in the value of the futures
contract. Transactions are covered by owning or having the right to acquire
corresponding securities or by maintenance of a cash segregated account pursuant
to applicable provisions and staff interpretations of the 1940 Act. For a
discussion of the general treatment and risks related to futures contracts, see
"Futures Contracts" in this Statement of Additional Information.
FORWARD CONTRACTS. The True Value Fund , International Fund and Venture
Capital Access Fund may enter into foreign currency exchange contracts ("forward
contracts"), which obligate the seller to deliver and the purchaser to take a
specific amount of foreign currency at a specific future date for a fixed price.
A forward contract involves bilateral obligations of one party to purchase, and
another party to sell, a specific currency at a future date (which may be any
fixed number of days from the date of the contract agreed upon by the parties),
at a price set at the time the contract is entered into. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A Fund may enter into a
forward contract in order to "lock in" the U.S. dollar price of a security
denominated in a foreign currency which it has purchased or sold but which has
not yet settled, or to protect against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and a foreign currency. There
is a risk that use of forward contracts may reduce the gain that would otherwise
result from a change in the relationship between the U.S. dollar and a foreign
currency. Forward contracts include standardized foreign currency futures
contracts which are traded on exchanges and are subject to procedures and
regulations applicable to other futures. A Fund may also enter into a forward
contract to sell a foreign currency denominated in a currency other than that in
which the underlying security is denominated. This is done in the expectation
that there is a greater correlation between the foreign currency of the forward
contract and the foreign currency of the underlying investment than between the
U.S. dollar and the foreign
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currency of the underlying investment. This technique is referred to as "cross
hedging." The success of cross hedging is dependent on many factors, including
the ability of the Investment Adviser to correctly identify and monitor the
correlation between foreign currencies and the U.S. dollar. To the extent that
the correlation is not identical, a Fund may experience losses or gains on both
the underlying security and the cross currency hedge.
A Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. In addition, although
forward contracts limit the risk of loss due to a decline in the value of the
hedged currencies, at the same time they limit any potential gain that might
result should the value of the currencies increase.
There is no limitation as to the percentage of a Fund's assets that may
be committed to foreign currency exchange contracts. The Funds do not enter into
such forward contracts or maintain a net exposure in such contracts to the
extent that the Funds would be obligated to deliver an amount of foreign
currency in excess of the value of a Fund's assets denominated in that currency,
or enter into a "cross hedge," unless it is denominated in a currency or
currencies that the Investment Adviser believes will have price movements that
tend to correlate closely with the currency in which the investment being hedged
is denominated. See "Tax Status" below for a discussion of the tax treatment of
foreign currency exchange contracts.
A Fund may enter into forward contracts with respect to specific
transactions. For example, when a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when a Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment by entering into a forward contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the purchase or sale of
the amount of foreign currency involved in the underlying transaction
("transaction hedge"). A Fund will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
A Fund may also use forward contracts to lock in the U.S. dollar value
of portfolio positions ("position hedge"). In a position hedge, for example,
when a Fund believes that foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of a
Fund's portfolio securities denominated in such foreign currency, or when a Fund
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount. In this situation the Fund may, in the
alternative, enter into a forward contract to sell a different foreign currency
for a fixed U.S. dollar amount where the Fund believes that the U.S. dollar
value of the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in which
portfolio securities of the Fund are denominated ("cross hedge").
The Funds' custodian will place cash or U.S. Government securities or
other liquid high-quality debt securities in a separate account of the Fund
having a value equal to the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to position hedges and cross hedges.
If the value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account on a daily basis so
that the value of the account will equal the amount of the Fund's commitments
with respect to such contracts. As an alternative to maintaining all or part of
the separate account, a Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by
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a forward sale contract at a price no higher than the forward contract price, or
a Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price. Unanticipated changes in currency prices
may result in poorer overall performance for a Fund than if it had not entered
into such contracts.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transactions costs.
At or before the maturity of a forward contract requiring a Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The cost to a Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. Because such
contracts are not traded on an exchange, a Fund must evaluate the credit and
performance risk of each particular counterparty under a forward contract.
Although the Funds value their assets daily in terms of U.S. dollars,
they do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds may convert foreign currency from time to
time, and investors should be aware of the costs of currency conversion. Foreign
exchange dealers do not charge a fee for conversion, but they do seek to realize
a profit based on the difference between the prices at which they buy and sell
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
2. ADDITIONAL RISK FACTORS ASSOCIATED WITH FORWARDS, FUTURES AND
OPTIONS. In addition to any risk factors which may be described above, the
following sets forth certain information regarding the potential risks
associated with the Fund's futures and options transactions and forward
contracts.
RISK OF IMPERFECT CORRELATION. A Fund's ability to hedge effectively
all or a portion of its portfolio through transactions in futures, options on
futures or options on securities and indexes depends on the degree
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to which movements in the value of the securities or index underlying such
hedging instrument correlate with movements in the value of the relevant portion
of the Fund's portfolio. If the values of the portfolio securities being hedged
do not move in the same amount or direction as the underlying security or index,
the hedging strategy for a Fund might not be successful and the Fund could
sustain losses on its hedging transactions which would not be offset by gains on
its portfolio. It is also possible that there may be a negative correlation
between the security or index underlying a futures or option contract and the
portfolio securities being hedged, which could result in losses both on the
hedging transaction and the portfolio securities. In such instances, the Fund's
overall return could be less than if the hedging transactions had not been
undertaken. Stock index futures or options based on a narrower index of
securities may present greater risk than options or futures based on a broad
market index, as a narrower index is more susceptible to rapid and extreme
fluctuations resulting from changes in the value of a small number of
securities. The Fund would, however, effect transactions in such futures or
options only for hedging purposes (or to close out open positions).
The trading of futures and options on indexes involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that the Fund will not
be able to establish hedging positions, or that any hedging strategy adopted
will be insufficient to completely protect the Fund.
The Fund will purchase or sell futures contracts or options only if, in
the Investment Adviser's judgment, there is expected to be a sufficient degree
of correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Investment Adviser's judgment will
be accurate.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While the Fund will establish
a futures or option position only if there appears to be a liquid secondary
market therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by the Fund, which could
require the Fund to purchase or sell the instrument underlying the position,
make or receive a cash settlement, or meet ongoing variation margin
requirements. The inability to close out futures or option positions also could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
or the relevant portion thereof.
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The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
RISK OF PREDICTING INTEREST RATE MOVEMENTS. Investments in futures
contracts on fixed income securities and related indexes involve the risk that
if the Investment Adviser's investment judgment concerning the general direction
of interest rates is incorrect, the Fund's overall performance may be poorer
than if it had not entered into any such contract. For example, if the Fund has
been hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
TRADING AND POSITION LIMITS. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Investment Adviser does not believe that
these trading and position limits will have an adverse impact on the hedging
strategies regarding a Fund's portfolio.
RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS. Commodity
Futures Trading Commission regulations require that all short futures positions
be entered into for the purpose of hedging the value of securities held in the
Fund's portfolio, and that all long futures positions either constitute bona
fide hedging transactions, as defined in such regulations, or have a total value
not in excess of an amount determined by reference to certain cash and
securities positions maintained for a Fund, and accrued profits on such
positions.
FEDERAL INCOME TAX RESTRICTIONS. A Fund's ability to engage in the
hedging transactions described herein may be limited by the current federal
income tax requirement that a Fund derive less than 30% of its gross income from
the sale or other disposition of stock or securities held for less than three
months.
3. FOREIGN SECURITIES. The True Value Fund, the International Fund and
the Venture Capital Access Fund may invest in foreign securities. Investments in
foreign securities offer potential benefits not available solely through
investment in securities of domestic issuers. Foreign securities offer the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the United States, or to reduce fluctuations in portfolio value by
taking advantage of foreign stock markets that may not move in a manner parallel
to U.S. markets. Investments in securities of foreign issuers involve certain
risks not ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in exchange rates, adverse foreign
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. Since the Funds may
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the value of
securities in the portfolio and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation,
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political or social instability, or diplomatic developments that could adversely
affect investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets. Securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable U.S. companies.
Transactional costs in non-U.S. securities markets are generally higher than in
U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the U.S. The
Funds might have greater difficulty taking appropriate legal action with respect
to foreign investments in non-U.S. courts than with respect to domestic issuers
in U.S. courts. In addition, transactions in foreign securities may involve
greater time from the trade date until settlement than domestic securities
transactions and involve the risk of possible losses through the holding of
securities by custodians and securities depositories in foreign countries.
Currently, direct investment in equity securities in certain countries
is restricted, and investments may only be made through a limited number of
approved vehicles. At present this includes investment in listed and unlisted
investment companies, subject to limitations under the 1940 Act. Investment in
these closed-end funds may involve the payment of additional premiums to acquire
shares in the open-market and the yield of these securities will be reduced by
the operating expenses of such companies. In addition, investors should
recognize that they will bear not only their proportionate share of the expenses
of the Fund, but also indirectly bear similar expenses of the underlying
closed-end fund. Also, as a result of a Fund's policy of investing in closed-end
mutual funds, investors in the Fund may receive taxable capital gains
distributions to a greater extent than if the investor had invested directly in
the underlying closed-end fund.
Dividend and interest income from foreign securities may generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by a Fund or its investors.
Depository receipts are typically dollar denominated, although their
market price is subject to fluctuations of the foreign currency in which the
underlying securities are denominated. Depository receipts include: American
Depository Receipts (ADRs), which are typically designed for U.S. investors. The
ADR securities are held either in physical form or in book entry form; European
Depository Receipts (EDRs), which are similar to ADRs, but may be listed and
traded on a European exchange as well as in the U.S. Typically, these securities
are traded on the Luxembourg exchange in Europe; and Global Depository Receipts
(GDRs), which are similar to EDRs, although they may be held through foreign
clearing agents, such as Euroclear and other foreign depositories. All
depository receipts will be considered foreign securities for purposes of a
Fund's investment limitation concerning investment in foreign securities.
4. SHORT-TERM INVESTMENTS. The True Value Fund, the International Fund
and the Venture Caital Access Fund may invest in short-term securities. During
those times when substantially all of a Fund's assets should be invested in
equity securities, all or part of the Fund's assets may be invested temporarily
in short-term investments. Under normal market conditions, it is expected that
investments in such short-term instruments may range from zero (fully invested)
to 30% of a Fund's assets. However, when in the Investment Adviser's opinion,
economic or market conditions warrant a temporary defensive position, a Fund may
invest up to 100% of its assets in such securities. The short-term investments
that may be purchased by a Fund consist of high quality debt obligations
maturing in one year or less from the date of purchase, such as U.S. Government
securities, certificates of deposit, bankers' acceptances and commercial paper.
High
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quality means the obligations have been rated at least A-1 by S&P or Prime-1 by
Moody's, or have an outstanding issue of debt securities rated at least A by S&P
or Moody's, or are of comparable quality in the opinion of the Investment
Adviser. Short-term investments also include repurchase agreements with respect
to the high quality debt obligations listed above. See "Repurchase Agreements"
above.
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO THE TRUE VALUE FUND
1. NON-INVESTMENT GRADE SECURITIES. The True Value Fund may invest in
non-investment grade securities ("junk bonds"), which are fixed income
securities that offer a current yield above that generally available on debt
securities rated in the four highest categories by Moody's and S&P or other
rating agencies, or, if unrated, considered to be of comparable quality by the
Investment Adviser. These securities include:
(a) fixed rate corporate debt obligations (including bonds,
debentures and notes) rated Ba or lower by Moody's or BB or
lower by S&P;
(b) preferred stocks that have yields comparable to those of
high-yielding debt securities; and
(c) any securities convertible into any of the foregoing.
In pursuing the True Value Fund's objectives, the Investment Adviser
seeks to identify situations in which the rating agencies have not fully
perceived the value of the security or in which the Investment Adviser believes
that future developments will enhance the creditworthiness and the ratings of
the issuer. Non-invest- ment grade securities (junk bonds) will constitute no
more than 35% of the assets of the True Value Fund.
The yields earned on non-investment grade securities (junk bonds)
generally are related to the quality ratings assigned by recognized ratings
agencies. The securities in which the Fund invests tend to offer higher yields
than those of other securities with the same maturities because of the
additional risks associated with them. Debt obligations rated BB/Ba or lower are
regarded as speculative and generally involve more risk of loss of principal and
income than higher-rated securities. Also their yields and market values tend to
fluctuate more. Additional risks include:
Sensitivity to Interest Rate and Economic Changes - Non-investment
grade securities (junk bonds) are more sensitive to adverse economic changes or
individual corporate developments but less sensitive to interest rate changes
than are investment grade bonds. As a result, when interest rates rise, causing
bond prices to fall, the value of these securities may not fall as much as
investment grade corporate bonds. Conversely, when interest rates fall, these
securities may underperform investment grade corporate bonds because the prices
of such securities (junk bonds) tend not to rise as much as the prices of these
other bonds.
Also, the financial stress resulting from an economic downturn or
adverse corporate developments could have a greater negative effect on the
ability of issuers of these securities to service their principal and interest
payments, to meet projected business goals and to obtain additional financing,
than on more creditworthy issuers. Holders of these securities could also be at
greater risk because these securities are generally unsecured and subordinated
to senior debt holders and secured creditors. If the issuer of a non-investment
grade security (junk bond) owned by the Fund defaults, the Fund may incur
additional expenses to seek recovery. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of these securities and a Fund's net asset value.
Payment Expectations - Non-investment grade securities (junk bonds)
present risks based on payment expectations. For example, these securities may
contain redemption or call provisions. If an issuer exercises
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these provisions in a declining interest rate market, the Fund may have to
replace the securities with a lower yielding security, resulting in a decreased
return for investors. Also, the value of these securities may decrease in a
rising interest rate market. In addition, there is a higher risk of non-payment
of interest and/or principal by issuers of these securities than in the case of
investment grade bonds.
Liquidity and Valuation Risks - Non-investment grade securities (junk
bonds) are often traded among a small number of broker-dealers rather than in a
broad secondary market. Purchasers of these securities tend to be institutions
rather than individuals, a factor that further limits the secondary market. Many
of these securities may not be as liquid as investment grade bonds. The ability
to value or sell these securities will be adversely affected to the extent that
such securities are thinly traded or illiquid. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease or
increase the value and liquidity of these securities more than other securities,
especially in a thinly-traded market.
Limitations of Credit Ratings - The credit ratings assigned to
non-investment grade securities (junk bonds) may not accurately reflect the true
risks of an investment. Credit ratings typically evaluate the safety of
principal and interest payments rather than the market value risk of such
securities. In addition, credit agencies may fail to adjust credit ratings to
reflect rapid changes in economic or company conditions that affect a security's
market value. Although the ratings of recognized rating services such as Moody's
and S&P are considered, the Investment Adviser primarily relies on its own
credit analysis which includes a study of existing debt, capital structure,
ability to service debts and to pay dividends, the issuer's sensitivity to
economic conditions, its operating history and the current trend of earnings.
Thus the achievement of the Fund's investment objective may be more dependent on
the Investment Adviser's own credit analysis than might be the case for a fund
which does not invest in these securities.
Congressional Proposals - New laws and proposed new laws may have a
negative impact on the market for high-risk non-investment grade securities
(junk bonds). As examples, recent legislation requires federally-insured savings
and loan associations to divest themselves of their investments in these
securities and other proposals are designed to limit the use of, or tax and
other advantages of, these securities. Any such proposals, if enacted, could
have a negative effect on the Fund's net asset value.
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO THE VENTURE CAPITAL ACCESS FUND
1. SHORT SALES. The Venture Capital Access Fund may seek to hedge
investments or realize additional gains through short sales. Short sales are
transactions in which the Venture Capital Access Fund sells a security it does
not own, in anticipation of a decline in the market value of that security. To
complete such a transaction, the Venture Capital Access Fund must borrow the
security to make delivery to the buyer. The Venture Capital Access Fund then is
obligated to replace the security borrowed by purchasing it at the market price
at or prior to the time of replacement. The price at such time may be more or
less than the price at which the security was sold by Venture Capital Access
Fund. Until the security is replaced, the Venture Capital Access Fund is
required to repay the lender any dividends or interest that accrue during the
period of the loan. To borrow the security, the Venture Capital Access Fund also
may be required to pay a premium, which would increase the cost of the security
sold. The net proceeds of the short sale will be retained by the broker (or by
the Venture Capital Access Fund's custodian in a special custody account), to
the extent necessary to meet margin requirements, until the short position is
closed out. The Venture Capital Access Fund also will incur transaction costs in
effecting short sales.
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The Venture Capital Access Fund will incur a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the Venture Capital Access Fund replaces the borrowed
security. The Venture Capital Access Fund will realize a gain if the security
declines in price between those dates. The amount of any gain will be decreased,
and the amount of any loss increased, by the amount of the premium, dividends,
interest or expenses the Venture Capital Access Fund may be required to pay in
connection with a short sale.
INVESTMENT RESTRICTIONS
Investment restrictions are fundamental and cannot be changed without
approval of the holders of a majority (as defined in the 1940 Act) of the
outstanding shares of a Fund. As used in the Prospectus and the Statement of
Additional Information, the term "majority of the outstanding shares" of a Fund
means, respectively, the vote of the lesser of (i) 67% or more of the shares of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The following are the Funds'
investment restrictions set forth in their entirety. Investment policies are not
fundamental and may be changed by the Board of Directors without shareholder
approval.
INVESTMENT RESTRICTIONS
Each Fund may not:
1. Issue senior securities, except that a Fund may borrow up to 33 1/3%
of the value of its total assets from a bank (i) to increase its holdings of
portfolio securities, (ii) to meet redemption requests, or (iii) for such
short-term credits as may be necessary for the clearance or settlement of the
transactions. A Fund may pledge its assets to secure such borrowings.
2. Invest 25% or more of the total value of its assets in a particular
industry, except that this restriction shall not apply to U.S. Government
Securities.
3. Buy or sell commodities or commodity contracts or real estate or
interests in real estate (including real estate limited partnerships), except
that it may purchase and sell futures contracts on stock indices, interest rate
instruments and foreign currencies, securities which are secured by real estate
or commodities, and securities of companies which invest or deal in real estate
or commodities.
4. Make loans, except through repurchase agreements to the extent
permitted under applicable law.
5. Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under applicable securities laws.
INVESTMENT POLICIES
Each Fund may not:
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1. Purchase securities on margin, except such short-term credits as may
be necessary for clearance of transactions and the maintenance of margin with
respect to futures contracts.
2. Except for the Venture Capital Access Fund, make short sales of
securities or maintain a short position (except that each Fund may maintain
short positions in foreign currency contracts, options and futures contracts).
3. Purchase or otherwise acquire the securities of any open-end
investment company (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of another
investment company) if, as a result, the Fund and all of its affiliates would
own more than 3% of the total outstanding stock of that company.
4. Purchase or retain securities of any issuer (other than the shares
of the Fund) if to the Fund's knowledge, those officers and Directors of the
Fund and the officers and directors of LM Capital, who individually own
beneficially more than 1/2 of 1% of the outstanding securities of such issuer,
together own beneficially more than 5% of such outstanding securities.
5. Invest directly in oil, gas or other mineral exploration or
development programs or leases; provided, however, that if consistent with the
objective of the Fund, the Fund may purchase securities of issuers whose
principal business activities fall within such areas.
In order to permit the sale of shares of a Fund in certain states, a
Fund may make commitments more restrictive than the restrictions described
above. Should a Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
Percentage restrictions apply at the time of acquisition and any
subsequent change in percentages due to changes in market value of portfolio
securities or other changes in total assets will not be considered a violation
of such restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Most orders for the purchase or sale of portfolio securities are placed
on behalf of the Funds by LM Capital Corporation ("LM Capital" or the
"Investment Adviser") subject to the supervision of LM Capital Investments, Inc.
and the Directors and pursuant to authority contained in the investment advisory
agreement (the "Advisory Agreement") between the Funds and the Investment
Adviser. The Investment Adviser will select brokers who will purchase and sell
all the securities of the Funds. In selecting brokers or dealers, the Investment
Adviser will consider various relevant factors, including, but not limited to
the best net price available, the size and type of the transaction, the nature
and character of the markets for the security to be purchased or sold, the
execution efficiency, settlement capability, financial condition of the
broker-dealer firm, the broker-dealer's execution services rendered on a
continuing basis and the reasonableness of any commissions.
In addition to meeting the primary requirements of execution and price,
brokers or dealers may be selected who provide research services, or statistical
material or other services [to the Funds], to the Investment Adviser for the
Funds' use, which in the opinion of the Directors, are reasonable and necessary
to the Funds' normal operations. Those services may include economic studies,
industry studies, security
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analysis or reports, sales literature and statistical services furnished either
directly to the Funds or to the Investment Adviser. Such allocation shall be in
such amounts as the Investment Adviser shall determine and the Investment
Adviser will report to the Directors on the allocation of brokerage for such
services.
The receipt of research from broker-dealers may be useful to the
Investment Adviser in rendering investment management services to its other
clients, and conversely, such information provided by brokers or dealers who
have executed orders on behalf of the Investment Adviser's other clients may be
useful to the Investment Adviser in carrying out its obligations to the Funds.
The receipt of such research may not reduce the Investment Adviser's normal
independent research activities.
Brokers or dealers who execute portfolio transactions on behalf of the
Funds may receive commissions which are in excess of the amount of commissions
which other brokers or dealers would have charged for effecting such
transactions; provided, the Investment Adviser determines in good faith that
such commissions are reasonable in relation to the value of the brokerage and/or
research services provided by such executing brokers or dealers viewed in terms
of a particular transaction or the Investment Adviser's overall responsibilities
to the Funds.
The Directors have adopted certain procedures incorporating the
standards of Rule 17e-1 issued under the 1940 Act which requires that the
commissions paid the Distributor or to a Subadviser or an affiliated
broker-dealer must be "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time." Rule 17e-1 and the procedures also contain review requirements
and require the Investment Adviser to furnish reports to the Directors and to
maintain records in connection with such reviews.
The Investment Adviser is authorized, subject to best price and
execution, to place portfolio transactions with brokerage firms that have
provided assistance in the distribution of shares of the Funds and is authorized
to use LM Capital Securities (the "Distributor"), as later described, or an
affiliated broker-dealer on an agency basis, to effect a substantial amount of
the portfolio transactions which are executed on the New York or American Stock
Exchanges, regional exchanges where relevant, or which are traded in the
over-the-counter market. Any profits resulting from brokerage commissions earned
by the Distributor as a result of transactions on behalf of the Funds will
accrue to the benefit of the shareholders of the Distributor who are also
shareholders of the Investment Adviser. The Management Agreement does not
provide for any reduction in the management fee as a result of profits resulting
from brokerage commissions effected through the Distributor.
It may happen that the same security will be held by other clients of
the Investment Adviser. When the other clients are simultaneously engaged in the
purchase or sale of the same security, the prices and amounts will be allocated
in accordance with a formula considered by the Investment Adviser to be
equitable to each, taking into consideration such factors as size of account,
concentration of holdings, investment objectives, tax status, cash availability,
purchase cost, holding period and other pertinent factors relative to each
account. In some cases this system could have a detrimental effect on the price
or volume of the security as far as the Funds are concerned. In other cases,
however, the ability of a Fund to participate in volume transactions will
produce better executions for the Fund.
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COMPUTATION OF NET ASSET VALUE
The net asset value of each Fund is determined at 4:15 p.m. New York
time, on each day that the New York Stock Exchange is open for business and on
such other days as there is sufficient trading in a Fund's securities to affect
materially the net asset value per share of the Fund. The Funds will be closed
on New Years Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
When portfolio securities are traded, the valuation will be the last
reported sale price on the day of valuation. (For securities traded on the New
York Stock Exchange (the "Exchange"), the valuation will be the last reported
sales price as of the close of the Exchange's regular trading session, normally
4:00 p.m. New York time.) If there is no such reported sale or the valuation is
based on the over-the-counter market, the securities will be valued at the last
available bid price. As of the date of this Statement of Additional Information,
such securities will be valued by the latter method. Securities for which
reliable quotations are not readily available and all other assets will be
valued at their respective fair market value as determined in good faith by, or
under procedures established by, the Directors of the Funds.
Money market instruments with less than sixty days remaining to
maturity when acquired by the Funds will be valued on an amortized cost basis by
the Funds, excluding unrealized gains or losses thereon from the valuation. This
is accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If a Fund acquires a money
market instrument with more than sixty days remaining to its maturity, it will
be valued at current market value until the 60th day prior to maturity, and will
then be valued on an amortized cost basis based upon the value on such date
unless the Board determines during such 60-day period that this amortized cost
value does not represent fair market value.
All liabilities incurred or accrued are deducted from each Fund's total
assets. The resulting net assets are divided by the number of shares of the Fund
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share.
Orders received by dealers prior to 4:15 P.M. (New York time) will be
confirmed at the net asset value computed that day, provided the order is
received by the Fund's Transfer Agent prior to 4:15 P.M. on that day. It is the
responsibility of the dealer to insure that all orders are transmitted timely to
each Fund. Orders received by dealers after 4:15 P.M. will be confirmed at the
next computed offering price.
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PERFORMANCE CALCULATION
For purposes of quoting and comparing the performance of each Fund to
that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in terms
of total return. Under rules promulgated by the SEC, a fund's advertising
performance must include total return quotations calculated according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1,5 or 10 year
period, at the end of such period (or fractional
portion thereof.)
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover 1, 5 and 10 year periods ended on the date of the most recent balance
sheet included in the registration statement. In calculating the ending
redeemable value, all dividends and distributions by a Fund are assumed to have
been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. Total return, or "T" in the formula above,
is computed by finding the average annual compounded rates of return over the 1,
5 and 10 year periods (or fractional portion thereof) that would equate the
initial amount invested to the ending redeemable value. Any recurring account
charges that might in the future be imposed by a Fund would be included at that
time.
In addition to the total return quotations discussed above, each Fund
may advertise its yield based on a 30-day (or one month) period ended on the
date of the most recent balance sheet included in a Fund's registration
statement, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula:
a-b 6
YIELD 2[( ----- +1) -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day of
the period.
Under this formula, interest earned on debt obligations for purposes of
"a" above, is calculated by (1) computing the yield to maturity of each
obligation held by a Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), (2) dividing that figure by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation for each day of the subsequent month that the obligation is in the
Fund's portfolio (assuming a month of 30 days) and (3)
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computing the total of the interest earned on all debt obligations and all
dividends accrued on all equity securities during the 30-day or one month
period. In computing dividends accrued, dividend income is recognized by
accruing 1/360 of the stated dividend rate of a security each day that the
security is in the Fund's portfolio. For purposes of "b" above, Rule 12b-1
expenses are included among the expenses accrued for the period. Any amounts
representing sales charges will not be included among these expenses; however,
the True Value Fund will disclose the pro rata share of the account opening fee.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price
calculation required pursuant to "d" above.
Any quotation of performance stated in terms of yield will be given no
greater prominence than the information prescribed under the SEC's rules. In
addition, all advertisements containing performance data of any kind will
include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds have elected to be governed by Rule 18f-1 of the 1940 Act,
under which the Funds are obligated to redeem the shares of any shareholder
solely in cash up to the lesser of 1% of the net asset value of a Fund or
$250,000 during any 90-day period. Should any shareholder's redemption exceed
this limitation, a Fund can, at its sole option, redeem the excess in cash or in
portfolio securities. Such securities would be selected solely by such Fund and
valued as in computing net asset value. In these circumstances a shareholder
selling such securities would probably incur a brokerage charge and there can be
no assurance that the price realized by a shareholder upon the sale of such
securities will not be less than the value used in computing net asset value for
the purpose of such redemption.
A complete description of the manner by which Fund's shares may be
purchased and redeemed appears in the Prospectus under the headings "Purchase of
Shares" and "Redemption of Shares", respectively.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, each Fund is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain
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other requirements of the Code that are described below. Distributions by a Fund
made during the taxable year or, under specified circumstances, within twelve
months after the close of the taxable year, will be considered distributions of
income and gains of the taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, a Fund may have to limit
the sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded for this purpose. Interest
(including original issue discount) received by a Fund at maturity or upon the
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is attributable
to realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code Section 1256, will generally be
treated as ordinary income or loss.
Further, the Code also treats as ordinary income, a portion of the
capital gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future; (2) the transaction is a straddle within the meaning of Section
1092 of the Code; (3) the transaction is one that was marketed or sold to the
Fund on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction; and (2) the
capitalized
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interest on acquisition indebtedness under Code Section 263(g). Built-in losses
will be preserved where a Fund has a built-in loss with respect to property that
becomes a part of a conversion transaction. No authority exists that indicates
that the converted character of the income will not be passed to a Fund's
shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (i) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (ii) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Transactions that may be engaged in by a Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. A Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. The Internal Revenue Service (the "IRS") has held in
several private rulings (and Treasury Regulations now provide) that gains
arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.
The True Value Fund, the International Fund and the Venture Capital
Access Fund may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If a Fund invests in a PFIC, it may elect to treat
the PFIC as a qualifying electing fund (a "QEF") in which event the Fund each
year will have ordinary income equal to its pro rata share of the PFIC's
ordinary earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net capital gain for the year, regardless of whether the
Fund receives distributions of any such ordinary earning or capital gain from
the PFIC. If a Fund does not (because it is unable to, chooses not to or
otherwise) elect to treat the PFIC as a QEF, then in general (i) any gain
recognized by the Fund upon
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sale or other disposition of its interest in the PFIC or any excess distribution
received by the Fund from the PFIC will be allocated ratably over the Fund's
holding period of its interest in the PFIC, (ii) the portion of such gain or
excess distribution so allocated to the year in which the gain is recognized or
the excess distribution is received shall be included in the Fund's gross income
for such year as ordinary income (and the distribution of such portion by the
Fund to shareholders will be taxable as an ordinary income dividend, but such
portion will not be subject to tax at the Fund level), (iii) the Fund shall be
liable for tax on the portions of such gain or excess distribution so allocated
to prior years in an amount equal to, for each such prior year, (A) the amount
of gain or excess distribution allocated to such prior year multiplied by the
highest tax rate (individual or corporate) in effect for such prior year plus
(B) interest on the amount determined under clause (A) for the period from the
due date for filing a return for such prior year until the date for filing a
return for the year in which the gain is recognized or the excess distribution
is received at the rates and methods applicable to underpayments of tax for such
period, and (iv) the distribution by the Fund to shareholders of the portions of
such gain or excess distribution so allocated to prior years (net of the tax
payable by the Fund thereon) will again be taxable to the shareholders as an
ordinary income dividend.
Under recently proposed Treasury Regulations a Fund could elect to
recognize as gain the excess, as of the last day of its taxable year, of the
fair market value of each share of PFIC stock over the electing Fund's adjusted
tax basis in that share ("mark to market gain"). Such mark to market gain will
be included by the Fund as ordinary income, such gain will not be subject to the
Short-Short Gain Test, and the Fund's holding period with respect to such PFIC
stock commences on the first day of the next taxable year. If the Fund makes
such election in the first taxable year it holds PFIC stock, the Fund will
include ordinary income from any mark to market gain, if any, and will not incur
the tax described in the previous paragraph.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
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EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for Federal income
tax purposes. Such dividends paid by the True Value Fund , the International
Fund or the Venture Capital Access Fund, however, may qualify for the 70%
dividends-received deduction for corporate shareholders to the extent discussed
below.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. The Code provides, however, that under certain conditions
only 50% of the capital gain recognized upon a Fund's disposition of "small
business" stock will be subject to tax.
Conversely, if a Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
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Ordinary income dividends paid by the True Value Fund, the
International Fund or the Venture Capital Access Fund with respect to a taxable
year will qualify for the 70% dividends-received deduction generally available
to corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by a Fund will not be treated as a qualifying dividend (1)
if it has been received with respect to any share of stock that the Fund has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c) (3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) to the extent that the Fund is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property; or (3) to the
extent the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (i) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Fund or (ii) by application of Code Section 246(b) which in
general limits the dividends-received deduction to 70% of the shareholder's
taxable income (determined without regard to the dividends-received deduction
and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum marginal
rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the
excess of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. In addition, under the Superfund Amendments and
Reauthorization Act of 1986, a tax is imposed for taxable years beginning after
1986 and before 1996 at the rate of 0.12% on the excess of a corporate
taxpayer's AMTI (determined without regard to the deduction for this tax and the
AMT net operating loss deduction) over $2 million. For purposes of the corporate
AMT and the environmental super fund tax (which are discussed above), the
corporate dividends-received deduction is not itself an item of tax preference
that must be added back to taxable income or is otherwise disallowed in
determining a corporation's AMTI. However, corporate shareholders will generally
be required to take the full amount of any dividend received from the Fund into
account (without a dividends-received deduction) in determining its adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Investment income that may be received by the True Value Fund, the
International Fund or the Venture Capital Access Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consist of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
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(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credits.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. Federal
Income Tax consequences of distributions made (or deemed made) during the year.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient".
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held for
longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (discussed above in connection with the dividends-received
deduction for corporations) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6%
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lower than the maximum rate applicable to ordinary income. Capital losses in any
year are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of a Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Furthermore, such a foreign shareholder may be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) on the gross income resulting from a
Fund's election to treat any foreign taxes paid by it as paid by its
shareholders, but may not be allowed a deduction against this gross income or a
credit against this U.S. withholding tax for the foreign shareholder's pro rata
share of such foreign taxes which it is treated as having paid. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of a Fund, capital gain dividends and amounts
retained by a Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. Federal Income Tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be
required to withhold U.S. Federal Income Tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. Federal Income Tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this Statement of Additional Information.
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Future legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. Federal Income Taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investment in a Fund.
THE MANAGEMENT OF THE FUNDS
The overall management of the business and affairs of the Funds is
vested in LM Capital Investments' Board of Directors. The Board of Directors
approves all significant agreements between LM Capital Investments, on behalf of
a Fund, and persons or companies furnishing services to a Fund, including the
Funds' Advisory Agreement with LM Capital, the Funds' agreement with LM Capital
Securities regarding distribution of the Funds' shares, the agreement with
____________________ as the custodian and the agreement with
____________________ as the transfer agent. The day-to-day operations of each
Fund are delegated to the officers of LM Capital Investments and to LM Capital,
subject always to the objective and policies of the Funds and to the general
supervision of LM Capital Investments' Board of Directors. The following are
biographies of LM Capital Investments' Board of Directors and officers:
LESLIE M. CORLEY* - President , Chief Executive Officer and Chief
Investment Officer. Mr. Corley currently serves as LM Capital's Chief
Executive and Chief Investment Officer, positions that he has held
since he founded the company in 1988. Mr. Corley has over 25 years of
experience in the investment industry, spanning investment management,
corporate finance, and strategic planning. Prior to the creation of LM
Capital, he spent seven years with Kelso & Company, a company that
specializes in leveraged buyouts. While a general partner at Kelso &
Company, Mr. Corley chaired its Executive Committee and developed the
investment criteria followed in completing more than two dozen buyouts
valued at approximately $4 billion. As lead partner, he personally
directed eleven buyouts valued at over $1.5 billion. Early in his
career, Mr. Corley worked with Peter Lynch at Fidelity Investments in
Boston for five years as an analyst in the firm's investment research
department. Mr. Corley earned a BS Degree with High Honors in
Aeronomical and Astronomical Engineering from the University of
Illinois and an MBA from the Harvard Graduate School of Business
Administration. Mr. Corley is currently Chairman of the board of
directors of Convenience Corporation of America, Inc. (the second
largest U.S. 7-Eleven licensee), and serves on the boards of directors
of d'essence Designer Fragrances, LLC, the National Association of
Investment Companies, LM Foods, Inc., Roberts Brothers, Inc., and the
Urban League of Palm Beach County.
ARMAND BATOCABE* - Vice-President and Assistant Portfolio Manager. Mr.
Batocabe is an assistant portfolio manager of the Funds and is also
responsible for executing trades by the Funds. Mr. Batocabe has over 5
years experience in managing portfolios, securities research, and
analysis. Prior to joining LM Capital, Mr. Batocabe spent over a year
at South Richmond Securities, Inc. as an Account Executive. He managed
portfolios and provided full service securities transactions to over
200 individual and institutional clients. Mr. Batocabe was also
responsible for researching and analyzing companies recommended. Mr.
Batocabe has a B.A. degree in marketing from Rutgers University.
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RICARDO CORLEY* - Vice President & Assistant Portfolio Manager. Mr.
Corley is an assistant portfolio manager of the Funds and has been a
senior executive with LM Capital since its inception in 1988. He is
also responsible for monitoring and directing the firm's closely held
portfolio investments. Mr. Corley serves on the board of directors of
LM Capital Corporation, LM Capital Securities, Inc., Roberts Brothers,
Inc., and LM Foods, Inc. He also serves as director of the African
American Chamber of Commerce of Polk County, Florida and as a director
of the Central Florida Development Council. Mr. Corley earned an
Associate of Arts degree from Olive Harvey City College.
LOUIS J. GANEM - Director of the Funds. Mr. Ganem started his career in
the investment industry in the late 1950's with A.G. Edwards. From 1991
until he retired in 1996, he served as Assistant National Sales Manager
for John Hancock Mutual Funds. Prior to that he was President of Sales
& Marketing for American Funds which was acquired by John Hancock
Mutual Funds in 1991. He is a graduate of St. Bonaventure University
and holds a B.S. in Economics.
JOHN HALL - Director of the Funds. Since 1992, Mr. Hall has been the
Vice-President of minority business and economic development, with a
principal focus on the needs of emerging black-owned firms based in
Dade County Florida, at The Beacon Council, an organization located in
Miami, Florida. His responsibilities include designing and managing the
$10 million Hurricane Andrew Small Business Emergency Bridge Loan
Program. Mr. Hall is also responsible for managing the NETWORK 100
Project, the NETWORK 10 Project, and the Network Venture Capital Fund.
Mr. Hall has a B.S. degree from Howard University and an MBA from
Harvard Business School.
J. BRUCE LLEWELLYN - Director of the Funds. Mr. Llewellyn currently
serves as the Chairman and CEO of the Philadelphia Coca-Cola Bottling
Company, The Coca-Cola Bottling Company of Wilmington, Inc., Queen City
Broadcasting, parent of the ABC network television affiliate in
Buffalo, N.Y. and Garden State Cablevision, Inc., one of the largest
cable television systems in the country. He also serves on the boards
of directors of Chemical Banking Corp., Adolf Coors Brewing Company,
C-Span, Essence Communications, Inc., QVC Network Inc., International
Peace Academy, Museum of Television and Radio, New York Law School, and
New York Medical College. Mr. Llewellyn has previously served as a
regional director of the Small Business Administration, Deputy
Commissioner of Housing for the City of New York, and President of OPIC
(Overseas Private Investment Corporation), and prior to that he worked
in the New York City District Attorney's office and was a partner in
his own law firm. Mr. Llewellyn earned a Bachelor degree from the City
University of New York, a juris doctor degree from New York Law School,
an MBA from Columbia University, and a degree in public administration
from New York University.
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* Indicates an "Interested Person" as defined in the Investment Company
Act of 1940, as amended.
As of the date of this Statement of Additional Information, the Board
of Directors [and officers of the Funds], as a group, owned of record ____% of
the Funds' outstanding Shares.
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INVESTMENT ADVISER AND ADVISORY AGREEMENTS
LM Capital, 515 North Flagler Drive, Suite 1704, West Palm Beach,
Florida 33401, serves as the investment adviser to the Funds pursuant to an
Advisory Agreement, dated as of ______, 1996 (the "Advisory Agreement"). LM
Capital provides investment management and financial advisory services,
including causing the purchase and sale of securities in the Funds' portfolios
subject at all times to the policies set forth by the Board of Directors, and is
registered with the SEC under the 1940 Act. Under the terms of the Advisory
Agreement, LM Capital supervises all aspects of the Funds' operations and
provides investment advisory services to the Funds.
Pursuant to the Advisory Agreement, LM Capital is paid a monthly fee
calculated at an annual rate of 1.50% on the first $100 million of the True
Value Fund's , the International Fund's and the Venture Capital Access Fund's
average daily assets, and 1.25% of each Fund's average daily net assets in
excess of $100 million. LM Capital is paid a monthly fee calculated at an annual
rate of 0.50% of the Access Fund's average daily net assets. The fee for each
Fund is accrued daily for the purposes of determining the offering and
redemption price of the Funds' shares. The advisory fee is higher than those
paid by most investment companies, but the Board of Directors believes it to be
reasonable in light of the services the Funds receive thereunder.
Other than those expenses specifically assumed by LM Capital or the
Funds' distributor, the Funds pay, under the terms of the Advisory Agreement,
the cost of all of their expenses including the pro rata costs incurred in
connection with each Fund's maintenance of its registration under the Securities
Act, and the 1940 Act, printing of prospectuses distributed to shareholders,
taxes or governmental fees, brokerage commissions, custodial, transfer and
shareholder servicing agent costs, expenses of outside counsel and independent
accountants, preparation of shareholder reports, and expenses of Board of
Directors and shareholder meetings.
Pursuant to a Sub-Advisory Agreement, ____________ [insert address]
("SoGen"), provides portfolio advisory services to LM Capital with regard to the
International Fund. SoGen [insert background history pertaining to SoGen].
[Insert name and qualifications, including work history during the previous five
years, of the Portfolio Manager who will be managing the International Fund.]
Under the terms of the Sub-Advisory Agreement, LM Capital has delegated
to SoGen the authority to make and execute investment decisions, including but
not limited to purchasing and selling securities, for the International Fund
within the parameters of the Fund's investment objectives, policies, and
restrictions. All investment decisions of SoGen are subject to review by LM
Capital and the Fund's Board of Directors. Pursuant to the Sub-Advisory
Agreement, LM Capital has agreed to pay SoGen [insert fee structure].
DISTRIBUTION AGREEMENT AND MARKETING PLAN
DISTRIBUTION AGREEMENT
The Funds have entered into a Distribution Agreement dated
_____________, 1996 with LM Capital Securities, a __________ corporation
organized on ___________, 19__ and an affiliate of LM Capital. The Distributor
is a broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. The Distributor
is reimbursed for distribution expenses under the Distribution and Service Plan
described below. Promotional and administrative expenses, including
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printing prospectuses used in connection with the offer and sale of shares,
which are not paid pursuant to the Distribution and Service Plan described
below, are to be paid by the Distributor without reimbursement by the Fund.
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act (the "Rule 12b-1 Plan") whereby the Funds, either
directly or through the Distributor, may make payments periodically (i) to the
Distributor or to any broker-dealer who is registered under the Securities
Exchange Act of 1934 and a member in good standing of the National Association
of Securities Dealers, Inc. and who has entered into a selected dealer agreement
with the Distributor, (ii) to other persons or organizations who have entered
into shareholder processing and servicing agreements with the Funds, with
respect to the Funds' shares owned by shareholders for which such broker is the
dealer or holder of record or such servicing agent has a servicing relationship
and (iii) for advertising, printing of prospectuses and reports for other than
existing shareholders, preparation and distribution of advertising material and
sales literature. The Rule 12b-1 Plan may pay for certain overhead expenses of
the Distributor which may include salaries and benefits of salespersons,
training, stationery, travel and meeting expenses, supplies, communications and
seminars. Such payments will be reviewed quarterly by the Directors and based on
their good faith determination that the amounts and purposes of such payments
for services are fair and reasonable, the Distributor will be reimbursed for
such expenses. These expenses may not exceed .__% per annum of the Funds'
average daily net assets.
The Rule 12b-1 Plan and related agreements were approved on
___________, 1996 by the Directors including all of the "Qualified Directors"
(Directors who are not "interested" persons of the Funds, as defined in the 1940
Act, and who have no direct or indirect financial interest in the Rule 12b-1
Plan or any related agreement). The Rule 12b-1 Plan provides that a Fund may
finance activities which are primarily intended to result in the sale of the
Fund's shares. In approving the Rule 12b-1 Plan, in accordance with the
requirements of Rule 12b-1 under the 1940 Act, the Directors (including the
Qualified Directors) considered various factors and determined that there is a
reasonable likelihood that the Rule 12b-1 Plan will benefit the Fund and its
shareholders. The Rule 12b-1 Plan may not be amended to increase materially the
amount to be spent by a Fund under the Rule 12b-1 Plan without shareholder
approval, and all material amendments to the provisions of the Rule 12b-1 Plan
must be approved by a vote of the Directors and of the Qualified Directors, cast
in person at a meeting called for the purpose of such vote. During the
continuance of the Rule 12b-1 Plan, LM Capital Investments Inc. will report in
writing to the Directors quarterly the amounts and purposes of such payments for
services rendered to shareholders pursuant to the Rule 12b-1 Plan. Further,
during the term of the Rule 12b-1 Plan, the selection and nomination of those
Directors who are not "interested" persons of the Funds must be committed to the
discretion of the Qualified Directors. The Rule 12b-1 Plan will continue in
effect from year to year provided that such continuance is specifically approved
annually (a) by the vote of a majority of each Fund's outstanding voting shares
or by each Fund's Directors and (b) by the vote of a majority of the Qualified
Directors.
Provided that the Rule 12b-1 Plan continues in effect, any cumulative
expenses incurred by the Distributor on or after __________, 1996, but not yet
reimbursed by the Funds, may be reimbursed through future distribution fees from
the Funds. If the Rule 12b-1 Plan is terminated or discontinued in accordance
with its terms, the obligation of the Funds to make payments to the Distributor
pursuant to the Rule 12b-1 Plan will cease and the Funds will not be required to
make any payments past the date the Rule 12b-1 Plan is terminated.
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DESCRIPTION OF THE FUND
Organization and Description of Shares
LM Capital Investments, Inc. was incorporated under the laws of the
State of Maryland on January 21, 1994. A copy of the Fund's Charter is on file
with the Maryland State Department of Assessments and Taxation. The Charter
authorizes the Board of Directors to issue an aggregate one billion shares of
stock, par value $.___ per share. LM Capital Investments presently has four
series of shares which represent interest in the Access Fund, the True Value
Fund, the International Fund and the Venture Capital Access Fund. LM Capital
Investments' Articles of Incorporation authorize the Board of Directors to
classify or reclassify any unissued shares into one or more additional series or
classes.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Directors may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of LM Capital
Investments, shareholders of a Fund are entitled to receive the assets available
for distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
Shares of the Funds are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (i)
when required by the 1940 Act, shares shall be voted by individual series, and
(ii) when the Directors have determined that the matter affects only the
interests of one or more series, then only shareholders of such series shall be
entitled to vote thereon. There will normally be no meetings of shareholders for
the purpose of electing Directors unless and until such time as less than a
majority of the Directors have been elected by the shareholders, at which time
the Directors then in office will call a shareholders' meeting for the election
of Directors. In addition, Directors may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares of the
Fund and filed with the Fund or by vote of the holders of two-thirds of the
outstanding shares of the Fund at a meeting duly called for the purpose, which
meeting shall be held upon the written request of the holders of not less than
10% of the outstanding shares of any Fund. Except as set forth above, the
Directors shall continue to hold office and may appoint their successors.
FINANCIAL STATEMENTS
Shareholders will receive reports semi-annually showing the investments
of the Funds and other information. In addition, shareholders will receive
annual financial statements audited by the Funds' independent accountants.
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<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debts having original maturities of no more than 365 days. Commercial paper
rated A-1 by S&P indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted A-1+. Commercial paper rated A-2
by S&P indicates that capacity for timely payment on issues is strong. However,
the relative degree of safety is not as high as for issues designated A-1.
Commercial paper rated A-3 indicates capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations. Commercial
paper rated B is regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
short-term adversities. Commercial paper rated D represents an issue either in
default or expected to be in default upon maturity.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained. Issuers rated
Prime-3 have an acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market composition may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
CORPORATE DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
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BAA: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterize bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Ca are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP (S&P)
AAA: Debt rated AAA has the highest rating assigned by the S & P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only to a small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB
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indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, or economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy has been filed but debt service payments
are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition of debt service payments are jeopardized.
Note: Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa, A or Baa. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
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PREFERRED STOCK RATINGS
The following summarizes the three highest ratings used by Moody's for
preferred stock:
"aaa" An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within
the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance that earnings and asset protection will
remain relatively well maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are judged to
be somewhat greater than in the "aaa" and "aa" classification,
earnings and asset protection are, nevertheless, expected to
be maintained at adequate levels.
The following summarizes the three highest ratings used by S &
P for preferred stock:
"AAA" This is the highest rating that may be assigned by S & P
to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
"AA" A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA".
"A" An issue rated "A" is backed by a sound capacity to pay
the preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
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PART C. OTHER INFORMATION
-------------------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements.
In Part A:
None
In Part B:
To be filed at a later date.
In Part C:
None.
(b) Exhibits
EX-99.B1. Amended Articles of Incorporation were included
in the initial Registration Statement filed on
April 20, 1995.
EX-99.B2. By-laws of Registrant were included in the
initial Registration Statement filed on April
20, 1995.
EX-99.B3. None.
EX-99.B4. To be filed at a later date.
EX-99.B5. (a)(i) To be filed at a later date.
(a)(ii) To be filed at a later date.
(a)(iii) To be filed at a later date.
EX-99.B6. (a)(i) To be filed at a later date.
(a)(ii) To be filed at a later date.
(a)(iii) To be filed at a later date.
EX-99.B7. None.
EX-99.B8. To be filed at a later date.
EX-99.B9. (a) To be filed at a later date.
(b) To be filed at a later date.
(c) To be filed at a later date.
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EX-99.B10. To be filed at a later date.
EX-99.B11. (a) Consent of Kramer, Levin, Naftalis & Frankel,
counsel for the Registrant is filed herewith.
(b) To be filed at a later date.
EX-99.B12. None.
EX-99.B13. To be filed at a later date.
EX-99.B14. None.
EX-99.B15. (a)(i) To be filed at a later date.
(a)(ii) To be filed at a later date.
(a)(iii) To be filed at a later date.
EX-99.B16. To be filed at a later date.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class; Shares Number of Record Holders
($0.001 par value) as of August 30, 1996
LM Capital Access Fund 0
LM Capital True Value Fund 0
LM Capital International Fund 0
LM Venture Capital Access Fund 0
ITEM 27. INDEMNIFICATION
(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the corporation shall have any liability to the
corporation or its Stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
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(2) The corporation shall indemnify and advance expenses to
its currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The corporation shall indemnify and advance expenses to its officers to the
same extent as its directors and to such further extent as is consistent with
law. The Board of Directors may, through a by-law, resolution or agreement, make
further provisions for indemnification of directors, officers, employees and
agents to the fullest extent permitted by the Maryland General Corporation Law.
(3) No provision of this Article shall be effective (i) to
require a waiver of compliance with any provision of the Securities Act of 1933,
or of the Investment Company Act of 1940, or of any valid rule, regulation or
order of the Securities and Exchange Commission thereunder or (ii) to protect or
purport to protect any director or officer of the corporation against any
liability to the corporation or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
(4) References to the Maryland General Corporation Law in this
Article are to the law as from time to time amended. No amendment to the
Articles of Incorporation of the corporation shall affect any right of any
person under this Article based on any event, omission or proceeding prior to
such amendment.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
LM Capital Corporation provides management services to the
Registrant and its series.
ITEM 29. Principal Underwriters
(a) not applicable
(b) The following information is furnished with respect to the
officers and directors of LM Capital Securities, Inc., Registrant's principal
underwriter:
Name and Principal Position and Offices with Position and Offices
Business Address Principal Underwriter with Registrant
Leslie M. Corley Chief Executive Officer President
515 North Flagler Drive
Suite 1704
West Palm Beach,
Florida 33401
Ricardo Corley Chief Financial Officer Treasurer
515 North Flagler Drive
Suite 1704
West Palm Beach,
Florida 33401
(c) not applicable
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ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be
maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by Forum Financial Services, Inc., 61 Broadway, Suite 2770, New
York, NY 10006.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(1) Registrant undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of a director or
directors if requested to do so by the holders of at least 10% of the
Registrant's outstanding voting securities, and to assist in communications with
other shareholders as required by Section 16(c) of the 1940 Act.
(2) Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified within four to six months
from the effective date of registrant's 1933 Act registration statement.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment to its Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, and the State of New York on this 4th day of September, 1996.
LM CAPITAL INVESTMENTS, INC.
By: /s/ Leslie M. Corley
Leslie M. Corley
President
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Ricardo Corley Treasurer September 4, 1996
- ---------------------------------- ------------------------
Ricardo Corley
/s/ J. Bruce Llewellyn Director September 4, 1996
- ---------------------------------- ------------------------
J. Bruce Llewellyn
/s/ Louis J. Ganem Director September 4, 1996
- ---------------------------------- ------------------------
Louis J. Ganem
/s/ John Hall Director September 4, 1996
- ---------------------------------- ------------------------
John Hall
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EXHIBIT INDEX
EX-99.B11(a). Consent of Kramer, Levin, Naftalis & Frankel, counsel for
the Registrant
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EXHIBIT 11(A)
CONSENT OF KRAMER, LEVIN, NAFTALIS & FRANKEL,
COUNSEL FOR THE REGISTRANT
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New York, New York
September 3, 1996
LM Capital Investments, Inc.
152 West 57th Street
New York, NY 10019
Re: LM Capital Investments, Inc.
Gentlemen:
We hereby consent to the reference of our firm as counsel in this
Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
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