Weiss Fund · 485BPOS · On 4/30/02 · EX-99
Filed On 4/30/02 · SEC File 33-95688 · Accession Number 945621-2-150
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
4/30/02 Weiss Fund 485BPOS 4/30/02 15:160 Dechert/FA
Document/Exhibit Description Pages Size
1: 485BPOS Facing Sheet 1 8K
2: EX-99 Slip Sheet 43 175K
3: EX-99 Combined Sai (Class A) 54± 251K
4: EX-99 Wmof Class S Sai 45± 215K
5: EX-99 Part C 5± 28K
6: EX-99 Signature Page 2± 11K
7: EX-99 Poa Dana Nicholas 1 7K
8: EX-99 Poa Robert Lehrer 1 7K
9: EX-99 Poa Esther Gordon 1 7K
10: EX-99 Poa Donald Wilk 1 7K
11: EX-99 Secretary's Certificate 1 8K
12: EX-99 Exhibit Index 1 5K
13: EX-99 Dechert Opinion Letter 1 9K
14: EX-99 Auditors Consent and Report 2 11K
15: EX-99 Transmittal Letter to Sec 1 9K
THE WEISS FUND
4176 Burns Road
Palm Beach Gardens, FL 33410
(800) 289-8100
Statement of Additional Information
May 1, 2002
Weiss Millennium Opportunity Fund
Class S Shares
This Statement of Additional Information ("SAI") pertains to the Class S shares
of Weiss Millennium Opportunity Fund (the "Fund"), which is a separate series of
The Weiss Fund, a Massachusetts business trust (the "Trust") that currently
consists of two portfolios, each of which is diversified. The Fund is managed by
Weiss Money Management, Inc. (the "Manager").
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund's Class S shares dated April 30, 2002 (the
"Prospectus"), as amended from time to time, copies of which may be obtained
from the Trust without charge by writing to the above address or by calling
(800) 289-8100.
The Board of Trustees of the Trust voted to close the Fund to new investments,
effective April 19, 2002, and adopted a plan to liquidate the Fund no later than
May 20, 2002.
The Board determined that liquidation is in the best interests of Fund
shareholders because, in the view of the Manager, a view in which the Board
concurs, the Fund is unlikely to grow sufficiently to enable it to benefit from
the economies of scale that are offered by large funds. In making this
determination, the Board considered that the small size of the Fund, its high
expense ratio absent fee waivers and expense reimbursements, the Manager's
unwillingness to maintain indefinitely the Fund's expenses at current levels,
and the relative lack of investor interest in the Fund have rendered the
continued operation of the Fund impracticable.
This Statement of Additional Information is hereby amended by removing
information relating to an offering of shares of the Fund.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE, RESTRICTIONS AND TECHNIQUES...........................1
Investment Objective...............................................1
Investments........................................................1
Investment Restrictions...........................................13
ORGANIZATION OF THE FUND...................................................14
TRUSTEES AND OFFICERS......................................................16
MANAGEMENT COMPENSATION....................................................19
INVESTMENT ADVISORY AND OTHER SERVICES.....................................20
Investment Manager................................................20
Sub-Adviser.......................................................20
Distributor.......................................................21
Rule 12b-1 Distribution Plan......................................22
Code of Ethics....................................................23
Administrator.....................................................23
Transfer Agent, Dividend Disbursing Agent and Custodian...........23
PERFORMANCE INFORMATION....................................................23
Average Annual Total Return.......................................23
Cumulative Total Return...........................................26
Total Return......................................................26
Capital Change....................................................26
Comparison of Portfolio Performance...............................26
BUYING SHARES..............................................................28
REDEMPTIONS................................................................28
DIVIDENDS AND DISTRIBUTIONS................................................28
TAXES ..................................................................29
BROKERAGE ALLOCATION.......................................................32
NET ASSET VALUE............................................................33
INDEPENDENT ACCOUNTANTS....................................................34
FINANCIAL STATEMENTS.......................................................34
ADDITIONAL INFORMATION.....................................................34
APPENDIX A.................................................................35
INVESTMENT OBJECTIVE, RESTRICTIONS AND TECHNIQUES
Investment Objective
The Fund is a diversified series of The Weiss Fund, an open-end, management
investment company. The investment objective of the Fund is to seek capital
appreciation. The investment objective of the Fund is not fundamental and may be
changed by the Trustees without shareholder approval. There is no assurance that
the Fund will achieve its objective.
Investments
The Fund's investment policies and techniques are summarized in the Prospectus
and set forth in greater detail below. Unless otherwise stated, the Fund's
policies are not fundamental.
The Fund pursues its objective by investing primarily in a portfolio of equity
securities, such as common stocks, and engaging in short sales of such
securities. The Fund employs a "long-short" approach. With this approach, the
Fund will seek to purchase stocks of companies that, in the Manager's opinion,
have (1) strong or improving fundamentals, (2) lower vulnerability to adverse
factors such as global deflation or a domestic recession, and/or (3) operate in
sectors of the market that show accelerating momentum and strong relative
strength. At the same time, the Fund will seek to sell short stocks of issuers
which the Manager believes have (1) weak or deteriorating fundamentals, (2)
greater vulnerability to adverse factors, and/or (3) operate in sectors of the
market that show decelerating momentum and weak relative strength. Although the
Manager expects that the Fund's "long" equity positions will generally outweigh
its "short" equity positions, the Fund is not restricted in the amount of its
assets that it may commit to short sales.
Investments may be made in well-known, established companies, as well as in
newer and relatively unseasoned companies. Individual security selection aided
by computer technology is an important part of the Fund's investment approach.
The Manager utilizes a risk management system based upon a quantitative model
that is a combination of momentum, price behavior, and volatility indicators.
The objective of this model is to identify those periods when the stock market
is vulnerable. This model is used to adjust the level of the Fund's equity
exposure, ranging from fully invested, neutral, or short. Potential investments
of the Fund are also evaluated using fundamental analysis including criteria
such as earnings outlook, cash flow, asset values, sustainability of product
cycles, expansion opportunities, management capabilities, industry outlook,
competitive position, and current price relative to long-term value of the
company.
Under normal circumstances, it is expected that at least 65% of the Fund's
assets will be invested in equity securities, comprised of both long and short
positions. The Manager anticipates that a portion of the Fund's assets will be
allocated, in both long and short positions, to stocks selected by the Manager
based primarily upon fundamental analysis, with a buy and hold strategy in mind.
In addition, another part of the Fund's assets will be comprised of both long
and short positions in stocks selected by the Manager based upon such criteria
as fundamental momentum and relative value, invested with a short-term
investment strategy driven primarily by sector analysis. The Manager expects
that approximately 20% of the Fund's assets will, under normal conditions, be
invested in fixed-income securities, cash and cash equivalents. Depending on the
Manager's perception of market conditions, these percentages may differ
substantially at various times.
The following describes the Manager's investment approach in greater detail.
Analysis:
o Fundamental analysis: Companies are evaluated for their fundamental
ability to withstand, or even take advantage of, adverse economic
conditions, such as global deflation or a domestic recession. Factors
such as cash flow, asset values, competitive position, current price
and industry outlook may also be considered. A Strongest List and a
Weakest List are produced based on this analysis.
o Sector analysis: A proprietary computer model evaluates various market
sectors to aid the Manager in selecting for purchase securities from
sectors of the economy that are showing strength or, conversely,
selling stocks short in sectors that are showing weakness.
o Market trend analysis: Based on a proprietary model, a bullish
(indicating a rising market) or bearish (indicating a falling market)
signal is generated.
Security Selection:
Based upon the results of both the fundamental and sector analyses discussed
above:
o A Buy Candidates List is created containing stocks in sectors ranked
high.
o A Short-Sale Candidates List is created with stocks in sectors ranked
low.
Portfolio Structure:
The Fund's assets will normally be invested as set forth below. Depending on the
Manager's perception of market conditions, these percentages may differ
substantially at various times.
o Approximately 30% of the Fund's assets be allocated to core positions
(positions the Manager intends to hold for a while). The Manager
intends to split these between (a) long positions in stocks selected
from the Strongest List and (b) short positions in stocks selected
from the Weakest List.
o Approximately 50% of the Fund's assets will normally consist of
actively traded equity positions which will be allocated based upon
the market trend analysis discussed above. In a bullish market,
trading positions will be primarily allocated to long positions in
stocks selected from the Buy Candidates List. In a bearish market,
this portion of the assets will consist primarily of short equity
positions in stocks selected from the Short-Sale Candidates List.
o Approximately 20% of the Fund's assets will be invested in debt
securities of corporate issuers, including convertible securities,
commercial paper and zero coupon bonds, and debt securities issued or
guaranteed by the United States government and its agencies or
instrumentalities. In a neutral market or for temporary defensive or
emergency purposes, the Fund's exposure to these types of securities
may be increased significantly.
The Fund may, but is not required to, effect transactions in options on
securities and stock indices and options on stock index futures contracts for
hedging purposes.
As a result of the investment techniques used by the Fund, the Fund expects that
a significant portion (up to 100%) of its assets will be held in liquid
securities in a segregated account as "cover" for the investment techniques the
Fund employs. These assets may not be sold while the position in the
corresponding instrument or transaction (e.g., option or short sale) is open
unless they are replaced by similar assets. As a result, the commitment of a
large portion of the Fund's assets to "cover" investment techniques could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Descriptions in this SAI of a particular investment practice or technique in
which the Fund may engage (such as short selling or hedging) or a financial
instrument which the Fund may purchase (such as options) are meant to describe
the spectrum of investments that the Manager, in its discretion, might, but is
not required to, use in managing the Fund's portfolio assets. The Manager may,
in its discretion, at any time employ such practice, technique or instrument for
one or more funds but not for all funds advised by it. Furthermore, it is
possible that certain types of financial instruments or investment techniques
described herein may not be available, permissible, economically feasible or
effective for their intended purposes in all markets. Certain practices,
techniques, or instruments may not be principal activities of the Fund but, to
the extent employed, could from time to time have a material impact on the
Fund's performance.
Common Stocks
Common stock can be issued by companies to raise cash; all common stock shares
represent a proportionate ownership interest in a company. As a result, the
value of common stock rises and falls with a company's success or failure. The
market value of common stock can fluctuate significantly, with smaller companies
being particularly susceptible to price swings. Transaction costs in smaller
company stocks may also be higher than those of larger companies.
Short Sales
The Fund may seek to realize additional gains or hedge investments through short
sales. Short sales are transactions in which the Fund sells a security it does
not own in anticipation of a decline in the market value of that security. To
complete such a transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund then is obligated to replace the security borrowed by
purchasing it at the market price at or prior to the time of replacement. The
price at such time may be more or less than the price at which the security was
sold by the Fund. Until the security is replaced, the Fund is required to repay
the lender any dividends or interest that accrue during the period of the loan.
To borrow the security, the Fund also may be required to pay a premium, which
would increase the cost of the security sold. The net proceeds of the short sale
will be retained by the broker (or by the Fund's custodian in a special custody
account), to the extent necessary to meet margin requirements, until the short
position is closed out. The Fund also will incur transaction costs in effecting
short sales.
The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses the Fund may be required to pay in connection
with a short sale. There can be no assurance that the Fund will be able to close
out a short position at a particular time or at an acceptable price.
Convertible Securities
The convertible securities in which the Fund may invest include corporate bonds,
notes, debentures, preferred stock and other securities that may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. Investments in convertible securities can provide income through
interest and dividend payments as well as an opportunity for capital
appreciation by virtue of their conversion or exchange features. Because
convertible securities can be converted into equity securities, their values
will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide for a
stream of income. Like all debt securities, there can be no assurance of income
or principal payments because the issuers of the convertible securities may
default on their obligations (see following section). Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
Debt Securities
In General. Investment in debt securities involves both interest rate and credit
risk. Generally, the value of debt instruments rises and falls inversely with
fluctuations in interest rates. As interest rates decline, the value of debt
securities generally increases. Conversely, rising interest rates tend to cause
the value of debt securities to decrease. Bonds with longer maturities generally
are more volatile than bonds with shorter maturities. The market value of debt
securities also varies according to the relative financial condition of the
issuer. In general, lower-quality bonds offer higher yields due to the increased
risk that the issuer will be unable to meet its obligations on interest or
principal payments at the time called for by the debt instrument.
Investment-Grade Debt Securities. The Fund may invest in debt securities that
are given an investment-grade rating by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P"), and may also invest in
unrated debt securities that are considered by the Manager to be of comparable
quality. Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best
quality (i.e., capacity to pay interest and repay principal is extremely
strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity
to pay interest and repay principal is very strong and differs from the highest
rated issues only to a small degree). Bonds rated A are viewed as having many
favorable investment attributes, but elements may be present that suggest a
susceptibility to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered
by Moody's to be "medium grade" obligations) are considered to have an adequate
capacity to pay interest and repay principal, but certain protective elements
may be lacking (i.e., such bonds lack outstanding investment characteristics and
have some speculative characteristics). See Appendix A for a description of
these ratings.
Commercial Paper. Commercial paper represents short-term unsecured promissory
notes issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
U.S. Treasury Securities. The Fund may invest in direct obligations of the U.S.
Treasury (e.g., Treasury bills, notes, and bonds). When such securities are held
to maturity, the payment of principal and interest is unconditionally guaranteed
by the U.S. Government, and therefore they are of the highest possible credit
quality. U.S. Treasury securities that are not held to maturity are subject to
variations in market value caused by fluctuations in interest rates.
Zero Coupon Securities. The Fund may invest in zero coupon securities. Zero
coupon bonds are issued and traded at a discount from their face value. They do
not entitle the holder to any periodic payment of interest prior to maturity.
Current federal income tax law requires holders of zero coupon securities to
report the portion of any original issue discount on such securities that
accrues during a given year as interest income, even though the holders receive
no cash payments of interest during the year. In order to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder, the Fund must distribute
its investment company taxable income, including any original issue discount
accrued on zero coupon bonds. Because the Fund will not receive cash payments on
a current basis in respect of any accrued original issue discount on these
bonds, in some years the Fund may have to distribute cash obtained from other
sources in order to satisfy the distribution requirements under the Code. The
Fund might obtain such cash from selling other portfolio holdings which might
cause the Fund to incur capital gains or losses on the sale. Additionally, these
actions are likely to reduce the assets to which Fund expenses could be
allocated and to reduce the rate of return for the Fund. In some circumstances,
such sales might be necessary in order to satisfy cash distribution requirements
even though investment considerations might otherwise make it undesirable for
the Fund to sell the securities at the time.
Generally, the market prices of zero coupon securities are more volatile than
the prices of securities that pay interest periodically and in cash and are
likely to respond to changes in interest rates to a greater degree than other
types of debt securities having similar maturities and credit quality.
When-Issued Securities. When the Fund purchases new issues of securities on a
when-issued basis, the Fund's custodian will establish a segregated account for
the Fund consisting of cash, U.S. Treasury securities or other high-grade debt
securities equal to the amount of the commitment. If the value of securities in
the account should decline, additional cash or securities will be placed in the
account so that the market value of the account will equal the amount of such
commitments by the Fund on a daily basis.
Securities purchased on a when-issued basis and the securities held in the
Fund's portfolio are subject to changes in market value based upon various
factors including changes in the level of market interest rates. Generally, the
value of such securities will fluctuate inversely to changes in interest rates
(i.e., they will appreciate in value when market interest rates decline and
decrease in value when market interest rates rise). For this reason, placing
securities rather than cash in the segregated account may have a leveraging
effect on the Fund's net assets. In other words, to the extent that the Fund
remains substantially fully invested in securities at the same time that it has
committed to purchase securities on a when-issued basis, there will be greater
fluctuations in its net assets than if it had set aside cash to satisfy its
purchase commitment. Upon the settlement date of the when-issued securities, the
Fund ordinarily will meet its obligation to purchase the securities from
available cash flow, use of the cash (or liquidation of securities) held in the
segregated account or sale of other securities. Although it would not normally
expect to do so, the Fund also may meet its obligation from the sale of the
when-issued securities themselves (which may have a current market value greater
or less than the Fund's payment obligation). The sale of securities to meet such
obligations carries with it a greater potential for the realization of capital
gains.
Warrants
The Fund may invest up to 5% of its total assets in warrants. The holder of a
warrant has the right, until the warrant expires, to purchase a given number of
shares of a particular issuer at a specified price. Such investments can provide
a greater potential for profit or loss than an equivalent investment in the
underlying security. However, prices of warrants do not necessarily move in
tandem with the prices of the underlying securities and are, therefore,
considered speculative investments. Warrants pay no dividends and confer no
rights other than a purchase option. Thus, if a warrant held by the Fund were
not exercised by the date of its expiration, the Fund would lose the entire
purchase price of the warrant.
Repurchase Agreements
The Fund may enter into repurchase agreements with selected brokers-dealers,
banks or other financial institutions. A repurchase agreement is an arrangement
under which the purchaser (i.e., the Fund) purchases a U.S. Government or other
high quality short-term debt obligation (an "Obligation") and the seller agrees
at the time of sale to repurchase the Obligation at a specified time and price.
Custody of the Obligation will be maintained by the Fund's custodian. The
repurchase price may be higher than the purchase price, the difference being
income to the applicable Fund, or the purchase and repurchase prices may be the
same, with interest at a stated rate due to the Fund together with the
repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
Repurchase agreements pose certain risks for all entities, including the Fund,
that utilize them. Such risks are not unique to the Fund but are inherent in
repurchase agreements. The Fund seeks to minimize such risks by, among others,
the means indicated below, but because of the inherent legal uncertainties
involved in repurchase agreements, such risks cannot be eliminated.
For purposes of the Investment Company Act of 1940, as amended (the "1940 Act"),
a repurchase agreement is deemed to be a loan from the Fund to the seller of the
Obligation. It is not clear whether for other purposes a court would consider
the Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
If in the event of bankruptcy or insolvency proceedings against the seller of
the Obligation, a court holds that the Fund does not have a perfected security
interest in the Obligation, the Fund may be required to return the Obligation to
the seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, the Fund would be at risk of losing some or all of the
principal and income involved in the transaction. To minimize this risk, the
Fund utilizes custodians and subcustodians that the Manager believes follow
customary securities industry practice with respect to repurchase agreements,
and the Manager analyzes the creditworthiness of the obligor, in this case the
seller of the Obligation. But because of the legal uncertainties, this risk,
like others associated with repurchase agreements, cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Such a delay may involve loss of
interest or a decline in price of the Obligation.
Apart from risks associated with bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, if
the market value of the Obligation subject to the repurchase agreement becomes
less than the repurchase price (including accrued interest), the applicable Fund
will direct the seller of the Obligation to deliver additional securities so
that the market value of all securities subject to the repurchase agreement
equals or exceeds the repurchase price.
Certain repurchase agreements which provide for settlement in more than seven
days can be liquidated before the nominal fixed term on seven days' or less
notice. Such repurchase agreements will be regarded as illiquid instruments. The
Fund currently intends to limit its investments in repurchase agreements to
those with maturities of less than seven days.
The Fund may also enter into repurchase agreements with any party deemed
creditworthy by the Manager, including broker-dealers, if the transaction is
entered into for investment purposes and the counterparty's creditworthiness is
at least equal to that of issuers of securities which the Fund may purchase.
Other Investment Companies
The Fund may invest in securities of other investment companies, including
closed-end investment companies, unit investment trusts and open-end investment
companies, to the extent consistent with its investment objective and subject to
the limitations of the 1940 Act. When the Fund invests in another investment
company, it pays a pro rata portion of the advisory fees and other expenses of
that investment company as a shareholder of that investment company. These
expenses are in addition to the advisory fees and other expenses the Fund pays
in connection with its own operations. The Fund currently intends to limit its
investments in securities issued by other investment companies so that, as
determined immediately after a purchase of such securities is made: (i) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; (ii) not more than 5% of the value of the Fund's total assets
will be invested in the securities of any one investment company; and (iii) not
more than 10% of the value of its total assets will be invested in the aggregate
in securities of investment companies as a group.
For example, the Fund may invest in a variety of investment companies which seek
to track the composition and/or performance of specific indexes or portions of
specific indexes. These index-based investments hold substantially all of their
assets in securities representing a specific index. Accordingly, the main risk
of investing in index-based investments is the same as investing in a portfolio
of equity securities comprising the index. Such investment companies may be
traded on a securities exchange. The market prices of index-based investments
will fluctuate in accordance with both changes in the underlying portfolio
securities of the investment company and also due to supply and demand of the
investment company's shares on the exchange upon which its shares are traded.
Index-based investments may not replicate exactly or otherwise match the
composition or performance of their specified index due to, among other things,
transaction costs and the temporary unavailability of certain component
securities of the index.
Examples of index-based, exchange-traded investment companies include, but are
not limited to, Standard & Poor's Depository Receipts ("SPDRs(R)"), MidCap
SPDRs(R), Select Sector SPDRs(R), DIAMONDSsm, Nasdaq-100 Shares, Barclays
iShares and World Equity Benchmark Shares ("WEBssm"). Many of these investment
vehicles may be sold short. To the extent that the Fund engages in such short
sale transactions, the Fund may be subject to additional risks. See "SHORT
SALES" above.
Options
The Fund may, but is not required to, purchase and sell put and call options on
its portfolio securities to protect against changes in market prices. There is
no assurance that the Fund's use of put and call options will achieve its
desired objective, and the Fund's use of options may result in losses to the
Fund.
Covered Call Options. The Fund may write covered call options as a limited form
of hedging against a decline in the price of securities owned by the Fund.
A call option gives the holder the right to purchase, and obligates the writer
to sell, a security at the exercise price at any time before the expiration
date. A call option is "covered" if the writer, at all times while obligated as
a writer, either owns the underlying securities (or comparable securities
satisfying the cover requirements of the securities exchanges), or has the right
to acquire such securities through immediate conversion of securities.
In return for the premium received when it writes a covered call option, the
Fund gives up some or all of the opportunity to profit from an increase in the
market price of the securities covering the call option during the life of the
option. The Fund retains the risk of loss should the price of such securities
decline. If the option expires unexercised, the Fund realizes a gain equal to
the premium, which may be offset by a decline in price of the underlying
security. If the option is exercised, the Fund realizes a gain or loss equal to
the difference between the Fund's cost for the underlying security and the
proceeds of sale (exercise price minus commissions) plus the amount of the
premium.
The Fund may terminate a call option that it has written before it expires by
entering into a closing purchase transaction. The Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a decline
in the value of the underlying security. Conversely, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing purchase
transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
Covered Put Options. The Fund may write covered put options as a limited form of
hedging against an increase in the price of securities that the Fund plans to
purchase. A put option gives the holder the right to sell, and obligates the
writer to buy, a security at the exercise price at any time before the
expiration date. A put option is "covered" if the writer segregates cash and
high-grade short-term debt obligations or other permissible collateral equal to
the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from terminating
such options in closing purchase transactions, the Fund also receives interest
on the cash and debt securities maintained to cover the exercise price of the
option. By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise price higher than
its then current market value, resulting in a potential capital loss unless the
security later appreciates in value.
The Fund may terminate a put option that it has written before it expires by a
closing purchase transaction. Any loss from this transaction may be partially or
entirely offset by the premium received on the terminated option.
Although it has no current intention of doing so, the Fund may also write
covered put and call options to attempt to enhance its current return.
Purchasing Put and Call Options. The Fund may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Fund, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. The Fund may also purchase put options to attempt
to enhance its current return. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Fund must
pay. These costs will reduce any profit the Fund might have realized had it sold
the underlying security instead of buying the put option.
The Fund may purchase call options to hedge against an increase in the price of
securities that the Fund wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. The Fund
may also purchase call options to attempt to enhance its current return. In
order for a call option to be profitable, the market price of the underlying
security must rise sufficiently above the exercise price to cover the premium
and transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
Risks Involved in the Sale of Options. Options transactions involve certain
risks, including the risks that the Manager will not forecast interest rate or
market movements correctly, that the Fund may be unable at times to close out
such positions, or that hedging transactions may not accomplish their purpose
because of imperfect market correlations. The successful use of these strategies
depends on the ability of the Manager to forecast market and interest rate
movements correctly.
An exchange-listed option may be closed out only on an exchange which provides a
secondary market for an option of the same series. There is no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. If no secondary market were to exist, it would be
impossible to enter into a closing transaction to close out an option position.
As a result, the Fund may be forced to continue to hold, or to purchase at a
fixed price, a security on which it has sold an option at a time when the
Manager believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Fund's use of
options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Trust and other clients
of the Manager may be considered such a group. These position limits may
restrict the Fund's ability to purchase or sell options on particular
securities.
Options which are not traded on national securities exchanges may be closed out
only with the other party to the option transaction. For that reason, it may be
more difficult to close out unlisted options than listed options. Furthermore,
unlisted options are not subject to the protection afforded purchasers of listed
options by The Options Clearing Corporation.
Government regulations may also restrict the Fund's use of options.
Futures Contracts
Index Futures Contracts and Options. The Fund may buy and sell options on stock
index futures contracts for hedging purposes. The Fund may also buy and sell
stock index futures contracts to the extent necessary to close out an open
futures option. A stock index futures contract is a contract to buy or sell
units of a stock index at a specified future date at a price agreed upon when
the contract is made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index futures
contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100 Index")
is composed of 100 selected common stocks, most of which are listed on the New
York Stock Exchange. The S&P 100 Index assigns relative weightings to the common
stocks included in the Index, and the Index fluctuates with changes in the
market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. For example, if the Fund enters into a futures contract to buy 100
units of the S&P 100 Index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $184 on that future date, the Fund will gain
$400 (100 units x gain of $4). If the Fund enters into a futures contract to
sell 100 units of the stock index at a specified future date at a contract price
of $180 and the S&P 100 Index is at $182 on that future date, the Fund will lose
$200 (100 units x loss of $2).
Positions in index futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures.
In order to hedge its investments successfully using futures contracts and
related options, the Fund must invest in futures contracts with respect to
indexes or sub-indexes the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the Fund's securities.
Options on index futures contracts give the purchaser the right, in return for
the premium paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option. Upon
exercise of the option, the holder would assume the underlying futures position
and would receive a variation margin payment of cash or securities approximating
the increase in the value of the holder's option position. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash based on the difference between the
exercise price of the option and the closing level of the index on which the
futures contract is based on the expiration date. Purchasers of options who fail
to exercise their options prior to the exercise date suffer a loss of the
premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, the Fund may purchase and sell call and put options on the
underlying indexes themselves to the extent that such options are traded on
national securities exchanges. Index options are similar to options on
individual securities in that the purchaser of an index option acquires the
right to buy (in the case of a call) or sell (in the case of a put), and the
writer undertakes the obligation to sell or buy (as the case may be), units of
an index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of an
index option has the right to receive a cash "exercise settlement amount." This
amount is equal to the amount by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
a fixed "index multiplier."
The Fund may purchase or sell options on stock indices in order to close out its
outstanding positions in options on stock indices which it has purchased. The
Fund may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on an index involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
Although it does not currently intend to do so, the Fund may buy and sell stock
index futures contracts and related options to attempt to increase investment
return, provided that the aggregate initial margins and premiums involved do not
exceed 5% of the fair market value of the Fund's total assets.
Margin Payments. When the Fund purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin." The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the Fund upon termination of the contract, assuming the Fund satisfies its
contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process
known as "marking to market." These payments are called "variation margin" and
are made as the value of the underlying futures contract fluctuates. For
example, when the Fund sells a futures contract and the price of the underlying
index rises above the delivery price, the Fund's position declines in value. The
Fund then pays the broker a variation margin payment equal to the difference
between the delivery price of the futures contract and the value of the index
underlying the futures contract. Conversely, if the price of the underlying
index falls below the delivery price of the contract, the Fund's futures
position increases in value. The broker then must make a variation margin
payment equal to the difference between the delivery price of the futures
contract and the value of the index underlying the futures contract.
When the Fund terminates a position in a futures contract, a final determination
of variation margin is made, additional cash is paid by or to the Fund, and the
Fund realizes a loss or a gain. Such closing transactions involve additional
commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
Liquidity Risks. Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
Although the Fund intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
The ability to establish and close out positions in options on futures contracts
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that such a market will develop. Although the Fund generally
will purchase only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option or at any particular time. In the
event no such market exists for particular options, it might not be possible to
effect closing transactions in such options, with the result that the Fund would
have to exercise the options in order to realize any profit.
Hedging Risks. There are several risks in connection with the use by the Fund of
futures contracts and related options as a hedging device. One risk arises
because of the imperfect correlation between movements in the prices of the
futures contracts and options and movements in the underlying securities or
index or movements in the prices of the Fund's securities which are the subject
of a hedge. The Manager will, however, attempt to reduce this risk by purchasing
and selling, to the extent possible, futures contracts and related options on
securities and indexes the movements of which will, in its judgment, correlate
closely with movements in the prices of the underlying securities or index and
the Fund's portfolio securities sought to be hedged.
Successful use of futures contracts and options by the Fund for hedging purposes
is also subject to the Manager's ability to predict correctly movements in the
direction of the market. It is possible that, where the Fund has purchased puts
on futures contracts to hedge its portfolio against a decline in the market, the
securities or index on which the puts are purchased may increase in value and
the value of securities held in the portfolio may decline. If this occurred, the
Fund would lose money on the puts and also experience a decline in value in its
portfolio securities. In addition, the prices of futures, for a number of
reasons, may not correlate perfectly with movements in the underlying securities
or index due to certain market distortions. First, all participants in the
futures market are subject to margin deposit requirements. Such requirements may
cause investors to close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying security or index
and futures markets. Second, the margin requirements in the futures markets are
less onerous than margin requirements in the securities markets in general, and
as a result the futures markets may attract more speculators than the securities
markets do. Increased participation by speculators in the futures markets may
also cause temporary price distortions. Due to the possibility of price
distortion, even a correct forecast of general market trends by the Manager
still may not result in a successful hedging transaction over a very short time
period.
Other Risks. The Fund will incur brokerage fees in connection with their futures
and options transactions. In addition, while futures contracts and options on
futures will be purchased and sold to reduce certain risks, those transactions
themselves entail certain other risks. Thus, while the Fund may benefit from the
use of futures and related options, unanticipated changes in interest rates or
stock price movements may result in a poorer overall performance for the Fund
than if it had not entered into any futures contracts or options transactions.
Moreover, in the event of an imperfect correlation between the futures position
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the Fund may be exposed to risk of loss.
Temporary Defensive Strategies
At times, the Fund's Manager may judge that economic or market conditions make
pursuing the Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times, the Manager may temporarily use
alternative strategies, primarily designed to reduce fluctuations in the values
of the Fund's assets. In implementing these "defensive strategies", the Fund may
invest in cash or cash equivalents, shares of money market investment companies,
commercial paper, zero coupon bonds, repurchase agreements, and other securities
its Manager believes to be consistent with the Fund's best interests.
Investment Restrictions
The Fund has elected to be classified as a diversified series of an open-end
investment company. In addition, the Fund is subject to certain fundamental
policies and restrictions that may not be changed without shareholder approval.
Shareholder approval means approval by the lesser of (i) more than 50% of the
outstanding voting securities of the Trust (or a particular series if a matter
affects just that series), or (ii) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Trust (or a particular series) are present or represented by
proxy. As a matter of fundamental policy, the Fund may not:
(1) borrow money, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940 Act
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(3) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(4) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages or
investments secured by real estate or interests therein, except
that the Fund reserves freedom of action to hold and to sell real
estate acquired as a result of the Fund's ownership of securities;
(5) purchase physical commodities or contracts relating to physical
commodities; or
(6) make loans except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
Nonfundamental policies may be changed by the Trustees of the Trust and without
shareholder approval. As a matter of nonfundamental policy, the Fund does not
currently intend to:
(1) borrow money in an amount greater than one-third of its total
assets, except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or other
investments or transactions described in the Fund's registration
statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets;
(3) purchase securities on margin, except (i) in connection with
arbitrage transactions, (ii) for margin deposits in connection
with short sales, futures contracts, options or other permitted
investments, and (iii) that the Fund may obtain such short-term
credits as may be necessary for the clearance of securities
transactions;
(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its
total assets; or sell put options, if as a result, the aggregate
value of the obligations underlying such put options would exceed
50% of its total assets;
(5) enter into futures contracts or purchase options thereon for other
than bona fide hedging purposes unless immediately after the
purchase, the value of the aggregate initial margin with respect
to such futures contracts entered into on behalf of the Fund and
the premiums paid for such options on futures contracts does not
exceed 5% of the fair market value of the Fund's total assets;
provided that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value); and
(7) lend portfolio securities in an amount greater than one-third of
its total assets.
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this Statement of Additional Information states a maximum
percentage of assets that may be invested in any security or other asset or
describes a policy regarding quality standards, such percentage limitation or
standard shall, unless otherwise indicated, apply to the Fund only at the time a
transaction is entered into. Accordingly, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in the percentage
which results from circumstances not involving any affirmative action by the
Fund, such as a change in market conditions or a change in the Fund's asset
level or other circumstances beyond the Fund's control, will not be considered a
violation.
The investment policies of the Fund may lead to frequent changes in the Fund's
investments, particularly in periods of volatile market movements. A change in
the securities held by the Fund is known as "portfolio turnover." Portfolio
turnover generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities. Such sales may result in
realization of taxable capital gains. A high portfolio turnover will result in
higher brokerage costs and taxes, which will affect the Fund's performance.
Although the rate of portfolio turnover is difficult to predict, it is
anticipated that under normal circumstances the Fund's portfolio turnover rate
could reach 1000% or more. The Fund's portfolio turnover was significantly
higher in 2000 than it was in 1999 because of the late date if its inception in
1999, and significantly higher in 2001 than it was in 2000 because, due to the
increased volatility of the financial markets, investments for the Fund were
held for shorter periods of time than in 2000.
ORGANIZATION OF THE FUND
The Fund is a diversified series of The Weiss Fund, an open-end management
investment company registered under the 1940 Act. The Trust was organized on
August 10, 1995 as a Massachusetts business trust under the name Weiss Treasury
Fund. The Trust's name was changed in April 1999. The Trust is comprised of two
series: Weiss Treasury Only Money Market Fund and Weiss Millennium Opportunity
Fund. The Board of Trustees of the Trust oversees the business affairs of the
Trust and is responsible for significant decisions relating to the Fund's
investment objective and policies. The Trustees delegate the day-to-day
management of the Fund to the officers of the Trust.
The Trust's authorized capital consists of an unlimited number of shares of
beneficial interest, $.01 par value, all of which have equal rights as to
voting, dividends and liquidation. Under the Trust's Declaration of Trust, the
Trustees have the authority to issue two or more series of shares and to
designate the relative rights and preferences as between the different series.
The Trustees, in their discretion, may authorize the division of shares of a
series into different classes, permitting shares of different classes to be
distributed by different methods. Although shareholders of different classes of
a series would have an interest in the same portfolio of assets, shareholders of
different classes may bear different expenses in connection with different
methods of distribution. The Trustees have authorized the establishment and
designation of two classes of shares of the Fund, Class A and Class S shares.
This SAI relates to the Fund's Class S shares. All shares issued and outstanding
will be fully paid and non-assessable by the Trust, and redeemable as described
in this Statement of Additional Information and in the Prospectus. Pursuant to
the Declaration of Trust, the Trustees have the authority to terminate the Fund.
This might occur, for example, if the Fund does not reach an economically viable
size.
On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which
permits a registered open-end investment company to issue multiple classes of
shares in accordance with a written plan approved by the investment company's
board of directors/trustees and filed with the SEC. At a meeting held on April
27, 1999, the Board adopted a Rule 18f-3 plan on behalf of the Fund. The key
features of the Rule 18f-3 plan are as follows: (i) shares of each class of the
Fund represent an equal pro rata interest in the Fund and generally have
identical voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications, terms and conditions, except that
each class bears certain class-specific expenses and has separate voting rights
on certain matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of another
class and (ii) subject to certain limitations described in the Prospectus, Class
A shares of the Fund may be exchanged for shares of the same class of another
Weiss fund.
The assets of the Trust received for the issue or sale of the shares of each
series (or class thereof) and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series (or class thereof) and constitute the underlying assets of such
series (or class). The underlying assets of each series (or class thereof) are
segregated on the books of account, and are to be charged with the liabilities
in respect to such series (or class) and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of each class of each series of the Trust entitle their holders to one
vote per share; however, separate votes are taken by each series on matters
affecting an individual series. Generally, all classes of shares of a series
will vote together, except with respect to a distribution plan applicable to a
class of that series or when a class vote is required by the 1940 Act. A change
in investment policy for a series would, for example, be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
The Declaration of Trust provides that obligations of the Trust are not binding
upon the Trustees individually but only upon the property of the Trust, that the
Trustees and officers will not be liable for errors of judgment or mistakes of
fact or law, and that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Trust, except if it is
determined, in the manner provided in the Declaration of Trust, that they have
not acted in good faith in the reasonable belief that their actions were in the
best interests of the Trust. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Fund is not required to and does not currently intend to hold annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Trustees, changing fundamental investment policies, or
approving certain contracts. Shareholders will be assisted in communicating with
other shareholders in connection with removing a Trustee as if Section 16(c) of
the 1940 Act were applicable.
TRUSTEES AND OFFICERS
The Board of Trustees has overall responsibility for the management of the
affairs of the Fund. The Trustees oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund, and
review the Fund's performance.
The following table sets forth information concerning the Trustees who are not
"interested persons" of the Trust within the meaning of Section 2(a)(19) of the
1940 Act. Trustees who are not "interested persons" are referred to herein as
"Independent Trustees."
[Enlarge/Download Table]
Name, Address Position(s) Term of Principal Occupation(s) During Number of Other
and Age with the Trust Office* and Past 5 Years Portfolios in Trustee-ships/
Length of Fund Complex Director-ships
Time Served Overseen by Held by
Trustee Trustee
Esther S. Gordon, 60 Trustee Since President, Esther's Natural, Inc. 2 None
4176 Burns Road November 30, (November 1999 - present) (vitamin
Palm Beach Gardens, 1995 and supplements distributor);
FL 33410 Office Manager, Nutrition S'Mart
(February 2001 - present)
(natural food market).
Robert Z. Lehrer, 68 Trustee Since President, Wyndmoor Sales Co. Inc. 2 None
4176 Burns Road November 30, (1985 - present) (textiles).
Palm Beach Gardens, 1995
FL 33410
Donald Wilk, 64 Trustee Since President, Donald Wilk Corporation 2 None
4176 Burns Road November 30, (1990 - present) (computer sales
Palm Beach Gardens, 1995 and credit card processing).
FL 33410
The following table sets forth information concerning the officers, and the
Trustees who are interested persons of the Trust within the meaning of Section
2(a)(19) of the 1940 Act.
[Enlarge/Download Table]
Name, Address and Position(s) Term of Principal Occupation(s) During Number of Other
Age with the Trust Office* and Past 5 Years Portfolios in Trustee-ships/
Length of Fund Complex Director-ships
Time Served Overseen by Held by
Trustee Trustee
Martin D. Weiss, 55 President and Trustee since Editor of "Safe Money Report"; 2 Director,
4176 Burns Road Trustee** November 30, President and Director, Weiss Weiss
Palm Beach Gardens, 1995, Group, Inc. (1971 - present); Sole Research,
FL 33410 President Director, Weiss (November 1980 - Inc.
since present).
November 19,
2001
Dana Nicholas, 42 Vice Vice Vice President, Weiss Research,
4176 Burns Road President, President, Inc. (November 1994 - October 2 None
Palm Beach Gardens, Secretary and Secretary and 2001); Vice President, Weiss
FL 33410 Trustee** Trustee since Group, Inc. (November 1994 -
April 18, 2002 present); President, Weiss
(October 2001 - present).
J. Barry Clause, 38 Treasurer July 27, 2000 Vice President and Director of
103 Bellevue Parkway Accounting, PFPC Inc. (2000 - 2 None
Wilmington, DE present); Assistant Vice President
19809 and Accounting Manager, PFPC Inc.
(1992-2000).
*Each Trustee and officer serves for an indefinite term, until his or her
successor is duly elected and qualified.
**Dr. Weiss and Ms. Nicholas are deemed to be "interested persons" of the Trust
by virtue of their employment by Weiss.
The following table sets forth the dollar range of shares of each Fund held
directly or indirectly by the Trustees:
Dollar Range of Aggregate Dollar Range in
Equity Securities all Funds Overseen in the
in the Fund Weiss Fund Complex
Name of Trustee
Esther S. Gordon None None
Robert Z. Lehrer None None
Donald Wilk None $1 - $10,000
Martin D. Weiss* None None
Dana Nicholas None None
* Mr. Weiss may be deemed to indirectly own shares of Weiss Treasury Only Money
Market Fund. Mr. Weiss is the majority shareholder of the Manager, which owns
between $50,001 - $100,000 worth of shares of Money Market Fund.
The Board has an Audit Committee, an Executive Committee and a Valuation
Committee. The function of the Audit Committee is to assist the Board in
fulfilling its responsibilities to shareholders of the Fund relating to
accounting and reporting, internal controls and the adequacy of auditing
relative thereto. The Audit Committee currently consists of the Independent
Trustees, who are Esther S. Gordon, Robert Z. Lehrer and Donald Wilk. Mr. Wilk
serves as Chairman of the Committee. During the last year, the Audit Committee
held two meetings.
The function of the Executive Committee is to enable the Board to take action if
necessary in the absence of the full Board. The Executive Committee currently
consists of Martin D. Weiss and Dana Nicholas. During the last year, the
Executive Committee held no meetings.
The function of the Valuation Committee is to consider the valuation of
securities which may be difficult to price, although pricing difficulties are
infrequent given the nature of the Fund's portfolio securities. The Valuation
Committee currently consists of Martin D. Weiss and Dana Nicholas. During the
last year, the Valuation Committee held no meetings.
As of April 17, 2002, all Trustees and officers of the Trust as a group owned
beneficially less than 1% of the shares of (i) Money Market Fund and (ii) each
class of Millennium Opportunity Fund outstanding on such date. As of April 17,
2002, to the best of the Trust's knowledge, no person owned of record more than
5% of Money Market Fund, except National Financial Services Corp. (for the
exclusive benefit of its customers), One World Financial Center - Attn: Mutual
Funds, 5th Floor, 200 Liberty Street, New York, New York 10281, which held of
record 28.47% of the outstanding shares of the Fund in an omnibus account. As of
April 17, 2002, to the best of the Trust's knowledge, no person owned of record
or beneficially more than 5% of Class A shares of Millennium Opportunity Fund's
outstanding on that date. As of April 17, 2002, to the best of the Trust's
knowledge, no person owned of record or beneficially more than 5% of Class S
shares of Millennium Opportunity Fund's outstanding on that date, except Douglas
R. Townsend, 19 Richard Road, Rye, NH 03870 who held of record 19.11% of the
outstanding Class S shares of the Fund; George E. Campsen Jr., 9 19th Ave., Isle
of Palms, South Carolina 29451, who held of record 14.11% of the outstanding
Class S shares of the Fund; FMT Co. Cust. IRA Rollover, FBO Ronald Dachelet,
P.O. Box 432, Wabeno, WI 54566, who held of record 9.05% of the outstanding
Class S shares of the Fund; Roaul E. Somers TTEE, Roaul E. Somers Rev. Living
TR, UA 8/4/94, 700 Pebble Creek Dr., Warrenton, Missouri 63383, who held of
record 7.52% of the outstanding Class S shares of the Fund; James Donald
Carmichael TTEE, Doncar Defined Benefit, PSP Rolloversub Account, 833 St.
Vincent's Dr., Ste. 500 Birmingham, Alabama 35205, who held of record 7.17% of
the outstanding Class S shares of the Fund; Henry H. Brooks, Jr., Kay B. Brooks,
P.O. Box 118, Dripping Springs, Texas 78620, who held of record 7.17% of the
outstanding Class S shares of the Fund; John R. Weir TTEE, Joyce M. Weir TTEE,
Weir Family Trust, 621 Woodbridge St, San Luis Obispo, California 93401, who
held of record 7.17% of the outstanding Class S shares of the Fund; Ercell L.
Miller, Virginia S. Miller, 5420 N. Ocean Drive, Apt. 2403, Singer Island,
Florida 33404-2560, who held of record 7.17% of the outstanding Class S shares
of the Fund; FMT Co. Cust. IRA Rollover, FBO F. Allen Ledward, 5631 Hummel Lane,
Fort Collins, Colorado 80525-9453, who held of record 7.17% of the outstanding
Class S shares of the Fund; FMT Co. Cust. IRA Rollover, FBO Raymond L. Moyer,
Jr., 7418 Atlantic Drive, Rowlett, Texas 75088-8397, who held of record 7.17% of
the outstanding Class S shares of the Fund; FMT Co., Cust. IRA Rollover, FBO
Arthur S. Benton, 145 15th St. NE, Apt. 1206, Atlanta, Georgia 30309-3569, who
held of record 7.17% of the outstanding Class S shares of the Fund.
MANAGEMENT COMPENSATION
(Fiscal Year Ended December 31, 2001)
[Enlarge/Download Table]
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual from Trust and
Compensation as Part of Trust Benefits Upon Fund Complex Paid
Name (Position) from Trust Expenses Retirement to Trustee
--------------- ---------- -------- ---------- -----------
J. Barry Clause None None None None
(Treasurer)
Esther S. Gordon $4,000 None None $4,000
(Trustee)
Robert Z. Lehrer $4,000 None None $4,000
(Trustee)
Dana Nicholas* None None None None
(Vice President, Trustee and
Secretary)
Martin D. Weiss** None None None None
(President and Trustee)
Donald Wilk $4,000 None None $4,000
(Trustee)
*Ms. Nicholas replaced Clara A. Maxcy as Vice President and Secretary of the
Trust effective April 18, 2002.
**Dr. Weiss replaced John N. Breazeale as President of the Trust effective
November 19, 2001.
Each non-interested Trustee receives an annual fee of $1,500, $500 for
each Board meeting attended, $250 for each Audit Committee or other meeting
attended, plus reimbursement for out-of-pocket expenses for serving in that
capacity.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Manager
As stated in the Prospectus, the Trust, on behalf of the Fund, has entered into
an Investment Advisory Agreement with the Manager, Weiss Money Management, Inc.
Under the Advisory Agreement, the Manager provides continuing investment
management for the Fund consistent with the Fund's investment objective,
policies and restrictions and determines what securities shall be purchased for
or sold by the Fund. The Manager is controlled (as that term is defined in the
1940 Act) by Martin D. Weiss, its sole director and shareholder.
The Fund has agreed to compensate the Manager for its services by the monthly
payment of a fee at the annual rate of 1.50% of the Fund's average net assets.
For the period from September 21, 1999 (commencement of operations) to December
31, 1999, the Manager received advisory fees of $4,022 from the Fund after
voluntarily waiving fees of $25,249 in order to maintain total Fund operating
expenses at 2.50% of the Fund's average net assets. For the fiscal year ended
December 31, 2000, the Manager received advisory fees of $111,242 from the Fund
after voluntarily waiving fees of $142,868 in order to maintain total Fund
operating expenses at 2.50% of the Fund's average net assets. For the fiscal
year ended December 31, 2001, the Manager received advisory fees of $99,403 from
the Fund after voluntarily waiving fees of $55,973 in order to maintain total
Fund operating expenses at 2.50% of the Fund's average net assets.
Currently, the Manager voluntarily limits total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
indemnification, and extraordinary expenses) to an annual rate of 2.50% of the
average net assets of the Fund, which lowers the Fund's expenses and increases
its return. This expense limitation may be terminated or revised at any time, at
which point the Fund's expenses may increase and its return may be reduced.
The Manager is responsible for fees and expenses of Trustees, officers and
employees of the Trust who are affiliated with the Manager. The Fund is
responsible for all of its other expenses, including fees and expenses incurred
in connection with membership in investment company organizations; brokers'
commissions; payments for portfolio pricing services to a pricing agent, if any;
legal, auditing and accounting expenses; taxes and governmental fees; transfer
agent fees; the cost of preparing share certificates or other share-related
expenses, such as expenses of issuance, sale, redemption or repurchase of shares
of beneficial interest; the expenses of and fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Trust who are not affiliated with the Manager; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. The Fund is also responsible for expenses of shareholder meetings
and expenses incurred in connection with litigation proceedings and claims and
the legal obligation it may have to indemnify its officers and Trustees with
respect thereto.
Sub-Adviser
As of January 29, 2002, Delray Financial Corporation, 10356 St Andrews Road,
Boynton Beach, Florida 33436, has been retained by the Manager to provide
subadvisory services to the Fund. John N. Breazeale is the sole owner, principal
executive officer and sole director of Delray, and was the portfolio manager for
the Fund from the Fund's inception until 2001. Prior to 1994, Mr. Breazeale
provided portfolio management services at Provident Institutional Management
Inc., Mitchell Hutchins Asset Management Inc. (a subsidiary of PaineWebber
Group), and with Mackenzie Investment Management Inc. Mr. Breazeale has over 31
years' experience in the securities industry. Under a subadvisory agreement with
the Manager, Delray renders continuous investment advice to the Manager as to
the investment of the Fund's assets. However, the Manager is responsible for
implementing the execution of transactions recommended by Delray in the exercise
of the Manager's independent judgment regarding the appropriateness of Delray's
investment recommendations for the Fund in accordance with its investment
objectives, policies and restrictions. The Manager pays the Sub-Adviser as
compensation for Sub-Adviser's services to the Fund a quarterly fee in arrears
at the rate of 10% of all fees payable during the same quarter by the Fund to
the Adviser for investment advisory services provided pursuant to the Advisory
Agreement, net of any fee waivers or expense reimbursements made by the Adviser
with respect to the Fund relating to such quarter. The Manager pays the
Sub-Adviser this quarterly fee out of the investment advisory fees it receives
from the Fund.
In approving the Investment Advisory Agreement, the Board considered a number of
factors, including: (1) performance of the Fund relative to funds with similar
objectives; (2) the nature and quality of the services historically provided by
the Manager; (3) the fairness of the compensation under the Investment
Management Agreement in light of the services provided; (4) comparative data as
to advisory fees and expense ratios relative to funds with similar objectives;
(5) the profitability to the Manager from the Investment Management Agreement;
(6) the personnel, operations, financial condition, and investment management
capabilities, methodologies and performance of the Manager, including the
Manager's experience in providing investment advice relating to the types of
securities primarily invested in by the Fund; and (7) the expenses borne by
shareholders of the Fund.
In considering the Subadvisory Agreement with the Sub-Adviser, the Board
considered, among other things, that the Subadvisory Agreement would allow Mr.
Breazeale, through Delray, to continue to provide investment advisory services
to the Fund. The Board also considered the nature and quality of the portfolio
management services that had been rendered by Mr. Breazeale and, in particular,
Mr. Breazeale's qualifications as the previous portfolio manager for the Fund
and information related to Mr. Breazeale's past record of performance with the
Fund. In addition, the Board considered the importance of maintaining continuity
of advisory services from Mr. Breazeale, through Delray. The Board also noted
that the overall advisory fees would remain the same and that the advisory
services to be provided by Delray under the Subadvisory Agreement would be
substantially the same as the advisory services previously provided by Mr.
Breazeale as portfolio manager for the Fund, although the Manager would retain
ultimate discretion concerning whether to implement Mr. Breazeale's
recommendations.
Based upon their review, the Board determined that the Investment Advisory
Agreement and the Subadvisory Agreement are in the best interests of the Fund
and its shareholders. Accordingly, after consideration of the factors described
above, and such other factors and information it considered relevant, the Board,
including the unanimous vote of the Independent Trustees, approved the
Investment Advisory Agreement and the Subadvisory Agreeement.
Distributor
The Fund's shares are sold on a continuous, best efforts basis by Weiss Funds,
Inc. (the "Distributor"), 4176 Burns Road, Palm Beach Gardens, Florida 33410, a
registered broker-dealer and wholly-owned subsidiary of the Manager.
Rule 12b-1 Distribution Plan
The Trust has adopted on behalf of the Fund, in accordance with Rule 12b-1 under
the 1940 Act, a Rule 12b-1 distribution plan pertaining to the Fund's Class S
shares (the "Plan"). In adopting the Plan, a majority of the Independent
Trustees have concluded in accordance with the requirements of Rule 12b-1 that
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Trustees of the Trust believe that the Plan should result in
greater sales and/or fewer redemptions of the Fund's shares, although it is
impossible to know for certain the level of sales and redemptions of the Fund's
shares in the absence of the Plan or under an alternative distribution
arrangement.
Under the Plan, the Fund pays the Distributor a fee relating to the distribution
and/or service of the Fund's Class S shares, accrued daily and paid monthly, at
the annual rate of 0.25% of the average daily net assets attributable to those
Class S shares. The Distributor may reallow to dealers all or a portion of the
service and distribution fees as the Distributor may determine from time to
time. The fee compensates the Distributor for expenses incurred in connection
with activities primarily intended to result in the sale of the Fund's Class S
shares and/or for account maintenance and personal service to shareholders,
including, but not limited to, compensation to broker-dealers that have entered
into a dealer and/or shareholder or administrative services agreement with the
Distributor; compensation to and expenses of employees of the Distributor who
engage in or support distribution and/or shareholder servicing of a Fund's Class
S shares; compensation to banks, investment advisers, financial institutions and
other entities (including the Distributor itself) for rendering certain
shareholder liaison and/or administrative services; telephone expenses; interest
expenses; printing of prospectuses and reports for other than existing
shareholders; preparation, printing and distribution of sales literature and
advertising materials; and profit on the foregoing. Pursuant to the Class S
Plan, the Distributor may include interest, carrying or other finance charges in
its calculation of distribution expenses, if not prohibited from doing so
pursuant to an order of or a regulation adopted by the SEC.
Among other things, the Plan provides that (1) the Distributor will submit to
the Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) the Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under the Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
Class S of the Fund; and (4) while the Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
The Plan may be terminated at any time, without payment of any penalty, by vote
of a majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of Class S of the Fund.
The Fund paid no Rule 12b-1 fees for the period from September 21, 1999
(commencement of operations) to December 31, 1999. For the fiscal years ended
December 31, 2000 and 2001, the Fund paid $457 and $304, respectively, in 12b-1
fees to the Distributor. During the fiscal year ended December 31, 2001, the
Distributor expended the following amounts in marketing Class S shares of the
Fund: advertising, $0; printing and mailing of prospectuses to persons other
than current shareholders, $0; compensation to underwriters $0; compensation to
broker-dealers, $304; compensation to sales personnel, $0; interest, carrying or
other financing charges $0; compensation to banks, investment advisers,
financial institutions and other entities for rendering certain shareholder
liaison and/or administrative services, $0; telephone expenses, $0; preparation,
printing and distribution of sales literature and advertising materials, $0.
Code of Ethics
The Trust, the Manager and the Distributor have adopted a Code of Ethics
pursuant to Rule 17j-1 under the 1940 Act, designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. The Code of Ethics
applicable to the Trust, the Manager and the Distributor, which applies to
portfolio managers, research analysts and others involved in the investment
advisory process, permits personal securities transactions, including securities
that may be purchased or held by the Fund, subject to certain restrictions. For
instance, the Code imposes time periods during which personal transactions may
not be made in certain securities, and requires, among other things, the
submission of duplicate broker confirmations and quarterly reporting of
securities transactions.
Administrator
PFPC Inc., Bellevue Park Corporate Center, 103 Bellevue Parkway, Wilmington,
Delaware 19809 ("PFPC"), performs various administrative and accounting services
for the Fund. These services include maintenance of books and records,
preparation of certain governmental filings and shareholder reports and
computation of net asset values and dividend distributions. For its
administrative services, PFPC receives a fee, payable monthly, based upon the
following: .10% of the first $200 million of average net assets; .075% of the
next $200 million of average net assets; .05% of the next $200 million of
average net assets; and .03% of average net assets in excess of $600 million, or
a minimum of $100,000 annually, plus any out-of-pocket expenses. For the period
from September 21, 1999 (commencement of operations) to December 31, 1999, PFPC
received fees of $3,479 from the Fund for administrative services after
voluntarily waiving fees of $25,277. For the fiscal year ended December 31,
2000, PFPC received fees of $82,082 from the Fund for administrative services
after voluntarily waiving fees of $23,332. For the fiscal year ended December
31, 2001, PFPC received fees of $103,980 from the Fund for administrative
services.
Transfer Agent, Dividend Disbursing Agent and Custodian
PFPC serves as the Fund's transfer agent, dividend disbursing agent and
registrar. In its capacity as transfer agent, dividend disbursing agent and
registrar, PFPC performs bookkeeping, data processing and administrative
services incidental to the maintenance of shareholder accounts.
PFPC Trust Company, 8800 Tinicum Boulevard, Philadelphia, Pennsylvania 19153,
serves as custodian for the Fund's portfolio securities and cash.
PERFORMANCE INFORMATION
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information will be calculated separately for each class
of the Fund. Different fees and expenses applicable to Class S shares, including
Rule 12b-1 fees, will affect the performance of that class. The performance
figures are calculated in the following manners:
Average Annual Total Return
Average annual total return is the average annual compound rate of return for
periods of one year, five years, and ten years, all ended on the last day of a
recent calendar quarter. Average annual total return quotations reflect changes
in the price of the Fund's shares and assume that all dividends and capital
gains distributions during the respective periods were reinvested in additional
shares of the same class of the Fund. Average annual total return for the Fund's
Class S shares is calculated by finding the average annual compound rates of
return of a hypothetical investment over such periods according to the following
formula (average annual total return is then expressed as a percentage):
T = (ERV/P)1/n - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value:
ERV is the value, at the end of the applicable
period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Average annual total return of the Fund's Class S shares for the one-year period
ended December 31, 2001 and the period from September 21, 1999 (commencement of
operations) through December 31, 2001 was (5.65)% and (6.78)%, respectively. The
average annual total return percentage reflects voluntary fee waivers and
expense reimbursements by the Fund's service providers. Without the voluntary
waivers and reimbursements, average annual total return of Millennium
Opportunity Fund's Class S shares for the same periods would have been (5.92)%
and (7.80)%, respectively.
Average Annual Total Return (After Taxes on Distributions)
Average annual total return (after taxes on distributions) for a specified
period is derived by calculating the actual dollar amount of the investment
return on a $1,000 investment made at the maximum public offering price
applicable at the beginning of the period, and then calculating the annual
compounded rate of return (after federal income taxes on distributions but not
redemption) which would produce that amount, assuming a redemption at the end of
the period. This calculation includes all recurring fees charged to shareholder
accounts and assumes a complete redemption of the investment but further assumes
that the redemption has no federal income tax consequences. This calculation
also assumes that all dividends and distributions, less the federal income taxes
due on such distributions, are reinvested at net asset value on the reinvestment
dates during the period. In calculating the impact of federal income taxes due
on distributions, the federal income tax rates used correspond to the tax
character of each component of the distributions (e.g., ordinary income rate for
ordinary income distributions, short-term capital gain rate for short-term
capital gains distributions and long-term capital gain rate for long-term
capital gains distributions). The highest individual marginal federal income tax
rate in effect on the reinvestment date is applied to each component of the
distributions on the reinvestment date. Note that these tax rates may vary over
the measurement period. The effect of applicable tax credits, such as the
foreign tax credit, is also taken into account in accordance with federal tax
law. The calculation disregards (i) the affect of phase-outs of certain
exemptions, deductions and credits at various income levels, (ii) the impact of
the federal alternative minimum tax and (iii) the potential tax liabilities
other than federal tax liabilities (e.g., state and local taxes).
Average annual total return (after taxes on distributions) of the Fund's Class S
shares for the one-year period ended December 31, 2001 and the period from
September 21, 1999 (commencement of operations) through December 31, 2001 was
(5.65)% and (6.79)%, respectively. The average annual total return percentage
reflects voluntary fee waivers and expense reimbursements by Millennium
Opportunity Fund's service providers. In connection with communicating its
performance to current or prospective shareholders, the average annual total
return (after taxes on distributions) without voluntary fee waivers and
reimbursements may be presented, in which case the performance information may
be less favorable than that reflecting waivers and reimbursements.
Average Annual Total Return (After Taxes on Distributions and Redemption)
Average annual total return (after taxes on distributions and redemption) for a
specified period is derived by calculating the actual dollar amount of the
investment return on a $1,000 investment made at the maximum public offering
price applicable at the beginning of the period, and then calculating the annual
compounded rate of return (after federal income taxes on distributions and
redemption) which would produce that amount, assuming a redemption at the end of
the period. This calculation assumes a complete redemption of the investment.
This calculation includes all recurring fees charged to shareholder accounts and
also assumes that all dividends and distributions, less the federal income taxes
due on such distributions, are reinvested at net asset value on the reinvestment
dates during the period. In calculating the federal income taxes due on
distributions, the federal income tax rates used correspond to the tax character
of each component of the distributions (e.g., ordinary income rate for ordinary
income distributions, short-term capital gain rate for short-term capital gains
distributions and long-term capital gain rate for long-term capital gains
distributions). The highest individual marginal federal income tax rate in
effect on the reinvestment date is applied to each component of the
distributions on the reinvestment date. Note that these tax rates may vary over
the measurement period. The effect of applicable tax credits, such as the
foreign tax credit, is taken into account in accordance with federal tax law.
The calculation disregards the (i) effect of phase-outs of certain exemptions,
deductions and credits at various income levels, (ii) the impact of the federal
alternative minimum tax and (iii) the potential tax liabilities other than
federal tax liabilities (e.g. state and local taxes). In calculating the federal
income taxes due on redemption, capital gains taxes resulting from a redemption
are subtracted from the redemption proceeds and the tax benefits from capital
losses resulting from the redemption are added to the redemption proceeds. The
highest federal individual capital gains tax rate in effect on the redemption
date is used in such calculation. The federal income tax rates used correspond
to the tax character of any gains or loses (e.g., short-term or long-term).
Return after taxes on distributions and redemption may exceed return before
taxes due to a tax benefit of realizing a capital loss upon the sale of fund
shares. Actual after-tax returns may differ depending on individual
circumstances. After-tax returns are not relevant if shares are held in a
retirement account or in another tax-deferred arrangement.
Average annual total return (after taxes on distributions and redemption) of the
Fund's Class S shares for the one-year period ended December 31, 2001 and the
period from September 21, 1999 (commencement of operations) through December 31,
2001 was (3.44)% and (5.38)%, respectively. The average annual total return
percentage reflects voluntary fee waivers and expense reimbursements by
Millennium Opportunity Fund's service providers. In connection with
communicating its performance to current or prospective shareholders, the
average annual total return (after taxes on distributions and redemption)
without voluntary fee waivers and reimbursements may be presented, in which case
the performance information may be less favorable than that reflecting waivers
and reimbursements.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return").
Non-Standardized Return of the Fund's Class S shares for the one-year period
ended December 31, 2001 and the period from September 21, 1999 (commencement of
operations) through December 31, 2001 was (5.65)% and (6.78)%, respectively. The
Non-Standardized Return percentage reflects voluntary fee waivers and expense
reimbursements by the Fund's service providers. Without the voluntary waivers
and reimbursements, Non-Standardized Return of the Fund's Class S shares for the
same periods would have been (5.65)% and (7.50)%, respectively.
Cumulative Total Return
In addition to average annual returns, a fund may quote unaveraged or cumulative
returns reflecting the simple change in value of an investment over a stated
period. Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in additional shares of the same class of the Fund. Cumulative total
return for the Fund's Class S shares is calculated by finding the cumulative
rates of return of a hypothetical investment over such periods according to the
following formula (cumulative total return is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000.
ERV = ending redeemable value:
ERV is the value, at the end of the applicable
period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Cumulative total return of the Fund's Class S shares for the one-year period
ended December 31, 2001 and the period from September 21, 1999 (commencement of
operations) through December 31, 2001 was (5.65)% and (14.80)%, respectively.
The cumulative total return percentage reflects voluntary fee waivers and
expense reimbursements by the Fund's service providers. Without the voluntary
waivers and reimbursements, cumulative total return of the Fund's Class S shares
for the same periods would have been (5.92)% and (16.93)%, respectively.
Total Return
Total Return is the rate of return on an investment for a specified period of
time calculated in the same manner as cumulative total return. The total return
percentage reflects voluntary fee waivers and expense reimbursements by the
Fund's service providers.
Capital Change
Capital change measures the return from invested capital including reinvested
capital gains distributions. Capital change does not include the reinvestment of
income dividends.
Comparison of Portfolio Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
Examples include, but are not limited to the Dow Jones Industrial Average, the
Consumer Price Index, Standard & Poor's 500 Composite Stock Price Index (S&P
500), the NASDAQ Composite Index, the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and the statistics published by the
Small Business Administration.
From time to time, in advertising and marketing literature, the Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.
From time to time, in marketing and other Fund literature, Trustees and officers
of the Trust, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the assets that the Manager has under management in various
geographical areas may be quoted in advertising and marketing materials.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the potential
risks and rewards associated with an investment in the Fund. The description may
include a "risk/return spectrum" which compares the Fund to other Weiss funds or
broad categories of funds, such as money market, bond or equity funds, in terms
of potential risks and returns. Money market funds are designed to maintain a
constant $1.00 share price and have a fluctuating yield. Share price, yield and
total return of a bond fund will fluctuate. The share price and return of an
equity fund also will fluctuate. The description may also compare the Fund to
bank products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S. Government and
offer a fixed rate of return.
Because bank products guarantee the principal value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than investments in either bond or equity funds, which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an investment as prices increase over a long time period. The
risk/returns associated with an investment in bond or equity funds also will
depend upon currency exchange fluctuation.
A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and offer the potential for less return than growth funds. In
addition, international equity funds usually are considered more risky than
domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both domestic and
foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance made by independent sources may also be used in
advertisements concerning the Fund, including reprints of, or selections from,
editorials or articles about the Fund.
BUYING SHARES
Share purchases are executed at the net asset value next calculated after a
purchase order is received by the Fund's transfer agent in good order as
described under "Buying Shares" in the Fund's Class S Prospectus. Purchases are
made in full and fractional shares.
The Trust, with respect to the Fund's Class S shares, has authorized the
Distributor to accept purchase and redemption orders on its behalf. The
Distributor is also authorized to designate other intermediaries to accept
purchase and redemption orders on the Fund's behalf. The Fund will be deemed to
have received a purchase or redemption order when an authorized intermediary or,
if applicable, an intermediary's authorized designee, accepts the order. Client
orders will be priced at the Fund's net asset value next computed after an
authorized intermediary or the intermediary's authorized designee accepts them.
With respect to the Fund's Class S shares, broker-dealers or institutions may
assess additional transaction charges in connection with purchases of Fund
shares.
Individual Retirement Accounts ("IRAs"), Roth IRAs and Education IRAs. Shares of
the Trust may be used as a funding medium for retirement plans, including IRAs,
Roth IRAs and Education IRAs. Eligible individuals may establish an IRA, Roth
IRA or Education IRA by adopting a custodial account available from PNC Bank,
National Association, which may impose a charge for establishing and/or
maintaining the account.
REDEMPTIONS
The Trust may suspend the right of redemption of shares of the Fund and may
postpone payment: (i) for any period during which the New York Stock Exchange
(the "Exchange") is closed, other than customary weekend and holiday closings,
or during which trading on the Exchange is restricted, (ii) when the SEC
determines that a state of emergency exists which may make payment or transfer
not reasonably practicable, (iii) as the SEC may by order permit for the
protection of the Shareholders of the Trust, or (iv) at any other time when the
Trust may, under applicable laws and regulations, suspend payment on the
redemption of its shares.
The Trust agrees to redeem shares of the Fund solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. The Trust reserves the right to pay other redemptions,
either total or partial, by a distribution in kind of securities (instead of
cash) from the Fund's portfolio, although the Trust has no current intention to
do so. The securities distributed in such a distribution would be valued at the
same value as that assigned to them in calculating the net asset value of the
shares being redeemed. If a shareholder receives a distribution in kind, he or
she should expect to incur transaction costs when he or she converts the
securities to cash.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute to shareholders substantially all of its net
investment income annually. Net investment income for the Fund consists of all
income accrued on the Fund's assets, less all actual and accrued expenses. The
Fund intends to distribute to shareholders net realized capital gains after
utilization of capital loss carryforwards, if any, at least annually.
Distributions by the Fund are reinvested in additional shares of the Fund or
paid in cash at the election of the shareholder. If no election is made, all
distributions will be reinvested in additional Fund shares. If an investment is
in the form of a retirement plan, all dividends and capital gains distributions
must be reinvested into the shareholder's account. Distributions are generally
taxable, whether received in cash or reinvested. Exchanges among the Weiss funds
are also taxable events.
TAXES
The following is a general discussion of certain tax rules thought to be
applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
General. The Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Code. To qualify, the
Fund must, among other things, (a) derive in each taxable year at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities, or foreign
currencies, or other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. Government
securities, the securities of other regulated investment companies, and other
securities, with such other securities of any one issuer limited for purposes of
this calculation to an amount not greater than 5% of the Fund's assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total assets is invested in securities of any other issuer
(other than U.S. Government securities and the securities of other regulated
investment companies).
As a regulated investment company, the Fund generally will not be subject to
U.S. Federal income tax on its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) and net capital gains (net
long-term capital gains in excess of net short-term capital losses) that it
distributes to shareholders, if at least 90% of its investment company taxable
income for the taxable year is distributed. The Fund intends to distribute such
income.
If for any taxable year the Fund fails to qualify as a regulated investment
company, the Fund will be subject to U.S. Federal income tax on its taxable
income (with no deduction for distributions to shareholders), and Fund
distributions will be taxable to shareholders as ordinary dividends to the
extent of the Fund's earnings and profits.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To avoid
that tax, the Fund must distribute during each calendar year an amount equal to
(1) at least 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year, (2) at least 98% of its capital gains in
excess of its capital losses (adjusted for certain ordinary losses) for the
twelve-month period ending on October 31 of the calendar year, and (3) all
ordinary income and capital gains for previous years that were not distributed
during such years. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of that year to shareholders of record at some date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taken into account by shareholders in the calendar year
the distributions are declared, rather than the calendar year in which the
distributions are received.
Distributions. Distributions of investment company taxable income are taxable to
a U.S. shareholder as ordinary income, whether paid in cash or shares. If a
portion of the Fund's income consists of dividends from U.S. corporations, a
portion of the dividends paid by the Fund may be eligible for the
dividends-received deduction for corporate shareholders. Distributions of net
capital gains, if any, which are designated as capital gain dividends are
taxable to shareholders as long-term capital gains, whether paid in cash or in
shares, and regardless of how long the shareholder has held the Fund's shares.
Such distributions are not eligible for the dividends received deduction. The
tax treatment of distributions from the Fund is the same whether the dividends
are received in cash or in additional shares. Shareholders receiving
distributions in the form of newly issued shares will have a cost basis in each
share received equal to the net asset value of a share of the Fund on the
reinvestment date. Shareholders will be notified annually as to the U.S. Federal
tax status of distributions and shareholders receiving distributions in the form
of newly issued shares will receive a report as to the net asset value of the
shares received.
If shares of the Fund are held in a tax-deferred retirement plan account, income
and gain will not be taxable each year. Instead, the taxable portion of amounts
held in a retirement plan account generally will be subject to tax only when
distributed from that account, and all of those taxable amounts will be taxable
as ordinary income.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution will be taxable even
though it represents a return of invested capital. Investors should be careful
to consider the tax implications of buying shares just prior to a distribution.
The price of shares purchased at this time may reflect the amount of the
forthcoming distribution. Those purchasing just prior to a distribution will
receive a distribution which will nevertheless be taxable to them.
Disposition of Shares. Upon a redemption, sale or exchange of his or her shares,
a shareholder will realize a taxable gain or loss depending upon his or her
basis in the shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder's hands and, if so, will be
long-term or short-term, depending upon the shareholder's holding period for the
shares. Any loss realized on a redemption, sale or exchange will be disallowed
to the extent the shares disposed of are replaced (including through
reinvestment of dividends) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on the sale of Fund shares held by the shareholder for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gains received or treated as having been
received by the shareholder with respect to such shares.
Discount. Certain of the bonds purchased by the Fund may be treated as bonds
that were originally issued at a discount. Original issue discount represents
interest for Federal income tax purposes and can generally be defined as the
difference between the price at which a security was issued and its stated
redemption price at maturity. Original issue discount is treated for Federal
income tax purposes as income earned by the Fund even though the Fund doesn't
actually receive any cash, and therefore is subject to the distribution
requirements of the Code. The amount of income earned by the Fund generally is
determined on the basis of a constant yield to maturity which takes into account
the semiannual compounding of accrued interest.
In addition, some of the bonds may be purchased by the Fund at a discount which
exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for Federal income tax purposes. The gain
realized on the disposition of any bond having market discount will be treated
as ordinary income to the extent it does not exceed the accrued market discount
on such bond (unless the Fund elects for all its debt securities acquired after
the first day of the first taxable year to which the election applies having a
fixed maturity date of more than one year from the date of issue to include
market discount in income in tax years to which it is attributable). Generally,
market discount accrues on a daily basis for each day the bond is held by the
Fund at a constant rate over the time remaining to the bond's maturity.
Hedging Transactions. The taxation of equity options and over-the-counter
options on debt securities is governed by Code section 1234. Pursuant to Code
section 1234, the premium received by the Fund for selling a put or call option
is not included in income at the time of receipt. If the option expires, the
premium is short-term capital gain to the Fund. If the Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a call
option written by the Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the sale
of such security and any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term depending upon the holding period of the
security. With respect to a put or call option that is purchased by the Fund, if
the option is sold, any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Certain options and futures contracts in which the Fund may invest are "section
1256 contracts." Gains or losses on section 1256 contracts generally are
considered 60% long-term and 40% short-term capital gains or losses. Also,
section 1256 contracts held by the Fund at the end of each taxable year (and,
generally, for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses, defer
losses and/or accelerate the recognition of gains or losses from the affected
straddle positions, the amount which may be distributed to shareholders, and
which will be taxed to them as ordinary income or long-term capital gain, may be
increased or decreased as compared to a fund that did not engage in such hedging
transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if the
Fund enters into a short sale, offsetting notional principal contract or forward
contract transaction with respect to the appreciated position or substantially
identical property. Appreciated financial positions subject to this constructive
sale treatment are interests (including options and forward contracts and short
sales) in stock, partnership interests, certain actively traded trust
instruments and certain debt instruments. Constructive sale treatment does not
apply to certain transactions closed in the 90-day period ending with the 30th
day after the close of the taxable year, if certain conditions are met.
Unless certain constructive sale rules (discussed more fully above) apply, the
Fund will not realize gain or loss on a short sale of a security until it closes
the transaction by delivering the borrowed security to the lender. Pursuant to
Code Section 1233, all or a portion of any gain arising from a short sale may be
treated as short-term capital gain, regardless of the period for which the Fund
held the security used to close the short sale. In addition, the Fund's holding
period of any security which is substantially identical to that which is sold
short may be reduced or eliminated as a result of the short sale. Recent
legislation, however, alters this treatment by treating certain short sales
against the box and other transactions as a constructive sale of the underlying
security held by the Fund, thereby requiring current recognition of gain, as
described more fully above. Similarly, if the Fund enters into a short sale of
property that becomes substantially worthless, the Fund will recognize gain at
that time as though it had closed the short sale. Future Treasury regulations
may apply similar treatment to other transactions with respect to property that
becomes substantially worthless.
Backup Withholding. The Fund generally will be required to report to the IRS all
distributions as well as gross proceeds from the redemption of the Fund's
shares, except in the case of certain exempt shareholders. All such
distributions and proceeds will be subject to withholding of Federal income tax
at a rate of 30% ("backup withholding") in the case of non-exempt shareholders
if (1) the shareholder fails to furnish the Fund with and to certify the
shareholder's correct taxpayer identification number or social security number;
(2) the IRS notifies the shareholder or the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect; or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Other Taxation. The foregoing discussion relates only to U.S. Federal income tax
law as applicable to U.S. persons (i.e., U.S. citizens and residents and
domestic corporations, partnerships, trusts and estates). Distributions by the
Fund also may be subject to state and local taxes, and their treatment under
state and local income tax laws may differ from the U.S. Federal income tax
treatment. In many states, Fund distributions which are derived from interest on
certain U.S. Government obligations are exempt from state and local taxation.
Shareholders should consult their tax advisers with respect to particular
questions of U.S. Federal, state and local taxation. Shareholders who are not
U.S. persons should consult their tax advisers regarding U.S. and foreign tax
consequences of ownership of shares of the Fund, including the likelihood that
distributions to them would be subject to withholding of U.S. Federal income tax
at a rate of 30% (or at a lower rate under a tax treaty).
BROKERAGE ALLOCATION
Allocation of brokerage is supervised by the Manager. The primary objective of
the Manager in placing orders for the purchase and sale of securities for the
Fund's portfolio is to obtain the most favorable net results taking into account
such factors as price, commission (negotiable in the case of U.S. national
securities exchange transactions) where applicable, size of order, difficulty of
execution and skill required of the executing broker-dealer. The Manager seeks
to evaluate the overall reasonableness of brokerage commissions paid (to the
extent applicable) through the familiarity of the Distributor with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Fund to reported commissions paid by others. The Manager reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons. For the period from September 21, 1999
to December 31, 1999, the Fund paid $24,862 in brokerage commissions. For the
fiscal year ended December 31, 2000 the Fund paid a total of $248,430 in
brokerage commissions with respect to portfolio transactions aggregating
$315,944,850. Of such amount, $248,110 in brokerage commissions with respect to
portfolio transactions aggregating $315,944,850 was placed with broker-dealers
who provided research services. For the fiscal year ended December 31, 2001 the
Fund paid a total of $449,765 in brokerage commissions with respect to portfolio
transactions aggregating $318,302,332. Of such amount, $449,765 in brokerage
commissions with respect to portfolio transactions aggregating $318,302,332 was
placed with broker-dealers who provided research services.
The Fund's purchases and sales of fixed-income securities are generally placed
by the Manager with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made that will include an underwriting fee paid to
the underwriter. Portfolio transactions in debt securities may also be placed on
an agency basis, with a commission being charged.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Manager's practice to place such orders with
broker-dealers who supply research, market and statistical information to the
Fund. The term "research market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Manager does not place orders with brokers or dealers because the broker or
dealer has or has not sold shares of the Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
Although certain research, market and statistical information from
broker-dealers may be useful to the Fund and to the Manager, it is the opinion
of the Manager that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Manager's staff. Such information may be useful to the Manager in providing
services to clients other than the Fund and not all such information is used by
the Manager in connection with the Fund. Conversely, such information provided
to the Manager by broker-dealers through whom other clients of the Manager
effect securities transactions may be useful to the Manager in providing
services to the Fund.
The Board of Trustees has authorized the Manager to enter into directed
brokerage arrangements on behalf of the Fund. Under this type of arrangement,
the Manager places portfolio transactions with a particular broker in exchange
for the broker's payment of certain Fund expenses. In certain instances,
execution, clearance and settlement capabilities of the directed brokerage firm
may not be as favorable as those otherwise obtainable. The Fund may also lose
the possible advantage of aggregation of orders for several clients as a single
transaction for the purchase or sale of a particular security and the ability to
negotiate the commission rate.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on
each day the Exchange is open for trading. The Exchange is scheduled to be
closed on the following holidays: New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively. The
Fund's liabilities, if not identifiable as belonging to a particular class of
the Fund, are allocated among that Fund's classes based on their relative net
asset size. Liabilities attributable to a particular class are charged to that
class directly. The total liabilities for a class are then deducted from the
class's proportionate interest in the Fund's assets, and the resulting amount is
divided by the number of shares of the class outstanding to produce its net
asset value per share.
Securities traded on a national securities exchange or on the NASDAQ National
Market System are valued at the last reported sale price that day. Lacking any
sales, the security is valued at the calculated mean between the most recent bid
quotation and the most recent asked quotation (the "Calculated Mean") on such
exchange. An exchange traded option or futures contract and other financial
instruments are valued at the last reported sale price prior to 4:00 p.m.
(Eastern Time) as quoted on the principal exchange or board of trade on which
such option or contract is traded. Lacking any sales, the option or futures
contract is valued at the Calculated Mean.
Debt securities, other than short-term securities, are valued at bid prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less shall be valued by the amortized cost
method, which the Board believes approximates market value.
If, in the opinion of the Fund's Valuation Committee, the value of a portfolio
asset as determined in accordance with these procedures does not represent the
fair market value of the portfolio asset, the value of the portfolio asset is
taken to be an amount which, in the opinion of the Valuation Committee,
represents fair market value on the basis of all available information. The
value of other portfolio holdings owned by the Fund is determined in a manner
which, in the discretion of the Valuation Committee most fairly reflects fair
market value of the property on the valuation date.
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, located at Eight Penn Center Plaza, Suite 800,
Philadelphia, Pennsylvania, serves as the Fund's independent accountants and has
been appointed to serve as the Fund's independent accountants for the fiscal
year ending December 31, 2002. The services to be performed by Tait, Weller &
Baker include audits of the Fund's annual financial statements and preparation
of the Fund's federal and state income tax returns.
FINANCIAL STATEMENTS
The audited financial statements contained in the Fund's December 31, 2001
annual report, including the Report of Independent Accountants, Financial
Highlights and Notes to Financial Statements, are incorporated herein by
reference, and are hereby deemed to be a part of this Statement of Additional
Information. The Financial Statements incorporated by reference herein have been
so included in reliance on the report of Tait, Weller & Baker, the Fund's
independent accountants, and given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
Dechert, Ten Post Office Square--South, Boston, MA 02109 serves as counsel to
the Trust.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From Moody's Rating Definitions, www.moodys.com, December 2000, and "Standard &
Poor's Municipal Ratings Handbook," September 2000 Issue (McGraw-Hill, New York,
2000).]
MOODY'S:
(a) CORPORATE BONDS. Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa 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 risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time 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.
(b) COMMERCIAL PAPER. Moody's short-term issuer ratings are opinions of
the ability of issuers to honor senior financial obligations and contracts.
These obligations have an original maturity not exceeding one year, unless
explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P:
(a) LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based in
varying degrees on the following considerations:
o Likelihood of payment -- capacity and willingness of the
obligor to meet its financial commitment on an obligation in
accordance with the terms of the obligation;
o Nature of and provisions of the obligation; and
o Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk.
As such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
AAA An obligation rated `AAA' has the highest rating assigned by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated `AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A An obligation rated `A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated `BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B, CCC, CC, and C Obligations rated `BB', `B', `CCC', `CC', and `C'
are regarded as having significant speculative characteristics. `BB' indicates
the least degree of speculation and `C' the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated `BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated `B' is more vulnerable to nonpayment than
obligations rated `BB,' but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated `CCC' is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated `CC' is currently highly vulnerable to
nonpayment.
C The `C' rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
D An obligation rated `D' is in payment default. The `D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The `D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Ratings are graded into several categories,
ranging from `A' for the highest-quality obligations to `D' for the lowest.
These categories are as follows:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated `A-1.'
A-3 Issues carrying this designation have an adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B Issues rated `B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D Debt rated `D' is in payment default. The `D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes such
payments will be made during such grace period.
Dates Referenced Herein and Documents Incorporated By Reference
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