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BURRIDGE CAPITAL DEVELOPMENT FUND
115 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(888) BURRIDGE
(1-888-287-7434)
December 30, 1996
BURRIDGE CAPITAL DEVELOPMENT FUND (THE "FUND"), a series of Burridge Funds
(the "Trust"), invests for long-term capital appreciation. The Fund attempts to
generate long-term capital appreciation and is managed in a tax-sensitive
manner. The Fund purchases common stocks believed to have superior earnings
growth potential and attempts to maximize long-term and unrealized capital gains
in producing investment returns.
THE FUND is a "no-load" fund. There are no sales or redemption charges,
and there are no "12b-1" fees.
This Prospectus is a concise statement of information you should know
before investing. Please retain it for future reference.
A Statement of Additional Information regarding the Fund dated the date of
this Prospectus has been filed with the Securities and Exchange Commission and
(together with any supplement to it) is incorporated in this Prospectus by
reference. The Statement of Additional Information may be obtained without
charge by calling or writing the Trust at the telephone numbers or address shown
above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
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HIGHLIGHTS....................................................................1
EXPENSE INFORMATION...........................................................3
INVESTMENT OBJECTIVE AND POLICIES.............................................5
INVESTMENT PROCESS............................................................5
RISKS.........................................................................7
INVESTMENT RESTRICTIONS.......................................................7
PURCHASING SHARES.............................................................8
REDEEMING SHARES..............................................................9
NET ASSET VALUE..............................................................11
SHAREHOLDER SERVICES.........................................................11
Shareholder Accounts.....................................................11
IRA Plan for Rollover Accounts...........................................11
DIVIDENDS AND DISTRIBUTIONS..................................................11
TAXES........................................................................12
MANAGEMENT OF THE FUND.......................................................12
The Trustees.............................................................12
The Adviser..............................................................13
Administrator, Custodian and Transfer Agent..............................15
Distributor..............................................................15
Portfolio Transactions...................................................15
Performance..............................................................15
FUND AND ITS SHARES..........................................................16
Shares...................................................................16
Voting Rights............................................................16
Shareholder Inquiries....................................................16
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HIGHLIGHTS
Burridge Capital Development Fund (the "Fund") is a series of Burridge
Funds (the "Trust"). The Fund is a "no-load" fund. There are no sales or
redemption charges, and no 12b-1 fees.
INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is long-term
capital appreciation. The Fund focuses on
after-tax investment returns for its
shareholders. The Fund employs a growth-
oriented investment approach to create a
diversified portfolio of medium and large
capitalization common stocks. The Adviser
believes that long-term capital appreciation
can be achieved by purchasing stocks of
companies with superior operating
fundamentals relative to its industry group
and the broad market, at attractive levels.
In managing the Fund, the Adviser analyzes
the tax consequences of position changes to
the Fund and its shareholders subject to
federal income tax. The Adviser attempts to
maximize long-term capital gains and
unrealized capital gains, and minimize
short-term capital gains and ordinary
income, as components of the Fund's
investment returns. See "Investment
Objective and Policies."
INVESTMENT RISKS The Fund's performance and price per share
will change daily based on many factors,
including general economic and market
conditions and the performance of individual
stocks selected for the Fund's portfolio.
The Fund is intended as a long-term
investment for investors willing to bear the
volatility inherent in any investment in
common stocks. There can be no assurance
that the Fund will achieve its investment
objective.
MINIMUM PURCHASE $500,000 for initial investments and $10,000
for subsequent investments. Some exceptions
apply. See "Purchasing Shares."
DIVIDENDS AND CAPITAL GAINS Income dividends and capital gains, if any,
are distributed at least annually.
Distributions are automatically reinvested
in additional shares at net asset value
unless payment in cash is requested. See
"Dividends and Distributions."
REDEMPTION PRICE Current net asset value, without charge. See
"Redeeming Shares."
INVESTMENT ADVISER The Burridge Group Inc. (the "Adviser") is
investment adviser to the Fund. The Adviser
managed over $1.3 billion in assets as of
October 31, 1996. See "Management of the
Fund--The Adviser."
EXPENSES The Fund pays its own operating expenses,
including a management fee to the Adviser
of
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1.00% of the Fund's average daily net
assets. The Adviser has undertaken to
reimburse the Fund for any ordinary costs
and expenses of the Fund in excess of 1.50%
of the average net assets annually. See
"Management of the Fund--The Adviser."
DISTRIBUTOR Funds Distributor, Inc.
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EXPENSE INFORMATION
The Fund expects to incur the following expenses:
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price).................................................. none
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price).................................... none
Deferred Sales Load................................................ none
Redemption Fees (1)................................................ none
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (2)................................................ 1.00%
12b-1 Fees......................................................... none
Other Expenses (after expense reimbursement)....................... .50%
Total Operating Expenses
(after expense reimbursement).................................... 1.50%
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(1) The Fund does not charge a redemption fee. A wire transfer fee (currently
$10) is required to have the proceeds of a redemption paid to you by wire
transfer.
(2) The Adviser has undertaken to reimburse the Fund to the extent its ordinary
operating expenses exceed 1.50% of the Fund's average net assets annually.
Without the Adviser's expense limitation, Other Expenses would be
estimated to be 2.35% and Total Operating Expenses would then be 3.35%.
See "Management of the Fund--The Adviser" in this Prospectus for more
information.
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear, directly or
indirectly. The estimate of "Other Expenses" is based on the estimated expenses
the Fund expects to incur during its current fiscal year, taking into account
the Adviser's voluntary expense limitation.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and expenses as shown in the "Annual Operating Expenses" table
above and (2) redemption at the end of each time period for the Fund:
1 year.................................. $15
3 years................................. $48
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This example illustrates the effect of expenses, but is not meant to
suggest actual PAST OR FUTURE EXPENSES or returns, all of which may be more or
less than those shown in the example.
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital appreciation. The
Fund focuses on after-tax investment returns for its shareholders. The Fund
employs a growth-oriented investment approach to create a diversified portfolio
of medium and large capitalization common stocks. The Adviser believes that
long-term capital appreciation can be achieved by purchasing stocks of companies
with superior operating fundamentals relative to its industry group and the
broad market, at attractive levels. In managing the Fund, the Adviser analyzes
the tax consequences of position changes to the Fund and its shareholders
subject to federal income tax. The Adviser attempts to maximize long-term
capital gains and unrealized capital gains, and minimize short-term capital
gains and ordinary income, as components of the Fund's investment returns.
Under normal market conditions, the Fund expects to be substantially fully
invested in common stocks of medium and large growth companies generally having
a market capitalization in excess of $1 billion.
INVESTMENT PROCESS
The Adviser uses a disciplined investment process in managing the Fund's
portfolio. The first step is the identification of those companies exhibiting
superior operating characteristics and fundamentals which the Adviser believes
are important to potential above average and sustainable earnings growth. Among
other things, the Adviser looks for:
. historic long-term earnings growth of 15% or more for medium-sized
companies and 12% or more for large-sized companies and projected long-
term earnings growth of 15% or more for all companies;
. a focus in one business segment;
. an increasing market share versus industry competition;
. stable or increasing margins versus industry competition;
. a strong balance sheet relative to its industry group as measured by the
ratio of debt to capital; and
. a proven and effective management team.
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In conducting disciplined fundamental research, the investment team focuses on
industry fundamentals, a company's products or services, its revenue growth
prospects, its costs and margins and the strategic business plan of management.
As a long-term investor, the Adviser believes personal visits with senior
management are an important element of its fundamental research and security
valuation. Through this research process, the Adviser projects quarterly and
annual earnings growth for those companies being considered for purchase and
those held by the Fund.
Although investing in companies with superior earnings growth is important,
the Adviser applies a valuation discipline in order to eliminate those
securities that may be overvalued. The key valuation discipline used by the
Adviser is based on projected long-term earnings growth and price/earnings
ratios.
The Fund's portfolio generally consists of investments in approximately 20
to 50 companies, based on a "bottom-up" approach where individual companies meet
the operating characteristics outlined above and the Fund's valuation
discipline. In order to insure broad diversification and control risk in the
Fund's portfolio, the Fund maintains representation in most economic sectors.
Investments are made in sectors and industry groups in which the greatest
earnings growth is found at the most attractive prices.
The Fund is managed with a focus on after-tax returns and attempts to
maximize long-term capital gains and unrealized capital gains as components of
investment return. The Fund invests in stocks which pay below average dividends
and under normal market conditions expects its portfolio turnover rate to be
below 50%, to minimize the amount of ordinary income and short-term capital
gains created for shareholders. A decision to sell a portfolio security is based
on, among other things, a company's long-term prospects for continued earnings
growth relative to its stock's price/earnings ratio and the tax effect of the
sale. The Adviser expects to offset realized capital gains by selling stocks in
which the Fund has a loss, to the extent losses are available and the sale of
the security would be consistent with prudent portfolio management.
The Fund may sell short securities the Fund owns or has the right to
acquire without further consideration, a technique called selling short "against
the box." Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not want to sell
the security. The Fund may also invest in convertible securities, options and
futures to a limited extent. For a more complete explanation, please refer to
the Statement of Additional Information. The Fund may invest up to 10% of its
total assets in American Depository Receipts (ADRs), which are securities traded
in the United States but representing interests in foreign securities. A portion
of the Fund's assets (not ordinarily expected to exceed about 5% of the Fund's
total assets) may be held from time to time in cash or cash equivalents
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pending investment or to meet cash requirements. Up to 100% of the fund's
assets may be held in cash or cash equivalents under abnormal market or economic
conditions if the Adviser determines that a temporary defensive position is
advisable. Because the Fund tries to minimize ordinary income subject to income
tax, cash equivalents held by the Fund may include high-quality, short-term
municipal securities producing income exempt from federal income tax.
RISKS
The Fund's performance and price per share will change daily based on many
factors, including general economic and market conditions and the performance of
individual stocks selected for the Fund's portfolio. The Fund is intended as a
long-term investment for investors willing to bear the volatility inherent in
any investment in common stocks. The Fund's intention is to maximize after-tax
returns for investors subject to income tax. An investor not subject to federal
income tax may invest in the Fund, but should consider whether an investment as
sensitive to tax consequences as the Fund is appropriate. There can be no
assurance that the Fund will achieve its investment objective.
Stocks of medium-sized companies tend to be more volatile and less liquid
than stocks of larger companies. Medium-sized companies, as compared to larger
companies, may have a shorter history of operations, may have a less diversified
product line making them susceptible to market pressure, and may have a smaller
public market for their securities.
Investment in ADRs representing foreign securities may represent a greater
degree of risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of assets) than
investment in securities of domestic issuers. Other risks of investing in ADRs
include less complete financial information on issuers of the underlying
securities, less developed and regulated markets, and greater political
instability.
The Fund's investment objective and policies may be changed by the Trust's
board of trustees without shareholder approval. However, shareholder approval is
required for changes in the Fund's fundamental investment restrictions. Any
change in the investment objective of the Fund might result in the Fund having
an investment objective that differs from the investment objective a shareholder
considered appropriate when investing.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions, among others,
that may be changed only with the approval of a majority of the outstanding
shares of the Fund as defined in the Investment Company Act of 1940. The Fund
may not: (1) with respect to 75% of its total assets, invest more than 5% of its
total assets (taken at market value at the time of a particular purchase) in the
securities of any single issuer, except for securities issued or guaranteed by
the Government of the U.S. or any of its agencies or instrumentalities or
repurchase agreements for such securities; (2) acquire more than 10% (taken at
the time of a particular purchase) of the outstanding voting securities of any
one issuer; or (3) invest in a security if 25% or more of its total assets
(taken at market value at the time of a particular purchase) would be invested
in the securities of issuers in a single industry, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
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All of the investment restrictions of the Fund are stated in the Statement of
Additional Information.
PURCHASING SHARES
Shares of the Fund may be purchased by completing a share purchase
application and forwarding it, together with a check for the investment,
directly to the Fund c/o Firstar Trust Company, P.O. Box 701, Milwaukee, WI
53201. The transfer agent is unable to accept third party checks both on initial
and subsequent share purchases.
DO NOT mail letters by overnight courier to the Post Office Box address.
Correspondence mailed by overnight courier should be sent to Firstar Trust
Company, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
To establish a new account by wire please first call Firstar at 1-888-287-
7434 to advise it of the investment and dollar amount. This will ensure proper
and accurate handling of your investment. A completed share purchase application
form must also be sent to Firstar at the address above immediately after your
investment is made so that the necessary remaining information can be recorded
to your account. Your purchase request should be wired through the Federal
Reserve Bank as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
ABA Number 075000022
For credit to Firstar Trust M.P.S.
Account Number 112-952-137
For further credit to Burridge Capital Development Fund
(Your account name and account number)
If you have authorized telephone transaction privileges in your
application, you may also make purchases by calling toll free 1-888-287-7434. By
using a telephone purchase option you may move money from your bank account to
your Fund account at your request. Only bank accounts held at domestic financial
institutions that are Automated Clearing House (ACH) members may be used for
telephone transactions. To have shares of the Fund purchased at the net asset
value determined as of the close of regular trading on a given date, Firstar
must receive both the purchase order and payment by Electronic Funds Transfer
through the ACH system before the close of regular trading on such date. Most
transfers are completed within three business days. You may not use telephonic
transactions for initial purchases. The minimum amount that can be transferred
by telephone is $10,000.
The purchase price of shares in the Fund is the net asset value per share
next computed after receipt by Firstar, as agent for the Fund, of an order
completed in accordance with the instructions on the account application. Your
order must be received by Firstar before the close of regular session trading on
the New York Stock Exchange ("NYSE") (currently 3:00 p.m.,
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Chicago time) to receive the net asset value calculated on that day. See "Net
Asset Value." All purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks. The minimum initial investment to open an account is
$500,000, and subsequent investments must be at least $10,000. Exceptions to the
minimum investment requirements may be made at the discretion of the Adviser
including, without limitation, for employees of the Adviser or investors who
are, or are related to, clients of the Adviser.
You may also purchase (or redeem) shares through investment dealers or
other institutions. Certain institutions that have entered into agreements with
the Fund or its Distributor may enter confirmed purchase orders or redemption
requests on behalf of customers on an expedited basis, including orders by
phone, with payment to follow no later than the time when the fund is priced on
the following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses. These
institutions may impose charges for their services, and those charges could
constitute a significant portion of a smaller account. There are no charges or
limitations imposed by the Fund (other than nominal charges for returned checks,
and similar items, as described in this Prospectus) if shares are purchased (or
redeemed) by mailing your purchase application and payment for shares directly
to Firstar as described in this prospectus.
The Fund reserves the right to reject purchase orders under circumstances
or in amounts considered disadvantageous to existing shareholders. The Fund
believes that frequent purchases and redemptions of Fund shares by investors
utilizing market-timing strategies would adversely affect the Fund. The Fund
therefore intends to reject purchase orders from investors identified by the
Fund as market-timers. Should an order to purchase shares of the Fund be
canceled because a shareholder's check does not clear, the shareholder will be
responsible for any resulting loss incurred by the Fund. A charge (currently
$20) will be assessed for any returned check.
The Fund does not issue share certificates.
REDEEMING SHARES
You may redeem your Fund's shares at the net asset value next determined
after the request is received by Firstar, as agent for the Fund, in writing or
by telephone. Telephone redemptions are limited to $50,000. Your redemption
request in proper form must be received by Firstar before the close of regular
session trading on the New York Stock Exchange ("NYSE") (currently 3:00 p.m.,
Chicago time) to receive the net asset value calculated on that day. See "Net
Asset Value."
To redeem shares in writing, a written request must be received by Firstar.
A written request for redemption must be signed by all persons in whose names
the shares are registered. Redemption requests received by facsimile
transmission or other electronic means will not be accepted. Signatures must
conform exactly to the account registration.
9
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DO NOT mail letters by overnight courier to the Post Office Box address.
Correspondence mailed by overnight courier should be sent to Firstar Trust
Company, Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
A signature guarantee is required on the written redemption request if (i)
the redemption proceeds are to be sent to a bank or brokerage account not
previously authorized by the shareholder in accordance with the instructions on
the account application, (ii) the proceeds of the requested redemption would be
more than $50,000, or (iii) THE ADDRESS OF RECORD HAS CHANGED WITHIN THE LAST 60
DAYS. The guarantor must be a bank, member firm of a national securities
exchange, savings and loan association, credit union or other entity authorized
by state law to guarantee signatures. A NOTARY PUBLIC IS NOT AN ACCEPTABLE
GUARANTOR. Additional documentary evidence of authority is required in the event
redemption is requested by a corporation, partnership, trust, fiduciary,
executor, or administrator. CHECKS TO THIRD PARTIES OTHER THAN A BANK OR
BROKERAGE ACCOUNT AS AUTHORIZED ABOVE ARE NOT PERMITTED. Redemption checks will
not be forwarded if the redeeming shareholder moves. The redemption request
should also indicate the change of address and include a signature guarantee.
Telephone redemptions of not more than $50,000 can be authorized on the
account application. If telephone redemptions are authorized, the Fund will
honor requests by telephone at (888) BURRIDGE (1-888-287-7434). Reasonable
procedures are used to confirm that instructions received by telephone are
genuine, such as requesting personal identification information that appears on
the purchase application and recording the conversation. You bear the risk of
any loss that might result from a fraudulent instruction, although the Fund may
bear such risk if reasonable procedures were not used. To reduce the risk of a
fraudulent instruction, proceeds of telephone redemptions may be sent only to
your address of record or to a bank or brokerage account you designated, in
writing, on the purchase application or in a letter with the signature(s)
guaranteed. The Fund reserves the right to record all telephone redemption
requests.
The redemption price per share is the net asset value next determined after
receipt of the redemption request, which may be more or less than your cost
depending upon the value of the Fund's investment securities at the time of
redemption. See "Net Asset Value."
Payment for shares redeemed is made by check or wire. Payment by check
normally is mailed within seven days after receipt of the redemption request in
proper form. If specified in the account application, the check will be payable
and sent to a designated financial institution. A wire will be sent only to your
bank or brokerage account as shown on the account application. Wire requests
generally are paid the next business day, after deduction of the cost of the
wire transfer (currently $10). That charge and any similar service fee may be
changed without prior notice to shareholders. Wires to third parties are not
permitted.
The Fund may suspend or postpone the right of redemption at times when
trading on the NYSE is restricted or as otherwise permitted by the Securities
and Exchange Commission. If you attempt to redeem shares within 15 days after
they have been purchased by check, the Fund
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may delay payment of the redemption proceeds until it can verify that payment
for the purchase of the shares has been (or will be) received which may take up
to 15 days from purchase.
The Fund reserves the right to redeem shares in any account with a balance
of less than 80% of the applicable minimum initial investment ($400,000) in
share value. Prior to any such redemption, the Fund will give the shareholder 30
days' written notice during which time you may increase your investment to avoid
having your shares redeemed. The minimum balance will be waived if the account
balance drops below the applicable minimum due to market activity.
NET ASSET VALUE
The price per share for a purchase order or redemption request is the net
asset value next determined after receipt of the order or request.
The net asset value of a share of the Fund is determined as of the close of
regular session trading on the NYSE (currently 3:00 p.m., Chicago time) each day
the NYSE is open for trading. The net asset value per share is determined by
dividing the difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Each security traded on a national stock
exchange or on the Nasdaq National Market is valued at the last sale price or,
if there have been no sales on the valuation day, at the mean between the most
recent bid and asked prices. Other securities traded over the counter are valued
at the mean between the last reported bid and asked prices. Other assets and
securities are valued by methods the Fund's board of trustees believes will
determine a fair value.
SHAREHOLDER SERVICES
Shareholder Accounts. You will receive an annual account statement showing
transactions in Fund shares with a balance denominated in Fund shares. In
addition, confirmations are sent to you upon purchase, redemption, dividend
reinvestment, and change of shareholder address. For a fee, you may obtain a
historical transcript of your account by requesting one in writing from Firstar
Trust Company.
IRA Plan for Rollover Accounts. The Fund has a prototype Individual
Retirement Account ("IRA") plan for your rollover IRA. The minimum investment in
an IRA account is $500,000. Call (888) BURRIDGE (1-888-287-7434) for an IRA
booklet and application. Because the Fund's intention is to maximize after-tax
returns for investors subject to federal income tax, an IRA investor should
consider whether an investment in the Fund is appropriate.
DIVIDENDS AND DISTRIBUTIONS
You may receive two kinds of distributions from the Fund: dividends and
capital gains distributions. All dividends and capital gains distributions are
paid in the form of additional shares credited to your account at net asset
value per share unless you have requested on the account application or in
writing that distributions be paid in cash. The Fund expects to declare and pay
net investment income dividends and distributions of net realized short- and
long-term capital gains, if any, at least annually.
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TAXES
Your distributions will be taxable to you, under income tax law, whether
received in cash or reinvested in additional shares. For federal income tax
purposes, any distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on income
dividends and distributions of net short-term capital gain. Distributions of net
long-term capital gain will be taxable to you as long-term capital gain
regardless of the length of time you have held your shares.
You will be advised annually as to the source of distributions for tax
purposes. If you are not subject to tax on your income, you will not be required
to pay tax on these amounts.
If you realize a loss on the sale of Fund shares held for six months or
less, your short-term loss is recharacterized as long-term to the extent of any
long-term capital gain distributions you have received with respect to those
shares.
This discussion of taxation is not intended to be a full discussion of
income tax laws and their effect on shareholders. You may wish to consult your
own tax advisor. The foregoing information applies to U.S. shareholders. Foreign
shareholders should consult their tax advisors as to the tax consequences of
ownership of Fund shares.
The Fund may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption proceeds.
Backup withholding may be required if:
. You fail to furnish your properly certified social security or other tax
identification number;
. You fail to certify that your tax identification number is correct or
that you are not subject to backup withholding due to the underreporting
of certain income;
. The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you should
complete and return when you open an account. The Fund must promptly pay to the
IRS all amounts withheld. Therefore, it is usually not possible for the Fund to
reimburse you for amounts withheld. You may, however, claim the amount withheld
as a credit on your federal income tax return.
MANAGEMENT OF THE FUND
The Trustees. The board of trustees has overall responsibility for the
conduct of the Trust's affairs. The trustees serve indefinite terms of unlimited
duration provided that a majority of trustees always has been elected by the
shareholders. The trustees appoint their own successors, provided that at least
two-thirds of the trustees, after such appointment, have been elected by the
shareholders. Shareholders may remove a trustee, with or without cause, upon the
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declaration in writing or vote, at a meeting called for that purpose, of two-
thirds of the Fund's outstanding shares. A trustee may be removed with or
without cause upon the written declaration of a majority of the trustees.
The Adviser. The Fund's investment adviser is The Burridge Group Inc. The
Burridge Group was founded as a registered investment adviser in March 1986 by
Richard M. Burridge and Kenneth M. Arenberg. It employees a growth oriented
investment approach in creating a diversified portfolio of equities for
corporate, public, and Taft-Hartley pension plans, endowments, foundations and
private investors. As of October 31, 1996, it managed over $1.3 billion in
assets for clients, including over $400 million for taxable accounts.
The Adviser is privately owned by seven principals and has 25
employees.
The Adviser manages the investment and reinvestment of the assets of the
Fund. In addition the Adviser provides office space, facilities, equipment, and
personnel for managing the assets and administering the Fund's day-to-day
operations, and provides shareholder and investor services.
For its services, the Fund pays the Adviser a fee, accrued daily and paid
monthly, based on its average daily net asset value at the annual rates of 1.00%
of the first $500 million, 0.85% of average daily net assets in excess of $500
million, and 0.75% of average daily net assets in excess of $1 billion. The
anticipated overall expense ratio is shown in the "Expense Information" table in
this Prospectus.
In addition, the Adviser has voluntarily undertaken to limit the Fund's
expenses (including the advisory fee but excluding extraordinary costs or
expenses not incurred in the ordinary course of the Fund's operations) to 1.50%
of the Fund's average daily net assets.
The Adviser employs a team of investment professionals who participate in
investment strategy formulation and security selection. The individual
responsible for overseeing the implementation of the Adviser's strategy for the
Fund is Richard M. Burridge.
Mr. Burridge is chairman and chief investment officer of the Adviser. He
has been engaged in the investment management business since 1974 and founded
the Adviser in 1986. Mr. Burridge holds a B.S. from the University of Colorado
and is a Chartered Financial Analyst.
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On October 11, 1996, the Adviser entered into an agreement pursuant to
which, subject to the satisfaction of certain conditions, substantially all of
the Adviser's assets and liabilities, including its investment advisory
agreement with the Trust, will be transferred to The Burridge Group LLC
("Burridge LLC"), a newly created Delaware limited liability company of which
the Adviser is the Manager Member. Simultaneously with that asset transfer each
of the seven stockholders (the "Stockholders") of the Adviser, each of whom is
an officer and director of the Adviser, will sell his or her stock in the
Adviser to Affiliated Managers Group, Inc. ("AMG") and, with AMG, will become
members in Burridge LLC.
Upon consummation of such proposed transactions (collectively, the
"Transaction"), it is expected that Burridge LLC will operate with the same
management personnel who are presently responsible for the investment policies
and management of the Adviser and will become investment adviser to the Trust.
The new investment advisory agreement between Burridge LLC and the Trust (the
"New Agreement"), which has been approved by the Fund's initial stockholders,
has terms and conditions (including the fee and expense provisions) identical to
the terms and conditions of the existing agreement ("Existing Agreement"),
except for the named adviser therein.
The consummation of the Transaction is subject to several conditions set
forth in the Purchase Agreement, of which the principal condition is approval of
the Transaction by a certain minimum percentage of the clients of the Adviser.
Additional conditions include: (i) the continued absence of certain proceedings
that would be likely to restrain or prohibit consummation of the Transaction,
and (ii) registration of Burridge LLC as an investment adviser under the
Investment Advisers Act of 1940 and under the laws of such states as are
necessary to permit Burridge LLC to carry on the business currently conducted by
the Adviser. It is anticipated that the Transaction will be consummated around
December 31, 1996.
Following the consummation of the Transaction, the offices of Burridge LLC
will be located at the same location as the offices of the Adviser, 115 South
LaSalle Street, Chicago, Illinois 60603. Burridge LLC will be, effective upon
the consummation of the Transaction, registered as an investment adviser under
the Investment Advisers Act of 1940, as amended.
Effective on consummation of the Transaction, the present officers of the
Adviser will become officers of Burridge LLC and will have the authority to
operate and administer the investment advisory business of Burridge LLC, and to
provide investment management services. The Stockholders, as members of Burridge
LLC, will initially hold member interests representing an interest in the
aggregate of 45% of the profits of Burridge LLC, subject to reduction under
certain conditions. The remaining interest in the profits of Burridge LLC, and
100% of the Adviser, the Manager Member of Burridge LLC, will be owned by
AMG.
14
<PAGE>
AMG is a Delaware corporation which has its offices at Two International
Place, Boston, MA 02110. AMG may be deemed to have as its ultimate parent TA
Associates, Inc., a Delaware corporation. The address of TA Associates, Inc. is
High Street Tower, Suite 2500, 125 High Street, Boston, MA 02110.
Administrator, Custodian and Transfer Agent. Firstar Trust Company, P.O.
Box 701, Milwaukee, Wisconsin 53201, is the Fund's Administrator and generally
assists the Fund in all aspects of its administration and operation. Firstar is
also the Fund's custodian and transfer agent. Firstar is responsible for
maintaining many of the Fund's books and records, handling compliance and
regulatory issues, processing purchase and redemption requests, shareholder
services and safekeeping of the Fund's securities.
Distributor. Funds Distributor, Inc. (the "Distributor"), 60 State Street,
Suite 1300, Boston, Massachusetts 02109, is the distributor of shares of the
Fund. Fees for the Distributor's services are paid by the Adviser from its own
resources. See the Statement of Additional Information for more information.
Portfolio Transactions. Decisions as to the purchase and sale of
securities for the Fund and the execution of these transactions, including the
negotiation of brokerage commissions on such transactions, are the
responsibility of the Adviser. In general, the Adviser seeks to obtain prompt
and reliable execution of purchase and sale orders at the most favorable net
prices or yields. In determining the best net price and execution, the Adviser
may take into account a broker's or dealer's operational and financial
capabilities and the type of transaction involved.
The Adviser may consider research services provided by the broker or
dealer, some of which may be useful to the Adviser in its other business
functions. To the extent such research services are taken into account, the
execution price paid may be higher, but only in reasonable relation to the
benefit of such research services as determined in good faith by the Adviser.
The Adviser is authorized to place portfolio transactions with brokers or
dealers participating in the distribution of shares of the Fund, but only if the
Adviser reasonably believes that the execution and commission are comparable to
those available from other qualified firms.
The Fund's portfolio turnover rate will vary from year to year, but is
expected to be below 50% under normal market conditions.
Performance. From time to time, in advertisements and sales literature,
the Fund may present information regarding the total return on a hypothetical
investment in the Fund for various periods of performance and may make
comparisons of such total return to various stock indexes (groups of unmanaged
common stocks), to the Consumer Price Index, or to groups of comparable mutual
funds.
Total return for a period is the percentage change in value during the
period of an investment in the Fund shares, including the value of shares
acquired through reinvestment of all dividends and capital gains distributions.
The average annual total return for a given period may be calculated by finding
the average annual compounded rate of return that would equate a hypothetical
$1,000 investment to the value of that investment that could be redeemed at the
end of the period, assuming reinvestment of all distributions. All of the
calculations described above
15
<PAGE>
will assume the reinvestment of dividends and distributions in additional shares
of the Fund. Income taxes will not be taken into account.
In addition to the figures described above, the Fund might use rankings or
ratings determined by Lipper Analytical Services, Inc., Morningstar, Inc., or
another service to compare the performance of the Fund with the performance of
(i) other funds of similar size and investment objective or (ii) broader groups
of funds. The Fund may also provide information about, or compare its
performance to, the historical returns on various types of financial assets.
Performance of the Fund will vary from time to time, and past results are
not indicative of likely future performance. Performance information supplied by
the Fund may not provide a basis of comparison with other investments using
different reinvestment assumptions or time periods.
THE FUND AND ITS SHARES
The Fund was organized as a Massachusetts business trust on August 30, 1996
and is an open-end, diversified management investment company.
Shares. Under the terms of the Agreement and Declaration of Trust, the
Fund may issue an unlimited number of shares of beneficial interest without par
value for each series of shares authorized by the trustees. Burridge Capital
Development Fund is currently the only series authorized and outstanding. All
shares issued will be fully paid and non-assessable and will have no preemptive
or conversion rights. Each share of a series is entitled to participate pro rata
in any dividends and other distributions declared by the Fund's board of
trustees on shares of that series. All shares of a series have equal rights in
the event of liquidation of that series.
Under Massachusetts law, the shareholders of the Fund may, under certain
circumstances believed to be remote, be held personally liable for the Fund's
obligations. However, the Trust's Agreement and Declaration of Trust disclaims
liability of shareholders, the Trust's trustees, or the Fund's officers for acts
or obligations of the Trust or the Fund and requires that notice of such
disclaimer be given in each agreement, obligation, or contract entered into or
executed by the Trust or the board of trustees. The Trust's Agreement and
Declaration of Trust provides for indemnification out of the assets of the Fund
of all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is remote, since it is limited to
circumstances in which the disclaimer is inoperative and the Fund itself is
unable to meet its obligations.
Voting Rights. Each share has one vote and fractional shares have
fractional votes. The Fund does not intend to hold annual meetings of
shareholders. A special meeting of shareholders may be called by the board of
trustees, chairman or president, or, under certain conditions, by the holders of
at least 10% of the Trust's outstanding shares.
Shareholder Inquiries. Inquiries should be addressed to Burridge Funds,
c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201. Telephone
inquiries may be made at (888) BURRIDGE (1-888-287-7434).
16
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
Shareholder Services: -----------------------------------------------------
BURRIDGE FUNDS
Burridge Funds
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201
(888) BURRIDGE
(1-888-287-7434)
Investment Adviser:
The Burridge Group Inc.
Chicago, IL
Distributor:
Funds Distributor, Inc. BURRIDGE CAPITAL DEVELOPMENT FUND
Boston, MA
Custodian and Transfer Agent: -----------------------------------------------------
Firstar Trust Company PROSPECTUS
Milwaukee, WI
Independent Auditors:
Arthur Andersen LLP
Chicago, IL
Legal Counsel:
Bell, Boyd & Lloyd
Chicago, IL
-----------------------------------------------------
DECEMBER 26, 1996
</TABLE>
<PAGE>
BURRIDGE FUNDS
115 South LaSalle Street
Chicago, Illinois 60603
(888) BURRIDGE
(1-888-287-7434)
STATEMENT OF ADDITIONAL INFORMATION
December 26, 1996
- --------------------------------------------------------------------------------
Burridge Capital Development Fund (the "Fund") is a series of Burridge
Funds (the "Trust"). The Fund represents shares of beneficial interest in a
separate portfolio of securities and other assets, with its own investment
objective and policies. This Statement of Additional Information is not a
prospectus. It should be read in conjunction with the Fund's Prospectus dated
December 26, 1996, and any supplement to that Prospectus. That Prospectus can
be obtained without charge by calling or writing to the Trust.
<TABLE>
<CAPTION>
<S> <C>
Investment Objective and Policies..............................................2
Investment Techniques and Risk.................................................2
Investment Restrictions.......................................................10
Performance Information.......................................................13
Management of the Fund........................................................16
Investment Advisory Services..................................................17
Portfolio Transactions and Brokerage..........................................20
Purchase and Redemption of Shares.............................................21
Taxes.........................................................................22
General Information...........................................................22
Financial Statements..........................................................23
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital appreciation.
The Fund attempts to generate long-term capital appreciation. The Fund
focuses on after-tax investment returns for its shareholders. The Fund employs a
growth-oriented investment approach to create a diversified portfolio of medium
and large capitalization common stocks. The Adviser believes that long-term
capital appreciation can be achieved by purchasing stocks of companies with
superior operating fundamentals relative to its industry group and the broad
market, at attractive levels. In managing the Fund, the Adviser analyzes the tax
consequences of position changes to the Fund and its shareholders subject to
federal income tax. The Adviser attempts to maximize long-term capital gains and
unrealized capital gains, and minimize short-term capital gains and ordinary
income, as components of the Fund's investment returns. See "Investment
Objective and Policies."
Under normal market conditions, the Fund is expected to be substantially
fully invested in common stocks of medium and large companies generally having a
market capitalization in excess of $1 billion.
INVESTMENT TECHNIQUES AND RISKS
Foreign Securities
The Fund may invest up to 10% of its total assets in foreign securities
(including American Depository Receipts ("ADRs")), which may entail a greater
degree of risk (including risks relating to exchange rate fluctuations, tax
provisions, or expropriation of assets) than does investment in securities of
domestic issuers. ADRs are receipts typically issued by an American bank or
trust company evidencing ownership of the underlying securities. The Fund may
invest in sponsored or unsponsored ADRs. In the case of an unsponsored ADR, the
Fund is likely to bear its proportionate share of the expenses of the depository
and it may have greater difficulty in receiving shareholder communications than
it would have with a sponsored ADR. The Fund does not intend to invest more than
5% of its net assets in unsponsored ADRs.
Short-Term Investments
The Fund intends to be substantially fully invested in common stocks in
ordinary circumstances, although the Fund may invest without limitation in high-
quality fixed-income securities or hold assets in cash or cash equivalents
pending investment, to meet anticipated cash requirements, or if the Adviser
determines that a temporary defensive position is advisable. Because the Fund
tries to minimize its ordinary income subject to income tax, the Fund's short-
term investments may include short-term, high quality securities producing
income exempt from federal income tax.
B-2
<PAGE>
Convertible Securities
Convertible securities include any corporate debt security or preferred
stock that may be converted into underlying shares of common stock. The common
stock underlying convertible securities may be issued by a different entity than
the issuer of the convertible securities. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege.
The value of convertible securities is influenced by both the yield of non-
convertible securities of comparable issuers and by the value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." The
investment value of the convertible security will typically fluctuate inversely
with changes in prevailing interest rates. However, at the same time, the
convertible security will be influenced by its "conversion value," which is the
market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock.
By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible security, the Adviser will consider the same criteria
that would be considered in purchasing the underlying stock. Although
convertible securities purchased by the Fund are frequently rated investment
grade, the Fund also may purchase unrated securities or securities rated below
investment grade if the securities meet the Adviser's other investment criteria.
Convertible securities rated below investment grade (a) tend to be more
sensitive to interest rate and economic changes, (b) may be obligations of
issuers who are less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such securities being less
well known to investors than either common stock or conventional debt
securities. As a result, the Adviser's own investment research and analysis
tends to be more important in the purchase of such securities than other
factors. The Fund will not invest more than 5% of its net assets in
convertible securities rated below investment grade, or considered by the
Adviser to be of comparable credit quality.
Options on Securities and Indexes. The Fund may purchase and sell put
options and call options on securities, indexes or foreign currencies in
standardized contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Fund may purchase
agreements, sometimes called cash puts, that may accompany the purchase of a new
issue of bonds from a dealer. The Fund will limit its use of options and futures
so that not more than 5% of the Fund's total assets will be at risk.
An option on a security (or index) is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from (call) or
sell to (put) the seller (writer) of the option the security underlying the
option (or the cash value of the index) at a specified exercise price at any
time during the term of the option (normally not exceeding nine months).
B-3
<PAGE>
The writer of an option on an individual security or on a foreign currency has
the obligation upon exercise of the option to deliver the underlying security or
foreign currency upon payment of the exercise price or to pay the exercise price
upon delivery of the underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. (An index is designed to reflect specified
facets of a particular financial or securities market, a specific group of
financial instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, assets of
equivalent value are held in a segregated account by its custodian) upon
conversion or exchange of other securities held in its portfolio.
If an option written by the Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the Fund expires, the Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund, valued
initially at the premium paid for the option. The premium received for an option
written by the Fund is recorded as a deferred credit. The value of an option
purchased or written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid and asked
prices.
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill
B-4
<PAGE>
and judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or expected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option would expire and become worthless.
If the Fund were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying security until the
option expired. As the writer of a covered call option on a security, the Fund
foregoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the Fund,
the Fund would not be able to close out the option. If restrictions on exercise
were imposed, the Fund might be unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts. The Fund may use
interest rate futures contracts, index futures contracts, and foreign currency
futures contracts. An interest rate, index or foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or the cash value of an index/1/ at
a specified price and time. A public market exists in futures contracts covering
a number of indexes (including, but not limited to: the Standard & Poor's 500
Index, the Value Line Composite Index, and the New York Stock Exchange Composite
Index) as well as financial instruments (including, but not limited to: U.S.
Treasury bonds, U.S. Treasury notes, Eurodollar certificates of deposit, and
foreign currencies). Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts will be developed
and traded.
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. The Fund might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations that might
adversely affect either the value of the Fund's securities or the price of the
securities that the Fund intends to
- -------------------
/1/ All futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of those
securities is made.
B-5
<PAGE>
purchase. Although other techniques could be used to reduce or increase the
Fund's exposure to stock price, interest rate and currency fluctuations, the
Fund may be able to achieve its exposure more effectively and perhaps at a lower
cost by using futures contracts and futures options.
The Fund will only enter into futures contracts and futures options that
are standardized and traded on an exchange, board of trade, or similar entity,
or quoted on an automated quotation system.
The success of any futures transaction depends on the Adviser correctly
predicting changes in the level and direction of stock prices, interest rates,
currency exchange rates and other factors. Should those predictions be
incorrect, the Fund's return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures contracts, the
Adviser might have taken portfolio actions in anticipation of the same market
movements with similar investment results but, presumably, at greater
transaction costs.
When a purchase or sale of a futures contract is made by the Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. Government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract, which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on
its initial margin deposits. A futures contract held by the Fund is valued
daily at the official settlement price of the exchange on which it is traded.
Each day the Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by the Fund does not
represent a borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In computing daily net
asset value, the Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must
also be included in these calculations.
B-6
<PAGE>
Risks Associated with Futures. There are several risks associated with the
use of futures contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. In trying to increase or reduce market exposure, there can be no
guarantee that there will be a correlation between price movements in the
futures contract and in the portfolio exposure sought. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as: variations in speculative market
demand for futures, futures options and the related securities, including
technical influences in futures and futures options trading and differences
between the securities market and the securities underlying the standard
contracts available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers and the weighting
of each issue, may differ from the composition of the Fund's portfolio, and, in
the case of interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's portfolio. A
decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses. Stock index
futures contracts are not normally subject to such daily price change
limitations.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or futures option position. The Fund would
be exposed to possible loss on the position during the interval of inability to
close, and would continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
Limitations on Options and Futures. If other options, futures contracts, or
futures options of types other than those described herein are traded in the
future, the Fund also may use those investment vehicles, provided the board of
directors determines that their use is consistent with the Fund's investment
objective. The Fund will limit its use of options and futures so that not more
than 5% of the Fund's net assets will be at risk.
B-7
<PAGE>
The Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money,"/2/
would exceed 5% of the Fund's total assets. When purchasing a futures contract
or writing a put option on a futures contract, the Fund must maintain with its
custodian (or broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When writing a call
option on a futures contract, the Fund similarly will maintain with its
custodian cash or cash equivalents (including any margin) equal to the amount by
which such option is in-the-money until the option expires or is closed out by
the Fund.
The Fund may not maintain open short positions in futures contracts, call
options written on futures contracts or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent the Fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the Fund will use
commodity futures or commodity options contracts solely for bona fide hedging
purposes within the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts that do not come
within the meaning and intent of Regulation 1.3(z), the aggregate initial margin
and premiums required to establish such positions will not exceed 5% of the fair
market value of the assets of the Fund, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into (in the
case of an option that is in-the-money at the time of purchase, the in the-money
amount (as defined in Section 190.01(x) of the Commission Regulations) may be
excluded in computing such 5%).
Taxation of Options and Futures. If the Fund exercises a call or put option
that it holds, the premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the security sold
(put). For cash settlement options and futures options exercised by the Fund,
the difference between the cash received at exercise and the premium paid is a
capital gain or loss.
- ------------------
/2/ A call option is "in-the-money" if the value of the futures contract that
is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
B-8
<PAGE>
If a call or put option written by the Fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by the Fund is in-the-money at the time it was
written and the security covering the option was held for more than the long-
term holding period prior to the writing of the option, any loss realized as a
result of a closing purchase transaction will be long-term. The holding period
of the securities covering an in-the-money option will not include the period of
time the option is outstanding.
If the Fund writes an equity call option/3/ other than a "qualified covered
call option," as defined in the Internal Revenue Code, any loss on such option
transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For Federal income tax purposes, the Fund generally is required to
recognize for each taxable year its net unrealized gains and losses as of the
end of the year on futures, futures options and non-equity options positions
("year-end mark-to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual closing of the
positions) is considered to be 60% long-term and 40% short-term, without regard
to the holding periods of the contracts. However, in the case of positions
classified as part of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options positions, the related
securities and certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call options (or futures
call options) or buying put options (or futures put options) that are intended
to hedge against a change in the value of securities held by the Fund may affect
the holding period of the hedged securities.
If the Fund were to enter into a short index future, short index futures
option or short index option position and the Fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Fund's stock
- ------------------
/3/ An equity option is defined to mean any option to buy or sell stock, and
any other option the value of which is determined by reference to an index
of stocks of the type that is ineligible to be traded on a commodity
futures exchange (e.g., an option contract on a sub-index based on the
price of nine hotel-casino stocks). The definition of equity option
excludes options on broad-based stock indexes (such as the Standard &
Poor's 500 index).
B-9
<PAGE>
positions may be deemed to be positions in a mixed straddle, subject to the
above-mentioned loss deferral rules.
In order for the Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition, gains realized
on the sale or other disposition of securities held for less than three months
must be limited to less than 30% of the Fund's annual gross income. Any net gain
realized from futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income for purposes of
the 90% requirement. In order to avoid realizing excessive gains on securities
held less than three months, the Fund may be required to defer the closing out
of certain positions beyond the time when it would otherwise be advantageous to
do so.
The Fund intends to distribute to shareholders annually any capital gains
that have been recognized for Federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions, together with gains
on other Fund investments, to the extent such gains exceed recognized capital
losses and any net capital loss carryovers of the Fund. Shareholders will be
advised of the nature of such capital gain distributions.
Portfolio Turnover
Under normal market conditions, the Fund's portfolio turnover rate will
vary from year to year, but is expected to be below 50%. Portfolio turnover can
occur for a number of reasons such as general conditions in the securities
markets, more favorable investment opportunities in other securities, or other
factors relating to the desirability of holding or changing a portfolio
investment. Because of the Fund's emphasis on minimizing the recognition of
ordinary income, the Fund intends to keep portfolio turnover low. A high rate of
portfolio turnover in the Fund, if it should occur, would result in increased
transaction expense, which must be borne by the Fund. High portfolio turnover
also may result in the realization of capital gains or losses and, to the extent
net short-term capital gains are realized, any distributions resulting from such
gains will be considered ordinary income for Federal income tax purposes. See
"Taxes" in the prospectus, and "Additional Tax Information" in this statement of
additional information.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions (which may not
be changed without the approval of a majority of the Fund's outstanding shares),
under which the Fund may not:
1. with respect to 75% of its total assets, invest more than 5% of its
total assets, taken at market value at the time of a particular purchase, in the
securities of a single issuer, except for securities issued or guaranteed by the
Government of the U.S. or any of its agencies or instrumentalities or repurchase
agreements for such securities;
B-10
<PAGE>
2. acquire more than 10%, taken at the time of a particular purchase, of
the outstanding voting securities of any one issuer;
3. act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 on disposition
of securities acquired subject to legal or contractual restrictions on resale;
4. purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein), commodities, or commodity
contracts, except that it may enter into (a) futures and options on futures and
(b) forward contracts;
5. make loans, but this restriction shall not prevent the Fund from (a)
investing in debt securities, (b) investing in repurchase agreements, or (c)
lending portfolio securities, provided that it may not lend securities if, as a
result, the aggregate value of all securities loaned would exceed 33 1/3% of its
total assets (taken at market value at the time of such loan);/4/
6. borrow (including entering into reverse repurchase agreements), except
that it may (a) borrow up to 33 1/3% of its total assets, taken at market value
at the time of such borrowing, as a temporary measure for extraordinary or
emergency purposes, but not to increase portfolio income and (b) enter into
transactions in options, futures, and options on futures;/5/
7. invest in a security if more than 25% of its total assets (taken at
market value at the time of a particular purchase) would be invested in the
securities of issuers in any particular industry, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; or
8. issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
The Fund's investment objective is not a fundamental restriction and,
therefore, a change in the objective is not subject to shareholder approval.
However, investors in the Fund will receive written notification at least 30
days' prior to any change in the Fund's investment objective.
Non-Fundamental Restrictions
The Fund also is subject to the following non-fundamental restrictions and
policies, which may be changed by the board of trustees, without shareholder
approval.
- ---------------
/4/ The Fund has no present intention of investing in repurchase agreements or
lending portfolio securities.
/5/ The Fund will not purchase securities when total borrowings by the Fund
are greater than 5% of its net asset value.
B-11
<PAGE>
The Fund may not:
a. invest in companies for the purpose of exercising control or
management;
b. invest more than 10% of its total assets (valued at time of purchase)
in securities of foreign issuers;
B-12
<PAGE>
c. purchase securities on margin (except for use of short-term credits as
are necessary for the clearance of transactions), or sell securities short
unless (i) the Fund owns or has the right to obtain securities equivalent in
kind and amount to those sold short at no added cost or (ii) the securities sold
are "when issued" or "when distributed" securities which the Fund expects to
receive in recapitalization, reorganization, or other exchange for securities
the Fund contemporaneously owns or has the right to obtain and provided that
transactions in options, futures, and options on futures are not treated as
short sales; or
d. invest more than 15% of its net assets (taken at market value at the
time of each purchase) in illiquid securities, including repurchase agreements
maturing in more than seven days.
In addition, the Investment Company Act of 1940 requires that the Fund not
(i) purchase more than 3% of the stock of another investment company or (ii)
purchase stock of other investment companies equal to more than 5% of the Fund's
total assets (valued at time of purchase) in the case of any one other
investment company or (iii) purchase stock of other investment companies equal
to more than 10% of the Fund's total assets (valued at time of purchase) in the
case of all other investment companies in the aggregate.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. Total return for
a period is the percentage change in value during the period of an investment in
shares of a fund, including the value of shares acquired through reinvestment
of all dividends and capital gains distributions. An average annual total return
for a given period may be computed by finding the average annual compounded rate
that would equate a hypothetical initial amount invested of $1,000 to the value
of that investment that could be redeemed at the end of the period, assuming
reinvestment of all distributions. Average annual total return is computed as
follows:
ERV = P(l+T)/n/
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
investment made at the beginning of the period, at
the end of the period (or fractional portion thereof)
The Fund imposes no sales charges and pays no distribution expenses. Income
taxes are not taken into account. Performance figures quoted by the Fund are not
necessarily indicative of future results. The Fund's performance is a function
of conditions in the securities markets,
B-13
<PAGE>
portfolio management and operating expenses. Although information about past
performance is useful in reviewing the Fund's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reimbursement assumptions
or time periods.
In advertising and sales literature, the performance of the Fund may be
compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, other accounts, limited
liability investment companies or partnerships managed or advised by the
Adviser, and other competing investment and deposit products available from or
through other financial institutions. The composition of these indexes, averages
or accounts differs from that of the Fund. The comparison of the Fund to an
alternative investment should consider differences in features and expected
performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Fund generally believes to be
accurate. The Fund also may note (or provide reprints of articles or charts
containing) its mention (including performance or other comparative rankings) in
newspapers, magazines, or other media from time to time. However, the Fund
assumes no responsibility for the accuracy of such data. Newspapers and
magazines which might mention the Fund include, but are not limited to, the
following:
Business Week Money
Changing Times The Mutual Fund Letter
Chicago Mutual Fund Values (Morningstar)
Chicago Tribune Newsweek
Chicago Sun-Times The New York Times
Crain's Chicago Business Pensions and Investments
Consumer Reports Personal Investor
Consumer Digest Smart Money
Financial World Stanger Reports
FA Advisor Time
Forbes USA Today
Fortune U.S. News and World Report
Institutional Investor The Wall Street Journal
Investor's Daily Worth
Los Angeles Times
When a newspaper, magazine, or other publication mentions the Fund, such
mention may include: (i) listings of some or all of the Fund's holdings; (ii)
descriptions of characteristics of some or all of the securities held by the
Fund, including price-earnings ratios, earnings, growth rates and other
statistical information, and comparisons of that information to similar
statistics for the securities comprising any of the indexes or averages listed
below; and (iii) descriptions of the Fund's or a portfolio manager's economic
and market outlook, generally and for the Fund.
The Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
B-14
<PAGE>
The performance of the Fund may be compared to stock market indexes or
averages, including the following widely recognized indicators of general U.S.
stock market results:
Russell Mid-Cap Stock Index
Russell Mid-Cap Growth Index
Russell 1,000 Index
Russell 1,000 Growth Index
Standard & Poor's 500 Stock Index
Standard & Poor's Mid-Cap 400 Index
S&P/Barra Mid-Cap Growth Index
The Fund's performance may also be compared to mutual fund industry indexes
or averages, including the following: Value Line Index; Lipper Capital
Appreciation Fund Average; Lipper Growth Funds Average; Lipper General Equity
Funds Average; Lipper Equity Funds Average; Lipper Mid-Cap Average; Morningstar
Growth Average; Morningstar Aggressive Growth Average; Morningstar U.S.
Diversified Average; Morningstar Equity Fund Average; Morningstar Hybrid Fund
Average; Morningstar All Equity Funds Average; and Morningstar General Equity
Average; Morningstar MidCap/Value Average.
The Lipper and Morningstar averages are unweighted averages of total return
performance of mutual funds as classified, calculated, and published by Lipper
and by Morningstar, Inc. ("Morningstar"), respectively. The Fund may also use
comparative performance as computed in a ranking by Lipper or category averages
and rankings provided by another independent service. Should Lipper or another
service reclassify the Fund to a different category or develop (and place the
Fund into) a new category, the Fund may compare its performance or ranking
against other funds in the newly assigned category, as published by the service.
Moreover, the Fund may compare its performance or ranking against all funds
tracked by Lipper or another independent service, and may cite its rating,
recognition or other mention by Morningstar or any other entity. Morningstar's
rating system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is computed by
subtracting the Fund's risk score (which is a function of the Fund's monthly
returns less the 3-month Treasury bill return) from the Fund's load-adjusted
total return score. This numerical score is then translated into rating
categories, with the top 10% labeled five star, the next 22.5% labeled four
star, the next 35% labeled three star, the next 22.5% labeled two star and the
bottom 10% one star. A high rating reflects either above-average returns or
below-average risk, or both.
To illustrate the historical returns on various types of financial assets,
the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds and U.S. Treasury bills. Similarly,
the Fund may use Ibbotson's historical data regarding the Consumer Price Index.
The Fund may also use historical data compiled by
B-15
<PAGE>
sources believed by the Fund to be accurate, illustrating the past performance
of small-capitalization stocks, large-capitalization stocks, common stocks,
equity securities, growth stocks (small-capitalization, large-capitalization, or
both) and value stocks (small-capitalization, large-capitalization, or both).
MANAGEMENT OF THE FUND
Trustees and officers of the Trust, and their principal business
occupations during at least the last five (5) years, are shown below. Trustees
deemed to be "interested persons" of the Trust for purposes of the Investment
Company Act of 1940 are indicated with an asterisk.
<TABLE>
<CAPTION>
Positions Held Principal Occupations during
Name and Age with Registrant Past 5 Years
- ------------ --------------- ---------------------------
<S> <C> <C>
Richard M. Burridge (67) Chairman Chairman, The Burridge Group Inc.
- -----------------------------------------------------------------------------------------------------
Kenneth M. Arenberg* (67) Trustee, President and Vice Chairman, The Burridge Group Inc.
Treasurer
- -----------------------------------------------------------------------------------------------------
J. Thomas Hurvis (58) Trustee Chairman, Old World Industries, Inc.
- -----------------------------------------------------------------------------------------------------
Angelo L. Spoto (67) Trustee Private investor, 1990 to present;
Senior Vice President - Investments,
Blunt, Ellis & Loewi, Inc., prior
thereto.
- -----------------------------------------------------------------------------------------------------
Robert L. Underwood (51) Trustee Executive Vice President, North
American Business Development
Companies, LLC.
- -----------------------------------------------------------------------------------------------------
John H. Streur, Jr. (36) Senior Vice President and President, The Burridge Group Inc.
Secretary
- -----------------------------------------------------------------------------------------------------
Robert L. Worthington (36) Vice President Senior Vice President, The Burridge
Group Inc., September 1993 to present;
Vice President - Corporate Finance,
Westpac Banking Corporation, September
1990 to August 1993.
- -----------------------------------------------------------------------------------------------------
Bradley P. Schluter (39) Vice President Vice President, The Burridge
Group Inc., November 1995 to present;
Vice President - Marketing, Nicholas
Applegate Capital Management, February
1991 to November 1995.
- -----------------------------------------------------------------------------------------------------
</TABLE>
B-16
<PAGE>
The only compensation paid to trustees and officers of the Trust for their
services as such consists of a fee of $500 per meeting of the board or any
committee thereof attended, paid to trustees who are not interested persons of
the Trust or the Adviser. The Trust has no retirement or pension plans.
The following table sets forth compensation expected to be paid by the
Trust during the fiscal year ending June 30, 1997 to each of the trustees of the
Trust. The Trust is not part of a complex of mutual funds.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF TRUSTEE FROM TRUST
--------------- ------------
<S> <C>
Kenneth M. Arenberg $ 0
-------------------------------------
J. Thomas Hurvis 3,000
-------------------------------------
Angelo L. Spoto 3,000
-------------------------------------
Robert L. Underwood 3,000
-------------------------------------
</TABLE>
At the date of this Statement of Additional Information, Richard M.
Burridge and Kenneth M. Arenberg, who provided the Fund's organizational
capital, each owned 50% of the Fund's outstanding shares and therefore may be
deemed to control the Fund.
INVESTMENT ADVISORY SERVICES
The Burridge Group Inc. (the "Adviser") provides investment advisory
services to the Fund pursuant to an Investment Advisory Agreement dated December
5, 1996 (the "Advisory Agreement"). The Adviser is an Illinois corporation
founded as a registered investment adviser in March, 1986 by Richard M. Burridge
and Kenneth M. Arenberg. It employs a growth oriented investment approach in
creating a diversified portfolio of equities for corporate, public and Taft-
Hartley pension plans, endowments, foundations and private investors. As of
October 31, 1996 it managed over $1.3 billion in assets for clients, including
over $400 million for taxable accounts.
The Adviser is privately owned by seven principals and has 25 employees.
B-17
<PAGE>
In return for its services and for providing shareholder and investor
servicing the Adviser is paid a monthly fee from the Fund based on the Fund's
average daily net assets. Under the Advisory Agreement, the Fund pays the
Adviser a fee, accrued daily and paid monthly, at the annual rates of 1.00% of
the first $500 million of its average daily net assets, 0.85% of the next $500
million, and 0.75% of average daily net assets in excess of $1 billion.
The Agreement provides that the Adviser shall not be liable for any loss
suffered by the Trust or its shareholders as a consequence of any act or
omission in connection with investment advisory or portfolio services under the
Advisory Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties or from
reckless disregard by the Adviser of its obligations and duties under the
Advisory Agreement.
The Advisory Agreement expires in December 1998, but may be continued from
year to year only so long as the continuance of each is approved annually (a) by
the vote of a majority of the trustees of the Trust who are not "interested
persons" of the Trust or the Adviser cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the board of trustees of the
Trust or by the vote of a majority (as defined in the 1940 Act) of the
outstanding shares of the Fund. The Advisory Agreement is terminable without
penalty, on 60 days' notice, by the trustees of the Trust or by vote of a
majority of the outstanding shares of the Fund, or, on not less than 90 days'
notice, by the Adviser. The Advisory Agreement automatically terminates in the
event of its assignment (as defined in the 1940 Act).
The Adviser employs a team of investment professionals who participate in
investment strategy formulation and issue selection. The individual responsible
for overseeing the implementation of the Adviser's strategy for the Fund is
Richard M. Burridge.
Mr. Burridge is chairman and chief investment officer of the Adviser. He
has been engaged in the investment management business since 1974 and founded
the Adviser in 1986. Mr. Burridge holds a B.S. from the University of Colorado
and is a Chartered Financial Analyst.
On October 11, 1996 the Adviser entered into an agreement pursuant to
which, subject to the satisfaction of certain conditions, substantially all of
the Adviser's assets and liabilities, including its investment advisory
agreement with the Trust, will be transferred to The Burridge Group LLC
("Burridge LLC"), a newly created Delaware limited liability company of which
the Adviser is the Manager Member. Simultaneously with that asset transfer each
of the seven stockholders (the "Stockholders) of the Adviser, each of whom is an
officer and director the
B-18
<PAGE>
Adviser, will sell his or her stock in the Adviser to Affiliated Managers Group,
Inc. ("AMG") and, with AMG will become members in Burridge LLC.
Upon consummation of such proposed transactions (collectively, the
"Transaction"), it is expected that Burridge LLC will operate with the same
management personnel who are presently responsible for the investment policies
and management of the Adviser and will become investment adviser to the Trust.
The new investment advisory agreement between Burridge LLC and the Trust (the
"New Agreement"), which has been approved by the Fund's initial stockholders,
has terms and conditions (including the fee and expense provisions) identical to
the terms and conditions of the existing agreement ("Existing Agreement"),
except for the named adviser therein.
The consummation of the Transaction is subject to several conditions set
forth in the Purchase Agreement, of which the principal condition is approval of
the Transaction by a certain minimum percentage of the clients of the Adviser.
Additional conditions include: (i) the continued absence of certain proceedings
that would be likely to restrain or prohibit consummation of the Transaction,
and (ii) registration of Burridge LLC as an investment adviser under the
Investment Advisers Act of 1940 and under the laws of such states as are
necessary to permit Burridge LLC to carry on the business currently conducted by
the Adviser. It is anticipated that the Transaction will be consummated around
December 31, 1996.
Following the consummation of the Transaction, the offices of Burridge LLC
will be located at the same location as the offices of the Adviser, 115 South
LaSalle Street, Chicago, Illinois 60603.
Effective on consummation of the Transaction, the present officers of the
Adviser will become officers of Burridge LLC and will have the authority to
operate and administer the investment advisory business of Burridge LLC, and to
provide investment management services. The Stockholders, as members of
Burridge LLC, will initially hold member interests representing an interest in
the aggregate of 45% of the profits of Burridge LLC, subject to reduction under
certain conditions. The remaining interest in the profits of Burridge LLC and
100% of the Adviser, the Manager Member of Burridge LLC, will be owned by AMG.
AMG is a Boston-based private holding company that makes equity investments in
investment management firms in which management personnel retain a significant
interest in the future of the business.
AMG is a Delaware corporation which has its offices at Two International
Place, Boston, MA 02110. AMG may be deemed to have as its parent, Advent VII,
L.P., a Delaware limited partnership, because Advent VII, L.P. owns greater than
fifty percent of the voting stock of AMG. Advent VII, L.P. may be deemed to
have, as its parent, its sole general partner - TA Associates VII, L.P., which
is a Delaware limited partnership, and which in turn may be deemed to have, as
its parent, its sole general partner - TA Associates, Inc., a Delaware
corporation. The address of each of Advent VII, L.P., TA Associated VII, L.P.
and TA Associates, Inc., is c/o TA Associates, Inc., High Street Tower, Suite
2500, 125 High Street, Boston, MA 02110. AMG has
B-19
<PAGE>
advised the Trust that TA Associates, Inc., which was founded in 1968, has
invested directly or indirectly in over 200 enterprises prior to its investment
in AMG.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Portfolio transactions are placed with those securities brokers and dealers
that the Adviser believes will provide the best value in transaction and
research services either in a particular transaction or over a period of time.
Although some transactions involve only brokerage services, many involve
research services as well.
In valuing brokerage services, the Adviser makes a judgment as to which
brokers are capable of providing the most favorable net price (not necessarily
the lowest commission considered alone) and the best execution in a particular
transaction. Best execution connotes not only general competence and
reliability of a broker, but specific expertise and effort of a broker in
overcoming the anticipated difficulties in fulfilling the requirements of
particular transactions, because the problems of execution and the required
skills and effort vary greatly among transactions.
In valuing research services, the Adviser makes a judgment of the
usefulness of the research information provided by a broker to the Adviser in
managing the Fund. Although the information, e.g., data or recommendations
concerning particular securities, sometimes relates to the specific transaction
placed with the broker, the research predominately consists of a wide variety of
information concerning companies, industries, investment strategy, and economic,
financial and political conditions and prospects useful to the Adviser in
advising the Fund and other accounts.
The reasonableness of brokerage commissions paid in relation to transaction
and research services received is evaluated by the staff of the Adviser on an
ongoing basis. The general level of brokerage charges and other aspects of the
portfolio transactions for the Fund are reviewed periodically by Trust's board
of trustees.
The Adviser is the principal source of information and advice to the Fund
and is responsible for making and initiating the execution of investment
decisions. However, the board of trustees recognizes that it is important for
the Adviser, in performing its responsibilities to the Fund, to continue to
receive and evaluate the broad spectrum of economic and financial information
which many securities brokers have customarily furnished in connection with
brokerage transactions, and that in compensating brokers for their services, it
is in the interest of the Fund to take into account the value of the information
received for use in advising the Fund. Consequently, the Adviser is authorized
to allocate the orders placed by it on behalf of the Trust to brokers and
dealers who provide research services to the Trust or the Adviser and the
commission paid to a broker providing research services may be greater than the
amount of commission another broker would charge for the same transaction. The
extent, if any, to which receipt of such information may reduce the expenses of
the Adviser in providing management services to the Fund is not determinable.
In addition, the board of trustees understands that other clients of the Adviser
also may benefit from the information obtained for the Fund, in the same
B-20
<PAGE>
manner that the Fund also may benefit from information obtained by the Adviser
in performing services for others.
Transactions of the Fund in the over-the-counter market and the third
market are executed with primary market makers acting as principals except where
it is believed that better prices and execution may be obtained from others.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policy of seeking the best price and
execution as stated above, sales of shares of the Fund by a broker-dealer may be
considered by the Adviser in the selection of broker-dealers to execute
portfolio transactions for the Fund.
Although investment decisions for the Fund are made independently from
those for other investment advisory clients of the Adviser, the same investment
decision may be made for both the Fund and one or more other advisory clients.
If both the Fund and other clients purchase or sell the same class of securities
on the same day, the transactions will be allocated as to amount and price in a
manner considered equitable to each.
The Adviser may place brokerage transactions with brokers affiliated with
the distributor, Funds Distributor, Inc. Commissions paid to such brokers on
any transaction will not exceed those paid by the Fund in similar transactions
to other brokers.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions are discussed in the prospectus under the
headings "Purchasing Shares," "Redeeming Shares," "Shareholder Services," and
"Net Asset Value." All of that information is incorporated herein by reference.
You may purchase (or redeem) shares of the Fund through investment dealers,
banks, or other institutions. However, these institutions may charge for their
services or place limitations on the extent to which you may use the services
offered by the Fund. The Fund imposes no charges other than those described in
the Prospectus and this Statement of Additional Information if shares are
purchased (or redeemed) directly from the Fund.
Net Asset Value. The net asset value of the shares of the Fund is
determined as of the close of regular session trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Chicago time) each day the NYSE is open
for trading. The net asset value per share of the Fund is determined by
dividing the value of all its securities and other assets, less its liabilities,
by the number of shares of the Fund outstanding.
B-21
<PAGE>
Investments are stated at current value. Securities listed or admitted to
trading on a national securities exchange or the Nasdaq National Market are
valued at the last sales price or, if there has been no sale that day, at the
most recent bid price. Other securities traded over-the-counter are valued at
the last reported bid price. Money market instruments with sixty days or less
remaining from the valuation date until maturity are valued on an amortized cost
basis. Securities or other assets for which market quotations are not readily
available will be valued at a fair value as determined in good faith by or under
the direction of Trust's board of trustees.
The NYSE is currently closed on weekends and on the following holidays:
New Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
Redemption in Kind. The Fund intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net assets of the Fund during any 90-day period for any one
shareholder. However, redemptions in excess of such limit may be paid wholly or
partly by a distribution in kind of readily marketable securities. If
redemptions are made in kind, the redeeming shareholders might incur brokerage
fees in selling the securities received in the redemptions.
TAXES
The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, and thus not be subject to federal
income taxes on amounts which it distributes to shareholders.
GENERAL INFORMATION
Administrator. Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202 (the "Administrator") is the Fund's Administrator. The Fund
Administration Servicing Agreement entered into between the Fund and the
Administrator relating to the Fund (the "Administration Agreement") will remain
in effect until terminated by either party. The Administration Agreement may be
terminated at any time, without the payment of any penalty, by the Board of
Trustees of the Fund upon the giving of ninety (90) days' written notice to the
Administrator, or by the Administrator upon the giving of ninety (90) days'
written notice to the Fund.
Under the Administration Agreement, the Administrator shall exercise
reasonable care and is not liable for any error or judgment or mistake of law or
for any loss suffered by the Corporation in connection with the performance of
the Administration Agreement, except a loss resulting from willful misfeasance,
bad faith or negligence on the part of the Administrator in the performance of
its duties under the Administration Agreement.
Custodian and Fund Accounting Agent. Firstar Trust Company ("Firstar"),
P.O. Box 701, Milwaukee, Wisconsin 53201, acts as Custodian of the securities
and other assets of the Fund. As Custodian, Firstar is responsible for, among
other things, safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities, and collecting
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<PAGE>
interest and dividends on the Fund's investments. Firstar also performs
portfolio accounting services for the Fund. Firstar is not an affiliate of the
Adviser or its affiliates.
In addition the Fund has entered into a Fund Accounting Services Agreement
with Firstar Trust Company pursuant to which Firstar Trust Company has agreed to
maintain the financial accounts and records of the Fund and provide other
accounting services to the Fund.
Transfer Agent. Firstar Trust Company also serves as transfer agent and
dividend disbursing agent for the Fund under a Transfer Agency Agreement. As
transfer and dividend disbursing agent, Firstar Trust Company has agreed to (i)
issue and redeem shares of the Fund, (ii) make dividend and other distributions
to shareholders of the Fund, (iii) respond to correspondence by Fund
shareholders and others relating to its duties, (iv) maintain shareholder
accounts, and (v) make periodic reports to the Fund.
Auditors. Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois
60603 serves as the Trust's independent auditors, providing services including
(i) audit of the annual financial statements, (ii) assistance and consultation
in connection with Securities and Exchange Commission filings, and (iii) review
of the annual income tax returns filed on behalf of the Fund.
Distributor. The shares of the Fund are offered for sale on a continuous
basis through Funds Distributor, Inc. ("Distributor"), 60 State Street, Boston,
Massachusetts 02109, without any sales commissions or charges to the Fund or to
their shareholders. The Distributor acts pursuant to a written Distribution
Agreement with the Trust which expires in December, 1998, but may continue from
year to year thereafter, provided such continuance is approved annually (i) by a
majority of the trustees or by a majority of the outstanding voting securities
of the affected Fund and (ii) by a majority of the trustees who are not parties
to the Agreement or interested persons of any such party. The Adviser pays the
fees and expenses of the Distributor and all sales and promotional expenses from
its own resources.
As agent, the Distributor offers the Fund's shares only on a best-efforts
basis. The Distributor offers shares of the Fund to investors at net asset
value, without sales commissions, sales loads or other sales charges.
FINANCIAL STATEMENTS
To the Shareholders and Board of Trustees of Burridge Funds
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<PAGE>
We have audited the accompanying statement of net assets of Burridge Funds (a
Massachusetts business trust) comprising the Burridge Capital Development Fund
as of November 18, 1996. The statement of net assets is the responsibility of
Burridge Funds' management. Our responsibility is to express an opinion on the
statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. Our procedures
included confirmation of cash held by the custodian as of November 18, 1996. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the net assets of Burridge Capital Development Fund
constituting the Burridge Funds as of November 18, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 18, 1996
<PAGE>
BURRIDGE FUNDS STATEMENT OF NET ASSETS
NOVEMBER 18, 1996
Burridge Capital Development Fund
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash $100,000
Prepaid Expenses 26,770
Deferred organizational costs 55,500
--------
Total Assets $182,270
========
LIABILITIES
Payable to Adviser 82,270
--------
NET ASSETS $100,000
========
Shares Outstanding 10,000
--------
Net asset value, offering and
redemption price per share $10.00
========
</TABLE>
NOTES TO STATEMENT OF NET ASSETS
NOVEMBER 18, 1996
1.) The Trust:
Burridge Funds (the Trust) was organized as a Massachusetts business trust on
August 30, 1996 and has been inactive since that date except for matters
relating to its organization, its registration as an open-end series investment
company and the registration of its shares under the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended, and the sale of
the outstanding shares to two principals of The Burridge Group Inc., the Trust's
investment adviser. Burridge Capital Development Fund (the Fund), a series of
Burridge Funds, is authorized to issue an unlimited number of shares of
beneficial interest, without par value.
2.) Deferred Organization Costs:
The Trust expects to incur approximately $55,500 in organization costs. These
costs will be amortized over a 60-month period beginning with the commencement
of Trust operations.
The Trust's initial shareholders have agreed that if any of the initial shares
are redeemed during the first 60 months of the Trust's operations by any holder
thereof, the proceeds of the redemption will be reduced by the pro rata share of
the unamortized organization expenses as of the date of the redemption. The pro
rata share by which the redemption proceeds shall be
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<PAGE>
reduced shall be derived by dividing the number of original shares redeemed by
the total number of original shares outstanding at the time of the redemption.
3.) Related Parties:
The Burridge Group Inc. will act as investment adviser for and manage the
investment and reinvestment of the assets of the Fund. For these services, the
Fund has agreed to pay an annual management fee declining from 1.00% of its
average daily net assets as described in the Prospectus.
The Burridge Group Inc. expects, pursuant to an agreement, to transfer its
assets, including the investment advisory agreement, to The Burridge Group LLC.
The new investment advisory agreement between The Burridge Group LLC and the
Fund has terms and conditions identical to the terms and conditions of the
current agreement, except for the advisor named therein.
4.) Taxes:
The Fund intends to comply with the requirements of the Internal Revenue Code
necessary to qualify as a regulated investment company and make the requisite
distributions of income to its shareholder which will be sufficient to relieve
it from all or substantially all Federal income taxes.
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