PROSPECTUS
SEPTEMBER 28, 1998
[LOGO]
THE REVEST
VALUE FUND
A NO-LOAD MUTUAL FUND
MANAGED IN MAINE
MANAGED BY
EBRIGHT INVESTMENTS, INC.
(FORMERLY ROYCE, EBRIGHT & ASSOCIATES, INC.)
A SERIES OF THE WINTER HARBOR FUND
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[Pictures of coins.]
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THE REVEST VALUE FUND [LOGO]
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PROSPECTUS - SEPTEMBER 28, 1998
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NEW ACCOUNT AND GENERAL INFORMATION: INVESTOR INFORMATION -- 1-800-277-5573
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SHAREHOLDER SERVICES -- 1-877-4REVEST (877-473-8378)
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INVESTMENT OBJECTIVES AND POLICIES
The REvest Value Fund (the "Fund") primarily seeks long-term growth and
secondarily current income by investing in a broadly diversified portfolio of
common stocks and convertible securities. Prospective portfolio investments are
selected on a value basis and are primarily limited to small and medium-sized
companies viewed by the Fund's investment adviser as having attractive financial
characteristics and/or "vitality factors." Vitality factors are those factors
(e.g., an active acquisition program, stock buy-back program and/or cost
reduction program) that should, in the investment adviser's judgment, allow a
company to build future, incremental value for shareholders. There can be no
assurance that the Fund will achieve its objectives.
The Fund is a no-load series of The Winter Harbor Fund (the "Trust"), a
diversified open-end management
investment company. The Trust is currently offering shares of only one series.
The Fund's predecessor, The REvest Growth & Income Fund, was a series of The
Royce Fund.
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ABOUT THIS PROSPECTUS
This Prospectus sets forth concisely the information that you should know about
the Fund before you invest. It should be retained for future reference. A
"Statement of Additional Information" ("SAI"), containing further information
about the Fund and the Trust, has been filed with the Securities and Exchange
Commission. The SAI is dated September 28, 1998 and has been incorporated by
reference into this Prospectus. A copy of the SAI may be obtained without charge
by writing to the Trust or calling Investor Information.
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TABLE OF CONTENTS
PAGE
Fund Expenses 2
Financial Highlights 2
Investment Performance 3
Investment Objectives 3
Investment Policies 3
Investment Risks 4
Investment Limitations 4
Management of the Trust 5
Year 2000 Disclosure 7
Size Limitations 7
PAGE
General Information 7
Dividends, Distributions and Taxes 7
Net Asset Value Per Share 8
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares 8
Choosing a Distribution Option 9
Important Account Information 10
Redeeming Your Shares 10
Transferring Ownership 12
Other Services 12
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND'S SHARES AS AN
INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE
WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
A Series of The Winter Harbor Fund
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FUND EXPENSES
THE FUND IS NO-LOAD AND HAS NO 12B-1 FEES.
The following table illustrates all expenses and fees that you would incur as a
shareholder of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fee:
1 Year or More After Account Opened None
Early Redemption Fee:
Less Than 1 Year After Account Opened 1.00%
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Other Expenses 0.30%
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Total Operating Expenses 1.30%
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The adviser has agreed to limit the Fund's expense ratio to 1.30% through
December 31, 1999. The adviser and sub-adviser have agreed to waive fees, in
equal amounts, in order to maintain this expense ratio. For a further discussion
of these fees, see "Management of the Trust."
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Fund.
The following examples illustrate the expenses that you would incur on a $1,000
investment over one and three-year periods, assuming a 5% annual rate of return
and redemption at the end of each period.
1 Year 3 Years
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$13 $41
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE
SHOWN.
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FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The Fund is the successor to The REvest Growth & Income Fund. The following
financial highlights represent historical information of The REvest Growth &
Income Fund. The REvest Growth & Income Fund's financial statements and
financial highlights for the years ended December 31, 1997, 1996 and 1995 and
for the period August 1, 1994 (commencement of operations) to December 31, 1994
were audited by Coopers & Lybrand, L.L.P., independent accountants. Such
financial statements, accompanying notes and Coopers & Lybrand, L.L.P.'s reports
on them are included in The REvest Growth & Income Fund's Annual Report to
Shareholders for 1997 and are incorporated by reference into the Statement of
Additional Information and this Prospectus. Financial statements and financial
highlights for the six months ended June 30, 1998 are unaudited. Further
information about the Fund's performance is contained elsewhere in this
Prospectus and in The REvest Growth & Income Fund's Annual Report to
Shareholders for 1997, which may be obtained without charge by calling Investor
Information.
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<S> <C> <C> <C> <C> <C>
SIX MONTHS YEARS 8/1/94
ENDED ENDED TO
6/30/98(A) 12/31/97 12/31/96 12/31/95 12/31/94
---------- -------- -------- -------- --------
NET ASSET VALUE,
BEGINNING OF PERIOD $13.00 $12.21 $10.73 $9.66 $10.00
INVESTMENT OPERATIONS: ------ ------ ------ ----- ------
Net investment income 0.08 0.21 0.21 0.18 0.04
Net realized and unrealized gain (loss)
on investments 0.07 2.64 2.16 1.38 (0.33)
---- ---- ---- ---- ------
Total from Investment Operations 0.15 2.85 2.37 1.56 (0.29)
---- ---- ---- ---- ------
DIVIDENDS AND DISTRIBUTIONS:
Net investment income (0.08) (0.19) (0.21) (0.17) (0.05)
Net realized gain on investments -- (1.87) (0.68) (0.32) --
------ ------ ------ ------ ------
Total Dividends and Distributions (0.08) (2.06) (0.89) (0.49) (0.05)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.07 $13.00 $12.21 $10.73 $9.66
------ ------ ------ ------ ------
TOTAL RETURN: 1.2% 23.5% 22.3% 16.2% (2.9%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $32,664 $38,886 $42,099 $35,804 $21,676
Ratio of Expenses to
Average Net Assets (b) 1.30%* 1.26% 1.29% 1.30% 1.42%*
Ratio of Net Investment Income
to Average Net Assets (b) 1.20%* 1.60% 1.78% 1.73% 1.45%*
Portfolio Turnover Rate 19% 54% 64% 53% 5%
Average Commission Rate Paid+ $0.0539 $0.0594 $0.0580 -- --
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* Annualized.
(a) Unaudited.
(b) The ratio of expenses to average net assets before waiver of fees by the
investment adviser for the Fund would have been 1.78% for the period ended
December 31, 1994.
+ For fiscal years beginning in 1996, The REvest Growth & Income Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investments.
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INVESTMENT PERFORMANCE
TOTAL RETURN IS THE CHANGE IN VALUE OVER A GIVEN PERIOD FOR A CONTINUOUS
SHAREHOLDER, ASSUMING REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
From time to time, the Fund may include in communications to current or
prospective shareholders figures reflecting total return over various time
periods. "Total return" is the rate of return on an amount invested in the Fund
from the beginning to the end of the stated period and assumes redemption at the
end of the period. "Average annual total return" is the annual compounded
percentage change in the value of an amount invested in the Fund from the
beginning until the end of the stated period.
Total returns are historical measures of past performance and are not intended
to indicate future performance. Both rates of return assume the reinvestment of
all net investment income dividends and capital gains distributions. The figures
below are those of the Fund's predecessor, The REvest Growth & Income Fund.
These figures are used since The REvest Growth & Income Fund's investment
objectives and investment policies, strategies and risks are identical in all
material respects. The figures do not reflect the Fund's early redemption fee
because it applies only to redemptions in accounts open for less than one year.
Total return and principal value of an investment in the Fund will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
The total returns for the Fund (formerly The REvest Growth & Income Fund), the
S&P 500 and the Russell 2000 for the periods indicated below were:
Six Months Year Since
Ended Ended Inception*+
6/30/98 6/30/98 6/30/98
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REvest 1.2% 14.2% 14.9%
S&P 500(1) 17.7% 30.2% 28.8%
Russell 2000(2) 4.9% 16.5% 19.1%
1 The S&P 500 Composite Stock Price Index is an unmanaged index of common
stocks frequently used as a general measure of stock market performance.
The Index's performance figures reflect changes of market prices and
quarterly reinvestment of all distributions.
2 The Russell 2000 Index, prepared by the Frank Russell Company, tracks the
return of the common stocks of the 2,000 smallest out of the 3,000 largest
publicly traded U.S.-domiciled companies by market capitalization. The
Russell 2000 tracks the return based on price appreciation or depreciation
and includes dividends.
* Commencement of Operations - August 1, 1994
+ Annualized
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INVESTMENT OBJECTIVES
The Fund primarily seeks long-term growth and secondarily current income by
investing in a broadly diversified portfolio of common stocks and convertible
securities. Prospective portfolio investments are selected on a value basis and
are primarily limited to small and medium-sized companies viewed by the Fund's
investment adviser as having attractive financial characteristics and/or
"vitality factors." Vitality factors are those factors (e.g., an active
acquisition program, stock buy-back program and/or cost reduction program) that
should, in the investment adviser's judgment, allow a company to build future,
incremental value for shareholders. Since certain risks are inherent in owning
any security, there can be no assurance that the Fund will achieve its
objectives.
The investment objectives of primarily long-term growth and secondarily current
income are fundamental and may not be changed without the approval of a majority
of the Fund's voting shares, as that term is defined in the Investment Company
Act of 1940 (the "1940 Act").
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INVESTMENT POLICIES
THE FUND INVESTS ON A "VALUE" BASIS.
Ebright Investments, Inc. (formerly named Royce, Ebright & Associates, Inc.),
the Fund's investment adviser, uses a "value" method in managing the Fund's
assets. In its selection process, Ebright Investments, Inc. ("EII") considers a
company's cash flows, its balance sheet quality, an understanding of various
internal returns indicative of profitability and its growth prospects in trying
to relate such factors to the price of a given security. With regard to each
portfolio security in which the Fund invests, EII seeks to identify a "valuation
discrepancy" between the security's then current market price and its "business
worth," that is, what a knowledgeable buyer would pay for the entire company,
based on an appraisal of its financial characteristics and/or growth prospects.
After this appraisal of value process is completed, EII then, in addition, seeks
to identify and evaluate "vitality factors," which are those characteristics of
a portfolio company that should result in the building of future value for
shareholders. Examples of such "vitality factors" include research and
development efforts, new products,
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new market development efforts, the redeployment of underutilized assets, an
active acquisition program, stock buy-back program, cost reduction program and
investments in new technologies or processes.
The portfolio, therefore, is a collection of securities that EII believes have
all been purchased at a discount to their real "business worth" and possess, in
addition, "vitality factors" that should allow them to build future incremental
value for shareholders. EII believes that profits can come both from the
continued success and growth of each portfolio company as well as the eventual
elimination of each security's valuation discrepancy.
THE FUND INVESTS PRIMARILY IN SMALL AND MEDIUM-SIZED COMPANIES.
EII believes that there are many high quality companies in the "small-cap" and
"mid-cap" sectors that have above average growth prospects but are not widely
followed or understood by investors. EII seeks to identify and invest in such
companies when their securities can be purchased at appropriate discounts to
EII's assessment of their "business worth."
In accordance with its objectives of seeking primarily long-term growth
(realized and unrealized) and secondarily current income, the Fund will normally
invest at least 90% of its assets in common stocks, convertible preferred stocks
and convertible bonds. At least 80% of these allowable securities will be
income-producing, and at least 80% of allowable securities will be issued by
companies with stock market capitalizations between $200 million and $2 billion
at the time of investment. The Fund will normally have a weighted average market
capitalization size in excess of $500 million. The remainder of the Fund's
assets may be invested in securities with lower or higher market
capitalizations, non-dividend paying common stocks and non-convertible fixed
income securities. The securities in which the Fund invests may be traded on
securities exchanges or in the over-the-counter market. While most of the Fund's
securities will be income-producing, the composite yield of the Fund's
securities may be either higher or lower than the composite yield of the stocks
in the S&P 500 Index.
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INVESTMENT RISKS
THE FUND IS SUBJECT TO CERTAIN INVESTMENT RISKS.
As a mutual fund investing primarily in common stocks and/or securities
convertible into common stocks, the Fund is subject to market risk, that is, the
possibility that common stock prices will decline over short or even extended
periods. The Fund may invest in securities of companies that are not well-known
to the investing public, may not have significant institutional ownership and
may have cyclical, static or only moderate growth prospects. The stocks of such
companies may be more volatile in price and have lower trading volumes than the
larger capitalization stocks included in the S&P 500 Index. Accordingly, EII's
investment method requires a long-term investment horizon. The Fund should not
be used by "market timers."
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INVESTMENT LIMITATIONS
The Fund has adopted a number of fundamental investment policies, designed to
reduce its exposure to specific situations, which may not be changed without the
approval of a majority of its outstanding voting shares, as that term is defined
in the 1940 Act. These policies are set forth in the Statement of Additional
Information and provide, among other things, that the Fund will not:
(1) with respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (excluding obligations of the U.S.
Government), or acquire more than 10% of the outstanding voting
securities of any one issuer;
(2) invest more than 25% of its assets in any one industry; or
(3) invest in companies for the purpose of exercising control of
management.
OTHER INVESTMENT PRACTICES:
In addition to investing primarily in the equity and fixed income securities
described above, the Fund may engage in a number of additional investment
practices.
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SHORT-TERM FIXED INCOME SECURITIES:
The Fund may invest in short-term fixed income securities for temporary
defensive purposes, to invest uncommitted cash balances or to maintain liquidity
to meet shareholder redemptions. These securities consist of United States
Treasury bills, domestic bank certificates of deposit, high-quality commercial
paper and repurchase agreements collateralized by U.S. Government securities. In
a repurchase agreement, a bank sells a security to the Fund at one price and
agrees to repurchase it at the Fund's cost plus interest within a specified
period of seven or fewer days. In these transactions, which are, in effect,
secured loans by the Fund, the securities purchased by the Fund will have a
value equal to or in excess of the value of the repurchase agreement and will be
held by the Fund's custodian bank until repurchased. To the extent the Fund
implements a temporary defensive investment policy, its investment objectives
may not be achieved.
FOREIGN SECURITIES
The Fund may invest up to 5% of its net assets in debt and/or equity securities
of foreign issuers. Foreign investments involve certain risks, such as political
or economic instability of the issuer or of the country of issue, fluctuating
exchange rates and the possibility of imposition of exchange controls. These
securities may also be subject to greater fluctuations in price than the
securities of U.S. corporations, and there may be less publicly available
information about their operations. Foreign companies may not be subject to
accounting standards or governmental supervision comparable to U.S. companies,
and foreign markets may be less liquid or more volatile than U.S. markets and
may offer less protection to investors such as the Fund.
LOWER-RATED DEBT SECURITIES
The Fund may also invest no more than 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities, which are below investment grade.
The Fund does not expect to invest in non-convertible debt securities that are
rated lower than Caa by Moody's Investors Service, Inc. or CCC by Standard &
Poor's Corporation or, if unrated, determined to be of comparable quality.
PORTFOLIO TURNOVER
Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long they have been held. For the
years ended December 31, 1997, 1996 and 1995, The REvest Growth & Income Fund
experienced portfolio turnover rates of 54%, 64% and 53%, respectively. Higher
portfolio turnover rates would increase the Fund's transaction costs, including
brokerage commissions.
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MANAGEMENT OF THE TRUST
TRUSTEES
The Trust's business and affairs are managed under the direction of its Board of
Trustees, for the benefit of the Trust's shareholders. The Trustee's names and
principal occupations during the last five years are:
JENNIFER E. GOFF, see Investment Adviser Section Below
JUDITH D. FREYER, VP-Investments, Board of Pensions of the Presbyterian Church
(U.S.A.)
EARL L. MUMMERT, Vice President, Conrad M. Siegel, Inc. (Actuarial Firm)
VINCENT T. PHILLIPS, President, Phillips & Company, Inc. (Registered Investment
Adviser)
As compensation for their services, the Trustees are entitled to receive $500.00
for each meeting they attend, as well as reimbursement for travel and related
expenses incurred in attending the meetings. There are typically four meetings a
year. Jennifer E. Goff, as an "interested party", does not receive compensation
for her services as Trustee.
INVESTMENT ADVISER
Ebright Investments, Inc. ("EII"), the Fund's investment adviser, is responsible
for the management of the Fund's portfolio of investments, subject to the
authority of the Board of Trustees. EII, located at 511 Congress Street,
Portland, Maine, is an independent investment advisory firm, founded in 1994 and
registered as an investment adviser with the Securities and Exchange Commission.
EII was formerly known as Royce, Ebright & Associates, Inc. EII was the
investment adviser to The REvest Growth & Income Fund, which commenced
operations as a series of The Royce Fund on August 1, 1994. Pursuant to a
reorganization that occured on September 25, 1998, The REvest Growth & Income
Fund ceased to be a series of The Royce Fund and was reorganized into the Fund
as the sole series of the Trust. This reorganization consisted of the transfer
of all of the assets of The REvest Growth &
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Income Fund to the Fund in exchange solely for shares of beneficial interest of
the Fund, the assumption by the Fund of all of the liabilities of The REvest
Growth & Income Fund, and the distribution of shares of the Fund to shareholders
of The REvest Growth & Income Fund upon liquidation of The REvest Growth &
Income Fund.
The Fund's portfolio is managed by Jennifer E. Goff, President of EII. She has
been a director and a shareholder of EII since its inception. Jennifer succeeded
her father, Thomas R. Ebright, as President when Mr. Ebright passed away in
1997. Prior to assuming the office of President, Ms. Goff was Vice President and
Assistant Portfolio Manager. Ms. Goff also worked full-time as a security
analyst at Royce & Associates, Inc. (formerly Quest Advisory Corp.) from July,
1993 to August, 1994 and then completed her graduate studies in Finance at
Columbia University (M.B.A. `96). While Ms. Goff is responsible for EII's
investment management activities, EII has entered into a sub-advisory agreement
with Gouws Capital Management, Inc. to share resources in growing and managing
the Fund.
As compensation for its services to the Fund, EII is entitled to receive
advisory fees equal to 1.00% per annum of the first $50 million of the Fund's
average net assets and 0.75% per annum of any additional average net assets over
$50 million. These fees are payable monthly from the assets of the Fund. For
1997, the fees paid to EII by The REvest Growth & Income Fund were equal to
1.00% of its average net assets.
INVESTMENT SUB-ADVISER
EII has retained Gouws Capital Management, Inc. ("GCMI") to provide investment
sub-advisory and marketing support services to the Fund. GCMI, located at 511
Congress Street, Portland, Maine, is an independent investment advisory firm,
founded in 1984 and registered as an investment adviser with the Securities and
Exchange Commission. GCMI's principal and President, Johann H. Gouws, is not
engaged in any other business or profession other than his involvement in
establishing Acadia Trust, N.A. ("AT"), an affiliated trust company. GCMI
provides investment advisory services to AT, who acts as a custodian for GCMI's
approximately $1 billion in client assets. GCMI has a value orientation and
emphasizes in-depth fundamental analysis and company visitation similar to EII.
Although EII alone will determine the investments that will be purchased,
retained or sold by the Fund, GCMI will assist EII in such determinations. GCMI
will also, at the direction of EII, be responsible for placing purchase and sell
orders for investments with broker-dealers, and for other related transactions.
GCMI has agreed to provide services in accordance with the Fund's investment
objectives, policies and restrictions.
As compensation for its services to the Fund, GCMI is entitled to receive
sub-advisory fees from EII equal to one-half of EII's net profit (net profit
shall mean the advisory fee paid to EII minus (i) all of EII's expenses,
including Ms. Goff's salary and benefits, and (ii) a preferential distribution
equal to Ms. Goff's salary and benefits paid to GCMI). Concurrent with the
reorganization of the Fund and as compensation for their part in AT's paying
half the expenses incurred in the reorganization, two of the principals of AT,
Johann H. Gouws and Richard E. Curran, Jr. received forty-eight percent (48%) of
the outstanding voting common stock of EII. Ms. Goff and her sister, Ellen E.
Carlton, own the remaining fifty-two percent (52%) of the outstanding voting
common stock of EII.
ADMINISTRATOR
Countrywide Fund Services, Inc. ("Countrywide") located at 312 Walnut Street,
21st Floor, Cincinnati, Ohio 45202, serves as administrator to the Fund.
Countrywide is a wholly-owned indirect subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending. As compensation, the Trust
shall pay Countrywide a monthly fee at the annual rate of .09% of the Fund's
average daily net assets up to $100 million; .075% of such assets from $100
million to $200 million; and .05% of such assets in excess of $200 million.
However, Countrywide shall be paid at least $2,000 per month for its services
for each series of the Fund.
DISTRIBUTION
CW Fund Distributors, Inc. ("CW Fund") located at 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202, acts as distributor of the Fund's shares. EII may pay,
to unaffiliated broker-dealers, financial institutions or other service
providers who introduce investors to the Fund and/or provide certain
administrative services to those of their customers who are Fund shareholders,
up to .25% of the assets invested in the Fund by their customers. Compensation
paid in connection with such programs may include payments from the Fund for
certain shareholder-related services being provided to the Fund. When shares of
the Fund are purchased in this way, the service provider, rather than
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its customer, may be the shareholder of record of the Fund's shares. Investors
should read the program materials provided by the service provider, including
information regarding fees which may be charged, in conjunction with this
Prospectus. Certain shareholder servicing features of the Fund may not be
available or may be modified in connection with the program of services offered.
BROKERAGE ALLOCATION
EII selects the brokers who execute the purchases and sales of the Fund's
portfolio securities and may have orders placed with brokers who provide
brokerage and research services to EII. EII is authorized, in recognition of the
value of brokerage and research services provided, to cause the Fund to pay
commissions to a broker in excess of the amounts which another broker might have
charged for the same transaction.
CUSTODIAN
Star Bank, N.A., located at 425 Walnut Street, Cincinnati, Ohio, 45202, serves
as custodian for the securities, cash and other assets of the Fund.
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YEAR 2000 DISCLOSURE
Like other mutual funds, financial and other business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by EII and other service providers to the Fund do not
properly process and calculate date-related information and data from and after
January 1, 2000. EII and Countrywide are taking steps to address the Year 2000
issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid adverse impact on the Fund from this problem.
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SIZE LIMITATIONS
If the Fund's assets total $350 million or more on December 31 of any year, then
the Fund will, commencing on March 1 of the next year, cease selling shares to
any new investors and will not resume selling its shares to new investors unless
and until its assets total $250 million or less on the last day of any
subsequent calendar quarter, in which case it may resume sales to new investors
on the first day of the next calendar quarter and continue them subject to the
$350 million limitation. Shareholders at the time of closure will be able to
purchase new shares after the Fund has closed.
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GENERAL INFORMATION
The Winter Harbor Fund (the "Trust") is a Delaware business trust registered
with the Securities and Exchange Commission as an open-end, diversified
management investment company. The Trustees have the authority to issue an
unlimited number of shares of beneficial interest, without shareholder approval,
and these shares may be divided into an unlimited number of series. Shareholders
are entitled to one vote per share. Shares vote by individual series on all
matters, except that shares are voted in the aggregate and not by individual
series when required by the 1940 Act and that if the Trustees determine that a
matter affects only one series, then only shareholders of that series are
entitled to vote on that matter.
Meetings of shareholders will not be held except as required by the 1940 Act or
other applicable law. A meeting will be held to vote on the removal of a Trustee
or Trustees of the Trust if requested in writing by the holders of not less than
10% of the outstanding shares of the Trust.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund pays dividends from net investment income quarterly and distributes its
net realized capital gains annually in December. Dividends and distributions
will be automatically reinvested in additional shares of the Fund unless the
shareholder chooses otherwise.
Shareholders will receive information annually as to the tax status of
distributions made by the Fund for the calendar year. For Federal income tax
purposes, all distributions by the Fund are taxable to shareholders when
declared, whether received in cash or reinvested in shares. Distributions paid
from the Fund's net investment income and short-term capital gains are taxable
to shareholders as ordinary income dividends. A portion of the Fund's dividends
may qualify for the corporate dividends-received
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deduction, subject to certain limitations. The portion of the Fund's dividends
qualifying for such deduction is generally limited to the aggregate taxable
dividends received by the Fund from domestic corporations. Distributions paid
from long-term capital gains of the Fund are treated as long-term capital gains,
regardless of how long the shareholder has held Fund shares.
If a shareholder disposes of shares held for six months or less at a loss, such
loss will be treated as a long-term capital loss to the extent of any long-term
capital gains reported by the shareholder with respect to such shares. A loss
realized on a taxable disposition of Fund shares may be disallowed to the extent
that additional Fund shares are purchased (including by reinvestment of
distributions) within 30 days before or after such disposition.
The redemption of shares is a taxable event, and a shareholder may realize a
capital gain or capital loss. The Fund will report to redeeming shareholders the
proceeds of their redemptions. However, because the tax consequences of a
redemption will also depend on the shareholder's basis in the redeemed shares
for tax purposes, shareholders should retain their account statements for use in
determining their tax liability on a redemption.
At the time of a shareholder's purchase, the Fund's net asset value may reflect
undistributed income or capital gains. A subsequent distribution of these
amounts by the Fund will be taxable to the shareholder even though the
distribution economically is a return of part of the shareholder's investment.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to non-corporate shareholders who have not
complied with Internal Revenue Service taxpayer identification regulations.
Shareholders may avoid this withholding requirement by certifying on the Account
Application Form their proper Social Security or Taxpayer Identification Number
and certifying that they are not subject to backup withholding.
The discussion of Federal income taxes above is for general information only.
The Statement of Additional Information includes an additional description of
Federal income tax aspects that may be relevant to a shareholder. Shareholders
may also be subject to state and local taxes on their investment. Investors
should consult their own tax advisers concerning the tax consequences of an
investment in the Fund.
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Net asset value per share (NAV) is determined as of the close of regular trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern Time) on each day it
is open for business. The New York Stock Exchange is normally closed on the
following days: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas. Fund shares are purchased and redeemed at their net asset value per
share next determined after an order is received by the Fund's transfer agent.
The net asset value per share is determined by dividing the total value of the
Fund's investments and other assets, less any liabilities, by the number of
outstanding shares of the Fund.
In determining net asset value, securities listed on an exchange or the Nasdaq
National Market System are valued on the basis of the last reported sale price
prior to the time the valuation is made or, if no sale is reported for that day,
at their bid price for exchange-listed securities and at the average of their
bid and ask prices for Nasdaq securities. Quotations are taken from the market
where the security is primarily traded. Other over-the counter securities for
which market quotations are readily available are valued at their bid price.
Securities for which market quotations are not readily available are valued at
their fair value under procedures established and supervised by the Board of
Trustees. Bonds and other fixed income securities may be valued by reference to
other securities with comparable ratings, interest rates and maturities, using
established independent pricing services.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND PURCHASING SHARES
The Fund's shares are offered on a no-load basis. To open a new account, other
than an IRA or 403(b)(7) account, either by mail, by wire or through
broker-dealers, simply complete and return the Account Application. Separate
forms must be used for opening IRA's or 403(b)(7) accounts; please call Investor
Information at 1-800-277-5573 if you need these forms. Please indicate the
amount you wish to invest. Your initial purchase must be at least $2,000 except
for IRA's and accounts establishing an Automatic Investment Plan, which have
$500 minimums.
8
<PAGE>
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- --------------------------------------------------------------------------------
If you need assistance with the Account Application Form or have any questions
about the Fund, please call Investor Information at 1-800-277-5573.
Subsequent investments may be made by mail, wire, or Automatic Investment (a
system of electronic funds transfer from your bank account), or Direct Deposit.
- -------------------
PURCHASING BY MAIL:
Complete and sign the enclosed Account Application Form
NEW ACCOUNT
-----------
Please include the amount of your initial investment on the Application Form,
make your check payable to "The REvest Value Fund", and mail to:
The REvest Value Fund
P.O. Box 5354
Cincinnati, OH 45201-5354
For express or registered mail, send to:
The REvest Value Fund
312 Walnut Street
21st Floor
Cincinnati, OH 45202
ADDITIONAL INVESTMENTS
TO EXISTING ACCOUNTS
--------------------
Additional investments should include the Invest-by-Mail remittance form
attached to your Fund confirmation statements. Please make your check payable to
"The REvest Value Fund", write your account number on your check and, using the
return envelope provided, mail to the address indicated on the Invest-by-Mail
form.
All written requests should be mailed to one of the addresses indicated for new
accounts.
- -------------------
PURCHASING BY WIRE:
Before Wiring: Please contact Shareholder Services at 1-877-4REVEST for wiring
instructions. To ensure proper receipt, please be sure your bank includes the
name of the Fund and your order number or account number. If you are opening a
new account, you must call Shareholder Services, complete the Account
Application Form and mail it to the "New Account" address above after completing
your wire arrangement. Note: Federal Funds wire purchase orders will be accepted
only when the Fund and Custodian are open for business.
- -------------------
PURCHASING BY AUTOMATIC INVESTMENT:
The Automatic Investment Plan allows you to make regular, automatic transfers
($50 minimum) from your bank account to purchase shares in your Winter Harbor
Fund account on the 15th or last day of the month. To establish the Automatic
Investment Plan, please provide the appropriate information on the Account
Application Form and ATTACH A VOIDED CHECK.
PURCHASING BY DIRECT DEPOSIT
The Payroll Direct Deposit Plan and Government Direct Deposit Plan let you have
investments ($50 minimum) made from your net payroll or government check into
your existing Winter Harbor Fund account each pay period. Your employer must
have direct deposit capabilities through ACH (Automated Clearing House)
available to its employees. You may terminate participation in these programs by
giving written notice to your employer or government agency, as appropriate. The
Fund is not responsible for the efficiency of the employer or government agency
making the payment or any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for Direct
Deposit form, which may be obtained from Investor Information by calling
1-800-277-5573.
- --------------------------------------------------------------------------------
CHOOSING A DISTRIBUTION OPTION
You may select one of three distribution options:
1. Automatic Reinvestment Option: Both net investment income dividends and
capital gains distributions will be reinvested in additional Fund
shares. This option will be selected for you automatically unless you
specify one of the other options.
9
<PAGE>
- --------------------------------------------------------------------------------
2. Cash Dividend Option: Your dividends will be paid in cash and your
capital gains distributions will be reinvested in additional Fund
shares.
3. All Cash Option: Both dividends and capital gains distributions will be
paid in cash.
You may change your option by calling Shareholder Services at 1-877-4REVEST.
- --------------------------------------------------------------------------------
IMPORTANT ACCOUNT INFORMATION
The easiest way to establish optional services on your account is to select the
options you desire when you complete your Account Application Form. If you want
to add shareholder options later, you may need to provide additional information
and a signature guarantee. Please call Shareholder Services at 1-877-4REVEST for
further assistance.
SIGNATURE GUARANTEES
For our mutual protection, we may require a signature guarantee on certain
written transaction requests. A signature guarantee verifies the authenticity of
your signature and may be obtained from banks, brokerage firms and any other
guarantor that our transfer agent deems acceptable. A signature guarantee cannot
be provided by a notary public.
BROKER/DEALER PURCHASES
If you purchase Fund shares through a registered broker-dealer or investment
adviser, the broker-dealer or adviser may charge a service fee.
TELEPHONE TRANSACTIONS
Neither the Fund nor its transfer agent will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. The transfer agent uses certain procedures to confirm that telephone
instructions are genuine, which may include requiring some form of personal
identification prior to acting on the instructions, providing written
confirmation of the transaction and/or recording incoming calls, and if it does
not follow such procedures, the Fund or the transfer agent may be liable for any
losses due to unauthorized or fraudulent instructions.
NONPAYMENT
If your check or wire does not clear, the transaction will be canceled and you
will be responsible for any loss the Fund incurs. 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.
TRADE DATE FOR PURCHASES
Your trade date is the date on which share purchases are credited to your
account. If your purchase is made by check or Federal Funds wire and is received
by the close of regular trading on the New York Stock Exchange (generally 4:00
p.m., Eastern time), your trade date is the date of receipt. If your purchase is
received after the close of regular trading on the Exchange, your trade date is
the next business day. Your shares are purchased at the net asset value
determined on your trade date.
In order to prevent lengthy processing delays caused by the clearing of foreign
checks, the Fund will accept only a foreign check which has been drawn in U.S.
dollars and has been issued by a foreign bank with a United States correspondent
bank.
The Trust reserves the right to suspend the offering of Fund shares to new
investors. The Trust also reserves the right to reject any specific purchase
request.
- --------------------------------------------------------------------------------
REDEEMING YOUR SHARES
You may redeem any portion of your account at any time. You may request a
redemption in writing or by telephone. Redemption proceeds normally will be sent
within three business days after the receipt of the request in Good Order.
- -------------------
REDEEMING BY MAIL
Requests should be mailed to: The REvest Value Fund, P.O. Box 5354, Cincinnati,
OH 45201-5354. (For express or registered mail, send your request to: The REvest
Value Fund, 312 Walnut Street, 21st Floor, Cincinnati, OH 45202). The redemption
price of shares will be their net asset value next determined after the Transfer
Agent has received all required documents in Good Order.
10
<PAGE>
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- --------------------------------------------------------------------------------
DEFINITION OF GOOD ORDER
Good Order means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees if either the value of the shares being redeemed
exceeds $25,000 or if the payment is to be sent to an address other
than the address of record or is to be made to a payee other than the
shareholder.
5. Other supporting legal documentation that might be required, in the
case of retirement plans, corporations, trusts, estates and certain
other accounts.
If you have any questions about what is required as it pertains to your request,
please call Shareholder Services at 1-877-4REVEST.
- ------------------------
REDEEMING BY TELEPHONE
Shareholders who have not established Automatic Withdrawal may redeem up to
$25,000 of their Fund shares by telephone, provided the proceeds are mailed to
their address of record. To redeem shares by telephone, you or your
pre-authorized representative may call Shareholder Services at 1-877-4REVEST.
Redemption requests received by telephone prior to the close of regular trading
on the New York Stock Exchange (generally 4:00 p.m., Eastern time) are processed
on the day of receipt; redemption requests received by telephone after the close
of regular trading on the Exchange are processed on the business day following
receipt. Telephone redemption service is not available for Trust-sponsored
retirement plan accounts. Telephone redemptions will not be permitted for a
period of sixty days after a change in the address of record. See also
"Important Account Information - Telephone Transactions".
- ------------------------
REDEEMING BY AUTOMATIC WITHDRAWAL
If you select the Automatic Withdrawal option, shares will be automatically
redeemed from your Fund account and the proceeds transferred to your bank
account according to the schedule you have selected. You must have at least
$25,000 in your Fund account to establish the Automatic Withdrawal option.
- --------------------
REDEEMING BY WIRE
The Wire Redemption option lets you redeem up to $25,000 of shares from your
Fund account by telephone and transfer the proceeds directly to your domestic
bank account. You may elect Wire Redemptions on the Account Application Form or
call Shareholder Services at 1-877-4REVEST for further assistance. There may be
a charge from the Transfer Agent and/or your bank for this service.
IMPORTANT REDEMPTION INFORMATION
If you are redeeming shares recently purchased by check or Automatic Investment
Plan, the proceeds of the redemption may not be sent until payment for the
purchase is collected, which may take up to fifteen calendar days. Otherwise,
redemption proceeds must be sent to you within seven days of receipt of your
request in Good Order.
If you experience difficulty in making a telephone redemption during periods of
drastic economic or market changes, your redemption request may be made by
regular or express mail. It will be processed at the net asset value next
determined after your request has been received by the Transfer Agent in Good
Order. The Trust reserves the right to revise or terminate the telephone
redemption privilege at any time.
The Trust may suspend the redemption right or postpone payment at times when the
New York Stock Exchange is closed or under any emergency circumstances as
determined by the Securities and Exchange Commission.
Although redemptions have always been made in cash, the Fund may redeem in kind
under certain circumstances.
EARLY REDEMPTION FEE
In order to discourage short-term trading, an early redemption fee of 1% of the
net asset value of the shares being redeemed is imposed if a shareholder redeems
shares of the Fund less than one year after becoming a shareholder. The fee is
payable to the Fund out of the redemption pro-
11
<PAGE>
- --------------------------------------------------------------------------------
ceeds otherwise payable to the shareholder and is used to offset the costs
associated with redemptions. No redemption fee will be payable by shareholders
who are (1) employees or representatives of the Trust or EII or members of their
immediate families or employee benefit plans for them, (2) participants in the
Automatic Withdrawal Plan, (3) certain Trust-approved Group Investment Plans and
charitable organizations, or (4) omnibus and other similar account customers of
certain Trust-approved broker-dealers and other institutions.
- ------------------
MINIMUM ACCOUNT BALANCE REQUIREMENT
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to involuntarily redeem shares in any Fund account that falls
below the minimum initial investment due to redemptions by the shareholder. If
at any time the balance in an account does not have a value at least equal to
the minimum initial investment or if an Automatic Investment Plan is
discontinued before an account reaches the minimum initial investment that would
otherwise be required, you may be notified that the value of your account is
below the Fund's minimum account balance requirement. You would then have sixty
days to increase your account balance before the account is liquidated. Proceeds
would be promptly paid to the shareholder.
- --------------------
TRANSFERRING OWNERSHIP
You may transfer the ownership of any of your Fund shares to another person by
writing to: Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati, OH
45201-5354. The request must be in Good Order (see "Redeeming Your Shares -
Definition of Good Order"). Before mailing your request, please contact
Shareholder Services (1-877-4REVEST) for full instructions.
- ----------------------
OTHER SERVICES
For more information about any of these services, please call Investor
Information at 1-800-277-5573.
STATEMENTS AND REPORTS
A statement will be sent to you each time you have a transaction in your account
and quarterly. Financial reports will be mailed semi-annually. To reduce
expenses, only one copy of most shareholder reports may be mailed to a
household. Please call Investor Information if you need additional copies.
TAX-SHELTERED RETIREMENT PLANS
Shares of the Fund are available for purchase in connection with certain types
of tax-sheltered retirement plans, including Individual Retirement Accounts
(IRA's) for individuals and 403(b)(7) Plans for employees of certain tax-exempt
organizations.
These plans should be established with the Trust only after an investor has
consulted with a tax adviser or attorney. Information about the plans and the
appropriate forms may be obtained from Investor Information at 1-800-277-5573.
THE WINTER HARBOR FUND
511 Congress Street
Portland, Maine 04101
INVESTMENT ADVISER:
Ebright Investments, Inc.
Jennifer E. Goff, President
511 Congress Street
Portland, Maine 04101
INVESTMENT SUB-ADVISER:
Gouws Capital Management, Inc.
511 Congress Street
Portland, Maine 04101
DISTRIBUTOR:
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, OH 45201-5354
CUSTODIAN:
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
OFFICERS OF THE TRUST:
Jennifer E. Goff, President
Robert G. Dorsey, Vice President
Mark J. Seger, Treasurer
John F. Splain, Secretary
Tina D. Hosking, Assistant Secretary
Brian J. Manley, Assistant Secretary
12
<PAGE>
[Pictures of coins.]
<PAGE>
Ebright Investments, Inc.
Investment Adviser
511 Congress Street, 9th Floor
Portland, ME 04101
(207) 774-7455 - (800) 277-5573
Fax (207) 772-7370
REVEST
VALUE FUND
P.O. Box 5354
Cincinnati, OH 45201-5354
(877) 473-8378
A Series of The Winter Harbor Fund
<PAGE>
The REvest Value Fund
STATEMENT OF ADDITIONAL INFORMATION
The REvest Value Fund (the "Fund") is a professionally-managed series
of The Winter Harbor Fund (the "Trust"), a Delaware business trust and an
open-end registered investment company.
The Fund is designed for long-term investors, including those who wish
to use its shares as a funding vehicle for certain tax-deferred retirement plans
(including Individual Retirement Account ("IRA") plans), and not for investors
who intend to liquidate their investments after a short period of time.
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Trust's current Prospectus for the Fund
(dated September 28, 1998). Please retain this document for future reference.
The audited financial statements included in the Annual Report to Shareholders
of the Fund for the fiscal year ended December 31, 1997, as well as the
unaudited financial statements included in the Semi-Annual Report for the six
months ended June 30, 1998, are incorporated herein by reference. To obtain an
additional copy of the Fund's Prospectus, Annual Report, or Semi-Annual Report
please call Investor Information at 1-800-277-5573.
Investment Adviser Transfer Agent
Ebright Investments, Inc. ("EII") Countrywide Fund Services, Inc.
Distributor Custodian
CW Fund Distributors, Inc. ("CW Fund") Star Bank, N.A.
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS 1
RISK FACTORS AND SPECIAL CONSIDERATIONS 3
MANAGEMENT OF THE TRUST 6
PRINCIPAL HOLDERS OF SHARES 9
INVESTMENT ADVISORY SERVICES 9
DISTRIBUTOR 11
CUSTODIAN 12
INDEPENDENT ACCOUNTANTS 12
PORTFOLIO TRANSACTIONS 12
PRICING OF SHARES BEING OFFERED 13
REDEMPTIONS IN KIND 13
TAXATION 13
DESCRIPTION OF THE TRUST 16
PERFORMANCE DATA 17
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement those set
forth in the Fund's Prospectus. Unless otherwise noted, whenever an investment
policy or limitation states a maximum percentage of the Fund's assets that may
be invested in any security or other asset or sets forth a policy regarding
quality standards, the percentage limitation or standard will be determined
immediately after giving effect to the Fund's acquisition of the security or
other asset. Accordingly, any subsequent change in values, net assets or other
circumstances will not be considered in determining whether the investment
complies with the Fund's investment policies and limitations.
The Fund's fundamental investment policies cannot be changed without
the approval of a "majority of the outstanding voting securities" (as defined in
the Investment Company Act of 1940 (the
<PAGE>
"1940 Act")) of the Fund. Except for the fundamental investment restrictions set
forth below, the investment policies and limitations described in this Statement
of Additional Information are operating policies and may be changed by the Board
of Trustees ("Board") without shareholder approval. However, shareholders will
be notified prior to a material change in an operating policy affecting the
Fund.
The Fund may not, as a matter of fundamental policy:
1. Issue any senior securities;
2. Purchase securities on margin or write call options on its
portfolio securities;
3. Sell securities short;
4. Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes in an amount not exceeding
5% of its total assets;
5. Underwrite the securities of other issuers;
6. Invest more than 5% of its total assets in the securities of
foreign issuers;
7. Invest in restricted securities or in repurchase agreements
which mature in more than seven days;
8. Invest more than 10% of its net assets in securities without
readily available market quotations (i.e., illiquid
securities);
9. Invest, with respect to 75% of its total assets, more than 5%
of its assets in the securities of any one issuer (except U.S.
Government securities);
10. Invest more than 25% of its assets in any one industry;
11. Acquire more than 10% of the outstanding voting securities
of any one issuer;
12. Purchase or sell real estate or real estate mortgage loans or
invest in the securities of real estate companies unless such
securities are publicly-traded;
13. Purchase or sell commodities or commodity contracts;
14. Make loans, except for purchases of portions of issues of
publicly-distributed bonds, debentures and other securities,
whether or not such purchases are made upon the original
issuance of such securities, and except that the Fund may loan
up to 5% of its assets to qualified brokers, dealers or
institutions for their use relating to short sales or other
securities transactions (provided that such loans are fully
collateralized at all times);
15. Invest in companies for the purpose of exercising control of
management;
16. Purchase portfolio securities from or sell such securities
directly to any of the Trust's Trustees, officers, employees
or investment adviser, as principal for their own accounts;
17. Invest in the securities of other investment companies; or
18. Purchase any warrants, rights or options, except that the Fund
may, if no value is assigned thereto, acquire warrants in
units with or attached to debt securities or non-convertible
preferred stock.
2
<PAGE>
The Fund may not, as a matter of operating policy:
1. Invest more than 5% of its net assets in lower-rated (high-
risk) non-convertible debt securities; or
2. Enter into repurchase agreements with any counterparty other
than the custodian of the Fund's assets or having a term of
more than seven days.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Fund's Rights as Stockholder
As noted above, the Fund may not invest in a company for the purpose of
exercising control of management. However, the Fund may exercise its rights as a
stockholder and communicate its views on important matters of policy to
management, the board of directors and/or stockholders if EII or the Board
determine that such matters could have a significant effect on the value of the
Fund's investment in the company. The activities that the Fund may engage in,
either individually or in conjunction with others, may include, among others,
supporting or opposing proposed changes in a company's corporate structure or
business activities; seeking changes in a company's board of directors or
management; seeking changes in a company's direction or policies; seeking the
sale or reorganization of a company or a portion of its assets; or supporting or
opposing third party takeover attempts. This area of corporate activity is
increasingly prone to litigation, and it is possible that the Fund could be
involved in lawsuits related to such activities. EII will monitor such
activities with a view to mitigating, to the extent possible, the risk of
litigation against the Fund and the risk of actual liability if the Fund is
involved in litigation. However, no guarantee can be made that litigation
against the Fund will not be undertaken or liabilities incurred.
The Fund may, at its expense or in conjunction with others, pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interests of security holders if EII and the Trust's Board determine
this to be in the best interests of the Fund's shareholders.
Securities Lending
The Fund may lend up to 5% of its assets to brokers, dealers and other
financial institutions. Securities lending allows the Fund to retain ownership
of the securities loaned and, at the same time, to earn additional income. Since
there may be delays in the recovery of loaned securities or even a loss of
rights in collateral supplied should the borrower fail financially, loans will
be made only to parties that participate in a Global Securities Lending Program
monitored by the Fund's custodian and who are deemed by it to be of good
standing. Furthermore, such loans will be made only if, in EII's judgment, the
consideration to be earned from such loans would justify the risk.
EII understands that it is the current view of the staff of the
Securities and Exchange Commission that the Fund may engage in such loan
transactions only under the following conditions: (1) the Fund must receive 100%
collateral in the form of cash or cash equivalents (e.g., U.S. Treasury bills or
notes) from the borrower; (2) the borrower must increase the collateral whenever
the market value of the securities loaned determined on a daily basis) rises
above the value of the collateral; (3) after giving notice, the Fund must be
able to terminate the loan at any time; (4) the Fund must receive reasonable
interest on the loan or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest or other distributions on the securities
loaned and to any increase in market value; (5) the Fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Fund must be able to
vote proxies on the securities loaned, either by terminating the loan or by
entering into an alternative arrangement with the borrower.
3
<PAGE>
Lower-Rated (High-Risk) Debt Securities
The Fund may invest up to 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities. They may be rated from Ba to Caa by
Moody's Investors Service, Inc. or from BB to CCC by Standard & Poor's
Corporation or may be unrated. These securities have poor protection with
respect to the payment of interest and repayment of principal and may be in
default as to the payment of principal or interest. These securities are often
considered to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of lower-rated
(high-risk) debt securities may fluctuate more than those of higher-rated debt
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.
While the market for lower-rated (high-risk) corporate debt securities
has been in existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such securities
to fund highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of the future performance of
the high-yield/high-risk bond market, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-rated (high-risk)
debt securities that defaulted rose significantly above prior levels.
The market for lower-rated (high-risk) debt securities may be thinner
and less active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. If market quotations cease to be
readily available for a lower-rated (high-risk) debt security in which the Fund
has invested, the security will then be valued in accordance with procedures
established by the Board. Judgment plays a greater role in valuing lower-rated
(high-risk) debt securities than is the case for securities for which more
external sources for quotations and last sale information are available. Adverse
publicity and changing investor perceptions may affect the Fund's ability to
dispose of lower-rated (high-risk) debt securities.
Since the risk of default is higher for lower-rated (high-risk) debt
securities, EII's research and credit analysis may play an important part in
managing securities of this type for the Fund. In considering such investments
for the Fund, EII will attempt to identify those issuers of lower-rated
(high-risk) debt securities whose financial condition is adequate to meet future
obligations, has improved or is expected to improve in the future. EII's
analysis may focus on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects and the experience and
managerial strength of the issuer.
Foreign Investments
The Fund may invest up to 5% of its total assets in the securities of
foreign issuers. Foreign investments can involve significant risks in addition
to the risks inherent in U.S. investments. The value of securities denominated
in or indexed to foreign currencies and of dividends and interest from such
securities can change significantly when foreign currencies strengthen or weaken
relative to the U.S. dollar. Foreign securities markets generally have less
trading volume and less liquidity than U.S. markets, and prices on some foreign
markets can be highly volatile. Many foreign countries lack uniform accounting
and disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
4
<PAGE>
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest or adverse diplomatic
developments. There is no assurance that EII will be able to anticipate these
potential events or counter their effects.
The considerations noted above are generally intensified for
investments in developing countries. Developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.
American Depositary Receipts (ADRs) are certificates held in trust by a
bank or similar financial institution evidencing ownership of shares of a
foreign-based issuer. Designed for use in U.S. securities markets, ADRs are
alternatives to the purchase of the underlying foreign securities in their
national markets and currencies.
ADR facilities may be established as either unsponsored or sponsored.
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting instructions and to
provide shareholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities.
Repurchase Agreements
In a repurchase agreement, the Fund in effect makes a loan by
purchasing a security and simultaneously committing to resell that security to
the seller at an agreed upon price on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value (at least equal to the amount
of the agreed upon resale price and marked to market daily) of the underlying
security.
The Fund may engage in repurchase agreements with respect to any U.S.
Government security. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delays and costs to
the Fund in connection with bankruptcy proceedings), it is the policy of the
Trust to enter into repurchase agreements only with its custodian, Star Bank,
N.A, and having a term of seven days or less.
5
<PAGE>
Portfolio Turnover
The Fund will not trade in securities for short-term profits, but, when
circumstances warrant, securities may be sold without regard to the length of
time held. For the years ended December 31, 1997, 1996 and 1995, the Fund's
predecessor The REvest Growth & Income Fund, a series of The Royce Fund, had
portfolio turnover rates of 54%, 64% and 53%, respectively. Higher portfolio
turnover rates would increase the Fund's transaction costs, including brokerage
commissions.
MANAGEMENT OF THE TRUST
The following table sets forth certain information as to each Trustee
and officer of the Trust:
<TABLE>
<S> <C> <C>
NAME AND ADDRESS POSITION HELD WITH THE TRUST PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- ---------------------------- -----------------------------------------
Jennifer E. Goff* (27) Trustee and President Ms. Goff has been the President of
511 Congress Street Ebright Investments, Inc. since
Portland, Maine 04101 July 1997. She was its Vice
President from August 1994 to
1997. From 1993 to 1994, Ms. Goff
was a Research Analyst at Royce &
Associates, Inc. (formerly Quest
Advisory Corp.) in New York, New
York.
Judith Freyer (49) Trustee Ms. Freyer has for the last five
2000 Market Street years been the Vice President of
Philadelphia, Pennsylvania 19103 Investments and Treasurer for the
Board of Pensions of the
Presbyterian Church (U.S.A.).
Earl Mummert (52) Trustee Mr. Mummert has for the last five
500 Nationwide Drive years been a Vice President for
Harrisburg, Pennsylvania 17110 Conrad M. Siegel, Inc.
Vincent Phillips (52) Trustee Mr. Phillips has for the last five
179 Belle Forrest Circle years been the President of
Suite 202 Phillips & Company, Inc.
Nashville, Tennessee 37221
Robert G. Dorsey (41) Vice President Mr. Dorsey is President and
312 Walnut Street Treasurer of Countrywide Fund
21st Floor Services, Inc. ("CFSI")
Cincinnati, OH 45202 (a registered transfer agent) and
Treasurer of Countrywide Investments,
Inc. ("CII") (a registered broker-dealer
and investment advisor) and
Countrywide Financial Services,
Inc. ("CF") (a financial
services company and parent of
CFSI and CII and a wholly
owned subsidiary of Countrywide
Credit Industries, Inc. ("CCI")).
He is also Vice President
6
<PAGE>
of Brundage Story and Rose
Investment Trust, PRAGMA Investment
Trust, Markman MultiFund Trust,
Dean Family of Funds, The New
York State Opportunity Funds,
Lake Shore Family of Funds and
Maplewood Investment Trust,
and Assistant Vice President
of Interactive Investments,
Schwartz Investment Trust,
The Tuscarora Investment
Trust, Williamsburg
Investment Trust and The
Gannett Welsh & Kotler Funds
(all of which are registered
investment companies).
Mark J. Seger (36) Treasurer Mr. Seger is Vice President of CF
312 Walnut Street and CFSI. He is also Treasurer of
21st Floor Countrywide Investment Trust,
Cincinnati, OH 45202 Countrywide Tax-Free Trust,
Countrywide Strategic Trust,
Brundage Story and Rose Investment
Trust, Markman MultiFund Trust,
PRAGMA Investment Trust,
Williamsburg Investment Trust,
Dean Family of Funds, The New
York State Opportunity Funds,
Lake Shore Family of Funds and
Maplewood Investment Trust,
and Assistant Treasurer of
Interactive Investments, The
Tuscarora Investment Trust,
Schwartz Investment Trust,
and The Gannett Welsh & Kotler Funds.
John F. Splain (41) Secretary Mr. Splain is Secretary and General
312 Walnut Street Counsel of CFSI, CII and CF. He is
21st Floor also Secretary of Countrywide
Cincinnati, OH 45202 Investment Trust, Countrywide Tax-
Free Trust, Countrywide Strategic Trust,
Brundage Story and Rose Investment Trust,
Markman MultiFund Trust, The
Tuscarora Investment Trust,
PRAGMA Investment Trust,
Williamsburg Investment Trust, Lake
Shore Family of Funds and
Maplewood Investment Trust, and
Assistant Treasurer of Interactive
Investments, Schwartz Investment
Trust, Dean Family of Funds, The
New York State Opportunity Funds,
and The Gannett Welsh & Kotler Funds.
7
<PAGE>
Tina D. Hosking (29) Assistant Secretary Ms. Hosking is Counsel of CFSI
312 Walnut Street She is also Secretary of the Dean
21st Floor Family of Funds, The New York
Cincinnati, OH 45202 State Opportunity Funds, and
Assistant Secretary of The
Gannett Welsh & Kotler Funds,
Wells Family of Real Estate
Funds and Lake Shore Family of Funds.
Brian J. Manley (34) Assistant Secretary Mr. Manley is Assistant Vice
312 Walnut Street President and Client Services
21st Floor Manager of CFSI.
Cincinnati, OH 45202
</TABLE>
*An "interested person" of the Trust under Section 2(a)(19) of the 1940 Act.
The Board of Trustees has an Audit Committee, comprised of Judith
Freyer and Vincent Phillips. The Audit Committee is responsible for recommending
the selection and nomination of independent auditors for the Fund and for
conducting post-audit reviews of its financial condition with such auditors.
The Fund has a Valuation Committee, comprised of Jennifer E. Goff, Judith
Freyer, Vincent Phillips and Brian J. Manley. The Valuation Committee assures
that securities are valued in accordance with the valuation procedures of the
Fund.
Each Trustee of the Trust (other than Jennifer E. Goff, who is an
interested person of the Trust) is paid $500 for each Board meeting attended.
Disinterested Trustees are also reimbursed for travel and related expenses
incurred in attending meetings of the Board. No officer of the Trust is
compensated by the Trust. The Trust has not adopted any form of retirement plan
covering Trustees or officers.
The following table provides the estimated aggregate compensation paid by the
Trust to each Trustee. Estimates are presented for the fiscal year ending
December 31, 1998.
<TABLE>
<S> <C> <C> <C>
Pension or
Retirement
Benefits
Accrued as
Aggregate Part of Trust
Compensation Expenses Total Compensation
-----------------------------------------------------------------
Jennifer E. Goff* 0 0 0
Trustee
Judith Freyer $1,500 0 $1,500
Trustee
Earl Mummert $1,000 0 $1,000
Trustee
Vincent Phillips $1,500 0 $1,500
Trustee
</TABLE>
8
<PAGE>
PRINCIPAL HOLDERS OF SHARES
As of August 20, 1998, the following persons were known to the Trust to be the
beneficial owners of 5% or more of the outstanding shares of the Fund:
<TABLE>
<S> <C> <C> <C>
Number Type of Percentage of
Name and Address of Shares Ownership Outstanding
- ---------------- --------- --------- -----------
Shares
- ------
Charles Schwab & Co. Inc. 404,033 Record 16.70%
Reinvest Account
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
The Carlisle Companies 473,582 Beneficial 19.60%
Defined Benefit Retirement Plan
250 South Clinton Street
Suite 201
Syracuse, NY 13202
Grosky Druckman DiGiacomo 130,005 Beneficial 5.38%
Clemens Profit Sharing Plan
Fourth & Hathaway Streets
Lebanon, PA 17042
</TABLE>
As of such date, all of the trustees and officers of the Trust as a
group owned approximately 0.36% of the Fund's outstanding shares, and all of the
directors, officers and employees of the Fund's investment adviser owned
approximately 4.30% of the Fund's outstanding shares.
INVESTMENT ADVISORY SERVICES
Investment Adviser
The Trust's business and affairs are managed under the direction of its
Board of Trustees. Ebright Investments, Inc. ("EII"), the Fund's investment
adviser, is responsible for the management of the Fund's portfolio of
investments, subject to the authority of the Board of Trustees. EII, located at
511 Congress Street, Portland, Maine, is an independent investment advisory
firm, founded in 1994 and registered as an investment adviser with the
Securities and Exchange Commission. EII was formerly known as Royce, Ebright &
Associates, Inc. EII was the investment adviser to The REvest Growth & Income
Fund, which commenced operations as a series of The Royce Fund on August 1,
1994. On September 25, 1998, The REvest Growth & Income Fund ceased to be a
series of The Royce Fund and was reorganized into the Fund as the sole series of
the Trust. This reorganization consisted of the transfer of all of the assets of
The REvest Growth & Income Fund to the Fund in exchange solely for shares of
beneficial interest of the Fund, the assumption of all of the liabilities of The
REvest Growth & Income Fund and the distribution of shares of the Fund to
shareholders of The REvest Growth & Income Fund upon liquidation of The REvest
Growth & Income Fund.
The Fund's portfolio is managed by Jennifer E. Goff, President of EII. She
has been a director and a shareholder of EII since its inception. Jennifer
succeeded her father, Thomas R. Ebright, as President when Mr. Ebright passed
away in 1997. Prior to assuming the office of President, Ms. Goff was Vice
President and Assistant Portfolio Manager. Ms. Goff also worked full-time as a
security analyst at Royce & Associates, Inc. (formerly Quest Advisory Corp.)
from July, 1993 to August, 1994 and then completed her graduate studies in
Finance at Columbia University (M.B.A. `96). While Ms. Goff is responsible for
EII's investment management activities, EII has entered into a sub-advisory
agreement with Gouws Capital Management, Inc. to share resources in growing and
managing the Fund.
9
<PAGE>
As compensation for its services to the Fund, EII is entitled to
receive advisory fees equal to 1.00% per annum of the first $50 million of the
Fund's average net assets and 0.75% per annum of any additional average net
assets over $50 million. These fees are payable monthly from the assets of the
Fund. For 1997, the fees paid to EII by The REvest Growth & Income Fund were
1.00% of its average net assets.
Under the Investment Advisory Agreement, EII (1) determines the
composition of the Fund's portfolio, the nature and timing of the changes in it
and the manner of implementing such changes, subject to any directions it may
receive from the Trust's Board of Trustees; (2) provides the Fund with
investment advisory, research and related services; (3) furnishes, without
expense to the Trust, the services of such members of its organization as may be
duly elected executive officers or Trustees of the Trust; and (4) pays all
executive officers' salaries and expenses and all expenses incurred in
performing its investment advisory duties under the Investment Advisory
Agreement.
EII furnishes at its own expense all services, facilities and personnel
necessary to perform its duties under the Investment Advisory Agreement between
the Trust and EII. The Investment Advisory Agreement provides for an initial
term of two years from September 25, 1998, its effective date, and for its
continuance in effect for successive twelve-month periods thereafter, provided
the agreement is specifically approved at least annually by either the vote of a
majority of the disinterested Trustees or by vote of a majority of the
outstanding voting securities of the Fund.
The Investment Advisory Agreement is terminable without penalty on 60
days' written notice when authorized either by vote of a majority of the
outstanding voting securities of the Fund, by a vote of a majority of the Board
or by EII and will automatically terminate in the event of its assignment. The
Investment Advisory Agreement also provides that EII shall not be liable for any
error of judgment or mistake of law except for willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of its duties and
obligations under the Investment Advisory Agreement and applicable law. The
Investment Advisory Agreement provides that EII may render services to others.
The Trust pays all administrative and other costs and expenses
attributable to its operations and transactions, including, without limitation,
transfer agent and custodian fees; legal, administrative and clerical services;
rent for its office space and facilities; auditing; preparation, printing and
distribution of its prospectuses, proxy statements, shareholders reports and
notices; supplies and postage; Federal and state registration fees; Federal,
state and local taxes; non-affiliated trustees' fees; and brokerage commissions.
For the years ended December 31, 1997, 1996 and 1995, EII received
advisory fees from The REvest Growth & Income Fund of $447,437, $375,493 and
$320,761, respectively.
Investment Sub-adviser
EII has retained Gouws Capital Management, Inc. ("GCMI") to provide
investment sub-advisory and marketing support services to the Fund. GCMI,
located at 511 Congress Street, Portland, Maine, is an independent investment
advisory firm, founded in 1984 and registered as an investment adviser with the
Securities and Exchange Commission. GCMI's principal and President, Johann H.
Gouws, is not engaged in any other business or profession other than his
involvement in establishing Acadia Trust, N.A. ("AT"), an affiliated trust
company. GCMI provides investment advisory services to AT, who acts as a
custodian for the majority of GCMI's approximately $800 million in client
assets. GCMI has a value orientation and emphasizes in-depth fundamental
analysis and company visitation similar to EII.
Although EII alone will determine the investments that will be
purchased, retained or sold by the Fund, GCMI will assist EII in such
determinations. GCMI will also, at the direction of EII, be responsible for
placing purchase and sell orders for investments with broker-dealers, and for
other related transactions.
10
<PAGE>
GCMI has agreed to provide services in accordance with the Fund's investment
objectives, policies and restrictions.
As compensation for its services to the Fund, GCMI is entitled to
receive sub-advisory fees from EII equal to one-half of EII's net profit (net
profit shall mean the advisory fee paid to EII minus all of EII's expenses,
including Ms. Goff's salary and benefits, and the preferential distribution
described below). GCMI is also entitled to a preferential distribution equal to
Ms. Goff's salary and benefits. Concurrent with the reorganization of the Fund
and as compensation for their part in AT's paying half the expenses incurred in
the reorganization, two of the principals of AT, Johann H. Gouws and Richard E.
Curran, Jr. received forty-eight percent (48%) of the outstanding voting common
stock of EII. Ms. Goff and her sister, Ellen E. Carlton, own the remaining
fifty-two percent (52%) of the outstanding voting common stock of EII.
GCMI furnishes at its own expense all services, facilities and
personnel necessary to perform its duties under the Sub-advisory Agreement
between EII and GCMI. The Sub-advisory Agreement provides for an initial term of
two years from September 25, 1998, its effective date, and for its continuance
in effect for successive twelve-month periods thereafter, provided the agreement
is specifically approved at least annually by either the vote of a majority of
the disinterested Trustees or by vote of a majority of the outstanding voting
securities of the Fund.
The Sub-advisory Agreement is terminable without penalty on 60 days'
written notice when authorized either by vote of a majority of the outstanding
voting securities of the Fund or by a vote of a majority of the Board, or by EII
on not less than 120 days' written notice, and will automatically terminate in
the event of its assignment or upon termination of the Investment Advisory
Agreement. The Sub-advisory Agreement also provides that GCMI shall not be
liable for any error of judgment or mistake of law except for willful
misfeasance, bad faith or gross negligence in the performance of its duties and
obligations under the Sub-advisory Agreement and applicable law. The
Sub-advisory Agreement provides that GCMI may render services to others.
ADMINISTRATOR
Countrywide Fund Services, Inc. ("Countrywide") located at 312 Walnut
Street, 21st Floor, Cincinnati, Ohio 45202, serves as administrator to the Fund.
Countrywide is a wholly-owned indirect subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending. Countrywide is responsible for
the calculation of the Fund's daily net asset value per share and for the
maintenance of its portfolio and general accounting records and also provides
certain shareholder services. As compensation, the Fund shall pay Countrywide a
monthly fee at the annual rate of .09% of the Fund's average daily net assets up
to $100 million; .075% of such assets from $100 million to $200 million; and
.05% of such assets in excess of $200 million. However, Countrywide shall be
paid at least $2,000 per month for its services for each series of the Trust.
DISTRIBUTOR
CW Fund Distributors, Inc. ("CW Fund") located at 312 Walnut Street,
21st Floor, Cincinnati, Ohio 45202, acts as distributor of the Fund's shares.
EII may pay unaffiliated broker-dealers who introduce investors to the Fund and
provide certain administrative services to those of their customers who are Fund
shareholders, up to .25% of the assets invested in the Fund by their customers.
Any such arrangements will be obligations of EII and not of the Fund or CW Fund.
CUSTODIAN
Star Bank, N.A. ("Star Bank") is the custodian for the securities, cash
and other assets of the Fund. The Trust has authorized Star Bank to deposit
certain domestic and foreign portfolio securities in several central depository
systems and to use foreign sub-custodians for certain foreign portfolio
securities, as
11
<PAGE>
allowed by Federal law. Star Bank's main office is at 425 Walnut Street, M/L
6118, 6th Floor, Cincinnati, Ohio 45202.
TRANSFER AGENT
Countrywide is the transfer agent and dividend disbursing agent for the
Fund's shares. It does not participate in the Fund's investment decisions. All
mutual fund transfer, dividend disbursing and shareholder service activities are
performed by Countrywide at 312 Walnut Street, 21st Floor, Cincinnati, OH 45202.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers L.L.P., whose address is 100 East Broad Street,
Ste. 2100, Columbus, Ohio 43215-3671 are the independent accountants of the
Fund.
PORTFOLIO TRANSACTIONS
EII is responsible for selecting the brokers who, as agents for the
Fund, effect the purchases and sales of the Fund's portfolio securities. No
broker is selected to effect a securities transaction for the Fund unless such
broker is believed by EII to be capable of obtaining the best price and
execution for the security involved in the transaction. In addition to
considering a broker's execution capability, EII generally considers the
brokerage and research services which the broker has provided to it, including
any research relating to the security involved in the transaction and/or to
other securities. Such services may include general economic research, market
and statistical information, industry and technical research, strategy and
company research, and may be written or oral. EII determines the overall
reasonableness of brokerage commissions paid, after considering the amount
another broker might have charged for effecting the transaction and the value
placed by EII upon the brokerage and/or research services provided by such
broker.
EII and GCMI are authorized, under Section 28(e) of the Securities
Exchange Act of 1934 and under their respective advisory agreements for the
Fund, to pay a brokerage commission in excess of that which another broker might
have charged for effecting the same transaction, in recognition of the value of
brokerage and research services provided by the broker.
EII and GCMI may also direct that the Fund's brokerage business be
placed with firms which promote the sale of the Fund's shares, consistent with
achieving the best price and execution. In no event will the Fund's brokerage
business be placed with CW Fund.
GCMI, under the direction of EII, will place purchase and sale orders
for the Fund's portfolio securities with broker-dealers that have been
pre-approved by EII. EII is not obligated to reimburse GCMI for any additional
out-of-pocket costs and expenses incurred by GCMI in rendering this service.
Even though investment decisions for the Fund are made by EII independently from
those made by GCMI for GCMI's managed accounts, securities of the same issuer
may be purchased, held or sold by more than one of such accounts. When the Fund
and one or more of GCMI's managed accounts are simultaneously engaged in the
purchase or sale of the same security, GCMI will seek to average the
transactions as to price and allocate them as to amount in a manner believed to
be equitable to each. In some cases, these procedures may adversely affect the
price paid or received by the Fund or the size of the position obtainable for
the Fund.
For the years ended December 31, 1997, 1996 and 1995, the Fund's
predecessor, The REvest Growth & Income Fund, paid brokerage commissions of
$95,045, $87,201 and $120,802, respectively. For the same periods, the aggregate
amounts of brokerage transactions of the Fund having a research component were
$20,281,837, $21,876,925 and $23,404,622, respectively, and the amounts of
commissions paid by the Fund for such transactions were $55,612, $66,890 and
$87,718, respectively.
12
<PAGE>
The REvest Growth & Income Fund did not acquire any securities of its
regular brokers and dealers, as defined in the 1940 Act, or of their parents,
during the year ended December 31, 1997.
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of the Fund's shares is based on its
current net asset value per share. See "Net Asset Value Per Share" in the Fund's
Prospectus.
As set forth under "Net Asset Value Per Share," the Fund's custodian
determines the net asset value per Fund share at the close of regular trading on
the New York Stock Exchange on each day that the Exchange is open. The Exchange
is open on all weekdays which are not holidays. Thus, it is closed on Saturdays
and Sundays and on New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which would, in
the judgment of the Board of Trustees or management, make it undesirable for the
Fund to pay for all redemptions in cash. In such cases, payment may be made in
portfolio securities or other property of the Fund. However, the Trust has
obligated itself under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the Trust's net
assets if that is less) in any 90-day period. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share for purposes of such redemption. Shareholders
receiving such securities would incur brokerage costs when these securities are
sold.
TAXATION
The Fund has qualified and intends to remain qualified each year for
the tax treatment applicable to a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To
so qualify, the Fund must comply with certain requirements of the Code relating
to, among other things, the source of its income and the diversification of its
assets.
By so qualifying, the Fund will not be subject to Federal income taxes
to the extent that its net investment income and capital gain net income are
distributed, so long as the Fund distributes, as ordinary income dividends, at
least 90% of its investment company taxable income.
If the Fund were to be unable to satisfy the 90% distribution
requirement or otherwise were to fail to qualify as a RIC in any year, the Fund
would be subject to tax in such year on all of its taxable income, whether or
not the Fund made any distributions to shareholders. To qualify again as a RIC
in a subsequent year, the Fund would be required to distribute to shareholders
as an ordinary income dividend, its earnings and profits attributable to non-RIC
years (less any interest charge hereinafter described), and also would be
required to pay to the Internal Revenue Service ("IRS") an interest charge on
50% of such earnings and profits. In addition, if the Fund failed to qualify as
a RIC for a period greater than one taxable year, then, except as provided in
regulations to be promulgated, the Fund would be required to recognize and pay
tax on any net built-in gains (the excess of aggregate gains, including items of
income, over aggregate losses that would have been realized if the Fund had been
liquidated) in order to qualify as a RIC in a subsequent year.
A non-deductible 4% excise tax will be imposed on the Fund to the
extent that it does not distribute (including by declaration of certain
dividends), during each calendar year, (1) 98% of its ordinary income for such
calendar year, (2) 98% of its capital gain net income for the one-year period
ending October 31 of such calendar year (or the Fund's actual taxable year
ending December 31, if elected) and (3) certain other amounts not distributed in
previous years. To avoid the application of this tax, the
13
<PAGE>
Fund will endeavor to distribute substantially all of its ordinary income and
capital gain net income during the calendar year in which such income is earned
and such gains are recognized.
The Fund will maintain accounts and calculate income by reference to
the U.S. dollar for U.S. Federal income tax purposes. Investments calculated by
reference to foreign currencies will not necessarily correspond to the Fund's
distributable income and capital gains for U.S. Federal income tax purposes as a
result of fluctuations in foreign currency exchange rates. Furthermore, if any
exchange control regulations were to apply to the Fund's investments in foreign
securities, such regulations could restrict the Fund's ability to repatriate
investment income or the proceeds of sales of securities, which may limit the
Fund's ability to make sufficient distributions to satisfy the 90% distribution
requirement and avoid the 4% excise tax.
Income earned or received by the Fund from investments in foreign
securities may be subject to foreign withholding taxes unless a withholding
exemption is provided under an applicable treaty. Any such taxes would reduce
the Fund's cash available for distribution to shareholders. It is currently
anticipated that the Fund will not be eligible to elect to "pass through" such
taxes to its shareholders for purposes of enabling them to claim foreign tax
credits or other U.S. income tax benefits with respect to such taxes.
If the Fund invests in stock of a so-called passive foreign investment
company ("PFIC"), it may be subject to Federal income tax on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The amount so
allocated to any taxable year of the Fund prior to the taxable year in which the
excess distribution or disposition occurs would be taxed to the Fund at the
highest marginal income tax rate in effect for such years, and the tax would be
further increased by an interest charge. The amount allocated to the taxable
year of the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be taxable to the
Fund to the extent distributed by the Fund as a dividend to shareholders.
The Fund may be able to make an election, in lieu of being taxable in
the manner described above, to include annually in income its pro rata share of
the ordinary earnings and net capital gain (whether or not distributed) of the
PFIC. In order to make this election, the Fund would be required to obtain
annual information from the PFICs in which it invests, which in many cases may
be difficult to obtain. Alternatively, if eligible, the Fund may be able to
elect to mark to market its PFIC stock, resulting in the stock being treated as
sold at fair market value on the last business day of each taxable year. Any
resulting gain would be reported as ordinary income, and any resulting loss
would not be recognized. The Fund may make either of these elections with
respect to its investments (if any) in PFICs.
Investments of the Fund in securities issued at a discount or providing
for deferred interest payments or payments of interest in kind (which investment
are subject to special tax rules under the Code) will affect the amount, timing
and character of distributions to shareholders. For example, if the Fund were to
acquire securities issued at a discount, the Fund would be required to accrue as
ordinary income each year a portion of the discount (even though the Fund may
not have received cash interest payments equal to the amount included in income)
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
Distributions
For Federal income tax purposes, distributions by the Fund from net
investment income and from any net realized short-term capital gain are taxable
to shareholders as ordinary income, whether received in cash or reinvested in
additional shares. Ordinary income generally cannot be offset by capital losses.
For corporate shareholders, distributions of net investment income (but not
distributions of short-term or long-
14
<PAGE>
term capital gains) may qualify in part for the 70% dividends received deduction
for purposes of determining their regular taxable income. (However, the 70%
dividends received deduction is not allowable in determining a corporate
shareholder's alternative minimum taxable income.) The amount qualifying for the
dividends received deduction generally will be limited to the aggregate
dividends received by the Fund from domestic corporations and to an amount so
designated by the Fund. The dividends received deduction for corporate
shareholders may be further reduced or eliminated if the shares with respect to
which dividends are received by the Fund are treated as debt-financed or are
deemed to have been held for fewer than 46 days, or under other generally
applicable statutory limitations.
So long as the Fund qualifies as a regulated investment company and
satisfies the 90% distribution requirement, distributions by the Fund from net
capital gains will be taxable as long-term capital gains, whether received in
cash or reinvested in shares and regardless of how long a shareholder has held
his or its Fund shares. Such distributions are not eligible for the dividends
received deduction. Long-term capital gains of non-corporate shareholders,
although fully includible in income, currently are taxed at a lower maximum
marginal Federal income tax rate than ordinary income. Such long-term capital
gains are generally taxed at a maximum marginal rate of 20% depending in part on
the holding period for the Fund's investments which generated the related gains.
Distributions by the Fund in excess of its current and accumulated
earnings and profits will reduce a shareholder's basis in Fund shares (and, to
that extent, will not be taxable) and, to the extent such distributions exceed
the shareholder's basis, will be taxable as capital gain assuming the
shareholder holds Fund shares as capital assets.
A distribution will be treated as paid during a calendar year if it is
declared in October, November or December of the year to shareholders of record
in such month and paid by January 31 of the following year. Such distributions
will be taxable to such shareholders as if received by them on December 31, even
if not paid to them until January. In addition, certain other distributions made
after the close of a taxable year of the Fund may be "spilled back" and treated
as paid by the Fund (other than for purposes of avoiding the 4% excise tax)
during such year. Such distributions would be taxable to the shareholders in the
taxable year in which they were actually made by the Fund.
The Trust will send written notices to shareholders regarding the
amount and Federal income tax status as ordinary income or capital gain of all
distributions made during each calendar year.
Back-up Withholding/Withholding Tax
Under the Code, certain non-corporate shareholders may be subject to
31% withholding on reportable dividends, capital gains distributions and
redemption payments ("back-up withholding"). Generally, shareholders subject to
back-up withholding will be those for whom a taxpayer identification number and
certain required certifications are not on file with the Trust or who, to the
Trust's knowledge, have furnished an incorrect number. In addition, the Trust is
required to withhold from distributions to any shareholder who does not certify
to the Trust that such shareholder is not subject to back-up withholding due to
notification by the Internal Revenue Service that such shareholder has
under-reported interest or dividend income. When establishing an account, an
investor must certify under penalties of perjury that such investor's taxpayer
identification number is correct and that such investor is not subject to or is
exempt from back-up withholding.
Ordinary income distributions paid to shareholders who are non-resident
aliens or which are foreign entities will be subject to 30% United States
withholding tax unless a reduced rate of withholding or a withholding exemption
is provided under an applicable treaty. Non-U.S. shareholders are urged to
consult their own tax advisers concerning the United States consequences to them
of investing in the Fund.
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Timing of Purchases and Distributions
At the time of an investor's purchase, the Fund's net asset value may
reflect undistributed income or capital gains or net unrealized appreciation of
securities held by the Fund. A subsequent distribution to the investor of such
amounts, although it may in effect constitute a return of his or its investment
in an economic sense, would be taxable to the shareholder as ordinary income or
capital gain as described above. Investors should carefully consider the tax
consequences of purchasing Fund shares just prior to a distribution as they will
receive a distribution that is taxable to them.
Sales or Redemptions of Shares
Gain or loss recognized by a shareholder upon the sale, redemption or
other taxable disposition of Fund shares (provided that such shares are held by
the shareholder as a capital asset) will be treated as capital gain or loss,
measured by the difference between the adjusted basis of the shares and the
amount realized on the sale or exchange. In general, for taxable dispositions of
shares, gains for non-corporate shareholders will be taxed at a Federal rate of
20% for shares held more than 12 months. For regular corporations, the maximum
Federal rate on all income is 35%. A loss will be disallowed to the extent that
the shares disposed of are replaced (including by receiving shares upon the
reinvestment of distributions) within a period of 61 days, beginning 30 days
before and ending 30 days after the sale of the shares. In such a case, the
basis of the shares acquired will be increased to reflect the disallowed loss. A
loss recognized upon the sale, redemption or other taxable disposition of shares
held for 6 months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received with respect to such
shares.
The foregoing relates to Federal income taxation. Distributions, as
well as any gains from a sale, redemption or other taxable disposition of Fund
shares, also may be subject to state and local taxes.
Investors are urged to consult their own tax advisers regarding the
application to them of Federal, state and local tax laws.
DESCRIPTION OF THE TRUST
Trust Organization
The Trust was organized on June 25, 1997 as a Delaware business trust.
The Fund is a successor by reorganization to The REvest Growth & Income Fund,
which was a series of The Royce Fund, a Delaware business trust. The
reorganization was effected on September 25, 1998 under an Agreement and Plan of
Reorganization pursuant to which the assets and liabilities of The REvest Growth
& Income Fund were transferred into the Trust, with the Fund becoming the sole
series of the Trust and Ebright Investments, Inc. (formerly Royce, Ebright &
Associates, Inc.) continuing as investment adviser. A copy of the Trust's
Certificate of Trust is on file with the Secretary of State of Delaware, and a
copy of the Trust Instrument, its principal governing document, is available for
inspection by shareholders at the Trust's offices at 511 Congress Street,
Portland, Maine 04101.
The Trust has an unlimited authorized number of shares of beneficial
interest (no par value), which may be divided into an unlimited number of series
and/or classes without shareholder approval. (The Fund presently has only one
class of shares.) These shares are entitled to one vote per share (with
proportional voting for fractional shares). Shares vote by individual series
except as otherwise required by the 1940 Act or when the Trustees determine that
the matter affects shareholders of more than one series.
Each of the Trustees currently in office were elected by the Trust's
predecessor's shareholders. There will normally be no meeting of shareholders
for the election of Trustees until less than a majority of such Trustees remain
in office, at which time the Trustees will call a shareholders' meeting for the
election
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of Trustees. In addition, Trustees may be removed from office by written
consents signed by the holders of a majority of the outstanding shares of the
Trust and filed with the Trust's custodian or by a vote of the holders of a
majority of the outstanding shares of the Trust at a meeting duly called for
this purpose upon the written request of holders of at least 10% of the Trust's
outstanding shares. Upon the written request of 10 or more shareholders of the
Trust, who have been shareholders for at least 6 months and who hold shares
constituting at least 1% of the Trust's outstanding shares, stating that such
shareholders wish to communicate with the Trust's other shareholders for the
purpose of obtaining the necessary signatures to demand a meeting to consider
the removal of a trustee, the Trust is required (at the expense of the
requesting shareholders) to provide a list of shareholders or to distribute
appropriate materials. Except as provided above, the Trustees may continue to
hold office and appoint their successors.
Shares are freely transferable, are entitled to distributions as
declared by the Trustees and, in liquidation of the Trust, are entitled to
receive net assets of their series. Shareholders have no preemptive rights. The
Trust's fiscal year ends on December 31.
Shareholder Liability
Generally, shareholders will not be personally liable for the
obligations of their Fund or of the Trust under Delaware law. The Delaware
Business Trust Act provides that a shareholder of a Delaware business trust is
entitled to the same limited liability extended to shareholders of private
corporations for profit organized under the Delaware General Corporation Law. No
similar statutory or other authority limiting business trust shareholder
liability exists in many other states. As a result, to the extent that the Trust
or a shareholder of the Trust is subject to the jurisdiction of courts in those
states, the courts may not apply Delaware law and may thereby subject Trust
shareholders to liability. To guard against this possibility, the Trust
Instrument (1) requires that every written obligation of the Trust contain a
statement that such obligation may be enforced only against the Trust's assets
(however, the omission of this disclaimer will not operate to create personal
liability for any shareholder); and (2) provides for indemnification out of
Trust property of any Trust shareholder held personally liable for the Trust's
obligations. Thus, the risk of a Trust shareholder incurring financial loss
beyond his investment because of shareholder liability is limited to
circumstances in which: (1) a court refuses to apply Delaware law; (2) no
contractual limitation of liability was in effect; and (3) the Trust itself
would be unable to meet its obligations. In light of Delaware law, the nature of
the Trust's business and the nature of its assets, management believes that the
risk of personal liability to a Trust shareholder is extremely remote.
PERFORMANCE DATA
The Fund's performance may be quoted in various ways. All performance
information supplied for the Fund is historical and is not intended to indicate
future returns. The Fund's share price and total returns fluctuate in response
to market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
Total Return Calculations
Total returns quoted reflect all aspects of the Fund's return,
including the effect of reinvesting dividends and capital gain distributions and
any change in the Fund's net asset value per share (NAV) over the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual total return of 7.18%, which is the steady
annual rate of return that would equal 100% growth on a compounded basis in ten
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
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In addition to average annual total returns, the Fund's cumulative
total return, reflecting the simple change in value of an investment over a
stated period, may be quoted. Average annual and cumulative total returns may be
quoted as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments or a series of redemptions, over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share prices) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
Historical Fund Results
The following table shows the total returns for the periods indicated
for the Fund's predecessor The REvest Growth & Income Fund, a series of The
Royce Fund. The figures below are those of the Fund's predecessor, The REvest
Growth & Income Fund. These figures are used since The REvest Growth & Income
Fund's investment objectives and investment policies, strategies and risks are
identical in all material respects. Such total returns reflect all income
earned, realized and unrealized appreciation or depreciation of its investments
assets and expenses incurred by the Fund for the stated periods. The table
compares the Fund's total returns to the records of the Russell 2000 Index
("Russell 2000") and the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") over the same periods. The comparison to the Russell 2000 shows how the
Fund's total returns compared to the record of a broad index of small
capitalization stocks. The S&P 500 comparison is provided to show how the Fund's
total returns compared to the record of a broad average of common stock prices.
The Fund had the ability to invest in securities not included in the indices,
and its investment portfolio may or may not be similar in composition to the
indices. Figures for the indices are based on the prices of unmanaged groups of
stocks, and, unlike the Fund, their returns do not include the effect of paying
brokerage commissions and other costs and expenses of investing in a mutual
fund.
<TABLE>
<S> <C> <C> <C>
SIX MONTHS YEAR SINCE
ENDED ENDED INCEPTION*+
6/30/98 6/30/98 6/30/98
--------------------------------------------------
REvest 1.2% 14.2% 14.9%
S&P 500(1) 17.7% 30.2% 28.8%
Russell 2000(2) 4.9% 16.5% 19.1%
</TABLE>
A hypothetical $10,000 initial investment in the Fund on August 1, 1994
(commencement of operations) through June 30, 1998 would have grown to $17,243
assuming all distributions were reinvested.
The Fund's performance may be compared in advertisements to the
performance of other mutual funds in general or to the performance of particular
types of mutual funds, especially those with similar investment objectives. Such
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. ("Lipper"), an independent service that monitors and
ranks the performance of registered investment companies. Money market funds and
municipal funds are not included in the Lipper survey. The Lipper performance
analysis ranks funds on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees payable by
shareholders into consideration and is prepared without regard to tax
consequences.
1The S&P 500 Composite Stock Price Index is an unmanaged index of
common stocks frequently used as a general measure of stock market performance.
The Index's performance figures reflect changes of market prices and quarterly
reinvestment of all distributions.
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<PAGE>
2The Russell 2000, prepared by the Frank Russell Company, tracks the
return of the common stocks of the 2,000 smallest out of the 3,000 largest
publicly traded U.S.-domiciled companies by market capitalization. The Russell
2000 tracks the return based on price appreciation or depreciation and includes
dividends.
* Commencement of Operations - August 1, 1994
+ Annualized
EII may, from time to time, compare the performance of common stocks,
especially small and medium capitalization stocks, to the performance of other
forms of investment over periods of time.
From time to time, in reports and promotional literature, the Fund's
performance also may be compared to other mutual funds tracked by financial or
business publications and periodicals, such as KIPLINGER's, INDIVIDUAL INVESTOR,
MONEY, FORBES, BUSINESS WEEK, BARRON's, FINANCIAL TIMES, FORTUNE, MUTUAL FUNDS
MAGAZINE and THE WALL STREET JOURNAL. In addition, financial or business
publications and periodicals, as they relate to fund management, investment
philosophy and investment techniques, may be quoted.
The Fund's performance may also be compared to those of other
compilations or indices.
Advertising for the Fund may contain examples of the effects of
periodic investment plans, including the principle of dollar cost averaging. In
such a program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share can be
lower than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
The Fund may be available for purchase through retirement plans or
other programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $2,000 annual
investment earning a taxable return of 8% annually would have an after-tax value
of $177,887 after thirty years, assuming tax was deducted from the return each
year at a 28% rate. An equivalent tax-deferred investment would have a value of
$244,692 after thirty years.
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