Sector
Rotation
Fund
Annual Report
October 31, 1999
T.O. Richardson
COMPANY
T.O. RICHARDSON SECTOR ROTATION FUND
Dear Fellow Shareholder:
The T.O. RICHARDSON SECTOR ROTATION FUND completed its first ten months,
ending October 31, 1999, with a total return of 21.30% compared with the S&P 500
Stock Index return of 12.03%. The results for our first fiscal year reflect the
period from inception of the fund on December 31, 1998 through our fiscal year
end October 31, 1999.
As stated in our prospectus, the objective of the Fund is to seek capital
appreciation with some protection against down markets. The fund usually
invests in five or more industry sectors we believe have the greatest potential
for market appreciation. If we find that less than five industry sectors offer
investment opportunities greater than short term cash returns, the fund will
invest portions or all of the fund in these short term cash positions. Our
strategies have performed well for us during the first ten months when U.S.
domestic benchmarks have been abnormally volatile.
The number of positive sectors declined from May through mid-October as did
the stocks within those sectors. It took a nimble strategy to capitalize on
opportunities and avoid significant losses. The biggest story of the year in
the stock market has been the continued dominance of high technology.
The Fund's top gainers for the year have been in high technology sectors such
as internet, telecommunications, semi-conductors and computers. Non-technology
gains were experienced when prices of high technology leaders retreated
temporarily and we moved to more defensive positions. Industrial equipment
(Case Equipment) and energy services (Rowan) are examples. One large gain was
made in the NASDAQ 100 Index when the entire technology market index charged
ahead of the broad market.
Here is a list of the ten best performing stocks (or securities) for the year
to date and their percentage contribution to our total realized and unrealized
gains of $3.7 million:
COMPANY/SECURITY SECTOR % OF TOTAL GAIN
---------------- ------ ---------------
E*Trade Brokerage 20.2%
NASDAQ 100 Index 7.8%
Qualcomm Developing Communications 7.3%
AOL Technology 6.4%
Case Equipment Industrial Equipment 5.8%
Rowan Cos. Energy Services 5.2%
Tri Quint Electronics 4.9%
PMC-Sierra Electronics 3.9%
EMC Computer 3.8%
Exodus Comm. Technology 3.7%
During the year we faced some of the risks that are outlined in our
prospectus. We experienced periods of high volatility and had a high level of
portfolio turnover. We are pleased with the end results but recognize that past
performance is no guarantee of future gains.
The U.S. and global economies remain robust which should bode well for the
stock market. We believe U.S. investors will remain alert for signs of both
good and bad markets and economic surprises, which will contribute to long term
growth with continued high volatility. In such markets we are optimistic our
unique investment approach should achieve above average gains over the long run.
Thank you for your confidence.
/s/ Samuel Bailey
Samuel Bailey, Jr.
President
Date Sector Rotation Fund S&P 500 Stock Index
---- -------------------- -------------------
12/31/98*<F1> $10,000 $10,000
1/31/99 $11,210 $10,418
2/28/99 $10,240 $10,095
3/31/99 $10,620 $10,498
4/30/99 $11,261 $10,905
5/31/99 $10,671 $10,647
6/30/99 $11,741 $11,238
7/31/99 $11,650 $10,887
8/31/99 $12,000 $10,833
9/30/99 $11,940 $10,536
10/31/99 $12,130 $11,203
*<F1> inception date
This chart assumes an initial investment of $10,000, made on 12/31/98
(inception). Performance reflects fee waivers and does not reflect a non-
recurring early withdrawal fee of 1%. In the absence of fee waivers and the
addition of the non-recurring fee, the total return would be reduced. Returns
shown include the reinvestment of all dividend and other distributions. Past
performance is not predictive of future performance. Investment return and
principal value will fluctuate so that your shares, when redeemed, may be worth
more or less than their original cost. Unlike the S&P 500, the fund is focused
on a few stocks in a small number of sectors and investors are exposed to the
risk that a specific sector will fall rapidly in value. The S&P Stock Index is
an unmanaged stock index with no fees, therefore, there are differences in
performance, risk and expenses between the fund and the index.
RATE OF RETURN(%)
FOR THE PERIOD ENDED OCTOBER 31, 1999
CUMULATIVE
SINCE INCEPTION
12/31/98
---------------
T.O. Richardson Sector Rotation Fund 21.30%
Standard & Poor's 500 Stock Index 12.03%
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
SHARES VALUE
------ -----
COMMON STOCKS - 15.2%
COMPUTERS - 3.0%
3,500 JDS Uniphase Corporation *<F2> $ 584,063
4,000 Sun Microsystems, Inc. *<F2> 423,250
-----------
1,007,313
-----------
ELECTRONICS - 0.7%
2,800 Texas Instruments Incorporated 251,300
-----------
FINANCIAL - 2.8%
1,200 American Express Company 184,800
4,500 The Bank of New York Company, Inc. 188,437
2,100 The Chase Manhattan Corporation 183,487
3,600 Citigroup Inc. 194,850
1,500 J.P. Morgan & Co. 196,313
-----------
947,887
-----------
REGIONAL BANKS - 2.7%
2,700 Marshall & Ilsley Corporation 181,238
1,800 Northern Trust Corporation 173,812
2,400 SunTrust Banks, Inc. 175,650
4,200 UnionBanCal Corporation 182,437
3,900 Wells Fargo Company 186,712
-----------
899,849
-----------
TECHNOLOGY - 6.0%
3,300 Infosys Technologies Limited - ADR 498,300
4,800 Internet Capital Group, Inc. *<F2> 558,600
3,400 RealNetworks, Inc. *<F2> 372,938
3,300 Yahoo! Inc. *<F2> 590,906
-----------
2,020,744
-----------
TOTAL COMMON STOCKS
(Cost $4,261,279) 5,127,093
-----------
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS - 89.0%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 62.6%
Fannie Mae:
$3,780,000 5.04%, 11/02/1999 3,779,471
441,000 4.86%, 11/03/1999 440,881
7,375,000 5.01%, 11/16/1999 7,359,595
Federal Home Loan Bank
5,364,000 4.95%, 11/10/1999 5,357,360
Federal Home Loan Mortgage Corporation:
3,227,000 4.98%, 11/05/1999 3,225,214
991,000 4.85%, 11/08/1999 990,065
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 21,152,586
-----------
VARIABLE RATE DEMAND NOTES#<F3> - 26.4%
1,254,602 American Family Financial Services Inc., 4.9931% 1,254,602
1,257,152 Firstar Bank, 5.1588% 1,257,152
1,252,000 General Mills, Inc., 5.0138% 1,252,000
1,252,523 Pitney Bowes, Inc., 5.0138% 1,252,523
1,165,369 Sara Lee Corporation, 5.0088% 1,165,369
1,217,875 Warner-Lambert Co., 4.9940% 1,217,875
261,027 Wisconsin Corporate Central Credit Union, 5.0788% 261,027
1,252,000 Wisconsin Electric Power Company, 4.9931% 1,252,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES 8,912,548
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $30,065,134) 30,065,134
-----------
TOTAL INVESTMENTS - 104.2%
(Cost $34,326,413) 35,192,227
LIABILITIES, LESS OTHER ASSETS - (4.2%) (1,411,990)
-----------
TOTAL NET ASSETS - 100.0% $33,780,237
-----------
-----------
*<F2> Non-income producing security.
#<F3> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on specified
dates. The rates listed are as of October 31, 1999.
See notes to the financial statements.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
ASSETS:
Investments, at value (cost $34,326,413) $35,192,227
Dividends and interest receivable 35,714
Capital shares sold 472,874
Other assets 24,339
-----------
Total Assets 35,725,154
-----------
LIABILITIES:
Payable for securities purchased 1,869,158
Payable to Advisor 25,763
Accrued expenses and other liabilities 49,996
-----------
Total Liabilities 1,944,917
-----------
NET ASSETS $33,780,237
-----------
-----------
NET ASSETS CONSIST OF:
Capital stock $30,032,840
Accumulated undistributed net investment income 67,216
Accumulated undistributed net realized gain on
investments sold 2,814,367
Net unrealized appreciation on investments 865,814
-----------
TOTAL NET ASSETS $33,780,237
-----------
-----------
SHARES OUTSTANDING 2,783,882
(No par value, unlimited shares authorized)
NET ASSET VALUE, REDEMPTION PRICE
AND OFFERING PRICE PER SHARE $ 12.13
-----------
-----------
See notes to the financial statements.
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 31, 1998(1)<F4> TO OCTOBER 31, 1999
INVESTMENT INCOME:
Interest income $ 382,352
Dividend income 53,406
----------
Total investment income 435,758
----------
EXPENSES:
Investment advisory fee 283,494
Federal and state registration 37,220
Administration fee 31,140
Shareholder servicing and accounting costs 48,540
Professional fees 16,401
Reports to shareholders 15,517
Custody fees 12,584
Trustees' fees and expenses 6,190
Other 22,630
----------
Total operating expenses before reimbursement 473,716
Less: Reimbursement from Advisor (105,174)
----------
Net expenses 368,542
----------
NET INVESTMENT INCOME 67,216
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions 2,814,367
Change in unrealized appreciation/depreciation
on investments 865,814
----------
Net realized and unrealized gain on investments 3,680,181
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $3,747,397
----------
----------
(1)<F4> Commencement of operations.
See notes to the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
DECEMBER 31, 1998(1)<F5>
TO OCTOBER 31, 1999
------------------------
OPERATIONS:
Net investment income $ 67,216
Net realized gain on investment transactions 2,814,367
Change in unrealized appreciation/depreciation
on investments 865,814
-----------
Net increase in net assets resulting from operations 3,747,397
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 33,607,204
Cost of shares redeemed (3,574,364)
-----------
Net increase in net assets resulting from
capital share transactions 30,032,840
-----------
TOTAL INCREASE IN NET ASSETS 33,780,237
NET ASSETS:
Beginning of period -
-----------
End of period $33,780,237
-----------
-----------
(1)<F5> Commencement of operations.
See notes to the financial statements.
FINANCIAL HIGHLIGHTS
Selected per share data is based on a share of beneficial interest outstanding
throughout the period.
FOR THE PERIOD
DECEMBER 31, 1998(1)<F6>
TO OCTOBER 31, 1999
------------------------
PER SHARE DATA:
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income 0.02
Net realized and unrealized gain on investments 2.11
------
Total from investment operations 2.13
------
Net asset value, end of period $12.13
------
------
Total return(2)<F7> 21.30%
Supplemental data and ratios:
Net assets, end of period $33,780,237
Ratio of operating expenses to
average net assets(3)<F8> 1.95%(4)<F9>
Ratio of net investment income to
average net assets(3)<F8> 0.36%(4)<F9>
Portfolio turnover rate 946.15%(2)<F7>
(1)<F6> Commencement of operations.
(2)<F7> Not annualized.
(3)<F8> Without expense reimbursements of $105,174 for the period December 31,
1998 to October 31, 1999 the ratio of operating expenses and net
investment income to average net assets would have been 2.51% and
(0.20)% respectively.
(4)<F9> Annualized.
See notes to the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 1999
1. ORGANIZATION
The T.O. Richardson Sector Rotation Fund (the "Fund") is a series of the
T.O. Richardson Trust (the "Trust" ), a voluntary business association
organized on June 2, 1998 in the Commonwealth of Massachusetts, and is
registered under the Investment Company Act of 1940, as amended (the " 1940
Act"), as an open-end diversified management investment company. The Fund is
currently the only series of the Trust. The principal investment objective of
the Fund is to seek capital appreciation with some protection against down
markets. The Fund commenced operations on December 31, 1998.
Organization Costs incurred by the Trust in connection with the organization
of the Fund, in the amount of $86,722, were assumed by the Advisor. The Fund
will not be required to reimburse the Advisor for the organization costs.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
(a) Investment Valuation
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.
(b) Federal Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue
Code necessary to qualify as a regulated investment company and to make the
requisite distributions of income and capital gains to its shareholders
sufficient to relieve it from all or substantially all Federal income taxes.
(c) Distributions to Shareholders
Dividends from net investment income are declared and paid annually.
Distributions of net realized capital gains, if any, will be declared and paid
at least annually.
(d) Security Transactions and Income
Investment and shareholder transactions are recorded on the trade date.
The Fund determines the gain or loss realized from the investment transactions
by comparing the original cost of the security lot sold with the net sale
proceeds. Dividend income is recognized on the ex-dividend date and interest
income is recognized on an accrual basis. Generally accepted accounting
principles require that permanent financial reporting and tax differences be
reclassified to capital stock.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended October 31, 1999,
were as follows:
Shares sold 3,101,071
Shares issued to holders in
reinvestment of dividends -
Shares redeemed (317,189)
---------
2,783,882
---------
---------
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments for the Fund, for the period ended October 31, 1999 were
$119,547,938 and $118,101,078, respectively. There were no purchases or sales
of long-term U.S. government securities. At October 31, 1999, gross unrealized
appreciation and depreciation of investments were as follows:
Appreciation $888,628
Depreciation (22,814)
--------
Net appreciation on investments $865,814
--------
--------
At October 31, 1999, the cost of investments for federal income tax purposes was
$34,326,414.
5. INVESTMENT ADVISORY AGREEMENT
The Trust has an Investment Advisory Agreement (the "Agreement" ) with the
Advisor, with whom certain Officers and Trustees of the Trust are affiliated, to
furnish investment advisory services to the Fund. Under the terms of the
Agreement, the Trust, on behalf of the Fund, compensates the Advisor for its
management services at the annual rate of 1.50% of the Fund's average daily net
assets.
The Advisor has agreed to voluntarily waive its management fee and/or
reimburse the Fund's other expenses to the extent necessary to ensure that the
Fund's operating expenses do not exceed 1.95% of its average daily net assets.
Any such waiver or reimbursement is subject to later adjustment to allow the
Advisor to recoup amounts waived or reimbursed to the extent actual fees and
expenses for a period are less than the expense limitation caps, provided,
however, that the Advisor shall only be entitled to recoup such amounts for a
period of three years from the date such amount was waived or reimbursed. For
the period ended October 31, 1999, the Advisor waived expenses of the Fund in
the amount of $105,174.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of T.O. Richardson Trust:
We have audited the accompanying statement of assets and liabilities of T.O.
Richardson Sector Rotation Fund (a Massachusetts corporation), including the
schedule of investments, as of October 31, 1999, and the related statements of
operations, changes in net assets, and the financial highlights from December
31, 1998 (commencement of operations) through October 31, 1999. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of September 30,
1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of T.O.
Richardson Sector Rotation Fund as of October 31, 1999, and the results of its
operations, changes in its net assets, and the financial highlights for the
period then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
November 18, 1999
T.O. Richardson Company, Inc.
Two Bridgewater Road
Farmington, CT 06032-2256
1-800-235-1022
For more information about the
T.O. Richardson Sector Rotation Fund,
call 1-800-643-7477
Shares distributed through
T.O. Richardson Securities, Inc.,
member of the NASD.
