As filed via EDGAR with the Securities and Exchange Commission on
October 27, 1999
File No. 333-58813
ICA No. 811-08871
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2
THE SIMMS FUNDS
(Exact Name of Registrant as Specified in Charter)
55 Railroad Avenue Greenwich, Connecticut 06830
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (203) 861-8500
Copy to:
Jay G. Baris, Esq. Arthur O. Poltrack
Kramer Levin Naftalis & Frankel LLP The Simms Funds
919 Third Avenue 55 Railroad Avenue
New York, New York 10022 Greenwich, Connecticut 06830
- -------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
this registration statement becomes effective.
It is proposed that this filing will become effective:
|_| Immediately upon filing pursuant |X| on October 29, 1999 pursuant to
to paragraph (b) to paragraph (b)
|_| 60 days after filing pursuant |_| on (date) pursuant to paragraph
to paragraph (a)(1) (a)(1)
|_| 75 days after filing pursuant |_| on (date) pursuant to paragraph
to paragraph (a)(2) (a)(2) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
(SIMMS CAPITAL MANAGEMENT, INC.
GLOBAL INVESTORS LOGO)
SIMMS CAPITAL MANAGEMENT, INC.
55 RAILROAD AVENUE, GREENWICH, CONNECTICUT 06830 1-203-861-8500
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
October 29, 1999
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
Page
----
RISK/RETURN SUMMARY ..................................................... 1
A presentation of each Fund's risk/return summary, fees and expenses, and
investments
INVESTMENTS ............................................................. 4
OTHER INVESTMENT STRATEGIES ............................................. 6
RISKS ................................................................... 6
PERFORMANCE ............................................................. 8
MANAGEMENT OF THE FUNDS ................................................. 10
SHAREHOLDER INFORMATION ................................................. 10
INVESTING WITH SIMMS .................................................... 11
How to Purchase Shares ................................................ 14
How to Redeem Shares .................................................. 15
Exchanges ............................................................. 18
SHAREHOLDER SERVICES .................................................... 18
RETIREMENT PLANS ........................................................ 19
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 20
FINANCIAL HIGHLIGHTS .................................................... 22
ADDITIONAL INFORMATION .......................................... Back Cover
<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
o 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 and 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:
o The stock market goes down
o "Growth" stocks fail to meet future sales or future earnings estimates
o A company's earnings do not increase as expected
In addition, you should be aware that:
o "Growth" stocks may suffer steeper losses than other investments during
market declines of economic downturns
o Multinational companies are vulnerable to currency exchange and/or
political risks
o Simms has not managed a mutual fund prior to the Funds' commencement of
operations
1
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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
o Political or economic events overseas adversely affect securities of
foreign issuers
o 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:
o are long-term investors with a particular goal, like saving for
retirement
o want potential growth over time
o want a diversified portfolio that includes multinational companies
o 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:
o are investing for the short term or need current income
o are not willing to take any risk that they may lose money on their
investment
o want absolute stability of their investment principal
o want to invest in a particular sector or in particular industries,
countries, or regions
Keep in mind that mutual fund shares:
o are not deposits or obligations of, or guaranteed or endorsed by, any
bank
o are not insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency
o are subject to investment risks, including possible loss of the money
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>
U.S. INTERNATIONAL GLOBAL
EQUITY FUND EQUITY FUND EQUITY FUND
CLASS A CLASS Y CLASS A CLASS Y CLASS A CLASS Y
--------------- ------- ------- ------- -------
<S> <C> <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
reinvested dividends None None None None None None
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 4.84% 4.84% 4.52% 4.52% 36.44% 36.44%
Shareholder servicing fee 0.25% None 0.25% None 0.25% None
Total annual Fund operating expenses(4) 6.34% 5.59% 6.27% 5.52% 38.19% 37.44%
Expenses reimbursed by the Fund's Advisor -4.28% -4.28% -3.89% -3.89% -35.96% -35.96%
Net operating expenses 2.06% 1.31% 2.38% 1.63% 2.23% 1.48%
</TABLE>
- -------------------
Notes:
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. We expect that each Fund's total annual operating expenses will
decrease as the Fund's assets increase. For the period from
commencement of operations to June 30, 1999, Simms Capital
Management, Inc. (Simms) waived its investment advisory fee and
absorbed certain expenses so that the net annual Fund operating
expenses did exceed the amounts shown above. Simms has agreed to
continue to limit each Fund's net annual operating expenses as shown
above until at least June 30, 2000.
To the extent that Simms reimburses or absorbs fees and expenses, it
may seek payment of such amounts for two years after the year in
which expenses were reimbursed. A Fund will make no such payment,
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:
o you invest $10,000 in the Fund for the time periods indicated
o your investment returns 5% each year
o the Fund's operating expenses remain the same
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
U.S. INTERNATIONAL GLOBAL
EQUITY FUND EQUITY FUND EQUITY FUND
----------------- ----------------- -----------------
CLASS A CLASS Y CLASS A CLASS Y CLASS A CLASS Y
------- ------- ------- ------- ------- -------
One Year* ...... $ 601 $ 133 $ 631 $ 166 $ 617 $ 151
Three Years ...... $1,785 $1,238 $1,805 $1,258 $4,025 $3,702
Five Years ....... $2,39 $2,330 $2,948 $2,339 $5,546 $5,322
Ten Years ........ $5,690 $5,004 $5,683 $4,994 $6,609 $6,492
* This example assumes that net operating expenses for each Fund will be
limited as described under "Fees and Expenses of the Funds" until June
30, 2000 and that no such limits will apply thereafter.
INVESTMENTS
EACH FUND'S INVESTMENT OBJECTIVE
Capital appreciation
PRINCIPAL INVESTMENT STRATEGIES
o U.S. EQUITY FUND
o 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.
o INTERNATIONAL EQUITY FUND
o 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.
o GLOBAL EQUITY FUND
o 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.
4
<PAGE>
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.
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
-- 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.
5
<PAGE>
OTHER INVESTMENT STRATEGIES
o 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.
o 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.
o 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.
o 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.
o LENDING. Each Fund may lend a portion of its securities to financial
institutions for a fee.
o 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
o 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.
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.
6
<PAGE>
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.
o 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.
o 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.
o 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.
THE FOLLOWING RISK IS COMMON TO MUTUAL FUNDS THAT INVEST IN EQUITY
SECURITIES.
o 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.
o 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.
o 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.
o 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.
o 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 have become components of the euro.
7
<PAGE>
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT USE HEDGING OR LEVERAGED
TRANSACTIONS.
o 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.
o 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.
o 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 hedging techniques at any time.
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. Each Partnership was reorganized into its corresponding
Simms Fund on December 11, 1998.
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
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.
8
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS OF THE PARTNERSHIPS*
FOR THE PERIODS ENDED DECEMBER 10, 1998
CLASS A
--------------------------------------
SINCE INCEPTION
ONE YEAR TWO YEARS (JULY 1, 1996)
-------- --------- --------------
U.S. Partnership ..................... 15.95% 19.71% 23.62%
International Partnership ............ 6.45% 8.13% 8.12%
CLASS Y
--------------------------------------
SINCE INCEPTION
ONE YEAR TWO YEARS (JULY 1, 1996)
-------- --------- --------------
U.S. Partnership ..................... 20.78% 22.18% 25.72%
International Partnership ............ 10.88% 10.39% 9.99%
----------------
* 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.
CUMULATIVE TOTAL RETURNS OF THE PARTNERSHIPS*
FOR THE PERIODS ENDED DECEMBER 10, 1998
CLASS A
--------------------------------------
SINCE INCEPTION
ONE YEAR TWO YEARS (JULY 1, 1996)
-------- --------- --------------
U.S. Partnership ..................... 15.95% 43.23% 66.78%
International Partnership ............ 6.45% 16.90% 20.73%
CLASS Y
--------------------------------------
SINCE INCEPTION
ONE YEAR TWO YEARS (JULY 1, 1996)
-------- --------- --------------
U.S. Partnership ..................... 20.78% 49.21% 77.06%
International Partnership ............ 10.88% 21.80% 26.77%
---------------------
* 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.
Because the Funds commenced operations in December 1998, the Funds do not
yet have annual returns for a full calendar year. In the next Prospectus dated
after December 31, 1999, a bar chart and table will give an indication of the
risks of an investment in the Funds by showing how the Funds have performed over
the past calendar year, and in relation to a broad measure of market
performance.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. HISTORY DOES NOT ALWAYS
REPEAT ITSELF.
9
<PAGE>
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISOR
Simms, the investment advisor 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. No advisory fees
were paid to Simms for the period from commencement of operations (December 11,
1998 for the U.S. Equity and International Equity Funds and December 18, 1998
for the Global Equity Fund) to June 30, 1999. Simms has agreed to waive all or
part of its advisory fees and/or absorb expenses in order to limit a Fund's
expenses to the amount shown under "Fees and Expenses of the Funds" until at
least June 30, 2000.
PORTFOLIO MANAGERS
EACH FUND IS MANAGED BY ROBERT A. SIMMS, THOMAS L. MELLY, JENNIFER D.
MILLER, THOMAS S. KINGSLEY, ROBERT ROSA, JR. AND HERVE VAN CALOEN.
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. Mr. van Caloen joined Simms in July
1999, prior to which he was an international fund portfolio manager for GTF
Asset Management from March 1997 until June 1999 and at Schroeder Capital
Management International from March 1996 until March 1997. From January 1992 to
July 1995, he was the head of international investments and a portfolio manager
at Provident Capital Management where he managed an emerging markets fund.
DISTRIBUTOR
T.O. Richardson Securities, Inc., 2 Bridgewater Road, Farmington,
Connecticut, 06032, serves as each Fund's principal underwriter and distributor.
The Distributor may receive a sales load as described under "How to Buy Shares"
and payments under each Fund's distribution plan.
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.
10
<PAGE>
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.
Total Assets Less Liabilities
NAV = -----------------------------
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
a minimum level of assets.
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
NON-RETIREMENT ACCOUNT RETIREMENT ACCOUNT
---------------------- ------------------
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
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)
11
<PAGE>
HOW WE CALCULATE SALES CHARGES ON CLASS A SHARES
The Class A Shares' sales load varies according to the size of the purchase.
INITIAL SALES CHARGE:
AMOUNT OF PURCHASE % OF OFFERING PRICE % OF NET AMOUNT INVESTED
------------------ ------------------- ------------------------
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
- ----------------
* 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 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 advisors purchasing shares for their own
accounts or discretionary accounts
o qualified retirement plans
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).
REDUCTION OF CLASS A SALES CHARGES
You may reduce your Class A sales charge by taking advantage of the
following privileges:
o 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:
o 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;
o a trustee or other fiduciary account (including an employee benefit
plan);
o 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.
12
<PAGE>
o 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.
o 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:
o in existence for more than six months
o have a purpose other than purchasing Class A Shares at a discount
o consist of more than 10 individuals
o be able to meet as a group with Fund representatives
o distribute Fund sales materials to its members
o 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
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>
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.
o 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 $25 fee for any returned payment
check.
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.
14
<PAGE>
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.
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.
15
<PAGE>
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.
o Overnight deliveries should be sent to: Firstar Mutual Fund
Services LLC 615 East Michigan Street Milwaukee, Wisconsin
53202.
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.
16
<PAGE>
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
o 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.
o 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.
o 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).
o 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.
o 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.
o 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.
o 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.
o SUSPENSION OF REDEMPTION. Under certain emergency circumstances, we may
suspend your right to redeem shares in a Fund.
17
<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.
o EXCHANGE PROCEDURES. To exchange your shares, you must give exchange
instructions to the Transfer Agent in writing or by telephone.
o EXCHANGE POLICIES. When exchanging your shares, please keep in mind:
o 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.
o 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.
o 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.
o We may reject your exchange request. We may modify or terminate our
exchange policy at any time, provided we give you 60 days' notice.
o Before you exchange your shares, you must review a copy of the
current prospectus of the Fund that you would like to purchase.
o You may qualify for a reduced sales charge. See the SAI for details.
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.
o 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).
o 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.
o 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.
o 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.
18
<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.
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
deductible 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.
19
<PAGE>
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.
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:
o 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.
o CASH. We will send you a check no later than 7 days after the payable
date.
o 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.
o 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.
o 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).
20
<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.
o 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.
o 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.
o 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.
o Certain dividends paid to you in January will be taxable as if they had
been paid the previous December.
o We will mail you tax statements every January showing the amounts and tax
status of the distributions you received.
o When you sell (redeem) or exchange shares of a Fund, you must recognize
any gain or loss.
o 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.
o 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.
o 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.
21
<PAGE>
FINANCIAL HIGHLIGHTS
U.S. EQUITY FUND
The financial highlights table is intended to help you understand the U.S.
Equity Fund's financial performance for the period from December 11, 1998
(commencement of operations) through June 30, 1999. Certain information reflects
financial results for a single share of the U.S. Equity Fund. The total returns
in the table represent the rate that an investor would have earned on an
investment in the U.S. Equity Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the U.S. Equity Fund's financial statements, are
included in the annual report, which is available by calling the Fund at 1-877-
GET-SIMS (1-877-438-7467).
<TABLE>
<CAPTION>
APRIL 26, 1999 (1) DECEMBER 11, 1998 (1)
THROUGH THROUGH
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
CLASS A CLASS Y
------------- -------------
<S> <C> <C>
Per Share Data:
Net asset value, beginning of period .................. $12.20 $10.00
------ ------
Income from investment operations:
Net investment loss .............................. (0.02)(2) (0.03)(2)
Net realized and unrealized gains on investments . 0.32 2.54
------ ------
Total from investment operations ................. 0.30 2.51
------ ------
Net asset value, end of period ........................ $12.50 $12.51
====== ======
Total return (3) (4) ........................ 2.46% 25.10%
Supplemental data and ratios:
Net assets, end of period ........................ $983 $5,213,829
Ratio of expenses to average net assets before
reimbursement by Adviser (5).................... 8.39% 5.59%
Ratio of expenses to average net assets after
reimbursement by Adviser (5).................... 2.06% 1.31%
Ratio of net investment loss to average net assets
before reimbursement by Adviser (5)............. (7.38%) (4.70%)
Ratio of net investment loss to average net assets
after reimbursement by Adviser (5).............. (1.06%) (0.42%)
Portfolio turnover rate (6)....................... 50.40% 50.40%
</TABLE>
(1) Commencement of operations for Class Y shares occurred on December 11, 1998
for the U.S. Equity Fund. Commencement of sale of Class A shares occurred
on April 26, 1999 for the U.S. Equity Fund.
(2) Net investment income per share is calculated using ending balances prior
to consideration of adjustments for permanent book and tax differences.
(3) The total return does not reflect the 4.00% maximum sales charge for Class
A shares.
(4) Not annualized.
(5) Annualized.
(6) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
22
<PAGE>
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY FUND
The financial highlights table is intended to help you understand the
International Equity Fund's financial performance for the period from December
11, 1998 (commencement of operations) through June 30, 1999. Certain information
reflects financial results for a single share of the International Equity Fund.
The total returns in the table represent the rate that an investor would have
earned on an investment in the International Equity Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the International Equity
Fund's financial statements, are included in the annual report, which is
available by calling the Fund at 1-877-GET-SIMS (1-877-438- 7467).
<TABLE>
<CAPTION>
FEBRUARY 1, 1999 (1) DECEMBER 11, 1998 (1)
THROUGH THROUGH
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
CLASS A CLASS Y
------------- -------------
<S> <C> <C>
Per Share Data:
Net asset value, beginning of period .................... $10.54 $10.00
------ ------
Income from investment operations:
Net investment income .............................. 0.00 0.03
Net realized and unrealized gains on investments ... 0.34 0.88
------ ------
Total from investment operations ................... 0.34 0.91
------ ------
Net asset value, end of period .......................... $10.88 $10.91
====== ======
Total return (2) (3) .................................... 3.23% 9.10%
Supplemental data and ratios:
Net assets, end of period .......................... $160,421 $5,353,859
Ratio of expenses to average net assets before
reimbursement by Adviser (4) ..................... 6.54% 5.52%
Ratio of expenses to average net assets after
reimbursement by Adviser (4) ..................... 2.38% 1.63%
Ratio of net investment loss to average net assets
before reimbursement by Adviser (4) .............. (4.14%) (3.48%)
Ratio of net investment income to average net assets
after reimbursement by Adviser (4) ............... 0.02% 0.42%
Portfolio turnover rate (5) ........................ 49.48% 49.48%
</TABLE>
(1) Commencement of operations for Class Y shares occurred on December 11, 1998
for the International Equity Fund. Commencement of sale of Class A shares
occurred on February 1, 1999 for the International Equity Fund.
(2) The total return does not reflect the 4.00% maximum sales charge for Class
A shares.
(3) Not annualized.
(4) Annualized.
(5) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
23
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL EQUITY FUND
The financial highlights table is intended to help you understand the
Global Equity Fund's financial performance for the period from December 18, 1998
(commencement of operations) through June 30, 1999. Certain information reflects
financial results for a single share of the Global Equity Fund. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Global Equity Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the Global Equity Fund's financial statements, are
included in the annual report, which is available by calling the Fund at
1-877-GET-SIMS (1-877-438-7467).
<TABLE>
<CAPTION>
FEBRUARY 19, 1999 (1) DECEMBER 18, 1998 (1)
THROUGH THROUGH
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
CLASS A CLASS Y
------------- -------------
<S> <C> <C>
Per Share Data:
Net asset value, beginning of period ........................... $10.41 $10.00
------ ------
Income from investment operations:
Net investment income (loss) .............................. (0.00) 0.01
Net realized and unrealized gains on investments .......... 0.81 1.26
------ ------
Total from investment operations .......................... 0.81 1.27
------ ------
Net asset value, end of period ................................. $11.22 $11.27
====== ======
Total return (2) (3) ........................................... 7.78% 12.70%
Supplemental data and ratios:
Net assets, end of period ................................. $143,194 $777,645
Ratio of expenses to average net assets before
reimbursement by Adviser (4) ............................ 32.84% 37.44%
Ratio of expenses to average net assets after
reimbursement by Adviser (4) ............................ 2.23% 1.48%
Ratio of net investment loss to average net assets
before reimbursement by Adviser (4) ..................... (30.77%) (35.61%)
Ratio of net investment income (loss) to average net assets
after reimbursement by Adviser (4) ...................... (0.15%) 0.35%
Portfolio turnover rate (5) ............................... 28.70% 28.70%
</TABLE>
(1) Commencement of operations for Class Y shares occurred on December 18, 1998
for the Global Equity Fund. Commencement of sale of Class A shares occurred
on February 19, 1999 for the Global Equity Fund.
(2) The total return does not reflect the 4.00% maximum sales charge for Class
A shares.
(3) Not annualized.
(4) Annualized.
(5) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
24
<PAGE>
(SIMMS CAPITAL MANAGEMENT, INC.
GLOBAL INVESTORS LOGO)
THE SIMMS FUNDS
55 Railroad Avenue
Greenwich, Connecticut 06830
1-877-GET-SIMS
(1-877-438-7467)
INVESTMENT ADVISER
Simms Capital Management
55 Railroad Avenue
Greenwich, Connecticut 06830
ADMINISTRATOR AND TRANSFER AGENT AND
DIVIDEND DISBURSEMENT AGENT
Firstar Mutual Fund Services, LLC
P.O. Box 701
615 East Michigan Street
Milwaukee, Wisconsin 53202
CUSTODIAN
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
DISTRIBUTOR
T.O. Richardson Securities, Inc.
2 Bridgewater Road
Farmington, Connecticut 06032
<PAGE>
(SIMMS CAPITAL MANAGEMENT, INC.
GLOBAL INVESTORS LOGO)
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.
o 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)
o You may obtain copies of the SAI or financial reports for free by calling
or writing your Authorized Securities Dealer
o 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)
o 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
o for free by visiting the SEC's Worldwide Web site at
http://www.sec.gov.
o You may obtain a copy of the Fund's prospectus by calling Simms toll-free
at 1-877-GET-SIMS (1-877-438-7467).
Investment Company Act File No. 811-8871
<PAGE>
Part B
STATEMENT OF ADDITIONAL INFORMATION
THE SIMMS FUNDS
U.S. Equity Fund
International Equity Fund
Global Equity Fund
October 29, 1999
This Statement of Additional Information ("SAI") is not a prospectus, but should
be read in conjunction with the prospectus of The Simms Funds dated October 29,
1999 (the "Prospectus"). 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
Mutual Fund Services, LLC LLP Firstar
Table of Contents
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES AND LIMITATIONS..................1
VALUATION OF PORTFOLIO SECURITIES.............................................13
PERFORMANCE OF THE FUNDS......................................................13
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION.....................16
DIVIDENDS AND DISTRIBUTIONS...................................................18
TAXES .....................................................................19
TRUSTEES AND OFFICERS.........................................................25
ADVISORY AND OTHER CONTRACTS..................................................28
ADDITIONAL INFORMATION........................................................35
APPENDIX A -- Description of Security Ratings................................A-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 that exceed those involved in the activities described in the
Prospectus.
<PAGE>
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.
2
<PAGE>
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.
3
<PAGE>
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 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.
4
<PAGE>
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 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
5
<PAGE>
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 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
6
<PAGE>
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.
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.
7
<PAGE>
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 that 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 that 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), 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.
8
<PAGE>
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.
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 that 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.
9
<PAGE>
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 that 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.
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.
10
<PAGE>
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 that 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 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
11
<PAGE>
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 that 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 (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.
12
<PAGE>
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 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 Reuters. 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.
13
<PAGE>
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 Fund's 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.
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.
14
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The following table shows the total returns of the Funds for the relevant
periods from commencement of operations through June 30, 1999, including total
returns reflecting the waiver of sales loads.
<TABLE>
<CAPTION>
Total Return
after Waiver of
Commencement date Total Return Sales Load
----------------- ------------ ---------------
<S> <C> <C> <C>
U.S. Equity Fund, Class A April 26, 1999 (1.67)% 2.46%
U.S. Equity Fund, Class Y December 11, 1998 25.10% N/A
International Equity Fund, Class A February 1, 1999 (0.93)% 3.23%
International Equity Fund, Class Y December 11, 1998 9.10% N/A
Global Equity Fund, Class A February 19, 1999 3.44% 7.78%
Global Equity Fund, Class Y December 18, 1998 12.70% N/A
</TABLE>
Other Performance Comparisons.
From time to time a Fund may publish the ranking of its performance or the
performance of its shares by Lipper, Inc., 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. 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
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<PAGE>
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 (1-877-438-7467).
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., S&P, and Morgan Stanley, and in
publications issued by Lipper and in the following publications: American
Banker, Barron's, Business Week, CDA/Wiesenberger, Forbes, Fortune, Ibbotson
Associates, Institutional Investor, Money Magazine, Morningstar, Mutual Fund
Magazine, The New York Times, SmartMoney, U.S.A. Today, Value Line Mutual Fund
Survey and The Wall Street Journal. 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.
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.
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<PAGE>
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 may not be able to
accept purchase or redemption requests.
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.
Concession to
Initial Sales % of Net Dealers:
Charge: Amount % of Offering
Amount of Purchase % of Offering Price Invested Price
------------------ ------------- -------- ---------------
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
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.
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
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<PAGE>
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.
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.
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<PAGE>
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, 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.
If a Fund has a net capital loss (i.e., an excess of capital losses over capital
gains) for any year, the amount thereof may be carried forward up to eight years
and treated as a short-term capital loss that can be used of offset capital
gains in such future years. Under Code Sections 382 and 383, if a Fund has an
"ownership change," then the Fund's use of its capital loss carryforwards in any
year following the ownership change will be limited to an amount equal to the
net asset value of the Fund immediately prior to the ownership change multiplied
by the long-term tax-exempt rate (which is published monthly by the Internal
Revenue Service (the "IRS")) in effect for the month in which the ownership
change occurs (the rate for October, 1999 is 5.45%). The Funds will use their
best efforts to avoid having an ownership change. However, because of
circumstances which may be beyond the control or knowledge of a Fund, there can
be no assurance that a Fund will not have, or has not already had, an ownership
change. If a Fund has or has had an ownership change, then any capital gain net
income for any year following the ownership change in excess of the annual
limitation on the capital loss carryforwards will have to be distributed by the
Fund and will be taxable to shareholders as described under "Distributions"
below.
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<PAGE>
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. 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 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 (2)
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 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
20
<PAGE>
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
that 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 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
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<PAGE>
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 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
22
<PAGE>
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
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
23
<PAGE>
foreign taxes could be claimed by an individual shareholder that 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) 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.
24
<PAGE>
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.
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. An asterisk indicates each Trustee who is an interested
person of the Trust.
25
<PAGE>
The Trustees of the Trust, their ages, addresses, and their principal
occupations during the past five years are as follows:
Position(s)
Held with Principal Occupation
Name, Age and Address the Trust During Past 5 Years
--------------------- ----------- --------------------
Robert A. Simms, Sr. (61)* President, President and CEO of Simms.
55 Railroad Avenue Chairman of
Greenwich, CT 06830 the Board
Beverly W. Aisenbrey (54) Trustee Managing Director, Frederic
90 Park Avenue W. Cook & Co., Inc.
New York, NY 10016 (executive compensation
consultants).
Arthur S. Bahr (68) Trustee Director, Renaissance Re
11 Guardhouse Drive Holdings (reinsurance) since
West Redding, CT 06896 June 1993; Director, Board
of Partner Representatives,
Trump Castle Associates
since 1995; Consultant, GE
Investment Corp. from
January 1994 to December
1995.
Robert G. Blount (60) Trustee American Home Products:
American Home Products Director since 1990, Senior
Five Giralda Farms Executive Vice President
Madison, NJ 07940 since October 1995 and
Executive Vice President
from 1987 to October 1995.
Gen. Robert E. Kelley (65) Trustee President, Kelley &
917 Merion Square Road Associates (aerospace,
Gladwyne, PA 19035 defense management) since
1986; Secretary and
Treasurer, Wright Stuff
Press since 1996; Chairman
of the Board, Voting USA
since November 1997;
Director, Air Force Academy
Foundation since October
1996.
Michael A. McManus, Jr. (56) Trustee Bank consultant since March
100 White Plains Road 1998; President and Chief
Bronxville, NY 10708 Executive Officer, New York
Bancorp Inc. 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 (41)* Trustee Principal of Simms.
55 Railroad Avenue
Greenwich, CT 06830
Arthur O. Poltrack (41)* Trustee Principal of Simms since
Financial 55 Railroad Avenue August, 1999; Chief Officer
Greenwich, CT 06830 ("CFO"), Simms since June
1998; CFO, CBA Mortgage
Partners LP from August 1994
to June 1998.
26
<PAGE>
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. 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. 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 received from the
Trust for the period from September 14, 1998 (the date of the Trust's
organizational meeting) through 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- $750
Arthur S. Bahr, Trustee -0- -0- $1,000
Robert G. Blount, Trustee -0- -0- $1,000
Gen. Robert E. Kelley, Trustee -0- -0- $1,000
Michael A. McManus, Jr., Trustee -0- -0- $1,000
Thomas L. Melly, Trustee -0- -0- -0-
Arthur O. Poltrack, Trustee -0- -0- -0-
</TABLE>
- ---------------
* During the period shown, the Trust did not reimburse expenses incurred by
Trustees for attending Board meetings.
Officers.
The officers of the Trust, their ages, addresses and principal occupations
during the past five years, are as follows:
Position(s) Principal Occupation
Name, Age and Address with the Trust During Past 5 Years
--------------------- --------------- -----------------------
Robert A. Simms (61) President and See biography under "Board
55 Railroad Avenue Chairman of the of Trustees."
Greenwich, CT 06830 Board
Peter M. Gorman (35) Vice President Principal and Director of
55 Railroad Avenue and Secretary Client Services of Simms
Greenwich, CT 06830 since May 1995; independent
consultant for Merrill Lynch
from March 1994 to August
1994.
27
<PAGE>
Arthur O. Poltrack (41) Vice President, See biography under "Board
55 Railroad Avenue Treasurer, Chief of Trustees."
Greenwich, CT 06830 Accounting
Officer and CFO
Joseph C. Neuberger (37) Assistant Vice President, Firstar
615 East Michigan Street, Secretary since August 1994.
Milwaukee, WI 53202-5207
Jeffrey T. Rauman (30) Assistant Compliance Administration
615 East Michigan Street, Secretary Officer, Firstar since
Milwaukee, WI 53202-5207 February 1996; Senior
Auditor, Ernst & Young from
January 1993 to February
1996.
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 September 30, 1999, the Trustees and officers as a group owned
beneficially the following percentages of the indicated classes of outstanding
shares of the Funds: U.S. Equity, Class A: 3.9%; U.S. Equity, Class Y: 15.9%;
International Equity, Class Y: 15.8%; and Global Equity, Class Y: 37.9%.
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 September 30, 1999, the Adviser managed
approximately $1 billion 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. Poltrack, Mr. Thomas S. Kingsley and Mr. Gorman,
Principals of Simms, may be deemed to control the Adviser.
The following schedule lists the advisory fees for Funds that are advised by
Simms.
0.75 of 1% of average daily net assets
U.S. Equity Fund
1.00% of average daily net assets
International Equity Fund
Global Equity Fund
28
<PAGE>
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.
Herve van Caloen. Mr. van Caloen joined Simms in July 1999, prior to which he
managed a small international hedge fund for GTF Asset Management from March
1997 until June 1999. He was a First Vice President of Schroeder Capital
Management International from March 1996 until March 1997. From January 1992 to
July 1995, he was the head of international investments and a portfolio manager
at Provident Capital Management where he managed an emerging markets fund. Mr.
van Caloen was a Vice President and portfolio manager at Mitchell Hutchins Asset
Management, where he managed the PaineWebber Europe Growth Fund from its
inception in July 1989 until December 1991. From 1985 through 1989, Mr. van
Caloen was a Vice President and international portfolio manager with Scudder
Stevens & Clark, where he was responsible for the European investments of the
Scudder International Fund. Mr. van Caloen received his M.B.A. from the
Claremont Graduate School in California in 1985 and his B.A. from the European
University in Antwerp, Belgium in 1981.
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
29
<PAGE>
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.
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.
For the period from commencement of operations through June 30, 1999, the Funds
paid Simms the following amounts, after fee reimbursements. To the extent that
Simms reimburses advisory fees, it may seek payment of such amounts for two
years after the year in which fees were reimbursed. A Fund will make no such
payment, however, if the total annual Fund operating expenses exceed the expense
limits in effect at the time these payments are proposed.
- --------------------------------------------------------------------------------
Inception Advisory Fees Fees
Date Fees Waived Paid
- --------------------------------------------------------------------------------
U.S. Equity Fund December 11, 1998 $18,985 $18,985 $0
- --------------------------------------------------------------------------------
International Equity Fund December 11, 1998 $30,313 $30,313 $0
- --------------------------------------------------------------------------------
Global Equity Fund December 18, 1998 $3,040 $3,040 $0
- --------------------------------------------------------------------------------
In addition, for the period from commencement of operations through June 30,
1999, Simms absorbed other Fund expenses amounting to $89,303, $87,688, and
$104,702 for the U.S. Equity Fund, International Equity Fund and Global Equity
Fund, respectively.
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
30
<PAGE>
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. During the period from commencement of operations
through June 30, 1999, neither the Trust nor the Adviser directed the Trust's
brokerage transactions to a broker because of research services provided.
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.
For the period from commencement of operations through June 30, 1999, brokerage
transactions for the U.S. Equity Fund, International Equity Fund and Global
Equity Fund amounted to $3,579, $4,681 and $377, respectively. The U.S. Equity
and International Equity Funds commenced operations on December 11, 1998 and the
Global Equity Fund commenced operations on December 18, 1998.
Portfolio Turnover.
The portfolio turnover rates stated in the Prospectus are calculated by dividing
the lesser of each Fund's purchases or sales of portfolio securities for the
period by the monthly average value of the portfolio securities. The calculation
excludes all securities whose maturities, at the time of acquisition, were one
year or less. Portfolio turnover is calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued. For the
period from commencement of operations though June 30, 1999, the portfolio
turnover rates for the U.S. Equity Fund, International Equity Fund and Global
Equity Fund were 50.40%, 49.98% and 28.70%, respectively. The U.S. Equity and
International Equity Funds commenced operations on December 11, 1998 and the
Global Equity Fund commenced operations on December 18, 1998.
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
31
<PAGE>
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, 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, subject to a minimum charge of
$45,000.
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.
For the period from commencement of operations through June 30, 1999, Firstar
received $26,250 from each Fund pursuant to the Administration Agreement. The
U.S. Equity and International Equity Funds commenced operations on December 11,
1998 and the Global Equity Fund commenced operations on December 18, 1998.
Distributor.
T.O. Richardson Securities, Inc., 2 Bridgewater Road, Farmington, Connecticut
06032 (the "Distributor"), 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 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.
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<PAGE>
For the period from commencement of operations through June 30, 1999, the
Distributor received the following amounts from its retention of sales loads:
U.S. Equity Fund: $40, International Equity Fund: $189, Global Equity Fund:
$3,999. The U.S. Equity and International Equity Funds commenced operations on
December 11, 1998 and the Global Equity Fund commenced operations on December
18, 1998.
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.
For the period from commencement of operations through June 30, 1999, the
Funds paid the following amounts pursuant to the Shareholder Servicing Plan:
U.S. Equity Fund: $1; International Equity Fund: $98; Global Equity Fund:
$84. The U.S. Equity and International Equity Funds commenced operations on
December 11, 1998 and the Global Equity Fund commenced operations on December
18, 1998.
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 each Fund's Class A shares, has adopted a Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan"). 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
33
<PAGE>
Distribution 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 Distribution 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.
In approving the Distribution 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 Distribution 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. The Board most recently approved the Distribution Plan
on August 18, 1999. While the Distribution 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 Distribution Plan
may not be amended to increase materially the amount to be spent for
distribution without shareholder approval and all material amendments to the
Distribution 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 Distribution Plan is in effect, the selection and
nomination of the disinterested Trustees shall be made by those disinterested
Trustees then in office.
For the period from commencement of operations through June 30, 1999, Class A
shares of the Funds paid the following amounts pursuant to the Distribution
Plan: U.S. Equity Fund: $1; International Equity Fund: $196; Global Equity
Fund: $169. The U.S. Equity and International Equity Funds commenced
operations on December 11, 1998 and the Global Equity Fund commenced
operations on December 18, 1998.
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: $27,500 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: $31,250 for the first $40
million in assets, 0.02% of the next $200 million, and 0.01% of assets above
$240 million.
For the period from December 11, 1998 (commencement of operations) through
June 30, 1999, the Funds paid the following amounts to Firstar for fund
accounting: U.S. Equity Fund: $16,597; International Equity Fund: $18,878;
Global Equity Fund: $19,418. The U.S. Equity and International Equity Funds
commenced operations on December 11, 1998 and the Global Equity Fund commenced
operations on December 18, 1998.
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.
34
<PAGE>
Independent Accountants.
PricewaterhouseCoopers LLP, located at 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, serves as the Trust's independent accountants. The audited
financial statements of the Trust, with respect to all the Funds, for the period
from commencement of operations through June 30, 1999 are incorporated by
reference herein. The U.S. Equity and International Equity Funds commenced
operations on December 11, 1998 and the Global Equity Fund commenced operations
on December 18, 1998. The financial statements for the period from commencement
of operations through June 30, 1999 for all share classes of each Fund of the
Trust have been audited by PricewaterhouseCoopers LLP as set forth in their
report incorporated by reference herein, and are included in reliance upon such
report and on the authority of such firm as experts in auditing and accounting.
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 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)
35
<PAGE>
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 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
36
<PAGE>
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 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.
To the best knowledge of the Trust, the names and addresses of the holders of 5%
or more of the outstanding shares of each class of the Funds' equity securities
as of September 30, 1999, and the percentage of the outstanding shares held by
such holders are set forth in the table below. James S. Stokes may be deemed to
control the Class A Shares of the International Equity Fund because he is the
beneficial owner of more than 25% of these shares. The Baxter Trust, the
Witkowski Group Ltd. (a Nevada limited partnership) and the Blue Bird Auxiliary
of the Jefferson C. Davis Youth Investment Fund may each be deemed to control
the Class A Shares of the Global Equity Fund because each investor is the
beneficial owner of more than 25% of these shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Percent Owned Percent Owned
Fund Name and Address of Owner of Record Beneficially
---- ------------------------- ------------- -------------
<S> <C> <C> <C>
U.S. Equity Fund, Donaldson, Lufkin & Jenrette Securities Corp. 96.1% 0%
Class A P.O. Box 2052
Jersey City, NJ 07303
- -------------------------------------------------------------------------------------------------------------
U.S. Equity Fund, Investors Life Insurance Corp. 23.3% 0%
Class Y c/o S. W. Phelps & Co.
55 Railroad Avenue
Greenwich, CT 06830-6578
- -------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Percent Owned Percent Owned
Fund Name and Address of Owner of Record Beneficially
---- ------------------------- ------------- -------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
David R. Melly, Trustee 12.4% 12.4%
David R. Melly Trust
1808 Addison Street
Berkeley, CA 94703-1504
- -------------------------------------------------------------------------------------------------------------
S. Marcus Finkle 10.2% 10.2%
117 AABC, Suite 311
Aspen, CO 81611-2502
- -------------------------------------------------------------------------------------------------------------
Laura A. Melly Grantor Trust 9.5% 9.5%
221 Union Street
Moorestown, NJ 08057-2339
- -------------------------------------------------------------------------------------------------------------
Marilyn R. Simms 6.7% 6.7%
2516 Lemon Tree Lane
Charlotte, NC 28211-3642
- -------------------------------------------------------------------------------------------------------------
Firstar Trust Company, Custodian 5.8% 5.8%
Robert A. Leef IRA Rollover
Benefit Services Inc.
2185 Lemoine Avenue
Fort Lee, NJ 07024-6030
- -------------------------------------------------------------------------------------------------------------
Lee Scott Melly 5.8% 5.8%
125 Camino Acote
Santa Fe, NM 87505-9181
- -------------------------------------------------------------------------------------------------------------
Susan Witkowski 5.0% 5.0%
50 The Enclosure
Colts Neck, NJ 07722-1023
- -------------------------------------------------------------------------------------------------------------
International Equity Fund, Lewco Securities Corp. 49.7% 0%
Class A 34 Exchange Place, 4th Floor
Jersey City, NJ 07311
- -------------------------------------------------------------------------------------------------------------
James S. Stokes 37.1% 37.1%
129 Palisades Road, NE
Atlanta, GA 30309-1532
- -------------------------------------------------------------------------------------------------------------
Bernard C. Rolader 13.2% 13.2%
5050 Riverview Road, NW
Atlanta, GA 30327-4238
- -------------------------------------------------------------------------------------------------------------
International Equity Fund, Rogers & Co. 34.8% 0%
Class Y c/o Summit Bank
P.O. Box 82L
Hackensack, NJ 07602
- -------------------------------------------------------------------------------------------------------------
Investors Life Insurance Corp. 13.3% 0%
c/o S.W. Phelps & Co.
55 Railroad Avenue
Greenwich, CT 06830-6378
- -------------------------------------------------------------------------------------------------------------
David R. Melly, Trustee 7.2% 7.2%
David R. Melly Trust
1808 Addison Street
Berkeley, CA 94703-1504
- -------------------------------------------------------------------------------------------------------------
L. Thomas Melly 6.8% 6.8%
Goldman Sachs
Melly Investment Partners I, LP
85 Broad Street
New York, NY 10004-2434
- -------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Percent Owned Percent Owned
Fund Name and Address of Owner of Record Beneficially
---- ------------------------- ------------- -------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Gary R. Christopherson & Grace S. 5.8% 5.8%
Christopherson, Jt. Ten.
9619 SW Quartermaster Drive
Vashon, MA 98070-7077
- -------------------------------------------------------------------------------------------------------------
Thomas L. Melly & Alice P. Melly, Trustees 5.6% 5.6%
Laura A. Melly Grantor Trust
221 Union Street
Moorestown, NJ 08057-2339
- -------------------------------------------------------------------------------------------------------------
Global Equity Fund, Frank E. Baxter & Kathrine F. Baxter Trustees 36.2% 36.2%
Class A Baxter Trust
11100 Santa Monica Blvd., Suite 1100
Los Angeles, CA 90025-3384
- -------------------------------------------------------------------------------------------------------------
Witkowski Group Ltd. 34.3% 34.3%
A Nevada Limited Partnership
3765 McKinley Center
Las Vegas, NV 89121-4437
- -------------------------------------------------------------------------------------------------------------
Blue Bird Auxiliary 29.5% 29.5%
Jefferson C. Davis Youth Investment Fund
7700 Floyd Curl Drive
San Antonio, TX 78229-3902
- -------------------------------------------------------------------------------------------------------------
Global Equity Fund, Robert E. Kelley 20.2% 20.2%
Class Y 917 Merion Square Road
Gladwyne, PA 19035-1509
- -------------------------------------------------------------------------------------------------------------
Robert W. Hale & Linda S. Hale, Jt. Ten. 19.7% 19.7%
8 Ohio Avenue
Metuchen, NJ 08840-2104
- -------------------------------------------------------------------------------------------------------------
Stuart Zykorie & Howard Lippman, Trustees 17.7% 17.7%
Northwest Urology Associates, PA,
Profit Sharing Plan
17070 Red Oak Drive, Suite 407
Houston, TX 77090-2617
- -------------------------------------------------------------------------------------------------------------
Robert A. Simms 14.0% 14.0%
55 Railroad Avenue
Greenwich, CT 06850-6378
- -------------------------------------------------------------------------------------------------------------
Scott V. Hale & Dawn C. Hale, Jt. Ten. 10.1% 10.1%
46 Country Acres Drive
Hampton, NJ 08827-4109
- -------------------------------------------------------------------------------------------------------------
Judith A. Aydelott 6.6% 6.6%
100 Maple Avenue
Katonah, NY 10536-3723
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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.
39
<PAGE>
APPENDIX A
Description of security Ratings.
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.
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).
Moody's. 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 that 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 that 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 that make the
long-term risk appear somewhat larger than in Aaa securities.
A. Bonds that 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 that 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 that 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.
S&P. 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>
PART C. OTHER INFORMATION
ITEM 23. Exhibits
(a)(1) Amended and Restated Certificate of Trust as of October 5,
1998.*
(a)(2) Amended and Restated Trust Instrument as of October 5, 1998.*
(b) Amended and Restated Bylaws as of October 5, 1998.*
(c) The rights of holders of the securities being registered
are set out in Articles II, VII, IX and X of the Trust
Instrument referenced in Exhibit (a)(2) above and in
Article IV of the Bylaws referenced in Exhibit (b) above.
(d) Form of Investment Advisory Agreement between Registrant and
Simms Capital Management, Inc.*
(e) Form of Distribution Agreement between Registrant and T.O.
Richardson Securities, Inc.*
(f) Not Applicable.
(g) Form of Custodian Servicing Agreement between Registrant and
Firstar.*
(h)(1) Form of Fund Accounting Servicing Agreement between Registrant
and Firstar.*
(2) Form of Fund Administration Servicing Agreement between
Registrant and Firstar.*
(3) Form of Transfer Agent Servicing Agreement between Registrant
and Firstar.*
(4) Form of Fulfillment Servicing Agreement between Registrant and
Firstar.*
(i)(1) Opinion and Consent of Kramer Levin Naftalis & Frankel LLP as to
legality of securities being registered.*
(2) Opinion of Morris, Nichols, Arsht & Tunnell, Delaware Counsel to
Registrant.*
(j)(1) Consent of PricewaterhouseCoopers LLP.
(2) Consent of Kramer Levin Naftalis & Frankel LLP.
(k) Not Applicable.
(l) Not Applicable.
(m)(1) Rule 12b-1 Distribution Plan.*
(2) Shareholder Servicing Plan.*
- ---------------------
* Filed as an exhibit to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed electronically with the
Securities and Exchange Commission on November 25, 1998.
<PAGE>
(n) Rule 18f-3 Plan.*
Powers of Attorney of Beverly W. Aisenbrey, Arthur S. Bahr,
Robert G. Blount, Robert E. Kelley, Michael A. McManus, Thomas
L. Melly, Arthur O. Poltrack and Robert A. Simms.*
ITEM 24. Persons Controlled By or Under Common Control with Registrant
None.
ITEM 25. Indemnification
Article X, Section 10.02 of Registrant's Delaware Trust Instrument, attached
hereto as Exhibit (a)(2), provides for the indemnification of Registrant's
Trustees and officers, as follows:
"Section 10.02 Indemnification.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of the Trust
(hereinafter referred to as a "Covered Person") shall be indemnified by the
Trust to the fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened while in office or thereafter, and the words
"liability" and "expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, (A) by the court or other body approving the settlement; (B) by at least
a majority of those Trustees who are neither Interested Persons of the Trust nor
are parties to the matter based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or (C) by written opinion of independent
legal counsel based upon a review of readily available facts (as opposed to a
full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
<PAGE>
(d) Expenses in connection with the preparation and presentation of a defense to
any claim, action, suit or proceeding of the character described in Subsection
(a) of this Section 10.02 may be paid by the Trust or Series from time to time
prior to final disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over by him to the
Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 10.02."
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to trustees, officers,
and controlling persons or Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Investment Company Act of 1940, as amended (the "1940 Act"), and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. Business and Other Connections of Investment Adviser
Simms Capital Management, Inc. provides management services to Registrant and
its series. To the best of Registrant's knowledge, the directors and officers of
the investment adviser have not held at any time during the past two fiscal
years or been engaged for their own account or in the capacity of director,
officer, employee, partner or trustee in any other business, profession,
vocation or employment of a substantial nature.
ITEM 27. Principal Underwriter
(a) T.O. Richardson Securities, Inc., Registrant's principal underwriter, 2
Bridgewater Road, Farmington, Connecticut 06032, also acts as the distributor
for the following investment companies as of November 23, 1998: T.O. Richardson
Sector Rotation Fund and Barrett Growth Fund.
(b) Directors and officers of T.O. Richardson Securities, Inc., as of
November 23, 1998, were as follows: Samuel Bailey, Jr. - President, Lloyd P.
Griffiths - Executive Vice President, and Austine Crowne - Executive Vice
President/Portfolio Manager.
(c) Not applicable.
<PAGE>
ITEM 28. Location of Accounts and Records
1. Simms Capital Management, Inc., 55 Railroad Avenue, Greenwich, Connecticut
06830 (records relating to its function as investment adviser).
2. Firstar Mutual Fund Services LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202-5207 (records relating to its functions as administrator,
transfer and dividend disbursing agent, and fund accountant).
3. Firstar Bank Milwaukee, N.A., 777 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202 (records relating to its function as custodian).
4. T.O. Richardson Securities, Inc., 2 Bridgewater Road, Farmington,
Connecticut 06032 (records relating to its function as distributor).
ITEM 29. Management Services
Not applicable.
ITEM 30. Undertaking
None.
NOTICE
A copy of the Certificate of Trust of Registrant is on file with the Secretary
of State of Delaware and notice is hereby given that this Post-Effective
Amendment to Registrant's Registration Statement has been executed on behalf of
Registrant by officers of, and Trustees of, Registrant as officers and as
Trustees, respectively, and not individually, and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees,
officers or shareholders of Registrant individually but are binding only upon
the assets and property of Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, Registrant certifies that it meets all of the requirements for
effectiveness of this registration statement under Rule 485(b) under the
Securities Act and has duly caused this registration statement to be signed on
its behalf by the undersigned, duly authorized, in the City of New York, and the
State of New York on this 27th day of October, 1999.
THE SIMMS FUNDS
By: /s/ Robert A. Simms
--------------------
Robert A. Simms
President
Pursuant to the requirements of the Securities Act, this registration statement
has been signed below by the following persons in the capacities and on the date
indicated:
Signature Title Date
--------- ----- ----
/s/ Robert A. Simms President and Chairman October 27, 1999
- ------------------- of the Board of Trustees
Robert A. Simms
/s/ Arthur O. Poltrack Vice President, Treasurer, October 27, 1999
- ---------------------- Chief Accounting Officer,
Arthur O. Poltrack Chief Financial Officer,
Trustee
/s/ Beverly W. Aisenbrey* Trustee October 27, 1999
- ------------------------
Beverly W. Aisenbrey
/s/ Arthur S. Bahr* Trustee October 27, 1999
- ------------------
Arthur S. Bahr
/s/ Robert G. Blount* Trustee October 27, 1999
- ---------------------
Robert G. Blount
/s/ Robert E. Kelly* Trustee October 27, 1999
- --------------------
Robert E. Kelly
/s/ Michael A. McManus* Trustee October 27, 1999
- -----------------------
Michael A. McManus
/s/ Thomas L. Melly* Trustee October 27, 1999
- --------------------
Thomas L. Melly
- ------------------------
*
By: /s/ Arthur O. Poltrack
-----------------------
Arthur O. Poltrack
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
-------------
Ex 99.jA Consent of PricewaterhouseCoopers LLP.
Ex 99.jB Consent of Kramer Levin Naftalis & Frankel LLP.
KRAMER LEVIN NAFTALIS & FRANKEL LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715-9100
FAX
(212)
715-8000
------
WRITER'S
DIRECT
NUMBER
(212)
715-9100
October 27, 1999
The Simms Funds
55 Railroad Avenue
Greenwich, Connecticut 06830
Re: The Simms Funds
Post-Effective Amendment No. 1
File Nos. 333-58813; 811-08871
Gentlemen:
We hereby consent to the reference to our firm as counsel in
Post-Effective Amendment No. 1 to Registration Statement No. 333-58813. In
addition, we incorporate by reference our Opinion and Consent as to the
legality of the securities being registered, filed on November 25, 1998 as an
Exhibit to Pre-Effective Amendment No. 1 (accession number
0000922423-98-001333).
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to the Registration Statement of The Simms Funds (comprised of the U.S. Equity
Fund, the International Equity Fund and the Global Equity Fund, hereafter
referred to as the "Funds") on Form N-1A of our report dated July 30, 1999, on
our audit of the financial statements and financial highlights of the Funds,
which report is included in the Annual Report to Shareholders for the period
ended June 30, 1999, which is incorporated by reference in the Registration
Statement. We also consent to the reference to our Firm under the captions
"Independent Accountants" in the Statement of Additional Information and
"Financial Highlights" in the Prospectus.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 25, 1999
