1
EXHIBIT (17)(c)
--------------------------------------------------------------------------------
P R O S P E C T U S
----------------------------------------------------------------------
XXX XXXXXX AGGRESSIVE EQUITY FUND
XXX XXXXXX AMERICAN VALUE FUND
XXX XXXXXX EQUITY GROWTH FUND
XXX XXXXXX MID CAP GROWTH FUND
XXX XXXXXX U.S. REAL ESTATE FUND
XXX XXXXXX VALUE FUND
PORTFOLIOS OF THE
XXX XXXXXX SERIES FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 0-000-000-0000
------------------
Xxx Xxxxxx Series Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-three investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of six portfolios listed above (each a "Fund," and together,
the "Funds").
The Funds are designed to make available to retail investors the expertise
of Xxx Xxxxxx Investment Advisory Corp. as an investment adviser (the "Adviser")
and administrator (the "Administrator") and the Adviser's affiliates, including
Xxxxxx Xxxxxxx Asset Management Inc. as a sub-adviser ("MSAM" or a "Sub-
Adviser"), Xxxxxx Xxxxxxxx & Xxxxxxxx, LLP as a sub-adviser ("MAS" or a
"Sub-Adviser") and Xxx Xxxxxx Funds Inc. as the Funds' distributor (the
"Distributor"). Shares are available through the Distributor and investment
dealers, banks and financial services firms that provide distribution,
administrative or shareholder services ("Participating Dealers"). As of the date
of this Prospectus, the Xxx Xxxxxx Mid Cap Growth Fund is not offering shares.
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. Additional information about the Company is
contained in a "Statement of Additional Information," dated September 30, 1998,
which is incorporated herein by reference. The Company offers other portfolios
which are described in other prospectuses. The Statement of Additional
Information and the prospectuses pertaining to the other portfolios of the
Company are available upon request and without charge by writing or calling the
Company at the address and telephone number set forth above. The Statement of
Additional Information and other materials regarding the Company have been filed
with the Securities and Exchange Commission and are available at the
Commission's internet web site (xxxx://xxx.xxx.xxx).
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998.
MS PRO EQTY 10/98
2
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary......................................................................................... 3
Fund Expenses.............................................................................................. 5
Financial Highlights....................................................................................... 8
Investment Objectives and Policies......................................................................... 15
Additional Investment Information.......................................................................... 21
Investment Limitations..................................................................................... 28
Management of the Company.................................................................................. 29
Purchase of Shares......................................................................................... 33
Shareholder Services....................................................................................... 40
Redemption of Shares....................................................................................... 43
Valuation of Shares........................................................................................ 45
Portfolio Transactions..................................................................................... 45
Performance Information.................................................................................... 46
Dividends and Distributions................................................................................ 47
Taxes...................................................................................................... 47
General Information........................................................................................ 48
Appendix A -- Description of Corporate Bond Ratings........................................................ A-1
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUNDS OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
3
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-three portfolios which are designed
to offer investors a range of investment choices with Xxx Xxxxxx Investment
Advisory Corp. (the "Adviser") providing services as adviser and administrator
and its affiliates, Xxxxxx Xxxxxxx Asset Management Inc. ("MSAM" or a
"Sub-Adviser") and Xxxxxx Xxxxxxxx & Xxxxxxxx, LLP ("MAS" or a "Sub-Adviser"),
providing services as sub-advisers. Xxx Xxxxxx Funds Inc. (the "Distributor")
provides services as Distributor. MAS serves as the Sub-Adviser for the Mid Cap
Growth Fund and the Value Fund. MSAM serves as the Sub-Adviser for all of the
other Funds.
This Prospectus describes Class A, Class B and Class C shares of the six
portfolios shown below. For ease of reference, the words "Xxx Xxxxxx," which
begin the name of each portfolio are not used throughout this Prospectus. The
investment objective of each Fund is as follows:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in equity
securities of small- to medium-sized corporations. Effective August 31,
1998, the American Value Fund suspended the continuous offering of its
shares to new investors.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of medium and large
capitalization companies.
- The MID CAP GROWTH FUND seeks to achieve long-term growth by investing
primarily in common stocks and other equity securities of smaller and
medium size companies which are deemed by the Adviser to offer long-term
growth potential. As of the date of this Prospectus, the Mid Cap Growth
Fund is not offering shares.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
There can be no assurance a Fund will achieve its investment objective.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein invest in
common stocks, which are subject to market risks that may cause their prices to
fluctuate over time. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect a
Fund's net asset value. The Funds, and in particular, the Aggressive Equity,
American Value, Mid Cap Growth and Value Funds, invest in small- to medium-sized
companies, which are more vulnerable to financial risks and other risks than
larger companies, and therefore may involve a higher degree of risk and price
volatility than investments in the securities of larger corporations. Each Fund
described herein may invest in securities that are neither listed on stock
exchanges nor traded over-the-counter, including private placement securities
and restricted securities. Such securities may be less liquid than publicly
traded securities. The Funds may invest in securities of foreign issuers which
are subject to certain risks not typically associated with domestic securities.
See "Additional Investment Information -- Foreign Investment" for more
information. Some Funds may invest in forward foreign currency exchange
contracts, and may invest in foreign currency exchange futures and options. In
addition, the Funds may invest in derivatives, which include options, futures
and options on futures and swaps, and each Fund may invest in repurchase
agreements, borrow money, lend its portfolio securities and purchase securities
on a when-issued or delayed delivery basis. Certain Funds may invest in
securities which are convertible upon various terms and conditions into equity
securities, borrow for purposes of leverage, invest in reverse repurchase
agreements and engage in short selling.
3
4
Because the U.S. Real Estate Fund invests primarily in the securities of
companies principally engaged in the real estate industry, its investments may
be subject to the risks associated with real estate. Because it is expected that
the U.S. Real Estate Fund will invest a substantial portion of its assets in
real estate investment trusts ("REITs"), the U.S. Real Estate Fund may also be
subject to certain risks and costs associated with the direct investments of
REITs.
Because the U.S. Real Estate Fund and Aggressive Equity Fund are
non-diversified portfolios, each of these Funds may invest a greater proportion
of its assets in the securities of a smaller number of issuers and, as a result,
will be subject to a greater risk resulting from such practice than a portfolio
which is diversified.
Each Fund's share price and investment return fluctuate, and a shareholder's
investment when redeemed may be worth more or less than his original cost. Each
of these investment strategies involves specific risks which are described under
"Investment Objectives and Policies" and "Additional Investment Information"
herein and under "Investment Objectives and Policies" in the Statement of
Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Funds are offered at net asset value per share plus a maximum initial sales
charge of 5.75%, which initial sales charge may be reduced on certain larger
purchases or when combining purchases with the investor's aggregate investments
in the Participating Funds (as defined within the Prospectus). Class B and Class
C shares of the Funds are offered at net asset value per share. Class B shares
are subject to a contingent deferred sales charge ("CDSC") for redemptions
within five years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are also
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
the Distributor, through Participating Dealers or by sending payments directly
to the Company. The minimum initial investment is $500 for each class of a Fund,
except that the minimum initial investment amount is reduced for certain
categories of investors. The minimum for subsequent investments is $25 for each
class of a Fund, except that there is no minimum for automatic reinvestment of
dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
4
5
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
SHAREHOLDER TRANSACTION EXPENSES FUND VALUE FUND FUND FUND FUND VALUE FUND
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)
Class A..................... 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1)
Class B..................... None None None None None None
Class C..................... None None None None None None
Maximum Deferred Sales Load (as
a percentage of the lesser of
initial purchase price or
current market value)
Class A
For Purchases up to
$999,999................ None None None None None None
For Purchases of
$1,000,000 or more...... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B..................... 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
Class C..................... 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on
Reinvested Dividends
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
Redemption Fees
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
Exchange Fees
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. See "Purchase of Shares."
(2) Purchases of Class A shares of the Funds which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
Participating Funds (as defined under "Purchase of Shares -- Quantity
Discounts"), aggregate to $1 million or more are not subject to an initial
sales load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase. Certain other
purchases are not subject to an initial sales charge. See "Purchase of
Shares."
(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds are subject to a maximum CDSC of 5.00% which decreases in steps to
0.00% after five years. See "Purchase of Shares."
(4) Purchases of Class C shares of the Funds are subject to a CDSC of 1.00% for
redemptions made within one year of purchase. See "Purchase of Shares."
5
6
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
ANNUAL FUND OPERATING EXPENSES FUND VALUE FUND FUND FUND FUND VALUE FUND
--------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
(AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS)
Investment Advisory Fee (after fee
waiver) (5)
Class A........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
Class B........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
Class C........................ 0.69% 0.77% 0.72% 0.67% 0.46% 0.65%
12b-1 Distribution and Service Fees
Class A (6).................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Class B (6).................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Class C (6).................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement) (5)
Class A........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Class B........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Class C........................ 0.56% 0.48% 0.53% 0.48% 0.84% 0.55%
Total Operating Expenses (after
expense reimbursement and/or fee
waiver) (5)
Class A........................ 1.50% 1.50% 1.50% 1.40% 1.55% 1.45%
Class B........................ 2.25% 2.25% 2.25% 2.15% 2.30% 2.20%
Class C........................ 2.25% 2.25% 2.25% 2.15% 2.30% 2.20%
------------------
(5) The Adviser has agreed to waive a portion of its advisory fees and/or to
reimburse a portion of expenses of the Funds listed above, if necessary, if
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, would exceed the percentages set forth in the table above.
The following table sets forth for each Fund investment advisory fees and
expected total operating expenses absent fee waivers and/or expense
reimbursements. The Adviser in its discretion may terminate voluntary fee
waivers and/or reimbursements at any time. Absent the waiver of fees or
reimbursement of expenses, the amounts in the examples below would be
greater.
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
FUND VALUE FUND FUND FUND FUND VALUE FUND
---------- ---------- ---------- ---------- ---------- ----------
Investment Advisory Fees
(All Classes)............. 0.90% 0.85% 0.80% 0.75% 1.00% 0.80%
Total Operating Expenses
Class A................... 1.71% 1.58% 4.06% 1.48% 2.09% 1.60%
Class B................... 2.47% 2.33% 4.81% 2.23% 2.84% 2.35%
Class C................... 2.47% 2.33% 4.81% 2.23% 2.83% 2.35%
For further information on Fund expenses, see "Management of the Company."
(6) Of the 12b-1 distribution and service fees for the Class A shares, 0.25%
represents a shareholder services fee, and for the Class B shares and the
Class C shares, 0.75% represents a distribution fee and 0.25% represents a
shareholder services fee. See "Management of the Company -- Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds will bear directly or
indirectly. The expenses and fees for the Aggressive Equity, American Value,
U.S. Real Estate and Value Funds are based on actual figures for the fiscal year
ended June 30, 1998. The expenses and fees for the Equity Growth Fund are based
on advisory agreements, 12b-1 plans and estimates of other expenses for the
current fiscal year because the Fund commenced investment operations on May 29,
1998. The expenses and fees for the Mid Cap Growth Fund are based on advisory
agreements, 12b-1 plans and estimates of other expenses for the current fiscal
year because such Fund had not commenced investment operations as of the date of
this Prospectus.
6
7
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return, reinvestment of all
dividends and distributions, and redemption at the end of each time period as
indicated, in (i) Class A shares of each Fund, including the maximum 5.75%
initial sales charge, (ii) Class B shares of each Fund, which have a CDSC, but
no initial sales charge and (iii) Class C shares of each Fund, which have a
CDSC, but no initial sales charge.
AGGRESSIVE EQUITY MID CAP U.S. REAL
EQUITY AMERICAN GROWTH GROWTH ESTATE
FUND VALUE FUND FUND FUND FUND VALUE FUND
---------- ---------- ---------- ---------- ---------- ----------
Class A shares
1 Year.................... $ 72(1) $ 72(1) $ 72 $ 71(1) $ 72(1) $ 71(1)
3 Years................... 102 102 102 99 104 101
5 Years................... 135 135 135 * 137 132
10 Years.................. 226 226 226 * 231 221
Class B shares
(Assuming complete redemption
at end of period)
1 Year.................... 73 73 73 72 73 72
3 Years................... 100 100 100 97 102 99
5 Years................... 135 135 135 * 138 133
10 Years (2).............. 239 239 237 * 244 234
(Assuming no redemption)
1 Year.................... 23 23 23 22 23 22
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 133
10 Years (2).............. 239 239 237 * 244 234
Class C shares
(Assuming complete redemption
immediately prior to the end
of period)
1 Year.................... 33 33 33 32 33 32
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 118
10 Years.................. 258 258 258 * 264 253
(Assuming no redemption)
1 Year.................... 23 23 23 22 23 22
3 Years................... 70 70 70 67 72 69
5 Years................... 120 120 120 * 123 118
10 Years.................. 258 258 258 * 264 253
------------------
* Because the Mid Cap Growth Fund had not commenced investment operations as
of the date of this Prospectus, the Company has not projected expenses
beyond the three-year period shown. Because the Equity Growth recently
commenced investment operations as of May 29, 1998, the Company has not
projected expenses beyond the three-year period shown.
(1) The example reflects Class A shares sold subject to the maximum 5.75%
initial sales charge. Certain large purchases may be subject to a reduced
initial sales charge. Purchases of Class A shares of the Funds which, when
combined with the value of the purchaser's existing investments in Class A
shares of the Participating Funds, aggregate to $1 million or more are not
subject to an initial sales charge but a CDSC of 1.00% will be imposed on
such shares that are redeemed within one year following such purchase.
(2) The expenses shown reflect that Class B shares automatically convert to
Class A shares after eight years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
7
8
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Aggressive Equity, American Value, Equity Growth, U.S.
Real Estate and Value Funds for each of the periods presented. The financial
highlights are part of the Company's financial statements, which appear in the
Company's June 30, 1998 Annual Report to Shareholders. The financial statements
are incorporated into the Company's Statement of Additional Information. The
foregoing Funds' financial highlights for each of the periods presented have
been audited by PricewaterhouseCoopers LLP, whose report thereon (which was
unqualified) is also incorporated into the Statement of Additional Information.
Additional performance information about the Company is contained in the
Company's Annual Report and Semi-Annual Report. The Annual Report, Semi-Annual
Report and the Statement of Additional Information are available at no cost from
the Company at the address and telephone number noted on the cover page of this
Prospectus. The following information should be read in conjunction with the
financial statements and notes thereto. Financial highlights are not presented
for the Mid Cap Growth Fund because it had not commenced investment operations
as of June 30, 1998.
8
9
FINANCIAL HIGHLIGHTS
AGGRESSIVE EQUITY FUND
CLASS A CLASS B
---------------------------------------- -------------------------------------
JANUARY 2, JANUARY 2,
YEAR ENDED YEAR ENDED 2 1996* YEAR ENDED YEAR ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, TO JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1998# 1997 1996
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.98 $ 14.40 $ 12.00 $ 16.85 $ 14.38 $ 12.00
----------- ----------- ------------ ----------- ---------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (0.07) 0.01 0.06 (0.21) (0.02) 0.03
Net Realized and Unrealized
Gain 5.03 3.95 2.40 4.96 3.86 2.39
----------- ----------- ------------ ----------- ---------- --------
Total From Investment
Operations 4.96 3.96 2.46 4.75 3.84 2.42
----------- ----------- ------------ ----------- ---------- --------
DISTRIBUTION:
Net Investment Income -- (0.03) (0.06) -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) -- (1.93) (1.35) --
----------- ----------- ------------ ----------- ---------- --------
Total Distributions (1.93) (1.38) (0.06) (1.93) (1.37) (0.04)
----------- ----------- ------------ ----------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 20.01 $ 16.98 $ 14.40 $ 19.67 $ 16.85 $ 14.38
=========== =========== ============ =========== ========== ========
TOTAL RETURN (1) 30.93% 28.93% 20.52% 29.44% 28.01% 20.18%
=========== =========== ============ =========== ========== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 64,035 $ 22,521 $ 5,382 $ 130,497 $ 34,382 $ 2,426
Ratio of Expenses to Average
Net Assets 1.50% 1.57% 2.03%** 2.25% 2.32% 2.67%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.37)% (0.04)% 1.22%** (1.11)% (0.83)% 0.43%**
Portfolio Turnover Rate 308% 241% 204% 308% 241% 204%
-------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.04 $ 0.22 $ 0.06 $ 0.04 $ 0.02 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.71% 2.38% 3.26%** 2.47% 2.88% 3.79%**
Net Investment Income (Loss)
to Average Net Assets (0.59)% (0.85)% (0.01)%** (1.34)% (1.43)% (0.69)%**
Ratio of Expenses to Average
Net Assets excluding dividend
expense on securities sold short 1.50% 1.50% 1.50%** 2.25% 2.25% 2.25%**
-------------------------------------------------------------------------------------------------------------------
CLASS C
----------------------------------------
JANUARY 2,
YEAR ENDED YEAR ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996
------------------------------ ----------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.83 $ 14.37 $ 12.00
----------- ----------- ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (0.21) (0.06) 0.03
Net Realized and Unrealized
Gain 4.97 3.89 2.38
----------- ----------- ------------
Total From Investment
Operations 4.76 3.83 2.41
----------- ----------- ------------
DISTRIBUTION:
Net Investment Income -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) --
----------- ----------- ------------
Total Distributions (1.93) (1.37) (0.04)
----------- ----------- ------------
NET ASSET VALUE, END OF PERIOD $ 19.66 $ 16.83 $ 14.37
=========== =========== ============
TOTAL RETURN (1) 29.90% 28.04% 20.10%
=========== =========== ============
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 24,872 $ 9,410 $ 2,582
Ratio of Expenses to Average
Net Assets 2.25% 2.32% 2.67%**
Ratio of Net Investment Income
(Loss) to
Average Net Assets (1.13)% (0.77)% 0.44%**
Portfolio Turnover Rate 308% 241% 204%
------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.04 $ 0.07 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.25% 3.23% 3.80%**
Net Investment Income (Loss)
to Average Net Assets (1.35)% (1.67)% (0.69)%**
Ratio of Expenses to Average
Net Assets
excluding dividend expense
on securities sold short 2.25% 2.25% 2.25%**
------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
9
10
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND
CLASS A CLASS B
-------------------------------------------------------- --------------------------------
YEAR YEAR OCTOBER
YEAR ENDED ENDED 18, YEAR YEAR AUGUST
YEAR ENDED ENDED JUNE JUNE 1993* ENDED ENDED 1, 1995+
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, 30, 30, TO JUNE JUNE 30, JUNE 30, TO JUNE
RATIOS 1998# 1997 1996 1995 30, 1994 1998# 1997 30, 1996
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 12.00 $ 17.59 $ 14.63 $ 13.37
---------- -------- ------- ------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.02) 0.20 0.27 0.27 0.17 (0.17) 0.09 0.15
Net Realized and
Unrealized Gain (Loss) 4.84 4.05 1.94 1.44 (0.30) 4.83 4.05 1.46
---------- -------- ------- ------- -------- --------- -------- -------
Total from Investment
Operations 4.82 4.25 2.21 1.71 (0.13) 4.66 4.14 1.61
---------- -------- ------- ------- -------- --------- -------- -------
DISTRIBUTIONS
Net Investment Income (0.03) (0.20) (0.27) (0.28) (0.17) (0.01) (0.09) (0.15)
In Excess of Net
Investment Income (0.00)++ (0.00)++ (0.01) -- -- (0.00)++ (0.00)++ (0.01)
Net Realized Gain (1.04) (1.09) (0.19) (0.24) -- (1.09) (1.04) (0.19)
---------- -------- ------- ------- -------- --------- -------- -------
Total Distributions (1.07) (1.29) (0.47) (0.52) (0.17) (1.05) (1.18) (0.35)
---------- -------- ------- ------- -------- --------- -------- -------
NET ASSET VALUE, END OF
PERIOD $ 21.34 $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 21.20 $ 17.59 $ 14.63
========== ======== ======= ======= ======== ========= ======== =======
TOTAL RETURN (1) 28.26% 30.68% 17.41% 15.01% (1.12)% 27.30% 29.77% 12.29%
========== ======== ======= ======= ======== ========= ======== =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 220,100 $ 34,331 $19,674 $20,675 $ 10,717 $ 269,836 $ 15,331 $ 2,485
Ratio of Expenses to Average
Net Assets 1.50% 1.50% 1.50% 1.50% 1.50%** 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income to Average Net
Assets (0.09)% 1.25% 1.90% 2.29% 2.14%** (0.84)% 0.40% 1.18%**
Portfolio Turnover Rate 207% 73% 41% 23% 17% 207% 73% 41%
--------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period
Per Share Benefit to Net
Investment Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08 $ 0.02 $ 0.06 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.58% 1.76% 1.81% 1.96% 2.48%** 2.33% 2.48% 2.61%**
Net Investment Income to
Average Net Assets (0.18)% 0.98% 1.59% 1.83% 1.16%** (0.93)% 0.14% 0.82%**
--------------------------------------------------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
10
11
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND
CLASS C
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 18,
JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1993* TO
SELECTED PER SHARE DATA AND RATIOS 1998# 1997 1996 1995 JUNE 30, 1994
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.59 $ 14.64 $ 12.89 $ 11.69 $ 12.00
------------ --------- ---------- -------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.17) 0.08 0.16 0.17 0.11
Net Realized and Unrealized Gain
(Loss) 4.83 4.05 1.94 1.44 (0.31)
------------ --------- ---------- -------- -----------
Total from Investment Operations 4.66 4.13 2.10 1.61 (0.20)
------------ --------- ---------- -------- -----------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15) (0.17) (0.11)
In Excess of Net Investment Income (0.00)++ (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ --------- ---------- -------- -----------
Total Distributions (1.05) (1.18) (0.35) (0.41) (0.11)
------------ --------- ---------- -------- -----------
NET ASSET VALUE, END OF PERIOD $ 21.20 $ 17.59 $ 14.64 $ 12.89 $ 11.69
============ ========= ========== ======== ===========
TOTAL RETURN (1) 27.28% 29.67% 16.50% 14.13% (1.70)%
============ ========= ========== ======== ===========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 127,401 $ 32,425 $ 21,193 $ 13,867 $ 7,237
Ratio of Expenses to Average Net
Assets 2.25% 2.25% 2.25% 2.25% 2.25%**
Ratio of Net Investment Income to
Average Net Assets (0.84)% 0.49% 1.17% 1.54% 1.39%**
Portfolio Turnover Rate 207% 73% 41% 23% 17%
----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.33% 2.47% 2.58% 2.71% 3.28%**
Net Investment Income to Average
Net Assets (0.92)% 0.22% 0.84% 1.08% 0.36%**
----------------------------------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based on monthly
average shares outstanding.
11
12
FINANCIAL HIGHLIGHTS
EQUITY GROWTH FUND
CLASS A CLASS B CLASS C
--------- --------- ---------
MAY 29, MAY 29, MAY 29,
1998* 1998* 1998*
TO JUNE TO JUNE TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1998 30, 1998 30, 1998
---------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Realized Gain 0.29 0.28 0.28
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.29 $ 10.28 $ 10.28
=======================================
TOTAL RETURN (1) 2.90% 2.80% 2.80%
=======================================
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 2,057 $ 1,543 $ 1,543
Ratio of Expenses to Average Net Assets 1.50%** 2.25%** 2.25%**
Ratio of Net Investment Income to
Average Net Assets 0.51%** (0.25)%** (0.25)%**
Portfolio Turnover Rate 19% 19% 19%
---------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.02 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 4.06%** 4.81%** 4.81%**
Net Investment Income to Average Net
Assets (2.05)%** (2.81)%** (2.81)%**
---------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
12
13
FINANCIAL HIGHLIGHTS CONTINUED
U.S. REAL ESTATE FUND
CLASS A CLASS B CLASS C
------------------------------ ------------------------------ ------------------------------
YEAR YEAR MAY 1, YEAR YEAR MAY 1, YEAR YEAR MAY 1,
ENDED ENDED 1996* TO ENDED ENDED 1996* TO ENDED ENDED 1996* TO
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
RATIOS 1998# 1997 1996 1998# 1997 1996 1998# 1997 1996
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $ 16.39 $ 12.52 $ 12.00 $ 16.36 $ 12.52 $ 12.00 $ 16.36 $ 12.52 $ 12.00
-------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.50 0.37 0.08 0.39 0.15 0.07 0.39 0.20 0.07
Net Realized and
Unrealized Gain 0.88 4.03 0.48 0.82 4.12 0.48 0.83 4.07 0.48
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 1.38 4.40 0.56 1.21 4.27 0.55 1.22 4.27 0.55
-------- -------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTION:
Net Investment Income (0.51) (0.29) (0.04) (0.39) (0.19) (0.03) (0.39) (0.19) (0.03)
In excess of Net
Investment Income (0.05) -- -- (0.04) -- -- (0.04) -- --
Net Realized Gain (1.60) (0.24) -- (1.60) (0.24) -- (1.60) (0.24) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.16) (0.53) (0.04) (2.03) (0.43) (0.03) (2.03) (0.43) (0.03)
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.61 $ 16.39 $ 12.52 $ 15.54 $ 16.36 $ 12.52 $ 15.55 $ 16.36 $ 12.52
======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (1) 8.27% 35.75% 4.63% 7.23% 34.58% 4.54% 7.20% 34.56% 4.54%
======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 16,873 $ 14,827 $ 1,829 $ 15,197 $ 7,120 $ 2,197 $ 4,187 $ 2,369 $ 1,782
Ratio of Expenses to Average
Net Assets 1.55% 1.55% 1.55%** 2.30% 2.30% 2.30%** 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 2.99% 2.33% 4.11%** 2.36% 1.49% 3.35%** 2.31% 1.46% 3.39%**
Portfolio Turnover Rate 130% 143% 0% 130% 143% 0% 130% 143% 0%
------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period
Per Share Benefit to Net
Investment Income $ 0.09 $ 0.16 $ 0.08 $ 0.09 $ 0.11 $ 0.07 $ 0.09 $ 0.17 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.09% 2.51% 5.58%** 2.84% 3.39% 6.34%** 2.83% 3.58% 6.32%**
Net Investment Income
(Loss) to Average Net
Assets 2.45% 1.36% 0.08%** 1.82% 0.39% (0.69)%** 1.78% 0.16% (0.63)%**
------------------------------------------------------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
# Net investment income and capital charges per share are based upon monthly
average shares outstanding.
13
14
FINANCIAL HIGHLIGHTS CONTINUED
VALUE FUND
CLASS A CLASS B CLASS C
--------- --------- ---------
JULY 7, JULY 7, JULY 7,
1997* 1997* 1997*
TO JUNE TO JUNE TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1998# 30, 1998# 30, 1998
---------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.03 0.03
Net Realized and Unrealized Gain 0.56 0.56 0.55
-------- -------- --------
Total From Investment Operations 0.67 0.59 0.58
-------- -------- --------
DISTRIBUTIONS:
Net Investment Income (0.08) (0.03) (0.03)
In Excess of Net Investment Income (0.01) (0.00)++ (0.00)++
Net Realized Gain (0.05) (0.05) (0.05)
-------- -------- --------
Total Distributions (0.14) (0.08) (0.08)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.53 $ 10.51 $ 10.50
======== ======== ========
TOTAL RETURN (1) 6.74% 6.01% 5.83%
======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $137,447 $142,741 $ 35,564
Ratio of Expenses to Average Net Assets 1.45%** 2.20%** 2.20%**
Ratio of Net Investment Income to
Average Net Assets 1.02%** 0.28%** 0.29%**
Portfolio Turnover Rate 38% 38% 38%
---------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.01 $ 0.01 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.60%** 2.35%** 2.35%**
Net Investment Income to Average Net
Assets 0.88%** 0.14%** 0.15%**
---------------------------------------------------------------------------------
* Commencement of operations
** Annualized
++ Amount is less than $0.01 per share.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
# Net investment income and capital changes per share are based upon monthly
average shares outstanding.
14
15
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There can be no assurance that a Fund will attain its investment
objective. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. For more information about
certain investment practices of the Funds, see "Additional Investment
Information" below and "Investment Objectives and Policies" in the Statement of
Additional Information.
THE AGGRESSIVE EQUITY FUND
The Aggressive Equity Fund's investment objective is to provide capital
appreciation by investing primarily in a non-diversified portfolio of corporate
equity and equity-linked securities. With respect to this Fund, equity and
equity-linked securities include common and preferred stock, convertible
securities and rights and warrants to purchase common stocks, as well as equity
related options and futures and specialty securities, such as ELKS, XXXXx and
PERCS, of U.S. and foreign issuers. Under normal circumstances, the Fund will
invest at least 65% of the value of its total assets in equity and equity-linked
securities. Equity-linked securities are derivatives, which are financial
instruments that derive their value from the value of an underlying asset,
reference rate or index. As a non-diversified portfolio, the Fund can be more
heavily weighted in fewer stocks than a diversified portfolio. See "Investment
Limitations."
The Fund's Adviser employs a flexible and eclectic investment process in
pursuit of the Aggressive Equity Fund's investment objective. In selecting
securities for the Fund, the Adviser concentrates on a universe of rapidly
growing, high quality companies and on companies in lower, but accelerating,
earnings growth situations. The Adviser's universe of potential investments
generally comprises companies with market capitalizations of $500 million or
more but smaller market capitalization securities may be purchased from time to
time. The Fund is not restricted to investments in specific market sectors. The
Adviser uses its research capabilities, analytical resources and judgment to
assess economic, industry and market trends, as well as individual company
developments, to select promising investments for the Fund. The Adviser
concentrates on companies with strong, communicative management and clearly
defined strategies for growth. In addition, the Adviser rigorously assesses
earnings results. The Adviser seeks companies that will deliver surprisingly
strong earnings growth. Valuation is of secondary importance to the Sub-Adviser
and is viewed in the context of prospects for sustainable earnings growth and
the potential for positive earnings surprises in relation to consensus
expectations. The Fund is free to invest in any equity or equity-linked security
that, in the Adviser's judgment, provides above-average potential for capital
appreciation.
In selecting investments for the Aggressive Equity Fund, the Adviser
emphasizes individual security selection. Overweighted sector positions and
issuer positions may result from the investment process. The Fund has a
long-term investment perspective; however, the Adviser may take advantage of
short-term opportunities that are consistent with the Fund's objective by
selling recently purchased securities which have increased in value.
The Aggressive Equity Fund may invest in equity and equity-linked securities
of domestic and foreign corporations. However, the Fund does not expect to
invest more than 25% of its total assets at the time of purchase in securities
of foreign companies. The Fund may invest in securities of foreign issuers
directly or in the form of depositary receipts. The Fund may invest in forward
foreign currency exchange contracts, and may invest in foreign currency exchange
futures and options. The Fund may from time to time and consistent with
applicable legal requirements sell securities short that it owns (i.e., "against
the box") or borrows. The Fund may, to a limited extent, invest in non-publicly
traded securities, private placements and restricted securities. The Fund may
invest in derivatives, which include options, futures and options on futures and
swaps, and the Fund may lend its portfolio securities and purchase securities on
a when-issued or delayed delivery basis.
The Aggressive Equity Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which
15
16
is a speculative characteristic. Leveraging will magnify declines as well as
increases in the net asset value of the Fund's shares and in the yield on the
Fund's investments. Although the Fund is authorized to borrow, it will do so
only when the Adviser believes that borrowing will benefit the Fund after taking
into account considerations such as the costs of borrowing and the likely
investment returns on securities purchased with borrowed monies. The extent to
which a Fund will borrow will also depend upon the availability of credit. No
assurance can be given that the Funds will be able to borrow on terms acceptable
to the Funds and the Adviser. Borrowing by the Fund will create the opportunity
for increased net income but, at the same time, will involve special risk
considerations. The Aggressive Equity Fund expects that any borrowing, for other
than temporary purposes, will be made on a secured basis. The Fund's Custodian
will either segregate the assets securing the borrowing for the benefit of the
lenders or arrangements will be made with a suitable sub-custodian. If assets
used to secure the borrowing decrease in value, the Fund may be required to
pledge additional collateral to the lender in the form of cash or securities to
avoid liquidation of those assets. The rights of any lenders to the Fund to
receive payments of interest on and repayments of principal of borrowings will
be senior to the rights of the Fund's shareholders, and the terms of the Fund's
borrowings may contain provisions that limit certain activities of the Fund and
could result in precluding the purchase of securities and instruments that a
Fund would otherwise purchase.
For temporary defensive purposes, the Aggressive Equity Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
For further information about the foregoing and certain additional
investment practices of the Aggressive Equity Fund, see "Additional Investment
Information" below.
THE AMERICAN VALUE FUND
The American Value Fund's investment objective is to provide high total
return by investing in equity securities of small- to medium-sized corporations.
The Fund's Adviser seeks securities which it believes to be undervalued relative
to the stock market in general at the time of purchase. The Fund invests
primarily in corporations domiciled in the United States with equity market
capitalizations in the range of the companies represented in the Xxxxxxx 2500
Small Company Index, but may invest in similar sized foreign companies. Under
normal circumstances, the Fund will invest at least 65% of the value of its
total assets in equity securities whose market capitalization is up to the top
of the range represented in the Index. The Fund may also invest in equity
securities of other corporations but will generally not invest in the 500
largest corporations in the United States. With respect to the Fund, equity
securities include common and preferred stocks, convertible securities and
rights and warrants to purchase common stock, as well as other equity interests,
such as trusts or partnership interests. Debt securities convertible into common
stocks purchased by the Fund will, at the time of purchase, be rated as
investment grade (rated in one of the four highest rating categories by a
nationally recognized statistical rating organization (an "NRSRO")) or, if
unrated, will be of comparable quality as determined by the Adviser under the
supervision of the Board of Directors. These investments may or may not carry
voting rights. The Fund may invest in non-publicly traded securities, private
placements and restricted securities. The Fund may on occasion invest in equity
securities of foreign issuers that trade on a United States exchange or
over-the-counter either directly or in the form of depositary receipts. The Fund
may invest in forward foreign currency exchange contracts, and may invest in
foreign currency exchange futures and options. The Fund may invest in
derivatives, which include options, futures and options on futures and swaps,
and the Fund may lend its portfolio securities and purchase securities on a
when-issued or delayed delivery basis.
The Adviser invests with the philosophy that a diversified portfolio of
undervalued, small- to medium-sized companies will provide high total return in
the long run. Companies considered attractive will have the following
characteristics:
1. Stocks will most often have yields distinctly above the average of
companies with similar capitalizations.
2. The market prices of the stocks will be undervalued relative to the
normal earning power of the companies.
16
17
3. Stock prices will be low relative to the intrinsic value of the
companies' assets.
4. Stocks will be of high quality, in the Adviser's judgment, as
evaluated by the companies' balance sheets, income statements,
franchises and product competitiveness.
The thrust of this approach is to seek investments in stocks for which
investor enthusiasm is currently low, as reflected in their valuation, but which
have the financial and fundamental features which, according to the Adviser's
assessment, will allow the stocks to achieve a higher valuation. Value is
achieved and exposure is reduced for the American Value Fund when the investment
community's perceptions improve and the stocks approach what the Adviser
believes is fair valuation. The Fund will invest in equity securities of smaller
capitalized companies, which are more vulnerable to financial and other risks
than larger companies. Investment in securities of smaller companies may involve
a higher degree of risk and price volatility than in securities of larger
companies.
The Adviser takes a long-term approach by placing a strong emphasis on its
ability to identify attractive values. The Adviser does not intend to respond to
short-term market fluctuations or to acquire securities for the purpose of
short-term trading. The Adviser may take advantage of short-term opportunities,
however, that are consistent with its objective of high total return. The Fund
will maintain diversity among industries and will not invest more than 25% of
its total assets in the stocks of issuers in any one industry.
For temporary defensive purposes, the American Value Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high-quality or
hold cash.
In order to facilitate the management of the American Value Fund's
portfolio, effective August 31, 1998, the Fund suspended the continuous offering
of its shares to new investors. However, existing shareholders as of August 31,
1998 may continue to purchase additional shares, as well as those in retirement
plans and certain distribution programs as determined from time to time by the
Distributor and as listed in the Company's Statement of Additional Information.
As market conditions permit, the American Value Fund may reopen sales of the
Fund's shares to new investors. Any such offerings of the American Value Fund
may be limited in amount and may commence and terminate without any prior
notice.
For further information about the foregoing and certain additional
investment practices of the American Value Fund, see "Additional Investment
Information" below.
THE EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to provide long-term
capital appreciation by investing primarily in growth-oriented equity securities
of medium and large capitalization companies. Under normal circumstances, the
Fund will invest at least 65% of the value of its total assets in equity
securities. With respect to this Fund, equity securities include common and
preferred stocks, convertible securities and rights and warrants to purchase
common stocks.
The Adviser employs a flexible and eclectic investment process in pursuit of
the Equity Growth Fund's investment objective. In selecting securities for the
Fund, the Adviser concentrates on a universe of rapidly growing, high quality
companies and lower, but accelerating, earnings growth situations. The Adviser's
universe of potential investments generally comprises companies with market
capitalizations of $500 million or more. The Fund is not restricted to
investments in specific market sectors. The Adviser uses its research
capabilities, analytical resources and judgment to assess economic, industry and
market trends, as well as individual company developments, to select promising
growth investments for the Fund. The Adviser concentrates on companies with
strong, communicative management and clearly defined strategies for growth. In
addition, the Adviser rigorously assesses company developments, including
changes in strategic direction, management focus and current and likely future
earnings results. Valuation is important to the Adviser but is viewed in the
context of prospects for sustainable earnings growth and the potential for
positive earnings surprises vis-a-vis consensus expectations. The Fund is free
to invest in any equity security that, in the Adviser's judgment, provides above
average potential for capital appreciation.
17
18
In selecting investments for the Equity Growth Fund, the Adviser emphasizes
individual security selection. While the Fund's investments generally will be
diversified among a number of issuers, the Fund may, subject to certain
limitations, invest between 5% and 10% of its total assets in selected issuers
as a result of the Adviser's investment process. See "Investment Limitations."
Investing more of the Fund's assets in selected issuers may subject the Fund to
greater risks impacting individual securities than a fund which does not employ
such a practice. The Fund has a long-term investment perspective; however, the
Adviser may take advantage of short-term opportunities that are consistent with
the Fund's objective by selling recently purchased securities which have
increased in value.
The Equity Growth Fund may invest up to 25% of its total assets at the time
of purchase in securities of foreign companies. The Fund may invest in
securities of foreign issuers directly or in the form of depositary receipts.
The Fund may invest in forward foreign currency exchange contracts, and may
invest in foreign currency exchange futures and options. The Equity Growth Fund
may invest in convertible securities of domestic and, subject to the above
restrictions, foreign issuers on occasions when, due to market conditions, it is
more advantageous to purchase such securities than to purchase common stock.
Since the Fund invests in both common stocks and convertible securities, the
risks of investing in the general equity markets may be tempered to a degree by
the Fund's investments in convertible securities which are often not as volatile
as common stock. The Equity Growth Fund may invest in derivatives, when-issued
and delayed delivery securities and non-publicly traded securities, including
private placements and restricted securities. The Fund may from time to time and
consistent with applicable legal requirements sell securities short, lend
portfolio securities and engage in reverse repurchase agreements.
For temporary defensive purposes, the Equity Growth Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Adviser believes to be of high quality or
hold cash.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE MID CAP GROWTH FUND
The Mid Cap Growth Fund's investment objective is to achieve long-term
growth by investing primarily in common stocks and other equity securities of
small and medium size companies which are deemed by the Fund's Adviser to offer
long-term growth potential.
The Mid Cap Growth Fund generally will invest at least 65% of its total
assets in equity securities issued by companies offering long term growth
potential which have market capitalizations in the range of the companies
represented in the S&P Mid Cap 400 Index. With respect to this Fund, equity
securities include common and preferred stocks, convertible securities and
rights and warrants to purchase common stock, as well as depositary receipts. Up
to 5% of the Fund's assets may be invested in foreign equity securities,
excluding American Depositary Receipts ("ADRs"). The Fund may invest in forward
foreign currency exchange contracts, and may invest in foreign currency exchange
futures and options.
The Adviser manages the Mid Cap Growth Fund using a four-part process
combining quantitative, fundamental and valuation analysis with a strict sales
discipline. Stocks that pass an initial screen based on estimate revisions
undergo detailed fundamental research. The Adviser uses valuation analysis to
eliminate the most overvalued securities. The Fund sells holdings when the
Adviser's estimate revision scores fall to unacceptable levels, when its
fundamental research uncovers unfavorable trends or when the securities'
valuations exceed the level that the Adviser believes is reasonable given their
growth prospects.
The Mid Cap Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities. The Fund may from time to time and
consistent with applicable legal requirements sell securities short, lend
portfolio securities and engage in reverse repurchase agreements. For temporary
defensive purposes, the Mid Cap Growth Fund may invest a portion or all of its
assets in money market instruments and short- and medium-term debt securities
that the Adviser believes to be of high quality or hold cash.
As of the date of this Prospectus, the Mid Cap Growth Fund is not offering
shares.
18
19
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE U.S. REAL ESTATE FUND
The investment objective of the U.S. Real Estate Fund is to provide
above-average current income and long-term capital appreciation by investing
primarily in equity securities of companies in the U.S. real estate industry,
including real estate investment trusts ("REITs"). With respect to this Fund,
equity securities include common and preferred stocks, convertible securities,
and rights and warrants to purchase common stock, as well as shares or units of
beneficial interest of REITs and limited partnership interests in master limited
partnerships.
Under normal circumstances, at least 65% of the U.S. Real Estate Fund's
total assets will be invested in income producing equity securities of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry. For
purposes of the Fund's investment policies, a company is "principally engaged"
in the real estate industry if, as determined by the Adviser, (i) it derives at
least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial real
estate or (ii) it has at least 50% of the fair market value of its assets
invested in residential, commercial or industrial real estate. Companies in the
real estate industry may include, among others: REITs, master limited
partnerships that invest in interests in real estate, real estate operating
companies, and companies with substantial real estate holdings, such as hotel
companies, residential builders and land-rich companies. The Fund seeks to
invest in equity securities of companies that provide a dividend yield that
exceeds the composite dividend yield of securities comprising the Standard &
Poor's Composite Index of 500 Stocks (the "S&P 500").
A substantial portion of the U.S. Real Estate Fund's total assets will be
invested in securities of REITs. REITs pool investors' funds for investment
primarily in income producing real estate or real estate related loans or
interests. Generally, REITs can be classified as Equity REITs, Mortgage REITs or
Hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Equity REITs are further
categorized according to the types of real estate securities they own, e.g.,
apartment properties, retail shopping centers, office and industrial properties,
hotels, health-care facilities, manufactured housing and mixed-property types.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive their income primarily from interest payments on the credit they have
extended. Hybrid REITs combine the characteristics of both Equity and Mortgage
REITs. The Fund will invest primarily in Equity REITs. A REIT is not taxed at
the federal level on income distributed to its shareholders or unitholders if it
complies with certain requirements relating to its organization, ownership,
assets and income, and with the requirement that it distribute to its
shareholders or unitholders at least 95% of its taxable income for each taxable
year. A shareholder in the Fund should realize that by investing in REITs
indirectly through the Fund, he will bear not only his proportionate share of
the expenses of the Fund, but also indirectly, the management expenses of
underlying REITs.
The U.S. Real Estate Fund will concentrate in the U.S. real estate industry
and may not invest more than 25% of its total assets in securities of companies
in any one other industry (for these purposes the U.S. Government, its agencies
and instrumentalities are not considered an industry). Under normal
circumstances, the Fund may invest up to 35% of its total assets in debt
securities issued or guaranteed by real estate companies or secured by real
estate assets and rated, at time of purchase, in one of the four highest rating
categories by an NRSRO or determined by the Adviser to be of comparable quality
at the time of purchase; high quality money market instruments; or debt
securities rated in one of the two highest ratings categories by an NRSRO,
consisting of corporate debt securities and U.S. Government securities.
Investment grade securities are securities that are rated in one of the four
highest rating categories by an NRSRO. Securities rated in the lowest category
of investment grade securities have speculative characteristics. The Fund may
also, to a limited extent, invest in non-publicly traded securities, private
placements and restricted securities.
The Fund may be subject to the risks associated with the direct ownership of
real estate because of its policy of concentrating in the securities of
companies principally engaged in the real estate industry. For example, real
estate values may fluctuate as a result of general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, demographic trends and variations in rental income,
changes in zoning laws, casualty or condemnation losses, environmental risks,
regulatory limitations on rents, changes in neighborhood values, related party
risks, changes in the appeal of properties to tenants,
19
20
changes in interest rates and other real estate capital market influences.
Generally, increases in interest rates will increase the costs of obtaining
financing, which could directly and indirectly decrease the value of the Fund's
investments.
Because the U.S. Real Estate Fund may invest a substantial portion of its
assets in REITs, the Fund may also be subject to certain risks associated with
the direct investments of REITs. REITs may be affected by changes in the value
of their underlying properties and by defaults by borrowers or tenants. Mortgage
REITs may be affected by the quality of the credit extended. Furthermore, REITs
are dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in investments in a limited
number of properties, in a narrow geographic area, or in a single property type.
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders or unitholders, and may be subject to defaults by
borrowers and to self-liquidations. In addition, the performance of a REIT may
be affected by its failure to qualify for tax-free pass-through of income under
the Internal Revenue Code of 1986, as amended (the "Code"), or its failure to
maintain exemption from registration under the Investment Company Act of 1940,
as amended (the "1940 Act"). Rising interest rates may cause the value of the
debt securities in which the Fund will invest to fall. Conversely, falling
interest rates may cause their value to rise. Changes in the value of portfolio
securities will not necessarily affect cash income derived from these securities
but will affect the Fund's net asset value.
For temporary defensive purposes, the Fund may invest a portion or all of
its assets in money market instruments and short- and medium-term debt
securities that the Sub-Adviser believes to be of high-quality or hold cash.
The Board of Directors of the U.S. Real Estate Fund has approved an
Agreement and Plan of Reorganization between the Fund and Xxx Xxxxxx Real Estate
Securities Fund (the "Real Estate Securities Fund"), advised by Xxx Xxxxxx Asset
Management Inc., providing for the transfer of assets and liabilities of the
Fund to the Real Estate Securities Fund in exchange for shares of beneficial
interest of the Real Estate Securities Fund at its net asset value per share
(the "Reorganization").
The Reorganization is subject to approval by the shareholders of the U.S.
Real Estate Fund. Further details of the proposed Reorganization will be
contained in the proxy statement/prospectus expected to be mailed to
shareholders in 1998.
The Real Estate Securities Fund's net assets as of June 30, 1998 were
approximately $146.7 million. Its investment objective is to seek to provide
shareholders with long-term growth of capital, and a secondary objective is to
seek current income. The U.S. Real Estate Fund and the Real Estate Securities
Fund have similar investment objectives, policies and practices, and are managed
by the same portfolio management team.
The U.S. Real Estate Fund will continue its normal operations prior to the
Reorganization.
For further information about the foregoing and certain additional
investment practices of the U.S. Real Estate Fund, see "Additional Investment
Information" below.
THE VALUE FUND
The Value Fund's investment objective is to achieve above-average total
return over a market cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common stocks and other equity
securities that are deemed by the Fund's Adviser to be relatively undervalued
based on various measures such as price/earnings ratios and price/book ratios.
The Value Fund generally will invest at least 65% of its assets in equity
securities which are deemed to be undervalued. For purposes of this Fund, equity
securities include common and preferred stocks, convertible securities, and
warrants and rights to purchase common stock, as well as depositary receipts. Up
to 5% of the Fund's assets may be invested in foreign equity securities,
excluding ADRs. The Fund may invest in forward foreign currency exchange
contracts, and may invest in foreign currency exchange futures and options. The
Fund generally will invest in equity securities of companies with equity
capitalization greater than $300 million.
The Adviser selects common stocks which are deemed to be undervalued
relative to the stock market in general as measured by the S&P 500, based on the
value measures such as price/earnings ratios and price/book
20
21
ratios, as well as fundamental research. While capital return will be emphasized
somewhat more than income return, the Value Fund's total return will consist of
both capital and income returns. Stocks which are deemed to be undervalued in
the marketplace have, under most market conditions, higher dividend income
returns than stocks which are deemed to have long-term earnings growth potential
which normally sell at higher price/ earnings ratios. However, the Adviser may
select non-dividend paying stocks for their value characteristics.
The Value Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities. The Fund may from time to time and consistent with
applicable legal requirements sell securities short, lend portfolio securities
and engage in reverse repurchase agreements. For temporary defensive purposes,
the Value Fund may invest a portion or all of its assets in money market
instruments and medium-term debt securities that the Adviser believes to be of
high quality or hold cash.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The American Value and U.S. Real Estate Funds may borrow up to 10% of their
total assets as a temporary measure for extraordinary or emergency purposes.
These Funds may not purchase additional securities when borrowings exceed 5% of
total assets.
The Equity Growth, Mid Cap Growth and Value Funds may borrow money (i) as a
temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of such Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings). These Funds may not
purchase additional securities when borrowings exceed 5% of total assets.
The Aggressive Equity Fund may borrow for investment purposes amounts up to
33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than the borrowing. See "Investment
Objectives and Policies -- The Aggressive Equity Fund" for further information.
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
Each Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
invest in equity-linked securities, which are securities that are convertible
into, or the value of which is based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common
stock. Trading prices of the underlying common stock will be influenced by the
issuer's operational results, by complex, interrelated political, economic,
financial or other factors affecting the capital markets, the stock exchanges on
which the underlying common stock is traded and the market segment of which the
issuer is a part. In addition, it is not possible to predict how equity-linked
securities will trade in the secondary market which is fairly developed and
liquid. The market for such securities may be shallow, however, and high volume
trades may be possible only with discounting. In addition to the foregoing
risks, the return on such securities depends on the creditworthiness of the
issuer of the securities, which may be the issuer of the underlying securities
or a third party investment banker or other lender. The creditworthiness of such
third party issuer of equity-linked securities may, and often does, exceed the
creditworthiness of the issuer of the underlying securities. The advantage of
using equity-linked securities over traditional equity and debt securities is
that the former are income producing vehicles that may provide a higher income
than the dividend income on the underlying equity securities while allowing some
participation in the capital appreciation of the underlying equity securities.
Another advantage of using equity-linked securities is that they may be used for
hedging to reduce the risk of investing in the generally more volatile
underlying equity securities.
21
22
DEPOSITARY RECEIPTS
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such depositary receipts become
available. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. Each of the Funds, other than the U.S. Real Estate Fund,
may invest in ADRs and the Funds, other than the American Value and U.S. Real
Estate Funds, may invest in other depository receipts. ADRs include American
Depositary Shares and New York Shares and may be "sponsored" or "unsponsored."
Sponsored ADRs are established jointly by a depositary and the underlying
issuer, whereas unsponsored ADRs may be established by a depositary without
participation by the underlying issuer. GDRs, EDRs and other types of depositary
receipts are typically issued by foreign depositaries, although they may also be
issued by U.S. depositaries, and evidence ownership interests in a security or
pool of securities issued by either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt voting rights with
respect to the deposited securities or pool of securities. Depositary receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. For purposes of the Funds' investment policies,
investments in depositary receipts will be deemed to be investments in the
underlying securities.
FOREIGN BONDS
The Value and Mid Cap Growth Funds may invest in foreign bonds. Foreign
bonds are fixed income securities denominated in foreign currency and issued and
traded primarily outside the United States, including: (1) obligations issued or
guaranteed by foreign national governments, their agencies, instrumentalities,
or political subdivisions; (2) fixed income securities issued, guaranteed or
sponsored by supranational organizations established or supported by several
national governments, including the World Bank, the European Community, the
Asian Development Bank and others; and (3) non-government foreign corporate debt
securities. Investing in foreign companies involves certain special
considerations that are not typically associated with investing in U.S.
companies. See "Foreign Investment" below.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each Fund, other than the U.S. Real Estate Fund, may enter into forward
foreign currency exchange contracts ("forward contracts"). Forward contracts
provide for the purchase or sale of an amount of a specified foreign currency at
a future date. Purposes for which such contracts may be used include protecting
against a decline in a foreign currency against the U.S. Dollar between the
trade date and settlement date when a Fund purchases or sells securities,
locking in the U.S. Dollar value of dividends declared on securities held by the
Fund and generally protecting the U.S. Dollar value of securities held by the
Fund against exchange rate fluctuations. While such forward contracts may limit
losses to a Fund as a result of exchange rate fluctuations, they will also limit
any exchange rate gains that might otherwise have been realized.
FOREIGN INVESTMENT
Each Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than United
States national securities exchanges, and securities of some foreign issuers are
less liquid and subject to greater price volatility than securities of
comparable domestic
22
23
issuers. Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes,
which may decrease the net return on foreign investments as compared to
dividends and interest paid to the Funds by domestic companies. Additional risks
include future adverse political and economic developments, the possibility that
a foreign jurisdiction might impose or change withholding taxes on income
payable with respect to foreign securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, and the possible
adoption of foreign governmental restrictions such as exchange controls.
Emerging countries may have less stable political environments than more
developed countries. Also, it may be more difficult to obtain a judgment in a
court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities of another open-end or closed-end
investment company, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations or as may otherwise be permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). To the extent a Fund invests a portion of its
assets in investment company securities, those assets will be subject to the
expenses of the purchased investment company as well as to the expenses of the
Fund itself.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increasing
its net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Aggressive Equity,
American Value, Equity Growth and U.S Real Estate Funds will not enter into
securities loan transactions exceeding in the aggregate 33 1/3% of the market
value of the Fund's total assets. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.
MONEY MARKET INSTRUMENTS
Each Fund is permitted to invest in money market instruments pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes. The money market investments permitted for the
Funds include obligations of the U.S. Government, its agencies and
instrumentalities, obligations of foreign sovereignties, other debt securities,
including high-grade commercial paper, repurchase agreements and bank
obligations, such as bankers' acceptances and certificates of deposit (including
Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund
or less than what may be considered the fair value of such securities.
Furthermore, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements which might
be applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, a Fund may be required to bear the expenses of
registration. No Fund may invest more than 15% of its net assets in illiquid
securities which generally includes securities that are restricted from sale to
the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"); however, securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by, and subject to the
23
24
supervision of, the Board of Directors are not subject to the limitation on
illiquid securities. Factors used to determine whether 144A Securities are
liquid include, among other things, a security's trading history, availability
of reliable pricing information, the number of dealers making quotes or making a
market in the security and the number of potential purchases in the market for
the security. To the extent that qualified institutional buyers become
uninterested in buying 144A Securities, then such securities in a Fund's
portfolio could increase a Fund's level of illiquidity. Notwithstanding the
above none of the Aggressive Equity, American Value and U.S. Real Estate Funds
may invest more than 10% of its total assets in securities subject to legal or
contractual restrictions on resale.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers, banks
or other financial institutions that meet the credit guidelines set by the
Company's Board of Directors. In a repurchase agreement, a Fund buys a security
from a seller that has agreed to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agreement.
The term of these agreements is usually from overnight to one week and never
exceeds one year. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Fund to the seller. The Fund always receives securities as
collateral with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, a Fund might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Fund's realization upon the collateral may be delayed or limited. Repurchase
agreements with durations (or maturities) over seven days in length are
considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Equity Growth, Mid Cap Growth and Value Funds may enter into reverse
repurchase agreements with brokers, dealers, banks or other financial
institutions that meet credit guidelines set by the Fund's Board of Directors.
In a reverse repurchase agreement, a Fund sells a security and agrees to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. It may also be viewed as the
borrowing of money by a Fund. A Fund's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. A Fund will
enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with an appropriate custodian a
separate account with a segregated portfolio of cash or liquid assets in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect a Fund's net asset value. In the event that
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
repurchase obligation, and the Fund's use of proceeds of the agreement may
effectively be restricted pending such decision.
SHORT SALES
The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
from time to time sell securities short without limitation, although they do not
intend to sell securities short on a regular basis. A short sale is a
transaction in which a Fund sells securities it either owns or has the right to
acquire at no added cost (i.e., "against the box") or it does not own (but has
borrowed) in anticipation of a decline in the market price of the securities.
When a Fund makes a short sale of borrowed securities, the proceeds it receives
from the sale will be held on behalf of a broker until the Fund replaces the
borrowed securities. To deliver the securities to the buyer, a Fund will need to
arrange through a broker to borrow the securities and, in so doing, the Fund
will become obligated to replace the securities borrowed at their market price
at the time of replacement, whatever that price may be. A Fund may have to pay a
premium to borrow the securities and must pay any dividends or interest payable
on the securities until they are replaced.
A Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by collateral deposited with the broker that consists
of cash or liquid assets. In addition, the Fund will place in a segregated
account with an appropriate custodian an amount of cash or liquid assets equal
to the difference, if any, between (1) the market value of the securities sold
and (2) any cash or liquid securities deposited as
24
25
collateral with the broker in connection with the short sale (not including the
proceeds of the short sale). Possible losses from short sales differ from losses
that could be incurred from a purchase of a security, because losses from short
sales may be unlimited, whereas losses from purchases can equal only the total
amount invested.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. It is the current policy of the Aggressive
Equity, American Value and U.S. Real Estate Funds not to enter into when-issued
commitments or delayed delivery securities exceeding, in the aggregate, 15% of
the Fund's net assets other than obligations created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
DERIVATIVE INSTRUMENTS
The Funds are permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured notes, caps, floors, collars and
swaps. Additionally, the Funds may invest in other derivative instruments that
are developed over time if their use would be consistent with the objectives of
the Funds. Each of the Funds, other than (to the extent described below) the
Equity Growth, Mid Cap Growth and Value Funds, will limit its use of the
foregoing derivative instruments for non-hedging purposes to 33 1/3% of its
total assets measured by the aggregate notional amount of outstanding derivative
instruments. In addition, none of the Aggressive Equity, American Value and U.S.
Real Estate Funds will enter into futures contracts and options on futures
contracts to the extent that the notional value of its outstanding obligations
to purchase securities under such contracts would exceed 20% of its total
assets. The Equity Growth Fund will limit its use of derivative instruments to
50% of its total assets measured by the aggregate notional amount of outstanding
derivative instruments, provided that no more than 33 1/3% of its total assets
are invested, for non-hedging purposes, in derivatives other than futures and
options on futures. The Mid Cap Growth and Value Funds will not enter into
futures contracts to the extent that each Fund's outstanding obligations to
purchase securities under these contracts, in combination with its outstanding
obligations with respect to options transactions, would exceed 50% of its total
assets. The Funds' investments in forward foreign currency contracts and
derivatives used for hedging purposes are not subject to the limits described
above.
The Funds may use derivative instruments under a number of different
circumstances to further their investment objectives. The Funds may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Fund may purchase
derivatives to quickly gain exposure to a market in response to changes in the
Fund's investment strategy, or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. A
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign
25
26
investment restrictions or other reasons or when doing so provides a price
advantage over purchasing the underlying securities directly, either because of
a pricing differential between the derivatives and securities markets or because
of lower transaction costs associated with the derivatives transaction.
Derivatives may also be used by a Fund for hedging purposes and in other
circumstances when a Fund's Adviser believes it advantageous to do so consistent
with the Fund's investment objective. The Funds will not, however, use
derivatives in a manner that creates leverage, except to the extent that the use
of leverage is expressly permitted by a particular Fund's investment policies,
and then only in a manner consistent with such policies.
Some of the derivative instruments in which the Funds may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS. The Funds may invest in caps, floors and collars,
which are instruments analogous to options transactions described below. In
particular, a cap is the right to receive the excess of a reference rate over a
given rate and is analogous to a put option. A floor is the right to receive the
excess of a given rate over a reference rate and is analogous to a call option.
Finally, a collar is an instrument that combines a cap and a floor. That is, the
buyer of a collar buys a cap and writes a floor, and the writer of a collar
writes a cap and buys a floor. The risks associated with caps, floors and
collars are similar to those associated with options. In addition, caps, floors
and collars are subject to risk of default by the counterparty because they are
privately negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may purchase
and sell futures contracts and options on futures contracts, including, but not
limited to, securities index futures, foreign currency exchange futures,
interest rate futures and other financial futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security, instrument or basket thereof, at a specific future date and
at a specified price. An option on a futures contract is a legal contract that
gives the holder the right to buy or sell a specified amount of futures
contracts at a fixed or determinable price upon the exercise of the option.
The Funds may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Funds
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets countries. The nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, may depend on the development of such markets.
The Funds may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Funds
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
their exposure to a particular currency.
The Funds may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Funds may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Funds
may engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, each Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
26
27
Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by a Fund and the prices of futures and options
relating to investments purchased or sold by the Fund, and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position. The risk that a Fund will be unable to close out a
futures position or options contract will be minimized by entering into futures
contracts or options transactions for which there appears to be a liquid
exchange or secondary market. The risk of loss in trading on futures contracts
in some strategies can be substantial, due both to the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
OPTIONS TRANSACTIONS. The Funds may seek to increase their returns or may
hedge their portfolio investments through options transactions with respect to
(i) securities, instruments, indices or baskets thereof in which such Funds may
invest and (ii) foreign currencies. Purchasing a put option gives a Fund the
right to sell a specified security, currency or basket of securities or
currencies at the exercise price until the expiration of the
option. Purchasing a call option gives a Fund the right to purchase a specified
security, currency or basket of securities or currencies at the exercise price
until the expiration of the option.
Each Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. A Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, a
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The
Funds may only write options that are "covered." A covered call option means
that so long as the Fund is obligated as the writer of the option, it will
earmark or segregate sufficient liquid assets to cover its obligations under the
option or own (i) the underlying security or instrument subject to the option,
(ii) securities or instruments convertible or exchangeable without the payment
of any consideration into the security or instrument subject to the option, or
(iii) a call option on the same underlying security with a strike price no
higher than the price at which the underlying instrument was sold pursuant to a
short option position.
By writing (or selling) a put option, a Fund incurs an obligation to buy the
security or instrument underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election. The Funds may also write options that may be exercisable
by the purchaser only on a specific date. A Fund that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option or will own a put option on the same underlying security with
an equal or higher strike price.
The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging markets countries, and the
nature of the strategies adopted by the Adviser and the extent to which those
strategies are used will depend on the development of such option markets. The
primary risks associated with the use of options are (i) imperfect correlation
between the change in market value of investments held, purchased or sold by a
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.
STRUCTURED NOTES. Structured Notes are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The Funds may use structured notes to tailor their
investments to the specific risks and returns the Adviser is willing to accept
while avoiding or reducing certain other risks.
SWAPS -- SWAP CONTRACTS. Swaps and Swap Contracts are derivatives in the
form of a contract or other similar instrument in which two parties agree to
exchange the returns generated by a security, instrument, basket thereof or
index for the returns generated by another security, instrument, basket thereof
or index. The payment streams are calculated by reference to a specific
security, instrument, basket thereof or index and an agreed upon notional
amount. The relevant indices include but are not limited to, currencies, fixed
interest
27
28
rates, prices and total return on interest rate indices, fixed income indices,
stock indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). For example, a Fund may agree to swap the return
generated by a fixed income index for the return generated by a second fixed
income index. The currency swaps in which the Funds may enter will generally
involve an agreement to pay interest streams in one currency based on a
specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
A Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two returns. A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. A Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, a Fund's
risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, a Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swaps market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
"traditional" swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates and currency exchange rates, the investment performance
of the Funds would be less favorable than it would have been if this investment
technique were not used.
YEAR 2000 RISKS.
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem". The Adviser is
taking steps that they believe are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, there can be no assurance that these steps will
be sufficient to avoid any adverse impact upon the Funds. In addition, the Year
2000 Problem may adversely affect the issuers of securities in which the Funds
may invest which, in turn, may adversely affect the net asset value of the
Funds.
INVESTMENT LIMITATIONS
Each Fund, except the Aggressive Equity and U.S. Real Estate Funds, is a
diversified investment company under the 1940 Act, and, therefore, with respect
to 75% of its total assets, such Fund may not (a) invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities and (b) own more than 10% of the
outstanding voting securities of any one issuer. The Aggressive Equity and U.S.
Real Estate Funds are non-diversified investment companies under the 1940 Act,
which means that each such Fund is not limited by the 1940 Act in the proportion
of its total assets that may be invested in the obligations of a single issuer.
Thus, each such Fund may invest a greater proportion of its total assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk resulting from such practice than a portfolio which is diversified.
Each such Fund, however, intends to comply with the diversification requirements
imposed by the Code for qualification as a regulated investment company.
28
29
Each Fund also operates under certain investment restrictions that are
deemed fundamental policies and may be changed only with the approval of the
holders of a majority of the Fund's outstanding shares. See "Investment
Limitations" in the Statement of Additional Information. In addition, each Fund
operates under certain non-fundamental investment limitations as described in
the Statement of Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Xxx Xxxxxx Investment Advisory Corp. is the investment
adviser (the "Adviser") and administrator (the "Administrator") of the Funds.
The Adviser provides investment advice and portfolio management services
pursuant to an advisory agreement (the "Advisory Agreement") and, subject to the
supervision of the Company's Board of Directors, makes the Funds' investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Funds' investments. The Advisory Agreement also provides that the
Adviser may appoint sub-advisers to perform these portfolio management
responsibilities. See "Investment Sub-Advisers" below. The Adviser is entitled
to receive an aggregate advisory fee computed daily and paid monthly at the
following annual rates applied to the average daily net assets for each Fund:
Aggressive Equity Fund.................. 0.90%
American Value Fund..................... 0.85%
Equity Growth Fund...................... 0.80%
Mid Cap Growth Fund..................... 0.75%
U.S. Real Estate Fund................... 1.00%
Value Fund.............................. 0.80% First $500 million;
0.75% Next $500 million;
and 0.70% Over $1
billion
The Adviser reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Funds for all
or a portion of the Funds' other expenses.
The Adviser is a wholly-owned subsidiary of Xxx Xxxxxx Investments Inc.
("Xxx Xxxxxx"). Xxx Xxxxxx is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $65 billion under management or
supervision. Xxx Xxxxxx'x more than 50 open-end and 39 closed-end funds and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide. The Distributor of the Company and the sponsor of
the funds mentioned above is also a wholly-owned subsidiary of Xxx Xxxxxx. The
Adviser's principal office is located at Xxx Xxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxx,
Xxxxxxxx 00000.
Xxx Xxxxxx is an indirect wholly-owned subsidiary of Xxxxxx Xxxxxxx Xxxx
Xxxxxx & Co. Xxxxxx Xxxxxxx Xxxx Xxxxxx & Co. and various of its directly or
indirectly owned subsidiaries, including Xxxxxx Xxxxxxx & Co. Incorporated, a
registered broker-dealer and investment adviser, and Xxxxxx Xxxxxxx
International are engaged in a wide range of financial services. Their principal
businesses include securities underwriting, distribution and trading; merger,
acquisition, restructuring and other corporate finance advisory activities;
merchant banking, stock brokerage and research services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending; and credit services.
INVESTMENT SUB-ADVISERS. Xxxxxx Xxxxxxx Asset Management Inc. ("MSAM," or a
"Sub-Adviser") is the investment sub-adviser of the Aggressive Equity, American
Value, Equity Growth and U.S. Real Estate Funds and Xxxxxx Xxxxxxxx & Xxxxxxxx,
LLP ("MAS," or a "Sub-Adviser") is the investment sub-adviser of the Mid Cap
Growth and Value Funds. The Sub-Advisers provide investment advice and portfolio
management services pursuant to investment sub-advisory agreements and, subject
to the supervision of the Adviser and the Company's Board of Directors, make the
Funds' investment decisions, arrange for the execution of portfolio transactions
and generally manage the Funds' investments.
The Sub-Advisers are entitled to receive sub-advisory fees computed daily
and paid monthly. If the average daily net assets of a Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM or
MAS, as appropriate, one-half of the total investment advisory fee payable to
the Adviser by the Fund (after application of any fee waivers in effect) for
such monthly period. If a Fund's average daily net assets for the monthly period
are greater than $500 million, the Adviser shall pay MSAM or MAS, as
appropriate, a fee for
29
30
such monthly period equal to the greater of (a) one-half of what the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period would have been had the
Fund's average daily net assets during such period been equal to $500 million,
or (b) forty-five percent of the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period.
MSAM, with principal offices at 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX
00000, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At June 30, 1998, MSAM had together with its affiliated institutional
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $169 billion in assets under
management. MAS is a Pennsylvania limited liability partnership founded in 1969
with its principal offices at One Tower Bridge, West Conshohocken, Pennsylvania
19428. MAS provides investment services to employee benefit plans, endowment
funds, foundations and other institutional investors and has served as an
investment adviser to several open-end investment companies since 1984. As of
June 30, 1998, MAS had approximately $67 billion in assets under management.
PORTFOLIO MANAGERS. The following individuals have primary portfolio
management responsibility for the Funds noted below:
AGGRESSIVE EQUITY FUND -- XXXXXX X. XXXXXXXX, XXXXXXX X. XXXXXXXXX AND XXXXX
XXXXX. Messrs. Xxxxxxxx, Xxxxxxxxx and Xxxxx have shared responsibility for
managing Aggressive Equity Fund since September 23, 1998. Xxxxxx X. Xxxxxxxx is
a Managing Director of MSAM and Xxxxxx Xxxxxxx and is a member of MSAM's
investment management team. In addition to portfolio management, his equity
research responsibilities include business equipment and services, capital
goods, consumer durables, multi-industry and transportation. Prior to joining
MSAM in 1997, he was the North American Director of Equity Research at Xxxxxx
Xxxxxxx. From 1990 to 1995, he was a member of Xxxxxx Xxxxxxx'x Equity Research
team. Xx. Xxxxxxxx graduated from Rutgers University with a B.A. (Phi Beta Kappa
and Summa Cum Laude) in Economics. He also holds an M.B.A. from X.X. Xxxxxxx
School of Management at Northwestern University. Xxxxxxx X. Xxxxxxxxx is a Vice
President of MSAM. He joined the Firm in 1995 as an equity analyst in the
Institutional Equity Group. Prior to joining MSAM he worked at Icahn & Co. for
nine years as an equity analyst. He graduated from the University of Wisconsin
at Madison with a B.A. in Economics and received an M.B.A. from Columbia
University in 1993. Xxxxx Xxxxx is a Vice President of MSAM. He joined the Firm
in 1998 and is a portfolio manager in the Domestic Equity Group. Prior to
joining Xxxxxx Xxxxxxx Xxxx Xxxxxx & Co., he worked for various hedge funds
including BEM Management and Odyssey Partners. He holds a B.S. degree from the
University of Pennsylvania and is a Chartered Financial Analyst.
AMERICAN VALUE FUND -- XXXX X. XXXXXXXXXX, XXXXXXX X. XXXXXXX, XXXXXXX X.
XXXXXXX AND XXXXX XXXXX. Messrs. Schlarbaum, Xxxxxxx and Xxxxxxx share primary
responsibility for managing the American Value Fund. Xxxx X. Xxxxxxxxxx, a
Managing Director of Xxxxxx Xxxxxxx, joined MAS in 1987. He assumed
responsibility for the MAS Funds' Equity and Small Cap Value Portfolios in 1987,
the MAS Funds' Balanced Portfolio in 1992 and the MAS Funds' Multi-Asset-Class
and Mid Cap Value Portfolios in 1994. Xx. Xxxxxxxxxx also is a Director of MAS
Fund Distribution, Inc. He previously was with First Chicago Investment Advisers
and was a Professor at the Krannert Graduate School at Purdue University. Xx.
Xxxxxxxxxx holds a B.A. in Economics from Xxx College and a Ph.D. in Applied
Economics from University of Pennsylvania. Xx. Xxxxxxxxxx assumed primary
responsibility for managing the Fund's assets in January, 1997. Xx. Xxxxxxx
joined MSAM in July, 1996 and has worked with the Adviser's affiliate, MAS for
the past five years. He became a portfolio manager of the Fund in November,
1996. Xx. Xxxxxxx also became a portfolio manager of the MAS Funds' Small Cap
Value and Mid Cap Value Portfolios in 1996. Previously, he was with Alphametrics
Corporation and Xxxxxxx Econometric Forecasting Associates. Xx. Xxxxxxx holds a
B.A. in Economics from Haverford College. Xxxxxxx X. Xxxxxxx, a Vice President
of Xxxxxx Xxxxxxx, joined MAS in 1985. He assumed responsibility for the MAS
Funds' Small Cap Value Portfolio in 1986 and the MAS Funds' Mid Cap Value
Portfolio in 1994. Xx. Xxxxxxx has shared
responsibility for managing the Fund since 1996. Xxxxx Xxxxx joined MAS in 1997.
He served as a Portfolio Manager for Capitoline Investment Services from
1995-1997; a Portfolio Manager for Premier Trust Company from 1994 to 1995; and
as a Research Analyst for Xxxxx Investment Management from 1993-1994. He assumed
responsibility for the American Value Fund in 1998. Xx. Xxxxx holds a B.A. in
Economics from Trinity University.
30
31
EQUITY GROWTH FUND -- XXXXXX X. XXXXXXXX, XXXXXXXX X. XXXXXXX AND XXXXXXX X.
XXXXXXXXX. Xx. Xxxxxxx has had primary responsibility for managing the Equity
Growth Fund since May 29, 1998 and Xx. Xxxxxxxx and Xx. Xxxxxxxxx have shared
primary responsibility for managing the Equity Growth Fund since September 23,
1998. Xxxxxxxx Xxxxxxx is a Principal of MSAM and Xxxxxx Xxxxxxx and a Portfolio
Manager in the Institutional Equity Group. She joined MSAM in 1984 and worked as
an Analyst in the Marketing and Fiduciary Advisor areas. Xx. Xxxxxxx became a
Equity Analyst in 1986 and a Portfolio Manager in 1989. She holds a B.A. degree
from Yale College and is a Chartered Financial Analyst. For a description of the
business experience of Messrs. Xxxxxxxx and Xxxxxxxxx, see "Aggressive Equity
Fund" above.
MID CAP GROWTH FUND -- XXXXX X. XXXXXXXXX AND XXXXX X. XXX. Xx. Xxxxxxxxx
and Xx. Xxx will share primary responsibility for managing the Fund's assets
upon commencement of operations. Xxxxx Xxxxxxxxx, a Managing Director of Xxxxxx
Xxxxxxx, joined MAS in 1986. She assumed responsibility for the MAS Funds Mid
Cap Growth Portfolio in 1990, the MAS Funds Growth Portfolio in 1993 and the MAS
Funds Equity Portfolio in 1994. Xx. Xxxxxxxxx holds a B.A. (Magna Cum Laude) in
Economics from Brown University, an M.B.A. from the University of Pennsylvania
-- Xxxxxxx School and is a Chartered Financial Analyst. Xxxxx X. Xxx, Vice
President, Xxxxxx Xxxxxxx, joined MAS in 1998. He served as Senior Equity
Analyst from 1992 to 1997 and as Co-Portfolio Manager in 1997 for NationsBank
and its subsidiary. TradeStreet Investment Associates. He assumed responsibility
for the Mid Cap Growth Fund in 1998. Xx. Xxx earned a B.S. degree from
University of Michigan and an MBA from University of Pennsylvania-Xxxxxxx
School.
U.S. REAL ESTATE FUND -- XXXXXXX XXXXX AND XXXXXXXX X. XXXXXX. Messrs. Platt
and Xxxxxx have shared primary responsibility for managing the Fund since its
inception. Xx. Xxxxx joined MSAM and Xxxxxx Xxxxxxx in 1982 and currently is a
Managing Director of MSAM and Xxxxxx Xxxxxxx. He has primary responsibility for
managing the real estate securities investment business for MSAM and serves as a
member of the Investment Committee of The Xxxxxx Xxxxxxx Real Estate Fund
("MSREF"). Previously, Xx. Xxxxx served as a Director of MSREF, where he was
involved in capital raising, acquisitions, oversight of investments and investor
relations. From 1991 to 1993, Xx. Xxxxx was head of Xxxxxx Xxxxxxx'x Transaction
Development Group, which was responsible for identifying and structuring real
estate investment opportunities for MSAM and its clients worldwide. Xx. Xxxxx
graduated from Xxxxxxxx College in 1982 with a B.A. in Economics and received
his M.B.A. from Harvard Business School in 1986. Xx. Xxxxxx joined MSAM and
Xxxxxx Xxxxxxx in 1995 and currently is a Principal of MSAM and Xxxxxx Xxxxxxx.
Together with Xx. Xxxxx, he is responsible for MSAM's real estate securities
research. Prior to joining MSAM, he was a Director at CS First Boston, where he
worked for eight years in the Real Estate Group. Since 1992, Xx. Xxxxxx
established and managed the REIT effort at CS First Boston including primary
responsibility for $2.5 billion of initial public offerings by real estate
investment trusts. Xx. Xxxxxx graduated from Brandeis University with a B.A. in
Economics and received his M.B.A. from Harvard University.
VALUE FUND -- XXXXXX X. XXXXXX, XXXXXXX X. XXXXXX AND XXXXXXXX X. XXXXXX.
Messrs. Xxxxxx, Xxxxxx and Xxxxxx have shared primary responsibility for
managing the Value Fund since its inception. Xxxxxx X. Xxxxxx, a Managing
Director of Xxxxxx Xxxxxxx, joined MAS in 1988. He assumed responsibility for
the MAS Funds' Value Portfolio in 1990 and the MAS Funds' Equity Portfolio in
1994. Xx. Xxxxxx holds a B.A. (Cum Laude) from Dartmouth College and is a
Chartered Financial Analyst. Xxxxxxx X. Xxxxxx, a Principal of Xxxxxx Xxxxxxx,
joined MAS in 1995. He served as a Portfolio Manager from 1992 through 1995 for
Xxxxx Capital Management. He assumed responsibility for the MAS Funds' Value
Portfolio in 1996. Xx. Xxxxxx holds a B.A. (Cum Laude) in Economics from
Villanova University and an M.A. and Ph.D. in Economics from University of Notre
Dame. Xxxxxxxx X. Xxxxxx, a Managing Director of Xxxxxx Xxxxxxx, joined MAS in
1988. He assumed responsibility for the MAS Funds' Equity Portfolio in 1994 and
the MAS Funds' Value Portfolio in 1997. Xx. Xxxxxx received a B.S. in Chemical
Engineering and an M.B.A. from University of Kansas.
ADMINISTRATOR. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Administrator through
its agents will provide the Company dividend disbursing and
31
32
transfer agent services. For its services under the Administration Agreement,
the Company pays the Administrator a monthly fee which on an annual basis equals
0.25% of the average daily net assets of the Funds.
Under sub-administration agreements between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 00 Xxxxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxxxx 00000-0000. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser, Sub-Advisers, Administrator and the
Company's Distributor. The officers of the Company conduct and supervise its
daily business operations.
DISTRIBUTOR. Xxx Xxxxxx Funds Inc. (the "Distributor") serves as the
distributor of the shares of the Company. Under its distribution agreement (the
"Distribution Agreement") with the Company, the Distributor sells shares of the
Company upon the terms and at the current offering price described in this
Prospectus. The Distributor is not obligated to sell any specific number of
shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds. The Company may in the future offer one or more classes of
shares for each Fund that may have sales charges or other distribution charges
or a combination thereof different from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from each Fund
a distribution fee, which is accrued daily and paid no more frequently than
monthly, at a maximum rate of up to 0.75% of the Class B shares and Class C
shares of each Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is based upon the expenses
incurred by the Distributor. With respect to Class B shares, the Distributor
expects to utilize substantially all of its fee to reimburse itself for
commissions paid to investment dealers, banks or financial services firms that
provide distribution services ("Participating Dealers"). With respect to Class C
shares, the Distributor expects to reallocate substantially all of its fee to
such Participating Dealers. The Distributor may, in its discretion, voluntarily
waive from time to time all or any portion of its distribution fee and the
Distributor is free to make additional payments out of its own assets to promote
the sale of Fund shares. Class A shares, Class B shares and Class C shares are
subject to a service fee at an annual rate of 0.25% on an annualized basis of
the average daily net assets of such class of shares of a Fund. In addition to
such payments, the Adviser or its affiliates may pay certain expenses associated
with activities which might be construed to be financing the sale of these
Funds' shares including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services). Any payments by the Adviser or its affiliates will be made directly
from their assets and will not be made from the assets of the Company or by the
assessment of a charge on shares.
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan
32
33
may be terminated at any time by a vote of a majority of the 12b-1 Directors or
by a vote of a majority of the outstanding voting securities of the applicable
class of such Fund. The fee set forth above will be paid by the appropriate
class to the Distributor unless and until a Plan is terminated or not renewed.
The Company intends to operate each Plan in accordance with its terms and the
NASD Conduct Rules concerning sales charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by Investor Services (defined below). The Adviser
may elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. Each Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at Xxx
Xxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
As of the date of this Prospectus the Mid Cap Growth Fund is not offering
shares. As of the date of this Prospectus, the American Value Fund has suspended
the continuous offering of its shares to new investors. However, existing
shareholders may continue to purchase additional shares, as well as those in
retirement plan and certain distribution programs as determined from time to
time by the Distributor and as listed in the Company's Statement of Additional
Information.
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Funds available for sale may be purchased on any business day
through Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, Xxx Xxxxxx Investor
Services Inc. ("Investor Services"), a wholly-owned subsidiary of Xxx Xxxxxx.
When purchasing shares of the Company, investors must specify the Fund and
whether the purchase is for Class A shares, Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution fees applicable with respect to the Class B shares and Class
C shares and the differential in the dividends paid on the classes of shares.
The price paid for shares purchased is based on the next calculation of net
asset value per share (plus sales charges, where applicable) after an order is
received by a Participating Dealer provided such
33
34
order is transmitted to the Distributor prior to the Distributor's close of
business on such day. Orders received by Participating Dealers after the close
of the New York Stock Exchange (the "NYSE") are priced based on the net asset
value per share calculated after the next day's close provided they are received
by the Distributor prior to the Distributor's close of business on such day. It
is the responsibility of Participating Dealers to transmit orders received by
them to the Distributor so they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including higher distribution fees) resulting from
such sales arrangement, (ii) generally, each class has exclusive voting rights
with respect to approvals of the Rule 12b-1 distribution plan to which its
distribution fee or service fee is paid, (iii) certain shares are subject to a
conversion feature, (iv) each class has different exchange privileges and (v)
each class has different shareholder service options available. The net income
attributable to Class B shares and Class C shares and the dividends payable on
Class B shares and Class C shares will be reduced by the amount of the higher
distribution fees associated with such class of shares. Sales personnel of
Participating Dealers distributing the Company's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A shares, Class B shares or Class C shares.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in a Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or Class C shares would be less than the initial sales charge on Class A shares
purchased at the same time, and to what extent such differential would be offset
by the higher dividends per share on Class A shares. To assist investors in
making this determination, the table under the caption "Fund Expenses" sets
forth examples of the charges applicable to each class of shares. In this
regard, Class A shares may be more beneficial to the investor who qualifies for
reduced initial sales charges or purchases shares at net asset value, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, it is presently the policy of the Distributor not to accept any order
of $500,000 or more for Class B shares or any order of $1 million or more for
Class C shares as it ordinarily would be more beneficial for such an investor to
purchase Class A shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for most
accounts under $1 million, investors in Class A shares do not have all their
funds invested initially and, therefore, initially own fewer shares. Other
investors might determine that it is more advantageous to purchase either Class
B shares or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, prefer not to pay redemption charges and/or have a
longer-term investment horizon. Class B shares may be appropriate for investors
who wish to avoid a front-end sales charge, put 100% of their investment dollars
to work immediately, and/or have a longer-term investment horizon. Class C
shares may be appropriate for investors who wish to avoid a front-end sales
charge, put 100% of their investment dollars to work immediately, have a
shorter-term investment horizon and/ or desire a short contingent deferred sales
charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any CDSC
incurred upon redemption within five years or one year, respectively, of
purchase. Investors should understand that the
34
35
purpose and function of the CDSC and ongoing distribution fee with respect to
Class B shares and Class C shares are the same as those of the initial sales
charge with respect to Class A shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. In some instances, additional compensation or promotional incentives may
be offered to Participating Dealers that have sold or may sell significant
amounts of shares during specified periods of time. Such fees paid for such
services and activities with respect to a Fund will not exceed in the aggregate
1.25% of the average total daily net assets of the Fund on an annual basis. All
of the foregoing payments are made by the Distributor out of its own assets.
These programs will not change the price an investor will pay for shares or the
amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value per share plus a sales charge, as set forth herein.
SALES CHARGE TABLE
REALLOWED TO DEALERS
------------------------------------------------------
AS % OF AS % OF NET (AS % OF
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
------------------------------ --------------- ----------------- ----------------
Less than $50,000............. 5.75 6.10 5.00
$50,000 but less than
$100,000..................... 4.75 4.99 4.00
$100,000 but less than
$250,000..................... 3.75 3.90 3.00
$250,000 but less than
$500,000..................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000................... 2.00 2.04 1.75
$1,000,000 or more*........... * * *
--------------
* No initial sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
contingent deferred sales charge of 1.00% in the event of certain redemptions
within one year of the purchase. A commission will be paid to brokers, dealers
or financial intermediaries who initiate and are responsible for purchases of
$1 million or more as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the 1933 Act.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Xxxxx-Xxxxxxxx Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the
35
36
described services, the Distributor would consider what action, if any, would be
appropriate. The Distributor does not believe that termination of a relationship
with a bank would result in any material adverse consequences to the Company.
State securities laws regarding registration of banks and other financial
institutions may differ from the interpretations of federal law expressed herein
and banks and other financial institutions may be required to register as
dealers pursuant to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Xxx Xxxxxx Asset Management Inc.
("Asset Management") and distributed by the Distributor as determined from time
to time by the Company's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the preceding sales
charge table applies to the total dollar amount being invested by any person in
shares of a Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the sales charges applicable to the purchases made and the
sales charges previously paid. The initial purchase must be for an amount equal
to at least 5% of the minimum total purchased amount of the level selected. If
trades not initially made under a Letter of Intent subsequently qualify for a
lower sales charge through the 90-day back-dating provisions, an adjustment will
be made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustments in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. Additional
information is contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit investment trust reinvestment programs and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment
36
37
trust program meets certain uniform criteria relating to cost savings by the
Company and the Distributor. The total sales charge for all other investments
made from unit trust distributions will be 1.00% of the offering price (1.01% of
net asset value). Of this amount, the Distributor will pay to the Participating
Dealer, if any, through which such participation in the qualifying program was
initiated 0.50% of the offering price as a dealer concession or agency
commission. Persons desiring more information with respect to this program,
including the applicable terms and conditions thereof, should contact their
Participating Dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide Investor Services with
appropriate backup data for each participating investor in a computerized format
fully compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value per share without an initial sales charge, upon written assurance
that the purchase is made for investment purposes and that the shares will not
be resold except through redemption by the Fund, by:
(1) Current or retired trustees/directors of funds advised by the
Adviser or Asset Management and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Xxxxxx
Xxxxxxx Group Inc. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees; provided that such purchases are otherwise
permitted by such institution.
(4) Registered investments advisers who charge a fee for their services,
trust companies and bank trust departments investing on their own behalf or
on behalf of their clients. The Distributor may pay Participating Dealers
through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans which invest in multiple fund families through national wirehouse
alliance programs subject to certain minimum size and operational
requirements. Directors and other fiduciaries should refer to the Statement
of Additional Information for further detail with respect to such alliance
programs.
(6) Beneficial owners of shares of Participating Funds held by a
retirement plan or held in a tax-advantaged retirement account who purchase
shares of the Fund with proceeds from distributions from such a plan or
retirement account other than distributions taken to correct an excess
contribution.
(7) Accounts as to which a broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary has a separate agreement with the
Distributor.
(8) Trusts created under pension, profit sharing or other employee
benefit plans qualified under Section 401(a) of the Code, or custodial
accounts held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of the
Code and assets
37
38
held by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the initial amount invested in
the Participating Funds is at least $500,000 or (2) such shares are purchased by
an employer sponsored plan with more than 100 eligible employees. Section 403(b)
and similar accounts for which Xxx Xxxxxx Trust Company ("Xxx Xxxxxx Trust")
serves as custodian will not be eligible for net asset value purchases based on
the aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from time
to time. A commission will be paid to dealers who initiate and are responsible
for such purchases within a rolling twelve month period as follows: 1.00% on
sales up to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the
next $47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this
purpose, a qualified group is one which (i) has been in existence for more
than six months, (ii) has a purpose other than to acquire shares of a Fund
or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of shares
of a Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members, and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Xxxxxx purchased
in each group's participant's account in connection with this privilege will
be subject to a contingent deferred sales charge of one percent in the event
of redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described
herein under "Distribution Plans" on purchases made as described in (3) through
(9) above.
The Company may terminate, or amend the terms of, offering shares of the
Funds at net asset value to the foregoing groups at any time.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the CDSC, if any, will vary
depending on the number of years from the time of purchase of Class B shares
until the redemption of such shares (the "holding period"). The following table
sets forth the rates of the CDSC.
38
39
CONTINGENT DEFERRED SALES CHARGE
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
------------------------------ ----------------
First......................... 5.00%
Second........................ 4.00%
Third......................... 3.00%
Fourth........................ 2.50%
Fifth......................... 1.50%
Thereafter.................... None*
--------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Rule 12b-1 Plan as described
under "Management of the Company -- Distributor" above. Additionally, the
Distributor may pay additional promotional incentives in the form of cash or
other compensation to authorized dealers that sell Class B shares of the Funds.
The combination of the CDSC and the distribution fee facilitates the ability of
the Company to sell the Class B shares without a sales charge being deducted at
the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution fees. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. Under current tax law, the
conversion is not a taxable event to the shareholder.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will generally make payments to the Participating Dealers that handle the
purchases of such shares at the rate of up to 1.00% of the purchase price of
such shares at the time of purchase and expects to pay to Participating Dealers
most of its distribution fee, with respect to such shares, under the Rule 12b-1
Plan for such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC
The CDSC will be waived on the redemption of Class B or Class C shares (i)
following the death or initial determination of disability (as defined in the
Code) of a shareholder; (ii) certain distributions from an IRA or other
retirement plan; (iii) to the extent that shares redeemed have been withdrawn
from a Systematic Withdrawal Plan, up to a maximum amount of 12% per year from a
shareholder account based on the value of the account at the time the Withdrawal
Plan is established; (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares; or (v) effected pursuant to the right of the Company to liquidate a
shareholder's account as described under "Redemption of Shares". A shareholder,
or their representative, must notify the Company's Transfer Agent prior to the
time of redemption if such circumstances exist and the shareholder is eligible
for this waiver. The shareholder is responsible for providing sufficient
documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
Investor Services at 0-000-000-0000.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Funds
or classes thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
39
40
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value per share at the time
of the reinvestment in Class A shares of the Funds without payment of a sales
charge. A shareholder who has redeemed Class B shares of a Participating Fund
and paid a CDSC upon such redemption may reinvest up to the full amount received
upon redemption in Class A shares of a Fund at net asset value per share with no
initial sales charge. A Class C shareholder who has redeemed shares of a
Participating Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of a Fund with credit given for any CDSC paid upon
such redemption. The reinstatement privilege as to any specific Class A, Class B
or Class C shares must be exercised within 180 days of the redemption. The
Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written request must
state that the reinvestment is made pursuant to this reinstatement privilege. If
a loss is realized on the redemption of Class A shares, the reinvestment may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinstatement privilege may be terminated or modified at any
time. Reinstatement at net asset value per share is also offered to participants
in those eligible retirement plans held or administered by Xxx Xxxxxx Trust for
repayment of principal (and interest) on their borrowings on such plan. See the
Statement of Additional Information for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by Investor Services. Investor Services acts as transfer agent
for the Company and performs bookkeeping, data processing and administration
services related to the maintenance of shareholder accounts. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from Investor Services showing any reinvestments
of dividends and capital gains distributions and any other activity in the
account since the preceding statement. Such shareholders also will receive
separate confirmations for each purchase or sale transaction other than
reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized brokers, dealers or financial
intermediaries or by mailing a check directly to Investor Services.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to Xxx Xxxxxx Series Fund, Inc.
c/o Xxx Xxxxxx Investor Services Inc., P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares and bill the
party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (000) 000-0000 or (000) 000-0000
for the hearing impaired, or in writing to Investor Services. The investor may,
on the initial application or prior to any declaration, instruct that dividends
be paid in cash and capital gains distributions be reinvested at net asset
value, or that both dividends and capital gains distributions be paid in cash.
For further information, see "Dividends and Distributions."
40
41
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (000) 000-0000 or (000) 000-0000 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested in shares of the same class of any Participating
Fund, so long as a pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same class and of the same type
of retirement plan (e.g. IRA, 403(b)(7), 401(k), Xxxxx) and for the benefit of
the same individual.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected portfolio at its net asset value as of the payable date of the
distribution only if shares of such selected portfolio have been registered for
sale in the investor's state and are currently available for sale.
RETIREMENT PLANS. Eligible investors may establish IRAs; SEP; pension and
profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of
employees of public school systems and certain non-profit organizations.
Documents and forms containing detailed information regarding these plans are
available from the Distributor. Xxx Xxxxxx Trust serves as custodian under the
IRA, 403(b)(7) and Xxxxx plans. Details regarding fees, as well as full plan
administration for profit sharing, pension and 401(k) plans, are available from
the Distributor.
EXCHANGE PRIVILEGE. Shares of the Funds may be exchanged for shares of the
same class of another Participating Fund based on the net asset value per share
of each Fund on the date of exchange, subject to certain limitations. Before
effecting an exchange, shareholders in the Company should obtain and read a
current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE AND ARE CURRENTLY AVAILABLE FOR SALE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of a Participating Fund that generally imposes an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of a Participating Fund that does not impose
an initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such share
originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(000) 000-0000. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying this
Prospectus. See "Redemption of Shares -- Telephone Transaction Procedures" for
more information. The exchange will take
41
42
place at the relative net asset value per share of the shares next determined
after receipt of such request with adjustment for any additional sales charge.
Any shares exchanged begin earning dividends on the next business day after the
exchange is affected. If the exchanging shareholder does not have an account in
the Participating Fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or dividend diversification options for the
new account, an exchanging shareholder must file a specific written request. The
Company reserves the right to reject any order to acquire its shares through
exchange. In addition, the Company may restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more at the offering price next computed after receipt of
instructions may establish a quarterly, semi-annual or annual withdrawal plan.
Investors whose shares in a single account total $10,000 or more at the offering
price next computed after receipt of instructions may establish a monthly,
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the value of a shareholder's account at the
time the Systematic Withdrawal Plan is commenced. Under this CDSC waiver policy,
amounts withdrawn each period will be paid by redeeming first shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If shares subject to a CDSC must be redeemed, shares held for
the longest period of time will be redeemed first and continuing with shares
held the next longest period of time until shares held the shortest period of
time are redeemed.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on 30 days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once Investor Services has
received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to Investor
Services or by calling 0-000-000-0000. A shareholder's bank may charge a fee for
ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company c/o Xxx Xxxxxx
Investor Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. As in
the case of redemptions, the written request must be received in "good order"
before any transfer can be made. Xxxxxx held in broker street name may be
transferred only by contacting your Participating Dealer.
42
43
INTERNET TRANSACTIONS. In addition to performing transactions on your
account through written instruction or by telephone, you may also perform
certain transactions through the internet. Please refer to our web site at
xxx.xxx-xxxxxx.xxx for further instruction. Xxx Xxxxxx and its subsidiaries,
including Investor Services (collectively "VK"), and the Funds employ procedures
considered by them to be reasonable to confirm that instructions communicated
through the internet are genuine. Such procedures include requiring use of a
personal identification number prior to acting upon internet instructions and
providing written confirmation of instructions communicated through the
internet. If reasonable procedures are employed, neither VK nor the Funds will
be liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than any applicable CDSC) at any time by sending a written
request in proper form directly to the Company c/o Xxx Xxxxxx Investor Services
Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256, by placing the
redemption request through a Participating Dealer or by calling the Company. See
"Purchase of Shares" for a discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to Investor Services, the redemption request should indicate the number
of shares or dollars to be redeemed, the class designation of such shares, the
account number and be signed exactly as the shares are registered. Signatures
must conform exactly to the account registration. If the proceeds of the
redemption would exceed $50,000, or if the proceeds are not to be paid to the
record owner at the record address, or if the record address has changed within
the previous 30 days, signature(s) must be guaranteed by one of the following: a
bank or trust company; a broker-dealer; a credit union; a national securities
exchange, registered securities association or clearing agency; a savings and
loan association; or a federal savings bank. If certificates are held for the
shares being redeemed, such certificates must be endorsed for transfer or
accompanied by an endorsed stock power and sent with the redemption request. In
the event the redemption is requested by a corporation, partnership, trust,
fiduciary, executor or administrator, additional documents may be necessary. The
redemption price is the net asset value per share next determined after the
request is received by Investor Services in proper form. Payment for shares
redeemed will ordinarily be made by check mailed within seven business days
after acceptance by Investor Services of the request and any other necessary
documents in proper order.
DEALER REDEMPTION REQUESTS. Shareholders may redeem shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value per share
next calculated after an order is received (less any applicable CDSC) by a
dealer provided such order is transmitted to the Distributor prior to the
Distributor's close of business on such day. It is the responsibility of dealers
to transmit redemption requests received by them to the Distributor so they will
be received prior to such time. Any change in the redemption price due to
failure of the Distributor to receive a redemption request prior to such time
must be settled between the shareholder and dealer. Shareholders must submit a
written redemption request in proper form (as described above under "Written
Redemption Requests") to the dealer within three business days after calling the
dealer with the redemption request. Payment for shares redeemed (less any sales
charges, if applicable) will ordinarily be made by check mailed within three
business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (000) 000-0000,
or (000) 000-0000 for the hearing impaired, to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (000) 000-0000. See
"Telephone Transaction Procedures" for more information. Telephone redemptions
may not be available if the shareholder cannot reach Investor Services by
telephone, whether because all telephone lines are busy or for any other reason,
in such case, a shareholder would have to use the Company's other redemption
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., Eastern Time, on a regular business day will be processed at the net
asset value per share determined that day. These privileges are available for
all
43
44
accounts other than retirement accounts. The telephone redemption privilege is
not available for shares represented by certificates. If an account has multiple
owners, Investor Services may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DEATH OR DISABILITY. The Company will waive the CDSC on
redemptions following the death or disability of holders of Class B shares and
Class C shares. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C
shares will be waived where the decedent or disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the death or initial
determination of disability. This waiver of the CDSC on Class B shares and Class
C shares applies to a total or partial redemption, but only to redemptions of
shares held at the time of the death or initial determination of disability.
GENERAL REDEMPTION INFORMATION. If the shares to be redeemed have been
recently purchased by check, Investor Services may delay mailing a redemption
check or wiring redemption proceeds until it confirms that the purchase check
has cleared, usually a period of up to 15 days. In addition, the redemption
payment may be delayed or the right of redemption suspended by the Fund pursuant
to rules of the SEC.
The Company may redeem any shareholder account with a value on the date of
the notice of redemption less than the minimum initial investment as specified
in this Prospectus. At least 60 days' advance written notice of any such
involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value per share without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Where Xxx Xxxxxx Trust serves as
IRA custodian, special IRA, 403(b)(7), or Xxxxx redemption forms must be
obtained from and be forwarded to Xxx Xxxxxx Trust Company, P.O. Box 944,
Houston, Texas 00000-0000. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Xxx Xxxxxx Trust who repay the
principal and interest on their borrowings from such plans.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TELEPHONE TRANSACTION PROCEDURES. Xxx Xxxxxx and its subsidiaries,
including Investor Services (collectively, "VK") and the Company employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal
44
45
identification information prior to acting upon telephone instructions, tape
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither VK nor the Company will be liable for following instructions which it
reasonably believes to be genuine. VK and the Company may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such class of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m., Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
PORTFOLIO TRANSACTIONS
The Adviser and the applicable Sub-Adviser select the brokers or dealers
that will execute the purchases and sales of investment securities for the
applicable Fund. The Adviser and the applicable Sub-Adviser may, consistent with
NASD rules, place portfolio orders with qualified broker-dealers who recommend
the applicable Fund to their clients or who act as agents in the purchase of
shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and the applicable Sub-Adviser may allocate a portion of the
Company's portfolio brokerage transactions to Xxxxxx Xxxxxxx & Co. Incorporated
("Xxxxxx Xxxxxxx") and affiliates of the Adviser and the Sub-Advisers or broker
affiliates of Xxxxxx Xxxxxxx under procedures adopted by the Board of Directors.
For such portfolio transactions, the commissions, fees or other remuneration
received by Xxxxxx Xxxxxxx or such affiliates must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers
for comparable transactions involving similar securities being purchased or sold
during a comparable period of time.
45
46
Although the objective of each Fund is not to invest for short-term trading,
each Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objective. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. High portfolio turnover (i.e. 100% or more)
involves correspondingly greater transaction costs which will be borne directly
by a Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund. See "Financial
Highlights" above for the Funds' historical portfolio turnover rates.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Xxxxxx Xxxxxxx Capital
International.
PERFORMANCE OF INVESTMENT SUB-ADVISERS
The Mid Cap Growth Fund was modeled after a portfolio of the MAS Funds,
which is currently managed by MAS. The MAS Portfolio has substantially the same
investment objective, policies and strategies as the Mid Cap Growth Fund. In
addition, the Adviser and MAS intend the Mid Cap Growth Fund to be managed by
the same personnel and to continue to have closely similar investment
strategies, techniques and characteristics as the corresponding MAS Portfolio.
Past investment performance of the MAS Portfolio, as shown in the table below,
may be relevant to your consideration of investment in the Mid Cap Growth Fund.
The investment performance of the MAS Portfolio is not necessarily indicative of
future performance of the Mid Cap Growth Fund. Also, the operating expenses of
the Mid Cap Growth Fund will be different from, and may be higher than, the
operating expenses of the MAS Portfolio. The investment performance of the MAS
Portfolio is provided merely to indicate the experience of MAS in managing a
similar investment portfolio.
The data set forth below under the heading "Return With Sales Charge" is
adjusted to reflect the Mid Cap Growth Fund's projected operating expenses and
(i) with respect to the Class A shares, to take into account a maximum 5.75%
initial sales charge applicable to purchases of Class A shares of the Mid Cap
Growth Fund, (ii) with respect to Class B shares, to take into account the
applicable CDSC that is imposed if Class B shares of the Mid Cap Growth Fund are
redeemed within the year of their purchase indicated and (iii) with respect to
the Class C shares, to take into account a 1.00% CDSC that is imposed if Class C
shares of the Mid Cap Growth Fund are redeemed within one year of their
purchase. The data set forth below under the heading "Return Without Sales
Charge" is adjusted to reflect the Mid Cap Growth Fund's projected operating
expenses and not adjusted to take into account such sales charges.
TOTAL RETURN FOR THE MAS PORTFOLIO FOR GROWTH INSTITUTIONAL CLASS
(A SEPARATE MUTUAL FUND FROM THE MID CAP GROWTH FUND)
FOR THE PERIOD ENDED JUNE 30, 1998
(ADJUSTED TO REFLECT PROJECTED OPERATING EXPENSES AND, WHERE INDICATED, THE
SALES CHARGES OF THE FUND)
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS SINCE INCEPTION(1)
---------------------------------------------------------- --------- ----------- -------------------
Class A (of 5.75%)........................................ 42.53% 22.61% 21.65%
Class B (of 5.00%)........................................ 45.48% 23.60% 22.34%
Class C (of 1.00%)........................................ 49.48% 23.73% 22.34%
RETURN WITHOUT
SALES CHARGE
----------------------------------------------------------
Class A................................................... 51.23% 24.07% 22.53%
Class B................................................... 50.48% 23.73% 22.34%
Class C................................................... 50.48% 23.73% 22.34%
--------------
(1) Commenced Operations on March 30, 1990.
46
47
The past performance of the MAS Portfolio for Growth Institutional Class is
no guarantee of the future performance of the Mid Cap Growth Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
sales charge of the Funds, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
Each of the Equity Growth and Mid Cap Growth Funds expects to distribute
substantially all of its net investment income in the form of annual dividends
and each of the Aggressive Equity, American Value, U.S. Real Estate and Value
Funds expects to distribute substantially all of its net investment income in
the form of quarterly dividends. Each of the Funds expects to distribute net
realized gains, if any, annually. Confirmations of the purchase of shares of a
Fund through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Expenses of the Company allocated to a particular class of shares of a Fund
will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current federal income tax laws and regulations, which may be changed by
legislative, judicial or administrative action, possibly with retroactive
effect. See also the tax sections in the Statement of Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code generally will be
applied to each Fund separately, rather than to the Company as a whole.
Accordingly, net long-term and short-term capital gains, net income and
operating expenses will be determined separately for each Fund.
Each Fund has elected and qualified, and intends to continue to qualify each
year, for the special tax treatment afforded "regulated investment companies"
("RICs") under Subchapter M of the Code so that each will be relieved of federal
income tax on that part of its net investment income and net capital gain (the
excess of net long-term capital gain over net short-term capital loss, less any
available capital loss carryforward) which is distributed to its shareholders.
DISTRIBUTIONS AND DISPOSITIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received with respect to shares of domestic
corporations may qualify for the dividends-received deduction for corporations.
Distributions of net capital gains ("capital gain dividends") are taxable to
shareholders subject to tax as long-term capital gains, regardless of how long
the shareholder has held a Fund's shares. Capital gain dividends are not
eligible for the corporate dividends-received deduction. Each Fund will make
annual reports to
47
48
shareholders of the federal income tax status of all distributions. See the
discussion below for a summary of the tax rates applicable to capital gains
(including capital gain dividends).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to continue to qualify as a RIC under the Code and to avoid liability for
federal income and excise taxes.
Dividends and other distributions declared by a Fund in October, November or
December that are payable as of a record date in such month and are paid at any
time during January of the following year are treated as having been paid by the
Fund and received by the shareholders on December 31st of the year in which they
are declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the sale, exchange or redemption proceeds exceeds or is
less than the shareholder's adjusted tax basis in the sold, exchanged or
redeemed shares. If capital gain dividends have been paid with respect to shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of such capital gain
dividends. Shareholders may also be subject to state and local taxes on
distributions from the Funds.
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less, or (ii)
20% for capital assets held for more than one year. The maximum long-term
capital gains rate for corporations is at 35%. A special 28% tax rate may apply
to a portion of the capital gain dividends paid by the Fund with respect to its
taxable year ended June 30, 1998.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992 under
the name Xxxxxx Xxxxxxx Fund, Inc. On July 14, 1998 the Company adopted its
current name. The Amended Articles of Incorporation currently permit the Company
to issue 28.5 billion shares of common stock, par value $.001 per share.
Pursuant to the Company's By-Laws, the Board of Directors may increase the
number of shares the Company is authorized to issue without the approval of the
shareholders of the Company. The Board of Directors has the power to designate
one or more classes of shares of common stock and to classify and reclassify any
unissued shares with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Except as
described herein, the shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. The
shares of the Funds have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so. Under Maryland law, the
Company is not required to hold an annual meeting of its shareholders unless
required to do so under the 1940 Act. Any person or organization owning 25% or
more of the outstanding shares of a Fund may be presumed to "control" (as that
term is defined in the 1940 Act) such Fund. As of September 3, 1998, no person
or organization owned 25% or more of the outstanding voting shares of any Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or Investor Services will send to each shareholder
having an account directly with the Company a quarterly statement showing
transactions in the account, the total number of shares owned, and any dividends
or distributions paid. In addition, when a transaction occurs in a shareholder's
account, the Company or Investor Services will send the shareholder a
confirmation statement showing the same information.
48
49
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser, the Sub-Adviser or the Distributor. Xxxxxx Xxxxxxx Trust Company,
Brooklyn, New York ("Xxxxxx Xxxxxxx Trust"), acts as the Company's custodian for
foreign assets held outside the United States and employs subcustodians who were
approved by the Directors of the Company in accordance with regulations of the
SEC for the purpose of providing custodial services for such assets. Xxxxxx
Xxxxxxx Trust may also hold certain domestic assets for the Company. Xxxxxx
Xxxxxxx Trust is an affiliate of the Adviser, the Sub-Adviser and the
Distributor. For more information on the custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Xxx Xxxxxx Investor Services Inc., P.O. Box 418256, Kansas City, Missouri
64141-9256, acts as dividend disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 000 Xxxx Xxxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx
00000, serves as independent accountants for the Company and audits its annual
financial statements.
49
50
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
XXXXX'X INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be 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.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
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.
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 characterizes 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 Caa 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.
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
A-1
51
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 for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC 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 indicates the
lowest degree of speculation and CC 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.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
52
--------------------------------------------------------------------------------
XXX XXXXXX
AGGRESSIVE EQUITY FUND
AMERICAN VALUE FUND
EQUITY GROWTH FUND
MID CAP GROWTH FUND
U.S. REAL ESTATE FUND
VALUE FUND
PORTFOLIOS OF
XXX XXXXXX SERIES FUND, INC.
----------------------------------------------------------------
PROSPECTUS
SEPTEMBER 30, 1998
[LOGO]
(This page has been left
blank intentionally)
