Rule 497(c)
Registration No. 333-58813
55 RAILROAD AVENUE, GREENWICH, CONNECTICUT 06830
1-877-Get-Sims (1-877-438-7467)
The Simms Funds
>> U.S. Equity Fund
>> International Equity Fund
>> Global Equity Fund
This Prospectus describes the two classes of shares that
each Fund offers: Class A Shares, sold primarily to retail
investors, and Class Y Shares, sold primarily to
institutions.
PROSPECTUS
December 4, 1998
This Prospectus provides important information about each Fund that you should
know before investing. Please read it carefully and keep it for future
reference.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY
A presentation of each Fund's Risk/Return
Summary, fees and expenses, and investments....................... 1
INVESTMENTS............................................................ 5
Other Investment Strategies............................................ 7
Risks.................................................................. 8
Performance............................................................ 10
Management of the Funds................................................ 12
Shareholder Information................................................ 14
Investing with Simms................................................... 15
How to Purchase Shares........................................ 18
How to Redeem Shares.......................................... 20
Exchanges..................................................... 23
Shareholder Services................................................... 24
Retirement Plans....................................................... 25
Dividends, Distributions and Taxes..................................... 27
Additional Information................................................. 29
<PAGE>
RISK/RETURN SUMMARY
Each Fund's Investment Objective
Capital appreciation.
Principal Strategies
o *** The U.S. Equity Fund invests primarily in securities of large
capitalization U.S. companies ***
The U.S. Equity Fund invests at least 80% of its assets in the equity
securities of large capitalization U.S. companies, including multinational
companies.
o *** The International Equity Fund invests primarily in securities of large
capitalization foreign companies ***
The International Equity Fund invests at least 80% of its assets in the
equity securities of large capitalization foreign companies, including
multinational companies. The Fund primarily invests in American Depositary
Receipts (ADRs) and may also invest directly in non-U.S. dollar-denominated
equity securities of foreign companies.
o *** The Global Equity Fund invests primarily in securities of large
capitalization U.S. and foreign companies ***
The Global Equity Fund invests at least 80% of its assets in the equity
securities of large capitalization U.S. and foreign companies, including
multinational companies. The Fund's foreign equity investments will consist
primarily of ADRs. The Fund may also invest directly in non-U.S.
dollar-denominated equity securities of foreign companies.
We seek to invest in securities that we believe offer the best potential for
growth at a reasonable price. To that end, Simms Capital Management, Inc., the
Funds' investment adviser (Simms), uses a proprietary "bottom-up" quantitative
and qualitative stock selection process.
A "bottom-up" approach to investing emphasizes the evaluation of individual
stocks more than the consideration of broader market and economic trends. Some
of the factors for the quantitative stock selection process include current and
future earnings estimates prepared by various securities analysts as well as a
proprietary mathematical algorithm developed by Simms. See "Investments --
Principal Investment Strategies."
Principal Risks
Each Fund is subject to the risks common to all mutual funds that invest in
equity securities. The following risks could cause you to lose money by
investing in a Fund:
>> The stock market goes down
>> "Growth" stocks fail to meet future sales or future
earnings estimates
>> A company's earnings do not increase as expected
<PAGE>
In addition, you should be aware that:
>> "Growth" stocks may suffer steeper losses than other investments
during market declines or economic downturns
>> Multinational companies are vulnerable to currency exchange and/or
political risks
>> Simms has not managed a mutual fund prior to the Funds'
commencement of operations
The International Equity and Global Equity Funds are also subject to certain
risks that are not typical of investments in the securities of U.S. companies,
such as
>> Political or economic events overseas adversely affect securities of
foreign issuers
>> Non-U.S. dollar-denominated securities may experience adverse
foreign currency fluctuations
We summarize these and other risk factors in the "Risks" section later in this
Prospectus.
Who May Want to Invest in the Funds
Each Fund may be appropriate for investors who:
>> are long-term investors with a particular goal, like saving for
retirement
>> want potential growth over time
>> want a diversified portfolio that includes multinational companies
>> are willing to take more risk in the short-term for potentially
higher gains in the long-term
The U.S. Equity Fund may be appropriate for investors who want a portfolio
comprised primarily of the securities of U.S. issuers.
The International Equity Fund may be appropriate for investors who want a
portfolio comprised primarily of the securities of foreign issuers.
The Global Equity Fund may be appropriate for investors who want a portfolio
that includes securities of U.S. and foreign issuers.
The Funds may not be appropriate for investors who:
>> are investing for the short term or need current income
>> are not willing to take any risk that they may lose money on their
investment
>> want absolute stability of their investment principal
>> want to invest in a particular sector or in particular industries,
countries, or regions
Keep in mind that mutual fund shares:
>> are not deposits or obligations of, or guaranteed or endorsed by,
any bank
>> are not insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency
>> are subject to investment risks, including possible loss of the
principal amount invested
2
<PAGE>
Fees and Expenses of the Funds
This table describes the fees and expenses that you may pay if you buy and hold
shares of a Fund
<TABLE>
<CAPTION>
International Global
U.S. Equity Fund Equity Fund Equity Fund
---------------- ----------- -----------
Class A Class Y Class A Class Y Class A Class Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) (1) 4.00% None 4.00% None 4.00% None
Maximum deferred sales charge (load) None None None None None None
Maximum sales charge (load) imposed on None None None None None None
reinvested dividends
Redemption fee (2) None None None None None None
Annual Fund Operating Expenses
(expenses that are deducted from the Fund's assets,
as a percentage of net assets)
Management fees 0.75% 0.75% 1.00% 1.00% 1.00% 1.00%
Rule 12b-1 distribution fees (3) 0.50% None 0.50% None 0.50% None
Other fees (4) 2.13% 1.88% 1.99% 1.74% 1.99% 1.74%
----- ----- ----- ----- ----- -----
Total annual Fund operating expenses (5) 3.38% 2.63% 3.49% 2.74% 3.49% 2.74%
Notes:
</TABLE>
1. The initial sales charge imposed on Class A Shares declines for
purchases over $100,000 and the charge is eliminated entirely for
purchases of at least $1 million and for certain categories of
investors. See "Investing With Simms" below.
2. You may pay fees in connection with certain redemption services, such
as a $12 wire transfer fee.
3. Class A Shares of each Fund pay distribution fees on an ongoing basis.
Over time, these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges. T.O. Richardson
Securities, Inc., the Funds' Distributor, will waive its distribution
fees to the extent that the Fund would exceed the regulatory
limitations on asset-based sales charges.
4. Includes a shareholder servicing fee of .25% charged to Class A shares
only.
5. We expect that each Fund's total annual operating expenses will
decrease as the Fund's assets increase. Simms Capital Management, Inc.
(Simms) has agreed to defer its investment advisory fee and absorb
certain expenses to the extent that total annual Fund operating
expenses exceed the following limits: U.S. Equity Fund: 2.06% (Class A)
and 1.31% (Class Y); International Equity Fund: 2.38% (Class A) and
1.63% (Class Y); and Global Equity Fund: 2.23% (Class A) and 1.48%
(Class Y). Simms may terminate or modify these reductions at any time.
To the extent that Simms defers fees or absorbs expenses, it may seek
payment of such deferred fees or reimbursement of such absorbed
expenses for two years after the year in which fees were deferred or
expenses were absorbed. A Fund will make no such payment or
reimbursement, however, if the total annual Fund operating expenses
exceed the expense limits in effect at the time these payments or
reimbursements are proposed.
3
<PAGE>
Example
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds. The figures shown below would
be the same whether or not you sold your shares at the end of a period.
This example assumes that:
>> you invest $10,000 in the Fund for the time periods indicated
>> your investment returns 5% each year
>> the Fund's operating expenses remain the same
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<CAPTION>
International
U.S. Equity Fund Equity Fund Global Equity Fund
---------------- ----------- ------------------
Class A Class Y Class A Class Y Class A Class Y
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
One Year $738 $263 $749 $274 $749 $274
--------
Three Years $1,414 $789 $1,447 $822 $1,447 $822
-----------
</TABLE>
4
<PAGE>
INVESTMENTS
Each Fund's Investment Objective
Capital appreciation
Principal Investment Strategies
U.S. Equity Fund
*** The U.S. Fund invests primarily in securities of large capitalization U.S.
companies ***
The U.S. Equity Fund invests primarily in the common stock of large
capitalization U.S. companies, including multinational companies. The Fund may
also invest in convertible securities and preferred stock of U.S.
companies.
International Equity Fund
*** The International Equity Fund invests primarily in securities of large
capitalization foreign companies ***
The International Equity Fund invests primarily in the securities of large
capitalization foreign companies, including multinational companies. The Fund
invests primarily in ADRs and may also invest directly in non-U.S.
dollar-denominated equity securities of foreign companies.
Global Equity Fund
*** The Global Equity Fund invests primarily in securities of large
capitalization U.S. and foreign companies ***
The Global Equity Fund invests primarily in the securities of large
capitalization U.S. and foreign companies, including multinational companies.
The Fund's foreign equity investments will primarily consist of ADRs and the
Fund may also invest directly in non-U.S. dollar-denominated equity securities
of foreign companies.
*** The Funds will invest in the securities of large capitalization companies,
that is, securities of companies whose market capitalization is greater than $1
billion at the time of purchase ***
*** We seek growth at a reasonable price. ***
Simms looks for securities that offer the best potential for growth at a
reasonable price. That is, we look for stocks that we believe will increase in
value over time, based upon our analysis of a company's growth prospects.
5
<PAGE>
We seek to invest in companies with relatively high return on equity and high
earnings growth rates, not companies or industries that have predominantly
cyclical characteristics. In choosing investments, we analyze the following
factors:
>> the present value of a company's future cash flows using a
proprietary Dividend Discount Model, this Model computes the present
value of the estimated future dividends of a company utilizing an
assumed interest rate that is based on the inherent risks that the
company faces
>> the stock's price relative to similar companies and the market
>> the company's financial condition and cash flow
>> the growth of the company's earnings
>> demand and supply for a company's shares, including insider
transactions
>> industry momentum, that is, the rate at which the company's sector
is growing
>> the stock's liquidity
>> the company's exposure to economic conditions outside the U.S.
>> for foreign securities, diversification by country as compared with
the country weighting of the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index
>> for foreign securities, a company's economic exposure to countries
outside its home base, including the U.S.
Investment policies
o U.S. Equity Fund: Under normal market conditions, we expect to invest at
least 80% of the U.S. Equity Fund's total assets in common stock. We expect
to invest no more than 20% of the Fund's total assets in convertible or
preferred securities, debt securities, or money market instruments, if at
all.
o International Equity Fund: Under normal market conditions, we expect to
invest at least 80% of the International Equity Fund's total assets
primarily in ADRs of foreign companies or directly in non-U.S.
dollar-denominated equity securities of foreign companies. We expect to
invest no more than 20% of the Fund's total assets in convertible or
preferred securities, debt securities, or money market instruments, if at
all.
o Global Equity Fund: Under normal market conditions, we expect to invest at
least 80% of the Global Equity Fund's total assets in (i) the common stock
of U.S. issuers, and (ii) equity securities of foreign companies, primarily
ADRs, or directly in non-U.S. dollar-denominated equity securities of
foreign companies. We expect to invest no more than 20% of the Fund's total
assets in convertible or preferred securities, debt securities, or money
market instruments, if at all.
When we determine that market conditions warrant temporary defensive measures or
for cash management purposes, each Fund may hold up to 100% of its assets in
cash and U.S. dollar denominated money market instruments, which may result in
performance that is inconsistent with its investment objective.
*** We use a bottom-up approach in selecting stocks. ***
6
<PAGE>
OTHER INVESTMENT STRATEGIES
>> Debt instruments. After implementing a Fund's principal investment
strategy, we may invest the balance of each Fund's assets in U.S.
dollar-denominated debt instruments (bonds) issued by U.S. companies
or by the U.S. Government, including short-term "money market"
instruments. In addition, the International Equity Fund and the
Global Equity Fund may also invest in non-U.S. dollar-denominated
bonds issued by foreign companies or governments or supranational
organizations.
*** We may invest defensively or hedge our investments to protect
against a downturn ***
>> Defensive investing. During unfavorable market conditions, we may
invest "defensively," that is, make temporary investments that are
not consistent with a Fund's investment objective and principal
strategies. For example, if there is a market downturn or if we must
raise cash to meet redemption requests, we may invest more assets in
bonds or money market instruments, or invest in derivative
instruments to protect our investments.
>> Options. From time to time, we may write covered call options on
securities owned by a Fund in order to enhance the Fund's return.
>> Portfolio turnover. We may trade actively and frequently to achieve
a Fund's objective, which may result in higher capital gains
distributions and increase your tax liability. Frequent trading may
also increase the Fund's costs, affecting the Fund's performance
over time.
>> Lending. Each Fund may lend a portion of its securities to financial
institutions for a fee.
>> Borrowing. Each Fund may borrow from banks as a temporary defensive
measure, to meet redemption requests, or for other purposes that are
consistent with the Fund's investment objective and strategies.
International Equity Fund and Global Equity Fund
Closed-End Funds. Each of the International Equity and Global Equity
Funds may invest in closed-end funds that invest in foreign companies.
****The Statement of Additional Information (SAI) describes each Fund's
investment strategies in more detail.****
7
<PAGE>
RISKS
**** Mutual fund investing involves risks****
Each Fund is designed for long-term investors. The Funds are subject to risks
common to all mutual funds and risks common to mutual funds that invest in
equity securities and, to a lesser extent, debt securities. The International
Equity Fund and the Global Equity Fund are also subject to risks common to
mutual funds that invest in foreign securities.
You should only invest in a Fund if you are willing and able to take the risks
involved. Please read "Risks of Investing" carefully.
As with all mutual funds, investing in a Fund involves certain risks. There is
no guarantee that a Fund will meet its investment objective. You can lose money
by investing in a Fund, especially if you sell your shares during periods of
market volatility. There is never any assurance that a Fund will continue to
perform as it has in the past.
Each Fund may use various investment techniques, which involve varying amounts
of risk. We discuss these investment techniques in detail in the SAI. To reduce
risk, each Fund is subject to certain investment limitations and restrictions,
which we also describe in the SAI.
The following paragraphs describe some of the principal risks of investing in
the Funds that you should be aware of:
The following risks are common to all mutual funds
>> Market risk is the risk that the market value of a security may go
up or down, sometimes rapidly. These fluctuations may cause the
security to be worth less than it was at the time it was purchased.
Market risk may involve a single security, a particular sector,
country or region, or the global economy.
>> Manager risk is the risk that a portfolio manager's investment
strategy may not produce the intended results. Manager risk also
involves the possibility that a portfolio manager fails to execute
an investment strategy effectively.
>> Year 2000 risk is the risk that a Fund or its service providers
could be disrupted by the possible failure of computer systems that
cannot accurately process date-related information after December
31, 1999. This failure, referred to as the "Year 2000 Issue," could
adversely affect the handling of securities, trades, pricing and
account servicing for the Funds. The Year 2000 issue may also cause
the market value of the Funds' securities to decline if the issuers
of those securities experience year-2000 related problems.
Simms has taken steps that it reasonably believes are designed to
adequately address the Year 2000 Issue as it relates to the
operation of the Funds. In addition, Simms has been informed that
the Funds' other major service providers have taken similar steps.
Neither Simms nor the Funds' other major service providers can
assure that these steps will be sufficient to avoid any adverse
affects from the Year 2000 Issue.
8
<PAGE>
The following risk is common to mutual funds that invest in equity securities
>> Equity risk is the risk that a security's value will fluctuate in
response to events affecting an issuer's profitability or viability.
Unlike debt securities, which have a preference to a company's
earnings and cash flow, equity securities receive value only after
the company meets its other obligations. For example, in the event
of bankruptcy, a company's bondholders have preference over
stockholders to the company's assets.
The following risks are common to mutual funds that invest in debt securities
>> Interest rate risk is the risk that a security may lose value if
interest rates change. Generally, the value of a debt security
changes in the opposite direction from a change in interest rates.
That is, when interest rates rise, the value of a fixed-rate bond
typically will decrease. When interest rates decline, the value of a
fixed-rate bond typically will increase. In general, the bonds with
longer maturities are more sensitive to changes in interest rates.
>> Credit risk is the risk that the issuer of a debt security will be
unable to make timely payments of principal or interest, or will
default.
>> Reinvestment risk is the risk that an investor may obtain a lower
rate or return when reinvesting interest income, maturing principal,
or the proceeds from selling debt securities.
The following risks are common to mutual funds that invest in foreign securities
>> Foreign investment risk is the risk that the value of securities of
foreign companies could be affected by factors not present in the
U.S., including expropriation, confiscation of property,
difficulties in enforcing contracts, adverse changes in currency
exchange rates, and political risks. The introduction on January 1,
1999 of a single currency, the euro, by the participating nations in
the European Economic and Monetary Union may present unique
uncertainties for securities denominated in (or whose value is
linked to) currencies that will become components of the euro.
The following risks are common to mutual funds that use hedging or leveraged
transactions
>> Correlation risk is the risk that changes in the value of a hedging
instrument will not correlate, or match, those of the underlying
security being hedged. Generally, a portfolio manager would enter
into a hedging transaction to protect the value of a portfolio
position without selling it.
>> Leverage risk is the risk associated with certain techniques (like
borrowing) that multiply small price movements of an index or a
security into large price movements. A Fund's use of a derivative to
hedge a portfolio position may involve leverage. If the hedge works
properly, the gains produced will offset losses on the securities
hedged. Hedging may also reduce gains, or, if not executed properly,
may result in losses. A Fund's use of derivatives for speculation or
asset substitution may also involve leverage, because gains or
losses might be substantially greater than the amount the Fund
invests.
>> None of the Funds currently uses hedging or leveraged transactions,
but each Fund may do so in the future. The Funds are not required to
use heding techniques at any time.
9
<PAGE>
PERFORMANCE
The U.S. Equity Fund and the International Equity Fund are successors
to Simms Partners (U.S.), L.P. (the U.S. Partnership) and Simms Partners
(International), L.P. (the International Partnership), two private investment
funds managed by Simms.
The investment objective, policies, and strategies of the U.S. Equity
Fund and the International Fund are the same as those of the corresponding
Partnerships. Since each Fund will continue to operate in all material respects
equivalent to the management of the Partnerships, the past performance of these
investment vehicles may be considered relevant. However, past performance does
not necessarily indicate how the Fund will perform in the future.
As mutual funds, each Fund is subject to different rules and
regulations than those that govern private funds. In addition, the Partnerships
did not incur the same operating expenses that mutual funds incur. The
Partnerships were not subject to the Investment Company Act of 1940 or
Subchapter M of the Internal Revenue Code of 1986. If the Partnerships were
subject to the diversification requirements of these laws, their historical
performance might have been different.
While the historical information relating to each Fund's Class A Shares
has been adjusted to reflect the Fund's maximum sales charge of 4.00%, it has
not been adjusted for the estimated operating expenses of the Fund (reflecting
the voluntary expense limitations described in "Fees and Expenses of the
Funds"), and only reflects all expenses that were incurred by the corresponding
Partnership during the periods shown. The information relating to Class Y Shares
reflects only those expenses incurred by the Partnerships. Adjusting the
Partnerships' performance for estimated Fund operating expenses would result in
total return figures that are higher than those that would result from the use
of actual Partnership expenses.
<TABLE>
<CAPTION>
======================================================================================================================
Average Annual Total Returns of the Partnerships *
For the Periods Ended November 30, 1998
======================================================================================================================
======================================================================================================================
Class A
======================================================================================================================
<S> <C> <C> <C>
- ------------------------------ ------------------------ ---------------------------- ---------------------------------
One Year Two Years Since Inception
(July 1, 1996)
- ------------------------------ ------------------------ ---------------------------- ---------------------------------
U.S. Partnership 15.83% 19.65% 23.56%
- ------------------------------ ------------------------ ---------------------------- ---------------------------------
International Partnership 6.40% 8.11% 8.10%
- ------------------------------ ------------------------ ---------------------------- ---------------------------------
======================================================================================================================
Class Y
======================================================================================================================
- ------------------------------ ------------------------ ---------------------------- ---------------------------------
One Year Two Years Since Inception
(July 1, 1996)
- ------------------------------ ------------------------ ---------------------------- ---------------------------------
U.S. Partnership 20.66% 22.12% 25.66%
- ------------------------------ ------------------------ ---------------------------- ---------------------------------
International Partnership 10.83% 10.34% 9.94%
- ------------------------------ ------------------------ ---------------------------- ---------------------------------
======================================================================================================================
</TABLE>
* Simms has calculated performance information based on actual expenses of
the partnership in compliance with the Performance Presentation Standards
of the Association for Investment Management and Research, an organization
of investment managers and analysts. This method of calculating performance
differs from the method used by the Securities and Exchange Commission.
10
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
Cumulative Total Returns of the Partnerships*
For the Periods Ended November 30
======================================================================================================================
======================================================================================================================
Class A
======================================================================================================================
<S> <C> <C> <C>
- ---------------------------------- ------------------------- ------------------------- -------------------------------
One Year Two Years Since Inception
(July 1, 1996)
- ---------------------------------- ------------------------- ------------------------- -------------------------------
U.S. Partnership 15.83% 43.17% 66.72%
- ---------------------------------- ------------------------- ------------------------- -------------------------------
International Partnership 6.40% 16.88% 20.71%
- ---------------------------------- ------------------------- ------------------------- -------------------------------
======================================================================================================================
Class Y
======================================================================================================================
- ---------------------------------- ------------------------- ------------------------- -------------------------------
One Year Two Years Since Inception
(July 1, 1996)
- ---------------------------------- ------------------------- ------------------------- -------------------------------
U.S. Partnership 20.66% 49.15% 77.00%
- ---------------------------------- ------------------------- ------------------------- -------------------------------
International Partnership 10.83% 21.75% 26.72%
======================================================================================================================
</TABLE>
***Past performance is not a guarantee of future results. History does not
always repeat itself.***
* Simms has calculated performance information based on actual expenses of
the partnership in compliance with the Performance Presentation Standards
of the Association for Investment Management and Research, an organization
of investment managers and analysts. This method of calculating performance
differs from the method used by the Securities and Exchange Commission.
11
<PAGE>
MANAGEMENT OF THE FUNDS
Investment Adviser
Simms, the investment adviser of the Funds, is located at 55 Railroad
Avenue, Greenwich, Connecticut 06830. Simms is a registered investment adviser
and offers investment advisory services to open-end investment funds and other
managed pooled investment vehicles.
Simms supervises and assists in the overall management of the Funds'
affairs, subject to oversight by the Funds' Board of Trustees. The following
table lists the advisory fees paid to Simms based at the indicated annual rates
of a Fund's average daily net assets, computed daily and payable monthly. Simms
may from time to time defer receipt of all or part of its advisory fees and/or
absorb expenses in order to limit a Fund's expenses. Simms may terminate this
practice at any time.
U.S. Equity Fund -> .75%
International Equity Fund -> 1.00%
Global Equity Fund -> 1.00%
Portfolio Managers
Each Fund is managed by Robert A. Simms, Thomas L. Melly, Jennifer D.
Miller, Thomas s. Kingsley and Robert Rosa, Jr.
Mr. Simms has been the President and CEO of Simms since 1984, prior to
which he was a General Partner of Bear, Stearns & Co. Mr. Melly, a Principal of
Simms, joined Simms in 1990, prior to which he specialized in product
development and evaluation at Lake Partners, Inc., an independent financial
consulting firm. Ms. Miller, a Principal of Simms, joined Simms in 1991, prior
to which she served as a quantitative and technical analyst with Salomon
Brothers Inc. Mr. Kingsley, a Principal of Simms, joined Simms in September of
1994. Mr. Rosa joined Simms in March 1997.
Distributor
T.O. Richardson Securities, Inc., 2 Bridgewater Road, Farmington,
Connecticut, 06032, serves as each Fund's principal underwriter and distributor.
The Distributor receives the sales load described under "How to Buy Shares" and
payments under each Fund's distribution plan.
12
<PAGE>
Distribution Fees
Each Fund, on behalf of its Class A Shares, has adopted a distribution
plan according to Rule 12b-1 under the Investment Company Act of 1940. Under the
distribution plan, each Fund's Class A Shares pays the Distributor a fee of up
to 0.50% of its average daily net assets to reimburse expenses it may incur in
distributing shares.
Keep in mind that:
o Each Fund pays distribution fees on an ongoing basis. Over time,
these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
o The Distributor will waive its distribution fees to the extent
that a Fund would exceed the National Association of Securities
Dealers, Inc.'s limitations on asset-based sales charges.
Shareholder Servicing Fees
Each Fund, on behalf of its Class A Shares, has adopted a shareholder
servicing plan. Under the shareholder servicing plan, Class A Shares may pay
financial institutions, including affiliates of Simms, a fee of up to 0.25% of
its average daily net assets for services relating to maintenance of investor
accounts, including liaison with investors. The shareholder servicing fee and
the distribution fee may be used to compensate "mutual fund supermarkets" or "no
transaction fee" programs that make available Fund shares.
13
<PAGE>
SHAREHOLDER INFORMATION
How We Value Fund Shares
***The net asset value, multiplied by the number of Fund shares you own, gives
you the value of your investment.***
We calculate each Fund's net asset value (the NAV), each business day
as of the close of the New York Stock Exchange, Inc. (NYSE), normally 4:00 p.m.
Eastern Time. The purchase price of a Fund's Class A Shares is determined by
adding the applicable sales charge to the Fund's net asset value. The purchase
price of a Fund's Class Y Shares is equal to the Fund's net asset value. Any
shares that you purchase, redeem, or exchange are valued at the next share price
calculated after we receive and accept your investment instructions. A business
day is a day on which the NYSE is open for trading or any day in which enough
trading has occurred in the securities held by a Fund to affect the NAV
materially.
Portfolio securities that are listed primarily on foreign exchanges may
trade on weekends or on other days on which the Funds do not price their shares.
The Funds value their investments based on market value. When market
quotations are not readily available, the Funds value their investments based on
fair value methods approved by the Funds' Board of Trustees. We calculate the
NAV by adding up the total value of a Fund's investments and other assets,
subtracting its liabilities and then dividing that figure by the number of the
Fund's outstanding shares. The value of an investment in a mutual fund is based
upon the NAV determined by that mutual fund.
NAV = Total Assets Less Liabilities
-----------------------------
Number of Shares Outstanding
You can find the NAV of most mutual funds every day in The Wall Street
Journal and other newspapers. Newspapers do not normally publish information
about a particular mutual fund until it has a minimum number of shareholders or
minimum level of assets.
14
<PAGE>
INVESTING WITH SIMMS
This section provides information to assist you in purchasing shares of
the Funds. We describe the minimum investment requirements for each Fund. We
also describe the expenses and sales charges applied to each Class of shares and
the procedures to follow if you decide to buy shares of a Fund. Please read the
entire Prospectus carefully before buying shares of a Fund.
Investment Requirements
Minimum Initial Investment
<TABLE>
<CAPTION>
Non-Retirement Account Retirement Account
---------------------- ------------------
<S> <C> <C>
o Class A Shares $1,000 $500
--------------
o Class Y Shares $1,000,000 not applicable
--------------
Minimum Subsequent Investment
Non-Retirement Account Retirement Account
---------------------- ------------------
o Class A Shares $50 $25
--------------
o Class Y Shares $250,000 not applicable
--------------
</TABLE>
General Information
o Class A Shares are sold at NAV plus a front-end sales charge. The
Class A purchase minimums indicated above may be waived.
o Class Y Shares are sold primarily to institutions at NAV without a
front-end sales charge. Class Y Shares may be sold to individuals
who invest at least $1 million. In addition, the Class Y purchase
minimums indicated above may be waived.
Class A and Class Y Shares of the Funds may be purchased from the following:
o Authorized Securities Dealers
o Firstar Mutual Fund Services LLC, the Funds' Transfer Agent
(Firstar or the Transfer Agent)
15
<PAGE>
How We Calculate Sales Charges on Class A Shares
The Class A Shares' sales load varies according to the size of the purchase.
<TABLE>
<CAPTION>
Amount of Purchase Initial Sales Charge: % of Offering Price % of Net Amount Invested
------------------ ----------------------------------------- ------------------------
<S> <C> <C>
Less than $100,000 4.00 4.17
$100,000 to $249,999 3.00 3.09
$250,000 to $499,999 2.00 2.04
$500,000 to $999,999 1.00 1.01
$1,000,000 and over* 0.00 0.00
</TABLE>
* Individuals investing at least $1 million in a Fund may purchase either
Class A Shares or Class Y Shares of the Fund. Although Class Y Shares
do not carry a Rule 12b-1 distribution fee, purchasers of Class Y
Shares do not receive the services provided to investors in Class A
Shares.
Certain purchases may be grouped in order to qualify for the reduced sales load:
o purchases by an individual, his or her spouse and minor children
o purchases by a fiduciary of a trust, estate or fiduciary account
Sales Charge Reductions and Waivers
Waiver of Class A Sales Charges
The following categories of investors may purchase Class A Shares without a
front-end sales charge:
o qualified retirement plans
o Simms, Firstar, their active or retired trustees, directors, officers,
partners or employees and certain family members of these individuals
o active or retired Trustees or officers of the Funds
o investors who purchase Class A Shares through fee-based investment accounts
o employees of Authorized Securities Dealers
o organizations providing professional services to the Funds
o registered investment advisers purchasing shares for their own accounts or
discretionary accounts
**** To take advantage of the sales charge waiver, you must indicate your
eligibility for a waiver on your application. If you think you may be eligible
for a sales charge waiver, please contact your Authorized Securities Dealer or
the Transfer Agent at 1-877-GET-SIMS (1-877-438-7467).****
16
<PAGE>
Reduction of Class A Sales Charges
You may reduce your Class A sales charge by taking advantage of the following
privileges:
>> Right of Accumulation: Allows you to add to the value of all Class A
Shares of Funds that you currently own for purposes of calculating
the sales charge on future purchases of Class A Shares. You may
count share purchases made by the following people to calculate the
reduced sales charge:
>> you, your spouse, your children under the age of 21
(including shares in certain retirement accounts) and a
company that you, your spouse or your children control;
>> a trustee or other fiduciary account (including an employee
benefit plan);
>> a trustee or other fiduciary that purchases shares at the
same time for two or more employee benefit plans of a single
employer or of affiliated employers.
>> Letter of Intent: Allows you to purchase Class A Shares of the Funds
over a 13-month period at the same sales charge as if all shares had
been purchased at once. You are not obligated to purchase the full
amount of the shares, but you must complete the intended purchase to
obtain the reduced sales load. At the time you purchase shares of
any Fund, check the "Letter of Intent" box on the Account
Information Form.
>> Group Purchases. If you are an individual member of a qualified
group, you may purchase Class A Shares at the reduced initial sales
charge applicable to the group taken as a whole. For example, if
members of the group had previously invested and still held $90,000
of Class A Shares and now were investing $15,000, the initial sales
charge would be 3.00%. To qualify, the group must have the following
characteristics:
>> in existence for more than six months
>> have a purpose other than purchasing Class A Shares at a
discount
>> consist of more than 10 individuals
>> be able to meet as a group with Fund representatives
>> distribute Fund sales materials to its members
>> arrange for payroll deduction or other bulk transmission of
Fund investments
**** When you purchase shares, you must specify the class of shares. Otherwise,
we will assume that you wish to purchase Class A Shares****
17
<PAGE>
How to Purchase Shares
You may purchase shares of the Funds through an Authorized Securities
Dealer by check or wire. If you purchase shares through the Transfer Agent, you
must pay by check or wire in U.S. dollars. Instructions for buying shares are
described below.
Opening An Account
Method of Payment Instructions
By Check o complete application
o Make check or draft payable to "The Simms Funds
- [name of Fund]" or your Authorized Securities
Dealer. Be sure to specify the Fund name and
class of shares you wish to purchase.
o Mail your check and your completed account
application to:
Firstar Mutual Fund Services LLC
Attn: The Simms Funds
[name of Fund]
P.O. Box 701
Milwaukee, Wisconsin 53201-0701.
Overnight deliveries should be sent to:
Firstar Mutual Fund Services LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202.
o The Funds do not consider the U.S. Postal
Service or other independent delivery services
to be their agents. Accordingly, deposit in the
mail or with such services, or receipt at the
Transfer Agent's post office box, of purchase
applications do not constitute receipt by
Firstar or the Funds.
o Authorized Securities Dealers must receive your
payment within 3 business days of receipt of
your purchase order.
o Neither cash nor third party checks will be
accepted.
o Firstar will charge a $20 fee for any returned
payment check.
18
<PAGE>
By Wire o Deliver your completed account
application to your Authorized Securities
Dealer or to Firstar at the address listed
above.
o Instruct your bank to wire the amount of your
investment to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA # 075000022
Credit: Firstar Mutual Fund Services LLC
Account # 112-952-137
Further credit: Simms Fund [name of Fund]
Name of shareholder and account number
By Exchange o Call your Authorized Securities Dealer or
Firstar (1-877-GET-SIMS) to request an
exchange.
Adding To An Existing Account
Method of Payment Instructions
By Check o Make the check payable to "The Simms Funds
[name of Fund]".
o Fill out the additional investment form.
o Send your check and your [investment slip] to
Firstar at the address listed above.
By Wire o Instruct your bank to wire the amount of your
investment to Firstar, using the instructions
set out above.
o Wired funds must be received prior to 4:00 p.m.
Eastern time to be eligible for same day
pricing.
o Be sure to specify the name of the Fund and the
class of shares you wish to purchase.
By Exchange
o Call your Authorized Securities Dealer or
Firstar (1-877-GET-SIMS) (1-877-438-7467)
to request an exchange.
By Phone o Verify that your bank or credit union is a
member of the Automated Clearing House (ACH)
system.
o Complete the required information on your
account application.
o Subsequent investments (not initial purchases)
may be made by calling 1-877-GET-SIMS
(1-877-438-7467).
o Tell the Transfer Agent representative the
amount of your investment, the name of the
Fund, the Class of shares you wish to purchase,
your account number and the name(s) in which
the account is registered.
19
<PAGE>
How to Redeem Shares
o You may redeem shares at any time.
o When we receive your redemption request in proper form (see below), we
will redeem your shares at the next determined NAV.
o We will normally mail your redemption proceeds the next business day
and, in any event, no later than seven business days after we receive
your redemption request.
Redemption Procedures
Redemption through Firstar or Authorized Securities Dealers:
Method of Redemption Instructions
In person o Contact your Authorized Securities
Dealer or Firstar (1-877-GET-SIMS)
(1-877-438-7467).
o Specify the name of the Fund, Class of shares
and number of shares or the dollar amount you
wish to redeem.
By telephone o Call your Authorized Securities
Dealer or Firstar (1-877-GET-SIMS)
(1-877-438-7467).
o Specify the name of the Fund, account number,
Class of shares and number of shares or the
dollar amount you wish to redeem.
By mail o Mail your redemption request to your Authorized
Securities Dealer, or
o Mail your redemption request to:
Firstar Mutual Fund Services LLC
Attn: The Simms Funds
[name of Fund]
P.O. Box 701
Milwaukee, Wisconsin 53201-0701.
Overnight deliveries should be sent to:
o Firstar Mutual Fund Services LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202.
20
<PAGE>
o Deposit of redemption requests in the mail or
with independent delivery services does not
constitute receipt of such requests by Firstar
or the Funds. See "Opening an Account -- Method
of Payment -- By Check" above.
o Specify the name of the Fund, Class of shares
and number of shares or the dollar amount you
wish to redeem.
By wire o Submit wire instructions to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA # 075000022
Credit: Firstar Mutual Fund Services LLC
Account # 112-952-137
Further credit: The Simms Funds
[name of Fund]
Name of shareholder and account number
o Specify the name of the Fund, Class of shares
and number of shares or the dollar amount you
wish to redeem.
o Firstar charges a $12 wire fee for redemption
proceeds made by Fed wire.
21
<PAGE>
Additional Information about Redemptions
>> Purchases by check. If you purchase shares by check, we will wait
up to 12 days for your check to clear before accepting your
redemption request.
>> Wiring redemption proceeds. Upon request, we will wire your
proceeds ($500 minimum) to your brokerage account or a designated
commercial bank account. Firstar charges a transaction fee of $12
for this service. Please call your Authorized Securities Dealer for
information on how to wire funds to your brokerage account. If you
do not have a brokerage account, call Firstar at 1-877-GET-SIMS
(1-877-438-7467) to wire funds to your bank account.
>> Firstar Money Market Fund. At your request, redemption proceeds may
be invested in a money market fund managed by Firstar Investment
Research and Management Company, LLP, an affiliate of Firstar.
Contact your Authorized Securities Dealer or Firstar
(1-877-GET-SIMS) (1-877-438-7467).
>> Signature guarantees. If your redemption proceeds exceed $25,000,
if you instruct us to send the proceeds to someone other than the
record owner at the record address or if you are a corporation,
partnership, trust or fiduciary, your signature must be guaranteed
by any eligible guarantor institution. Call Firstar at
1-877-GET-SIMS (1-877-438-7467) for information about obtaining a
signature guarantee.
>> Redemption by mail may cause a delay. During times of drastic
economic or market conditions, you may experience difficulty
telephoning Firstar or an Authorized Securities Dealer to redeem
shares. If this occurs, please consider using the other redemption
procedures described in this Prospectus. Redeeming shares using
these alternative procedures may take longer than if you phoned
your redemption request.
>> Automatic redemption; redemption in kind. If the value of your
account falls below $600 (for reasons other than changes in market
conditions), we may automatically redeem the shares in your account
and send you the proceeds. We will send you a notice at least 60
days before we do this. We also reserve the right to redeem your
shares "in kind." For example, if you redeem a large amount of
shares and the Fund is unable to sell securities to raise cash, we
may send you a combination of cash and a share of actual portfolio
securities. Call the Transfer Agent for details.
>> Telephone policies. You may authorize the Transfer Agent to accept
telephone instructions. If you do, the Transfer Agent will accept
instructions from people who it believes are authorized to act on
your behalf. The Transfer Agent will use reasonable procedures
(like requesting personal identification) to ensure that the caller
is properly authorized. Neither the Fund nor the Transfer Agent
will be liable for losses for following instructions they
reasonably believe to be genuine.
>> Suspension of redemption. Under certain emergency circumstances, we
may suspend your right to redeem shares in a Fund.
22
<PAGE>
Exchanges
You may exchange shares of one Fund for shares of the same class of another Fund
or a Firstar money market fund, as described above, usually without paying any
additional sales charges. You may pay a sales charge if the Fund you are buying
has an initial sales charge that is higher than the one you are selling. The
Transfer Agent charges a $5 fee for each telephone exchange which will be
deducted from the account from which funds are being withdrawn prior to
effecting the exchange. There is no charge for exchange transactions that are
requested by mail.
Exchange procedures. To exchange your shares, you must give exchange
instructions to the Transfer Agent in writing or by telephone.
Exchange policies. When exchanging your shares, please keep in mind:
>> Any time you exchange your shares, it is a taxable event to you.
You may have a gain or loss on the transaction and you may be
liable for taxes resulting from the sale of your shares.
>> When the market is very active, telephone exchanges may be
difficult to complete. You may have to submit exchange requests to
the Transfer Agent in writing, which will cause a delay.
>> You must exchange shares having a value of at least $250 (except in
the case of certain retirement plans). If you are establishing a
new account, you must exchange the minimum dollar amount needed to
open that account.
>> We may reject your exchange request. We may modify or terminate our
exchange policy at any time, provided we give you 60 days' notice.
>> Before you exchange your shares, you must review a copy of the
current prospectus of the Fund that you would like to purchase.
>> You may qualify for a reduced sales charge. See the SAI for
details.
23
<PAGE>
SHAREHOLDER SERVICES
The Fund offers several additional shareholder services. If you would like to
take advantage of any of these services, please call the Transfer Agent at
1-877-GET-SIMS (1-877-438-7467) to obtain the appropriate forms. We may
terminate any of these services at any time upon 60 days' notice.
>> Automatic investment plan. You may purchase shares of a Fund at
regular intervals by direct transfer of funds from your bank. You
determine the frequency and the amount of the investments. You can
terminate the program at any time. The minimum investment under
this plan is $100 ($250 for the initial purchase).
>> Directed distribution option. You may automatically reinvest your
dividends and capital gain distributions in the same class of
shares of another Fund. You may purchase Class A Shares without a
sales charge at the current NAV. You may not use this service to
establish a new account.
>> Systematic withdrawal. You may withdraw a set amount ($500 minimum)
each month or quarter. You must have an account balance worth at
least $10,000 to qualify for this privilege. You or the Transfer
Agent may terminate the arrangement at any time. If you plan to buy
new shares when you participate in a systematic withdrawal, you may
be paying an additional sales charge.
>> Reinstatement privilege. If you redeem your Class A Shares, you may
repurchase them (or purchase Class A Shares of any other Fund)
within 30 days without paying an additional sales charge.
24
<PAGE>
RETIREMENT PLANS
Individual Retirement Accounts
You may invest in the Funds through three types of tax-sheltered
Individual Retirement Accounts ("IRAs") available to individuals. The following
briefly highlights some of the significant features of each type of IRA. You can
obtain more detailed information regarding these IRAs by calling Firstar at
1-877-GET-SIMS (1-877-438-7467). In addition, IRS Publication 590 contains
detailed information regarding IRAs. Different tax consequences may apply under
state tax laws. Before adopting any of these IRAs, you should consult your
personal tax adviser.
o Traditional IRA. Amounts contributed to a Traditional IRA may
be tax deductible at the time of contribution, depending on
whether you are an active participant in an employer-sponsored
retirement plan and your income. Distributions from the IRA
(not representing a return of a non-deductible contribution)
will generally be taxed at the time of distribution.
Distribution of IRA assets prior to age 59-1/2 may be subject
to an additional 10% tax. In general, you must begin to take
distributions by April 1 of the year following the calendar
year in which you turn 70-1/2.
o Roth IRA. Amounts contributed to a Roth IRA are not deductible
(that is, they are contributed after tax), but distributions
are not subject to tax if you hold the IRA for certain minimum
periods of time (generally, until age 59-1/2). If your income
exceeds certain limits, the amount you can contribute to a
Roth IRA may be reduced or eliminated altogether. The minimum
distribution rules applicable to Traditional IRAs do not apply
during your lifetime. Following death, minimum distribution
rules apply.
For Traditional and Roth IRAs, depending on your
circumstances, you may be able to contribute up to a maximum
of $2,000 annually. Also depending on your circumstances, you
may be able to contribute to a Traditional IRA or Roth IRA on
behalf of your spouse. Contributions to one type of IRA reduce
the allowable contribution to the other type of IRA.
o Education IRA. Contributions of up to $500 per year, in the
aggregate, may be made by any person or persons on behalf of a
beneficiary under age 18. Although these contributions are not
tax deductible, neither the person making the contribution nor
the beneficiary is taxed upon distribution if the amounts are
used for "qualified educational purposes." If an individual's
income exceeds certain limits, that individual would be
ineligible to contribute to an Education IRA.
In accordance with applicable IRS regulations, when you open an IRA,
you will receive a disclosure statement containing certain information about
your IRA. You generally have the right to cancel your account within seven days
after receiving this disclosure statement and obtain a full refund of your
contributions. The Funds' custodian may hold the initial contribution uninvested
until the seven-day period expires, although the custodian does not anticipate
that it will do so.
25
<PAGE>
Simplified Employee Pension Plan
If you are an employer (or are self-employed), you may establish a
Simplified Employee Pension Plan ("SEP-IRA") in conjunction with a Traditional
IRA. Generally, a SEP-IRA allows you to purchase shares with annual tax
deducible contributions per participant of up to 15% of the first $160,000 in
annual compensation. Contributions to a SEP-IRA generally are not includable in
a participant's income. The $160,000 compensation limit is adjusted
periodically, in accordance with IRS regulations, for cost of living increases.
SEP-IRAs are subject to a number of special rules, including a requirement that
all employees of the employer (including a sole proprietor or partnership) who
satisfy certain minimum requirements must participate in the SEP-IRA.
Simple IRA
An employer of fewer than 100 individuals (or a self-employed
individual), may establish a SIMPLE IRA, where employees may elect to have up to
$6,000 per year contributed to the IRA through salary reduction contributions.
This limit is also adjusted periodically, in accordance with IRS regulations,
for cost of living increases. In addition, the employer will contribute to the
employee's SIMPLE IRA, either as a matching contribution or as a non-elective
contribution to all eligible participants whether or not making salary reduction
contributions. SIMPLE IRAs are subject to a number of special rules, including a
requirement that contributions be made on behalf of all employees (other than
union employees) who satisfy certain minimum participation requirements. In
addition, an increased tax may apply to distributions made during the first two
years of participation.
26
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
***If you buy shares of a Fund shortly before it makes a distribution, some of
your investment may come back to you as a taxable distribution.***
Distributions
The Funds pass along your share of their investment earnings in the
form of dividends. Dividend distributions are the net dividends or interest
earned on investments after expenses. As with any investment, you should
consider the tax consequences of an investment in a Fund.
Ordinarily, each Fund declares and pays dividends from its net
investment income annually. The Funds pay any net capital gains realized as
dividends at least annually.
You can ask the Funds to send you distributions in one of the following
ways:
>> Reinvestment. We automatically reinvest your distributions in
additional shares of your Fund. If you do not indicate another
choice on your application, you will receive your
distributions this way automatically.
>> Cash. We will send you a check no later than 7 days after the
payable date.
>> Partial reinvestment. We will automatically reinvest your
dividends in additional shares of your Fund and pay your
capital gain distributions in cash or we will automatically
reinvest your capital gain distributions and send you your
dividends in cash.
>> Directed dividends. We will automatically reinvest your
dividends in the same class of shares of another Fund. We
describe this option above in the Shareholder Services section
above.
>> Direct deposit. In most cases, you can automatically transfer
dividends to your bank checking or savings account. Under
normal circumstances, the Transfer Agent will transfer the
funds within 7 days of the dividend payment date. The name on
your bank account must be the same as the registration on your
Fund account.
You may choose your distribution method on your original application.
If you would like to change the option you selected, please call the Transfer
Agent at 1-877-GET-SIMS (1-877-438-7467).
27
<PAGE>
Taxes
Each Fund intends to continue to qualify as a regulated investment
company, which means that it pays no federal income tax on the earnings or
capital gains it distributes to its shareholders.
>> Ordinary dividends from a Fund are taxable as ordinary income
and dividends from a Fund's long-term capital gains are
taxable as capital gain.
>> Dividends are treated in the same manner for federal income
tax purposes whether you receive them in the form of cash or
additional shares. They may also be subject to state and local
taxes.
>> Dividends from the Funds that are attributable to interest on
certain U.S. Government obligations may be exempt from certain
state and local income taxes. The extent to which ordinary
dividends are attributable to U.S. Government obligations will
be indicated on the tax statements you receive from your Fund.
>> Certain dividends paid to you in January will be taxable as if
they had been paid the previous December.
>> We will mail you tax statements every January showing the
amounts and tax status of the distributions you received.
>> When you sell (redeem) or exchange shares of a Fund, you must
recognize any gain or loss.
>> Because your tax treatment depends on your purchase price and
tax position, you should keep your regular account statements
for use in determining your tax.
>> Under certain circumstances, the International Equity Fund or
Global Equity Fund may be in a position to "pass through" to
you the right to a credit for foreign income taxes paid by the
Fund.
>> You should review the more detailed discussion of federal
income tax considerations in the SAI.
***We provide this tax information for your general information. You should
consult your own tax adviser about the tax consequences of investing in a
Fund.***
28
<PAGE>
ADDITIONAL INFORMATION
Statement of Additional Information. The Statement of Additional
Information (SAI) provides a more complete discussion of certain matters
contained in this Prospectus and is incorporated by reference.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about each Fund's investments,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the fiscal period covered
by the report.
>> To obtain a free copy of the SAI and the current
annual or semi-annual reports or to make any other
inquiries about the Fund, you may call or write:
Firstar Mutual Fund Services LLC
Attention: The Simms Funds
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone: 1-877-GET-SIMS (1-877-438-7467)
>> You may obtain copies of the SAI or financial reports
for free by calling or writing your Authorized
Securities Dealer
>> You may review the SAI or financial reports at the
Public Reference Room of the Securities Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C.
(1-800-SEC-0330)
>> You may obtain copies of the SAI or the financial
reports for a fee by calling or writing the SEC's
Public Reference Room at the address or phone number
listed above or
>> for free by visiting the SEC's Worldwide Web site at
http://www.sec.gov.
>> You may obtain a copy of the Fund's prospectus by
calling Simms toll-free at 1-877-GET-SIMS.
Investment Company Act File No. 811-8871
29
<PAGE>
The Simms Funds
55 Railroad Avenue
Greenwich, Connecticut 06830
1-877-GET-SIMS
(1-877-438-7467)
Distributor
- -----------
T.O. Richardson Securities, Inc.
2 Bridgewater Road
Farmington, Connecticut 06032
Investment Adviser
- ------------------
Simms Capital Management, Inc.
55 Railroad Avenue
Greenwich, Connecticut 06830
Administrator and
Transfer & Dividend Disbursement Agent
- --------------------------------------
Firstar Mutual Fund Services LLC
P.O. Box 701
615 East Michigan Street
Milwaukee, Wisconsin 53202-5207
Custodian
- ---------
Firstar Bank Milwaukee, N.A.
P.O. Box 701
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Counsel
- -------
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Independent Accountants
- -----------------------
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
<PAGE>
Rule 497(c)
Registration No. 333-58813
STATEMENT OF ADDITIONAL INFORMATION
THE SIMMS FUNDS
U.S. Equity Fund
International Equity Fund
Global Equity Fund
December 4, 1998
This Statement of Additional Information ("SAI") is not a prospectus, but should
be read in conjunction with the prospectus of The Simms Funds (the
"Prospectus"), which is dated December 4, 1998. This SAI is incorporated by
reference in its entirety into the Prospectus. Copies of the Prospectus may be
obtained by writing The Simms Funds at 55 Railroad Avenue, Greenwich,
Connecticut 06830, or by calling toll free 1-877-GET-SIMS (1-877-438-7467).
INVESTMENT ADVISER CUSTODIAN
Simms Capital Management, Inc. Firstar Bank Milwaukee, N.A.
DISTRIBUTOR INDEPENDENT ACCOUNTANTS
T.O. Richardson Securities, Inc. PricewaterhouseCoopers LLP
ADMINISTRATOR and COUNSEL
TRANSFER & DIVIDEND DISBURSING AGENT Kramer Levin Naftalis & Frankel LLP
Firstar Mutual Fund Services, LLC
<PAGE>
Table of Contents
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES AND LIMITATIONS.................1
FUNDAMENTAL RESTRICTIONS OF THE FUNDS.........................................2
NON-FUNDAMENTAL RESTRICTIONS OF THE FUNDS.....................................3
INSTRUMENTS IN WHICH THE FUNDS CAN INVEST.....................................3
Foreign Investments..................................................3
Securities of Other Investment Companies -- Closed-End Funds.........4
Warrants.............................................................4
Preferred Stock......................................................5
Convertible Securities...............................................5
U.S. Government Obligations..........................................5
Receipts.............................................................5
Investment-Grade and High Quality Investments........................5
U.S. Corporate Debt Obligations......................................5
Zero-Coupon Bonds....................................................6
International Bonds..................................................6
Mortgage-Backed Securities...........................................6
In General..................................................6
U.S. Government Mortgage-Backed Securities..................7
Collateralized Mortgage Obligations.........................7
Non-Government Mortgage-Backed Securities...................7
Asset-Backed Securities..............................................7
Temporary Defensive Measures -- Short-Term Obligations...............7
Short-Term Corporate Obligations............................8
Bankers' Acceptances........................................8
Certificates of Deposit.....................................8
Foreign Time Deposits.......................................8
Commercial Paper............................................8
Repurchase Agreements.......................................8
Futures and Options..................................................9
Futures Contracts...........................................9
Restrictions on the Use of Futures Contracts...............10
Risk Factors in Futures Transactions.......................10
Options....................................................11
Illiquid Investments................................................11
Restricted Securities...............................................12
Securities Lending Transactions.....................................12
Reverse Repurchase Agreements.......................................12
VALUATION OF PORTFOLIO SECURITIES............................................13
PERFORMANCE OF THE FUNDS.....................................................13
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION....................16
DIVIDENDS AND DISTRIBUTIONS..................................................18
TAXES ....................................................................18
TRUSTEES AND OFFICERS........................................................25
<PAGE>
ADVISORY AND OTHER CONTRACTS.................................................27
ADDITIONAL INFORMATION.......................................................33
APPENDIX A -- Description of Security Ratings...............................A-1
APPENDIX B -- Financial Statements..........................................B-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Simms Funds (the "Trust") is an open-end management investment company. The
Trust consists of three diversified series (each a "Fund," and collectively, the
"Funds") of units of beneficial interest ("shares"). The outstanding shares
represent interests in the three separate investment portfolios. This SAI
relates to the shares of the Funds listed below. Much of the information
contained in this SAI expands on subjects discussed in the Prospectus.
Capitalized terms not defined herein are used as defined in the Prospectus. No
investment in shares of a Fund should be made without first reading the
Prospectus.
The Simms Funds:
o U.S. Equity Fund
o International Equity Fund
o Global Equity Fund
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES AND LIMITATIONS
Each Fund's investment objective is fundamental and may not be changed without a
vote of the holders of a majority of the Fund's outstanding voting securities.
There can be no assurance that a Fund will achieve its investment objective.
Additional Information Regarding Fund Investments.
The following policies and limitations supplement the Funds' investment policies
set forth in the Prospectus. The Funds' investments in the following securities
and other financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this SAI.
Unless otherwise noted in the Prospectus or this SAI, a Fund may invest no more
than 5% of its total assets in any of the securities or financial instruments
described below (unless the context requires otherwise).
Unless otherwise noted, whenever an investment policy or limitation states a
maximum percentage of a Fund's assets that may be invested in any security or
other asset, or sets forth a policy regarding quality standards, such standard
or percentage limitation will be determined immediately after and as a result of
the Fund's acquisition of such security or other asset except in the case of
borrowing (or other activities that may be deemed to result in the issuance of a
"senior security" under the Investment Company Act of 1940, as amended (the
"1940 Act")). Accordingly, any subsequent change in values, net assets, or other
circumstances will not be considered when determining whether the investment
complies with a Fund's investment policies and limitations. If the value of a
Fund's holdings of illiquid securities at any time exceeds the percentage
limitation applicable at the time of acquisition due to subsequent fluctuations
in value or other reasons, the Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
The investment policies of a Fund may be changed without an affirmative vote of
the holders of a majority of that Fund's outstanding voting securities unless
(1) a policy expressly is deemed to be a fundamental policy of the Fund or (2) a
policy expressly is deemed to be changeable only by such majority vote. A Fund
may, following notice to its shareholders, take advantage of other investment
practices which presently are not contemplated for use by the Fund or which
currently are not available but which may be developed to the extent such
investment practices are both consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks which exceed those involved in the activities described in the
Prospectus.
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The following sections list each Fund's investment policies, limitations, and
restrictions. The securities in which the Funds can invest and the risks
associated with these securities are discussed in the section "Instruments in
Which the Funds Can Invest."
FUNDAMENTAL RESTRICTIONS OF THE FUNDS
The following Fundamental Restrictions may not be changed with respect to a Fund
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (a) 67% or more of
the shares of the Fund present at a meeting at which the holders of more than
50% of the outstanding shares of the Fund are represented in person or by proxy,
or (b) more than 50% of the outstanding shares of the Fund.
1. Senior Securities
The Funds may not issue any senior security (as defined in the 1940 Act), except
that (a) each Fund may engage in transactions that may result in the issuance of
senior securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) each Fund may acquire
other securities, the acquisition of which may result in the issuance of a
senior security, to the extent permitted under applicable regulations or
interpretations of the 1940 Act; and (c) subject to the restrictions set forth
below, the Fund may borrow money as authorized by the 1940 Act.
2. Underwriting
The Funds may not underwrite securities issued by others, except to the extent
that the Fund may be considered an underwriter within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in the disposition of
restricted securities.
3. Borrowing
The Funds may not borrow money, except that (a) each Fund may enter into
commitments to purchase securities and instruments in accordance with its
investment program, including delayed-delivery and when-issued securities and
reverse repurchase agreements, provided that the total amount of any such
borrowing does not exceed 33 1/3 % of the Fund's total assets; and (b) each Fund
may borrow money in an amount not exceeding 33 1/3% of the value of its total
assets at the time when the loan is made. Any borrowings representing more than
33 1/3% of a Fund's total assets must be repaid before the Fund may make
additional investments.
4. Real Estate
The Funds may not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent each
Fund from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business). Investments by the
Funds in securities backed by mortgages on real estate or in marketable
securities of companies engaged in such activities are not hereby precluded.
5. Lending
Each Fund may not lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of publicly issued debt securities or to
repurchase agreements.
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6. Commodities
The Funds may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent a Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities.)
7. Concentration
Each Fund may not purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a result,
more than 25% of the Fund's total assets would be invested in the securities of
companies whose principal business activities are in the same industry. In the
utilities category, the industry shall be determined according to the service
provided. For example, gas, electric, water and telephone will be considered as
separate industries.
NON-FUNDAMENTAL RESTRICTIONS OF THE FUNDS
Each Fund's Non-Fundamental Restrictions may be changed by a majority vote of
the Trust's Board of Trustees (the "Board") at any time.
1. Illiquid Securities
Each Fund will not invest more than 15% of its net assets in illiquid
securities. Illiquid securities are securities that are not readily marketable
or cannot be disposed of promptly within seven days and in the usual course of
business at approximately the price at which the Fund has valued them. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days.
Securities that may be resold pursuant to Rule 144A under, securities offered
pursuant to Section 4(2) of, or securities otherwise subject to restrictions or
limitations on resale under the Securities Act ("Restricted Securities") shall
not be deemed illiquid solely by reason of being unregistered. Simms Capital
Management, Inc., each Fund's investment adviser ("Simms" or the "Adviser"),
determines whether a particular security is deemed to be liquid based on the
trading markets for the specific security and other factors, in accordance with
guidelines approved by the Board. The Board will retain oversight of these
determinations and continue to monitor a Fund's investments in these securities.
2. Short Sales and Purchases on Margin
Each Fund will not make short sales of securities or purchase securities on
margin except for short-term credits necessary for clearance of portfolio
transactions, provided that this restriction will not be applied to limit the
use of options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment program of the
Fund.
INSTRUMENTS IN WHICH THE FUNDS CAN INVEST
The following paragraphs provide a brief description of some of the types of
securities in which the Funds may invest in accordance with their investment
objective, policies, and limitations, including certain transactions the Funds
may make and strategies they may adopt. The following also contains a brief
description of certain risk factors.
Foreign Investments (International Equity Fund and Global Equity Fund).
These Funds will invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"). Such investment may subject the Fund to significant
investment risks that are different from, and additional to, those related to
investments in obligations of U.S. domestic issuers or in U.S. securities
markets. Unsponsored ADRs may involve additional
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risks. These Funds may also invest directly in non-U.S. dollar denominated
equity and debt securities of foreign companies.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
Settlement of transactions in some foreign markets may be delayed or may be less
frequent than in the U.S., which could affect the liquidity of a Fund's
investment. In addition, the costs of foreign investing, including withholding
taxes, brokerage commissions, and custodial costs, are generally higher than for
U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, which
may result in substantial delays in settlement. It may also be difficult to
enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Adviser will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The International Equity Fund and the Global Equity Fund may invest in foreign
securities that impose restrictions on transfer within the U.S. or to U.S.
persons. Although securities subject to 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.
The Adviser continuously evaluates issuers based in countries all over the
world. Accordingly, a Fund may invest in the securities of issuers based in any
country when such securities meet the investment criteria of the Adviser and are
consistent with the investment objectives and policies of the Fund.
Securities of Other Investment Companies -- Closed-End Funds (International
Equity and Global Equity Funds). These Funds may purchase closed-end funds that
invest in foreign securities. Unlike open-end investment companies, like the
Funds, closed-end funds issue a fixed number of shares that trade on major stock
exchanges or over-the-counter. Also unlike open-end funds, closed-end funds do
not stand ready to issue and redeem shares on a continuous basis. Closed-end
funds often sell at a discount from net asset value.
These Funds' investment in closed-end funds is subject to the 1940 Act's limits
on investment in other mutual funds. Under the 1940 Act, each Fund may invest up
to 5% of its total assets in any one mutual fund, but may not own more than 3%
of any one mutual fund or invest more than 10% of its total assets in mutual
funds as a group.
Warrants. Each Fund may invest in warrants. These are securities that give an
investor the right to purchase equity securities from the issuer at a specific
price (the strike price) for a limited period of time. The strike
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price of warrants typically is much lower than the current market price of the
underlying securities, yet warrants are subject to greater price fluctuations.
As a result, warrants may be more volatile investments than the underlying
securities and may offer greater potential for capital appreciation as well as
capital loss.
Preferred Stock. Each Fund may invest in preferred stock issued by domestic and
foreign corporations. Preferred stocks are instruments that combine qualities
both of equity and debt securities. Individual issues of preferred stock will
have those rights and liabilities that are spelled out in the governing
document. Preferred stocks usually pay a fixed dividend per quarter (or annum)
and are senior to common stock in terms of liquidation and dividends rights.
Preferred stocks typically do not have voting rights.
Convertible Securities. Each Fund may invest in convertible debt and convertible
preferred stock. These securities may be converted at either a stated price or
rate into underlying shares of common stock. As a result, an investor in
convertible securities may benefit from increases in the underlying common
stock's market price. Convertible securities provide higher yields than the
underlying common stock, but typically offer lower yields than comparable
non-convertible securities. The value of convertible securities fluctuates in
relation to changes in interest rates like bonds and also fluctuates in relation
to the underlying stock's price.
U.S. Government Obligations. Each Fund may invest in U.S. Government
Obligations, that is, obligations issued or guaranteed by the U.S. Government,
its agencies, and instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer
to borrow from the U.S. Treasury; others are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and
still others are supported only by the credit of the agency or
instrumentality. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
Receipts. Receipts are separately traded interest and principal component parts
of bills, notes, and bonds issued by the U.S. Treasury that are transferable
through the Federal book entry system, known as Separately Traded Registered
Interest and Principal Securities ("STRIPS") and Coupon Under Book Entry
Safekeeping ("CUBES"). These instruments are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank; the custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates or
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and
Certificates of Accrual on Treasury Securities ("CATS").
Investment Grade and High Quality Securities. The Funds may invest in
"investment grade" obligations, which are those rated at the time of purchase
within the four highest rating categories assigned by a nationally recognized
statistical rating organization ("NRSRO") or, if unrated, are obligations that
the Adviser determines to be of comparable quality. The applicable securities
ratings are described in the Appendix. "High-quality" short-term obligations are
those obligations which, at the time of purchase, (1) possess a rating in one of
the two highest ratings categories from at least one NRSRO (for example,
commercial paper rated "A-1" or "A-2" by Standard & Poor's Ratings Services
("S&P") or "P-1" or "P-2" by Moody's Investors Service, Inc. ("Moody's")) or (2)
are unrated by an NRSRO but are determined by the Adviser to present minimal
credit risks and to be of comparable quality to rated instruments eligible for
purchase by the Funds under guidelines adopted by the Board.
U.S. Corporate Debt Obligations. The Funds may invest in U.S. corporate debt
obligations, including bonds, debentures, and notes. Debentures represent
unsecured promises to pay, while notes and bonds may be secured by mortgages on
real property or security interests in personal property. Bonds include, but are
not limited to, debt instruments with maturities of approximately one year or
more, debentures, mortgage-related securities, and zero coupon obligations.
Bonds, notes, and debentures in which the Funds may invest may differ in
interest rates, maturities, and times of issuance. The market value of a Fund's
fixed income investments will change in response to interest rate changes and
other factors. During periods of falling
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interest rates, the values of outstanding fixed income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by NRSROs in the rating of any fixed income security and in the ability
of an issuer to make payments of interest and principal also affect the value of
these investments. Except under conditions of default, changes in the value of a
Fund's securities will not affect cash income derived from these securities but
will affect the Fund's net asset value.
Zero-Coupon Bonds. Each Fund may invest in zero-coupon bonds that are purchased
at a discount from the face amount because the buyer receives only the right to
a fixed payment on a certain date in the future and does not receive any
periodic interest payments. The effect of owning instruments that do not make
current interest payments is that a fixed yield is earned not only on the
original investment but also, in effect, on accretion during the life of the
obligations. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest distributions at a rate as high as the
implicit yields on the zero-coupon bond, but at the same time eliminates the
holder's ability to reinvest at higher rates. For this reason, zero-coupon bonds
are subject to substantially greater price fluctuations during periods of
changing market interest rates than are comparable securities which pay interest
currently, which fluctuation increases in accordance with the length of the
period to maturity.
International Bonds. The International Equity Fund and the Global Equity Fund
may each invest in international bonds, including U.S. dollar-denominated
international bonds for which the primary trading market is in the United States
("Yankee Bonds"), or for which the primary trading market is abroad ("Eurodollar
Bonds"). International bonds also include Canadian and supranational agency
bonds (e.g., the International Monetary Fund). (See "Foreign Investments" for a
description of the risks associated with investments in foreign securities.)
Mortgage-Backed Securities--In General. The Funds may invest in mortgage-backed
securities that are backed by mortgage obligations including, among others,
conventional 30-year fixed rate mortgage obligations, graduated payment mortgage
obligations, 15-year mortgage obligations, and adjustable-rate mortgage
obligations. All of these mortgage obligations can be used to create
pass-through securities, created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal, and prepayments (net of a
service fee).
Prepayments occur when the holder of an individual mortgage obligation prepays
the remaining principal before the mortgage obligation's scheduled maturity
date. As a result of the pass-through of prepayments of principal on the
underlying securities, Mortgage-Backed Securities are often subject to more
rapid prepayment of principal than their stated maturity indicates. In addition,
during periods of falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the pool. Conversely, in
periods of rising interest rates, prepayment rates tend to decrease, lengthening
a pool's average life. Because the prepayment characteristics of the underlying
mortgage obligations vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting a Fund's yield.
A Fund may purchase Mortgage-Backed Securities at a premium or at a discount.
Accelerated prepayments have an adverse effect on yields for pass-throughs
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is true
for pass-throughs purchased at a discount. Among the U.S. Government securities
in which a Fund may invest are Government Mortgage-Backed Securities (or
government guaranteed mortgage-related securities). Such guarantees do not
extend to the value of yield of the Mortgage-Backed Securities themselves or of
the Fund's shares.
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U.S. Government Mortgage-Backed Securities. Certain agencies and
instrumentalities of the U.S. Government issue Mortgage-Backed Securities. Some
such obligations, such as those issued by GNMA are supported by the full faith
and credit of the U.S. Treasury; others, such as those of FNMA, are supported by
the right of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or
FHLMC, are supported only by the credit of the instrumentality. No assurance can
be given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies and instrumentalities if it is not obligated to do
so by law.
Collateralized Mortgage Obligations. CMOs in which a Fund may invest
are securities backed by a pool of mortgages in which the principal and interest
cash flows of the pool are channeled on a prioritized basis into two or more
classes, or tranches, of bonds.
Non-Governmental Mortgage-Backed Securities. A Fund may invest in
mortgage-related securities issued by non-governmental entities. Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers also create pass-through
pools of conventional residential mortgage loans. These issuers may be the
originators of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are not direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and principal of these
pools is supported by various forms of insurance or guarantees, including
individual loan, title, pool, and hazard insurance. The insurance and guarantees
are issued by government entities, private insurers and the mortgage pools. Such
insurance and guarantees and the creditworthiness of the issuers, thereof will
be considered in determining whether a Non-Governmental Mortgage-Backed Security
meets a Fund's investment quality standards. There can be no assurance that the
private insurers can meet their obligations under the policies. A Fund may buy
Non-Governmental Mortgage-Backed Related Securities without insurance or
guarantees if, through an examination of the loan experience and practices of
the pools, the Adviser determines that the securities meet the Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. A Fund will not purchase mortgage-related securities or any other
assets which in the opinion of the Adviser are illiquid if, as a result, more
than 15% of the value of the Fund's net assets will be invested in illiquid
securities.
Mortgage-related securities include CMOs and participation certificates in pools
of mortgages. The average life of mortgage-related securities varies with the
maturities of the underlying mortgage instruments, which have maximum maturities
of 40 years. The average life is likely to be substantially less than the
original maturity of the mortgage pools underlying the securities as the result
of mortgage prepayments. The rate of such prepayments, and hence the average
life of the certificates, will be a function of current market interest rates
and current conditions in the relevant housing markets. The impact of prepayment
of mortgages is described under "Government Mortgage-Backed Securities."
Estimated average life will be determined by the Adviser. Various independent
mortgage-related securities dealers publish estimated average life data using
proprietary models. In making such determinations, the Adviser will rely on such
data except to the extent such data are deemed unreliable by the Adviser. The
Adviser might deem data unreliable which appears to present a significantly
different estimated average life for a security than data relating to the
estimated average life of comparable securities as provided by other independent
mortgage-related securities dealers.
Asset-Backed Securities. Each Fund may invest in asset-backed securities, that
is, debt securities backed by pools of automobile or other commercial or
consumer finance loans. The collateral backing asset-backed securities cannot be
foreclosed upon. These issues are normally traded over-the-counter and typically
have a short to intermediate maturity structure, depending on the paydown
characteristics of the underlying financial assets which are passed through to
the security holder.
Temporary Defensive Measures -- Short-Term Obligations. These include high
quality, short-term obligations such as domestic and foreign commercial paper
(including variable-amount master demand notes),
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bankers' acceptances, certificates of deposit and demand and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
agreements. (See "Foreign Securities" for a description of risks associated with
investments in foreign securities.) Each Fund may hold up to 100% of its assets
in these instruments, which may result in performance that is inconsistent with
its investment objective.
Short-Term Corporate Obligations. Corporate obligations are bonds
issued by corporations and other business organizations in order to finance
their long-term credit needs. Corporate bonds in which a Fund may invest
generally consist of those rated in the two highest rating categories of an
NRSRO that possess many favorable investment attributes. In the lower end of
this category, credit quality may be more susceptible to potential future
changes in circumstances.
Bankers' Acceptances. Bankers' Acceptances are negotiable drafts or
bills of exchange typically drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' Acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100 million (as of the date of their most recently published
financial statements).
Certificates of Deposit. Certificates of Deposit ("CDs") are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return. CDs and demand and time deposits invested in by a Fund will be those of
domestic and foreign banks and savings and loan associations, if (a) at the time
of purchase such financial institutions have capital, surplus, and undivided
profits in excess of $100 million (as of the date of their most recently
published financial statements) or (b) the principal amount of the instrument is
insured in full by the Federal Deposit Insurance Corporation (the "FDIC") or the
Savings Association Insurance Fund.
Eurodollar CDs are U.S. dollar-denominated CDs issued by branches of
foreign and domestic banks located outside the United States. Yankee CDs are
CDs issued by a U.S. branch of a foreign bank denominated in U.S. dollars and
held in the United States.
Foreign Time Deposits. Eurodollar Time Deposits are U.S.
dollar-denominated deposits in a foreign branch of a U.S. or foreign bank.
Canadian Time Deposits are U.S. dollar-denominated certificates of deposit
issued by Canadian offices of major Canadian Banks.
Commercial Paper. Commercial paper ("CP") consists of unsecured
promissory notes issued by corporations. CP issues normally mature in less than
nine months and have fixed rates of return. The Funds will purchase only CP
rated in one of the two highest categories at the time of purchase by an NRSRO
or, if not rated, found by the Adviser to present minimal credit risks and to be
of comparable quality to instruments that are rated high quality by an NRSRO
that is neither controlling, controlled by, or under common control with the
issuer of, or any issuer, guarantor, or provider of credit support for, the
instruments. For a description of the rating symbols of each NRSRO, see the
Appendix to this SAI.
Repurchase Agreements. Securities held by a Fund may be subject to
Repurchase Agreements, pursuant to which a Fund would acquire securities from
financial institutions or registered broker-dealers deemed creditworthy by the
Adviser pursuant to guidelines adopted by the Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed upon date and
price. The seller is required to maintain the value of collateral held pursuant
to the agreement at not less than the repurchase price (including accrued
interest). If the seller were to default on its repurchase obligation or become
insolvent, a Fund would suffer a loss to the extent that the proceeds from a
sale of the underlying portfolio securities were less than the repurchase price,
or to the extent that the disposition of such securities by the Fund is delayed
pending court action.
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Futures and Options
Futures Contracts. The Funds may enter into futures contracts, options on
futures contracts, and stock index futures contracts and options thereon for the
purposes of remaining fully invested and reducing transaction costs. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security, class of securities, or an index
at a specified future time and at a specified price. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading of the
contracts and the price at which the futures contract is originally struck.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (the "CFTC"), a U.S. Government agency.
The Funds may enter into contracts for the future delivery of securities and
futures contracts based on a specific security, class of securities or an index,
purchase or sell options on any such futures contracts and engage in related
closing transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
Although futures contracts (other than those relating to indexes) by their terms
call for actual delivery and acceptance of the underlying securities, in most
cases the contracts are closed out before the settlement date without delivery.
Closing out an open futures position is done by taking an opposite position
(buying a contract which has previously been "sold," or "selling" a contract
previously purchased) in an identical contract to terminate the position. The
acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a futures commission merchant or custodian to
initiate and maintain open positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Futures commission merchants may establish deposit
requirements which are higher than the exchange minimums. Initial margin
deposits on futures contracts are customarily set at levels much lower than the
prices at which the underlying securities are purchased and sold, typically
ranging upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, a Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, a
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for a Fund than might later be available in the market when it effects
anticipated purchases.
A Fund may sell futures contracts to protect securities it owns against price
declines or purchase contracts to protect against an increase in the price of
securities it intends to purchase. A Fund may also enter into such transactions
in order to terminate existing positions.
9
<PAGE>
The Funds' ability to use futures trading effectively depends on several
factors. First, it is possible that there will not be a perfect price
correlation between a futures contract and its underlying stock index. Second,
it is possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Fund could lose more than the original margin deposit required to
initiate a futures transaction.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if a Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting a Fund's ability
to hedge effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
Restrictions on the Use of Futures Contracts. The Funds will not enter into
futures contract transactions for purposes other than bona fide hedging purposes
or as a substitute for the underlying securities to gain market exposure to the
extent that, immediately thereafter, the sum of its initial margin deposits on
open contracts exceeds 5% of the market value of a Fund's total assets. In
addition, a Fund will not enter into futures contracts to the extent that the
value of the futures contracts held would exceed 1/3 of the Fund's total assets.
The Trust need not register with the CFTC as a Commodities Pool Operator.
In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to Securities and
Exchange Commission ("SEC") requirements. Under those requirements, where a Fund
has a long position in a futures contract, it may be required to establish a
segregated account (not with a futures commission merchant or broker) containing
cash or liquid securities equal to the purchase price of the contract (less any
margin on deposit). For a short position in futures or forward contracts held by
the Fund, those requirements may mandate the establishment of a segregated
account (not with a futures commission merchant or broker) with cash or liquid
securities that, when added to the amounts deposited as margin, equal the market
value of the instruments underlying the futures contracts (but are not less than
the price at which the short positions were established). However, segregation
of assets is not required if a Fund "covers" a long position. For example,
instead of segregating assets, a Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by a Fund. In
addition, where a Fund engages in sales of call options, it need not segregate
assets if it "covers" these positions. For example, where a Fund holds a short
position in a futures contract, it may cover by owning the instruments
underlying the contract. A Fund may also cover such a position by holding a call
option permitting it to purchase the same futures contract at a price no higher
than the price at which the short position was established. Where a Fund sells a
call option on a futures contract, it may cover either by entering into a long
position in the same contract at a price no higher than the strike price of the
call option or by owning the instruments underlying the futures contract. A Fund
could also cover this position by holding a separate call option permitting it
to purchase the same futures contract at a price no higher than the strike price
of the call option sold by a Fund.
In addition, the extent to which a Fund may enter into futures contracts may be
limited by requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a registered investment company.
Risk Factors in Futures Transactions. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, a Fund may be
required to make delivery of the instruments
10
<PAGE>
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the ability to
effectively hedge them. A Fund will minimize the risk that it will be unable to
close out a futures contract by only entering into futures contracts which are
traded on national futures exchanges and for which there appears to be a liquid
secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchaser or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
futures strategies engaged in by the Funds are only for hedging purposes, the
Adviser does not believe that the Funds are subject to the risks of loss
frequently associated with futures transactions. The Funds would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Use of futures transactions by the Funds involve the risk of imperfect or no
correlation where the securities underlying futures contracts have different
maturities than the portfolio securities being hedged. It is also possible that
a Fund could both lose money on futures contracts and also experience a decline
in the value of its portfolio securities. There is also the risk of loss by the
Funds of margin deposits in the event of bankruptcy of a broker with whom the
Funds have open positions in a futures contract or related option.
Options. Each Fund may sell (write) call options that are traded on national
securities exchanges with respect to common stock in its portfolio. A Fund must
at all times have in its portfolio the securities which it may be obligated to
deliver if the option is exercised. A Fund may write call options in an attempt
to realize a greater level of current income than would be realized on the
securities alone. A Fund may also write call options as a partial hedge against
a possible stock market decline. In view of its investment objective, a Fund
generally would write call options only in circumstances where the Adviser does
not anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, a Fund receives a premium for undertaking the obligation to sell
the underlying security at a fixed price during the option period, if the option
is exercised. So long as a Fund remains obligated as a writer of a call option,
it forgoes the opportunity to profit from increases in the market price of the
underlying security above the exercise price of the option, except insofar as
the premium represents such a profit. A Fund retains the risk of loss should the
value of the underlying security decline. A Fund may also enter into "closing
purchase transactions" in order to terminate its obligation as a writer of a
call option prior to the expiration of the option. Although the writing of call
options only on national securities exchanges increases the likelihood of a
Fund's ability to make closing purchase transactions, there is no assurance that
a Fund will be able to effect such transactions at any particular time or at any
acceptable price. The writing of call options could result in increases in a
Fund's portfolio turnover rate, especially during periods when market prices of
the underlying securities appreciate.
Illiquid Investments. Illiquid investments are investments that cannot be sold
or disposed of, within seven business days, in the ordinary course of business
at approximately the prices at which they are valued.
Under the supervision of the Board, the Adviser determines the liquidity of each
Fund's investments and, through reports from the Adviser, the Trustees monitor
investments in illiquid instruments. In determining the liquidity of a Fund's
investments, the Adviser may consider various factors, including (1) the
frequency of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
11
<PAGE>
(5) the nature of the marketplace for trades (including the ability to assign or
offset the Funds' rights and obligations relating to the investment).
Investments currently considered by a Fund to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven days, over the counter options, non-government stripped fixed-rate
mortgage-backed securities, and Restricted Securities (see discussion below).
Also, the Adviser may determine some securities to be illiquid.
However, with respect to over-the-counter options a Fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending on
the assets held to cover the option and the nature and terms of any agreement a
Fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at fair
value as determined in good faith by a committee appointed by the Trustees.
If through a change in values, net assets, or other circumstances, more than 15%
of a Fund's net assets were invested in illiquid securities, the Fund would seek
to take appropriate steps to protect liquidity.
Restricted Securities. Restricted securities generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act, or in a registered public offering.
Where registration is required, a Fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the time
it decides to seek registration and the time the Fund may be permitted to sell a
security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, a Fund
might obtain a less favorable price than prevailed when it decided to seek
registration of the shares.
Securities Lending Transactions. Each Fund may from time to time lend securities
from its portfolio to broker-dealers, banks, financial institutions and
institutional borrowers of securities and receive collateral in the form of cash
or U.S. Government Obligations. Generally, a Fund must receive initial
collateral equal to 102% of the market value of the loaned securities, plus any
interest due in the form of cash or U.S. Government Obligations. No Fund will
lend portfolio securities to: (a) any "affiliated person" (as that term is
defined in the 1940 Act) of the Trust; (b) any affiliated person of the Adviser;
or (c) any affiliated person of such an affiliated person. This collateral must
be valued daily and should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund sufficient to
maintain the value of the collateral equal to at least 100% of the value of the
loaned securities. During the time portfolio securities are on loan, the
borrower will pay the Fund any dividends or interest paid on such securities
plus any interest negotiated between the parties to the lending agreement. Loans
will be subject to termination by the Fund or the borrower at any time. While
the Fund will not have the right to vote securities on loan, they intend to
terminate loans and regain the right to vote if that is considered important
with respect to the investment. A Fund will only enter into loan arrangements
with broker-dealers, banks or other institutions which the Adviser has
determined are creditworthy under guidelines established by the Trustees. Each
Fund will limit its securities lending to 33 1/3% of total assets.
Reverse Repurchase Agreements. Each Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act. Pursuant to such agreement,
a Fund would sell a portfolio security to a financial institution such as a bank
or broker-dealer, and agree to repurchase such security at a mutually
agreed-upon date and price. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets
consistent with the Fund's investment restrictions having a value equal to the
repurchase price (including accrued interest). The collateral will be
marked-to-market on a daily basis, and will be monitored continuously to ensure
that such equivalent value is maintained. Reverse Repurchase Agreements involve
the
12
<PAGE>
risk that the market value of the securities sold by a Fund may decline below
the price at which the Fund is obligated to repurchase the securities.
VALUATION OF PORTFOLIO SECURITIES.
Each equity security held by a Fund is valued at its last sales price on the
exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices on that day. Exchange listed convertible debt securities are valued
at the mean between the last bid and asked prices obtained from broker-dealers
or a comparable alternative, such as Bloomberg or Telerate. Each security traded
in the over-the-counter market (but not including securities reported on the
Nasdaq National Market System) is valued at the mean between the last bid and
asked prices based upon quotes furnished by market makers for such securities.
Each security reported on the Nasdaq National Market System is valued at the
sales price on the valuation date or absent a last sales price, at the mean
between the closing bid and asked prices on that day. Non-convertible debt
securities are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers in
a manner specifically authorized by the Board. Short-term obligations maturing
in 60 days or less are valued on the basis of amortized cost. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the New York Stock
Exchange, Inc. (the "NYSE"), currently 4:00 p.m. Eastern Time.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's shares are determined at such
times. Foreign currency exchange rates are also generally determined prior to
the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which such
values are determined and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board.
PERFORMANCE OF THE FUNDS
From time to time, the "average annual total return" and "total return" of an
investment in each of the Fund shares may be advertised. An explanation of how
yields and total returns are calculated for each class and the components of
those calculations are set forth below.
Total return information may be useful to investors in reviewing the Fund's
performance. A Fund's advertisement of its performance must, under applicable
SEC rules, include the average annual total returns for each class of shares of
a Fund for the 1, 5, and 10-year period (or the life of the class, if less) as
of the most recently ended calendar quarter. This enables an investor to compare
the Fund's performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such information
as a basis for comparison with other investments. Investments in a Fund are not
insured; its total return is not guaranteed and normally will fluctuate on a
daily basis. When redeemed, an investor's shares may be worth more or less than
their original cost. Total return for any given past period are not a prediction
or representation by the Trust of future rates of return on its shares. The
total returns of the shares of the Funds are affected by portfolio quality,
portfolio maturity, the type of investments the Fund holds, and operating
expenses.
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<PAGE>
The U.S. Equity Fund and the International Equity Fund are successors to Simms
Partners (U.S.), L.P. and Simms Partners (International), L.P., two private
investment limited partnerships managed by Simms. These Funds' historical
performance reflects the historical performance of these limited partnerships.
Total Returns. The "average annual total return" of a Fund is an average annual
compounded rate of return for each year in a specified number of years. It is
the rate of return ("T" in the formula below) based on the change in value of a
hypothetical initial investment of $1,000 ("P") held for a number of years ("n")
to achieve an Ending Redeemable Value ("ERV"), according to the following
formula:
P(1+T)n = ERV
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Cumulative total return
is determined as follows:
ERV - P = Cumulative Total Return
-------
P
In calculating total returns for the Funds, the current maximum sales charge (as
a percentage of the offering price) is deducted from the initial investment
("P"). Total returns also assume that all dividends and net capital gains
distributions during the period are reinvested to buy additional shares at net
asset value per share, and that the investment is redeemed at the end of the
period.
Other Performance Comparisons.
From time to time a Fund may publish the ranking of its performance or the
performance of its shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Funds, and
ranks the performance of the Funds and their classes against all other funds in
similar categories, for both equity and fixed income funds. The Lipper
performance rankings are based on total return that includes the reinvestment of
capital gains distributions and income dividends but does not take sales charges
or taxes into consideration.
A Fund also may publish the ranking of its performance or performance of its
shares by Morningstar, Inc., an independent mutual fund monitoring service that
ranks mutual funds, including the Funds, in broad investment categories
(domestic equity, international equity taxable bond, municipal bond or other)
monthly, based upon each fund's three, five, and ten-year average annual total
returns (when available) and a risk adjustment factor that reflects fund
performance relative to three-month U.S. Treasury bill monthly returns. Such
returns are adjusted for fees and sales loads. There are five ranking categories
with a corresponding number of stars: highest (5), above average (4), neutral
(3), below average (2), and lowest (1). Ten percent of the funds, series or
classes in an investment category receive five stars, 22.5% receive four stars,
35% receive three stars, 22.5% receive two stars, and the bottom 10% receive one
star.
The total return on an investment made in a Fund may be compared with the
performance for the same period of one or more of the following indices: the
Consumer Price Index, the Standard & Poor's 500 Index, and the Morgan Stanley
Capital International Europe, Australasia, Far East (EAFE) Index. Other indices
may be used from time to time. The Consumer Price Index generally is considered
to be a measure of inflation. The S&P 500 Index is a composite index of 500
common stocks generally regarded as an index of U.S. stock market performance.
The EAFE Index is a popular index of foreign stock prices, including more than
1,000 major foreign companies. The foregoing indices are unmanaged indices of
securities that do not reflect reinvestment of capital gains or take investment
costs into consideration, as these items are not applicable to indices.
From time to time, the total returns of the Funds may be quoted in and compared
to other mutual funds with similar investment objectives in advertisements,
shareholder reports or other communications to shareholders.
14
<PAGE>
A Fund also may include calculations in such communications that describe
hypothetical investment results. (Such performance examples are based on an
express set of assumptions and are not indicative of the performance of any
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund's
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of a Fund investment would increase
more quickly than if dividends or other distributions had been paid in cash. A
Fund may also include discussions or illustrations of the potential investment
goals of a prospective investor (including but not limited to tax and/or
retirement planning), investment management techniques, policies or investment
suitability of a Fund, economic conditions, legislative developments (including
pending legislation), the effects of inflation and historical performance of
various asset classes, including but not limited to stocks, bonds and Treasury
bills.
From time to time advertisements or communications to shareholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of a Fund, as well as the Adviser's views as to current
market, economic, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to be
of relevance to a Fund.) A Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stock,
bonds, and Treasury bills, as compared to an investment in shares of a Fund, as
well as charts or graphs that illustrate strategies such as dollar cost
averaging. In addition, advertisements or shareholder communications may include
a discussion of certain attributes or benefits to be derived by an investment in
a Fund. Such advertisements or communications may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail therein. With proper authorization, a Fund may reprint articles (or
excerpts) written regarding a Fund and provide them to prospective shareholders.
Performance information with respect to the Funds is generally available by
calling 1-877-GET-SIMS.
Investors may also judge, and a Fund may at times advertise, the performance of
a Fund by comparing it to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies, which performance
may be contained in various unmanaged mutual fund or market indices or rankings
such as those prepared by Dow Jones & Co., Inc., Standard & Poor's, and Morgan
Stanley, and in publications issued by Lipper Analytical Services, Inc. and in
the following publications: Value Line Mutual Fund Survey, Morningstar,
CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, Business Week, American Banker, Fortune, Institutional Investor,
Ibbotson Associates, and U.S.A. Today. In addition to performance information,
general information about a Fund that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to shareholders.
Advertisements and sales literature may include discussions of specifics of a
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis. Advertisements may also
include descriptive information about the investment adviser, including, but not
limited to, its status within the industry, other services and products it makes
available, total assets under management, and its investment philosophy.
When comparing total return and investment risk of an investment in shares of a
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
a Fund. For example, CDs may have fixed rates of return and may be insured as to
principal and interest by the FDIC, while a Fund's returns will fluctuate and
its share values and returns are not guaranteed. U.S. Treasury securities are
guaranteed as to principal and interest by the full faith and credit of the U.S.
Government.
15
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ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION
The NYSE is currently scheduled to be closed on New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day, or, when one of these
holidays fall on a Saturday or Sunday, the preceding Friday or subsequent
Monday. This closing schedule is subject to change.
When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the SEC to warrant such action, the Funds will determine their net
asset value at Valuation Time.
The Trust has elected, pursuant to Rule 18f-1 under the 1940 Act, to redeem
shares of a Fund solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90-day period for any one shareholder. The
remaining portion of the redemption may be made in securities or other property,
valued for this purpose as they are valued in computing the net asset value of
each class of the Fund. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes and may incur additional
costs as well as the associated inconveniences of holding and/or disposing of
such securities or other property.
Pursuant to Rule 11a-3 under the 1940 Act, the Funds are required to give
shareholders at least 60 days' notice prior to terminating or modifying a Fund's
exchange privilege. The 60-day notification requirement may, however, be waived
if (1) the only effect of a modification would be to reduce or eliminate an
administrative fee, redemption fee, or deferred sales charge ordinarily payable
at the time of exchange or (2) a Fund temporarily suspends the offering of
shares as permitted under the 1940 Act or by the SEC or because it is unable to
invest amounts effectively in accordance with its investment objective and
policies.
The Funds reserve the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in the Adviser's judgment,
a Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Purchasing Shares.
Dealer Reallowances. The following table shows the amount of the Funds' front
end sales load that is reallowed to dealers as a percentage of the offering
price of the Funds' Class A Shares.
<TABLE>
<CAPTION>
Initial Sales Charge: % of Net Amount Concession to Dealers:
Amount of Purchase % of Offering Price Invested % of Offering Price
------------------ ------------------- -------- -------------------
<S> <C> <C> <C>
Less than $100,000 4.00 4.17 3.75
$100,000 to $249,999 3.00 3.09 2.75
$250,000 to $499,999 2.00 2.04 1.75
$500,000 to $999,999 1.00 1.01 0.75
$1,000,000 and over 0.00 0.00 0.00
</TABLE>
Reduced Sales Charge. Reduced sales charges are available for purchases of
$100,000 or more of Class A Shares of a Fund alone or in combination with
purchases of other shares of the Trust. To obtain the reduction of the sales
charge, you or the broker-dealer through whom you are purchasing shares (an
"Authorized Securities Dealer") must notify Firstar Mutual Fund Services, LLC
("Firstar" or the "Transfer Agent") at the time of purchase whenever a quantity
discount is applicable to your purchase.
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<PAGE>
In addition to investing at one time in any combination of shares of the Funds
in an amount entitling you to a reduced sales charge, you may qualify for a
reduction in the sales charge under the following programs:
Combined Purchases. When you invest in shares of the Funds for several accounts
at the same time, you may combine these investments into a single transaction if
purchased through one Authorized Securities Dealer, and if the total is $100,000
or more. The following may qualify for this privilege: an individual, or
"company" as defined in Section 2(a)(8) of the 1940 Act; an individual, spouse,
and their children under age 21 purchasing for his, her, or their own account; a
trustee, administrator or other fiduciary purchasing for a single trust estate
or single fiduciary account or for a single or a parent-subsidiary group of
"employee benefit plans" (as defined in Section 3(3) of ERISA); and tax-exempt
organizations under Section 501(c)(3) of the Code.
Rights of Accumulation. "Rights of Accumulation" permit reduced sales charges on
future purchases of shares after you have reached a new breakpoint. You can add
the value of existing Fund shares held by you, your spouse, and your children
under age 21, determined at the previous day's net asset value at the close of
business, to the amount of your new purchase valued at the current offering
price to determine your reduced sales charge.
Letter of Intent. If you anticipate purchasing $100,000 or more of shares of a
Fund alone or in combination with shares of certain other Funds within a
13-month period, you may obtain shares of the portfolios at the same reduced
sales charge as though the total quantity were invested in one lump sum, by
filing a non-binding Letter of Intent (the "Letter") within 90 days of the start
of the purchases. You must start with a minimum initial investment of 5% of the
projected purchase amount. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $110,000 Letter
would receive the same reduced sales charge as if the $110,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your Authorized Securities Dealer must inform the Transfer
Agent that the Letter is in effect each time shares are purchased. Neither
income dividends nor capital gain distributions taken in additional shares will
apply toward the completion of the Letter.
You are not obligated to complete the additional purchases contemplated by a
Letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay such
charge.
If you purchase more than the amount specified in the Letter and qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect
your total purchase at the end of 13 months. Surplus funds will be applied to
the purchase of additional shares at the then current offering price applicable
to the total purchase.
Exchanging Shares.
Shares of a Fund may be exchanged for the same class of shares of any other Fund
of the Trust. For example, an investor can exchange Class A shares of a Fund
only for Class A shares of another Fund.
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<PAGE>
Redeeming Shares.
Reinstatement Privilege. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds in the same class of shares of
the same Fund or another Fund, at the net asset value next computed after
receipt by the Transfer Agent of the reinvestment order. No service charge is
currently made for reinvestment in shares of the Funds. The shareholder must ask
Firstar for such privilege at the time of reinvestment. Any capital gain that
was realized when the shares were redeemed is taxable, and reinvestment will not
alter any capital gains tax payable on that gain. If there has been a capital
loss on the redemption, some or all of the loss may not be tax deductible,
depending on the timing and amount of the reinvestment. Under the Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of a Fund within 90 days of payment of the sales charge,
the shareholder's basis in the shares of the Fund that were redeemed may not
include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from redemption. The Funds may amend, suspend, or
cease offering this reinvestment privilege at any time as to shares redeemed
after the date of such amendment, suspension, or cessation. The reinstatement
must be into an account bearing the same registration.
DIVIDENDS AND DISTRIBUTIONS
The Funds distribute substantially all of their net investment income and net
capital gains, if any, to shareholders within each calendar year as well as on a
fiscal year basis to the extent required for the Funds to qualify for favorable
federal tax treatment. The Funds ordinarily declare and pay dividends from their
net investment income and make distributions of net capital gains, if any,
annually.
The amount of a Fund's distributions may vary from time to time depending on
market conditions, the composition of a Fund's portfolio, and expenses borne by
a Fund.
The net income of a Fund, from the time of the immediately preceding
determination thereof, shall consist of all interest income accrued on the
portfolio assets of the Fund, dividend income, if any, income from securities
loans, if any, income from corporate actions such as reorganizations, if any,
and realized capital gains and losses on the Fund's assets, less all expenses
and liabilities of the Fund chargeable against income. Interest income shall
include discount earned, including both original issue and market discount, on
discount paper accrued ratably to the date of maturity. Expenses, including the
compensation payable to the Adviser, are accrued each day. The expenses and
liabilities of a Fund shall include those appropriately allocable to the Fund as
well as a share of the general expenses and liabilities of the Trust in
proportion to the Fund's share of the total net assets of the Trust.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting each Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
- -----------------------------------------------
Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least 90% of its investment company taxable income (i.e., net investment income
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by a Fund
made during the taxable year or, under specified circumstances,
18
<PAGE>
within twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and will therefore count
towards the satisfaction of the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In general, gain or loss recognized by a Fund on the disposition of an asset
will be a capital gain or loss. In addition, gain will be recognized as a result
of certain constructive sales, including short sales "against the box". However,
gain recognized on the disposition of a debt obligation purchased by a Fund at a
market discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market discount
which accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code section 1256 (unless a Fund
elects otherwise), will generally be treated as ordinary income or loss.
Further, the Code also treats as ordinary income a portion of the capital gain
attributable to a transaction where substantially all of the return realized is
attributable to the time value of a Fund's net investment in the transaction
and: (1) the transaction consists of the acquisition of property by the Fund and
a contemporaneous contract to sell substantially identical property in the
future; (2) the transaction is a straddle within the meaning of section 1092 of
the Code; (3) the transaction is one that was marketed or sold to the Fund on
the basis that it would have the economic characteristics of a loan but the
interest-like return would be taxed as capital gain; or (4) the transaction is
described as a conversion transaction in the Treasury Regulations. The amount of
the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion transaction. No authority exists
that indicates that the converted character of the income will not be passed
through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss recognized
by a Fund on the disposition of an asset is long-term or short-term, the holding
period of the asset may be affected if (1) the asset is used to close a "short
sale" (which includes for certain purposes the acquisition of a put option) or
is substantially identical to another asset so used, (2) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the-money) with respect
thereto) or (3) the asset is stock and the Fund grants an in-the-money qualified
covered call option with respect thereto. In addition, a Fund may be required to
defer the recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position. Any
gain recognized by a Fund on the lapse of, or any gain or loss recognized by a
Fund from a closing transaction with respect to, an option written by the Fund
will be treated as a short-term capital gain or loss.
Certain transactions that may be engaged in by the Funds (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair
19
<PAGE>
market value on the last business day of the taxable year, even though a
taxpayer's obligations (or rights) under such contracts have not terminated (by
delivery, exercise, entering into a closing transaction or otherwise) as of such
date. Any gain or loss recognized as a consequence of the year-end deemed
disposition of Section 1256 contracts is taken into account for the taxable year
together with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. Any capital gain
or loss for the taxable year with respect to Section 1256 contracts (including
any capital gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is generally treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. A Fund, however, may elect not to have this
special tax treatment apply to Section 1256 contracts that are part of a "mixed
straddle" with other investments of the Fund that are not Section 1256
contracts.
A Fund may purchase securities of certain foreign investment funds or trusts
which constitute passive foreign investment companies ("PFICs") for federal
income tax purposes. If a Fund invests in a PFIC, it has three separate options.
First, it may elect to treat the PFIC as a qualifying electing fund (a "QEF"),
in which case it will each year have ordinary income equal to its pro rata share
of the PFIC's ordinary earnings for the year and long-term capital gain equal to
its pro rata share of the PFIC's net capital gain for the year, regardless of
whether the Fund receives distributions of any such ordinary earnings or capital
gains from the PFIC. Second, the Fund may make a mark-to-market election with
respect to its PFIC stock. Pursuant to such an election, the Fund will include
as ordinary income any excess of the fair market value of such stock at the
close of any taxable year over its adjusted tax basis in the stock. If the
adjusted tax basis of the PFIC stock exceeds the fair market value of such stock
at the end of a given taxable year, such excess will be deductible as ordinary
loss in the amount equal to the lesser of the amount of such excess or the net
mark-to-market gains on the stock that the Fund included in income in previous
years. The Fund's holding period with respect to its PFIC stock subject to the
election will commence on the first day of the following taxable year. If the
Fund makes the mark-to-market election in the first taxable year it holds PFIC
stock, it will not incur the tax described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF and does not make
a mark-to-market election, then, in general, (1) any gain recognized by the Fund
upon a sale or other disposition of its interest in the PFIC or any "excess
distribution" received by the Fund from the PFIC will be allocated ratably over
the Fund's holding period in the PFIC stock, (2) the portion of such gain or
excess distribution so allocated to the year in which the gain is recognized or
the excess distribution is received shall be included in the Fund's gross income
for such year as ordinary income (and the distribution of such portion by the
Fund to shareholders will be taxable as an ordinary income dividend, but such
portion will not be subject to tax at the Fund level), (3) the Fund shall be
liable for tax on the portions of such gain or excess distribution so allocated
to prior years in an amount equal to, for each such prior year, (i) the amount
of gain or excess distribution allocated to such prior year multiplied by the
highest tax rate (individual or corporate, as the case may be) in effect for
such prior year, plus (ii) interest on the amount determined under clause (i)
for the period from the due date for filing a return for such prior year until
the date for filing a return for the year in which the gain is recognized or the
excess distribution is received, at the rates and methods applicable to
underpayments of tax for such period, and (4) the distribution by the Fund to
shareholders of the portions of such gain or excess distribution so allocated to
prior years (net of the tax payable by the Fund thereon) will again be taxable
to the shareholders as an ordinary income dividend.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss (including, to the
extent provided in Treasury Regulations, losses recognized pursuant to the PFIC
mark-to-market election) incurred after October 31 as if it had been incurred in
the succeeding year.
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a
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<PAGE>
Fund's taxable year, at least 50% of the value of the Fund's assets must consist
of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. For purposes of asset diversification
testing, obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government such as the Federal Agricultural Mortgage Corporation, the
Farm Credit System Financial Assistance Corporation, a Federal Home Loan Bank,
the Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage Corporation, and the Student Loan
Marketing Association are treated as U.S. Government securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
- --------------------------------------------
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 98% of its ordinary
income for such calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year (or, at the election
of a regulated investment company having a taxable year ending November 30 or
December 31, for its taxable year (a "taxable year election")). The balance of
such income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.
For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses and ordinary gains or losses arising as a result of a PFIC
mark-to-market election (or upon an actual disposition of the PFIC stock subject
to such election) incurred after October 31 of any year (or after the end of its
taxable year if it has made a taxable year election) in determining the amount
of ordinary taxable income for the current calendar year (and, instead, include
such gains and losses in determining ordinary taxable income for the succeeding
calendar year).
Each Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
Fund Distributions
- ------------------
Each Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes. Such dividends paid by a Fund will qualify for the 70%
dividends-received deduction for corporate shareholders only to the extent
discussed below.
A Fund may either retain or distribute to shareholders its net capital gain for
each taxable year. Each Fund currently intends to distribute any such amounts.
Net capital gain that is distributed and designated as a
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<PAGE>
capital gain dividend will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. The Code provides, however, that under certain conditions
only 50% (58% for alternative minimum tax purposes) of the capital gain
recognized upon a Fund's disposition of domestic "small business" stock will be
subject to tax.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it
is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by a Fund with respect to a taxable year will
qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
Generally, a dividend received by the Fund will not be treated as a qualifying
dividend (1) if it has been received with respect to any share of stock that the
Fund has held for less than 46 days (91 days in the case of certain preferred
stock), excluding for this purpose under the rules of Code section 246(c)(3) and
(4) any period during which the Fund has an option to sell, is under a
contractual obligation to sell, has made and not closed a short sale of, is the
grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with respect
to, such (or substantially identical) stock; (2) to the extent that the Fund is
under an obligation (pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property;
or (3) to the extent that the stock on which the dividend is paid is treated as
debt-financed under the rules of Code Section 246A. The 46-day holding period
must be satisfied during the 90-day period beginning 45 days prior to each
applicable ex-dividend date; the 91-day holding period must be satisfied during
the 180-day period beginning 90 days before each applicable ex-dividend date.
Moreover, the dividends-received deduction for a corporate shareholder may be
disallowed or reduced (1) if the corporate shareholder fails to satisfy the
foregoing requirements with respect to its shares of the Fund or (2) by
application of Code section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain other
items). Since an insignificant portion of the International Equity Fund will be
invested in stock of domestic corporations, the ordinary dividends distributed
by the Fund generally will not qualify for the dividends-received deduction for
corporate shareholders.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. For purposes of the corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMTI.
However, a corporate shareholder will generally be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings,
which are used in computing an additional corporate preference item (i.e., 75%
of the excess of a corporate taxpayer's adjusted current earnings over its AMTI
(determined without regard to this item and the AMT net operating loss
deduction)) includable in AMTI.
Investment income that may be received by a Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The United
States has entered into tax treaties with many foreign countries which entitle a
Fund to a reduced rate of, or exemption from, taxes on such income. It is
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impossible to determine the effective rate of foreign tax in advance since the
amount of a Fund's assets to be invested in various countries is not known. If
more than 50% of the value of a Fund's total assets at the close of its taxable
year consist of the stock or securities of foreign corporations, the Fund may
elect to "pass through" to the Fund's shareholders the amount of foreign taxes
paid by the Fund. If a Fund so elects, each shareholder would be required to
include in gross income, even though not actually received, his pro rata share
of the foreign taxes paid by the Fund, but would be treated as having paid his
pro rata share of such foreign taxes and would therefore be allowed to either
deduct such amount in computing taxable income or use such amount (subject to
various Code limitations) as a foreign tax credit against federal income tax
(but not both). For purposes of the foreign tax credit limitation rules of the
Code, each shareholder would treat as foreign source income his pro rata share
of such foreign taxes plus the portion of dividends received from the Fund
representing income derived from foreign sources. No deduction for foreign taxes
could be claimed by an individual shareholder who does not itemize deductions.
Each shareholder should consult his own tax adviser regarding the potential
application of foreign tax credits.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (or of another fund). Shareholders receiving a distribution
in the form of additional shares will be treated as receiving a distribution in
an amount equal to the fair market value of the shares received, determined as
of the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects undistributed net investment
income or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has failed to
provide a correct taxpayer identification number, (2) who is subject to backup
withholding for failure to properly report the receipt of interest or dividend
income properly, or (3) who has failed to certify to the Fund that it is not
subject to backup withholding or that it is a corporation or other "exempt
recipient."
Sale or Redemption of Shares
- ----------------------------
A shareholder will recognize gain or loss on the sale or redemption of shares of
a Fund in an amount equal to the difference between the proceeds of the sale or
redemption and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss so recognized may be disallowed if the shareholder purchases
other shares of a Fund within 30 days before or after the sale or redemption. In
general, any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain, which is taxed at a lower rate for individuals, or
loss if the shares were held for longer than one year. Any capital loss arising
from the sale or redemption of shares held for six months or less will be
treated as a long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, the special holding period
rules of Code Section 246(c)(3) and (4) (discussed above in connection with the
dividends-received deduction for corporations)
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<PAGE>
generally will apply in determining the holding period of shares. Capital losses
in any year are deductible only to the extent of capital gains plus, in the case
of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of a Fund, (2)
disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
Foreign Shareholders
- --------------------
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
a foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower applicable treaty rate) upon the gross amount of the dividend.
Furthermore, such foreign shareholder may be subject to U.S. withholding tax at
the rate of 30% (or lower applicable treaty rate) on the gross income resulting
from a Fund's election to treat any foreign taxes paid by it as paid by its
shareholders, but may not be allowed a deduction against this gross income or a
credit against this U.S. withholding tax for the foreign shareholder's pro rata
share of such foreign taxes which it is treated as having paid. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of a Fund, capital gain dividends and amounts
retained by the Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income dividends, capital
gain dividends, and any gains realized upon the sale of shares of the Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or domestic corporations.
In the case of a foreign shareholder other than a corporation, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholder furnishes the Fund with proper notification of his
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund, including the
applicability of foreign taxes.
Effect of Future Legislation; State and Local Tax Considerations
- ----------------------------------------------------------------
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this SAI. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect.
24
<PAGE>
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies may differ from the rules for U.S.
federal income taxation described above. Shareholders are urged to consult their
tax advisers as to the consequences of these and other state and local tax rules
affecting investment in a Fund.
TRUSTEES AND OFFICERS
Board of Trustees.
Overall responsibility for management of the Trust rests with the Trustees, who
are elected by the shareholders of the Funds. The Funds are managed by the
Trustees in accordance with the laws of the State of Delaware. There are
currently eight Trustees, five of whom are not "interested persons" of the Trust
within the meaning of that term under the 1940 Act ("disinterested Trustees").
The Trustees, in turn, elect the officers of the Trust to supervise actively its
day-to-day operations.
The Trustees of the Trust, their ages, addresses, and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held
Name, Age and Address with the Trust Principal Occupation During Past 5 Years
--------------------- -------------- ----------------------------------------
<S> <C> <C>
Robert A. Simms, Sr. (60)* President, President and CEO of Simms.
55 Railroad Avenue Chairman of the
Greenwich, CT 06830 Board
Beverly W. Aisenbrey (54) Trustee Managing Director, Frederic W. Cook & Co., Inc.
90 Park Avenue (executive compensation consultants).
New York, NY 10016
Arthur S. Bahr (67) Trustee Director, Renaissance Re Holdings (reinsurance)
11 Guardhouse Drive since June 1993; Director, Board of Partner
West Redding, CT 06896 Representatives, Trump Castle Associates since
1995; Consultant, GE Investment Corp. from
January 1994 to December 1995, prior
to which he served as Executive Vice President;
Trustee, GE Pension Fund until January 1994.
Robert G. Blount (59) Trustee American Home Products: Director since 1990,
American Home Products Senior Executive Vice President since October
Five Giralda Farms 1995 and Executive Vice President from 1987 to
Madison, NJ 07940 October 1995.
Gen. Robert E. Kelley (64) Trustee President, Kelley & Associates (aerospace,
2550 E. Missouri Avenue defense management) since 1986; Secretary and
Phoenix, AZ 85016 Treasurer, Wright Stuff Press since 1996;
Chairman of the Board, Voting USA since November
1997; Director, Air Force Academy Foundation
since October 1996.
- --------
* Indicates an "interested person" of the Trust, as defined in the 1940
Act.
25
<PAGE>
Michael A. McManus, Jr. (55) Trustee Bank consultant since March 1998; President and
100 White Plains Road Chief Executive Officer, New York Bancorp Inc.
Bronxville, NY 10708 from November 1991 to March 1998; Director,
Misonix Inc. (scientific and industrial
ultrasonic devices) since September 1998,
National Wireless Inc. since 1993, Document
Imaging Systems Inc. since 1994, and the United
States Olympic Committee since 1997; Advisory
Board Member, Barrington Capital (broker dealer,
investment bank).
Thomas L. Melly (40)* Trustee Principal of Simms.
55 Railroad Avenue
Greenwich, CT 06830
Arthur O. Poltrack (40)* Trustee Chief Financial Officer ("CFO"), Simms since June
55 Railroad Avenue 1998; CFO, CBA Mortgage Partners LP from August
Greenwich, CT 06830 1994 to June 1998; Director of Taxation, Olympia
& York Cos. (USA) from January 1987 to August
1994.
</TABLE>
The Board presently has an Investment Policy Committee, an Audit Committee, and
a Nominating Committee. The members of the Investment Policy Committee are
Messrs. Simms, Melly and Bahr, who will serve until October 1999. The function
of the Investment Policy Committee is to review the existing investment policies
of the Funds, including the levels of risk and types of funds available to
shareholders, and make recommendations to the Trustees regarding the revision of
such policies or, if necessary, the submission of such revisions to the Funds'
shareholders for their consideration. The members of the Audit Committee are Mr.
Blount (Chairman), Gen. Kelley and Mr. McManus, who will serve until September
1999. The function of the Audit Committee is to recommend independent auditors
and monitor accounting and financial matters. Mr. McManus is the Chairman of the
Nominating Committee which nominates persons to serve as disinterested Trustees.
Remuneration of Trustees.
Each Trustee (other than Messrs. Simms, Melly and Poltrack) receives a per
meeting fee of $250. The Adviser pays the fees and expenses of Messrs. Simms,
Melly and Poltrack.
The following table indicates the compensation each Trustee is expected to
receive from the Trust for the period ending June 30, 1999.
<TABLE>
<CAPTION>
Pension or Retirement Estimated Annual Aggregate
Benefits Accrued as Benefits Upon Compensation from
Name, Position Fund Expenses Retirement the Trust
-------------- -------------- ---------- ---------
<S> <C> <C> <C>
Robert A. Simms, Chairman of the Board -0- -0- -0-
Beverly W. Aisenbrey, Trustee -0- -0- $500
Arthur S. Bahr, Trustee -0- -0- $750
Robert G. Blount, Trustee -0- -0- $750
Gen. Robert E. Kelley, Trustee -0- -0- $750
Michael A. McManus, Jr., Trustee -0- -0- $750
Thomas L. Melly, Trustee -0- -0- -0-
Arthur O. Poltrack, Trustee -0- -0- -0-
</TABLE>
26
<PAGE>
Officers.
The officers of the Trust, their ages, addresses and principal occupations
during the past five years, are as follows:
<TABLE>
<CAPTION>
Position(s)
Name, Age and Address with the Trust Principal Occupation During Past 5 Years
--------------------- -------------- ----------------------------------------
<S> <C> <C>
Robert A. Simms (60) President and President and CEO of Simms.
55 Railroad Avenue Chairman of the
Greenwich, CT 06830 Board
Peter M. Gorman (35) Vice President Principal and Director of Client Services of
55 Railroad Avenue and Secretary Simms since May 1995; independent consultant for
Greenwich, CT 06830 Merrill Lynch from March 1994 to August 1994;
Associate with JMB Realty until January 1994.
Arthur O. Poltrack (40) Vice President, See biography under "Board of Trustees."
55 Railroad Avenue Treasurer,
Greenwich, CT 06830 Chief
Accounting
Officer and CFO
Joseph C. Neuberger (36) Assistant Vice President, Firstar since August 1994; Tax
615 East Michigan Street, Secretary Manager, Arthur Andersen, LLP, from July 1984 to
Milwaukee, WI 53202-5207 August 1994.
Jeffrey T. Rauman (29) Assistant Compliance Administration Officer, Firstar since
615 East Michigan Street, Secretary February 1996; Senior Auditor, Ernst & Young
Milwaukee, WI 53202-5207 since January 1993.
</TABLE>
The officers of the Trust receive no compensation directly from the Trust for
performing the duties of their offices.
Current and retired Trustees and officers of the Trust may purchase Class A
Shares of the Funds without paying a sales load.
As of November 30, 1998, the Trustees and officers as a group owned beneficially
less than 1% of all classes of outstanding shares of the Funds.
ADVISORY AND OTHER CONTRACTS
Investment Adviser.
Simms, a Delaware corporation registered as an investment adviser with the
SEC, serves as the Funds' investment adviser. Simms is located at 55 Railroad
Avenue, Greenwich, Connecticut 06830. As of June 30, 1998, the Adviser
managed approximately $700 million for numerous clients including large
corporate and public retirement plans, Taft-Hartley plans, foundations and
endowments, high net worth individuals, and mutual funds. Mr. Simms,
President and CEO of Simms, and Mr. Melly, Ms. Miller, Mr. Thomas S. Kingsley
and Mr. Gorman, Principals of Simms, may be deemed to control the Adviser.
27
<PAGE>
The following schedule lists the advisory fees for Funds that are advised by
Simms.
.75 of 1% of average daily net assets
U.S. Equity Fund
1.00% of average daily net assets
International Equity Fund
Global Equity Fund
Portfolio Managers
Robert A. Simms. President and CEO of Simms since 1984, prior to which he was
with Bear, Stearns & Co., Inc. investment bankers, from 1972 to 1984, becoming
a General Partner in 1977. His responsibilities included Manager of the
Institutional Department, Manager of the Options and Futures Department, and
Director of Asset Management Services. He was Executive Vice President of
Black & Co. from 1968 to 1972, a member of the Institutional Sales Department
of Paine, Webber, Jackson & Curtis from 1965 to 1968 and a research analyst
for Dominick & Dominick from 1961 to 1965. He received a B.A. from Rutgers
University in 1960.
Thomas L. Melly. Principal of the Adviser, joined Simms in 1990, prior to
which he was with Lake Partners, Inc., an independent investment consulting
firm that advises high net worth investors and private and institutional
investment partnerships. His responsibilities included the design and
implementation of custom-tailored investment programs and the evaluation of
hedge funds and investment managers in the specialized areas of short-selling,
risk and convertible arbitrage and high yield securities. He was an
institutional fixed income specialist at Autranet, Inc. and Tucker, Anthony &
R.L. Day, Inc. from 1985 to 1988. From 1981 to 1983 he was an account officer
and credit analyst at Chemical Bank. Mr. Melly received his M.B.A. from the
Amos Tuck School at Dartmouth in 1985 and his B.A. from Trinity College in
1980.
Jennifer D. Miller. Principal of the Adviser, joined Simms in 1991, prior to
which she spent six years in the Investment Strategy Group at Salomon Brothers
Inc. Her responsibilities included the quantitative and technical analysis of
the firm's proprietary positions. She also served as a liaison between the
research staff, the firm's proprietary traders and clients to establish and
manage portfolios using optimization, immunization, and index techniques. Ms.
Miller received her M.B.A. from the Stern Graduate School of Business at New
York University in 1990 and her B.S. in Finance from Lehigh University in 1982.
Thomas S. Kingsley. Mr. Kingsley joined Simms in September 1994, prior to which
he was a Mechanical Engineer and a Nuclear Test Engineer with General Dynamics,
Electric Boat Division. He received his M.B.A. in Financial Services from
Rensselear Polytechnic Institute and his B.S. in Mechanical Engineering from
Florida Atlantic University/Rutgers University.
Robert Rosa, Jr. Mr. Rosa joined Simms in March 1997, prior to which he
served as an intern at Simms from June 1996 to February 1997. Mr. Rosa
received his M.B.A. from Sacred Heart University in 1997 and his B.S. from
Worcester Polytechnic Institute in 1989.
The Investment Advisory Agreement.
Unless sooner terminated, the Investment Advisory Agreement between the Adviser
and the Trust, on behalf of the Funds (the "Investment Advisory Agreement"),
provides that it will continue in effect for an initial two-year term and for
consecutive one-year terms thereafter, provided that such renewal is approved at
least annually by the Trustees or by vote of a majority of the outstanding
shares of each Fund (as defined under "Additional Information Miscellaneous"),
and, in either case, by a majority of the Trustees who are not parties to the
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Investment Advisory Agreement, by votes cast in person at a
meeting called for such purpose.
The Investment Advisory Agreement is terminable as to any particular Fund at any
time on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding shares of the Fund, by vote of the Board, or by the
Adviser. The Investment Advisory Agreement also terminates automatically in the
event of any assignment, as defined in the 1940 Act.
28
<PAGE>
The Investment Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
Code of Ethics.
The Funds and the Adviser have each adopted a Code of Ethics to which all
investment personnel and all other access persons to the Fund must conform.
Investment personnel must refrain from certain trading practices and are
required to report certain personal investment activities. Violations of the
Code of Ethics can result in penalties, suspension, or termination of
employment.
Portfolio Transactions.
Pursuant to the Investment Advisory Agreement, the Adviser determines, subject
to the general supervision of the Board, and in accordance with each Fund's
investment objective and restrictions, which securities are to be purchased and
sold by the Funds, and which brokers are to be eligible to execute its portfolio
transactions. Purchases from underwriters and/or broker-dealers of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and/or broker-dealer and purchases from dealers serving as market
makers may include the spread between the bid and asked price. While the Adviser
generally seeks competitive spreads or commissions, each Fund may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.
Allocation of transactions to dealers is determined by the Adviser in its best
judgment and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide supplemental
investment research to the Adviser may receive orders for transactions by the
Trust. Information so received is in addition to and not in lieu of services
required to be performed by the Adviser and does not reduce the investment
advisory fees payable to the Adviser by the Funds. Such information may be
useful to the Adviser in serving both the Trust and other clients and,
conversely, such supplemental research information obtained by the placement of
orders on behalf of other clients may be useful to the Adviser in carrying out
its obligations to the Trust. At times, the Funds may also purchase portfolio
securities directly from dealers acting as principals, underwriters or market
makers. As these transactions are usually conducted on a net basis, no brokerage
commissions are paid by the Funds.
Investment decisions for each Fund are made independently from those made for
the other Funds of the Trust or any other investment company or account managed
by the Adviser. Such other investment companies or accounts may also invest in
the securities in which the Funds invest, and the Funds may invest in similar
securities. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and any other Fund, investment
company or account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which the Adviser believes to be
equitable to such Funds, investment company or account. In some instances, this
investment procedure may affect the price paid or received by a Fund or the size
of the position obtained by the Fund in an adverse manner relative to the result
that would have been obtained if only that particular Fund had participated in
or been allocated such trades. To the extent permitted by law, the Adviser may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for the other funds of the Trust or for other investment
companies or accounts in order to obtain best execution. In making investment
recommendations for the Trust, the Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by a
Fund is a customer of the Adviser, its parents or subsidiaries or affiliates
and, in dealing with their commercial customers, the Adviser, their parents,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Trust.
29
<PAGE>
Administrator.
Firstar (the "Administrator"), 615 East Michigan Street, Milwaukee, Wisconsin
53202-5207, serves as administrator to the Funds pursuant to an administration
agreement dated October 5, 1998 (the "Administration Agreement"). The
Administrator assists in supervising all operations of the Funds (other than
those performed by the Adviser under the Investment Advisory Agreement), subject
to the supervision of the Board. Firstar also provides a current security
position report, a summary report of transactions and pending maturities, a
current cash position report, calculates the dividend and capital gain
distribution, if any, and the yield, and maintains the general ledger accounting
records for the Funds.
For the services rendered to the Funds and related expenses borne by Firstar as
Administrator, the Trust pays Firstar a minimum annual fee of $30,000 for each
Fund and $15,000 for each class of shares. In addition, each Fund pays Firstar
an annual fee, computed daily and paid monthly, at the following annual rates
based on the Fund's average daily net assets: 0.06% of the first $400 million of
assets; 0.05% of the next $1 billion of assets; and 0.03% of assets over $1.4
billion.
Firstar may periodically waive all or a portion of its fee with respect to any
Fund in order to increase the net income of one or more of the Funds available
for distribution to shareholders.
Unless sooner terminated, the Administration Agreement will continue in effect
as to each Fund for a period of two years, and for consecutive one-year terms
thereafter, provided that such renewal is ratified at least annually by the
Trustees or by vote of a majority of the outstanding shares of each Fund, and in
either case by a majority of the Trustees who are not parties to the
Administration Agreement or interested persons (as defined in the 1940 Act) of
any party to the Administration Agreement, by votes cast in person at a meeting
called for such purpose.
The Administration Agreement provides that Firstar shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or from the reckless disregard by it of its
obligations and duties thereunder.
Under the Administration Agreement, Firstar assists in each Fund's
administration and operation, including providing statistical and research data,
clerical services, internal compliance and various other administrative
services, including among other responsibilities, forwarding certain purchase
and redemption requests to the Transfer Agent, participation in the updating of
the prospectus, coordinating the preparation, filing, printing and dissemination
of reports to shareholders, coordinating the preparation of income tax returns,
arranging for the maintenance of books and records and providing the office
facilities necessary to carry out the duties thereunder. Under the
Administration Agreement, Firstar may delegate all or any part of its
responsibilities thereunder.
Distributor.
T.O. Richardson Securities, Inc., 2 Bridgewater Road, Farmington, Connecticut
06032, serves as distributor for the continuous offering of the shares of the
Funds pursuant to a Distribution Agreement between the Distributor and the
Trust. Unless otherwise terminated, the Distribution Agreement will remain in
effect with respect to each Fund for two years, and will continue thereafter for
consecutive one-year terms, provided that the renewal is approved at least
annually (1) by the Trustees or by the vote of a majority of the outstanding
shares of each Fund, and (2) by the vote of a majority of the Trustees of the
Trust who are not parties to the Distribution Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Distribution Agreement will terminate in the event of its
assignment, as defined under the 1940 Act.
As compensation for services performed under the Distribution Agreement, the
Trust will pay to the Distributor any fees that may become payable to the
Distributor pursuant to the Distribution Plan and any
30
<PAGE>
dealer retention of sales loads. The Adviser has agreed to pay the Distributor
from its own resources certain amounts above the amount that the Distributor
would earn from dealer retention and Rule 12b-1 payments.
Transfer Agent.
Firstar serves as transfer and dividend disbursing agent for the Funds pursuant
to a Transfer Agency and Service Agreement. Under its agreement with the Trust,
Firstar has agreed (1) to issue and redeem shares of the Funds; (2) to address
and mail all communications by the Trust to its shareholders, including reports
to shareholders, dividend and distribution notices, and proxy material for its
meetings of shareholders; (3) to respond to correspondence or inquiries by
shareholders and others relating to its duties; (4) to maintain shareholder
accounts and certain sub-accounts; and (5) to make periodic reports to the
Trustees concerning the Funds' operations.
Shareholder Servicing Plan.
Payments made under the Shareholder Servicing Plan to Shareholder Servicing
Agents (which may include affiliates of the Adviser) are for administrative
support services to customers who may from time to time beneficially own shares,
which services may include: (1) aggregating and processing purchase and
redemption requests for shares from customers and transmitting promptly net
purchase and redemption orders to our distributor or transfer agent; (2)
providing customers with a service that invests the assets of their accounts in
shares pursuant to specific or pre-authorized instructions; (3) processing
dividend and distribution payments on behalf of customers; (4) providing
information periodically to customers showing their positions in shares; (5)
arranging for bank wires; (6) responding to customer inquiries; (7) providing
subaccounting with respect to shares beneficially owned by customers or
providing the information to the Funds as necessary for subaccounting; (8) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (9) forwarding to customers proxy
statements and proxies containing any proposals which require a shareholder
vote; and (10) providing such other similar services as the Trust may reasonably
request to the extent permitted under applicable statutes, rules or regulations.
Other Servicing Plans.
In connection with certain servicing plans, the Funds have made certain
commitments that: (i) provide for one or more brokers to accept on the Funds'
behalf, purchase and redemption orders; (ii) authorize such brokers to designate
other intermediaries to accept purchase and redemption orders on the Funds'
behalf; (iii) provide that the Funds will be deemed to have received a purchase
or redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order; and (iv) provide that customer orders
will be priced at the Funds' Net Asset Value next computed after they are
accepted by an authorized broker or the broker's authorized designee.
Distribution Plan.
The Trust, on behalf of the Funds, has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1"). Rule 12b-1
provides in substance that a mutual fund may not engage directly or indirectly
in financing any activity that is primarily intended to result in the sale of
shares of such mutual fund except pursuant to a plan adopted by the fund under
Rule 12b-1. The Plan provides that a Fund may incur distribution expenses
related to the sale of shares of up to 0.50% per annum of the Fund's average
daily net assets.
The Plan provides that a Fund may finance activities which are primarily
intended to result in the sale of the Fund's shares, including, but not limited
to, advertising, printing of prospectuses and reports for other than existing
shareholders, preparation and distribution of advertising material and sales
literature and payments to dealers and shareholder servicing agents who enter
into agreements with the Fund or its Distributor.
31
<PAGE>
In approving the Plan in accordance with the requirements of Rule 12b-1 under
the 1940 Act, the Trustees (including the "disinterested" Trustees, as defined
in the 1940 Act) considered various factors and determined that there is a
reasonable likelihood that the Plan will benefit each Fund and its shareholders.
The Plan will continue in effect from year to year if specifically approved
annually (a) by the majority of such Fund's outstanding voting shares or by the
Board and (b) by the vote of a majority of the disinterested Trustees. While the
Plan remains in effect, each Fund will furnish to the Board a written report of
the amounts spent by the Fund under the Plan and the purposes for these
expenditures. The Plan may not be amended to increase materially the amount to
be spent for distribution without shareholder approval and all material
amendments to the Plan must be approved by a majority of the Board and by the
disinterested Trustees in a vote cast in person at a meeting called specifically
for that purpose. While the Plan is in effect, the selection and nomination of
the disinterested Trustees shall be made by those disinterested Trustees then in
office.
Fund Accountant.
Firstar serves as fund accountant for the all of the Funds pursuant to a fund
accounting agreement with the Trust dated October 5, 1998. As fund accountant
for the Trust, Firstar calculates each Fund's net asset value and provides other
services to the Funds. Under the fund accounting agreement, in addition to
reimbursement of certain out-of-pocket expenses, Firstar is entitled to receive
the following annual fees: U.S. Equity Fund: $22,000 for the first $40 million
in assets, 0.01% of the next $200 million, and 0.005% of assets above $240
million; International and Global Equity Funds: $23,500 for the first $40
million in assets, 0.015% of the next $200 million, and 0.01% of assets above
$240 million.
Custodian.
Cash and securities owned by each of the Funds are held by Firstar Bank
Milwaukee, N.A., as custodian pursuant to a Custodian Agreement dated October 5,
1998. Under this Agreement, Firstar Bank Milwaukee, N.A., (1) maintains a
separate account or accounts in the name of each Fund; (2) makes receipts and
disbursements of money on behalf of each Fund; (3) collects and receives all
income and other payments and distributions on account of portfolio securities;
and (4) responds to correspondence from security brokers and others relating to
its duties. Firstar Bank Milwaukee, N.A., may, with the approval of a Fund and
at the custodian's own expense, open and maintain a sub-custody account or
accounts on behalf of a Fund, provided that Firstar Bank Milwaukee, N.A., shall
remain liable for the performance of all of its duties under the Custodian
Agreement.
Independent Accountants.
The audited financial statements of the Trust, with respect to all the Funds,
for the period from July 1, 1998 (inception) through November 23, 1998, are
included herein. The financial statements for the period from July 1, 1998
(inception) through November 23, 1998 for all share Classes of each Fund of the
Trust, have been audited by PricewaterhouseCoopers LLP as set forth in their
report included herein, and are included in reliance upon such report and on the
authority of such firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP, located at 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, serves as the Trust's independent accountants.
Legal Counsel.
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022
serves as counsel to the Trust.
Expenses.
The Funds bear the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, SEC fees, state
securities qualification fees, costs of preparing and printing
32
<PAGE>
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and transfer agent,
certain insurance premiums, costs of maintenance of the fund's existence, costs
of shareholders' reports and meetings, and any extraordinary expenses incurred
in the Funds' operation.
ADDITIONAL INFORMATION
Description of Shares.
The Trust is a Delaware business trust that was formed on July 1, 1998. The
Trust Instrument authorizes the Board to issue an unlimited number of shares,
which are units of beneficial interest, with a par value of $.001 per share. The
Trust currently has three series of shares, which represent interests in the
U.S. Equity Fund, the International Equity Fund, the Global Equity Fund, and
their respective Classes.
The Trust's Trust Instrument authorizes the Board to divide or redivide any
unissued shares of the Trust into one or more additional series by setting or
changing in any one or more aspects their respective preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption. Each Fund currently
offers two share classes: (1) Class A, sold primarily to individuals and other
purchasers investing less than $1 million, and (2) Class Y, sold primarily to
institutions investing at least $1 million. The Distributor, in its discretion,
may (i) sell Class Y Shares to individuals who invest at least $1 million;
and/or (ii) waive the minimum investment in Class Y Shares for certain
investors, including investors who acquired their shares through the
reorganization of two limited partnerships managed by Simms: Simms Partners
(U.S.), L.P. and Simms Partners (International), L.P.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in the Prospectus and this SAI, the Trust's shares will be
fully paid and non-assessable. In the event of a liquidation or dissolution of
the Trust, shares of a Fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular Fund that are available for distribution.
Shares of the Trust are entitled to one vote per share (with proportional voting
for fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote as a single class on all matters except (1) when required by
the 1940 Act, shares shall be voted by individual series, and (2) when the
Trustees have determined that the matter affects only the interests of one or
more series, then only shareholders of such series shall be entitled to vote
thereon. There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees have been elected by the shareholders, at which time the Trustees then
in office will call a shareholders' meeting for the election of Trustees. A
meeting shall be held for such purpose upon the written request of the holders
of not less than 10% of the outstanding shares. Upon written request by ten or
more shareholders meeting the qualifications of Section 16(c) of the 1940 Act
(i.e., persons who have been shareholders for at least six months, and who hold
shares having a net asset value of at least $25,000 or constituting 1% of the
outstanding shares) stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, the Trust will provide a list
of shareholders or disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, the Trustees shall continue
to hold office and may appoint their successors.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. For purposes of determining whether the approval of a
majority of the outstanding shares of a Fund will be required in connection with
a matter, the Fund will be deemed to be affected by a matter unless it is clear
that the interests of each Fund in the matter are identical, or that the matter
does not affect any interest of the Fund. Under Rule 18f-2, the approval of an
investment advisory agreement or any
33
<PAGE>
change in investment policy would be effectively acted upon with respect to a
Fund only if approved by a majority of the outstanding shares of such Fund.
However, Rule 18f-2 also provides that the ratification of independent
accountants, the approval of principal underwriting contracts, and the election
of Trustees may be effectively acted upon by shareholders of the Trust voting
without regard to series.
Shareholder and Trustee Liability.
The Trust is organized as a Delaware business trust. The Delaware Business Trust
Act provides that a shareholder of a Delaware business trust shall be entitled
to the same limitation of personal liability extended to shareholders of
Delaware corporations, and the Trust Instrument provides that shareholders of
the Trust shall not be liable for the obligations of the Trust. The Trust
Instrument also provides for indemnification out of Trust property of any
shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Trust Instrument also provides that the Trust
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust, and shall satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss
because of shareholder liability is considered to be extremely remote.
The Trust Instrument states further that no Trustee, officer, or agent of the
Trust shall be personally liable in connection with the administration or
preservation of the assets of the Funds or the conduct of the Trust's business;
nor shall any Trustee, officer, or agent be personally liable to any person for
any action or failure to act except for his own bad faith, willful misfeasance,
gross negligence, or reckless disregard of his duties. The Trust Instrument also
provides that all persons having any claim against the Trustees or the Trust
shall look solely to the assets of the Trust for payment.
The Trust Instrument provides the Trustees with broad powers to amend the Trust
Instrument or approve the reorganization of any Fund, without the approval of
shareholders, unless such approval is otherwise required by law. The Trust
Instrument allows the Trustees to take actions upon the authority of a majority
of Trustees by written consent in lieu of a meeting.
Bylaws
The Trust's Bylaws define the rights and obligations of the Trust's officers and
provide rules for routine matters such as calling meetings. The Bylaws govern
the use of proxies at shareholder meetings. According to the Bylaws, proxies may
be given by telephone, computer, other electronic means or otherwise pursuant to
procedures reasonably designed, as determined by the Trustees, to verify that
the shareholder has authorized the instructions contained therein. The Bylaws
also govern the conduct of Trustees' meetings and state that any action by the
Trustees may be taken without a meeting if a written consent to the action is
signed by a majority of the Trustees. Telephone meetings where each Trustee are
able to hear each other are also permitted, except in situations where the 1940
Act requires in-person meetings, such as consideration of Rule 12b-1 plans and
investment advisory contracts. The Bylaws provide that the Trust's fiscal year
will end on June 30 of each year.
Miscellaneous.
As used in the Prospectus and in this SAI, "assets belonging to a Fund" means
the consideration received by the Trust upon the issuance or sale of shares of a
Fund, together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale, exchange, or
liquidation of such investments, and any funds or payments derived from any
reinvestment of such proceeds and any general assets of the Trust, which general
liabilities and expenses are not readily identified as belonging to a particular
Fund that are allocated to that Fund by the Trustees. The Trustees may allocate
such general assets in any manner they deem fair and equitable. It is
anticipated that the factor that will be used by the Trustees in making
allocations of general assets to a particular fund of the Trust will be the
relative net asset value of each respective fund at the time of allocation.
Assets belonging to a particular Fund are charged with the direct liabilities
and expenses in respect of that Fund, and with a share of the general
liabilities and expenses of each
34
<PAGE>
of the Funds not readily identified as belonging to a particular Fund, which are
allocated to each Fund in accordance with its proportionate share of the net
asset values of the Funds at the time of allocation. The timing of allocations
of general assets and general liabilities and expenses of the Trust to a
particular fund will be determined by the Trustees and will be in accordance
with generally accepted accounting principles. Determinations by the Trustees as
to the timing of the allocation of general liabilities and expenses and as to
the timing and allocable portion of any general assets with respect to a
particular fund are conclusive.
The Trust is registered with the SEC as an open-end management investment
company. Such registration does not involve supervision by the SEC of the
management or policies of the Trust.
The Prospectus and this SAI do not include certain information contained in the
registration statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
Simms Capital Management, Inc. may be deemed to control the Funds.
The Prospectus and this SAI do not constitute an offering of the securities
described in these documents in any state in which such offering may not
lawfully be made. No salesman, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectus and this SAI.
35
<PAGE>
APPENDIX A
Description of Security Ratings.
The NRSROs that may be utilized by the Adviser with regard to portfolio
investments for the Funds include Moody's and S&P. Set forth below is a
description of the relevant ratings of each such NRSRO. The NRSROs that may be
utilized by the Adviser and the description of each NRSRO's ratings is as of the
date of this SAI, and may subsequently change.
Long-Term Debt Ratings (assigned to corporate bonds).
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
A-1
<PAGE>
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
Short-Term Debt Ratings (may be assigned, for example, to CP, bank instruments,
and letters of credit).
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- - Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
A-2
<PAGE>
APPENDIX B
The Simms Funds
Statement of Assets and Liabilities
November 23, 1998
<TABLE>
<CAPTION>
U.S. International Global
Equity Fund Equity Fund Equity Fund
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 50,000 $ 50,000 $ 10
Receivable from adviser 38,231 38,232 -
Prepaid blue sky expenses 21,137 21,137 21,136
Prepaid insurance 5,163 5,162
----- -----
-
Total Assets 114,531 114,531 21,146
------- ------- ------
LIABILITIES
Payable to adviser 64,531 64,531 21,136
------ ------ ------
Total Liabilities 64,531 64,531 21,136
------ ------ ------
NET ASSETS $50,000 $ 50,000 $ 10
======= ======== ======
Capital shares outstanding (par value $.001 per 5,000 5,000 1
======= ======== ======
share; indefinite shares authorized)
CLASS A
Net Assets $ - $ - $ -
======= ======== ======
Shares issued and outstanding
- - -
======= ======== ======
Net asset value and redemption price per share $ - $ - $ -
======= ======== ======
Maximum offering price per share $ 10.42 $ 10.42 $10.42
======= ======= ======
CLASS Y
Net Assets $50,000 $50,000 $ 10
Shares issued and outstanding 5,000 5,000 1
Net asset value, redemption price and offering price $ 10.00 $ 10.00 $ 10.00
======= ======= =======
per share
</TABLE>
See accompanying notes to the financial statements.
B-1
<PAGE>
The Simms Funds
Statement of Operations
For the Period July 1, 1998 (inception) through November 23, 1998
<TABLE>
<CAPTION>
U.S. International Global
Equity Fund Equity Fund Equity Fund
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
EXPENSES
Organization expenses $38,231 $38,232 $ -
Less: Expenses paid by adviser (38,231) (38,232)
------ -----
-
Net income/(loss) $ 0 $ 0 $ -
====== ======= ======
</TABLE>
See accompanying notes to the financial statements.
B-2
<PAGE>
The Simms Funds
Notes to the Financial Statements
For the Period July 1, 1998 (inception) through November 23, 1998
1. Organization
------------
The Simms Funds (the "Trust") was organized as a Delaware business trust on
July 1, 1998 and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company
issuing its shares in series, each series representing a distinct portfolio
with its own investment objectives and policies. The series presently
authorized are the U.S. Equity Fund, the International Equity Fund and the
Global Equity Fund (collectively referred to as the "Funds"). Pursuant to
the 1940 Act, the Funds are "diversified" series of the Trust. The Trust
has had no operations other than those relating to organizational matters,
including the sale of 5,000 Class Y shares for cash in the amount of
$50,000 of the U.S. Equity Fund, 5,000 Class Y shares for cash in the
amount of $50,000 of the International Equity Fund and 1 Class Y share for
cash in the amount of $10 of the Global Equity Fund to capitalize the
Funds, which were sold to Simms Capital Management, Inc. (the "Adviser"),
on November 23, 1998. There are currently no immediate plans to offer
Global Equity Fund shares for sale to the public. Each Fund offers two
classes of shares: Class A shares with an initial sales charge up to 4.00%
and Class Y shares with no sales charges.
2. Significant Accounting Policies
-------------------------------
(a) Organization and Prepaid Initial Registration Expenses
Expenses incurred by the Trust in connection with the organization and
the initial public offering of shares are expensed as incurred. These
expenses were advanced by the Adviser, and the Adviser has agreed to
voluntarily absorb or defer expenses of the Funds (see Note 3). Prepaid
blue sky and insurance expenses are deferred and amortized over the
period of benefit.
(b) Federal Income Taxes
Each Fund intends to comply with the requirements of the Internal
Revenue Code necessary to qualify as a regulated investment company and
to make the requisite distributions of income and capital gains to
their shareholders sufficient to relieve them from all or substantially
all Federal income taxes.
3. Investment Adviser
------------------
The Trust has an Investment Advisory Agreement (the "Agreement") with the
Adviser, with whom certain officers and Trustees of the Trust are
affiliated, to furnish investment advisory services to the Funds. Under the
terms of the Agreement, the Trust, on behalf of the Funds, compensates the
Adviser for its management services based on an annual rate of 0.75% of the
U.S. Equity Fund and 1.00% of the International Equity Fund and Global
Equity Fund's average daily net assets.
B-3
<PAGE>
The Adviser has agreed to voluntarily defer receipt of all or part of its
advisory fee and/or absorb the Funds' other expenses, including
organization expenses, to the extent necessary to ensure that each of the
Fund's operating expenses, do not exceed the following amounts:
Fund Class A Class Y
---- ------- -------
U.S. Equity Fund 2.06% 1.31%
International Equity Fund 2.38% 1.63%
Global Equity Fund 2.23% 1.48%
To the extent that Simms defers or absorbs expenses, it may seek payment of
such deferred fees or reimbursement of such absorbed expenses for two years
after the year in which fees were deferred or expenses were absorbed. A
Fund will make no such payment or reimbursement, however, if the total
annual Fund operating expenses exceed the expense limits in effect at the
time these payments or reimbursements are proposed.
4. Distribution Plan
-----------------
The Trust, on behalf of the Funds, has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), which provides that
each Fund's Class A Shares will pay distribution fees of up to 0.50% of the
average daily net assets to the distributor. Payments under the
distribution plan shall be used to compensate or reimburse the Funds'
distributor for services provided and expenses incurred in connection with
the sale of shares, and are not tied to the amount of actual expenses
incurred.
5. Shareholder Servicing Fees
--------------------------
The Trust, on behalf of the Funds, has adopted a shareholder servicing
plan. Under the shareholder servicing plan, Class A Shares may pay
financial institutions, including affiliates of the Adviser, a fee up to
0.25% of its average daily net assets for services relating to maintenance
of investor accounts, including liaison with investors.
B-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
The Simms Funds
In our opinion, the accompanying statement of assets and liabilities and the
related statement of operations present fairly, in all material respects, the
financial position of each of the portfolios of The Simms Funds (the "Trust") at
November 23, 1998 and the results of each of their operations for the period
from July 1, 1998 (inception) through November 23, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 24, 1998
B-5