Securities Act Registration No. 333-27581
Investment Company Act Reg. No. 811-08219
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. 3 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 4 [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)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
|X| on October 31, 1999 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.
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P R O S P E C T U S
October 31, 1999
The Thurlow Growth Fund
A small, agile and aggressive mutual fund seeking capital
appreciation.
Please read this Prospectus and keep it for future reference. It
contains important information, including information on how The Thurlow Growth
Fund invests and the services it offers to shareholders.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Questions Every Investor Should Ask Before
Investing in The Thurlow Growth Fund.........
The Thurlow Funds, Inc. Fees and Expenses..............................
1256 Forest Avenue Investment Objective and Strategies............
Palo Alto, California 94301 Management of the Fund.........................
1-888-848-7569 Determining Net Asset Value....................
Purchasing Shares..............................
Redeeming Shares...............................
Dividends, Distributions and Taxes.............
Year 2000......................................
Financial Highlights...........................
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QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN THE THURLOW GROWTH FUND
1. What is the Fund's Goal?
The Thurlow Growth Fund seeks capital appreciation.
2. What are the Fund's Principal Investment Strategies?
The Fund invests primarily in common stocks of U.S. companies. The Fund
also invests in call options on securities and stock indices. The Fund generally
utilizes a "middle-down"[TM] approach to selecting stocks. The Fund also
considers a number of technical factors and may, when it believes appropriate,
take a temporary defensive position and invest substantially all of its assets
in money market instruments. The Fund's investment adviser actively trades the
Fund's portfolio. The Fund's annual portfolio turnover rate generally will
exceed 100%.
3. What are the Principal Risks of Investing in the Fund?
Investors in the Fund may lose money. There are risks associated with
investments in the types of securities in which the Fund invests. These
risks include:
o Market Risk: The prices of the securities in which the Fund invests
may decline for a number of reasons. The price declines of common
stocks, in particular, may be steep, sudden and/or prolonged.
o Option Investing Risk: If the Fund purchases an option and the price
of the underlying stock or index moves in the wrong direction, the
Fund will lose most or all of the amount the Fund paid for the option,
plus commission costs. Also there may be times when a market for the
Fund's outstanding options does not exist.
o Asset Allocation Risk: The Fund may take temporary defensive positions
and invest substantially all of its assets in cash. The Fund's
relative performance would suffer if only a small portion of the
Fund's assets were invested in stocks or call options during a
significant stock market advance, and its absolute performance would
suffer if a major portion of its assets were invested in stocks or
call options during a market decline.
o High Portfolio Turnover Risk: High portfolio turnover necessarily
results in correspondingly heavier transaction costs (such as
brokerage commissions or markups or markdowns) which the Fund must pay
and increased realized gains (or losses) to investors. Distribution to
shareholders of short-term capital gains are taxed as ordinary income
under federal income tax laws.
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o Smaller Capitalization Companies Risk: Many of the companies in which
the Fund invests are smaller capitalization companies (i.e., companies
with a market capitalization of $2 billion or less). Smaller
capitalization companies typically have relatively lower revenues,
limited product lines and lack of management depth, and may have a
smaller share of the market for their products or services, than
larger capitalization companies. The stocks of smaller capitalization
companies tend to have less trading volume than stocks of larger
capitalization companies. Less trading volume may make it more
difficult for the Fund's investment adviser to sell securities of
smaller capitalization companies at quoted market prices.
Because of these risks the Fund is a suitable investment only for those
investors who have long-term investment goals. Prospective investors who
are uncomfortable with an investment that will increase and decrease in
value should not invest in the Fund.
4. How has the Fund Performed?
The bar chart and table that follow provide some indication of the risks of
investing in the Fund by showing changes in its performance from year to
year and how its average annual return over various periods compares to the
performance of the Standard & Poor's Composite Index of 500 Stocks and the
Nasdaq Composite Index. Please remember that the Fund's past performance is
not necessarily an indication of its future performance. It may perform
better or worse in the future.
The Thurlow Growth Fund
(Total return per calendar year)
50%
43.34%
------
40%
30%
20%
10%
0%
-----------------------------
1998
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Note: During the one year period shown on the bar chart, the Fund's highest
total return for a quarter was 53.28% (quarter ended December 31, 1998)
and the lowest total return for a quarter was -11.22% (quarter ended
September 30, 1998).
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The Fund's 1999 year to date total return is ____% (January 1, 1999 through
the quarter ended September 30, 1999).
Average Annual Total Returns Since the inception of
(for the periods ending December the Fund (August 8,
31, 1998) Past Year 1997)
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The Thurlow Growth Fund 43.34% 23.70%
S&P 500* 26.67% 31.67%
Nasdaq Composite ** 39.63% 37.17%
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* The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a widely
recognized unmanaged index of common stock prices.
** The Nasdaq Composite Index is a capitalization-weighted index consisting of
stocks trading on the Nasdaq Stock Market. Although it includes many small
capitalization stocks, it is heavily influenced by the 100 largest Nasdaq
stocks.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
Percentage of offering price)..................No Sales Charge
Maximum Deferred Sales Charge (Load).............No Deferred Sales
Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions..............................No Sales Charge
Redemption Fee...................................None*
Exchange Fee.....................................None
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*Our transfer agent charges a fee of $12.00 for each wire redemption.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees..................................1.25%
Distribution and/or Service (12b-1) Fees.........0.25%
Other Expenses...................................11.35%(1)
Total Annual Fund Operating Expenses.............12.85%(1)
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(1) The Fund had actual Total Annual Fund Operating Expenses for the most recent
fiscal year that were less than the amount shown. The Fund's investment adviser
reimbursed it to the extent necessary to insure that Total Annual Fund Operating
Expenses did not exceed 1.95%. The investment adviser may discontinue these
reimbursements at any time, but will not do so prior to June 30, 2000.
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EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years 5 Years 10 Years
$1,235 $3,421 $5,277 $8,783
INVESTMENT OBJECTIVE AND STRATEGIES
The Fund's investment objective is capital appreciation. The Fund may
change its investment objective without obtaining shareholder approval. Please
remember that an investment objective is not a guarantee. An investment in the
Fund might not appreciate and investors may lose money.
The Fund invests primarily in common stock of U.S. companies utilizing a
"middle-down"[TM] investment approach. In middle-down analysis, the Fund 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
Fund 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. Middle-down investing does
not fit into a "style" box. At different times or even at the same time, it can
lead to the Fund investing in "growth" stocks, "value" stocks and stocks of any
size market capitalization.
The Fund also considers a number of technical factors and may, when it
believes appropriate, take a temporary defensive position. This means the Fund
will invest in money market instruments (like U.S. Treasury Bills, commercial
paper and commercial paper master notes, certificates of deposit of U.S. banks,
repurchase agreements and money market mutual funds). The Fund will not be able
to achieve its investment objective of capital appreciation to the extent that
it invests in money market instruments since these securities do not appreciate
in value. When the Fund is not taking a temporary defensive position, it still
will hold some cash and money market instruments so that it can pay its
expenses, satisfy redemption requests or take advantage of investment
opportunities.
The Fund may buy put and call options on securities (including long-term
options or "LEAPs") and stock indexes. The Fund will more frequently buy call
options than
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put options. However, when the Fund believes a temporary defensive position is
appropriate, it may buy put options in an effort to realize capital appreciation
in a declining market.
The Fund is small, agile and aggressive. The Fund's investment adviser
actively trades the Fund's portfolio. The Fund believes its small size allows it
to take advantage of investment opportunities that a bigger mutual fund might be
too large to consider. The Fund also believes its small size might allow it to
exit investments more easily than a larger mutual fund.
MANAGEMENT OF THE FUND
Thurlow Capital Management, Inc. (the "Adviser") is the investment adviser
to the Fund. The Adviser's address is:
P.O. Box 50427
Palo Alto, California 94303-0427
The Adviser has been in business since 1997 and has been the Fund's only
investment adviser. As the investment adviser to the Fund, the Adviser manages
the investment portfolio for the Fund. All of the decisions it makes concerning
the securities to buy and sell for the Fund are made by the Fund's portfolio
manager, Thomas F. Thurlow. Mr. Thurlow has been Chairman and Chief Executive
Officer of the Adviser since 1997. 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 Fund pays the Adviser an
annual investment advisory fee equal to 1.25% of its average net assets.
The Fund has adopted a Service and Distribution Plan under Rule 12b-1 under
the Investment Company Act. The Plan allows the Fund to use part of the Fund's
assets (up to 0.25% of its average daily net assets) to pay sales, distribution
and other fees for the sale of its shares and for services provided to
investors. Because these fees are paid out of Fund assets, over time these fees
will increase the cost of an investor's investment and may cost the investor
more than paying other types of sales charges.
DETERMINING NET ASSET VALUE
The price at which investors purchase shares of the Fund and at which
shareholders redeem shares of the Fund is called its net asset value. The Fund
calculates its net asset value as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange is open for trading. The Fund calculates its net asset value
based on the market prices of the securities (other than money market
instruments) it holds. The Fund values most money market instruments it holds at
their amortized cost. The Fund will process purchase orders that it receives and
accepts and redemption orders that it receives prior to the close of regular
trading on a day that the New York Stock Exchange is open at the net asset value
determined later that day. It will process purchase orders that it receives and
accepts and redemption orders that it receives after the
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close of regular trading at the net asset value determined at the close of
regular trading on the next day the New York Stock Exchange is open.
PURCHASING SHARES
How to Purchase Shares from the Fund
1. Read this Prospectus carefully.
2. Determine how much you want to invest keeping in mind the following
minimums:
a. New accounts
* Automatic Investment Plan................$500
* Retirement Accounts......................$500
* All other accounts......................$1000
b. Existing accounts
* Dividend reinvestment .............No Minimum
* All accounts (by mail).......... ........$100
* All accounts (by wire transfer)..........$500
3. Complete an Account Application, carefully following the instructions.
For additional investments, complete the remittance form attached to
your individual account statements. If you have any questions or need
applications or forms, please call 1-888-848-7569. (press option "3"
for questions; press option "2" to obtain applications or forms)
4. Make your check payable to The Thurlow Growth Fund. All checks must be
drawn on U.S. banks. The Fund will not accept cash or third party
checks. Mutual Shareholder Services, Inc., the Fund's transfer agent,
will charge a $20 fee against a shareholder's account for any payment
check returned for insufficient funds. The shareholder will also be
responsible for any losses suffered by the Fund as a result.
5. Send the application and check by first class mail, express mail or
overnight delivery service to:
Thurlow Growth Fund
c/o Mutual Shareholder Services
1301 East Ninth Street, Suite 1005
Cleveland, OH 44114-1800
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Please call 1-888-848-7569 (and press option "3") prior to wiring funds for
information for setting up an account, if necessary, and in any event, to alert
the Fund that a wire is being sent. You should wire funds to:
Fifth Third Bank, N.A.
ABA #042000314
For credit to: Thurlow Growth Fund
Account #72974541
For Further Credit to:
Shareholder Account Name:_____________________
Shareholder Account Number:___________________
Shareholder SSN or TIN:_______________________
Please remember that Fifth Third Bank, N.A. must receive your wired funds
prior to the close of regular trading on the New York Stock Exchange for you to
receive same day pricing. The Fund and Fifth Third Bank, N.A. are not
responsible for the consequences of delays resulting from the banking or Federal
Reserve Wire system, or from incomplete wiring instructions.
Purchasing Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Fund. These broker-dealers may
charge investors a fee either at the time of purchase or redemption. The fee, if
charged, is retained by the broker-dealer and not remitted to the Fund or the
Adviser. Some broker-dealers may purchase and redeem shares on a T+3 settlement
basis.
The Fund may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Fund as investment alternatives in the programs they offer or administer.
Servicing agents may:
* Become shareholders of record of the Fund. This means all requests to
purchase additional shares and all redemption requests must be sent
through the Servicing Agent. This also means that purchases made
through Servicing Agents are not subject to the Fund's minimum
purchase requirements.
* Use procedures and impose restrictions that may be in addition to, or
different from, those applicable to investors purchasing shares
directly from the Fund.
* Charge fees to their customers for the services they provide them.
Also, the Fund and/or the Adviser may pay fees to Servicing Agents to
compensate them for the services they provide their customers.
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* Be allowed to purchase shares by telephone with payment to follow the
next day. If the telephone purchase is made prior to the close of
regular trading on the New York Stock Exchange, it will receive same
day pricing.
* Be authorized to accept purchase orders on behalf of the Fund. This
means that a Fund will process the purchase order at the net asset
value which is determined following the Servicing Agent's acceptance
of the customer's order.
If you decide to purchase shares through Servicing Agents, please carefully
review the program materials provided to you by the Servicing Agent. When you
purchase shares of the Fund through a Servicing Agent, it is the responsibility
of the Servicing Agent to place your order with the Fund on a timely basis. If
the Servicing Agent does not, or if it does not pay the purchase price to the
Fund within the period specified in its agreement with the Fund, it may be held
liable for any resulting fees or losses.
Other Information about Purchasing Shares of the Fund
The Fund may reject any Account Application for any reason. The Fund will
not accept purchase orders made by telephone unless they are from a Servicing
Agent which has an agreement with the Fund.
The Fund will not issue certificates evidencing shares purchased, but will
send investors a written confirmation for all purchases of shares.
The Fund offers an automatic investment plan allowing shareholders to make
purchases on a regular and convenient basis. The Fund also offers the following
retirement plans:
o Traditional IRA
o Roth IRA
o Education IRA
o SEP-IRA
Investors can obtain further information about the automatic investment
plan and the retirement plans by calling the Fund at 1-888-848-7569 (and press
option "3"). The Fund recommends that investors consult with a competent
financial and tax advisor regarding the retirement plans before investing
through them.
REDEEMING SHARES
How to Redeem (Sell) Shares by Mail
1. Prepare a letter of instruction containing:
o account number(s)
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o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
o additional information that the Fund may require for redemptions
by corporations, executors, administrators, trustees, guardians,
or others who hold shares in a fiduciary or representative
capacity. Please contact the Fund's transfer agent, Mutual
Shareholder Services, in advance, at 1-888-848-7569 (and press
option "3") if you have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. Have the signatures guaranteed by a commercial bank or trust company
in the United States, a member firm of the New York Stock Exchange or
other eligible guarantor institution in the following situations:
o The redemption proceeds are to be sent to a person other than the
person in whose name the shares are registered
o The redemption proceeds are to be sent to an address other than
the address of record
o The redemption request exceeds $25,000
A notarized signature is not an acceptable substitute for a signature
guarantee.
4. Send the letter of instruction by first class mail, express mail or
overnight delivery service to:
Thurlow Growth Fund
c/o Mutual Shareholder Services
1301 East Ninth Street, Suite 1005
Cleveland, OH 44114-1800
How to Redeem (Sell) Shares by Telephone
1. Instruct Mutual Shareholder Services that you want the option of
redeeming shares by telephone. This can be done by completing the
appropriate section on the Account Application. If you have already
opened an account, you may write to Mutual Shareholder Services
requesting this option. When you do so, please sign the request
exactly as your account is registered and have the signatures
guaranteed. Shares held in retirement plans cannot be redeemed by
telephone.
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2. Assemble the same information that you would include in the letter of
instruction for a written redemption request.
3. Call Mutual Shareholder Services at 1-888-848-7569 (and press option
"3"). Please do not call the Fund or the Adviser.
4. Telephone redemptions must be in amounts of $1,000 or more.
How to Redeem (Sell) Shares through Servicing Agents
If your shares are held by a Servicing Agent, you must redeem your shares
through the Servicing Agent. Contact the Servicing Agent for instructions on how
to do so.
Redemption Price
The redemption price per share you receive for redemption requests is the
next determined net asset value after:
* Mutual Shareholder Services receives your written request in proper
form with all required information.
* Mutual Shareholder Services receives your authorized telephone request
with all required information.
* A Servicing Agent that has been authorized to accept redemption
requests on behalf of the Fund receives your request in accordance
with its procedures.
Payment of Redemption Proceeds
* For those shareholders who redeem shares by mail, Mutual Shareholder
Services will mail a check in the amount of the redemption proceeds no
later than the seventh day after it receives the redemption request in
proper form with all required information.
* For those shareholders who redeem by telephone, Mutual Shareholder
Services will either mail a check in the amount of the redemption
proceeds no later than the seventh day after it receives the
redemption request, or transfer the redemption proceeds to your
designated bank account if you have elected to receive redemption
proceeds by wire. Mutual Shareholder Services generally wires
redemption proceeds on the business day following the calculation of
the redemption price. However, the Fund may direct Mutual Shareholder
Services to pay the proceeds of a telephone redemption on a date no
later than the seventh day after the redemption request.
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* For those shareholders who redeem shares through Servicing Agents, the
Servicing Agent will transmit the redemption proceeds in accordance
with its redemption procedures.
Other Redemption Considerations
When redeeming shares of the Fund, shareholders should consider the
following:
* The redemption may result in a taxable gain.
* Shareholders who redeem shares held in an IRA must indicate on their
redemption request whether or not to withhold federal income taxes. If
not, these redemptions will be subject to federal income tax
withholding.
* The Fund may delay the payment of redemption proceeds for up to seven
days in all cases.
* If you purchased shares by check, the Fund may delay the payment of
redemption proceeds until it is reasonably satisfied the check has
cleared (which may take up to 15 days from the date of purchase).
* Mutual Shareholder Services will send the proceeds of telephone
redemptions to an address or account other than that shown on its
records only if the shareholder has sent in a written request with
signatures guaranteed.
* The Fund reserves the right to refuse a telephone redemption request
if it believes it is advisable to do so. The Fund and Mutual
Shareholder Services may modify or terminate its procedures for
telephone redemptions at any time. Neither the Fund nor Mutual
Shareholder Services will be liable for following instructions for
telephone redemption transactions that they reasonably believe to be
genuine, provided they use reasonable procedures to confirm the
genuineness of the telephone instructions. They may be liable for
unauthorized transactions if they fail to follow such procedures.
These procedures include requiring some form of personal
identification prior to acting upon the telephone instructions and
recording all telephone calls. During periods of substantial economic
or market change, you may find telephone redemptions difficult to
implement. If a shareholder cannot contact Mutual Shareholder Services
by telephone, he or she should make a redemption request in writing in
the manner described earlier.
* Mutual Shareholder Services currently charges a fee of $12 when
transferring redemption proceeds to your designated bank account by
wire.
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i If your account balance falls below $1,000 because you redeem shares,
you will be given 60 days to make additional investments so that your
account balance is $1,000 or more. If you do not, the Fund may close
your account and mail the redemption proceeds to you.
i The Fund may pay redemption requests "in kind." This means that the
Fund may pay redemption requests entirely or partially with securities
rather than with cash.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net investment income
quarterly in March, June, September and December, and substantially all of its
capital gains annually in December. You have two distribution options:
o Automatic Reinvestment - Both dividend and capital gains distributions
will be reinvested in additional Fund shares.
o All Cash Option - Both dividend and capital gains distributions will
be paid in cash.
You may make this election on the Account Application. You may change your
election by writing to Mutual Shareholder Services or by calling 1-888-848-7569
(and press option "3").
The Fund's distributions, whether received in cash or additional shares of
the Fund, may be subject to federal and state income tax. These distributions
may be taxed as ordinary income and capital gains (which may be taxed at
different rates depending on the length of time the Fund holds the assets
generating the capital gains).
YEAR 2000
The Fund's operations depend on the seamless functioning of computer
systems in the financial service industry, including those of the Adviser, and
the Fund's administrator, custodian and transfer agent. Many computer systems in
use today cannot properly process date-related information after December
31,1999 because of the method by which dates are encoded and calculated. This
failure, commonly referred to as the "Year 2000 Issue," could adversely affect
the handling of security trades, pricing and account servicing for the Fund.
The Adviser has made compliance with the Year 2000 Issue a high priority
and is taking steps that it believes are reasonably designed to address the Year
2000 Issue with respect to its computer systems. The Fund has also been informed
that comparable steps are being taken by its other major service providers. The
Adviser does not currently anticipate that the Year 2000 Issue will have a
material impact on its ability to continue to fulfill its duties as investment
adviser to the Fund. 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.
The Year 2000 Issue could
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also have a negative impact on the companies in which the Fund invests, which
could hurt the Fund's investment returns.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the period of its operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited. The report of Baird, Kurtz &
Dobson, along with the Fund's financial statements, are included in the Annual
Report which is available upon request. Information prior to the fiscal year
ended June 30, 1999 was audited by Arthur Andersen LLP.
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The Thurlow Growth Fund
Year 8/8/97(1)
Ended through
6/30/99 6/30/98
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Per Share Data:
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Net asset value, beginning of period........... $9.09 $10.00
Income (loss) from investment operations:
Net investment loss.......................... (0.17) (0.07)
Net realized and unrealized gain (loss)
on investments ............................... 11.71 (0.84)
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Total gain (loss) from investment operations.. 11.54 (0.91)
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Net asset value, end of period ................ $20.63 $9.09
====== =====
TOTAL INVESTMENT RETURN ......................... 126.95% -9.10%(2)
Supplemental data and ratios:
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Net assets, end of period (000s)................. $2,098 $433
Ratio of expenses to average net assets:
Before expense reimbursement................... 12.85% 39.47%(3)
After expense reimbursement.................... 1.95% 1.95%(3)
Ratio of net investment income to average net
assets:
Before expense reimbursement................... (12.19%) (38.75%)(3)
After expense reimbursement.................... (1.24%) (1.23%)(3)
Portfolio turnover rate ......................... 1100.79% 408.62%
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(1) Commencement of Operations
(2) Not annualized
(3) Annualized
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To learn more about The Thurlow Growth Fund you may want to read The
Thurlow Growth Fund's Statement of Additional Information (or "SAI") which
contains additional information about the Fund. The Thurlow Growth Fund has
incorporated by reference the SAI into the Prospectus. This means that you
should consider the contents of the SAI to be part of the Prospectus.
You also may learn more about The Thurlow Growth Fund's investments by
reading The Thurlow Growth Fund's annual and semi-annual reports to
shareholders. The annual report includes a discussion of the market conditions
and investment strategies that significantly affected the performance of The
Thurlow Growth Fund during its last fiscal year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling
1-888-848-7569 (and press option "2").
Prospective investors and shareholders who have questions about The Thurlow
Growth Fund may also call the above number or write to the following address:
The Thurlow Growth Fund
1256 Forest Avenue
Palo Alto, California 94301
The general public can review and copy information about The Thurlow Growth
Fund (including the SAI) at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. (Please call 1-800-SEC-0330 for information
on the operations of the Public Reference Room.) Reports and other information
about The Thurlow Growth Fund are also available at the Securities and Exchange
Commission's Internet site at http://www.sec.gov and copies of this information
may be obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to The Thurlow Growth Fund's Investment Company Act File No.
811-08219 when seeking information about The Thurlow Growth Fund from the
Securities and Exchange Commission.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION October 31, 1999
FOR
THE THURLOW GROWTH FUND
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 31, 1999 (the "Prospectus"), for The Thurlow Growth Fund. Requests
for copies of the Prospectus should be made by writing to The Thurlow Funds,
Inc., 1256 Forest Avenue, Palo Alto, California 94301, Attention: Secretary or
by calling 1-888-848-7569.
The following financial statements are incorporated by reference to
the Annual Report, dated June 30, 1999 of The Thurlow Funds, Inc. (File No.
811-08219) for The Thurlow Growth Fund as filed with the Securities and Exchange
Commission on August 30, 1999:
o Statement of Assets and Liabilities
o Statement of Operations
o Statements of Changes in Net Assets
o Financial Highlights
o Statement of Net Assets
o Notes to the Financial Statements
o Report of Independent Public Accountants
<PAGE>
THE THURLOW FUNDS, INC.
Table of Contents
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Page No.
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GENERAL INFORMATION AND HISTORY............................................1
INVESTMENT RESTRICTIONS....................................................1
INVESTMENT CONSIDERATIONS..................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION.................................10
PRINCIPAL SHAREHOLDERS....................................................12
INVESTMENT ADVISER, CUSTODIAN, TRANSFER AGENT AND
ACCOUNTING SERVICES AGENT.................................................13
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE..........................16
DISTRIBUTION OF SHARES....................................................18
REDEMPTION OF SHARES......................................................20
ALLOCATION OF PORTFOLIO BROKERAGE.........................................20
TAXES.....................................................................21
SHAREHOLDER MEETINGS......................................................23
CAPITAL STRUCTURE.........................................................24
DESCRIPTION OF SECURITIES RATINGS.........................................24
INDEPENDENT ACCOUNTANTS...................................................28
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.
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<PAGE>
GENERAL INFORMATION AND HISTORY
The Thurlow Funds, Inc., a Maryland corporation incorporated on April
30, 1997 (the "Corporation"), is an open-end management investment company
consisting of one diversified portfolio, The Thurlow Growth Fund (the "Fund").
The Corporation is registered under the Investment Company Act of 1940 (the
"Act").
INVESTMENT RESTRICTIONS
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 shareholders 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
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.
<PAGE>
9. The Fund will not invest 25% or more of the value of its total
assets, determined at the time an investment is made, exclusive of U.S.
government securities, in securities issued by companies primarily engaged in
the same industry. In determining industry classifications the Fund will use the
current Directory of Companies Filing Annual Reports with the Securities and
Exchange Commission except to the extent permitted by the Act.
10. The Fund will not act as an underwriter or distributor of
securities other than shares of the Fund (except to the extent that the Fund may
be deemed to be an underwriter within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), in the disposition of restricted securities).
11. The Fund will not purchase or sell real estate or real estate
mortgage loans or real estate limited partnerships.
12. The Fund will not purchase or sell commodities or commodity
contracts, including futures contracts.
The Fund has adopted certain other investment restrictions which are
not fundamental policies and which may be changed by the Corporation's Board of
Directors without stockholder approval. These additional restrictions are as
follows:
1. The Fund will not invest more than 10% of the value of its net
assets in illiquid securities.
2. The Fund will not purchase the securities of other investment
companies except: (a) as part of a plan of merger, consolidation or
reorganization approved by the shareholders 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
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<PAGE>
investment is made, and such percentage subsequently changes as a result of
changing market values or some similar event, no violation of the Fund's
fundamental restrictions will be deemed to have occurred. Any changes in the
Fund's investment restrictions made by the Board of Directors will be
communicated to shareholders prior to their implementation.
INVESTMENT CONSIDERATIONS
Money Market Instruments
The money market instruments in which the Fund invests include
conservative fixed-income securities, such as United States Treasury Bills,
commercial paper rated A-2 or better by Standard & Poor's Corporation or Prime-2
or better by Moody's Investors Service, Inc., commercial paper master notes,
certificates of deposit of U.S. banks having capital, surplus and undivided
profits, as of the date of its most recently published annual financial
statements, in excess of $100,000,000, money market mutual funds and repurchase
agreements. 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 upon demand, 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. There is no secondary market for commercial paper master notes.
The Fund's investment adviser (the "Adviser") will monitor the creditworthiness
of the issuer of the commercial paper master notes while any borrowings are
outstanding.
Repurchase agreements are agreements under which the seller of a
security agrees at the time of sale to repurchase the security at an agreed time
and price. The Fund will not enter into repurchase agreements with entities
other than banks or invest over 5% of its net assets in repurchase agreements
with maturities of more than seven days. If a seller of a repurchase agreement
defaults and does not repurchase the security subject to the agreement, the Fund
will look to the collateral security underlying the seller's repurchase
agreement, including the securities subject to the repurchase agreement, for
satisfaction of the seller's obligation to the Fund. In such event, the Fund
might incur disposition costs in liquidating the collateral and might suffer a
loss if the value of the collateral declines. In addition, if bankruptcy
proceedings are instituted against a seller of a repurchase agreement,
realization upon the collateral may be delayed or limited.
When the Fund invests in securities of money market mutual funds, 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. Such fees and other expenses will be borne
indirectly by the Fund's shareholders.
U.S. Government Securities
The Fund invests 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
3
<PAGE>
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.
Foreign Securities
The Fund may invest 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.
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. 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. 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.
4
<PAGE>
Restricted securities may be sold in private negotiated or other
exempt transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. When registration is required,
the Fund may be obligated to pay all or part of the registration expenses and a
considerable time may elapse between the decision to sell and the sale date. If,
during such period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than the price which prevailed when it decided to
sell. Restricted securities, if considered to be illiquid, will be priced at
fair value as determined in good faith by the Board of Directors.
Warrants
The Fund also may invest up to 5% of its net assets in warrants, which
are privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at a specific price
during a specified period of time. Warrants have no dividend or voting rights.
The 5% limitation does not include warrants acquired by the Fund in units or
attached to other securities. The Fund will invest in warrants to participate in
an anticipated increase in the market value of the underlying security without
having to purchase the security to which the warrants relate. The purchase of
warrants involves the risk that the Fund could lose the purchase price of a
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
Borrowing to Purchase Securities (Leverage)
The Fund may borrow money, including borrowing for investment
purposes. Borrowing for investment is known as leveraging. Leveraging
investments, by purchasing securities with borrowed money, is a speculative
technique which increases investment risk, but also increases investment
opportunity. Since substantially all of the Fund's assets will fluctuate in
value, whereas the interest obligations on borrowings may be fixed, the net
asset value per share of the Fund when it leverages its investments will
increase more when the Fund's portfolio assets increase in value and decrease
more when the Fund's portfolio assets decrease in value than would otherwise be
the case. Interest costs on borrowings, which may fluctuate with changing market
rates of interest, may partially offset or exceed the returns on the borrowed
funds. Under adverse conditions, the Fund might have to sell portfolio
securities to meet interest or principal payments at a time investment
considerations would not favor such sales. The Fund intends to use leverage
during periods when the Adviser believes that the Fund's investment objective
would be furthered by increasing the Fund's investments in common stocks.
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
5
<PAGE>
of its borrowings within three business days to the extent necessary to meet
this test. This requirement may make it necessary for the Fund to sell a portion
of its portfolio securities at a time when investment considerations otherwise
indicate that it would be disadvantageous to do so.
In addition to the foregoing, the Fund is authorized to borrow money
from a bank as a temporary measure for extraordinary or emergency purposes in
amounts not in excess of 5% of the value of the Fund's total assets. This
borrowing is not subject to the foregoing 300% asset coverage requirement. The
Fund is authorized to pledge portfolio securities as the Adviser deems
appropriate in connection with any borrowings.
Short Sales
The Fund may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities exchanges,
or in unlisted securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, the Fund incurs an obligation
to replace the security borrowed at whatever its price may be at the time the
Fund purchases it for delivery to the lender. The price at such time may be more
or less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay the lender amounts equal to
any dividend or interest which accrue during the period of the loan. To borrow
the security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed.
No short sale will be effected which will, at the time of making such
short sale transaction and giving effect thereto, cause the aggregate market
value of all securities sold short to exceed 25% of the value of the Fund's net
assets. Until the Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain a segregated account containing cash or
liquid securities at such a level that the amount deposited in the account plus
the amount deposited with the broker as collateral will equal the current value
of the security sold short; or (b) otherwise cover the Fund's short position.
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
6
<PAGE>
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." These
convertible securities 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. Investments in such
securities are subject to the risk factors outlined below.
The market for high yield convertible securities is subject to
substantial volatility. An economic downturn or increase in interest rates may
have a more significant effect on high yield convertible securities and their
markets, as well as on the ability of securities' issuers to repay principal and
interest, than on higher-rated securities and their issuers. Issuers of high
yield convertible securities may be of low creditworthiness and the high yield
convertible securities may be subordinated to the claims of senior lenders.
During periods of economic downturn or rising interest rates the issuers of high
yield convertible securities may have greater potential for insolvency and a
higher incidence of high yield bond defaults may be experienced.
The prices of high yield convertible securities have been found to be
less sensitive to interest rate changes than higher-rated investments but are
more sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a high yield convertible security owned by the Fund
defaults, the Fund may incur additional expenses in seeking recovery. Periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield convertible securities and the Fund's
net asset value. Yields on high yield convertible securities will fluctuate over
time. Furthermore, in the case of high yield convertible securities structured
as zero coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes and thereby tend to be more volatile
than market prices of securities which pay interest periodically and in cash.
7
<PAGE>
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. However,
the Adviser expects to sell promptly any convertible debt security that falls
below a B rating quality.
Options on Securities and Index Option Transactions
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.
8
<PAGE>
When writing call options on securities, the Fund may cover its
position by owning the underlying security on which the option is written.
Alternatively, the Fund may cover its position by owning a call option on the
underlying security, on a share for share basis, which is deliverable under the
option contract at a price no higher than the exercise price of the call option
written by the Fund or, if higher, by owning such call option and depositing and
maintaining in a segregated account cash or liquid securities equal in value to
the difference between the two exercise prices. In addition, the Fund may cover
its position by depositing and maintaining in a segregated account cash or
liquid securities equal in value to the exercise price of the call option
written by the Fund. The Fund will not enter into an index option position that
exposes the Fund to an obligation to another party, unless the Fund either (i)
owns an offsetting position in securities or other options; and/or (ii)
maintains with the Fund's custodian bank (and marks-to-market, on a daily basis)
a segregated account consisting of cash or liquid securities that, when added to
the premiums deposited with respect to the option, are equal to the market value
of the underlying stock index not otherwise covered.
When the Fund wishes to terminate the Fund's obligation with respect
to an option it has written, the Fund may effect a "closing purchase
transaction." The Fund accomplishes this by buying an option of the same series
as the option previously written by the Fund. The effect of the purchase is that
the writer's position will be canceled. However, a writer may not effect a
closing purchase transaction after the writer has been notified of the exercise
of an option. When the Fund is the holder of an option, it may liquidate its
position by effecting a "closing sale transaction." The Fund accomplishes this
by selling an option of the same series as the option previously purchased by
the Fund. There is no guarantee that either a closing purchase or a closing sale
transaction can be effected. If any call or put option is not exercised or sold,
the option will become worthless on its expiration date.
Exchanges generally have established limitations governing the maximum
number of call or put options on the same index which may be bought or written
(sold) by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). Under these limitations, options positions of certain other accounts
advised by the same investment adviser are combined for purposes of these
limits. Pursuant to these limitations, an exchange may order the liquidation of
positions and may impose other sanctions or restrictions. These position limits
may restrict the number of listed options which the Fund may buy or sell;
however, the Adviser intends to comply with all limitations.
Because option premiums paid or received by the Fund are small in
relation to the market value of the investments underlying the options, buying
and selling put and call options can be more speculative than investing directly
in common stocks. Additionally, trading in index options requires different
skills and techniques than those required for predicting changes in individual
stocks.
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Portfolio Turnover
The Fund's annual portfolio turnover rate was substantially higher
during the fiscal year ended June 30, 1999 than the fiscal period ended June 30,
1998. The higher portfolio turnover rate was largely due to the fact the Fund
took defensive positions more frequently during the fiscal year ended June 30,
1999. Whether or not the Fund takes defensive positions is largely dependent on
the Adviser's belief as to the best way to respond to perceived volatility in
the stock market.
DIRECTORS AND OFFICERS OF THE CORPORATION
As a Maryland corporation, the business and affairs of the Corporation
are managed by its officers under the direction of its Board of Directors. The
name, address, principal occupations during the past five years and other
information with respect to each of the directors and officers of the
Corporation are as follows:
MARTINA HEARN* Age 43
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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 28
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3105 Grimes Ranch Road
Austin, Texas 78732
(A DIRECTOR OF THE CORPORATION)
Ms. McRee is a marketer 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. Ms. McRee is
the wife of Robert C. McRee.
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* 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.
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ROBERT C. MCREE Age 28
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3105 Grimes Ranch Road
Austin, Texas 78732
(A DIRECTOR OF THE CORPORATION)
Mr. McRee is a marketer 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.
STEPHANIE E. ROSENDAHL* Age 33
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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. Ms. Rosendahl is the sister of Thomas F. Thurlow.
THOMAS F. THURLOW* Age 37
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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 Corporation's standard method of compensating directors,
commencing in the fiscal year ending June 30, 2000, will be 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 table below sets forth the compensation paid by the Corporation to
each of the directors of the Corporation during the fiscal year ending June 30,
1999:
- ---------------
* 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.
11
<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
Thomas F. Thurlow 0 0 0 0
</TABLE>
PRINCIPAL SHAREHOLDERS
Set forth below are the names and addresses of all holders of the
Fund's shares who as of August 27, 1999 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
----- ---------------- ----------------
National Investors Services Corp. 31,347 21.48%
55 Water Street
New York, NY 10041*
Heida L. Thurlow 15,428 10.57%
2030 W. Sam Houston Parkway N.
Houston, TX 77043
L. Martin Field 10,923 7.49%
900 Jefferson Avenue
Newport, News, VA 23607
Officers and Directors as a Group 6,381 4.37%
(5 persons)
- -------------------------
*All of the shares owned by National Investors Services Corp. were owned of
record only.
12
<PAGE>
INVESTMENT ADVISER, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
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.
The Adviser supervises and manages the investment portfolio of the
Fund and, subject to such policies as the Board of Directors of the Corporation
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 Act and any amendments thereto, the
expenses 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.
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 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 period
ended June 30, 1998 and the fiscal year ended June 30, 1999, the Adviser agreed
to reimburse the Fund for annual operating expenses in excess of 1.95% of the
Fund's average net assets for each such period. 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
13
<PAGE>
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 and the fiscal year ended June 30, 1999,
the Fund paid the Adviser $3,611 and $12,186, respectively. During the fiscal
period ended June 30, 1998 and the fiscal year ended June 30, 1999, the Adviser
reimbursed the Fund $108,421 and $109,985, respectively, for excess expenses.
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
shareholders 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 shareholders 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.
From August 8, 1997 through March 31, 1999, the administrator to the
Corporation was Firstar Mutual Fund Services, LLC, 615 East Michigan Street,
Milwaukee, Wisconsin 53202 (the "Administrator"). Pursuant to a Fund
Administration Servicing Agreement entered into between the Corporation and the
Administrator relating to the Fund (the "Administration Agreement") the
Administrator maintained the books, accounts and other documents required by the
Act, responded to shareholder inquiries, prepared the Fund's financial
statements and tax returns, prepared certain reports and filings with the
Securities and Exchange Commission and with state Blue Sky authorities,
furnished statistical and research data, clerical, accounting and bookkeeping
services and stationery and office supplies, kept and maintained the Fund's
financial and accounting records and generally assisted in all aspects of the
Fund's operations. The Administrator, at its own expense and without
reimbursement from the Fund or the Company, furnished 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 received 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.
14
<PAGE>
Notwithstanding the foregoing, the Administrator's minimum annual fee was
$30,000. During the fiscal period ended June 30, 1998 and the period from July
1, 1998 through March 31, 1999, the Fund incurred fees of $27,440 and $22,338,
respectively, payable to the Administrator pursuant to the Administration
Agreement. Some of the services provided by the Administrator pursuant to the
Administration Agreement are now provided by Mutual Shareholder Services, Inc.
("MSS"), 1301 East Ninth Street, Suite 1005, Cleveland, Ohio 44114, pursuant to
an Accounting Services Agreement discussed below. To the extent they are not,
they are provided by the officers of the Fund.
The Fifth Third Bank, an Ohio banking trust, 38 Fountain Square Plaza,
Cincinnati, Ohio 45263, serves as custodian of the Corporation's assets pursuant
to a Custody Agreement. Under the Custody Agreement, The Fifth Third Bank 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. The Fifth Third Bank does
not exercise any supervisory function over the purchase and sale of securities.
MSS serves as transfer agent and dividend disbursing agent for the
Fund under a Transfer Agent Agreement. As transfer and dividend disbursing
agent, MSS 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.
From August 8, 1997 through March 31, 1999, pursuant to a Fund
Accounting Servicing Agreement with Firstar Mutual Fund Services, LLC, Firstar
Mutual Fund Services, LLC maintained the financial accounts and records of the
Fund and provided other accounting services to the Fund. For its accounting
services, Firstar Mutual Fund Services, LLC received 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 was reimbursed for certain out of pocket expenses, including
pricing expenses. During the fiscal period ended June 30, 1998 and the period
from July 1, 1998 through March 31, 1999, the Fund incurred fees of $20,367 and
$17,678, respectively, payable to Firstar Mutual Fund Services, LLC pursuant to
the Fund Accounting Servicing Agreement.
Effective April 1, 1999 the Corporation entered into an Accounting
Services Agreement with MSS. Pursuant to the Accounting Services Agreement, MSS
calculates the daily net asset value of the Fund, maintains the financial
accounts and records of the Fund and provides other accounting services to the
Fund. For its accounting services, MSS receives an annual fee paid in monthly
installments determined as follows:
15
<PAGE>
Fund Net Assets Yearly Fee
--------------- ----------
Less than $25,000,000 $21,000
$25,000,000 to $50,000,000 $30,500
$50,000,000 to $75,000,000 $36,250
$75,000,000 to $100,000,000 $42,000
$100,000,000 to $125,000,000 $47,750
$125,000,000 to $150,000,000 $53,500
Greater than $150,000,000 $59,250
MSS also provides a new client discount during the first year of the Accounting
Services Agreement. During the period April 1, 1999 through June 30, 1999, the
Fund incurred fees of $2,738 payable to MSS pursuant to the Accounting Services
Agreement.
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
The net asset value of the Fund is 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.
The Fund's net asset value per share is determined by dividing the
total value of its investments and other assets less any liabilities, by the
number of its outstanding shares. Common stocks that are listed on any national
stock exchange or quoted on the Nasdaq Stock Market are valued at the last sale
price on the date the valuation is made. Price information on listed securities
is taken from the exchange where the security is primarily traded. Common stocks
which are listed on any national stock exchange or the Nasdaq Stock Market but
which are not traded on the valuation date are valued at the current bid prices.
Unlisted equity securities for which market quotations are readily available and
options are valued at the current bid prices. Debt securities which mature in
more than 60 days are valued at the latest bid prices furnished by an
independent pricing service. Short-term instruments (those with remaining
maturities of 60 days or less) are 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.
16
<PAGE>
The Fund may provide from time to time in advertisements, reports to
shareholders and other communications with shareholders its average annual total
return. An average annual total return refers to the rate of return which, if
applied to an initial investment in the Fund at the beginning of a stated period
and compounded over the period, would result in the redeemable value of the
investment in the Fund at the end of the stated period assuming reinvestment of
all dividends and distributions and reflecting the effect of 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 total rate of return quotation for the Fund will be for a period
of three or more months and will assume the reinvestment of all dividends and
capital gains distributions which were made by the Fund during that period. Any
period total rate of return quotation of the Fund will be calculated by dividing
the net change in value of a hypothetical shareholder account established by an
initial payment of $1,000 at the beginning of the period by 1,000. The net
change in the value of a shareholder account is determined by subtracting $1,000
from the product obtained by multiplying the net asset value per share at the
end of the period by the sum obtained by adding (A) the number of shares
purchased at the beginning of the period plus (B) the number of shares purchased
during the period with reinvested dividends and distributions. Any average
annual compounded total rate of return quotation of the Fund will be calculated
by dividing the redeemable value at the end of the period (i.e., the product
referred to in the preceding sentence) by $1,000. A root equal to the period,
measured in years, in question is then determined and 1 is subtracted from such
root to determine the average annual compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
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 Fund's average annual total returns for the one-year period ended
June 30, 1999 and for the period from the Fund's commencement of operations
(August 8, 1997) through June 30, 1999 were 126.95% and 106.30%, respectively.
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
17
<PAGE>
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.
DISTRIBUTION OF SHARES
Service and Distribution Plan
The Fund has adopted a Service and Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act 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 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.
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 shareholders 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.
During the fiscal year ended
18
<PAGE>
June 30, 1999, the Fund incurred distribution fees of $2,437 pursuant to the
Plan of which all were used to pay for printing of sales literature.
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, MSS, 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 MSS 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.
Retirement Plans
The Fund offers the following retirement plans that may be funded with
purchases of Fund shares and may allow investors to defer some of their income
from taxes. A description of applicable service fees and certain limitations on
contributions and withdrawals, as well as applications forms, are available from
the Fund upon request. The IRA documents contain a disclosure statement that the
Internal Revenue Service requires to be furnished to individuals who are
considering adopting an IRA. Because a retirement program involves commitments
covering future years, it is important that the investment objective of the Fund
be consistent with the participant's retirement objectives. Premature
withdrawals from a retirement plan will result in adverse tax consequences. The
Fund recommends that investors consult with a competent financial and tax
adviser before investing in the Fund through the retirement plans.
Individual shareholders may establish their own tax-sheltered
Individual Retirement Accounts ("IRA"). The Fund currently offers a prototype
Traditional IRA plan, a prototype Roth IRA plan and a prototype Education IRA.
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.)
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
19
<PAGE>
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.
REDEMPTION OF SHARES
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.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Fund are made by the
Adviser subject to review by the Corporation's Board of Directors. In placing
purchase and sale orders for portfolio securities for the Fund, it is the policy
of the Adviser to seek the best execution of orders at the most favorable price
in light of the overall quality of brokerage and research services provided, as
described in this and the following paragraph. In selecting brokers to effect
portfolio transactions, the determination of what is expected to result in best
execution at the most favorable price involves a number of largely judgmental
considerations. Among these are the Adviser's evaluation of the broker's
efficiency in executing and clearing transactions, block trading capability
(including the broker's willingness to position securities and the broker's
financial strength and stability). The most favorable price to the Fund means
the best net price without regard to the mix between purchase or sale price and
commission, if any. Over-the-counter securities are generally purchased and sold
directly with principal market makers who retain the difference in their cost in
the security and its selling price (i.e. "markups" when the market maker sells a
security and "markdowns" when the market maker purchases a security). 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
20
<PAGE>
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 year ended June 30, 1999, the Fund paid brokerage
commissions of $56,194 on transactions having a total market value of
$13,647,430. During such year the Fund paid commissions of $14,758 on
transactions having a total market value of $4,591,918 to brokers who provided
research services to the Adviser. 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. Brokerage commissions were higher during the fiscal
year ended June 30, 1999 because of the Fund's increased portfolio turnover rate
and the increase in the Fund's average net assets.
TAXES
The Fund intends 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"). The Fund has so qualified in each
of its fiscal years. If the Fund fails to qualify as a regulated investment
company under Subchapter M in any fiscal year, it will be treated as a
corporation for federal income tax purposes. As such, the Fund would be required
to pay income taxes on its net investment income and net realized capital gains,
if any, at the rates generally applicable to corporations. Shareholders of the
Fund would not be liable for income tax on the Fund's net investment income or
net realized capital gains in their individual capacities. Distributions to
shareholders, whether from the Fund's net investment income or net realized
capital gains, would be treated as taxable dividends to the extent of
accumulated earnings and profits of the Fund.
If a call option written by the Fund expires, the amount of the
premium received by the Fund for the option will be short-term capital gain. If
the Fund enters into a closing transaction with respect to the option, any gain
or loss realized by the Fund as a result of the transaction will be short-term
capital gain or loss. If the holder of a call option exercises the holder's
right under the option, any gain or loss realized by the Fund upon the sale of
the underlying security pursuant to such exercise will be short-term or
long-term capital gain or loss to the Fund depending on the Fund's holding
period for the underlying security.
With respect to call options purchased by the Fund, the Fund will
realize short-term or long-term capital gain or loss if such option is sold and
will realize short-term or long-term capital loss if the option is allowed to
expire depending on the Fund's holding period for the call option. If such a
call option is exercised, the amount paid by the Fund for the option will be
added to the basis of the stock so acquired.
21
<PAGE>
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
shareholders 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 shareholder's holding period
for the shares. Such dividends and distributions are taxable to shareholders
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
shareholder, the dividend or distribution will be taxable to the shareholder
even though it results in a return of capital to the shareholder.
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.
22
<PAGE>
This section is not intended to be a complete 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.
SHAREHOLDER MEETINGS
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 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 shareholders under
the Act.
The Corporation's bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders 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
shareholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more shareholders 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 shareholders 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 shareholders as recorded on the books of
the Corporation; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders 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
23
<PAGE>
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 shareholders with reasonable promptness after the
entry of such order and the renewal of such tender.
CAPITAL STRUCTURE
The Corporation'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 Corporation. Shareholders are entitled: (i) to one vote per full
share; (ii) to such distributions as may be declared by the Corporation's Board
of Directors out of funds legally available; and (iii) upon liquidation, to
participate ratably in the assets available for distribution. There are no
conversion or sinking fund provisions applicable to the shares, and the holders
have no preemptive rights and may not cumulate their votes in the election of
directors. Consequently the holders of more than 50% of the shares of the Fund
voting for the election of directors can elect the entire Board of Directors and
in such event the holders of the remaining shares voting for the election of
directors will not be able to elect any person or persons to the Board of
Directors. The shares are redeemable and are transferable. All shares issued and
sold by the Fund will be fully paid and nonassessable. Fractional shares entitle
the holder to the same rights as whole shares.
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.
24
<PAGE>
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. 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.
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.
25
<PAGE>
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default - capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
Investment Grade
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest an repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated "BBB" is regard as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Speculative Grade
Debt rated "BB," "B," "CCC," "CC" and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristic, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
"BB" - Debt rated "BB" has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-"rating.
"B" - Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay
26
<PAGE>
principal. The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB-"rating.
"CCC" - Debt rated "CCC" has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest an repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "B" or "B-" rating.
"CC" - Debt rated "CC" typically is applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - Debt rated "C" typically is applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - The rating "CI" is reserved for income bonds on which no
interest is being paid.
"D" - Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such period. The "D" rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
Moody's Long-Term Debt Ratings.
"Aaa" - Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
or protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than in
"Aaa" securities.
"A" - Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
27
<PAGE>
"Baa" - Bonds which are rated "Baa" are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba" - Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
"B" - Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa" - Bonds which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
"Ca" - Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
"C" - Bonds which are rated "C" are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
INDEPENDENT ACCOUNTANTS
Baird, Kurtz & Dobson, 1100 Main Street, Kansas City, Missouri
64105-2112 has been selected as the independent accountants for the Fund. As
such Baird, Kurtz & Dobson performs an audit of the Fund's financial statement
and considers the Fund's internal control structure.
28
<PAGE>
PART C
OTHER INFORMATION
Item 24. Exhibits
--------
(a) Registrant's Articles of Incorporation. (1)
(b) Registrant's By-Laws, as amended. (1)
(c) None
(d) Investment Advisory Agreement with Thurlow Capital
Management, Inc. relating to The Thurlow Growth Fund (1)
(e) None
(f) None
(g) Custody Agreement with The Fifth Third Bank
(h)(i) Accounting Services Agreement with Mutual Shareholder
Services, Inc.
(h)(ii) Transfer Agent Agreement with Mutual Shareholder Services,
Inc.
(i) Opinion of Foley & Lardner, counsel for Registrant.
(j)(i) Consent of Arthur Andersen LLP
(j)(ii) Consent of Baird, Kurtz & Dobson
(k) None
(l) Subscription Agreement. (1)
(m) Service and Distribution Plan (1)
(n) 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.
S-1
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by any person, nor does Registrant
control any person.
Item 26. 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.
- --------- ---------------
1. 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.
2. 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
S-2
<PAGE>
or more directors, not, at the time, parties to the action,
suit or proceeding and who were duly designated to act in
the matter by the full board in which the designated
directors who are parties to the action, suit or proceeding
may participate; or (ii) by special legal counsel selected
by the board of directors or a committee of the board by
vote as set forth in (i) of this paragraph, or, if the
requisite quorum of the full board cannot be obtained
therefor and the committee cannot be established, by a
majority vote of the full board in which directors who are
parties to the action, suit or proceeding may participate.
3. 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.
4. 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.
5. 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 shareholders 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.
6. 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
S-3
<PAGE>
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.
7. "Corporate Representative" means an individual who is or was
a director, officer, agent or employee of the corporation or
who serves or served another corporation, partnership, joint
venture, trust or other enterprise in one of these
capacities at the request of the corporation and who, by
reason of his or her position, is, was, or is threatened to
be made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person or
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 27. Business and Other Connections of Investment Adviser
----------------------------------------------------
Incorporated by reference to pages 10 through 12 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 28. Principal Underwriters
----------------------
Not Applicable.
Item 29. 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 30. Management Services
-------------------
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 31. Undertakings
------------
S-4
<PAGE>
Registrant undertakes to provide its Annual Report to Shareholders
upon request without charge to each person to whom a prospectus is delivered.
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Palo Alto and State of California on the 14th
day of August, 1999.
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, August 14, 1999
- ----------------------------- Financial and Accounting
Thomas F. Thurlow Officer) and a Director
/s/ Martina Hearn Director August 14, 1999
- -----------------------------
Martina Hearn
/s/ Clint McRee Director August 14, 1999
- -----------------------------
Clint McRee
- ----------------------------- Director August __, 1999
Natasha L. McRee
- -----------------------------
Stephanie E. Rosendahl Director August __, 1999
S-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
----------- ------- --------
(a) Registrant's Articles of Incorporation*
(b) Registrant's Bylaws*
(c) None
(d) Investment Advisory Agreement with Thurlow
Capital Management, Inc. relating to The Thurlow
Growth Fund*
(e) None
(f) None
(g) Custody Agreement with The Fifth Third Bank
(h)(i) Accounting Services Agreement with Mutual
Shareholder Services, Inc.
(h)(ii) Transfer Agent Agreement with Mutual
Shareholder Services, Inc.
(i) Opinion of Foley & Lardner, counsel for
Registrant
(j)(i) Consent of Arthur Andersen LLP
(j)(ii) Consent of Baird, Kurtz & Dobson
(k) None
(l) Subscription Agreement*
(m) Service and Distribution Plan*
(n) None
- ---------------------
* Incorporated by reference.
CUSTODY AGREEMENT
THIS AGREEMENT, is made as of April 1, 1999, by and between THE
THURLOW FUNDS, INC., a corporation organized under the laws of the State of
Maryland (the "Company"), and THE FIFTH THIRD BANK, a banking trust organized
under the laws of the State of Ohio (the "Custodian").
WITNESSETH:
WHEREAS, the Company desires that the Securities and cash of each of
the investment portfolios identified in Exhibit A hereto (such investment
portfolios and individually referred to herein as a "Fund" and collectively as
the "Funds"), be held and administered by the Custodian pursuant to this
Agreement; and
WHEREAS, the Company is an open-end management investment Company
registered under the Investment Trust Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1.1. "Authorized Person" means any Officer or other person duly
authorized by resolution of the Board of Directors to give Oral Instructions and
Written Instructions on behalf of the Company and named in Exhibit B hereto or
in such resolutions of the Board of Directors, certified by an Officer, as may
be received by the Custodian from time to time.
1.2. "Board of Directors" shall mean the directors from time to time
serving under the Company's Articles of Incorporation and Bylaws as from time to
time amended.
1.3. "Book-Entry System" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300.31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4. "Business Day" shall mean any day recognized as a settlement day
by The New York Stock Exchange, Inc. and any other day for which the Fund
computes the net asset value of the Fund.
1.5. "NASD" shall mean The National Association of Securities Dealers,
Inc.
<PAGE>
1.6. "Officer" shall mean the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer of
the Company.
1.7. "Oral Instructions" shall mean instructions orally transmitted to
and accepted by the Custodian because such instructions are: (i) reasonably
believed by the Custodian to have been given by an Authorized Person, (ii)
recorded and kept among the records of the Custodian made in the ordinary course
of business and (iii) orally confirmed by the Custodian. The Company shall cause
all Oral Instructions to be confirmed by Written Instructions. If such Written
Instructions confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Company. If Oral Instructions
vary from the Written Instructions which purport to confirm them, the Custodian
shall notify the of such variance but such Oral Instructions will govern unless
the Custodian has not yet acted.
1.8. "Custody Account" shall mean any account in the name of the
Company, which is provided for in Section 3.2 below.
1.9. "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10. "Securities Depository" shall mean The Participants Trust
Company or The Depository Trust Company and (provided that Custodian shall have
received a copy of a resolution of the Board of Directors, certified by an
Officer, specifically approving the use of such clearing agency as a depository
for the Company) any other clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities and Exchange Act of 1934
(the "1934 Act"), which acts as a system for the central handling of Securities
where all Securities of any particular class or series of an issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of the Securities.
1.11. "Securities" shall include, without limitation, common and
preferred stocks, bonds, call options, put options, debentures, notes, bank
certificates of deposit, bankers' acceptances, mortgage-backed securities, other
money market instruments or other obligations, and any certificates, receipts,
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that the
Custodian has the facilities to clear and to service.
1.12. "Shares" shall mean the units of beneficial interest issued by
the Company.
1.13. "Written Instructions" shall mean (i) written communications
actually received by the Custodian and signed by one or more persons as the
Board of Directors shall have from time to time authorized, or (ii)
communications by telex or any other such system from a person or persons
reasonably believed by the Custodian to be Authorized, or
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(iii) communications transmitted electronically through the Institutional
Delivery System (IDS), or any other similar electronic instruction system
acceptable to Custodian and approved by resolutions of the Board of Directors, a
copy of which, certified by an Officer, shall have been delivered to the
Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1. Appointment. The Company hereby constitutions and appoints the
Custodian as custodian of all Securities and cash owned by or in the possession
of the Company at any time during the period of this Agreement, provided that
such Securities or cash at all times shall be and remain the property of the
Company.
2.2. Acceptance. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as herein after set forth and
in accordance with the 1940 Act as amended. Except as specifically set forth
herein, the Custodian shall have no liability and assumes no responsibility for
any non-compliance by the Company or a Fund of any laws, rules or regulations.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1. Segregation. All Securities and non-cash property held by the
Custodian for the account of the Fund, except Securities maintained in a
Securities Depository or Book-Entry System, shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian and
shall be identified as subject to this Agreement.
3.2. Custody Account. The Custodian shall open and maintain in its
trust department a custody account in the name of each Fund, subject only to
draft or order of the Custodian, in which the Custodian shall enter and carry
all Securities, cash and other assets of the Fund which are delivered to it.
3.3. Appointment of Agents. In its discretion, the Custodian may
appoint, and at any time remove, any domestic bank or trust company, which has
been approved by the Board of Directors and is qualified to act as a custodian
under the 1940 Act, as sub-custodian to hold Securities and cash of the Funds
and to carry out such other provisions of this Agreement as it may determine,
and may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of the Custodian and subject
only to its draft or order), provided, however, that the appointment of any such
agent shall not relieve the Custodian of any of its obligations or liabilities
under this Agreement.
3.4. Delivery of Assets to Custodian. The Fund shall deliver, or cause
to be delivered, to the Custodian all of the Fund's Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time
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during such period, of Shares. The Custodian shall not be responsible for such
Securities, cash or other assets until actually received by it.
3.5. Securities Depositories and Book-Entry Systems. The Custodian may
deposit and/or maintain Securities of the Funds in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any Securities
Depository or Book-Entry System, the Fund shall deliver to the
Custodian a resolution of the Board of Directors, certified by an
Officer, authorizing and instructing the Custodian on an ongoing
basis to deposit in such Securities Depository or Book-Entry
System all Securities eligible for deposit therein and to make
use of such Securities Depository or Book-Entry System to the
extent possible and practical in connection with its performance
hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of collateral consisting
of Securities.
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of
the Custodian in such Book-Entry System or Securities Depository
which includes only assets held by the Custodian as a fiduciary,
custodian or otherwise for customers.
(c) The records of the Custodian and the Custodian's account on the
books of the Book-Entry System and Securities Depository as the
case may be, with respect to Securities of a Fund maintained in a
Book-Entry System or Securities Depository shall, by book-entry,
or otherwise identify such Securities as belonging to the Fund.
(d) If Securities purchases by the Fund are to be held in a
Book-Entry System or Securities Depository, the Custodian shall
pay for such Securities upon (i) receipt of advice from the
Book-Entry System or Securities Depository that such Securities
have been transferred to the Depository Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund. If
Securities sold by the Fund are held in a Book-Entry System or
Securities Depository, the Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System
or Securities Depository that payment for such Securities has
been transferred to the Depository Account, and (ii) the making
of any entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund.
(e) Upon request, the Custodian shall provide the Fund with copies of
any report (obtained by the Custodian from a Book-Entry System or
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Securities Depository in which Securities of the Fund is kept) on
the internal accounting controls and procedures for safeguarding
Securities deposited in such Book-Entry System or Securities
Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Company for any loss or damage
to the Company resulting (i) from the use of a Book-Entry System
or Securities Depository by reason of any negligence or willful
misconduct on the part of the Custodian or any sub-custodian
appointed pursuant to Section 3.3 above or any of its or their
employees, or (ii) from failure of Custodian or any such
sub-custodian to enforce effectively such rights as it may have
against a Book-Entry System or Securities Depository. At its
election, the Company shall be subrogated to the rights of the
Custodian with respect to any claim against a Book-Entry System
or Securities Depository or any other person for any loss or
damage to the Funds arising from the use of such Book-Entry
System or Securities Depository, if and to the extent that the
Company has been made whole for any such loss or damage.
3.6. Disbursement of Moneys from Custody Accounts. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from a Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only upon
compliance with Section 4.1 of this Agreement and only (i) in the
case of Securities (other than options on Securities, futures
contracts and options on futures contracts), against the delivery
to the Custodian (or any sub-custodian appointed pursuant to
Section 3.3 above) of such Securities registered as provided in
Section 3.9 below in proper form for transfer, or if the purchase
of such Securities is effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set
forth in Section 3.5 above; (ii) in the case of options on
Securities, against delivery to the Custodian (or such
sub-custodian) of such receipts as are required by the customs
prevailing among dealers in such options; (iii) in the case of
futures contracts and options on futures contracts, against
delivery to the Custodian (or such sub-custodian) of evidence of
title thereto in favor of the Company or any nominee referred to
in Section 3.9 below; and (iv) in the case of repurchase or
reverse repurchase agreements entered into between the Company
and a bank which is a member of the Federal Reserve System or
between the Company and a primary dealer in U.S. Government
securities, against delivery of the purchased Securities either
in certificate form or through an entry crediting the Custodian's
account at a Book-Entry System or Securities Depository for the
account of the Fund with such Securities;
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(b) In connection with the conversation, exchange or surrender, as
set forth in Section 3.7(f) below, of Securities owned by the
Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in
Section 5.1 below;
(e) For the payment of any expense or liability incurred by the
Company, including but not limited to the following payments for
the account of a Fund: interest; taxes; administration,
investment management, investment advisory, accounting, auditing,
transfer agent, custodian, trustee and legal fees; and other
operating expenses of a Fund; in all cases, whether or not such
expenses are to be in whole or in part capitalized or treated as
deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Company, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD, relating to
compliance with rules of The Options Clearing Corporation and of
any registered national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Company;
(g) For transfer in accordance with the provisions of any agreement
among the Company, the Custodian, and a futures commission
merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Company;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including
the Custodian), which deposit or account has a term of one year
or less; and
(i) For any other proper purposes, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of
Directors, certified by an Officer, specifying the amount and
purpose of such payment, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such
payment is to be made.
3.7. Delivery of Securities from Fund Custody Accounts. Upon receipt
of Proper Instructions, the Custodian shall release and deliver Securities from
a Custody Account but only in the following cases:
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(a) Upon the sale of Securities for the account of a Fund but only
against receipt of payment therefor in cash, by certified or
cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of
Section 3.5 above;
(c) To an Offeror's depository agent in connection with tender or
other similar offers for Securities of a Fund; provided that, in
any such case, the cash or other consideration is to be delivered
to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name
of the Company, the Custodian or any sub-custodian appointed
pursuant to Section 3.3 above, or of any nominee or nominees of
any of the foregoing, or (ii) for exchange for a different number
of certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the issuer of such Securities, or pursuant to provisions for
conversion contained in such Securities, or pursuant to any
deposit agreement, including surrender or receipt of underlying
Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by a Fund;
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof; provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(i) For delivery in connection with any loans of Securities of a
Fund, but only against receipt of such collateral as the Company
shall have specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by the
Company on behalf of a Fund requiring a pledge of assets by such
Fund, but only against receipt by the Custodian of the amounts
borrowed;
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(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Company or a
Fund;
(l) For delivery in accordance with the provisions of any agreement
among the Company, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD, relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Company on
behalf of a Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Company on behalf of a Fund, the Custodian, and a
futures commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market
(or any similar organization or organizations) regarding account
deposits in connection with transactions by the Company on behalf
of a Fund; or
(n) For any other proper corporate purposes, but only upon receipt,
in addition to Proper Instructions, of a copy of a resolution of
the Board of Directors, certified by an Officer, specifying the
Securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
3.8. Actions Not Requiring Proper Instructions. Unless otherwise
instructed by the Company, the Custodian shall with respect to all Securities
held for a Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all
income and other payments to which the Company is entitled either
by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect on
a timely basis the amount payable upon all Securities which may
mature or be called, redeemed, or retired, or otherwise become
payable;
(c) Endorse for collection, in the name of the Company, checks,
drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in
effect, and prepare and submit reports to the Internal Revenue
Service ("IRS") and to the Company at such time, in such manner
and containing such information as is prescribed by the IRS;
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(f) Hold for a Fund, either directly or, with respect to Securities
held therein, through a Book-Entry System or Securities
Depository, all rights and similar securities issued with respect
to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with sale, exchange, substitution, purchase, transfer
and other dealings with Securities and assets of the Fund.
3.9. Registration and Transfer of Securities. All Securities held for
a Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System for the account of the Company on behalf of a Fund, if
eligible therefor. All other Securities held for a Fund may be registered in the
name of the Company on behalf of such Fund, the Custodian, or any sub-custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof; provided, however, that such Securities are held
specifically for the account of the Company on behalf of a Fund. The Company
shall furnish to the Custodian appropriate instruments to enable the Custodian
to hold or deliver in proper form for transfer, or to register in the name of
any of the nominees hereinabove referred to or in the name of a Book-Entry
System or Securities Depository, any Securities registered in the name of a
Fund.
3.10. Records. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or other
property held for the Company, including (i) journals or other
records of original entry containing an itemized daily record in
detail of all receipts and deliveries of Securities and all
receipts and disbursements of cash; (ii) ledgers (or other
records) reflecting (A) Securities in transfer, (B) Securities in
physical possession, (C) monies and Securities borrowed and
monies and Securities loaned (together with a record of the
collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable and
interest accrued; and (iii) canceled checks and bank records
related thereto. The Custodian shall keep such other books and
records of the Company as the Company shall reasonably request,
or as may be required by the 1940 Act, including, but not limited
to Section 3.1 and Rule 31a-1 and Rule 31a-2 promulgated
thereunder.
(b) All such books and records maintained by the Custodian shall (i)
be maintained in a form acceptable to the Company and in
compliance with
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rules and regulations of the Securities and Exchange Commission,
(ii) be the property of the Company and at all times during the
regular business hours of the Custodian be made available upon
request for inspection by duly authorized officers, employees or
agents of the Company and employees or agents of the Securities
and Exchange Commission, and (iii) if required to be maintained
by Rule 31a-1 under the 1940 Act, be preserved for the periods
prescribed in Rule 31a-2 under the 1940 Act.
3.11. Fund Reports by Custodian. The Custodian shall furnish the
Company with a daily activity statement by Fund and a summary of all transfers
to or from the Custody Account on the day following such transfers. At least
monthly and from time to time, the Custodian shall furnish the Company with a
detailed statement, by Fund, of the Securities and moneys held for the Company
under this Agreement.
3.12. Other Reports by Custodian. The Custodian shall provide the
Company with such reports, as the Company may reasonably request from time to
time, on the internal accounting controls and procedures for safeguarding
Securities, which are employed by the Custodian or any sub-custodian appointed
pursuant to Section 3.3 above.
3.13. Proxies and Other Materials. The Custodian shall cause all
proxies, if any, relating to Securities which are not registered in the name of
a Fund, to be promptly executed by the registered holder of such Securities,
without indication of the manner in which such proxies are to be voted, and
shall include all other proxy materials, if any, promptly deliver to the Company
such proxies, all proxy soliciting materials, which should include all other
proxy materials, if any, and all notices to such Securities.
3.14. Information on Corporate Actions. Custodian will promptly notify
the Company of the corporate actions, limited to those Securities registered in
nominee name and to those Securities held at a Depository or sub-custodian
acting as agent for Custodian. Custodian will be responsible only if the notice
of such corporate actions is published by Xcitek, DTC, or received by first
class from the transfer agent. For market announcements not yet received and
distributed by Custodian's services, Company will inform its custody
representative with appropriate instructions. Custodian will, upon receipt of
Company's response within the required deadline, affect such action for receipt
or payment for the Company. For those responses received after the deadline,
Custodian will affect such action for receipt or payment, subject to the
limitations of the agent(s) affecting such actions. Custodian will promptly
notify Company for put options only if the notice is received by first class
mail from the agent. The Company will provide or cause to be provided to
Custodian with all relevant information contained in the prospectus for any
security which has unique put/option provisions and provide Custodian with
specific tender instructions at least ten business days prior to the beginning
date of the tender period.
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ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1. Purchase of Securities. Promptly upon each purchase of Securities
for the Company, Written Instructions shall be delivered to the Custodian,
specifying (a) the name of the issuer or writer of such Securities, and the
title or other description thereof, (b) the number of shares, principal amount
(and accrued interest, if any) or other units purchased, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, and (f) the name of the person to whom such amount
is payable. The Custodian shall upon receipt of such Securities purchased by a
Fund pay out of the moneys held for the account of such Fund the total amount
specified in such Written Instructions to the person named therein. The
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities for a Fund, if in the relevant Custody Account there
is insufficient cash available to the Fund for which such purchase was made.
4.2. Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of Securities
for a Fund is made by the Custodian in advance of receipt for the account of the
Fund of the Securities purchased but in the absence of specific Written or Oral
Instructions to so pay in advance, the Custodian shall be liable to the Fund for
such Securities to the same extent as if the Securities had been received by the
Custodian.
4.3. Sale of Securities. Promptly upon each sale of Securities by a
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any) or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Company as specified in such Written Instructions,
the Custodian shall deliver such Securities to the person specified in such
Written Instructions. Subject to the foregoing, the Custodian may accept payment
in such form as shall be satisfactory to it, and may deliver Securities and
arrange for payment in accordance with the customs prevailing among dealers in
Securities.
4.4. Delivery of Securities Sold. Notwithstanding Section 4.3 above or
any other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Company shall bear the risk that
final payment for such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and the Custodian shall have no liability for any of the
foregoing.
4.5. Payment for Securities Sold, etc. In its sole discretion and from
time to time, the Custodian may credit the relevant Custody Account, prior to
actual receipt of final
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payment thereof, with (i) proceeds from the sale of Securities which it has been
instructed to deliver against payment, (ii) proceeds from the redemption of
Securities or other assets of the Company, and (iii) income from cash,
Securities or other assets of the Company. Any such credit shall be conditional
upon actual receipt by Custodian of final payment and may be reversed if final
payment is not actually received in full. The Custodian may, in its sole
discretion and from time to time, permit the Company to use the funds so
credited to its Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
anticipation of which funds were credited to the Custody Account.
4.6. Advances by Custodian for Settlement. The Custodian may, in its
sole discretion and from time to time, advance funds to the Company to
facilitate the settlement of a Company transaction on behalf of a Fund in its
Custody Account. Any such advance shall be repayable immediately upon demand by
Custodian.
ARTICLE V
REDEMPTION OF TRUST SHARES
Transfer of Funds. From such funds as may be available for the purpose
in the relevant Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares of a Fund, the Custodian
shall wire each amount specified in such Proper Instructions to or through such
bank as the Company may designate with respect to such amount in such Proper
Instructions. Upon effecting payment or distribution in accordance with Proper
Instruction, the Custodian shall not be under any obligation or have any
responsibility thereafter to any such paying bank.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account.
(a) in accordance with the provisions of any agreement among the
Company, the Custodian and a broker-dealer registered under the
1934 Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating
to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations,
regarding escrow or other arrangement in connection with
transactions by the Company,
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(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by a Fund or in
connection with financial futures contracts (or options thereon)
purchased or sold by a Fund,
(c) which constitute collateral for loans of Securities made by a
Fund,
(d) for purposes of compliance by the Company with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements and when-issued, delayed delivery and firm
commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board of Directors, certified by an Officer, setting forth
the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1. Standard of Care. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligation under this Agreement, and shall
be without liability to the Company for any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability or claim unless such
loss, damages, cost, expense, liability or claim arises from negligence, bad
faith or willful misconduct on its part or on the part of any sub-custodian
appointed pursuant to Section 3.3 above. The Custodian's cumulative liability
within a calendar year shall be limited with respect to the Company or any party
claiming by, through or on behalf of the Company for the initial and all
subsequent renewal terms of this Agreement, to the lessor amount of (a) the
actual damages sustained by the Company, (actual damages for uninvested funds
shall be the overnight Feds fund rate), or (b) to an amount not to exceed
one-half of the net fees paid to the Custodian within the prior three calendar
months. The Custodian shall be entitled to rely on and may act upon advice of
counsel on all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. The Custodian shall promptly notify
the Company of any action taken or omitted by the Custodian pursuant to advice
of counsel. The Custodian shall not be under any obligation at any time to
ascertain whether the Company is in compliance with the 1940 Act, the
regulations thereunder, the provisions of the Company's charter documents or
by-laws, or its investment objectives and policies as then in effect.
7.2. Actual Collection Required. The Custodian shall not be liable
for, or considered to be the custodian of, any cash belonging to the Company or
any money represented by a check, draft or other instrument for the payment of
money, until the Custodian or its agents actually receive such cash or collect
on such instrument.
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7.3. No Responsibility for title, etc. So long as and to the extent
that it is in the exercise of reasonable care, the Custodian shall not be
responsible for the title, validity or genuineness of any property or evidence
of title thereto received or delivered by it pursuant to this Agreement.
7.4. Limitation on duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for the Company if such Securities
are in default or payment is not made after due demand or presentation.
7.5. Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and/or any Written Instructions
actually received by it pursuant to this Agreement.
7.6. Express Duties Only. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7. Cooperation. The Custodian shall cooperate with and supply
necessary information, by the Company, to the entity or entities appointed by
the Company to keep the books of account of the Company and/or compute the value
of the assets of the Company. The Custodian shall take all such reasonable
actions as the Company may from time to time request to enable the Company to
obtain, from year to year, favorable opinions from the Company's independent
accountants with respect to the Custodian's activities hereunder in connection
with (a) the preparation of the Company's report on Form N-1-A and Form N-SAR
and any other reports required by the Securities and Exchange Commission, and
(b) the fulfillment by the Company of any other requirements of the Securities
and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification. The Company shall indemnify and hold harmless
the Custodian and any sub-custodian appointed pursuant to Section 3.3 above, and
any nominee of the Custodian or of such sub-custodian from and against any loss,
damage, cost, expense (including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from the fact that
Securities are registered in the name of any such nominee, or (b) from any
action or inaction by the Custodian or such sub-custodian (i) at the request or
direction of or in reliance on the advice of the Company, or (ii) upon Proper
Instructions, or (c) generally, from the performance of its obligations under
this Agreement or any sub-custody agreement with a sub-custodian appointed
pursuant to Section 3.3 above, or in the case of any such sub-custodian, from
the performance of its obligations under such custody agreement, provided that
neither the Custodian nor any such sub-custodian shall be indemnified and held
harmless from and
14
<PAGE>
against any such loss, damage, cost, expense, liability or claim arising from
the Custodian's negligence, bad faith or willful misconduct.
8.2. Indemnity to be Provided. If the Company requests the Custodian
to take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Company shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Company shall be liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation, acts of God; earthquakes; fires; floods;
wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes, acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay shall use its best efforts to ameliorate the effects of any such
failure or delay. Notwithstanding the foregoing, the Custodian shall maintain
sufficient disaster recovery procedures to minimize interruptions.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1. Effective Period. This Agreement shall become effective as of
the date first set forth above and shall continue in full force and effect until
terminated as hereinafter provided.
10.2. Termination. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall not be less than ninety (90) days after the date of the
giving of a notice. If a successor custodian shall have been appointed by the
Board of Directors, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the
Company and held by the Custodian as custodian, and (b) transfer any Securities
held in a Book-Entry System or Securities Depository to an account of or for the
benefit of the Company at the successor custodian, provided the Company shall
have paid to the Custodian all fees, expenses and other amounts to the payment
or reimbursement of which it shall then be entitled. Upon such delivery and
transfer, the Custodian shall be relieved of all obligations under this
Agreement. The Company may at any time immediately terminate this Agreement in
the event
15
<PAGE>
of the appointment of a conservator or receiver for the Custodian by regulatory
authorities in the State of Ohio or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
10.3. Failure to Appoint Successor Custodian. If a successor custodian
is not designated by the Company on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which is (a) a "Bank"
as defined in the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not less than $25
million, and (c) is doing business in New York, New York, all Securities, cash
and other property held by Custodian under this Agreement and to transfer to an
account of or for the Company at such bank or trust company all Securities of
the Company held in a Book-Entry System or Securities Depository. Upon such
delivery and transfer, such bank or trust company shall be the successor
custodian under this Agreement and the Custodian shall be relieved of all
obligations under this Agreement. If, after reasonable inquiry, Custodian cannot
find a successor custodian as contemplated in this Section 10.3, then Custodian
shall have the right to deliver to the Company all Securities and cash then
owned by the Company and to transfer any Securities held in a Book-Entry System
or Securities Depository to an account of or for the Company. Thereafter, the
Company shall be deemed to be its own custodian with respect to the Company and
the Custodian shall be relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from
time to time by the Company and the Custodian. The fees and other charges in
effect on the date hereof and applicable to the Funds are set forth in Exhibit B
attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
The Company is a corporation organized under the laws of the State of
Maryland. The obligations of the Company entered into in the name of the Company
or on behalf thereof by any of the Directors, officers, employees or agents are
made not individually, but in such capacities, and are not binding upon any of
the Directors, officers, employees, agents or shareholders of the Company or the
Funds personally, but bind only the assets of the Company, and all persons
dealing with any of the Funds of the Company must look solely to the assets of
the Company belonging to such Fund for the enforcement of any claims against the
Company.
16
<PAGE>
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the receipt at the address set forth after its name herein
below:
To the Company:
--------------
The Thurlow Funds, Inc.
1256 Forest Avenue
Palo Alto, CA 94301
Attn: Mr. Thomas F. Thurlow
Telephone: (650) 328-8006
Facsimile: (650) 328-8090
To the Custodian:
----------------
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, OH 45263
Attn: Area Manager - Trust Operations
Telephone: (513) 579-5300
Facsimile: (513) 744-6622
Or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmission by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio.
14.2. References to Custodian. The Company shall not circulate any
printed matter which contains any reference to Custodian without the prior
written approval of Custodian, excepting printed matter contained in the
prospectus or statement of additional information or its registration statement
for the Company and such other printed matter as merely identifies Custodian as
custodian for the Company. The Company shall submit printed matter requiring
approval to Custodian in draft form, allowing sufficient time for review by
Custodian and its counsel prior to any deadline for printing.
17
<PAGE>
14.3. No Waiver. No failure by either party hereto to exercise and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4. Amendments. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
14.5. Counterparts. This Agreement maybe executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6. Severability. If any provision of this Agreement shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired thereby.
14.7. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8. Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its behalf by its
representatives thereunder duly authorized, all as of the day and year first
above written.
ATTEST: THE THURLOW FUNDS, INC.
______________________________ By:/s/ Thomas F. Thurlow
--------------------------------
Its: Thomas F. Thurlow, President
ATTEST: THE FIFTH THIRD BANK
______________________________ By:________________________________
Its:_______________________________
18
<PAGE>
Dated: 3-11 , 1999
-------
EXHIBIT A
TO THE CUSTODY AGREEMENT BETWEEN
THE THURLOW FUNDS, INC.
AND THE FIFTH THIRD BANK
3-11 , 1999
------
Name of Fund Date
- ------------ ----
Thurlow Growth Fund 3-11-99
THE THURLOW FUNDS, INC.
By:/s/ Thomas F. Thurlow
--------------------------------
Its: Thomas F. Thurlow, President
THE FIFTH THIRD BANK
By:________________________________
Its:_______________________________
19
<PAGE>
Dated: 3-11 , 1999
-----
EXHIBIT B
TO THE CUSTODY AGREEMENT BETWEEN
THE THURLOW FUNDS, INC.
AND THE FIFTH THIRD BANK
3-11 , 1999
------
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Company to Administer each Custody Account.
Name Signature
---- ---------
Thomas F. Thurlow /s/ Thomas F. Thurlow
-----------------------------------
Martina Hearn /s/ Martina Hearn
-----------------------------------
- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
20
<PAGE>
SIGNATURE RESOLUTION
--------------------
RESOLVED, That all of the following officers of THE THURLOW FUNDS, INC. and any
of them, namely the Chairman, President, Vice President, Secretary and
Treasurer, are hereby authorized as signers for the conduct of business for and
on behalf of the Funds with THE FIFTH THIRD BANK:
Thomas F. Thurlow CHAIRMAN /s/ Thomas F. Thurlow
------------------------------
Thomas F. Thurlow PRESIDENT /s/ Thomas F. Thurlow
------------------------------
Martina Hearn VICE PRESIDENT /s/ Martina Hearn
------------------------------
________________________ VICE PRESIDENT ______________________________
________________________ VICE PRESIDENT ______________________________
________________________ VICE PRESIDENT ______________________________
________________________ TREASURER ______________________________
________________________ SECRETARY ______________________________
In addition, the following Assistant Treasurer is authorized to sign on behalf
of the Company for the purpose of effecting securities transactions:
________________________ ASSISTANT TREASURER ______________________________
The undersigned officers of THE THURLOW FUNDS, INC. hereby certify that the
foregoing is within the parameters of a Resolution adopted by Directors of the
Company in a meeting held ______________, 1999, directing and authorizing
preparation of documents and to do everything necessary to effect the Custody
Agreement between THE THURLOW FUNDS, INC. and THE FIFTH THIRD BANK.
By:/s/ Thomas F. Thurlow
--------------------------------
Its: Thomas F. Thurlow, President
By:/s/ Martina Hearn
--------------------------------
Its: Martina Hearn, Vice Chairman
21
<PAGE>
FIFTH THIRD BANK
MUTUAL FUND CUSTODY FEE SCHEDULE
THURLOW GROWTH FUND
-------------
PER UNIT
FEE
-------------
II Basic Per Account Fee
Annual Asset Based Fees
---------------------------------------------------------------------
Under $25 Million 1 bp
---------------------------------------------------------------------
$25 - $100 Million .75 bp
---------------------------------------------------------------------
$100 - $200 Million .5bp
---------------------------------------------------------------------
Over $200 Million .25bp
---------------------------------------------------------------------
Minimum $2,400.00
---------------------------------------------------------------------
II Security Transaction Fees
---------------------------------------------------------------------
DTC/Fed Eligible $9.00
---------------------------------------------------------------------
Physical 25.00
---------------------------------------------------------------------
Amortized Securities 25.00
---------------------------------------------------------------------
Options 25.00
---------------------------------------------------------------------
Mutual Funds 15.00
---------------------------------------------------------------------
Foreign - Euroclear & Cedel 50.00
---------------------------------------------------------------------
Foreign - Other TBD
--------------------------------------------------------------------
III Systems
---------------------------------------------------------------------
Automated Securities Workstation $150.00
$200.00 Initial Setup
---------------------------------------------------------------------
Mainframe-To-Mainframe 150.00
$200.00 Initial Setup
---------------------------------------------------------------------
ACCESS Single Account 50.00
Multiple Accounts 100.00
---------------------------------------------------------------------
IV Miscellaneous Fees
---------------------------------------------------------------------
Principal & Interest Collection (on amortized securities) $5.00
---------------------------------------------------------------------
Wire Transfers (In/Out) 7.00
---------------------------------------------------------------------
Check Requests 6.00
---------------------------------------------------------------------
Special Services - per hr. fee 75.00
---------------------------------------------------------------------
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of April, 1999, by and
between The Thurlow Funds, Inc., a registered management investment company (the
"Fund"), and Mutual Shareholder Services LLC ("MSS"), an Ohio corporation.
RECITALS:
A. The Fund is a diversified, open-end management investment company
registered with the United States Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
B. MSS is a corporation experienced in providing accounting services to
mutual funds and possesses facilities sufficient to provide such services; and
C. The Fund desires to avail itself of the experience, assistance and
facilities of MSS and to have MSS perform the Fund certain services appropriate
to the operations of the Fund, and MSS is willing to furnish such services in
accordance with the terms hereinafter set forth.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
1. DUTIES OF MSS.
MSS will provide the Fund with the necessary office space, communication
facilities and personnel to perform the following services for the Fund:
(a) Timely calculate and transmit to NASDAQ the daily net asset value
of each class of shares of each portfolio of the Fund, and communicate such
value to the Fund and its transfer agent;
(b) Maintain and keep current all books and records of the Fund as
required by Rule 31a-1 under the 1940 Act, as such rule or any successor
rule may be amended from time to time ("Rule 31a-1"), that are applicable
to the fulfillment of MSS's duties hereunder, as well as any other
documents necessary or advisable for compliance with applicable regulations
as may be mutually agreed to between the Fund and MSS. Without limiting the
generality of the foregoing, MSS will prepare and maintain the following
records upon receipt of information in proper form from the Fund or its
authorized agents:
o Cash receipts journal
<PAGE>
o Cash disbursements journal
o Dividend record
o Purchase and sales - portfolio securities journals
o Subscription and redemption journals
o Security ledgers
o Broker ledger
o General ledger
o Daily expense accruals
o Daily income accruals
o Securities and monies borrowed or loaned and collateral therefore
o Foreign currency journals
o Trial balances
(c) Provide the Fund and its investment adviser with daily portfolio
valuation, net asset value calculation and other standard operational
reports as requested from time to time.
(d) Provide all raw data available from its fund accounting system for
the preparation by the Fund or its investment advisor of the following:
1. Semi-annual financial statements;
2. Semi-annual form N-SAR;
3. Annual tax returns;
4. Financial data necessary to update form N-1A;
5. Annual proxy statement.
(e) Provide facilities to accommodate annual audit and any audits or
examinations conducted by the Securities and Exchange Commission or any
other governmental or quasi-governmental entities with jurisdiction.
MSS shall for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
2. FEES AND EXPENSES.
(a) In consideration of the services to be performed by MSS pursuant
to this Agreement, the Fund agrees to pay MSS the fees set forth in the fee
schedule attached hereto as Exhibit A.
(b) In addition to the fees paid under paragraph (a) above, the Fund
agrees to reimburse MSS for out-of-pocket expenses or advances incurred by
MSS in connection with the performance of its obligations under this
Agreement. In addition, any other expenses incurred by MSS at the request
or with the consent of the Fund will be reimbursed by the Fund.
2
<PAGE>
(c) The Fund agrees to pay all fees and reimbursable expenses within
five days following the receipt of the respective billing notice.
3. LIMITATION OF LIABILITY OF MSS.
(a) MSS shall be held to the exercise of reasonable care in carrying
out the provisions of the Agreement, but shall not be liable to the Fund
for any action taken or omitted by it in good faith without gross
negligence, bad faith, willful misconduct or reckless disregard of its
duties hereunder. It shall be entitled to rely upon and may act upon the
accounting records and reports generated by the Fund, advice of the Fund,
or of counsel for the Fund and upon statements of the Fund's independent
accountants, and shall not be liable for any action reasonably taken or
omitted pursuant to such records and reports or advice, provided that such
action is not, to the knowledge of MSS, in violation of applicable federal
or state laws or regulations, and provided further that such action is
taken without gross negligence, bad faith, willful misconduct or reckless
disregard of its duties.
(b) Nothing herein contained shall be construed to protect MSS against
any liability to the Fund to which MSS shall otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance of
its duties to the Fund, reckless disregard of its obligations and duties
under this Agreement or the willful violation of any applicable law.
(c) Except as may otherwise be provided by applicable law, neither MSS
nor its stockholders, officers, directors, employees or agents shall be
subject to, and the Fund shall indemnify and hold such persons harmless
from and against, any liability for and any damages, expenses or losses
incurred by reason of the inaccuracy of information furnished to MSS by the
Fund or its authorized agents.
4. REPORTS.
(a) The Fund shall provide to MSS on a quarterly basis a report of a
duly authorized officer of the Fund representing that all information
furnished to MSS during the preceding quarter was true, complete and
correct in all material respects. MSS shall not be responsible for the
accuracy of any information furnished to it by the Fund or its authorized
agents, and the Fund shall hold MSS harmless in regard to any liability
incurred by reason of the inaccuracy of such information.
(b) Whenever, in the course of performing its duties under this
Agreement, MSS determines, on the basis of information supplied to MSS by
the Fund or its authorized agents, that a violation of applicable law has
occurred or that, to its knowledge, a possible violation of applicable law
may have occurred or, with the passage of time, would occur, MSS shall
promptly notify the Fund and its counsel of such violation.
3
<PAGE>
5. ACTIVITIES OF MSS.
The services of MSS under this Agreement are not to be deemed exclusive,
and MSS shall be free to render similar services to others so long as its
services hereunder are not impaired thereby.
6. ACCOUNTS AND RECORDS.
The accounts and records maintained by MSS shall be the property of the
Fund, and shall be surrendered to the Fund promptly upon request by the Fund in
the form in which such accounts and records have been maintained or preserved.
MSS agrees to maintain a back-up set of accounts and records of the Fund (which
back-up set shall be updated on at least a weekly basis) at a location other
than that where the original accounts and records are stored. MSS shall assist
the Fund's independent auditors, or, upon approval of the Fund, any regulatory
body, in any requested review of the Fund's accounts and records. MSS shall
preserve the accounts and records as they are required to be maintained and
preserved by Rule 31a-1.
7. CONFIDENTIALITY.
MSS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all other
information germane thereto, as confidential and not to be disclosed to any
person except as may be authorized by the Fund.
8. TERM OF AGREEMENT.
(a) This Agreement shall become effective as of the date hereof and
shall remain in force for a period of three years; provided, however, that
each party to this Agreement have the option to terminate the Agreement,
without penalty, upon 90 days prior written notice.
(b) Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movements of records and material will be
borne by the Fund. Additionally, MSS reserves the right to charge for any
other reasonable expenses associated with such termination.
9. MISCELLANEOUS.
(a) Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the written consent of the other party.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
(b) The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of Ohio as at the time
in effect and the applicable provisions of the 1940 Act. To the extent that
the applicable law of the State of Ohio, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
(c) This Agreement may be amended by the parties hereto only if such
amendment is in writing and signed by both parties.
4
<PAGE>
(d) This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
(e) All notices and other communications hereunder shall be in
writing, shall be deemed to have been given when received or when sent by
telex or facsimile, and shall be given to the following addresses (or such
other addresses as to which notice is given):
To the Fund: To MSS:
The Thurlow Funds, Inc. Mutual Shareholder Services
1256 Forest Avenue 1301 East Ninth Street, Suite 1005
Palo Alto, CA 94301 Cleveland, OH 44114
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The Thurlow Funds, Inc. Mutual Shareholder Services, LLC.
By: /s/ Thomas F. Thurlow By: /s/ Gregory B. Getts
------------------------------- ---------------------------------
Its: Chairman Its: President
------------------------------- ---------------------------------
5
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of April, 1999, by and
between The Thurlow Funds, Inc., a registered management investment company (the
"Fund"), and Mutual Shareholder Services, an Ohio corporation ("MSS").
RECITALS:
A. The Fund is a diversified, open-end management investment company
registered with the United States Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
B. The Fund desires to appoint MSS as its transfer agent and dividend
disbursing and redemption agent, and MSS desires to accept such appointment.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. DUTIES OF MSS.
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints MSS to act, and MSS agrees to act, as transfer
agent for the Fund's authorized and issued shares of beneficial interest of each
class of each portfolio of the Fund (the "Shares"), and as dividend disbursing
and redemption agent for the Fund.
1.02 MSS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and MSS, MSS shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefore
to the Custodian of the Fund authorized by the Board of Directors of
the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefore to the
Custodian;
<PAGE>
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(viii) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number of shares
of the Fund which are authorized, based upon data provided to it by
the Fund, and issued and outstanding. MSS shall also provide the Fund
on a regular basis with the total number of shares which are
authorized and issued and outstanding and shall have no obligation,
when recording the issuance of shares, to monitor the issuance of such
shares or to take cognizance of any laws relating to the issue or sale
of such shares, which functions shall be the sole responsibility of
the Fund.
(b) In addition, MSS shall perform all of the customary services of a
transfer agent, dividend disbursing and redemption agent, including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, receiving and tabulating proxies, mailing
Shareholder reports and prospectuses to current Shareholders, withholding
taxes on U.S. resident and non-resident alien accounts, preparing and
filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal authorities
for all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder accounts,
preparing and mailing activity statements for Shareholders, and providing
Shareholder account information and provide a system and reports which will
enable the Fund to monitor the total number of Shares sold in each State.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and MSS.
2. FEES AND EXPENSES
2.01 In consideration of the services to be performed by MSS pursuant to
this Agreement, the Fund agrees to pay MSS the fees set forth in the fee
schedule attached hereto as Exhibit "A".
2
<PAGE>
2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees
to reimburse MSS for out-of-pocket expenses or advances incurred by MSS in
connection with the performance of its obligations under this Agreement. In
addition, any other expenses incurred by MSS at the request or with the consent
of the Fund will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage for mailing
of dividends, proxies, Fund reports and other mailings to all shareholder
accounts shall be advanced to MSS by the Fund at least seven days prior to the
mailing date of such materials.
3. REPRESENTATIONS AND WARRANTIES OF MSS
MSS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Ohio.
3.02 It is duly qualified to carry on its business in the State of Ohio.
3.03 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
3.06 MSS is duly registered as a transfer agent under the Securities Act of
1934 and shall continue to be registered throughout the remainder of this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MSS that:
4.01 It is a Corporation duly organized and existing and in good standing
under the laws of Maryland.
4.02 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
4.03 All corporate proceedings required by said charter and By-Laws have
been taken to authorize it to enter into and perform this Agreement.
3
<PAGE>
4.04 It is an open-end and diversified management investment company
registered under the 1940 Act.
4.05 A registration statement under the Securities Act of 1933 is currently
or will become effective and will remain effective, and appropriate state
securities law filings as required, have been or will be made and will continue
to be made, with respect to all Shares of the Fund being offered for sale.
5. INDEMNIFICATION
5.01 MSS shall not be responsible for, and the Fund shall indemnify and
hold MSS harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or attributable
to:
(a) All actions of MSS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in
good faith and without gross negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack good faith, gross
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by MSS or its agents or subcontractors of
information, records and documents which (i) are received by MSS or its
agents or subcontractors and furnished to it by or on behalf of the Fund,
and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by MSS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in
such state.
5.02 MSS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by MSS as a result of MSS's lack of good faith, gross or ordinary negligence
or willful misconduct.
5.03 At any time MSS may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by MSS under this Agreement, and
MSS and its agents or subcontractors shall not be liable and shall be
indemnified by the Fund for any action taken or omitted by it in reliance upon
4
<PAGE>
such instructions or upon the opinion of such counsel. MSS, its agents and
subcontractors shall be protected and indemnified in acting upon any paper or
document furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided MSS or its agents
or subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice of
any change of authority of any person, until receipt of written notice thereof
from the Fund. MSS, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of the Fund, and
the proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.06 Upon the assertion of a claim for which either party may be required
to indemnify the other, the party of seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party advised
with respect to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the party
seeking indemnification the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
6. COVENANTS OF THE FUND AND MSS
6.01 The Fund shall promptly furnish to MSS a certified copy of the
resolution of the Board of Directors of the Fund authorizing the appointment of
MSS and the execution and delivery of this Agreement.
6.02 MSS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.03 MSS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act, as amended, and the Rules thereunder,
MSS agrees that all such records prepared or maintained by MSS relating to the
services to be performed by MSS hereunder are the property
5
<PAGE>
of the Fund and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered promptly to the Fund on and
in accordance with its request.
6.04 MSS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, MSS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. MSS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person, and shall
promptly notify the Fund of any unusual request to inspect or copy the
shareholder records of the Fund or the receipt of any other unusual request to
inspect, copy or produce the records of the Fund.
7. TERM OF AGREEMENT
7.01 This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three years; provided, however, that each party
to this Agreement have the option to terminate the Agreement without penalty,
upon 90 days prior written notice.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, MSS reserves the right to charge for any other
reasonable expenses associated with such termination.
8. MISCELLANEOUS
8.01 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective permitted successors and assigns.
8.02 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
8.03 The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Ohio as at the time in effect and the
applicable provisions of the 1940 Act. To the extent that the applicable law of
the State of Ohio, or any of the provisions here in, conflict with the
applicable provisions of the 1940 Act, the latter shall control.
8.04 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
6
<PAGE>
8.05 All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when received or when sent by telex or
facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To MSS:
The Thurlow Funds, Inc. Mutual Shareholder Services
1256 Forest Avenue 1301 East Ninth Street, Suite 1005
Palo Alto, CA 94301 Cleveland, OH 44114
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Fund: Mutual Shareholder Services, LLC
The Thurlow Funds, Inc.
(Name of Fund)
By: /s/ Thomas F. Thurlow By: /s/ Gregory B. Getts
------------------------------- ------------------------------
Its: Chairman Its: President
------------------------------- ------------------------------
7
FOLEY & LARDNER
Attorneys At Law
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
EMAIL ADDRESS CLIENT/MATTER NUMBER
045087/0101
September 1, 1999
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,
/s/ FOLEY & LARDNER
Foley & Lardner
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to all references to our
firm, included in or made a part of Registration Statement 333-27581 on Form
N-1A of The Thurlow Funds, Inc.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
August 30, 1999
CONSENT OF
----------
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
----------------------------------------
The Thurlow Growth Fund, Inc.
Palo Alto, California
We hereby consent to the use in this Post-Effective Amendment No. 3 to the
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940, both on Form N-1A, of our report dated August 13, 1999,
accompanying and pertaining to the financial statements of the Thurlow Growth
Fund as of June 30, 1999, which is included in such Post-Effective Amendment.
/s/ Baird Kurtz & Dobson
Kansas City, Missouri
August 30, 1999
