BARRETT GROWTH FUND
Purchasing high quality
growth stocks at reasonable
prices for long-term capital appreciation
PROSPECTUS
DECEMBER 18, 1998
THE BARRETT FUNDS
565 Fifth Avenue
New York, NY 10017
(877) 363-6333
(TOLL FREE)
Shares of the Barrett Growth Fund are sold on a no-load basis through
investment advisers, consultants, financial planners, brokers, dealers and
other investment professionals. Shares are available for IRAs and retirement
plans. The Fund is not available in all states -- please call the Fund or your
investment professional for details.
AS WITH ALL MUTUAL FUNDS, THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES AND DOES NOT GUARANTEE THE ACCURACY OR
COMPLETENESS OF THIS PROSPECTUS. IT IS A CRIMINAL OFFENSE TO SUGGEST OTHERWISE.
TABLE OF CONTENTS
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Page
Investment Goal and Philosophy ......................... 1
Investment Process ..................................... 1
Principal Risks of Investing in the Fund ............... 1
Fees and Expenses ...................................... 2
Investment Adviser and Portfolio Management Team ....... 3
Adviser's Investment Performance ....................... 5
More Information About the Fund's Investments .......... 6
Additional Risk Information ............................ 7
Purchasing Shares ...................................... 7
Selling Shares ......................................... 8
Account Options ........................................ 9
Retirement Investing ................................... 9
Account Instructions ................................... 11
Marketing and Distribution ............................. 12
Distributions and Taxation ............................. 12
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INVESTMENT GOAL AND PHILOSOPHY
The goal of the Fund is to achieve long-term capital appreciation and to
maximize after-tax returns. The Fund takes a conservative approach to growth
stock investing which emphasizes "Growth at a Reasonable Price." The Fund will
invest in common stocks of high quality companies that the investment adviser
believes have superior growth potential and where the stocks can be purchased
at reasonable prices. The Fund tends to buy and hold stocks in order to reduce
turnover and maximize after-tax returns.
INVESTMENT PROCESS
The Fund invests primarily in a diversified portfolio of common stocks of large
and mid-sized U.S. companies selected by the Fund's investment adviser, Barrett
Associates, Inc., which was founded in 1937. The adviser performs
comprehensive, independent research designed to identify companies with proven
products and performance, strong fundamental financial characteristics and
attractive growth prospects. The adviser seeks companies that dominate their
markets and benefit from technological advantages, economies of scale or other
factors that limit the ability of competitors to enter the same markets. The
adviser also prefers companies with superior management and insider ownership,
and its portfolio managers frequently meet with the management of companies to
confirm investment decisions for the Fund.
The investment adviser selects companies for investment by the Fund which it
believes will experience earnings growth in excess of 12% per year or at least
50% higher than the average growth rate of companies in the same industry in
the Standard & Poor's 500 Stock Index. The portfolio management team also
evaluates the fundamental financial characteristics of companies to identify
companies with strong cash flow combined with low or manageable debt burdens.
The adviser believes that such companies are able to sustain attractive growth
rates, or grow through acquisitions or investment in research and development.
Once high quality growth companies are identified, the adviser uses financial
statement and fundamental analysis to identify companies whose stocks can be
purchased at reasonable prices. The Fund generally seeks to avoid investment in
companies whose price-to-earnings ratios are significantly in excess of their
growth rates. The adviser believes that avoiding such overpriced stocks reduces
risk and increases the likelihood that the Fund will be able to achieve its
goal of capital appreciation.
On an ongoing basis, the adviser analyzes the global economic and financial
outlook in order to anticipate and respond to changing business, economic and
political trends that may affect the Fund's existing and prospective
investments. The Fund has a long-term investment outlook. It generally
undertakes a "buy and hold" strategy to reduce portfolio turnover and maximize
after-tax returns. SEE MORE INFORMATION ABOUT THE FUND'S INVESTMENTS ON PAGE 6.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risk of investing in the Fund is that common stock prices are
subject to market, economic and business risks that will cause their prices to
fluctuate over time. While common stocks have historically been a leading
choice of long-term investors, stock prices may decline over short or even
extended periods. Therefore, the value of your investment in the Fund may go up
and down and you could lose money.
In addition, the Fund's investment success depends on the skill of the
investment adviser in evaluating, selecting and monitoring the Fund's assets.
If the adviser's conclusions about growth rates or stock values are incorrect,
the Fund may not perform as anticipated.
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The Fund could be adversely affected if the computer systems used by the Fund
or its service providers do not function properly when processing date-related
information on and after January 1, 2000. This is commonly known as the "Year
2000 Issue." The Fund is taking steps that it believes are reasonably designed
to address the Year 2000 Issue with respect to computer systems that it uses.
The Fund is also obtaining reasonable assurances that comparable steps are
being taken by the Fund's other major service providers. At this time, it is
impossible to ensure that these steps will be sufficient to avoid any adverse
impact to the Fund. SEE ADDITIONAL RISK INFORMATION ON PAGE 7.
FEES AND EXPENSES
The following tables describe the fees and expenses that you would pay in
connection with an investment in the Fund.
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Shareholder Transaction Fees
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge on Purchases ......... None
Sales Charge on Reinvested Dividends ...... None
Redemption Fees ........................... None*
Exchange Fees ............................. None
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* Currently, there is a $12.00 wire redemption fee assessed by the
Custodian. These fees are subject to change.
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Annual Fund Operating Expenses
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Advisory Fee .......................... 1.00%
Distribution and Service (12b-1) Fees . 0.16%
Other Expenses ........................ 0.96%
Total Fund Operating Expenses ......... 2.12%*
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* Barrett Associates has voluntarily agreed to waive its advisory fee or
make payments to limit Fund expenses to the extent necessary to ensure
that Total Fund Operating Expenses do not exceed 1.70% of average
daily net assets for the first year of operations. In addition, the
Fund is new, so the amount of "Total Fund Operating Expenses" is based
on estimated amounts for the first year of operations and do not
reflect any fee waiver or expense limitation.
The following Expense Example shows the expenses that you could pay over time
and will help you to compare the cost of investing in the Fund with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000 in
the Fund and that you earn a 5% annual return, with no change in Fund expense
levels. The $10,000 and 5% figures are required by SEC rules to aid in
comparisons between funds. Because actual return and expenses will be
different, the Example is for comparison only.
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EXPENSE EXAMPLE 1 YEAR 3 YEARS
Without Fee Waiver or Expense Limitation* $215 $664
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* These dollar amounts do not reflect Barrett Associates' agreement to
limit the Fund's Total Operating Expenses to 1.70% for the first year
of operations. With such expense limit, the amounts paid over 1 and 3
years would equal $173 and $536.
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INVESTMENT ADVISER AND PORTFOLIO MANAGEMENT TEAM
Barrett Associates, Inc. serves as the investment adviser for the Fund and is
responsible for managing the Fund's portfolio of securities. As investment
adviser, the firm identifies companies for investment, determines when
securities should be purchased or sold by the Fund and selects brokers or
dealers to execute transactions for the Fund's portfolio.
Barrett Associates was founded in 1937 and currently manages approximately $1.5
billion of client assets, of which approximately $1.2 billion is invested in
equity securities. The firm has approximately 400 client relationships,
including families, individuals, foundations and other organizations or
entities. Many of the client relationships are in their third generation. The
Fund was organized in order to provide investors with a cost-efficient
opportunity to invest according to Barrett Associates' long-term equity
investing philosophy of "Growth at a Reasonable Price," without being required
to maintain a large account balance.
The Fund pays Barrett Associates a monthly investment advisory fee at the
annual rate of 1.00% of the Fund's average daily net assets. However, Barrett
Associates has voluntarily agreed to waive all or a portion of the advisory
fee, or to make payments to limit Fund expenses, in order to limit the Fund's
total annual operating expenses to 1.70% during the first year of operations.
After the first year, Barrett Associates may continue to control Fund operating
expenses in the future or it may end the arrangement at any time. When the
Fund's assets grow to a point where fee waivers are no longer necessary,
Barrett Associates may seek to recoup amounts waived or reimbursed. Barrett
Associates shall only be entitled to recoup such amounts for a period of three
years from the date such amount was waived or reimbursed.
Barrett Associates uses a team approach for security selection and decision
making. The eight members of the portfolio management team, which is lead by
the firm's Director of Research, Robert J. Voccola, average over twenty years
of investment management experience per person and have a significant ownership
interest in the firm. The following are the names and backgrounds of the
portfolio managers.
JOHN D. BARRETT, II
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A graduate of Yale University, Mr. Barrett received his M.B.A. from New York
University, and has over thirty years experience in investment research and
management. Mr. Barrett became a controlling stockholder of Barrett Associates
in 1970. Prior to joining Barrett Associates, he was a partner at Clark, Dodge
& Co. Mr. Barrett is responsible for portfolio management and firm policy as
well as for servicing many client relationships. Mr. Barrett also serves as a
Director of various Morgan Stanley mutual funds.
ROBERT E. HARVEY, C.F.A.
PRESIDENT AND CHIEF OPERATING OFFICER
Mr. Harvey graduated from Bowdoin College, received an M.B.A. from the
University of Virginia and has twenty two years of investment experience. From
1976 until 1991 he served as an officer and a Managing Director at Scudder,
Stevens and Clark where he was the portfolio manager for the Scudder Growth and
Income Fund and the AARP Growth and Income Fund. Mr. Harvey served as Director
of U.S. Equities at Bessemer Trust from 1991 until 1993. Mr. Harvey joined
Barrett Associates in 1994, and is currently responsible for firm management,
portfolio management, new services and marketing. Mr. Harvey is a stockholder
and Director of The Ashforth Company, which is a controlling stockholder of
Barrett Associates.
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JAMES R. RUTHERFORD
VICE CHAIRMAN
Mr. Rutherford graduated from Miami University of Ohio and pursued graduate
studies at New York University. He has over thirty years experience in
investment research and management. Prior to joining Barrett in 1973, Mr.
Rutherford was a Portfolio Manager at Manufacturers Hanover Trust and at Clark,
Dodge & Co. Mr. Rutherford serves as a portfolio manager and analyst and
specializes in research concerning the financial, basic industry and consumer
industries.
ROBERT J. VOCCOLA, C.F.A.
DIRECTOR OF RESEARCH
A graduate of Lehigh University, Mr. Voccola received an M.B.A. from Columbia
University Graduate School of Business and has over twenty-seven years of
investment experience. Prior to joining Barrett Associates in 1987, Mr. Voccola
was a Securities Analyst at Clark, Dodge & Co. and Director of Individual
Account Management at Bernstein Macauley. Mr. Voccola is Barrett Associates'
Director of Research, and a portfolio manager and analyst specializing in the
areas of technology, telecommunications and information services.
HENRY A. COLLINS
Mr. Collins graduated from Brown University and has over thirty years of
investment experience. He was Director of Research at Clark, Dodge & Co. and
later served as Senior Vice President, Director of Research, and a member of
the Board of Directors of Kidder Peabody. Mr. Collins joined Barrett Associates
in 1990 and is responsible for portfolio management and securities research in
the technology, telecommunications and healthcare sectors.
PETER H. SHRIVER, C.F.A.
Mr. Shriver joined Barrett Associates in 1989 and provides portfolio management
and securities research in the healthcare, consumer products & services,
information services, financial and international sectors. Immediately prior to
joining Barrett Associates, Mr. Shriver served as a Securities Analyst at Peter
B. Cannell and Co. and was a Mergers and Acquisition Specialist at Henry
Ansbacher from 1986 until 1989. Mr. Shriver is a graduate of Drake University
and received his M.B.A. from New York University.
LESLIE J. LAMMERS, C.F.A.
Ms. Lammers served as a Private Banker, Team Head and Product Manager at J.P.
Morgan, Inc. from 1979 until 1992, after which she served as Vice President and
Portfolio Manager at Scudder, Stevens and Clark, supervising $250 million of
assets for individuals. Ms. Lammers joined Barrett Associates in 1997 and
specializes in portfolio management and research relating to
telecommunications, the internet/new media and retailing. She graduated from
the University of Texas with a Bachelors of Business Administration.
CHRISTINA A. BATER, C.F.P.
Ms. Bater joined Barrett Associates in 1988 after graduating from the
University of Buffalo. She served as a Portfolio Administrator, Trader and
Client Service Specialist until 1992, at which time she assumed securities
research responsibilities. Ms. Bater is currently responsible for portfolio
management, as well as research of companies in the energy, retailing and
distribution, internet/new media and basic industry sectors.
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ADVISER'S INVESTMENT PERFORMANCE
The tables below show the annual returns and long-term performance record
established by Barrett Associates while managing client accounts according to
the same investment goal and strategies as those used for the Fund. Please note
that the performance results shown are those of the investment adviser and not
the investment results of the Fund. The results are not intended to predict or
suggest the return to be experienced by the Fund or the return an individual
investor might achieve by investing in the Fund.
The Fund's results may be different from the composite performance figures
shown because of, among other things, differences in fees and expenses. The
composite performance figures reflect the deduction of all advisory fees and
trading costs, but do not reflect custody fees, which are paid by clients
directly. The Fund's overall expenses may be higher than the expenses of
similarly managed private accounts of the adviser. If so, the performance of
the Fund would be lower. The Fund's results may also be different because
private accounts are not subject to certain investment limitations,
diversification requirements and other restrictions imposed on mutual funds by
the Investment Company Act of 1940 or the Internal Revenue Code which, if
applicable, could have adversely affected the performance of the client
accounts.
[BAR CHART APPEARS BELOW WITH THE FOLLOWING INFORMATION:]
BARRETT ASSOCIATES EQUITY GROWTH COMPOSITE(1)
1991 39.0%
1992 2.9%
1993 0.2%
1994 0.7%
1995 34.9%
1996 31.1%
1997 31.2%
6 mths. 18.7%
6/30/98
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/98
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SINCE
INCEPTION
1 YEAR 3 YEARS 5 YEARS 1/1/91
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Barrett Associates Equity
Growth Composite 32.1% 31.2% 24.0% 20.2%
Lipper Growth Fund Index(2) 25.4% 24.2% 19.3% 19.1%
S&P 500 Index(3) 30.1% 30.2% 23.1% 20.8%
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(1) The Barrett Associates Equity Growth Composite is an unaudited composite
made up of all fully discretionary "equity growth" accounts of $300,000 or
more, reflects the reinvestment of all capital gains and dividends and also
reflects the deduction of all investment management and brokerage fees. All
figures are total return and the composite is equal weighted by account.
Individual account performance is calculated on the average capital base.
This methodology means that each change in capital for an account during
the time period (monthly) is multiplied by the ratio of days remaining to
the total days in the time period. The sum of the average changes in
capital is then added to the beginning market value to give the average
capital base for the time period. This methodology differs from the
standard SEC method which is used to calculate returns for mutual funds.
(2) The Lipper Growth Fund Index is an equally-weighted performance index,
adjusted for capital gains distributions and income dividends, of the 30
largest funds within the Growth Funds category, as reported by Lipper
Analytical Services, Inc.
(3) The S&P 500 Index is a capitalization weighted index of five hundred large
capitalization stocks which is designed to measure broad domestic
securities markets. The performance of the S&P 500 Index reflects the
reinvestment of dividends and capital gains but does not reflect the
deduction of any investment management fees.
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MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
This section contains more detailed information about the Fund's investments and
its investment process. The Fund's investment objective is long-term capital
appreciation and the maximization of after-tax returns. This objective may be
changed or modified in the future by action of the Fund's Board without
shareholder approval. However, shareholders would receive advanced written
notice of any such change.
TYPES OF INVESTMENTS. The Fund invests primarily in common stocks of large and
mid-sized U.S. companies, as well as securities of companies that operate
globally, provided their shares are traded on U.S. stock exchanges. It may also
purchase securities with an equity component such as preferred stock, warrants,
rights or other securities that are convertible into or exchangeable for shares
of common stock. The Fund may invest up to 10% of its net assets in foreign
investments, and will normally make such investments through the purchase of
American Depository Receipts (ADRs). ADRs are receipts issued by U.S. banks or
trust companies representing ownership interests of securities issued by
foreign companies.
From time to time, the Fund may purchase options, futures contracts or other
instruments (such as depository receipts) which relate to a particular stock
index. These investments allow the Fund to quickly invest excess cash in order
to gain exposure to the markets until the Fund can purchase individual stocks.
For example, the Fund may purchase S&P 500 Depository Receipts, which are
receipts representing an ownership interest in a portfolio of the stocks that
make up the S&P 500.
The Fund normally intends to remain substantially fully invested in common
stocks and other equity securities. However, the Fund may invest in high
quality money market instruments during times when excess cash is generated or
when cash is held pending investment in suitable growth stocks. Such money
market investments include short-term obligations of the U.S. government, its
agencies or instrumentalities, bank obligations, commercial paper, repurchase
agreements or money market mutual funds. Tax-exempt money market instruments
may be used to minimize the taxable income generated from cash management
investing.The Fund has authority to invest up to 100% of its assets in such
short-term money market instruments for temporary or defensive purposes in
response to extreme or adverse market, economic or other conditions.
STOCK SELECTION PROCESS. The investment adviser identifies stocks for
investment using its own research and analysis techniques, and supplements its
internal research with the research and analysis of major U.S. investment and
brokerage firms. When analyzing a company's growth prospects, the adviser
considers the growth in a company's market share and unit sales, as well as
growth in overall revenues and earnings per share. The investment adviser uses
a proprietary database containing detailed financial information of over 5,000
companies to analyze comparative growth rates, and looks for companies that are
growing substantially faster than their peers in the same industries. The
adviser also analyzes the fundamental financial strength of such companies, as
evidenced by their debt burden or ability to generate excess cash, in order to
determine whether the company's growth rate can be sustained over time.
Once the Fund identifies a high quality growth company, it seeks to purchase
the company's stock at reasonable prices. Using fundamental financial statement
analysis, the adviser compares a company's price-to-earnings ratio with its
growth rate, in order to evaluate the price of the stock relative to its future
earnings. The adviser generally seeks companies with price-to-earnings
multiples as low as one times the company's growth rate. When deciding between
two high quality growth companies, the adviser will normally choose the company
which has a lower ratio of price-to-earnings compared to its growth rate. This
approach is designed to allow the Fund to pay a lower price for the future
earnings stream of one company versus another company with a similar earnings
stream. The Fund may purchase stocks with higher price-to-earnings ratios
relative to their growth rates if market conditions reflect generally higher
stock prices. The Fund
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seeks to reduce its exposure to risk by avoiding very small companies ( less
than $1 billion market capitalization), companies which have no current
earnings and companies that carry excessive debt burdens.
The Fund has a long-term investment outlook. It generally undertakes a "buy and
hold" strategy to reduce portfolio turnover and maximize after-tax returns.
When the adviser anticipates that individual stocks will be sold, it attempts
to manage the liquidation process to take advantage of longer holding periods
for favorable capital gains tax rates in order to optimize after-tax return to
Fund shareholders.
ADDITIONAL RISK INFORMATION
If the adviser determines that the condition of the financial markets calls for
a temporary or defensive position to reduce risk through a substantial
investment in cash and cash equivalents, such a position would make it
difficult to achieve the objective of capital appreciation.
To the extent that the Fund invests in foreign companies, its investments may
involve political, economic or currency risks not ordinarily associated with
U.S. securities. The Fund may use certain techniques involving a form of
leverage, which could have the effect of magnifying the Fund's gains or losses,
or could result in increased volatility of the Fund's share price. In order to
limit such risks, the Fund limits the percentage of its assets that can be
exposed to such leveraging techniques.
PURCHASING SHARES
You may purchase shares of the Fund without any sales charge through an
investment adviser, financial planner, broker, dealer or other investment
professional. Shares are also available through "fund supermarkets" or similar
programs which offer access to a broad array of mutual funds. A completed
application must be submitted to the Fund, along with payment of the purchase
price by check or wire. PLEASE NOTE THAT PURCHASE INSTRUCTIONS, MAILING
ADDRESSES AND TELEPHONE NUMBERS ARE SET FORTH IN THE ACCOUNT INSTRUCTIONS CHART
INCLUDED ON PAGE 11 OF THIS PROSPECTUS AS WELL AS IN THE FUND'S SHAREHOLDER
APPLICATION. PLEASE CALL WITH ANY QUESTIONS.
MINIMUM INVESTMENTS. The minimum initial investment is $2,500 and additional
investments must total at least $1,000. The minimum initial investment for
qualified retirement accounts is $1,000 ($500 for Education IRAs) and there is
no minimum for subsequent investments. The Fund may also change or waive its
policies concerning minimum investment amounts at any time.
PURCHASE PRICE. You may buy shares at the Fund's net asset value per share
(NAV), which is calculated as of the close of the New York Stock Exchange
(usually 4:00 P.M. eastern time) every day the exchange is open. Your order
will be priced at the next NAV calculated after your order is accepted by the
Fund. The Fund has certain limited arrangements which permit third parties to
accept orders on the Fund's behalf, so that investors can receive the NAV next
calculated after the order is accepted by the third party.
The NAV is determined by dividing the value of the Fund's securities, cash and
other assets, minus all expenses and liabilities, by the number of shares
outstanding. The Fund's securities are valued each day at their market value,
which usually means the last quoted sale price on the security's principal
exchange on that day. If market quotations are not readily available,
securities will be priced at their fair value as determined in good faith by,
or under procedures adopted by, the Board of Trustees. The Fund may use
independent pricing services to assist in calculating the NAV.
IN-KIND PURCHASES. The Fund may permit investors to purchase shares by
transferring securities to the Fund that meet the Fund's investment objective
and policies. Securities transferred to the Fund will be valued in the same way
that securities in the Fund's portfolio are valued for purposes of calculating
its NAV.
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GENERAL POLICIES. Shares of the Fund may not be available in all states. You
should ask your investment professional or a Fund representative if shares are
available in your state. The Fund reserves the right to reject any purchase
order or to suspend the offering of its shares.
SELLING SHARES
You may sell your shares at any time. The sale price will be the next NAV
calculated after your order is accepted by the Fund's transfer agent. No fees
are imposed by the Fund when shares are sold. PLEASE NOTE THAT SELLING
INSTRUCTIONS, MAILING ADDRESSES AND TELEPHONE NUMBERS ARE SET FORTH IN THE
ACCOUNT INSTRUCTIONS CHART ON PAGE 11 OF THIS PROSPECTUS AS WELL AS IN THE
FUND'S SHAREHOLDER APPLICATION. PLEASE CALL WITH ANY QUESTIONS.
HOW TO SELL. You may sell your shares by giving instructions to the Fund's
transfer agent by mail or by telephone. In order to sell by telephone, you will
need to elect the telephone redemption option on the Application. The Fund will
use reasonable procedures to confirm that instructions communicated by
telephone are genuine and, if the procedures are followed, will not be liable
for any losses due to unauthorized or fraudulent telephone transactions. During
times of drastic economic or market changes, the telephone redemption privilege
may be difficult to implement and the Fund reserves the right to suspend this
privilege.
Certain written requests to sell shares require a signature guarantee. For
example, a signature guarantee may be required if you sell a large amount of
shares, if your address of record on the account application has been changed
within the last 30 days, or if you ask that the proceeds be sent to a different
person or address. A signature guarantee is used to help protect you and the
Fund from fraud. You can obtain a signature guarantee from most banks and
securities dealers, but not from a notary public. Please call the Fund to learn
if a signature guarantee is needed or to make sure that it is completed
appropriately in order to avoid any processing delays.
SALE PROCEEDS. The Fund is responsible for processing requests to sell shares
on a timely basis. Checks are normally mailed or proceeds are wired on the next
day after receipt and acceptance of selling instructions (if received by
Firstar before the close of regular trading on the NYSE). In no event will
proceeds be mailed or wired later than 7 days following such receipt and
acceptance (or earlier if required by applicable law). If the shares being sold
have recently been purchased by check, the Fund reserves the right not to make
the sale proceeds available until it reasonably believes that the check has
been collected. This could take up to 10 business days.
Sale proceeds may be wired to your predesignated bank account at any commercial
bank in the United States if the amount is $1,000 or more. The receiving bank
may charge a fee for this service. Alternatively, proceeds may be mailed to
your bank or to your account address of record if the address has been
established for a minimum of 60 days.
GENERAL POLICIES. The Fund also reserves the right to make a "redemption
in-kind" if the amount you are redeeming is large enough to affect Fund
operations or if the redemption would otherwise disrupt the Fund. For example,
the Fund may redeem shares in-kind if the amount represents more than 1% of the
Fund's assets. When the Fund makes a "redemption in-kind" it pays the Seller in
portfolio securities rather than cash. In addition, if your account balance
falls below $1,000, the Fund may request that you increase your balance. If it
is still below $1,000 after 60 days, the Fund may automatically close your
account and send you the proceeds.
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ACCOUNT OPTIONS
AUTOMATIC INVESTMENT PLAN: Shareholders who wish to make regular additional
investments (monthly, bimonthly, quarterly or yearly) in amounts of $50 or more
to an existing Fund account may do so through the Fund's Automatic Investment
Plan. Under this Plan, your designated bank or other financial institution
debits a preauthorized amount to your checking account on a business day of
your choosing and applies the amount to the purchase of Fund shares. The Fund
can accommodate up to four investments per month as long as there are seven
days between investments. The Fund does not charge a fee for participating in
the Automatic Investment Plan. However, Firstar will charge a $20 service fee
against your Fund account for any purchase under this Plan that does not clear
due to insufficient funds or, if prior to notifying the Fund or Firstar in
writing or by telephone of your intention to terminate your participation in
this Plan, you close your bank account or in any manner prevent withdrawal of
funds from your designated bank account. To use this service, you must
authorize the transfer of funds by completing the Automatic Investment Plan
Application, which may be obtained from either the Fund or Firstar. The Fund
reserves the right to suspend, modify or terminate the Automatic Investment
Plan without notice. Shareholders who wish to make a change to their Automatic
Investment Plan may call the Fund at (877) 363-6333 (TOLL FREE).
EXCHANGE PRIVILEGES: You may exchange all or a portion of your shares in the
Fund for shares of either the Firstar Money Market Fund or the Firstar
Tax-Exempt Money Market Fund. The shareholders of this fund may also exchange
into the Fund where permitted by the various state laws. Once the Fund receives
and accepts an exchange request, the purchase or redemption of shares will be
effected at the Fund's next determined NAV.
SYSTEMATIC WITHDRAWAL PLAN: Shareholders may elect to participate in the Fund's
Systematic Withdrawal Plan. By making this election, you can arrange for
automatic withdrawals from your Fund account into a pre-authorized bank account
according to the schedule you select which may be on a monthly basis or in
certain designated months. The Fund does not charge a fee for participating in
the Systematic Withdrawal Plan. The Systematic Withdrawal option may be in any
amount you select, subject to a $100 minimum. To begin distributions, a
shareholder must have a Fund account valued at $10,000 or more. You may elect
this option by completing the Systematic Withdrawal Plan Application which is
available from Firstar or the Fund. Shareholders who wish to make a change to
their Systematic Withdrawal option may call Firstar or the Fund. Normally,
shareholders should not make automatic investments in a Fund at the same time
they are receiving systematic withdrawals from that Fund because such
shareholders could realize capital gains on the systematic withdrawals from
that Fund while they are automatically investing in that Fund. The Systematic
Withdrawal Plan may be terminated at any time by written notice.
RETIREMENT INVESTING
You may purchase Fund shares for use in all types of tax-deferred qualified
retirement plans such as Individual Retirement Accounts (IRAs),
employer-sponsored retirement plans (including 401(k) Plans), and tax-sheltered
custodial accounts described in Section 403(b) of the Internal Revenue Code.
Distributions of net investment income and capital gains will be automatically
reinvested in such plans or accounts. Special applications are required for
certain of these plans or accounts, which can be obtained by calling the Fund.
The following is a brief description of the retirement investing options.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): If you are not an active participant
(and, if a joint return is filed, your spouse is not an active participant) in
an employer-sponsored retirement plan, or if you have an adjusted gross income
within certain specified limits, you are eligible to make a deductible
contribution to an IRA account. If you are not eligible for deductible
contributions, you may still make nondeductible IRA contributions.
Distributions from qualified retirement plans, may be rolled over into an IRA
account holding Fund shares. You can continue to defer Federal income taxes on
your IRA account, your rollover contribution, and on any income that is earned
on that contribution.
Firstar Trust Company makes its services as an IRA Custodian available for each
shareholder account that is established as an IRA. For these services, Firstar
receives an annual fee of $12.50 per account (maximum $25.00 per social
security number), which is paid directly to Firstar by the IRA shareholder. If
the annual
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<PAGE>
fee is not paid by the date due, shares of the Fund owned by the shareholder in
the IRA account will be automatically sold to pay the annual fee. Firstar may,
in its discretion, hold any initial contribution uninvested until the
expiration of the seven-day revocation period. Firstar does not anticipate that
it will exercise its discretion but reserves the right to do so.
TRADITIONAL IRA: In a Traditional IRA, amounts contributed to the IRA may be
tax deductible at the time of contribution depending on your income and whether
you are an "active participant" in an employer-sponsored retirement plan.
Amounts invested are permitted to grow tax-free until they are distributed, and
then distributions will be taxed except to the extent that the distribution
represents a return of your own contributions for which you did not claim a
deduction. If you take distributions before age 59 1/2 or fail to begin taking
distributions after age 70 1/2 , you may experience adverse tax consequences.
ROTH IRA: In a Roth IRA, amounts contributed to the IRA are not tax deductible
at the time of contribution. Amounts invested are permitted to grow tax-free
and distributions from the IRA are not subject to tax if you have held the IRA
for certain minimum periods of time (generally, until age 59 1/2).
EDUCATION IRA: In an Education IRA, nondeductible contributions of up to $500
per year per child are permitted to grow tax-free. Distributions used to pay
for secondary educational expenses are not subject to tax.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP): A special IRA program is available for
employers under which the employers may establish IRA accounts for their
employees in lieu of establishing tax qualified retirement plans. Known as
SEP-IRA's, they free the employer of many of the recordkeeping requirements of
establishing and maintaining a tax qualified retirement plan trust.
SIMPLE IRA: An IRA may also be used in connection with a SIMPLE Plan
established by employers (or by a self-employed individual). Under a SIMPLE
Plan, you may elect to have your employer make salary reduction contributions
or as a non-elective contribution to all eligible participants whether or not
making salary reduction contributions. A number of special rules apply to
SIMPLE Plans, including (1) a SIMPLE Plan generally is available only to
employers with fewer than 100 employees; (2) contributions must be made on
behalf of all employees of the employer (other than bargaining unit employees)
who satisfy certain minimum participation requirements; (3) contributions are
made to a special SIMPLE IRA that is separate and apart from the other IRAs of
employees; (4) the distribution excise tax (if otherwise applicable) is
increased to 25% on withdrawals during the first two years of participation in
a SIMPLE IRA; and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into another SIMPLE IRA (and not
to a Traditional IRA or to a Roth IRA).
403(B) PLANS: The Fund's shares are also available for use by schools,
hospitals, and certain other tax-exempt organizations or associations who wish
to use shares of the Fund as a funding medium for a retirement plan for their
employees. Contributions are made to the 403(b) Plan as a reduction to the
employee's regular compensation. Such contributions, to the extent they do not
exceed applicable limitations (including a generally applicable limitation of
$9,500 per year), are excludable from the gross income of the employee for
Federal Income tax purposes.
401(K) PLANS AND OTHER QUALIFIED PENSION OR PROFIT-SHARING PLANS: The Fund's
shares may be used for investment in various employer-sponsored retirement
plans by both self-employed individuals (sole proprietorships and partnerships)
and corporations who wish to use shares of the Fund as a funding medium for a
retirement plan qualified under the Internal Revenue Code. Such plans typically
allow investors to make annual deductible contributions, which may be matched
by their employers up to certain percentages based on the investor's
pre-contribution earned income. Fund shares may be purchased by investors who
wish to contribute to a 401(k) or similar Plan already established through
their employer or otherwise. Please contact the Fund for information about
establishing a 401(k) Plan for your company using the Barrett Growth Fund
together with Firstar Funds as investment options.
- 10 -
<PAGE>
ACCOUNT INSTRUCTIONS
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT TO SELL SHARES
<S> <C> <C>
Regular Account Minimum: $2,500 Regular Account Minimum: $1,000 All requests to sell shares from IRA
Retirement Account Minimum: $1,000 Retirement Account Minimum: None accounts must be in writing.
IN WRITING IN WRITING IN WRITING
- ----------------------------------------- --------------------------------------------- ------------------------------------------
Complete the application. Complete the detachable investment Write a letter of instruction that
slip form your account statement, or if includes:
Make your check* payable to: the slip is not available, include a note -your name(s) and signature(s)
"Barrett Growth Fund." specifying the Fund's name, your -your account number
account number and the name on the -the Fund name
account. Specified in the letter and -the dollar amount you want to sell
accompanied by a signature guarantee. Proceeds will be send to the address of
record unless specified in the letter and
accompanied by a signature guarantee.
Mail your application and check to: Mail the slip, along with your check Mail your letter to:
made payable to "Barrett Growth
Fund" to:
Firstar Mutual Fund Services, LLC. Firstar Mutual Fund Services, LLC. Firstar Mutual Fund Services, LLC.
Third Floor Third Floor Third Floor
615 E. Michigan Street 615 E. Michigan Street 615 E. Michigan Street
Milwaukee, Wisconsin 53202 Milwaukee, Wisconsin 53202 Milwaukee, Wisconsin 53202
BY TELEPHONE** BY TELEPHONE** BY TELEPHONE**
- ----------------------------------------- --------------------------------------------- ------------------------------------------
If your bank is a member of Automated If you have not already completed the When you are ready to sell shares, call
Clearing House (ACH), your account portion of the Shareholder Application 1-877-363-6333 (TOLL FREE) and select how
can be set up with the ACH feature. related to telephone purchases, call you would like to receive the proceeds:
Complete the portion on the 1-877-363-6333 (TOLL FREE) to obtain an
Shareholder Application related to application. After the request is - Mail check to the address of record
telephone purchases. completed, call to request the amount - Wire funds to a domestic
to be transferred to you account financial institution
- Mail to a previously designated
alternate address
- Electronically transfer the
funds via ACH
BY WIRE BY WIRE BY WIRE
- ----------------------------------------- --------------------------------------------- ------------------------------------------
To obtain instructions for Federal To obtain instructions for Federal Be sure the Fund has your bank account
Funds wire purchases for the Fund, Funds wire purchases for the Funds, information on file. Proceeds will be
please call Firstar at 1-877-363-6333. please call Firstar at 1-877-363-6333 wired to your bank. There is a $12.00
(TOLL FREE) (TOLL FREE). wire fee charged for this service.
AUTOMATICALLY AUTOMATICALLY AUTOMATICALLY
- ----------------------------------------- --------------------------------------------- ------------------------------------------
AUTOMATIC INVESTMENT PLAN - Indicate on ALL SERVICES - Call us to request a form to AUTOMATIC WITHDRAWAL PLAN - Call us to
your application which automatic add any automatic investing service. request a form to add the plan.
service(s) you want. Complete and Complete and return the forms along Complete the form, specifying the
return your application with your with any other required materials. amount and frequency of withdrawals
investment. you would like. Be sure to maintain an
account balance of $10,000 or more.
</TABLE>
* All checks should be in U.S. Dollars and drawn on U.S. banks. If your check
is returned for any reason, you may be charged for any resulting fees or
losses. Third-party checks will not be accepted.
** Unless you have instructed us otherwise, only one account owner needs to
call in redemption requests. All telephone calls are recorded for your
protection and reasonable procedures are taken to verify the identity of
the caller (such as providing your account number and taxpayer
identification number). If such measures are followed to ensure against
unauthorized transactions, neither the Trust, the Adviser, the Transfer
Agent nor the Distributor will be responsible for any losses. Written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by the telephone. The Fund reserves the right to
refuse a request to sell shares by wire or telephone if it is believed
advisable to do so. Procedures for selling shares of the Fund by wire or
telephone may be modified or terminated at any time.
- 11 -
<PAGE>
MARKETING AND DISTRIBUTION
The Fund's shares are offered through financial supermarkets and retirement
plans, investment advisers and consultants, financial planners, brokers,
dealers and other investment professionals. The Fund's principal underwriter
and national distributor is T.O. Richardson Securities, Inc. The shares are
offered and sold without any sales charges imposed by the Fund or its
distributor. Investment professionals who offer the Fund's shares are generally
paid separately by their individual clients. If you invest through a third
party, the policies and fees may be different than those described in this
Prospectus. For example, third parties may charge transaction fees or set
different minimum investment amounts.
The Fund has adopted a Distribution and Shareholder Servicing Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940. Under this Plan, the Fund
will reimburse the distributor or others for amounts spent in connection with
the sales and distribution of its shares or for shareholder servicing
activities. Distribution activities include the preparation, printing and
mailing of prospectuses, shareholder reports and sales materials for marketing
purposes, marketing activities, advertising and payments to brokers or others
who sell shares of the Fund. Shareholder servicing activities include ongoing
maintenance and service of shareholder accounts for the Fund, responding to
inquiries regarding shareholder accounts and acting as agent or intermediary
between shareholders and the Fund or its service providers. The maximum amount
that the Fund may pay is 0.25% per year of the average daily net assets of the
Fund. Because these fees are paid out of the Fund's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges. The Fund currently expects that
the fees of the Plan will primarily be used to compensate mutual fund
supermarkets or retirement plan recordkeepers for their activities on behalf of
the Fund and its shareholders.
Firstar Mutual Fund Services, LLC serves as the administrator, transfer agent,
and dividend disbursing agent for the Fund. The Fund may also compensate other
parties who provide transfer agency services in addition to those provided by
Firstar Mutual Fund Services, LLC. Firstar Bank Milwaukee, N.A. serves as the
custodian for the Fund.
DISTRIBUTIONS AND TAXATION
The Fund will distribute substantially all of the net investment income and net
capital gains that it has realized on the sale of securities. These income and
gains distributions will generally be paid once each year, on or before
December 31. Distributions will automatically be reinvested in additional
shares of the Fund, unless you elect to have the distributions paid to you in
cash. There are no sales charges or transaction fees for reinvested dividends
and all shares will be purchased at NAV.
Distributions made by the Fund are taxable to most investors (unless the
investment is in an IRA or qualified retirement plan or account), whether
received in cash or additional shares. Income dividends and short-term capital
gains are taxed as ordinary income, while long-term capital gains are taxed as
such, regardless of how long you own your shares of the Fund. The tax status of
distributions made to you, whether ordinary income or long-term capital gain,
will be detailed in your annual tax statement from the Fund. If the Fund
distributes unrealized gains soon after you purchase shares, a portion of your
investment may be returned as a taxable distribution.
A sale or exchange of Fund shares is a taxable event and may result in a
capital gain or loss to you if you are subject to tax. Non-U.S. investors may
be subject to U.S. withholding and state tax. In addition, distributions from
the Fund or gains from the sale or exchange of Fund shares may be subject to
state or local taxes. By law, the Fund must withhold 31% of your taxable
distributions and proceeds if you do not provide a correct taxpayer
identification number ("TIN") or certify that your TIN is correct, or if the
IRS instructs the Fund to do so.
BECAUSE EVERYONE'S TAX SITUATION IS UNIQUE, ALWAYS CONSULT YOUR TAX
PROFESSIONAL ABOUT FEDERAL, STATE AND LOCAL TAX CONSEQUENCES.
- 12 -
<PAGE>
BARRETT GROWTH FUND
565 Fifth Avenue
New York, NY 10017
(877) 363-6333
(TOLL FREE) INVESTMENT ADVISER
BARRETT ASSOCIATES, INC.
565 Fifth Avenue
New York, NY 10017
DISTRIBUTOR
T.O. RICHARDSON SECURITIES, INC.
2 Bridgewater Road
Farmington, Connecticut 06032
ADMINISTRATOR, FUND ACCOUNTANT
& TRANSFER AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
FIRSTAR BANK MILWAUKEE, N.A.
615 East Michigan Street
Milwaukee, WI 53202
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, PA 19103
AUDITORS
KPMG PEAT MARWICK LLP
777 East Wisconsin Avenue
Suite 3100
Milwaukee, WI 53202
ADDITIONAL INFORMATION
A Statement of Additional Information (SAI) contains additional information
about the Fund and is incorporated by reference into this Prospectus. The
Fund's annual and semi-annual reports to shareholders will contain additional
information about the Fund's investments. In the Fund's annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during each fiscal year.
You may obtain a free copy of these documents by calling or writing the Fund as
shown above. You also may call the toll-free number shown above to request
other information about the Fund and to make shareholder inquiries.
You may review and copy the SAI and other information about the Fund by
visiting the Securities and Exchange Commission's Public Reference Room in
Washington, DC. or by visiting the Commission's Internet site at
http://www.sec.gov. Copies of this information also may be obtained, upon
payment of a duplicating fee, by writing to the Public Reference Section of the
Commission, Washington, DC 20549-6009. You may call the Commission at
1-800-SEC-0330 for information about the operation of the public reference
room.
SEC File No. 811-9035
<PAGE>
BARRETT GROWTH FUND
THE BARRETT FUNDS
565 Fifth Avenue
New York, NY 10017
1 (877) 363-6333
STATEMENT OF ADDITIONAL INFORMATION
Dated December 18, 1998
This Statement of Additional Information (SAI) relates to the Barrett
Growth Fund which is a series of The Barrett Funds, a registered open-end
management investment company commonly known as a mutual fund. This SAI is not a
Prospectus and should be read in conjunction with the Prospectus for the Fund
dated December 18, 1998. The Prospectus may be obtained by writing or calling
the Fund at the address and number shown above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS 2
Convertible Securities 2
Warrants and Rights 3
Illiquid Securities 3
Rule 144A Securities 3
When Issued, Delayed Delivery Securities and Forward Commitments 4
American Depository Receipts 4
U.S. Government Securities 4
Bank Obligations 5
Loans of Portfolio Securities 5
Repurchase Agreements 6
Reverse Repurchase Agreements 6
Borrowing 7
Futures 7
Options 8
Index Options 11
Risks of Options 12
Other Investments 13
INVESTMENT RESTRICTIONS 13
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES 15
MANAGEMENT OF THE TRUST 19
Investment Adviser and Advisory Agreement 19
CODE OF ETHICS 21
SERVICE AGREEMENTS 21
PORTFOLIO TRANSACTIONS AND TURNOVER 24
DIVIDENDS 29
Additional Information on Distribution and taxes 29
INVESTMENT PERFORMANCE 28
FINANCIAL STATEMENTS 31
</TABLE>
<PAGE>
GENERAL INFORMATION
The Barrett Growth Fund (the "Fund") is a series of The Barrett Funds, a
business trust organized in the state of Delaware on September 30, 1998 (the
"Trust"). The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), which is
authorized to issue multiple series and classes of shares. Each series
represents interests in a separate portfolio of investments. The Trust is
authorized to issue an unlimited number of shares of beneficial interest, par
value $0.001. The Barrett Growth Fund is the first and only series of the Trust
and is classified as a "diversified" series as that term is defined in the 1940
Act.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
The Fund's investment objective is long-term capital appreciation and the
maximization of after-tax returns. The Fund seeks to achieve its objective by
investing primarily in a diversified portfolio of common stocks of large and
mid-sized growth companies. The Fund's investment objective is not fundamental,
and therefore may be changed in the future by action of the Board of Trustees of
the Trust. Shareholders would not be asked to vote on any change in the
investment objective, but would receive ample advanced written notice of any
such change.
The following discussion of investment techniques and instruments
supplements and should be read in conjunction with the investment information
set forth in the Fund's Prospectus. The investment practices described below,
except for the discussion of certain investment restrictions, are not
fundamental and may be changed by the Board of Trustees without the approval of
the shareholders. In seeking to meet its investment objective, the Fund may
invest in any type of security whose characteristics are consistent with the
Fund's investment program. The securities in which the Fund may invest include
those described below.
CONVERTIBLE SECURITIES
Traditional convertible securities include corporate bonds, notes and
preferred stocks that may be converted into or exchanged for common stock, and
other securities that also provide an opportunity for equity participation.
These securities are generally convertible either at a stated price or a stated
rate (that is, for a specific number of shares of common stock or other
security). As with other fixed income securities, the price of a convertible
security to some extent varies inversely with interest rates. While providing a
fixed-income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a non-convertible debt security), a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a
2
<PAGE>
reflection of the value of the underlying common stock. To obtain such a higher
yield, the Fund may be required to pay for a convertible security an amount in
excess of the value of the underlying common stock. Common stock acquired by the
Fund upon conversion of a convertible security will generally be held for so
long as the Adviser anticipates such stock will provide the Fund with
opportunities which are consistent with the Fund's investment objective and
policies.
WARRANTS AND RIGHTS
The Fund may invest in warrants; however, not more than 10% of the Fund's
total assets (at the time of purchase) will be invested in warrants other than
warrants acquired in units or attached to other securities. Warrants are pure
speculation in that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing them. Warrants
basically are options to purchase equity securities at a specific price valid
for a specific period of time. They do not represent ownership of the
securities, but only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of warrants do not necessarily move parallel to the prices of the
underlying securities. Rights represent a preemptive right to purchase
additional shares of stock at the time of new issuance, before stock is offered
to the general public, so that the stockholder can retain the same ownership
percentage after the offering.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities are considered to include generally, among other things, certain
written over-the-counter options, securities or other liquid assets being used
as cover for such options, repurchase agreements with maturities in excess of
seven days, certain loan participation interests and other securities whose
disposition is restricted under the federal securities laws. The Fund's illiquid
investments may include privately placed securities which are not registered for
sale under the Securities Act of 1933, as amended (the "1933 Act").
RULE 144A SECURITIES
The Fund may invest in securities that are restricted as to resale, but
which are regularly traded among qualified institutional buyers because they are
exempt under Rule 144A from the registration requirements of the 1933 Act. The
Board of Trustees of the Trust has instructed the Adviser to consider the
following factors in determining the liquidity of a security purchased under
Rule 144A: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security, the method of soliciting offers and the
mechanics of transfer). Although having delegated the day-to-day functions, the
Board of Trustees will continue to monitor and periodically review the Adviser's
3
<PAGE>
selection of Rule 144A securities, as well as the Adviser's determinations as to
their liquidity. Investing in securities under Rule 144A could affect the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities. After the purchase of a
security under Rule 144A, the Board of Trustees and the Adviser will continue to
monitor the liquidity of that security to ensure that the Fund has no more than
15% of its net assets in illiquid securities.
When Issued, Delayed Delivery Securities and Forward Commitments
The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Fund will only enter
into a forward commitment with the intention of actually acquiring the security,
the Fund may sell the security before the settlement date if it is deemed
advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its Custodian cash or liquid
high-grade debt securities in an aggregate amount at least equal to the amount
of its outstanding forward commitments.
American Depository Receipts
The Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. The Fund may
purchase ADRs whether they are "sponsored" or "unsponsored." "Sponsored" ADRs
are issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" ADRs are issued without participation of the issuer of the
deposited security. Holders of unsponsored ADRs generally bear all the costs of
such facilities and the depository of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through voting rights to the holders
of such receipts in respect of the deposited securities. Therefore, there may
not be a correlation between information concerning the issuer of the security
and the market value of an unsponsored ADR. ADRs may result in a withholding tax
by the foreign country of source which will have the effect of reducing the
income distributable to shareholders.
4
<PAGE>
U.S. Government Securities
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-payment securities, such as CATs and TIGRs, which are not issued
by the U.S. Treasury, and are new therefore not U.S. Government securities,
although the underlying bond represented by such receipt is a debt obligation of
the U.S. Treasury. Other zero coupon Treasury securities (STRIPs and CUBEs) are
direct obligations of the U.S. Government.
Bank Obligations
Certificates of deposit are short-term obligations of commercial banks. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with international commercial transactions. Certificates
of deposit may have fixed or variable rates.
Loans of Portfolio Securities
The Fund may lend its investment securities to approved borrowers who need
to borrow securities in order to complete certain transactions, such as covering
short sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its investment securities, the Fund attempts to increase
its income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would be for the account of the Fund. The Fund may lend its investment
securities to qualified brokers, dealers, domestic and foreign banks or other
financial institutions, so long as the terms, the structure and the aggregate
amount of such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the Securities and Exchange Commission (the
"SEC") thereunder, which currently require that: (a) the borrower pledge and
maintain with a Fund collateral consisting of cash, an irrevocable letter of
credit issued by a bank or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loaned; (b) the borrower add to such collateral whenever the price of
5
<PAGE>
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis); (c) the loan be made subject to termination by a Fund at any time; and
(d) the Fund receives reasonable interest on the loan (which may include the
Fund investing any cash collateral in interest bearing short-term investments).
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Board of
Trustees.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities so
long as such fees are set forth in a written contract and approved by the
investment company's Board of Trustees. In addition, voting rights may pass with
the loaned securities, but if a material event occurs affecting an investment on
a loan, the loan must be called and the securities voted.
Repurchase Agreements
When the Fund enters into a repurchase agreement, it purchases securities
from a bank or broker-dealer which simultaneously agrees to repurchase the
securities at a mutually agreed upon time and price, thereby determining the
yield during the term of the agreement. As a result, a repurchase agreement
provides a fixed rate of return insulated from market fluctuations during the
term of the agreement. The term of a repurchase agreement generally is short,
possibly overnight or for a few days, although it may extend over a number of
months (up to one year) from the date of delivery. Repurchase agreements will be
fully collateralized and the collateral will be marked-to-market daily. The Fund
may not enter into a repurchase agreement having more than seven days remaining
to maturity if, as a result, such agreement, together with any other illiquid
securities held by the Fund, would exceed 15% of the value of the net assets of
the Fund.
In the event of bankruptcy or other default by the seller of the security
under a repurchase agreement, the Fund may suffer time delays and incur costs or
possible losses in connections with the disposition of the collateral. In such
event, instead of the contractual fixed rate of return, the rate of return to
the Fund would be dependent upon intervening fluctuations of the market value of
the underlying security and the accrued interest on the security. Although the
Fund would have rights against the seller for breach of contract with respect to
any losses arising from market fluctuations following the failure of the seller
to perform, the ability of the Fund to recover damages from a seller in
bankruptcy or otherwise in default would be reduced.
Repurchase agreements are securities for purposes of the tax
diversification requirements that must be met for pass-through treatment under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Fund will limit the value of its repurchase agreements on each
of the quarterly testing dates to ensure compliance with Subchapter M of the
Code.
6
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Reverse Repurchase Agreements
Reverse repurchase agreements involve sales of portfolio securities of the
Fund to member banks of the Federal Reserve System or securities dealers
believed creditworthy, concurrently with an agreement by the Series to
repurchase the same securities at a later date at a fixed price which is
generally equal to the original sales price plus interest. The Fund retains
record ownership and the right to receive interest and principal payments on the
portfolio securities involved. In connection with each reverse repurchase
transaction, the Fund will direct its custodian bank to place cash, U.S.
government securities, equity securities and/or investment and non-investment
grade debt securities in a segregated account of the Series in an amount equal
to the repurchase price. Any assets held in any segregated securities, options,
futures, forward contracts or other derivative transactions shall be liquid,
unencumbered and marked-to-market daily (any such assets held in a segregated
account are referred to in this Statement of Additional Information as
"Segregated Assets").
A reverse repurchase agreement involves the risk that the market value of
the securities retained by the Fund may decline below the price of the
securities the Series has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the Fund's use of the
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. Reverse repurchase agreements are considered
borrowings and as such, are subject to the same investment limitations.
Borrowing
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions subject to the fundamental investment
restriction described below under the heading "Investment Restrictions." The
Fund will not borrow money in excess of 33 1/3% of the value of its total
assets. The Fund has no intention of increasing its net income through
borrowing. Any borrowing will be done from a bank with the required asset
coverage of at least 300%. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter (not
including Sundays or holidays), or such longer period as the SEC may prescribe
by rules and regulations, reduce the amount of its borrowings to such an extent
that the asset coverage of such borrowings shall be at least 300%.
Futures
The Fund may enter into contracts for the purchase or sale for future
delivery of securities. A purchase of a futures contract means the acquisition
of a contractual right to obtain delivery to the Fund of the securities or
foreign currency called for by the contract at a specified price and future
date. When the Fund enters into a futures transaction, it must deliver to the
futures commission merchant selected by the Fund an amount referred to as
"initial margin."
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This amount is maintained by the futures commission merchant in segregated
account at the custodian bank. Thereafter, a "variation margin" may be paid by
the Fund to, or drawn by the Fund from, such account in accordance with controls
set for such accounts, depending upon changes in the price of the underlying
securities subject to the futures contract.
The Fund may enter into futures contracts and engage in options on futures
to the extent that no more than 5% of the Fund's assets are required as futures
contract margin deposits and premiums on options, and may engage in such
transactions to the extent that obligations relating to such futures and related
options on futures transactions represent not more than 25% of the Fund's
assets.
The Fund will enter into futures transactions on domestic exchanges and,
to the extent such transactions have been approved by the Commodity Futures
Trading Commission for sale to customers in the United States, on foreign
exchanges. In addition, the Fund may sell stock index futures in anticipation of
or during a market decline to attempt to offset the decrease in market value of
their common stocks that might otherwise result; and they may purchase such
contracts in order to offset increases in the cost of common stocks that they
intend to purchase. Unlike other futures contracts, a stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract. While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into offsetting transactions.
The Fund may enter into futures contracts to protect against the adverse
affects of fluctuations in security prices, interest or foreign exchange rates
without actually buying or selling the securities or foreign currency. For
example, if interest rates are expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Fund. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of the futures contracts to the Fund
would increase at approximately the same rate, thereby keeping the net asset
value of the Fund from declining as much as it otherwise would have. Similarly,
when it is expected that interest rates will decline, futures contracts may be
purchased to hedge in anticipation of subsequent purchases of securities at
higher prices. Since the fluctuations in the value of futures contracts should
be similar to those of debt securities, the Fund could take advantage of the
anticipated rise in value of debt securities without actually buying them until
the market had stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the cash market.
To the extent that market prices move in an unexpected direction, the Fund
may not achieve the anticipated benefits of futures contracts or may realize a
loss. For example, if the Fund is hedged against the possibility of an increase
in interest rates which would adversely affect the price of securities held in
its portfolio and interest rates decrease instead, the Fund would lose part or
all of the benefit of the increased value which it has because it would have
offsetting losses in its futures position. In addition, in such situations, if
the Fund had insufficient cash, it may be required to sell securities from its
portfolio to meet daily variation margin requirements. Such sales of securities
may, but will not necessarily, be at increased prices which reflect the rising
market. The Fund may be required to sell securities at a time when it may be
disadvantageous to do so.
Options
The Fund may invest in options that are listed on U.S. exchanges or traded
over-the-counter. Certain over-the-counter options may be illiquid. Thus, it may
not be possible to close options positions and this may have an adverse impact
on the Fund' ability to effectively hedge its securities. The Fund considers
over-the-counter options to be illiquid. Accordingly, the Fund will only invest
in such options to the extent consistent with its 15% limit on investments in
illiquid securities. The Fund may purchase and write call or put options on
securities but will only engage in option strategies for non-speculative
purposes. In addition, the Fund will only engage in option transactions (other
than index options) to the extent that no more than 25% of its total assets are
subject to obligations relating to such options.
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Purchasing Call Options - The Fund may purchase call options on
securities. When the Fund purchases a call option, in return for a premium paid
by the Fund to the writer of the option, the Fund obtains the right to buy the
security underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option has the obligation to
deliver the underlying security against payment of the exercise price. The
advantage of purchasing call options is that the Fund may alter portfolio
characteristics and modify portfolio maturities without incurring the cost
associated with transactions.
The Fund may, following the purchase of a call option, liquidate its
position by effecting a closing sale transaction. This is accomplished by
selling an option of the same series as the option previously purchased. The
Fund will realize a profit from a closing sale transaction if the price received
on the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.
Although the Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the result that the Fund would have to
exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Fund may expire without any value
to the Fund, in which event it would realize a capital loss which will be
short-term unless the option was held for more than one year.
Covered Call Writing - The Fund may write covered call options from time
to time on such portions of its portfolio, without limit, as Barrett Associates
determines is appropriate in seeking to achieve the Fund's investment objective.
The advantage to the Fund of writing covered calls is that it receives a premium
which is additional income. However, if the security rises in value, the Fund
may not fully participate in the market appreciation.
During the option period for a covered call option, the writer may be
assigned an exercise notice by the broker-dealer through whom such call option
was sold, requiring the writer to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the expiration
of the option or upon entering a closing purchase transaction. A closing
purchase transaction, in which the Fund, as writer of an option, terminates its
obligation by purchasing an option of the same fund as the option previously
written, cannot be effected with respect to an option once the option writer has
received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expirations date or both. The Fund may realize a net
gain or loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
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If a call option expires unexercised, the Fund will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security and the
proceeds of the sale of the security plus the amount of the premium on the
option less the commission paid.
The Fund will write call options only on a covered basis, which means that
the Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, the
Fund would be required to continue to hold a security which it might otherwise
wish to sell or deliver a security it would want to hold. The exercise price of
a call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
Purchasing Put Options - The Fund may purchase put options. The Fund will,
at all times during which it holds a put option, own the security covered by
such option. The purchase of the put on substantially identical securities held
will constitute a short sale for tax purposes, the effect of which is to create
short-term capital gain on the sale of the security and to suspend running of
its holding period (and treat it as commencing on the date of the closing of the
short sale) or that of a security acquired to cover the same if, at the time the
put was acquired, the security had not been held for more than one year.
A put option purchased by the Fund gives it the right to sell one of its
securities for an agreed price up to an agreed date. The Fund intends to
purchase put options in order to protect against a decline in the market value
of the underlying security below the exercise price less the premium paid for
the option ("protective puts"). The ability to purchase put options will allow
the Fund to protect unrealized gains in an appreciated security in their
portfolios without actually selling the security. If the security does not drop
in value, the Fund will lose the value of the premium paid. The Fund may sell a
put option which it has previously purchased prior to the sale of the securities
underlying such option. Such sale will result in a net gain or loss depending on
whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put option which is sold.
The Fund may sell a put option purchased on individual portfolio
securities. Additionally, the Series may enter into closing sale transactions. A
closing sale transaction is one in which the Fund, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.
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Writing Put Options - The Fund may also write put options on a secured
basis which means that the Fund will maintain in a segregated account with its
custodian segregated assets in an amount not less than the exercise price of the
option at all times during the option period. The amount of segregated assets
held in the segregated account will be adjusted on a daily basis to reflect
changes in the market value of the securities covered by the put option written
by the Series. Secured put options will generally be written in circumstances
where Barrett Associates wishes to purchase the underlying security for the
Fund's portfolio at a price lower than the current market price of the security.
In such event, the Fund would write a secured put option at an exercise price
which, reduced by the premium received on the option, reflects the lower price
it is willing to pay.
Following the writing of a put option, the Fund may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
Straddles - The Fund may write covered straddles consisting of a
combination of a call and a put written on the same underlying security. A
straddle will be covered when sufficient assets are deposited to meet the Fund's
immediate obligations. The Fund may use the same liquid assets to cover both the
call and put options where the exercise price of the call and put are the same,
or the exercise price of the call is higher than that of the put. In such cases,
the Fund will also segregate liquid assets equivalent to the amount, if any, by
which the put is "in the money."
Index Options
The Fund may purchase exchange-listed put and call options on stock
indices and sell such options in closing sale transactions for hedging purposes.
The Fund may purchase call options on broad market indices to temporarily
achieve market exposure when the Fund is not fully invested. The Fund may also
purchase exchange-listed call options on particular market segment indices to
achieve temporary exposure to a specific industry. The Fund may purchase put
options on broad market indices in order to protect its fully invested portfolio
from a general market decline. Put options on market segments may be bought to
protect the Fund from a decline in value of heavily weighted industries in the
Fund's portfolio. Put options on stock indices may be used to protect the Fund'
investments in the case of a major redemption. While the option is open, the
Fund will maintain a segregated account with its custodian in an amount equal to
the market value of the option.
Options on indices are similar to regular options except that an option on
an index gives the holder the right, upon exercise, to receive an amount of cash
if the closing level of the index upon which the option is based is greater than
(in the case of a call) or lesser than (in the case of a put) the exercise price
of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier").
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Risks of Options
The purchase and writing of options involves certain risks. During the
option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price, but, as long as its obligation
as a writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. If a
put or call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurance that a liquid market will exist when
a Fund seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, the Fund may be
unable to close out a position.
The Fund's purchases of options on indices will subject them to the
following risks described below. First, because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular security, whether the Fund will realize gain or loss on the purchase
of an option on an index depends upon movements in the level of prices in the
market generally or in an industry or market segment rather than movements in
the level of prices in the market generally or in an industry or market segment
rather than movements in the price of a particular security. Accordingly,
successful use by the Fund of options on indices is subject to Barrett
Associates' ability to predict correctly the direction of movements in the
market generally or in a particular industry. This requires different skills and
techniques than predicting changes in the prices of individual securities.
Second, index prices may be distorted if trading of a substantial number
of securities included in the index is interrupted causing the trading of
options on that index to be halted. If a trading halt occurred, the Fund would
not be able to close put options which it had purchased and the Fund may incur
losses if the underlying index moved adversely before trading resumed. If a
trading halt occurred and restrictions prohibiting the exercise of options were
imposed through the close of trading on the last day before expiration,
exercises on that day would be settled on the basis of a closing index value
that may not reflect current price information for securities representing a
substantial portion of the value of the index.
Third, if the Fund holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that the
level of the underlying index may change before closing. If such a change causes
the exercised option to fall "out-of-the-money," the Fund will be required to
pay the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although the
Fund may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising the
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.
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Other Investments
The Board of Trustees may, in the future, authorize the Fund to invest in
securities other than those listed in this SAI and in the prospectus, provided
such investment would be consistent with the Fund's investment objective and
that it would not violate any fundamental investment policies or restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies and Restrictions: The Fund has adopted the
following fundamental investment restrictions which cannot be changed without
the approval of a "majority of the outstanding voting securities" of the Fund.
Under the 1940 Act, a "majority of the outstanding voting securities" of a fund
means the vote of: (i) more than 50% of the outstanding voting securities of the
fund; or (ii) 67% or more of the voting securities of the fund present at a
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, whichever is less.
Concentration: The Fund will not make investments that will result in the
concentration (as that term may be defined in the 1940 Act, any rule or order
thereunder, or U.S. Securities and Exchange Commission ("SEC") staff
interpretation thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this restriction does not
limit the Fund from investing in obligations issued or guaranteed by the U.S.
government, or its agencies or instrumentalities. The SEC staff currently takes
the position that a fund concentrates its investments in a particular industry
if more than 25% of its net assets is invested in issuers within the industry.
Senior Securities & Borrowing: The Fund may not borrow money or issue senior
securities, except as the 1940 Act, any rule or order thereunder, or SEC staff
interpretation thereof, may permit.
Underwriting: The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances where it
may be considered to be an underwriter under the Securities Act of 1933.
Real Estate: The Fund may not purchase or sell real estate, unless acquired as a
result of ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from investing in issuers which invest,
deal or otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
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Commodities: The Fund may not purchase or sell physical commodities, unless
acquired as a result of ownership of securities or other instruments and
provided that this restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
Lending: The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker/dealers or institutional investors and
investing in loans, including assignments and participation interests.
Non-Fundamental Policies and Restrictions: In addition to the fundamental
policies and investment restrictions described above, and the various general
investment policies described in the Prospectus, the Fund will be subject to the
following investment restrictions, which are considered non-fundamental and may
be changed by the Board of Trustees without shareholder approval.
Other Investment Companies: The Fund is permitted to invest in other investment
companies, including open-end, closed-end or unregistered investment companies,
either within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, the Fund may not operate as a "fund of funds"
which invests primarily in the shares of other investment companies as permitted
by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
Illiquid Securities: The Fund may not invest more than 15% of its net assets in
securities which it can not sell or dispose of in the ordinary course of
business within seven days at approximately the value at which the Fund has
valued the investment.
In applying the Fund's fundamental policy concerning concentration that is
described above, it is a matter of non-fundamental policy that investments in
certain categories of companies will not be considered to be investments in a
particular industry. For example: (i) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; (ii) technology companies will be divided according to their products
and services, for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry; (iii)
asset-backed securities will be classified according to the underlying assets
securing such securities; and (iv) utility companies will be divided according
to their services, for example, gas, gas transmission, electric and telephone
will each be considered a separate industry.
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ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
Purchasing Shares
You may purchase shares of the Fund without any sales charge through an
investment adviser, financial planner, broker, dealer or other investment
professional or through a fund supermarket or retirement plan. Shares of the
Fund are offered on a continuous basis by the distributor. Other persons may
receive compensation for their marketing and shareholder servicing activities in
the form of 12b-1 fees payable by the Fund under its 12b-1 Plan.
The Fund reserves the right to reject any purchase order and to suspend
the offering of shares of the Fund. The minimum initial investment is $2,500 and
additional investments must total at least $1,000. The minimum initial
investment for qualified retirement accounts is $1,000 ($500 for Education IRAs)
and there is no minimum for subsequent investments in these accounts. The Fund
may also change or waive its policies concerning minimum investment amounts at
any time. The Fund's Transfer Agent maintains all shareholder and shareholder
transaction(s) records for the Fund.
The Fund does not intend to issue certificates representing shares
purchased. You will have the same rights of ownership with respect to such
shares as if certificates had been issued.
You may buy shares at the Fund's net asset value per share (NAV), which is
calculated as of the close of the New York Stock Exchange ("NYSE") (usually 4:00
P.M. eastern time) every day the exchange is open. As of the date of this SAI,
the Fund is informed that the NYSE observes the following holidays: New Year's
Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The NAV is determined by dividing the value of the Fund's securities, cash
and other assets, minus all expenses and liabilities, by the number of shares
outstanding. The Fund's securities are valued each day at their market value,
which usually means the last quoted sale price on the security's principal
exchange on that day. Expenses and fees of the Fund, including management,
distribution and shareholder servicing fees, are accrued daily and taken into
account for the purpose of determining the net asset value.
Cash and receivable are valued at their realizable amounts. Interest is
recorded as accrued and dividends are recorded on the ex-dividend date.
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices. The current
market value of any option held by the Fund is its last sale price on the
relevant exchange before the time when assets are valued. Lacking any sales that
day or if the last sale price is outside the bid and ask prices, options are
valued within the range of the current closing bid and ask prices if the
valuation is believed to reflect the contract's market value. The value of a
foreign security is determined as of the close of trading on the foreign
exchange on which it is traded or as of the scheduled close of trading on the
NYSE, if that is earlier. Generally, trading in corporate bonds, U.S. government
securities and money market instruments is substantially completed each day at
various times before the scheduled close of the NYSE. The value of these
securities used in computing the NAV of each class is determined as of such
time.
When you buy shares, if you submit a check or a draft that is returned
unpaid to the Fund, the Fund may impose a
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$10 charge against your account for each returned item. All checks, drafts,
wires and other payment mediums used to buy or sell shares of the Fund must be
denominated in U.S. dollars. The Fund may, in our sole discretion, either (a)
reject any order to buy or sell shares denominated in any other currency or (b)
honor the transaction or make adjustments to your account for the transaction as
of a date and with a foreign currency exchange factor determined by the drawee
bank.
Selling Shares
Shares of the Fund may be redeemed on any business day that the Fund
calculates its NAV. The sale price will be the next NAV calculated after your
order is accepted by the Fund's transfer agent. No fees are imposed by the Fund
when shares are sold.
You may sell your shares by giving instructions to the Fund's transfer
agent by mail or by telephone. The Fund will use reasonable procedures to
confirm that instructions communicated by telephone are genuine and, if the
procedures are followed, will not be liable for any losses due to unauthorized
or fraudulent telephone transactions. During times of drastic economic or market
changes, the telephone redemption privilege may be difficult to implement and
the Fund reserves the right to suspend this privilege.
Certain written requests to sell shares require a signature guarantee. For
example, a signature guarantee may be required if you sell shares worth $10,000
or more if your address of record on the account application has been changed
within the last 30 days, or if you ask that the proceeds be sent to a different
person or address. A signature guarantee is used to help protect you and the
Fund from fraud. You can obtain a signature guarantee from most banks and
securities dealers, but not from a notary public. Signature guarantees must
appear together with the signature(s) of the registered owner(s), on: (1) a
written request for redemption; or (2) a separate instrument of assignment,
which should specify the total number of shares to be redeemed (this "stock
power" may be obtained from the Fund or from most banks or stock brokers).
If you sell shares through a securities dealer or investment professional,
it is such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
Delivery of the proceeds of a redemption of shares purchased and paid for
by check shortly before the receipt of the request may be delayed until the Fund
determines that the Custodian has completed collection of the purchase check
which may take up to 10 days. Also, redemption requests for accounts for which
purchases were made by wire may be delayed until the Fund receives a completed
application for the account. The Board of Trustees may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the New York Stock Exchange is restricted as determined by the SEC or such
exchange is closed for other than weekends and holidays, (b) the SEC has by
order permitted such suspension, or (c)
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an emergency, as defined by rules of the SEC, exists during which time the sale
of Fund shares or valuation of securities held by the Fund are not reasonably
practicable.
Redeeming shares through a systematic withdrawal plan may reduce or
exhaust the shares in your account if payments exceed distributions received
from the Fund. This is especially likely to occur if there is a market decline.
If a withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
If dividend checks are returned to the Fund marked "unable to forward" by
the postal service, we will consider this a request by you to change your
dividend option to reinvest all distributions. The proceeds will be reinvested
in additional shares at NAV until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or
verify your current mailing address, we may deduct the costs of any efforts to
find you from your account. These costs may include a percentage of the account
when a search company charges a percentage fee in exchange for its location
services.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the Fund nor
its affiliates will be liable for any loss caused by your failure to cash such
checks.
The Fund also reserves the right to make a "redemption in-kind" if the
amount you are redeeming is large enough to affect Fund operations or if the
redemption would otherwise disrupt the Fund. For example, the Fund may redeem
shares in-kind if the amount represents more than 1% of the Fund's assets. When
the Fund makes a "redemption in-kind" it pays the Seller in portfolio securities
rather than cash. If shares are redeemed in kind, the redeeming shareholder may
incur brokerage costs in converting the assets to cash. The method of valuing
securities used to make redemptions in kind will be the same as the method of
valuing portfolio securities is described above. Such valuation will be made as
of the same time the redemption price is determined.
2
<PAGE>
In addition, if your account balance falls below $1,000, the Fund may
request that you increase your balance. If it is still below $1,000 after 60
days, the Fund may automatically close your account and send you the proceeds.
MANAGEMENT OF THE TRUST
Trustees and Officers
The Trust is governed by a Board of Trustees which is responsible for
protecting the interests of shareholders. The Trustees are experienced business
persons who meet throughout the year to oversee the Trust's activities, review
contractual arrangements with companies that provide services to the Fund, and
review performance. The names and business addresses of the Trustees and
officers of the Trust, together with information as to their principal
occupations during the past five years, are listed below. The Trustees who are
considered "interested persons" of the investment adviser or of the Trust, as
defined in Section 2(a)(19) of the 1940 Act, are noted with an asterisk (*).
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH REGISTRANT DURING THE PAST 5 YEARS
------- --------------- -----------------------
<S> <C> <C>
John D. Barrett, II* Chairman of the Board of Chief Executive Officer of Barrett Associates,
565 Fifth Avenue Trustees Inc.
New York, NY 10017
Age 63
Robert E. Harvey* President and Trustee President of Barrett Associates, Inc.
565 Fifth Avenue
New York, NY 10017
Age 44
James R. Rutherford* Trustee Managing Director of Barrett Associates, Inc.
565 Fifth Avenue
New York, NY 10017
Age 65
R. Bruce Cameron Trustee Managing Director, Berkshire Capital Corporation
399 Park Avenue, 28th Floor
New York, NY 10022
Age
Gerard E. Jones Trustee Partner of the law firm of Richards & O'Neil,
43 Arch Street LLP
Greenwich, CT 06830
Age
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH REGISTRANT DURING THE PAST 5 YEARS
------- --------------- -----------------------
<S> <C> <C>
Ronald E. Kfoury Trustee President, Analect Consulting
90 Park Aveue
New York, NY 10016
Age
Robert J. Voccola Vice President Managing Director of Barrett Associates, Inc.
565 Fifth Avenue
New York, NY 10017
Age
Henry A. Collins Vice President Managing Director of Barrett Associates, Inc.
565 Fifth Avenue
New York, NY 10017
Age
Peter H. Shriver Vice President & Treasurer Managing Director of Barrett Associates, Inc.
565 Fifth Avenue
New York, NY 10017
Age
Leslie J. Lammers Vice President Managing Director of Barrett Associates, Inc.
565 Fifth Avenue since 1997; previously Vice President of
New York, NY 10017 Scudder, Stevens and Clark, Inc.
Age
Paula J. Elliott Secretary Vice President of Barrett Associates, Inc.
565 Fifth Avenue
New York, NY 10017
Age
</TABLE>
Compensation of Trustees: The Trust does not compensate the Trustees who are
officers or employees of the Adviser or its affiliates. The "independent"
Trustees receive a fee of $250 for each meeting of the Trustees which they
attend in person or by telephone. Trustees are reimbursed for travel and other
out-of-pocket expenses. The Board of Trustees is expected to hold regular
quarterly meetings each year, and would receive the annual compensation shown
below from the Trust for serving on the Board and attending such meetings. The
Trust does not offer any retirement benefits for Trustees. As of December 15,
1998, the officers and Trustees, individually and as a group, owned beneficially
less than 1% of the outstanding shares of the Barrett Growth Fund.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF TRUSTEE TITLE FROM TRUST
--------------- ----- ----------
<S> <C> <C>
John D. Barrett, II Chairman of the Board None
Robert E. Harvey Trustee and President None
James R. Rutherford Trustee None
R. Bruce Cameron Trustee $1,000
Gerard E. Jones Trustee $1,000
Ronald E. Kfoury Trustee $1,000
</TABLE>
Investment Adviser and Advisory Agreement Barrett Associates, Inc. ("Barrett
Associates" or the "Adviser") having its principal offices located at 565 Fifth
Avenue, New York, NY 10017, is the Fund's investment adviser. Barrett Associates
is registered as an investment adviser under the Investment Advisers Act of 1940
(as amended, the "Advisers Act").
Barrett Associates serves as investment adviser to the Fund pursuant to an
Investment Advisory Agreement with the Trust dated as of November 11, 1998 (the
"Advisory
4
<PAGE>
Agreement"). Under the Advisory Agreement, the Adviser, subject to the
supervision of the Trustees, provides a continuous investment program for each
Fund, including investment research and management with respect to securities,
investments and cash equivalents, in accordance with the Fund's investment
objective, policies and restrictions as set forth in its prospectus, this SAI
and the resolutions of the Trustees. The Adviser is responsible for effecting
all security transactions on behalf of the Fund, including the allocation of
principal business and portfolio brokerage and the negotiation of commissions.
The Adviser also maintains books and records with respect to the securities
transactions of the Fund and furnishes to the Trustees such periodic or other
reports as the Trustees may request.
The Fund is obligated to pay the Adviser a monthly fee equal to an annual
rate of 1.00% of the Fund's average daily net assets. The Adviser has
voluntarily agreed to waive its advisory fee or make payments to limit Fund
expenses to the extent necessary to ensure that total operating expenses of the
Fund do not exceed 1.70% of average daily net assets during the Fund's first
year of operations. This voluntary arrangement may be terminated by the Adviser
at any time. To the extent that the Adviser waives fees or makes payments to
limit Fund expenses, it may seek to recoup such waived fees or expense payments
after this practice is discontinued.
Barrett Associates is an independent, privately-owned firm. Its
stockholders consist of seven senior officers of the firm, together with a
subsidiary of a privately-held real estate firm named The Ashforth Company,
located at 3003 Summer Street, Stamford, Connecticut 06905. The Fund's chairman,
John D. Barrett, II owns 25% of Barrett Associates' outstanding stock and
therefore is deemed to have a controlling interest in the firm under the 1940
Act. The Ashforth Company holds a 53% interest in Barrett Associates, through a
wholly-owned subsidiary, and therefore is also deemed to control the firm. The
remaining shares of the common stock are held by senior officers of Barrett
Associates. The Ashforth Company was founded in 1896. Its principal business is
real estate, with ownership of 1.3 million square feet of office property.
During the term of the Advisory Agreement, the Adviser pays all expenses
incurred by it in connection with its activities thereunder except the cost of
securities (including brokerage commissions, if any) purchased for the Fund. The
services furnished by the Adviser under the Advisory Agreement are not
exclusive, and the Adviser is free to perform similar services for others.
Unless sooner terminated in accordance with its terms, the Advisory
Agreement is initially effective for a period of two years and may be continued
from year to year, provided that such continuance is approved at least annually
by a vote of the holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund, or by the Trustees, and in either
event by vote of a majority of the Trustees of the Trust who are not parties to
either Advisory Agreement or "interested persons" (as defined in the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. The required shareholder approval of any continuance will be
effective with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes to approve such continuance.
<PAGE>
The Advisory Agreement will automatically terminate in the event of its
"assignment" as that term is defined in the 1940 Act, and may be terminated
without penalty at any time upon 60 days' written notice to the other party: (i)
by the majority vote of all the Trustees or by majority vote of the outstanding
voting securities of the Fund; or (ii) by the Adviser.
The Advisory Agreement may be amended by the parties provided, in most
cases, that such amendment is specifically approved by the vote of a majority of
the outstanding voting securities of the Fund and by the vote of a majority of
the Trustees who are not interested persons of the Fund or of the Adviser, cast
in person at a meeting called for the purpose of voting upon such approval.
Under the terms of the Advisory Agreement, the Adviser will be liable to
the Fund or the Trust only for losses resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services, willful misfeasance,
bad faith, gross negligence, or reckless disregard of duty.
The Adviser and the Trust have agreed that the Trust may use the name
"Barrett" only so long as Barrett Associates serves as investment adviser for
the Trust or Fund, or as Barrett Associates may permit.
CODE OF ETHICS
Both the Fund and the investment adviser have adopted a Code of Ethics
that governs the conduct of employees of the Fund and adviser who may have
access to information about the Fund's securities transactions. The Code
recognizes that such persons owe a fiduciary duty to the Fund's shareholders and
must place the interests of shareholders ahead of their own interests. Among
other things, the Code requires preclearance of personal securities
transactions; certain blackout periods for personal trading of securities which
may be considered for purchase or sale by the Fund or other clients of the
adviser; and prohibitions against personal trading of initial public offerings.
Violations of the code are subject to review by the Trustees and could result in
severe penalties.
SERVICE AGREEMENTS
As more fully described below, the Trust has entered into a number of
agreements with Firstar Mutual Funds Services, LLC ("Firstar"), a Wisconsin
limited liability company, pursuant to which management-related and other
services are performed for the Fund. Firstar serves as the Administrator,
Transfer and Dividend Disbursing Agent, and Fund Accountant. Firstar Trust
Company serves as the Fund's custodian. The principal offices of Firstar and
Firstar Trust Company are located at 615 Michigan Avenue, Milwaukee, WI 53202.
Administrator
Pursuant to an Administration Agreement with the Trust dated as of
November 11, 1998 (the "Administration Agreement"), Firstar serves as
Administrator of the Fund and subject to the
<PAGE>
direction and control of the Trustees, supervises all aspects of the operation
of the Fund except those performed by the Fund's Adviser. As administrator,
Firstar receives asset-based fees at the annual rates of 0.06% on the first $200
million of average daily net assets, 0.05% on the next $500 million of average
daily net assets and 0.03% on average daily net assets above $700 million,
subject to a minimum amount of $30,000 per year.
Under the Administration Agreement, Firstar provides certain
administrative services and facilities for the Fund. These services include
preparing and maintaining books, records, tax and financial reports, and
monitoring compliance with state and federal regulatory requirements.
Fund Accounting
Pursuant to an Accounting Agreement with the Trust dated as of November
11, 1998 (the "Accounting Agreement"), Firstar is responsible for accounting
relating to the Fund and its investment transactions; maintaining certain books
and records of the Fund; determining daily the net asset values per share of the
Fund and calculating yield, dividends and capital gain distributions; and
preparing security position, transaction and cash position reports.
Under the Accounting Agreement, Firstar maintains portfolio trading
records and records of brokerage activity in order to provide monthly brokerage
reports which identify brokers and set forth commission amounts. Firstar also
monitors periodic distributions of gains or losses on portfolio sales and
maintains a daily listing of portfolio holdings. Firstar is responsible for
expenses accrued and payment reporting services. Firstar provides tax accounting
services and tax-related financial information to the Trust. Firstar also
monitors compliance with the regulatory requirements relating to maintaining
accounting records.
Transfer Agent
Pursuant to a Transfer Agency Agreement with the Trust dated as of
November 11, 1998 (the "Transfer Agency Agreement"), Firstar also acts as the
Trust's transfer, dividend disbursing and redemption agent. Firstar provides
certain shareholder and other services to the Trust, including: furnishing
account and transaction information; providing mailing labels for the
distribution to the Fund's shareholders of financial reports, prospectuses,
proxy statements and other such materials; providing compliance reporting;
calculating distribution plan and marketing expenses; and maintaining
shareholder account records.
Firstar is responsible for processing orders for Fund shares and ensuring
appropriate participation with the National Securities Clearing Corporation for
transactions with Fund shares. If so requested by the Trust, Firstar will
produce shareholder lists and reports for proxy solicitations. Firstar receives
and processes redemption requests and administers distribution of redemption
proceeds. Firstar also handles shareholder inquiries and provides routine
account information. In addition, Firstar prepares and files appropriate tax
related information concerning dividends and distributions to shareholders
<PAGE>
Custodian
Pursuant to a Custodian servicing Agreement with the Trust dated as of
November 11, 1998 (the "Custodian Agreement"), Firstar Trust Company acts as the
custodian of the Trust's securities and cash. Portfolio securities purchased in
the U.S. are maintained in the custody of the Custodian and may be entered into
the Federal Reserve Book Entry System of the security depository system of the
Depository Trust Corporation. Firstar Trust Company maintains separate accounts
in the name of each Fund of the Trust. Firstar Trust Company is responsible for
holding and making payments of all cash received for the account of the relevant
Fund.
From each account Firstar Trust Company may make payments for the purchase
of securities, payment of interest, taxes, fees and other operating expenses. As
the custodian, Firstar Trust Company is authorized to endorse and collect
checks, drafts or other orders for payment. Firstar Trust Company is responsible
for the release or delivery of portfolio securities. Firstar Trust Company also
monitors compliance with the regulatory requirements of the Treasury Department,
Internal Revenue Service and the laws of the states. Firstar Trust Company is
compensated on the basis of an annual fee based on market value of assets of
each Fund and on fees for certain transactions.
Distributor
T.O. Richardson Securities, Inc. (the "Distributor"), located at 2
Bridgewater Road, Farmington, Connecticut, 06032 serves as the principal
underwriter and national distributor for the shares of the Fund pursuant to a
Distribution Agreement with the Trust dated as of November 11, 1998 (the
"Distribution Agreement"). T.O. Richardson Securities, Inc. is registered as a
broker-dealer under the 1934 Act and each state's securities laws and is a
member of the NASD. The offering of the Fund's shares is continuous. The
Distribution Agreement provides that the Distributor, as agent in connection
with the distribution of Fund shares, will use appropriate efforts to solicit
orders for the sale of Fund shares and undertake such advertising and promotion
as it deems reasonable, including, but not limited to, advertising, compensation
to underwriters, dealers and sales personnel, printing and mailing prospectuses
to persons other than current Fund shareholders, and printing and mailing sales
literature.
Distribution Plan
The Board of Trustees has adopted a Distribution and Shareholder Serving
Plan on behalf of the Fund, in accordance with Rule 12b-1 (the "Rule") under the
1940 Act. The Fund is authorized under the Plan to use the assets of the Fund to
reimburse the Distributor or others for certain activities relating to the
distribution of shares of the Fund to investors and the provision of shareholder
services. The maximum amount payable under the Plan is 0.25% of the Fund's
average net assets on an annual basis. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees will increase the cost
of your investment.
<PAGE>
The NASD's maximum sales charge rule relating to mutual fund shares
establishes limits on all types of sales charges, whether front-end, deferred or
asset-based. This rule may operate to limit the aggregate distribution fees to
which shareholders may be subject under the terms of the Plan.
The Plan authorizes the use of distribution fees to pay, or reimburse
expenses incurred by, banks, broker/dealers and other institutions which provide
distribution assistance and/or shareholder services including, but not limited
to, printing and distributing prospectuses to persons other than Fund
shareholders, printing and distributing advertising and sales literature and
reports to shareholders used in connection with selling shares of the Fund,
furnishing personnel and communications equipment to service shareholder
accounts and prospective shareholder inquiries. Such services may be performed
by the Distributor, the Adviser or others.
The Plan requires that any person authorized to direct the disposition of
monies paid or payable by the Fund pursuant to the Plan or any related agreement
prepare and furnish to the Trustees for their review, at least quarterly,
written reports complying with the requirements of the Rule and setting out the
amounts expended under the Plan and the purposes for which those expenditures
were made. The Plan provides that so long as it is in effect the selection and
nomination of Trustees who are not interested persons of the Trust will be
committed to the discretion of the Trustees then in office who are not
interested persons of the Trust.
Neither the Plan nor any related agreements can take effect until approved
by a majority vote of both all the Trustees and those Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on the Plan and the
related agreements. The Trustees approved the Plan on November 11, 1998.
The Plan will continue in effect only so long as its continuance is
specifically approved at least annually by the Trustees in the manner described
above for Trustee approval of the Plan. The Plan for the Fund may be terminated
at any time by a majority vote of the Trustees who are not interested persons of
the Trust and who have no direct or indirect financial interest in the
operations of the Plan or in any agreement related to the Plan or by vote of a
majority of the outstanding voting securities of the Fund.
The Plan may not be amended so as to materially increase the amount of the
distribution fees for the Fund unless the amendment is approved by a vote of at
least a majority of the outstanding voting securities of the Fund. In addition,
no material amendment may be made unless approved by the Trustees in the manner
described above for Trustee approval of the Plan.
Independent Accountants
The Trust's independent accountants, KPMG Peat Marwick LLP, will audit the
Trust's annual financial statements and review the
<PAGE>
Trust's tax returns. KPMG Peat Marwick is located at 777 East Wisconsin Avenue,
Suite 3100, Milwaukee, Wisconsin, 53202.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Fund's portfolio securities transactions are placed by the Investment
Adviser. The objective of the Fund is to obtain the best available prices in its
portfolio transactions, taking into account the costs, promptness of executions
and other qualitative considerations. There is no pre-existing commitment to
place orders with any broker, dealer or member of an exchange. The Investment
Adviser evaluates a wide range of criteria in seeking the most favorable price
and market for the execution of transactions, including the broker's commission
rate, execution capability, positioning and distribution capabilities,
information in regard to the availability of securities, trading patterns,
statistical or factual information, opinions pertaining to trading strategy,
back office efficiency, ability to handle difficult trades, financial stability,
and prior performance in servicing the Investment Adviser and its clients. In
transactions on equity securities and U.S. Government securities executed in the
over-the-counter market, purchases and sales are transacted directly with
principal market-makers except in those circumstances where, in the opinion of
the Investment Adviser, better prices and executions are available elsewhere.
The Investment Adviser, when effecting purchases and sales of portfolio
securities for the account of the Fund, will seek execution of trades either (i)
at the most favorable and competitive rate of commission charged by any broker,
dealer or member of an exchange, or (ii) at a higher rate of commission charges,
if reasonable, in relation to brokerage and research services provided to the
Fund or the Investment Adviser by such member, broker, or dealer. Such services
may include, but are not limited to, any one or more of the following;
information as to the availability of securities for purchase or sale,
statistical or factual information, or opinions pertaining to investments. The
Investment Adviser may use research and services provided by brokers and dealers
in servicing all its clients, including the Fund, and not all such services will
be used by the Investment Adviser in connection with the Fund. In accordance
with the provisions of Section 28(e) of the 1934 Act, the Adviser may from
time-to-time receive services and products which serve both research and
non-research functions. In such event, the Adviser makes a good faith
determination of the anticipated research and non-research use of the product or
service and allocates brokerage only with respect to the research component.
Brokerage may also be allocated to dealers in consideration of the Fund's share
distribution but only when execution and price are comparable to that offered by
other brokers.
The Investment Adviser provides investment advisory services to
individuals and other institutional clients, including corporate pension plans,
profit-sharing and other employee benefit trusts, and other investment pools.
There may be occasions on which other investment advisory clients advised by the
Investment Adviser may also invest in the same securities as the Fund. When
these clients buy or sell the same securities at substantially the same time,
the Investment Adviser may average the transactions as to price and allocate the
amount of available investments in a manner which is believes to be equitable to
each client, including the Fund. On
<PAGE>
the other hand, to the extent permitted by law, the Investment Adviser may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other clients managed by it in order to obtain lower
brokerage commissions, if any.
The Fund does not engage in frequent trading and turnover tactics for
short-term gains, however, the Adviser will effect portfolio transactions
without regard to holding period if, in its judgment, such transactions are
advisable in light of a change in circumstances of a particular company or
within a particular industry or in general market, economic or financial
conditions. While the Fund anticipates that its annual portfolio turnover rate
should not exceed 50% under normal conditions, it is impossible to predict
portfolio turnover rates. The portfolio turnover rate is calculated by dividing
the lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year.
SHARES OF BENEFICIAL INTEREST
The Trust is a series business trust that currently offers one series of
shares. The beneficial interest of the Trust is divided into an unlimited number
of shares, with a par value of $0.001 each. Each share has equal dividend,
voting, liquidation and redemption rights. There are no conversion or preemptive
rights. Shares, when issued, will be fully paid and nonassessable. Fractional
shares have proportional voting rights. Shares of the Fund do not have
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of trustees can elect all of the trustees if they
choose to do so and, in such event, the holders of the remaining shares will not
be able to elect any person to the Board of Trustees. Shares will be maintained
in open accounts on the books of the Transfer Agent, and certificates for shares
will generally not be issued.
If they deem it advisable and in the best interests of shareholders, the
Trustees may create additional series of shares, each of which represents
interests in a separate portfolio of investments and is subject to separate
liabilities, and may create multiple classes of shares of such series, which may
differ from each other as to expenses and dividends. If additional series or
classes of shares are created, shares of each series or class are entitled to
vote as a series or class only to the extent required by the 1940 Act or as
permitted by the Trustees. Upon the Trust's liquidation, all shareholders of a
series would share pro-rata in the net assets of such series available for
distribution to shareholders of the series, but, as shareholders of such series,
would not be entitled to share in the distribution of assets belonging to any
other series.
DIVIDENDS
A shareholder will automatically receive all income dividends and capital
gain distributions in additional full and fractional shares of the Fund at their
net asset value as of the date of payment unless the shareholder elects to
receive such dividends or distributions in cash. The reinvestment date normally
precedes the payment date by about seven days although the exact timing is
subject to change. Shareholders will receive a confirmation of each new
transaction in their account. The Trust will confirm all account activity,
including the payment
<PAGE>
of dividend and capital gain distributions and transactions made as a result of
an Automatic Withdrawal Plan or an Automatic Investment Plan. Shareholders may
rely on these statements in lieu of stock certificates. Stock certificates
representing shares of the Fund will not be issued.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The Fund receives income generally
in the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the Fund, constitute its net investment
income from which dividends may be paid to you. Any distributions by the Fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS. The Fund may derive capital gains and
losses in connection with sales or other dispositions of its portfolio
securities. Distributions derived from the excess of net short-term capital gain
over net long-term capital loss will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by the Fund will be
taxable to you as long-term capital gain, regardless of how long you have held
your shares in the Fund. Any net short-term or long-term capital gains realized
by the Fund (net of any capital loss carryovers) generally will be distributed
once each year, and may be distributed more frequently, if necessary, in order
to reduce or eliminate federal excise or income taxes on the Fund.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The Fund will inform
you of the amount and character of your distributions at the time they are paid,
and will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held Fund shares for a full year, you may have designated and distributed to you
as ordinary income or capital gain a percentage of income that is not equal to
the actual amount of such income earned during the period of your investment in
the Fund.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. The Fund intends
to be treated as a regulated investment company under Subchapter M of the Code,
and intends to so qualify during the current fiscal year. As a regulated
investment company, the Fund generally pays no federal income tax on the income
and gains it distributes to you. The Board reserves the right not to maintain
the qualification of the Fund as a regulated investment company if it determines
such course of action to be beneficial to you. In such case, the Fund will be
subject to federal, and possibly state, corporate taxes on its taxable income
and gains, and distributions to you will be taxed as ordinary dividend income to
the extent of the Fund's available earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to
<PAGE>
undistributed amounts from the prior year) to you by December 31 of each year in
order to avoid federal excise taxes. The Fund intends to declare and pay
sufficient dividends in December (or in January that are treated by you as
received in December) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes that cause you to
recognize a gain or loss. If you hold your shares as a capital asset, the gain
or loss that you realize will be capital gain or loss. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by the Fund on those shares.
All or a portion of any loss that you realize upon the redemption of your
Fund shares will be disallowed to the extent that you purchase other shares in
the Fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you purchase.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Dividends paid by the Fund
will generally qualify in part for the 70% dividends-received deduction for
corporations, but the portion of the dividends so qualifies depends on the
aggregate taxable qualifying dividend income received by such Fund from domestic
(U.S.) sources. The Fund will send to shareholders a statement each year
advising the amount designated by the Fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES. The Fund may invest in complex
securities. Such investments may be subject to numerous special and complicated
tax rules. These rules could affect whether gains and losses recognized by the
Fund are treated as ordinary income or capital gain and/or accelerate the
recognition of income to the Fund or defer the Fund's ability to recognize
losses. In turn, these rules may affect the amount, timing or character of the
income distributed to you by the Fund.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to that
of other mutual funds and to relevant indices in advertisements or in reports to
shareholders, performance will be stated in terms of total return or yield. Both
"total return" and "yield" figures are based on the historical performance of a
fund, show the performance of a hypothetical investment and are not intended to
indicate future performance.
Yield Information.
From time to time, the Fund may advertise a yield figure. A portfolio's
yield is a way of showing the rate of income the portfolio earns on its
investments as a percentage of the portfolio's share price. Under the rules of
the SEC, yield must be calculated according to the following formula:
<PAGE>
YIELD = 2 [ ( a-b + 1 )(6) - 1 ]
-----
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yields for the Fund used in advertising are computed by dividing the
Fund's interest and dividend income for a given 30-day period, net of expenses,
by the average number of shares entitled to receive distributions during the
period, dividing this figure by a Fund's offering price at the end of the period
and annualizing the result (assuming compounding of income) in order to arrive
at an annual percentage rate. Income is calculated for purposes of yield
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purposes of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation. Income calculated for the purpose
of calculating a Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yield quoted for a
Fund may differ from the rate of distributions the Fund paid over the same
period or the rate of income reported in the Fund's financial statements.
Total Return Performance
Under the rules of the Commission, funds advertising performance must
include total return quotes, "T" below, calculated according to the following
formula:
P(1 + T)(n) = ERV
Where:P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods (or fractional
portion thereof).
The average annual total return will be calculated under the foregoing
formula and the time periods used in advertising will be based on rolling
calendar quarters, updated to the last day of the most recent quarter prior to
submission of the advertising for publication, and will
<PAGE>
cover prescribed periods. When the period since inception is less than one year,
the total return quoted will be the aggregate return for the period. In
calculating the ending redeemable value, the maximum sales load is deducted from
the initial $1,000 payment and all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
prospectuses on the reinvestment dates during the period. Total return, or "T"
in the formula above, is computed by finding the average annual compounded rates
of return over the prescribed periods (or fractional portions thereof) that
would equate the initial amount invested to the ending redeemable value. Any
sales loads that might in the future be made applicable at the time to
reinvestments would be included as would any recurring account charges that
might be imposed by the Fund.
The Fund may also from time to time include in such advertising an
aggregate total return figure or an average annual total return figure that is
not calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. The
Fund may quote an aggregate total return figure in comparing the Fund's total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, Russell Indices, and
the Value Line Composite Index. For such purposes, each Fund calculates its
aggregate total return for the specified periods of time by assuming the
investment of $1,000 in Fund shares and assuming the reinvestment of each
dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value. The Fund does not, for these purposes, deduct from the initial value
invested any amount representing sales charges. The Fund would, however,
disclose the maximum sales charge and would also disclose that the performance
data does not reflect sales charges and that the inclusion of sales charges
would reduce the performance quoted, if a sales charge is in effect. To
calculate its average annual total return, the aggregate return is then
annualized according to the Commission's formula for total return quotes,
outlined above. When the period since inception is less than one year, the total
return quoted will be the aggregate return for the period.
The Fund may also advertise the performance rankings assigned by various
publications and statistical services, including but not limited to SEI, Lipper
Mutual Performance Analysis, Intersec Research Survey of Non-U.S. Equity Fund
Returns, Frank Russell International Universe, and any other data which may be
presented from time to time by such analyses as Dow Jones, Morningstar, Inc.,
Chase Investment Performance, Wilson Associates, Stanger, CDA Investment
Technologies, Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor
National Index, IBC/Donaghue's Average/U.S. Government and Agency, or as they
appear in various publications including but not limited to The Wall Street
Journal, Forbes, Barron's, Fortune, Money Magazine, The New York Times,
Financial World, Financial Services Week, USA Today and other regional
publications.
<PAGE>
FINANCIAL STATEMENTS
Barrett Growth Fund
Statement of Assets and Liabilities
December 15, 1998
ASSETS
Cash $100,000
Receivable from sponsor 56,435
Prepaid initial
registration fees 5,100
Prepaid
insurance 10,195
------------
Total Assets 171,730
------------
LIABILITIES
Payable to
sponsor 71,730
------------
Total
Liabilities 71,730
------------
============
NET ASSETS $100,000
============
Capital Shares, $0.001 par
value,
unlimited shares
authorized 10,000
============
Net asset value,
offering and
redemption price per
share
(net assets/shares
outstanding) $10.00
============
<PAGE>
Barrett Growth Fund
Statement of Operations
For the Period September 29, 1998 (inception) through December 15, 1998
EXPENSES
Organization expenses $56,435
Less: Accrued expenses to be
paid by sponsor ($56,435)
============
Net Income
(loss) $0
============
Barrett Growth Fund
Notes to the Financial Statements
For the Period September 29, 1998 (inception) through December 15, 1998
1. Organization
The Barrett Growth Fund (the "Fund") is a series of The Barrett Funds (the
"Trust"), a business trust organized on September 29, 1998 in the state of
Delaware and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end diversified management investment
company. The Barrett Growth Fund is currently the only series of the
Trust. The Fund has had no operations other than those relating to
organizational matters, including the sale of 10,000 shares for cash in
the amount of $100,000, which were sold to Barrett Associates, Inc. (the
"Adviser"), on December 15, 1998.
2. Significant Accounting Policies
(a) Organization and Prepaid Initial Registration Expenses
Expenses incurred by the Trust in connection with the organization
and the initial public offering of shares are expensed as incurred.
These expenses were advanced by the Adviser, and the Adviser has
agreed to voluntarily reimburse the Funds' for these expenses,
subject to potential recovery (see Note 3). Prepaid initial
registration expenses are deferred and amortized over the period of
benefit.
(b) Federal Income Taxes
The Fund intends to comply with the requirements of the Internal
Revenue Code necessary to qualify as a regulated investment company
and to make the requisite distributions of income and capital gains
to its shareholders sufficient to relieve it from all or
substantially all Federal income taxes.
(c) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and use assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
3. Investment Adviser
The Trust has an Investment Advisory Agreement (the "Agreement") with the
Adviser, with whom certain officers and Trustees of the Trust are
affiliated, to furnish investment advisory services to the Fund. Under the
terms of the Agreement, the Trust, on behalf of the Fund, compensates the
Adviser for its management services at the annual rate of 1.00% of the
Fund's average daily net assets.
The Adviser has agreed to voluntarily waive its management fee and/or
reimburse the Fund's other expenses, including organization expenses, to
the extent necessary to ensure that each of the Fund's operating expenses
do not exceed 1.70% of its average daily net assets. Any such waiver or
reimbursement is subject to later adjustment to allow the Adviser to
recoup amounts waived or reimbursed to the extent actual fees and expenses
for a period are less than the expense limitation caps, provided, however,
that the Adviser shall only be entitled to recoup such amounts for a
period of three years from the date such amount was waived or reimbursed.
4. Distribution Plan
The Trust, on behalf of the Fund, has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), which provides that
the Fund may reimburse the Fund's distributor or others at annual rate of
up to 0.25% of the average daily net assets attributable to its shares.
Payments under the 12b-1 Plan shall be used to compensate or reimburse the
Fund's distributor for services provided and expenses incurred in
connection with the sale of shares and are tied to the amounts of actual
expenses incurred.
