See All of This Company's Exhibits
485BPOS
1
fam485b.txt
POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 485(B)
As filed with the Securities and Exchange Commission on May 1, 2007
Registration No. 33-7190
Investment Company Act File No. 811-4750
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 36 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 39 /X/
FENIMORE ASSET MANAGEMENT TRUST
(Exact Name of Registrant as Specified in Charter)
384 North Grand Street
P.O. Box 399
Cobleskill, New York 12043
(Address of Principal Executive Offices)
Registrant's Telephone Number: 800-453-4392
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Patrick W.D. Turley, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006
(Name and Address of Agent for Service)
Copies to:
Thomas O. Putnam
384 North Grand Street
Cobleskill, New York 12043
--------------------------
It is proposed that this filing will become effective immediately
upon filing pursuant to paragraph (b) of Rule 485.
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FAM Funds Investor Class Shares
PROSPECTUS
VALUE FUND [LOGO] EQUITY-INCOME FUND
May 1, 2007
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
Table of Contents
Risk/Return Summary and Fund Expenses.......................................1
Investment Objectives....................................................1
Principal Investment Strategies..........................................1
Principal Investment Risks...............................................1
Who May Want to Invest?..................................................2
Fund Performance.........................................................2
Bar Charts.............................................................2
Best Quarter/Worst Quarter.............................................3
Performance Table......................................................3
Fees and Expenses of the Funds...........................................4
Expense Example........................................................5
Investment Objectives, Principal Investment Strategies, and Risks...........6
Investment Objectives....................................................6
Principal Investment Strategies..........................................6
Principal Risks..........................................................7
Other Investment Techniques..............................................7
Fund Management.............................................................8
The Investment Advisor ..................................................8
Portfolio Managers ......................................................8
Shareholder Information.....................................................9
Pricing Fund Shares......................................................9
Householding of Shareholder Mailings.....................................9
Purchasing and Adding to Your Shares.....................................9
Important Information About Procedures
for Opening an Account...............................................10
Account Minimums......................................................10
Automatic Investment Plan.............................................11
Wire Instructions.....................................................11
IRA and Retirement Accounts...........................................12
Purchases Through Selected Dealers....................................12
Instructions for Redemption of Shares...................................12
Definition of Good Order..............................................13
Signature Guarantees..................................................13
Systematic Withdrawal Plan............................................14
Information on Distribution and Taxes...................................14
Tax Information.......................................................15
Financial Highlights.......................................................17
FAM Value Fund..........................................................17
FAM Equity-Income Fund..................................................18
Privacy Policy.............................................................19
To Obtain Additional Information...........................................22
Risk/Return Summary and Fund Expenses [LOGO]
Investment Objectives
FAM Value Fund's investment objective is to maximize long-term total return
on capital.
FAM Equity-Income Fund has the investment objective of providing current
income, as well as long-term capital appreciation by investing primarily (at
least 80% of its total assets) in income-producing stocks that pay dividends.
This Fund distributes its income on a quarterly basis.
Principal Investment Strategies
Fenimore Asset Management, Inc., ("Fenimore") the investment adviser to each
Fund employs a `value approach' in making its common stock selections. This
approach is based on Fenimore's belief that at any given point in time the
stock price of a company may sell below the company's `true business worth.'
Factors considered in evaluating the true business worth include the
company's current earnings and Fenimore's opinion as to its future earnings
potential. After identifying a company whose securities are determined to
have a favorable price-to-earnings relationship, Fenimore plans to invest in
such securities until the `true business worth' nears the market price of the
company's securities.
Some of the securities in which the Funds invest are issued by smaller
and newer companies which may not be well known to the general public or may
not have strong institutional ownership or recognition. Before investing in
these smaller companies (which generally have market capitalizations of
between $300 million and $10 billion), Fenimore places considerable emphasis
upon evaluating the company's management through personal conversations
and/or meetings with company officials. Conversations and meetings of this
type continue throughout Fenimore's interest in the company.
Under normal market conditions, the FAM Funds will attempt to remain
fully invested in common stocks and securities that are convertible into
common stocks, such as convertible bonds and convertible preferred stocks.
Principal Investment Risks
The principal risks of investing in the Funds are: stock market risk, stock
selection risk, and small-cap risk.
Stock market risk refers to the fact that the value of stocks fluctuate in
response to the activities of individual companies and to general stock
market and economic conditions. As a result, the value of your investment in
either Fund will fluctuate in response to stock market conditions and you
could, therefore, lose money on your investment in a Fund or your investment
in a Fund could underperform other investments.
Stock selection risk refers to the fact that Fenimore utilizes a `value
approach' to stock selection, as discussed above, and there is risk that the
stocks selected by Fenimore may not realize their intrinsic value, or their
price may go down over time.
Small-cap risk refers to the fact that Fenimore often focuses on the stocks
of smaller companies for certain of each Fund's investments. The stock prices
of these small-cap companies can fluctuate more than the stocks of larger
companies and they may not correspond to changes in the stock market in
general.
1
Risk/Return Summary and Fund Expenses [LOGO]
Who May Want to Invest?
Consider investing in FAM Value Fund or FAM Equity-Income Fund if you:
o are investing for long-term goals
o want potential capital appreciation and are willing to accept higher risk
associated with investing in stocks
o want professional portfolio management
FAM Funds are not appropriate for anyone:
o whose intention is to capitalize on short-term fluctuations, or who
would sell their Fund shares due to short-term market fluctuations
o seeking safety of principal
We discourage short-term speculators and market timers from investing in FAM
Funds.
Excessive trading in and out of a fund may be harmful to existing
shareholders by potentially increasing expenses as a result of disrupting
portfolio management strategies. If you engage in frequent trading, your
trading privileges may be suspended or terminated. As with all purchases into
FAM Funds, we reserve the right to reject transactions which we deem may be
harmful to existing shareholders.
As with all mutual funds, there is no guarantee that FAM Value Fund or FAM
Equity-Income Fund will achieve its goals.
Fund Performance
The Performance Bar Charts below show the FAM Funds' Investor Class shares
actual performance for each calendar year since 1997. It indicates risk by
illustrating how much returns can differ from one year to the next. As
always, keep in mind that a Fund's past performance (before and after taxes)
is no indication of what future returns will be.
FAM VALUE FUND
1997 39.1%
1998 6.2%
1999 -4.8%
2000 19.2%
2001 15.1%
2002 -5.3%
2003 25.0%
2004 16.9%
2005 5.6%
2006 8.7%
FAM EQUITY-INCOME FUND
1997 26.9%
1998 4.7%
1999 -7.0%
2000 17.2%
2001 20.8%
2002 -2.3%
2003 20.3%
2004 14.0%
2005 5.8%
2006 6.6%
2
Risk/Return Summary and Fund Expenses [LOGO]
Best Quarter/Worst Quarter
A Fund can also experience performance swings, as shown in the following
tables which show the best and worst calendar quarter returns for Investor
Class shares during the years depicted in the chart.
FAM VALUE FUND
Best Quarter: 3rd Qtr. 1997 16.98%
Worst Quarter: 3rd Qtr. 1998 -15.18%
FAM EQUITY-INCOME FUND
Best Quarter: 2nd Qtr. 1999 13.20%
Worst Quarter: 1st Qtr. 1999 -10.65%
Performance Table
This table shows the risks of investing in the Funds by comparing how
the Investor Class shares' average annual returns (before and after taxes)
for the periods of one year, five years and ten years (as applicable) compare
to those of the Russell 2000 Index. This index is the Funds' primary
comparative index and is an unmanaged index that measures the performance of
the 2,000 smallest of the 3,000 largest publicly traded companies based on
total market capitalization.
AVERAGE ANNUAL TOTAL RETURN
(for the periods ending December 31, 2006)
FAM VALUE FUND
1 YEAR 5 YEARS 10 YEARS
Return before taxes 8.73% 9.67% 11.82%
Return after taxes on distributions* 7.60% 9.05% 10.69%
Return after taxes on distributions
and sale of fund shares* 6.40% 8.22% 10.02%
Russell 2000 18.37% 11.39% 9.44%
FAM EQUITY-INCOME FUND
1 YEAR 5 YEARS 10 YEARS
Return before taxes 6.57% 8.61% 10.20%
Return after taxes on distributions* 5.17% 7.94% 9.14%
Return after taxes on distributions
and sale of fund shares* 5.04% 7.15% 8.40%
Russell 2000 18.37% 11.39% 9.44%
*The after-tax returns shown in the table are calculated using the historical
highest individual federal marginal income tax rates, and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on the
investor's tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements such as 401(k) plans or individual
retirement accounts, or to investors who are tax exempt.
3
Risk/Return Summary and Fund Expenses [LOGO]
Fees and Expenses of the Funds
This table describes the fees and expenses that you pay if you buy and hold
Investor Class shares of the Funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
FAM VALUE FUND FAM EQUITY-INCOME FUND
Maximum sales charge (load) on purchase none none
Maximum deferred sales charge (load) none none
Redemption fee none* none*
*Shareholders requesting redemption proceeds to be wired will incur an $8
wire fee.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Year Ended December 31, 2006
FAM VALUE FUND FAM EQUITY-INCOME FUND
Management Fees(1) 1.00% 1.00%
Distribution and Service (12b-1) Fees none none
Other expenses(2) 0.18% 0.28%
Acquired Fund Fees and Expenses(3) 0.20% 0.33%
Total annual fund operating expenses(4) 1.38% 1.61%
(1) FAM has entered into a voluntary agreement with FAM Value Fund and FAM
Equity-Income Fund to limit the Management Fee for each of the Funds
through December 31, 2007 to 0.95% of each respective Fund's average
daily net assets in excess of $1 billion.
(2) FAM has entered for the current fiscal year into a contractual agreement
with FAM Value Fund and FAM Equity-Income Fund to limit the total
operating expenses of each Fund's Investor Class shares, respectively,
to 1.28% and 1.40% of its average daily net assets. Each of these
expense limitations are reviewed and agreed upon by the board's
independent trustees. These expense limitations do not limit acquired
fund fees and expenses.
(3) Acquired fund fees and expenses are those expenses incurred indirectly
by the Funds as a result of investments in shares of one or more
investment companies or pooled investment vehicles (referred to as
"Acquired Funds").
(4) Total annual fund operating expenses for the Funds do not correlate to
the ratio of expenses to average net assets shown in the Funds' most
recent annual report and in the financial highlights contained in this
prospectus because acquired fund fees and expenses are not required to
be included in the Funds' audited financial statements. Excluding the
acquired fund fees and expenses, the total annual fund operating
expenses for the Value Fund and the Equity-Income Fund were 1.18% and
1.28%, respectively.
4
Risk/Return Summary and Fund Expenses [LOGO]
Use this table to compare fees and expenses of the Funds with those of other
mutual funds. This example illustrates the amount of fees and expenses you
would pay and assumes the following:
o a $10,000 investment
o 5% annual return
o redemption at the end of each period
o no change in the Fund's operating expenses
o reinvestment of dividends and capital gains
EXPENSE EXAMPLE
1 3 5 10
YEAR YEARS YEARS YEARS
FAM Value
Fund $140 $437 $755 $1,657
FAM Equity-
Income Fund $164 $508 $876 $1,911
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
5
Investment Objectives,
Principal Investment Strategies, and Risks [LOGO]
Investment Objectives
FAM Value Fund seeks to maximize long-term total return on capital.
FAM Equity-Income Fund seeks to provide current income as well as long-term
capital appreciation by investing primarily in income-producing equity
securities. This Fund distributes its income on a quarterly basis.
The investment objective of each Fund is a fundamental policy which may not
be changed without a majority vote of a Fund's shareholders.
Principal Investment Strategies
Fenimore's investment philosophy is to seek out well-managed,
financially sound companies that it considers to be undervalued in the
marketplace. Utilizing investment principles based on the teachings of
Benjamin Graham, whose book Security Analysis provides the foundation for
value investing, Fenimore is categorized as a bottom-up manager. As such,
Fenimore focuses on identifying, analyzing, and selecting individual
companies that meet Fenimore's long-term growth expectation.
Under normal market conditions the FAM Funds will attempt to remain
fully invested in common stocks and securities that are convertible into
common stocks, such as convertible bonds and convertible preferred stock.
For temporary defensive purposes, the Funds may invest all of their
assets in fixed-income securities. Generally, the Funds only intend to invest
in fixed-income securities when, in Fenimore's opinion, common stocks are
too risky in relationship to their anticipated rewards and fixed-income
securities are considered a good alternative. During such temporary periods
the Funds might not achieve their stated investment objectives.
6
Investment Objectives,
Principal Investment Strategies, and Risks [LOGO]
Principal Risks
The principal risks of investing in the Funds are as follows:
Stock Market Risk. The value of stocks fluctuate in response to the
activities of individual companies and general stock market and economic
conditions. Stock prices may decline over short or extended periods of time.
Stocks are more volatile and riskier than some other forms of investments,
such as short-term, high grade fixed-income securities.
Stock Selection Risk. The value stocks chosen for the Funds are subject to
the risk that the market may never realize their intrinsic value or their
prices may go down. While the Fund's investments in value stocks may limit
their downside risk over time, the Funds may produce more modest gains than
riskier stock funds as a trade off for this potentially lower risk.
Small-Cap Risk. Small capitalization companies may not have the size,
resources or other assets of large capitalization companies. These small
capitalization companies may be subject to greater market risks and
fluctuations in value than large capitalization companies and may not
correspond to changes in the stock market in general.
The value of your investment will go up and down, which means that you
could lose money. You should consider an investment in the FAM Funds as a
long-term investment.
An investment in FAM Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Other Investment Techniques
The Funds may also engage in certain investment techniques to a limited
extent that are not part of their principal investment strategies. For
example, each of the Funds are permitted to utilize options, futures
contracts and options on futures contracts. The Funds may engage in
short-sale transactions, lend portfolio securities, invest in securities
which have relatively short operating histories and invest in securities of
issuers that do not have quoted markets. In addition, the Funds may invest in
the shares of other investment companies and the Funds may also invest in the
common stocks of real estate investment trusts. However, our investment
decisions will always be guided by prudent choices dictated by our thoughtful
and disciplined value investing methodology. Additional information
concerning these investment techniques, including their risks, are set forth
in the Funds' Statement of Additional Information.
7
Fund Management [LOGO]
The Investment Advisor
The Investment Advisor to FAM Funds is Fenimore Asset Management, Inc.,
('Fenimore'), which is a New York corporation majority-owned by Mr. Thomas O.
Putnam and located at 384 N. Grand Street, Cobleskill, NY 12043. Fenimore has
been continuously offering investment advisory and consulting services under
contract since 1974 to individuals, pension, profit sharing, IRA and Keogh
plans, corporations, and non-profit organizations generally located in a
service area that includes the continental United States. Mr. Putnam,
Fenimore's principal investment professional, was born in 1944. He has been
actively employed as an investment advisor with Fenimore since 1974, and
holds responsibilities for Fenimore's investment management and research
activities. Mr. Putnam is the sole shareholder of FAM Shareholder Services,
Inc., each Fund's shareholder servicing agent and Fenimore Securities, Inc.,
each Fund's principal underwriter.
Portfolio Managers
Mr. Putnam co-manages both FAM Value Fund and FAM Equity-Income Fund.
The co-managers share equally in the day-to-day management of each respective
Fund's investment portfolio.
John D. Fox, CFA, serves as co-manager of FAM Value Fund with Mr.
Putnam. Mr. Fox is employed by Fenimore as Investment Research Analyst and
has been actively involved in research activities since he joined the firm in
1996.
Paul C. Hogan, CFA, serves as co-manager of FAM Equity-Income Fund with
Mr. Putnam. He is also employed by Fenimore as Investment Research Analyst.
He has been actively involved in investment research activities since 1991.
Additional information about the portfolio managers' compensation
arrangements, other accounts managed by the portfolio managers, and the
portfolio managers' ownership of securities of the Funds is available in the
Funds' Statement of Additional Information.
Fenimore employs a staff of experienced investment professionals to
manage assets for other corporate and individual clients.
As principal officer of Fenimore, Mr. Putnam serves as President and as
a member of the Board of Trustees of Fenimore Asset Management Trust. Under
the terms of the investment advisory contract, Fenimore receives a monthly
fee from each Fund equal to 1% per annum of the average daily market value of
its net assets. A discussion regarding the basis for the Trustees' approval
of the investment advisory contract is available in the Funds' Annual Report
to Shareholders dated December 31, 2006.
FAM Funds, the Advisor and Fenimore Securities, Inc. have jointly
adopted a Code of Ethics which places certain express restrictions on the
personal trading practices of personnel of both the Funds and Fenimore. This
Code of Ethics complies in all material respects with the recommendations set
forth in the 1994 Report of the Advisory Group on Personal Investing of the
Investment Company Institute. In addition, FAM Funds and Fenimore have
developed procedures that provide for the administration and enforcement of
the Code through the continuous monitoring of personal trading practices.
8
Shareholder Information [LOGO]
Pricing Fund Shares
The share price (also called "Net Asset Value" or NAV per share) is
calculated each day at the close of regular trading on the New York Stock
Exchange and on such days as there is sufficient trading in a Fund's
portfolio of securities. The New York Stock Exchange is closed on weekends
and on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Securities in each Fund's portfolio will
ordinarily be valued based upon market quotes. If market quotations are not
available, securities or other assets will be valued by a method which the
Board of Trustees believes most accurately reflects fair value. To calculate
the NAV, a Fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of shares
outstanding.
Householding of Shareholder Mailings
To reduce the volume of mail you receive, each Fund will send a single copy
of most financial reports, prospectuses, and regular communications to a
shareholder with multiple accounts (single, retirement, joint, etc.) if such
accounts have the same address and the Fund reasonably believes that the
Shareholders are members of the same family. You may request that additional
copies be sent by notifying the Funds.
Purchasing and Adding to Your Shares
To establish an account, complete and sign the appropriate application and
mail it, along with your check to FAM Funds, PO Box 399, Cobleskill, NY
12043. Checks should be made payable to the appropriate fund. FAM does not
accept third party checks. Please be sure to provide your Social Security or
taxpayer identification number. Cash will not be accepted. Any applications
received not following the above guidelines will be returned.
The date on which your purchase is credited is your trade date. For
purchases made by check or Federal Funds wire and received by the close of
regular trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
time) the trade date is the date of receipt. For purchases received after the
close of regular trading on the Exchange the trade date is the next business
day. Shares are purchased at the Net Asset Value (NAV) determined on your
trade date.
FAM reserves the right to reject purchase applications or to terminate
the offering of shares made by this Prospectus if, in the opinion of the
Board of Trustees, such termination and/or rejection would be in the best
interest of existing shareholders. In the event that your check does not
clear, your order(s) will be canceled and you may be liable for losses or
fees incurred, or both. FAM has a policy of waiving the minimum initial
investment for Fund trustees, and employees and affiliated persons (including
family members) of FAM.
All applications to purchase Fund shares are subject to acceptance by
FAM and are not binding until so accepted. FAM does not accept telephone
orders for the purchase of shares, and it reserves the right to reject
applications in whole or in part.
9
Shareholder Information [LOGO]
Important Information About Procedures for Opening an Account
To help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions, including the
Funds, to obtain, verify and record information that identifies each person
who opens an account, and to determine whether such person's name appears on
government lists of known or suspected terrorists and terrorist
organizations.
What this means for you: the Funds must obtain the following
information for each person who opens an account: (1) Name; (2) Date of birth
(for individuals); (3) Physical residential address (although post office
boxes are still permitted for mailing); and (4) Social Security Number,
Taxpayer Identification Number or other identifying number.
You may also be asked to show your driver's license, passport or other
identifying documents in order to verify your identity. Additional
information may be required to open accounts for corporations and other
nonnatural persons.
Federal law prohibits the Funds and other financial institutions from opening
accounts unless the minimum identifying information listed above is received.
The Funds may also be required to close your account if we are unable to
verify your identity.
Account Minimums
To begin an investment in FAM Funds the following minimum initial investments
must be met. All subsequent investments to an existing account require a
minimum of $50.
MINIMUM INITIAL INVESTMENTS
FAM
FAM VALUE FUND* EQUITY-INCOME
FUND*
To open a new account $500 $2,000
To open a new retirement account
IRA, Roth IRA, SEP, SIMPLE Plan,
Coverdell Education IRA, or 403(b)(7) $100 $500
To open a Uniform Transfer to Minors (UTMA)
or Uniform Gift to Minors (UGMA) account $500 $2,000
To open a new account through our
Automatic Investment Program* $500 $2,000
*FAM's Automatic Investment Plan requires the systematic addition of at least
$50 per month, as described below.
10
Shareholder Information [LOGO]
Automatic Investment Plan
FAM Funds offer an Automatic Investment Plan whereby authorization is granted
and instructions are provided to charge the regular bank checking account of
a shareholder on a regular basis to provide systematic additions to the
shareholder's account. The bank at which the shareholder checking account is
maintained must be a member of the Automated Clearing House (ACH). While
there is no charge to shareholders for this service, a charge of $10.00 may
be deducted from a shareholder's Fund account in case of returned items.
NOTE: Individual Retirement Account ("IRA") contributions made through the
Automatic Investment Plan are assumed to be current year contributions. A
shareholder's Automatic Investment Plan may be terminated at any time without
charge or penalty by the shareholder or the fund.
Wire Instructions
If you wish to wire funds to establish a new account, please use the
following instructions. Investors establishing new accounts by wire should
first forward their completed Account Application to FAM Funds stating that
the account will be established by wire transfer and the expected date and
amount of the transfer. Further information regarding wire transfers is
available by calling (800) 932-3271. FAM must have receipt of a wire transfer
no later than 4:00 P.M. Eastern Time in order for the purchase to be made
that same business day.
WIRE INSTRUCTIONS
VALUE FUND
Key Bank of New York
ABA #021300077
For further credit to acct. #32531 000 6565
FAM Value Fund
Fund Investment for:
(Name and/or Account Number)
EQUITY-INCOME FUND
Key Bank of New York
ABA #021300077
For further credit to acct. #32531 001 8610
FAM Equity-Income Fund
Fund Investment for:
(Name and/or Account Number)
If you wish to wire funds to an existing account, please use the same
instructions listed above.
11
Shareholder Information [LOGO]
IRA and Retirement Accounts
An individual having earned income and her or his spouse may each have one or
more Individual Retirement Accounts, or "IRAs", the number and amounts
limited only by the maximum allowed contribution per year. Existing IRA
accounts may be rolled over or transferred at any time into a new IRA
account, which may be invested in Fund shares. U.S. Bank, is empowered and
agrees to act as custodian of shares purchased. Monies deposited into an IRA
account may be invested in shares of one of the Funds upon the filing of the
appropriate forms. Forms establishing IRAs, Roth IRAs, Coverdell Education
IRAs, SEP-IRAs, SIMPLE Plans, 403(b)(7) Plans and Individual (k) Plans are
available by calling FAM Funds at (800) 932-3271. There is no annual
maintenance fee. Investors are urged to consult with a tax advisor in
connection with the establishment of retirement plans.
Monies or deposits into other types of retirement plans and/or Keogh
accounts may also be invested in FAM Fund shares. However, the qualification
and certification of such plans must first be prearranged by the investor's
own tax specialists who would assist and oversee all plan compliance
requirements. Although FAM endeavors to provide assistance to those investors
interested in such plans, it neither offers nor possesses the necessary
professional skills or knowledge regarding the establishment or compliance
maintenance of retirement plans. Therefore, it is recommended that
professional counsel be retained by the investor before investing such monies
in shares of FAM Funds.
No signature guarantee is required if a shareholder elects to transfer
an IRA, Roth IRA, Coverdell Education IRA, SEP-IRA, SIMPLE Plan, 403(b)(7)
Plan or Individual (k) Plan to another custodian or in the event of a
mandatory distribution.
Purchases Through Selected Dealers
Certain Selected Dealers may effect transactions of the FAM Funds. FAM may
accept orders from broker-dealers who have been previously approved by the
Funds. It is the responsibility of such broker-dealers to promptly forward
purchase or redemption orders to the Funds. If the broker-dealer submits
trades to the Funds, the Funds will use the time of day when such entity or
its designee accepts the order to determine the time of purchase or
redemption and will process the order at the next closing price computed
after acceptance. Broker-dealers may charge the investor a transaction-based
fee for their services at either the time of purchase or the time of
redemption. Such charges may vary amongst broker-dealers but in all cases
will be retained by the broker-dealer and not remitted to FAM or the Advisor.
The Advisor may make payments to such companies out of its own resources to
compensate these companies for certain administrative services provided in
connection with the Funds. Shareholders who wish to transact through a
broker-dealer should contact FAM at (800) 932-3271 for further information.
12
Shareholder Information [LOGO]
Instructions for Redemption of Shares
Shareholders wishing to redeem shares may tender them to FAM any business day
by executing a written request for redemption, in good order as described
below, and delivering the request by mail, fax or by hand to the Funds, 384
North Grand Street, PO Box 399, Cobleskill, NY 12043. FAM offers no telephone
redemptions.
Definition of Good Order
Good order means that the written redemption request must include the
following:
1. The Fund account number, name, and Social Security or Tax I.D. number.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees are required if the value of shares being redeemed
exceeds $25,000; or if payment is to be sent to an address other than the
address of record; or if payment is to be made payable to a payee other than
the shareholder; or if there has been an address change in the last 30 days.
5. Certificates, if any are held, signed and containing a proper signature
guarantee.
6. Other supporting legal documentation that might be required, in the
case of retirement plans, corporations, trusts, estates and certain other
accounts.
Shareholders requesting redemption proceeds to be wired from FAM will
incur a $8 wire fee.
Shareholders may sell all or any portion of their shares on any such
business day that NAV is calculated. Such shares will be redeemed by FAM at
the next such calculation after such redemption request is received in good
order. When a redemption occurs shortly after a recent purchase made by
check, FAM Funds may hold the redemption proceeds beyond 7 days but only
until the purchase check clears, which may take up to 15 days. If you
anticipate redemptions soon after you purchase your shares, you are advised
to wire funds to avoid delay.
FAM reserves the right, however, to withhold payment up to seven (7)
days if necessary to protect the interests and assets of the Funds and their
shareholders. In the event the New York Stock Exchange is closed for any
reason other than normal weekend or holiday closing or if trading on that
exchange is restricted for any reason, or in the event of any emergency
circumstances as determined by the Securities and Exchange Commission, the
Board of Trustees shall have the authority and may suspend redemptions or
postpone payment dates accordingly.
Redemption of shares may result in the shareholder realizing a taxable
capital gain or loss.
13
Shareholder Information [LOGO]
Signature Guarantees
For our mutual protection, signature guarantees may be required on certain
written transaction requests. A signature guarantee verifies the authenticity
of your signature and may be obtained from "eligible guarantor institutions."
Eligible guarantor institutions include (1) national or state banks,
savings associations, savings and loan associations, trust companies, savings
banks, industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (4)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program.
A signature guarantee cannot be provided by a notary public.
Signature guarantees will be required under the following circumstances:
1. Redemption of Shares IF:
o the value of shares being redeemed exceeds $25,000
o payment is requested payable to a payee other than the shareholder of
record
o payment is to be sent to an address other than the address of record
o an address change accompanies the redemption request or there has been a
change of address on the account during the last 30 days
o the shares are represented by a negotiable stock certificate
2. Transferring of Ownership and/or Account Name Changes
Systematic Withdrawal Plan
For your convenience you may elect to have automatic periodic redemptions
from your account. Shareholders who wish to participate in the systematic
withdrawal plan must complete the appropriate form and return to FAM 30 days
prior to the first scheduled redemption.
Information on Distributions and Taxes
All net investment income and net realized capital gains generated as a
result of portfolio management activities are distributed to shareholders.
A capital gain or loss is the difference between the purchase and sale
price of a security. If a Fund has net capital gains for the year they are
usually declared and paid in December to shareholders of record in the month
of December.
14
Shareholder Information [LOGO]
Dividend and capital gain distributions are reinvested in additional
Fund shares in your account, unless you select another option on your account
application form. Investors who want dividend and/or capital gains
distributions sent to them in cash rather than invested in additional shares
must arrange this by making a request to FAM. The request must be in written
form acceptable to FAM. Unless investors request cash distributions in
writing at least 7 business days prior to the distribution, or on the Account
Application, all dividends and other distributions will be reinvested
automatically in additional shares of the funds. Capital gains, if any, will
be distributed in December.
The value of your shares will be reduced by the amount of dividends
and/or capital gains. If you purchase shares shortly before the record date
for a dividend or the distribution of capital gains, you will pay the full
price for the shares and receive some portion of the price back as a taxable
dividend or distribution.
Tax Information
Curently effective tax legislation generally provides for a maximum tax rate
for individual taxpayers of 15% on distributions of capital gains and of
certain qualifying dividends on corporate stock. These rate reductions do not
apply to corporate taxpayers. Distributions of earnings from dividends paid
by certain "qualified foreign corporations" can also qualify for the lower
tax rates on qualifying dividends. A shareholder will also have to satisfy a
more than 60 day holding period for the Fund shares with respect to any
distributions of qualifying dividends in order to obtain the benefit of the
lower tax rate. Distributions of earnings from non-qualifying dividends,
interest income, other types of ordinary income and short-term capital gains
will be taxed at the ordinary income tax rate applicable to the taxpayer.
Distributions designated by a Fund as long-term capital distributions will be
taxable to you at your long-term capital gains rate, regardless of how long
you have held your Fund shares. An exchange of Fund shares for shares of
another fund is considered a sale, and gains from any sale or exchange may be
subject to federal and state taxes. Dividends generally are taxable in the
year in which they are accrued, even if they appear on your account statement
the following year. Dividends and distributions are treated the same for
federal tax purposes, whether you receive them in cash or in additional
shares of the Fund. Depending on your residence for tax purposes,
distributions may also be subject to state and local taxes.
If you hold shares through a tax-deferred account, such as a retirement
plan, income and gains will not be taxable each year. Instead, the taxable
portion of amounts you hold in a tax-deferred account will generally be
subject to tax only when they are distributed from the account.
You will be notified in January each year, through our "Supplementary
Tax Information" flyer, about the federal tax status of distributions made
the previous year.
15
Shareholder Information [LOGO]
The Funds are required to withhold 28% of taxable dividends, capital
gains distributions and redemptions paid to shareholders who have not
provided the Funds with their certified taxpayer identification number in
compliance with IRS rules. To avoid this, make sure you provide your correct
tax identification number (Social Security Number for most investors) on your
account application.
This tax discussion is meant only as a general summary. Because
everyone's tax situation is unique, you should consult your tax professional
about particular consequences to you of investing in the Funds.
Frequent Trading Policy. The Funds are intended for long-term investors and
not for those who wish to trade frequently in Fund shares. Frequent trading
into and out of a Fund can have adverse consequences for that Fund and for
long-term shareholders in the Fund. The Trust believes that frequent or
excessive short-term trading activity by shareholders of a Fund may be
detrimental to long-term shareholders because those activities may, among
other things: (a) dilute the value of shares held by long-term shareholders;
(b) cause the Funds to maintain larger cash positions than would otherwise be
necessary; (c) increase brokerage commissions and related costs and expenses,
and (d) incur additional tax liability. The Trust therefore discourages
frequent purchase and redemptions by shareholders and it does not make any
effort to accommodate this practice. To protect against such activity, the
Board of Trustees has adopted policies and procedures that are intended to
permit the Funds to curtail frequent or excessive short-term trading by
shareholders. At the present time the Trust does not impose limits on the
frequency of purchases and redemptions, nor does it limit the number of
exchanges into any of the Funds. The Trust reserves the right, however, to
impose certain limitations at any time with respect to trading in shares of
the Funds, including suspending or terminating trading privileges in Fund
shares, for any investor whom it believes has a history of abusive trading or
whose trading, in the judgment of the Trust, has been or may be disruptive to
the Funds. The Funds' ability to detect and prevent any abusive or excessive
short-term trading may be limited to the extent such trading involves Fund
shares held through omnibus accounts of a financial intermediary.
Disclosure of Fund Portfolio Holdings. On a quarterly basis, the Funds
disclose on their website, www.famfunds.com, each Fund's entire portfolio
holdings and certain additional information regarding their portfolios (e.g.,
top-10 holdings, asset allocation, sector breakdown). The information will
generally be available no earlier than the 10th business day following the
quarter-end and shall remain on the website until the next quarter's
information is made publicly available. A complete list of each Fund's
portfolio holdings is also publicly available on a quarterly basis through
filings made with the SEC on Forms N-CSR and N-Q. A description of the Funds'
policies and procedures with respect to the disclosure of the Funds'
portfolio securities is provided in the Statement of Additional Information
(SAI).
16
Financial Highlights [LOGO]
The financial highlights provide information about each Fund's financial
history and are expressed in one share outstanding throughout each fiscal
year. Each table is part of the Fund's financial statements which are
included in its annual report and are incorporated herein by reference from
the Statement of Additional Information, which is available upon request. The
total returns in the table represent the rate that an Investor Class
shareholder would have earned or lost on an investment in the Fund, assuming
reinvestment of all dividends and capital gains. This information has been
audited by PricewaterhouseCoopers LLP, the Funds' independent registered
public accounting firm, whose report on the Funds' financial statements is
included in the Funds' annual report which is available upon request.
FAM VALUE FUND -- INVESTOR CLASS SHARES
Years Ended December 31,
Per share information
(For a share outstanding throughout the year) 2006 2005 2004 2003 2002
Net asset value, beginning of year $ 48.00 $ 46.65 $ 41.15 $ 33.69 $ 36.17
Income from investment operations:
Net investment income 0.24+ 0.39+ 0.09+ 0.10 0.11
Net realized and unrealized
gain (loss) on investments 3.96 2.20 6.84 8.32 (2.04)
Total from investment operations 4.20 2.59 6.93 8.42 (1.93)
Less distributions:
Dividends from net investment income (0.31) (0.37) (0.07) (0.09) (0.11)
Distributions from net realized gains (2.24) (0.87) (1.36) (0.87) (0.44)
Total distributions (2.55) (1.24) (1.43) (0.96) (0.55)
Change in net asset value for the year 1.65 1.35 5.50 7.46 (2.48)
Net asset value, end of year $ 49.65 $ 48.00 $ 46.65 $ 41.15 $ 33.69
Total Return 8.73% 5.56% 16.86% 24.98% (5.33)%
Ratios/supplemental data
Net assets, end of year (000) $1,042,174 $1,089,369 $915,742 $578,579 $469,277
Ratios to average net assets of:
Expenses 1.18% 1.18% 1.20% 1.24% 1.21%
Net investment income 0.49% 0.82% 0.20% 0.26% 0.30%
Portfolio turnover rate 17.53% 14.25% 10.29% 9.43% 17.51%
+Based on average shares outstanding.
17
Financial Highlights [LOGO]
FAM EQUITY-INCOME FUND -- INVESTOR CLASS SHARES
Years Ended December 31,
Per share information
(For a share outstanding throughout the year) 2006 2005 2004 2003 2002
Net asset value, beginning of year $ 21.52 $ 20.48 $ 18.27 $ 15.45 $ 16.05
Income from investment operations:
Net investment income 0.12+ 0.14+ 0.15+ 0.12 0.12
Net realized and unrealized
gain (loss) on investments 1.30 1.03 2.40 3.00 (0.48)
Total from investment operations 1.42 1.17 2.55 3.12 (0.36)
Less distributions:
Dividends from net investment income (0.16) (0.13) (0.15) (0.12) (0.12)
Distributions from net realized gains (1.17) -- (0.19) (0.18) (0.12)
Total distributions (1.33) (0.13) (0.34) (0.30) (0.24)
Change in net asset value for the year 0.09 1.04 2.21 2.82 (0.60)
Net asset value, end of year $ 21.61 $ 21.52 $ 20.48 $ 18.27 $ 15.45
Total Return 6.57% 5.75% 14.04% 20.30% (2.25)%
Ratios/supplemental data
Net assets, end of year (000) $142,546 $177,740 $148,776 $114,194 $73,969
Ratios to average net assets of:
Expenses, total 1.28% 1.26% 1.27% 1.28% 1.37%
Net investment income 0.55% 0.66% 0.79% 0.73% 0.84%
Portfolio turnover rate 19.01% 14.11% 17.64% 6.46% 7.11%
+Based on average shares outstanding.
18
Privacy Policy [LOGO]
You have entrusted to our care not only your hard-earned money but personal
and financial data as well. We understand that your relationship with us is
based upon trust, and that as your financial stewards you expect us to act
responsibly and in your best interests. Your personal and financial data is
your private information, therefore in keeping with our responsibility to you
and our own company mission, we are committed to holding ourselves to the
highest ethical standards in its safekeeping and use. This notice is intended
to help you understand how we fulfill this commitment.
We do not sell client information to anyone. Your information is used
by us primarily to complete transactions you request. From time to time, we
may collect a variety of information about you that is either required or
necessary to provide personalized financial services to you. This data
includes information we receive from you on applications and forms, via
telephone, and through our websites; or information about your transactions
with us or our affiliates (such as purchases, sales, or account balances).
We do not disclose any nonpublic personal information about our
customers or former customers to anyone, except as permitted by applicable
law or regulation. For example, we may share this information with others in
order to process your transactions. We may provide any of the information we
collect to our affiliated or non-affiliated third party companies which
provide marketing or administrative services on our behalf, such as printing
and mailing. We may also provide this information to financial institutions
with whom we have joint marketing agreements. We will require these companies
to protect the confidentiality of this information and to use it only to
perform the services for which we hired them; they are not permitted to use
or share this information for any other purpose.
We may also disclose nonpublic personal information to government
agencies and regulatory organizations when required or permitted by law. To
protect your personal information within our company, we maintain physical,
electronic and procedural safeguards to protect your nonpublic information
and access to this information is restricted to personnel necessary to
service your accounts.
19
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20
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21
To Obtain Additional Information [LOGO]
If you would like additional information about the Funds, would like to
obtain additional copies of the Funds' Annual or Semi-Annual Reports or SAI,
which are available without charge, or would like to make inquiries about FAM
Value Fund or FAM Equity-Income Fund, free reports on the Funds are available
upon request and inquiries may be directed to:
FAM Funds
384 North Grand Street
PO Box 399
Cobleskill, NY 12043
(800) 932-3271
www.famfunds.com
Shareholder Reports
Each Fund's Annual Report and Semi-Annual Report contains additional
information about the Fund's investments. The Fund's Annual Report contains a
discussion of the market conditions and investment strategies that
significantly affected the performance of the Fund during the last fiscal
year. Both the Annual Report and the Semi-Annual Report also contain fund
performance information, financial statements and portfolio holdings
information.
Statement of Additional Information
The SAI contains more comprehensive information on the Funds. The SAI is
incorporated by reference into this prospectus which makes it legally part of
this prospectus.
Information about the Funds, including the SAI, may also be obtained
from the Securities and Exchange Commission for the cost of a duplicating
fee. These documents are also available to view at the SEC's public reference
room in Washington, DC or by electronic request by e-mailing the SEC at the
following address: publicinfo@sec.gov.
Securities and Exchange Commission
Washington, DC 20549-0102
(202) 551-8090 or (800) SEC-0330
www.sec.gov
Investment Company
Act File No. 811-4750
22
FAM Funds Advisor Class Shares
PROSPECTUS
VALUE FUND [LOGO] EQUITY-INCOME FUND
May 1, 2007
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
Table of Contents
Risk/Return Summary and Fund Expenses.......................................1
Investment Objectives....................................................1
Principal Investment Strategies..........................................1
Principal Investment Risks...............................................1
Who May Want to Invest?..................................................2
Fund Performance.........................................................2
Bar Charts.............................................................2
Best Quarter/Worst Quarter.............................................3
Performance Table......................................................3
Fees and Expenses of the Funds...........................................4
Expense Example........................................................5
Investment Objectives, Principal Investment Strategies, and Risks...........6
Investment Objectives....................................................6
Principal Investment Strategies..........................................6
Principal Risks..........................................................7
Other Investment Techniques..............................................7
Fund Management.............................................................8
The Investment Advisor ..................................................8
Portfolio Managers ......................................................8
Shareholder Information.....................................................9
Pricing Fund Shares......................................................9
Householding of Shareholder Mailings.....................................9
Purchasing and Adding to Your Shares.....................................9
Important Information About Procedures
for Opening an Account...............................................10
Account Minimums......................................................10
Automatic Investment Plan.............................................11
Wire Instructions.....................................................11
IRA and Retirement Accounts...........................................12
Purchases Through Selected Dealers....................................12
Instructions for Redemption of Shares...................................12
Definition of Good Order..............................................13
Signature Guarantees..................................................13
Systematic Withdrawal Plan............................................13
Redemption Fee........................................................14
Distribution and Service (12b-1 Fees).................................14
Information on Distribution and Taxes...................................15
Tax Information.......................................................15
Financial Highlights.......................................................17
FAM Value Fund..........................................................18
FAM Equity-Income Fund..................................................19
Privacy Policy.............................................................20
To Obtain Additional Information...........................................22
Risk/Return Summary and Fund Expenses [LOGO]
Investment Objectives
FAM Value Fund's investment objective is to maximize long-term total return
on capital.
FAM Equity-Income Fund has the investment objective of providing current
income, as well as long-term capital appreciation by investing primarily (at
least 80% of its total assets) in income-producing stocks that pay dividends.
This Fund distributes its income on a quarterly basis.
Principal Investment Strategies
Fenimore Asset Management, Inc., ("Fenimore") the investment adviser to each
Fund employs a `value approach' in making its common stock selections. This
approach is based on Fenimore's belief that at any given point in time the
stock price of a company may sell below the company's `true business worth.'
Factors considered in evaluating the true business worth include the
company's current earnings and Fenimore's opinion as to its future earnings
potential. After identifying a company whose securities are determined to
have a favorable price-to-earnings relationship, Fenimore plans to invest in
such securities until the `true business worth' nears the market price of the
company's securities.
Some of the securities in which the Funds invest are issued by smaller
and newer companies which may not be well known to the general public or may
not have strong institutional ownership or recognition. Before investing in
these smaller companies (which generally have market capitalizations of
between $300 million and $10 billion), Fenimore places considerable emphasis
upon evaluating the company's management through personal conversations
and/or meetings with company officials. Conversations and meetings of this
type continue throughout Fenimore's interest in the company.
Under normal market conditions, the FAM Funds will attempt to
remain fully invested in common stocks and securities that are convertible
into common stocks, such as convertible bonds and convertible preferred
stocks.
Principal Investment Risks
The principal risks of investing in the Funds are: stock market risk, stock
selection risk, and small-cap risk.
Stock market risk refers to the fact that the value of stocks fluctuate in
response to the activities of individual companies and to general stock
market and economic conditions. As a result, the value of your investment in
either Fund will fluctuate in response to stock market conditions and you
could, therefore, lose money on your investment in a Fund or your investment
in a Fund could underperform other investments.
Stock selection risk refers to the fact that Fenimore utilizes a `value
approach' to stock selection, as discussed above, and there is risk that the
stocks selected by Fenimore may not realize their intrinsic value, or their
price may go down over time.
Small-cap risk refers to the fact that Fenimore often focuses on the stocks
of smaller companies for certain of each Fund's investments. The stock prices
of these small-cap companies can fluctuate more than the stocks of larger
companies and they may not correspond to changes in the stock market in
general.
1
Risk/Return Summary and Fund Expenses [LOGO]
Who May Want to Invest?
Consider investing in FAM Value Fund or FAM Equity-Income Fund if you:
o are investing for long-term goals
o want potential capital appreciation and are willing to accept higher risk
associated with investing in stocks
o want professional portfolio management
FAM Funds are not appropriate for anyone:
o whose intention is to capitalize on short-term fluctuations, or who
would sell their Fund shares due to short-term market fluctuations
o seeking safety of principal
We discourage short-term speculators and market timers from investing in FAM
Funds.
Excessive trading in and out of a fund may be harmful to existing
shareholders by potentially increasing expenses as a result of disrupting
portfolio management strategies. If you engage in frequent trading, your
trading privileges may be suspended or terminated. As with all purchases into
FAM Funds, we reserve the right to reject transactions which we deem may be
harmful to existing shareholders.
As with all mutual funds, there is no guarantee that FAM Value Fund or FAM
Equity-Income Fund will achieve its goals.
Fund Performance
The Performance Bar Charts below show the FAM Funds' Advisor Class shares
actual performance for each calendar year since 2004. It indicates risk by
illustrating how much returns can differ from one year to the next. As
always, keep in mind that a Fund's past performance (before and after taxes)
is no indication of what future returns will be.
FAM VALUE FUND
2004 15.9%
2005 4.6%
2006 8.0%
FAM EQUITY-INCOME FUND
2004 13.0%
2005 4.7%
2006 5.7%
2
Risk/Return Summary and Fund Expenses [LOGO]
Best Quarter/Worst Quarter
A Fund can also experience performance swings, as shown in the following
tables which show the best and worst calendar quarter returns for Advisor
Class shares during the years depicted in the chart.
FAM VALUE FUND
Best Quarter: 4th Qtr. 2004 8.80%
Worst Quarter: 2nd Qtr. 2006 -6.48%
FAM EQUITY-INCOME FUND
Best Quarter: 4th Qtr. 2004 8.41%
Worst Quarter: 2nd Qtr. 2006 -7.84%
Performance Table
This table shows the risks of investing in the Funds by comparing how the
Advisor Class shares' average annual returns (before and after taxes) for the
periods of one year and since inception (as applicable) compare to those of
the Russell 2000 Index. This index is the Funds' primary comparative index
and is an unmanaged index that measures the performance of the 2,000 smallest
of the 3,000 largest publicly traded companies based on total market
capitalization.
AVERAGE ANNUAL TOTAL RETURN
(for the periods ending December 31, 2006)
FAM VALUE FUND
SINCE INCEPTION
1 YEAR 7/1/03
Return before taxes 7.96% 11.82%
Return after taxes on distributions* 7.04% 11.20%
Return after taxes on distributions
and sale of fund shares* 5.91% 10.12%
Russell 2000 18.37% 18.89%
FAM EQUITY-INCOME FUND
SINCE INCEPTION
1 YEAR 7/1/03
Return before taxes 5.73% 9.52%
Return after taxes on distributions* 4.59% 9.01%
Return after taxes on distributions
and sale of fund shares* 4.50% 8.04%
Russell 2000 18.37% 18.89%
*The after-tax returns shown in the table are calculated using the
historical highest individual federal marginal income tax rates, and do not
reflect the impact of state and local taxes. Actual after-tax returns depend
on the investor's tax situation and may differ from those shown. The
after-tax returns shown are not relevant to investors who hold their Fund
shares through tax-deferred arrangements such as 401(k) plans or individual
retirement accounts, or to investors who are tax exempt.
3
Risk/Return Summary and Fund Expenses [LOGO]
Fees and Expenses of the Funds
This table describes the fees and expenses that you pay if you buy and hold
Advisor Class shares of the Funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
FAM
FAM VALUE FUND EQUITY-INCOME
FUND
Maximum sales charge (load) on purchase none none
Maximum deferred sales charge (load) none none
Redemption fee 1.00%* 1.00%*
*Advisor Class shares of the Funds that are redeemed within the first
eighteen months of purchase are subject to a 1.00% redemption fee, with
certain limited exceptions. For more information, see "Redemption Fee" on
page 14. Shareholders requesting redemption proceeds to be wired will incur
an $8 wire fee.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Year Ended December 31, 2006
FAM VALUE FUND FAM EQUITY-INCOME FUND
Management Fees(1) 1.00% 1.00%
Distribution and Service (12b-1) Fees 1.00% 1.00%
Other expenses(2) 0.18% 0.28%
Acquired Fund Fees and Expenses(3) 0.20% 0.33%
Total annual fund operating expenses(4) 2.38% 2.61%
(1) FAM has entered into a voluntary agreement with FAM Value Fund and FAM
Equity-Income Fund to limit the Management Fee for each of the Funds
through December 31, 2007 to 0.95% of each respective Fund's average
daily net assets in excess of $1 billion.
(2) FAM has entered for the current fiscal year into a contractual agreement
with FAM Value Fund and FAM Equity-Income Fund to limit the total
operating expenses of each Fund's Advisor Class shares, respectively, to
2.28% and 2.40% of its average daily net assets. Each of these expense
limitations are reviewed and agreed upon by the board's independent
trustees. These expense limitations do not limit acquired fund fees and
expenses.
(3) Acquired fund fees and expenses are those expenses incurred indirectly
by the Funds as a result of investments in shares of one or more
investment companies or pooled investment vehicles (referred to as
"Acquired Funds").
(4) Total annual fund operating expenses for the Funds do not correlate to
the ratio of expenses to average net assets shown in the Funds' most
recent annual report and in the financial highlights contained in this
prospectus because acquired fund fees and expenses are not required to
be included in the Funds' audited financial statements. Excluding the
acquired fund fees and expenses, the total annual fund operating
expenses for the Value Fund and the Equity-Income Fund were 2.18% and
2.28%, respectively.
4
Risk/Return Summary and Fund Expenses [LOGO]
Use this table to compare fees and expenses of the Funds with those of other
mutual funds. This example illustrates the amount of fees and expenses you
would pay and assumes the following:
o a $10,000 investment
o 5% annual return
o redemption at the end of each period
o no change in the Fund's operating expenses
o reinvestment of dividends and capital gains
EXPENSE EXAMPLE
1 3 5 10
YEAR YEARS YEARS YEARS
FAM Value
Fund $241 $742 $1,270 $2,716
FAM Equity-
Income Fund $264 $811 $1,385 $2,944
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
5
Investment Objectives,
Principal Investment Strategies, and Risks [LOGO]
Investment Objectives
FAM Value Fund seeks to maximize long-term total return on capital.
FAM Equity-Income Fund seeks to provide current income as well as long-term
capital appreciation by investing primarily in income-producing equity
securities. This Fund distributes its income on a quarterly basis.
The investment objective of each Fund is a fundamental policy which may not
be changed without a majority vote of a Fund's shareholders.
Principal Investment Strategies
Fenimore's investment philosophy is to seek out well-managed,
financially sound companies that it considers to be undervalued in the
marketplace. Utilizing investment principles based on the teachings of
Benjamin Graham, whose book Security Analysis provides the foundation for
value investing, Fenimore is categorized as a bottom-up manager. As such,
Fenimore focuses on identifying, analyzing, and selecting individual
companies that meet Fenimore's long-term growth expectation.
Under normal market conditions the FAM Funds will attempt to remain
fully invested in common stocks and securities that are convertible into
common stocks, such as convertible bonds and convertible preferred stock.
For temporary defensive purposes, the Funds may invest all of their
assets in fixed-income securities. Generally, the Funds only intend to invest
in fixed-income securities when, in Fenimore's opinion, common stocks are
too risky in relationship to their anticipated rewards and fixed-income
securities are considered a good alternative. During such temporary periods
the Funds might not achieve their stated investment objectives.
6
Investment Objectives,
Principal Investment Strategies, and Risks [LOGO]
Principal Risks
The principal risks of investing in the Funds are as follows:
Stock Market Risk. The value of stocks fluctuate in response to the
activities of individual companies and general stock market and economic
conditions. Stock prices may decline over short or extended periods of time.
Stocks are more volatile and riskier than some other forms of investments,
such as short-term, high grade fixed-income securities.
Stock Selection Risk. The value stocks chosen for the Funds are subject to
the risk that the market may never realize their intrinsic value or their
prices may go down. While the Fund's investments in value stocks may limit
their downside risk over time, the Funds may produce more modest gains than
riskier stock funds as a trade off for this potentially lower risk.
Small-Cap Risk. Small capitalization companies may not have the size,
resources or other assets of large capitalization companies. These small
capitalization companies may be subject to greater market risks and
fluctuations in value than large capitalization companies and may not
correspond to changes in the stock market in general.
The value of your investment will go up and down, which means that you
could lose money. You should consider an investment in the FAM Funds as a
long-term investment.
An investment in FAM Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Other Investment Techniques
The Funds may also engage in certain investment techniques to a limited
extent that are not part of their principal investment strategies. For
example, each of the Funds are permitted to utilize options, futures
contracts and options on futures contracts. The Funds may engage in
short-sale transactions, lend portfolio securities, invest in securities
which have relatively short operating histories and invest in securities of
issuers that do not have quoted markets. In addition, the Funds may invest in
the shares of other investment companies and the Funds may also invest in the
common stocks of real estate investment trusts. However, our investment
decisions will always be guided by prudent choices dictated by our thoughtful
and disciplined value investing methodology. Additional information
concerning these investment techniques, including their risks, are set forth
in the Funds' Statement of Additional Information.
7
Fund Management [LOGO]
The Investment Advisor
The Investment Advisor to FAM Funds is Fenimore Asset Management, Inc.,
('Fenimore'), which is a New York corporation majority-owned by Mr. Thomas O.
Putnam and located at 384 N. Grand Street, Cobleskill, NY 12043. Fenimore has
been continuously offering investment advisory and consulting services under
contract since 1974 to individuals, pension, profit sharing, IRA and Keogh
plans, corporations, and non-profit organizations generally located in a
service area that includes the continental United States. Mr. Putnam,
Fenimore's principal investment professional, was born in 1944. He has been
actively employed as an investment advisor with Fenimore since 1974, and
holds responsibilities for Fenimore's investment management and research
activities. Mr. Putnam is the sole shareholder of FAM Shareholder Services,
Inc., each Fund's shareholder servicing agent and Fenimore Securities, Inc.,
each Fund's principal underwriter.
Portfolio Managers
Mr. Putnam co-manages both FAM Value Fund and FAM Equity-Income Fund.
The co-managers share equally in the day-to-day management of each respective
Fund's investment portfolio.
John D. Fox, CFA, serves as co-manager of FAM Value Fund with Mr.
Putnam. Mr. Fox is employed by Fenimore as Investment Research Analyst and
has been actively involved in research activities since he joined the firm in
1996.
Paul C. Hogan, CFA, serves as co-manager of FAM Equity-Income Fund with
Mr. Putnam. He is also employed by Fenimore as Investment Research Analyst.
He has been actively involved in investment research activities since 1991.
Additional information about the portfolio managers' compensation
arrangements, other accounts managed by the portfolio managers, and the
portfolio managers' ownership of securities of the Funds is available in the
Funds' Statement of Additional Information.
Fenimore employs a staff of experienced investment professionals to
manage assets for other corporate and individual clients.
As principal officer of Fenimore, Mr. Putnam serves as President and as
a member of the Board of Trustees of Fenimore Asset Management Trust. Under
the terms of the investment advisory contract, Fenimore receives a monthly
fee from each Fund equal to 1% per annum of the average daily market value of
its net assets. A discussion regarding the basis for the Trustees' approval
of the investment advisory contract is available in the Funds' Annual Report
to Shareholders dated December 31, 2006.
FAM Funds, the Advisor and Fenimore Securities, Inc. have jointly
adopted a Code of Ethics which places certain express restrictions on the
personal trading practices of personnel of both the Funds and Fenimore. This
Code of Ethics complies in all material respects with the recommendations set
forth in the 1994 Report of the Advisory Group on Personal Investing of the
Investment Company Institute. In addition, FAM Funds and Fenimore have
developed procedures that provide for the administration and enforcement of
the Code through the continuous monitoring of personal trading practices.
8
Shareholder Information [LOGO]
Pricing Fund Shares
The share price (also called "Net Asset Value" or NAV per share) is
calculated each day at the close of regular trading on the New York Stock
Exchange and on such days as there is sufficient trading in a Fund's
portfolio of securities. The New York Stock Exchange is closed on weekends
and on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Securities in each Fund's portfolio will
ordinarily be valued based upon market quotes. If market quotations are not
available, securities or other assets will be valued by a method which the
Board of Trustees believes most accurately reflects fair value. To calculate
the NAV, a Fund's assets are valued and totaled, liabilities are subtracted,
and the balance, called net assets, is divided by the number of shares
outstanding.
Householding of Shareholder Mailings
To reduce the volume of mail you receive, each Fund will send a single copy
of most financial reports, prospectuses, and regular communications to a
shareholder with multiple accounts (single, retirement, joint, etc.) if such
accounts have the same address and the Fund reasonably believes that the
shareholders are members of the same family. You may request that additional
copies be sent by notifying the Funds.
Purchasing and Adding to Your Shares
To establish an account, complete and sign the appropriate application and
mail it, along with your check to FAM Funds, PO Box 399, Cobleskill, NY
12043. Checks should be made payable to the appropriate fund. FAM does not
accept third party checks. Please be sure to provide your Social Security or
taxpayer identification number. Cash will not be accepted. Any applications
received not following the above guidelines will be returned.
The date on which your purchase is credited is your trade date. For
purchases made by check or Federal Funds wire and received by the close of
regular trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
time) the trade date is the date of receipt. For purchases received after the
close of regular trading on the Exchange the trade date is the next business
day. Shares are purchased at the Net Asset Value (NAV) determined on your
trade date.
FAM reserves the right to reject purchase applications or to terminate
the offering of shares made by this Prospectus if, in the opinion of the
Board of Trustees, such termination and/or rejection would be in the best
interest of existing shareholders. In the event that your check does not
clear, your order(s) will be canceled and you may be liable for losses or
fees incurred, or both. FAM has a policy of waiving the minimum initial
investment for Fund trustees, and employees and affiliated persons (including
family members) of FAM.
All applications to purchase Fund shares are subject to acceptance by
FAM and are not binding until so accepted. FAM does not accept telephone
orders for the purchase of shares, and it reserves the right to reject
applications in whole or in part.
9
Shareholder Information [LOGO]
Important Information About Procedures for Opening an Account
To help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions, including the
Funds, to obtain, verify and record information that identifies each person
who opens an account, and to determine whether such person's name appears on
government lists of known or suspected terrorists and terrorist
organizations.
What this means for you: the Funds must obtain the following
information for each person who opens an account: (1) Name; (2) Date of birth
(for individuals); (3) Physical residential address (although post office
boxes are still permitted for mailing); and (4) Social Security Number,
Taxpayer Identification Number or other identifying number.
You may also be asked to show your driver's license, passport or other
identifying documents in order to verify your identity. Additional
information may be required to open accounts for corporations and other
nonnatural persons.
Federal law prohibits the Funds and other financial institutions from opening
accounts unless the minimum identifying information listed above is received.
The Funds may also be required to close your account if we are unable to
verify your identity.
Account Minimums
To begin an investment in FAM Funds the following minimum initial investments
must be met. All subsequent investments to an existing account require a
minimum of $50.
MINIMUM INITIAL INVESTMENTS
FAM
FAM VALUE FUND* EQUITY-INCOME
FUND*
To open a new account $500 $2,000
To open a new retirement account
IRA, Roth IRA, SEP, SIMPLE Plan,
Coverdell Education IRA, or 403(b)(7) $100 $500
To open a Uniform Transfer to Minors (UTMA)
or Uniform Gift to Minors (UGMA) account $500 $2,000
To open a new account through our
Automatic Investment Program* $500 $2,000
*FAM's Automatic Investment Plan requires the systematic addition of at least
$50 per month, as described below.
10
Shareholder Information [LOGO]
Automatic Investment Plan
FAM Funds offer an Automatic Investment Plan whereby authorization is granted
and instructions are provided to charge the regular bank checking account of
a shareholder on a regular basis to provide systematic additions to the
shareholder's account. The bank at which the shareholder checking account is
maintained must be a member of the Automated Clearing House (ACH). While
there is no charge to shareholders for this service, a charge of $10.00 may
be deducted from a shareholder's Fund account in case of returned items.
NOTE: Individual Retirement Account ("IRA") contributions made through the
Automatic Investment Plan are assumed to be current year contributions. A
shareholder's Automatic Investment Plan may be terminated at any time without
charge or penalty by the shareholder or the fund.
Wire Instructions
If you wish to wire funds to establish a new account, please use the
following instructions. Investors establishing new accounts by wire should
first forward their completed Account Application to FAM Funds stating that
the account will be established by wire transfer and the expected date and
amount of the transfer. Further information regarding wire transfers is
available by calling (800) 932-3271. FAM must have receipt of a wire transfer
no later than 4:00 P.M. Eastern Time in order for the purchase to be made
that same business day.
WIRE INSTRUCTIONS
VALUE FUND
Key Bank of New York
ABA #021300077
For further credit to acct. #32531 000 6565
FAM Value Fund
Fund Investment for:
(Name and/or Account Number)
EQUITY-INCOME FUND
Key Bank of New York
ABA #021300077
For further credit to acct. #32531 001 8610
FAM Equity-Income Fund
Fund Investment for:
(Name and/or Account Number)
If you wish to wire funds to an existing account, please use the same
instructions listed above.
11
Shareholder Information [LOGO]
IRA and Retirement Accounts
An individual having earned income and her or his spouse may each have one or
more Individual Retirement Accounts, or "IRAs", the number and amounts
limited only by the maximum allowed contribution per year. Existing IRA
accounts may be rolled over or transferred at any time into a new IRA
account, which may be invested in Fund shares. U.S. Bank, is empowered and
agrees to act as custodian of shares purchased. Monies deposited into an IRA
account may be invested in shares of one of the Funds upon the filing of the
appropriate forms. Forms establishing IRAs, Roth IRAs, Coverdell Education
IRAs, SEP-IRAs, SIMPLE Plans, 403(b)(7) Plans and Individual (k) Plans are
available by calling FAM Funds at (800) 932-3271. There is no annual
maintenance fee. Investors are urged to consult with a tax advisor in
connection with the establishment of retirement plans.
Monies or deposits into other types of retirement plans and/or Keogh
accounts may also be invested in FAM Fund shares. However, the qualification
and certification of such plans must first be prearranged by the investor's
own tax specialists who would assist and oversee all plan compliance
requirements. Although FAM endeavors to provide assistance to those investors
interested in such plans, it neither offers nor possesses the necessary
professional skills or knowledge regarding the establishment or compliance
maintenance of retirement plans. Therefore, it is recommended that
professional counsel be retained by the investor before investing such monies
in shares of FAM Funds.
No signature guarantee is required if a shareholder elects to transfer
an IRA, Roth IRA, Coverdell Education IRA, SEP-IRA, SIMPLE Plan, 403(b)(7)
Plan or Individual (k) Plan to another custodian or in the event of a
mandatory distribution.
Purchases Through Selected Dealers
Certain Selected Dealers may effect transactions of the FAM Funds. FAM may
accept orders from broker-dealers who have been previously approved by the
Funds. It is the responsibility of such broker-dealers to promptly forward
purchase or redemption orders to the Funds. If the broker-dealer submits
trades to the Funds, the Funds will use the time of day when such entity or
its designee accepts the order to determine the time of purchase or
redemption and will process the order at the next closing price computed
after acceptance. Broker-dealers may charge the investor a transaction-based
fee for their services at either the time of purchase or the time of
redemption. Such charges may vary amongst broker-dealers but in all cases
will be retained by the broker-dealer and not remitted to FAM or the Advisor.
The Advisor may make payments to such companies out of its own resources to
compensate these companies for certain administrative services provided in
connection with the Funds. Shareholders who wish to transact through a
broker-dealer should contact FAM at (800) 932-3271 for further information.
Instructions for Redemption of Shares
Shareholders wishing to redeem shares may tender them to FAM any business day
by executing a written request for redemption, in good order as described
below, and delivering the request by mail, fax or by hand to the Funds, 384
North Grand Street, PO Box 399, Cobleskill, NY 12043. FAM offers no telephone
redemptions.
12
Shareholder Information [LOGO]
Definition of Good Order
Good order means that the written redemption request must include the
following:
1. The Fund account number, name, and Social Security or Tax I.D. number.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees are required if the value of shares being redeemed
exceeds $25,000; or if payment is to be sent to an address other than the
address of record; or if payment is to be made payable to a payee other than
the shareholder; or if there has been an address change in the last 30 days.
5. Certificates, if any are held, signed and containing a proper signature
guarantee.
6. Other supporting legal documentation that might be required, in the
case of retirement plans, corporations, trusts, estates and certain other
accounts.
Shareholders requesting redemption proceeds to be wired from FAM will
incur a $8 wire fee.
Shareholders may sell all or any portion of their shares on any such
business day that NAV is calculated. Such shares will be redeemed by FAM at
the next such calculation after such redemption request is received in good
order. When a redemption occurs shortly after a recent purchase made by
check, FAM Funds may hold the redemption proceeds beyond 7 days but only
until the purchase check clears, which may take up to 15 days. If you
anticipate redemptions soon after you purchase your shares, you are advised
to wire funds to avoid delay.
FAM reserves the right, however, to withhold payment up to seven (7)
days if necessary to protect the interests and assets of the Funds and their
shareholders. In the event the New York Stock Exchange is closed for any
reason other than normal weekend or holiday closing or if trading on that
exchange is restricted for any reason, or in the event of any emergency
circumstances as determined by the Securities and Exchange Commission, the
Board of Trustees shall have the authority and may suspend redemptions or
postpone payment dates accordingly.
Redemption of shares may result in the shareholder realizing a taxable
capital gain or loss.
Signature Guarantees
For our mutual protection, signature guarantees may be required on certain
written transaction requests. A signature guarantee verifies the authenticity
of your signature and may be obtained from "eligible guarantor institutions."
Eligible guarantor institutions include (1) national or state banks,
savings associations, savings and loan associations, trust companies, savings
banks, industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (4)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program.
13
Shareholder Information [LOGO]
A signature guarantee cannot be provided by a notary public.
Signature guarantees will be required under the following circumstances:
1. Redemption of Shares IF:
o the value of shares being redeemed exceeds $25,000
o payment is requested payable to a payee other than the shareholder of
record
o payment is to be sent to an address other than the address of record
o an address change accompanies the redemption request or there has been a
change of address on the account during the last 30 days
o the shares are represented by a negotiable stock certificate
2. Transferring of Ownership and/or Account Name Changes
Systematic Withdrawal Plan
For your convenience you may elect to have automatic periodic redemptions
from your account. Shareholders who wish to participate in the systematic
withdrawal plan must complete the appropriate form and return to FAM 30 days
prior to the first scheduled redemption.
Redemption Fee
Advisor Class shares of the Funds that are redeemed within the first eighteen
months of purchase are subject to a 1.00% redemption fee. The redemption fee
is payable directly to the applicable Fund and it is intended to help offset
the additional transaction costs of short-term investments. The redemption
fee may be waived in the following cases: (1) for shares acquired through
reinvestment or exchange into another FAM Fund; (2) for required minimum
distributions from retirement accounts upon reaching age 701/2; (3) for
returns of excess contributions to retirement accounts, and (4) upon the
death or disability of the shareholder or plan participant.
Distribution and Service (12b-1 Fees)
The Funds have adopted a Service and Distribution Plan for the Advisor Class
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Each
Fund may make payments under the Plan for the purpose of financing any
activity primarily intended to result in the sale of Advisor Class shares.
12b-1 fees compensate Fenimore Securities, Inc. (the "Distributor") and other
dealers and investment representatives for services and expenses relating to
the sale and distribution of a Fund's Advisor Class shares and/or for
providing shareholder services. 12b-1 fees are paid from Fund assets on an
ongoing basis, and over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
The maximum amount that a Fund may pay in distribution fees under its 12b-1
plan for Advisor Class shares is 0.75% of its average daily net assets. A
Fund may also pay up to 0.25% of its average daily net assets for shareholder
servicing. The Distributor and the Advisor, at their expense, may provide
compensation to dealers in connection with sales of shares of a Fund.
14
Shareholder Information [LOGO]
Information on Distributions and Taxes
All net investment income and net realized capital gains generated as a
result of portfolio management activities are distributed to shareholders.
A capital gain or loss is the difference between the purchase and sale
price of a security. If a Fund has net capital gains for the year they are
usually declared and paid in December to shareholders of record in the month
of December.
Dividend and capital gain distributions are reinvested in additional
Fund shares in your account, unless you select another option on your account
application form. Investors who want dividend and/or capital gains
distributions sent to them in cash rather than invested in additional shares
must arrange this by making a request to FAM. The request must be in written
form acceptable to FAM. Unless investors request cash distributions in
writing at least 7 business days prior to the distribution, or on the Account
Application, all dividends and other distributions will be reinvested
automatically in additional shares of the funds. Capital gains, if any, will
be distributed in December.
The value of your shares will be reduced by the amount of dividends
and/or capital gains. If you purchase shares shortly before the record date
for a dividend or the distribution of capital gains, you will pay the full
price for the shares and receive some portion of the price back as a taxable
dividend or distribution.
Tax Information
Currently effective tax legislation generally provides for a maximum tax rate
for individual taxpayers of 15% on distributions of capital gains and of
certain qualifying dividends on corporate stock. These rate reductions do not
apply to corporate taxpayers. Distributions of earnings from dividends paid
by certain "qualified foreign corporations" can also qualify for the lower
tax rates on qualifying dividends. A shareholder will also have to satisfy a
more than 60 day holding period for the Fund shares with respect to any
distributions of qualifying dividends in order to obtain the benefit of the
lower tax rate. Distributions of earnings from non-qualifying dividends,
interest income, other types of ordinary income and short-term capital gains
will be taxed at the ordinary income tax rate applicable to the taxpayer.
Distributions designated by a Fund as long-term capital distributions will be
taxable to you at your long-term capital gains rate, regardless of how long
you have held your Fund shares. An exchange of Fund shares for shares of
another fund is considered a sale, and gains from any sale or exchange may be
subject to federal and state taxes. Dividends generally are taxable in the
year in which they are accrued, even if they appear on your account statement
the following year. Dividends and distributions are treated the same for
federal tax purposes, whether you receive them in cash or in additional
shares of the Fund. Depending on your residence for tax purposes,
distributions may also be subject to state and local taxes.
If you hold shares through a tax-deferred account, such as a retirement
plan, income and gains will not be taxable each year. Instead, the taxable
portion of amounts you hold in a tax-deferred account will generally be
subject to tax only when they are distributed from the account.
15
Shareholder Information [LOGO]
The Funds are required to withhold 28% of taxable dividends, capital
gains distributions and redemptions paid to shareholders who have not
provided the Funds with their certified taxpayer identification number in
compliance with IRS rules. To avoid this, make sure you provide your correct
tax identification number (Social Security Number for most investors) on your
account application.
This tax discussion is meant only as a general summary. Because
everyone's tax situation is unique, you should consult your tax professional
about particular consequences to you of investing in the Funds.
Frequent Trading Policy. The Funds are intended for long-term investors and
not for those who wish to trade frequently in Fund shares. Frequent trading
into and out of a Fund can have adverse consequences for that Fund and for
long-term shareholders in the Fund. The Trust believes that frequent or
excessive short-term trading activity by shareholders of a Fund may be
detrimental to long-term shareholders because those activities may, among
other things: (a) dilute the value of shares held by long-term shareholders;
(b) cause the Funds to maintain larger cash positions than would otherwise be
necessary; (c) increase brokerage commissions and related costs and expenses,
and (d) incur additional tax liability. The Trust therefore discourages
frequent purchase and redemptions by shareholders and it does not make any
effort to accommodate this practice. To protect against such activity, the
Board of Trustees has adopted policies and procedures that are intended to
permit the Funds to curtail frequent or excessive short-term trading by
shareholders. At the present time the Trust does not impose limits on the
frequency of purchases and redemptions, nor does it limit the number of
exchanges into any of the Funds. The Trust reserves the right, however, to
impose certain limitations at any time with respect to trading in shares of
the Funds, including suspending or terminating trading privileges in Fund
shares, for any investor whom it believes has a history of abusive trading or
whose trading, in the judgment of the Trust, has been or may be disruptive to
the Funds. The Funds' ability to detect and prevent any abusive or excessive
short-term trading may be limited to the extent such trading involves Fund
shares held through omnibus accounts of a financial intermediary.
Disclosure of Fund Portfolio Holdings. On a quarterly basis, the Funds
disclose on their website, www.famfunds.com, each Fund's entire portfolio
holdings and certain additional information regarding their portfolios (e.g.,
top-10 holdings, asset allocation, sector breakdown). The information will
generally be available no earlier than the 10th business day following the
quarter-end and shall remain on the website until the next quarter's
information is made publicly available. A complete list of each Fund's
portfolio holdings is also publicly available on a quarterly basis through
filings made with the SEC on Forms N-CSR and N-Q. A description of the Funds'
policies and procedures with respect to the disclosure of the Funds'
portfolio securities is provided in the Statement of Additional Information
(SAI).
16
Financial Highlights [LOGO]
The financial highlights provide information about each Fund's financial
history and are expressed in one share outstanding throughout each fiscal
year. Each table is part of the Fund's financial statements which are
included in its annual report and are incorporated herein by reference from
the Statement of Additional Information, which is available upon request. The
total returns in the table represent the rate that an Advisor Class
shareholder would have earned or lost on an investment in the Fund, assuming
reinvestment of all dividends and capital gains. This information has been
audited by PricewaterhouseCoopers LLP, the Funds' independent registered
public accounting firm, whose report on the Funds' financial statements is
included in the Funds' annual report which is available upon request.
17
Financial Highlights [LOGO]
FAM VALUE FUND -- ADVISOR CLASS SHARES
Period Ended
Years Ended December 31, December 31,
Per share information
(For a share outstanding throughout the year) 2006 2005 2004 2003+
Net asset value, beginning of year $47.37 $46.11 $40.96 $37.10
Income from investment operations:
Net investment income (loss) (0.25)++ (0.09)++ (0.35)++ 0.00
Net realized and unrealized gain on investments 4.03 2.22 6.86 4.82
Total from investment operations 3.78 2.13 6.51 4.82
Less distributions:
Dividends from net investment income -- -- -- (0.09)
Distributions from net realized gains (2.24) (0.87) (1.36) (0.87)
Total distributions (2.24) (0.87) (1.36) (0.96)
Change in net asset value for the year 1.54 1.26 5.15 3.86
Net asset value, end of year $48.91 $47.37 $46.11 $40.96
Total Return 7.96% 4.62% 15.91% 12.99%**
Ratios/supplemental data
Net assets, end of year (000) $8,494 $7,992 $5,479 $1,562
Ratios to average net assets of:
Expenses 2.18% 2.18% 2.20% 2.25%*
Net investment income (loss) (0.51)% (0.19)% (0.80)% (0.02)%*
Portfolio turnover rate 17.53% 14.25% 10.29% 9.43%
+Beginning of period reflects Advisor Class Shares inception date of 7/1/03.
++Based on average shares outstanding.
*Annualized.
**Not Annualized.
18
Financial Highlights [LOGO]
FAM EQUITY-INCOME FUND -- ADVISOR CLASS SHARES
Period Ended
Years Ended December 31, December 31,
Per share information
(For a share outstanding throughout the year) 2006 2005 2004 2003+
Net asset value, beginning of year $21.33 $20.36 $18.18 $16.77
Income from investment operations:
Net investment income (loss) (0.10)++ (0.07)++ (0.04)++ 0.10
Net realized and unrealized gain on investments 1.33 1.04 2.41 1.54
Total from investment operations 1.23 0.97 2.37 1.64
Less distributions:
Dividends from net investment income -- -- -- (0.05)
Distributions from net realized gains (1.17) -- (0.19) (0.18)
Total distributions (1.17) -- (0.19) (0.23)
Change in net asset value for the year 0.06 0.97 2.18 1.41
Net asset value, end of year $21.39 $21.33 $20.36 $18.18
Total Return 5.73% 4.76% 13.05% 9.83%**
Ratios/supplemental data
Net assets, end of year (000) $3,921 $4,400 $3,017 $1,291
Ratios to average net assets of:
Expenses 2.28% 2.26% 2.27% 2.28%*
Net investment income (loss) (0.45)% (0.34)% (0.21)% 1.10%*
Portfolio turnover rate 19.01% 14.11% 17.64% 6.46%
+Beginning of period reflects Advisor Class Shares inception date of 7/1/03.
++Based on average shares outstanding.
*Annualized.
**Not Annualized.
19
Privacy Policy [LOGO]
You have entrusted to our care not only your hard-earned money but personal
and financial data as well. We understand that your relationship with us is
based upon trust, and that as your financial stewards you expect us to act
responsibly and in your best interests. Your personal and financial data is
your private information, therefore in keeping with our responsibility to you
and our own company mission, we are committed to holding ourselves to the
highest ethical standards in its safekeeping and use. This notice is intended
to help you understand how we fulfill this commitment.
We do not sell client information to anyone. Your information is used
by us primarily to complete transactions you request. From time to time, we
may collect a variety of information about you that is either required or
necessary to provide personalized financial services to you. This data
includes information we receive from you on applications and forms, via
telephone, and through our websites; or information about your transactions
with us or our affiliates (such as purchases, sales, or account balances).
We do not disclose any nonpublic personal information about our
customers or former customers to anyone, except as permitted by applicable
law or regulation. For example, we may share this information with others in
order to process your transactions. We may provide any of the information we
collect to our affiliated or non-affiliated third party companies which
provide marketing or administrative services on our behalf, such as printing
and mailing. We may also provide this information to financial institutions
with whom we have joint marketing agreements. We will require these companies
to protect the confidentiality of this information and to use it only to
perform the services for which we hired them; they are not permitted to use
or share this information for any other purpose.
We may also disclose nonpublic personal information to government
agencies and regulatory organizations when required or permitted by law. To
protect your personal information within our company, we maintain physical,
electronic and procedural safeguards to protect your nonpublic information
and access to this information is restricted to personnel necessary to
service your accounts.
20
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21
To Obtain Additional Information [LOGO]
If you would like additional information about the Funds, would like to
obtain additional copies of the Funds' Annual or Semi-Annual Reports or SAI,
which are available without charge, or would like to make inquiries about FAM
Value Fund or FAM Equity-Income Fund, free reports on the Funds are available
upon request and inquiries may be directed to:
FAM Funds
384 North Grand Street
PO Box 399
Cobleskill, NY 12043
(800) 932-3271
www.famfunds.com
Shareholder Reports
Each Fund's Annual Report and Semi-Annual Report contains additional
information about the Fund's investments. The Fund's Annual Report contains a
discussion of the market conditions and investment strategies that
significantly affected the performance of the Fund during the last fiscal
year. Both the Annual Report and the Semi-Annual Report also contain fund
performance information, financial statements and portfolio holdings
information.
Statement of Additional Information
The SAI contains more comprehensive information on the Funds. The SAI is
incorporated by reference into this prospectus which makes it legally part of
this prospectus.
Information about the Funds, including the SAI, may also be obtained
from the Securities and Exchange Commission for the cost of a duplicating
fee. These documents are also available to view at the SEC's public reference
room in Washington, DC or by electronic request by e-mailing the SEC at the
following address: publicinfo@sec.gov.
Securities and Exchange Commission
Washington, DC 20549-0102
(202) 551-8090 or (800) SEC-0330
www.sec.gov
Investment Company
Act File No. 811-4750
22
STATEMENT OF ADDITIONAL INFORMATION
for
THE FAM FUNDS
INVESTOR CLASS SHARES
Dated: May 1, 2007
---------------------------------------
384 North Grand Street, P.O. Box 399, Cobleskill, NY 12043
Telephone Number (800) 932-3271
www.famfunds.com
FENIMORE ASSET MANAGEMENT TRUST
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The FAM FUNDS currently offer two diversified open-end mutual funds, FAM
Value Fund and FAM Equity-Income Fund (the "Funds"). Each of the Funds is a
separate investment series of Fenimore Asset Management Trust (the "Trust"),
which is registered with the Securities and Exchange Commission (the "SEC")
as an open-end management investment company.
This Statement of Additional Information is not a Prospectus but rather
should be read in conjunction with the Prospectus for the Investor Class
shares of the Funds dated the same date. A copy may be obtained without
charge from the Funds by calling or writing the address and telephone number
noted above. The financial statements for the Funds are incorporated by
reference into this Statement of Additional Information in their entirety.
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Table of Contents
Investment Objective and Policies.............................................3
Additional Investment Techniques and Related Risks............................4
Investment Restrictions.......................................................5
History and Background of Investment Advisor..................................6
Board of Trustees and Officers................................................9
Proxy Voting.................................................................12
Control Persons and Principal Security Holders...............................12
Principal Underwriter........................................................13
Other Service Providers......................................................13
Information About the Trust..................................................14
Brokerage Allocations........................................................14
Net Asset Value Calculation..................................................14
Performance Information......................................................15
Financial Statements.........................................................16
Certain Federal Income Tax Considerations....................................16
Tax Status of the Funds....................................................16
Funds Investments..........................................................17
Distributions..............................................................18
Dispositions...............................................................18
Disclosure of Fund Portfolio Holdings........................................18
Investment Advisor:
Fenimore Asset Management, Inc.
384 North Grand Street
Cobleskill, NY 12043
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INVESTMENT OBJECTIVE AND POLICIES
The Trust offers two mutual funds with distinct investment objectives. FAM
Value Fund has an investment objective to maximize long term total return on
capital. FAM Equity-Income Fund has an investment objective of providing
current income as well as long term capital appreciation by investing
primarily (at least 80% of its total assets) in income-producing equity
securities. Normally investments will be concentrated in common stocks unless
the stock market environment has risen to a point where the advisor to the
Funds, Fenimore Asset Management, Inc., ("Fenimore" or "FAM"), can no longer
find securities that have been determined by Fenimore to be undervalued.
During such periods, investments will be made in fixed-income investments
until such time as more attractive common stocks can be found for purchase.
It is the opinion of FAM that the objectives of the Funds are achievable when
common stocks can be purchased near to, or at, a discount from their true
business worth. Specifically, FAM seeks to invest assets in companies that
may have some or all of the following characteristics: (a) low
price-to-earnings multiples relative to the market as a whole, based upon
current and/or potential future earnings of the company; (b) high total
returns on capital and with low debt structures; and (c) sell at a market
price per share that is near or at a discount to the per share book value --
an accounting measure of economic worth. Although the objective is to select
stocks with these characteristics, FAM is aware that it is unrealistic to
assume that each selection will have all or even several of the above
characteristics.
FAM believes that the success of a stock that has some of the above
characteristics is dependent upon and invariably a reflection of the quality
of management. Therefore, FAM spends time in an attempt to assess
management's ability prior to making a commitment with Fund assets. The
assessment may include an analysis of historical financial achievements of
the company, direct discussions with management by telephone or in person,
visitations to the company, conversations with security analysts who actively
follow the company for investment brokerage firms, and discussions with
competitors, suppliers, and customers of the company. While FAM feels this
assessment technique to be clearly instrumental to the success of the
investment, it should be recognized that judgments made by FAM are purely
subjective in nature. Therefore, there can be no assurance that FAM will be
successful in achieving its investment objectives for the Funds.
It is FAM's belief that the objectives of the Funds can only be achieved
consistently over a long investment horizon. Typically, this will mean that a
stock may be held for a three-to-five year period or longer if FAM, by its
own determination, feels that the recognition of true business worth has not
yet been attained in the stock's current market quotation. Thus, the Funds
serve little purpose for investors who wish to take advantage of short-term
fluctuations in net asset values per share.
From time to time, FAM may also choose to invest some or all of the Funds'
assets in fixed-income investments of the types more fully described in the
Funds' Prospectus dated this same date. Such investments will be purchased
and held during periods when FAM is unable to find stocks that it believes
have return expectations commensurate with the risks that must be assumed by
their continued retention.
FAM recognizes that while the Funds remain small in size, FAM may have
greater flexibility in achieving its objectives. However, as the Funds grow
in size, it may become more difficult for FAM to find securities to invest in
that meet the objectives of the Funds. This may also occur during periods
when the stock market in general has been rising for a long period of time.
Therefore, FAM reserves unto itself the right to limit the asset size of the
Funds by discontinuing sales of their shares at any time. The Board of
Trustees of the Funds may suspend sales whenever, in its collective wisdom,
it believes it necessary in order for the Funds to continue to adhere to
their stated objectives, or that for other reasons it would be in the best
interests of Fund shareholders to do so. While sales are suspended, existing
shareholder accounts will be able to continue to reinvest their dividends and
will be able to continue to redeem their shares.
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It should be clear to investors in FAM Funds that FAM believes income is an
important factor in achieving its objectives. Fenimore is aware that annual
distributions of capital gains and dividend/interest income earned on shares
may result in a shareholder paying additional federal, state and/or local
income taxes. (See "Certain Federal Income Tax Considerations"). Tax deferred
portfolios, like IRA and pension monies, are ideally suited for investment in
shares of FAM Funds for these reasons.
ADDITIONAL INVESTMENT TECHNIQUES AND RELATED RISKS
Although each Fund will primarily invest in equity securities, subject to the
investment policies and restrictions as described in the Prospectus and in
this Statement of Additional Information, each Fund may invest to a limited
extent in any of the following securities or pursue any of the following
investment strategies which are not part of either Fund's principal
investment strategies.
DERIVATIVES
The Funds may use futures, options or other forms of derivatives. To the
extent a Fund invests in these derivative instruments, the Fund will be
subject to certain risks. These risks include possible default by the other
party to the transaction, illiquidity, and to the extent the Funds' view as
to certain market movements is incorrect, the risk that the use of such
transactions could result in losses greater than if they had not been used.
The use of options may result in losses to a Fund, force the sale or purchase
of securities at inopportune times or for prices other than current market
values, limit the amount of appreciation a Fund can realize on its
investments or cause a Fund to hold a security it might otherwise sell. The
ability of each Fund to engage in futures contracts and options on futures
will be subject to applicable rules of the Commodity Futures Trading
Commission ("CFTC").
BORROWING
Each Fund may borrow from banks for temporary or emergency purposes. The 1940
Act permits a Fund to borrow up to an amount that has 300% asset coverage,
which effectively permits a Fund to borrow up to one-third of its assets
measured after the borrowing, plus an additional 5% for temporary purposes.
To the extent the Funds choose to borrow, the volatility of the Funds' net
asset value may increase. Additionally, money borrowed will be subject to
interest and other costs. These costs may exceed the gain on securities
purchased with borrowed funds.
SECURITIES OF OTHER INVESTMENT COMPANIES
A Fund may invest in shares of other investment companies to the extent
permitted by the Investment Company Act of 1940, as amended (the "1940 Act").
Accordingly, a Fund shall not invest a greater percentage of its assets than
is permitted by regulation, which is presently 5% of its total assets in any
single fund nor more than 10% of its total assets in funds overall. To the
extent that the Funds do invest in the shares of other investment companies,
they will incur additional expenses due to the duplication of fees and
expenses as a result of investing in other investment vehicles.
SHORT-SALE TRANSACTIONS
The Funds may engage in short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When a Fund
makes a short sale, it must borrow the security sold short and deliver it to
the broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. Generally,
consistent with the 1940 Act, the Funds would be permitted only to engage in
short-sale transactions "against the box," in which case a Fund owns or has
the right to obtain securities identical to those sold short. A Fund may
incur transaction costs, including interest expenses, in connection with
opening, maintaining, and closing short sales.
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LOANS OF PORTFOLIO SECURITIES
The Funds are permitted to engage in securities lending to the extent
permitted by SEC policy. Qualified institutions may borrow portfolio
securities on a short-term basis. By reinvesting any cash collateral received
in these transactions, additional income gains or losses may be realized. The
SEC currently permits loans of a mutual fund's securities up to one-third of
its assets, including any collateral received from the loan, provided that
loans are 100% collateralized by cash or cash equivalents on a marked to
market basis. The principal risk in lending securities is the possibility
that invested collateral will decline in value, or, as with other extensions
of credit, a borrower may fail to honor its obligations, causing a loss for a
Fund.
ADDITIONAL RISKS ASSOCIATED WITH CERTAIN ISSUERS
The Funds may make investments in the shares of issuers that have relatively
short operating histories (typically, less than three years), which may
involve certain risks. Such companies may not have experience in operating
through prolonged periods of economic difficulty and, as a result, the price
of their shares may be more volatile than the shares of companies that have
longer operating histories.
The Funds may also invest in the shares of issuers that do not have quoted
markets. Such issuers generally do not have financial and similar information
about them readily available to the same extent that issuers having quoted
markets have available to investors. Such a lack of financial and related
data may cause such issuer's shares to experience greater market volatility.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions which cannot be changed
or amended unless approved by the vote of a majority of its outstanding
shares in accordance with requirements under the Investment Company Act of
1940. Accordingly, no FAM Fund will:
(A) Invest in the purchase and sale of real estate.
(B) Invest in commodities or commodity contracts, except options,
futures contracts and options on futures contracts.
(C) Borrow money, except in an amount not to exceed 33 1/3% of the
value of the Fund's total assets.
(D) Own more than 10% of the outstanding voting securities of any one
issuer or company, nor will it, with at least 75% of its total
assets, invest more than 5% of its assets in any single issue,
valued at the time of purchase. This restriction shall not be
applicable for investments in U.S. government or agency securities.
(E) Invest more than 25% of its assets valued at the time of purchase
in any one industry or similar groups of industries, except U.S.
government securities.
(F) Maintain margin accounts, will not purchase its investments on
credit or margin, and will not leverage its investments, except for
normal transaction obligations during settlement periods.
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(G) Underwrite or deal in offerings of securities of other issuers as a
sponsor or underwriter in any way. (Note: The Trust may be deemed
an underwriter of securities when it serves as distributor of its
own shares for sale to or purchase from its shareholders.)
(H) Make loans to others, except that each Fund may lend portfolio
securities so long as no such loan is made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the
Fund's total assets. For these purposes the purchase of publicly
distributed indebtedness is excluded and not considered making a
loan.
(I) Issue senior securities, except to the extent permitted by the
Investment Company Act of 1940, by SEC exemptive order, or by the
Commission.
HISTORY AND BACKGROUND OF INVESTMENT ADVISOR
The investment advisor to the Funds is Fenimore Asset Management, Inc. The
company is a New York corporation registered under the Investment Advisers
Act of 1940 with the Securities and Exchange Commission. Fenimore is majority
owned by Mr. Thomas O. Putnam, its principal officer, who is also the
principal officer and a Trustee of the Funds. Fenimore was incorporated
November 20, 1974, and has been continuously offering investment advisory
services since the date of its formation under the direction and control of
Mr. Putnam. The principal activity of Fenimore since 1974 has been to provide
investment advisory and consulting services under contract to individuals,
pension, profit-sharing, IRA and Keogh retirement plans, corporations, and
non-profit organizations generally located in the service area that includes
the continental U.S. Mr. Putnam has been employed or active as an investment
advisor since 1974, managing investment accounts for clients. He has held
responsibilities as President and Director of Fenimore's investment
management and research activities. Mr. Putnam completed his undergraduate
studies at the University of Rochester, Rochester, NY, from which he earned a
Bachelor of Arts Degree in Economics in 1966. He completed graduate work at
Tulane University, New Orleans, Louisiana, from which he received an MBA in
1968. John Fox, CFA, co-manager of FAM Value Fund, is employed by Fenimore as
Investment Research Analyst. He has been actively involved in investment and
portfolio management and research activities since 1996. Paul C. Hogan, CFA,
co-manager of FAM Equity-Income Fund, is also employed by Fenimore as
Investment Research Analyst. He has been actively involved in investment
research activities since 1991. Fenimore employs a staff of experienced
investment professionals to manage assets for other corporate and individual
clients. Since 1974, Fenimore, under the control and supervision of Mr.
Putnam, has utilized a value investment approach for each client and/or each
account. In the opinion of Fenimore, the objectives of FAM Funds can only be
met if companies can be purchased at a significant discount from what
Fenimore views as their true business worth. In this regard a company is
researched almost as if the entire company could be purchased at current
stock market prices. Although it will never be the intention of FAM to
purchase controlling interests in any such company, it is Fenimore's belief
that this fundamental valuation approach removes emotionality from the
investment decision-making process and minimizes the long term risk of the
investment. Fundamental to this approach is the seeking of securities of
companies that have: (1) demonstrated records of above-average growth of
sales and earnings over the past 5 to 10 year span and are selling at a price
which Fenimore believes is at a discount from the true business worth of the
company; (2) become severely depressed in the market because of adverse
publicity and are, thus, selling at a deep discount to the perceived future
potential value of the company; (3) the capability of achieving accelerated
growth of earnings and the current price understates this potential. Future
values may be 100% or more of the current price of the stock and recognition
of these values may take two to five years or longer to be realized in the
stock market.
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Fenimore will not invest assets of any other managed account in shares of the
Funds except as directed in writing by a person unaffiliated to the Funds or
to Fenimore, having authority to make such direction. Fenimore, as investment
advisor to the Funds, renders such services under contract that provides for
payment to Fenimore of a fee, calculated daily and paid monthly, at the rate
of 1% per annum of each Funds net assets, which rate is consistent with that
being charged by Fenimore to manage its other client accounts. This contract
is subject to the approval annually by the Funds' Board of Trustees and is
terminable upon 30 days written notice, one party to the other.
With respect to FAM Value Fund, the total investment advisory fees paid by
FAM Value Fund to Fenimore during each of the last three fiscal years is as
follows:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- ----------------- -----------------
$10,582,254 $10,257,224 $7,047,797
With respect to FAM Equity-Income Fund, the total investment advisory fees
paid by FAM Equity-Income Fund to Fenimore during each of the last three
fiscal years is as follows:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- ----------------- -----------------
$1,599,336 $1,710,699 $1,276,100
Each Fund is responsible for the costs of its own operation which include the
fees of independent accountants, chief compliance officer, brokerage fees,
routine administrative expenses, fund accounting expenses and shareholder
administrative services expenses. Expenses of "Interested Trustees" shall
always remain the responsibility of the investment advisor. All employees of
the investment advisor who perform duties for the Funds shall remain
employees of the investment advisor, who shall bear all employment costs of
such staff. If Fenimore ceases to operate for any reason or assigns the
contract, such contract is automatically terminated.
Thomas O. Putnam and Paul C. Hogan are co-managers of the FAM Equity-Income
Fund. Thomas O. Putnam and John D. Fox are co-managers of the FAM Value Fund.
The following table lists the number and types of other accounts managed by
each individual and assets under management in those accounts as of December
31, 2006:
Other Other
Registered Pooled Total
Investment Assets Investment Assets Assets Assets
Portfolio Company Managed Vehicle Managed Other Managed Managed*
Manager Accounts ($ millions) Accounts ($ millions) Accounts ($ millions) ($ millions)
Thomas O. Putnam None $0 None $0 0 $0 $0
Paul C. Hogan None $0 None $0 0 $0 $0
John D. Fox None $0 None $0 1 $.7 $.7
* If an account has a co-portfolio manager, the total number of accounts
and assets have been allocated to each respective manager. Therefore,
some accounts and assets have been counted twice.
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As indicated in the table above, portfolio managers at the Adviser may manage
accounts for multiple clients. While the managers do not manage other
registered investment companies or other types of pooled accounts (such as
private investment funds), they do manage separate accounts (i.e., accounts
managed on behalf of individuals for public or private institutions).
Portfolio managers at the Adviser make investment decisions for each account
based on the investment objectives and policies and other relevant investment
considerations applicable to that portfolio.
The management of multiple accounts may result in a portfolio manager
devoting unequal time and attention to the management of each account.
Although the Adviser does not track the time a portfolio manager spends on a
single portfolio, it does periodically assess whether a portfolio manager has
adequate time and resources to effectively manage all of the accounts for
which he is responsible. The Adviser seeks to manage competing interests for
the time and attention of portfolio managers by having portfolio managers
focus on a particular investment discipline or complementary investment
disciplines. Most accounts within a particular investment discipline are
managed using the same investment model. Even where multiple accounts are
managed by the same portfolio manager within the same investment discipline,
however, the Adviser may take action with respect to one account that may
differ from the timing or nature of action taken, with respect to another
account. Accordingly, the performance of each account managed by a portfolio
manager will vary.
Because a portfolio manager's compensation may be affected by revenues earned
by the Adviser, the incentives associated with any given account may be
higher or lower than those associated with other accounts.
In addition, to the extent that trade orders are aggregated, which typically
occurs in limited circumstances involving participation in initial public
offerings or secondary offerings, conflicts may arise when aggregating and/or
allocating aggregated trades. The Adviser may aggregate multiple trade orders
for a single security in several accounts into a single trade order, absent
specific client directions to the contrary. When a decision is made to
aggregate transactions on behalf of more than one account, the transactions
will be allocated to all participating client accounts in a fair and
equitable manner.
The Adviser has adopted and implemented policies and procedures, including
brokerage and trade allocation policies and procedures, which it believes
address the conflicts associated with managing multiple accounts for multiple
clients. The Adviser monitors a variety of areas, including compliance with
account investment guidelines, the allocation of initial public offerings,
and compliance with the Adviser's Code of Ethics.
The compensation of the portfolio managers varies with the general success of
the Adviser as a firm. Each portfolio manager's compensation consists of a
fixed annual salary, plus additional remuneration based on the overall
performance of the portfolio manager for the given time period. The portfolio
managers' compensation is not linked to any specific factors, such as a
Fund's performance or asset level.
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The dollar range of equity securities beneficially owned by the Funds'
portfolio managers in the Funds they manage as of December 31, 2006 is as
follows:
Dollar Range of Equity Securities Beneficially Owned
----------------------------------------------------
Portfolio Manager FAM Equity-Income Fund FAM Value Fund
Thomas O. Putnam Over $1,000,000 Over $1,000,000
Paul C. Hogan $100,001 - $500,000 N/A
John D. Fox N/A $100,001 - $500,000
BOARD OF TRUSTEES AND OFFICERS
Overall responsibility for management of the Funds rests with the Board of
Trustees, which is elected by the shareholders of the Funds. The Trustees
elect the officers of the Funds to actively supervise the day-to-day
operations of the Funds. The Trustees and officers serve for an indefinite
period of time. During the fiscal year ended December 31, 2006, the Board met
five times.
The names of Trustees and officers of the Funds, and their respective duties
and affiliations are as follows:
Position(s) Held Principal Number of Other
Name, With Fund and Occupation(s) Portfolios in Fund Directorships
Address, and Length of Time During Past Complex* Overseen Held by
Age Served 5 Years By Trustee Trustee
INDEPENDENT TRUSTEES**
Fred "Chico" Lager Trustee since 1996 Business Consultant; 2 N/A
384 North Grand St. Retired President & CEO of
Cobleskill, NY 12043 Ben & Jerry's Homemade, Inc.
Age: 52
C. Richard Pogue Trustee since 2000 Retired Executive Vice President, 2 N/A
384 North Grand St. Investment Company Institute
Cobleskill, NY 12043
Age: 70
John McCormack Trustee since 2004 Retired Group President, 2 N/A
384 North Grand St. TIAA-Cref Enterprises
Cobleskill, NY 12043
Age: 61
Barbara Weidlich Trustee since 2004 President, National Investment 2 N/A
384 North Grand St. Company Service Association;
Cobleskill, NY 12043 Managing Director-DEXIA BIL Fund
Age: 62 Services, Dublin, Ireland
Kevin J. McCoy Trustee since Principal, Marvin and Company, 2 N/A
384 North Grand St. March 2007 P.C., certified public accounting firm
Cobleskill, NY 12043
Age: 54
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Position(s) Held Principal Number of Other
Name, With Fund and Occupation(s) Portfolios in Fund Directorships
Address, and Length of Time During Past Complex* Overseen Held by
Age Served 5 Years By Trustee Trustee
INTERESTED
TRUSTEES &
OFFICERS***
Thomas O. Putnam**** President Chairman, 2 N/A
384 North Grand St. Since 1986; Fenimore Asset Management
Cobleskill, NY 12043 Chairman from
Age: 62 1986-November 2004
Joseph A. Bucci Secretary and Controller, N/A N/A
384 North Grand St. Treasurer since Fenimore Asset Management
Cobleskill, NY 12043 2000
Age: 53
Charles Richter, Esq. Chief Compliance Prior to October, 2004, Chief Operating N/A N/A
384 North Grand St. Officer and Officer and Chief Compliance Officer,
Cobleskill, NY 12043 Anti-Money Laundering Manarin Securities Corporation and
Age: 50 Compliance Officer Chief Compliance Officer, Manarin
Since 2005 Investment Counsel, Omaha, NE
* "Fund Complex" includes the two series of the Trust, FAM Value Fund and
FAM Equity Income Fund.
** The "Independent Trustees" are those Trustees that are not considered
"interested persons" of the Trust, as that term is defined in the 1940
Act.
*** Mr. Putnam, by virtue of his employment with Fenimore Asset Management,
Inc., the Trust's investment adviser, is considered an "interested
person" of the Trust.
**** Mr. Putnam was Chairman of the Board through October 2004.
The Trustees have established an Audit Committee, a Nominating and Corporate
Governance Committee, and a Valuation Committee. The Audit Committee, which
is composed of at least three of the Trust's Independent Trustees, is
composed of Messrs. Lager, Pogue, McCormack, McCoy and Ms. Weidlich. The
Audit Committee: (i) selects the Trust's independent registered public
accounting firm and recommends to the Board of Trustees the selection; (ii)
annually reviews the scope of the proposed audit, the audit procedures to be
utilized and the proposed audit fees; (iii) reviews the annual audit with the
independent registered public accounting firm; (iv) reviews the annual
financial statements of the Funds, and (v) reviews the adequacy and
effectiveness of internal controls and procedures. For the year ended
December 31, 2006, the Audit Committee met twice.
The Nominating and Corporate Governance Committee is composed of the
Independent Trustees, Messrs. Lager, Pogue, McCormack, McCoy and Ms.
Weidlich. The Nominating and Corporate Governance Committee: (i) recommends
nominees to the full Board for election to the Board of Trustees; (ii)
evaluates each candidate's qualifications for Board membership and his or her
independence from the Trust's investment manager and other principal service
providers; (iii) periodically reviews the composition of the Board of
Trustees to determine whether it may be appropriate to add individuals with
different backgrounds or skills from those already on the Board; (iv) reviews
Trustee compensation on an annual basis and recommends any appropriate
changes to the full Board; (v) oversees the Trust's policies and procedures
regarding compliance with corporate governance policies; and (vi)
periodically reviews the Board governance procedures of the Trust and
recommends any appropriate changes. The Committee does not have a stated
policy of considering nominees recommended by the Trust's shareholders. The
Nominating and Corporate Governance Committee met once during 2006.
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The Valuation Committee is composed of the Independent Trustees, Messrs.
Lager, Pogue, McCormack, McCoy and Ms. Weidlich. The purpose of the Valuation
Committee is to oversee the implementation of the Trust's valuation
procedures and to make fair value determinations on behalf of the Board as
specified in the Trust's valuation procedures. The Valuation Committee meets
on an as-needed basis to consider valuation matters submitted for their
review. For the year ended December 31, 2006, the Valuation Committee was not
required to hold any meetings.
For the fiscal year ended December 31, 2006, the dollar range of equity
securities owned by each Trustee in each Fund and the Fund Complex is as
follows:
Aggregate Dollar Range of
Equity Securities in All Funds
Dollar Range of Equity Overseen by Trustee in Family
Name of Trustee Fund Name Securities in the Fund of Investment Companies
INDEPENDENT TRUSTEES
Fred "Chico" Lager FAM Value Fund Over $100,000 Over $100,000
FAM Equity-Income Fund Over $100,000
C. Richard Pogue FAM Value Fund Over $100,000 Over $100,000
FAM Equity-Income Fund $50,001-100,000
John J. McCormack FAM Value Fund $10,001-50,000 $10,001-50,000
FAM Equity-Income Fund $10,001-50,000
Barbara V. Weidlich FAM Value Fund $10,001-50,000 $10,001-50,000
FAM Equity-Income Fund $10,001-50,000
Kevin J. McCoy FAM Value Fund Over $100,000 Over $100,000
FAM Equity-Income Fund Over $100,000
INTERESTED TRUSTEE
Thomas O. Putnam FAM Value Fund Over $100,000 Over $100,000
FAM Equity-Income Fund Over $100,000
Officers and Trustees of the Funds own less than 1% of each Fund's shares
outstanding.
Trustees of the Funds not employed by Fenimore receive from the Funds a fee
of $1,250 for each Board of Trustees meeting, $12,000 annual retainer, $500
for each committee meeting, a retreat fee of $1,500, and are reimbursed for
all out-of-pocket expenses relating to attendance at such meetings. The
Independent Chairman receives an additional $10,000 annual retainer. The
Chairman of the Audit Committee receives an additional $1,500 annual
retainer. The $12,000 annual retainer is distributed exclusively in shares of
the Funds. Trustees who are employees of Fenimore do not receive compensation
from the Funds.
For the fiscal year ended December 31, 2006, the Trustees received the
following compensation from the Funds and from certain other investment
companies (if applicable) that have the same investment advisor as the Funds
or an investment advisor that is an affiliated person of the Funds'
investment advisor:
Total Compensation from
Aggregate Compensation from Registrant and Fund
the Funds Accrued as Part Pension or Est. Annual Benefits Complex (2 Funds)
Name of Trustee of Fund Expenses Retirement Benefits upon Retirement Paid to Trustees
Thomas O. Putnam $0 $0 $0 $0
Fred "Chico" Lager $19,000 $0 $0 $19,000
C. Richard Pogue $18,250 $0 $0 $18,250
David A. Hughey* $23,750 $0 $0 $23,750
John J. McCormack $18,750 $0 $0 $18,750
Barbara V. Weidlich $18,750 $0 $0 $18,750
*Mr. Hughey retired from the board in March of 2007
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PROXY VOTING
The Trust has delegated the proxy voting decisions on securities held in the
Trust's portfolios to Fenimore in its capacity as investment advisor.
Fenimore has adopted Proxy Voting Policies and procedures ("Proxy Voting
Policies") which provide that proxies on securities will be voted for the
exclusive benefit, and in the best economic interest of the Trust's
shareholders, as determined by the investment advisor in good faith, subject
to any restrictions or directions of the Trust. Such voting responsibilities
will be exercised in a manner that is consistent with the general antifraud
provisions of the Investment Advisors Act of 1940, as well as the investment
advisor's fiduciary duties under federal and state law to act in the best
interest of its clients.The Board of Trustees of the Trust has approved the
Proxy Voting Polices.
For routine proposals (such as those which do not change the structures,
bylaws or operations of a company), Fenimore will generally vote in the
manner recommended by management. Non-routine proposals (such as those
affecting corporate governance, compensation and other corporate events) and
shareholder proposals will generally be reviewed on a case by case basis. An
investment analyst/portfolio manager will review each such proposal and
decide how the proxy will be voted. With respect to all non-routine proposals
and shareholder proposals, if a decision is made to consider voting in a
manner other than that recommended by management, the analyst/portfolio
manager will make a recommendation to a committee comprised of all investment
analysts and portfolio managers (the "Proxy Voting Committee") as to how to
vote the proxy and the Proxy Voting Committee will make the final
determination as to how to vote the proxy in the best economic interests of
the client.
If Fenimore determines that voting a particular proxy would create material
conflict of interests between its interests or the interests of any
affiliated parties and the interests of the Trust, Fenimore will either (i)
disclose such conflict of interest to the Corporate Governance Committee of
the Board of Trustees and obtain the consent of the committee before voting
the proxy (ii) vote such proxy based upon the recommendations of an
independent third party such as a proxy voting service; or (iii) delegate the
responsibility for voting the particular proxy to the Corporate Governance
Committee of the Board of Trustees.
Information on how each of the Funds voted proxies relating to portfolio
securities during each twelve-month period ended June 30th is filed with the
SEC on Form N-PX. This proxy voting information for the Funds as presented on
Form N-PX is available: (1) without charge, upon request by calling the Funds
at 800-932-3271; (2) on the Funds' website at http://www.famfunds.com, and
(3) on the SEC's website at http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL SECURITY HOLDERS
As of April 4, 2006, the following entities owned beneficially or of record,
for their own account or the accounts of their customers, more than 5% of the
outstanding Investor Class shares of the Funds, as indicated:
12
NAME AND ADDRESS PERCENT OF
NAME OF FUND OF BENEFICIAL OWNER CLASS
--------------------------------------------------------------------------------
FAM Value Fund Charles Schwab & Co., Inc.* 18.81%
FBO Schwab Customers
101 Montgomery Street
San Francisco, CA 94104
National Financial Services, Corp. 13.51%
200 Liberty Street 5th Floor
New York, NY 10281
FAM Equity-Income Fund Charles Schwab & Co., Inc.* 15.16%
FBO Schwab Customers
101 Montgomery Street
San Francisco, CA 94101
National Financial Services, Corp. 15.17%
200 Liberty Street 5th Floor
New York, NY 10281
* A party holding in excess of 25% of the outstanding voting securities of
a Fund may be deemed to control the Fund based on the substantial
ownership interest held and the party's resultant ability to influence
voting on certain matters submitted to shareholders for their
consideration and approval.
PRINCIPAL UNDERWRITER
Fenimore Securities, Inc. (the "Distributor") serves as distributor of the
shares of each Fund. In this capacity it receives purchase orders and
redemption requests relating to Fund shares. The Distributor is located at
384 North Grand Street, Cobleskill, New York 12043 and is an affiliate of
Fenimore Asset Management, Inc., the investment adviser to the Funds. Thomas
O. Putnam is the majority shareholder of Fenimore Asset Management, Inc. and
the sole shareholder of Fenimore Securities, Inc.
OTHER SERVICE PROVIDERS
CUSTODIAN. U.S. Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, serves
as custodian for the Funds.
SHAREHOLDER SERVICES AGENT, FUND ACCOUNTING AGENT AND FUND ADMINISTRATIVE
AGENT; TRANSFER AGENT. FAM Shareholder Services, Inc., 384 North Grand
Street, Cobleskill, New York 12043, an affiliate of the Advisor, serves as
shareholder services agent, fund accounting agent and fund administrator for
the Funds. The Trust is registered as a transfer agent with the U.S.
Securities and Exchange Commission and acts as transfer agent for its own
shares of beneficial interest.
13
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. PricewaterhouseCoopers LLP,
300 Madison Avenue, New York, NY 10017, serves as the Funds' independent
registered public accounting firm.
FUND COUNSEL. Dechert LLP, 1775 I Street, N.W., Washington, D.C. 20006,
serves as legal counsel to the Trust.
INFORMATION ABOUT THE TRUST
The Trust, which is organized as a Massachusetts business trust, was
established on June 18, 1986. The Trust's Declaration of Trust authorizes the
Board of Trustees to issue an unlimited number of shares of beneficial
interest in the Trust and to divide the interests in the Trust into one or
more series of shares. The Trust currently consists of the two series of
shares and each series of shares consists of two separate classes, the
Investor Class Shares and the Advisor Class Shares. The Declaration of Trust
is on file with the Secretary of the Commonwealth of Massachusetts.
BROKERAGE ALLOCATIONS
It is Fenimore's policy to allocate brokerage business to the best advantage
and benefit of a Fund's shareholders. All securities transactions are made so
as to obtain the most efficient execution at the lowest transaction cost.
Nothing in this policy, however, is to be construed to prohibit Fenimore from
allocating transactions to firms whose brokerage charges may include the cost
of providing investment advisory or research or other legally permitted
services which Fenimore deems to be necessary and/or valuable to the
successful management of its assets. Each buy or sell order will be placed
according to the type, size and kind of order involved and as each condition
may demand, so as to attempt to secure the best result for Fenimore and Fund
shareholders, all factors considered. For the fiscal years ending December
31, 2006, 2005, and 2004, respectively, aggregate commissions paid totaled
$281,381, $297,147, and $194,601 for FAM Value Fund. With respect to FAM
Equity-Income, for the fiscal years ending December 31, 2006, 2005, and 2004,
respectively, the aggregate commissions paid totaled $81,708, $64,462, and
$55,138. No commissions were paid by either Fund to any affiliated parties.
NET ASSET VALUE CALCULATION
The net asset value per share is computed by dividing the aggregate market
value of a Fund's assets daily, less its liabilities, by the number of
portfolio shares outstanding. Portfolio securities are valued and net asset
value per share is determined as of the close of business on the New York
Stock Exchange ("NYSE"), which currently is 4:00 p.m. (New York City time),
on each day the New York Stock Exchange is open and on any other day in which
there is a sufficient degree of trading in Fund portfolio securities that the
current net asset value per share might be materially affected by changes in
portfolio securities values. NYSE trading is closed weekends and holidays,
which are listed as New Years Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving,
and Christmas.
Portfolio securities listed on an organized exchange are valued on the basis
of the last sale on the date the valuation is made. Securities that are not
traded on that day, and for which market quotations are otherwise readily
available, and over-the-counter securities for which market quotations are
readily available, are valued on the basis of the bid price at the close of
business on that date. Securities and other assets for which market
quotations are not readily available or have not traded are valued at fair
value as determined by procedures established by the Board of Trustees.
Notwithstanding the above, bonds and other fixed-income securities may be
valued on the basis of prices determined by procedures established by the
Board of Trustees if it is the belief of the Board of Trustees that such
price determination more fairly reflects the fair value of such securities.
Money market instruments are valued at amortized cost which approximates
market value unless the Board of Trustees determines that such is not a fair
value.
14
The sale of shares of the Funds will be suspended during periods when the
determination of its net asset value is suspended pursuant to rules or orders
of the Securities and Exchange Commission, or may be suspended by the Board
of Trustees whenever in its sole judgment it believes it is in the best
interest of shareholders to do so.
PERFORMANCE INFORMATION
The Funds may, from time to time, include their total return in
advertisements or reports to Shareholders or prospective investors.
Quotations of average annual total return for each Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of one, five and ten years (up to the
life of the Fund) calculated pursuant to the following formula: P(1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years, and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period).
Quotations of average annual total return after taxes on distributions for
each Fund will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Fund over periods of one, five and
ten years (up to the life of the Fund) calculated pursuant to the following
formula: P(1 + T)n = ATVD (where P = a hypothetical initial payment of
$1,000, T = the average annual total return, n = the number of years, and
ATDV = ending value of a hypothetical $1,000 payment made at the beginning of
the 1, 5 or 10 year periods (or fractional portion), after taxes on fund
distributions but not after taxes on redemptions.
Quotations of average annual total return after taxes on distributions and
redemptions for each Fund will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund over
periods of one, five and ten years (up to the life of the fund) calculated
pursuant to the following formula: P(1 + T)n = ATVDR (where P = a
hypothetical initial payment of $1,000, T = the average annual total return,
n= the number of years, and ATVDR = ending value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year periods (or fractional
portion), after taxes on fund distributions and redemption.
All total return figures reflect the deduction of a proportional share of
Fund expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid.
Quotations of yield for a Fund will be computed by dividing the net
investment income per share earned by the Fund during a 30-day period by the
maximum offering price per share on the last day of the period, according to
the following formula:
Yield = 2[(a-b+1)6-1]
--
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding during the period
that were entitled to receive dividends.
d = maximum offering price per Share on the last day of the period.
15
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Russell 2000 Index, the Standard & Poor's
500 Stock Index, the Dow Jones Industrial Average, or other unmanaged indices
so that investors may compare Fund results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
market in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets or
tracked by other services, companies, publications, or persons who rank
mutual funds on overall performance or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for the Funds reflect only the performance of a
hypothetical investment in the Funds during the particular time period on
which the calculation is based. Performance information should be considered
in light of each Fund's investment objective and policies, characteristics
and quality of the portfolio and the market conditions during the given time
period, and should not be considered as a representation of what may be
achieved in the future.
FINANCIAL STATEMENTS
The Financial Statements of the Investor Class shares of each Fund are
included in the 2006 Annual Report to Shareholders and are incorporated by
reference into this Statement of Additional Information. Copies of the
Financial Statements may be obtained upon request and without charge from the
Funds at the address and telephone provided on the cover of this Statement of
Additional Information.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in
light of their particular circumstances. This discussion is based upon
present provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and
administrative ruling authorities, all of which are subject to change, which
change may be retroactive. Prospective investors should consult their own tax
advisors with regard to the federal tax consequences of the purchase,
ownership, or disposition of Fund shares, as well as state, local and foreign
tax consequences.
TAX STATUS OF THE FUNDS
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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 certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income 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 value of the
Fund's total assets is represented by cash and cash items, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities limited, in respect of any one issuer,
to an amount not greater than 5% of the value of the Fund's total 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 the securities of
any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies).
16
As a regulated investment company, a Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders,
if at least 90% of the Fund's investment company taxable income (which
includes, among other items, dividends, interest and the excess of any net
short-term capital gains over net long-term capital losses) for the taxable
year is distributed. Each Fund intends to distribute substantially all of
such income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (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 a one-year period generally 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. To
avoid application of the excise tax, each Fund intends to make distributions
in accordance with the calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a calendar year if
it is declared by a Fund in October, November or December of that year with a
record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
FUND INVESTMENTS
Certain debt securities acquired by a Fund may be treated as debt securities
that were originally issued at a discount. Very generally, original issue
discount is defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash
income on account of such discount is actually received by a Fund, original
issue discount that accrues on a debt security in a given year generally is
treated for federal income tax purposes as interest and, therefore, such
income would be subject to the regulated investment company distribution
requirement. Some debt securities may be purchased by a Fund at a discount
that exceeds the original issue discount on such debt securities, if any;
this additional discount represents market discount for federal income tax
purposes.
If a Fund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is "market discount". The Fund may be required
to include a portion of such market discount as ordinary income in each
taxable year in which the Fund owns an interest in the debt security and
receives a principal payment on it. The Fund may be required to allocate the
principal payment first to the portion of the market discount on the debt
security that has accrued but has not previously been includable in income.
In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment
with respect to such period. Generally, market discount accrues on a daily
basis for each day the debt security is held by the Fund at a constant rate
over the time remaining to the debt security's maturity or, at the election
of the Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest. Gain realized on the disposition of a
market discount obligation must be recognized as ordinary income (not capital
gain) to the extent of the "accrued market discount."
17
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
shareholder, whether paid in cash or reinvested in Fund shares. Dividends
paid by a Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce
the value of the dividends received deduction. Tax legislation enacted in
2003 generally provides for a maximum tax rate for individual taxpayers of
15% on distributions of capital gains and of certain qualifying dividends on
corporate stock. These rate reductions do not apply to corporate taxpayers.
Distributions of earnings from dividends paid by certain "qualified foreign
corporations" can also qualify for the lower tax rates on qualifying
dividends. A shareholder will also have to satisfy a more than 60 day holding
period for the Fund shares with respect to any distributions of qualifying
dividends in order to obtain the benefit of the lower tax rate. Distributions
of earnings from non-qualifying dividends, interest income, other types of
ordinary income and short-term capital gains will be taxed at the ordinary
income tax rate applicable to the taxpayer.
The excess of net long-term capital gains over the short-term capital losses
realized and distributed by a Fund, whether paid in cash or reinvested in
Fund shares, will generally be taxable to shareholders as long-term capital
gain, regardless of how long a shareholder has held Fund shares.
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.
DISPOSITIONS
Upon a redemption or sale of Fund shares, a shareholder will realize a
taxable gain or loss depending upon his or her basis in the shares. A gain or
loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands, and the rate of tax will depend 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. If a shareholder holds Fund
shares for six months or less and during that period receives a distribution
taxable to the shareholder as long-term capital gain, any loss realized on
the sale of such shares during such six-month period would be a long-term
capital loss to the extent of such distribution.
DISCLOSURE OF FUND PORTFOLIO HOLDINGS
The Board of Trustees has adopted policies and procedures for the public and
nonpublic disclosure of each Fund's portfolio securities. On a quarterly
basis, the Funds disclose on the Trust's website, www.famfunds.com, each
Fund's entire portfolio holdings, including a description of each security
and the percentage such security represents of the Fund's net asset value as
of that date and certain additional information regarding their portfolios
(e.g., top-10 holdings, asset allocation, sector breakdown). The information
will generally be available no earlier than the 10th business day following
the quarter-end and shall remain on the website until the next quarter's
information is made publicly available. A complete list of the Funds'
portfolio holdings is also publicly available on a quarterly basis through
filings made with the SEC on Forms N-CSR and N-Q.
18
As a general matter, no information concerning the portfolio holdings of the
Funds may be disclosed to any unaffiliated third party except (1) to service
providers that require such information in the course of performing their
duties (such as the Funds' custodian, fund accountants, investment adviser,
administrator, independent public accountants, attorneys, officers and
trustees and each of their respective affiliates and advisors) and are
subject to a duty of confidentiality, and (2) pursuant to certain enumerated
exceptions that serve a legitimate business purpose. These exceptions
include: (1) disclosure of portfolio holdings only after such information has
been publicly disclosed, as provided in the previous paragraph, and (2) to
third-party vendors, currently consisting of Morningstar Investment Services,
Inc. and Lipper Analytical Services that (a) agree to not distribute the
portfolio holdings or results of the analysis to third parties, other
departments or persons who are likely to use the information for purposes of
purchasing or selling the Funds before the portfolio holdings or results of
the analysis become publicly available; and (b) sign a written
confidentiality agreement. The confidentiality agreement must provide, among
other things, that the recipient of the portfolio holdings information agrees
to limit access to the portfolio information to its employees (and agents)
who, on a need to know basis, are (1) authorized to have access to the
portfolio holdings information and (2) subject to confidentiality
obligations, including duties not to trade on non-public information, no less
restrictive than the confidentiality obligations contained in the
confidentiality agreement.
Whenever portfolio holdings disclosure made pursuant to these procedures
involves a conflict of interest between the Funds' shareholders and the
Funds' Adviser, Distributor or any affiliated person of the Fund, the
disclosure may not be made unless a majority of the Trust's Independent
Trustees or a majority of a board committee consisting solely of Independent
Trustees approves such disclosure. Neither the Funds nor the Adviser may
enter into any arrangement providing for the disclosure of non-public
portfolio holding information for the receipt of compensation or benefit of
any kind.
Any exceptions to the policies and procedures may only be made by
the consent of the Trust's chief compliance officer upon a determination that
such disclosure serves a legitimate business purpose and is in the best
interests of the Funds and will be reported to the Board at the Board's next
regularly scheduled meeting. Any amendments to the Trust's policies and
procedures must be approved and adopted by the Trust's Board of Trustees.
19
STATEMENT OF ADDITIONAL INFORMATION
for
THE FAM FUNDS
ADVISOR CLASS SHARES
Dated: May 1, 2007
---------------------------------------
384 North Grand Street, P.O. Box 399, Cobleskill, NY 12043
Telephone Number (800) 932-3271
www.famfunds.com
FENIMORE ASSET MANAGEMENT TRUST
-------------------------------------------------------------------------------
The FAM FUNDS currently offer two diversified open-end mutual funds, FAM
Value Fund and FAM Equity-Income Fund (the "Funds"). Each of the Funds is a
separate investment series of Fenimore Asset Management Trust (the "Trust"),
which is registered with the Securities and Exchange Commission (the "SEC")
as an open-end management investment company.
This Statement of Additional Information is not a Prospectus but rather
should be read in conjunction with the Prospectus for the Advisor Class
shares of the Funds dated the same date. A copy may be obtained without
charge from the Funds by calling or writing the address and telephone number
noted above. The financial statements for the Funds are incorporated by
reference into this Statement of Additional Information in their entirety.
1
Table of Contents
Investment Objective and Policies.............................................3
Additional Investment Techniques and Related Risks............................4
Investment Restrictions.......................................................5
History and Background of Investment Advisor..................................6
Board of Trustees and Officers................................................9
Proxy Voting.................................................................12
Control Persons and Principal Security Holders...............................12
Principal Underwriter........................................................13
Service and Distribution Plan................................................13
Other Service Providers......................................................14
Information About the Trust..................................................15
Brokerage Allocations........................................................15
Net Asset Value Calculation..................................................15
Performance Information......................................................16
Financial Statements.........................................................17
Certain Federal Income Tax Considerations....................................17
Tax Status of the Funds...................................................17
Funds Investments.........................................................18
Distributions.............................................................18
Dispositions..............................................................19
Disclosure of Fund Portfolio Holdings........................................19
Investment Advisor:
Fenimore Asset Management, Inc.
384 North Grand Street
Cobleskill, NY 12043
2
INVESTMENT OBJECTIVE AND POLICIES
The Trust offers two mutual funds with distinct investment objectives. FAM
Value Fund has an investment objective to maximize long term total return on
capital. FAM Equity-Income Fund has an investment objective of providing
current income as well as long term capital appreciation by investing
primarily (at least 80% of its total assets) in income-producing equity
securities. Normally investments will be concentrated in common stocks unless
the stock market environment has risen to a point where the advisor to the
Funds, Fenimore Asset Management, Inc., ("Fenimore" or "FAM"), can no longer
find securities that have been determined by Fenimore to be undervalued.
During such periods, investments will be made in fixed-income investments
until such time as more attractive common stocks can be found for purchase.
It is the opinion of FAM that the objectives of the Funds are achievable when
common stocks can be purchased near to, or at, a discount from their true
business worth. Specifically, FAM seeks to invest assets in companies that
may have some or all of the following characteristics: (a) low
price-to-earnings multiples relative to the market as a whole, based upon
current and/or potential future earnings of the company; (b) high total
returns on capital and with low debt structures; and (c) sell at a market
price per share that is near or at a discount to the per share book value --
an accounting measure of economic worth. Although the objective is to select
stocks with these characteristics, FAM is aware that it is unrealistic to
assume that each selection will have all or even several of the above
characteristics.
FAM believes that the success of a stock that has some of the above
characteristics is dependent upon and invariably a reflection of the quality
of management. Therefore, FAM spends time in an attempt to assess
management's ability prior to making a commitment with Fund assets. The
assessment may include an analysis of historical financial achievements of
the company, direct discussions with management by telephone or in person,
visitations to the company, conversations with security analysts who actively
follow the company for investment brokerage firms, and discussions with
competitors, suppliers, and customers of the company. While FAM feels this
assessment technique to be clearly instrumental to the success of the
investment, it should be recognized that judgments made by FAM are purely
subjective in nature. Therefore, there can be no assurance that FAM will be
successful in achieving its investment objectives for the Funds.
It is FAM's belief that the objectives of the Funds can only be achieved
consistently over a long investment horizon. Typically, this will mean that a
stock may be held for a three-to-five year period or longer if FAM, by its
own determination, feels that the recognition of true business worth has not
yet been attained in the stock's current market quotation. Thus, the Funds
serve little purpose for investors who wish to take advantage of short-term
fluctuations in net asset values per share.
From time to time, FAM may also choose to invest some or all of the Funds'
assets in fixed-income investments of the types more fully described in the
Funds' Prospectus dated this same date. Such investments will be purchased
and held during periods when FAM is unable to find stocks that it believes
have return expectations commensurate with the risks that must be assumed by
their continued retention.
FAM recognizes that while the Funds remain small in size, FAM may have
greater flexibility in achieving its objectives. However, as the Funds grow
in size, it may become more difficult for FAM to find securities to invest in
that meet the objectives of the Funds. This may also occur during periods
when the stock market in general has been rising for a long period of time.
Therefore, FAM reserves unto itself the right to limit the asset size of the
Funds by discontinuing sales of their shares at any time. The Board of
Trustees of the Funds may suspend sales whenever, in its collective wisdom,
it believes it necessary in order for the Funds to continue to adhere to
their stated objectives, or that for other reasons it would be in the best
interests of Fund shareholders to do so. While sales are suspended, existing
shareholder accounts will be able to continue to reinvest their dividends and
will be able to continue to redeem their shares.
3
It should be clear to investors in FAM Funds that FAM believes income is an
important factor in achieving its objectives. Fenimore is aware that annual
distributions of capital gains and dividend/interest income earned on shares
may result in a shareholder paying additional federal, state and/or local
income taxes. (See "Certain Federal Income Tax Considerations"). Tax deferred
portfolios, like IRA and pension monies, are ideally suited for investment in
shares of FAM Funds for these reasons.
ADDITIONAL INVESTMENT TECHNIQUES AND RELATED RISKS
Although each Fund will primarily invest in equity securities, subject to the
investment policies and restrictions as described in the Prospectus and in
this Statement of Additional Information, each Fund may invest to a limited
extent in any of the following securities or pursue any of the following
investment strategies which are not part of either Fund's principal
investment strategies.
DERIVATIVES
The Funds may use futures, options or other forms of derivatives. To the
extent a Fund invests in these derivative instruments, the Fund will be
subject to certain risks. These risks include possible default by the other
party to the transaction, illiquidity, and to the extent the Funds' view as
to certain market movements is incorrect, the risk that the use of such
transactions could result in losses greater than if they had not been used.
The use of options may result in losses to a Fund, force the sale or purchase
of securities at inopportune times or for prices other than current market
values, limit the amount of appreciation a Fund can realize on its
investments or cause a Fund to hold a security it might otherwise sell. The
ability of each Fund to engage in futures contracts and options on futures
will be subject to applicable rules of the Commodity Futures Trading
Commission ("CFTC").
BORROWING
Each Fund may borrow from banks for temporary or emergency purposes. The 1940
Act permits a Fund to borrow up to an amount that has 300% asset coverage,
which effectively permits a Fund to borrow up to one-third of its assets
measured after the borrowing, plus an additional 5% for temporary purposes.
To the extent the Funds choose to borrow, the volatility of the Funds' net
asset value may increase. Additionally, money borrowed will be subject to
interest and other costs. These costs may exceed the gain on securities
purchased with borrowed funds.
SECURITIES OF OTHER INVESTMENT COMPANIES
A Fund may invest in shares of other investment companies to the extent
permitted by the Investment Company Act of 1940, as amended (the "1940 Act").
Accordingly, a Fund shall not invest a greater percentage of its assets than
is permitted by regulation, which is presently 5% of its total assets in any
single fund nor more than 10% of its total assets in funds overall. To the
extent that the Funds do invest in the shares of other investment companies,
they will incur additional expenses due to the duplication of fees and
expenses as a result of investing in other investment vehicles.
SHORT-SALE TRANSACTIONS
The Funds may engage in short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When a Fund
makes a short sale, it must borrow the security sold short and deliver it to
the broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. Generally,
consistent with the 1940 Act, the Funds would be permitted only to engage in
short-sale transactions "against the box," in which case a Fund owns or has
the right to obtain securities identical to those sold short. A Fund may
incur transaction costs, including interest expenses, in connection with
opening, maintaining, and closing short sales.
4
LOANS OF PORTFOLIO SECURITIES
The Funds are permitted to engage in securities lending to the extent
permitted by SEC policy. Qualified institutions may borrow portfolio
securities on a short-term basis. By reinvesting any cash collateral received
in these transactions, additional income gains or losses may be realized. The
SEC currently permits loans of a mutual fund's securities up to one-third of
its assets, including any collateral received from the loan, provided that
loans are 100% collateralized by cash or cash equivalents on a marked to
market basis. The principal risk in lending securities is the possibility
that invested collateral will decline in value, or, as with other extensions
of credit, a borrower may fail to honor its obligations, causing a loss for a
Fund.
ADDITIONAL RISKS ASSOCIATED WITH CERTAIN ISSUERS
The Funds may make investments in the shares of issuers that have relatively
short operating histories (typically, less than three years), which may
involve certain risks. Such companies may not have experience in operating
through prolonged periods of economic difficulty and, as a result, the price
of their shares may be more volatile than the shares of companies that have
longer operating histories.
The Funds may also invest in the shares of issuers that do not have quoted
markets. Such issuers generally do not have financial and similar information
about them readily available to the same extent that issuers having quoted
markets have available to investors. Such a lack of financial and related
data may cause such issuer's shares to experience greater market volatility.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions which cannot be changed
or amended unless approved by the vote of a majority of its outstanding
shares in accordance with requirements under the Investment Company Act of
1940. Accordingly, no FAM Fund will:
(A) Invest in the purchase and sale of real estate.
(B) Invest in commodities or commodity contracts, except options,
futures contracts and options on futures contracts.
(C) Borrow money, except in an amount not to exceed 33 1/3% of the
value of the Fund's total assets.
(D) Own more than 10% of the outstanding voting securities of any one
issuer or company, nor will it, with at least 75% of its total
assets, invest more than 5% of its assets in any single issue,
valued at the time of purchase. This restriction shall not be
applicable for investments in U.S. government or agency securities.
(E) Invest more than 25% of its assets valued at the time of purchase
in any one industry or similar groups of industries, except U.S.
government securities.
(F) Maintain margin accounts, will not purchase its investments on
credit or margin, and will not leverage its investments, except for
normal transaction obligations during settlement periods.
5
(G) Underwrite or deal in offerings of securities of other issuers as a
sponsor or underwriter in any way. (Note: The Trust may be deemed
an underwriter of securities when it serves as distributor of its
own shares for sale to or purchase from its shareholders.)
(H) Make loans to others, except that each Fund may lend portfolio
securities so long as no such loan is made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the
Fund's total assets. For these purposes the purchase of publicly
distributed indebtedness is excluded and not considered making a
loan.
(I) Issue senior securities, except to the extent permitted by the
Investment Company Act of 1940, by SEC exemptive order, or by the
Commission.
HISTORY AND BACKGROUND OF INVESTMENT ADVISOR
The investment advisor to the Funds is Fenimore Asset Management, Inc. The
company is a New York corporation registered under the Investment Advisers
Act of 1940 with the Securities and Exchange Commission. Fenimore is majority
owned by Mr. Thomas O. Putnam, its principal officer, who is also the
principal officer and a Trustee of the Funds. Fenimore was incorporated
November 20, 1974, and has been continuously offering investment advisory
services since the date of its formation under the direction and control of
Mr. Putnam. The principal activity of Fenimore since 1974 has been to provide
investment advisory and consulting services under contract to individuals,
pension, profit-sharing, IRA and Keogh retirement plans, corporations, and
non-profit organizations generally located in the service area that includes
the continental U.S. Mr. Putnam has been employed or active as an investment
advisor since 1974, managing investment accounts for clients. He has held
responsibilities as President and Director of Fenimore's investment
management and research activities. Mr. Putnam completed his undergraduate
studies at the University of Rochester, Rochester, NY, from which he earned a
Bachelor of Arts Degree in Economics in 1966. He completed graduate work at
Tulane University, New Orleans, Louisiana, from which he received an MBA in
1968. John Fox, CFA, co-manager of FAM Value Fund, is employed by Fenimore as
Investment Research Analyst. He has been actively involved in investment and
portfolio management and research activities since 1996. Paul C. Hogan, CFA,
co-manager of FAM Equity-Income Fund, is also employed by Fenimore as
Investment Research Analyst. He has been actively involved in investment
research activities since 1991. Fenimore employs a staff of experienced
investment professionals to manage assets for other corporate and individual
clients. Since 1974, Fenimore, under the control and supervision of Mr.
Putnam, has utilized a value investment approach for each client and/or each
account. In the opinion of Fenimore, the objectives of FAM Funds can only be
met if companies can be purchased at a significant discount from what
Fenimore views as their true business worth. In this regard a company is
researched almost as if the entire company could be purchased at current
stock market prices. Although it will never be the intention of FAM to
purchase controlling interests in any such company, it is Fenimore's belief
that this fundamental valuation approach removes emotionality from the
investment decision-making process and minimizes the long term risk of the
investment. Fundamental to this approach is the seeking of securities of
companies that have: (1) demonstrated records of above-average growth of
sales and earnings over the past 5 to 10 year span and are selling at a price
which Fenimore believes is at a discount from the true business worth of the
company; (2) become severely depressed in the market because of adverse
publicity and are, thus, selling at a deep discount to the perceived future
potential value of the company; (3) the capability of achieving accelerated
growth of earnings and the current price understates this potential. Future
values may be 100% or more of the current price of the stock and recognition
of these values may take two to five years or longer to be realized in the
stock market.
6
Fenimore will not invest assets of any other managed account in shares of the
Funds except as directed in writing by a person unaffiliated to the Funds or
to Fenimore, having authority to make such direction. Fenimore, as investment
advisor to the Funds, renders such services under contract that provides for
payment to Fenimore of a fee, calculated daily and paid monthly, at the rate
of 1% per annum of each Funds net assets, which rate is consistent with that
being charged by Fenimore to manage its other client accounts. This contract
is subject to the approval annually by the Funds' Board of Trustees and is
terminable upon 30 days written notice, one party to the other.
With respect to FAM Value Fund, the total investment advisory fees paid by
FAM Value Fund to Fenimore during each of the last three fiscal years is as
follows:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- ----------------- -----------------
$10,582,254 $10,257,224 $7,047,797
With respect to FAM Equity-Income Fund, the total investment advisory fees
paid by FAM Equity-Income Fund to Fenimore during each of the last three
fiscal years is as follows:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- ----------------- -----------------
$1,599,336 $1,710,699 $1,276,100
Each Fund is responsible for the costs of its own operation which include the
fees of independent accountants, chief compliance officer, brokerage fees,
routine administrative expenses, fund accounting expenses and shareholder
administrative services expenses. Expenses of "Interested Trustees" shall
always remain the responsibility of the investment advisor. All employees of
the investment advisor who perform duties for the Funds shall remain
employees of the investment advisor, who shall bear all employment costs of
such staff. If Fenimore ceases to operate for any reason or assigns the
contract, such contract is automatically terminated.
Thomas O. Putnam and Paul C. Hogan are co-managers of the FAM Equity-Income
Fund. Thomas O. Putnam and John D. Fox are co-managers of the FAM Value Fund.
The following table lists the number and types of other accounts managed by
each individual and assets under management in those accounts as of December
31, 2006:
Other Other
Registered Pooled Total
Investment Assets Investment Assets Assets Assets
Portfolio Company Managed Vehicle Managed Other Managed Managed*
Manager Accounts ($ millions) Accounts ($ millions) Accounts ($ millions) ($ millions)
Thomas O. Putnam None $0 None $0 0 $0 $0
Paul C. Hogan None $0 None $0 0 $0 $0
John D. Fox None $0 None $0 1 $.7 $.7
* If an account has a co-portfolio manager, the total number of accounts and
assets have been allocated to each respective manager. Therefore, some
accounts and assets have been counted twice.
7
As indicated in the table above, portfolio managers at the Adviser may manage
accounts for multiple clients. While the managers do not manage other
registered investment companies or other types of pooled accounts (such as
private investment funds), they do manage separate accounts (i.e., accounts
managed on behalf of individuals for public or private institutions).
Portfolio managers at the Adviser make investment decisions for each account
based on the investment objectives and policies and other relevant investment
considerations applicable to that portfolio.
The management of multiple accounts may result in a portfolio manager
devoting unequal time and attention to the management of each account.
Although the Adviser does not track the time a portfolio manager spends on a
single portfolio, it does periodically assess whether a portfolio manager has
adequate time and resources to effectively manage all of the accounts for
which he is responsible. The Adviser seeks to manage competing interests for
the time and attention of portfolio managers by having portfolio managers
focus on a particular investment discipline or complementary investment
disciplines. Most accounts within a particular investment discipline are
managed using the same investment model. Even where multiple accounts are
managed by the same portfolio manager within the same investment discipline,
however, the Adviser may take action with respect to one account that may
differ from the timing or nature of action taken, with respect to another
account. Accordingly, the performance of each account managed by a portfolio
manager will vary.
Because a portfolio manager's compensation may be affected by revenues earned
by the Adviser, the incentives associated with any given account may be
higher or lower than those associated with other accounts.
In addition, to the extent that trade orders are aggregated, which typically
occurs in limited circumstances involving participation in initial public
offerings or secondary offerings, conflicts may arise when aggregating and/or
allocating aggregated trades. The Adviser may aggregate multiple trade orders
for a single security in several accounts into a single trade order, absent
specific client directions to the contrary. When a decision is made to
aggregate transactions on behalf of more than one account, the transactions
will be allocated to all participating client accounts in a fair and
equitable manner.
The Adviser has adopted and implemented policies and procedures, including
brokerage and trade allocation policies and procedures, which it believes
address the conflicts associated with managing multiple accounts for multiple
clients. The Adviser monitors a variety of areas, including compliance with
account investment guidelines, the allocation of initial public offerings,
and compliance with the Adviser's Code of Ethics.
The compensation of the portfolio managers varies with the general success of
the Adviser as a firm. Each portfolio manager's compensation consists of a
fixed annual salary, plus additional remuneration based on the overall
performance of the portfolio manager for the given time period. The portfolio
managers' compensation is not linked to any specific factors, such as a
Fund's performance or asset level.
The dollar range of equity securities beneficially owned by the Funds'
portfolio managers in the Funds they manage as of December 31, 2006 is as
follows:
Dollar Range of Equity Securities Beneficially Owned
----------------------------------------------------
Portfolio Manager FAM Equity-Income Fund FAM Value Fund
Thomas O. Putnam Over $1,000,000 Over $1,000,000
Paul C. Hogan $100,001 - $500,000 N/A
John D. Fox N/A $100,001 - $500,000
8
BOARD OF TRUSTEES AND OFFICERS
Overall responsibility for management of the Funds rests with the Board of
Trustees, which is elected by the shareholders of the Funds. The Trustees
elect the officers of the Funds to actively supervise the day-to-day
operations of the Funds. The Trustees and officers serve for an indefinite
period of time. During the fiscal year ended December 31, 2006, the Board met
five times.
The names of Trustees and officers of the Funds, and their respective duties
and affiliations are as follows:
Position(s) Held Principal Number of Other
Name, With Fund and Occupation(s) Portfolios in Fund Directorships
Address, and Length of Time During Past Complex* Overseen Held by
Age Served 5 Years By Trustee Trustee
INDEPENDENT TRUSTEES**
Fred "Chico" Lager Trustee since 1996 Business Consultant; 2 N/A
384 North Grand St. Retired President & CEO of
Cobleskill, NY 12043 Ben & Jerry's Homemade, Inc.
Age: 52
C. Richard Pogue Trustee since 2000 Retired Executive Vice President, 2 N/A
384 North Grand St. Investment Company Institute
Cobleskill, NY 12043
Age: 70
John McCormack Trustee since 2004 Retired Group President, 2 N/A
384 North Grand St. and Chairman since TIAA-Cref Enterprises
Cobleskill, NY 12043 March 2007
Age: 61
Barbara Weidlich Trustee since 2004 President, National Investment 2 N/A
384 North Grand St. Company Service Association;
Cobleskill, NY 12043 Managing Director-DEXIA BIL Fund
Age: 62 Services, Dublin, Ireland
Kevin J. McCoy Trustee since Principal, Marvin and Company, 2 N/A
384 North Grand St. March 2007 P.C., certified public accounting firm
Cobleskill, NY 12043
Age: 54
9
Position(s) Held Principal Number of Other
Name, With Fund and Occupation(s) Portfolios in Fund Directorships
Address, and Length of Time During Past Complex* Overseen Held by
Age Served 5 Years By Trustee Trustee
INTERESTED
TRUSTEES &
OFFICERS***
Thomas O. Putnam**** President Chairman, 2 N/A
384 North Grand St. Since 1986; Fenimore Asset Management
Cobleskill, NY 12043 Chairman from
Age: 62 1986-November 2004
Joseph A. Bucci Secretary and Controller, N/A N/A
384 North Grand St. Treasurer since Fenimore Asset Management
Cobleskill, NY 12043 2000
Age: 53
Charles Richter, Esq. Chief Compliance Prior to October, 2004, Chief Operating N/A N/A
384 North Grand St. Officer and Officer and Chief Compliance Officer,
Cobleskill, NY 12043 Anti-Money Laundering Manarin Securities Corporation and
Age: 50 Compliance Officer Chief Compliance Officer, Manarin
Since 2005 Investment Counsel, Omaha, NE
* "Fund Complex" includes the two series of the Trust, FAM Value Fund and
FAM Equity Income Fund.
** The "Independent Trustees" are those Trustees that are not considered
"interested persons" of the Trust, as that term is defined in the 1940
Act.
*** Mr. Putnam, by virtue of his employment with Fenimore Asset Management,
Inc., the Trust's investment adviser, is considered an "interested
person" of the Trust.
**** Mr. Putnam was Chairman of the Board through October 2004.
The Trustees have established an Audit Committee, a Nominating and Corporate
Governance Committee, and a Valuation Committee. The Audit Committee, which
is composed of at least three of the Trust's Independent Trustees, is
composed of Messrs. Lager, Pogue, McCormack, McCoy and Ms. Weidlich. The
Audit Committee: (i) selects the Trust's independent registered public
accounting firm and recommends to the Board of Trustees the selection; (ii)
annually reviews the scope of the proposed audit, the audit procedures to be
utilized and the proposed audit fees; (iii) reviews the annual audit with the
independent registered public accounting firm; (iv) reviews the annual
financial statements of the Funds, and (v) reviews the adequacy and
effectiveness of internal controls and procedures. For the year ended
December 31, 2006, the Audit Committee met twice.
The Nominating and Corporate Governance Committee is composed of the
Independent Trustees, Messrs. Lager, Pogue, McCormack, McCoy and Ms.
Weidlich. The Nominating and Corporate Governance Committee: (i) recommends
nominees to the full Board for election to the Board of Trustees; (ii)
evaluates each candidate's qualifications for Board membership and his or her
independence from the Trust's investment manager and other principal service
providers; (iii) periodically reviews the composition of the Board of
Trustees to determine whether it may be appropriate to add individuals with
different backgrounds or skills from those already on the Board; (iv) reviews
Trustee compensation on an annual basis and recommends any appropriate
changes to the full Board; (v) oversees the Trust's policies and procedures
regarding compliance with corporate governance policies; and (vi)
periodically reviews the Board governance procedures of the Trust and
recommends any appropriate changes. The Committee does not have a stated
policy of considering nominees recommended by the Trust's shareholders. The
Nominating and Corporate Governance Committee met once during 2006.
10
The Valuation Committee is composed of the Independent Trustees, Messrs.
Lager, Pogue, McCormack, McCoy and Ms. Weidlich. The purpose of the Valuation
Committee is to oversee the implementation of the Trust's valuation
procedures and to make fair value determinations on behalf of the Board as
specified in the Trust's valuation procedures. The Valuation Committee meets
on an as-needed basis to consider valuation matters submitted for their
review. For the year ended December 31, 2006, the Valuation Committee was not
required to hold any meetings.
For the fiscal year ended December 31, 2006, the dollar range of equity
securities owned by each Trustee in each Fund and the Fund Complex is as
follows:
Aggregate Dollar Range of
Equity Securities in All Funds
Dollar Range of Equity Overseen by Trustee in Family
Name of Trustee Fund Name Securities in the Fund of Investment Companies
INDEPENDENT TRUSTEES
Fred "Chico" Lager FAM Value Fund Over $100,000 Over $100,000
FAM Equity-Income Fund Over $100,000
C. Richard Pogue FAM Value Fund Over $100,000 Over $100,000
FAM Equity-Income Fund $50,001-100,000
John J. McCormack FAM Value Fund $10,001-50,000 $10,001-50,000
FAM Equity-Income Fund $10,001-50,000
Barbara V. Weidlich FAM Value Fund $10,001-50,000 $10,001-50,000
FAM Equity-Income Fund $10,001-50,000
Kevin J. McCoy FAM Value Fund Over $100,000 Over $100,000
FAM Equity-Income Fund Over $100,000
INTERESTED TRUSTEE
Thomas O. Putnam FAM Value Fund Over $100,000 Over $100,000
FAM Equity-Income Fund Over $100,000
Officers and Trustees of the Funds own less than 1% of each Fund's shares
outstanding.
Trustees of the Funds not employed by Fenimore receive from the Funds a fee
of $1,250 for each Board of Trustees meeting, $12,000 annual retainer, $500
for each committee meeting, a retreat fee of $1,500, and are reimbursed for
all out-of-pocket expenses relating to attendance at such meetings. The
Independent Chairman receives an additional $10,000 annual retainer. The
Chairman of the Audit Committee receives an additional $1,500 annual
retainer. The $12,000 annual retainer is distributed exclusively in shares of
the Funds. Trustees who are employees of Fenimore do not receive compensation
from the Funds.
For the fiscal year ended December 31, 2006, the Trustees received the
following compensation from the Funds and from certain other investment
companies (if applicable) that have the same investment advisor as the Funds
or an investment advisor that is an affiliated person of the Funds'
investment advisor:
Total Compensation from
Aggregate Compensation from Registrant and Fund
the Funds Accrued as Part Pension or Est. Annual Benefits Complex (2 Funds)
Name of Trustee of Fund Expenses Retirement Benefits upon Retirement Paid to Trustees
Thomas O. Putnam $0 $0 $0 $0
Fred "Chico" Lager $19,000 $0 $0 $19,000
C. Richard Pogue $18,250 $0 $0 $18,250
David A. Hughey* $23,750 $0 $0 $23,750
John J. McCormack $18,750 $0 $0 $18,750
Barbara V. Weidlich $18,750 $0 $0 $18,750
*Mr. Hughey retired from the board in March of 2007.
11
PROXY VOTING
The Trust has delegated the proxy voting decisions on securities held in the
Trust's portfolios to Fenimore in its capacity as investment advisor.
Fenimore has adopted Proxy Voting Policies and procedures ("Proxy Voting
Policies") which provide that proxies on securities will be voted for the
exclusive benefit, and in the best economic interest of the Trust's
shareholders, as determined by the investment advisor in good faith, subject
to any restrictions or directions of the Trust. Such voting responsibilities
will be exercised in a manner that is consistent with the general antifraud
provisions of the Investment Advisors Act of 1940, as well as the investment
advisor's fiduciary duties under federal and state law to act in the best
interest of its clients.The Board of Trustees of the Trust has approved the
Proxy Voting Polices.
For routine proposals (such as those which do not change the structures,
bylaws or operations of a company), Fenimore will generally vote in the
manner recommended by management. Non-routine proposals (such as those
affecting corporate governance, compensation and other corporate events) and
shareholder proposals will generally be reviewed on a case by case basis. An
investment analyst/portfolio manager will review each such proposal and
decide how the proxy will be voted. With respect to all non-routine proposals
and shareholder proposals, if a decision is made to consider voting in a
manner other than that recommended by management, the analyst/portfolio
manager will make a recommendation to a committee comprised of all investment
analysts and portfolio managers (the "Proxy Voting Committee") as to how to
vote the proxy and the Proxy Voting Committee will make the final
determination as to how to vote the proxy in the best economic interests of
the client.
If Fenimore determines that voting a particular proxy would create material
conflict of interests between its interests or the interests of any
affiliated parties and the interests of the Trust, Fenimore will either (i)
disclose such conflict of interest to the Corporate Governance Committee of
the Board of Trustees and obtain the consent of the committee before voting
the proxy (ii) vote such proxy based upon the recommendations of an
independent third party such as a proxy voting service; or (iii) delegate the
responsibility for voting the particular proxy to the Corporate Governance
Committee of the Board of Trustees.
Information on how each of the Funds voted proxies relating to portfolio
securities during each twelve-month period ended June 30th is filed with the
SEC on Form N-PX. This proxy voting information for the Funds as presented on
Form N-PX is available: (1) without charge, upon request by calling the Funds
at 800-932-3271; (2) on the Funds' website at http://www.famfunds.com, and
(3) on the SEC's website at http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL SECURITY HOLDERS
As of April 4, 2007, the following entities owned beneficially or of record,
for their own account or the accounts of their customers, more than 5% of the
outstanding Advisor Class shares of the Funds, as indicated:
12
NAME AND ADDRESS PERCENT OF
NAME OF FUND OF BENEFICIAL OWNER CLASS
--------------------------------------------------------------------------------
FAM Value Fund Pershing* 86.79%
One Pershing Plaza
Jersey City, NJ 07339
FAM Equity-Income Fund Pershing* 91.57%
One Pershing Plaza
Jersey City, NJ 07339
* A party holding in excess of 25% of the outstanding voting securities of
a Fund may be deemed to control the Fund based on the substantial
ownership interest held and the party's resultant ability to influence
voting on certain matters submitted to shareholders for their
consideration and approval.
PRINCIPAL UNDERWRITER
Fenimore Securities, Inc. (the "Distributor") serves as distributor of the
shares of each Fund. In this capacity it receives purchase orders and
redemption requests relating to Fund shares. The Distributor is located at
384 North Grand Street, Cobleskill, New York 12043 and is an affiliate of
Fenimore Asset Management, Inc., the investment adviser to the Funds. Thomas
O. Putnam is the majority shareholder of Fenimore Asset Management, Inc.
and the sole shareholder of Fenimore Securities, Inc.
SERVICE AND DISTRIBUTION PLAN
The Funds have adopted a Service and Distribution Plan for the Advisor Class
shares of each Fund (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
under which each Fund is authorized to compensate the Distributor for
payments it makes to banks, other institutions and broker-dealers, and for
expenses the Distributor and any of its affiliates or subsidiaries incur
(with all of the foregoing organizations being referred to as "Service
Organizations") for providing administration, distribution or shareholder
service assistance with respect to the Advisor Class and Advisor Class
shareholders. Payments to such Service Organizations may be made pursuant to
agreements entered into with the Distributor. Distribution and servicing
costs and expenses payable under the Plan may include: (1) printing and
advertising expenses; (2) payments to employees or agents of the Distributor
who engage in or support distribution of each Fund's Advisor Class shares,
including salary, commissions, travel and related expenses; (3) the costs of
preparing, printing and distributing prospectuses and reports to prospective
Advisor Class investors; (4) expenses of organizing and conducting sales
seminars with respect to Advisor Class shares; (5) expenses related to
selling and servicing efforts, including processing new Advisor Class account
applications, transmitting customer transaction information to the Funds'
shareholder servicing agent and answering questions of shareholders; (6)
payments of fees to one or more broker-dealers (which may include the
Distributor itself), financial institutions or other industry professionals,
such as investment advisers, accountants and estate planning firms
(severally, a "Service Organization"), based on the average daily value of
each Fund's Advisor Class shares owned by shareholders for whom the Service
Organization is the dealer of record or holder of record, or owned by
shareholders with whom the Service Organization has a servicing relationship;
(7) costs and expenses incurred in implementing and operating the Plan; and
(8) such other similar services as the Board of Trustees determines to be
reasonably calculated to result in the sale of Advisor Class shares.
13
The Plan authorizes the Funds to make payments to the Distributor in amounts
not to exceed, on an annual basis 1.00% of the average daily net assets of
the Advisor Class shares of each Fund. Of the 1.00% each Fund is authorized
to pay a Shareholder Service Fee of up to 0.25% of its average daily net
assets. As required by Rule 12b-1, the Plan was initially approved by the
Board of Trustees, including a majority of the Trustees who are not
interested persons of the Funds and who have no direct or indirect financial
interest in the operation of the Plan ("Independent Trustees"). The Plan may
be terminated with respect to the Advisor Class by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding Shares of
the Advisor Class. The Trustees review quarterly a written report of such
costs and the purposes for which such costs have been incurred. The Plan may
be amended by vote of the Trustees including a majority of the Independent
Trustees, cast in person at a meeting called for that purpose. However, any
change in the Plan that would materially increase the distribution cost to
the Advisor Class requires approval by a majority of the shareholders of that
Class. For so long as the Plan is in effect, selection and nomination of the
Independent Trustees shall be committed to the discretion of such Independent
Trustees. All agreements with any person relating to the implementation of
the Plan may be terminated at any time on 60 days' written notice without
payment of any penalty, by vote of a majority of the Independent Trustees or,
with respect to a Class, by vote of a majority of the outstanding Shares of
that Class. The Plan will continue in effect with respect to the Advisor
Class shares for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees, and (ii) by the vote of a majority of the entire Board
of Trustees cast in person at a meeting called for that purpose. The Board of
Trustees has a duty to request and evaluate such information as may be
reasonably necessary for it to make an informed determination of whether the
Plan should be implemented or continued. In addition, with respect to the
Advisor Class, the Trustees, in approving the Plan, determined that there is
a reasonable likelihood that the Plan will benefit the Advisor Class
Shareholders. The Board of Trustees believes that the Plan is in the best
interests of the Advisor Class of the Funds since it encourages Fund growth.
For the fiscal year ended December 31, 2006, FAM Value Fund paid distribution
fees of $82,329, all of which was paid by the Distributor to Service
Organizations having servicing arrangements in place with the Funds and FAM
Equity-Income Fund paid distribution fees of $43,952, all of which was paid
by the Distributor to Service Organizations having servicing arrangements in
place with the Funds.
OTHER SERVICE PROVIDERS
CUSTODIAN. U.S. Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, serves
as custodian for the Funds.
SHAREHOLDER SERVICES AGENT, FUND ACCOUNTING AGENT AND FUND ADMINISTRATIVE
AGENT; TRANSFER AGENT. FAM Shareholder Services, Inc., 384 North Grand
Street, Cobleskill, New York 12043, an affiliate of the Advisor, serves as
shareholder services agent, fund accounting agent and fund administrator for
the Funds. The Trust is registered as a transfer agent with the U.S.
Securities and Exchange Commission and acts as transfer agent for its own
shares of beneficial interest.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. PricewaterhouseCoopers LLP,
300 Madison Avenue, New York, NY 10017, serves as the Funds' independent
registered public accounting firm.
FUND COUNSEL. Dechert LLP, 1775 I Street, N.W., Washington, D.C. 20006,
serves as legal counsel to the Trust.
14
INFORMATION ABOUT THE TRUST
The Trust, which is organized as a Massachusetts business trust, was
established on June 18, 1986. The Trust's Declaration of Trust authorizes the
Board of Trustees to issue an unlimited number of shares of beneficial
interest in the Trust and to divide the interests in the Trust into one or
more series of shares. The Trust currently consists of the two series of
shares and each series of shares consists of two separate classes, the
Investor Class Shares and the Advisor Class Shares. The Declaration of Trust
is on file with the Secretary of the Commonwealth of Massachusetts.
BROKERAGE ALLOCATIONS
It is Fenimore's policy to allocate brokerage business to the best advantage
and benefit of a Fund's shareholders. All securities transactions are made so
as to obtain the most efficient execution at the lowest transaction cost.
Nothing in this policy, however, is to be construed to prohibit Fenimore from
allocating transactions to firms whose brokerage charges may include the cost
of providing investment advisory or research or other legally permitted
services which Fenimore deems to be necessary and/or valuable to the
successful management of its assets. Each buy or sell order will be placed
according to the type, size and kind of order involved and as each condition
may demand, so as to attempt to secure the best result for Fenimore and Fund
shareholders, all factors considered. For the fiscal years ending December
31, 2006, 2005, and 2004, respectively, aggregate commissions paid totaled
$281,381, $297,147, and $194,601 for FAM Value Fund. With respect to FAM
Equity-Income, for the fiscal years ending December 31, 2006, 2005, and 2004,
respectively, the aggregate commissions paid totaled $81,708, $64,462, and
$55,138. No commissions were paid by either Fund to any affiliated parties.
NET ASSET VALUE CALCULATION
The net asset value per share is computed by dividing the aggregate market
value of a Fund's assets daily, less its liabilities, by the number of
portfolio shares outstanding. Portfolio securities are valued and net asset
value per share is determined as of the close of business on the New York
Stock Exchange ("NYSE"), which currently is 4:00 p.m. (New York City time),
on each day the New York Stock Exchange is open and on any other day in which
there is a sufficient degree of trading in Fund portfolio securities that the
current net asset value per share might be materially affected by changes in
portfolio securities values. NYSE trading is closed weekends and holidays,
which are listed as New Years Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving,
and Christmas.
Portfolio securities listed on an organized exchange are valued on the basis
of the last sale on the date the valuation is made. Securities that are not
traded on that day, and for which market quotations are otherwise readily
available, and over-the-counter securities for which market quotations are
readily available, are valued on the basis of the bid price at the close of
business on that date. Securities and other assets for which market
quotations are not readily available or have not traded are valued at fair
value as determined by procedures established by the Board of Trustees.
Notwithstanding the above, bonds and other fixed-income securities may be
valued on the basis of prices determined by procedures established by the
Board of Trustees if it is the belief of the Board of Trustees that such
price determination more fairly reflects the fair value of such securities.
Money market instruments are valued at amortized cost which approximates
market value unless the Board of Trustees determines that such is not a fair
value.
The sale of shares of the Funds will be suspended during periods when the
determination of its net asset value is suspended pursuant to rules or orders
of the Securities and Exchange Commission, or may be suspended by the Board
of Trustees whenever in its sole judgment it believes it is in the best
interest of shareholders to do so.
15
PERFORMANCE INFORMATION
The Funds may, from time to time, include their total return in
advertisements or reports to Shareholders or prospective investors.
Quotations of average annual total return for each Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of one, five and ten years (up to the
life of the Fund) calculated pursuant to the following formula: P(1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years, and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period).
Quotations of average annual total return after taxes on distributions for
each Fund will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Fund over periods of one, five and
ten years (up to the life of the Fund) calculated pursuant to the following
formula: P(1 + T)n = ATVD (where P = a hypothetical initial payment of
$1,000, T = the average annual total return, n = the number of years, and
ATDV = ending value of a hypothetical $1,000 payment made at the beginning of
the 1, 5 or 10 year periods (or fractional portion), after taxes on fund
distributions but not after taxes on redemptions.
Quotations of average annual total return after taxes on distributions and
redemptions for each Fund will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund over
periods of one, five and ten years (up to the life of the fund) calculated
pursuant to the following formula: P(1 + T)n = ATVDR (where P = a
hypothetical initial payment of $1,000, T = the average annual total return,
n= the number of years, and ATVDR = ending value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year periods (or fractional
portion), after taxes on fund distributions and redemption.
All total return figures reflect the deduction of a proportional share of
Fund expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid.
Quotations of yield for a Fund will be computed by dividing the net
investment income per share earned by the Fund during a 30-day period by the
maximum offering price per share on the last day of the period, according to
the following formula:
Yield = 2[(a-b+1)6-1]
--
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding during the period
that were entitled to receive dividends.
d = maximum offering price per Share on the last day of the period.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Russell 2000 Index, the Standard & Poor's
500 Stock Index, the Dow Jones Industrial Average, or other unmanaged indices
so that investors may compare Fund results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
market in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets or
tracked by other services, companies, publications, or persons who rank
mutual funds on overall performance or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
16
Performance information for the Funds reflect only the performance of a
hypothetical investment in the Funds during the particular time period on
which the calculation is based. Performance information should be considered
in light of each Fund's investment objective and policies, characteristics
and quality of the portfolio and the market conditions during the given time
period, and should not be considered as a representation of what may be
achieved in the future.
FINANCIAL STATEMENTS
The Financial Statements of the Advisor Class shares of each Fund are
included in the 2006 Annual Report to Shareholders and are incorporated by
reference into this Statement of Additional Information. Copies of the
Financial Statements may be obtained upon request and without charge from the
Funds at the address and telephone provided on the cover of this Statement of
Additional Information.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in
light of their particular circumstances. This discussion is based upon
present provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and
administrative ruling authorities, all of which are subject to change, which
change may be retroactive. Prospective investors should consult their own tax
advisors with regard to the federal tax consequences of the purchase,
ownership, or disposition of Fund shares, as well as state, local and foreign
tax consequences.
TAX STATUS OF THE FUNDS
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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 certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income 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 value of the
Fund's total assets is represented by cash and cash items, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities limited, in respect of any one issuer,
to an amount not greater than 5% of the value of the Fund's total 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 the securities of
any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies).
As a regulated investment company, a Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders,
if at least 90% of the Fund's investment company taxable income (which
includes, among other items, dividends, interest and the excess of any net
short-term capital gains over net long-term capital losses) for the taxable
year is distributed. Each Fund intends to distribute substantially all of
such income.
17
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (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 a one-year period generally 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. To
avoid application of the excise tax, each Fund intends to make distributions
in accordance with the calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a calendar year if
it is declared by a Fund in October, November or December of that year with a
record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
FUND INVESTMENTS
Certain debt securities acquired by a Fund may be treated as debt securities
that were originally issued at a discount. Very generally, original issue
discount is defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash
income on account of such discount is actually received by a Fund, original
issue discount that accrues on a debt security in a given year generally is
treated for federal income tax purposes as interest and, therefore, such
income would be subject to the regulated investment company distribution
requirement. Some debt securities may be purchased by a Fund at a discount
that exceeds the original issue discount on such debt securities, if any;
this additional discount represents market discount for federal income tax
purposes.
If a Fund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is "market discount". The Fund may be required
to include a portion of such market discount as ordinary income in each
taxable year in which the Fund owns an interest in the debt security and
receives a principal payment on it. The Fund may be required to allocate the
principal payment first to the portion of the market discount on the debt
security that has accrued but has not previously been includable in income.
In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment
with respect to such period. Generally, market discount accrues on a daily
basis for each day the debt security is held by the Fund at a constant rate
over the time remaining to the debt security's maturity or, at the election
of the Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest. Gain realized on the disposition of a
market discount obligation must be recognized as ordinary income (not capital
gain) to the extent of the "accrued market discount."
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
shareholder, whether paid in cash or reinvested in Fund shares. Dividends
paid by a Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce
the value of the dividends received deduction. Tax legislation enacted in
2003 generally provides for a maximum tax rate for individual taxpayers of
15% on distributions of capital gains and of certain qualifying dividends on
corporate stock. These rate reductions do not apply to corporate taxpayers.
18
Distributions of earnings from dividends paid by certain "qualified foreign
corporations" can also qualify for the lower tax rates on qualifying
dividends. A shareholder will also have to satisfy a more than 60 day holding
period for the Fund shares with respect to any distributions of qualifying
dividends in order to obtain the benefit of the lower tax rate. Distributions
of earnings from non-qualifying dividends, interest income, other types of
ordinary income and short-term capital gains will be taxed at the ordinary
income tax rate applicable to the taxpayer.
The excess of net long-term capital gains over the short-term capital losses
realized and distributed by a Fund, whether paid in cash or reinvested in
Fund shares, will generally be taxable to shareholders as long-term capital
gain, regardless of how long a shareholder has held Fund shares.
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.
DISPOSITIONS
Upon a redemption or sale of Fund shares, a shareholder will realize a
taxable gain or loss depending upon his or her basis in the shares. A gain or
loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands, and the rate of tax will depend 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. If a shareholder holds Fund
shares for six months or less and during that period receives a distribution
taxable to the shareholder as long-term capital gain, any loss realized on
the sale of such shares during such six-month period would be a long-term
capital loss to the extent of such distribution.
DISCLOSURE OF FUND PORTFOLIO HOLDINGS
The Board of Trustees has adopted policies and procedures for the public and
nonpublic disclosure of each Fund's portfolio securities. On a quarterly
basis, the Funds disclose on the Trust's website, www.famfunds.com, each
Fund's entire portfolio holdings, including a description of each security
and the percentage such security represents of the Fund's net asset value as
of that date and certain additional information regarding their portfolios
(e.g., top-10 holdings, asset allocation, sector breakdown). The information
will generally be available no earlier than the 10th business day following
the quarter-end and shall remain on the website until the next quarter's
information is made publicly available. A complete list of the Funds'
portfolio holdings is also publicly available on a quarterly basis through
filings made with the SEC on Forms N-CSR and N-Q. As a general matter, no
information concerning the portfolio holdings of the Funds may be disclosed
to any unaffiliated third party except (1) to service providers that require
such information in the course of performing their duties (such as the Funds'
custodian, fund accountants, investment adviser, administrator, independent
public accountants, attorneys, officers and trustees and each of their
respective affiliates and advisors) and are subject to a duty of
confidentiality, and (2) pursuant to certain enumerated exceptions that serve
a legitimate business purpose. These exceptions include: (1) disclosure of
portfolio holdings only after such information has been publicly disclosed,
as provided in the previous paragraph, and (2) to third-party vendors,
currently consisting of Morningstar Investment Services, Inc. and Lipper
Analytical Services that (a) agree to not distribute the portfolio holdings
or results of the analysis to third parties, other departments or persons who
are likely to use the information for purposes of purchasing or selling the
Funds before the portfolio holdings or results of the analysis become
publicly available; and (b) sign a written confidentiality agreement. The
confidentiality agreement must provide, among other things, that the
recipient of the portfolio holdings information agrees to limit access to the
portfolio information to its employees (and agents) who, on a need to know
basis, are (1) authorized to have access to the portfolio holdings
information and (2) subject to confidentiality obligations, including duties
not to trade on non-public information, no less restrictive than the
confidentiality obligations contained in the confidentiality agreement.
19
Whenever portfolio holdings disclosure made pursuant to these procedures
involves a conflict of interest between the Funds' shareholders and the
Funds' Adviser, Distributor or any affiliated person of the Fund, the
disclosure may not be made unless a majority of the Trust's Independent
Trustees or a majority of a board committee consisting solely of Independent
Trustees approves such disclosure. Neither the Funds nor the Adviser may
enter into any arrangement providing for the disclosure of non-public
portfolio holding information for the receipt of compensation or benefit of
any kind.
Any exceptions to the policies and procedures may only be made by
the consent of the Trust's chief compliance officer upon a determination that
such disclosure serves a legitimate business purpose and is in the best
interests of the Funds and will be reported to the Board at the Board's next
regularly scheduled meeting. Any amendments to the Trust's policies and
procedures must be approved and adopted by the Trust's Board of Trustees.
20
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Declaration of Trust*
(b) By-Laws*
(c) Not Applicable
(d)(1) Investment Advisory Agreement between Registrant
and Fenimore Asset Management, Inc. with respect to
FAM Value Fund*
(2) Investment Advisory Agreement between Registrant
and Fenimore Asset Management, Inc. with respect to
FAM Equity-Income Fund*
(e) Distribution Agreement*
(f) Not Applicable
(g) Custodian Agreement between Registrant and Firstar Bank,
N.A.*
(h)(1) Shareholder Services Agreement*
(2) Fund Accounting and Administrative Services Agreement*
(i) Not Applicable
(j) Consent of PricewaterhouseCoopers LLP (filed herewith)
(k) Not Applicable
(l) Not Applicable
(m)(1) Distribution and Service Plan*
(m)(2) Dealer Agreement*
(n) Rule 18f-3 Plan*
(p) Code of Ethics*
* Filed previously and incorporated by reference herein.
C-1
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
ITEM 25. INDEMNIFICATION
Reference is made to Article IV, Section 4.3, of the Registrant's Declaration
of Trust.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and, therefore, is unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by trustees, officers or
controlling persons of the Registrant in connection with the successful
defense of any act, suit or proceeding) is asserted by such trustees,
officers or controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Fenimore Asset Management, Inc. serves as the investment adviser for the
Registrant. The business and other connections of Fenimore Asset Management,
Inc. are set forth in the Uniform Application for Investment Adviser
Registration ("Form ADV") of Fenimore Asset Management, Inc. (801-10429) as
currently filed with the SEC which is incorporated by reference herein.
ITEM 27. PRINCIPAL UNDERWRITER
Fenimore Securities, Inc. serves as principal underwriter for the
Registrant and is located at 384 North Grand Street, Cobleskill,
New York 12043. The Registrant is the only entity for which
Fenimore Securities, Inc.serves as principal underwriter.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books, and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and rules promulgated thereunder are in the possession of Fenimore Asset
Management, Inc., and FAM Shareholder Services, Inc., 384 North Grand Street,
Cobleskill, New York 12043.
C-2
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
None.
C-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Washington in the District of
Columbia, on this 1st day of May 2007.
FENIMORE ASSET MANAGEMENT TRUST
By: /s/ Thomas O. Putnam
--------------------
Thomas O. Putnam, President*
By: /s/ Patrick W.D. Turley
-----------------------
Patrick W.D. Turley, as attorney in fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the date indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas O. Putnam
-------------------- President and Trustee May 1, 2007
Thomas O. Putnam* (Principal Executive Officer)
/s/ Fred Lager Trustee May 1, 2007
--------------
Fred Lager**
/s/ John McCormack Trustee and Chairman of the May 1, 2007
------------------ Board of Trustees
John McCormack***
/s/ Kevin J. McCoy Trustee May 1, 2007
------------------
Kevin J. McCoy****
/s/ C. Richard Pogue Trustee May 1, 2007
--------------------
C. Richard Pogue*****
/s/ Barbara Weidlich Trustee May 1, 2007
--------------------
Barbara Weidlich***
/s/ Joseph A. Bucci Treasurer (Principal Financial May 1, 2007
------------------- and Accounting Officer)
Joseph A. Bucci*****
C-4
By: /s/ Patrick W.D. Turley
-----------------------
Patrick W.D. Turley
as attorney-in-fact
* Pursuant to power of attorney filed with Post-Effective Amendment
No. 12 as filed on April 29, 1994.
** Pursuant to power of attorney filed with Post-Effective Amendment
No. 22 as filed on May 1, 1998.
*** Pursuant to power of attorney filed with Post-Effective Amendment
No. 32 as filed on April 29, 2004.
**** Pursuant to power of attorney filed herewith.
***** Pursuant to power of attorney filed with Post-Effective Amendment
No. 26 as filed on May 1, 2002.
C-5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Joseph A. Bucci, Charles Richter, Patrick W.D. Turley, David J.
Harris and Cynthia D. Baughman, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and
re-substitution for him in his name, place and stead, to sign any and all
registration statements applicable to Fenimore Asset Management Trust and any
amendments or supplements thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, or the securities administrator of any jurisdiction,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in-person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or
his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: March 9, 2007 /s/ Kevin J. McCoy
------------------
Kevin J. McCoy
C-6
Exhibit List
(j) Consent of PricewaterhouseCoopers LLP
C-7