As filed with the Securities and Exchange Commission on February 3,
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. 1
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3
T.O. RICHARDSON TRUST
(Exact Name of Registrant as Specified in Charter)
Two Bridgewater Road
Farmington, Connecticut 06032-2256
(Address of Principal Executive (Zip Code)
Offices)
========================================================== =====================
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:
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David M. Leahy, Esq.
Sullivan & Worcester LLP
1025 Connecticut Avenue, NW
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box):
[X] 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)
[ ] 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
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PROSPECTUS
dated February 4, 2000
T.O. RICHARDSON
SECTOR ROTATION FUND
Two Bridgewater Road
Farmington, Connecticut 06032-2256
1-800-643-7477
The investment objective of the Fund is to seek capital appreciation while
providing some protection against down markets. The Fund's investment advisor
allocates assets mainly among equity securities of companies within industry
sectors it determines have the greatest potential for market appreciation. As
with all mutual funds, the U.S. Securities and Exchange Commission does not
guarantee the accuracy or completeness of this Prospectus and does not determine
whether the Fund is a good investment. It is a criminal offense to suggest
otherwise. 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.
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TABLE OF CONTENTS
Page No.
HIGHLIGHTS 3
SECTORS THE FUND WILL INVEST IN 7
THE FUND'S INVESTMENT POLICIES 9
THE MANAGEMENT OF THE FUND 10
HOW FUND SHARES ARE PRICED 11
PURCHASING SHARES OF THE FUND 12
INDIVIDUAL RETIREMENT ACCOUNTS 14
REDEEMING SHARES OF THE FUND 15
EXCHANGING FUND SHARES FOR SHARES OF OTHER FUNDS 17
DIVIDENDS, CAPITAL GAINS AND TAX TREATMENT 18
FINANCIAL HIGHLIGHTS 19
FUND INVESTMENT PERFORMANCE 20
ADDITIONAL INFORMATION 21
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information ("SAI"), and if given or made, such information or
representations may not be relied upon as having been authorized by the Fund.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
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Highlights
What are the Fund's Investment Goals and Objectives?
The investment objective of the Fund is to seek capital appreciation with some
protection against down markets. To accomplish this goal, the Fund's Advisor
allocates the Fund's assets mainly among the stocks of companies within
particular sectors or industries within the U.S. economy. The Advisor chooses
sectors based on their potential for appreciation relative to other sectors, and
relative to the stock market as a whole. As with any mutual fund, there is no
assurance that the Fund will achieve its goal. The Fund's investment objective
may be changed by the Trustees without shareholder approval; however, prior to
any such change, shareholders would be given notice. What is the Fund's
Investment Strategy? The Fund's Advisor believes that limiting losses is as
important to building capital as maximizing gains. To accomplish this goal, the
Advisor makes investments in rising markets and industry sectors, and may invest
portions or all of the Fund in money market investments for capital preservation
in falling markets and sectors. The Fund will invest in five or more industry
sectors that offer the greatest market appreciation during each market cycle. A
market cycle is a period of time in which market prices rise to a peak, fall to
a trough and then rise again to a baseline. Within each sector, the Fund expects
to invest in five or more stocks. The average market capitalization (i.e., the
price of a company's stock multiplied by the number of its outstanding shares)
of the issuers of these stocks will vary widely. The Advisor conducts extensive
research to determine which sectors of the economy offer the most investment
opportunity, and which sectors offer the least, at any point in time. When the
Advisor finds that sectors it selected previously are facing slower or negative
growth, it will move out of these sectors. If the Advisor finds that there are
no sectors of the economy offering investment opportunity greater than the
return on short-term money market instruments, the Fund will invest in such
instruments until the situation changes. Up to 100% of the Fund's assets can be
invested in short-term money market instruments. Typically, some of the 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 Fund Will Invest In." What are the Principal
Risks of Investing in the Fund? Because the Fund can be volatile over the
short-term, it is suitable for long-term investors only and is not designed as a
short-term investment. The share price of the Fund will fluctuate and may, at
redemption, be worth more or less than the initial purchase price. As a result,
you could lose money. Investors in the Fund will be exposed to the natural
market risks that exist with any investment in equity securities, which include
the possibility that stock prices in general will decline, or that the
individual stocks selected for the Fund will decline in price. Other risks
include changes in general economic trends (e.g. employment levels, economic
growth, interest rate levels, currency exchange rates), supply and demand
fluctuations, competition, the pace of technological change and the risk of
obsolescence, consumer tastes and domestic and international economic, political
and regulatory developments. Specific Risks Associated With a Sector Rotation
Approach to Investment Management Include: Concentration in Industry Sectors.
The Fund's investment strategy may call for investments of as much as 20% of the
Fund's capital in each of five concentrated industry groups. There is the risk
that one or more industry groups may lose favor with investors and fall rapidly
in value due to news events that quickly affect the market's perception of the
industry. Risks of Investing in Particular Sectors. Each industry sector is
affected by its own particular risks which may not affect other sectors. Sectors
which rely upon the development of new technology such as Biotechnology,
Computers, Electronics, Health Care and Telecommunications are particularly
affected by rapid product
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obsolescence, government regulation and intense competition. Cyclical
Industries, Financial Service Industries, Natural Resources and Utilities may be
subject to risks of interest rate fluctuations, market cycles and international
markets. Portfolio Turnover. The Fund's investment strategy involves tracking
and investing in industry sectors that are advancing in value faster than other
industry sectors. Purchase and sale of sectors is determined by market dynamics
which may at times call for buying and holding industry sectors for only short
periods of time. One risk of the strategy is that high portfolio turnover can
lead to increased brokerage commissions 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 performance of the Fund. Investment in Cash. One
of the Fund's objectives is to invest in cash positions when there are fewer
than five industry sectors providing short or medium term returns greater than
money market returns. This usually occurs when broad markets are declining
rapidly. The purpose of the strategy is to protect principal in falling markets.
There is a risk that the industry sectors will begin to rise rapidly and that
the Fund will not be able to reinvest the cash position into advancing industry
sectors quickly enough to capture the initial returns of changing market
conditions. Exposure to Foreign Markets. American Depositary Receipts ("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 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.
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Who is the Fund's Advisor?
T.O. Richardson Company, Inc. (the "Advisor") serves as investment advisor to
the Fund. The Advisor 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 Fund and individually managed accounts. What
has the Fund's Performance Been? The bar chart and performance table shown below
provide an indication of the risks of investing in the Fund by showing changes
in the performance of the Fund from year to year and since the 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)
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<CAPTION>
<S> <C> <C>
[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
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>
* 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.
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<TABLE>
<CAPTION>
<S> <C>
What are the Costs of Investing in the Fund?
This table shows you the fees and expenses that investors in the Fund will pay.
Shareholder Fees (fees paid directly from the amount of your investment)
Maximum Sales Charge Imposed on Purchases None
Maximum Deferred Sales Charge None
Maximum Sales Charge Imposed on Reinvested Dividends or other Distributions None
Redemption Fee 1.00%(1)
Exchange Fee None(2)
Annual Fund Operating Expenses (expenses deducted from the Fund as a percentage of average net assets)
Management Fees 1.50%
Distribution (Rule 12b-1) and/or Service Fees None
Other Expenses 0.45%(3)
Total Annual Fund Operating Expenses 1.95%(3)
- ------------
</TABLE>
(1) The 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. If you redeem
shares by wire, you may be charged a $12 service fee. See "Redeeming Shares of
the Fund."
(2) There is no charge for written requests to exchange Fund shares
for shares of the Firstar Money Market Funds. Firstar charges a $5.00 fee for
each exchange transaction executed by telephone. See "Exchanging Fund Shares for
Shares of Other Funds."
(3) Until December 31, 1999, the Advisor waived its
management fee and/or reimbursed the 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.
Example
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The assumptions we
have made for this example are:
1. You invest $10,000 in the Fund.
2. Your investment has a 5% return each year.
3. The Fund's operating expenses remain the same.
Based on these assumptions, your cost to hold Fund shares for just one year
would be $198 If you held Fund shares for three years, the cost would be
$612
Sectors the Fund Will Invest In
Some of the sectors the Fund may choose to invest in are described here. The
Fund may choose to invest in sectors that are not listed below. The SAI includes
complete descriptions of each sector listed below.
Basic Materials
Companies that manufacture, mine, process or distribute raw materials and
intermediate goods used in building and manufacturing.
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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.
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.
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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.
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
This sector consists of companies engaged in merchandising finished goods and
services primarily to individual consumers.
Software and Computer Services Companies that make or sell software or
information-based services, and consulting, communications, and related
services.
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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
This sector includes companies engaged in providing transportation services or
companies engaged in the design, manufacturing, distribution, or sale of
transportation equipment.
Utilities
This sector consists of companies in the public utilities industry and
companies deriving a majority of their revenues from public utility operations.
The Fund's Investment Policies
Securities and Investment Practices
The following discussion contains more detailed information about the types of
instruments the Fund will invest in, and certain strategies the Advisor may use
to achieve the Fund's investment objective. A complete listing of the Fund's
limitations and more detailed information about the Fund's investments are
contained in the Fund's SAI.
Equity Securities. These securities include common
stocks, ADRs, preferred stocks, convertible securities, and warrants. Equity
securities represent an ownership interest in a company. Stock prices fluctuate
based on changes in a company's financial condition and on overall market
conditions. The stocks of smaller companies tend to be more sensitive to these
factors. ADRs represent equity in foreign 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, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.
Investment Companies (Mutual Funds). The Fund may invest in other open or closed
end funds. No one investment may constitute more than 5% of the mutual fund's
total assets. If the Fund invests in other investment companies, Fund
shareholders would also pay, indirectly, the fees and expenses of such
investment companies. The Fund would use this strategy when the Advisor
determines that this approach is the most economical way to invest in a
particular sector or to facilitate investment in certain foreign countries.
Borrowing. The Fund may borrow from banks or through reverse repurchase
agreements. If the Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If the Fund makes additional
investments while borrowings are outstanding, this may be considered a form of
leverage. The Fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Temporary Strategies. The Advisor may hold cash and/or invest all or a portion
of the Fund's assets in money
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market instruments or money market funds.
Portfolio Turnover. Portfolio turnover refers to the change in investments held
by the Fund. The Fund does not hold securities for the long-term and may have
higher than average portfolio turnover.
The Management of the Fund
The Advisor
The Fund's Advisor is T.O. Richardson Company, Inc., Two Bridgewater Road,
Farmington, Connecticut 06032-2256. Under the Investment Advisory Agreement
between the Fund and the Advisor, the Fund pays the Advisor a fee at the annual
rate of 1.50% of the Fund's average daily net assets. The advisory fee is
accrued daily and paid monthly. "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
The 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
discipline. 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 the Fund includes Samuel Bailey, Jr., Chairman
of T.O. Richardson, and Ralph L. Gaudet, Jr., Managing Director of T.O.
Richardson. Together the group has more than 60 years of investment experience.
Custodian, Transfer Agent and Dividend-Disbursing Agent and Administrator
Firstar Bank, N.A. ("FB"), 425 Walnut Street, Cincinnati, Ohio 45202, acts as
custodian of the Fund's assets (the "Custodian"). Firstar Mutual Fund Services,
LLC ("FMFS") Third Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202
serves as dividend-disbursing agent (the "Dividend-Disbursing Agent") and as
transfer agent for the Fund (the "Transfer Agent"). Under a Fund Administration
Servicing Agreement and a Fund Accounting Servicing Agreement, FMFS also
performs accounting and certain compliance and tax reporting functions for the
Fund.
Distributor
The Fund's distributor is T.O. Richardson Securities, Inc., (the "Distributor")
Two Bridgewater Road, Farmington, Connecticut 06032-2256. The Fund and the
Distributor have entered into a Distribution Agreement under which the
Distributor serves as the principal underwriter of the Fund, with responsibility
for promoting sales of Fund shares. The Distributor does not receive any
additional compensation from the Fund for performing this function.
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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.
Fund Expenses
The 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 the Fund's shares is based on its net asset value ("NAV"). The NAV
per share of the Fund is calculated once daily as of the close of trading
(generally 4:00 p.m. Eastern Time) every day that the New York Stock Exchange
("NYSE") is open for business. The NAV is calculated by taking the value of the
Fund's total assets, including interest or dividends accrued, less all
liabilities, and dividing the total by the total number of shares of the Fund
outstanding. The result is the Fund's NAV per share. In determining NAV,
expenses are accrued and applied daily and securities and other assets are
generally valued at market value.
Purchase orders for Fund shares or shares tendered for redemption prior to the
close of trading on a day the NYSE is open for trading will be valued as of the
close of trading on that day. Those received after the close of trading will be
valued as of the close of trading on the next day the NYSE is open.
Common stocks and other equity-type securities are valued at the last sales
price on the securities exchange on which they are usually traded. Under other
circumstances, securities are valued at the average of the most recent bid and
asked prices.
Fixed income securities are valued by pricing services that use electronic data
processing techniques to determine values. Under other circumstances, actual
sale or bid prices are used.
Any securities or other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by the Fund's
Trustees. The Board of Trustees may approve the use of pricing services to
assist the Fund in determining NAV.
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Purchasing Shares of the Fund
Shares of the Fund may be purchased through the Distributor directly, or through
FMFS, the Fund's Transfer Agent. Shares of the Fund may also be purchased
through a registered broker-dealer, who may charge you a fee either at the time
of purchase or at the time of redemption. The fee, if charged, is retained by
the broker-dealer and is not sent to the Fund, the Advisor or the Distributor.
Shares of the Fund are sold on a continual basis at the next offering price (the
"Offering Price"), which is the NAV per share when the order is received by a
dealer, the Distributor or the Transfer Agent.
Payment for Fund shares should be made by check or money order. The minimum
initial investment is $5,000. For IRAs, the minimum investment is $2,000.
Subsequent investments of at least $500 may be made by mail or wire. If you use
the Automatic Investment Plan, the minimum investment is $1,000 with a minimum
monthly investment of $100. These minimums can be changed or waived by the Fund
at any time.
To purchase Fund shares, complete the shareholder purchase application and mail
it with a check or money order payable to "T.O. Richardson Sector Rotation Fund"
to one of the addresses below. If you are making an additional purchase,
complete the Additional Investment Form provided on the lower portion of your
account statement and include it with your check or money order. To make an
additional purchase by wire, please refer to the "Wire Purchases" section that
follows.
<TABLE>
<CAPTION>
<S> <C>
For Regular Mail For Overnight Mail
T.O. Richardson Sector Rotation Fund T.O. Richardson Sector 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 Fund shares has not
entered into a sales agreement with the Distributor, the dealer can still place
your order for the purchase of Fund shares. Purchases made through dealers who
do not have selling agreements with the Advisor will be made at the Offering
Price, although they may charge a transaction fee. To avoid that fee, purchase
shares through a dealer 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 the Fund as a result. Neither cash nor third-party checks will be
accepted. All applications to purchase Fund shares are subject to acceptance by
the Fund and are not binding until they are accepted. The Fund reserves the
right to decline or accept a purchase order application.
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Wire Purchases
You may also purchase Fund shares by wire. The following instructions should be
followed when wiring funds to the Transfer Agent for the purchase of Fund
shares:
Wire to Firstar Bank, N.A.
ABA Number 075000022
Credit Firstar Mutual Fund Services, LLC
Account 112-952-137
Further Credit T.O. Richardson Sector Rotation Fund
Shareholder Account Number
Shareholder Name
Account Registration
Please call 1-800-643-7477 prior to wiring any funds to notify the Transfer
Agent that the wire is coming. The Fund is not responsible for the consequences
of delays resulting from the banking or Federal Reserve wire system or from
incomplete wiring instructions.
Telephone Purchases
The telephone purchase option allows you to make subsequent investments of at
least $250 directly from a bank checking or savings account. To set up the
telephone purchase option on your account, complete the appropriate section in
the purchase application. Only bank accounts held at domestic financial
institutions that are Automated Clearing House ("ACH") members may be used for
telephone transactions.
This option will become effective approximately 15 business days after FMFS
receives the application form. If FMFS receives both your purchase order and
payment by Electronic Funds Transfer through the ACH system before the close of
regular trading, you will pay the offering price calculated that day. Most
transfers are completed within one business day. Subsequent investments may be
made by calling 1-800-643-7477.
Automatic Investment Plan
The Automatic Investment Plan ("AIP") allows you to make regular monthly
investments in the Fund on the days you choose, directly from your bank account.
To establish the AIP, complete the appropriate section in the shareholder
application. You can set up the AIP with any financial institution that is a
member of ACH. There is no fee for this service, but if your ACH 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 $100 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 shares,
rather than buying at either a low point, or a high point. Of course, the AIP
program does not ensure a profit or protect against a loss under any
circumstances.
The Fund has the right to close an investor's account, if the investor stops
making payments under the AIP. Before closing an account, the Fund will give the
investor written notice and 60 days to reinstate the AIP, or reach the regular
minimum initial investment of $5,000.
Individual Retirement Accounts
The Fund offers two types of IRAs that can be adopted by executing the
appropriate Internal Revenue Service ("IRS") Form. For more information on IRAs,
please see the separate IRA Disclosure Statement.
For Traditional and Roth IRAs, the maximum annual total IRA contribution for one
person is generally equal to the lower of $2,000 or 100% of the investor's
compensation (earned income). Investors may have both types of IRAs,
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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 $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 the Fund
You may redeem (or sell back to the Fund) some or all of your Fund shares at any
time. Your redemption will be processed at the first NAV calculated after your
complete request is received by FMFS. If you have a broker or dealer listed on
your account, you may redeem shares through the broker or dealer. Otherwise, all
redemption
16
<PAGE>
requests must be made with FMFS. You can make redemption requests through any
broker or dealer, but you may be charged a fee. The Fund will mail you a check
with your redemption proceeds, generally the next business day after the request
is processed, and not more than seven days after receiving the complete request.
If you make a purchase by check, and then immediately request a redemption, the
Fund can hold your redemption payment until your original purchase check has
cleared, which could take up to 12 days. The Transfer Agent may request
additional documentation to process redemptions from corporations, executors,
administrators, trustees, guardians, agents or attorneys-in-fact. The Fund will
pay in cash all redemptions during any 90-day period, in amounts up to the
lesser of $250,000 or 1% of the Fund's net assets at the beginning of the
period. Redemptions in excess of this limit may be paid, in whole or in part, in
securities or in cash, as the Trustees deem advisable. If you are an IRA
investor, you will need to indicate on your redemption requests whether or not
federal income tax should be withheld, otherwise federal taxes will be withheld
from your distribution.
17
<PAGE>
Written Redemption
Simply mail a written request for redemption of your Fund shares to either
address below.
For Regular Mail For Overnight Mail
T.O. Richardson Sector Rotation Fund T.O. Richardson Sector Rotation Fund
c/o Firstar 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
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. FMFS 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 Fund, mailing your request is not the same as having your complete
request received by the fund. Your request is "received" when it is actually
processed by the Transfer Agent.
Telephone Redemption
For redemption requests of $1,000 or more, you may call 1-800-643-7477. In order
to redeem shares by phone, you must have requested this option in writing.
Redemption proceeds will be mailed directly to you, or wired to the bank account
you designated on your account application. There is no charge for this service.
The Transfer Agent applies a $12.00 fee for all wire redemptions. To change the
designated bank account, send a written request with guaranteed signature(s) to
FMFS. To change your address, call FMFS at 1-800-643-7477, or send a written
request to the Transfer Agent.
Telephone redemption requests are not allowed within 15 days of an address
change, and the Fund may limit the number of telephone redemptions it allows an
investor to request. After they have been made, telephone redemptions cannot be
changed or canceled.
The Transfer Agent will try to be sure that all telephone redemption
requests are genuine. FMFS' procedures may include requiring personal
identification, taping telephone transactions, and sending written confirmation
of transactions to investors. As long as procedures similar to those above are
followed, the Fund and the Transfer Agent will not be liable for loss, cost, or
expense incurred by an investor for acting on telephone instructions, or for an
unauthorized telephone redemption. The Fund has the right to refuse a telephone
redemption request.
Systematic Withdrawal Plan
You may set up automatic withdrawals from your Fund account to a bank account.
To do this, you must have a balance of $10,000 in your account, and you must
withdraw at least $250 per payment. To set up the systematic withdrawal plan
("SWP"), you need to fill out the appropriate section of the shareholder
application. You can choose to make withdrawals on a monthly, quarterly,
semi-annual or annual basis (or the following business day).
18
<PAGE>
To change the amount or timing of withdrawal payments, or to temporarily
discontinue them, call 1-800-643-7477. Depending upon the size of your account,
the size of the withdrawal requests, and changes in the price of shares of the
Fund, you may run out of money in your account. If the dollar amount in your
account is not enough to make a payment, the amount will be redeemed and the SWP
will be terminated.
Signature Guarantees
Signature guarantees are required by the Transfer Agent to process some types of
transactions. Signature guarantees may be obtained from commercial banks,
savings associations, credit unions and brokerage firms. Please note that a
notary public stamp or seal is not the same thing as a signature guarantee. Some
types of transactions are:
o Redemption requests to be mailed or wired to a person other than the
registered owner(s) of the shares.
o Redemption requests to be mailed or wired to other than the address
currently on file.
o Any redemption request that occurs within 15 days of a request for a change
of address.
Contingent Redemption Fee
The Fund is designed as a long-term investment and is not appropriate for
short-term trading. Frequent purchases, redemptions, and exchanges in and out of
the Fund make it difficult for the portfolio management team to make long-term
investment decisions, and can drive up the Fund's transaction costs. To
discourage short-term trading of Fund shares, the Fund charges a 1.00% fee on
redemptions of Fund shares that are held for less than one year. This contingent
redemption fee is waived for shareholders of the Fund who, immediately before
investing in the Fund, were private clients of the Advisor.
Redemption fees charged to investors will be paid to the Fund to help offset
transaction costs. The Fund will use the "first-in, first-out" 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, 2000 and
redeem them on or before December 31, 2000, you will pay the fee. If you redeem
the shares after January 1, 2001, you will not pay the fee.
The fee applies to shares held in all accounts, including, IRA accounts, shares
purchased through the Fund's automatic investment plan, and shares held in
broker omnibus accounts.
The Fund may close your account with at least 30 days notice if your account
balance falls below $250. In this case, the Fund will mail you a check for the
proceeds of the redemption within seven days of the redemption.
Exchanging Fund Shares for Shares of other Funds
Fund shareholders can exchange shares of the Fund for shares of the Firstar
Money Market Fund. Exchange requests are available for exchanges of $1,000 or
more. There is no charge for written exchange requests. FMFS 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 FMFS, and is not related to the Fund. Before exchanging into the
Firstar Money Market Fund, please read the applicable prospectus, which may be
obtained by calling 1-800-643-7477.
For tax purposes, an exchange from the Fund to the Firstar Money Market Fund is
treated as an ordinary sale and purchase, and you will realize a capital gain or
loss. The Distributor may be paid by the Firstar Money Market Fund for services
provided to shareholders of the Fund.
Dividends, Capital Gains and Tax Treatment
All dividends and capital gains distributions will automatically be reinvested
in additional Fund shares at the current NAV unless you specifically request
that either dividends, or capital gains, or both, be paid in cash.
19
<PAGE>
To change the way capital gains and dividends are paid to you, call
1-800-643-7477. You may choose to have dividends or capital gains that are paid
in cash sent by mail, or sent by electronic funds transfer ("EFT"). Transfers by
EFT generally take up to three business days to reach your bank account.
If you choose to receive distributions and dividends by check and the post
office cannot deliver the check, or if the check is not cashed for six months,
the Fund can reinvest that distribution, and any others, in your account at the
current net asset value.
The Fund intends to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code of 1986. In this case, the Fund will not have any
tax liability.
The Fund intends to pay dividends and to distribute any capital gains annually.
Capital gains distributions may be more frequent. When the Fund distributes a
dividend or capital gain, the Fund's NAV decreases by the amount of the payment.
If you purchase shares right before a distribution, you will have to pay income
taxes on the distribution, even though the value of your investment has not
changed.
Dividends and distributions of net realized short-term capital gains are taxable
to Fund investors as ordinary income. This is true whether they are reinvested
in the Fund or they are received in cash, unless you are either exempt from
taxes or qualify for a tax deferral.
Distributions of net realized long-term capital gains are taxable as a
capital gain, whether you reinvest them, or you receive them in cash. The
capital gain holding period is measured by the length of time the Fund has held
the securities that produced the gain, not the length of time you have held
shares in the Fund. The Fund provides information every year about the amount
and type of all dividends and capital gains paid during the prior year. You may
incur state or local taxes on dividends and capital gains.
If the Fund does not have your correct social security number or taxpayer
identification number, the Fund is required by federal law to withhold federal
income tax from your distributions and redemptions at a rate of 31%.
Other information about federal tax issues is in the SAI. There may be other
federal, state, or local tax considerations that apply to you. Be sure to
consult your own tax advisor.
20
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
<S> <C>
For the Period
December 31, 1998(1)
to October 31, 1999
-----------------
Per share data for a share outstanding throughout each period:
Net asset value at beginning of period $ 10.00
Income from investment operations:
Net investment income 0.02
Net realized and unrealized gains (losses) on investments 2.11
-------
Total from investment operations 2.13
-------
Net asset value at end of period $ 12.13
=======
Ratios and supplemental data:
Total return(2) 21.30%
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(3) 0.36%(4)
Portfolio turnover rate 946.15%(4)
------------
(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.
</TABLE>
21
<PAGE>
Fund Investment Performance
The Fund may compare its investment results to other indices or other mutual
funds and use these comparisons in reports to shareholders, sales literature,
and advertisements. The results may be calculated on several bases, including
yield, average annual total return, total return, and cumulative total return.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund over a
specified period of time, assuming the reinvestment of all dividends and
distributions. Average annual total return figures are annualized and therefore
represent the average annual percentage change over the specified period. Total
return figures are not annualized and represent the aggregate percentage or
dollar value change over the period. Cumulative total return simply reflects the
Fund's performance over a stated period of time.
22
<PAGE>
Additional Information
<TABLE>
<CAPTION>
<S> <C>
TRUSTEES Samuel Bailey, Jr.
John R. Birk
Lloyd P. Griffiths
Robert T. Samuels
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
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
For Overnight Mail
T.O. Richardson Sector 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
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
</TABLE>
23
<PAGE>
More information on the Fund is available free upon request, including the
following:
Annual/Semiannual Report
These reports will describe the Fund's performance, list portfolio holdings and
contain a letter from the Fund's manager discussing recent market conditions,
economic trends and Fund strategies and their effect on the Fund's performance.
Statement of Additional Information
The SAI, dated February 4, 2000 provides more detailed information about the
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
<TABLE>
<CAPTION>
<S> <C>
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
Fund are available on the Commission's
website at http://www.sec.gov.
T.O. Richardson's web site is
http://www.torich.com.
Securities and Exchange Commission Information about the Fund (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 (1-800-SEC-0330).
Copies of information about the Fund may be obtained, upon
payment of a duplicating fee, by writing the Commission's Public
Reference Section, Washington, D.C. 20549-6009.
SEC File Number is 811-8849.
24
<PAGE>
T.O. Richardson Company, Inc.
Two Bridgewater Road
Farmington, CT 06032-2256
1-800-235-1022
For more information about the
T.O. Richardson Sector Rotation Fund, call 1-800-643-7477
Shares distributed through
T.O. Richardson Securities, Inc.,
member of the NASD.
</TABLE>
25
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
T.O. RICHARDSON TRUST
T.O. Richardson Sector Rotation Fund
Two Bridgewater Road
Farmington, Connecticut
06032-2256
1-800-643-7477
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the T.O. Richardson Trust (the
"Trust"), including the T.O. Richardson Sector Rotation Fund (the "Fund"), a
diversified series of the Trust, dated February 4, 2000. The Prospectus, which
may be revised from time to time, is available without charge upon request to
the above-noted address or telephone number.
This Statement of Additional Information is dated February 4, 2000
26
<PAGE>
TABLE OF CONTENTS
Page No.
THE FUND...............................................................1
INVESTMENT STRATEGIES AND RISKS........................................1
INVESTMENT RESTRICTIONS................................................7
SECTOR DESCRIPTIONS AND RISKS..........................................9
TRUSTEES AND OFFICERS.................................................19
PRINCIPAL SHAREHOLDERS................................................21
INVESTMENT ADVISOR....................................................22
FUND TRANSACTIONS AND BROKERAGE.......................................23
FUND ADMINISTRATOR....................................................25
CUSTODIAN.............................................................25
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT..........................25
TAXES.................................................................25
DETERMINATION OF NET ASSET VALUE......................................26
SPECIAL REDEMPTIONS...................................................26
DESCRIPTION OF THE TRUST..............................................26
PERFORMANCE INFORMATION...............................................27
INDEPENDENT ACCOUNTANTS...............................................29
LEGAL COUNSEL.........................................................29
FINANCIAL STATEMENTS..................................................29
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
(ii)
<PAGE>
dated February 4, 2000 and if given or made, such information or representations
may not be relied upon as having been authorized by the Fund. This Statement of
Additional Information does not constitute an offer to sell securities in any
state or jurisdiction in which such offering may not lawfully be made.
(ii)
<PAGE>
THE FUND
The Trust was organized on June 2, 1998 as a voluntary business
association under the laws of the Commonwealth of Massachusetts. It is an
open-end diversified management investment company. The Fund is a series
portfolio of the Trust and is registered with the Securities and Exchange
Commission ("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 Fund may make, the strategies the Advisor may employ in
pursuit of the Fund's investment objective, and a summary of related risks.
Closed-End Investment Companies. These are investment companies that
issue a fixed number of shares which trade on a stock exchange or
over-the-counter. Closed-end investment companies are professionally managed and
may invest in any type of security. Shares of closed-end investment companies
may trade at a premium or a discount to their net asset value. The Fund may
purchase shares of closed-end investment companies to facilitate investment in
certain foreign countries.
Convertible Securities. These are bonds, debentures, notes, preferred
stocks or other securities that may be converted or exchanged (by the holder or
by the issuer) into shares of the underlying common stock (or cash or securities
of equivalent value) at a stated exchange ratio. A convertible security may also
be called for redemption or conversion by the issuer after a particular date and
under certain circumstances (including a specified price) established upon
issue. If a convertible security held by the Fund is called for redemption or
conversion, the Fund could be required to tender it for redemption, convert it
into the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss
than common stocks. Convertible securities generally provide yields higher than
the underlying stocks, but generally lower than comparable non-convertible
securities. Because of this higher yield, convertible securities generally sell
at prices above their conversion value, which is the current market value of the
stock to be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time depending on
changes in the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible securities will tend
not to decline to the same extent because of the interest or dividend payments
and the repayment of principal at maturity for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same extent as
securities convertible at the option of the holder. When the underlying common
stocks rise in value, the value of convertible securities may also be expected
to increase. At
1
<PAGE>
the same time, however, the difference between the market value of convertible
securities and their conversion value will narrow. This means that the value of
convertible securities will generally not increase to the same extent as the
value of the underlying common stocks. Because convertible securities may also
be interest-rate sensitive, their value may increase as interest rates fall and
decrease as interest rates rise. Convertible securities are also subject to
credit risk, and are often lower-quality securities.
Delayed-Delivery Transactions. Securities may be bought and sold on a
delayed- delivery or when-issued basis. These transactions involve a commitment
to purchase or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. Typically, no interest accrues to the purchaser until the
security is delivered.
When purchasing securities on a delayed-delivery basis, the purchaser
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations and the risk that the security will not be issued as
anticipated. Because payment for the securities is not required until the
delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If the Fund remains substantially fully invested at a
time when delayed-delivery purchases are outstanding, the delayed-delivery
purchases may result in a form of leverage. When delayed-delivery purchases are
outstanding, the Fund will set aside appropriate liquid assets in a segregated
custodial account to cover the purchase obligations. When the Fund sells a
security on a delayed-delivery basis, the Fund does not participate in further
gains or losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities, the
Fund could miss a favorable price or yield opportunity or suffer a loss. The
Fund may renegotiate a delayed delivery transaction and may sell the underlying
securities before delivery, which may result in capital gains or losses for the
Fund.
Domestic and Foreign Investments include U.S. dollar-denominated time
deposits, certificates of deposit, and bankers' acceptances of U.S. banks and
their branches located outside of the United States, U.S. branches and agencies
of foreign banks, and foreign branches of foreign banks. Domestic and foreign
investments may include U.S. dollar- denominated securities issued or guaranteed
by other U.S. or foreign issuers, including U.S. and foreign corporations or
other business organizations, foreign governments, foreign government agencies
or instrumentalities, and U.S. and foreign financial institutions, including
savings and loan institutions, insurance companies, mortgage bankers, and real
estate investment trusts, as well as banks.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation.
Payment of interest and repayment of principal on these obligations may also be
affected by governmental action in the country of domicile of the branch. In
addition, evidence of ownership of portfolio securities may be held outside of
the United States and a fund may be subject to the risks associated with the
holding of such property overseas. Various provisions of federal law governing
the establishment and
2
<PAGE>
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.
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
3
<PAGE>
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 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.
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Gold-indexed securities typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to rise
and fall together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. Indexed securities may be more volatile than the underlying
instruments. Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. Government agencies.
The Fund may consider purchasing securities indexed to the price of
precious metals as an alternative to direct investment in precious metals. The
Fund will only buy precious metals-indexed securities when the Advisor is
satisfied with the creditworthiness of the issuers liable for payment. The
securities generally will earn a nominal rate of interest while held by the
Fund, and may have maturities of one year or more. In addition, the securities
may be subject to being put by the Fund to the issuer, with payment to be
received on no more than seven days' notice. The put feature would ensure the
liquidity of the notes in the absence of an active secondary market.
Money Market Securities. These are high-quality, short-term
obligations. Some money market securities employ a trust or other similar
structure to modify the maturity, price characteristics, or quality of financial
assets. For example, put features can be used to modify the maturity of a
security or interest rate adjustment features can be used to enhance price
stability. If the structure does not perform as intended, adverse tax or
investment consequences may result. Neither the Internal Revenue Service (IRS )
nor any other regulatory authority has ruled definitively on certain legal
issues presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax treatment of
the income received from these securities or the nature and timing of
distributions made by the Fund.
Real Estate Investment Trusts. Equity real estate investment trusts own
real estate properties. Mortgage real estate investment trusts make
construction, development and long-term mortgage loans. Their value may be
affected by changes in the value of the underlying property of the trusts, the
creditworthiness of the issuer, property taxes, interest rates, and tax
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and regulatory requirements, such as those relating to the environment. Both
types of trusts are dependent upon management skill, are not diversified, and
are subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation, and the possibility of failing to qualify for tax-free status
of income under the Internal Revenue Code and failing to maintain exemption from
the 1940 Act.
Repurchase Agreements. In a repurchase agreement, the Fund purchases a
security and simultaneously commits to sell that security back to the original
seller at an agreed-upon price. The resale price reflects the purchase price
plus an agreed-upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. As protection against the risk that the
original seller will not fulfill its obligation, the securities are held in a
separate account at a bank, marked-to market daily, and maintained at a value at
least equal to the sale price plus the accrued incremental amount. While it does
not presently appear possible to eliminate all risks from these transactions
(particularly the possibility that the value of the underlying security will be
less than the resale price, as well as delays and costs to the Fund in
connection with bankruptcy proceedings), the Fund will engage in repurchase
agreement transactions with parties whose creditworthiness has been reviewed and
found satisfactory by the Advisor.
Reverse Repurchase Agreements. In a reverse repurchase agreement, the
Fund sells a security to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase that security at an agreed-upon price
and time. While a reverse repurchase agreement is outstanding, the Fund will
maintain appropriate liquid assets in a segregated custodial account to cover
its obligation under the agreements. The Fund will enter into reverse repurchase
agreements with parties whose creditworthiness has been reviewed and found
satisfactory by the Advisor. Such transactions may increase fluctuations in the
market value of Fund assets and may be viewed as a form of leverage.
Sources of Credit or Liquidity Support. The Advisor may rely on its
evaluation of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or demand
feature, insurance or other source of credit or liquidity. In evaluating the
credit of a foreign bank or other foreign entities, the Advisor will consider
whether adequate public information about the entity is available and whether
the entity may be subject to unfavorable political or economic developments,
currency controls, or other government restrictions that might affect its
ability to honor its commitment.
Temporary Strategies. Prior to investing the proceeds from sales of
Fund shares, to meet ordinary cash needs, and to retain the flexibility to
respond promptly to changes in market and economic conditions, the Advisor may
hold cash and/or invest all or a portion of the Fund's assets in money market
instruments, which are short-term fixed income securities issued by private and
governmental institutions.
Variable and Floating Rate Securities. These provide for periodic
adjustments in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change
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whenever there is a change in a designated benchmark rate. Some variable or
floating rate securities are structured with put features that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries.
Warrants. Warrants are instruments which entitle the holder to buy an
equity security at a specific price for a specific period of time. Changes in
the value of a warrant do not necessarily correspond to changes in the value of
its underlying security. The price of a warrant may be more volatile than the
price of its underlying security, and a warrant may offer greater potential for
capital appreciation as well as capital loss. Warrants do not entitle a holder
to dividends or voting rights with respect to the underlying security and do not
represent any rights in the assets of the issuing company. A warrant ceases to
have value if it is not exercised prior to its expiration date. These factors
can make warrants more speculative than other types of investments.
INVESTMENT RESTRICTIONS
The investment objective of the Fund is to seek capital appreciation
while also providing some protection against downmarkets. The Fund's investment
objective is nonfundamental and, as such, may be changed without shareholder
approval. Shareholders would be given 30 days' written notice prior to any such
change. In seeking to attain its investment objective, the Fund invests mainly
in equity securities of companies within particular sectors or groups of
sectors. The Advisor allocates assets among mainly equity securities of
companies within particular sectors or groups of sectors the Advisor determines
have the greatest potential for market appreciation. Assets are allocated to the
different sectors according to the Advisor's view of the relative strengths or
weaknesses of the sectors and the companies within those sectors. The Fund's
investment objective and policies are described in detail in the Prospectus
under the caption "More Information about the Fund's Investment Objective and
Policies." The following are the Fund's fundamental investment restrictions.
These restrictions cannot be changed without shareholder approval.
The Fund:
1. May not, with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities or securities
issued by other registered investment companies), if, as a result, (i)
more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (ii) the Fund would hold more than 10% of
the outstanding voting securities of that issuer.
2. May (i) borrow money from banks for temporary or emergency purposes
(but not for leveraging or investment) and (ii) make other investments
or engage in other transactions permissible under the Investment
Company Act of 1940, as amended (the 1940 Act), which may involve a
borrowing, including borrowing through reverse repurchase agreements,
provided that the combination of (i) and (ii) shall not exceed 33
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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.
5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be loaned to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Fund's total assets would be invested in the securities
of issuers, the principal business activities of which are in the same
industry.
8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Fund from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).
In addition to the non-fundamental operating policies set forth in the
Prospectus, the following are the Fund's non-fundamental operating policies
which may be changed by the Board of Trustees without shareholder approval.
The Fund may not:
1. Sell securities short provided that transactions in options, futures
contracts, options on futures contracts, or other derivative
instruments are not deemed to constitute selling securities short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for clearance of transactions; and
provided that margin deposits in connection with futures contracts,
options on futures contracts, or other derivative instruments shall not
constitute purchasing securities on margin.
3. Purchase securities of other investment companies except in compliance with
the 1940
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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) engaging in repurchase agreements.
6. Borrow money except from banks or through reverse repurchase agreements
or mortgage dollar rolls, and will not purchase securities when bank
borrowings exceed 5% of its assets.
Except for the fundamental investment limitations listed above, the
other investment policies described in the Prospectus and this Statement of
Additional Information are not fundamental and may be changed with approval of
the Trust's Board of Trustees. Unless noted otherwise, if a percentage
restriction is adhered to at the time of investment, a later increase or
decrease in percentage resulting from a change in the Fund's assets (i.e., due
to cash inflows or redemptions) or in market value of the investment or the
Fund's assets will not constitute a violation of that restriction.
SECTOR DESCRIPTIONS AND SECTOR RISKS
Basic Materials: companies engaged in the manufacture, mining,
processing, or distribution of raw materials and intermediate goods used in
building and manufacturing. The products handled by the companies in which the
Fund may invest include chemicals, metals, concrete, timber, paper, copper, iron
ore, nickel, steel, aluminum, textiles, cement, and gypsum. The Fund may also
invest in the securities of mining, processing, transportation, and distribution
companies, including companies involved in equipment supplies and railroads.
Many companies in the industrial sectors are significantly affected by
the level and volatility of commodity prices, the exchange value of the dollar,
import controls, and worldwide competition. At times, worldwide production of
these materials has exceeded demand as a result of over-building or economic
downturns. During these times, commodity price declines, and unit volume
reductions have led to poor investment returns and losses. Other risks may
include liability for environmental damage, depletion of resources, and mandated
expenditures for safety and pollution control.
Biotechnology: companies engaged in the research, development, and
manufacture of various biotechnological products, services, and processes. These
companies are often involved with new or experimental technologies such as
genetic engineering, hybridoma and recombinant DNA techniques and monoclonal
antibodies. The Fund may also invest in companies that manufacture and/or
distribute biotechnological and biomedical products, including devices and
instruments, and in companies that provide or benefit significantly from
scientific and technological advances in biotechnology. Some biotechnology
companies may provide processes or services instead of, or in addition to,
products.
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The description of the biotechnology sector will be interpreted broadly
by the Advisor, and may include applications and developments in such areas as
human health care (e.g., cancer, infectious disease, diagnostics and
therapeutics); pharmaceuticals (e.g., new drug development and production);
agricultural and veterinary applications (e.g., improved seed varieties, animal
growth hormones); chemicals (e.g., enzymes, toxic waste treatment);
medical/surgical (e.g., epidermal growth factor, in vivo imaging/therapeutics);
and industry (e.g., biochips, fermentation, enhanced mineral recovery).
Many of these companies may have losses and may not offer products for
some time. These companies may have persistent losses during a new product's
transition from development to production, and revenue patterns may be erratic.
In addition, biotechnology companies are affected by patent considerations,
intense competition, rapid technological change and obsolescence, and regulatory
requirements of the U.S. Food and Drug Administration, the Environmental
Protection Agency (EPA), state and local governments, and foreign regulatory
authorities. Many of these companies are relatively small and their stock is
thinly traded.
Business Services: companies that provide business-related services to
companies and other organizations. Business-related services may include for
example, data processing, consulting, outsourcing, temporary employment, market
research or data base services, printing, advertising, computer programming,
credit reporting, claims collection, mailing and photocopying. Typically, these
services are provided on a contract or fee basis. The success of companies that
provide business-related services is, in part, subject to continued demand for
such services as companies and other organizations seek alternative,
cost-effective means to meet their economic goals. Competitive pressures, such
as technological developments, fixed rate pricing, and the ability to attract
and retain skilled employees, also may have a significant impact on the
financial condition of companies in the business services industry.
Computers: companies engaged in the research, design, development,
manufacture, or distribution of products, processes, or services that relate to
currently available or experimental hardware technology within the computer
industry. The Fund may invest in companies that provide products or services:
mainframes, minicomputers, microcomputers, peripherals, data or information
processing, office or factory automation, robotics, artificial intelligence,
computer aided design, medical technology, engineering and manufacturing, data
communications and software.
Cyclical Industries: companies engaged in the research, development,
manufacture, distribution, supply, or sale of materials, equipment, products or
services related to cyclical industries. These may include the automotive,
chemical, construction and housing, defense and aerospace, environmental
services, industrial equipment and materials, paper and forest products, and
transportation industries.
Many companies in these industries are significantly affected by
general economic trends including employment, economic growth, and interest
rates. Other factors that may affect these industries are changes in consumer
sentiment and spending, commodity prices,
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legislation, government regulation and spending, import controls, and worldwide
competition. At times, worldwide production of the materials used in cyclical
industries has exceeded demand as a result of, for example, over-building or
economic downturns. During these times, commodity price declines and unit volume
reductions resulted in poor investment returns and losses. Furthermore, a
company in the cyclical industries may be subject to liability for environmental
damage, depletion of resources, and mandated expenditures for safety and
pollution control.
Electronics: companies engaged in the design, manufacture, or sale of
electronic components (semiconductors, connectors, printed circuit boards, and
other components); equipment vendors to electronic component manufacturers;
electronic component distributors; and electronic instruments and electronic
systems vendors. In addition, the fund may invest in companies in the fields of
defense electronics, medical electronics, consumer electronics, advanced
manufacturing technologies (computer-aided design and computer-aided
manufacturing, 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
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completion equipment and service. Certain companies supply energy providers with
exploration technology such as seismic data, geological and geophysical
services, and interpretation of this data. The Fund may also invest in companies
with a variety of products or services including pipeline construction, oil tool
rental, underwater well services, helicopter services, geothermal plant design
or construction, electric and nuclear plant design or construction,
energy-related capital equipment, mining related equipment, mining related
equipment or services, and high technology companies serving the above
industries. Energy service firms are affected by supply, demand and other normal
competitive factors for their specific products or services. They are also
affected by other unpredictable factors such as supply and demand for oil and
gas, prices of oil and gas, exploration and production spending, governmental
regulation, world events and economic conditions.
Environmental Services: companies engaged in the research, development,
manufacture, or distribution of products, processes, or services related to
waste management or pollution control. Such products, processes or services may
include the transportation, treatment and disposal of both hazardous and solid
wastes, including waste-to-energy and recycling; remedial project efforts,
including groundwater and storage tank decontamination, asbestos clean-up and
emergency cleanup response; and the detection, analysis, evaluation, and
treatment of both existing and potential environmental problems. The Fund may
also invest in companies that provide design, engineering, construction, and
consulting services to companies engaged in waste management or pollution
control.
The environmental services field has generally been positively
influenced by legislation resulting in stricter government regulations and
enforcement policies for both commercial and governmental generators of wast
materials, as well as specific expenditures designated for remedial cleanup
efforts. Companies in the environmental services field are also affected by
regulation by various federal and state authorities, including the federal EPA
and its state agency counterparts. As regulations are developed and enforced,
such companies may be required to alter or cease production of a product or
service or to agree to restrictions on their operations. In addition, since the
materials handled and processes involved include hazardous components, there is
significant liability risk. There are also risks of intense competition within
the environmental services field.
Financial Services: companies providing financial services to consumers
and industry. Companies in the financial services sectors include: commercial
banks, savings and loan associations, consumer and industrial finance companies,
securities brokerage companies, real estate-related companies, leasing
companies, and a variety of firms in all segments of the insurance industry such
as multi-line, property and casualty, and life insurance.
The financial services sectors are currently undergoing relatively
rapid change as existing distinctions between financial service segments become
less clear. For instance, recent business combinations have included insurance,
finance, and securities brokerage under single ownership. Some primarily retail
corporations have expanded into securities and insurance industries.
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Banks, savings and loan associations, and finance companies are subject
to extensive governmental regulation which may limit both the amounts and types
of loans and other financial commitments they can make and the interest rates
and fees they can charge. The profitability of these groups is largely dependent
on the availability and cost of capital funds, and can fluctuate significantly
when interest rates change. In addition, general economic conditions are
important to the operations of these concerns, with exposure to credit losses
resulting from possible financial difficulties of borrowers potentially having
an adverse effect. Insurance companies are likewise subject to substantial
governmental regulation, predominantly at the state level, and may be subject to
severe price competition.
SEC regulations provide that the Fund may not invest more than 5% of
its total assets in the securities of any company that derives more than 15% of
its revenues from brokerage or investment management activities. These companies
as well as those deriving more than 15% of profits from brokerage and investment
management activities are considered to be "principally engaged" in the business
activities of the financial services sector.
Food and Agriculture: companies engaged in the manufacture, sale, or
distribution of food and beverage products, agricultural products, and products
related to the development of new food technologies. The goods and services
provided or manufactured by companies in this sector include: packaged food
products such as cereals, pet foods and frozen foods; meat and poultry
processing; the production of hybrid seeds; the wholesale and retail
distribution and warehousing of food and food-related products, including
restaurants; and the manufacture and distribution of health food and dietary
products, fertilizer and agricultural machinery, wood products, tobacco and
tobacco leaf. In addition the Fund may invest in food technology companies
engaged in and pioneering the development of new technologies such as improved
hybrid seeds, new and safer food storage, and new enzyme technologies.
The success of food and food-related products is closely tied to supply
and demand, which may be affected by demographic and product trends, stimulated
by food fads, marketing campaigns, and environmental factors. In the United
States, the agricultural products industry is subject to regulation by numerous
federal and municipal government agencies.
Health Care: companies engaged in the design, manufacture, or sale of
products or services used for or in connection with health care or medicine.
Companies in the health care sector include pharmaceutical companies; firms that
design, manufacture, sell or supply medical, dental, and optical products,
hardware or services; companies involved in biotechnology, medical diagnostic,
and biochemical research and development, as well as companies involved in the
operation of health care facilities. Many of these companies are subject to
government regulation of their products and services, a factor which could have
a significant and possibly unfavorable effect on the price and availability of
such products or services. Furthermore, the types of products or services
produced or provided by these companies may become obsolete quickly.
Health Care Services: companies engaged in the ownership or management of
hospitals, nursing homes, health maintenance organizations, and other companies
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specializing in the delivery of health care services. The Fund may invest in
companies that operate acute care, psychiatric, teaching, or specialized care,
home health care, drug and alcohol abuse treatment, and dental care; firms
operating comprehensive health maintenance organizations and nursing homes for
the elderly and disabled; and firms that provide related laboratory services.
Federal and state governments provide a substantial percentage of
revenues to health care service providers by way of Medicare and Medicaid. The
future growth of this source of funds is subject to great uncertainty.
Additionally, the complexion of the private payment system is changing. For
example, insurance companies are beginning to offer long-term health care
insurance for nursing home patients to supplement or replace government
benefits. Also, membership in health maintenance organizations or prepaid health
plans is displacing individual payments for each service rendered by a hospital
or physician.
The demand for health care services will tend to increase as the
population ages. However, review of patients' need for hospitalization by
Medicare and health maintenance organizations has demonstrated the ability of
health care providers to curtail unnecessary hospital stays and reduce costs.
Industrial Equipment: companies engaged in the manufacture,
distribution, or service of products and equipment for the industrial sector,
including integrated producers of capital equipment (such as general industrial
machinery 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 gaming casinos.
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Securities of companies in the leisure industries may be considered
speculative. Companies engaged in entertainment, gaming, broadcasting, cable
television and cellular communications, for example, have unpredictable
earnings, due in part to changing consumer tastes and intense competition.
Securities of companies in the leisure industries generally exhibit greater
volatility than the overall market. The market has been known to react strongly
to technological developments and to the specter of government regulation in the
leisure industries.
Medical Equipment: companies engaged in research, development,
manufacture, distribution, supply or sale of medical equipment and devices and
related technologies. The Fund may invest in companies involved in the design
and manufacture of medical equipment and devices, drug delivery technologies,
hospital equipment and supplies, medical instrumentation and medical
diagnostics. Companies in this industry may be affected by patient
considerations, rapid technological change and obsolescence, government
regulation, and government reimbursement for medical expenses.
Multimedia: companies engaged in the development, production, sale, and
distribution of goods or services used in the broadcast and media industries.
Business activities of companies in which the Fund may invest include:
ownership, operation, or broadcast of free or pay television, radio or cable
stations; publication and sale of newspapers, magazines, books or video
products; and distribution of data-based information. The Fund may also invest
in companies involved in the development, syndication and transmission of the
following products: television and movie programming, pay-per-view television,
advertising, cellular communications, and emerging technology for the broadcast
and media industries.
Some of the companies in the broadcast and media industries are
undergoing significant change because of federal deregulation of cable and
broadcasting. As a result, competitive pressures are intense and the stocks are
subject to increased price volatility. FCC rules govern the concentration of
investment in AM, FM, or TV stations, limiting investment alternatives.
Natural Resources: companies that own or develop natural resources, or
supply goods and services to such companies. Natural resources include precious
metals (e.g., gold, platinum and silver), ferrous and nonferrous metals (e.g.,
iron, aluminum, and copper), strategic metals (e.g., uranium and titanium),
hydrocarbons (e.g., coal, oil, and natural gases), chemicals, forest products,
real estate, food, textile and tobacco products, and other basic commodities.
Exploring, mining, refining, processing, transporting, and fabricating are
examples of activities of companies in the natural resources sector.
Precious metals, at times, have been subject to substantial price
fluctuations over short periods of time and may be affected by unpredictable
international monetary and political policies such as currency devaluations or
revaluations, economic and social conditions within a country, trade imbalances,
or trade or currency restrictions between countries. The Fund
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may also consider instruments and securities indexed to the price of gold or
other precious metals as an alternative to direct investment in precious metals.
As a practical matter, investments in physical commodities can present
concerns such as delivery, storage and maintenance, possible illiquidity and the
unavailability of accurate market valuations. The Advisor, in addressing these
concerns, currently intends to purchase only readily marketable precious metals
and to deliver and store them with a qualified U.S. bank. Investment in bullion
earns no investment income and may involve higher custody and transaction costs
than investments in securities.
For the Fund to qualify as a regulated investment company under current
federal tax law, gains from selling precious metals may not exceed 10% of the
Fund's gross income for its taxable year. This tax requirement could cause the
Fund to hold or sell precious metals or securities when it would not otherwise
do so.
Precious Metals and Minerals: companies engaged in exploration, mining,
processing, or dealing in gold, silver, platinum, diamonds, or other precious
metals and minerals. The Fund may invest in companies that manufacture and
distribute precious metals and minerals products and companies that invest in
other companies engaged in gold and other precious metal and mineral-related
activities.
The value of the Fund's investments may be affected by changes in the
price of gold and other precious metals. Gold has been subject to substantial
price fluctuations over short periods of time and may be affected by
unpredictable international monetary and political developments such as currency
devaluations or revaluations; economic and social conditions within a country;
trade imbalances; or trade or currency restrictions between countries. Because
much of the world's known gold reserves are located in South Africa and Russia,
the social upheaval and related economic difficulties there may, from time to
time, influence the price of gold and the share values of precious metals mining
companies located elsewhere. Because companies involved in exploring, mining,
processing, or dealing in precious metals or minerals are frequently located
outside of the United States, all or a significant portion of the Fund's
investments in this sector may be invested in securities of foreign issuers.
Investors should understand the special considerations and risks related to
investment in this sector, and accordingly, the potential effect on the Fund's
value when investing in this sector.
In addition to its investments in securities, the Fund may , but does
not currently intend to invest a portion of its assets in precious metals, such
as gold, silver, platinum, and palladium. The prices of precious metals are
affected by broad economic and political conditions, including inflation, but
are less subject to local and company-specific factors than securities of
individual companies. As a result, precious metals may be more or less volatile
in price than securities of companies engaged in precious metals-related
business.
For the Fund to qualify as a regulated investment company under current
federal tax law, gains from selling precious metals may not exceed 10% of the
Fund's gross income for its taxable year. This tax requirement could cause the
Fund to hold or sell precious metals or
16
<PAGE>
securities when it would not otherwise do so.
Retailing: companies engaged in merchandising finished goods and
services primarily to individual consumers. Companies in which the Fund may
invest may include: general merchandise retailers, department stores, food
retailers, drug stores and any specialty retailers selling a single category of
merchandise such as apparel, toys, consumer electronics, or home improvement
products. The Fund may also invest in companies engaged in selling goods and
services through alternative means such as direct telephone marketing, mail
order, membership warehouse clubs, computer, or video based electronic systems.
The success of retailing companies is closely tied to consumer
spending, which in turn, is affected by general economic conditions and consumer
confidence levels. The retailing industry is highly competitive, and a company's
success is often tied to its ability to anticipate changing consumer tastes.
Software and Computer Services: companies engaged in research, design,
production or distribution of products or processes that relate to software or
information-based services. The Fund may invest in companies that provide
systems-level software (designed to run the basic functions of a computer) or
applications software (designed for one type of work) directed at either
horizontal (general use) or vertical (certain industries or groups) markets,
time-sharing services, information-based services, computer consulting,
communications software and data communications services.
Competitive pressures may have a significant effect on the financial
condition of companies in the software and computer services sector. For
example, if technology continues to advance at an accelerated rate, and the
number of companies and product offerings continue to expand, these companies
could become increasingly sensitive to short product cycles and aggressive
pricing.
Technology: companies which the Advisor believes have, or will develop,
products, processes, or services that will provide or will benefit significantly
from technological advances and improvements. These may include companies that
develop, produce or distribute products or services in the computer,
semi-conductor, electronics, communications, health care, and biotechnology
sectors.
Competitive pressures may have a significant effect on the financial
condition of companies in the technology sector. If technology continues to
advance at an accelerated rate, and the number of companies and product
offerings continues to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing.
Telecommunications: companies engaged in the development, manufacture,
or sale of communications services or communications equipment. Companies in the
telecommunications field offer a variety of services and products, including
local and long-distance telephone service; cellular, paging, local and wide area
product networks; satellite, microwave and cable television; and equipment used
to provide these products and services.
17
<PAGE>
Long-distance telephone companies may also have interests in new technologies,
such as fiber optics and data transmission.
Telephone operating companies are subject to both federal and state
regulations governing rates of return and services that may be offered.
Telephone companies usually pay an above-average dividend. However, the Fund's
investment decisions are based primarily upon capital appreciation potential
rather than income considerations. Certain types of companies in which the Fund
may invest when investing in these sectors are engaged in fierce competition for
a share of the market for their products. In recent years, these companies have
been providing goods or services such as private and local area networks, or
engaged in the sale of telephone set equipment.
Transportation: companies engaged in providing transportation services
or companies engaged in the design, manufacture, distribution, or sale of
transportation equipment. Transportation services may include companies involved
in the movement of freight or people such as airline, railroad, ship, truck and
bus companies. Other service companies include those that provide automobile,
trucks, autos, planes, containers, rail cars, or any other mode of
transportation and their related products. In addition, the Fund may invest in
companies that sell fuel-saving devices to the transportation industries and
those that sell insurance and software developed primarily for transportation
companies.
Risk factors that affect transportation stocks include the state of the
economy, fuel prices, labor agreements, and insurance costs. Transportation
stocks are cyclical and have occasional sharp price movements which may result
from changes in the economy, fuel prices, labor agreements, and insurance costs.
The U.S. trend has been to deregulate these industries, which could have a
favorable long-term effect, but future government decisions may adversely affect
these companies.
Utilities: companies in the public utilities industry and companies
deriving a majority of their revenues from their public utility operations. The
Fund may invest in companies engaged in the manufacture, production, generation,
transmission and sale of gas and electric energy; water supply, waste disposal
and sewerage, and sanitary service companies; and companies involved in
telephone, satellite, and other communication fields including telephone,
telegraph, satellite, microwave and the provision of other communication
facilities for the public benefit (not including companies involved in public
broadcasting). Public utility stocks have traditionally produced above-average
dividend income, but the Fund's investments are made based on capital
appreciation potential. The Fund may not own more than 5% of the outstanding
voting securities of more than one public utility company as defined by the
Public Utility Holding Company Act of 1935. This policy is non-fundamental and
may be changed by the Board of Trustees.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, together with information as to
their principal business occupations during the last five years, and other
information, are shown below.
18
<PAGE>
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 Principal Occupation(s)
Fund During Past Five Years
*Samuel Bailey, Jr. (59) Trustee, President Chief Executive Officer
T.O. Richardson Company, Inc. and Treasurer and President of the
Two Bridgewater Road Advisor
Farmington, Connecticut 06032
John R. Birk (46) Trustee September 1995 -
112 Harbourmaster Court Present, John R. Birk &
Ponte Vedra Beach, Florida Associates (business
32082 consulting); January 1995
to September 1995, President of Ideon 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.
*Lloyd P. Griffiths (67) Trustee Executive Vice President,
4601 South Atlantic Avenue the Advisor (through
Suite 608 September 1999); Vice
Ponce Inlet, Florida 32127-7028 President, the Distributor
(through September
1999)
19
<PAGE>
Robert T. Samuels (63) Trustee 1989 to June 1994,
433 South Main Street Partner, ABS
West Hartford, Connecticut Development Company
06110 (real estate development);
June 1994 - Present,
Principal, Balfour Venture
Capital Company
Kathleen M. Russo (36) Secretary June 1998 - Present,
T.O. Richardson Company, Inc. Senior Vice President of
Two Bridgewater Road the Advisor; Secretary of
Farmington, Connecticut 06032 the Distributor (since
1995); February 1991 - 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."
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Aggregate Pension or Total
Compensation Retirement Compensation
from Fund Benefits Accrued From Fund and
as Part of Fund Fund Complex
Expenses
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
</TABLE>
As of the date of this Prospectus, the officers and Trustees of the
Trust in the aggregate owned less than 1% of the Fund's outstanding voting
securities. Trustees and officers of the Trust who are also officers, directors,
employees, or shareholders of the Advisor
20
<PAGE>
do not receive any remuneration from the Fund for serving as Trustees or
officers.
PRINCIPAL SHAREHOLDERS
As of December 31, 1999, the following owned of record 5% or more of
the Fund's outstanding shares:
<TABLE>
<CAPTION>
<S> <C> <C>
Name/Address Shares Percentage of
of Record Owner Owned Outstanding Shares
Dawn & Company 1,373,895.572 42.4%
c/o Webster Trust Company
346 Main Street
Kensington, Connecticut 06037
FMCO 914,960.744 28.2%
c/o The Huntington National Bank
1 Financial Plaza
Holland, Michigan 49423
Dawn & Company #2 182,682.906 5.6%
c/o J. D. Reynolds Company Inc.
200 Techne Center Drive
Suite 100
Milford, Ohio 45150
</TABLE>
INVESTMENT ADVISOR
The Advisor is the investment advisor to the Fund. The Advisor is
controlled by several of its officers. The Advisor's address is Two Bridgewater
Road, Farmington, Connecticut 06032-2256.
The investment advisory agreement between the Fund and the Advisor
dated as of 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.) 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 and by the initial shareholder
of the Fund on December 21, 1998. The Advisory Agreement is terminable without
penalty, on 60 days' written notice by the Board of Trustees of the Trust, by
vote of a majority of the Fund's outstanding voting securities or by
21
<PAGE>
the Advisor, and will terminate automatically in the event of its assignment.
Under the terms of the Advisory Agreement, the Advisor manages the
Fund's investments and business affairs, subject to the supervision of the
Trust's Board of Trustees. At its expense, the Advisor provides office and space
and all necessary office facilities, equipment and personnel for managing the
investments of the Fund. As compensation for its services, the Fund pays the
Advisor an annual management fee of 1.50% of its average daily net assets. The
advisory fee is accrued daily and paid monthly.
For the fiscal year ended October 31, 1999, the 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 Fund for the its investment
advisory services.
DISTRIBUTOR
Distributor
Under a distribution agreement dated as of December 21, 1998 (the
"Distribution Agreement"), T.O. Richardson Securities, Inc. (the "Distributor")
acts as principal distributor of the Fund's shares. The Distributor, an
affiliate of the Advisor, is located at the same address as the Advisor. The
Distribution Agreement provides that the Distributor will use its best efforts
to distribute the Fund's shares, which shares are offered for sale by the Fund
continuously at net asset value per share without the imposition of a sales
charge. The following directors, officers or employees of the Advisor are also
directors, officers or employees of the Distributor: Samuel Bailey, Jr., L.
Austine Crowe, and Kathleen M. Russo.
FUND TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Advisor, in its capacity as portfolio
manager, is responsible for decisions to buy and sell securities for the Fund
and for the placement of the Fund's securities business, the negotiation of the
commissions to be paid on such transactions and the allocation of portfolio
brokerage business. The Advisor seeks to obtain the best execution at the best
security price available with respect to each transaction. The best price to the
Fund means the best net price without regard to the mix between the purchase or
sale price and commission, if any. While the Advisor seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
available commission. Brokerage may be allocated based on the sale of a Fund's
shares.
Section 28(e) of the Securities Exchange Act of 1934, as amended
("Section 28(e)") permits an investment advisor, such as the 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,
22
<PAGE>
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 the Fund. The
Advisor believes that the research information received in this manner provides
the Fund with benefits by supplementing the research otherwise available to the
Fund. Such higher commissions will not be paid by the Fund unless (a) the
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, including the Fund, as to
which it exercises investment discretion; (b) such payment is made in compliance
with the provisions of Section 28(e) and other applicable state and federal
laws; and (c) in the opinion of the Advisor, the total commissions paid by the
Fund will be reasonable in relation to the benefits to the Fund over the long
term.
The aggregate amount of brokerage commissions paid by the 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 the 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 Fund). Because the volume and nature of the
trading activities of the accounts are not uniform, the amount of commissions in
excess of those charged by another broker paid by each account for brokerage and
research services will vary. However, the Advisor believes such costs to the
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.
23
<PAGE>
Portfolio turnover generally involves some expenses to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities.
Under normal market conditions, the Fund expects to be invested in five
or more sectors, with each sector represented by investment in at least five
stocks. The Fund expects to regularly review the relative strengths or
weaknesses of the sectors in which the Fund's investments have been allocated
and the company stocks within each sector and the Fund expects to exit sectors
that are underperforming the general stock market and to purchase securities
from issuers in higher ranked sectors. In actively carrying out the investment
policies of the Fund and determining when to sell securities and to reinvest in
other sectors and companies, the rate of portfolio turnover will not be a
limiting factor. As a result, under relatively volatile market conditions, the
Fund may have higher portfolio turnover than long-term growth mutual funds, for
example. In addition to potentially greater brokerage commissions or dealer
mark-ups and other transaction costs resulting from relatively high portfolio
turnover, relatively high portfolio turnover may also result in increased
short-term capital gains which are taxed at a higher federal income tax rate
than long-term capital gains.
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
("FMFS") pursuant to which FMFS serves as administrator of the Fund. The
administrative services supplied by FMFS include general Fund management
(excluding investment advisory services), compliance with federal and state
laws, financial reporting and tax reporting. The address of FMFS is Third Floor,
615 East Michigan Street, Milwaukee, Wisconsin 53202.
For the fiscal year ended October 31, 1999, Firstar Mutual Fund
Services, LLC received $31,140 from the 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. ("FB") as custodian of the Fund. As custodian
of the Fund's assets, FB has custody of all securities and cash of the Fund,
delivers and receives payment for portfolio securities sold, receives and pays
for portfolio securities purchased, collects income from investments and
performs other duties, all as directed by the officers of the Trust.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
FMFS also acts as transfer agent and dividend-disbursing agent for the
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. FMFS also
receives an annual fee per closed
24
<PAGE>
account of $16.
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 Fund's management practices or
policies.
A dividend or capital gain distribution received shortly after the
purchase of shares reduces the net asset value of shares by the amount of the
dividend or distribution and, although in effect a return of capital, will be
subject to income taxes. Net gains on sales of securities when realized and
distributed are taxable as capital gains. If the net asset value of shares were
reduced below a shareholder's cost by distribution of gains realized on sales of
securities, such distribution would be a return of investment although taxable
as indicated above.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus, the net asset value of the Fund will be
determined as of the close of trading on each day the New York Stock Exchange
(the "NYSE") is open for trading. The Fund does not determine net asset value on
days the NYSE is closed and at other times described in the Prospectus. The NYSE
is closed on New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Additionally, if any of the aforementioned holidays falls on a
Saturday, the NYSE will not be open for trading on the preceding Friday and when
such holiday falls on a Sunday, the NYSE will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the ending
of a monthly or the yearly accounting period.
SPECIAL REDEMPTIONS
If the Board of Trustees of the Fund determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the portfolio of
the Fund, instead of in cash, in conformity with applicable rules of the SEC.
The Fund will, however, redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net assets during any 90-day period for any one
shareholder. The proceeds of redemption may be more or less than the amount
invested and, therefore, a redemption may result in a gain or loss for Federal
income tax purposes.
25
<PAGE>
DESCRIPTION OF THE TRUST
The Trust is an open-end diversified series management investment
company established as an unincorporated business trust under the laws of The
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated June 2,
1998.
The Trustees of the Trust have authority to issue an unlimited number
of shares of beneficial interest in an unlimited number of series (each, a
"Series") each share without par value. Currently, the Trust consists of one
Series -- the Fund. Each share in a particular Series represents an equal
proportionate interest in that Series with each other share of that Series and
is entitled to such dividends and distributions as are declared by the Trustees
of the Trust. Upon any liquidation of a Series, shareholders of that Series are
entitled to share pro rata in the net assets of that Series available for
distribution. Shareholders in one of the Series have no interest in, or rights
upon liquidation of, any of the other Series.
The Trust will normally not hold annual meetings of shareholders to
elect Trustees. If less than a majority of the Trustees of the Trust holding
office have been elected by shareholders, a meeting of shareholders of the Trust
will be called to elect Trustees. Under the Declaration of Trust of the Trust
and the 1940 Act, the record holders of not less than two-thirds of the
outstanding shares of the Trust may remove a Trustee by votes cast in person or
by proxy at a meeting called for the purpose or by a written declaration filed
with the Trust's custodian bank. Except as described above, the Trustees will
continue to hold office and may appoint successor Trustees.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust of the Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of this disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Fund or the Trustees. The Declaration of Trust of the Trust provides for
indemnification out of the Trust's property for all loss and expense of any
shareholder held personally liable for obligations of the Trust and its Fund.
Accordingly, the risk of a shareholder of the Trust incurring a financial loss
on account of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations. The likelihood of such
circumstances is remote.
PERFORMANCE INFORMATION
The Fund's historical performance or return may be shown in the form of
various performance figures. The Fund's performance figures are based upon
historical results and are not necessarily representative of future performance.
Factors affecting the Fund's performance include general market conditions,
operating expenses, and investment management.
Average Annual Total Return
26
<PAGE>
The average annual total return of the Fund is computed by finding the
average annual compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n=ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
stated periods at the end of the stated
periods.
Performance for a specific period is calculated by first taking an investment
(assumed to be $1,000) ("initial investment") in the Fund's shares on the first
day of the period and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting the
initial investment 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 the Fund have been
reinvested at the net asset value of the Fund on the reinvestment dates during
the period. Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
Cumulative total return represents the simple change in value of an
investment over a stated period and may be quoted as a percentage or as a dollar
amount. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship between these factors and their contributions to
total return.
The average annual total return 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, the Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper Analytical Services, Inc. ("Lipper"), a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, may be cited. Lipper performance figures are
based on changes in net asset value with all income and capital gains dividends
reinvested. Such calculations do not include the effect of any sales charges
imposed by other funds. The Fund will be compared to Lipper's appropriate fund
category, that is, by fund objective and portfolio holdings.
The Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc. ("Morningstar"), which ranks funds on the
basis of historical risk and
27
<PAGE>
total return. Morningstar's rankings range from five stars (highest to one star
(lowest) and represent Morningstar's assessment of the historical risk level and
total return of a fund as a weighted average for 3,5 and 10 year periods.
Rankings are not absolute or necessarily predictive of future performance.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of or selections
from, editorials or articles about the Fund. Sources for Fund performance and
articles about the Fund may include publications such as Money, Forbes,
Kiplinger's, Financial World, Business Week, U.S. News and World Report, the
Wall Street Journal, Barron's and a variety of investment newsletters.
The Fund may compare its performance to a wide variety of indices and
measures of inflation including the Standard & Poor's Index of 500 Stocks and
the NASDAQ Composite Index. There are differences and similarities between the
investments that the Fund may purchase for its portfolios and the investments
measured by these indices.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, P.O. Box 1215,
Milwaukee, Wisconsin, 53201-1215, independent accountants for the Fund, audit
and report on the Fund's financial statements.
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, NW, Washington, D.C.
20036, serves as legal counsel to the Trust and the disinterested Trustees.
Robinson & Cole LLP, One Boston Place, Boston, Massachusetts, 02108, serves as
legal counsel to the Advisor and the Distributor.
FINANCIAL STATEMENTS
The following financial statements of the Fund are incorporated by
reference to the Annual Report, dated October 31, 1999 of the Fund (File No.
811-8849) 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
28
<PAGE>
(e) Schedule of Investments
(f) Notes to the Financial Statements
(g) Report of Independent Accountants
29
<PAGE>
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) Financial Statements (Included in Parts A and B)
Report of Independent Accountants
Statement of Assets and Liabilities
(b) Exhibits
(1) Registrant's Declaration of Trust*
(2) Registrant's By-Laws*
(3) None
(4) Investment Advisory Agreement with T.O.
Richardson Company, Inc. **
(5.1) Distribution Agreement with T.O. Richardson
Securities, Inc.**
(5.2) Form of Dealer Agreement
(6) None
(7) Custodian Agreement with Firstar Bank, N.A. Trust
Company**
(8.1) Transfer Agency Agreement with Firstar Mutual Fund
Services, LLC **
(8.2) Administration Agreement with Firstar Mutual Fund
Services, LLC**
(8.3) Fund Accounting Agreement with Firstar Mutual Fund
Services, LLC **
(8.4) Fulfillment Servicing Agreement with Firstar Mutual
Fund Services, LLC **
(8.5) Consent to Use of Name by Registrant with T.O.
Richardson Company, Inc. **
1
<PAGE>
(8.6) Consents of Trustees **
(8.7) Powers of Attorney **
(9) Opinion and Consent of Sullivan & Worcester LLP
(10) Consent of Arthur Andersen LLP
(11) None
(12) Subscription Agreement **
(13) Individual Retirement Account Disclosure
Statement and Custodial Account **
(14) None
(15) None
(16) None
- -----------------
*Incorporated by reference to Registration Statement on Form N-1A filed with the
Commission on June 30, 1998.
** Incorporated by reference to Registration Statement on Form N-1A 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
2
<PAGE>
reckless disregard of his duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, Officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, Officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Trustee, Officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant, its Trustees and Officers, its investment adviser, and
persons affiliated with them are insured under a policy of insurance maintained
by the Registrant and its investment adviser, within the limits and subject to
the limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such Trustees or officers. The policy
expressly excludes coverage for any Trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been adjudicated or may be established or who willfully
fails to act prudently.
Item 26. Business and Other Connections of Investment 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: Barrett Funds, Simms Funds, Kinetics Mutual
Funds, Grand Prix Fund and the 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:
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Positions and Offices Positions and Offices with
Name With Underwriter Registrant
Samuel Bailey, Jr. President and Chief Trustee, President and Treasurer
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.
4
<PAGE>
NOTICE
The names "T.O. Richardson Trust" and "T.O. Richardson Sector Rotation Fund" are
the designations of the Trustees under the Declaration of Trust of the Trust
dated June 2, 1998, as amended from time to time. The Declaration of Trust has
been filed with the Secretary of State of The Commonwealth of Massachusetts and
the Clerk of the City of Boston, Massachusetts. The obligations of the
Registrant are not personally binding upon, nor shall resort be had to the
private property of, any of the Trustees, shareholders, officers, employees or
agents of the Registrant, but only the Registrant's property shall be bound.
5
<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. 1 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Hartford and State of Connecticut on the 3rd day of February 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. 1 to the Registration Statement on Form N-1A
has been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Title Date
/s/Samuel Bailey, Jr.
- --------------------------- Trustee, President and Treasurer February 3, 2000
Samuel Bailey, Jr.
* Trustee
John R. Birk
* Trustee
Lloyd P. Griffiths
* Trustee
Robert T. Samuels
/s/David M. Leahy Attorney-in-Fact for each of the February 3, 2000
- --------------------------- above-indicated Trustees
David M. Leahy
</TABLE>
6
<PAGE>
EXHIBIT INDEX
Exhibit
No. Exhibit
(1) Registrant's Declaration of Trust*
(2) Registrant's By-Laws*
(3) None
(4) Investment Advisory Agreement with T.O. Richardson Company, Inc. **
(5.1) Distribution Agreement with T.O. Richardson Securities, Inc. **
(5.2) Form of Dealer Agreement **
(6) None
(7) Custodian Agreement with Firstar Bank, N.A. **
(8.1) Transfer Agency Agreement with Firstar Mutual Fund Services, LLC **
(8.2) Administration Agreement with Firstar Mutual Fund Services, LLC **
(8.3) Fund Accounting Agreement with Firstar Mutual Fund Services, LLC **
(8.4) Fulfillment Servicing Agreement with Firstar Mutual Fund Services,
LLC **
(8.5) Consent to Use of Name by Registrant with T.O. Richardson Company,
Inc. **
(8.6) Consents of Trustees **
(8.7) Powers of Attorney **
(9) Opinion and Consent of Sullivan & Worcester LLP (filed herewith)
(10) Consent of Arthur Andersen LLP (filed herewith)
(11) None
(12) Subscription Agreement **
7
<PAGE>
(13) Individual Retirement Account Disclosure Statement and Custodial
Account **
(14) None
(15) None
(16) None
- -----------------
*Incorporated by reference from the Registration Statement on Form N-1A filed
with the Commission on June 30, 1998.
** Incorporated by reference from the Registration Statement on Form N-1A as
filed with the Commission on December 22, 1998.
8
<PAGE>
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
February 3, 2000
T.O. Richardson Trust
Two Bridgewater Road
Farmington, Connecticut 06032
T.O. Richardson Trust
Gentlemen:
We have acted as counsel for T.O. Richardson Trust (the "Trust") in
connection with the offer by the Trust of an unlimited number of shares of
beneficial interest of the Trust (the "Shares") which are currently classified
as one initial series portfolio -- T.O. Richardson Sector Rotation Fund (the
"Fund"). We have participated in the preparation of the Trust's Registration
Statement (the "Registration Statement") on Form N-1A (Registration No.
333-58185) relating to the Shares filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended, on
June 30, 1998, Pre-Effective Amendment No. 1 to the Registration Statement filed
with the Commission on September 9, 1998, Pre-Effective Amendment No. 2 to the
Registration Statement filed with the Commission on December 22, 1998 and
Post-Effective Amendment No. 1 filed with the Commission on February 3, 2000.
The Prospectus included in each Registration Statement as amended to date is
herein called the "Prospectus."
In so acting, we have participated in the preparation of the
Declaration of Trust of the Trust, dated June 2, 1998 (the "Declaration of
Trust"). We have also examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments, and have made such other
investigations, as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below.
We are of the following opinion:
<PAGE>
T.O. Richardson Trust -2- February 3, 2000
1. The Trust has been duly established as an unincorporated voluntary
association under Massachusetts law and has made all filings required to be made
by a voluntary association under Chapter 182 of the Massachusetts General Laws.
2. Upon the issue of Shares for cash at the Fund's net asset value and
receipt by the Trust of the authorized consideration therefor as set forth in
the Prospectus, the Shares so issued will be validly issued, fully paid and
nonassessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, holders of Shares could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts,
obligations or affairs of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered into or executed
by the Trust or the Trustees on behalf of the Trust. The Declaration of Trust
provides for indemnification out of the Trust's property for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust. Accordingly, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Securities Act
of 1933, as amended. We consent to the filing of this opinion with and as a part
of the Registration Statement.
Very truly yours,
/s/ Sullivan & Worcester LLP
--------------------------------------
SULLIVAN & WORCESTER LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference into the Statement of Additional Information (the "Registration
Statement") of our report dated November 19, 1999, relating to the financial
statements and financial highlights included in or made part of this
Registration Statement, and to all references to our firm included in this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
------------------------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 24, 2000
<PAGE>
