SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _1_ [X]
Post-Effective Amendment No. __ [_]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 [X]
Amendment No. _1_ [X]
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LABRADOR MUTUAL FUND
(formerly named "Labrador Fund")
(Exact name of registrant as specified in charter)
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2344 Corte De La Jara, Pleasanton, California 94566
(Address of principal executive offices)
Registrant's Telephone Number: 510-461-1848
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Peter Allen Schuh, 2344 Corte De La Jara, Pleasanton,
California 94566
(Name and address of agent for service)
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Approximate date of proposed public offering: As soon as
practicable after the effective date of the Registration
Statement.
The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
LABRADOR MUTUAL FUND
FORM N-1A CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
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<TABLE>
<CAPTION>
Item in Part A of Form N-1A Location in Prospectus
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<S> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Fund
Expenses
3. Condensed Financial Information Not Applicable
4. General Description of Cover Page; General
Registrant Information
5. Management of the Fund Management Services
5A. Managers Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other General Information
Securities
7. Purchase of Securities How to Buy Shares;
Being Offered Distribution and
Shareholder Servicing
Plan
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
Item in Part B of Form N1-A Location In Statement
of
Additional Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and General Information;
History General Information
(Prospectus)
13. Investment Objectives Investment Objective
and
and Policies Policies
14. Management of the Registrant Management
15. Control Persons and Principal Trustees and Officers
Holders of Securities (Prospectus)
16. Investment Advisory and Management
Other Services
17. Brokerage Allocation Portfolio Transactions;
Distribution and
Shareholder Servicing
Plan
18. Capital Stock and Other General Information;
Securities General Information
(Prospectus)
19. Purchase, Redemption and Redemption of Fund
Pricing of Securities Shares
Being offered How to Buy Shares
(Prospectus); How to
Redeem Shares
(Prospectus) Valuation
20. Tax Status Dividends,
Distributions
and Taxes (Prospectus)
21. Underwriters General Information
22. Calculation of Performance Not Applicable
Data
23. Financial Statements Financial Statements
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO
BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BY ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
LABRADOR MUTUAL FUND
2344 Corte De La Jara
Pleasanton, California 94566
Telephone: 510.461.1848
February ___, 1998
Labrador Mutual Fund, (the "fund") is a mutual fund
that invests principally in common stocks, or securities
convertible into common stock, of companies which, in the
opinion of the fund's management, not only meet traditional
investment standards, but also show evidence that they are
high quality companies that conduct their business in a
socially responsible manner. Investment advisory and
management services are provided to the Fund by Labrador
Investment Advisors, Inc. (the "Manager"). For a description
of the Fund's investment objective and policies, including the
risk factors associated with an investment in the Fund, see
"Investment Objective, Policies And Risks." There can be no
assurance that the Fund's investment objective will be
achieved.
This Prospectus sets forth concisely the information
a prospective investor should know about the Fund before
investing. Please read it carefully before you invest and keep
it for future reference. Additional information about the
Fund, including a Statement of Additional Information, has
been filed with the Securities and Exchange Commission. The
Statement of Additional Information is available upon request
and without charge by calling or writing the Fund at the
telephone number or the address set forth above. The Statement
of Additional Information is dated the same date as this
Prospectus and is incorporated herein by reference in its
entirety.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Summary of Fund Expenses............................
Investment Objective, Policies and Risks............
Management Services.................................
How to Buy Shares...................................
How to Redeem Shares................................
Distribution and Shareholder Servicing Plan.........
Dividends, Distributions and Taxes..................
Systematic Investment Plan..........................
Advertising the Fund's Performance..................
General Information.................................
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................... None
Redemption Fee (as a percentage of the amount
subject to charge)........................ None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Management Fees (after fee waiver)*.........1.35%**
12b-1 Fees***............................... .25%
Other Expenses*............................. 1.00%
Total Fund Operating Expenses (after fee waiver)*... 2.60%
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming
(1) 5% annual return and (2) redemption at the end of
each time period:
1 YEAR............................................... $26
3 YEARS.............................................. $81
EXAMPLE
You would pay the following expenses on the same
investment, assuming no redemption:
1 YEAR............................................... $26
3 YEARS.............................................. $81
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* Based on estimated expenses for the current fiscal
year. The Manager has undertaken, until such time as it gives
investors 60 days notice to the contrary, to waive its
investment advisory fee to the extent Total Fund Operating
Expenses (other than interest, taxes, brokerage fees and
extraordinary items) exceed 2.60%, except that the amount of
such obligation will not exceed the amount of fees received by
the Manager for the applicable period. Without such waiver,
Management Fees stated above would be 1.35%, 12b-1
Distribution Fees would be .25%, Other Expenses would be 1.00%
and Total Fund Operating Expenses would be 2.60%.
** The Management Fee is payable at an annual rate equal
to 1.35% of the Fund's average daily net assets, subject to
increase by up to 0.35% annually depending on the Fund's
performance. See "Management Services."
*** Pursuant to the Rules of the National Association of
Securities Dealers, Inc., the aggregate annual distribution
fees on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. The 6.25% limitation is
imposed on the Fund rather than on a per shareholder basis.
Therefore, a long-term shareholder of the Fund may pay more in
distribution fees than the economic equivalent of 6.25% of
such shareholder's investment in such shares.
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE
EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5%.
The purpose of the foregoing table is to assist you in
understanding the various costs and expenses that investors
will bear, directly or indirectly, the payment of which will
reduce investors' return on an annual basis. Other Expenses
and Total Fund Operating Expenses are based on estimated
amounts for the current fiscal year. In addition to the
expenses noted above, the Fund will charge $15.00 for each
wire redemption. See "How to Redeem Shares." For a further
description of the various costs and expenses incurred in the
Fund's operation, as well as expense reimbursement or waiver
arrangements, see "Management Services."
INVESTMENT OBJECTIVE, POLICIES AND RISKS
INVESTMENT OBJECTIVES - The Fund's primary goal is to provide
capital growth through equity investment in companies that, in
the opinion of the Fund's management, not only meet
traditional investment standards but which also show evidence
that they are high quality companies that conduct their
business in a socially responsible manner. Current income is
secondary to the primary goal. There can be no assurances that
the Fund's investment objectives will be achieved.
SPECIAL CONSIDERATIONS - TYPES OF COMPANIES SOUGHT FOR
INVESTMENT - To assess whether a company is a high quality
company that conducts its business in a socially responsible
manner, the Fund considers a company's record in the areas of
(1) consumer protection and product safety, (2) protection and
improvement of the environment and the proper use of natural
resources, (3) equal employment opportunity, and (4)
occupational health and safety. For example, consistent with
its consumer protection screen, the Fund will not purchase
shares in a company which manufactures tobacco products,
produces hard liquor, manufactures or distributes pornography
or involves itself in organized gambling. There are few generally
accepted measures of achievement in these areas. The development
of suitable measurement techniques, therefore, will be largely
within the discretion and judgment of the management of the Fund.
Management does not intend at present to evaluate in depth a
company's activities not directly connected with the conduct
of its business (such as participation in community improvement
projects) or the secondary implications of corporate activities
(for example, in examining banks, the business activities of
their borrowers will not be evaluated).
The Fund's special considerations tend to limit the
availability of investment opportunities more than is
customary with other investment companies. Management
believes, however, that there are sufficient investment
opportunities among companies which meet the Fund's special
considerations to permit full investment, if management
believes it desirable, in securities which meet the Fund's
primary investment objective of capital growth through equity
investment.
The Fund's objectives and special considerations
described above cannot be changed without approval by the
holders of a majority, as defined in the Investment Company
Act of 1940, as amended (the "Act"), of the Fund's outstanding
voting shares.
The Fund's Board of Directors may adopt additional
criteria or restrictions governing the Fund's investments if
the Board of Directors determines that the new criteria or
restrictions are consistent with the Fund's objective of
investing in a socially responsible manner, but the Board may
not change the four existing special considerations described
above without shareholder approval.
THE INVESTMENT SELECTION PROCESS - Potential investment
portfolio selections (based on traditional investment
considerations, including an opinion of the fundamental value
of the security and other market factors) are designated to
the research staff. The staff begins a process of searching
publicly available information about the company to determine
its record in the areas of special concern to the Fund.
Researchers use commercially available computer data bases and
reviews and evaluations published or made available by
"watchdog" groups whose interests focus on one or more of the
special areas, such as the environment, as applicable.
Additional data may be obtained, where practical, from local,
state and federal agencies which maintain surveillance in
certain areas of interest to the Fund and which provide this
data to the public.
If the initial evaluation reveals no negative pattern
in the areas of special concern to the Fund, a company's
securities are eligible for purchase.
If it is determined at any stage that purchase or
retention of the portfolio security is not consistent with the
Fund's goal of investing in companies that are high quality
companies that conduct their business in a socially
responsible manner, the security will not be purchased or, if
already purchased, will be sold as expeditiously as possible,
consistent with the best interests of the Fund.
The Manager will review new portfolio acquisitions in
light of the Fund's special concerns at their next regular
meeting. While the Manager will disqualify a company
evidencing a pattern of conduct that is inconsistent with the
Fund's special standards, the Manager need not disqualify a
company on the basis of incidents that, in the Manager's
judgment, does not reflect the company's policies and overall
current level of performance in the areas of special concern
to the Fund. The performance of companies in the areas of
special concern are reviewed regularly to determine their
continued eligibility.
MANAGEMENT POLICIES - Depending on market conditions, the Fund
attempts to be invested fully in common stock, or securities
convertible into common stock, which meet both traditional
investment standards and the Fund's investment criteria
described under "Types of Companies Sought for Investment."
As a fundamental policy, the Fund is permitted to
borrow to the extent permitted under the Act. However, the
Fund currently intends to borrow money only for temporary or
emergency (not leveraging) purposes, in an amount up to 15% of
the value of the Fund's total assets (including the amount
borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time
the borrowing is made. While borrowings exceed 5% of the
Fund's total assets, the Fund will not make any additional
investments.
The Fund may invest up to 5% of the value of its net
assets in securities which are illiquid securities, provided
such investments are consistent with the Fund's investment
objective. Illiquid securities are securities which are not
readily marketable, such as certain securities that are
subject to legal or contractual restrictions on resale,
repurchase agreements providing for settlement in more than
seven days after notice, and certain options traded in the
over-the-counter market and securities used to cover such
options. Investment in illiquid securities subjects the Fund
to the risk that it will not be able to sell such securities
when it may be opportune to do so.
During periods in which management believes adverse
trends are occurring in the financial markets or the economy,
the Fund may adopt a temporary defensive posture to preserve
shareholders' capital by investing in U.S. Government
securities, and also in corporate bonds, high grade commercial
paper, repurchase agreements, time deposits, bank certificates
of deposit, bankers' acceptances and other short-term bank
obligations issued in this country as well as those issued in
dollar denominations by the foreign branches of U.S. banks,
and cash or cash equivalents, without limit as to amount, as
long as such investments are made in securities of eligible
companies and domestic banks. When the Fund has adopted a
temporary defensive posture, the entire portfolio can be so
invested. During such periods, the Fund may not achieve its
investment objectives.
Repurchase agreements involve the acquisition by the
Fund of an underlying debt instrument subject to an obligation
of the seller to repurchase, and the Fund to resell, the
instrument at a fixed price, usually not more than one week
after its purchase. The Fund's custodian will have custody of,
and will hold in a segregated account, securities acquired by
the Fund under a repurchase agreement. Repurchase agreements
are considered by the staff of the Securities and Exchange
Commission to be loans by the Fund. In an attempt to reduce
the risk of incurring a loss on a repurchase agreement, the
Fund will enter into repurchase agreements only with domestic
banks with total assets in excess of one billion dollars or
primary government securities dealers reporting to the Federal
Reserve Bank of New York with respect to securities of the
type in which the Fund may invest, and the Fund will require
that additional securities be deposited with its custodian if
the value of the securities purchased should decrease below
resale price. The Manager will monitor on an ongoing basis the
value of the collateral to assure that it always equals or
exceeds the repurchase price. Certain costs may be incurred by
the Fund in connection with the sale of the securities if the
seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings
are commenced with respect to the seller of the securities,
realization on the securities by the Fund may be delayed or
limited. The Fund will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into
repurchase agreements.
Certificates of deposit are negotiable certificates
evidencing the obligation of a bank to repay funds deposited
with it for a specified period of time.
Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time (in no
event longer than seven days) at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit
Insurance Corporation.
Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the
bank and of the drawer to pay the full amount of the
instrument upon maturity. The other short-term obligations may
include uninsured, direct obligations bearing fixed, floating
or variable interest rates.
To earn additional income on its portfolio, the Fund
may sell covered call option contracts on securities it owns
to the extent of 20% of the value of its net assets at the
time such option contracts are written. A call option gives
the purchaser of the option the right to buy, and obligates
the writer to sell, the underlying security at the exercise
price at any time during the option period. A covered call
option sold by the Fund, which is a call option on a security
owned by the Fund, exposes the Fund during the term of the
option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or to possible
continued holding of a security which might otherwise have
been sold to protect against depreciation in the market price
of the security. The Fund may also purchase call and put option
contracts. A purchased call allows the Fund to acquire a certain
security at a specified price, during the life of the option
contract.
A put option allows the Fund to sell a certain security
at a specified price, during the life of the option contract.
The amount of money paid for the option, the premium, is
non-refundable, and may expose the Fund to loss of the premium.
A more detailed description of the securities in which
the Fund may invest can be found in the Statement of
Additional Information.
The Fund may invest in companies with substantial
overseas activities, but, at present, management will not
examine corporate activities carried on outside the United
States.
CERTAIN FUNDAMENTAL POLICIES - The Fund may (i) borrow money
to the extent permitted under the Act, which currently limits
borrowing to no more than 33 1/3% of the value of the Fund's
total assets; (ii) invest up to 5% of the value of its total
net assets in the securities of any one issuer (except
securities of the U.S. Government or any instrumentality
thereof); (iii) invest in companies having less than three
years continuous operating history (including that of
predecessors) but only in an amount up to 5% of the value of
its net assets; and (iv) invest up to 25% of the value of its
total assets in any single industry. This paragraph describes
fundamental policies of the Fund which cannot be changed without
approval by the holders of a majority (as defined in the Act) of
the Fund's outstanding voting shares. See "Investment Objectives
and Management Policies-Investment Restrictions" in the Fund's
Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES - The Fund may (i)
pledge, hypothecate, mortgage or otherwise encumber its
assets, but only to secure permitted borrowings; and (ii)
invest up to 5% of the value of its net assets in repurchase
agreements providing for settlement in more than seven days
after notice and in other illiquid securities. See "Investment
Objectives and Management Policies - Investment Restrictions"
in the Fund's Statement of Additional Information.
INVESTMENT CONSIDERATIONS - The Fund will not seek to realize
profits by anticipating short-term market movements. When market
conditions permit, the Fund generally intends to retain
securities for at least the statutory long-term capital gain
period. The annual portfolio turnover rate indicates the rate
of change in the Fund's portfolio; for instance, a rate of
100% would result if all the securities in the portfolio at
the beginning of an annual period had been replaced by the end
of the period. While the rate of portfolio turnover will not
be a limiting factor when management deems changes
appropriate, it is anticipated that, in view of the Fund's
investment objectives, its annual portfolio turnover rate
generally should not exceed 50%. When extraordinary market
conditions prevail, a higher turnover rate and increased
brokerage expenses may be expected.
CHANGES IN INVESTMENT POLICIES. Except as noted
below, the foregoing investment policies are not fundamental
and the Fund's Board of Trustees may change such policies
without the vote of a majority of the Fund's outstanding
voting securities. The Board will not change the Fund's
investment objective of seeking to produce capital
appreciation without such a vote. A more detailed description
of the Fund's investment policies, including a list of those
restrictions on the Fund's investment activities which cannot
be changed without such a vote, appears in the Statement of
Additional Information.
MANAGEMENT SERVICES
THE MANAGER. The Board of Trustees provides broad
supervision over the affairs of the Fund. Pursuant to a
Management Agreement between the Fund and Labrador Investment
Advisors, Inc. (the "Manager") and subject to the authority of
the Board of Trustees, the Manager manages the investments of
the Fund and is responsible for the overall management of the
business affairs of the Fund. The address of the Manager is
2344 Corte De La Jara, Pleasanton, California 94566. The
Manager has no previous experience in advising a mutual fund.
The Manager was founded in September 1997 by Peter
Allen Schuh and Allen John Schuh. Peter Allen Schuh, the
Chairman of the Board, President, Secretary and Treasurer of
the Fund, is the Chairman of the Board and President of the
Manager. Peter Allen Schuh is a co-portfolio manager of the
Fund. Peter Allen Schuh holds a B.S. degree from California
Polytechnic State University, San Luis Obispo. Peter Allen
Schuh has co-authored several articles. Peter Allen Schuh
worked at Merrill Lynch before starting Labrador Investment
Advisors, Inc.
Allen John Schuh, the vice-president of the Fund, is
also the vice-president of the Manager and co-portfolio
manager of the Fund. Allen John Schuh is currently a
professor in the Department of Management & Finance at the
California State University at Hayward. Allen John Schuh
holds an A.B. degree from San Diego State University, a M.A.
degree from the University of California, Berkeley, and a
Ph.D. from The Ohio State University. Allen John Schuh has
authored several dozen articles and papers dealing with
decision theory, investing and related management issues. He
has a management textbook in its fourth edition. His previous
experience was with the accounting firm Ernst & Ernst, active
duty with the United States Navy, and Lecturer at Old Dominion
University. He has had many consulting assignments in his 30
year professional career. Professional memberships include;
The Academy of Management, The Institute for Operations
Research and The Management Sciences, The American
Psychological Association and The American Psychological
Society.
MANAGEMENT FEES. Under the terms of the Management
Agreement, the Fund has agreed to pay the Manager a base
monthly management fee at the annual rate of 1.35% of the
Fund's average daily net assets (the "Base Fee") which will be
adjusted monthly (the "Monthly Performance Adjustment")
depending on the extent by which the investment performance of
the Fund, after expenses, exceeded the percentage change of
the S&P 500 Index. Under terms of the Management Agreement,
the monthly performance adjustment may increase the total
management fee payable to the Manager (the "Total Management
Fee") by up to .35% annual rate per year of the value of the
Fund's average daily net assets.
The monthly Total Management Fee is calculated as
follows: (a) one-twelfth of 1.35% annual Base Fee rate
(0.1125%) is applied to the Fund's average daily net assets
over the most recent calendar month, giving a dollar amount
which is the Base Fee for that month; (b) one-twelfth of the
applicable performance adjustment rate from the table below is
applied to the Fund's average daily net assets over the most
recent calendar month, giving a dollar amount which is the
Monthly Performance Adjustment (for the first twelve-month
period no performance adjustment will be made); and (c) the
Monthly Performance Adjustment is then added to the Base Fee
and the result is the amount payable by the Fund to the
Manager as the Total Management Fee for that month.
The full range of Total Management Fee on an
annualized basis is as follows:
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PERCENTAGE POINT DIFFERENCE BETWEEN FUND
PERFORMANCE (NET OF EXPENSES INCLUDING PERFORMANCE
ADVISORY FEES) AND PERCENTAGE CHANGE IN ADJUSTMENT
THE S&P 500 INDEX BASE FEE (%) RATE (%) TOTAL FEE (%)
- - -----------------------------------------------------------
+2.00 percentage points or more... 1.35% .35% 1.70%
The period over which performance is measured is a rolling
twelve-month period and the performance of the S&P 500 Index
is calculated as the sum of the change in the level of the S&P
500 Index during the period.
Because the maximum Monthly Performance Adjustment
for the Fund applies whenever the Fund's performance exceeds
the S&P 500 Index by 2.00% or more, the Manager could receive
a maximum Monthly Performance Adjustment even if the
performance of the Fund is negative. In 1972, the SEC issued
Release No. 7113 under the Investment Company Act (the
"Release") to call the attention of directors and investment
advisers to certain factors which must be considered in
connection with investment company incentive fee arrangements.
One of these factors is to "avoid basing significant fee
adjustments upon random or insignificant differences" between
the investment performance of a fund and that of the
particular index with which it is being compared. The Release
provides that "preliminary studies (of the SEC staff) indicate
that as a 'rule of thumb' the performance difference should be
at least +/-10 percentage points" annually before the maximum
performance adjustment may be made. However, the Release also
states that "because of the preliminary nature of these
studies, the Commission is not recommending, at this time,
that any particular performance difference exist before the
maximum fee adjustment may be made." The Release concludes
that the directors of a fund "should satisfy themselves that
the maximum performance adjustment will be made only for
performance differences that can reasonably be considered
significant." The Board of Trustees has fully considered the
Release and believes that the performance adjustments are
entirely appropriate although not within the +/-10 percentage
points per year range suggested by the Release.
EXPENSES. All expenses incurred in the operation of
the Fund will be borne by the Fund, except to the extent
specifically assumed by the Manager. The expenses to be borne
by the Fund will include: organizational costs, taxes,
interest, brokerage fees and commissions, fees of board
members who are not officers, directors or employees of the
Manager or its affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory,
administrative and fund accounting fees, charges of
custodians, transfer and dividend disbursing agents' fees,
insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining the Fund's
existence, costs of independent pricing services, costs
attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, costs of preparing and
printing prospectuses and statements of additional
information, amounts payable under the Fund's Distribution and
Shareholder Servicing Plan (the "Plan") and any extraordinary
expenses.
The Manager has undertaken, until such time as it
gives investors 60 days' notice to the contrary, to waive its
Management Fee in the amount, if any, by which the total
expenses of the Fund for any fiscal year, including
amortization of organizational expenses and amounts paid by
the Fund under the Plan, exceed 2.60% of average annual net
assets of the Fund, except that the amount of such fee waiver
shall not exceed the amount of fees received by the Manager
under the Management Agreement for such fiscal year. The fee
waiver, if any, will be on a monthly basis, subject to year-
end adjustment. Interest expenses, taxes, brokerage fees and
commissions, and extraordinary expenses are not included as
expenses for these purposes.
PORTFOLIO TRANSACTIONS. The Management Agreement recognizes
that in the purchase and sale of portfolio securities,
the Manager will seek the most favorable price and
execution, and, consistent with that policy, may give
consideration to the research, statistical and other services
furnished by brokers or dealers to the Manager. The use of
brokers who provide investment and market research and
securities and economic analysis may result in higher
brokerage charges than the use of brokers selected on the
basis of the most favorable brokerage commission rates and
research and analysis received may be useful to the Manager in
connection with its services to other clients as well as to
the Fund. In over-the-counter markets, orders are placed with
responsible primary market makers unless a more favorable
execution or price is believed to be obtainable.
PORTFOLIO TURNOVER. A change in securities held by the
Fund is known as "portfolio turnover" which may result in
the payment by the Fund of dealer spreads or underwriting
commissions and other transaction costs on the sale of
securities as well as on the reinvestment of the proceeds in
other securities. Although it is the policy of the Fund to
hold securities for investment, changes in the securities held
by the Fund will be made from time to time when the Manager
believes such changes will strengthen the Fund's portfolio. It
is estimated that the portfolio turnover of the Fund generally
will not exceed 50%.
CUSTODIAN AND TRANSFER AGENT. Star Bank, N.A., 425 Walnut
Street, M.L. 6118, P.O. Box 1118, Cincinnati, Ohio
45201-1118 is the Fund's custodian. American Data Services,
Inc., Hauppauge Corporate Center, 150 Motor Parkway, Suite 109
Hauppauge, New York 11788 is the Fund's transfer agent and
dividend disbursing agent (the "Transfer Agent").
HOW TO BUY SHARES
GENERAL. The minimum initial investment is $1,000 ($500
for IRA's). Subsequent investments ordinarily must be
at least $50. The Fund reserves the right to reject any
purchase order. The Fund reserves the right to vary or waive
the initial and subsequent investment minimum requirements at
any time.
Purchase orders received in proper form before the
close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., New York time) on any day the Fund
calculates its net asset value are priced according to the net
asset value determined on that date. Purchase orders received
in proper form after the close of trading on the New York
Stock Exchange are priced as of the time the net asset value
is next determined.
INITIAL PURCHASE.
By Mail -- You may purchase shares of the Fund by
completing and signing the application form which accompanies
this Prospectus and mailing it, in proper form, together with
a check (subject to the above minimum amounts) made payable to
Labrador Mutual Fund, and sent to the P.O. Box listed below.
If you prefer overnight delivery, use the overnight address
listed below.
Overnight:
U.S. mail: Labrador Mutual Fund
P.O. Box ________
_________________________
By Wire -- You may also purchase shares of the Fund
by wiring federal funds from your bank, which may charge you a
fee for doing so. If money is to be wired, you must call
American Data Services, Inc., the Fund's Transfer Agent, at
____________ to set up your account and obtain an account
number. You should be prepared to provide the information on
the application form to the Transfer Agent. Then, you should
provide your bank with the following information for purposes
of wiring your investment:
Star Bank, N.A. Cinti/Trust
ABA #____________
Attn: Labrador Mutual Fund
D.D.A. #
Account Name
___________________________________________
(write in account registration name)
For the Account #
_____________________________________________
(write in account # assigned by Transfer Agent)
You are required to mail a signed application to the Transfer
Agent at the following address in order to complete your
initial wire purchase:
Labrador Mutual Fund
c/o American Data Services, Inc.
Hauppauge Corporate Center
150 Motor Parkway
Suite 109
Hauppauge, New York 11788
Wire orders will be accepted only on a day on which the Fund
and the Custodian and Transfer Agent are open for business. A
wire purchase will not be considered made until the wired
money is received and the purchase is accepted by the Fund.
Any delays which may occur in wiring money, including delays
which may occur in processing by the banks, are not the
responsibility of the Fund or the Transfer Agent. There is
presently no fee for the receipt of wired funds, but the right
to charge shareholders for this service is reserved by the
Fund.
ADDITIONAL INVESTMENTS. You may purchase additional shares
of the Fund at any time (minimum of $50) by mail or
wire. Each additional mail purchase request must contain the
additional investment portion of your shareholder statement or
a letter containing your name, the name of your account, your
account number and the name of the Fund. Checks should be made
payable to Labrador Mutual Fund and should be sent to the
Custodian as set forth above under "INITIAL PURCHASE - By
Mail". A bank wire should be sent as set forth above under
"INITIAL PURCHASE - By Wire".
PURCHASES THROUGH PROCESSING ORGANIZATIONS. Shares of
the Fund may also be purchased through a "Processing
Organization," which is a broker-dealer, bank or other
financial institution that purchases shares for its customers.
When shares are purchased this way, the Processing
Organization, rather than its customer, may be the shareholder
of record of the shares. Such shares may be transferred into
the investor's name following procedures established by the
Processing Organization and the Transfer Agent. The minimum
initial and subsequent investments in the Fund for
shareholders who invest through a Processing Organization
generally will be set by the Processing Organization.
Processing Organizations may also impose other charges and
restrictions in addition to or different from those applicable
to investors who remain the shareholder of record of their
shares. Certain Processing Organizations may receive
compensation from the Manager pursuant to the Fund's
Distribution and Shareholder Servicing Plan. An investor
contemplating investing with the Fund through a Processing
Organization should read materials provided by the Processing
Organization in conjunction with this Prospectus.
TAX SHELTERED RETIREMENT PLANS. Since the Fund is
oriented to longer term investments, shares of the Fund may be
an appropriate investment medium for tax sheltered retirement
plans, including: individual retirement plans (IRAs);
simplified employee pensions (SEPs); 401(k), 403(b) plans;
Keogh (HR-10) Plans, qualified corporate pension and profit
sharing plans (for employees); tax deferred investment plans
(for employees of public school systems and certain types of
charitable organizations); and other qualified retirement
plans. You should contact the Transfer Agent for the procedure
to open Such plans, as well as more specific information
regarding these retirement plan choices. Consultation
with an attorney or tax adviser regarding these plans
is advisable. Custodial fees and other processing fees
for an IRA will be paid by the shareholder by redemption of
sufficient shares of the Fund from the IRA unless the fees are
paid directly to the IRA custodian. You can obtain information
about IRA fees by calling the Transfer Agent at
______________.
AUTOMATIC INVESTMENT OPTION. Please see "SYSTEMATIC
INVESTMENT PLAN" below.
PURCHASE OF FUND SHARES WITH COMPATABLE SECURITIES.
At the discretion of the Manager, an investor may submit
securities in exchange for Labrador Mutual Fund shares,
provided the stocks submitted meet all of the criteria of the
Fund's portfolio at that time. Prior approval of such
exchange is required.
NET ASSET VALUE. Shares of the Fund are sold on a continuous
basis. Net asset value per share is determined as of the
close of regular trading on the floor of the New York
Stock Exchange (currently 4:00 p.m., New York time) on each
business day. The net asset value per share of the Fund is
computed by dividing the value of the Fund's net assets by the
total number of shares of the Fund outstanding. The Fund's
investments are valued based on market value or, where market
quotations are not readily available, based on fair value as
determined in good faith by, or in accordance with procedures
established by, the Fund's Board of Trustees.
ADDITIONAL INFORMATION. Federal regulations require
that investors provide a certified Taxpayer Identification
Number (a "TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes." Failure to furnish a
certified TIN to the Fund could subject the investor to a $50
penalty imposed by the Internal Revenue Service (the "IRS").
Dividends begin to accrue after you become a
shareholder. The Fund does not issue share certificates. All
shares are held in non-certificate form registered on the
books of the Fund's Transfer Agent for the account of the
shareholder. The rights to limit the amount of purchases and
to refuse to sell to any person are reserved by the Fund. If
your check or wire does not clear, you will be responsible for
any loss incurred. If you are already a shareholder, the Fund
can redeem shares from any identically registered account in
the Fund as reimbursement for any loss incurred. You may be
prohibited or restricted from making future purchases in the
Fund.
HOW TO REDEEM SHARES
GENERAL. Investors may request redemption of Fund
shares at any time. Redemption requests may be made as
described below. When a request is received in proper form,
the Fund will redeem the shares at the next determined net
asset value.
The Fund ordinarily will make payment for all shares
redeemed within three days after receipt by the Transfer Agent
of a redemption request in proper form, except as provided by
the rules of the Securities and Exchange Commission. However,
if an investor has purchased Fund shares by check and
subsequently submits a redemption request, the redemption
proceeds will not be transmitted until the check used for
investment has cleared, which may take up to 15 days. This
procedure does not apply to shares purchased by wire payment.
The Fund reserves the right to redeem investor
accounts at its option upon not less than 60 days' written
notice if the account's net asset value is $500 ($250 for
IRA's) or less, for reasons other than market conditions, and
remains so during the notice period.
REDEMPTION PROCEDURES. Shareholders who wish to redeem
shares must do so through the Transfer Agent by mail or
telephone.
By Mail -- Redemption requests by mail must include
your letter of instruction (including Fund name, account
number, account name(s), address and the dollar amount or
number of shares you wish to redeem) and should be addressed
to:
Labrador Mutual Fund
c/o American Data Services, Inc.
Hauppauge Corporate Center
150 Motor Parkway
Suite 109
Hauppauge, New York 11788
By Telephone -- Shareholders that have elected the
telephone redemption option on the shareholder application
form may make a telephone redemption request by calling the
Transfer Agent at __________. The Transfer Agent may act on
telephone instructions from any person representing himself or
herself to be a shareholder and reasonably believed by the
Transfer Agent to be genuine. The Fund will require the
Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such
procedures, the Transfer Agent or the Fund may be liable for
any losses due to unauthorized or fraudulent instructions.
Neither the Fund nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market
conditions, investors may experience difficulty in contacting
the Transfer Agent by telephone to request a redemption of
Fund shares. In such cases, investors should consider using
the other redemption procedures described herein. Use of these
other redemption procedures may result in the redemption
request being processed at a later time than it would have
been if telephone redemption had been used. During the delay,
the Fund's net asset value may fluctuate.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. A shareholder
may have redemption proceeds of $500 or more wired
to the shareholder's brokerage account or a commercial bank
account designated by the shareholder. A transaction fee of
$_____will be charged for payments by wire. Questions about
this option, or redemption requirements generally, should be
referred to the Transfer Agent at ______________.
Written redemption instructions must be received by
the Transfer Agent in proper form and signed exactly as the
shares are registered. All signatures must be guaranteed. The
Transfer Agent has adopted standards and procedures pursuant
to which signature guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions,
national securities exchanges, registered securities
associations, clearing agencies and savings associations, as
well as from participants in the New York Stock Exchange
Medallion Signature Program, the Stock Exchange Medallion
Program and the Securities Transfer Agents Medallion Program
("STAMP"). Such guarantees must be signed by an authorized
signatory thereof with "Signature Guaranteed" appearing with
the shareholder's signature. If the signature is guaranteed by
a broker or dealer, such broker or dealer must be a member of
a clearing corporation and maintain net capital of at least
$100,000. Signature-guarantees may not be provided by notaries
public. Redemption requests by corporate and fiduciary
shareholders must be accompanied by appropriate documentation
establishing the authority of the person seeking to act on
behalf of the account.
Investors may obtain from the Fund or the Transfer Agent
forms of resolutions and other documentation which have been
prepared in advance to assist compliance with the Fund's
procedures. Any questions with respect to signature guarantees
should be directed to the Transfer Agent by calling
_____________.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
Under a plan adopted by the Fund's Board of Trustees
pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), the
Fund pays the Manager a shareholder servicing and distribution
fee at the annual rate of .25% of the average daily net assets
of the Fund. Such fee will be used in its entirety by the
Manager to make payments for administration, shareholder
services and distribution assistance, including, but not
limited to (i) compensation to securities dealers and other
organizations (each, a "Service Organization" and
collectively, the "Service Organizations"), for providing
distribution assistance with respect to assets invested in the
Fund, (ii) compensation to Service Organizations for providing
administration, accounting and other shareholder services with
respect to Fund shareholders, and (iii) otherwise promoting
the sale of shares of the Fund, including paying for the
preparation of advertising and sales literature and the
printing and distribution of such promotional materials to
prospective investors. The fees paid to the Manager under the
Plan are in addition to the fees payable under the Management
Agreement and are payable without regard to actual expenses
incurred. The Fund understands that third parties also may
charge fees to their clients who are beneficial owners of Fund
shares in connection with their client accounts. These fees
would be in addition to any amounts which may be received by
them from the Manager under the Plan.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily pays dividends from its net
investment income and distributes net realized securities
gains, if any, once a year, but it may make distributions on a
more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent
with the provisions of the 1940 Act. Dividends are
automatically reinvested in additional Fund shares at net
asset value, unless the shareholder has elected to receive
payment in cash. All expenses are accrued daily and deducted
before declaration of dividends to investors.
Dividends derived from net investment income,
together with distributions from net realized short-term
securities gains, paid by the Fund will be taxable to U.S.
shareholders as ordinary income for Federal income tax
purposes. Distributions from net realized long-term securities
gains of the Fund will be taxable to U.S. shareholders as
long-term capital gains for Federal income tax purposes.
Dividends and distributions also may be subject to state and
local taxes. The Fund's distributions are taxable in the year
paid, regardless of whether they are received in cash or
reinvested in additional shares of the Fund, except that
certain distributions declared in the last three months of the
year and paid in January are taxable as if paid on December
31.
Notice as to the tax status of investors' dividends
and distributions will be mailed to them annually. Investors
also will receive periodic summaries of their accounts which
will include information as to dividends and distributions
from securities gains, if any, paid during the year.
An investor's redemption of Fund shares may result in
a taxable gain or loss, depending upon whether the redemption
proceeds payable to such investor are more or less than his
adjusted tax basis for his redeemed shares.
Federal regulations generally require the Fund to
withhold ("backup withholding") and remit to the U.S. Treasury
31% of dividends, distributions from net realized securities
gains and the proceeds of any redemption, regardless of the
extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that
the TIN furnished in connection with opening an account is
correct or that such shareholder has not received notice from
the IRS of being subject to backup withholding as a result of
a failure to properly report taxable dividend or interest
income on a Federal income tax return. Furthermore, the IRS
may notify the Fund to institute backup withholding if the IRS
determines a shareholder's TIN is incorrect or if a
shareholder has failed to properly report taxable dividend and
interest income on a Federal income tax return.
A TIN is either the Social Security number or
employer identification number of the record owner of the
account. Any tax withheld as a result of backup withholding
does not constitute an additional tax imposed on the record
owner of the account, and may be claimed as a credit on the
record owner's Federal income tax return.
The Fund intends to qualify as a "regulated
investment company" under the Code so long as such
qualification is in the best interests of its shareholders.
Such qualification relieves the Fund of any liability for
Federal income tax to the extent its earnings are distributed
in accordance with applicable provisions of the Code. The Fund
intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for a 4% Federal excise
tax on undistributed income.
Each investor should consult its tax adviser
regarding specific questions as to Federal, state or local
taxes.
SYSTEMATIC INVESTMENT PLAN
The Systematic Investment Plan permits investors to
purchase shares of the Fund (minimum initial investment of
$500 and minimum subsequent investments of $50 per
transaction) at regular intervals selected by the investor.
Provided the investor's bank or other financial institution
allows automatic withdrawals, shares may be purchased by
transferring funds from the account designated by the
investor. At the investor's option, the account designated
will be debited in the specified amount, and shares will be
purchased once a month, on the twentieth day. Only an account
maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated.
Investors desiring to participate in the Systematic Investment
Plan should call the Transfer Agent at _________ to obtain the
appropriate forms. The Systematic Investment Plan does not
assure a profit and does not protect against loss in declining
markets. Since the Systematic Investment Plan involves the
continuous investment in the Fund regardless of fluctuating
price levels of the Fund's shares, investors should consider
their financial ability to continue to purchase through
periods of low price levels. The Fund may modify or terminate
the Systematic Investment Plan at any time or charge a service
fee. No such fee currently is contemplated.
ADVERTISING THE FUND'S PERFORMANCE
From time to time the Fund advertises its "total
return" and "average annual total return". These figures are
based on historical earnings and are not intended to indicate
future performance. The "total return" shows what an
investment in shares of the Fund would have earned over a
specified period of time (for example, one and five year
periods or since inception), and assuming that all distributions
and dividends paid by the Fund were reinvested on the
reinvestment dates during the period. The "average annual total
return" is the annual rate required for the initial payment to
grow to the amount which would be received at the end of the
specified period; i.e., the average annual compound rate of
return.
From time to time, reference may be made in
advertising or promotional material to performance
information, including mutual fund rankings, prepared by
Lipper Analytical Service, Inc. ("Lipper"), an independent
reporting service which monitors the performance of mutual
funds. In calculating the total return of the Fund's shares,
the Lipper analysis assumes investment of all dividends and
distributions paid. The Fund may also refer in advertisements
or in other promotional material to articles, comments listings
and columns in the financial press pertaining to the Fund's
performance.
GENERAL INFORMATION
The Fund is an open-end diversified portfolio of
Labrador Mutual Fund (the "Trust"). The Trust was organized as
a business trust under the laws of the state of Delaware in
1997. The Trust is authorized to issue an indefinite number of
shares of beneficial interest, par value $.001 per share.
Shares have non-cumulative voting rights, do not have
preemptive or subscription rights and are freely transferable.
Upon issuance and sale in accordance with the terms of this
Prospectus, each share will be fully paid and nonassessable.
Each share has one vote.
The Trust's Board has authority to create additional
portfolios of shares without shareholder approval. All
consideration received by the Trust for shares of one of the
portfolios and all assets in which such consideration is
invested will belong to that portfolio (subject only to the
rights of creditors of the Trust) and will be subject to the
liabilities related thereto. The assets attributable to, and
the expenses of, one portfolio are treated separately from
those of the other portfolios. Each portfolio is treated as a
separate entity for certain matters under the 1940 Act, and
for other purposes, and a shareholder of one portfolio is not
deemed to be a shareholder of any other portfolio. For certain
matters, Trust shareholders vote together as a group; as to
others, they vote separately by portfolio. By this Prospectus,
shares of the Fund are being offered.
In order to provide the initial capital for the Fund,
Labrador Investment Advisors, Inc. has purchased a total of
10,000 shares of the Fund at $10.00 per share for an
aggregate purchase price of $100,000. As long as Labrador
Investment Advisors, Inc., owns more than 25% of the Fund's
shares, it will be deemed to be in "control" of the Fund as
that term is defined in the 1940 Act.
Shareholder inquiries may be made by writing to the
Transfer Agent at American Data Services, Inc., Hauppauge
Corporate Center, 150 Motor Parkway, Suite 109, Hauppauge,
New York 11788, or by calling ______________.
The Fund is expected to retain the Distribution
Services of ADS Distributors, Inc., 101 Main Street, Suite E,
Safety Harbor, Florida 34695.
APPENDIX
In connection with its investment objective and
policies, the Fund may employ, among others, the following
investment techniques which may involve certain risks. Options
transactions involve "derivative securities."
OPTIONS TRANSACTIONS
The Fund may invest up to 20% of its assets in exchange
listed and negotiated put and call options. Such options may be
on individual securities or on indexes. A put option gives the
Fund, in return for the payment of a premium, the right to sell
the underlying security or index to another party at a fixed
price. If the market value of the underlying security or index
declines, the value of the put option would be expected to rise.
If the market value of the underlying security or index remains
the same or rises, however, the put option could lose all of its
value, resulting in a loss of the cost of the put option premium
to the Fund.
A call option gives the Fund, in return for the payment
of a premium, the right to purchase the underlying security or
index from another party at a fixed price. If the market value of
the underlying security or index rises, the value of the call
option would also be expected to rise. If the market value of the
underlying security or index remains the same or declines,
however, the call option could lose all of its value, resulting
in a loss of the call option premium to the Fund.
LENDING PORTFOLIO SECURITIES
From time to time, the Fund may lend securities, for a
fee, from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain
transactions. Such loans may not exceed 33 1/3% of the value of
the Fund's total assets. In connection with such loans, the Fund
will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit which will be
maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. The Fund can
increase its income through the investment of such collateral.
The Fund continues to be entitled to payments in amounts equal to
the interest, dividends and other distributions payable on the
loaned security and receives interest on the amount of the loan.
Such loans will be terminable at any time upon specified notice.
The Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund.
BORROWING MONEY
As a fundamental policy, the Fund is permitted to borrow
to the extent permitted under the 1940 Act. The 1940 Act permits
an investment company to borrow in an amount up to 33 1/3% of the
value of such company's assets. However, the Fund currently
intends to borrow money only for temporary or emergency (not
leveraging) purposes, in an amount up to 15% of the value of its
total assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the amount
borrowed) at the time the borrowing is made. If borrowings exceed
5% of the Fund's total assets, the Fund will not make any
additional investments.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES
Convertible securities are fixed-income securities that
may be converted at either a stated price or stated rate into
underlying shares of common stock. Convertible securities have
general characteristics similar to both fixed-income and equity
securities. Although to a lesser extent than with fixed-income
securities generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In addition, because
of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of
the underlying common stock, and, therefore, also will react to
variations in the general market for equity securities. A unique
feature of convertible securities is that as the market price of
the underlying common stock declines, convertible securities tend
to trade increasingly on a yield basis, and so may not experience
market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise
as a reflection of the value of the underlying common stock.
While no securities investments are without risk, investments in
convertible securities generally entail less risk than
investments in common stock of the same issuer.
As fixed-income securities, convertible securities are
investments that provide for a stable stream of income with
generally higher yields than common stocks. Of course, like all
fixed-income securities, there can be no assurance of current
income because the issuers of the convertible securities may
default on their obligations. Convertible securities, however,
generally offer lower interest or dividend yields than non-
convertible securities of similar quality because of the
potential for capital appreciation. A convertible security, in
addition to providing fixed income, offers the potential for
capital appreciation through the conversion feature, which
enables the holder to benefit from increases in the market price
of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices
fluctuate.
Convertible securities generally are subordinated to
other similar but non-convertible securities of the same issuer,
although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the
same issuer.
MONEY MARKET INSTRUMENTS
The Fund may invest, in the circumstances described
under "Investment Objective, Policies and Risks," in the
following types of money market instruments.
U.S. GOVERNMENT SECURITIES. The Fund may purchase securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, which include U.S. Treasury securities that
differ in their interest rates, maturities and times of issuance.
Treasury Bills have initial maturities of one year or less;
Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S.
Government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrower from the U.S.
Treasury; others, such as those issued by the Federal National
Mortgage Association, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality. These securities bear fixed, floating or
variable rates of interest. Principal and interest may fluctuate
based on generally recognized reference rates or the relationship
of rates. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no
assurance can be given that it will always do so, since it is not
so obligated by law.
BANK OBLIGATIONS. The Fund may invest in bank obligations,
including certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations of banks, savings
and loan associations and other banking institutions.
Certificates of deposit are negotiable certificates
evidencing the obligation of a bank to repay funds deposited with
it for a specified period of time.
Time deposits are non-negotiable deposits maintained in
a banking institution for a specified period of time at a stated
interest rate. Time deposits which may be held by the Fund will
not benefit from insurance from the Bank Insurance Fund or the
Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation. The Fund will not invest more than
15% of the value of its net assets in such time deposits maturing
in more than seven days and in other securities that are
illiquid.
Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument
upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable
interest rates.
REPURCHASE AGREEMENTS. Repurchase agreements involve the
acquisition by the Fund of an underlying debt instrument, subject
to an obligation of the seller to repurchase, and the Fund to
resell, the instrument at a fixed price usually not more than one
week after its purchase. Certain costs may be incurred by the
Fund in connection with the sale of the securities if the seller
does not repurchase them in accordance with the repurchase
agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the
securities by the Fund may be delayed or limited.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS.
Commercial paper consists of short-term, unsecured promissory
notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct
obligations which, at the time of their purchase, are (a) rated
not lower than Prime-1 by Moody's Investors Service Inc.
("Moody's"), A-1 by Standard & Poor's Corporation ("S&P"), F-1 by
Fitch Investors Service, Inc. ("Fitch") or Duff-1 by Duff &
Phelps, Inc. ("Duff"), (b) issued by companies having an
outstanding unsecured debt issue currently rated not lower than
Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated,
determined by the Manager to be of comparable quality to those
rated obligations which may be purchased by the Fund. The Fund
may purchase floating and variable rate demand notes and bonds,
which are obligations ordinarily having stated maturities in
excess of one year, but which permit the holder to demand payment
of principal at any time or at specified intervals.
ILLIQUID SECURITIES
The Fund may invest up to 5% of the value of its net
assets in securities as to which a liquid trading market does not
exist, provided such investments are consistent with the Fund's
investment objective. Such securities may include securities that
are not readily marketable, such as certain securities that are
subject to legal or contractual restrictions on resale,
repurchase agreements providing for settlement in more than seven
days after notice, and options traded in the over-the-counter
market and securities used to cover such options. As to these
securities, the Fund is subject to a risk that should the Fund
desire to sell them when a ready buyer is not available at a
price the Fund deems representative of their value, the value of
the Fund's net assets could be adversely affected.
=======================================================
LABRADOR MUTUAL FUND
INVESTMENT MANAGER
Labrador Investment Advisors, Inc.
2344 Corte De La Jara
Pleasanton, California 94566
TRANSFER AGENT
American Data Services, Inc.
Hauppauge Corporate Center
150 Motor Parkway
Suite 109
Hauppauge, New York 11788
PORTFOLIO SECURITIES CUSTODIAN
Star Bank, N.A.
P.O. Box 1118
Cincinnati, Ohio 45201-1118
DISTRIBUTOR
ADS Distributors, Inc.
101 Main Street, Suite E
Safety Harbor, Florida 34695
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES MAY NOT BE SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED
PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO
COMPLETION
LABRADOR MUTUAL FUND
February ___, 1998
This Statement of Additional Information, which is not a
prospectus, expands upon and supplements the information
contained in the current Prospectus of Labrador Mutual Fund (the
"Fund") dated February ___, 1997. The Fund is set up as a series
trust under the Laws of the State of Delaware. Labrador Mutual
Fund, (the trust) was created on November 13, 1997. The Statement
of Additional Information should be read in conjunction with the
Prospectus, which may be obtained without charge by writing or
calling the Fund at the above address or telephone number. This
Statement of Additional Information is incorporated by reference
into the Prospectus in its entirety.
Labrador Investment Advisors, Inc. (the "Manager") is
the Fund's investment manager.
TABLE OF CONTENTS
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Page
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Investment Objective and Policies 2
Trustees and Officers 4
Management 5
Distribution and Shareholder Servicing Plan 6
Portfolio Transactions 7
Redemption of Fund Shares 7
Valuation 8
General Information 8
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are
described in the Fund's Prospectus under the heading "Investment
Objective, Policies and Risks" and in the Appendix to the
Prospectus. In addition to its fundamental investment objective
of seeking to produce capital appreciation, the Fund has adopted
the following fundamental investment policies and restrictions.
These policies cannot be changed without approval by the holders
of a majority of the outstanding voting securities of the Fund.
As defined in the Investment Company Act of 1940 (the"Act"), the
"vote of a majority of the outstanding voting securities" means
the lesser of the vote of (a) 67% of the shares of the Fund at a
meeting where more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of the outstanding
shares of the Fund. The Fund may not:
1. Purchase or retain any securities of an issuer if any
of the officers or Trustees of the Fund or its investment adviser
owns beneficially more than 1/2 of 1% of the securities of such
issuer and together own more than 5% of the securities of such
issuer.
2. Invest in commodities, except that the Fund may
purchase and sell options, forward contracts, futures contracts,
including those relating to indexes, and options on future
contracts or indexes.
3. Purchase, hold or deal in real estate, real estate
limited partnership interests, or oil, gas or other mineral
leases or exploration or development programs, but the Fund may
purchase and sell securities that are secured by real estate or
issued by companies that invest or deal in real estate or real
estate investment trusts.
4. Borrow money, except to the extent permitted under
the 1940 Act. The 1940 Act permits an investment company to
borrow in an amount up to 33-1/3% of the value of such company's
total assets. For purposes of this Investment Restriction, the
entry into options, forward contracts, futures contracts,
including those relating to indexes, and options on futures or
indexes shall not constitute borrowing.
5. Make loans to others, except through the purchase of
debt obligations and the entry into repurchase agreements.
However, the Fund may lend its portfolio securities in an amount
not to exceed 33-1/3% of the value of its total assets.
6. Act as an underwriter of securities of other issuers,
except to the extent the Fund may be deemed an underwriter under
the Securities Act of 1933, as amended, by virtue of disposing
of portfolio securities.
7. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act).
8. Purchase securities on margin, but the Fund may make
margin deposits in connection with transactions in options,
forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
9. Invest more than 25% of the value of its total assets
in any one industry.
10. Invest in the securities of a company for the
purpose of exercising management or control, but the Fund will
vote the securities it owns in its portfolio as a shareholder in
accordance with its views.
11. Pledge, mortgage or hypothecate its assets, except
to the extent necessary to secure permitted borrowings and to the
extent related to the purchase of securities on a when-issued or
forward commitment basis and the deposit of assets in escrow in
connection with writing covered put and call options and
collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts,
including those relating to indexes, and options on futures
contracts or indexes.
12. Purchase, sell or write puts, calls or combinations
thereof, except as described in the Fund's Prospectus or
Statement of Additional Information.
13. Engage in short sales of securities, except as
described in the Fund's Prospectus or Statement of Additional
Information.
14. Invest more than 20% of its assets in securities of
foreign issuers (whether directly or through American Depository
Receipts).
15. Enter into repurchase agreements providing for
settlement in more than seven days after notice or purchase
securities which are illiquid, if, in the aggregate, more than
15% of the value of its net assets would be so invested.
16. Purchase securities of other investment companies,
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from the purchase other
than the customary broker's commission or except when the
purchase is part of a plan of merger, consolidation,
reorganization or acquisition, and provided that any such
purchase is permitted under the 1940 Act.
If a percentage restriction is adhered to at the time of
investment, a later change in percentage resulting from a change
in values or assets will not constitute a violation of such
restriction.
The Fund may make commitments more restrictive than the
restrictions listed above so as to permit the sale of the Fund's
shares in certain states. Should the Fund determine that a
commitment is no longer in the best interest of the Fund and its
shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of Fund shares in the state
involved.
TRUSTEES AND OFFICERS
Trustees and officers of the Trust, together with their
ages and information as to their principal business occupations
during the past five years, are shown below. Each Trustee who is
an "interested person" of the Trust, as defined in the 1940 Act,
is indicated by an asterisk.
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Peter Allen Schuh* (24) Trustee, Chairman of the Board,
2344 Corte De La Jara President, and Secretary of the
Pleasanton, California 94566 Trust; Chairman, Labrador
Investment Advisors, Inc.
Previously at Merrill Lynch,
Pierce, Fenner & Smith.
Allen John Schuh* (56) Trustee, Vice President of the
2344 Corte De La Jara Trust; Vice-President of Labrador
Pleasanton, California 94566 Investment Advisors, Inc.;
Professor in the Department of
Mangement & Finance at the
California State University
Hayward.
Leandro Vera (25) Trustee of the Trust; Senior
5117 Glentree Drive Consultant with IBM Global
San Jose, CA 95129 Services, previously with both
Coopers and Lybrand, L.L.P,;
and Deloitte Touche Consulting
Group.
Daniel Thomas Burke (26) Trustee of the Trust; Chairman
834 Vallejo Street of Re Think Technology, (a San
San Francisco, California 94133 Francisco based ergonomic and
occupational safety design and
manufacturing company. Marketing
Manager at International Micro-
Computer Software Incorporated.
For so long as the Plan described in the section
captioned "Distribution and Shareholder Servicing Plan" remains
in effect, the Trust's Trustees who are not "interested persons"
of the Fund, as defined in the 1940 Act, will be selected and
nominated by the Trustees who are not "interested persons" of the
Trust.
No meetings of shareholders of the Trust will be held
for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees holding office have been
elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of
Trustees. Under the 1940 Act, shareholders of record of not less
than two-thirds of the outstanding shares of the Trust may remove
a Trustee through a declaration in writing or by vote cast in
person or by proxy at a meeting called for that purpose.
Under the Trust's Declaration of Trust, the Trustees are required
to call a meeting of shareholders for the purpose of voting upon
the question of removal of any such Trustee when required in
writing to do so by the shareholders of record of not less than
10% of the Trust's outstanding shares.
COMPENSATION TABLE
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Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated from Trust
Compensation as part of Annual Benefits
from Trust Trust Expenses Upon Retirement
Name,
Position
<S> <C> <C> <C> <C>
Peter A.. 625* 0 0 625
Schuh,
Trustee,
Chairman,
President,
Secretary
Allen J. 500* 0 0 500
Schuh
Trustee,
Vice-
President
Daniel T 500* 0 0 500
Burke
Trustee
Leandro 500* 0 0 500
Vera
Trustee
<FN>
*Estimated payments for the current fiscal year ending December
31, 1998.
</TABLE>
The Fund typically pays its Directors an annual retainer
fee and reimburses them for their Board meeting expenses. The
Chairman of the Board receives an additional 25% of such
compensation. The estimated aggregate amount of compensation
paid to each Director by the Fund for the fiscal year ending
December 31, 1998.
MANAGEMENT
The following information supplements and should be read
in conjunction with the section in the Fund's Prospectus entitled
"Management Services."
Under the Management Agreement dated March __, 1998,
subject to the control of the Board of Trustees, Labrador
Investment Advisors, Inc. (the "Manager"), manages the investment
of the assets of the Fund, including making purchases and sales
of portfolio securities consistent with the Fund's investment
objectives and policies, and administers its business and other
affairs. The Manager provides the Fund with such office space,
administrative and other services and executive and other
personnel as are necessary for Fund operations. The Manager pays
all of the compensation of trustees of the Fund who are employees
or consultants of the Manager and of the officers and employees
of the Fund.
Pursuant to an undertaking to a state securities
administrator, the Management Fee of the Manager will be reduced
in the amount, if any, by which total expenses, including the
management fee, but excluding interest, taxes, brokerage
commissions, redemption fees, distribution fees and certain
extraordinary expenses, exceed 2-1/2% of the first $30,000,000 of
average net assets, 2% of the next $70,000,000 and 1-1/2%
thereafter.
The Management Agreement is subject to annual approval
by (i) the Trust's Board of Trustees or (ii) vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also
is approved by a majority of the Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or
the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Board of Trustees,
including a majority of the Trustees who are not "interested
persons" of any party to the Agreement, approved the Agreement at
a meeting held on March __, 1998. The Agreement is terminable,
without penalty, on 60 days' notice, by the Trust's Board of
Trustees or by vote of the holders of a majority of the Trust's
shares, or, on not less than 90 days' notice, by the Manager. As
to the Fund, the Agreement will terminate automatically in the
event of its assignment (as defined in the 1940 Act).
The Manager is a California corporation incorporated in
1997. Peter Allen Schuh is the Chief Executive Officer of the
Manager. Allen John Schuh is the Executive Senior Vice President
of the Manager.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The following information supplements and should be read
in conjunction with the section in the Fund's Prospectus entitled
"Distribution and Shareholder Servicing Plan."
Rule 12b-1 (the "Rule") adopted by the Securities and
Exchange Commission under the 1940 Act provides, among other
things, that an investment company may bear expenses of
distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Trust's Trustees have adopted such
a plan (the "Plan"). The Trust's Trustees believe that there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
A quarterly report of the amounts expended under the
Plan, and the purposes for which such expenditures were incurred,
must be made to the Trustees for their review. In addition, the
Plan provides that it may not be amended to increase materially
the costs which shareholders may bear pursuant to the Plan
without approval of such shareholders and that other material
amendments of the Plan must be approved by the Board of Trustees,
and by the Trustees who are neither "interested persons" (as
defined in the 1940 Act) of the Trust nor have any direct or
indirect financial interest in the operation of the Plan or in
the related Plan agreements, by vote cast in person at a meeting
called for the purpose of considering such amendments. The Plan
and related agreements are subject to annual approval by such
vote cast in person at a meeting called for the purpose of voting
on the Plan. The Plan was approved by the Trustees and by
Labrador Investment Advisors, Inc., as sole shareholder of the
Fund, on March__, 1998. The Plan is terminable at any time by
vote of a majority of the Trustees who are not "interested
persons" and who have no direct or indirect financial interest in
the operation of the Plan or in the Plan agreements or by vote of
holders of a majority of the Fund's shares. A Plan agreement is
terminable, without penalty, at any time, by such vote of the
Trustees, upon not more than 60 days' written notice to the
parties to such agreement or by vote of the holders of a majority
of the Fund's shares. A Plan agreement will terminate
automatically in the event of its assignment (as defined in the
1940 Act).
PORTFOLIO TRANSACTIONS
The Management Agreement recognizes that in the purchase
and sale of portfolio securities the Manager will seek the most
favorable price and execution, and, consistent with that policy,
may give consideration to the research, statistical and other
services furnished by brokers or dealers to the Manager for their
use, as well as to the general attitude toward and support of
investment companies demonstrated by such brokers or dealers.
Such services include supplemental investment research, analysis
and reports concerning issuers, industries and securities deemed
by the Manager to be beneficial to the Fund. In addition, the
Manager is authorized to place orders with brokers who provide
supplemental investment and market research and statistical and
economic analysis although the use of such brokers may result in
a higher brokerage charge to the Fund than the use of brokers
selected solely on the basis of seeking the most favorable price
and execution and although such research and analysis may be
useful to the Manager in connection with its services to clients
other than the Fund.
In over-the-counter markets, the Fund deals with primary
market makers unless a more favorable execution or price is
believed to be obtainable. The Fund may buy securities from or
sell securities to dealers acting as principal, except dealers
with which its directors and/or officers are affiliated.
Consistent with these considerations, the Manager may
consider sales of shares of the Fund as a factor in the selection
of brokers or dealers to execute portfolio transactions for the
Fund.
REDEMPTION OF FUND SHARES
The procedures for redemption of Fund shares under
ordinary circumstances are set forth in the Prospectus. In
unusual circumstances payment may be postponed, or the right of
redemption postponed for more than seven days, if the orderly
liquidation of portfolio securities is prevented by the closing
of, or restricted trading on the New York Stock Exchange during
periods of emergency, or such other periods as ordered by the
Securities and Exchange Commission. Payment may be made in
securities, subject to the review of some state securities
commissions. If payment is made in securities, a shareholder may
incur brokerage expenses in converting these securities into
cash.
VALUATION
The following information supplements and should be read
in conjunction with the section in the Fund's Prospectus entitled
"How to Buy Shares."
Portfolio securities, including covered call options
written by the Fund, and call or put options purchased by the
Fund, are valued at the last sale price on the securities
exchange or national securities market on which such securities
primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid
and asked prices, except in the case of open short positions
where the asked price is used for valuation purposes. Bid price
is used when no asked price is available. Short-term investments
are carried at amortized cost, which approximates value. Any
securities or other assets for which recent market quotations are
not readily available are valued at fair value as determined in
good faith by the Trust's Board of Trustees. Expenses and fees,
including the management fee and distribution and service fees,
are accrued daily and taken into account for the purpose of
determining the net asset value of the Fund's shares.
Restricted securities, as well as securities or other
assets for which market quotations are not readily available, are
valued at fair value as determined in good faith by the Board of
Trustees. The Board of Trustees will review the method of
valuation on a current basis. In making their good faith
valuation of restricted securities, the Trustees generally will
take the following factors into consideration: restricted
securities which are, or are convertible into, securities of the
same class of securities for which a public market exists usually
will be valued at market value less the same percentage discount
at which purchased. This discount will be revised periodically by
the Board of Trustees if the Trustees believe that it no longer
reflects the value of the restricted securities. Restricted
securities not of the same class as securities for which a public
market exists usually will be valued initially at cost. Any
subsequent adjustment from cost will be based upon considerations
deemed relevant by the Board of Trustees.
GENERAL INFORMATION
TRANSFER AGENT. American Data Services, Inc., Hauppauge
Corporate Center, 150 Motor Parkway, Suite 109, Hauppauge, New
York 11788
CUSTODIAN. Star Bank, N.A., 425 Walnut Street,
Cincinnati, Ohio 45201-5220 serves as custodian of the Fund.
AUDITOR. Marie Jones, C.P.A., independent auditor, has
been selected as the auditor of the Fund. The business address is
19437 Burgundy Way, Saratoga, California 95070.
DISTRIBUTOR. ADS Distributors, Inc., 101 Main Street,
Suite E, Safety Harbor, Florida 34695.
