REVEST VALUE FUND [LOGO]
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PROSPECTUS - MAY 1, 1999
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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 The REvest Value Fund (the "Fund") primarily seeks long-term
OBJECTIVES growth and secondarily current income by investing in a broadly
AND POLICIES 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 that should, in the investment
adviser's judgment, allow a company to build future, incremental
value for shareholders.
The Fund is a no-load series of The Winter Harbor Fund (the
"Trust"), a diversified open-end management investment company.
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ABOUT THIS This Prospectus has information you should know before you
PROSPECTUS invest. Please read it carefully and keep it with your investment
records.
The Securities and Exchange Commission has not approved or
disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
Page
RISK/RETURN SUMMARY............................................................2
FUND EXPENSES..................................................................3
INVESTMENT OBJECTIVES..........................................................4
INVESTMENT POLICIES............................................................4
INVESTMENT RISKS...............................................................5
MANAGEMENT OF THE TRUST........................................................6
YEAR 2000 DISCLOSURE...........................................................8
SIZE LIMITATIONS...............................................................8
DIVIDENDS, DISTRIBUTIONS AND TAXES.............................................8
NET ASSET VALUE PER SHARE 9
FINANCIAL HIGHLIGHTS...........................................................9
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND
PURCHASING SHARES..........................................................10
CHOOSING A DISTRIBUTION OPTION................................................12
IMPORTANT ACCOUNT INFORMATION.................................................12
REDEEMING YOUR SHARES.........................................................13
TRANSFERRING OWNERSHIP........................................................15
OTHER SERVICES................................................................16
A Series of the Winter Harbor Fund
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RISK/RETURN SUMMARY
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?
The REvest Value Fund primarily seeks long-term growth and secondarily current
income.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The Fund invests primarily in a diversified portfolio of common stocks and
securities convertible into common stocks of small and medium-sized companies.
The Fund selects companies viewed as having attractive financial characteristics
and/or "vitality factors". Vitality factors are those factors that should, in
the investment adviser's judgment, allow a company to build future, incremental
value for shareholders.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Fund's investment adviser. As a result,
there is a risk that you may lose money by investing in the Fund.
The Fund will typically invest a substantial portion of its assets in small and
medium-sized companies, which may be less liquid and more volatile than
investments in larger companies.
PERFORMANCE SUMMARY
The bar chart and performance table shown below provide an indication of the
risks of investing in the Fund by showing the changes in the performance of the
Fund from year to year since the Fund's inception and by showing how the average
annual returns of the Fund compare to those of broad-based securities market
indices. How the Fund has performed in the past is not necessarily an indication
of how the Fund will perform in the future.
1998 -6.12%
1997 23.50%
1996 22.27%
1995 16.23%
During the period shown in the bar chart, the highest return for a quarter was
11.94% during the quarter ended September 30, 1997 and the lowest return for a
quarter was -15.37% during the quarter ended September 30, 1998.
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AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1998:
Since Inception
1-Year (August 1, 1994)
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The REvest Value Fund -6.12% 11.23%
S&P 500 Index1 28.58% 27.75%
Russell 2000 Index2 -2.55% 14.83%
1 The Standard & Poor's 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.
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FUND EXPENSES
This table describes the fees and expenses that you will pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
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%*
* The Fund's Custodian charges a wire transfer fee in the case of redemptions
made by wire. Such fee is subject to change and is currently $9. See "How
to Redeem Shares."
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees 1.00% a
Distribution (12b-1) Fees 0.00%
Other Expenses .37% b
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Total Annual Fund Operating Expenses 1.37% c
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a After waivers of management fees, such fees were .93% for the fiscal year
ended December 31, 1998.
b During the fiscal year ended December 31, 1998, the Fund did not pay or
accrue any service fees. However, pursuant to the Fund's Shareholder
Services Plan, service fees may be accrued at a rate of up to 0.25% of the
Fund's average net assets.
c After waivers of management fees, total Fund operating expenses were 1.30%
for the fiscal year ended December 31, 1998.
The Fund's investment adviser and sub-adviser have agreed to waive fees, in
equal amounts, in order to limit the Fund's expense ratio to 1.30% through
December 31, 1999. These waivers will terminate on
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December 31, 1999, unless extended by the adviser. For a further discussion of
these fees, see "Management of the Trust."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR.......................$ 139
3 YEARS.........................434
5 YEARS.........................750
10 YEARS......................1,648
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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 that should, in the
investment adviser's judgment, allow a company to build future, incremental
value for shareholders. Examples of such factors include an active acquisition
program, stock buy-back program and/or cost reduction program.
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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". Business worth 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, 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
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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.
The Fund may also invest in 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 bank until repurchased. To the extent the Fund implements a
temporary defensive investment policy, its investment objectives may not be
achieved.
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INVESTMENT RISKS
The Fund is subject to certain investment risks.
The Fund is designed for investors who are investing for the long term and
should not be used by "market timers." It is not intended for investors seeking
assured income or preservation of capital. Changes in market prices can occur at
any time. Accordingly, there is no assurance that the Fund will achieve its
investment objectives. When you redeem your shares, they may be worth more or
less than what you paid for them.
Because the Fund normally invests most, or a substantial portion, of its assets
in stocks, the value of the Fund's portfolio will be affected by changes in the
stock markets. Stock markets and stock prices can be volatile. Market action
will affect the Fund's net asset value per share, which fluctuates as the values
of
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the Fund's portfolio securities change. Not all stock prices change uniformly or
at the same time and not all stock markets move in the same direction at the
same time. Various factors can affect a stock's price (for example, poor
earnings reports by an issuer, loss of major customers, major litigation against
an issuer, or changes in general economic conditions or in government
regulations affecting an industry). Not all of these factors can be predicted.
The Fund will typically invest a substantial portion of its assets in companies
with lower market capitalizations, which present higher near-term risks than
larger capitalization companies. Small and mid-capitalization stocks are more
likely to experience higher price volatility and may have limited liquidity
(which means that the Fund might have difficulty selling them at an acceptable
price when it wants to).
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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,
principal occupations and ownership of Fund shares as of April 30, 1999 are:
<TABLE>
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NAME PRINCIPAL OCCUPATION SHARES OWNED
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Jennifer E. Goff see "Investment Adviser" below 2,706.857
Judith D. Freyer Vice President - Investments, Board of Pensions of the None
Presbyterian Church (U.S.A.)
Earl L. Mummert Vice President, Conrad M. Siegel, Inc. (Actuarial Firm) 5,421.031
Vincent T. Phillips President, Phillips & Company, Inc. (Registered Investment 2,136.985
Adviser and Business Consultant)
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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
is 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 occurred 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 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.
Jennifer E. Goff, President of EII, manages the Fund's portfolio. 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 from 1996 to 1997. Ms. Goff also worked full-time as
a security analyst at Royce & Associates, Inc. (formerly Quest Advisory Corp.)
from July, 1993 to August,
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1994 and then completed her graduate studies in Finance at Columbia University
(M.B.A., 1994 - 1996). 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.
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 is 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 $700 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.
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
means the advisory fee paid to EII minus (1) all of EII's expenses, including
Ms. Goff's salary and benefits, and (2) 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 an aggregate of 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, accounting services
agent and transfer agent 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.
Distributor
CW Fund Distributors, Inc., located at 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202, acts as distributor of the Fund's shares.
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Custodian
Firstar 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. In
addition, although EII considers a company's Year 2000 compliance status in the
investment decision making process, companies in which the Fund invests may
experience Year 2000 difficulties and the Fund is unable to predict to what
extent, if any the Year 2000 issue will impact the value of those companies'
securities.
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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, beginning on March 1 of the next year, cease selling shares to
any new investors. If the Fund's assets total $250 million or less on the last
day of any subsequent calendar quarter, 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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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 you
choose otherwise.
Each year, you will receive information 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 you when declared, whether you received
them in cash or reinvested them in shares. Distributions paid from the Fund's
net investment income and short-term capital gains are taxable to you as
ordinary income dividends. A portion of the Fund's dividends may qualify for the
corporate dividends-received deduction, subject to certain limitations.
Distributions paid from long-term capital gains of the Fund are taxable to you
as capital gains, regardless of how long you have held your Fund shares. Capital
gains distributions may be taxable at different rates depending on the length of
time the Fund holds its assets.
The redemption of shares is a taxable event, on which you may realize a capital
gain or a 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.
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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 you. You may also be subject
to state and local taxes on your investment. You should consult your own tax
adviser concerning the tax consequences of an investment in the Fund.
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NET ASSET VALUE PER SHARE
On each day that the Trust is open for business, the share price (net asset
value) of the shares of the Fund is determined as of the close of the regular
session of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
time). The Trust is open for business on each day the New York Stock Exchange is
open for business and on any other day when there is sufficient trading in the
Fund's investments that its net asset value might be materially affected. The
Fund's net asset value per share is calculated by dividing the sum of the value
of the securities held by the Fund plus cash or other assets minus all
liabilities (including estimated accrued expenses) by the total number of shares
outstanding of the Fund, rounded to the nearest cent. The price at which a
purchase or redemption of Fund shares is effected is based on the next
calculation of net asset value after the order is placed.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows:
o securities which are traded on stock exchanges or are quoted by NASDAQ are
valued at the last reported sale price as of the close of the regular
session of trading on the New York Stock Exchange on the day the securities
are being valued, or, if not traded on a particular day;
o securities traded in the over-the-counter market, and which are not quoted
by NASDAQ, are valued at the last sale price (or, if the last sale price is
not readily available, at the last bid price as quoted by brokers that make
markets in the securities) as of the close of the regular session of
trading on the New York Stock Exchange on the day the securities are being
valued;
o securities which are traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most representative
market; and
o securities (and other assets) for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under
the general supervision of the Board of Trustees.
The net asset value per share of the Fund will fluctuate with the value of the
securities it holds.
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FINANCIAL HIGHLIGHTS
The Fund is the successor to The REvest Growth & Income Fund. The following
financial highlights represent the historical information of The REvest Growth &
Income Fund from August 1, 1994 (commencement of operations) to September 25,
1998 and the historical information of The REvest Value Fund subsequent to
September 25, 1998. The financial highlights table is intended to help you
understand the Fund's financial performance for the past 5 years. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
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distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the Fund's financial statements, are included in the
Fund's Annual Report to Shareholders and are incorporated by reference into the
Statement of Additional Information and this Prospectus. The Fund's Annual
Report to Shareholders and Statement of Additional Information may be obtained
without charge by calling Investor Information at 1-800-277-5573.
This table is presented to show selected data for a share outstanding throughout
each period, and to assist shareholders in evaluating the Fund's performance.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD ENDED
DECEMBER 31,
1998 1997 1996 1995 1994 a
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NET ASSET VALUE,
<S> <C> <C> <C> <C> <C>
BEGINNING OF PERIOD $13.00 $12.21 $10.73 $9.66 $10.00
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INVESTMENT OPERATIONS:
Net investment income 0.15 0.21 0.21 0.18 0.04
Net realized and unrealized gain (loss) on
investments (1.02) 2.64 2.16 1.38 (0.33)
------ ---- ---- ---- ------
Total from investment operations (0.87) 2.85 2.37 1.56 (0.29)
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DIVIDENDS AND DISTRIBUTIONS:
Net investment income (0.15) (0.19) (0.21) (0.17) (0.05)
Net realized gain on investments (1.10) (1.87) (0.68) (0.32) --
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Total dividends and distributions (1.25) (2.06) (0.89) (0.49) (0.05)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.88 $13.00 $12.21 $10.73 $9.66
------ ------ ------ ------ -----
TOTAL RETURN (6.1%) 23.5% 22.3% 16.2% (2.9%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000s) $24,730 $38,886 $42,099 $35,804 $21,676
Ratio of Net 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 1.20% 1.60% 1.78% 1.73% 1.45%*
Portfolio Turnover Rate 35% 54% 64% 53% 5%
</TABLE>
* Annualized.
a Represents the period from the commencement of operations (August 1, 1994)
through December 31, 1994.
b The ratio of expenses to average net assets before waiver of fees by the
investment adviser would have been 1.37% and 1.78%* for the periods ended
December 31, 1998 and 1994, respectively.
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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, by mail, by wire or through broker-dealers,
simply complete and return the Account Application Form. 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.
The Fund may, in the Adviser's sole discretion, accept certain accounts with
less than the stated minimum initial investment. If you need
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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.
There is no minimum investment limit for subsequent investments.
PURCHASING BY MAIL:
Complete and sign the enclosed Account Application Form.
NEW ACCOUNT
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Please include the amount of your initial investment on the Account 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
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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 Fund account on
the 15th or last day of the month. To
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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 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 provide ACH routing and account
numbers to your payroll administrator. Shareholder Services, at 1-877-4REvest,
can provide you with this information.
- -----------------------------------
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.
2. Cash Dividend Option: Dividends from net investment income and short-term
capital gains will be paid in cash and long-term 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.
If you select the Cash Dividend Option or the All Cash Option and the U.S.
Postal Service cannot deliver your checks or if your checks remain uncashed for
six months, your dividends may be reinvested in your account at the then-current
net asset value and your account will be converted to the Automatic Reinvestment
Option. No interest will accrue on amounts represented by uncashed distribution
checks.
You may change your distribution 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.
The Fund's account application contains provisions in favor of the Fund, EII,
Countrywide and certain of their affiliates, excluding such entities from
certain liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services (for example,
telephone redemptions) made available to investors.
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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.
Nonpayment
If your check or wire does not clear, the transaction will be canceled and you
will be responsible for any losses or fees the Fund or its transfer agent
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
prior to the close of regular trading on the New York Stock Exchange (normally
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 limit the amount of investments
and to reject any specific purchase request.
- -----------------------------------
REDEEMING YOUR SHARES
You may redeem any portion of your account on each day the Fund is open for
business. 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 (as defined below).
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 Fund's
transfer agent has received all required documents in Good Order.
Definition of Good Order
Good Order means that the request includes the following:
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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, if the payment is to be sent to an address other than the
address of record, if the payment is to be made to a payee other than the
shareholder, or if the name(s) or the address on the account has been
changed within 30 days of the redemption request.
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
If you have not established Automatic Withdrawal, you may redeem up to $15,000
of your Fund shares by telephone, provided the proceeds are mailed to your
address of record. Unless you have specifically notified the Fund's transfer
agent not to honor redemption requests by telephone, the telephone redemption
privilege is automatically available to your account. 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 (normally 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 thirty days after a change in the name(s)
on the account or the address of record.
Neither the Fund, its transfer agent nor their respective affiliates, will be
liable for following instructions communicated by telephone that are reasonably
believed to be genuine or for any loss, damage, cost or expenses incurred in
acting on such instructions. 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. 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.
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 $15,000 of shares from your
Fund account by telephone and transfer the proceeds directly to your domestic
bank or brokerage account as designated on
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your Account Application Form. 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 Fund's 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 five business 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 the Fund's transfer agent receives your request 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 you redeem shares of
the Fund less than one year after becoming a shareholder. The fee is payable to
the Fund out of the redemption proceeds otherwise payable to you and is used to
offset the costs associated with redemptions. No redemption fee will be payable
by (1) employees or representatives of the Trust or EII or members of their
immediate families or employee benefit plans established for their benefit, (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
15
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(see "Redeeming Your Shares - Definition of Good Order") and be accompanied by a
signature guarantee (see " Important Account Information - Definition of
Signature Guarantee"). 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 quarterly and each time you have a transaction
in your account. 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 TRANSFER AGENT:
511 Congress Street Countrywide Fund Services, Inc.
Portland, Maine 04101 P.O. Box 5354
Cincinnati, Ohio 45201-5354
INVESTMENT ADVISER:
Ebright Investments, Inc. CUSTODIAN:
Jennifer E. Goff, President Firstar Bank, N.A.
511 Congress Street 425 Walnut Street
Portland, Maine 04101 Cincinnati, Ohio 45202
INVESTMENT SUB-ADVISER: OFFICERS OF THE TRUST:
Gouws Capital Management, Inc. Jennifer E. Goff, President
511 Congress Street Robert L. Bennett, Treasurer
Portland, Maine 04101 Tina D. Hosking, Secretary
DISTRIBUTOR:
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and strategies that
significantly affected the Fund's performance during its last fiscal year.
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To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
1-800-277-5573.
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's public reference room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-800-SEC-0330. Reports and other information about
the Fund are available on the Commission's Internet site at http://www.sec.gov.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by writing to: Securities and Exchange Commission,
Public Reference Section, Washington, D.C. 20549-6009.
File No. 811-8793
17
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THE REvest VALUE FUND
STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1999
- --------------------------------------------------------------------------------
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 May
1, 1999). 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, 1998 are incorporated herein by
reference. To obtain a copy of the Fund's Prospectus or 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. Firstar Bank, N.A.
TABLE OF CONTENTS
- -----------------
PAGE
INVESTMENT POLICIES AND LIMITATIONS ...................................... 2
RISK FACTORS AND SPECIAL CONSIDERATIONS .................................. 3
MANAGEMENT OF THE TRUST .................................................. 6
PRINCIPAL HOLDERS OF SHARES .............................................. 8
INVESTMENT ADVISORY SERVICES ............................................. 9
DISTRIBUTOR .............................................................. 11
COUNTRYWIDE FUND SERVICES, INC ........................................... 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 ................................................. 14
HISTORICAL PERFORMANCE INFORMATION ....................................... 15
ANNUAL REPORT ............................................................ 16
<PAGE>
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 investment objectives, as stated in the Prospectus, and its
fundamental investment policies cannot be changed without the approval of a
"majority of the outstanding voting securities" of the Fund, as defined in the
Investment Company Act of 1940 (the "1940 Act"). 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 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;
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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.
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 stockholder to seek to protect
the interests of stockholders 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, such loans
will be made only if, in EII's judgment, the consideration to be earned from
such loans justifies 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
3
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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.
Borrowing
The Fund may borrow from banks or as may be necessary for the clearance of
securities transactions but only for emergency or extraordinary purposes in an
amount not exceeding 5% of the Fund's total assets. The Fund's policy on
borrowing is a fundamental policy which may not be changed without the approval
of a majority of its outstanding voting securities.
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 of Trustees of the Trust. 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.
4
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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.
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
5
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bankruptcy proceedings), it is the policy of the Trust to enter into repurchase
agreements only with its custodian and having a term of seven days or less.
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, 1998, 1997 and 1996, the Fund had
portfolio turnover rates of 9%, 54% and 64%, 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
executive officer of the Trust:
<TABLE>
<CAPTION>
Name, Address and Age Position Held with the Trust Principal Occupations During Past 5 Years
- --------------------- ---------------------------- -----------------------------------------
<S> <C> <C>
Jennifer E. Goff* (27) Trustee and President Ms. Goff has been the President of
511 Congress Street Ebright Investments, Inc., the Trust's
Portland, Maine 04101 investment adviser, since 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 D. Freyer (49) Trustee Ms. Freyer has for the last five years
2000 Market Street been the Vice President of Philadelphia,
19103 Pennsylvania Investments and Treasurer
Pensions of the for the Board of Presbyterian Church
(U.S.A.).
Earl L. Mummert (52) Trustee Mr. Mummert has for the last five years
500 Nationwide Drive been a Vice President for Harrisburg,
17110 Pennsylvania Conrad M. Siegel, Inc. (an
actuarial firm).
Vincent T. Phillips (52) Trustee Mr. Phillips has for the last five years
6682 Clearbrook Drive been the President of Phillips &
Nashville, Tennessee 37205 Company, Inc. (a registered investment
adviser).
Robert L. Bennett (57) Treasurer Mr. Bennett is First Vice President and
Chief Operations Officer of Countrywide
Fund Services, Inc. ("CFSI")(a
registered transfer agent). He is also
Treasurer of Albemarle Investment Trust,
Atalanta/Sosnoff Investment Trust, Dean
Family of Funds, The New York State
Opportunity Funds, Profit Funds
Investment Trust, Wells Family of Real
Estate Funds, Williamsburg Investment
Trust and The Winter Harbor Fund and
Assistant Treasurer of Boyar Value Fund,
Inc., Brundage, Story and Rose
Investment Trust and Schwartz Investment
Trust (all of which are registered
investment companies).
6
<PAGE>
Tina D. Hosking (30) Secretary Ms. Hosking is Assistant Vice President
and Associate General Counsel of CFSI
and CW Fund Distributors, Inc. (a
registered broker-dealer). She is also
Secretary of Albemarle Investment Trust,
Atalanta/Sosnoff Investment Trust, The
Bjurman Funds, Brundage, Story and Rose
Investment Trust, Boyar Value Fund,
Inc., Dean Family of Funds, The New York
State Opportunity Funds, Profit Funds
Investment Trust, The Thermo Opportunity
Fund, Inc., UC Investment Trust, Wells
Family of Real Estate Funds,
Williamsburg Investment Trust and The
Winter Harbor Fund and Assistant
Secretary of The Gannett Welsh & Kotler
Funds, The James Advantage Funds, Lake
Shore Family of Funds, Schwartz
Investment Trust and The Westport Funds.
</TABLE>
*An "interested person" of the Trust within the meaning of Section 2(a)(19) of
the 1940 Act.
The Board of Trustees has an Audit Committee, comprised of Judith D. Freyer
and Vincent T. 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
D. Freyer, Vincent T. 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 meeting of the Board of
Trustees attended. Disinterested Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board of Trustees. 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 for the fiscal year ended December 31, 1998.
Pension or
Retirement
Benefits Accrued
as Part of Trust Total Compensation
Expenses from the Trust
---------------- ------------------
Jennifer E. Goff 0 0
Trustee
Judith D. Freyer 0 $1,500
Trustee
Earl L. Mummert 0 $1,000
Trustee
Vincent T. Phillips 0 $1,500
Trustee
7
<PAGE>
PRINCIPAL HOLDERS OF SHARES
As of February 5, 1999, the following persons were known to the Trust to be the
record or beneficial owners of 5% or more of the outstanding shares of the Fund:
Number Type of Percentage of
Name and Address of Shares Ownership Outstanding Shares
- ---------------- --------- --------- ------------------
Charles Schwab & Co. Inc. 275,544 Record 12.75%
101 Montgomery Street
San Francisco, CA 94104-4122
Bankers Trust Company Trustee 528,062 Beneficial 24.44%
FBO Carlisle Companies, Inc.
Master Retirement Trust
100 Plaza One, MS 3048
Jersey City, NJ 07311-3902
As of the same date, the Trustees and officers of the Trust as a group
owned of record or beneficially less than 1% of the outstanding shares of the
Fund.
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 is 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. 1996). 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.
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
8
<PAGE>
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 fiscal year ended December 31, 1998, the Fund accrued advisory fees
of $315,903; however, in order to reduce the operating expenses of the Fund, EII
voluntarily waived $21,200 of its advisory fees. For the fiscal years ended
December 31, 1997 and 1996, EII received advisory fees from the Fund of $447,437
and $375,493 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 is 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.
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
means 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 an aggregate of 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.
For the fiscal year ended December 31, 1998, EII paid GCMI fees of $22,618.
9
<PAGE>
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.
DISTRIBUTOR
- -----------
CW Fund Distributors, Inc. (the "Distributor") located at 312 Walnut
Street, 21st Floor, Cincinnati, Ohio 45202, is the Fund's principal underwriter
and, as such, is the exclusive agent for distribution of shares of the Fund. The
Distributor is obligated to sell the shares on a best efforts basis only against
purchase orders for the shares. Shares of the Fund are offered to the public on
a continuous basis.
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
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. Certain shareholder servicing
features of the Fund may not be available or may be modified in connection with
the program of services offered.
COUNTRYWIDE FUND SERVICES, INC.
- -------------------------------
The Trust's transfer agent, Countrywide Fund Services, Inc.
("Countrywide"), maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. Countrywide is an
affiliate of the Distributor by reason of common ownership. Countrywide receives
for its services as transfer agent a fee payable by the Fund monthly at an
annual rate of $20 per account; provided, however, that the minimum fee is
$1,250 per month. In addition, the Fund pays out-of-pocket expenses, including
but not limited to, postage, envelopes, checks, drafts, forms, reports, record
storage and communication lines.
Countrywide also provides accounting and pricing services to the Fund. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable Countrywide to perform its duties, the Fund
pays Countrywide a fee in accordance with the following schedule:
Average Monthly Net Assets Monthly Fee
-------------------------- -----------
$ 0 - $ 50,000,000 $2,000
50 - 100,000,000 2,500
100 - 200,000,000 3,000
Over 200,000,000 4,000 + .001% of
average monthly net assets
over $200,000,000
In addition, the Fund pays all costs of external pricing services.
10
<PAGE>
In addition, Countrywide is retained to provide administrative services to
the Fund. In this capacity, Countrywide supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services. Countrywide supervises the preparation of
tax returns, reports to shareholders of the Fund, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For the performance of these
administrative services, the Fund pays Countrywide a fee at the annual rate of
.09% of the average value of its daily net assets up to $100,000,000, .075% of
such assets from $100,000,000 to $200,000,000 and .05% of such assets in excess
of $100,000,000; provided, however, that the minimum fee is $2,000 per month.
CUSTODIAN
- ---------
Firstar Bank, N.A. ("Firstar Bank") is the custodian for the securities,
cash and other assets of the Fund. The Trust has authorized Firstar 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 allowed by Federal law. Firstar Bank's main office is
at 425 Walnut Street, Cincinnati, Ohio 45202.
INDEPENDENT ACCOUNTANTS
- -----------------------
The firm of PricewaterhouseCoopers LLP, whose address is 100 East Broad
Street, Ste. 2100, Columbus, Ohio 43215-3671, have been selected as the
independent accountants for the Trust.
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.
GCMI, under the direction of EII, may 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.
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 the Distributor.
For the fiscal years ended December 31, 1998, 1997 and 1996, the Fund paid
brokerage commissions of $46,730, $95,045, and $87,201 respectively.
11
<PAGE>
PRICING OF SHARES BEING OFFERED
- -------------------------------
The share price (net asset value) of the shares of each fund is determined
as of the close of the regular session of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also be open for business on other days in which there
is sufficient trading in either Fund's portfolio securities that its net asset
value might be materially affected. For a description of the methods used to
determine the share price, see "Net Asset Value Per Share" in the Prospectus.
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 Prospectus describes generally the tax treatment of distributions by
the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
The Fund has qualified and intends to qualify annually for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. To so qualify the Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; and (ii) diversify its holdings so that at the
end of each quarter of its taxable year the following two conditions are met:
(a) at least 50% of the value of the Fund's total assets is represented by cash,
U.S. Government securities, securities of other regulated investment companies
and other securities (for this purpose such other securities will qualify only
if the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
The Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
12
<PAGE>
DESCRIPTION OF THE TRUST
- ------------------------
Trust Organization
The Trust, an open-end, diversified management investment company, 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.
Shares of the Fund have equal voting rights and liquidation rights. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each full share owned and fractional votes for fractional shares
owned. The Fund is not required to hold annual meetings of shareholders. The
Trustees shall promptly call and give notice of a meeting of shareholders for
the purpose of voting upon removal of any Trustee when requested to do so in
writing by shareholders holding 10% or more of the Fund's outstanding shares.
The Fund will comply with the provisions of Section 16(c) of the 1940 Act in
order to facilitate communications among shareholders.
Each share of the Fund represents an equal proportionate interest in the
assets and liabilities belonging to the Fund with each other share of the Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of the Fund into a
greater or lesser number of shares of the Fund so long as the proportionate
beneficial interest in the assets belonging to the Fund are in no way affected.
In case of any liquidation of the Fund, the holders of shares of the Fund will
be entitled to receive as a class a distribution out of the assets, net of the
liabilities, belonging to the Fund. No shareholder is liable to further calls or
to assessment by the Fund without his express consent.
Shareholder Liability
Generally, shareholders will not be personally liable for the obligations
of the 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.
13
<PAGE>
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of
all dividends and distributions and will include performance of the Fund's
predecessor, The REvest Growth & Income Fund, a series of The Royce Fund, prior
to August 1, 1994. The average annual total returns of the Fund for the periods
ended December 31, 1998 are as follows:
1 Year -6.1%
Since Inception (August 1, 1994) 11.2%
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. The Fund may also show, for
comparative purposes and as information to Fund shareholders who previously were
shareholders in The REvest Growth & Income Fund, the return data for the in The
REvest Growth & Income Fund, and may combine such data for the year of
reorganization. If so, such depiction will be clearly noted in text accompanying
such depiction. The Fund's total returns as calculated in this manner for each
year since inception are as follows:
August 1 - December 31, 1994 -2.9%
Year Ended December 31, 1995 16.2%
Year Ended December 31, 1996 22.3%
Year Ended December 31, 1997 23.5%
Year Ended December 31, 1998 -6.1%
A nonstandardized quotation may also indicate average annual rates of return
over periods other than those specified for average annual total return. For
example, the Fund's average annual compounded rate of return for the three years
ended December 31, 1998 was 12.3%. A nonstandardized quotation of total return
will always be accompanied by the Fund's average annual total return as
described above.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
From time to time the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, FORTUNE or MORNINGSTAR MUTUAL FUND VALUES. The Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average, the Standard & Poor's 500
Stock Index, the Russell 2000 Index, the NASDAQ Composite Index and the Value
Line Composite Index. In connection with a ranking, the Fund may provide
additional information, such as the particular category of funds to which the
ranking relates, the number of
14
<PAGE>
funds in the category, the criteria upon which the ranking is based, and the
effect of fee waivers and/or expense reimbursements, if any. The Fund may also
present its performance and other investment characteristics, such as volatility
or a temporary defensive posture, in light of the Adviser's view of current or
past market conditions or historical trends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
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.
ANNUAL REPORT
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The audited financial statements required to be included herein are
incorporated by reference to the Annual Report to Shareholders of the Fund for
the fiscal year ended December 31, 1998
