As filed with the Securities and Exchange Commission on September 9, 1998
Securities Act Registration No. 333-59185
Investment Company Act Registration No. 811-8849
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.1
Post-Effective Amendment No. __
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
T.O. RICHARDSON TRUST
(Exact Name of Registrant as Specified in Charter)
Two Bridgewater Road
Farmington, Connecticut 06032-2256
(Address of Principal Executive Offices) (Zip Code)
========================================================== =====================
Registrant's Telephone Number, including Area Code: (860) 677-8578
Samuel Bailey, Jr.
T.O. Richardson Company, Inc.
Two Bridgewater Road
Farmington, Connecticut 06032-2256
(Name and Address of Agent for Service)
Copies to:
David M. Leahy, Esq.
Sullivan & Worcester LLP
1025 Connecticut Avenue, NW
Washington, D.C. 20036
Approximate date of proposed public offering: As soon as practicable after the
Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities
<PAGE>
Act of 1933, as amended, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Subject to completion, dated _________ __, 1998
PROSPECTUS
dated , 1998
T.O. RICHARDSON SECTOR ROTATION FUND
Two Bridgewater Road
Farmington, Connecticut 06032-2256
1-800 643-7477
The investment objective of the Fund is to seek capital appreciation
while providing some protection against down markets. The Fund's investment
adviser allocates assets mainly among equity securities of companies within
industry sectors it determines have the greatest potential for market
appreciation.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
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TABLE OF CONTENTS
Page No.
HIGHLIGHTS..................................................................
SECTORS THE FUND WILL INVEST IN.............................................
THE FUND'S INVESTMENT POLICIES .............................................
THE MANAGEMENT OF THE FUND..................................................
HOW FUND SHARES ARE PRICED..................................................
PURCHASING SHARES OF THE FUND...............................................
INDIVIDUAL RETIREMENT ACCOUNTS..............................................
REDEEMING SHARES OF THE FUND................................................
EXCHANGING FUND SHARES FOR SHARES OF OTHER FUNDS............................
DIVIDENDS, CAPITAL GAINS AND TAX TREATMENT..................................
THE YEAR 2000 ISSUE.........................................................
FUND INVESTMENT PERFORMANCE.................................................
ADDITIONAL INFORMATION......................................................
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information (SAI), and if given or made, such information or
representations may not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
<PAGE>
HIGHLIGHTS
What are the Fund's Investment Goals and Objectives?
The investment objective of the Fund is to seek capital appreciation with some
protection against down markets. To accomplish this goal, the Fund's Advisor
allocates the Fund's assets among the stocks of companies within particular
sectors or industries within the U.S. economy. The Advisor chooses sectors based
on their potential for growth relative to other sectors, and relative to the
stock market as a whole. As with any mutual fund, there is no assurance that the
Fund will achieve its goal. The Fund's investment objective may be changed by
the Trustees without shareholder approval; however, prior to any such change,
shareholders would be given notice.
What is the Fund's Investment Strategy?
The Fund's Advisor believes that limiting losses is as important to building
capital as maximizing gains. To accomplish this goal, the Advisor makes
investments in rising markets and industry sectors, and may invest portions or
all of the Fund in money market funds for capital preservation in falling
markets and sectors.
The Fund will invest in five or more industry sectors that offer the greatest
market appreciation during each market cycle. A market cycle is a period of time
in which market prices rise to a peak, fall to a trough and then rise again to a
baseline. Within each sector, the Fund expects to invest in five or more stocks.
The average market capitalization (i.e., the price of a company's stock
multiplied by the number of its outstanding shares) of the issuers of these
stocks will vary widely.
The Advisor conducts extensive research to determine which sectors of the
economy offer the most investment opportunity, and which sectors offer the
least, at any point in time. When the Advisor finds that sectors it selected
previously are facing slower or negative growth, it will move out of these
sectors. If the Advisor finds that there are no sectors of the economy offering
investment opportunity greater than the return on money market funds or
short-term money market instruments, the Fund will invest in money market funds
until the situation changes. Up to 100% of the Fund's assets can be invested in
money market funds. Typically, some of the Fund's assets may be held in
short-term money market securities and cash to pay redemption requests and
expenses of the Fund.
Descriptions of many of the sectors the Fund may choose to invest are in the
section of the prospectus called Summary Sector Descriptions.
What Are the Principal Risks of Investing in the Fund?
Because the Fund can be volatile over the short-term, it is suitable for
long-term investors only and is not designed as a short-term investment. The
share price of the Fund will fluctuate and may, at redemption, be worth more or
less than the initial purchase price. As a result, you could lose money.
Investors in the Fund will be exposed to the natural market risks that exist
with any investment in equity securities, which include the possibility that
stock prices in general will decline, or that the individual stocks selected for
the Fund will decline in price. Other risks include changes in general economic
trends (e.g.
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employment levels, economic growth, interest rate levels, currency exchange
rates), supply and demand fluctuations, competition, the pace of technological
change and the risk of obsolescence, consumer tastes and domestic and
international economic, political and regulatory developments.
Specific Risks Associated With a Sector Rotation Approach to Investment
Management Include:
Concentration in Industry Sectors. The Fund's investment strategy may call for
investments of as much as 20% of the Fund's capital in each of five concentrated
industry groups. There is the risk that one or more industry groups may lose
favor with investors and fall rapidly in value due to news events that quickly
affect the market's perception of the industry.
Risks of Investing in Particular Sectors. Each industry sector is affected by
its own particular risks which may not affect other sectors. Sectors which rely
upon the development of new technology such as Biotechnology, Computers,
Electronics, Health Care and Telecommunications are particularly affected by
rapid product obsolescence, government regulation and intense competition.
Cyclical Industries, Financial Service Industries, Natural Resources and
Utilities may be subject to risks of interest rate fluctuations, market cycles
and international markets.
Portfolio Turnover. The Fund's investment strategy involves tracking and
investing in industry sectors that are advancing in value faster than other
industry sectors. Purchase and sale of sectors is determined by market dynamics
which may at times call for buying and holding industry sectors for only short
periods of time. One risk of the strategy is that high portfolio turnover can
lead to increased brokerage commissions on purchases and sales of securities.
Investment in Cash. One of the Fund's objectives is to invest in cash positions
when there are fewer than five industry sectors providing short or medium term
returns greater than money market returns. This usually occurs when broad
markets are declining rapidly. The purpose of the strategy is to protect
principal in falling markets. There is a risk that the industry sectors will
begin to rise rapidly and that the Fund will not be able to reinvest the cash
position into advancing industry sectors quickly enough to capture the initial
returns of changing market conditions.
Exposure to Foreign Markets. American Depositary Receipts (ADRs) of foreign
companies and equity securities of U.S. companies with substantial foreign
operations may involve additional risks related to political, economic or
regulatory conditions in foreign countries. Securities of companies in emerging
countries can be more volatile and less liquid than securities of companies in
fully developed countries.
Such risks include those related to general economic trends (e.g.
employment levels, economic growth, interest rate levels, currency exchange
rates), supply and demand fluctuations, competition, the pace of technological
change and the risk of obsolescence, consumer tastes and domestic and
international economic, political and regulatory developments.
For descriptions of the risks involved in investing in particular
sectors, see the Statement of Additional Information.
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Who is the Fund's Advisor?
T.O. Richardson Company, Inc. (the "Advisor") serves as investment
advisor to the Fund. The Advisor has been serving clients since 1967. The
Advisor does extensive quantitative (mathematical) investment research, and
applies the results of this research to help clients meet their financial
objectives. "Winning by Not Losing"(r) is the Advisor's approach to achieving
superior long term returns with consistent emphasis on capital preservation for
risk averse individuals, institutions, endowments and pension plans. As of July
31, 1998, the Advisor managed approximately $220 million.
What Risk and Return Information is Available About the Fund?
Because the Fund is new, there is no performance information available
at this point. Once the Fund has an annual total return for at least one
calendar year, the Fund will have a bar chart and table showing the Fund's
annual total return compared to the returns of at least one stock market index,
such as the S&P 500 Index.
The point of including that information is to show some of the risks of
investing in the Fund, such as the changes in the Fund's performance from year
to year, and how its average annual returns compare with a broad measure of
market performance.
Of course, investment performance only shows how the Fund has performed
in the past, it does not tell you how it will perform in the future.
What Are the Costs of Investing in the Fund?
This table shows you the fees and expenses that investors in the Fund
will pay.
Shareholder Fees (Fees paid directly from the amount of your investment)
Maximum Sales Charge Imposed on Purchases...........................None
Maximum Deferred Sales Charge.......................................None
Maximum Sales Charge Imposed on Reinvested Dividends
or other Distributions...........................................None
Redemption Fee.....................................................1.25%(1)
Exchange Fee........................................................None(2)
Annual Fund Operating Expenses (Expenses deducted from the Fund as a percentage
of average net assets)
Management Fees 1.50%
Distribution (Rule 12b-1) and/or Service Fees None
Other Expenses .45%(3)
Total Annual Fund Operating Expenses 1.95%
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(1)
The Fund charges a fee of 1.25% on redemptions of Fund shares held for
less than one year. This fee is waived for Fund shareholders who were
previously private clients of the Advisor. If you redeem shares by
wire, you may be charged a $12 service fee. See "How to Redeem Shares."
(2) There is no charge for written requests to exchange Fund shares for
shares of the Firstar Money Market Funds. Firstar charges a $5.00 fee
for each exchange transaction executed by telephone. See "Exchange
Privilege."
(3)
Based on estimated amounts for the Fund's initial fiscal year.
Example
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The assumptions we have made for this example are:
1.You invest $10,000 in the Fund.
2.Your investment has a 5% return each year.
3.The Fund's operating expenses remain the same.
Based on these assumptions, your costs to hold Fund shares for just one year
would be $ _____. If you held Fund shares for three years, the cost would be
$_____.
If you did not redeem your shares, you would pay $______ if you held the Fund
for one year, and $_______ if you held the Fund for three years.
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Which Sectors of the Economy will the Fund Invest
In?
Some of the sectors the Fund may choose to invest in are described
here. The Fund may choose to invest in sectors that are not listed below. The
SAI includes complete descriptions of each sector listed below.
Basic Materials
Companies who manufacture, mine, process or distribute raw materials and
intermediate goods used in building and manufacturing.
Biotechnology
Companies who research, develop and manufacture various biotechnological
products, services, and processes.
Business Services
Companies that provide business-related services such as data processing,
consulting, outsourcing, temporary employment market research or data base
services, printing, advertising, computer programming, credit reporting, claims
collection, mailing and photocopying to companies and other organizations.
Computers
Companies who research, design, develop, manufacture, or distribute products,
processes, or services that relate to hardware technology within the computer
industry.
Cyclical Industries
Companies involved in the supply or sale of materials, equipment, products or
services related to cyclical industries such as the automotive, chemical,
construction and housing, defense and aerospace, environmental services,
industrial equipment and materials, paper and forest products, and
transportation industries.
Electronics
Companies who design, manufacture, or sell electronic components and systems.
Energy
Companies in the energy industry, including oil, gas, electricity, and coal, and
alternative sources of energy such as nuclear, oil shale, and solar power.
Energy Services
Companies who provide services and equipment to firms in the energy industry.
Environmental Services
Companies in the waste management or pollution control business.
Financial Services
Companies in the financial services industry include insurance companies,
brokerage firms, banks, etc.
8
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Food and Agriculture
Companies who make or distribute food, beverages, and agricultural products.
Health Care
Companies who make or sell products used in heath care.
Health Care Services
Companies who own or run hospitals, nursing homes, health maintenance
organizations, and other companies specializing in the delivery of health care
services.
Industrial Equipment
Companies who make equipment used by industry, such as farm equipment,
computers, and industrial machinery.
Leisure
Companies in the leisure and entertainment business.
Medical Equipment
Companies who make or sell medical equipment and devices and related
technologies. Multimedia Companies who make or sell products and services used
in the broadcast and media industries.
Natural Resources
Companies that own or develop natural resources, or supply goods and services to
companies in the natural resources business.
Precious Metals and Minerals
Companies who explore, mine, process, or deal in gold, silver, platinum,
diamonds, or other precious metals and minerals.
Retailing
This sector consists of companies engaged in merchandising finished goods and
services primarily to individual consumers.
Software and Computer Services
Companies that make or sell software or information-based services, and
consulting, communications, and related services.
Technology
Companies that develop, produce or distribute products or services in the
computer, semi-conductor, electronics, communications, health care, and
biotechnology sectors.
Telecommunications
Companies that engage in the development, manufacturing, or sale of
communications services or communications equipment.
9
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Transportation
This sector includes companies engaged in providing transportation services or
companies engaged in the design, manufacturing, distribution, or sale of
transportation equipment.
Utilities
This sector consists of companies in the public utilities industry and companies
deriving a majority of their revenues from public utility operations.
More Information about the Fund's Investment Policies
Securities and Investment Practices
The following discussion contains more detailed information about the
types of instruments the Fund will invest in, and certain strategies the Advisor
may use to achieve the Fund's investment objective. A complete listing of the
Fund's limitations and more detailed information about the Fund's investments
are contained in the Fund's SAI.
Equity Securities. These securities include common stocks, (ADRs),
preferred stocks, convertible securities, and warrants. Common stocks represent
an equity (ownership) interest in a corporation. Stock prices fluctuate based on
changes in a company's financial condition and on overall market conditions. The
stocks of smaller companies tend to be more sensitive to these factors. ADRs
represent equity in foreign corporations. They are purchased and sold in the
United States securities markets in U.S. dollars.
Money Market Securities. These are high-quality, short-term instruments
issued by the U.S. Government, corporations, financial institutions, and other
entities. They may carry fixed, variable, or floating interest rates and may
include commercial paper, certificates of deposit, banker's acceptances, and
time deposits.
Variable and Floating Rate Securities. These securities have interest
rates that are periodically adjusted either at specific intervals or whenever a
benchmark rate changes.
Repurchase Agreements. In a repurchase agreement, the Fund buys a
security at one price and simultaneously agrees to sell it back at a higher
price. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.
Investment Companies (Mutual Funds). The Fund may invest in other open
or closed end mutual funds. The investment may not be more than 5% of the mutual
fund's total assets. If the Fund invests in other investment companies, Fund
shareholders would also pay, indirectly, the fees and expenses of such
investment companies. The Fund would use this strategy when the Advisor
determines that this approach is the most economical way to invest in a
particular sector or to facilitate investment in certain foreign countries.
10
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Borrowing. The Fund may borrow from banks or through reverse repurchase
agreements. If the Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If the Fund makes additional
investments while borrowings are outstanding, this may be considered a form of
leverage. The Fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Temporary Strategies. The Advisor may hold cash and/or invest all or a
portion of the Fund's assets in money market instruments or money market funds.
Portfolio Turnover. Portfolio turnover refers to the change in investments
held by the Fund. The Fund does not hold securities for the long-term, and may
have higher than average portfolio turnover.
The Management of the Fund
The Advisor
The Fund's Advisor is T.O. Richardson Company, Inc., Two Bridgewater
Road, Farmington, Connecticut 06032-2256. Under the Investment Advisory
Agreement between the Fund and the Advisor, the Fund pays the Advisor a fee at
the annual rate of 1.50% of the Fund's average daily net assets. The advisory
fee is accrued daily and paid monthly. While the Advisor has no prior experience
advising mutual funds, it has many years of experience in advising pooled
investment vehicles similar to mutual funds, such as bank common trust funds.
Portfolio Management Team
The Fund's portfolio management team is led by L. Austine Crowe, Executive
Vice President of the Advisor. For the past five years, Mr. Crowe has actively
managed private accounts for T.O. Richardson using the Advisor's sector rotation
discipline. Mr. Crowe is a member of the Advisor's investment committee, which
has responsibility for all of the Advisor's investment decision making. The
portfolio management team for the Fund includes Samuel Bailey, Jr., Chairman of
T.O. Richardson, and Ralph L. Gaudet, Jr., Managing Director of T.O. Richardson.
Together the group has more than 60 years of investment experience.
Custodian, Transfer Agent and Dividend-Disbursing Agent and Administrator
Firstar Trust Company ("Firstar"), Mutual Fund Services, Third Floor,
615 East Michigan Street, Milwaukee, Wisconsin 53202 acts as custodian of the
Fund's assets (the "Custodian"), as dividend-disbursing agent (the
"Dividend-Disbursing Agent") and as transfer agent for the Fund (the "Transfer
Agent"). Under a Fund Administration Servicing Agreement and a Fund Accounting
Servicing Agreement, Firstar also performs accounting and certain compliance and
tax reporting functions for the
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Fund.
Distributor
The Fund's Distributor is T.O. Richardson Securities, Inc., (the
"Distributor") Two Bridgewater Road, Farmington, Connecticut 06032-2256. The
Trustees of the Fund, including all of the Trustees who are not connected with
the Advisor or the Distributor, ("Independent Trustees"), have voted to adopt a
Brokerage Enhancement Plan (the "Plan") for the purpose of using the Fund's
brokerage commissions, to the extent available, to promote the sale and
distribution of the Fund's shares. The Fund will not incur any fees or charges
as a result of the Plan. The Fund and the Distributor have entered into a
Distribution Agreement under which the Distributor serves as the principal
underwriter of the Fund, with responsibility for promoting sales of Fund shares.
The Distributor does not receive any additional compensation from the
Fund for performing this function. Instead, under the Plan, the Advisor is
authorized to effect brokerage transactions in portfolio securities through
certain broker-dealers, consistent with the Advisor's obligations to achieve
best price and execution. It is anticipated that these broker-dealers will agree
that a percentage of the commission for effecting brokerage transactions for the
Fund will be directed to the Distributor. The Distributor may use a part of
these directed commissions to defray legal and administrative costs associated
with implementation of the Plan. These expenses are expected to be minimal. The
remainder of the commissions received by the Distributor will be used to finance
activities principally intended to result in the sale of shares of the Fund. It
is anticipated that these activities will include: holding or participating in
seminars and sales meetings designed to promote the sale of Fund shares; paying
marketing fees requested by broker-dealers who sell Fund shares, training sales
personnel; compensating broker-dealers and/or their registered representatives
in connection with the sales of Fund shares, printing and mailing Fund
prospectuses, statements of additional information, and shareholder reports for
existing and prospective Fund shareholders; and creating and mailing advertising
and sales literature.
The Distributor will be obligated to use all of the funds directed to
it for distribution expenses, except for a small amount to be used to defray the
incidental costs associated with implementation of the Plan. Accordingly, the
Distributor will not make any profit from the operation of the Plan.
Both the Plan and the Distribution Agreement provide (A) that they will
be subject to annual approval by the Trustees and the Independent Trustees; (B)
that any person authorized to make payments under the Plan or Distribution
Agreement must provide the Trustees a quarterly written report of payments made
and the purpose of the payments; (C) that the Plan may be terminated at any time
by the vote of a majority of the Independent Trustees; (D) that the Distribution
Agreement may be terminated without penalty at any time by a vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding
securities of the Fund on not more than 60 days' written notice; and (E) that
the Distribution Agreement terminates if it is assigned. The Plan may not be
amended to increase materially the amount to be spent for distribution without
shareholder approval, and all material Plan amendments must be approved by a
vote of the Independent Trustees. In addition, the selection and nomination of
the Independent Trustees must be committed to the Independent Trustees.
The Advisor, as the initial shareholder of the Fund, has approved the
Plan.
Fund Expenses
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The Fund is responsible for its own expenses, including: interest
charges; taxes; brokerage commissions; organizational expenses; expenses of
registering or qualifying shares for sale with the states and the SEC; expenses
of issue, sale, repurchase or redemption of shares; expenses of printing and
distributing prospectuses to existing shareholders; charges of custodians;
expenses for accounting, administrative, audit, and legal services; fees for
outside Trustees; expenses of fidelity bond coverage and other insurance;
expenses of indemnification; extraordinary expenses; and costs of shareholder
and Trustee meetings.
How Fund Shares are Priced
The price of the Fund's shares is based on its net asset value ("NAV").
The NAV per share of the Fund is calculated once daily as of the close of
trading (generally 4:00 p.m. Eastern Time) every day that the New York Stock
Exchange ("NYSE") is open for business. The NAV is calculated by taking the
value of the Fund's total assets, including interest or dividends accrued, less
all liabilities, and dividing the total by the total number of shares of the
Fund outstanding. The result is the Fund's NAV per share. In determining NAV,
expenses are accrued and applied daily and securities and other assets are
generally valued at market value.
Purchase orders for Fund shares or shares tendered for redemption prior
to the close of trading on a day the NYSE is open for trading will be valued as
of the close of trading on that day. Those received after the close of trading
will be valued as of the close of trading on the next day the NYSE is open.
Common stocks and other equity-type securities are valued at the last
sales price on the securities exchange on which they are usually traded. Under
other circumstances, securities are valued at the average of the most recent bid
and asked prices.
Fixed income securities are valued by pricing services that use
electronic data processing techniques to determine values. Under other
circumstances, actual sale or bid prices are used.
Any securities or other assets for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Fund's Trustees. The Board of Trustees may approve the use of pricing services
to assist the Fund in determining NAV.
Purchasing Shares of the Fund
Shares of the Fund may be purchased through the Distributor directly,
or through Firstar, the Fund's Transfer Agent. Shares of the Fund may also be
purchased through a registered broker-dealer, who may charge you a fee either at
the time of purchase or at the time of redemption. The fee, if charged, is
retained by the broker-dealer and is not sent to the Fund, the Advisor or the
Distributor. Shares of the Fund are sold on a continual basis at the next
offering price (the "Offering Price"), which is the NAV per share when the order
is received by a dealer, the Distributor or the Transfer Agent.
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Payment for Fund shares should be made by check or money order. The
minimum initial investment is $5,000. For IRAs, the minimum investment is
$2,000. Subsequent investments of at least $500 may be made by mail or wire. If
you use the Automatic Investment Plan, the minimum investment is $1,000 with a
minimum monthly investment of $100. These minimums can be changed or waived by
the Fund at any time.
To purchase Fund shares, complete the shareholder purchase application
and mail it with a check or money order payable to "T.O. Richardson Sector
Rotation Fund" to one of the addresses below. If you are making an additional
purchase, complete the Additional Investment Form provided on the lower portion
of your account statement and include it with your check or money order. To make
an additional purchase by wire, please refer to the "wire purchases" section
that follows.
<TABLE>
<CAPTION>
For Regular Mail For Overnight Mail
<S> <C>
- ----------------------------------------------------- ----------------------------------------------------------------
T.O. Richardson Sector Rotation Fund T.O. Richardson Sector Rotation Fund
c/o Firstar Trust Company, c/o Firstar Trust Company
Mutual Fund Services Mutual Fund Services
P.O. Box 701 Third Floor
Milwaukee, Wisconsin 53201-0701. 615 East Michigan Street
Milwaukee, Wisconsin 53202.
- ----------------------------------------------------- ----------------------------------------------------------------
</TABLE>
If the broker dealer you choose to purchase Fund shares through has not entered
into a sales agreement with the Distributor, the dealer can still place your
order for the purchase of Fund shares. Purchases made through dealers who do not
have selling agreements with the Advisor will be made at the Offering Price,
although they may charge a transaction fee. To avoid that fee, purchase shares
through a dealer who has entered into a sales agreement with the Distributor or
through the Transfer Agent.
If your check does not clear, you will be charged a $20 service fee. You will
also be responsible for any losses suffered by the Fund as a result. Neither
cash nor third-party checks will be accepted. All applications to purchase Fund
shares are subject to acceptance by the Fund and are not binding until they are
accepted. The Fund reserves the right to decline or accept a purchase order
application.
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Wire Purchases
You may also purchase Fund shares by wire. The following instructions
should be followed when wiring funds to the Transfer Agent for the purchase of
Fund shares:
Wire to Firstar Bank Milwaukee, N.A.
- -------------------------------- ----------------------------------------
ABA Number 075000022
- -------------------------------- ----------------------------------------
Credit Firstar Trust Company
- -------------------------------- ----------------------------------------
Account 112-952-137
- -------------------------------- ----------------------------------------
Further Credit T.O. Richardson Sector Rotation Fund
- -------------------------------- ----------------------------------------
Shareholder Account Number
- -------------------------------- ----------------------------------------
Shareholder Name
Account Registration
- -------------------------------- ----------------------------------------
Please call 1-800-643-7477 prior to wiring any funds to notify the
Transfer Agent that the wire is coming. The Fund is not responsible for the
consequences of delays resulting from the banking or Federal Reserve wire system
or from incomplete wiring instructions.
Telephone Purchases
The telephone purchase option allows you to make subsequent investments
of at least $250 directly from a bank checking or savings account. To set up the
telephone purchase option on your account, complete the appropriate section in
the purchase application. Only bank accounts held at domestic financial
institutions that are Automated Clearing House ("ACH") members may be used for
telephone transactions.
This option will become effective approximately 15 business days after
Firstar receives the application form. If Firstar receives both your purchase
order and payment by Electronic Funds Transfer through the ACH system before the
close of regular trading, you will pay the offering price calculated that day.
Most transfers are completed within one business day. Subsequent investments may
be made by calling 1-800-643-7477.
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Automatic Investment Plan
The Automatic Investment Plan ("AIP") allows you to make regular
monthly investments in the Fund on the days you choose, directly from your bank
account. To establish the AIP, complete the appropriate section in the
shareholder application. You can set up the AIP with any financial institution
that is a member of ACH.
The minimum initial investment for investors using the AIP is $1,000,
and subsequent investments must equal $100 or more. There is no fee for this
service, but there is a service fee of $20 for AIP purchases that do not clear
because of actions you have taken.
The AIP allows investors to take advantage of dollar cost averaging,
which is simply investing a fixed amount of money at regular time periods, such
as monthly, or weekly. By making regular investments of the same dollar amount,
you can buy more shares when the price is low, and you will buy fewer shares
when the price is high. Over time, you may pay an average price for your Fund
shares, rather than buying at either a low point, or a high point. Of course,
the AIP program does not ensure a profit or protect against a loss under any
circumstances.
The Fund has the right to close an investor's account, if the investor
stops making payments under the AIP. Before closing an account, the Fund will
give the investor written notice and 60 days to reinstate the AIP, or reach the
regular minimum initial investment of $5,000.
Individual Retirement Accounts
The Fund offers two types of IRAs that can be adopted by executing the
appropriate Internal Revenue Service ("IRS") Form. For more information on IRAs,
please see the separate IRA Disclosure Statement.
For Traditional and Roth IRAs, the maximum annual total IRA
contribution for one person is generally equal to the lower of $2,000 or 100% of
the investor's compensation (earned income). Investors may have both types of
IRAs, although the $2,000 annual maximum contribution will have to be spread
between the two accounts.
Traditional IRA
Contributions to this IRA may be tax deductible when they are made,
depending on whether the investor is an "active participant" in an
employer-sponsored retirement plan and the investor's income. Distributions of
investment earnings from a Traditional IRA will be taxed at distribution.
Premature distributions taken before age 59-1/2 may be subject to an additional
10% tax. Distributions must begin by April 1 following the calendar year in
which the investor reaches age 70-1/2, or tax penalties may apply.
16
<PAGE>
Roth IRA
Contributions to a Roth IRA are taxed when they are made, and
distributions from the IRA are not taxable, if investors hold the IRAs for
certain minimum periods of time (generally, until age 59-1/2). Investors whose
income exceeds certain limits are not eligible to contribute to a Roth IRA.
Distributions of investment earnings that do not meet the requirements for
tax-free withdrawal are subject to income taxes (and possibly penalty taxes).
There are no minimum required distributions except in the case of death of the
investor.
Simplified Employee Pension Plan
A Traditional IRA may also be used in conjunction with a Simplified
Employee Pension Plan, or SEP-IRA. A SEP-IRA is established by completing Form
5305-SEP and by opening a Traditional IRA for each eligible employee. SEP-IRAs
allow employers (including self-employed people) to purchase shares with tax
deductible contributions. These contributions may not exceed 15% of annual
compensation for any one participant in the SEP-IRA. A number of special rules
apply to SEP Plans, including a requirement that contributions generally be made
on behalf of all employees of the employer (including for this purpose a sole
proprietorship or partnership) who satisfy certain minimum participation
requirements.
Simple IRA
Employers and self-employed people may also establish SIMPLE IRAs.
SIMPLE IRAs are similar to Traditional IRAs, with the exceptions described
below. Under a SIMPLE Plan, the investor may elect to have his or her employer
make salary reduction contributions of up to $6,000 per year to the SIMPLE IRA.
The $6,000 limit is adjusted periodically for cost of living increases.
Employers are required to contribute certain amounts to the investor's SIMPLE
IRA, either as a matching contribution to those participants who make their own
salary reduction contributions, or as a non-elective contribution to all
eligible participants, whether or not they make salary reduction contributions.
A number of special rules apply to SIMPLE Plans, including:
o SIMPLE Plans generally are available only to employers with fewer than 100
employees,
o Contributions must be made on behalf of all employees of the employer (other
than bargaining unit employees) who satisfy certain minimum participation
requirements,
o Contributions are made to a SIMPLE IRA that is separate and apart from the
other IRAs of employees,
o The distribution excise tax (if otherwise applicable) is increased to 25% on
withdrawals during the first two years of participation in a SIMPLE IRA; and
o Amounts withdrawn during the first two years of participation may be rolled
over tax-free only into another SIMPLE IRA (and not to a Traditional IRA or a
Roth IRA). A SIMPLE IRA is established by executing Form 5304-SIMPLE together
with an IRA established for each eligible employee.
Right to Revoke Investment
Under current IRS regulations, all IRA applicants must be furnished
with a disclosure statement containing information specified by the IRS.
Applicants generally have the right to revoke their account within seven days
after receiving the disclosure statement and obtain a full refund of their
contributions.
17
<PAGE>
The custodian may, in its discretion, hold the initial contribution uninvested
until the expiration of the seven-day revocation period. The Custodian does not
anticipate that it will exercise its discretion but reserves the right to do so.
Redeeming Shares of the Fund
You may redeem (or sell back to the Fund) some or all of your Fund
shares at any time. Your redemption will be processed at the first NAV
calculated after your complete request is received by Firstar. If you have a
broker or dealer listed on your account, you may redeem shares through the
broker or dealer. Otherwise, all redemption requests must be made with Firstar.
You can make redemption requests through any broker or dealer, but you may be
charged a fee. The Fund will mail you a check with your redemption proceeds,
generally the next business day after the request is processed, and not more
than seven days after receiving the complete request.
If you make a purchase by check, and then immediately request a
redemption, the Fund can hold your redemption payment until your original
purchase check has cleared, which could take up to 12 days.
The Transfer Agent may request additional documentation to process
redemptions from corporations, executors, administrators, trustees, guardians,
agents or attorneys-in-fact.
The Fund will pay in cash all redemptions during any 90 day period, in
amounts up to the lesser of $250,000 or 1% of the Fund's net assets at the
beginning of the period. Redemptions in excess of this limit may be paid, in
whole or in part, in securities or in cash, as the Trustees deem advisable.
If you are an IRA investor, you will need to indicate on your
redemption requests whether or not federal income tax should be withheld,
otherwise federal taxes will be withheld from your distribution.
Written Redemption
Simply mail a written request for redemption of your Fund shares to
either address below.
For Regular Mail For Overnight Mail
- ------------------------------------- ----------------------------------------
T.O. Richardson Sector Rotation Fund T.O. Richardson Sector Rotation Fund
c/o Firstar Trust Company c/o Firstar Trust Company
Mutual Fund Services Mutual Fund Services
P.O. Box 701 Third Floor
Milwaukee, Wisconsin 53201-0701 615 East Michigan Street
Milwaukee, Wisconsin 53202.
- ------------------------------------- ----------------------------------------
18
<PAGE>
Your request must:
o Be signed exactly as the shares are registered, including the signature of
each owner.
o Specify the number of shares or dollar amount to be redeemed.
o Include a signature guarantee if your request is made within 15 days of a
change of address.
You may request that the proceeds of your redemption be wired to the bank you
pre-authorized on your account application. Firstar charges a $12 service fee
for each wire transactions.
Because the U.S. Postal Service and other independent delivery services
are not agents of the Fund, mailing your request is not the same as having your
complete request received by the fund. Your request is "received" when it is
actually processed by the Transfer Agent.
Telephone Redemption
For redemption requests of $1,000 or more, you may call 1-800-643-7477.
In order to redeem shares by phone, you must have requested this option in
writing. Redemption proceeds will be mailed directly to you, or wired to the
bank account you designated on your account application. There is no charge for
this service. The Transfer Agent applies a $12.00 fee for all wire redemptions.
To change the designated bank account, send a written request with guaranteed
signature(s) to Firstar. To change your address, call Firstar at 1-800-643-7477,
or send a written request to the Transfer Agent.
Telephone redemption requests are not allowed within 15 days of an
address change, and the Fund may limit the number of telephone redemptions it
allows an investor to request. After they have been made, telephone redemptions
cannot be changed or canceled.
The Transfer Agent will try to be sure that all telephone redemption
requests are genuine. Firstar's procedures may include requiring personal
identification, taping telephone transactions, and sending written confirmation
of transactions to investors. As long as procedures similar to those above are
followed, the Fund and the Transfer Agent will not be liable for loss, cost, or
expense incurred by an investor for acting on telephone instructions, or for an
unauthorized telephone redemption. The Fund has the right to refuse a telephone
redemption request.
Systematic Withdrawal Plan
You may set up automatic withdrawals from your Fund account to a bank
account. To do this, you must have a balance of $10,000 in your account, and you
must withdraw at least $250 per payment. To set up the systematic withdrawal
plan ("SWP"), you need to fill out the appropriate section of the shareholder
application. You can choose to make withdrawals on a monthly, quarterly,
semi-annual or annual basis (or the following business day).
To change the amount or timing of withdrawal payments, or to
temporarily discontinue them, call 1-800-643-7477. Depending upon the size of
your account, the size of the withdrawal requests, and changes in the price of
shares of the Fund, you may run out of money in your account. If the dollar
amount in your account is not enough to make a payment, the amount will be
redeemed and the SWP will be terminated.
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<PAGE>
Signature Guarantees
Signature guarantees are required by the Transfer Agent to process some
types of transactions. Signature guarantees may be obtained from commercial
banks, savings associations, credit unions and brokerage firms. Please note that
a notary public stamp or seal is not the same thing as a signature guarantee.
Some types of transactions are:
o Redemption requests to be mailed or wired to a person other than the
registered owner(s) of the shares.
o Redemption requests to be mailed or wired to other than the address currently
on file.
o Any redemption request that occurs within 15 days of a request for a change of
address.
Contingent Redemption Fee
The Fund is designed as a long-term investment and is not appropriate
for short-term trading. Frequent purchases, redemptions, and exchanges in and
out of the Fund make it difficult for the portfolio management team to make
long-term investment decisions, and can drive up the Fund's transaction costs.
To discourage short-term trading of Fund shares, the Fund charges a 1.25% fee on
redemptions of Fund shares that are held for less than one year. This contingent
redemption fee is waived for shareholders of the Fund who, immediately before
investing in the Fund, were private clients of the Advisor.
Redemption fees charged to investors will be paid to the Fund to help
offset transaction costs. The Fund will use the "first-in, first-out" (FIFO)
accounting method to calculate an investor's one-year holding period. This means
that the date of the redemption will be compared with the first purchase date of
Fund shares held in the account. If the period is less than one year, you will
be charged the redemption fee. As an example, if you purchase shares on October
1, 1998 and redeem them on or before September 30, 1999, you will pay the fee.
If you redeem the shares after October 1, 1999, you will not pay the fee.
The fee applies to shares held in IRA accounts, to shares purchased
through the Fund's automatic investment plan, and to shares held in broker
omnibus accounts.
The Fund may close your account with at least 30 days notice if your
account balance falls below $250. In this case, the Fund will mail you a check
for the proceeds of the redemption within seven days of the redemption.
Exchanging Fund Shares for Shares of other Funds
Fund shareholders can exchange shares of the Fund for shares of the
Firstar Money Market Fund. Exchange requests are available for exchanges of
$1,000 or more. There is no charge for written exchange requests. Firstar will,
however, charge a $5 fee for each exchange transaction that is executed by
telephone.
20
<PAGE>
The Firstar Money Market Fund is a no-load money market fund managed by
an affiliate of Firstar, and is not related to the Fund. Before exchanging into
the Firstar Money Market Fund, please read the applicable prospectus, which may
be obtained by calling 1-800-643-7477.
For tax purposes, an exchange from the Fund to the Firstar Money Market
Fund is treated as an ordinary sale and purchase, and you will realize a capital
gain or loss. The Distributor may be paid by the Firstar Money Market Fund for
services provided to shareholders of the Fund.
Dividends, Capital Gains and Tax Treatment
All dividends and capital gains distributions will automatically be
reinvested in additional Fund shares at the current NAV unless you specifically
request that either dividends, or capital gains, or both, be paid in cash.
To change the way capital gains and dividends are paid to you, call
1-800-643-7477. You may choose to have dividends or capital gains that are paid
in cash sent by mail, or sent by electronic funds transfer ("EFT"). Transfers by
EFT generally take up to three business days to reach your bank account.
If you choose to receive distributions and dividends by check and the
post office cannot deliver the check, or if the check is not cashed for six
months, the Fund can reinvest that distribution, and any others, in your account
at the current net asset value.
The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986. In this case, the Fund will
not have any tax liability.
The Fund intends to pay dividends and to distribute any capital gains
annually. Capital gains distributions may be more frequent. When the Fund
distributes a dividend or capital gain, the Fund's NAV decreases by the amount
of the payment. If you purchase shares right before a distribution, you will
have to pay income taxes on the distribution, even though the value of your
investment has not changed.
Dividends and distributions of net realized short-term capital gains
are taxable to Fund investors as ordinary income. This is true whether they are
reinvested in the Fund or they are received in cash, unless you are either
exempt from taxes or qualify for a tax deferral.
Distributions of net realized long-term capital gains are taxable as a
capital gain, whether you reinvest them, or you receive them in cash. The
capital gain holding period is measured by the length of time the Fund has held
the securities that produced the gain, not the length of time you have held
shares in the Fund. The Fund provides information every year about the amount
and type of all dividends and capital gains paid during the prior year. You may
incur state or local taxes on dividends and capital gains.
If the Fund does not have your correct social security number or
taxpayer identification number, the Fund is required by federal law to withhold
federal income tax from your distributions and redemptions at a rate of 31%.
Other information about federal tax issues is in the SAI. There may be
other federal, state, or
21
<PAGE>
local tax considerations that apply to you. Be sure to consult your own tax
advisor.
The Year 2000 Issue
The Fund's operations depend on the seamless functioning of computer
systems in the financial service industry in general, and specifically on the
systems used by the Advisor and Firstar. The Year 2000 issue relates to computer
programs that use two digits rather than four to define calendar years. Computer
programs may recognize a two-digit reference to the year 2000 (00), as 1900
rather than 2000. This could result in system failures or miscalculations,
disrupting the processing of date-related information. If the Fund, the Advisor,
Firstar or their respective computer services suppliers do not adequately
address the Year 2000 issue, this issue could create problems in the handling of
security trades, pricing and account servicing for the Fund.
The Advisor has made compliance with the Year 2000 Issue a high
priority and is taking steps that it believes are reasonably designed to address
the Year 2000 Issue with respect to its computer systems. The Advisor has also
been informed that appropriate steps are being taken by Firstar and the Fund's
other major service providers. The Advisor believes that the Year 2000 Issue
will not have a material impact on its ability to continue to fulfill its duties
as Advisor to the Fund.
Fund Investment Performance
The Fund may compare its investment results to other indices or other
mutual funds and use these comparisons in reports to shareholders, sales
literature, and advertisements. The results may be calculated on several bases,
including yield, average annual total return, total return, and cumulative total
return.
Average annual total return and total return figures measure both the
net investment income generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the underlying investments in the
Fund over a specified period of time, assuming the reinvestment of all dividends
and distributions. Average annual total return figures are annualized and
therefore represent the average annual percentage change over the specified
period. Total return figures are not annualized and represent the aggregate
percentage or dollar value change over the period. Cumulative total return
simply reflects the Fund's performance over a stated period of time.
22
<PAGE>
Additional Information
More information on the Fund is available free upon request, including
the following:
Annual/Semiannual Report
These reports will describe the Fund's performance, list portfolio
holdings and contain a letter from the Fund's manager discussing recent
market conditions, economic trends and Fund strategies and their effect
on the Fund's performance.
Statement of Additional Information
The "SAI", dated _________ __, 1998 provides more detailed information
about the Fund and its policies. A current SAI is on file with the
Securities and Exchange Commission ("SEC") and is incorporated by
reference (i.e., is legally considered part of this Prospectus).
To Request More Information or Ask Questions
<TABLE>
<CAPTION>
Call 1-800-643-7477
<S> <C>
- ------------------------------------ ----------------------------------------------------------------------------------
Write T.O. Richardson Company, Inc.
Two Bridgewater Road
Farmington, Connecticut 06032-2256
- ------------------------------------ ----------------------------------------------------------------------------------
Internet Text - only versions of Fund documents can be viewed online or
downloaded from SEC: http://www.sec.gov. T.O. Richardson's web site
is http://www.torich.com.
- ------------------------------------ ----------------------------------------------------------------------------------
Securities and Exchange You may also obtain copies of documents by visiting the SEC's Public
Commission Reference Room in Washington, D.C. (1-800-SEC-0330) or by sending
your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
- ------------------------------------ ----------------------------------------------------------------------------------
</TABLE>
SEC File Number is 811-8849.
23
<PAGE>
Additional Information
<TABLE>
<CAPTION>
<S> <C>
TRUSTEES Samuel Bailey, Jr.
Lloyd P. Griffiths
Robert T. Samuels
John R. Burke
David B. H. Martin, Jr.
- ------------------------------ ---------------------------------------------------------------------------------------
OFFICERS Samuel Bailey, Jr., Chief Executive Officer and President
Lloyd P. Griffiths, Executive Vice President
L. Austine Crowe, Jr., Executive Vice President
Kathleen M. Russo, Senior Vice President and Secretary
- ------------------------------ ---------------------------------------------------------------------------------------
INVESTMENT T.O. Richardson Company, Inc.
ADVISOR Two Bridgewater Road
Farmington, CT 06032-2256
- ------------------------------ ---------------------------------------------------------------------------------------
CUSTODIAN, Firstar Trust Company
ADMINISTRATOR AND For Regular Mail
TRANSFER AGENT T.O. Richardson Sector Rotation Fund
Firstar Trust Company,
Mutual Fund Services, P.O. Box 701
Milwaukee, Wisconsin 53201-0701
For Overnight Mail
T.O. Richardson Sector Rotation Fund
Firstar Trust Company
Mutual Fund Services
Third Floor
615 East Michigan Street
Milwaukee, Wisconsin 53202
- ------------------------------ ---------------------------------------------------------------------------------------
DISTRIBUTOR T.O. Richardson Securities, Inc.
Two Bridgewater Road
Farmington, CT 06032-2256
- ------------------------------ ---------------------------------------------------------------------------------------
INDEPENDENT Arthur Andersen LLP
ACCOUNTANTS 100 East Wisconsin Avenue
P.O. Box 1215
Milwaukee, WI 53201-1215
- ------------------------------ ---------------------------------------------------------------------------------------
24
<PAGE>
- ------------------------------ ---------------------------------------------------------------------------------------
Legal Counsel Sullivan & Worcester LLP
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
- ------------------------------ ---------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
T.O. RICHARDSON TRUST
T.O. Richardson Sector Rotation Fund
Two Bridgewater Road
Farmington, Connecticut
06032-2256
1- 800-643-7477
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the T.O. Richardson Trust (the
"Trust"), including the T.O. Richardson Sector Rotation Fund (the "Fund"), a
diversified series of the Trust, dated ____________ __, 1998. The Prospectus,
which may be revised from time to time, is available without charge upon request
to the above-noted address or telephone number.
This Statement of Additional Information is dated ____________ __, 1998
1
<PAGE>
TABLE OF CONTENTS
Page No.
THE FUND.................................................................
INVESTMENT STRATEGIES AND RISKS
INVESTMENT RESTRICTIONS..................................................
SECTOR DESCRIPTIONS AND RISKS
.........................................................................
TRUSTEES AND OFFICERS....................................................
PRINCIPAL SHAREHOLDERS...................................................
INVESTMENT ADVISOR......................................................
FUND TRANSACTIONS AND BROKERAGE..........................................
FUND ADMINISTRATOR.......................................................
CUSTODIAN................................................................
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT.............................
DISTRIBUTOR..............................................................
TAXES....................................................................
DETERMINATION OF NET ASSET VALUE.........................................
SPECIAL REDEMPTIONS......................................................
DESCRIPTION OF THE TRUST.................................................
PERFORMANCE INFORMATION..................................................
INDEPENDENT ACCOUNTANTS..................................................
LEGAL COUNSEL............................................................
FINANCIAL STATEMENTS.....................................................
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated ______ __, 1998, and if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund. This Statement of Additional Information does not constitute an
offer to sell securities in any state or jurisdiction in which such offering may
not lawfully be made.
(iii)
<PAGE>
THE FUND
The Trust was organized on June 2, 1998 as a voluntary business
association under the laws of the Commonwealth of Massachusetts. It is an
open-end diversified management investment company. The Fund is a series
portfolio of the Trust and is registered with the Securities and Exchange
Commission as an open-end, diversified management investment company.
INVESTMENT STRATEGIES AND RISKS
The discussion below contains more detailed information about the types
of investments the Fund may make, the strategies the Advisor may employ in
pursuit of the Fund's investment objective, and a summary of related risks.
Closed-End Investment Companies. These are investment companies that
issue a fixed number of shares which trade on a stock exchange or
over-the-counter. Closed-end investment companies are professionally managed and
may invest in any type of security. Shares of closed-end investment companies
may trade at a premium or a discount to their net asset value. The Fund may
purchase shares of closed-end investment companies to facilitate investment in
certain foreign countries.
Convertible Securities. These are bonds, debentures, notes, preferred
stocks or other securities that may be converted or exchanged (by the holder or
by the issuer) into shares of the underlying common stock (or cash or securities
of equivalent value) at a stated exchange ratio. A convertible security may also
be called for redemption or conversion by the issuer after a particular date and
under certain circumstances (including a specified price) established upon
issue. If a convertible security held by the Fund is called for redemption or
conversion, the Fund could be required to tender it for redemption, convert it
into the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss
than common stocks. Convertible securities generally provide yields higher than
the underlying stocks, but generally lower than comparable non-convertible
securities. Because of this higher yield, convertible securities generally sell
at prices above their "conversion value," which is the current market value of
the stock to be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time depending on
changes in the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible securities will tend
not to decline to the same extent because of the interest or dividend payments
and the repayment of principal at maturity for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same extent as
securities convertible at the option of the holder. When the underlying common
stocks rise in value, the value of convertible securities may also be expected
to increase. At the same time, however, the difference between the market value
of convertible securities and their conversion value will narrow. This means
that the value of convertible securities will generally not
increase to the same extent as the value of the underlying common stocks.
Because convertible securities may also be interest-rate sensitive, their value
may increase as interest rates fall and decrease as interest rates rise.
Convertible securities are also subject to credit risk, and are often
lower-quality securities.
Delayed-Delivery Transactions. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to purchase or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. Typically, no interest accrues to the purchaser until the
security is delivered.
When purchasing securities on a delayed-delivery basis, the purchaser
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations and the risk that the security will not be issued as
anticipated. Because payment for the securities is not required until the
delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If the Fund remains substantially fully invested at a
time when delayed-delivery purchases are outstanding, the delayed- delivery
purchases may result in a form of leverage. When delayed-delivery purchases are
outstanding, the Fund will set aside appropriate liquid assets in a segregated
custodial account to cover the purchase obligations. When the Fund sells a
security on a delayed-delivery basis, the Fund does not participate in further
gains or losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities, the
Fund could miss a favorable price or yield opportunity or suffer a loss. The
Fund may renegotiate a delayed delivery transaction and may sell the underlying
securities before delivery, which may result in capital gains or losses for the
Fund.
Domestic and Foreign Investments include U.S. dollar-denominated time
deposits, certificates of deposit, and bankers' acceptances of U.S. banks and
their branches located outside of the United States, U.S. branches and agencies
of foreign banks, and foreign branches of foreign banks. Domestic and foreign
investments may include U.S. dollar-denominated securities issued or guaranteed
by other U.S. or foreign issuers, including U.S. and foreign corporations or
other business organizations, foreign governments, foreign government agencies
or instrumentalities, and U.S. and foreign financial institutions, including
savings and loan institutions, insurance companies, mortgage bankers, and real
estate investment trusts, as well as banks.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation.
Payment of interest and repayment of principal on these obligations may also be
affected by governmental action in the country of domicile of the branch
(generally referred to as sovereign risk). In addition, evidence of ownership of
portfolio securities may be held outside of the United States and a fund may be
subject to the risks associated with the holding of such property overseas.
Various provisions of federal law governing the establishment and operation of
U.S. branches do not apply to foreign branches of U.S. banks.
Obligations of U.S. branches and agencies of foreign banks may be
general obligations of the parent bank in addition to the issuing branch, or may
be limited by the terms of a specific obligation and by federal and state
regulation, as well as by governmental action in the country in which the
foreign bank has its head office.
Obligations of foreign issuers involve certain additional risks. These
risks may include future unfavorable political and economic developments,
withholding taxes, seizures of foreign deposits, currency controls, interest
limitations, or other governmental restrictions that might affect repayment of
principal or payment of interest, or the ability to honor a credit commitment.
Additionally, there may be less public information available about foreign
entities. Foreign issuers may be subject to less governmental regulation and
supervision than U.S. issuers. Foreign issuers also generally are not bound by
uniform accounting, auditing, and financial reporting requirements comparable to
those applicable to U.S. issuers.
Exposure to Foreign Markets. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve significant risks in addition to the risks inherent in U.S. investments.
Foreign investment involves risks relating to local political,
economic, regulatory, or social instability, military action or unrest, or
adverse diplomatic developments, and may be affected by actions of foreign
governments adverse to the interests of U.S. investors. Such actions may include
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 is no assurance that
the Advisor will be able to anticipate these potential events or counter their
effects. In addition, the value of securities denominated in foreign currencies
and of dividends and interest paid with respect to such securities will
fluctuate based on the relative strength of the U.S. dollar.
It is anticipated that in most cases the best available market for
foreign securities will be on an exchange or in over-the-counter (OTC) markets
located outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security trading,
settlement and custodial practices (including those involving securities
settlement where Fund assets may be released prior to receipt of payment) are
often less developed than those in U.S. markets, and may result in increased
risk or substantial delays in the event of a failed trade or the insolvency of,
or breach of duty by, a foreign broker-dealer, securities depository or foreign
sub custodian. In addition, the costs associated with foreign investments,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than with U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers are generally not bound by uniform accounting, auditing, and
financial reporting requirements and standards of practice comparable to those
applicable to U.S. issuers. Adequate public information on foreign issuers may
not be available, and it may be difficult to secure dividends and information
regarding corporate actions on a timely basis. In general, there is less overall
government supervision and regulation of securities exchanges, brokers, and
listed companies than in the United States. OTC markets tend to be less
regulated than stock exchange markets and, in certain countries, may be
unregulated. Regulatory enforcement may be influenced by economic or political
concerns, and investors may have difficulty enforcing their legal rights in
foreign countries.
Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
American Depositary Receipts (ADRs) as well other "hybrid" forms of
ADRs, including European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs), are certificates evidencing ownership of shares of a foreign
issuer. These certificates are issued by depository banks and generally trade on
an established market in the United States or elsewhere. The underlying shares
are held in trust by a custodian bank or similar financial institution in the
issuer's home country. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various services,
including forwarding dividends and interest and corporate actions. ADRs are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies. However, ADRs continue to be subject to many of
the risks associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks of the
underlying issuer's country.
The risks of foreign investing may be magnified for investment in
emerging markets. Security prices in emerging markets can be significantly more
volatile than those in more developed markets, reflecting the greater
uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may have relatively unstable
governments, may present the risks of nationalization of businesses,
restrictions on foreign ownership and prohibitions on the repatriation of
assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be based on only
a few industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
Indexed Securities. These are instruments whose prices are indexed to
the prices of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic.
Gold-indexed securities typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to rise
and fall together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign- denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. Indexed securities may be more volatile than the underlying
instruments. Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. Government agencies.
The Fund may consider purchasing securities indexed to the price of
precious metals as an alternative to direct investment in precious metals. The
Fund will only buy precious metals-indexed securities when the Advisor is
satisfied with the creditworthiness of the issuers liable for payment. The
securities generally will earn a nominal rate of interest while held by the
Fund, and may have maturities of one year or more. In addition, the securities
may be subject to being put by the Fund to the issuer, with payment to be
received on no more than seven days' notice. The put feature would ensure the
liquidity of the notes in the absence of an active secondary market.
Money Market Securities. These are high-quality, short-term
obligations. Some money market securities employ a trust or other similar
structure to modify the maturity, price characteristics, or quality of financial
assets. For example, put features can be used to modify the maturity of a
security or interest rate adjustment features can be used to enhance price
stability. If the structure does not perform as intended, adverse tax or
investment consequences may result. Neither the Internal Revenue Service (IRS )
nor any other regulatory authority has ruled definitively on certain legal
issues presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax treatment of
the income received from these securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax treatment of
the income received from these securities or the nature and timing of
distributions made by the Fund.
Real Estate Investment Trusts. Equity real estate investment trusts own
real estate properties. Mortgage real estate investment trusts make
construction, development and long-term mortgage loans. Their value may be
affected by changes in the value of the underlying property of the trusts, the
creditworthiness of the issuer, property taxes, interest rates, and tax and
regulatory requirements, such as those relating to the environment. Both types
of trusts are dependent upon management skill, are not diversified, and are
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for tax-free status of income under
the Internal Revenue Code and failing to maintain exemption from the 1940 Act.
Repurchase Agreements. In a repurchase agreement, the Fund purchases a
security and simultaneously commits to sell that security back to the original
seller at an agreed-upon price. 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. As protection against the risk that the
original seller will not fulfill its obligation, the securities are held in a
separate account at a bank, marked-to market daily, and maintained at a value at
least equal to the sale price plus the accrued incremental amount. While it does
not presently appear possible to eliminate all risks from these transactions
(particularly the possibility that the value of the underlying security will be
less than the resale price, as well as delays and costs to the Fund in
connection with bankruptcy proceedings), the Fund will engage in repurchase
agreement transactions with parties whose creditworthiness has been reviewed and
found satisfactory by the Advisor.
Reverse Repurchase Agreements. In a reverse repurchase agreement, the
Fund sells a security to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase that security at an agreed-upon price
and time. While a reverse repurchase agreement is outstanding, the Fund will
maintain appropriate liquid assets in a segregated custodial account to cover
its obligation under the agreements. The Fund will enter into reverse repurchase
agreements with parties whose creditworthiness has been reviewed and found
satisfactory by the Advisor. Such transactions may increase fluctuations in the
market value of Fund assets and may be viewed as a form of leverage.
Sources of Credit or Liquidity Support. The Advisor may rely on its
evaluation of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or demand
feature, insurance or other source of credit or liquidity. In evaluating the
credit of a foreign bank or other foreign entities, the Advisor will consider
whether adequate public information about the entity is available and whether
the entity may be subject to unfavorable political or economic developments,
currency controls, or other government restrictions that might affect its
ability to honor its commitment.
Temporary Strategies. Prior to investing the proceeds from sales of
Fund shares, to meet ordinary cash needs, and to retain the flexibility to
respond promptly to changes in market and economic conditions, the Advisor may
hold cash and/or invest all or a portion of the Fund's assets in money market
instruments, which are short-term fixed income securities issued by private and
governmental institutions.
Variable and Floating Rate Securities. These provide for periodic
adjustments in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change whenever there is a change in a
designated benchmark rate. Some variable or floating rate securities are
structured with put features that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain financial
intermediaries.
Warrants. Warrants are instruments which entitle the holder to buy an
equity security at a specific price for a specific period of time. Changes in
the value of a warrant do not necessarily correspond to changes in the value of
its underlying security.
The price of a warrant may be more volatile than the price of its underlying
security, and a warrant may offer greater potential for capital appreciation as
well as capital loss. Warrants do not entitle a holder to dividends or voting
rights with respect to the underlying security and do not represent any rights
in the assets of the issuing company. A warrant ceases to have value if it is
not exercised prior to its expiration date. These factors can make warrants more
speculative than other types of investments.
INVESTMENT RESTRICTIONS
The investment objective of the Fund is to seek capital appreciation
while also providing some protection against downmarkets. The Fund's investment
objective is nonfundamental and, as such, may be changed without shareholder
approval. Shareholders would be given 30 days' written notice prior to any such
change. In seeking to attain its investment objective, the Fund invests mainly
in equity securities of
companies within particular sectors or groups of sectors. The Advisor allocates
assets among mainly equity securities of companies within particular sectors or
groups of sectors the Advisor determines have the greatest potential for market
appreciation. Assets are allocated to the different sectors according to the
Advisor's view of the relative strengths or weaknesses of the sectors and the
companies within those sectors. The Fund's investment objective and policies are
described in detail in the Prospectus under the caption "Investment Objective
and Policies." The following are the Fund's fundamental investment restrictions.
These restrictions cannot be changed without shareholder approval.
The Fund:
1. May not, with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities or securities
issued by other registered investment companies), if, as a result, (i)
more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (ii) the Fund would hold more than 10% of
the outstanding voting securities of that issuer.
2. May (i) borrow money from banks for temporary or emergency purposes (but
not for leveraging or investment) and (ii) make other investments or engage
in other transactions permissible under the Investment Company Act of 1940,
as amended (the "1940 Act"), which may involve a borrowing, including
borrowing through reverse repurchase agreements, provided that the
combination of (i) and (ii) shall not exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed), less the Fund's
liabilities (other than borrowings). The Fund may also borrow money from
other persons to the extent permitted by applicable law.
3. May not issue senior securities, except as permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's securities, except to the
extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"), in
connection with the purchase and sale of portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be loaned to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. May not purchase the securities of any issuer if, as a result, more than
25% of the Fund's total assets would be invested in the securities of
issuers, the principal business activities of which are in the same
industry.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Fund from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).
In addition to the non-fundamental operating policies set forth in the
Prospectus, the following are the Fund's non-fundamental operating policies
which may be changed by the Board of Trustees without shareholder approval.
The Fund may not:
1. Sell securities short provided that transactions in options, futures
contracts, options on futures contracts, or other derivative instruments
are not deemed to constitute selling securities short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for clearance of transactions; and provided
that margin deposits in connection with futures contracts, options on futures
contracts, or other derivative instruments shall not constitute purchasing
securities on margin.
3. Purchase securities of other investment companies except in compliance with
the 1940 Act.
4. Engage in futures or options on futures transactions except in accordance
with the Commodity Exchange Act (the "CEA") and the rules thereunder.
5. Make any loans, except through (i) purchases of debt securities or other debt
instruments, or (ii) engaging in repurchase agreements.
6. Borrow money except from banks or through reverse repurchase agreements
or mortgage dollar rolls, and will not purchase securities when bank
borrowings exceed 5% of its assets.
7. Concentrate (i.e., invest more than 25% of) its assets in a particular
industry.
Except for the fundamental investment limitations listed above, the
other investment policies described in the Prospectus and this Statement of
Additional Information are not fundamental and may be changed with approval of
the Trust's Board of Trustees. Unless noted otherwise, if a percentage
restriction is adhered to at the time of investment, a later increase or
decrease in percentage resulting from a change in the Fund's assets (i.e., due
to cash inflows or redemptions) or in market value of the investment or the
Fund's assets will not constitute a violation of that restriction.
SECTOR DESCRIPTIONS AND SECTOR RISKS
Basic Materials: companies engaged in the manufacture, mining,
processing, or distribution of raw materials and intermediate goods used in
building and manufacturing. The products handled by the companies in which the
Fund may invest include chemicals, metals, concrete, timber, paper, copper, iron
ore, nickel, steel, aluminum, textiles, cement, and gypsum. The Fund may also
invest in the securities of mining, processing, transportation, and distribution
companies, including companies involved in equipment supplies and railroads.
Many companies in the industrial sectors are significantly affected by
the level and volatility of commodity prices, the exchange value of the dollar,
import, controls, and worldwide competition. At times, worldwide production of
these materials has exceeded demand as a result of over-building or economic
downturns. During these times, commodity price declines, and unit volume
reductions have led to poor investment returns and losses. Other risks may
include liability for environmental damage, depletion of resources, and mandated
expenditures for safety and pollution control.
Biotechnology: companies engaged in the research, development, and
manufacture of various biotechnological products, services, and processes. These
companies are often involved with new or experimental technologies such as
genetic engineering, hybridoma and recombinant DNA techniques and monoclonal
antibodies. The Fund may also invest in companies that manufacture and/or
distribute biotechnological and biomedical products, including devices and
instruments, and in companies that provide or benefit significantly from
scientific and technological advances in biotechnology. Some biotechnology
companies may provide processes or services instead of, or in addition to,
products.
The description of the biotechnology sector will be interpreted broadly
by the Advisor, and may include applications and developments in such areas as
human
health care (e.g., cancer, infectious disease, diagnostics and therapeutics);
pharmaceuticals (e.g., new drug development and production); agricultural and
veterinary applications (e.g., improved seed varieties, animal growth hormones);
chemicals (e.g., enzymes, toxic waste treatment); medical/surgical (e.g.,
epidermal growth factor, in vivo imaging/therapeutics); and industry (e.g.,
biochips, fermentation, enhanced mineral recovery).
Many of these companies may have losses and may not offer products for
some time. These companies may have persistent losses during a new product's
transition from development to production, and revenue patterns may be erratic.
In addition, biotechnology companies are affected by patent considerations,
intense competition, rapid technological change and obsolescence, and regulatory
requirements of the U.S. Food and Drug Administration, the Environmental
Protection Agency (EPA), state and local governments, and foreign regulatory
authorities. Many of these companies are relatively small and their stock is
thinly traded.
Business Services: companies that provide business-related services to
companies and other organizations. Business-related services may include for
example, data processing, consulting, outsourcing, temporary employment, market
research or data base services, printing, advertising, computer programming,
credit reporting, claims collection, mailing and photocopying. Typically, these
services are provided on a contract or fee basis. The success of companies that
provide business- related services is, in part, subject to continued demand for
such services as companies and other organizations seek alternative,
cost-effective means to meet their economic goals. Competitive pressures, such
as technological developments, fixed rate pricing, and the ability to attract
and retain skilled employees, also may have a significant impact on the
financial condition of companies in the business services industry.
Computers: companies engaged in the research, design, development,
manufacture, or distribution of products, processes, or services that relate to
currently available or experimental hardware technology within the computer
industry. The Fund may invest in companies that provide products or services:
mainframes, minicomputers, microcomputers, peripherals, data or information
processing, office or factory automation, robotics, artificial intelligence,
computer aided design, medical technology, engineering and manufacturing, data
communications and software.
Cyclical Industries: companies engaged in the research, development,
manufacture, distribution, supply, or sale of materials, equipment, products or
services related to cyclical industries. These may include the automotive,
chemical, construction and housing, defense and aerospace, environmental
services, industrial equipment and materials, paper and forest products, and
transportation industries.
Many companies in these industries are significantly affected by
general economic trends including employment, economic growth, and interest
rates. Other factors that may affect these industries are changes in consumer
sentiment and spending, commodity prices, legislation, government regulation and
spending, import controls, and worldwide competition. At times, worldwide
production of the materials used in cyclical industries has exceeded demand as a
result of, for example, over-building or economic downturns. During these times,
commodity price declines and unit volume reductions resulted in poor investment
returns and losses. Furthermore, a company in the cyclical industries may be
subject to liability for environmental damage, depletion of resources, and
mandated expenditures for safety and pollution control.
Electronics: companies engaged in the design, manufacture, or sale of
electronic components (semiconductors, connectors, printed circuit boards, and
other components); equipment vendors to electronic component manufacturers;
electronic component distributors; and electronic instruments and electronic
systems vendors. In addition, the fund may invest in companies in the fields of
defense electronics, medical electronics, consumer electronics, advanced
manufacturing technologies (computer-aided design and computer-aided
manufacturing [CAD/CAM], computer-aided engineering, and robotics), lasers and
electro-optics, and other new electronic technologies. Many of the products
offered by companies engaged in the design, production, or distribution of
electronic products are subject to risks of rapid obsolescence and intense
competition.
Energy: companies in the energy field, including the conventional areas
of oil, gas, electricity, and coal, and alternative sources of energy such as
nuclear, oil shale, and solar power. The business activities of companies in
which the Fund may invest include: production, generation, transmission,
refining, marketing, control, or distribution of energy or energy fuels such as
petrochemicals; providing component parts or services to companies engaged in
the above activities; energy research or experimentation; and environmental
activities related to the solution of energy problems, such as energy
conservation and pollution control. Companies participating in new activities
related to the solution of energy problems, such as energy conservation and
pollution control. Companies participating in new activities resulting from
technological advances or research discoveries in the energy field will also be
considered for this sector.
The securities of companies in the energy field are subject to changes
in value and dividend yield which depend, to a large extent, on the price and
supply of energy fuels. Swift price and supply fluctuations may be caused by
events relating to international politics, energy conservation, the success of
exploration projects, and tax and other regulatory policies of various
governments.
Energy Services: companies in the energy service field, including those
that provide services and equipment to the conventional areas of oil, gas,
electricity, and coal, and newer sources of energy such as nuclear, geothermal,
oil shale, and solar power. The Fund may invest in companies providing services
and equipment for drilling processes such as offshore and onshore drilling,
drill bits, drilling rig equipment, drilling string equipment, drilling fluids,
tool joints and wireline logging. Many energy service companies are engaged in
production and well maintenance, providing such products and services as
packers, perforating equipment, pressure pumping, downhole equipment, valves,
pumps, compression equipment, and well completion equipment and service. Certain
companies supply energy providers with exploration technology such as seismic
data, geological and geophysical services, and interpretation of this data. The
Fund may also invest in companies with a variety of products or services
including pipeline construction, oil tool rental, underwater well services,
helicopter services, geothermal plant design or construction, electric and
nuclear plant design or construction, energy-related capital equipment, mining
related equipment, mining related equipment or services, and high technology
companies serving the above industries. Energy service firms are affected by
supply, demand and other normal competitive factors for their specific products
or services. They are also affected by other unpredictable factors such as
supply and demand for oil and gas, prices of oil and gas, exploration and
production spending, governmental regulation, world events and economic
conditions.
Environmental Services: companies engaged in the research, development,
manufacture, or distribution of products, processes, or services related to
waste management or pollution control. Such products, processes or services may
include the transportation, treatment and disposal of both hazardous and solid
wastes, including waste-to-energy and recycling; remedial project efforts,
including groundwater and storage tank decontamination, asbestos clean-up and
emergency cleanup response; and the detection, analysis, evaluation, and
treatment of both existing and potential environmental problems. The Fund may
also invest in companies that provide design, engineering, construction, and
consulting services to companies engaged in waste management or pollution
control.
The environmental services field has generally been positively
influenced by legislation resulting in stricter government regulations and
enforcement policies for both commercial and governmental generators of wast
materials, as well as specific expenditures designated for remedial cleanup
efforts. Companies in the environmental services field are also affected by
regulation by various federal and state authorities, including the federal EPA
and its state agency counterparts. As regulations are developed and enforced,
such companies may be required to alter or cease production of a product or
service or to agree to restrictions on their operations. In addition, since the
materials handled and processes involved include hazardous components, there is
significant liability risk. There are also risks of intense competition within
the environmental services field.
Financial Services: companies providing financial services to consumers and
industry. Companies in the financial services sectors include: commercial banks,
savings and loan associations, consumer and industrial finance companies,
securities brokerage companies, real estate-related companies, leasing
companies, and a variety of firms in all segments of the insurance industry such
as multi-line, property and casualty, and life insurance.
The financial services sectors are currently undergoing relatively
rapid change as existing distinctions between financial service segments become
less clear. For instance, recent business combinations have included insurance,
finance, and securities brokerage under single ownership. Some primarily retail
corporations have expanded into securities and insurance industries. Moreover,
the federal laws generally separating commercial and investment banking are
currently being studied by Congress.
Banks, savings and loan associations, and finance companies are subject
to extensive governmental regulation which may limit both the amounts and types
of loans and other financial commitments they can make and the interest rates
and fees they can charge. The profitability of these groups is largely dependent
on the availability and cost of capital funds, and can fluctuate significantly
when interest rates change. In addition, general economic conditions are
important to the operations of these concerns, with exposure to credit losses
resulting from possible financial difficulties of borrowers potentially having
an adverse effect. Insurance companies are likewise subject to substantial
governmental regulation, predominantly at the state level, and may be subject to
severe price competition.
Securities and Exchange Commission (SEC) regulations provide that the
Fund may not invest more than 5% of its total assets in the securities of any
company that derives more than 15% of its revenues from brokerage or investment
management activities. These companies as well as those deriving more than 15%
of profits from brokerage and investment management activities are considered to
be "principally engaged" in the business activities of the financial services
sector.
Food and Agriculture: companies engaged in the manufacture, sale, or
distribution of food and beverage products, agricultural products, and products
related to the development of new food technologies. The goods and services
provided or manufactured by companies in this sector include: packaged food
products such as cereals, pet foods and frozen foods; meat and poultry
processing; the production of hybrid seeds; the wholesale and retail
distribution and warehousing of food and food- related products, including
restaurants; and the manufacture and distribution of health food and dietary
products, fertilizer and agricultural machinery, wood products, tobacco and
tobacco leaf. In addition the Fund may invest in food technology companies
engaged in and pioneering the development of new technologies such as improved
hybrid seeds, new and safer food storage, and new enzyme technologies.
The success of food and food-related products is closely tied to supply
and demand, which may be affected by demographic and product trends, stimulated
by food
fads, marketing campaigns, and environmental factors. In the United States, the
agricultural products industry is subject to regulation by numerous federal and
municipal government agencies.
Health Care: companies engaged in the design, manufacture, or sale of
products or services used for or in connection with health care or medicine.
Companies in the health care sector include pharmaceutical companies; firms that
design, manufacture, sell or supply medical, dental, and optical products,
hardware or services; companies involved in biotechnology, medical diagnostic,
and biochemical research and development, as well as companies involved in the
operation of health care facilities. Many of these companies are subject to
government regulation of their products and services, a factor which could have
a significant and possibly unfavorable effect on the price and availability of
such products or services. Furthermore, the types of products or services
produced or provided by these companies may become obsolete quickly.
Health Care Services: companies engaged in the ownership or management
of hospitals, nursing homes, health maintenance organizations, and other
companies specializing in the delivery of health care services. The Fund may
invest in companies that operate acute care, psychiatric, teaching, or
specialized care, home health care, drug and alcohol abuse treatment, and dental
care; firms operating comprehensive health maintenance organizations and nursing
homes for the elderly and disabled; and firms that provide related laboratory
services.
Federal and state governments provide a substantial percentage of
revenues to health care service providers by way of Medicare and Medicaid. The
future growth of this source of funds is subject to great uncertainty.
Additionally, the complexion of the private payment system is changing. For
example, insurance companies are beginning to offer long-term health care
insurance for nursing home patients to supplement or replace government
benefits. Also, membership in health maintenance organizations or prepaid health
plans is displacing individual payments for each service rendered by a hospital
or physician.
The demand for health care services will tend to increase as the
population ages. However, review of patients' need for hospitalization by
Medicare and health maintenance organizations has demonstrated the ability of
health care providers to curtail unnecessary hospital stays and reduce costs.
Industrial Equipment: companies engaged in the manufacture,
distribution, or service of products and equipment for the industrial sector,
including integrated producers of capital equipment (such as general industrial
machinery, farm equipment, and computers), parts suppliers, and subcontractors.
The Fund may invest in companies that manufacture products or service equipment
for the food, clothing or sporting goods industries; companies that provide
service establishment, railroad, textile, farming, mining, oil field,
semiconductor, and telecommunications equipment; companies that manufacture
products or service equipment for trucks, construction, transportation, machine
tools; cable equipment; and office automation companies.
The success of equipment manufacturing and distribution companies is
closely tied to overall capital spending levels. Capital spending is influenced
by an individual company's profitability and broader factors such as interest
rates and foreign competition, which are partly determined by currency exchange
rates. Equipment manufacturing concerns may also be affected by economic cycles,
technical obsolescence, labor relations difficulties and government regulations
pertaining to products, production facilities, or productions processes.
Leisure: companies engaged in design, production, or distribution of goods
or services in leisure industries. The goods or services provided by companies
in which the Fund may invest include: television and radio broadcast manufacture
(including cable television); motion pictures and photography; recordings and
musical instruments; publishing, including newspapers and magazines; sporting
goods and camping and recreational equipment; and sports arenas. Other goods and
services may include toys and games (including video and other electronic
games), amusement and theme parks, travel and travel-related services,
advertising, hotels and motels, leisure apparel or footwear, fast food,
beverages, restaurants, alcohol, tobacco products and gaming casinos.
Securities of companies in the leisure industries may be considered
speculative. Companies engaged in entertainment, gaming, broadcasting, cable
television and cellular communications, for example, have unpredictable
earnings, due in part to changing consumer tastes and intense competition.
Securities of companies in the leisure industries generally exhibit greater
volatility than the overall market. The market has been known to react strongly
to technological developments and to the specter of government regulation in the
leisure industries.
Medical Equipment: companies engaged in research, development,
manufacture, distribution, supply or sale of medical equipment and devices and
related technologies. The Fund may invest in companies involved in the design
and manufacture of medical equipment and devices, drug delivery technologies,
hospital equipment and supplies, medical instrumentation and medical
diagnostics. Companies in this industry may be affected by patient
considerations, rapid technological change and obsolescence, government
regulation, and government reimbursement for medical expenses.
Multimedia: companies engaged in the development, production, sale, and
distribution of goods or services used in the broadcast and media industries.
Business activities of companies in which the Fund may invest include:
ownership, operation, or broadcast of free or pay television, radio or cable
stations; publication and sale of newspapers, magazines, books or video
products; and distribution of data-based information. The Fund may also invest
in companies involved in the development, syndication and transmission of the
following products: television and movie programming, pay-per-view television,
advertising, cellular communications, and emerging technology for the broadcast
and media industries.
Some of the companies in the broadcast and media industries are
undergoing significant change because of federal deregulation of cable and
broadcasting. As a result, competitive pressures are intense and the stocks are
subject to increased price volatility. FCC rules govern the concentration of
investment in AM, FM, or TV stations, limiting investment alternatives.
Natural Resources: companies that own or develop natural resources, or
supply goods and services to such companies. Natural resources include precious
metals (e.g., gold, platinum and silver), ferrous and nonferrous metals (e.g.,
iron, aluminum, and copper), strategic metals (e.g., uranium and titanium),
hydrocarbons (e.g., coal, oil, and natural gases), chemicals, forest products,
real estate, food, textile and tobacco products, and other basic commodities.
Exploring, mining, refining, ---- ---- ---- processing, transporting, and
fabricating are examples of activities of companies in the natural resources
sector.
Precious metals, at times, have been subject to substantial price
fluctuations over short periods of time and may be affected by unpredictable
international monetary and political policies such as currency devaluations or
revaluations, economic and social conditions within a country, trade imbalances,
or trade or currency restrictions between countries. The Fund may also consider
instruments and securities indexed to the price of gold or other precious metals
as an alternative to direct investment in precious metals.
As a practical matter, investments in physical commodities can present
concerns such as delivery, storage and maintenance, possible illiquidity and the
unavailability of accurate market valuations. The Advisor, in addressing these
concerns, currently intends to purchase only readily marketable precious metals
and to deliver and store them with a qualified U.S. bank. Investment in bullion
earns no investment income and may involve higher custody and transaction costs
than investments in securities.
For the Fund to qualify as a regulated investment company under current
federal tax law, gains from selling precious metals may not exceed 10% of the
Fund's gross income for its taxable year. This tax requirement could cause the
Fund to hold or sell precious metals or securities when it would not otherwise
do so.
Precious Metals and Minerals: companies engaged in exploration, mining,
processing, or dealing in gold, silver, platinum, diamonds, or other precious
metals and minerals. The Fund may invest in companies that manufacture and
distribute precious metals and minerals products and companies that invest in
other companies engaged in gold and other precious metal and mineral-related
activities.
The value of the Fund's investments may be affected by changes in the price
of gold and other precious metals. Gold has been subject to substantial price
fluctuations over short periods of time and may be affected by unpredictable
international monetary and political developments such as currency devaluations
or revaluations; economic and social conditions within a country; trade
imbalances; or trade or currency restrictions between countries. Because much of
the world's known gold reserves are located in South Africa and Russia, the
social upheaval and related economic difficulties there may, from time to time,
influence the price of gold and the share values of precious metals mining
companies located elsewhere. Because companies involved in exploring, mining,
processing, or dealing in precious metals or minerals are frequently located
outside of the United States, all or a significant portion of the Fund's
investments in this sector may be invested in securities of foreign issuers.
Investors should understand the special considerations and risks related to
investment in this sector, and accordingly, the potential effect on the Fund's
value when investing in this sector.
In addition to its investments in securities, the Fund may , but does
not currently intend to invest a portion of its assets in precious metals, such
as gold, silver, platinum, and palladium. The prices of precious metals are
affected by broad economic and political conditions, including inflation, but
are less subject to local and company-specific factors than securities of
individual companies. As a result, precious metals may be more or less volatile
in price than securities of companies engaged in precious metals- related
business.
For the Fund to qualify as a regulated investment company under current
federal tax law, gains from selling precious metals may not exceed 10% of the
Fund's gross income for its taxable year. This tax requirement could cause the
Fund to hold or sell precious metals or securities when it would not otherwise
do so.
Retailing: companies engaged in merchandising finished goods and services
primarily to individual consumers. Companies in which the Fund may invest may
include: general merchandise retailers, department stores, food retailers, drug
stores and any specialty retailers selling a single category of merchandise such
as apparel, toys, consumer electronics, or home improvement products. The Fund
may also invest in companies engaged in selling goods and services through
alternative means such as direct telephone marketing, mail order, membership
warehouse clubs, computer, or video based electronic systems.
The success of retailing companies is closely tied to consumer
spending, which in turn, is affected by general economic conditions and consumer
confidence levels. The retailing industry is highly competitive, and a company's
success is often tied to its ability to anticipate changing consumer tastes.
Software and Computer Services: companies engaged in research, design,
production or distribution of products or processes that relate to software or
information- based services. The Fund may invest in companies that provide
systems-level software (designed to run the basic functions of a computer) or
applications software (designed for one type of work) directed at either
horizontal (general use) or vertical (certain industries or groups) markets,
time-sharing services, information-based services, computer consulting,
communications software and data communications services.
Competitive pressures may have a significant effect on the financial
condition of companies in the software and computer services sector. For
example, if technology continues to advance at an accelerated rate, and the
number of companies and product offerings continue to expand, these companies
could become increasingly sensitive to short product cycles and aggressive
pricing.
Technology: companies which the Advisor believes have, or will develop,
products, processes, or services that will provide or will benefit significantly
from technological advances and improvements. These may include companies that
develop, produce or distribute products or services in the computer,
semi-conductor, electronics, communications, health care, and biotechnology
sectors.
Competitive pressures may have a significant effect on the financial
condition of companies in the technology sector. If technology continues to
advance at an accelerated rate, and the number of companies and product
offerings continues to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing.
Telecommunications: companies engaged in the development, manufacture,
or sale of communications services or communications equipment. Companies in the
telecommunications field offer a variety of services and products, including
local and long-distance telephone service; cellular, paging, local and wide area
product networks; satellite, microwave and cable television; and equipment used
to provide these products and services. Long-distance telephone companies may
also have interests in new technologies, such as fiber optics and data
transmission.
Telephone operating companies are subject to both federal and state
regulations governing rates of return and services that may be offered.
Telephone companies usually pay an above-average dividend. However, the Fund's
investment decisions are based primarily upon capital appreciation potential
rather than income considerations. Certain types of companies in which the Fund
may invest when investing in these sectors are engaged in fierce competition for
a share of the market for their products. In recent years, these companies have
been providing goods or services such as private and local area networks, or
engaged in the sale of telephone set equipment.
Transportation: companies engaged in providing transportation services
or companies engaged in the design, manufacture, distribution, or sale of
transportation equipment. Transportation services may include companies involved
in the movement of freight or people such as airline, railroad, ship, truck and
bus companies. Other service companies include those that provide automobile,
trucks, autos, planes, containers, rail cars, or any other mode of
transportation and their related products. In addition, the Fund may invest in
companies that sell fuel-saving devices to the transportation industries and
those that sell insurance and software developed primarily for transportation
companies.
Risk factors that affect transportation stocks include the state of the
economy, fuel prices, labor agreements, and insurance costs. Transportation
stocks are cyclical and have occasional sharp price movements which may result
from changes in the economy, fuel prices, labor agreements, and insurance costs.
The U.S. trend has been to deregulate these industries, which could have a
favorable long-term effect, but future government decisions may adversely affect
these companies.
Utilities: companies in the public utilities industry and companies
deriving a majority of their revenues from their public utility operations. The
Fund may invest in companies engaged in the manufacture, production, generation,
transmission and sale of gas and electric energy; water supply, waste disposal
and sewerage, and sanitary service companies; and companies involved in
telephone, satellite, and other communication fields including telephone,
telegraph, satellite, microwave and the provision of other communication
facilities for the public benefit (not including companies involved in public
broadcasting). Public utility stocks have traditionally produced above-average
dividend income, but the Fund's investments are made based on capital
appreciation potential. The Fund may not own more than 5% of the outstanding
voting securities of more than one public utility company as defined by the
Public Utility Holding Company Act of 1935. This policy is non-fundamental and
may be changed by the Board of Trustees.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, together with information as to
their principal business occupations during the last five years, and other
information, are shown below. Each Trustee who is deemed an "interested person,"
as such term is defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
Name, Address (Age) Positions Held with Fund Principal Occupation(s)
During Past Five Years
<S> <C> <C>
*Samuel Bailey, Jr. ( ) Chairman of the Board, Chief Executive Officer and
President and Treasurer President of the Advisor
</TABLE>
[Information on other Trustees and Officers to be Supplied]
*Denotes an "interested person" of the Fund as such term is defined in the 1940
Act.
Compensation of Trustees
<TABLE>
<CAPTION>
Name Aggregate Pension or Total
Compensation Retirement Compensation
from Fund Benefits Accrued as Part of From Fund and
Expenses Fund Complex
<S> <C> <C> <C>
Samuel Bailey, Jr. None None None
</TABLE>
[Other Trustees to be Supplied]
As of ____________, __, 1998, the officers and Trustees of the Trust
did not beneficially own any of the shares of beneficial interest of the Fund's
then outstanding shares. Trustees and officers of the Trust who are also
officers, directors, employees, or shareholders of the Advisor do not receive
any remuneration from the Fund for serving as Trustees or officers.
PRINCIPAL SHAREHOLDERS
As of ____________, __, 1998, the following persons owned of record or
are known by the Trust to own of record or beneficially 5% or more of the
outstanding shares of the Fund:
Name and Address No. Shares Percentage
Based on the foregoing, as of _______________, __ , 1998, _____________
owned a controlling interest in the Trust. Shareholders with a controlling
interest could affect the outcome of proxy voting or the direction of management
of the Trust. The Fund's officers and Trustees as a group owned less than one
percent of the outstanding shares of the Trust at ____________ __, 1998.
INVESTMENT ADVISOR
T.O. Richardson Company, Inc. (the " Advisor") is the investment advisor to
the Fund. The Advisor is controlled by several of its officers. The Advisor's
address is Two
Bridgewater Road, Farmington, Connecticut 06032-2256.
The investment advisory agreement between the Fund and the Advisor
dated as of _____________ __, 1998 (the "Advisory Agreement") has an initial
term of two years and thereafter is required to be approved annually by the
Board of Trustees of the Trust or by vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act.) Each annual renewal
must also be approved by the vote of a majority of the Trust's Trustees who are
not parties to the Advisory Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Advisory Agreement was approved by the Board of Trustees, including a
majority of the disinterested Trustees on ___________ __, 1998 and by the
initial shareholder of the Fund on _____________ __, 1998. The Advisory
Agreement is terminable without penalty, on 60 days' written notice by the Board
of Trustees of the Trust, by vote of a majority of the Fund's outstanding voting
securities or by the Advisor, and will terminate automatically in the event of
its assignment.
Under the terms of the Advisory Agreement, the Advisor manages the
Fund's investments and business affairs, subject to the supervision of the
Trust's Board of Trustees. At its expense, the Advisor provides office and space
and all necessary office facilities, equipment and personnel for managing the
investments of the Fund. As compensation for its services, the Fund pays the
Advisor an annual management fee of 1.50% of its average daily net assets. The
advisory fee is accrued daily and paid monthly.
DISTRIBUTOR
Distributor
Under a distribution agreement dated ________ __, 1998 (the "Distribution
Agreement"), T.O. Richardson Securities, Inc. (the "Distributor") acts as
principal distributor of the Fund's shares. The Distributor, an affiliate of the
Advisor, is located at the same address as the Advisor. The Distribution
Agreement provides that the Distributor will use its best efforts to distribute
the Fund's shares, which shares are offered for sale by the Fund continuously at
net asset value per share without the imposition of a sales charge. The
following directors, officers or employees of the Advisor are also directors,
officers or employees of the Distributor: Samuel Bailey, Jr., Lloyd P.
Griffiths, L. Austine Crowe, and Kathleen M. Russo.
FUND TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Advisor, in its capacity as portfolio
manager, is responsible for decisions to buy and sell securities for the Fund
and for the placement of the Fund's securities business, the negotiation of the
commissions to be paid on such transactions and the allocation of portfolio
brokerage business. The Advisor seeks to obtain the best execution at the best
security price available with respect to each transaction. The best price to the
Fund means the best net price without regard to the mix between the purchase or
sale price and commission, if any. While the Advisor seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
available commission. Brokerage may be allocated based on the sale of a Fund's
shares.
Section 28(e) of the Securities Exchange Act of 1934, as amended
("Section 28(e)") permits an investment advisor, such as the Adviser, under
certain circumstances, to cause an account to pay a broker or dealer who
supplies brokerage and research services a commission for effecting a
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting the transaction. Brokerage and research services
include: (a) furnishing advice as to the value of securities, the advisability
of investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities; (b) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; and (c) effecting securities
transactions and performing functions incidental thereto (such as clearance,
settlement, and custody).
In selecting brokers or dealers, the Adviser considers investment and
market information and other research, such as economic, securities and
performance measurement research provided by such brokers or dealers and the
quality and reliability of brokerage services, including execution capability,
performance and financial responsibility. Accordingly, the commission charged by
any such broker or dealer may be greater than the amount another firm might
charge if the Adviser determines in good faith that the amount of such
commissions is reasonable in relation to the value of the research information
and brokerage services provided by such broker or dealer to the Fund. The
Adviser believes that the research information received in this manner provides
the Fund with benefits by supplementing the research otherwise available to the
Fund. Such higher commissions will not be paid by the Fund unless (a) the
Adviser determines in good faith that the amount is reasonable in relation to
the services in terms of the particular transaction or in terms of the Adviser's
overall responsibilities with respect to the accounts, including the Fund, as to
which it exercises investment discretion; (b) such payment is made in compliance
with the provisions of Section 28(e) and other applicable state and federal
laws; and (c) in the opinion of the Adviser, the total commissions paid by the
Fund will be reasonable in relation to the benefits to the Fund over the long
term.
The Adviser places portfolio transactions for other advisory accounts
the Adviser manages. Research services furnished by firms through which the Fund
effects its securities transactions may be used by the Adviser in servicing all
of its accounts; not all of such services may be used by the Adviser in
connection with the Fund. The Adviser believes it is not possible to measure
separately the benefits from research services to each of the accounts the
Adviser manages (including the Fund). Because the volume and nature of the
trading activities of the accounts are not uniform, the amount of commissions in
excess of those charged by another broker paid by each account for brokerage and
research services will vary. However, the Adviser believes such costs to the
Fund will not be disproportionate to the benefits received by the Fund on a
continuing basis. The Adviser seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations between a Fund and other advisory accounts, the main
factors considered by the Adviser are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment and the size of investment commitments
generally held.
Portfolio turnover generally involves some expenses to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities.
Under normal market conditions, the Fund expects to be invested in five or
more sectors, with each sector represented by investment in at least five
stocks. The Fund expects to regularly review the relative strengths or
weaknesses of the sectors in which the Fund's investments have been allocated
and the company stocks within each sector and the Fund expects to exit sectors
that are underperforming the general stock market and to purchase securities
from issuers in higher ranked sectors. In actively carrying out the investment
policies of the Fund and determining when to sell securities and to reinvest in
other sectors and companies, the rate of portfolio turnover will not be a
limiting factor. As a result, under relatively volatile market conditions, the
Fund may have higher portfolio turnover than long-term growth mutual funds, for
example. In addition to potentially greater brokerage commissions or dealer
mark-ups and other transaction costs resulting from relatively high portfolio
turnover, relatively high portfolio turnover may also result in increased
short-term capital gains which are taxed at a higher federal income tax rate
than long-term capital gains.
The Fund's Distributor is T.O. Richardson Securities, Inc., (the
"Distributor") Two Bridgewater Road, Farmington, Connecticut 06032-2256. The
Trustees of the Fund, including all of the Trustees who are not connected with
the Advisor or the Distributor, ("Independent Trustees"), have voted to adopt a
Brokerage Enhancement Plan (the "Plan") for the purpose of using the Fund's
brokerage commissions, to the extent available, to promote the sale and
distribution of the Fund's shares. The Fund will not incur any fees or charges
as a result of the Plan. The Fund and the Distributor have entered into a
Distribution Agreement under which the Distributor serves as the principal
underwriter of the Fund, with responsibility for promoting sales of Fund shares.
The Distributor does not receive any additional compensation from the
Fund for performing this function. Instead, under the Plan, the Advisor is
authorized to effect brokerage transactions in portfolio securities through
certain broker-dealers, consistent with the Advisor's obligations to achieve
best price and execution. It is anticipated that these broker-dealers will agree
that a percentage of the commission for effecting brokerage transactions for the
Fund will be directed to the Distributor. The Distributor may use a part of
these directed commissions to defray legal and administrative costs associated
with implementation of the Plan. These expenses are expected to be minimal. The
remainder of the commissions received by the Distributor will be used to finance
activities principally intended to result in the sale of shares of the Fund. It
is anticipated that these activities will include: holding or participating in
seminars and sales meetings designed to promote the sale of Fund shares; paying
marketing fees requested by broker-dealers who sell Fund shares, training sales
personnel; compensating broker-dealers and/or their registered representatives
in connection with the sales of Fund shares, printing and mailing Fund
prospectuses, statements of additional information, and shareholder reports for
existing and prospective Fund shareholders; and creating and mailing advertising
and sales literature.
The Distributor will be obligated to use all of the funds directed to
it for distribution expenses, except for a small amount to be used to defray the
incidental costs associated with implementation of the Plan. Accordingly, the
Distributor will not make any profit from the operation of the Plan.
Both the Plan and the Distribution Agreement provide (A) that they will
be subject to annual approval by the Trustees and the Independent Trustees; (B)
that any person authorized to make payments under the Plan or Distribution
Agreement must provide
the Trustees a quarterly written report of payments made and the purpose of the
payments; (C) that the Plan may be terminated at any time by the vote of a
majority of the Independent Trustees; (D) that the Distribution Agreement may be
terminated without penalty at any time by a vote of a majority of the
Independent Trustees or by vote of a majority of the outstanding securities of
the Fund on not more than 60 days' written notice; and (E) that the Distribution
Agreement terminates if it is assigned. The Plan may not be amended to increase
materially the amount to be spent for distribution without shareholder approval,
and all material Plan amendments must be approved by a vote of the Independent
Trustees. In addition, the selection and nomination of the Independent Trustees
must be committed to the Independent Trustees.
The Advisor, as the initial shareholder of the Fund, has approved the
Plan.
FUND ADMINISTRATOR
The Board of Trustees of the Trust has approved a Fund
Administration Servicing Agreement between the Trust and Firstar Trust Company
("Firstar") pursuant to which Firstar serves as administrator of the Fund. The
administrative services supplied by Firstar include general Fund management
(excluding investment advisory services), compliance with federal and state
laws, financial reporting and tax reporting. Firstar's address is Firstar,
Mutual Fund Services, Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202.
CUSTODIAN
Pursuant to a Custodian Agreement, the Board of Trustees of
the Trust has appointed Firstar as custodian of the Fund. As custodian, of the
Fund's assets, Firstar has custody of all securities and cash of the Fund,
delivers and receives payment for portfolio securities sold, receives and pays
for portfolio securities purchased, collects income from investments and
performs other duties, all as directed by the officers of the Trust.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Firstar also acts as transfer agent and dividend-disbursing
agent for the Fund. Firstar is compensated based on an annual fee per open
account of [$14] subject to a minimum annual fee of [$____] plus out-of-pocket
expenses, such as postage and printing expenses in connection with shareholder
communications. Firstar also receives an annual fee per closed account of [$14].
TAXES
The Trust intends to qualify for treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986,
and, if so qualified, will not be liable for tax purposes. The Fund will be
treated as a separate
entity for federal income tax purposes since the Tax Reform Act of 1986 requires
that all portfolios of a series fund be treated as separate taxpayers. As
indicated under "Dividends, Capital Gains Distributions, and Tax Treatment" in
the Prospectus, the Fund intends to qualify annually as a "regulated investment
company" under the Code. This qualification does not involve government
supervision of the Fund's management practices or policies.
A dividend or capital gain distribution received shortly after
the purchase of shares reduces the net asset value of shares by the amount of
the dividend or distribution and, although in effect a return of capital, will
be subject to income taxes. Net gains on sales of securities when realized and
distributed are taxable as capital gains. If the net asset value of shares were
reduced below a shareholder's cost by distribution of gains realized on sales of
securities, such distribution would be a return of investment although taxable
as indicated above.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus , the net asset value of the
Fund will be determined as of the close of trading on each day the New York
Stock Exchange (the "NYSE") is open for trading. The Fund does not determine net
asset value on days the NYSE is closed and at other times described in the
Prospectus. The NYSE is closed on New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the NYSE will not be open for trading on the
preceding Friday and when such holiday falls on a Sunday, the NYSE will not be
open for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period.
SPECIAL REDEMPTIONS
If the Board of Trustees of the Fund determines that it would
be detrimental to the best interests of the remaining shareholders of the Fund
to make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the portfolio
of the Fund, instead of in cash, in conformity with applicable rules of the SEC.
The Fund will, however, redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net assets during any 90-day period for any one
shareholder. The proceeds of redemption may be more or less than the amount
invested and, therefore, a redemption may result in a gain or loss for Federal
income tax purposes.
DESCRIPTION OF THE TRUST
The Trust is an open-end diversified series management
investment company established as an unincorporated business trust under the
laws of The Commonwealth of Massachusetts pursuant to a Declaration of Trust
dated June 2, 1998.
The Trustees of the Trust have authority to issue an unlimited
number of shares of beneficial interest in an unlimited number of series (each,
a "Series") each share without par value. Currently, the Trust consists of one
Series -- the Fund. Each share
in a particular Series represents an equal proportionate interest in that Series
with each other share of that Series and is entitled to such dividends and
distributions as are declared by the Trustees of the Trust. Upon any liquidation
of a Series, shareholders of that Series are entitled to share pro rata in the
net assets of that Series available for distribution. Shareholders in one of the
Series have no interest in, or rights upon liquidation of, any of the other
Series.
The Trust will normally not hold annual meetings of
shareholders to elect Trustees. If less than a majority of the Trustees of the
Trust holding office have been elected by shareholders, a meeting of
shareholders of the Trust will be called to elect Trustees. Under the
Declaration of Trust of the Trust and the 1940 Act, the record holders of not
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
by votes cast in person or by proxy at a meeting called for the purpose or by a
written declaration filed with the Trust's custodian bank. Except as described
above, the Trustees will continue to hold office and may appoint successor
Trustees.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust of the Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of this disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Fund or the Trustees. The Declaration of Trust of the Trust provides for
indemnification out of the Trust's property for all loss and expense of any
shareholder held personally liable for obligations of the Trust and its Fund.
Accordingly, the risk of a shareholder of the Trust incurring a financial loss
on account of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations. The likelihood of such
circumstances is remote.
PERFORMANCE INFORMATION
The Fund's historical performance or return may be shown in
the form of various performance figures. The Fund's performance figures are
based upon historical results and are not necessarily representative of future
performance. Factors affecting the Fund's performance include general market
conditions, operating expenses, and investment management.
Average Annual Total Return
The average annual total return of the Fund is computed by
finding the average annual compounded rates of return over the periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n=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 stated periods
at the end of the stated periods.
Performance for a specific period is calculated by first taking an
investment (assumed to be $1,000) ("initial investment") in the Fund's shares on
the first day of the period and computing the "ending value" of that investment
at the end of the period. The total return percentage is then determined by
subtracting the initial investment form the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The calculation assumes that all income and capital gains dividends paid by the
Fund have been reinvested at the net asset value of the Fund on the reinvestment
dates during the period. Total return may also be shown as the increased dollar
value of the hypothetical investment over the period.
Cumulative total return represents the simple change in value
of an investment over a stated period and may be quoted as a percentage or as a
dollar amount. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship between these factors and their contributions to
total return.
Comparisons
From time to time, in marketing and other Fund literature, the
Fund's performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper Analytical Services, Inc. ("Lipper"), a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, may be cited. Lipper performance figures are
based on changes in net asset value with all income and capital gains dividends
reinvested. Such calculations do not include the effect of any sales charges
imposed by other funds. The Fund will be compared to Lipper's appropriate fund
category, that is, by fund objective and portfolio holdings.
The Fund's performance may also be compared to the performance
of other mutual funds by Morningstar, Inc. ("Morningstar"), which ranks funds on
the basis of historical risk and total return. Morningstar's rankings range from
five stars (highest to one star (lowest) and represent Morningstar's assessment
of the historical risk level and total return of a fund as a weighted average
for 3,5 and 10 year periods. Rankings are not absolute or necessarily predictive
of future performance.
Evaluations of Fund performance made by independent sources
may also be used in advertisements concerning the Fund, including reprints of or
selections from, editorials or articles about the Fund. Sources for Fund
performance and articles about the Fund may include publications such as Money,
Forbes, Kiplinger's, Financial World, Business Week, U.S. News and World Report,
the Wall Street Journal, Barron's and a variety of investment newsletters.
The Fund may compare its performance to a wide variety of
indices and measures of inflation including the Standard & Poor's Index of 500
Stocks and the NASDAQ Composite Index. There are differences and similarities
between the investments that the Fund may purchase for its portfolios and the
investments measured by these indices.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, P.O. Box 1215,
Milwaukee, Wisconsin, 53201-1215, independent accountants for the Fund, audit
and report on the Fund's financial statements.
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, NW,
Washington, D.C. 20036, serves as legal counsel to the Trust and the
disinterested Trustees. Robinson & Cole LLP, One Boston Place, Boston,
Massachusetts, 02108, serves as legal counsel to the Adviser and the
Distributor.
FINANCIAL STATEMENTS
The following financial statements of the Fund are contained
herein:
(a) Report of Independent Accountants*
(b) Statement of Assets and Liabilities*
(c) Notes to Statement of Assets and Liabilities*
------------------------
*To be filed by Amendment
1
<PAGE>
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) Financial Statements (Included in Parts A and B)*
Report of Independent Accountants*
Statement of Assets and Liabilities*
(b) Exhibits
(1) Registrant's Declaration of Trust*
(2) Registrant's By-Laws*
(3) None
(4) Form of Investment Advisory Agreement with
T.O. Richardson Company, Inc.*
(5) Form of Distribution Agreement with T.O.
Richardson Securities, Inc.*
(6) None
(7) Form of Custodian Agreement with Firstar
Trust Company*
(8.1) Form of Transfer Agency Agreement with
Firstar Trust Company*
(8.2) Form of Administration Agreement with
Firstar Trust Company*
(8.3) Form of Fund Accounting Agreement with
Firstar Trust Company*
(8.4) Fulfillment Servicing Agreement with Firstar
Trust Company**
(8.5) Form of Consent to Use of Name by Registrant
with T.O. Richardson* Company, Inc.
(9) Opinion and Consent of Sullivan & Worcester
LLP**
(10) Consent of Arthur Andersen LLP**
(11) None
(12) Form of Subscription Agreement**
(13) Individual Retirement Account Disclosure
Statement and Custodial Account**
(14) None
(15) Financial Data Schedule**
(16) None
- -----------------
*Incorporated by reference to Registration Statement on Form N-1A filed with the
Commission on June 30, 1998.
**To be Filed by Amendment
Item 24. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common
control with any other person.
Item 25 Indemnification
Under the Registrant's Declaration of Trust and Bylaws, any past or
present Trustee or Officer of the Registrant is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him or her in connection with any action, suit or proceeding to which he or
she may be a party or is otherwise involved by reason of his or her being or
having been a Trustee or Officer of the Registrant. The Declaration of Trust and
Bylaws of the Registrant do not authorize indemnification where it is
determined, in the manner specified in the Declaration of Trust and the Bylaws
of the Registrant, that such Trustee or Officer has not acted in good faith in
the reasonable belief that his or her actions were in the best interest of the
Registrant. Moreover, the Declaration of Trust and Bylaws of the Registrant do
not authorize indemnification where such Trustee or Officer is liable to the
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, Officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, Officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, Officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant, its Trustees and Officers, its investment adviser, and
persons affiliated with them are insured under a policy of insurance maintained
by the Registrant and its investment adviser, within the limits and subject to
the limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such Trustees or officers. The policy
expressly excludes coverage for any Trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been adjudicated or may be established or who willfully
fails to act prudently.
Item 26. Business and Other Connections of Investment Adviser and Subadviser
Besides serving as investment adviser to private accounts, the
Adviser is not currently and has not during the past two fiscal years engaged in
any other business, profession, vocation or employment of a substantial nature.
Information regarding the business, profession, vocation or employment of a
substantial nature of each of the Adviser's directors and officers is hereby
incorporated by reference from the information contained under "Fund
Organization and Management -- Management" in the Prospectus.
Item 27. Principal Underwriter
(a) T.O. Richardson Securities, Inc. ("TORSI") serves as
Registrant's Distributor. Registrant is the only investment company
for which the Distributor acts as principal underwriter.
(b) The principal business address of TORSI is Two
Bridgewater Road, Farmington, Connecticut 06032-2256.
The following information relates to each director
and officer of TORSI:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices with
Name With Underwriter Registrant
<S> <C> <C>
Samuel Bailey, Jr. Chief Executive Officer Trustee, President and Treasurer
Lloyd P. Griffiths Vice President Trustee and Executive Vice
President
L. Austine Crowe Vice President Executive Vice President
Kathleen M. Russo Secretary Secretary
</TABLE>
Item 28. Location of Accounts and Records
All accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are in the possession of T.O. Richardson Company, Inc.,
Registrant's investment adviser, at Registrant's corporate offices, Two
Bridgewater Road, Farmington, Connecticut 06032, except records held and
maintained in Firstar Trust Company, Mutual Fund Services, Third Floor, 615 E.
Michigan Street, Milwaukee, Wisconsin 53202, relating to its function as
custodian, transfer agent, administrator, and fund accountant.
Item 29. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
None.
1
<PAGE>
NOTICE
The names "T.O. Richardson Trust" and "T.O. Richardson Sector Rotation Fund" are
the designations of the Trustees under the Declaration of Trust of the Trust
dated June 2, 1998, as amended from time to time. The Declaration of Trust has
been filed with the Secretary of State of The Commonwealth of Massachusetts and
the Clerk of the City of Boston, Massachusetts. The obligations of the
Registrant are not personally binding upon, nor shall resort be had to the
private property of, any of the Trustees, shareholders, officers, employees or
agents of the Registrant, but only the Registrant's property shall be bound.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Hartford and State of Connecticut on the 9th day of September 1998.
T.O. RICHARDSON TRUST
/s/Samuel Bailey, Jr.
-----------------------------
By: Samuel Bailey, Jr.
Trustee, President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A
has been signed below by the following persons in the capacities and on the date
indicated.
Name Title Date
/s/Samuel Bailey, Jr.
- ------------------------ Trustee, President and Treasurer September 9, 1998
Samuel Bailey, Jr.
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
<S> <C>
(1) Registrant's Declaration of Trust*
(2) Registrant's By-Laws*
(3) None
(4) Form of Investment Advisory Agreement with T.O. Richardson Company, Inc.*
(5) Form of Distribution Agreement with T.O. Richardson Securities, Inc.*
(6) None
(7) Form of Custodian Agreement with Firstar Trust Company*
(8.1) Form of Transfer Agency Agreement with Firstar Trust Company*
(8.2) Form of Administration Agreement with Firstar Trust Company*
(8.3) Form of Fund Accounting Agreement with Firstar Trust Company*
(8.4) Form of Fulfillment Servicing Agreement with Firstar Trust Company*
(8.5) Form of Consent to Use of Name by Registrant with T.O. Richardson Company, Inc.*
(8.6) Consent to Service as a Trustee**
(9) Opinion and Consent of Sullivan & Worcester LLP**
(10) Consent of Arthur Andersen LLP**
(11) None
(12) Subscription Agreement**
(13) Individual Retirement Account Disclosure Statement and Custodial Account**
(14) None
(15) Financial Data Schedule**
(16) None
- -----------------
</TABLE>
*Incorporated by reference from the Registration Statement on Form N-1A filed
with the Commission on June 30, 1998.
**To be Filed by Amendment
4
