Securities Act Registration No. 333-27581
Investment Company Act Reg. No. 811-08219
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 3 |X|
(Check appropriate box or boxes.)
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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):
[ ] immediately upon filing pursuant to paragraph (b)
|X| on October 30, 1998 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
Item No. on Form N-1A Statement of Additional Information
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PART A - INFORMATION REQUIRED IN PROSPECTUS
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1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial
Information Financial Highlights; Performance Information
4. General Description
of Registrant The Fund; Investment Objectives and Strategy;
Investment Policies and Risks; Investment
Restrictions
5. Management of the Fund Management of the Fund; Brokerage Transactions
5A. Management's Discussion
of Fund Performance *
6. Capital Stock and Other
Securities Dividends, Distributions and Taxes; Dividend
Reinvestment; Capital Structure; Account
Statements
7. Purchase of Securities
Being Offered How to Purchase Shares; Dividend Reinvestment;
Retirement Plans
8. Redemption or Repurchase How to Redeem Shares
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT
OF ADDITIONAL INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information
and History *
13. Investment Objectives
and Policies Investment Restrictions; Investment
Considerations
14. Management of the Fund Directors and Officers of the Corporation
15. Control Persons and
Principal Holders of
Securities Principal Stockholders
16. Investment Advisory
and Other Services Investment Adviser, Administrator,
Custodian, Transfer Agent and Accounting
Services Agent; Distribution of Shares;
Independent Accountants
17. Brokerage Allocation Allocation of Portfolio Brokerage
18. Capital Stock and Other
Securities Included in Prospectus under "CAPITAL
STRUCTURE"
19. Purchase, Redemption
and Pricing of Securities
Being Offered Included in Prospectus under "DETERMINATION
OF NET ASSET VALUE"; "HOW TO PURCHASE
SHARES"; "DIVIDEND REINVESTMENT"; "HOW TO
REDEEM SHARES"; "RETIREMENT PLANS";
Determination of Net Asset Value and
Performance; Distribution of Shares
20. Tax Status Taxes
21. Underwriters *
22. Calculations of
Performance Data Determination of Net Asset Value and
Performance
23. Financial Statements Financial Statements
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* Answer negative or inapplicable
<PAGE>
Prospectus October 30, 1998
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 October 30, 1998, which is
a part of such Registration Statement, is incorporated herein by reference. A
copy of the Statement of Additional Information may be obtained, without charge,
by writing to the address, or calling the telephone number, stated above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Expense Summary 3
Financial Highlights 4
The Fund 5
Investment Objectives and Strategy 5
Investment Policies and Risks 5
Investment Restrictions 9
Management of the Fund 10
Determination of Net Asset Value 11
How to Purchase Shares 12
How to Redeem Shares 14
Retirement Plans 16
Dividends, Distributions and Taxes 17
Dividend Reinvestment 18
Capital Structure 18
Brokerage Transactions 19
Account Statements 19
Year 2000 20
Performance Information 20
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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)
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(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, 1999. After this date, the expense limitation may be terminated or
revised at any time. Absent the limitation Other Expenses and Total Fund
Operating Expenses would have been 37.97% and 39.47%, respectively, for the
fiscal year ended 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 $61
5 Years $105
10 Years $227
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>
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 June 30, 1998 included in this table has been audited by Arthur Andersen LLP,
the Fund's independent accountants. The table should be read in conjunction with
the financial statements and related notes which have been incorporated by
reference into the Statement of Additional Information and are contained in the
Fund's Annual Report to Shareholders. Copies of the Fund's Annual Report to
Shareholders may be obtained, without charge, upon request. The Fund's Annual
Report to Shareholders also contains further information about the performance
of the Fund.
Per Share Data:
Net asset value, beginning of period $10.00
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Loss from Investment Operations:
Net investment loss(2) (0.07)
Net realized and unrealized loss on investments (0.84)
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Total loss from investment operations (0.91)
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Net Asset Value, end of period $ 9.09
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Total Return(1) (9.10%)
Supplemental Data and Ratios:
Net assets, end of period $433,010
Ratio of net expenses to average net assets(3) 1.95%
Ratio of net investment income to average net assets(3) (1.23%)
Portfolio turnover rate 408.62%
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(1) Not annualized.
(2) Net investment loss per share is calculated using ending balances prior to
consideration of adjustments for permanent financial reporting and tax
differences.
(3) Annualized for the period August 8, 1997 through June 30, 1998.
Without expense waivers of $108,421 for the period August 8, 1997 though June
30, 1998, the ratio of expenses to average net assets would have been 39.47% and
the ratio of net investment income to average net assets would have been
(38.75%).
<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.
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
<PAGE>
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 a limited 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 35% 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.
<PAGE>
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.
<PAGE>
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 creditworthiness 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 investments 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.
<PAGE>
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, 1999. 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. The Fund may sell a
given security, no matter for how long or short a period it has been held in the
portfolio, and no matter whether the sale is at a gain or loss, if the Adviser
believes that it is not fulfilling its purpose. Since investment decisions are
based on the anticipated contribution of the security in question to the Fund's
investment objectives, the rate of portfolio turnover is irrelevant when the
Adviser believes a change is in order to achieve those objectives, and the
Fund's annual portfolio rate may vary from year to year.
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
<PAGE>
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 Mutual Fund Services, LLC (the
"Administrator"), 615 East Michigan Street, Milwaukee, Wisconsin 53202. Under
the Administration Agreement, the Administrator
<PAGE>
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 Bank Milwaukee, N.A. also provides custodial and transfer
agency services for the Fund. Information regarding the fees payable by the Fund
to Firstar Bank Milwaukee, N.A. 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.
<PAGE>
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
Mutual Fund Services, LLC, 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 Bank Milwaukee, N.A. 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 Mutual Fund Services, LLC 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 Bank Milwaukee, N.A.
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
Mutual Fund Services, LLC, 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 Mutual Fund Services, LLC 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:
<PAGE>
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA number 0750-00022
For credit to Firstar Bank Milwaukee, N.A.
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 Mutual Fund Services, LLC
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 Mutual Fund Services, LLC, 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 Mutual Fund Services, LLC 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
<PAGE>
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 of 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 Mutual
Fund Services, LLC, 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 Mutual Fund Services, LLC, 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
Mutual Fund Services, LLC, and the effective date of redemption will be delayed
until Firstar Mutual Fund Services, LLC 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.
<PAGE>
TYPE OF REGISTRATION REQUIREMENTS
Individual, Joint Tenants, Proprietor, Redemption request signed by all
person(s) (Uniform Gift to Minors Act) required to sign for the account,
General Partners exactly as it is registered.
Corporations, Associations Redemption request and a corporate
resolution, signed by the person(s)
required to sign for the account,
accompanied by signature guarantee(s).
Trusts Redemption requests signed by the
Trustee(s) with a signature guarantee
(If the Trustee's name is not registered
on the account, a copy of the trust
document certified within the last 60
days is also required.)
Redemption requests from shareholders in an Individual Retirement Account
must include instructions regarding federal income tax withholding. Unless
otherwise indicated, these redemptions, as well as redemptions of other
retirement plans not involving a direct rollover to an eligible plan, will be
subject to federal income tax withholding. If a shareholder is not included in
any of the above registration categories (e.g., executors, administrators,
conservators or guardians), the shareholder should call the transfer agent,
Firstar Mutual Fund Services, LLC, 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 Mutual Fund
Services, LLC in its capacity as transfer agent, have been satisfied.
The redemption price is the net asset value next determined after receipt
by Firstar Mutual Fund Services, LLC in its capacity as transfer agent of the
written redemption request. The amount received will depend on the market value
of the investments in the Fund's portfolio at the time of determination of net
asset value, and may be more or less than the cost of the shares redeemed. A
check in payment for shares redeemed will be mailed to the shareholder no later
than the seventh day after receipt of the redemption request except as
indicated in "HOW TO PURCHASE SHARES" for certain redemptions of shares
purchased by check.
TELEPHONE REDEMPTION
Shares of the Fund may also be redeemed by calling the transfer agent, Firstar
Mutual Fund Services, LLC, at 1-888-848-7569. In order to utilize the procedure
for telephone redemptions, a shareholder must have previously elected this
procedure in writing, which election will be reflected in the records of Firstar
Mutual Fund Services, LLC, and the redemption proceeds must be mailed directly
to the investor or transmitted to the
<PAGE>
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 Mutual Fund Services, LLC. 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 Mutual Fund
Services, LLC of the telephone redemption request.
The Fund reserves the right to refuse a telephone redemption if it believes
it is advisable to do so. Procedures for redeeming shares of the Fund by
telephone may be modified or terminated by the Fund at any time. Neither the
Fund nor Firstar Mutual Fund Services, LLC 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 Mutual Fund Services, LLC by telephone, the investor may then redeem his
or her shares by delivering the redemption request to Firstar Mutual Fund
Services, LLC 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
<PAGE>
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")
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 IRA 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.)
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.
<PAGE>
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. 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
<PAGE>
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 Mutual Fund Services, LLC, 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 Mutual Fund Services, LLC 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
Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or call
1-888-848-7569.
<PAGE>
YEAR 2000
The Fund is aware of the "Year 2000" issue. The "Year 2000" issue stems from the
use of a two-digit format to define the year in certain date-sensitive computer
application systems rather than the use of a four-digit format. As a result,
date-sensitive software programs could recognize a date using "00" as the year
1900 rather than the year 2000. This could result in major systems or process
failures or the generation of erroneous data, which would lead to disruptions
in the Fund's business operations.
The Fund has no application systems of its own and is entirely dependent on
its service providers' systems and software. The Fund is working with its
service providers (including its investment adviser, administrator, transfer
agent and custodian) to identify and remedy any Year 2000 issues. However, the
Fund cannot guarantee that all Year 2000 issues will be identified and remedied,
and the failure to successfully identify and remedy all Year 2000 issues could
result in an adverse impact on the Fund.
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 redeem-able 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.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION October 30, 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 October 30, 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.
<PAGE>
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 ..................................................11
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE ...........................13
DISTRIBUTION OF SHARES .....................................................14
ALLOCATION OF PORTFOLIO BROKERAGE ..........................................14
TAXES ......................................................................15
STOCKHOLDER MEETINGS .......................................................17
DESCRIPTION OF SECURITIES RATINGS ..........................................18
INDEPENDENT ACCOUNTANTS ....................................................22
FINANCIAL STATEMENTS .......................................................22
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information or the Prospectus 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.
-i-
<PAGE>
INVESTMENT RESTRICTIONS
As set forth in the Prospectus 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
<PAGE>
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
2
<PAGE>
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.
3
<PAGE>
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, 1999.
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.
4
<PAGE>
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,
1999.
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 that have been loaned, 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
5
<PAGE>
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.
6
<PAGE>
Options on Securities and Index Option Transactions
The Fund will not write options during the fiscal year ending
June 30, 1999.
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,
7
<PAGE>
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
- -------------
555 Bryant Street #262
Palo Alto, California 94301
(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
- ----------------
3105 Grimes Ranch Road
Austin, Texas 78732
(A DIRECTOR OF THE CORPORATION)
Ms. McRee is a marketing consultant with the firm of GSDNM Advertising
and has been employed with this firm 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. Ms. McRee is the wife of Robert
C. McRee.
ROBERT C. MCREE
- ---------------
3105 Grimes Ranch Road
Austin, Texas 78732
(A DIRECTOR OF THE CORPORATION)
Mr. McRee is a marketing consultant for Cyress Technologies
Corporation, Inc. and has been employed with this firm since 1996. Prior to such
time, Mr. McRee was employed by Slick 50 and attended college. Mr. McRee is the
husband of Natasha L. McRee.
- ---------------------------
* Mr. Thurlow, Ms. Hearn and Ms. Rosenthal are directors who are "interested
persons" of the fund as that term is defined in the Investment COmpany Act of
1940
8
<PAGE>
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.
THOMAS F. THURLOW* Age 34
- ------------------
1256 Forest Avenue
Palo Alto, California 94301
(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 did not pay any fees to directors for meetings of the
Board of Directors attended during the fiscal year ending June 30, 1998. For the
fiscal year ending June 30, 1999, the Fund intends to pay each director who is
not an "interested person" of the Corporation a fee of $500 for each meeting of
the Board of Directors attended.
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:
- ------------------------
* 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
9
<PAGE>
<TABLE>
COMPENSATION TABLE
<CAPTION>
Pension or Total
Aggregate Retirement Benefits Estimated Annual Compensation
Name of Compensation Accrued as Part of Benefits Upon from Corporation
Person from Corporation Fund Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
Martina Hearn 0 0 0 0
Robert C. McRee 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
- ---------------------
*Mr. Shiber resigned as a director of the Corporation, effective June 10, 1998. Mr. McRee became a director on
June 10, 1998.
</TABLE>
PRINCIPAL STOCKHOLDERS
Set forth below are the names and addresses of all holders of the
Fund's shares who as of September 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 12,656 19.99%
2030 W. Sam Houston Parkway N.
Houston, TX 77043
L. Martin Field 10,924 17.26%
900 Jefferson Avenue
Newport, News, VA 23607
Norbert C. Sanchez 6,337 10.01%
1622 Edith Drive
Belen, NM 87002
Thomas F. Thurlow 5,387 8.51%
1256 Forest Avenue
Palo Alto, CA 94301
10
<PAGE>
Name and Address of Beneficial
- ------------------------------
Owner Number of Shares Percent of Class
----- ---------------- ----------------
Thomas N. Thurlow 4,998 7.90%
440 Louisiana Street, Suite 2100
Houston, TX 77002
Stephanie E. Rosendahl 3,469 5.48%
4101 Coleridge Street
Houston, TX 77005
Officers and Directors as a Group 9,731* 15.37%*
(5 persons)
- -----------------------------------
*Includes the shares owned by Thomas F. Thurlow and Stephanie E. Rosendahl.
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 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.
For services provided by the Adviser under the Advisory Agreement for
the fiscal period ended June 30, 1998, the Fund paid the Adviser $3,611. During
the fiscal period ended June 30, 1998, the Adviser reimbursed the Fund $108,421
for excess expenses.
11
<PAGE>
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 Mutual Fund Services,
LLC, 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. During the fiscal period ended
June 30, 1998, the Fund incurred fees of $27,440, payable to the Administrator
pursuant to the Administration Agreement.
Under the Administration Agreement, the Administrator shall exercise
reasonable care and is not liable for any error or judgment or mistake of law or
for any loss suffered by the Corporation in connection with the performance of
the Administration Agreement, except a loss resulting from willful misfeasance,
bad faith or negligence on the part of the Administrator in the performance of
its duties under the Administration Agreement.
Firstar Bank Milwaukee, NA, an affiliate of Firstar Mutual Fund
Services, LLC, 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 Bank Milwaukee, NA does not exercise
any supervisory function over the purchase and sale of securities. Firstar
Mutual Fund Services, LLC serves as transfer agent and dividend disbursing agent
for the Fund under a Shareholder
12
<PAGE>
Servicing Agent Agreement. As transfer and dividend disbursing agent, Firstar
Mutual Fund Services, LLC 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 Mutual Fund Services, LLC pursuant to which
Firstar Mutual Fund Services, LLC 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 Mutual Fund Services, LLC 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 Mutual Fund Services, LLC is also entitled to certain out of
pocket expenses, including pricing expenses. During the fiscal period ended June
30, 1998, the Fund incurred fees of $20,367, payable to Firstar Mutual Fund
Services, LLC pursuant to the Fund Accounting Servicing Agreement.
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. The New York Stock Exchange also may be closed on
national days of mourning.
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.
13
<PAGE>
The foregoing computation may also be expressed by the following
formula:
P(1 + T)n = 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 June 30, 1998 was 9.10%.
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.
McRee 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 incurred distribution fees of $664 pursuant to the Plan of which all
were used to pay for printing of sales literature.
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
14
<PAGE>
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.
During the fiscal period ended June 30, 1998, the Fund paid brokerage
commissions of $9,978 on transactions having a total market value of $2,515,844.
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").
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.
15
<PAGE>
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 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 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 option
positions may be subject to certain modified short sale rules. If the Fund
exercises or fails to exercise a put option the Fund will be considered to have
closed a short sale. The Fund will generally have a short-term gain or loss on
the closing of an option position. The determination of the length of the
holding period is dependent on the holding period of the stock used to exercise
that put option. If the Fund sells the put option without exercising it, the
holding period will be determined by looking at the holding period of the
option.
Dividends from the Fund's net investment income (including any excess
of net short-term capital gain over net long-term capital loss) are taxable to
stockholders as ordinary income, while distributions of net capital gain (the
excess of net long-term capital gain over net short-term capital loss) are
taxable as long-term capital gain regardless of the stockholder's holding period
for the shares. Such dividends and distributions are taxable to stockholders
whether received in cash or in additional shares. The 70% dividends-received
deduction for corporations will apply to 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.
16
<PAGE>
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
17
<PAGE>
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 determined 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
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months.
18
<PAGE>
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.
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<PAGE>
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.
20
<PAGE>
"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.
21
<PAGE>
"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 incorporated by
reference to the Annual Report, dated June 30, 1998 of the Corporation (File No.
811-08219) as filed with the Securities and Exchange Commission on September 10,
1998.
* Statement of Assets and Liabilities at June 30, 1998
* Statement of Operations for the Period August 8, 1997
(commencement of operations) through June 30, 1998
* Statement of Changes in Net Assets for the Period August 8, 1997
(commencement of operations) through June 30, 1998
* Financial Highlights Schedule of Investments at June 30, 1998
* Notes to the Financial Statements
* Reports of Independent Public Accountants
22
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements (Financial Highlights included in Part
A and all incorporated by reference to the Annual Report
dated June 30, 1998 of The Thurlow Funds, Inc. (File No.
811-08219) filed with the Securities and Exchange Commission
on September 10, 1998)
Financial statements included in Part B and incorporated by
reference to the Annual Report
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Schedule of Investments
Note to the Financial Statements
Report of Independent Public Accountants
(b) Exhibits
(1) Registrant's Articles of Incorporation (1).
(2) Registrant's Bylaws (1)
(3) None
(4) None
(5) Investment Advisory Agreement with Thurlow Capital
Management, Inc. relating to The Thurlow Growth Fund
(1)
(6) None
(7) None
(8) Custody Agreement with Firstar Trust Company (1).
S-1
<PAGE>
(9.1) Fund Administration Servicing Agreement with
Firstar Trust Company relating to The Thurlow
Growth Fund (1)
(9.2) Transfer Agent Agreement with Firstar Trust Company
relating to The Thurlow Growth Fund (1).
(9.3) Fund Accounting Servicing Agreement with Firstar
Trust Company (1).
(10) Opinion of Foley & Lardner, counsel for Registrant.
(11) Consent of Arthur Andersen LLP.
(12) None
(13) Subscription Agreement (1).
(14.1) Individual Retirement Accounts (2).
(14.2) Simplified Employee Pension Plan (1).
(15) Service and Distribution Plan (1).
(16) None
(17) Financial Data Schedule.
(18) None
- --------------------------
(1) Previously filed as an exhibit to the Registration Statement and
incorporated by reference thereto. The Registration Statement was filed
on May 21, 1997 and its accession number is 0000897069-97-000251.
(2) Previously filed as an exhibit to Post-Effective Amendment No. 1 to
the Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 1 was filed on February 6, 1998 and its
accession number is 0000897069-98-000046.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Registrant is not controlled by any person, nor does Registrant
control any person.
S-2
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of September 30, 1998
-------------- ------------------------
Class A Common Stock, $0.0001 par value (The Thurlow 31
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
S-3
<PAGE>
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.
S-4
<PAGE>
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.
S-5
<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 11th
day of October, 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 Executive, October 11, 1998
- ---------------------
Thomas F. Thurlow Financial and Accounting Officer)
and a Director
/s/ Martina Hearn Director October 11, 1998
- ---------------------
Martina Hearn
Director October __, 1998
- ---------------------
Clint McRee
- ---------------------
Natasha L. McRee Director October __, 1998
/s/Stephanie E. Rosendahl
- ----------------------
Stephanie E. Rosendahl Director October 11, 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*
- --------
* Incorporated by reference.
<PAGE>
Page No.
(15) Service and Distribution Plan* --------
(16) None
(17) Financial Data Schedule
(18) None
- --------
* Incorporated by reference.
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
WRITER'S DIRECT LINE
414/297-5660
EMAIL ADDRESS CLIENT/MATTER NUMBER
[email protected] 012156/0101
October 29, 1998
The Thurlow Funds, Inc.
1256 Forest Avenue
Palo Alto, California 94301
Gentlemen:
We have acted as counsel for The Thurlow Funds, Inc. in connection with
the preparation of an amendment to your Registration Statement on Form N-1A
relating to the sale by you of an indefinite amount of The Thurlow Funds, Inc.
Common Stock (such Common Stock being hereinafter referred to as the "Stock") in
the manner set forth in the Amended Registration Statement to which reference is
made. In this connection we have examined: (a) the Amended Registration
Statement on Form N-1A; (b) your Articles of Incorporation and Bylaws, as
amended to date; (c) corporate proceedings relative to the authorization for
issuance of the Stock; and (d) such other proceedings, documents and records as
we have deemed necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of Stock
when sold as contemplated in the Amended Registration Statement will be legally
issued, fully paid and nonassessable
We hereby consent to the use of this opinion as an exhibit to the Form
N-1A Registration Statement. In giving this consent, we do not admit that we are
experts within the meaning of Section 11 of the Securities Act of 1933, as
amended, or within the category of persons whose consent is required by Section
7 of said Act.
Very truly yours,
Foley & Lardner
Consent of Independent Public Accountants
As independent public accountants, 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 Thurlow Funds, Inc.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
October 23, 198
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
financial statements of Thurlow Growth Fund as of and for the 11 months
ended June 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001038264
<NAME> Thurlow Growth Fund
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> AUG-8-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 396170
<INVESTMENTS-AT-VALUE> 440212
<RECEIVABLES> 38845
<ASSETS-OTHER> 23752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 502809
<PAYABLE-FOR-SECURITIES> 23090
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46709
<TOTAL-LIABILITIES> 69799
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 453130
<SHARES-COMMON-STOCK> 47611
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (64162)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44042
<NET-ASSETS> 433010
<DIVIDEND-INCOME> 300
<INTEREST-INCOME> 1768
<OTHER-INCOME> 0
<EXPENSES-NET> 5632
<NET-INVESTMENT-INCOME> (3564)
<REALIZED-GAINS-CURRENT> (64162)
<APPREC-INCREASE-CURRENT> 44042
<NET-CHANGE-FROM-OPS> (23684)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48806
<NUMBER-OF-SHARES-REDEEMED> 1195
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 433010
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3611
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 114053
<AVERAGE-NET-ASSETS> 323513
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> (0.84)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.09
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
