Securities Act Registration No. 333-27581
Investment Company Act Reg. No. 811-08219
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. __ [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
(Check appropriate box or boxes.)
______________________
THE THURLOW FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1256 Forest Avenue
Palo Alto, California 94301
(Address of Principal Executive Offices) (Zip Code)
(888) 848-7569
(Registrant's Telephone Number, including Area Code)
Copy to:
Thomas F. Thurlow Richard L. Teigen
The Thurlow Funds, Inc. Foley & Lardner
1256 Forest Avenue 777 East Wisconsin Avenue
Palo Alto, California 94301 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
In accordance with Rule 24f-2(a)(1) under the Investment Company Act of
1940, the Registrant declares that an indefinite number or amount of
shares of its common stock, $0.0001 par value, is being registered by this
Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission acting
pursuant to said Section 8(a) may determine.
<PAGE>
THE THURLOW FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in
Prospectus or Statement of
Item No. on Form N-1A Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial Information Performance Information
4. General Description of Registrant The Fund; Investment
Objectives and Strategy;
Investment Policies and
Risks; Investment
Restrictions
5. Management of the Fund Management of the Fund;
Brokerage Transactions
5A. Management's Discussion of Fund *
Performance
6. Capital Stock and Other Securities Dividends, Distributions and
Taxes; Dividend
Reinvestment; Capital
Structure; Account
Statements
7. Purchase of Securities Being Offered How to Purchase Shares;
Dividend Reinvestment;
Retirement Plans
8. Redemption or Repurchase How to Redeem Shares
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT
OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and Policies Investment Restrictions;
Investment Considerations
14. Management of the Fund Directors and Officers of
the Corporation
15. Control Persons and Principal Principal Stockholders
Holders of Securities
16. Investment Advisory and Other Investment Adviser,
Services Administrator, Custodian,
Transfer Agent and
Accounting Services Agent;
Distribution of Shares;
Independent Accountants
17. Brokerage Allocation Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities Included in Prospectus under
"CAPITAL STRUCTURE"
19. Purchase, Redemption and Pricing of Included in Prospectus under
Securities Being Offered "DETERMINATION OF NET ASSET
VALUE"; "HOW TO PURCHASE
SHARES"; "DIVIDEND
REINVESTMENT"; "HOW TO
REDEEM SHARES"; "RETIREMENT
PLANS"; Determination of Net
Asset Value and Performance;
Distribution of Shares
20. Tax Status Taxes
21. Underwriters *
22. Calculations of Performance Data Determination of Net Asset
Value and Performance
23. Financial Statements Financial Statements
_______________________
* Answer negative or inapplicable
<PAGE>
P R O S P E C T U S
August 1, 1997
THE THURLOW FUNDS, INC.
1256 Forest Avenue
Palo Alto, California 94301
1-888-848-7569
The Thurlow Funds, Inc. (the "Company") is an open-end, diversified
management investment company, commonly known as a mutual fund. The
Company presently consists of a single portfolio, The Thurlow Growth Fund
(the "Fund"). The Fund's investment objective is capital appreciation,
with current income as a secondary objective. In seeking its investment
objective of capital appreciation, the Fund will invest primarily in
common stocks of U.S. companies, but the Fund may also invest in options
on securities and stock indexes, convertible securities, common stocks of
foreign issuers publicly-traded in the U.S. and American Depository
Receipts.
This Prospectus sets forth concisely the information about the Fund that
prospective investors should know before investing. Investors are advised
to read this Prospectus and retain it for future reference. This
Prospectus does not set forth all of the information included in the
Registration Statement and Exhibits thereto which the Fund has filed with
the Securities and Exchange Commission.
A Statement of Additional Information, dated August 1, 1997, which is a
part of such Registration Statement, is incorporated herein by reference.
A copy of the Statement of Additional Information may be obtained, without
charge, by writing to the address, or calling the telephone number, stated
above.
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.
TABLE OF CONTENTS
Expense Summary . . . . . . 1 How to Redeem Shares . . . 10
The Fund . . . . . . . . . 2 Retirement Plans . . . . . 12
Investment Objectives and Dividends, Distributions and
Strategy . . . . . . . . . 2 Taxes . . . . . . . . . . . 13
Investment Policies and Risks2 Dividend Reinvestment . . . 14
Investment Restrictions . . 6 Capital Structure . . . . . 14
Management of the Fund . . 6 Brokerage Transactions . . 15
Determination of Net Asset Account Statements . . . . 15
Value . . . . . . . . . . . 8 Performance Information . . 15
How to Purchase Shares . . 8
EXPENSE SUMMARY
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load Imposed on Redemptions None
Redemption Fees None(1)
Exchange Fees None(2)
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 1.25%
12b-1 Fees 0.25%(3)
Other Expenses (net of reimbursement) 0.45%(4)
Total Fund Operating Expenses (net of reimbursement)
1.95%(4)
(1) A fee of $12.00 is charged for each wire redemption.
(2) A fee of $5.00 is charged for each telephone exchange.
(3) The maximum level of distribution expenses is 0.25% per annum of
the Fund's average net assets. See "HOW TO PURCHASE SHARES -
Service and Distribution Plan." The distribution expenses for
long-term shareholders may total more than the maximum sales
charge that would have been permissible if imposed entirely as
an initial sales charge.
(4) The Fund's investment adviser, Thurlow Capital Management, Inc.,
has agreed to reimburse the Fund to limit the total operating
expenses of the Fund (excluding interest, taxes, brokerage and
extraordinary expense) to an annual rate of 1.95% of the Fund's
average net assets for the fiscal year ending June 30, 1998.
After this date, the expense limitation may be terminated or
revised at any time. The Fund estimates that absent the
limitation Other Expenses and Total Fund Operating Expenses
would be 1.25% and 2.75%, respectively, for the fiscal year
ending June 30, 1998.
Example:
1 Year 3 Years
An investor would pay the following expenses on
a $1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each period: $20 $62
The purpose of the preceding table is to assist investors in understanding
the various costs that an investor in the Fund will bear, directly or
indirectly. The example shown above should not be considered a
representation of past or future expenses or rates of return. Actual
operating expenses or rate of return may be more or less than those shown.
The example assumes a 5% annual rate of return pursuant to requirements of
the Securities and Exchange Commission. This hypothetical rate of return
is not intended to be representative of past or future performance of the
Fund.
THE FUND
The Thurlow Funds, Inc. (the "Company") was incorporated under the laws of
Maryland on April 30, 1997 and is a no-load, open-end, diversified
management investment company, better known as a mutual fund. The Company
is registered under the Investment Company Act of 1940 (the "Act"). The
Company presently consists of one diversified investment portfolio, the
Thurlow Growth Fund (the "Fund"). Thurlow Capital Management, Inc. (the
"Adviser") serves as the Fund's investment adviser. Thomas F. Thurlow,
founder and President of the Adviser, manages the investment of the Fund.
Shares of the Fund are sold at net asset value. The minimum initial
investment is $1,000 and the minimum for additional investments is $100.
As an open-end investment company, the Fund will redeem any of its
outstanding shares on demand of the owner at their net asset value.
INVESTMENT OBJECTIVES AND STRATEGY
The Fund's primary investment objective is capital appreciation, with
current income as a secondary objective. The Fund seeks to achieve its
primary investment objective by investing primarily in common stocks of
U.S. companies but may also invest, subject to specific limitations, in
options on securities and stock indexes, convertible securities, common
stocks of foreign issuers publicly-traded in the U.S. and American
Depository Receipts. The Fund seeks to achieve its secondary objective of
current income by investing in dividend paying common stocks, convertible
securities, U.S. government securities and short-term money market
instruments.
The Adviser generally utilizes a "middle-down" approach to investing. In
middle-down analysis, the Adviser focuses on a sector of the stock market
it believes is either undervalued or is gaining momentum in the upward
share prices of its components. Within such a sector, the Adviser then
focuses on company-specific variables such as competitive industry
dynamics, market leadership, proprietary products and services, and
management expertise, as well as on financial characteristics, such as
return on sales and equity, debt/equity ratios, earnings and cash flow.
In using a "middle-down" approach, the Adviser seeks attractively-priced
companies in undervalued sectors.
The Adviser may, from time to time, also utilize a "top-down" or "bottom-
up" approach. In top-down analysis, the Adviser focuses on macroeconomic
factors such as inflation, interest, currency, and tax rates. In bottom-
up analysis, the Adviser focuses exclusively on company-specific variables
such as competitive industry dynamics, market leadership, proprietary
products and services, and management expertise, as well as on financial
characteristics, such as return on sales and equity, debt/equity ratios,
earnings and cash flow.
INVESTMENT POLICIES AND RISKS
General Risks
Investment in any mutual fund has risks. There can be no assurance that
the investment objectives of the Fund will be realized or that the Fund's
portfolio will not decline in value. Many of the investments made by the
Fund are subject to significant volatility. Risks associated with the
specific types of securities in which the Fund may invest and with the
investment techniques employed by the Fund are discussed below. The Fund
is intended for investors who can accept this risk. An investment in the
Fund should not be considered as a complete investment program. The Fund
is not an appropriate vehicle for a short-term investor or for those
investors having immediate financial requirements. Rather, the Fund is
designed for those investors who invest for the long term and have the
financial ability to undertake greater risk in exchange for the
opportunity of realizing greater financial gains in the future.
The fact the Fund has no operating history and that the Adviser has no
prior experience advising investment companies should be considered to be
risk factors. The Adviser is solely responsible for the selection of
securities for investment by the Fund. Neither Thomas F. Thurlow, A
Professional Corporation, nor Thurlow & Hearn, an association of
attorneys, are responsible for any of the operations of the Company, the
Fund or the Adviser.
Common Stock
The Fund invests primarily in stocks of United States companies. The Fund
generally looks for attractively-priced companies in undervalued sectors.
The Fund may invest in companies with modest capitalization, as well as in
start-up companies. Such companies often involve greater risks than
larger companies because they lack the management experience, financial
resources, product diversification, markets, distribution channels and
competitive strengths of larger companies. Additionally, in many
instances, the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of smaller
companies as well as start-up companies may be subject to wider price
fluctuations. The spreads between the bid and asked prices of the
securities of these companies in the U.S. over-the-counter market
typically are larger than the spreads for more actively traded securities.
As a result, the Fund could incur a loss if it determined to sell such a
security shortly after its acquisition. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may
have to make a series of small sales over an extended period of time due
to the trading volume of smaller company securities.
Options on Securities and Stock Indexes
The Fund may buy put and call options on securities (including long-term
options or "LEAPs") and stock indexes, provided that immediately after
purchase of any such option the aggregate sum of the premiums paid for
such options will not exceed 20% of the Fund's net assets. The Fund will
not sell (write) put or call options except to enter into closing sale
transactions to liquidate options that it holds. When buying a put
option on a security, the Fund has the right, in return for a premium paid
during the term of the option, to sell the securities underlying the
option at the exercise price. When buying a call option on a security,
the Fund has the right, in return for a premium paid during the term of
the option, to purchase the securities underlying the option at the
exercise price. If a put or a call option which the Fund has purchased
expires unexercised, the option will become worthless on the expiration
date, and the Fund will realize a loss in the amount of the premium paid,
plus commission costs. A stock index fluctuates with changes in the
market values of the stocks included in the index. Options on stock
indexes give the holder the right to receive an amount of cash upon the
exercise of the options. Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being
greater than (in the case of a call) or less than (in the case of a put)
the exercise price of the option. The amount of cash received, if any,
will be the difference between the closing price of the index and the
exercise price of the option multiplied by a specified dollar multiple.
All settlements of index option transactions are in cash. No assurance
can be given that a market will exist at all times for all outstanding
options purchased by the Fund. In such event, the Fund would be unable to
realize its profits or limit its losses unless it exercised the options it
holds.
Foreign Securities
The Fund may invest without limitation in common stocks of foreign issuers
which are publicly traded on U.S. exchanges or in the U.S. over-the-
counter market directly or in the form of American Depository Receipts
("ADRs"). The Fund will only invest in ADRs that are issuer sponsored.
Sponsored ADRs typically are issued by a U.S. bank or trust company and
evidences ownership of underlying securities issued by a foreign
corporation. Such securities involve risks that are different from those
of domestic issuers. Foreign companies are not subject to the regulatory
requirements of U.S. companies and, as such, there may be less publicly
available information about such issuers than is available in the reports
and ratings published about companies in the United States. Additionally,
foreign companies are not subject to uniform accounting, auditing and
financial reporting standards. Dividends and interest on foreign
securities may be subject to foreign withholding taxes. To the extent
such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax laws, such taxes may reduce the net return
to shareholders. Although the Fund intends to invest in securities of
foreign issuers domiciled in nations which the Adviser considers as having
stable and friendly governments, there is the possibility of
expropriation, confiscation, taxation, currency blockage or political or
social instability which could affect investments of foreign issuers
domiciled in such nations.
Convertible Securities
The Fund may invest in convertible securities. A convertible security may
be converted either at a stated price or rate within a specified period of
time into a specified number of shares of common stock. By investing in
convertible securities, the Fund seeks the opportunity, through the
conversion feature, to participate in a portion of the capital
appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from
the common stock. Typically, the convertible debt securities in which the
Fund will invest will be of a quality less than investment grade (so-
called "junk bonds"). The Fund will, however, limit its investment in
non-investment grade convertible debt securities to no more than 5% of its
net assets at the time of purchase and will not acquire convertible debt
securities rated below B by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"), or unrated securities deemed by the
Adviser to be of comparable quality. Securities rated B are considered
predominantly speculative and generally lack the characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the bond over any long period of time may be
small. Subsequent to its purchase by the Fund, a rated security may cease
to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in
determining whether the Fund should continue to hold the security. The
Adviser expects, however, to sell promptly any convertible debt securities
that fall below a B rating quality as a result of these events. See the
Statement of Additional Information for a description of applicable debt
ratings.
Illiquid Securities
The Fund does not anticipate doing so, but it may invest up to 10% of the
value of its net assets in illiquid securities, including restricted
securities. Securities eligible to be resold pursuant to Rule 144A under
the Securities Act of 1933 may be considered liquid. In determining the
liquidity of a security, the Adviser, acting pursuant to procedures
adopted by the Board of Directors, will consider such factors as the
frequency of trades and quotes, the number of dealers and potential
purchasers, dealer undertakings to make a market, the nature of the
securities, marketplace trades and other permissible factors. Investing
in Rule 144A securities could have the effect of decreasing the liquidity
of the Fund, to the extent that qualified institutional buyers become, for
a time, uninterested in purchasing these securities.
Defensive Strategies
If the Adviser believes that adverse market conditions make pursuing the
Fund's primary investment objective inconsistent with the best interests
of the shareholders, the Adviser may temporarily invest up to 100% of its
assets in money market instruments or U.S. government securities. The
Fund may also invest in money market instruments and U.S. government
securities to achieve its secondary investment objective of current income
and in money market instruments in amounts the Adviser believes are
reasonably necessary to satisfy anticipated redemption requests.
Money Market Instruments. The Fund may invest in short-term, high quality
money market instruments and U.S. Treasury securities with a remaining
maturity of 13 months or less. The Fund may invest in certificates of
deposit of U.S. banks and commercial paper and commercial paper master
notes if the bank or commercial paper issuer has been rated within the two
highest grades assigned by S&P or Moody's or has been determined by the
Adviser to be of equivalent quality or, in the case of banks, provided the
bank has capital, surplus and undivided profits, as of the date of its
most recently published annual financial statements, with a value in
excess of $100,000,000 at the time of the investment. Commercial paper
master notes are unsecured promissory notes issued by corporations to
finance short-term credit needs. They permit a series of short-term
borrowings under a single note. Borrowings under commercial paper master
notes are payable in whole or in part at any time, may be prepaid in whole
or in part at any time, and bear interest at rates which are fixed to
known lending rates and automatically adjusted when such known lending
rates change. Because commercial paper master notes can be redeemed on
demand, commercial paper master notes are considered to be liquid
securities. There is no secondary market for commercial paper master
notes. The Adviser will monitor the credit-worthiness of the issuer of
the commercial paper master notes while any borrowings are outstanding.
The Fund may also invest in securities issued by other investment
companies that invest in high quality, short-term debt securities (i.e.,
money market instruments). In addition to the advisory fees and other
expenses the Fund bears directly in connection with its operations as a
shareholder of another investment company, the Fund would bear its pro
rata share of the other investment company's advisory fees and other
expenses, and such fees and other expenses will be borne indirectly by the
Fund's shareholders.
U.S Government Securities. The Fund intends to invest only in U.S.
government securities that are backed by the full faith and credit of the
U.S. Treasury. Yields on such securities are dependent on a variety of
factors, including the general conditions of the money and bond markets,
the size of a particular offering and the maturity of the obligation.
Debt securities with longer maturities tend to produce higher yields and
are generally subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities. The market value
of U.S. government securities generally varies inversely with changes in
market interest rates. An increase in interest rates, therefore, would
generally reduce the market value of the Fund's portfolio of investment in
U.S. government securities, while a decline in interest rates would
generally increase the market value of the Fund's portfolio of investments
in these securities.
Other Investment Practices
The Fund's investment restrictions permit it to invest in warrants, borrow
money to purchase securities, effect short sales and lend its portfolio
securities. The Fund does not intend to engage in these investment
practices during the fiscal year ending June 30, 1998. A description of
these investment practices is set forth in the Statement of Additional
Information.
Portfolio Turnover
The Fund will generally purchase and sell securities without regard to the
length of time the security has been held and, accordingly, it can be
expected that the rate of portfolio turnover may be substantial. In
selling a security, the Adviser will consider that profits from sales of
securities held less than three months must be limited in order to meet
the requirement of Subchapter M of the Internal Revenue Code. Subject to
the foregoing, the Fund may sell a given security, no matter for how long
or short a period it has been held in the portfolio, and no matter whether
the sale is at a gain or loss, if the Adviser believes that it is not
fulfilling its purpose. Since investment decisions are based on the
anticipated contribution of the security in question to the Fund's
investment objectives, the rate of portfolio turnover is irrelevant when
the Adviser believes a change is in order to achieve those objectives, and
the Fund's annual portfolio rate may vary from year to year. The Fund's
portfolio rate will generally not exceed 200%.
High portfolio turnover (100% or more) in any year will result in the
payment by the Fund of above-average transaction costs (including
brokerage commissions) and could result in the payment by shareholders of
above- average amounts of taxes on realized investment gains.
Distributions to shareholders of such investment gains, to the extent they
consist of net short-term capital gains will be considered ordinary income
for federal tax purposes. See "DIVIDENDS, DISTRIBUTIONS AND TAXES."
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions that may
be changed only with the approval by a majority of the Fund's outstanding
shares. These restrictions include the following:
(1) The Fund will not purchase the securities of any issuer if the
purchase would cause more than 5% of the value of the Fund's
total assets to be invested in securities of such issuer (except
securities of the U.S. government or any agency or
instrumentality thereof), or purchase more than 10% of the
outstanding voting securities of any one issuer, except that up
to 25% of the Fund's total assets may be invested without regard
to these limitations.
(2) The Fund will not invest 25% or more of its total assets at the
time of purchase in securities of issuers whose principal
business activities are in the same industry.
A list of the Fund's policies and restrictions, both fundamental and
nonfundamental, is set forth in the Statement of Additional Information.
In order to provide a degree of flexibility, the Fund's investment
objectives, as well as other policies that are not deemed fundamental, may
be modified by the Board of Directors without shareholder approval.
MANAGEMENT OF THE FUND
As a Maryland corporation, the business and affairs of the Fund are
managed by the Board of Directors. The Fund has entered into an
investment advisory agreement (the "Advisory Agreement") with Thurlow
Capital Management, Inc. (the "Adviser"), P.O. Box 50427, Palo Alto,
California 94303-0427, under which the Adviser furnishes continuous
investment advisory services and management to the Fund. The Adviser was
organized in 1997 and is wholly owned by Thomas F. Thurlow, who is the
Chief Executive Officer of the Adviser.
Thomas F. Thurlow, Chief Executive Officer and founder of the Adviser, is
primarily responsible for the day-to-day management of the Fund's
portfolio. He has held this responsibility since the Fund commenced
operations. Mr. Thurlow has also served as President, Treasurer and a
director of the Fund since it was organized. Mr. Thurlow is an attorney,
former prosecutor and founder and associate of the law firm of Thurlow &
Hearn, an association of attorneys. He has been practicing law since
1989.
The Adviser supervises and manages the investment portfolio of the Fund
and, subject to such policies as the Board of Directors may determine,
directs the purchase or sale of investment securities in the day-to-day
management of the Fund. Under the Advisory Agreement, the Adviser, at its
own expense and without separate reimbursement from the Fund, furnishes
office space, and all necessary office facilities, equipment and executive
personnel for managing the Fund's investments, and bears all sales and
promotional expenses of the Fund, other than distribution expenses paid by
the Fund pursuant to the Service and Distribution Plan and expenses
incurred in complying with laws regulating the issue or sale of
securities. For the foregoing, the Adviser receives a monthly fee of
1/12th of 1.25% (1.25% per annum) of the daily net assets of the Fund.
The Fund pays all of its expenses not assumed by the Adviser pursuant to
the Advisory Agreement, including, but not limited to, the professional
costs of preparing and the cost of printing its registration statements
required under the Securities Act of 1933 and the Investment Company Act
of 1940 and any amendments thereto, the expense of registering its shares
with the Securities and Exchange Commission and in the various states, the
printing and distribution cost of prospectuses mailed to existing
shareholders, director and officer liability insurance, reports to
shareholders, reports to government authorities and proxy statements,
interest charges, brokerage commissions and expenses in connection with
portfolio transactions. The Fund also pays the fees of directors who are
not interested persons of the Adviser or officers or employees of the
Fund, salaries of administrative and clerical personnel, association
membership dues, auditing and accounting services, fees and expenses of
any custodian or trustees having custody of Fund assets, expenses of
repurchasing and redeeming shares, printing and mailing expenses, charges
and expenses of dividend disbursing agents, registrars and stock transfer
agents, including the cost of keeping all necessary shareholder records
and accounts and handling any problems related thereto.
The Fund has also entered into an administration agreement (the
"Administration Agreement") with Firstar Trust Company (the
"Administrator"), 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Under the Administration Agreement, the Administrator maintains the books,
accounts and other documents required by the Act, responds to shareholder
inquiries, prepares the Fund's financial statements and tax returns,
prepares certain reports and filings with the Securities and Exchange
Commission and with state Blue Sky authorities, furnishes statistical and
research data, clerical, accounting and bookkeeping services and
stationery and office supplies, keeps and maintains the Fund's financial
and accounting records and generally assists in all aspects of the Fund's
operations. The Administrator, at its own expense and without
reimbursement from the Fund or the Company, furnishes office space and all
necessary office facilities, equipment and executive personnel for
performing the services required to be performed by it under the
Administration Agreement. For the foregoing, the Administrator receives
from the Fund a fee, paid monthly, at an annual rate of .06% of the first
$200,000,000 of the Fund's average net assets, .05% of the next
$500,000,000 of the Fund's average net assets, and .03% of the Fund's net
assets in excess of $700,000,000. Notwithstanding the foregoing, the
Administrator's minimum annual fee is $30,000.
Firstar Trust Company also provides custodial and transfer agency services
for the Fund. Information regarding the fees payable by the Fund to
Firstar Trust Company for these services is provided in the Statement of
Additional Information.
DETERMINATION OF NET ASSET VALUE
Shares are purchased at their net asset value per share. The Fund
calculates its net asset value by dividing the total value of its net
assets (meaning its assets less its liabilities) by the total number of
its shares outstanding at that time. Net asset value is determined as of
the end of regular trading hours on the New York Stock Exchange (currently
4:00 p.m. New York City time) on days that the New York Stock Exchange is
open for trading. This determination is applicable to all transactions in
shares of the Fund prior to that time and after the previous time as of
which net asset value was determined. Accordingly, purchase orders for
Fund shares accepted or Fund shares tendered for redemption prior to the
close of regular trading on a day the New York Stock Exchange is open for
trading will be valued as of the close of trading, and purchase orders for
Fund shares accepted or Fund shares tendered for redemption after that
time will be valued as of the close of the next trading day.
Common stocks that are listed on any national stock exchange or quoted on
the NASDAQ Stock Market will be valued at the last sale price on the date
valuation is made. Price information on listed securities is taken from
the exchange where the security is primarily traded. Common stocks which
are listed on any national stock exchange or the NASDAQ Stock Market but
which are not traded on the valuation date will be valued at the current
bid prices. Unlisted equity securities for which market quotations are
readily available and options are valued at the current bid prices. Debt
securities which will mature in more than 60 days will be valued at the
latest bid prices furnished by an independent pricing service. Short-term
instruments (those with remaining maturities of 60 days or less) will be
valued at amortized cost, which approximates market value. Other assets
and securities for which there are no readily available market quotations
are valued at their fair value as determined by the Adviser in accordance
with procedures approved by the Board of Directors.
HOW TO PURCHASE SHARES
Shares of the Fund may be purchased directly from the Company. The price
per share of the Fund is its next determined per share net asset value
after receipt of a completed account application. A purchase application
is included with this Prospectus. Additional account applications may be
obtained from the Company.
Initial Investment
The Board of Directors of the Company has established $1,000 as the
minimum initial purchase for the Fund (except for initial purchases
through the Automatic Investment Plan or an Individual Retirement Account
for which the minimum is $500) and $100 as the minimum for any subsequent
purchase (except through dividend reinvestment), which minimum amounts are
subject to change at any time. Shareholders of the Fund will be advised
at least 30 days in advance of any increases in such minimum amounts.
To Purchase By Mail
Account applications should be mailed directly to The Thurlow Funds, c/o
Firstar Trust Company, P.O. Box 701, Milwaukee, WI 53201 0701. All
applications must be accompanied by payment in the form of a check made
payable to The Thurlow Growth Fund. All purchases must be made in U.S.
dollars and checks drawn on U.S. banks. No third party checks or cash
will be accepted. Firstar Trust Company will charge a $20 fee against a
shareholder's account for any payment check returned to the custodian.
The shareholder will also be responsible for any losses suffered by the
Fund as a result. When a purchase is made by check and redemption is made
shortly thereafter, the Company may delay the mailing of a redemption
check until it is satisfied that the check has cleared, which may take up
to twelve days. To avoid redemption delays, purchases may be made by
cashiers or certified check or by direct wire transfers. Note: Different
forms are used for establishing retirement plans. Please call Firstar
Trust Company at 1-888-848-7569 to obtain such forms. The U.S. Postal
Service and other independent delivery services are not agents of the
Fund. Therefore, deposit in the mail or with such services of account
applications does not constitute receipt by Firstar Trust Company or the
Fund. DO NOT mail account applications by overnight courier to the post
office box address. Instead please follow the instructions set forth
below.
To Purchase by Overnight or Express Mail
Account applications also may be sent by overnight or express mail.
Please use the following address to insure proper delivery: The Thurlow
Funds, c/o Firstar Trust Company, Mutual Fund Services, 3rd Floor, 615
East Michigan Street, Milwaukee, Wisconsin 53202. DO NOT mail purchase
application by overnight courier to the post office box address.
To Purchase by Wire
The establishment of a new account by wire transfer should be preceded by
a telephone call to Firstar Trust Company at 1-888-848-7569 to provide
information for the setting up of the account. A completed account
application also must be sent to the Fund at the above address immediately
following the investment. A purchase request for The Thurlow Growth Fund
should be wired through the Federal Reserve System as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA number 0750-00022
For credit to Firstar Trust Company
Account Number 112-952-137
For further credit to The Thurlow Growth Fund
Shareholder name:__________________________
Shareholder account number: _______________________
To Make Additional Investments
Shareholders of the Fund may add to their account at any time by
purchasing shares by mail ($100 minimum) or by wire ($500 minimum)
according to the instructions above. Shareholders should notify Firstar
Trust Company at 1-888-848-7569 prior to sending a wire. The remittance
form that is attached to a shareholder's individual account statement
should, if possible, accompany any investment made through the mail.
Every purchase request must include a shareholder's account registration
number in order to assure that funds are credited properly.
Automatic Investment Plan
The Fund offers an Automatic Investment Plan whereby a shareholder may
automatically make purchases of Fund shares on a regular, convenient basis
($100 minimum per transaction). Under the Automatic Investment Plan, a
shareholder's designated bank or other financial institution debits a pre-
authorized amount on the shareholder's account on any date specified by
the shareholder each month or calendar quarter and applies the amount to
the purchase of Fund shares. If such date is a weekend or holiday, such
purchase shall be made on the next business day. The Automatic Investment
Plan must be implemented with a financial institution that is a member of
the Automatic Clearing House ("ACH"). The Fund currently does not charge
a fee for participating in the Automatic Investment Plan. The transfer
agent, Firstar Trust Company, will impose a $20 fee if sufficient funds
are not available in the shareholder's account at the time of the
automatic transaction. An application to establish the Automatic
Investment Plan is included as part of the account application.
Shareholders may change the date or amount of investments at any time by
writing to or calling Firstar Trust Company at 1-888-848-7569. In the
event an investor discontinues participation in the Automatic Investment
Plan, the Fund reserves the right to redeem the investor's account
involuntarily, upon 60 days notice, if the account value is $500 or less.
General Information
As a no-load mutual fund, the Fund imposes no sales commissions and,
therefore, the entire amount of an investment in the Fund is used to
purchase shares in the Fund. All shares purchased will be credited to the
shareholder's account and confirmed by a statement mailed to the
shareholder's address. The Company does not issue stock certificates for
shares purchased. Applications are subject to acceptance by the Company
and are not binding until so accepted. The Fund does not, except as
indicated in the following sentence, accept telephone orders for the
purchase of shares, and it reserves the right to reject applications in
whole or in part. The Fund may accept telephone orders from broker-
dealers who have been previously approved by the Fund. It is the
responsibility of such broker-dealers promptly to forward purchase or
redemption orders to the Fund. Although there is no sales charge levied
directly by the Fund, such broker-dealers may charge the investor a fee
for their services at either the time of purchase or the time of
redemption. Such charges may vary among broker-dealers but in all cases
will be retained by the broker-dealer and not remitted to the Fund or the
Adviser.
Service and Distribution Plan
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the
Fund in connection with the distribution of their shares at an annual
rate, as determined from time to time by the Board of Directors, of up to
0.25% of the Fund's average daily net assets. Payments made pursuant to
the Plan may only be used to pay distribution expenses in the year
incurred. Amounts paid under the Plan by the Fund may be spent by the
Fund on any activities or expenses primarily intended to result in the
sale of shares of the Fund as determined by the Board of Directors,
including but not limited to, advertising, compensation for sales and
sales marketing activities of financial institutions and others, such as
dealers or other distributors, shareholder account servicing, production
and dissemination of prospectuses and sales and marketing materials, and
capital or other expenses of associated equipment, rent salaries, bonuses,
interest and other overhead. To the extent any activity is one which the
Fund may finance without a Plan, the Fund may also make payments to
finance such activity outside of the Plan and not subject to its
limitations.
HOW TO REDEEM SHARES
Regular Redemption
A shareholder may require the Company to redeem his or her shares on the
Fund in whole or in part at any time during normal business hours.
Redemption requests may be made in writing and directed to The Thurlow
Funds, c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin
53201 0701. Redemption requests sent by overnight or express mail should
be directed to The Thurlow Funds, c/o Firstar Trust Company, Mutual Fund
Services, 3rd Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
DO NOT mail redemption requests by overnight courier to the post office
box address. If a redemption request is inadvertently sent to the Company
at its corporate address, it will be forwarded to Firstar Trust Company,
and the effective date of redemption will be delayed until Firstar Trust
Company receives the request. Requests for redemption which are subject
to any special conditions or which specify an effective date other than as
provided herein cannot be honored by the Fund.
Redemption requests should specify the name of the Fund, the number of
shares or dollar amount to be redeemed, shareholder's name, account
number, and the additional requirements listed below that apply to the
particular account.
Type of Registration Requirements
Individual, Joint Tenants, Redemption request signed by all
Sole Proprietor, Custodial person(s) required to sign for the
(Uniform Gift to Minors Act) account, exactly as it is registered.
General Partners
Corporations, Associations Redemption request and a corporate
resolution, signed by the person(s)
required to sign for the account,
accompanied by signature guarantee(s).
Trusts Redemption requests signed by the
Trustee(s) with a signature guarantee.
(If the Trustee's name is not
registered on the account, a copy of
the trust document certified within the
last 60 days is also required.)
Redemption requests from shareholders in an Individual Retirement Account
must include instructions regarding federal income tax withholding.
Unless otherwise indicated, these redemptions, as well as redemptions of
other retirement plans not involving a direct rollover to an eligible
plan, will be subject to federal income tax withholding. If a shareholder
is not included in any of the above registration categories (e.g.,
executors, administrators, conservators or guardians), the shareholder
should call the transfer agent, Firstar Trust Company, at 1-888-848-7569
for further instructions.
Signatures need not be guaranteed unless otherwise indicated above, the
redemption request exceeds $25,000, or the proceeds of the redemption are
requested to be sent by wire transfer, or to a person other than the
registered holder or holders of the shares to be redeemed, or to be mailed
to other than the address of record, in which cases each signature on the
redemption request must be guaranteed by a commercial bank or trust
company in the United States, a member of the New York Stock Exchange or
other eligible guarantor institution. Redemptions will not be effective
or complete until all of the foregoing conditions, including receipt of
the redemption request by Firstar Trust Company in its capacity as
transfer agent, have been satisfied.
The redemption price is the net asset value next determined after receipt
by Firstar Trust Company in its capacity as transfer agent of the written
redemption request. The amount received will depend on the market value
of the investments in the Fund's portfolio at the time of determination of
net asset value, and may be more or less than the cost of the shares
redeemed. A check in payment for shares redeemed will be mailed to the
shareholder no later than the seventh day after receipt of the redemption
request except as indicated in "HOW TO PURCHASE SHARES" for certain
redemptions of shares purchased by check.
Telephone Redemption
Shares of the Fund may also be redeemed by calling the transfer agent,
Firstar Trust Company, at 1-888-848-7569. In order to utilize this
procedure for telephone redemption, a shareholder must have previously
elected this procedure in writing, which election will be reflected in
the records of Firstar Trust Company, and the redemption proceeds must
be mailed directly to the investor or transmitted to the investor's pre-
designated account at a domestic bank. To change the designated account
or address, the investor should send a written request with signature(s)
guaranteed to Firstar Trust Company. Any written redemption requests
received within 15 days after an address change must be accompanied by a
signature guarantee and no telephone redemptions will be allowed within 15
days of such a change. Once made, telephone redemption requests may not
be modified or canceled. The selling price of each share being redeemed
will be the Fund's per share net asset value next calculated after receipt
by Firstar Trust Company of the telephone redemption request.
The Fund reserves the right to refuse a telephone redemption if it
believes it is advisable to do so. Procedures for redeeming shares of
the Fund by telephone may be modified or terminated by the Fund at any
time. Neither the Fund nor Firstar Trust Company will be liable for
following instructions for telephone redemption transactions which they
reasonably believe to be genuine, even if such instructions prove to be
unauthorized or fraudulent, but may be liable for unauthorized
transactions if they fail to follow such procedures. These procedures
include requiring shareholders to provide some form of personal
identification prior to acting upon telephone instructions and recording
all telephone calls.
During periods of substantial economic or market changes, telephone
redemptions may by difficult to implement. If an investor is unable to
contact Firstar Trust Company by telephone, the investor may then redeem
his or her shares by delivering the redemption request to Firstar Trust
Company by mail as described above.
The Fund reserves the right to redeem the shares held in any account if at
the time of any transfer or redemption of Fund shares in the account, the
value of the remaining shares in the account falls below $1,000.
Shareholders will be notified in writing that the value of your account is
less than the minimum and allowed at least 60 days to make an additional
investment. The receipt of proceeds from the redemption of shares held in
an Individual Retirement Account ("IRA") will constitute a taxable
distribution of benefits from the IRA unless a qualifying rollover
contribution is made. Involuntary redemptions will not be made because
the value of shares in an account falls below $1,000 solely because of a
decline in the Fund's net asset value.
A shareholder's right to redeem shares of the Fund will be suspended and
the right to payment postponed for more than seven days for any period
during which the New York Stock Exchange is closed because of financial
conditions or any other extraordinary reason and may be suspended for any
period during which (a) trading on the New York Stock Exchange is
restricted pursuant to rules and regulations of the Securities and
Exchange Commission, (b) the Securities and Exchange Commission has by
order permitted such suspension or (c) such emergency, as defined by rules
and regulations of the Securities and Exchange Commission, exists as a
result of which it is not reasonably practicable for the Fund to dispose
of its securities or fairly to determine the value of its net assets.
RETIREMENT PLANS
The Fund offers the following retirement plans that may be funded with
purchases of Fund shares and may allow investors to shelter or defer some
of their income from taxes. A description of applicable service fees and
certain limitations on contributions and withdrawals, as well as
applications forms, are available from the Fund upon request. The IRA
documents contain a disclosure statement that the Internal Revenue Service
requires to be furnished to individuals who are considering adopting an
IRA. Because a retirement program involves commitments covering future
years, it is important that the investment objective of the Fund be
consistent with the participant's retirement objectives. Premature
withdrawals from a retirement plan will result in adverse tax
consequences.
Individual Retirement Account ("IRA")
Individuals who receive compensation or earned income, even if they are
active participants in a qualified retirement plan (or certain similar
retire plans), may establish their own tax-sheltered Individual Retirement
Account ("IRA"). The Fund offers a prototype IRA plan that may be adopted
by individuals. There is currently no charge for establishing an IRA
account although there is an annual maintenance fee.
Earnings on amounts held in an IRA are not taxed until withdrawal. The
amount of deduction, if any, allowed for IRA contributions is limited for
individuals who are active participants in an employer maintained
retirement plan and whose income exceeds specific limits.
Simplified Employee Pension Plan ("SEP/IRA")
The Fund also offers a prototype simplified employee pension ("SEP") plan
for employers, including self-employed individuals, who wish to purchase
shares of the Fund with tax-deductible contributions not exceeding
annually for any one participant the lesser of $30,000 or 15% of earned
income. Under the SEP plan, employer contributions are made directly to
the IRA accounts of eligible participants.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund will distribute quarterly in March, June, September and December
any net investment income and annually in December any net realized
capital gains to shareholders. Dividend and capital gains distributions
may be automatically reinvested or received in cash.
The Fund will attempt to qualify annually for taxation as a "regulated
investment company" under the Internal Revenue Code so that the Fund will
not be subject to federal income tax to the extent its income is
distributed to shareholders. Dividends paid by the Fund from net
investment income and net short-term capital gains, whether received in
cash or reinvested in additional shares, will be taxable to shareholders
as ordinary income. Distributions paid by the Fund from long-term capital
gains, whether received in cash or reinvested in additional shares, are
taxable as long-term capital gains, regardless of the length of time the
shareholder has owned his or her shares. Capital gains distributions are
made when the Fund realizes net capital gains on sales of portfolio
securities during the year. The Fund does not seek to realize any
particular amount of capital gains during a year; rather, realized gains
are a by-product of portfolio management activities. Consequently,
capital gains distributions may be expected to vary considerably from year
to year; there will be no capital gains distributions in years when the
Fund realizes any net capital loss.
The Fund will notify the shareholder annually as to the tax status of
dividend and capital gains distributions paid by the Fund. A sale or
redemption of shares in the Fund is a taxable event and may result in a
capital gain or loss. Dividend distributions, capital gains
distributions, and capital gains or losses from redemptions may be subject
to state and local taxes.
The Fund may be required to withhold Federal income tax at a rate of 31%
("backup withholding") from dividend payments and redemption proceeds if a
shareholder fails to furnish the Fund with his or her social security or
other tax identification number and certify under penalty of perjury that
such number is correct and that he or she is not subject to backup
withholding. The certification form is included as part of the account
application and shall be completed when the account is opened.
The tax discussion set forth above is included for general information
purposes only. Perspective investors should consult their own tax
advisers concerning the tax consequences of an investment in the Fund.
DIVIDEND REINVESTMENT
The shareholder may elect to have all income dividends and capital gains
distributions reinvested in shares of the Fund, or paid in cash, or elect
to have income dividends reinvested and capital gains distributions
reinvested or paid in cash, or capital gains distributions reinvested and
income dividends paid in cash. Please refer to the accouunt application
form accompanying this Prospectus for further information. If the
applicant does not specify an election, all dividends and capital gains
distributions will automatically be reinvested in full and fractional
shares of the Fund calculated at the nearest 1,000th of a share. Shares
are purchased at the net asset value in effect on the business day after
the dividend record date and are credited to the shareholder's account on
the dividend payment date. Cash dividends are also paid on the dividend
payment date. The shareholder will be advised of the number of shares
purchased and the price following each such reinvestment. An election to
reinvest or to receive dividends and distributions in cash will apply to
all shares registered to the shareholder, including those previously
registered.
The shareholder may change an election at any time by notifying the Fund
at any time in writing. If such a notice is received between a dividend
declaration date and payment date, it will become effective on the day
following the payment date. The Fund may modify or terminate its dividend
reinvestment program at any time on a thirty days' notice to participants.
CAPITAL STRUCTURE
The Company's Articles of Incorporation permit the Board of Directors to
issue 500,000,000 shares of common stock. The Board of Directors has the
power to designate one or more classes ("series") of shares of common
stock and to designate or redesignate any unissued shares with respect to
such series. Currently the shares of the Fund are the only series of
shares being offered by the Company. The Company is controlled by Thomas
F. Thurlow and Thomas N. Thurlow, the father of Thomas F. Thurlow, each of
whom owns 50% of the shares of the Fund as of August 1, 1997.
Shareholders are entitled: (i) to one vote per full share; (ii) to such
distributions as may be declared by the Company's Board of Directors out
of funds legally available; and (iii) upon liquidation, to participate
ratably in the assets available for distribution. There are no conversion
or sinking fund provisions applicable to the shares, and the holders have
no preemptive rights and may not cumulate their votes in the election of
directors. Consequently the holders of more than 50% of the shares of the
Fund voting for the election of directors can elect the entire Board of
Directors and in such event the holders of the remaining shares voting for
the election of directors will not be able to elect any person or persons
to the Board of Directors. The shares are redeemable and are
transferable. All shares issued and sold by the Fund will be fully paid
and nonassessable. Fractional shares entitle the holder to the same
rights as whole shares. The Fund will not issue certificates evidencing
shares. Instead the shareholder's account will be credited with the
number of shares purchased, relieving shareholders of responsibility for
safekeeping of certificates and the need to deliver them upon redemption.
Written confirmations are issued for all purchases of shares. Firstar
Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202 acts
as the Fund's transfer agent and dividend disbursing agent.
The Maryland Business Corporation Law permits registered investment
companies, such as the Fund, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not
required by the Act. The Fund has adopted the appropriate provisions in
its Bylaws and does not anticipate holding an annual meeting of
shareholders to elect directors unless otherwise required by the Act. The
Fund has also adopted provisions in its Bylaws for the removal of
directors by its shareholders.
BROKERAGE TRANSACTIONS
The Advisory Agreement authorizes the Adviser to select the brokers or
dealers that will execute the purchases and sales of the Fund's portfolio
securities. In placing purchase and sale orders for the Fund, it is the
policy of the Adviser to seek the best execution of orders at the most
favorable price in light of the overall quality of brokerage and research
services provided. The Advisory Agreement permits the Adviser to pay a
broker which provides brokerage and research services to the Adviser a
commission for effecting securities transactions in excess of the amount
another broker would have charged for executing the transaction, provided
the Adviser believes this to be in the best interests of the Fund.
Although the Fund does not intend to market its shares through
intermediary broker-dealers, the Fund may place portfolio orders with
broker-dealers who recommend the purchase of its shares to clients, if the
Adviser believes the commissions and transaction quality are comparable to
that available from other brokers, and may allocate portfolio brokerage on
that basis.
ACCOUNT STATEMENTS
Shareholders of the Fund will be provided at least semi-annually with a
report showing the Fund's portfolio and other information. After the
close of the Company's fiscal year, which ends June 30, the Fund will
provide the shareholders with an annual report containing audited
financial statements. Firstar Trust Company will send an individual
account statement to shareholders after each purchase, including
reinvestment of dividends, or redemption of shares of the Fund. Each
shareholder will also receive an annual statement after the end of the
calendar year listing all transactions in shares of the Fund during the
year. Shareholders who have questions about their respective accounts
should call Firstar Trust Company at 1-888-848-7569. Shareholders who
have general questions about the Fund or desire additional information
should write to The Thurlow Growth Fund, c/o Firstar Trust Company, P.O.
Box 701, Milwaukee, Wisconsin 53201 0701 or call 1-888-848-7569.
PERFORMANCE INFORMATION
The Fund may provide from time to time in advertisements, reports to
shareholders and other communications with shareholders its average annual
total return. An average annual total return refers to the rate of return
which, if applied to an initial investment in the Fund at the beginning of
a stated period and compounded over the period, would result in the
redeemable value of the investment in the Fund at the end of the stated
period assuming reinvestment of all dividends and distributions and
reflecting the effect or all recurring fees. The Fund may also provide
"aggregate" total return information for various periods, representing the
cumulative change in value of an investment in the Fund for a specific
period (again reflecting changes in share price and assuming reinvestment
of dividends and distributions).
Any reported performance results will be based on historical earnings and
should not be considered as representative of the performance of the Fund
in the future. An investment in the Fund will fluctuate in value and at
redemption its value may be more or less than the initial investment. The
Fund may compare its performance to other mutual funds with similar
investment objectives and to the industry as a whole, as reported by
Morningstar, Inc., Lipper Analytical Services, Inc., Money, Forbes,
Business Week and Barron's magazines and The Wall Street Journal.
(Morningstar, Inc. and Lipper Analytical Services, Inc. are independent
services that each rank over 1,000 mutual funds based upon total return
performance.) The Fund may also compare its performance to the Dow Jones
Industrial Average, Nasdaq Composite Index, Nasdaq Industrials Index,
Value Line Composite Index, the Standard & Poor's 500 Stock Index and the
Consumer Price Index. Such comparisons may be made in advertisements,
shareholder reports or other communications to shareholders.
Investment Adviser:
Thurlow Capital Management, Inc.
P.O. Box 50427
Palo Alto, CA 94303-0427
Administrator, Transfer Agent, Dividend Paying Agent, Shareholder
Servicing Agent & Custodian:
Firstar Trust Company
615 East Michigan Street
P.O. Box 701
Milwaukee, WI 53201 0701
800/261-6950
Legal Counsel:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Independent Auditors:
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, WI 53201-1215
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION August 1, 1997
THE THURLOW FUNDS, INC.
1256 Forest Avenue
Palo Alto, California 94301
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of The Thurlow Funds,
Inc., dated August 1, 1997 (the "Prospectus"), for The Thurlow Growth
Fund. Requests for copies of the Prospectus should be made by writing to
The Thurlow Funds, Inc., 1256 Forest Avenue, Palo Alto, California 94301,
Attention: Secretary or by calling 1-888-848-7569.
THE THURLOW FUNDS, INC.
Table of Contents
Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . 3
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . 8
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 10
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT . . . . . . . . . . . . . 10
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE . . . . . . . . . . 12
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 13
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . 14
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 17
DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . 18
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 22
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 22
No person has been authorized to give any information or to make
any representations other than those contained in this Statement of
Additional Information and the Prospectus dated August 1, 1997 and, if
given or made, such information or representations may not be relied upon
as having been authorized by The Thurlow Funds, Inc.
This Statement of Additional Information does not constitute an
offer to sell securities.
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated August 1, 1997 of The
Thurlow Funds, Inc. (the "Corporation") under the caption "Investment
Objectives and Strategy," the primary investment objective of The Thurlow
Growth Fund (the "Fund") is capital appreciation, with current income as a
secondary objective. Consistent with its investment objectives, the Fund
has adopted the following investment restrictions which are matters of
fundamental policy and cannot be changed without approval of the holders
of the lesser of: (i) 67% of the Fund's shares present or represented at
a stockholders meeting at which the holders of more than 50% of such
shares are present or represented; or (ii) more than 50% of the
outstanding shares of the Fund.
1. The Fund will not purchase securities on margin (except for
such short term credits as are necessary for the clearance of
transactions); provided, however, that the Fund may borrow money to the
extent set forth in investment restriction no. 4.
2. The Fund may sell securities short to the extent permitted
by the Investment Company Act of 1940 (the "Act").
3. The Fund may write put and call options to the extent
permitted by the Act.
4. The Fund may borrow money or issue senior securities to the
extent permitted by the Act.
5. The Fund may pledge or hypothecate its assets to secure its
borrowings.
6. The Fund will not lend money (except by purchasing publicly
distributed debt securities, purchasing securities of a type normally
acquired by institutional investors or entering into repurchase
agreements) and will not lend its portfolio securities, unless such loans
are secured continuously by collateral at least equal to the market value
of the securities loaned in the form of cash and/or securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
provided that no such loan will be made if upon making of such loan more
than 30% of the value of the Fund's total assets would be subject to such
loans.
7. The Fund will not make investments for the purpose of
exercising control or management of any company.
8. The Fund will not purchase securities of any issuer (other
than the United States or an instrumentality of the United States) if, as
a result of such purchase,the Fund would hold more than 10% of any class
of securities, including voting securities, of such issuer or more than 5%
of the Fund's assets, taken at current value, would be invested in
securities of such issuer, except that up to 25% of the Fund's total
assets may be invested without regard to these limitations.
9. The Fund will not invest 25% or more of the value of its
total assets, determined at the time an investment is made, exclusive of
U.S. government securities, in securities issued by companies primarily
engaged in the same industry. In determining industry classifications the
Fund will use the current Directory of Companies Filing Annual Reports
with the Securities and Exchange Commission except to the extent permitted
by the Act.
10. The Fund will not act as an underwriter or distributor of
securities other than shares of the Fund (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in the
disposition of restricted securities).
11. The Fund will not purchase or sell real estate or real
estate mortgage loans or real estate limited partnerships.
12. The Fund will not purchase or sell commodities or commodity
contracts, including futures contracts.
The Fund has adopted certain other investment restrictions which
are not fundamental policies and which may be changed by the Corporation's
Board of Directors without stockholder approval. These additional
restrictions are as follows:
1. The Fund will not invest more than 10% of the value of its
net assets in illiquid securities.
2. The Fund will not purchase the securities of other
investment companies except: (a) as part of a plan of merger,
consolidation or reorganization approved by the stockholders of the Fund;
(b) securities of registered open-end investment companies that invest
exclusively in high quality, short-term debt securities; or (c) securities
of registered closed-end investment companies on the open market where no
commission results, other than the usual and customary broker's
commission. No purchases described in (b) and (c) will be made if as a
result of such purchases (i) the Fund and its affiliated persons would
hold more than 3% of any class of securities, including voting securities,
of any registered investment company; (ii) more than 5% of the Fund's net
assets would be invested in shares of any one registered investment
company; and (iii) more than 10% of the Fund's net assets would be
invested in shares of registered investment companies.
3. The Fund will not acquire or retain any security issued by
a company, an officer or director of which is an officer or director of
the Fund or an officer, director or other affiliated person of its
investment adviser, without authorization of the Corporation's Board of
Directors.
4. The Fund will not purchase any interest in any oil, gas or
other mineral leases or any interest in any oil, gas or any other mineral
exploration or development program.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is
made. If these restrictions (other than those relating to borrowing of
money or issuing senior securities) are adhered to at the time an
investment is made, and such percentage subsequently changes as a result
of changing market values or some similar event, no violation of the
Fund's fundamental restrictions will be deemed to have occurred. Any
changes in the Fund's investment restrictions made by the Board of
Directors will be communicated to stockholders prior to their
implementation.
INVESTMENT CONSIDERATIONS
Illiquid Securities
The Fund may invest up to 10% of its net assets in securities
for which there is no readily available market ("illiquid securities").
The 10% limitation includes certain securities whose disposition would be
subject to legal restrictions ("restricted securities"). However certain
restricted securities that may be resold pursuant to Rule 144A under the
Securities Act may be considered liquid. The Board of Directors of the
Corporation has delegated to the Adviser the day-to-day determination of
the liquidity of a security although it has retained oversight and
ultimate responsibility for such determinations. Although no definite
quality criteria are used, the Board of Directors has directed the Adviser
to consider such factors as (i) the nature of the market for a security
(including the institutional private resale markets); (ii) the terms of
these securities or other instruments allowing for the disposition to a
third party or the issuer thereof (e.g. certain repurchase obligations and
demand instruments); (iii) the availability of market quotations; and (iv)
other permissible factors.
Restricted securities may be sold in private negotiated or other
exempt transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act. When
registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable time may elapse between the
decision to sell and the sale date. If, during such period, adverse
market conditions were to develop, the Fund might obtain a less favorable
price than the price which prevailed when it decided to sell. Restricted
securities, if considered to be illiquid, will be priced at fair value as
determined in good faith by the Board of Directors.
Warrants
The Fund also may invest up to 5% of its net assets in warrants,
which are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the corporation
at a specific price during a specified period of time. Warrants have no
dividend or voting rights. The 5% limitation does not include warrants
acquired by the Fund in units or attached to other securities. The Fund
will invest in warrants to participate in an anticipated increase in the
market value of the underlying security without having to purchase the
security to which the warrants relate. The purchase of warrants involves
the risk that the Fund could lose the purchase price of a warrant if the
right to subscribe to additional shares is not exercised prior to the
warrant's expiration. Also, the purchase of warrants involves the risk
that the effective price paid for the warrant added to the subscription
price of the related security may exceed the value of the subscribed
security's market price such as when there is no movement in the level of
the underlying security.
Borrowing to Purchase Securities (Leverage)
The Fund may borrow money, including borrowing for investment
purposes. Borrowing for investment is known as leveraging. Leveraging
investments, by purchasing securities with borrowed money, is a
speculative technique which increases investment risk, but also increases
investment opportunity. Since substantially all of the Fund's assets will
fluctuate in value, whereas the interest obligations on borrowings may be
fixed, the net asset value per share of the Fund when it leverages its
investments will increase more when the Fund's portfolio assets increase
in value and decrease more when the Fund's portfolio assets decrease in
value than would otherwise be the case. Interest costs on borrowings,
which may fluctuate with changing market rates of interest, may partially
offset or exceed the returns on the borrowed funds. Under adverse
conditions, the Fund might have to sell portfolio securities to meet
interest or principal payments at a time investment considerations would
not favor such sales. The Fund intends to use leverage during periods
when the Adviser believes that the Fund's investment objective would be
furthered by increasing the Fund's investments in common stocks, but will
not employ leverage during the fiscal year ending June 30, 1998.
As required by the Act, the Fund may borrow money only from
banks and only if, immediately after the borrowing, the Fund maintains
continuous asset coverage (total assets, including assets acquired with
borrowed funds, less liabilities exclusive of borrowings) of 300% of all
amounts borrowed. If, for any reason, (including adverse market
conditions) the Fund fails to meet the 300% coverage test, the Fund will
be required to reduce the amount of its borrowings within three business
days to the extent necessary to meet this test. This requirement may make
it necessary for the Fund to sell a portion of its portfolio securities at
a time when investment considerations otherwise indicate that it would be
disadvantageous to do so.
In addition to the foregoing, the Fund is authorized to borrow
money from a bank as a temporary measure for extraordinary or emergency
purposes in amounts not in excess of 5% of the value of the Fund's total
assets. This borrowing is not subject to the foregoing 300% asset
coverage requirement. The Fund is authorized to pledge portfolio
securities as the Adviser deems appropriate in connection with any
borrowings.
Short Sales
The Fund may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities
exchanges, or in unlisted securities. Short selling involves the sale of
borrowed securities. At the time a short sale is effected, the Fund
incurs an obligation to replace the security borrowed at whatever its
price may be at the time the Fund purchases it for delivery to the lender.
The price at such time may be more or less than the price at which the
security was sold by the Fund. Until the security is replaced, the Fund
is required to pay the lender amounts equal to any dividend or interest
which accrue during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would increase the cost
of the security sold. The proceeds of the short sale will be retained by
the broker, to the extent necessary to meet margin requirements, until the
short position is closed.
No short sale will be effected which will, at the time of making
such short sale transaction and giving effect thereto, cause the aggregate
market value of all securities sold short to exceed 25% of the value of
the Fund's net assets. Until the Fund closes its short position or
replaces the borrowed security, the Fund will: (a) maintain a segregated
account containing cash or liquid securities at such a level that the
amount deposited in the account plus the amount deposited with the broker
as collateral will equal the current value of the security sold short; or
(b) otherwise cover the Fund's short position.
The Fund may also engage in short sales when, at the time of the
short sale, the Fund owns or has the right to acquire an equal amount of
the security being sold at no additional cost ("selling short against the
box"). The Fund may make a short sale against the box when the Fund wants
to sell the security the Fund owns at a current attractive price, but also
wishes to defer recognition of a gain or loss for Federal income tax
purposes and for purposes of satisfying certain tests applicable to
regulated investment companies under the Internal Revenue Code. The Fund
will not engage in short sales during the fiscal year ending June 30,
1998.
Lending of Portfolio Securities
In order to generate additional income, the Fund may lend
portfolio securities constituting up to 30% of its total assets to
unaffiliated broker-dealers, banks or other recognized institutional
borrowers of securities, provided that the borrower at all times maintains
cash or equivalent collateral or provides an irrevocable letter of credit
in favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or interest
paid on such securities, and the Fund may receive an agreed-upon amount of
interest income from the borrower who delivered equivalent collateral or
provided a letter of credit. Loans are subject to termination at the
option of the Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with a loan of portfolio
securities and may pay a negotiated portion of the interest earned on the
cash or equivalent collateral to the borrower or placing broker. The Fund
does not have the right to vote securities on loan, but could terminate
the loan and regain the right to vote if that were considered important
with respect to the investment.
The primary risk in securities lending is a default by the
borrower during a sharp rise in price of the borrowed security resulting
in a deficiency in the collateral posted by the borrower. The Fund will
seek to minimize this risk by requiring that the value of the securities
loaned be computed each day and additional collateral be furnished each
day if required.
High Yield Convertible Securities
The Fund may invest up to 5% of its net assets in high yield,
high risk, lower-rated convertible securities, commonly known as "junk
bonds." Investments in such securities are subject to the risk factors
outlined below.
The market for high yield convertible securities is subject to
substantial volatility. An economic downturn or increase in interest
rates may have a more significant effect on high yield convertible
securities and their markets, as well as on the ability of securities'
issuers to repay principal and interest, than on higher-rated securities
and their issuers. Issuers of high yield convertible securities may be of
low creditworthiness and the high yield convertible securities may be
subordinated to the claims of senior lenders. During periods of economic
downturn or rising interest rates the issuers of high yield convertible
securities may have greater potential for insolvency and a higher
incidence of high yield bond defaults may be experienced.
The prices of high yield convertible securities have been found
to be less sensitive to interest rate changes than higher-rated
investments but are more sensitive to adverse economic changes or
individual corporate developments. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet
projected business goals, and to obtain additional financing. If the
issuer of a high yield convertible security owned by the Fund defaults,
the Fund may incur additional expenses in seeking recovery. Periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield convertible securities and the
Fund's net asset value. Yields on high yield convertible securities will
fluctuate over time. Furthermore, in the case of high yield convertible
securities structured as zero coupon or pay-in-kind securities, their
market prices are affected to a greater extent by interest rate changes
and thereby tend to be more volatile than market prices of securities
which pay interest periodically and in cash.
The secondary market for high yield convertible securities may
at times become less liquid or respond to adverse publicity or investor
perceptions making it more difficult for the Fund to value accurately high
yield convertible securities or dispose of them. To the extent the Fund
owns or may acquire illiquid or restricted high yield convertible
securities, these securities may involve special registration
responsibilities, liabilities and costs, and liquidity difficulties, and
judgment will play a greater role in valuation because there is less
reliable and objective data available.
Special tax considerations are associated with investing in high
yield bonds structured as zero coupon or pay-in-kind securities. The Fund
will report the interest on these securities as income even though it
receives no cash interest until the security's maturity or payment date.
Further, the Fund must distribute substantially all of its income to its
shareholders to qualify for pass-through treatment under the tax law.
Accordingly, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash or may have to borrow
to satisfy distribution requirements.
Credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield convertible securities.
Since credit rating agencies may fail to timely change the credit ratings
to reflect subsequent events, the Adviser should monitor the issuers of
high-yield convertible securities in the portfolio to determine if the
issuers will have sufficient cash flow and profits to meet required
principal and interest payments, and to attempt to assure the securities'
liquidity so the Fund can meet redemption requests. To the extent that
the Fund invests in high yield convertible securities, the achievement of
its investment objective may be more dependent, on its own credit analysis
than is the case for higher quality bonds. The Fund may retain a
portfolio security whose rating has been changed.
Options on Securities and Index Option Transactions
The Fund will not write options during the fiscal year ending
June 30, 1998.
When writing call options on securities, the Fund may cover its
position by owning the underlying security on which the option is written.
Alternatively, the Fund may cover its position by owning a call option on
the underlying security, on a share for share basis, which is deliverable
under the option contract at a price no higher than the exercise price of
the call option written by the Fund or, if higher, by owning such call
option and depositing and maintaining in a segregated account cash or
liquid securities equal in value to the difference between the two
exercise prices. In addition, the Fund may cover its position by
depositing and maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option written
by the Fund. The Fund will not enter into an index option position that
exposes the Fund to an obligation to another party, unless the Fund either
(i) owns an offsetting position in securities or other options; and/or
(ii) maintains with the Fund's custodian bank (and marks-to-market, on a
daily basis) a segregated account consisting of cash or liquid securities
that, when added to the premiums deposited with respect to the option, are
equal to the market value of the underlying stock index not otherwise
covered.
When the Fund wishes to terminate the Fund's obligation with
respect to an option it has written, the Fund may effect a "closing
purchase transaction." The Fund accomplishes this by buying an option of
the same series as the option previously written by the Fund. The effect
of the purchase is that the writer's position will be canceled. However,
a writer may not effect a closing purchase transaction after the writer
has been notified of the exercise of an option. When the Fund is the
holder of an option, it may liquidate its position by effecting a "closing
sale transaction." The Fund accomplishes this by selling an option of the
same series as the option previously purchased by the Fund. There is no
guarantee that either a closing purchase or a closing sale transaction can
be effected. If any call or put option is not exercised or sold, the
option will become worthless on its expiration date.
Exchanges generally have established limitations governing the
maximum number of call or put options on the same index which may be
bought or written (sold) by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts
or through one or more brokers). Under these limitations, options
positions of certain other accounts advised by the same investment adviser
are combined for purposes of these limits. Pursuant to these limitations,
an exchange may order the liquidation of positions and may impose other
sanctions or restrictions. These position limits may restrict the number
of listed options which the Fund may buy or sell; however, the Adviser
intends to comply with all limitations.
Because option premiums paid or received by the Fund are small
in relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in common stocks. Additionally, trading in index
options requires different skills and techniques than those required for
predicting changes in individual stocks.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, address principal occupations during the past five
years and other information with respect to each of the directors and
offices of the Corporation are as follows:
MARTINA HEARN* Age 41
101 Metro Drive, Suite 260
San Jose, California 95110
(VICE PRESIDENT, SECRETARY AND A DIRECTOR OF THE CORPORATION)
Ms. Hearn is an associate of the law firm of Thurlow & Hearn, an
association of attorneys. Ms. Hearn has been practicing law since 1989.
Ms. Hearn is the wife of Thomas F. Thurlow.
NATASHA L. MCREE Age 26
6000 Shepherd Mountain Cove #1604
Austin, Texas 78730
(A DIRECTOR OF THE CORPORATION)
Ms. McRee is a marketing consultant with the firm of GSDNM
Advertising and has been employed with them since September 1996. From
August 1995 to August 1996, Ms. McRee was employed with Rives Carlberg
Advertising as a marketing consultant. From September 1993 to August
1995, Ms. McRee was employed in the Marketing Department of Slick 50, a
producer of automotive oils. Prior to September 1993, Ms. McRee was a
college student.
STEPHANIE E. ROSENDAHL* Age 31
4101 Coleridge Street
Houston, Texas 77005
(A DIRECTOR OF THE CORPORATION)
Ms. Rosendahl is an independent management consultant and has
been self-employed since 1993. From 1991 to 1993, Ms. Rosendahl was
employed by the Texas Children's Hospital as a computer network manager.
Ms. Rosendahl is the sister of Thomas F. Thurlow.
BASIL S. SHIBER Age 33
1801 Alameda Avenue, Apt. A
Alameda, California 94501
(A DIRECTOR OF THE CORPORATION)
Mr. Shiber is an attorney and associate of the law firm of
Miller, Starr & Regalia, a professional law corporation. Miller, Starr &
Regalia is not affiliated with the Company or the Adviser. Mr. Shiber has
been practicing law since 1989.
THOMAS F. THURLOW* Age 34
101 Metro Drive, Suite 260
San Jose, California 95110
(PRESIDENT, TREASURER AND A DIRECTOR OF THE CORPORATION)
Mr. Thurlow is an attorney and founder and associate of the law
firm Thurlow & Hearn, an association of attorneys. Mr. Thurlow has been
practicing law since 1989. Mr. Thurlow is also the sole officer, director
and shareholder of Thurlow Capital Management, Inc., an investment
advisory firm, which he founded in 1997. Mr. Thurlow is the husband of
Martina Hearn and the brother of Stephanie Rosendahl.
The Fund will not pay any fees to directors for meetings of the
Board of Directors attended during the fiscal year ending June 30, 1998.
After this date, the Fund plans to pay each director who is not an officer
of the Corporation a fee of $500 for each meeting of the Board of
Directors attended.
____________________
* Mr. Thurlow, Ms. Hearn and Ms. Rosendahl are directors who are
"interested persons" of the Fund as that term is defined in the Investment
Company Act of 1940.
The Corporation was organized on April 3, 1997. The table below
sets forth the compensation anticipated to be paid by the Corporation to
each of the directors of the Corporation during the fiscal year ending
June 30, 1998:
COMPENSATION TABLE
Pension or Total
Retirement Estimated Compensa-
Aggregate Benefits Annual tion from
Compensa- Accrued as Benefits Corporation
Name of tion from Part of Fund Upon Paid to
Person Corporation Expenses Retirement Directors
Martina Hearn 0 0 0 0
Natasha G. McRee 0 0 0 0
Stephanie E. 0 0 0 0
Rosendahl
Basil S. Shiber 0 0 0 0
Thomas F. Thurlow 0 0 0 0
PRINCIPAL STOCKHOLDERS
As of the date hereof, Thomas F. Thurlow and Thomas N. Thurlow,
father of Thomas F. Thurlow, each own 50% of the Fund's outstanding
shares. As of such date they control the Fund and the Corporation and own
sufficient shares of the Fund to approve or disapprove all matters brought
before stockholders of the Corporation, including the election of
directors of the Corporation and the approval of auditors. The
Corporation does not control any person.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
As set forth in the Prospectus under the caption "Management of
the Fund," the investment adviser to the Fund is Thurlow Capital
Management, Inc. (the "Adviser"). Pursuant to the investment advisory
agreement entered into between the Corporation and the Adviser with
respect to the Fund (the "Advisory Agreement"), the Adviser furnishes
continuous investment advisory services to the Fund. The Adviser is
controlled by Thomas F. Thurlow, its sole officer, director and
shareholder.
Pursuant to the Advisory Agreement, the Adviser has undertaken
to reimburse the Fund to the extent that the aggregate annual operating
expenses, including the investment advisory fee and the administration fee
but excluding interest, taxes, brokerage commissions and other costs
incurred in connection with the purchase or sale of portfolio securities,
and extraordinary items, exceed 3.00% of the average net assets of the
Fund for such year, as determined by valuations made as of the close of
each business day of the year. Additionally, for the fiscal year ended
June 30, 1998, the Adviser has agreed to reimburse the Fund for annual
operating expenses in excess of 1.95% of the average net assets for such
year. The Fund monitors its expense ratio on a monthly basis. If the
accrued amount of the expenses of the Fund exceeds the expense limitation,
the Fund creates an account receivable from the Adviser for the amount of
such excess. In such a situation the monthly payment of the Adviser's fee
will be reduced by the amount of such excess, subject to adjustment month
by month during the balance of the Fund's fiscal year if accrued expenses
thereafter fall below this limit.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in
the Act) of the outstanding shares of the Fund, and (ii) by the vote of a
majority of the directors of the Fund who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement provides that it may be terminated at any time without the
payment of any penalty, by the Board of Directors of the Corporation or by
vote of the majority of the Fund's stockholders of sixty (60) days'
written notice to the Adviser, and by the Adviser on the same notice to
the Corporation, and that it shall be automatically terminated if it is
assigned.
The Advisory Agreement provides that the Adviser shall not be
liable to the Corporation or its stockholders for anything other than
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations or duties. The Advisory Agreement also provides that the
Adviser and its officers, directors and employees may engage in other
businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render services to others.
As set forth in the Prospectus under the caption "Management of
the Fund," the administrator to the Corporation is Firstar Trust Company,
615 East Michigan Street, Milwaukee, Wisconsin 53202 (the
"Administrator"). The Fund Administration Servicing Agreement entered
into between the Corporation 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 Directors of the
Corporation 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 Corporation.
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 party
of the Administrator in the performance of its duties under the
Administration Agreement.
Firstar Trust Company also serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Firstar Trust Company has agreed to (i) maintain a separate
account in the name of the Fund, (ii) make receipts and disbursements of
money on behalf of the Fund, (iii) collect and receive all income and
other payments and distributions on account of the Fund's portfolio
investments, (iv) respond to correspondence from shareholders, security
brokers and others relating to its duties; and (v) make periodic reports
to the Fund concerning the Fund's operations. Firstar Trust Company does
not exercise any supervisory function over the purchase and sale of
securities. Firstar Trust Company also serves as transfer agent and
dividend disbursing agent for the Fund under a Shareholder Servicing Agent
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.
In addition, the Corporation has entered into a Fund Accounting
Servicing 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. For its
accounting services, Firstar Trust Company is entitled to receive fees,
payable monthly, based on the total annual rate of $22,000 for the first
$40 million in average net assets of the Fund, .01% on the next $200
million of average net assets, and .005% on average net assets exceeding
$240 million. Firstar Trust Company is also entitled to certain out of
pocket expenses, including pricing expenses.
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
As set forth in the Prospectus under the caption "Determination
of Net Asset Value," the net asset value of the Fund will be determined as
of the close of regular trading (4:00 P.M. Eastern Time) on each day the
New York Stock Exchange is open for trading. The New York Stock Exchange
is open for trading Monday through Friday except New Year's Day,
Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the New York Stock Exchange
will not be open for trading on the preceding Friday and when any such
holiday falls on a Sunday, the New York Stock Exchange will not be open
for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period.
Any total rate of return quotation for the Fund will be for a period
of three or more months and will assume the reinvestment of all dividends
and capital gains distributions which were made by the Fund during that
period. Any period total rate of return quotation of the Fund will be
calculated by dividing the net change in value of a hypothetical
shareholder account established by an initial payment of $1,000 at the
beginning of the period by 1,000. The net change in the value of a
shareholder account is determined by subtracting $1,000 from the product
obtained by multiplying the net asset value per share at the end of the
period by the sum obtained by adding (A) the number of shares purchased at
the beginning of the period plus (B) the number of shares purchased during
the period with reinvested dividends and distributions. Any average
annual compounded total rate of return quotation of the Fund will be
calculated by dividing the redeemable value at the end of the period
(i.e., the product referred to in the preceding sentence) by $1,000. A
root equal to the period, measured in years, in question is then
determined and 1 is subtracted from such root to determine the average
annual compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
n
P(1 + T) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made
at the beginning of the stated
periods at the end of the stated
periods
DISTRIBUTION OF SHARES
The Fund has adopted a Service and Distribution Plan (the
"Plan") in anticipation that the Fund will benefit from the Plan through
increased sales of shares, thereby reducing the Fund's expense ratio and
providing the Adviser with greater flexibility in management. The Plan
may be terminated by the Fund at any time by a vote of the directors of
the Corporation who are not interested persons of the Corporation and who
have no direct or indirect financial interest in the Plan or any agreement
related thereto (the "Rule 12b-1 Directors") or by a vote of a majority of
the outstanding shares of the Fund. Ms. McRee and Mr. Shiber are
currently the Rule 12b-1 Directors. Any change in the Plan that would
materially increase the distribution expenses of the Fund provided for in
the Plan requires approval of the stockholders of the Fund and the Board
of Directors, including the Rule 12b-1 Directors.
While the Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation will be
committed to the discretion of the directors of the Corporation who are
not interested persons of the Corporation. The Board of Directors of the
Corporation must review the amount and purposes of expenditures pursuant
to the Plan quarterly as reported to it by a Distributor, if any, or
officers of the Corporation. The Plan will continue in effect for as long
as its continuance is specifically approved at least annually by the Board
of Directors, including the Rule 12b-1 Directors. The Fund did not begin
operations until August 1, 1997, and thus, the Fund had not incurred any
distribution costs as of that date.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Fund are made by
the Adviser subject to review by the Corporation's Board of Directors. In
placing purchase and sale orders for portfolio securities for the Fund, it
is the policy of the Adviser to seek the best execution of orders at the
most favorable price in light of the overall quality of brokerage and
research services provided, as described in this and the following
paragraph. In selecting brokers to effect portfolio transactions, the
determination of what is expected to result in best execution at the most
favorable price involves a number of largely judgmental considerations.
Among these are the Adviser's evaluation of the broker's efficiency in
executing and clearing transactions, block trading capability (including
the broker's willingness to position securities and the broker's financial
strength and stability). The most favorable price to the Fund means the
best net price without regard to the mix between purchase or sale price
and commission, if any. Over-the-counter securities are generally
purchased and sold directly with principal market makers who retain the
difference in their cost in the security and its selling price. In some
instances, the Adviser feels that better prices are available from
non-principal market makers who are paid commissions directly. The Fund
may place portfolio orders with broker-dealers who recommend the purchase
of Fund shares to clients if the Adviser believes the commissions and
transaction quality are comparable to that available from other brokers
and may allocate portfolio brokerage on that basis.
In allocating brokerage business for the Fund, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreement. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser
as a result of transactions for other clients. The Advisory Agreement
provides that the Adviser may cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Fund and the
other accounts as to which it exercises investment discretion. The Fund
did not commence operations until August 1, 1997.
TAXES
As set forth in the Prospectus under the caption "Dividends,
Distributions and Taxes," the Fund will endeavor to qualify annually for
and elect tax treatment applicable to a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").
Under the Code, the Fund will not qualify as a regulated
investment company for any taxable year if more than 30% of the Fund's
gross income for that year is derived from gains on the sale of securities
held less than three months (the "30% Test"). Specifically, the 30% Test
will limit the extent to which the Fund may: (i) sell securities held for
less than three months; (ii) write options which expire in less than three
months; (iii) effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three
months; and (iv) effect short sales.
If a call option written by the Fund expires, the amount of the
premium received by the Fund for the option will be short-term capital
gain. If the Fund enters into a closing transaction with respect to the
option, any gain or loss realized by the Fund as a result of the
transaction will be short-term capital gain or loss. If the holder of a
call option exercises the holder's right under the option, any gain or
loss realized by the Fund upon the sale of the underlying security
pursuant to such exercise will be short-term or long-term capital gain or
loss to the Fund depending on the Fund's holding period for the underlying
security.
With respect to call options purchased by the Fund, the Fund
will realize short-term or long-term capital gain or loss if such option
is sold and will realize short-term or long-term capital loss if the
option is allowed to expire depending on the Fund's holding period for the
call option. If such a call option is exercised, the amount paid by the
Fund for the option will be added to the basis of the stock so acquired.
The Fund may purchase or write options on stock indexes.
Options on "broadbased" stock indexes are generally classified as
"nonequity options" under the Code. Gains and losses resulting from the
expiration, exercise or closing of such nonequity options will be treated
as long-term capital gain or loss to the extent of 60% thereof and short-
term capital gain or loss to the extent of 40% thereof (hereinafter
"blended gain or loss") for determining the character of distributions.
In addition, nonequity options held by the Fund on the last day of a
fiscal year will be treated as sold for market value ("marked to market")
on that date, and gain or loss recognized as a result of such deemed sale
will be blended gain or loss. The marked to market gain will not be
considered a gain on the sale of options held less than three months. The
realized gain or loss on the ultimate disposition of the option will be
increased or decreased to take into consideration the prior marked to
market gains and losses. These tax considerations may have an impact on
investment decisions made by the Fund.
The trading strategies of the Fund involving nonequity options
on stock indexes may constitute "straddle" transactions. "Straddles" may
affect the short-term or long-term holding period of such instruments for
distributions characterization, but not for purposes of the 30% Test and
may cause the postponement of recognition of losses incurred in certain
closing transactions.
The Fund may acquire put options. Under the Code, put options
on stocks are taxed similar to as short sales. If the Fund owns the
underlying stock or acquires the underlying stock before closing the
option position, the Straddle Rules may apply and the option positions may
be subject to certain modified short sale rules. If the Fund exercises or
fails to exercise a put option the Fund will be considered to have closed
a short sale. The Fund will generally have a short-term gain or loss on
the closing of an option position. The determination of the length of the
holding period is dependent on the holding period of the stock used to
exercise that put option. If the Fund sells the put option without
exercising it, the holding period will be determined by looking at the
holding period of the option.
Dividends from the Fund's net investment income (including any
excess of net short-term capital gain over net long-term capital loss) are
taxable to stockholders as ordinary income, while distributions of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) are taxable as long-term capital gain regardless of the
stockholder's holding period for the shares. Such dividends and
distributions are taxable to stockholders whether received in cash or in
additional shares. The 70% dividends-received deduction for corporations
will apply to such dividends and distributions, subject to proportionate
reductions if the aggregate dividends received by the Fund from domestic
corporations in any year are less than 100% of the net investment company
income taxable distributions made by the Fund.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of the Fund, will have the effect of reducing the per
share net asset value of such shares by the amount of the dividend or
distribution. Furthermore, if the net asset value of the shares of the
Fund immediately after a dividend or distribution is less than the cost of
such shares to the stockholder, the dividend or distribution will be
taxable to the stockholder even though it results in a return of capital
to him.
Redemption of shares will generally result in a capital gain or
loss for income tax purposes. Such capital gain or loss will be long term
or short term, depending upon the holding period. However, if a loss is
realized on shares held for six months or less, and the investor received
a capital gain distribution during that period, then such loss is treated
as a long-term capital loss to the extent of the capital gain distribution
received.
This section is not intended to be a full discussion of present
or proposed federal income tax laws and the effect of such laws on an
investor. Investors are urged to consult with their respective tax
advisers for a complete review of the tax ramifications of an investment
in the Fund.
STOCKHOLDER MEETINGS
The Maryland Business Corporation Law permits registered
investment companies, such as the Fund, to operate without an annual
meeting of stockholders under specified circumstances if an annual meeting
is not required by the Act. The Corporation has adopted the appropriate
provisions in its bylaws and may, at its discretion, not hold an annual
meeting in any year in which the election of directors is not required to
be acted upon by the stockholders under the Act.
The Corporation's bylaws also contain procedures for the removal
of directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at
such meeting, the Secretary of the Corporation shall promptly call a
special meeting of stockholders for the purpose of voting upon the
question of removal of any director. Whenever ten or more stockholders of
record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either shares having a net
asset value of at least $25,000 or at least one percent (1%) of the total
outstanding shares, whichever is less, shall apply to the Corporation's
Secretary in writing, stating that they wish to communicate with other
stockholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five
business days after such application either: (1) afford to such
applicants access to a list of the names and addresses of all stockholders
as recorded on the books of the Corporation; or (2) inform such applicants
as to the approximate number of stockholders of record and the approximate
cost of mailing to them the proposed communication and form of request.
If the Secretary elects to follow the course specified in
clause (2) of the last sentence of the preceding paragraph, the Secretary,
upon the written request of such applicants, accompanied by a tender of
the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all stockholders
of record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Prospectus under the caption "Investment
Policies and Risk," the Fund may invest in commercial paper master notes
assigned one of the two highest ratings of either Standard & Poor's
Corporation ("Standard & Poor's") or Moody's Investors Services, Inc.
("Moody's"). As also set forth therein, the Fund may invest in
convertible securities assigned at least an investment grade by Standard &
Poor's or Moody's (or unrated but deemed by the Adviser to be of
comparable quality), and up to 5% of the Fund's assets may be invested in
convertible securities rated below investment grade but rated at least B
by Standard & Poor's or Moody's.
Commercial Paper Ratings
A Standard and Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard & Poor's for commercial paper in which the
Funds may invest:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determines to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues
designated "A-1."
Moody's commercial paper ratings are opinions of the ability of
issues to repay punctually promissory obligations not having an original
maturity in excess of nine months. The following summarizes the rating
categories used by Moody's for commercial paper in which the Funds may
invest:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following capacities: leading market positions in well-
established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and
ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established
access to a range of financial markets and assured sources of alternate
liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
Corporate Long-Term Debt Ratings
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors
such as guarantors, insurers, or lessees. The debt rating is not a
recommendation to purchase, sell, or hold a security, inasmuch as it does
not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the
obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
Investment Grade
AAA - Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest an repay principal is
extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
BBB - Debt rated "BBB" is regard as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade
Debt rated "BB," "B," "CCC," "CC" and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest. While such debt will likely have some
quality and protective characteristic, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
"BB" - Debt rated "BB" has less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB-
"rating.
"B" - Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.
The "B" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BB" or "BB-"rating.
"CCC" - Debt rated "CCC" has a current identifiable
vulnerability to default, and is dependent upon favorable business,
financial, and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay interest
an repay principal. The "CCC" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "B" or
"B-" rating.
"CC" - Debt rated "CC" typically is applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - Debt rated "C" typically is applied to debt subordinated
to senior debt which is assigned an actual or implied "CCC-" debt rating.
The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
"CI" - The rating "CI" is reserved for income bonds on which no
interest is being paid.
"D" - Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal payments are not made
on the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made during
such period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings.
"Aaa" - Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
"Aa" - Bonds which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group, they comprise
what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation or protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risk appear somewhat larger than in "Aaa" securities.
"A" - Bonds which are rated "A" possess many favorable
investment attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
"Baa" - Bonds which are rated "Baa" are considered as medium-
grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba" - Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
"B" - Bonds which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period of
time may be small.
"Caa" - Bonds which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
"Ca" - Bonds which are rated "Ca" represent obligations which
are speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
"C" - Bonds which are rated "C" are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53201-1215 has been selected as the independent accountants for
the Fund. As such Arthur Andersen LLP performs an audit of the Fund's
financial statement and considers the Fund's internal control structure.
FINANCIAL STATEMENTS
The following financial statements for the Fund are attached
hereto:
- Report of Independent Accountants
- Statement of Assets and Liabilities
- Notes to the Financial Statement
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of
Directors of The Thurlow Funds, Inc.:
We have audited the statement of assets and liabilities of the Thurlow
Growth Fund (the "Fund"), a series of The Thurlow Funds, Inc., (a Maryland
corporation) as of July 28, 1997. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express
an opinion on this financial statement 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 financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statement. 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 assets and liabilities referred to above
presents fairly, in all material respects, the net assets of the Fund as
of July 28, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
July 30, 1997
<PAGE>
THE THURLOW FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JULY 28, 1997
The Thurlow
Growth Fund
ASSETS:
Cash $100,686
Unamortized organizational costs 19,838
Prepaid registration expenses 2,382
--------
Total Assets 122,906
-------
LIABILITIES:
Payable to Adviser 22,220
-------
Total Liabilities 22,220
-------
NET ASSETS $100,686
=======
Capital stock, $0.0001 par value, 500,000,000
shares authorized; 10,069 shares outstanding $100,686
=======
Offering and redemption price/net asset value per
share (based on 10,069 shares of capital
stock issued and outstanding) $10.00
=======
The accompanying notes to financial statement are an integral part of
this statement.
<PAGE>
THE THURLOW FUNDS, INC.
NOTES TO FINANCIAL STATEMENT
JULY 28, 1997
(1) The Thurlow Funds, Inc. was incorporated under the laws of the state
of Maryland on April 30, 1997 and has had no operations to date other
than those relating to organizational matters and the sale of 10,069
shares of its common stock to its original stockholders, Thomas F.
Thurlow and Thomas N. Thurlow.
(2) The Thurlow Funds, Inc. which consists solely of The Thurlow Growth
Fund (the "Fund"), has an agreement with Thurlow Capital Management,
Inc. (the "Adviser"), with whom certain officers and directors of the
Fund are affiliated, to furnish investment advisory services to the
Fund. Under the terms of this agreement, the Fund will pay the
Adviser a monthly fee based on the Fund's average daily net assets at
the annual rate of 1.25%.
Under the investment advisory agreement, if the aggregate annual
operating expenses (including the investment advisory fee and the
administration fee but excluding interest, taxes, brokerage
commissions and other costs incurred in connection with the purchase
or sale of portfolio securities, and extraordinary items) exceed
3.00%, the Adviser will reimburse the Fund for the amount of such
excess. Additionally, the Adviser has voluntarily agreed to
reimburse the Fund to the extent aggregate annual operating expenses
exceed 1.95% of the average daily net assets of the Fund.
(3) Organizational costs are being deferred and amortized over the period
of benefit, but not to exceed sixty months from the Fund's
commencement of operations. These costs were advanced by the Adviser
and will be reimbursed by the Fund. The proceeds of any redemption
of the initial shares by the original stockholders or any transferee
will be reduced by a pro-rata portion of any then unamortized
organizational expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares
outstanding at the time of such redemption.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statement (included in Part B)
Report of Independent Accountants
Statement of Assets and Liabilities
Notes to Financial Statement
(b.) Exhibits
(1) Registrant's Articles of Incorporation (Exhibit 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(2) Registrant's Bylaws (Exhibit 2 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(3) None
(4) None
(5) Investment Advisory Agreement with Thurlow Capital
Management, Inc. relating to The Thurlow Growth Fund
(Exhibit 5 to Registrant's Registration Statement on
Form N-1A is incorporated by reference pursuant to Rule
411 under the Securities Act of 1933).
(6) None
(7) None
(8) Custody Agreement with Firstar Trust Company (Exhibit 8
to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(9.1) Fund Administration Servicing Agreement with Firstar
Trust Company relating to The Thurlow Growth Fund
(Exhibit 9.1 to Registrant's Registration Statement on
Form N-1A is incorporated by reference pursuant to Rule
411 under the Securities Act of 1933).
(9.2) Transfer Agent Agreement with Firstar Trust Company
relating to The Thurlow Growth Fund.
(9.3) Fund Accounting Servicing Agreement with Firstar Trust
Company (Exhibit 9.3 to Registrant's Registration
Statement on Form N-1A is incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933).
(10) Opinion of Foley & Lardner, counsel for Registrant.
(11) Consent of Arthur Andersen LLP.
(12) None
(13) Subscription Agreement.
(14.1) Individual Retirement Account (Exhibit 14.1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(14.2) Simplified Employee Pension Plan (Exhibit 14.2 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(15) Service and Distribution Plan.
(16) None
(17) Financial Data Schedule.
(18) None
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by Thomas F. Thurlow and Thomas N.
Thurlow, each of which owns 50% of Registrant's voting securities as of
August 1, 1997. Registrant does not control any person. Registrant is
under common control with the Adviser as of August 1, 1997.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of August 1, 1997
Class A Common Stock, $0.0001 2
par value (The Thurlow Growth
Fund)
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following bylaw which is in full force and effect and has
not been modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 8 through 11 of the Statement
of Additional Information pursuant to Rule 411 under the Securities Act of
1933.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder are in the
physical possession of Registrant's Treasurer, Thomas F. Thurlow, at
Registrant's corporate offices, 1256 Forest Avenue, Palo Alto, California
94301.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
Registrant undertakes to file a post-effective amendment to this
Registration Statement within four to six months of the effective date of
this Registration Statement which will contain financial statements (which
need not be certified) as of and for the time period reasonably close or
as soon as practicable to the date of such post-effective amendment.
With respect to stockholder meetings, Registrant undertakes to
call stockholder meetings in accordance with the provisions of Article I
of its Bylaws, which are discussed in Parts A and B of this Registration
Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
amended Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto and State
of California on the 23rd day of June, 1997.
THE THURLOW FUNDS, INC.
(Registrant)
By: /s/ Thomas F. Thurlow
Thomas F. Thurlow, President
Pursuant to the requirements of the Securities Act of 1933, this
amended Registration Statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
Name Title Date
/s/ Thomas F. Thurlow President (Principal June 23, 1997
Thomas F. Thurlow Executive, Financial
and Accounting Officer)
and a Director
/s/ Martina Hearn Director June 23, 1997
Martina Hearn
/s/ Natasha L. McRee
Natasha L. McRee Director June 23, 1997
/s/Stephanie E. Rosendahl Director June 23, 1997
Stephanie E. Rosendahl
/s/ Basil S. Shiber Director June 23, 1997
Basil S. Shiber
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1) Registrant's Articles of Incorporation*
(2) Registrant's Bylaws*
(3) None
(4) None
(5) Investment Advisory Agreement with
Thurlow Capital Management, Inc. relating
to The Thurlow Growth Fund*
(6) None
(7) None
(8) Custody Agreement with Firstar Trust
Company*
(9.1) Fund Administration Servicing Agreement
with Firstar Trust Company relating to
The Thurlow Growth Fund*
(9.2) Transfer Agent Agreement with Firstar
Trust Company
(9.3) Fund Accounting Servicing Agreement with
Firstar Trust Company*
(10) Opinion of Foley & Lardner, counsel for
Registrant
(11) Consent of Arthur Andersen LLP
(12) None
(13) Subscription Agreement
(14.1) Individual Retirement Account*
(14.2) Simplified Employee Pension Plan*
(15) Service and Distribution Plan
(16) None
(17) Financial Data Schedule
(18) None
_______________
* Incorporated by reference.
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of
_____________, 1997, by and between THURLOW FUNDS, INC., presently
consisting of one portfolio, THE THURLOW GROWTH FUND (hereinafter referred
to as the "Fund"), and FIRSTAR TRUST COMPANY, a corporation organized
under the laws of the State of Wisconsin (hereinafter referred to as the
"Agent").
WHEREAS, the Fund is an open-ended management investment company
which is registered under the Investment Company Act of 1940; and
WHEREAS, the Agent is a trust company and, among other things,
is in the business of administering transfer and dividend disbursing agent
functions for the benefit of its customers;
NOW, THEREFORE, the Fund and the Agent do mutually promise and
agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE AGENT
Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints the Agent to act as transfer agent
and dividend disbursing agent.
The Agent shall perform all of the customary services of a
transfer agent and dividend disbursing agent, and as relevant, agent in
connection with accumulation, open account or similar plans (including
without limitation any periodic investment plan or periodic withdrawal
program), including but not limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders and issue the appropriate
number of certificated or uncertificated shares with such
uncertificated shares being held in the appropriate shareholder
account;
C. Process redemption requests received in good order;
D. Pay monies in accordance with the instructions of
redeeming shareholders;
E. Process transfers of shares in accordance with the
shareowner's instructions;
F. Process exchanges between funds within the same family
of funds;
G. Issue and/or cancel certificates as instructed;
replace lost, stolen or destroyed certificates upon receipt of
satisfactory indemnification or surety bond;
H. Prepare and transmit payments for dividends and
distributions declared by the Fund;
I. Make changes to shareholder records, including, but
not limited to, address changes in plans (i.e., systematic
withdrawal, automatic investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and
maintain, pursuant to Securities Exchange Act of 1934 Rule
17ad-10(e), a record of the total number of shares of the Fund
which are authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable,
mail, receive and tabulate proxies;
L. Mail shareholder reports and prospectuses to current
shareholders;
M. Prepare and file U.S. Treasury Department forms 1099
and other appropriate information returns required with respect
to dividends and distributions for all shareholders;
N. Provide shareholder account information upon request
and prepare and mail confirmations and statements of account to
shareholders for all purchases, redemptions and other
confirmable transactions as agreed upon with the Fund; and
O. Provide a Blue Sky System which will enable the Fund
to monitor the total number of shares sold in each state. In
addition, the Fund shall identify to the Agent in writing those
transactions and assets to be treated as exempt from the Blue
Sky reporting to the Fund for each state. The responsibility of
the Agent for the Fund's Blue Sky state registration status is
solely limited to the initial compliance by the Fund and the
reporting of such transactions to the Fund.
2. COMPENSATION
The Fund agrees to pay the Agent for performance of the duties
listed in this Agreement; the fees and out-of-pocket expenses include, but
are not limited to the following: printing, postage, forms, stationery,
record retention, mailing, insertion, programming, labels, shareholder
lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to
time subject to mutual written agreement between the Fund and the Agent.
The Fund agrees to pay all fees and reimbursable expenses within
ten (10) business days following the mailing of the billing notice.
3. REPRESENTATIONS OF AGENT
The Agent represents and warrants to the Fund that:
A. It is a trust company duly organized, existing and in
good standing under the laws of Wisconsin;
B. It is a registered transfer agent under the Securities
Exchange Act of 1934 as amended.
C. It is duly qualified to carry on its business in the
state of Wisconsin;
D. It is empowered under applicable laws and by its
charter and bylaws to enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to
authorize it to enter and perform this Agreement; and
F. It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its
duties and obligations under this Agreement.
G. It will comply with all applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended, the Investment Company Act of 1940, as amended, and
any laws, rules, and regulations of governmental authorities
having jurisdiction.
4. REPRESENTATIONS OF THE FUND
The Fund represents and warrants to the Agent that:
A. The Fund is an open-ended diversified investment
company under the Investment Company Act of 1940;
B. The Fund is a corporation or business trust organized,
existing, and in good standing under the laws of Maryland;
C. The Fund is empowered under applicable laws and by its
Corporate Charter and bylaws to enter into and perform this
Agreement;
D. All necessary proceedings required by the Corporate
Charter have been taken to authorize it to enter into and
perform this Agreement;
E. The Fund will comply with all applicable requirements
of the Securities and Exchange Acts of 1933 and 1934, as
amended, the Investment Company Act of 1940, as amended, and any
laws, rules and regulations of governmental authorities having
jurisdiction; and
F. A registration statement under the Securities Act of
1933 is currently effective and will remain effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all shares of the Fund
being offered for sale.
5. COVENANTS OF FUND AND AGENT
The Fund shall furnish the Agent a certified copy of the
resolution of the Board of Directors of the Fund authorizing the
appointment of the Agent and the execution of this Agreement. The Fund
shall provide to the Agent a copy of the Corporate Charter, bylaws of the
Fund, and all amendments.
The Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the rules thereunder, the Agent agrees that all such
records prepared or maintained by the Agent relating to the services to be
performed by the Agent hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such section
and rules and will be surrendered to the Fund on and in accordance with
its request.
6. INDEMNIFICATION; REMEDIES UPON BREACH
The Agent shall exercise reasonable care in the performance of
its duties under this Agreement. The Agent shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund
in connection with matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the failure of
communication or power supplies beyond the Agent's control, except a loss
resulting from the Agent's refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, or willful misconduct on its
part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Fund shall
indemnify and hold harmless the Agent from and against any and all claims,
demands, losses, expenses, and liabilities (whether with or without basis
in fact or law) of any and every nature (including reasonable attorneys'
fees) which the Agent may sustain or incur or which may be asserted
against the Agent by any person arising out of any action taken or omitted
to be taken by it in performing the services hereunder (i) in accordance
with the foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to the Agent by any duly authorized officer of the
Fund, such duly authorized officer to be included in a list of authorized
officers furnished to the Agent and as amended from time to time in
writing by resolution of the Board of Directors of the Fund.
Further, the Fund will indemnify and hold the Agent harmless
against any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action, or suit as a result of the negligence of the Fund or the
principal underwriter (unless contributed to by the Agent's breach of this
Agreement or other Agreements between the Fund and the Agent, or the
Agent's own negligence or bad faith); or as a result of the Agent acting
upon telephone instructions relating to the exchange or redemption of
shares received by the Agent and reasonably believed by the Agent under a
standard of care customarily used in the industry to have originated from
the record owner of the subject shares; or as a result of acting in
reliance upon any genuine instrument or stock certificate signed,
countersigned, or executed by any person or persons authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, the Agent shall take
all reasonable steps to minimize service interruptions for any period that
such interruption continues beyond the Agent's control. The Agent will
make every reasonable effort to restore any lost or damaged data and
correct any errors resulting from such a breakdown at the expense of the
Agent. The Agent agrees that it shall, at all times, have reasonable
contingency plans with appropriate parties, making reasonable provision
for emergency use of electrical data processing equipment to the extent
appropriate equipment is available. Representatives of the Fund shall be
entitled to inspect the Agent's premises and operating capabilities at any
time during regular business hours of the Agent, upon reasonable notice to
the Agent.
Regardless of the above, the Agent reserves the right to
reprocess and correct administrative errors at its own expense.
In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the Fund may be
asked to indemnify or hold the Agent harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Agent will use all
reasonable care to notify the Fund promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Fund. The Fund shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification. In the event that the Fund so elects, it will so notify
the Agent and thereupon the Fund shall take over complete defense of the
claim, and the Agent shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this section.
The Agent shall in no case confess any claim or make any compromise in any
case in which the Fund will be asked to indemnify the Agent except with
the Fund's prior written consent.
The Agent shall indemnify and hold the Fund harmless from and
against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which may be asserted against the
Fund by any person arising out of any action taken or omitted to be taken
by the Agent as a result of the Agent's refusal or failure to comply with
the terms of this Agreement, its bad faith, negligence, or willful
misconduct.
7. CONFIDENTIALITY
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and
its shareholders and shall not be disclosed to any other party, except
after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where
the Agent may be exposed to civil or criminal contempt proceedings for
failure to comply after being requested to divulge such information by
duly constituted authorities.
8. RECORDS
The Agent shall keep records relating to the services to be
performed hereunder, in the form and manner, and for such period as it may
deem advisable and is agreeable to the Fund but not inconsistent with the
rules and regulations of appropriate government authorities, in
particular, Section 31 of The Investment Company Act of 1940 as amended
(the "Investment Company Act"), and the rules thereunder. The Agent
agrees that all such records prepared or maintained by The Agent relating
to the services to be performed by the Agent hereunder are the property of
the Fund and will be preserved, maintained, and made available with such
section and rules of the Investment Company Act and will be promptly
surrendered to the Fund on and in accordance with its request.
9. WISCONSIN LAW TO APPLY
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of
Wisconsin.
10. AMENDMENT, ASSIGNMENT, TERMINATION AND NOTICE
A. This Agreement may be amended by the mutual written consent
of the parties.
B. This Agreement may be terminated upon ninety (90) day's
written notice given by one party to the other.
C. This Agreement and any right or obligation hereunder may
not be assigned by either party without the signed, written consent of the
other party.
D. Any notice required to be given by the parties to each
other under the terms of this Agreement shall be in writing, addressed and
delivered, or mailed to the principal at P.O. Box 2054, Milwaukee, WI
53201. If to the Fund, such notice should be sent to 1256 Forest Avenue,
Palo Alto, California 94301.
E. In the event that the Fund gives to the Agent its written
intention to terminate and appoint a successor transfer agent, the Agent
agrees to cooperate in the transfer of its duties and responsibilities to
the successor, including any and all relevant books, records and other
data established or maintained by the Agent under this Agreement.
F. Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and
material will be paid by the Fund.
THE THURLOW FUNDS, INC. FIRSTAR TRUST COMPANY
By: ______________________________ By:
Attest: ___________________________ Attest:
Assistant Secretary
FOLEY & LARDNER
A T T O R N E Y S A T L A W
FIRSTAR CENTER
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202-5367
A MEMBER OF GLOBALEX
WITH MEMBER OFFICES IN
MADISON BERLIN
CHICAGO TELEPHONE (414) 271-2400 BRUSSELS
WASHINGTON, D.C. DRESDEN
JACKSONVILLE TELEX 26-819 FRANKFURT
ORLANDO LONDON
TALLAHASSEE (FOLEY LARD MIL) PARIS
TAMPA SINGAPORE
WEST PALM BEACH FACSIMILE (414) 297-4900 STUTTGART
TAIPEI
WRITER'S DIRECT LINE
July 30, 1997
The Thurlow Funds, Inc.
1256 Forest Avenue
Palo Alto, CA 94301
Gentlemen:
We have acted as counsel for you in connection with the
preparation of a Registration Statement on Form N-1A relating to the sale
by you of an indefinite amount of The Thurlow Funds, Inc. Common Stock,
$0.0001 par value (such Common Stock being hereinafter referred to as the
"Stock"), in the manner set forth in the Registration Statement to which
reference is made. In this connection we have examined: (a) the
Registration Statement on Form N-1A; (b) your Articles of Incorporation
and Bylaws, as amended to date; (c) corporate proceedings relative to the
authorization for issuance of the Stock; and (d) such other proceedings,
documents and records as we have deemed necessary to enable us to render
this opinion.
Based upon the foregoing, we are of the opinion that the shares
of Stock when sold as contemplated in the Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to
the Form N-1A Registration Statement. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the
Securities Act of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
/s/ FOLEY & LARDNER
FOLEY & LARDNER
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to all references to
our firm included in or made a part of Registration Statement No. 333-
27581 on Form N-1A of The Thurlow Funds, Inc.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
July 30, 1997.
SUBSCRIPTION AGREEMENT
The Thurlow Funds, Inc.
101 Metro Drive, Suite 260
San Jose, California 95110
Gentlemen:
The undersigned each hereby subscribe to 5,000 shares of the
Class A Common Stock, $0.0001 par value of The Thurlow Funds, Inc., and
agree to pay to said corporation the sum of $50,000 in cash.
It is understood that upon acceptance hereof by said corporation
the shares subscribed for shall be issued to the undersigned and that said
shares shall be deemed to be fully paid and nonassessable.
The undersigned agrees that the shares are being purchased for
investment with no present intention of reselling or redeeming said
shares.
Dated and effective as of this ___ day of June, 1997.
____________________________________
Thomas F. Thurlow
____________________________________
Thomas N. Thurlow
The foregoing subscription is hereby accepted. Dated and
effective as of this ____ day of June, 1997.
THE THURLOW FUNDS, INC.
By: ______________________________________
Thomas F. Thurlow, President
SERVICE AND DISTRIBUTION PLAN
OF
THE THURLOW FUNDS, INC.
WHEREAS, The Thurlow Funds, Inc. (the "Fund") is registered with
the Securities and Exchange Commission as an open-end management
investment company under the Investment Company Act of 1940, as amended
(the "Act");
WHEREAS, the Fund intends to act as a distributor of shares of
its Common Stock, $.0001 par value ("Common Stock"), as defined in Rule
12b-1 under the Act, and desires to adopt a distribution plan pursuant to
such Rule, and the Board of Directors has determined that there is a
reasonable likelihood that adoption of this Service and Distribution Plan
will benefit the Fund and its shareholders; and
WHEREAS, the Fund may enter into agreements with dealers and
other financial service organizations to obtain various distribution-
related and/or shareholder services for the Fund, all as permitted and
contemplated by Rule 12b-1 under the Act; it being understood that to the
extent any activity is one in which the Fund may finance without a Rule
12b-1 plan, the Fund may also make payments to finance such activity
outside such a plan and not subject to its limitations.
NOW, THEREFORE, the Fund hereby adopted this Service and
Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act
on the following terms and conditions:
1. Distribution and Service Fee. The Fund may charge a
distribution expense and service fee on an annualized basis of 0.25% of
the Fund's average daily net assets. Such fee shall be calculated and
accrued daily and paid at such intervals as the Board of Directors of the
Fund shall determine, subject to any applicable restriction imposed by
rules of the National Association of Securities Dealers, Inc.
2. Permitted Expenditures. The amount set forth in paragraph
1 of this Plan shall be paid for services or expenses primarily intended
to result in the sale of the Fund's shares. The Fund may pay all or a
portion of this fee to any securities dealer, financial institution or any
other person (the "Shareholder Organization(s)") who renders personal
service to shareholders, assists in the maintenance of shareholder
accounts or who renders assistance in distributing or promoting the sale
of the Fund's shares pursuant to a written agreement approved by the Board
of Directors (the "Related Agreement"). To the extent such fee is not
paid to such persons, the Fund may use the fee to pay expenses of
distribution of its shares including, but not limited to, payment by the
Fund of the cost of preparing, printing and distributing Prospectuses and
Statements of Additional Information to prospective investors and of
implementing and operating the Plan as well as payment of capital or other
expenses of associated equipment, rent, salaries, bonuses, interest and
other overhead costs.
3. Effective Date of Plan. This Plan shall not take effect
until it has been approved (together with any related agreements) by votes
of a majority of both (i) the board of Directors of the Fund and (ii)
those Directors of the Fund who are not "interested persons" of the Fund
(as defined in the Act) and have no direct or indirect financial interest
in the operation of this Plan or any agreements related to it (the "Rule
12b-1 Directors"), cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan and such related agreements.
4. Continuance. Unless otherwise terminated pursuant to
paragraph 6 below, this Plan shall continue in effect for as along as such
continuance is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 3.
5. Reports. Any person authorized to direct the disposition
of monies paid or payable by the Fund pursuant to this Plan or any related
agreement shall provide to the Fund's Board of Directors and the Board
shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
6. Termination. This Plan may be terminated at any time by
vote of a majority of the Rule 12b-1 Directors, or by a vote of a majority
(as defined in the Act) of the outstanding shares of Common Stock.
7. Amendments. This Plan may not be amended to increase
materially the amount of payments provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial
approval in paragraph 3 hereof and by a vote of at least a majority (as
defined in the Act) of the outstanding shares of Common Stock. No other
amendment to the Plan may be made unless approved in the manner provided
for approval of this Plan in paragraph 3 hereof.
8. Selection of Directors. While this Plan is in effect, the
selection and nomination of Directors who are not interested persons (as
defined in the Act) of the Fund shall be committed to the discretion of
the Directors who are not interested persons.
9. Records. The Fund shall preserve copies of this Plan and
any related agreements and all reports made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of this
Plan, or the agreements or such report, as the case may be, the first two
years in an easily accessible place.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001038264
<NAME> THE THURLOW GROWTH FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUL-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 122,906
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,906
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 22,220
<TOTAL-LIABILITIES> 22,220
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,686
<SHARES-COMMON-STOCK> 10,069
<SHARES-COMMON-PRIOR> 0
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<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
