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. __ [_]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [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.
It is proposed that this filing become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
<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 Financial Highlights;
Information Performance Information
4. General Description of The Fund; Investment
Registrant 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 Dividends, Distributions
Securities and Taxes; Dividend
Reinvestment; Capital
Structure; Account
Statements
7. Purchase of Securities Being How to Purchase Shares;
Offered 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 Investment Restrictions;
Policies Investment Considerations
14. Management of the Fund Directors and Officers of
the Corporation
15. Control Persons and Principal Stockholders
Principal Holders of
Securities
16. Investment Advisory and Investment Adviser,
Other 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 Included in Prospectus
Securities under "CAPITAL STRUCTURE"
19. Purchase, Redemption and Included in Prospectus
Pricing of Securities Being under "DETERMINATION OF NET
Offered 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 Determination of Net Asset
Data Value and Performance
23. Financial Statements Financial Statements
_______________________
* Answer negative or inapplicable
<PAGE>
The Thurlow Growth Fund
the sole portfolio of
The Thurlow Funds, Inc.
Supplement to the Prospectus dated August 6, 1997
The date of this supplement is February 6, 1998
1. The following table is to be inserted on Page 4 of the Prospectus
before "THE FUND".
Financial Highlights
The financial information of a share of The Thurlow Growth Fund (the
"Fund") outstanding during the period from August 8, 1997 (commencement of
operations) to December 31, 1997 included in this table has been derived
from the financial records of the Fund without examination by the Fund's
independent accountants, who do not express an opinion thereon. The table
should be read in conjunction with the financial statements and related
notes without charge, upon request.
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment loss (0.02)
Net realized and unrealized loss on investments (1.38)
-----
Total from investment operations (1.40)
-----
Net asset value, end of period $8.60
=====
Total return 1 (14.00%)
Supplemental data and ratios:
Net assets, end of period $354,207
Ratio of net expenses to average net assets 2 1.95%
Ratio of net investment income to average
net assets 2 (0.87%)
Portfolio turnover rate 195.12%
Average commission rate paid $0.1446
1 Not annualized.
2 Annualized for the period August 8, 1997 through December 31, 1997.
Without expense waivers of $52,268 for the period August 8, 1997
through December 31, 1997, the ratio of expenses to average net
assets would have been 57.41% and the ratio of net investment
income to average net assets would have been (56.33%).
2. The following discussion replaces the discussion under the caption
"RETIREMENT PLANS - Individual Retirement Account ("IRA") on page 17
of the Prospectus.
Individual shareholders may establish their own tax-sheltered
Individual Retirement Accounts ("IRA"). The Fund currently offers a
prototype traditional IRA plan and a prototype Roth IRA plan. There
is currently no charge for establishing an account, although there is
an annual maintenance fee. (See the applicable IRA Custodian
Agreement and Disclosure Statement for a discussion of the annual
maintenance fee, other fees associated with the account, eligibility
requirements and related tax consequences.)
<PAGE>
THE
THURLOW GROWTH
FUND
INVESTOR KIT
AND PROSPECTUS
Logo THURLOW(tm) FUNDS
Photo of statue on building
<PAGE>
Prospectus August 6, 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 6, 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.
<PAGE>
TABLE OF CONTENTS
Expense Summary...............................................................3
The Fund......................................................................4
Investment Objectives and Strategy............................................4
Investment Policies and Risks.................................................5
Investment Restrictions.......................................................9
Management of the Fund........................................................9
Determination of Net Asset Value.............................................11
How to Purchase Shares.......................................................11
How to Redeem Shares.........................................................14
Retirement Plans.............................................................17
Dividends, Distributions and Taxes...........................................17
Dividend Reinvestment........................................................18
Capital Structure............................................................19
Brokerage Transactions.......................................................19
Account Statements...........................................................20
Performance Information......................................................20
<PAGE>
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. Absent the limitation the Fund expects to incur Other Expenses
(estimated) and Total Fund Operating Expenses of 1.25% and 2.75%, respectively,
for the fiscal year ending June 30, 1998.
EXAMPLE:
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:
1 Year ........................................................$20
3 Years........................................................$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 AND 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.
<PAGE>
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-downTM 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.
<PAGE>
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.
MONEY MARKET INSTRUMENTS AND U.S. GOVERNMENT SECURITIES
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 for nondefensive
purposes such as to achieve its secondary investment objective of current income
and with repect to 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 th
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. An account 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, Proprietor, Redemption request signed by all sole
(Uniform Gift to Minors Act) Custodial person(s) required to sign
General Partners account, exactly as it is registered.
Corporations, Associations for the 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 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 or 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 account 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' note 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 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
THE THURLOW FUNDS, INC.
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin, 53201-9155
www.thurlowfunds.com
Logo THURLOW(tm) FUNDS
Photo of statue on building
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION February 6, 1998
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 6, 1997 and the Supplement to the Prospectus dated
February 6, 1998 (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 . . . . . . . . . . . . 12
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE . . . . . . . . . . 14
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 14
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . 15
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 18
DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . 19
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 23
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 23
No person has been authorized to give any information or to make
any representations other than those contained in this Statement of
Additional Information, the Prospectus dated August 6, 1997 and the
Supplement to the Prospectus dated February 6, 1998 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 6, 1997 and
Supplement dated February 6, 1998 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 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 42
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 32
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:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or
Retirement Total
Aggregate Benefits Compensation
Compensation Accrued as Part Estimated Annual from Corporation
Name of from of Benefits Upon Paid to
Person Corporation Fund Expenses Retirement Directors
<S> <C> <C> <C> <C>
Martina Hearn 0 0 0 0
Natasha G. McRee 0 0 0 0
Stephanie E. Rosendahl 0 0 0 0
Basil S. Shiber 0 0 0 0
Thomas F. Thurlow 0 0 0 0
</TABLE>
PRINCIPAL STOCKHOLDERS
Set forth below are the names and addresses of all holders of
the Fund's shares who as of January 30, 1998 beneficially owned more than
5% of the Fund's then outstanding shares, as well as the number of shares
of the Fund beneficially owned by all officers and directors of the
Corporation as a group.
Name and Address of
Beneficial Owner Number of Shares Percent of Class
Heida L. Thurlow 12,542 29.25%
2030 W. Sam Houston
Parkway N.
Houston, TX 77043
L. Martin Field 10,925 25.47%
900 Jefferson Avenue
Newport, News, VA 23607
Thomas F. Thurlow 5,390 12.57%
1256 Forest Avenue
Palo Alto, CA 94301
Thomas N. Thurlow 5,000 11.66%
440 Louisiana Street,
Suite 2100
Houston, TX 77002
Stephanie E. Rosendahl 3,446 8.04%
4101 Coleridge Street
Houston, TX 77005
Officers and Directors 9,414* 21.95%*
as a Group (5 persons)
___________________________________
* Includes the shares owned by Thomas F. Thurlow and Stephanie E.
Rosendahl.
As of January 30, 1998 each of Heida L. Thurlow and L. Martin Field
are considered to control the Corporation for purposes of the Act. Thomas
N. Thurlow is the father of Thomas F. Thurlow.
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 on 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, Dr.
Martin Luther King, Jr. Day, President's Day, 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
The total return of the Fund for the period August 8, 1997
(commencement of operations) through December 31, 1997 was -14.00%.
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 8, 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 8, 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, for the fiscal year ended June 30, 1998, but not
subsequent fiscal years, 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 for
purposes of the 30% Test. 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.
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.
The Fund may acquire put options. Under the Code, put options
on stocks are taxed similar to 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. The Code provides for a
three-tiered tax rate structure for long-term capital gains depending on
the Fund's holding period of the underlying financial instrument or
capital asset. 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 dividends from
the Fund's net investment income, 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 audited financial statements for the Fund are
attached hereto:
- Report of Independent Accountants dated July 30, 1997
- Statement of Assets and Liabilities at July 28, 1997
- Notes to the Financial Statement
The following unaudited financial statements for the Fund are
attached hereto:
- Statement of Assets and Liabilities at December 31, 1997
- Statement of Operations for the Period August 8, 1997
(commencement of operations) through December 31, 1997
- Statement of Changes in Net Assets for the Period August 8,
1997 (commencement of operations) through December 31, 1997
- Financial Highlights
- Schedule of Investments at December 31, 1997
- Notes to the Financial Statements
<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>
The Thurlow Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
(Unaudited)
ASSETS:
Investments, at value (cost $388,520) $400,309
Dividend and interest receivable 474
Receivable from Adviser 19,592
Organizational expenses, net of accumulated
amortization 24,695
--------
Total assets 445,070
--------
LIABILITIES:
Payable for securities purchased 50,633
Accrued expenses and other liabilities 40,230
--------
Total liabilities 90,863
--------
NET ASSETS $354,207
========
NET ASSETS CONSIST OF:
Capital stock $401,040
Accumulated undistributed net investment loss (815)
Accumulated undistributed net realized loss on
investments (57,807)
Net unrealized appreciation on investments 11,789
--------
Total Net Assets $354,207
========
Shares outstanding
(500 million shares authorized, $ 0.0001
par value) 41,200
Net Asset Value, Redemption Price and Offering
Price Per Share $8.60
=====
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
STATEMENT OF OPERATIONS
August 8, 1997 1 through December 31, 1997
(Unaudited)
INVESTMENT INCOME:
Dividend income $113
Interest income 909
-------
Total investment income 1,022
-------
EXPENSES:
Investment advisory fees 1,178
Administration fees 12,562
Shareholder servicing and accounting costs 21,738
Distribution fees 236
Custody fees 2,094
Federal and state registration 1,190
Professional fees 6,018
Reports to shareholders 4,577
Amortization of organizational expenses 2,104
Other 2,408
-------
Total expenses before waiver and
reimbursement 54,105
Less: Waiver of expenses and
reimbursement from Adviser (52,268)
-------
Net Expenses 1,837
-------
NET INVESTMENT LOSS (815)
-------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized loss on investments (57,807)
Change in unrealized appreciation on investments 11,789
-------
Net realized and unrealized loss on
investments (46,018)
-------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($46,833)
=======
1 Commencement of Operations.
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
August 8, 1997 1 through December 31, 1997
(Unaudited)
OPERATIONS:
Net investment loss ($815)
Net realized loss on investments (57,807)
Change in unrealized appreciation on investments 11,789
--------
Net decrease in net assets from operations (46,833)
--------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 407,040
Cost of shares redeemed (6,000)
-------
Net increase in net assets from capital
share transaction 401,040
-------
TOTAL INCREASE IN NET ASSETS 354,207
-------
NET ASSETS:
Beginning of period 0
-------
End of period ((including undistributed net
investment loss of ($815)) $354,207
=======
1 Commencement of Operations.
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
FINANCIAL HIGHLIGHTS
August 8, 1997 1 through December 31, 1997
(Unaudited)
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.02)
Net realized and unrealized loss
on investments (1.38)
------
Total from investment operations (1.40)
------
NET ASSET VALUE, END OF PERIOD $8.60
======
TOTAL RETURN 2 (14.00%)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $354,207
Ratio of net expenses to average
net assets 3 1.95%
Ratio of net investment income to
average net assets 3 (0.87%)
Portfolio turnover rate 195.12%
Average commission rate paid $0.1446
1 Commencement of Operations.
2 Not annualized.
3 Annualized for the period August 8, 1997 through December 31, 1997.
Without expense waivers of $52,268 for the period August 8, 1997
through December 31, 1997, the ratio of expenses to average net
assets would have been 57.41% and the ratio of net investment income
to average net assets would have been (56.33%).
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
SCHEDULE OF INVESTMENTS - December 31, 1997 (Unaudited)
Shares Value
COMMON STOCKS - 84.2%
BANKING & FINANCIAL SERVICES - 14.8%
400 Actrade International, Ltd. * $ 10,675
400 Bank of Commerce 8,950
300 Civic BanCorp * 5,850
300 New York Bancorp Inc. 11,906
300 St. Francis Capital Corporation 15,150
-------
52,531
-------
BUILDING - MOBILE/MFG. AND RV - 2.8%
300 National R.V. Holdings, Inc. * 9,863
-------
BUSINESS SERVICE - 1.1%
300 Forensic Technologies International
Corporation * 3,750
-------
CAPITAL GOODS - 13.3%
200 Centex Construction Products, Inc. 6,025
450 Gardner Denver Machinery Inc. * 11,391
500 Gencor Industries, Inc. 9,750
200 Graco, Inc. 7,462
500 Kellstrom Industries, Inc. * 12,375
-------
47,003
-------
COMPUTER EQUIPMENT - 2.0%
400 GENICOM Corporation * 4,600
200 Iomega Corporation * 2,487
-------
7,087
-------
COMPUTER SERVICES - 2.3%
300 Metro Information Services, Inc. * 8,325
-------
COSMETICS AND PERSONAL CARE - 2.8%
400 Twinlab Corporation * 9,900
-------
ENERGY - 0.5%
100 The Houston Exploration Company * 1,837
-------
ENTERTAINMENT & LEISURE - 2.6%
400 THQ, Inc. * 9,200
-------
HEALTH CARE - 4.8%
400 Mariner Health Group, Inc. * 6,500
300 MedQuist, Inc. * 10,425
-------
16,925
-------
HOME FURNISHINGS - 2.6%
500 Rent-Way, Inc. * 9,250
-------
HOUSING - 6.3%
700 Dominion Homes Inc. * 8,400
400 Lennar Corporation 8,625
200 Toll Brothers, Inc. * 5,350
-------
22,375
-------
LEISURE - TOYS/GAMES/HOBBY - 3.2%
300 Action Performance Companies, Inc. * 11,363
-------
RETAIL - 11.1%
300 Abercrombie & Fitch Company * 9,375
500 Best Buy Co., Inc. * 18,438
400 The Dress Barn, Inc. * 11,350
-------
39,163
-------
RETAIL - DISCOUNT - 3.6%
400 Party City Corporation * 12,900
-------
SOFTWARE - 4.2%
100 Datastream Systems, Inc. * 3,100
400 Sanchez Computer Associates, Inc. * 11,650
-------
14,750
-------
TECHNOLOGY - 1.6%
200 En Pointe Technologies, Inc.* 1,950
100 Procom Technology, Inc. * 1,581
200 Summit Design, Inc. * 2,075
-------
5,606
-------
TELECOMMUNICATIONS - 4.6%
1,200 Applied Signal Technology, Inc. * 16,500
-------
TOTAL COMMON STOCKS (Cost of $286,539) 298,328
-------
SHORT-TERM INVESTMENTS - 28.8%
Principal
Amount
VARIABLE RATE DEMAND NOTES - 28.8%
$ 16,500 American Family Financial Services 16,500
15,600 General Mill, Inc. 15,600
15,600 Johnson Controls, Inc. 15,600
15,600 Pitney Bowes, Inc. 15,600
15,600 Sara Lee Corp. 15,600
15,600 Warner Lambert Company 15,600
7,481 Wisconsin Electric Power Company 7,481
-------
101,981
-------
TOTAL SHORT-TERM INVESTMENTS (Cost of $101,981) 101,981
-------
TOTAL INVESTMENTS - 113.0% (Cost of $388,520) 400,309
Liabilities in Excess of Other Assets - (13.0%) (46,102)
-------
TOTAL NET ASSETS - 100.0% $354,207
=======
* Non-income producing security.
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
1. ORGANIZATION
The Thurlow Funds, Inc. (the "Company") was incorporated under the
laws of Maryland on April 30, 1997, and is registered as a no-load, open-
end, diversified management investment company under the Investment
Company Act of 1940. The Company presently consists of one diversified
investment portfolio, the Thurlow Growth Fund (the "Fund"). The principal
investment objective of the Fund is capital appreciation, with current
income as a secondary objective. Thomas F. Thurlow and Thomas N. Thurlow
held 10,069 shares of the Fund's capital stock at $10 per share on July
28, 1997. The Fund commenced operations on August 8, 1997.
The costs incurred in connection with the organization, initial
registration and public offering of shares, aggregating $26,799, have been
paid by the Adviser and will be reimbursed by the Fund. These costs are
being amortized over the period of benefit, but not to exceed sixty months
from the Fund's commencement of operations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
a) Investment Valuation - Common stocks that are listed on a
securities exchange are valued at the last quoted sales price on the day
the 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 an exchange but which are not traded on the valuation
date are 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 with a remaining maturity of 60
days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined by the Investment Adviser
in accordance with procedures approved by the Board of Directors.
b) Federal Income Taxes - No provision for federal income taxes
or excise taxes has been made since the Fund intends to comply with the
provisions of the Internal Revenue Code available to regulated investment
companies in the current and future years.
c) Distributions to Shareholders - Dividends from net investment
income are declared and paid annually. Distributions of the Fund's net
realized capital gains, if any, will be declared at least annually.
d) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
e) Other - Investment and shareholder transactions are recorded
on trade date. The Fund determines the gain or loss realized from the
investment transactions by comparing the original cost of the security lot
sold with the net sales proceeds. Dividend income is recognized on the
ex-dividend date or as soon as information is available to the Fund, and
interest income is recognized on an accrual basis. Generally accepted
accounting principles require that permanent financial reporting and tax
differences be reclassified to capital stock.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period August 8, 1997
through December 31, 1997, were as follows:
Shares sold 41,834
Shares issued to holders in
reinvestment of dividends 0
Shares redeemed (634)
------
Net increase 41,200
======
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-
term investments, by the Fund for the period August 8, 1997 through
December 31, 1997, were $668,379 and $324,033, respectively.
At December 31, 1997, gross unrealized appreciation and depreciation
of investments for tax purposes were as follows:
Appreciation $21,995
(Depreciation) (10,206)
------
Net appreciation
on investments $11,789
======
At December 31, 1997, the cost of investments for federal income tax
purposes was $388,520.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with
Thurlow Capital Management, Inc. Pursuant to its Advisory Agreement with
the Fund, the Investment Adviser is entitled to receive a fee, calculated
daily and payable monthly, at the annual rate of 1.25% as applied to the
Fund's daily net assets.
Firstar Trust Company, a subsidiary of Firstar Corporation, a
publicly held bank holding company, serves as custodian, transfer agent,
administrator and accounting services agent for the Fund.
The Fund has adopted a written plan of distribution (the "Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940. The
Plan authorizes the Fund to make payments in connection with the
distribution of shares at an annual rate of up to 0.25% of the Fund's
average daily net assets.
If the aggregate annual operating expenses (excluding interest,
taxes, brokerage commissions and other costs incurred in connection with
the purchase or sale of portfolio securities, and extraordinary items)
exceed 1.95% of the Fund's average daily net assets, the Investment
Adviser may reimburse the Fund for the amount of such excess.
Accordingly, for the period ended December 31, 1997, the Investment
Adviser reimbursed the Fund $52,268.
<PAGE>
PART C
OTHER INFORMATION
Item24. Financial Statements and Exhibits
(a.) Financial Statements
Financial Highlights (included in Part A)
July 28, 1997 Financial Statement (audited) (included in Part
B)
Report of Independent Accountants
Statement of Assets and Liabilities
Notes to Financial Statement
December 31, 1997 Financial Statements (unaudited) (included
in Part B)
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Schedule of Investments
Note to the Financial Statements
(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 (Exhibit 9.2 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(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
(Exhibit 10 to Registrant's Registration Statement on
Form N-1A is incorporated by reference pursuant to
Rule 411 under the Securities Act of 1933).
(11) Consent of Arthur Andersen LLP.
(12) None
(13) Subscription Agreement (Exhibit 13 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(14.1) Individual Retirement Accounts
(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 (Exhibit 15 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(16) None
(17) Financial Data Schedule.
(18) None
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by Heida L. Thurlow and L. Martin
Field, who own 29.25% and 25.47%, respectively, of Registrant's voting
securities as of January 30, 1998. Registrant does not control any
person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of January 30, 1998
Class A Common Stock, $0.0001 par 21
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
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 certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this 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 6th day of February, 1998.
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 February 6, 1998
Thomas F. Thurlow Executive, Financial
and Accounting
Officer) and a
Director
/s/ Martina Hearn
Martina Hearn Director February 6, 1998
Natasha L. McRee Director February __, 1998
Stephanie E. Rosendahl Director February __, 1998
/s/ Basil S. Shiber
Basil S. Shiber Director February 6, 1998
<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 Accounts
(14.2) Simplified Employee Pension Plan*
(15) Service and Distribution Plan*
(16) None
(17) Financial Data Schedule
(18) None
__________
* Incorporated by reference.
Consent of Independent Public Accountants
As independent public accounts, we hereby consent to the use of our
report, and to all references to our firm, included in or made a part of
this Form N-1A registration statement for The Thurlow Funds, Inc.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 6, 1998
Exhibit 14.1
THE THURLOW FUNDS, INC.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The following constitutes an agreement establishing an
Individual Retirement Account (under Section 408(a) of the Internal
Revenue Code) between the Depositor and the Custodian.
ARTICLE I
The Custodian may accept additional cash contributions on behalf
of the Depositor for a tax year of the Depositor. The total cash
contributions are limited to $2,000 for the tax year unless the
contribution is a rollover contribution described in Section 402(c) (but
only after December 31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described
in Section 408(k). Rollover contributions before January 1, 1993, include
rollovers described in Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4),
403(b)(8), 408(d)(3), or an employer contribution to a simplified employee
pension plan as described in Section 408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account
is nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life
insurance contracts, nor may the assets of the custodial account be
commingled with other property except in a common trust fund or common
investment fund (within the meaning of Section 408(a)(5)).
2. No part of the custodial funds may be invested in
collectibles (within the meaning of Section 408(m)) except as otherwise
permitted by Section 408(m)(3) which provides an exception for certain
gold and silver coins and coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the
contrary, the distribution of the Depositor's interest in the custodial
account shall be made in accordance with the following requirements and
shall otherwise comply with Section 408(a)(6) and Proposed Regulations
Section 1.408-8, including the incidental death benefit provisions of
Proposed Regulations Section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions are
required to begin to the Depositor under Paragraph 3, or to the surviving
spouse under Paragraph 4, other than in the case of a life annuity, life
expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Depositor and the surviving spouse and shall apply
to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
3. The Depositor's entire interest in the custodial account
must be, or begin to be, distributed by the Depositor's required beginning
date, (April 1 following the calendar year end in which the Depositor
reaches age 70 1/2). By that date, the Depositor may elect, in a manner
acceptable to the Custodian, to have the balance in the custodial account
distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially
equal monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially
equal monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a
specified period that may not be longer than the Depositor's life
expectancy.
(e) Equal or substantially equal annual payments over a
specified period that may not be longer than the joint life and last
survivor expectancy of the Depositor and his or her designated
beneficiary.
4. If the Depositor dies before his or her entire interest is
distributed to him or her, the entire remaining interest will be
distributed as follows:
(a) If the Depositor dies on or after distribution of his or
her interest has begun, distribution must continue to be made in
accordance with Paragraph 3.
(b) If the Depositor dies before distribution of his or her
interest has begun, the entire remaining interest will, at the election of
the Depositor or, if the Depositor has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year
containing the fifth anniversary of the Depositor's
death, or
(ii) Be distributed in equal or substantially equal
payments over the life or life expectancy of the
designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the
Depositor's death. If, however, the beneficiary is
the Depositor's surviving spouse, then this
distribution is not required to begin before December
31 of the year in which the Depositor would have
turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting
the requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually
have been made before that date.
(d) If the Depositor dies before his or her entire interest has
been distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions may be
accepted in the account.
5. In the case of a distribution over life expectancy in equal
or substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint life
and last survivor expectancy of the Depositor and the Depositor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
Paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designed
beneficiary as of their birthdays in the year the Depositor reaches age 70
1/2. In the case of a distribution in accordance with Paragraph 4(b)(ii),
determine life expectancy using the attained age of the designated
beneficiary as of the beneficiary's birthday in the year distributions are
required to commence.
6. The owner of two or more individual retirement accounts may
use the "alternative method" described in Notice 88-38, 1988-1 C.B. 524,
to satisfy the minimum distribution requirements described above. This
method permits an individual to satisfy these requirements by taking from
one individual retirement account the amount required to satisfy the
requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with
information necessary for the Custodian to prepare any reports required
under Section 408(i) and Regulations Section 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal
Revenue Service and the Depositor prescribed by the Internal Revenue
Service.
ARTICLE VI
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through III and this sentence
will be controlling. Any additional articles that are not consistent with
Section 408(a) and related regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with
the provisions of the Code and related regulations. Other amendments may
be made with the consent of the persons whose signatures appear below.
ARTICLE VIII
1. Investment of Account Assets. (a) All contributions to the
custodial account shall be invested in the shares of any regulated
investment company ("Investment Company") for which The Thurlow Funds,
Inc. serves as investment advisor, or any other regulated investment
company designated by the investment advisor. Shares of stock of an
Investment Company shall be referred to as Investment Company Shares."
(b) Each contribution to the custodial account shall identify
the Depositor's account number and be accompanied by a signed statement
directing the investment of that contribution. The Custodian may return
to the Depositor, without liability for interest thereon, any contribution
which is not accompanied by adequate account identification or an
appropriate signed statement directing investment of that contribution.
(c) Contributions shall be invested in whole and fractional
Investment Company Shares at the price and in the manner such shares are
offered to the public. All distributions received on Investment Company
Shares held in the custodial account shall be reinvested in like shares.
If any distribution of Investment Company Shares may be received in
additional like shares or in cash or other property, the Custodian shall
elect to receive such distribution in additional like Investment Company
Shares.
(d) All Investment Company Shares acquired by the Custodian
shall be registered in the name of the Custodian or its nominee. The
Depositor shall be the beneficial owner of all Investment Company Shares
held in the custodial account and the Custodian shall not vote any such
shares, except upon written direction of the Depositor. The Custodian
agrees to forward to the Depositor each prospectus, report, notice, proxy
and related proxy soliciting materials applicable to Investment Company
Shares held in the custodial account received by the Custodian.
(e) The Depositor may, at any time, by written notice to the
Custodian, redeem any number of shares held in the custodial account and
reinvest the proceeds in the shares of any other Investment Company. Such
redemptions and reinvestments shall be done at the price and in the manner
such shares are then being redeemed or offered by the respective
Investment Companies.
2. Amendment and Termination. (a) The Custodian may amend
the Custodial Account (including retroactive amendments) by delivering to
the Depositor written notice of such amendment setting forth the substance
and effective date of the amendment. The Depositor shall be deemed to
have consented to any such amendment not objected to in writing by the
Depositor within thirty (30) days of receipt of the notice, provided that
no amendment shall cause or permit any part of the assets of the custodial
account to be diverted to purposes other than for the exclusive benefit of
the Depositor or his or her beneficiaries.
(b) The Depositor may terminate the custodial account at any
time by delivering to the Custodian a written notice of such termination.
(c) The custodial account shall automatically terminate upon
distribution to the Depositor or his or her beneficiaries of its entire
balance.
3. Taxes and Custodial Fees. Any income taxes or other taxes
levied or assessed upon or in respect of the assets or income of the
custodial account and any transfer taxes incurred shall be paid from the
custodial account. All administrative expenses incurred by the Custodian
in the performance of its duties, including fees for legal services
rendered to the Custodian, and the Custodian's compensation shall be paid
from the custodial account, unless otherwise paid by the Depositor or his
or her beneficiaries.
The Custodian's fees are set forth in a schedule provided to the
Depositor. Extraordinary charges resulting from unusual administrative
responsibilities not contemplated by the schedule will be subject to such
additional charges as will reasonably compensate the Custodian. Fees for
refund of excess contributions, transferring to a successor trustee or
custodian, or redemption/reinvestment of Investment Company Shares will be
deducted from the refund or redemption proceeds and the remaining balance
will be remitted to the Depositor, or reinvested or transferred in
accordance with the Depositor's instructions.
4. Reports and Notices. (a) The Custodian shall keep
adequate records of transactions it is required to perform hereunder.
After the close of each calendar year, the Custodian shall provide to the
Depositor or his or her legal representative a written report or reports
reflecting the transactions effected by it during such year and the assets
and liabilities of the Custodial Account at the close of the year.
(b) All communications or notices shall be deemed to be given
upon receipt by the Custodian at The Thurlow Funds, Inc., c/o Firstar
Trust Company, Mutual Fund Services, 615 East Michigan Street, 3rd Floor,
P.O. Box 701, Milwaukee, WI 53201-0701, or the Depositor at his most
recent address shown in the Custodian's records. The Depositor agrees to
advise the Custodian promptly, in writing, of any change of address.
5. Designation of Beneficiary. The Depositor may designate a
beneficiary or beneficiaries to receive benefits from the custodial
account in the event of the Depositor's death. In the event the Depositor
has not designated a beneficiary, or if all beneficiaries shall predecease
the Depositor, the following persons shall take in the order named:
(a) The spouse of the Depositor;
(b) If the spouse shall predecease the Depositor or if the
Depositor does not have a spouse, then to the personal representative of
the Depositor's estate.
6. Multiple Individual Retirement Accounts. In the event the
Depositor maintains more than one individual retirement account (as
defined in Section 408(a)) and elects to satisfy his or her minimum
distribution requirements described in Article IV above by making a
distribution for another individual retirement account in accordance with
Paragraph 6 thereof, the Depositor shall be deemed to have elected to
calculate the amount of his or her minimum distribution under this
custodial account in the same manner as under the individual retirement
account from which the distribution is made.
7. Inalienability of Benefits. The benefits provided under
this custodial account shall not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind and any attempt to
cause such benefits to be so subjected shall not be recognized except to
the extent as may be required by law.
8. Rollover Contributions and Transfers. The Custodian shall
have the right to receive rollover contributions and to receive direct
transfers from other custodians or trustees. All contributions must be
made in cash or check.
9. Conflict in Provisions. To the extent that any provisions
of this Article VIII shall conflict with the provisions of Articles IV, V
and/or VII, the provisions of this Article VIII shall govern.
10. Applicable State Law. This custodial account shall be
construed, administered and enforced according to the laws of the State of
Wisconsin.
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