As filed with the Securities and Exchange Commission on June 9, 2000
Securities Act Registration No. 333-58185
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.
Post-Effective Amendment No. 2
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
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
<PAGE>
1025 Connecticut Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[X] 75 days after filing pursuant to paragraph (a) (2)
[ ] on date pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of securities being registered: Shares of Beneficial Interest
<PAGE>
PROSPECTUS
dated June 9, 2000
T.O. RICHARDSON
SECTOR ROTATION FUND
and T.O. RICHARDSON INDEX ROTATION FUND
Two Bridgewater Road
Farmington, Connecticut 06032-2256
1-800-643-7477
The investment objective of each of the Sector Rotation Fund and the Index
Rotation Fund is to seek capital appreciation while providing some protection
against down markets. The Sector Rotation Fund's investment advisor allocates
assets mainly among equity securities of companies within industry sectors it
determines have the greatest potential for market appreciation. The Index
Rotation Fund's investment advisor allocates assets mainly among equity
securities of companies within market indexes 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.
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
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TABLE OF CONTENTS
Page No.
HIGHLIGHTS..................................................................3
SECTORS THE SECTOR ROTATION FUND WILL INVEST IN.............................9
MARKET INDEXES THE INDEX ROTATION FUND WILL INVEST IN......................12
THE FUNDS' INVESTMENT POLICIES.............................................14
THE MANAGEMENT OF THE FUNDS................................................16
HOW FUND SHARES ARE PRICED.................................................18
PURCHASING SHARES OF THE FUNDS.............................................18
INDIVIDUAL RETIREMENT ACCOUNTS.............................................21
REDEEMING SHARES OF A FUND.................................................23
EXCHANGING FUND SHARES FOR SHARES OF OTHER FUNDS...........................26
DIVIDENDS, CAPITAL GAINS AND TAX TREATMENT.................................26
FINANCIAL HIGHLIGHTS FOR THE SECTOR ROTATION FUND..........................28
ADDITIONAL INFORMATION.....................................................29
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 Funds. This Prospectus does not constitute an offer to sell
securities in any state or jurisdiction in which such offering may not
lawfully be made.
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Highlights
What are each Fund's Investment Goals and Objectives?
The investment objective of each Fund is to seek capital appreciation with
some protection against down markets. To accomplish this goal, the Advisor
allocates the Sector Rotation Fund's assets mainly among the stocks of
companies within particular sectors or industries within the U.S. economy and
the assets of the Index Rotation Fund mainly among the stocks of companies
included in particular market indexes, including international indexes. The
Advisor chooses sectors and indexes based on their potential for appreciation
relative to other sectors or market indexes, and relative to the stock market
as a whole. As with any mutual fund, there is no assurance that either Fund
will achieve its goal. Each 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 each Fund's Investment Strategy?
The Funds' 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 (for the Sector Rotation
Fund), or in rising markets and market indexes (for the Index Rotation Fund)
and may invest portions or all of either Fund in money market instruments for
capital preservation in falling markets and sectors (for the Sector Rotation
Fund) or in falling markets and market indexes (for the Index Rotation Fund).
The Sector Rotation Fund invests 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 Sector Rotation Fund
expects to invest in five or more stocks. Within each market index, the Index
Rotation Fund expects to invest in ten or more stocks. If the Index Rotation
Fund invests in more than one market index at a time, the number of stocks
held by the Index Rotation Fund in companies in each index may be reduced. 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 and market
indexes of the economy offer the most investment opportunity, and which
sectors and indexes 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 for the Sector
Rotation Fund greater than the return on short-term money market instruments,
the Fund will invest in such instruments until the situation changes. When the
Advisor finds that companies in indexes it selected previously are facing
slower or negative growth, it will move out of these indexes. If the Advisor
finds that there are no market indexes in the United States or internationally
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offering investment opportunities greater that the return on short-term money
market instruments, the Fund will invest in such instruments until the
situation changes. Up to 100% of either Fund's assets can be invested in
short-term money market instruments. Typically, some of each Fund's assets may
be held in short-term money market instruments and cash to pay redemption
requests and expenses of the Fund.
Descriptions of many of the sectors in which the Fund may invest are located
in the section of the prospectus called "Sectors the Sector Rotation Fund Will
Invest In". Descriptions of the market indexes in which the Index Rotation
Fund may invest are located in the section of the prospectus called "Market
Indexes the Index Rotation Fund Will Invest In".
What are the Principal Risks of Investing in the Funds?
Because the Funds can be volatile over the short-term, they are suitable for
long-term investors only and are not designed as short-term investments. The
share price of each Fund will fluctuate and may, at redemption, be worth more
or less than the initial purchase price. As a result, you could lose money by
investing in a Fund.
Investors in the Funds 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 a Fund will decline in price. Other risks include changes in 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.
Specific Risks Associated With a Sector Rotation Approach to Investment
Management Include:
Concentration in Industry Sectors. The Sector Rotation Fund's investment
strategy may call for investments of as much as 20% of the Sector Rotation
Fund's assets 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.
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Specific Risks Associated With an Index Rotation Approach to Investment
Management Include:
Concentration in Index Specific Securities. The Index Rotation Fund's
investment strategy may call for investments of as much as 100% of the Index
Rotation Fund's assets in stocks within one market index. There is the risk
that one or more market index groups may lose favor with investors and fall
rapidly in value due to news events that quickly affect the market's
perception of the companies within the particular index group.
Risks of Investing in Particular Market Indexes. Each market index may be
affected by its own particular risks which may not affect other indexes.
Indexes of companies within the NASDAQ 100 Index include the largest and most
active non-financial domestic and international issues listed on the NASDAQ
Stock Market and may rely upon the development of new technology such as
Biotechnology, Computers, Electronics, Health Care and Telecommunications and
are particularly affected by rapid product obsolescence, government regulation
and intense competition. The S&P 100 Index is composed of 100 major blue chip
stocks across diverse industry groups risks of the market favoring small
companies or high technology companies. Other market indexes may be focused on
different segments of the market and may be subject to risks which
particularly affect their segments. For example indexes made up of smaller
companies or international companies may not have the market liquidity of
larger companies.
Portfolio Turnover. Purchase and sale of stocks is determined by market
dynamics which may at times call for buying and holding stocks for only short
periods of time. One risk of the strategy is that high portfolio turnover can
lead to increased brokerage commissions or dealer mark-ups or other
transaction costs on purchases and sales of securities. 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. Very high portfolio turnover could adversely affect the performance of
the Funds.
Investment in Cash. One of the Sector Rotation Fund's strategies is to invest
in cash positions when there are fewer than five industry sectors or fewer
than 20 companies (in the case of the Index Rotation Fund) 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 in the case of the Sector Rotation Fund or the market indexes in the
case of the Index Rotation Fund will begin to rise rapidly and that the
respective Fund will not be able to reinvest the cash position into advancing
industry sectors or companies comprising the market indexes, as the case may
be, quickly enough to capture the initial returns of changing market
conditions.
Exposure to Foreign Markets. American Depositary Receipts ("ADR"s) 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
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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 SAI.
Who is each Fund's Advisor?
T.O. Richardson Company, Inc. (the "Advisor") serves as investment advisor to
each Fund. The Advisor does extensive quantitative (mathematical) investment
research, and applies the results of this research to help clients meet their
financial objectives. As of the date of this Prospectus, the Advisor managed
approximately $292 million in the Sector Rotation Fund and individually
managed accounts. The Index Rotation Fund is a newly-formed fund.
What has the Sector Rotation Fund's Performance Been?
The bar chart and performance table shown below provide an indication of the
risks of investing in the Section Rotation Fund by showing changes in the
performance of the Section Rotation Fund from year to year and since the
Sector Rotation Fund's inception and by showing how the average annual returns
of the Fund from the Fund's inception (December 31, 1998) through December 31,
1999 compare to those of a broad-based securities market index. How the Fund
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
T.O. Richardson Sector Rotation Fund
(Total return per calendar year)
[Bar Chart]
1999
65.80%
During the period shown in the bar chart, the highest return for a quarter was
38.86% during the quarter ended December 31, 1999 and the lowest return for a
quarter was 1.70% during the quarter ended September 30, 1999.
Average Annual Total Returns for Period Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Since Inception
One Year (December 31, 1998)
The T.O. Richardson Sector Rotation Fund 65.80% 65.57%
Standard & Poor's 500 Index* 21.04% 20.78%
</TABLE>
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The Total Return for the Quarter Ended March 31, 2000 was 11.68%
* The Standard & Poor's 500 Index is a widely recognized, unmanaged index of
common stocks of 500 leading U.S. companies from a broad range of industries.-
Because the Index Rotation Fund is new, there is no performance information
available at this point. Once the Index Rotation Fund has an annual total return
for at least one calendar year, the Index Rotation Fund will have a bar chart
and table showing the Index Rotation Fund's annual total return compared to the
returns of at least one stock market index, such as the S&P 500 Index.
What are the Costs of Investing in the Funds?
This table shows you the fees and expenses that investors in the Fund will pay.
<TABLE>
<CAPTION>
<S> <C> <C>
Sector Index
Rotation Rotation
Fund Fund
Shareholder Fees (fees paid directly from the amount of your
investment)
Maximum Sales Charge Imposed on Purchases None None
Maximum Deferred Sales Charge None None
Maximum Sales charge Imposed on Reinvested Dividends or None None
other Distributions
Redemption Fee 1.00%(1) 1.00%
Exchange Fee None(2) None
Annual Fund Operation Expenses (expenses deducted from the
Fund as a percentage of average net assets)
Management Fees 1.50% 1.25%
Distribution (Rule 12b-1) and/or Service Fees None 0.25%(3)
Other Expenses 0.45%(4) 0.56%(5)
Total Annual Fund Operating Expenses 1.95% 2.06%
Less: Expense Reimbursement 0.00%(4) -0.11%(5)
Net Total Annual Fund Operating Expenses 1.95% 1.95%
-------------
</TABLE>
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(1) Each Fund charges a fee of 1.00% on redemptions of Fund shares held for less
than one year. This fee is paid to the Fund. This fee is waived for Fund
shareholders who were previously private clients of the Advisor and for those
persons exchanging shares between the Two Funds. If you redeem shares by wire,
you may be charged a $12 service fee. See "Redeeming Shares of the Funds."
(2) There is no charge for written requests to exchange either Fund's shares for
shares of the Firstar Money Market Funds. Firstar charges a $5.00 fee for each
exchange transaction executed by telephone. See "Exchanging Fund Shares for
Shares of Other Funds."
(3) The Index Rotation Fund has adopted a Rule 12b-1 plan, which allows the Fund
to pay distribution fees for the sale and distribution of its shares. The
maximum level of distribution expenses to be paid by the Fund is 0.25% per year
of the Fund's average daily net asset value.
(4) Until December 31, 1999, the Advisor waived its management fee and/or
reimbursed the Section Rotation Fund's other expenses to the extent necessary
to ensure that the total annual operating expenses did not exceed 1.95% of the
Fund's average net assets. The Advisor stopped waiving its management fee and/or
reimbursing the Fund's other expenses as of December 31, 1999. Any 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. The Advisor is currently
recouping expenses under the expense limitation cap. "Other Expenses" includes
expense waiver recovery of 0.02% of the Fund's average net assets.
(5) Until December 31, 2001, the Advisor is waiving its management fee and/or
reimbursing the Index Rotation Fund's other expenses to the extent necessary to
ensure that the total annual operating expenses do not exceed 1.95% of the
Fund's average net assets. The Advisor may stop waiving its management fee
and/or reimbursing the Fund's other expenses after December 31, 2001. Any 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.
Example
This example is intended to help you compare the cost of investing in the Funds
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.
4. You reinvested all dividends and capital gains distributions
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<TABLE>
<CAPTION>
<S> <C> <C>
Sector Index
Rotation Fund Rotation
(1) Fund(2)
Although your actual costs may be higher or lower, based on these assumptions,
your cost to hold a Fund's shares for just
one year would be $198 $198
If you held Fund shares for three years, the cost would be $612 $636
If you held Fund shares for five years, the cost would be $1,048 N/A
If you held Fund shares for ten years, the cost would be $2,258 N/A
</TABLE>
(1) The one and three year numbers for the Sector Rotation Fund are based on the
net expenses resulting from the expense waiver recovery described above. The
expenses for each subsequent year are based on the Fund's expenses before the
expense waiver recovery.
(2) The one year number for the Index Rotation Fund is based on the Fund's net
expenses resulting from the expense cap agreement described above. All
subsequent years are based on the Fund's expenses before any waivers or
reimbursements.
Sectors the Sector Rotation Fund Will Invest In
Some of the sectors the Sector Rotation 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 that manufacture, mine, process or distribute raw materials and
intermediate goods used in building and manufacturing.
Biotechnology
Companies that 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.
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Computers
Companies that 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 that 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 that 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 including insurance companies,
brokerage firms, banks, etc.
Food and Agriculture
Companies that make or distribute food, beverages, and agricultural products.
Health Care Companies that make or sell products used in heath care.
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Health Care Services
Companies that own or run hospitals, nursing homes, health maintenance
organizations, and other companies specializing in the delivery of health care
services.
Industrial Equipment
Companies that make equipment used by industry, such as farm equipment and
industrial machinery.
Leisure
Companies in the leisure and entertainment business.
Medical Equipment
Companies that make or sell medical equipment and devices and related
technologies. Multimedia Companies that 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 that explore, mine, process, or deal in gold, silver, platinum,
diamonds, or other precious metals and minerals.
Retailing
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.
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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.
Transportation
Companies engaged in providing transportation services engaged in the design,
manufacturing, distribution, or sale of transportation equipment.
Utilities
Companies in the public utilities industry and companies deriving a majority of
their revenues from public utility operations.
Market Indexes the Index Rotation Fund Will Invest In
Some of the indexes comprised of companies in which the Index Rotation Fund may
choose to invest are described here. The Fund may choose to invest in companies
in indexes that are not listed below. The SAI includes complete descriptions of
each market index listed below.
S&P 100 Index
The Standard & Poor's 100 Stock Index, known by its ticker symbol OEX, measures
large company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry groups.
Five of the largest companies in the index are Microsoft, Cisco, Intel, Oracle,
and Sun Micro Systems.
Dow Jones Industrial Average
The Dow Jones Industrial Average measures the performance of 30 of the largest
U.S. industrial companies. This price weighted index , started in 1896,
represents what the publisher, Dow Jones Publishing, considers the "most
important" industrial companies in the United States. Five of the largest
companies included in the averages are GE, Microsoft, Intel, Exxon Mobil, and
Wal-Mart. The Dow Jones Industrial Average can be purchased and sold as units
called DIAMONDS on the New York Stock Exchange (the "NYSE").
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Nasdaq-100 Index
The Nasdaq-100 Index reflects NASDAQ's largest companies across major industry
groups, including computer hardware and software, telecommunications,
retail/wholesale trade and biotechnology based on market capitalization.
Launched in 1985, the Nasdaq-100 Index represents the largest and most active
non-financial domestic and international issues listed on The NASDAQ Stock
Market(R). Its largest companies also include Microsoft, Cisco, Intel, Oracle,
and Sun Microsystems. It is heavily weighted toward high technology industries.
The Nasdaq-100 Index can be purchased and sold as units on the stock market
under the symbol "QQQ."
S & P 500 Index
The Standard & Poor's 500 Index is widely regarded as the standard for measuring
large-cap U.S. stock market performance and includes a representative sample of
leading companies in leading industries. Leading companies within the index are
highly liquid and can usually be purchased and sold in large quantities without
affecting stock price. The S&P 500 Index can also be purchased and sold in units
called Spiders on the stock market. Although the Fund will not seek to invest in
a large number of companies within the index, it should be noted that because
the index is capitalization weighted, the 25 largest companies within the index
account for 44.1 % of its total market value, and many of the largest such as
Oracle, Home Depot, AOL, Dell and EMC were not very large just a few years ago.
International Indexes
S&P International Indexes
Standard & Poor's also maintains several indexes that may be used by the Fund
from time to time should management determine the investment climate is
favorable. These include S&P Euro Index, S&P/TOPIX 150, S&P Asia Pacific 100
Index, S&P Latin America 40 Index, and S&P United Kingdom 150 Index.
The Funds' Investment Policies
Securities and Investment Practices
The following discussion contains more detailed information about the types of
instruments the Funds will invest in, and certain strategies the Advisor may use
to achieve each Fund's investment objective. A complete listing of each Fund's
limitations and more detailed information about each Fund's investments are
contained in the Funds' SAI.
Equity Securities. These securities include common stocks, ADRS, preferred
stocks, convertible securities and warrants. Equity securities represent an
ownership interest in a company. Stock
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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 companies. 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, demand notes, 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, a 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). Each Fund may invest in other open or
closed end funds. If a Fund invests in other investment companies, Fund
shareholders would also pay, indirectly, the fees and expenses of such
investment companies. A Fund would use this strategy when the Advisor determines
that this approach is the most economical way to invest in a particular sector
or market index, as the case may be, or to facilitate investment in certain
foreign countries.
Borrowing. A Fund may borrow from banks or through reverse repurchase
agreements. If a 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. A 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 a Fund's assets in money market instruments or money market funds.
Foreign Investments. The Index Rotation Fund expects that under normal market
conditions, the Fund's investments in securities of foreign issuers will
comprise not more than 25% of the assets of the Fund. Further, the Index
Rotation Fund will seek to invest in companies within foreign market indexes
that have a history of substantial market liquidity.
Foreign investments involve certain special risks, including:
Unfavorable changes in currency exchange rates: Foreign investments are normally
issued and traded in foreign currencies. As a result, their values may be
affected by changes in exchange rates between foreign currencies and U.S.
Dollars.
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Political and economic developments: Foreign investments may be subject to the
risks of seizure by a foreign government, imposition of restrictions on the
exchange or export of foreign currency, and tax increases.
Unreliable or untimely information: There may be less information publicly
available about a foreign country than about most U.S. companies, and foreign
companies are usually not subject to accounting, auditing and financial
reporting standards and practices as stringent as those in the United States.
Limited legal recourse: Legal remedies for investors may be more limited than
the remedies available in the United States.
Limited markets: Certain foreign investments may be less liquid (harder to buy
and sell) and more volatile than U.S. investments, which means the Index
Rotation Fund may at times be unable to sell these foreign investments at
desirable prices. For the same reason, the Index Rotation Fund may find it
difficult to value its foreign investments.
Trading practices: Brokerage commissions and other fees are usually higher for
foreign investments than for U.S. investments. The procedures and rules
governing foreign transactions and custody may also involve delays in payments,
delivery or recovery of money or investments.
Low yield: Common stocks of foreign companies have historically offered lower
dividends than stocks of comparable U.S. companies. Foreign withholding taxes
may further reduce the amount of income available to distribute to shareholders
of the fund.
The risks of foreign investments are typically increased in less developed
countries, which are sometimes referred to as emerging markets. For example,
political and economic structures in these countries may be changing rapidly,
which can cause instability. These countries are also more likely to experience
high levels of inflation, deflation or currency devaluation, which could hurt
their economies and securities markets. For these and other reasons, investments
in emerging markets are considered speculative.
Derivatives. It is the Advisor's intention to use derivatives only for hedging
all or portions of a Fund's assets from time to time, and to use only
derivatives available in regulated U.S. securities markets. Examples of
derivatives the Advisor expects to use are U.S. Treasury notes, bills and bonds
futures, S&P 500 Index and other stock index futures and options and foreign
currency futures contracts.
Each Fund may engage in a variety of transactions involving derivatives, such as
futures, options, warrants, and swap contracts. Derivatives are financial
instruments whose value depends upon, or is derived from, the value of something
else, such as one or more underlying investments, pools of investments, indexes
or currencies. A Fund may use derivatives for hedging and non- hedging purposes.
However, the Advisor may choose not to use derivatives, based on an
15
<PAGE>
evaluation of market conditions or the availability of suitable derivatives.
Derivatives involve special risks and costs and may result in losses. Each Fund
depends on the Advisor's ability to handle these sophisticated instruments. The
prices of derivatives may move in unexpected ways, especially in abnormal market
conditions. Some derivatives are "leveraged" and accordingly may magnify or
otherwise increase investment losses. The use of derivatives may also increase
the amount of taxes payable by shareholders.
Other risks arise from the potential inability to terminate or sell derivatives
positions. A liquid market may not always exist for a Fund's derivatives
positions at any time. For further information about the risks of derivatives,
see the SAI.
The Management of the Funds
The Advisor
Each Fund's Advisor is T.O. Richardson Company, Inc., Two Bridgewater Road,
Farmington, Connecticut 06032-2256. Under the Investment Advisory Agreement
between the Funds and the Advisor, the Sector Rotation Fund pays the Advisor a
fee at the annual rate of 1.50% of the Fund's average daily net assets and the
Index Rotation Fund pays the Advisor a management fee of 1.25% of the Index
Rotation Fund's average daily net assets. The advisory fees are accrued daily
and payable monthly. 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.
Portfolio Management Team
Each Fund's portfolio management team is led by L. Austine Crowe, Executive Vice
President of the Advisor. For the past six years, Mr. Crowe has actively managed
private accounts for T.O. Richardson using the Advisor's sector rotation and
index rotation disciplines. He has also managed the Sector Rotation Fund since
December 1998. Mr. Crowe is the Chairman of the Advisor's investment committee,
which has responsibility for all of the Advisor's investment decision making.
The portfolio management team for each 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.
Distributor
The Funds 'distributor is T.O. Richardson Securities, Inc., (the "Distributor")
Two Bridgewater Road, Farmington, Connecticut 06032-2256. The Distributor is an
affiliate of the Advisor. The Funds and the Distributor have entered into a
Distribution Agreement under which the Distributor serves as the principal
underwriter of the Funds, with responsibility for promoting sales of each Fund's
shares. As compensation for its services, the Distributor may retain a
16
<PAGE>
portion of the Rule 12b-1 fees payable by the Index Rotation Fund. The
Distributor may pay all or a portion of its fee to registered broker dealers who
sell Index Rotation Fund shares, pursuant to a written dealer agreement. The
Distributor may pay Rule 12b-1 fees to persons entering into 12b-1 related
agreements. Such persons may include the Advisor. The Distributor and the
Advisor, at their own expense, may also periodically sponsor programs that offer
additional compensation in connection with the sale of Fund shares. In some
circumstances, this compensation may be made available to certain dealers whose
representatives have sold or are expected to sell significant amounts of Index
Rotation Fund shares. The Distributor does not receive any compensation (Rule
12b-1 fees or otherwise) from the Sector Rotation Fund for performing this
function.
The Distribution Agreement provides (A) that it will be subject to annual
approval by the Trustees and the Independent Trustees; (B) that it 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 (C) that it terminates if
it is assigned.
Custodian, Transfer Agent and Dividend-Disbursing Agent and Administrator
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, acts as custodian
of each Fund's assets (the "Custodian"). Firstar Mutual Fund Services, LLC Third
Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202 serves as
dividend-disbursing agent and as transfer agent for each Fund (the "Transfer
Agent"). Under a Fund Administration Servicing Agreement and a Fund Accounting
Servicing Agreement, the Transfer Agent also performs accounting and certain
compliance and tax reporting functions for each Fund.
Fund Expenses
Each Fund is responsible for its own expenses, including: interest charges;
taxes; brokerage commissions; expenses of registering or qualifying shares for
sale with the states and the SEC; 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 each Fund's shares is based on its net asset value ("NAV"). The NAV
per share of a Fund is calculated once daily as of the close of regular trading
(generally 4:00 p.m. Eastern Time) every day that the NYSE is open for business.
The NAV is calculated by taking the value of a 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
17
<PAGE>
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 a Fund's
Trustees. The Board of Trustees may approve the use of pricing services to
assist the Funds in determining NAV.
Purchasing Shares of the Funds
Shares of a Fund may be purchased through the Distributor directly, or through,
the Transfer Agent. Shares of the Funds 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 a Fund, the Advisor or the Distributor. Shares
of the Funds 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.
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 $1 00. These minimums can be changed or waived by a Fund
at any time.
To purchase Fund shares, complete the shareholder purchase application and mail
it with a check or money order payable to either "T.O. Richardson Sector
Rotation Fund" or "T.O. Richardson Index 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.
For Regular Mail For Overnight Mail
T.O. Richardson Sector Rotation Fund T.O. Richardson Sector Rotation
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
or T.O. Richardson Index Rotation Fund or T.O. Richardson Index Rotation Fund
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 Third Floor
Milwaukee, Wisconsin 53201-0701 615 East Michigan Street
Milwaukee, Wisconsin 53202
</TABLE>
If the broker-dealer through which you choose to purchase a Fund's shares has
not entered into a sales agreement with the Distributor, the dealer can still
place your order for the purchase of a Fund's 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 that 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 $25 service fee. You will
also be responsible for any losses suffered by a Fund as a result. Neither cash
nor third-party checks will be accepted. All applications to purchase a Fund's
shares are subject to acceptance by the Fund and are not binding until they are
accepted. Each Fund reserves the right to decline or accept a purchase order
application.
Wire Purchases
You may also purchase a Fund's 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, N.A.
ABA Number 075000022
Credit Firstar Mutual Fund Services, LLC
Account 112-952-137
Further Credit T.O. Richardson Sector Rotation Fund
or
T.O. Richardson Index Rotation Fund
Shareholder Account Number
Shareholder Name or Account
Registration
Social Security or Taxpayer Identification
19
<PAGE>
Number
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 the
Transfer Agent receives the application form. If the Transfer Agent receives
both your purchase order and payment by Electronic Funds Transfer through the
AIP 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.
Automatic Investment Plan
The Automatic Investment Plan ("AIP") allows you to make regular monthly
investments in a 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. There is no fee for this service, but if your AIP does not clear
for lack of funds, you will be charged a $25 service fee. The minimum initial
investment for investors using the AIP is $1,000, and subsequent investments
must equal $1 00 or more.
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's
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.
Each 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
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<PAGE>
Each Fund offers two types of IRAs that can be adopted by executing the
appropriate Internal Revenue Service 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
the investor's status as 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.
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
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<PAGE>
$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.
Redeeming Shares of a Fund
You may redeem (or sell back to a 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 the Transfer Agent. 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 the Transfer Agent.
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, a
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.
A Fund will pay in cash all redemptions during any 90-day period, in amounts up
to the lesser of
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<PAGE>
$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.
<TABLE>
<CAPTION>
<S> <C>
For Regular Mail For Overnight Mail
T.O. Richardson Sector Rotation Fund T.O. Richardson Sector Rotation
or T.O. Richardson Index Rotation Fund or T.O. Richardson Index Rotation Fund
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 Third Floor
Milwaukee, Wisconsin 53201-0701 615 East Michigan Street
Milwaukee, Wisconsin 53202
</TABLE>
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. The Transfer Agent charges a $12
service fee for each wire transaction.
Because the U.S. Postal Service and other independent delivery services are not
agents of the Funds, 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
23
<PAGE>
signature(s) to the Transfer Agent. To change your address, call the Transfer
Agent 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 Funds 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 Funds reserve the right to refuse a telephone redemption request if they
believe it is advisable to do so. Procedures for redeeming shares of the Funds
by telephone may be modified or terminated by the Funds at any time. In an
effort to prevent unauthorized or fraudulent redemption requests by telephone,
the Funds have implemented procedures designed to reasonably assure that
telephone instructions are genuine. These procedures include: requesting
verification of certain personal information; recording telephone transactions;
confirming transactions in writing; and restricting transmittal of redemption
proceeds to preauthorized designations. Other procedures may be implemented from
time to time. If reasonable procedures are not implemented, The Funds may be
liable for any loss due to unauthorized or fraudulent transactions. In all
cases, you are liable for any loss for unauthorized transactions,
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 a
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 remaining amount will be redeemed
and the SWP will be terminated.
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.
24
<PAGE>
o Any redemption request that occurs within 15 days of a request for a change of
address.
Contingent Redemption Fee
Each 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
a 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, each Fund charges a 1.00% fee on
redemptions of Fund shares that are held for less than one year. This contingent
redemption fee is waived for shareholders of a Fund who, immediately before
investing in the Fund, were private clients of the Advisor or who are exchanging
shares of one Fund into shares of the other Fund.
Redemption fees charged to investors will be paid to the relevant Fund to help
offset transaction costs. Such Fund will use the "first-in, first-out"
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 January
1, 2001 and redeem them on or before December 31, 2001, you will pay the fee. If
you redeem the shares after January 1, 2002, you will not pay the fee.
The fee applies to shares held in all accounts, including, IRA accounts, shares
purchased through a Fund's automatic investment plan, and shares held in broker
omnibus accounts.
The Funds may close your account with at least 30 days notice if your account
balance falls below $250. In this case, a 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
Each Fund's shareholders can exchange their shares of one Fund for shares of the
other Fund or 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. The Transfer Agent will, however, charge a $5 fee for each
exchange transaction that is executed by telephone.
The Firstar Money Market Fund is a no-load money market fund managed by an
affiliate of the Transfer Agent, and is not related to the Funds. 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 one Fund to the other Fund or to the Firstar
Money Market Fund is treated as an ordinary sale and purchase, and you will
realize a capital gain or loss. The
25
<PAGE>
Distributor may be paid by the Firstar Money Market Fund for services provided
to shareholders of that Fund.
Dividends, Capital Gains and Tax Treatment
All dividends and capital gains distributions will automatically be reinvested
in additional shares of a Fund 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, a
Fund can reinvest that distribution, and any others, in your account at the
current net asset value.
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986. In this case, neither Fund
will have any tax liability.
Each Fund intends to declare and pay dividends and to distribute any capital
gains annually. Capital gains distributions may be more frequent. When a 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 a 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 a Fund has held the securities
that produced the gain, not the length of time you have held shares in a Fund.
Each 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 a 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%.
26
<PAGE>
Other information about federal tax issues is in the SAI. There may be other
federal, state, or local tax considerations that apply to you. Be sure to
consult your own tax advisor.
Financial Highlights for the Sector Rotation Fund
For the Period
December 31, 1998 (1)
to October 31, 1999
Per share data for a share outstanding throughout the period:
Net asset value at beginning of period $10.00 Income from investment operations:
Net investment income 0.02
Net realized and unrealized gains on investments 2.11
Total from investment operations 2.13
----
Net asset value at end of period $12.13
======
Total return (2) 21.30%
Ratios and supplemental data:
Net assets at end of period (000's) $33,780
Ratio of operating expenses to average net assets(3) 1.95%(4)
Ratio of net investment income to average net assets(4) 0.36%(4)
Portfolio turnover rate 946.15%(2)
------------------
(1) Commencement of Operations.
(2) Not annualized.
(3) 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) Annualized.
27
<PAGE>
Additional Information
TRUSTEES Samuel Bailey, Jr.
John R. Birk
Lloyd P. Griffiths
Robert T. Samuels
Gunnar S. Overstrom
OFFICERS Samuel Bailey, Jr., President and
Treasurer
L. Austine Crowe, Jr., Vice President
Kathleen M. Russo, Secretary
Joseph C. Neuberger, Assistant
Treasurer
Michael B. Peck, Assistant Secretary
Paul W. Rock, Assistant Secretary
INVESTMENT ADVISOR T.O. Richardson Company, Inc.
Two Bridgewater Road
Farmington, CT 06032-2256
CUSTODIAN Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
ADMINISTRATOR AND For Regular Mail
TRANSFER AGENT T.O. Richardson Sector Rotation Fund
or T.O. Richardson Index Rotation Fund
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
For Overnight Mail
T.O. Richardson Sector Rotation Fund
or T.O. Richardson Index Rotation Fund
Firstar Mutual Fund Services, LLC
Third Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
DISTRIBUTOR T.O. Richardson Securities, Inc.
Two Bridgewater Road
Farmington, CT 06032-2256
28
<PAGE>
INDEPENDENT ACCOUNTANTS Arthur Andersen LLP
100 East Wisconsin Avenue
P.O. Box 1215
Milwaukee, WI 53201-1215
LEGAL COUNSEL Sullivan & Worcester LLP
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
More information on the Funds is available free upon request, including the
following:
Annual/Semiannual Report
These reports describe each Fund's performance, list portfolio holdings and
contain a letter from each Fund's manager discussing recent market conditions,
economic trends and the Funds strategies and their effect on each Fund's
performance.
Statement of Additional Information
The SAI, dated June 9, 2000, provides more detailed information about each Fund
and its policies. A current SAI is on file with the Securities and Exchange
Commission ("Commission") and is incorporated by reference (i.e. is legally
considered part of this Prospectus).
To Request More Information or Ask Questions
Call 1-800-643-7477
Write T.O. Richardson Company, Inc.
Two Bridgewater Road
Farmington, Connecticut 06032-2256
Internet Reports and other information about the Funds are
available on the Commission's website at
http://www.sec.gov. and T.O. Richardson's web site
at http://www.torich.com
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Call 1-800-643-7477
Securities and Exchange Commission Information about the Funds (including the SAI)
can be reviewed and copied at the Commission's
Public Reference Room in Washington, D.C. You
may obtain information about the operations of the
Public Reference Room by calling the Commission
at 202-9428090. Copies of information about the
Funds may be obtained, upon payment of a
duplicating fee, by writing the Commission's Public
Reference Section, Washington, D.C. 20549-0102,
or by sending an electronic request to the SEC at
[email protected].
SEC File Number is 811-8849.
</TABLE>
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 or the T.O. Richardson Index Rotation
Fund, call 1-800-643-7477
Shares distributed through
T.O. Richardson Securities, Inc.,
member of the NASD.
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STATEMENT OF ADDITIONAL INFORMATION
T.O. RICHARDSON TRUST
T.O. Richardson Sector Rotation Fund
T.O. Richardson Index 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 Sector
Rotation Fund and the T.O. Richardson Index Rotation Fund (each a "Fund" and
together, the "Funds"), each a diversified series of the T. 0. Richardson Trust.
The Prospectus, dated June 9, 2000, may be revised from time to time, and is
available without charge upon request to the above-noted address or telephone
number.
This Statement of Additional Information is dated June 9, 2000
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TABLE OF CONTENTS
THE FUND ..................5
INVESTMENT STRATEGIES AND RISKS ..................5
INVESTMENT RESTRICTIONS .................12
SECTOR DESCRIPTIONS AND SECTOR RISKS .................14
INDEX DESCRIPTIONS AND RISKS .................24
TRUSTEES AND OFFICERS .................24
PRINCIPAL SHAREHOLDERS .................25
INVESTMENT ADVISOR .................27
DISTRIBUTOR .................29
CODE OF ETHICS .................30
FUND TRANSACTIONS AND BROKERAGE .................30
FUND ADMINISTRATOR .................32
CUSTODIAN .................32
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT .................32
TAXES .................32
DETERMINATION OF NET ASSET VALUE .................33
SPECIAL REDEMPTIONS .................33
DESCRIPTION OF THE TRUST .................33
PERFORMANCE INFORMATION .................34
INDEPENDENT ACCOUNTANTS .................36
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LEGAL COUNSEL ...................36
FINANCIAL STATEMENTS ...................36
3
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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 June 5, 2000 and if given or made, such
information or representations may not be relied upon as having been authorized
by the Funds. 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.
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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. Each Fund is a series
portfolio of the Trust and is registered with the Securities and Exchange
Commission ("SEC") 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 Funds may make, the strategies the Advisor may employ in
pursuit of each 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. Each 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 a 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
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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 a Fund's
other investments. If a 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. A 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. 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
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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 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.
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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. American Depositary Receipts (ADRs) as
well other "hybrid" forms of ADRS, including European Depositary Receipts and
Global Depositary Receipts, 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
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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. These
securities have no relation to the indexes in which the Index Rotation Fund will
invest.
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.
Each 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 a 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 or the nature and timing of
distributions made by a Fund.
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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), a 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, a
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.
Derivatives. It is the Advisor's intention to use derivatives only for
hedging all or portions of a Fund's assets from time to time, and to use only
derivatives available in regulated U.S. securities markets. Examples of
derivatives the Advisor expects to use are U.S. Treasury notes, bills and bonds
futures, S&P 500 Index and other stock index futures and options, and
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foreign currency futures contracts.
A Fund may engage in a variety of transactions involving derivatives,
such as futures, options, warrants, and swap contracts. Derivatives are
financial instruments whose value depends upon, or is derived from, the value of
something else, such as one or more underlying investments, pools of
investments, indexes or currencies. Each Fund may use derivatives for hedging
and non-hedging purposes. However, the Advisor may choose not to use
derivatives, based on an evaluation of market conditions or the availability of
suitable derivatives.
Derivatives involve special risks and costs and may result in losses.
Each Fund will depend on the Advisor's ability to handle these sophisticated
instruments. The prices of derivatives may move in unexpected ways, especially
in abnormal market conditions. Some derivatives are "leveraged" and therefore
may magnify or otherwise increase investment losses. The use of derivatives may
also increase the amount of taxes payable by shareholders.
Other risks arise from the potential inability to terminate or sell
derivatives positions. A liquid market may not always exist for the Fund's
derivatives positions at any time.
Temporary Strategies. Prior to investing the proceeds from sales of a
Fund's 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 a 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.
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INVESTMENT RESTRICTIONS
The investment objective of each Fund is to seek capital appreciation
while also providing some protection against downmarkets. Each 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 respective investment objective, the Funds'
invest mainly in equity securities of companies within particular sectors or
groups of sectors (for the Sector Rotation Fund) or within market indexes (for
the Index Rotation Fund). The Advisor allocates assets among mainly equity
securities of companies within particular sectors or groups of sectors (for the
Sector Rotation Fund) or within market indexes (for the Index Rotation Fund) the
Advisor determines have the greatest potential for market appreciation. Assets
are allocated to the different sectors (for the Sector Rotation Fund) or within
market indexes (for the Index Rotation Fund) according to the Advisor's view of
the relative strengths or weaknesses of the sectors and the companies within
those sectors or the indexes and the companies within those indexes. Each Fund's
investment objective and policies are described in detail in the Prospectus. The
following are each Fund's fundamental investment restrictions. These
restrictions cannot be changed without shareholder approval.
A 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 1 0%
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, (the "Securities Act"), in
connection with the purchase and sale of portfolio securities.
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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 each Fund's non-fundamental operating policies
which may be changed by the Board of Trustees without shareholder approval.
A 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 and the rules thereunder.
5. Make any loans, except through (i) purchases of debt securities or other
debt instruments, or (ii) by engaging in repurchase agreements.
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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.
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
(FOR THE SECTOR ROTATION FUND)
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 (eq., cancer, infectious disease, diagnostics and
therapeutics); pharmaceuticals (eq., new drug development and production);
agricultural and veterinary applications (e.g., improved seed varieties, animal
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growth hormones); chemicals (ea., enzymes, toxic waste treatment);
medical/surgical (eq., epidermal growth factor, in vivo imaging/therapeutics);
and industry (E.I., 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
15
<PAGE>
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, 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
16
<PAGE>
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.
Banks, savings and loan associations, and finance companies are subject to
extensive
17
<PAGE>
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.
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 foodrelated 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
18
<PAGE>
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 and farm equipment) and 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
19
<PAGE>
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 (g.q., uranium and titanium),
hydrocarbons (ea., 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
20
<PAGE>
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 1 0% 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.
21
<PAGE>
For the Fund to qualify as a regulated investment company under current
federal tax law, gains from selling precious metals may not exceed 1 0% 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.
22
<PAGE>
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.
23
<PAGE>
INDEX DESCRIPTIONS AND RISKS
(FOR THE INDEX ROTATION FUND)
Some of the indexes the Index Rotation Fund may choose to invest in are
described here. The Fund may choose to invest in indexes that are not listed
below.
S&P 100 Index
The Standard & Poor's 1 00 Stock Index, known by its ticker symbol OEX, measures
large company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry groups.
Five of the largest companies in the index are Microsoft, Cisco, Intel, Oracle,
and Sun Microsystems.
Dow Jones Industrial Averages
The Dow Jones Industrial Averages measure the performance of 30 of the largest
U.S. industrial companies. This price weighted index , started in 1896,
represents what the publisher, Dow Jones Publishing, considers the "most
important" industrial companies in the United States. Five of the largest
companies included in the averages are GE, Microsoft, Intel, Exxon Mobil, and
Wal-Mart. The Dow Jones Industrial Averages can be purchased and sold as units
called DIAMONDS on the New York Stock Exchange (the "NYSE").
NASDAQ-100 Index
The Nasdaq-100 Index reflects NASDAQ's largest companies across major industry
groups, including computer hardware and software, telecommunications,
retail/wholesale trade and biotechnology based on market capitalization.
Launched in 1985, the Nasdaq-1 00 Index represents the largest and most active
non-financial domestic and international issues listed on The NASDAQ Stock
Market(R). Its largest companies also include Microsoft, Cisco, Intel, Oracle,
and Sun Microsystems. It is heavily weighted toward high technology industries.
The NASDAQ-100 Index can be purchased and sold as units on the stock market
under the symbol QQQ.
S & P 500 Index
The Standard & Poor's 500 Index is widely regarded as the standard for measuring
large-cap U.S. stock market performance and includes a representative sample of
leading companies in leading industries. Leading companies within the index are
highly liquid and can usually be purchased and sold in large quantities without
affecting stock price. The S&P 500 Index can also be purchased and sold in units
called Spiders on the stock market.
International Indexes
24
<PAGE>
S&P International Indexes
Standard & Poor's also maintains several indexes that may be used by the Fund
from time to time should management determine the investment climate is
favorable. These include S&P Euro Index, S&P/TOPIX 150, S&P Asia Pacific 100
Index, S&P Latin America 40 Index, and S&P United Kingdom 150 Index.
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>
<CAPTION>
<S> <C> <C>
Name, Address (Age) Positions Held with Fund Principal Occupation(s) During
Past Five Years
*Samuel Bailey, Jr. (60) Trustee, President and Chief Executive Officer and
T.O. Richardson Company, Inc. Treasurer president of the Advisor
Two Bridgewater Road
Farmington, Connecticut 06032
John R. Birk (46) Trustee September 1995 - Present, John
112 Harbourmaster Court R. Birk & Associates (business
Ponte Vedra Beach, Florida 32082 consulting), January 1995 to
September
1995,
President
of
ldeon
Group
(information
based
marketing
and
services
company);
August
1992
to
December
1994,
President,
Chief
Executive
Officer
and
Director
of
Wright
Express
Corporation
(information
processing
and
provider
of
credit
cards
to
fleet
operators);
January
1995
to
December
1995,
Chairman
of
Wright
Express;
January
1995
to
September
1995,
Chairman
of
National
Leisure
Group.
25
<PAGE>
Name, Address (Age) Positions Held with Fund Principal Occupation(s) During
*Lloyd P. Griffiths (67) Trustee Executive Vice President, the
4601 South Atlantic Avenue Advisor (through September
Suite 608 1999); Vice President, the
Ponce Inlet, Florida 32127-7028 Distributor (through September
1999)
Robert T. Samuels (63) Trustee 1989 to June 1994, Partner,
433 South Main Street ABS Development Company
West Hartford, Connecticut 06110 (real estate development);
June 1994 - Present, Principal,
Balfour Venture Capital
Company
Gunnar S. Overstrom (52) Trustee June 2000 - Present, Private
c/o Fleet Bank investor; November 1995 -
777 Main Street 1999, Vice chairman at Fleet
Mail Stop CTEH40218D Financial Group; to November
Hartford, Connecticut 06115 1995, President and Chief
Operating
Officer
of
Shawmut
National
Corporation
(bank
holding
company)
and
Chief
Executive
Officer
of
all
Shawmut
banking
subsidiaries.
Kathleen M. Russo (36) Secretary June 1998 - Present, Senior
T.O. Richardson Company, Inc. Vice President of the Advisor;
Two Bridgewater Road Secretary of the Distributor
Farmington, Connecticut 06032 (since 1995); July 1990 - June
1998, Vice President of
Operations of the Advisor.
</TABLE>
*Denotes an "interested person" of the Fund as such term is defined in the 1940
Act.
Compensation of Trustees
The compensation paid to the Trustees who are not "interested persons" of the
Fund in fiscal year 1999 was $500 per meeting. In the fiscal year ending October
31, 2000 such Trustees will be paid $1,000 per meeting. The Trust has an Audit
Committee consisting of the Trustees who are not "interested persons." The table
below sets forth the compensation paid to each of the current Trustees during
the fiscal year ended October 31, 1999.
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Aggregate Pension or Total
Compensation Retirement Benefits Compensation
from Fund Accrued as part of From Fund and
Fund Expenses Fund Complex
Samuel Bailey, Jr. None None None
John R. Birk $2,000 None $2,000
Lloyd P. Griffiths None None None
Robert T. Samuels $2,000 None $2,000
Gunnar S. Overstrom* N/A None N/A
</TABLE>
* Mr. Overstrom was elected a Trustee of the Trust on June 5, 2000.
As of the date of this Prospectus, the officers and Trustees of the
Trust in the aggregate owned less than 1% of each Fund's outstanding voting
securities. 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
The Index Rotation Fund is a newly-formed Fund. As of May 31, 2000, the
following owned of record 5% or more of the Sector Rotation Fund's outstanding
shares:
<TABLE>
<CAPTION>
<S> <C> <C>
Name/Address Shares Percentage of
of Record Owner Owned Outstanding Shares
Dawn & Company 1,423,587.66 37.29%
c/o Webster Trust Company
346 Main Street
Kensington, Connecticut 06037
FMCO 1,047,305.75 27.44%
c/o The Huntington National Bank
1 Financial Plaza
Holland, Michigan 49423
27
<PAGE>
Name/Address Shares Percentage of
Dawn & Company #2 207,760.33 5.44%
c/o J. D. Reynolds Company Inc.
200 Techne Center Drive
Suite 1 00
Milford, Ohio 45150
</TABLE>
INVESTMENT ADVISOR
The Advisor is the investment advisor to each 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 Trust and the Advisor
dated as of December 21, 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.) The addition of the Index Rotation Fund
to such Advisory Agreement occurred on June 5, 2000. 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 October 19, 1998 as to the Sector Rotation Fund
and June 5, 2000 as to the Index Rotation Fund and by the initial shareholder of
the Sector Rotation Fund on December 21, 1998 and of the Index Rotation Fund on
June 5, 2000. 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 a
Fund's outstanding voting securities as to that Fund or by the Advisor, and will
terminate automatically in the event of its assignment.
Under the terms of the Advisory Agreement, the Advisor manages each
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 each Fund. As compensation for its services, the Sector Rotation
Fund pays the Advisor an annual management fee of 1.50% of its average daily net
assets for the Sector Rotation Fund and the Index Rotation Fund pays the Advisor
an annual management fee of 1.25% of its average daily net assets. The advisory
fee is accrued daily and
28
<PAGE>
paid monthly.
For the fiscal year ended October 31, 1999, the Sector Rotation Fund
paid the Advisor $178,320 for its investment advisory services. If the Advisor
had not agreed to waive a portion of its advisory fee during the same period,
the Advisor would have received an additional $105,174 from the Sector Rotation
Fund for its investment advisory services.
DISTRIBUTOR
Distributor
Under a distribution agreement dated as of December 21, 1998 (the
"Distribution Agreement"), as to the Sector Rotation Fund and as of June 5, 2000
as to the Index Rotation Fund, T.O. Richardson Securities, Inc. (the
"Distributor") acts as principal distributor of each 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 each Fund's shares, which shares are offered for sale
by the Funds 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., L. Austine Crowe, and Kathleen M. Russo.
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Index Rotation Fund has adopted a plan of distribution (the "Plan") under which
the Index Rotation Fund may directly incur or reimburse the Advisor for expenses
related to the sale and distribution of its shares, including payments to
securities dealers and others who are engaged in the sale of shares of the Fund
and who may be advising investors regarding the purchase, sale or retention of
Fund shares; expenses of maintaining personnel who engage in or support
distribution of shares or who render shareholder support services not otherwise
provided by the Transfer Agent; expenses of formulating and implementing
marketing and promotional activities, including direct mail promotions and mass
media advertising; expenses of preparing, printing and distributing sales
literature and prospectuses and statements of additional information and reports
for recipients other than existing shareholders of the Fund; expenses of
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Trust may, from time to time, deem advisable; and
any other expenses related to the distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is
0.25% of the Index Rotation Fund's average daily net assets. Because these fees
are paid of out the Fund's assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges. In the event the Plan is terminated by the Index
Rotation Fund in accordance with its terms, the Index Rotation Fund will not be
required to make any payments for expenses incurred by the Advisor after the
date the Plan terminates.
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<PAGE>
CODE OF ETHICS
The Funds, the Advisor and the Distributor have each adopted codes of
ethics under Rule 17j-1 under the 1940 Act that govern the personal securities
transactions of their board members, officers and employees who may have access
to current trading information of the Trust.
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 each Fund
and for the placement of each 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
each 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, each 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 Advisor, 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 Advisor 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 Advisor 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 a Fund. The Advisor
believes that the research information received in this manner provides a Fund
with benefits by supplementing the research otherwise available to the Fund.
Such higher commissions will not be paid by a Fund unless (a) the Advisor
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 Advisor's
overall responsibilities with respect to the accounts,
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<PAGE>
including a 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 Advisor, the
total commissions paid by the Fund will be reasonable in relation to the
benefits to a Fund over the long term.
The aggregate amount of brokerage commissions paid by the Sector
Rotation Fund for the fiscal year ended October 31, 1999 was $196,826. For the
fiscal year ended October 31, 1999, the Fund paid $183,895 in brokerage
commissions for which research services were provided.
The Advisor places portfolio transactions for other advisory accounts
the Advisor manages. Research services furnished by firms through which a Fund
effects its securities transactions may be used by the Advisor in servicing all
of its accounts; not all of such services may be used by the Advisor in
connection with the Fund. The Advisor believes it is not possible to measure
separately the benefits from research services to each of the accounts the
Advisor manages (including the Funds). 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 Advisor believes such costs to a Fund
will not be disproportionate to the benefits received by the Fund on a
continuing basis. The Advisor 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 Advisor 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 Funds,
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 Sector Rotation Fund expects to be
invested in five or more sectors, with each sector represented by investment in
at least five stocks and the Index Rotation Fund expects to be invested in one
or more market indexes with each market index invested in at least ten stocks.
Each Fund expects to regularly review the relative strengths or weaknesses of
the sectors or market indexes in which the Fund's investments have been
allocated and the company stocks within each sector or market index and the
Funds expect to exit sectors or indexes that are under performing the general
stock market and to purchase securities from issuers in higher ranked sectors or
indexes. In actively carrying out the investment policies of each Fund and
determining when to sell securities and to reinvest in other sectors or market
indexes and companies, the rate of portfolio turnover will not be a limiting
factor. As a result, under relatively volatile market conditions, each Fund may
have higher portfolio turnover than long-term growth mutual funds, for example.
In addition to potentially greater brokerage
31
<PAGE>
commissions or dealer mark-ups and other transaction costs resulting from
relatively high portfolio turnover, such 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.
FUND ADMINISTRATOR
The Board of Trustees of the Trust has approved a Fund Administration
Servicing Agreement between the Trust and Firstar Mutual Fund Services, LLC
("the Transfer Agent") pursuant to which the Transfer Agent serves as
administrator of each Fund. The administrative services supplied by The Transfer
Agent include general Fund management (excluding investment advisory services),
compliance with federal and state laws, financial reporting and tax reporting.
The address of The Transfer Agent is Third Floor, 615 East Michigan Street,
Milwaukee, Wisconsin 53202.
For the fiscal year ended October 31, 1999, the Transfer Agent received
$31,140 from the Sector Rotation Fund under the Fund Administration Servicing
Agreement.
CUSTODIAN
Pursuant to a Custodian Agreement, the Board of Trustees of the Trust
has appointed Firstar Bank, N.A. (the "Custodian") as custodian of the Funds. As
custodian of each Fund's assets, the Custodian has custody of all securities and
cash of the Funds, 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
The Transfer Agent also acts as transfer agent and dividend-disbursing
agent for the Funds. For each Fund, FMFS is compensated based on an annual fee
per open account of $16 subject to a minimum annual fee of $15,000 plus
out-of-pocket expenses, such as postage and printing expenses in connection with
shareholder communications.
TAXES
The Trust qualified in fiscal year 1999 and intends to continue 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 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 Funds' management practices or
policies.
32
<PAGE>
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 each 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 Funds do 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 Trust determines that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, each Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the portfolio of
the applicable Fund, instead of in cash, in conformity with applicable rules of
the SEC. Each 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 two
Series -- the Sector Rotation Fund and the Index Rotation 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.
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<PAGE>
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
a 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 Funds.
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
A Fund's historical performance or return may be shown in the form of
various performance figures. A Fund's performance figures are based upon
historical results and are not necessarily representative of future performance.
Factors affecting a Fund's performance include general market conditions,
operating expenses, and investment management.
Average Annual Total Return
The average annual total return of a 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(l +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
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<PAGE>
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 a 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 from 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 a 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.
The average annual total return of the Sector Rotation Fund for the
period December 31, 1998 (inception) through December 31, 1999 was 65.6%.
Comparisons
From time to time, in marketing and other Fund literature, a 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 Funds will be compared to Lipper's appropriate fund
category, that is, by fund objective and portfolio holdings.
Each 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 1 0 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
35
<PAGE>
and World Report, the Wall Street Journal, Barron's and a variety of investment
newsletters.
Each Fund may compare its performance to a wide variety of indices and
measures of inflation including the Standard & Poor's 500 Stock Index 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, 1 00 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 Advisor and the Distributor.
FINANCIAL STATEMENTS
The following financial statements of the Sector Rotation Fund are
incorporated by reference to the Annual Report, dated October 31, 1999 of the
Fund (File No. 81 18849) as filed with the SEC on December 17, 1999:
(a) Statement of Assets and Liabilities
(b) Statement of Operations
(c) Statement of Changes in Net Assets
(d) Financial Highlights
(e) Schedule of Investments
(f) Notes to the Financial Statements
(g) Report of Independent Accountants
36
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Registrant's Declaration of Trust*
(b) Registrant's By-Laws*
(c) None
(d) Investment Advisory Agreement with T.O. Richardson Company, Inc.
(e. 1) Distribution Agreement with T.O. Richardson Securities, Inc.
(e.2) Form of Dealer Agreement
(f) None
(g) Custodian Agreement with Firstar Bank Milwaukee, N.A. Trust
Company
(h. 1) Transfer Agency Agreement with Firstar Mutual Fund Services, LLC
(h.2) Administration Agreement with Firstar Mutual Fund Services, LLC
(h.3) Fund Accounting Agreement with Firstar Mutual Fund Services, LLC
(h.4) Fulfillment Servicing Agreement with Firstar Mutual Fund
Services, LLC
(h.5) Consent to Use of Name by Registrant with T.O. Richardson
Company, Inc.**
(h.6) Consents of Trustees ** (except for Gunnar S. Overstrom, filed
herewith)
(h.7) Powers of Attorney for Trustees other than Gunnar S.
Overstrom**; Power of Attorney of Gunnar S. Overstrom included
herewith
(i) Opinion and Consent of Sullivan & Worcester LLP**
(j) Consent of Arthur Andersen LLP**
(k) None
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<PAGE>
(1) Subscription Agreement**
(m) Rule 12b-1 Distribution Plan
(n) None
(o) Reserved
(p) Codes of Ethics
*Incorporated by reference to Registration Statement on Form N-lA filed with the
Commission on June 30, 1998.
** Incorporated by reference to Registration Statement on Form N-lA filed with
the Commission on December 22, 1998.
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
38
<PAGE>
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 Advisor
Besides serving as investment advisor to private accounts, the Advisor
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 Advisor's directors and officers is hereby
incorporated by reference from the information contained under "Trustees and
Officers" in the SAI.
Item 27. Principal Underwriter
(a) T.O. Richardson Securities, Inc. ("TORS") serves as Registrant's
Distributor. In addition to serving as principal underwriter for
Registrant, TORS also serves as principal underwriter for the
following investment companies: Barreft Funds, Simms Funds, Grand
Prix Fund, and Internet Index Fund.
(b) The principal business address of TORS is Two
Bridgewater Road, Farmington, Connecticut 06032-2256.
The following information relates to each director
and officer of TORS:
<TABLE>
<CAPTION>
<S> <C> <C>
Positions and Offices Positions and Offices with
Name With Underwriter Registrant
Samuel Bailey, Jr. President and Chief Trustee, President and Treasurer
39
<PAGE>
Executive Officer
L. Austine Crowe Vice President Vice President
Kathleen M. Russo Vice President and 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 advisor, at Registrant's corporate offices, Two
Bridgewater Road, Farmington, Connecticut 06032, except records held and
maintained by Firstar Mutual Fund Services LLC, Third Floor, 615 E. Michigan
Street, Milwaukee, Wisconsin 53202, relating to its function as transfer agent,
administrator, and fund accountant or by Firstar Bank, N.A., relating to its
function as custodian.
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.
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<PAGE>
NOTICE
The names "T.O. Richardson Trust" and "T.O. Richardson Sector Rotation Fund" and
"T.O. Richardson Index 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.
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<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
Post-Effective Amendment No. 3 to its Registration Statement on Form N-lA to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and State of New York on the 5th day of June 2000.
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 Post Effective Amendment No. 3 to the Registration Statement on Form N-lA
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
June 5, 2000
Samuel Bailey, Jr.
* Trustee
---------------------------------
John R. Birk
* Trustee
---------------------------------
Lloyd P. Griffiths
* Trustee
---------------------------------
Robert T. Samuels
* Trustee
---------------------------------
Gunnar S. Overstrom
/s/David M. Leahy Attorney-in-Fact for each of the
June 5, 2000 above-indicated Trustees
---------------------------
David M. Leahy
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<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(a) Registrant's Declaration of Trust*
(b) Registrant's By-Laws*
(c) None
(d) Investment Advisory Agreement with T.O. Richardson Company,
Inc.
(e.1) Distribution Agreement with T.O. Richardson Securities, Inc.
(e.2) Form of Dealer Agreement
(f) None
(g) Custodian Agreement with Firstar Bank Milwaukee, N.A.
(h. 1) Transfer Agency Agreement with Firstar Mutual Fund Services,
LLC
(h.2) Administration Agreement with Firstar Mutual Fund Services, LLC
(h.3) Fund Accounting Agreement with Firstar Mutual Fund Services,
LLC
(h.4) Fulfillment Servicing Agreement with Firstar Mutual Fund Services,
LLC
(h.5) Consent to Use of Name by Registrant with T.O. Richardson
Company, Inc.**
(h.6) Consents of Trustees ** (except for Gunnar S. Overstrom, filed
herewith)
(h.7) Powers of Attorney ** (except for Gunnar S. Overstrom, filed
herewith)
(i) Opinion and Consent of Sullivan & Worcester LLP**
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<PAGE>
(j) Consent of Arthur Andersen LLP**
(k) None
(1) Subscription Agreement**
(m) Rule 12b-1 Distribution Plan
(n) None
(o) Reserved
(p) Codes of Ethics
*Incorporated by reference from the Registration Statement on Form N-lA filed
with the Commission on June 30, 1998.
**Incorporated by reference from the Registration Statement on Form N-lA as
filed with the Commission on December 22, 1998.
44
<PAGE>
