U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
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Pre-Effective Amendment No. 1
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Post-Effective Amendment No.
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and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
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Amendment No. 1
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(Check appropriate box or boxes)
PRAGMA INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
7150 Greenville Avenue, Suite 101 - LB 340
Dallas, Texas 75231
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (214) 373-3585
John H. Alban, III
PRAGMA, Inc.
7150 Greenville Avenue, Suite 101 - LB 340
Dallas, Texas 75231
(Name and Address of Agent for Service)
Copies to:
Tina D. Hosking
MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
Registrant hereby declares its intention to register an indefinite number
of shares of beneficial interest pursuant to Rule 24f-2 under the Investment
Company Act of 1940.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
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PRAGMA INVESTMENT TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
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PART A
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Item no. Registration Statement Caption Caption in prospectus
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1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Information Performance Information
4. General Description of Registrant Operation of the Fund;
Investment Objective,
Investment Policies and
Risk Considerations
5. Management of the Fund Operation of the Fund
6. Capital Stock and Other Securities Cover Page; Operation of
the Fund; Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Calculation of Share
Price; Application
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Inapplicable
PART B
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of Additional
Item no. Registration Statement Caption Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
(i)
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12. General Information and History Inapplicable
13. Investment Objectives and Policies Definitions, Policies
and Risk Considerations;
Investment Limitations;
Securities Transactions;
Portfolio Turnover
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders Inapplicable
of Securities
16. Investment Advisory and Other Services The Investment Adviser;
Custodian; Auditors; MGF
Service Corp.;
Securities Transactions
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Fund
19. Purchase, Redemption and Pricing of Calculation of Share
Securities Being Offered Price; Redemption in
Kind
20. Tax Status Taxes
21. Underwriters Inapplicable
22. Calculation of Performance Data Historical Performance
Information
23. Financial Statements Statement of Assets and
Liabilities
PART C
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The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
(ii)
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PRAGMA PROVIDENCE FUND
PROSPECTUS
, 1996
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PROSPECTUS
, 1996
PRAGMA INVESTMENT TRUST
7150 GREENVILLE AVENUE
SUITE 101 - LB 340
DALLAS, TEXAS 75231
(214)373-3585
E-MAIL: PRAGMAINC @ AOL.COM
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The PRAGMA Providence Fund (the "Fund"), a separate series of PRAGMA
Investment Trust, is an aggressive equity mutual fund which seeks long-term
capital appreciation through investment in common stocks. Dividend income is
only an incidental consideration to the Fund's investment objective.
PRAGMA Inc. (the "Adviser"), 7150 Greenville Avenue, Suite 101-LB 340,
Dallas, Texas 75231, manages the Fund's investments. The Adviser uses
fundamental security analysis to identify and purchase shares of companies which
it believes have the potential for significant earnings growth.
This Prospectus sets forth concisely the information about the Fund that
you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated , 1996 has been filed
with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling the number listed below.
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For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free). . . . . . . . . . . . . . . .800-738-2065
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE INFORMATION
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SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends. . . . . . . . None
Redemption Fee. . . . . . . . . . . . . . . . . . . . . . None*
* A wire transfer fee is charged by the Fund's Custodian in the
case of redemptions made by wire. Such fee is subject to change
and is currently $8. See "How to Redeem Shares."
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
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Management Fees . . . . . . . . . . . . . . 1.49%
12b-1 Fees. . . . . . . . . . . . . . . . . None
Other Expenses. . . . . . . . . . . . . . . .01%**
Total Fund Operating Expenses . . . . . . . 1.50%
** Represents fees and expenses of the non-interested Trustees.
The Adviser is contractually required to reduce its management
fee in an amount equal to such fees and expenses, which are
estimated to be .01% of the Fund's net assets. The Adviser
undertakes that the expenses of the Fund will not, in any event,
exceed 1.50% of the Fund's average net assets. See "Operation
of the Fund."
EXAMPLE
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You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period:
1 Year $ 15
3 Years 47
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on estimated amounts for the current fiscal year. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
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INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS
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The investment objective of the Fund is to seek long-term capital
appreciation through investment in common stocks. Dividend income is only an
incidental consideration to the Fund's investment objective. The Fund is not
intended to be a complete investment program, and there is no assurance that its
investment objective can be achieved. The Fund's investment objective may be
changed by the Board of Trustees without shareholder approval, but only after
notification has been given to shareholders and after this Prospectus has been
revised accordingly. If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. Unless otherwise
indicated, all investment practices and limitations of the Fund are
nonfundamental policies which may be changed by the Board of Trustees without
shareholder approval. The Adviser has not previously provided investment
advisory services to a regulated investment company.
Investments in common stocks are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions and other factors
beyond the control of the Adviser. As a result, the return and net asset value
of the Fund will fluctuate. In selecting securities for the Fund, the Adviser
will generally purchase common stocks of companies which it believes meet one of
the following criteria:
1. companies, often relatively small or new, with new or
appealing products or services;
2. companies whose products or services have the potential
for significant growth in sales; and
3. "special situations" that may cause a company's
earnings to grow significantly because of changes in
products, services, applicability, or strategy.
The Fund may from time to time invest a substantial portion of its assets in
small, unseasoned companies. While smaller companies generally have potential
for rapid growth, they often involve higher risks because they lack the
management experience, financial resources, product diversification and
competitive strengths of larger corporations. In addition, in many instances,
the securities of smaller companies are traded only over-the-counter or on a
regional securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations. When
making large sales, the Fund may have to sell portfolio holdings at discounts
from quoted prices or may have to make a series of small sales over an extended
period of time.
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The Fund may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which it holds in custody) or other securities of foreign issuers that
are publicly traded in the United States. When selecting foreign investments,
the Adviser will seek to invest in securities that have investment
characteristics and qualities comparable to the kinds of domestic securities in
which the Fund invests. The Fund does not currently intend to invest more than
15% of its net assets in American Depository Receipts and other foreign
securities. Foreign investments may be subject to special risks, including
future political and economic developments and the possibility of seizure or
nationalization of companies, imposition of withholding taxes on income,
establishment of exchange controls or adoption of other restrictions, that might
affect an investment adversely.
For defensive purposes, the Fund may temporarily hold all or a portion of
its assets in money market instruments. The money market instruments which the
Fund may own from time to time include U.S. Government obligations having a
maturity of less than one year, commercial paper rated A-1 by Standard & Poor's
Ratings Group or Prime-1 by Moody's Investors Service, Inc., repurchase
agreements, bank debt instruments (certificates of deposit, time deposits and
bankers' acceptances) and other short-term instruments issued by domestic
branches of U.S. financial institutions that are insured by the Federal Deposit
Insurance Corporation and have assets exceeding $10 billion.
Repurchase agreements are transactions by which the Fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon time and price, thereby determining the yield during the term of the
agreement. In the event of a bankruptcy or other default of the seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying security and losses. To minimize these possibilities, the Fund
intends to enter into repurchase agreements only with its Custodian, banks
having assets in excess of $10 billion and the largest and, in the Adviser's
judgment, most creditworthy primary U.S. Government securities dealers.
Repurchase agreements entered into by the Fund will be collateralized by
high-grade debt obligations. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Fund's Custodian at the Federal
Reserve Bank. At the time the Fund enters into a repurchase agreement, the value
of the collateral, including accrued interest, will equal or exceed the value of
the repurchase agreement and, in the case of a repurchase agreement exceeding
one day, the seller agrees to maintain sufficient collateral so that the value
of the collateral, including accrued interest, will at all times equal
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or exceed the value of the repurchase agreement. The Fund will not enter into a
repurchase agreement not terminable within seven days if, as a result thereof,
more than 15% of the value of the net assets of the Fund would be invested in
such securities and other illiquid securities.
The Fund may make short-term loans of its portfolio securities to banks,
brokers and dealers, although the Fund has no present intention to do so.
The Fund may borrow money from banks or as may be necessary for the
clearance of securities transactions but only for emergency or extraordinary
purposes in an amount not exceeding 5% of the Fund's total assets. The Fund's
policy on borrowing is a fundamental policy which may not be changed without the
affirmative vote of a majority of its outstanding shares.
The Fund does not intend to use short-term trading as a primary means of
achieving its investment objective. However, the Fund's rate of portfolio
turnover will depend upon market and other conditions, and it will not be a
limiting factor when portfolio changes are deemed necessary or appropriate by
the Adviser. Although the annual portfolio turnover rate of the Fund cannot be
accurately predicted, it is not expected to exceed 50%, but may be either higher
or lower. High turnover involves correspondingly greater commission expenses and
transaction costs and increases the possibility that the Fund would not qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code. The Fund will not qualify as a regulated investment company if it derives
more than 30% or more of its gross income from gains (without offset for losses)
from the sale or other disposition of securities held for less than three
months. High turnover may result in the Fund recognizing greater amounts of
income and capital gains, which would increase the amount of income and capital
gains which the Fund must distribute to its shareholders in order to maintain
its status as a regulated investment company and to avoid the imposition of
federal income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
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Your initial investment in the Fund must be at least $1,000. Shares of the
Fund are sold on a continuous basis at the net asset value next determined after
receipt of a purchase order by the Fund. Purchase orders received by dealers
prior to 4:00 p.m., Eastern time, on any business day and transmitted to the
Fund's transfer agent, MGF Service Corp., by 5:00 p.m., Eastern time, that day
are confirmed at the net asset value determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be
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received by MGF Service Corp. by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by MGF
Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's net asset
value. Direct investments received by MGF Service Corp. after 4:00 p.m., Eastern
time, and orders received from dealers after 5:00 p.m., Eastern time, are
confirmed at the net asset value next determined on the following business day.
You may open an account and make an initial investment in the Fund by
sending a check and a completed account application form to MGF Service Corp.,
P.O. Box 5354, Cincinnati, Ohio 45201- 5354. Checks should be made payable to
the "PRAGMA Providence Fund." An account application is included in this
Prospectus.
The Fund mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Fund reserves the
rights to limit the amount of investments and to refuse to sell to any person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Fund, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services made available to investors.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Fund or MGF Service Corp. in the transaction.
You may also purchase shares of the Fund by wire. Please telephone MGF
Service Corp. (Nationwide call toll-free 800-738-2065) for instructions. You
should be prepared to give the name in which the account is to be established,
the address, telephone number and taxpayer identification number for the
account, and the name of the bank which will wire the money.
Your investment will be made at the next determined net asset value after
your wire is received together with the account information indicated above. If
the Fund does not receive timely and complete account information, there may be
a delay in the investment of your money and any accrual of dividends. To make
your initial wire purchase, you are required to mail a completed account
application to MGF Service Corp. Your bank may impose a charge for sending your
wire. There is presently no fee for receipt of wired funds, but MGF Service
Corp. reserves the right to charge shareholders for this service upon thirty
days' prior notice to shareholders.
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You may purchase and add shares to your account by mail or by bank wire.
Checks should be sent to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio
45201-5354. Checks should be made payable or endorsed to the "PRAGMA Providence
Fund." Bank wires should be sent as outlined above. You may also make additional
investments at the Fund's offices at 7150 Greenville Avenue, Suite 101-LB 340,
Dallas, Texas 75231. Each additional purchase request must contain the name of
your account and your account number to permit proper crediting to your account.
While there is no minimum amount required for subsequent investments, the Fund
reserves the right to impose such requirement.
HOW TO REDEEM SHARES
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You may redeem shares of the Fund on each day that the Fund is open for
business by sending a written request to the Fund. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Fund's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States.
If your instructions request a redemption by wire, you will be charged an $8
processing fee by the Fund's Custodian. The Fund reserves the right, upon thirty
days' written notice, to change the processing fee. All charges will be deducted
from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may also redeem shares by placing a wire redemption through a securities
broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Fund or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
You will receive the net asset value per share next determined after
receipt by MGF Service Corp. of your redemption request in the form described
above. Payment is made within
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three business days after tender in such form, provided that payment in
redemption of shares purchased by check will be effected only after the check
has been collected, which may take up to fifteen days from the purchase date. To
eliminate this delay, you may purchase shares of the Fund by certified check or
wire.
At the discretion of the Fund or MGF Service Corp., corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Fund reserves the
right to require you to close your account if at any time the value of your
shares is less than $1,000 (based on actual amounts invested, unaffected by
market fluctuations), or such other minimum amount as the Fund may determine
from time to time. After notification to you of the Fund's intention to close
your account, you will be given sixty days to increase the value of your account
to the minimum amount.
The Fund reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
DIVIDENDS AND DISTRIBUTIONS
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The Fund expects to distribute substantially all of its net investment
income and net realized capital gains, if any, on an annual basis. Distributions
are paid according to one of the following options:
Share Option - income distributions and capital gains distributions
reinvested in additional shares.
Income Option - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option - income distributions and capital gains distributions
paid in cash.
You should indicate your choice of option on your application. If no option
is specified on your application, distributions will automatically be reinvested
in additional shares. All distributions will be based on the net asset value in
effect on the payable date.
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If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then current net
asset value and your account will be converted to the Share Option.
TAXES
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The Fund intends to continue to qualify for the special tax treatment
afforded a "regulated investment company" under Subchapter M of the Internal
Revenue Code so that it does not pay federal taxes on income and capital gains
distributed to shareholders. The Fund intends to distribute substantially all of
its net investment income and any net realized capital gains to its
shareholders. Distributions of net investment income as well as net realized
short-term capital gains, if any, are taxable to investors as ordinary income.
Dividends distributed by the Fund from net investment income may be eligible, in
whole or in part, for the dividends received deduction available to
corporations. Distributions of net realized long-term capital gains are taxable
as long-term capital gains regardless of how long you have held your Fund
shares.
The Fund will mail to each of its shareholders a statement indicating the
amount and federal income tax status of all distributions made during the year.
In addition to federal taxes, shareholders of the Fund may be subject to state
and local taxes on distributions. Shareholders should consult their tax advisors
about the tax effect of distributions and withdrawals from the Fund. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares.
OPERATION OF THE FUND
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The Fund is a diversified series of PRAGMA Investment Trust, an open-end
management investment company organized as an Ohio business trust on January 10,
1996. The Board of Trustees supervises the business activities of the Fund. Like
other mutual funds, various organizations are retained to perform specialized
services for the Fund.
The Fund retains PRAGMA, Inc. (the "Adviser"), 7150 Greenville Avenue, Suite
101-LB 340, Dallas, Texas, to manage the Fund's investments. The Adviser was
organized in 1981 and has approximately $12 million of assets under management
as of December 31, 1995. John H. Alban, Jr., Chairman of the Board of the Trust,
is primarily responsible for overseeing the management of the Fund's portfolio.
He is the President and controlling shareholder of the Adviser, and has been so
since that firm's inception in 1981.
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The Fund pays the Adviser a fee at the annual rate of 1.50% of the average
value of its daily net assets. The rate of the advisory fee paid by the Fund is
higher than that paid by most other mutual funds; however, unlike most mutual
funds, the advisory fee paid by the Fund includes transfer agency, pricing,
custodial, auditing and legal services, and general administrative and other
operating expenses of the Fund except brokerage commissions, taxes, interest,
fees and expenses of non- interested Trustees and extraordinary expenses.
As of the date of this Prospectus, John H. Alban, Jr. is the sole
shareholder of the Fund.
The Adviser has retained MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio
45201-5354, to serve as the Fund's transfer agent, dividend paying agent and
shareholder service agent. MGF Service Corp. is a subsidiary of Leshner
Financial, Inc., of which Robert H. Leshner is the controlling shareholder.
Certain of the Fund's officers are also officers of MGF Service Corp.
MGF Service Corp. also provides accounting and pricing services to the
Fund. For its services to the Fund, MGF Service Corp. receives a monthly fee
from the Adviser, out of the investment advisory fee paid by the Fund to the
Adviser, for calculating daily net asset value per share and maintaining such
books and records as are necessary to enable MGF Service Corp. to perform its
duties.
MGF Service Corp. has also been retained to provide administrative services
to the Fund. In this capacity, MGF Service Corp. supplies executive,
administrative and regulatory services, supervises the preparation of the Fund's
tax returns, and coordinates the preparation of reports to shareholders and
reports to and filings with the Securities and Exchange Commission and state
securities authorities. The Adviser pays MGF Service Corp. monthly, out of the
investment advisory fee the Adviser receives from the Fund, a fee for these
administrative services at the annual rate of 0.15% of the average value of the
Fund's daily net assets up to $25 million, 0.125% of such assets between $25
million and $50 million and 0.10% of such assets in excess of $50 million.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its objective of seeking best execution
of portfolio transactions, the Adviser may give consideration to sales of shares
of the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Fund.
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Shares of the Fund have equal voting rights and liquidation rights. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each full share owned and fractional votes for fractional shares
owned. The Fund is not required to hold annual meetings of shareholders. The
Trustees shall promptly call and give notice of a meeting of shareholders for
the purpose of voting upon removal of any Trustee when requested to do so in
writing by shareholders holding 10% or more of the Fund's outstanding shares.
The Fund will comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 in order to facilitate communications among shareholders.
CALCULATION OF SHARE PRICE
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On each day that the Fund is open for business, the share price (net asset
value) of the Fund's shares is determined as of the close of the regular session
of trading on the New York Stock Exchange, currently 4:00 p.m., Eastern time.
The Fund is open for business on each day the New York Stock Exchange is open
for business and on any other day when there is sufficient trading in the Fund's
investments that its net asset value might be materially affected. The net asset
value per share of the Fund is calculated by dividing the sum of the value of
the securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the Fund, rounded to the nearest cent.
Portfolio securities are valued as follows: (i) securities which are traded
on stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price, (ii) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (iii) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (iv) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
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PERFORMANCE INFORMATION
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From time to time, the Fund may advertise its "average annual total return."
Average annual total return figures are based on historical earnings and are not
intended to indicate future performance.
The "average annual total return" of the Fund refers to the average annual
compounded rates of return over the most recent 1, 5 and 10 year periods (which
periods will be stated in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment. The calculation of "average annual total return" assumes the
reinvestment of all dividends and distributions. The Fund may also advertise
total return (a "nonstandardized quotation") which is calculated differently
from "average annual total return." A nonstandardized quotation of total return
may be a cumulative return which measures the percentage change in the value of
an account between the beginning and end of a period, assuming no activity in
the account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation of total return may also indicate
average annual compounded rates of return over periods other than those
specified for "average annual total return." A nonstandardized quotation of
total return will always be accompanied by the Fund's "average annual total
return" as described above.
From time to time, the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, FORTUNE or MORNINGSTAR MUTUAL FUND VALUES. The Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within its category as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average, the Standard & Poor's 500
Stock Index, the Value Line Composite Index, the NASDAQ Composite Index and the
Russell 2000 Index. In connection with a ranking, the Fund may provide
additional information, such as the particular category of funds to which the
ranking relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of fee waivers and/or expense
reimbursements, if any. The Fund may also present its performance and other
investment characteristics, such as volatility or a temporary defensive posture,
in light of the Adviser's view of current or past market conditions or
historical trends.
- 12 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PRAGMA PROVIDENCE FUND ACCOUNT NO. 34 ________________________________
Account Application (For Fund Use Only)
Please mail completed account application to: FOR BROKER/DEALER USE ONLY
MGF Service Corp. Firm Name:__________________________________________
P.O. Box 5354 Home Office Address:________________________________
Cincinnati, Ohio 45201-5354 Branch Address:_____________________________________
Rep Name & No.:_____________________________________
Rep. Signature:_____________________________________
=====================================================================================================================
Initial Investment of $ __________________ ($1,000 minimum)
[ ] Check or draft enclosed payable to the PRAGMA Providence Fund.
[ ] Bank Wire From:_____________________________________________________
=====================================================================================================================
Account Name S.S. #/Tax l.D.#
- ---------------------------------------------------------------------------------------- ----------------------------
Name of Individual, Corporation, Organization, or Minor, etc. (In case of custodial account
please list minor's S.S.#)
________________________________________________________________________________________ Citizenship:
Name of Joint Tenant, Partner, Custodian [ ] U.S.
Address [ ] Other____________
Phone
- ---------------------------------------------------------------------------------------- ( )----------
Street or P.O. Box Business Phone
- ---------------------------------------------------------------------------------------- ( )----------
City State Zip Home Phone
Check Appropriate Box: [ ] Individual [ ] Joint Tenant (Right of survivorship presumed)
[ ] Corporation [ ] Trust [ ] Custodial [ ] Other
Occupation and Employer Name/Address:_________________________________________________________________________
Are you an associated person of an NASD member? [ ] Yes [ ] No
=====================================================================================================================
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. Check box if
appropriate:
[ ] I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends;
or the Internal Revenue Service has notified me that I am no longer subject
to backup withholding.
[ ] I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
=====================================================================================================================
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
[ ] Share Option -- Income distributions and capital gains distributions automatically reinvested in additional shares.
[ ] Income Option -- Income distributions and short-term capital gains distributions paid in cash, long-term capital
gains distributions reinvested in additional shares.
[ ] Cash Option -- Income distributions and capital gains distributions paid in cash.
=====================================================================================================================
Signatures
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints MGF Service Corp. as his agent to enter orders for shares, to receive
dividends and distributions for automatic reinvestment in additional shares of
the Fund for credit to the investor's account and to surrender for redemption
shares held in the investor's account in accordance with any of the procedures
elected above or for payment of service charges incurred by the investor. The
investor further agrees that MGF Service Corp. can cease to act as such agent
upon ten days' notice in writing to the investor at the address contained in
this Application. The investor hereby ratifies any instructions given pursuant
to this Application and for himself and his successors and assigns does hereby
release PRAGMA Investment Trust, PRAGMA, Inc., MGF Service Corp. and their
respective officers, employees, agents and affiliates from any and all liability
in the performance of the acts instructed herein. The Internal Revenue Service
does not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
By: _____________________________________________ ____________________________________________
Signature & Title Date
By: _____________________________________________ ____________________________________________
Signature & Title Date
NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE
THE RESOLUTION FORM ON THE REVERSE SIDE. UNLESS OTHERWISE
SPECIFIED, EACH JOINT OWNER SHALL HAVE FULL AUTHORITY TO ACT ON
BEHALF OF THE ACCOUNT.
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the PRAGMA Providence Fund (the Fund) and that
- --------------------------------------------------------------------------------------------------------------
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Fund,
and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to
sign any documents necessary or appropriate to appoint MGF Service Corp. as
redemption agent of the corporation or organization for shares of the Fund, to
establish or acknowledge terms and conditions governing the redemption of said
shares and to otherwise implement the privileges elected on the Application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
- --------------------------------------------------------------------------------------------------------------
(Name of Organization)
incorporated or formed under the laws of______________________________________________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on at which a quorum was
present and acting throughout, and that the same are now in full force and
effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
NAME TITLE
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
Witness my hand and seal of the corporation or organization this__________________day of____________________, 19_______
- ----------------------------------------------------- ----------------------------------------------------
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
</TABLE>
<PAGE>
PRAGMA INVESTMENT TRUST
7150 Greenville Avenue
Suite 101-LB 340
Dallas, Texas 75231
BOARD OF TRUSTEES
John H. Alban, Jr.
John H. Alban, III
William L. Hutton
William B. Snyder
James C. Tappan
OFFICERS
John H. Alban, Jr., Chairman of the Board
John H. Alban, III, President
Robert G. Dorsey, Vice President
John F. Splain, Secretary
Mark J. Seger, Treasurer
Tina D. Hosking Assistant Secretary
INVESTMENT ADVISER
PRAGMA, INC.
7150 Greenville Avenue
Suite 101-LB 340
Dallas, Texas 75231
214-373-3585
TRANSFER AGENT
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
Nationwide: (Toll-Free) 800-738-2065
Cincinnati: 513-629-2070
RATE LINE
Nationwide: (Toll-Free) 800-852-4052
TABLE OF CONTENTS
Expense Information. . . . . . . . . . . . . . . . . . . . . .
Investment Objective, Investment Policies and
Risk Considerations. . . . . . . . . . . . . . . . . . . . .
How to Purchase Shares . . . . . . . . . . . . . . . . . . . .
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . .
Dividends and Distributions. . . . . . . . . . . . . . . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation of the Fund. . . . . . . . . . . . . . . . . . . . .
Calculation of Share Price . . . . . . . . . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . . . . . .
Application. . . . . . . . . . . . . . . . . . . . . . . . . .
- -----------------------------------------------------------------
- 13 -
<PAGE>
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Fund. This Prospectus does not constitute an offer by the Fund to sell
shares in any State to any person to whom it is unlawful for the Fund to make
such offer in such State.
- 14 -
<PAGE>
PRAGMA INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
, 1996
The PRAGMA Providence Fund
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of The PRAGMA Providence Fund dated ,
1996. A copy of the Fund's Prospectus can be obtained by writing the Fund at
7150 Greenville Avenue, Suite 101-LB 340, Dallas, Texas 75231, or by calling the
Fund nationwide toll-free 800-738-2065.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PRAGMA Investment Trust
7150 Greenville Avenue, Suite 101 - LB 340
Dallas, Texas 75231
TABLE OF CONTENTS
PAGE
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS, POLICIES AND RISK CONSIDERATION . . . . . . . . 3
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . 8
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . 10
THE INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . 11
SECURITIES TRANSACTIONS. . . . . . . . . . . . . . . . . . . 13
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . 14
CALCULATION OF SHARE PRICE . . . . . . . . . . . . . . . . . 14
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . 16
HISTORICAL PERFORMANCE INFORMATION . . . . . . . . . . . . . 16
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . 18
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MGF SERVICE CORP . . . . . . . . . . . . . . . . . . . . . . 18
STATEMENT OF ASSETS AND LIABILITIES. . . . . . . . . . . . . 19
- 2 -
<PAGE>
THE FUND
- --------
PRAGMA Investment Trust (the "Trust") was organized as an Ohio business
trust on January 10, 1996. The Trust currently offers one series of shares to
investors, The PRAGMA Providence Fund (the "Fund").
Each share of the Fund represents an equal proportionate interest in the
assets and liabilities belonging to the Fund with each other share of the Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of the Fund into a
greater or lesser number of shares of the Fund so long as the proportionate
beneficial interest in the assets belonging to the Fund are in no way affected.
In case of any liquidation of the Fund, the holders of shares of the Fund will
be entitled to receive as a class a distribution out of the assets, net of the
liabilities, belonging to the Fund. No shareholder is liable to further calls or
to assessment by the Fund without his express consent.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and investment policies
described in the Prospectus (see "Investment Objective, Investment Policies and
Risk Considerations") appears
below:
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Fund means the
lesser of (1) 67% or more of the outstanding shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented at such meeting or (2) more than 50% of the
outstanding shares of the Fund.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one
to two hundred seventy days) unsecured promissory notes issued by corporations
in order to finance their current operations. The Fund will only invest in
commercial paper rated A-1 by Standard & Poor's Ratings Group ("Standard &
Poor's") or Prime-1 by Moody's Investors Service, Inc. ("Moody's") or unrated
paper of issuers who have outstanding unsecured debt rated AA or better by
Standard & Poor's or Aa or better by Moody's. Certain notes may have floating or
variable rates. Variable and floating rate notes with a demand notice period
exceeding seven days will be subject to the Fund's restriction on illiquid
investments (see "Investment Limitations") unless, in the judgment of the
Adviser, such note is liquid.
- 3 -
<PAGE>
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial strength of the parent company and the relationships which
exist with the issuer; and recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such obligations. These factors are all considered in
determining whether the commercial paper is rated Prime-1. Commercial paper
rated A-1 (highest quality) by Standard & Poor's Ratings Group has the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; the issuer has access to at least two additional
channels of borrowing; basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position within the industry; and
the reliability and quality of management are unquestioned. The relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated A-1.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Fund may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, by trust companies and mutual savings
banks, or by banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from fourteen days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The Fund will
only invest in bankers' acceptances of banks having a short-term rating of A-1
by Standard & Poor's Ratings Group or Prime-1 by Moody's Investors Service, Inc.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. The Fund will not
invest in time deposits maturing in more than seven days if, as a result
thereof, more than 15% of the value of its net assets would be invested in such
securities and other illiquid securities.
- 4 -
<PAGE>
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the
Fund purchases a security and simultaneously commits to resell that security to
the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Fund's
Custodian at the Federal Reserve Bank. The Fund will not enter into a repurchase
agreement not terminable within seven days if, as a result thereof, more than
15% of the value of its net assets would be invested in such securities and
other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and, in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to the Fund's investment criteria for portfolio
securities and will be held by the Custodian or in the Federal Reserve Book
Entry System.
For purposes of the Investment Company Act of 1940, a repurchase agreement
is deemed to be a loan from the Fund to the seller subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, the Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of
- 5 -
<PAGE>
interest or decline in price of the security. If a court characterized the
transaction as a loan and the Fund has not perfected a security interest in the
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
the Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt obligation purchased for
the Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case, the
seller. Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security, in which case
the Fund may incur a loss if the proceeds to the Fund of the sale of the
security to a third party are less than the repurchase price. However, if the
market value of the securities subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. The Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes the Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that the Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash or U.S. Government obligations, with the Fund's Custodian in an amount
at least equal to the market value of the loaned securities. It is the Fund's
policy, which may not be changed without the affirmative vote of a majority of
its outstanding shares, that such loans will not be made if as a result the
aggregate of all outstanding loans exceeds 25% of the value of the Fund's total
assets.
Under applicable regulatory requirements (which are subject to change), the
loan collateral must, on each business day, at least equal the value of the
loaned securities. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. The Fund receives amounts equal to the dividends or interest on loaned
securities and also receives one or more of (a) negotiated loan fees, (b)
interest on securities used as collateral, or (c) interest on short-term debt
securities
- 6 -
<PAGE>
purchased with such collateral; either type of interest may be shared with the
borrower. The Fund may also pay fees to placing brokers as well as custodian and
administrative fees in connection with loans. Fees may only be paid to a placing
broker provided that the Trustees determine that the fee paid to the placing
broker is reasonable and based solely upon services rendered, that the Trustees
separately consider the propriety of any fee shared by the placing broker with
the borrower, and that the fees are not used to compensate the Adviser or any
affiliated person of the Fund or an affiliated person of the Adviser or other
affiliated person. The terms of the Fund's loans must meet applicable tests
under the Internal Revenue Code and permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important matter.
FOREIGN SECURITIES. Subject to the Fund's investment policies and quality
standards, the Fund may invest in the securities (payable in U.S. dollars) of
foreign issuers. Because the Fund may invest in foreign securities, investment
in the Fund involves risks that are different in some respects from an
investment in a fund which invests only in securities of U.S. domestic issuers.
Foreign investments may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. There may be less governmental supervision of securities markets,
brokers and issuers of securities. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at a
specified price and are valid for a specific time period. Rights are similar to
warrants, but normally have a short duration and are distributed by the issuer
to its shareholders. The Fund may purchase warrants and rights, provided that
the Fund does not invest more than 5% of its net assets at the time of purchase
in warrants and rights other than
- 7 -
<PAGE>
those that have been acquired in units or attached to other securities. Of such
5%, no more than 2% of the Fund's assets at the time of purchase may be invested
in warrants which are not listed on either the New York Stock Exchange or the
American Stock Exchange.
INVESTMENT LIMITATIONS
- ---------------------
The Fund has adopted certain fundamental investment limitations designed to
reduce the risk of an investment in the Fund. These limitations may not be
changed without the affirmative vote of a majority of the outstanding shares of
the Fund. The Fund may not:
1. Invest in securities of any one issuer if immediately after and as a
result of such investment more than 5% of the total assets of the Fund, at
market value, would be invested in the securities of such issuer. This
restriction does not apply to investment in securities of the United States
Government, its agencies or instrumentalities.
2. Purchase more than 10% of the outstanding voting securities, or any class
of securities, of any one issuer. This restriction does not apply to investment
in securities of the United States Government, its agencies or
instrumentalities.
3. Invest more than 25% of its total assets in the securities of issuers in
any particular industry. This restriction does not apply to investment in
securities of the United States Government, its agencies or instrumentalities.
4. Invest for the purpose of exercising control or management.
5. Purchase or sell commodities or real estate. However, the Fund may invest
in publicly traded securities secured by real estate or issued by companies
which invest in real estate or real estate interests.
6. Purchase securities on margin, make short sales of securities or maintain
a short position, except that the Fund may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities.
This restriction on short sales does not apply to short sales "against the box"
(i.e., when the Fund owns or is long on the securities sold short).
7. Lend money, except by engaging in repurchase agreements or by purchasing
publicly distributed or privately placed debt obligations in which the Fund may
invest consistent with its investment objective and policies. The Fund may make
loans of its portfolio securities in an aggregate amount not exceeding 25% of
- 8 -
<PAGE>
its total assets, provided that such loans are collateralized by cash or
cash equivalents or U.S. Government obligations in an amount equal to the market
value of the securities loaned, marked to market on a daily basis.
8. Borrow money, except for i) temporary bank borrowings not in excess of 5%
of the value of the Fund's total assets for emergency or extraordinary purposes
or ii) short-term credits not in excess of 5% of the value of the Fund's total
assets as may be necessary for the clearance of securities transactions.
9. Issue senior securities as defined in the Investment Company Act of 1940,
as amended, or mortgage, pledge, hypothecate or in any way transfer as security
for indebtedness any securities owned or held by the Fund except as may be
necessary in connection with borrowings described in (8) above, and then not
exceeding 5% of the Fund's total assets, taken at the lesser of cost or market
value.
10. Underwrite securities of other issuers except to the extent the Fund may
be deemed an underwriter under the Securities Act of 1933, as amended, in
selling portfolio securities.
11. Hold more than 15% of its net assets in securities which are illiquid.
12. Invest in oil, gas or other mineral leases, or purchase or sell real
property, including real estate limited partnership interests.
13. Invest more than 5% of its net assets in warrants and will not invest
more than 2% of its net assets in warrants which are not listed on the New York
or American Stock Exchange. This restriction does not apply to investment in
warrants acquired in units or attached to securities.
With respect to the percentages adopted by the Fund as maximum limitations
on the Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities) will not be a violation of the
policy or restriction unless the excess results immediately and directly from
the acquisition of any security or the action taken.
The Fund does not intend to pledge, mortgage or hypothecate the assets of
the Fund. The Fund does not intend to make short sales of securities "against
the box" as described in investment limitation 6. The Fund does not intend to
make loans of its portfolio securities. The statements of intention in this
paragraph reflect nonfundamental policies which may be changed by the Board of
Trustees without shareholder approval.
- 9 -
<PAGE>
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the Fund.
Each Trustee who is an "interested person" of the Fund, as defined by the
Investment Company Act of 1940, is indicated by an asterisk. John H. Alban, Jr.
is the father of John H. Alban, III.
NAME AGE POSITION HELD
- ---- --- -------------
*John H. Alban, Jr. 61 Chairman of the Board/ Trustee
*John H. Alban, III 32 President/Trustee
+William L. Hutton 55 Trustee
+William B. Snyder 64 Trustee
+James C. Tappan 60 Trustee
Robert G. Dorsey 38 Vice President
John F. Splain 39 Secretary
Mark J. Seger 34 Treasurer
* John H. Alban, Jr. and John H. Alban, III, as affiliated
persons of PRAGMA, Inc., the Fund's investment adviser, are
"interested persons" of the Fund within the meaning of Section
2(a)(19) of the Investment Company Act of 1940.
+ Member of Audit Committee
The principal occupations of the Trustees and executive officers of the
Fund during the past five years are set forth below:
JOHN H. ALBAN, JR., 7150 Greenville Avenue, Suite 101 - LB 340, Dallas,
Texas, is President of PRAGMA, Inc.
JOHN H. ALBAN, III, 7150 Greenville Avenue, Suite 101 - LB 340, Dallas,
Texas, is Treasurer and Vice President of PRAGMA, Inc.
WILLIAM L. HUTTON, 7150 Greenville Avenue, Suite 500, Dallas, Texas, is
Vice President of Texas Retina Associates (a medical association). He is also
Chief Executive Officer of Medsynergies (a management company) and President of
Quality Vision Network.
WILLIAM B. SNYDER, 7150 Greenville Avenue, Suite 400, Dallas, Texas, is a
partner of Texas Retina Associates.
JAMES C. TAPPAN, 6952 S.E. Golfhouse Drive, Hobe Sound, Florida, is
Chairman of the Board of Milnot Company (a food manufacturing company) and
President of Tappan Capital Partners (an equity investment partnership). He is
also a director of Columbia Mutual Life (an insurance company) and A.T. Cross (a
writing instruments company). He formerly was Chairman of the Board of Bentley
Mills (a fine carpet company).
- 10 -
<PAGE>
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio, is President and
Treasurer of MGF Service Corp. (a registered transfer agent) and Treasurer of
Midwest Group Financial Services, Inc. (a registered broker-dealer and
investment adviser) and Leshner Financial, Inc. (a financial services company
and parent of MGF Service Corp. and Midwest Group Financial Services, Inc.). He
is also Vice President of Brundage, Story and Rose Investment Trust, Leeb
Personal FinanceTM Investment Trust and Markman MultiFund Trust and Assistant
Vice President of Fremont Mutual Funds, Inc., Schwartz Investment Trust, The
Tuscarora Investment Trust and Williamsburg Investment Trust (all of which are
registered investment companies).
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio, is Secretary and
General Counsel of MGF Service Corp., Midwest Group Financial Services, Inc. and
Leshner Financial, Inc. He is also Secretary of Midwest Trust, Midwest Group Tax
Free Trust, Midwest Strategic Trust, Brundage, Story and Rose Investment Trust,
Leeb Personal FinanceTM Investment Trust, Markman MultiFund Trust, The Tuscarora
Investment Trust and Williamsburg Investment Trust and Assistant Secretary of
Schwartz Investment Trust and Fremont Mutual Funds, Inc. (all of which are
registered investment companies).
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio, is Vice
President of Leshner Financial, Inc. and MGF Service Corp. He is also Treasurer
of Midwest Trust, Midwest Group Tax Free Trust, Midwest Strategic Trust,
Brundage, Story and Rose Investment Trust, Leeb Personal FinanceTM Investment
Trust, Markman MultiFund Trust and Williamsburg Investment Trust, Assistant
Treasurer of Schwartz Investment Trust and The Tuscarora Investment Trust and
Assistant Secretary of Fremont Mutual Funds, Inc.
The Trust will reimburse the non-interested Trustees for travel and other
expenses incurred in the performance of their duties.
THE INVESTMENT ADVISER
- ----------------------
PRAGMA, Inc. (the "Adviser") is the Fund's investment manager. John H.
Alban, Jr. and John H. Alban, III, as employees of the Adviser, may directly or
indirectly receive benefits from the advisory fees paid to the Adviser. John H.
Alban, Jr. is the controlling shareholder of the Adviser by virtue of his
ownership of 81% of its outstanding shares.
Under the terms of the investment advisory agreement between the Fund and
the Adviser, the Adviser manages the Fund's investments. The Fund pays the
Adviser a fee computed and
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<PAGE>
accrued daily and paid monthly at an annual rate of 1.50% of its average daily
net assets. The rate of this fee is higher than that paid by most mutual funds;
however, unlike most mutual funds, the advisory fee paid by the Fund includes
transfer agency, pricing, custodial, auditing and legal services, and general
administrative and other operating expenses of the Fund except brokerage
commissions, taxes, interest, fees and expenses of non-interested Trustees and
extraordinary expenses.
The Adviser pays, out of the investment advisory fees it receives from the
Fund, all the expenses of the Funds except brokerage commissions, taxes,
interest, fees and expenses of the non-interested Trustees of the Trust and
extraordinary expenses. The Fund may have an obligation to indemnify the Fund's
officers and Trustees with respect to litigation to which the Fund may be a
party, except in instances of willful misfeasance, bad faith, gross negligence
or reckless disregard by such officers and Trustees in the performance of their
duties.
By its terms, the Fund's investment advisory agreement will remain in force
until March 15, 1998 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of the
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Fund, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Fund's investment advisory agreement may be terminated at any
time, on sixty days' written notice, without the payment of any penalty, by the
Board of Trustees, by a vote of the majority of the Fund's outstanding voting
securities, or by the Adviser. The investment advisory agreement automatically
terminates in the event of its assignment, as defined by the Investment Company
Act of 1940 and the rules thereunder.
The Adviser will reimburse the Fund to the extent that the expenses of the
Fund for any fiscal year exceed the applicable expense limitations imposed by
state securities administrators, as such limitations may be lowered or raised
from time to time. The most restrictive limitation is presently 2.5% of the
first $30 million of average daily net assets, 2% of the next $70 million of
average daily net assets and 1.5% of average daily net assets in excess of $100
million. If any such reimbursement is required, the payment of the advisory fee
at the end of any month will be reduced or postponed or, if necessary, a refund
will be made to the Fund at the end of such month. Certain expenses such as
brokerage commissions, if any, taxes, interest, extraordinary items and other
expenses subject to approval of state securities administrators are excluded
from such limitations. If the expenses of the Fund approach the applicable
limitation in any state, the Fund will consider the various actions that are
available to it, including suspension of sales to residents of that state.
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<PAGE>
The name "PRAGMA" is a property right of the Adviser and may be used by the
Adviser in other connections and for other purposes, including in the name of
other investment companies. The Fund has agreed to discontinue any use of the
name "PRAGMA" if the Adviser ceases to be employed as the Fund's investment
manager.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the placing of the
Fund's securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Fund. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Adviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received.
Generally, the Fund attempts to deal directly with the dealers who make a
market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Fund may be purchased
directly from the issuer.
The Adviser is specifically authorized to select brokers who also provide
brokerage and research services to the Fund and/or other accounts over which the
Adviser exercises investment discretion and to pay such brokers a commission in
excess of the commission another broker would charge if the Adviser determines
in good faith that the commission is reasonable in relation to the value of the
brokerage and research services provided. The determination may be viewed in
terms of a particular transaction or the Adviser's overall responsibilities with
respect to the Fund and to accounts over which it exercises investment
discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Fund.
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<PAGE>
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. Over-the-counter transactions will be
placed either directly with principal market makers or with broker-dealers.
Although the Fund does not anticipate any ongoing arrangements with other
brokerage firms, brokerage business may be transacted from time to time with
other firms. Neither the Adviser, nor affiliates of the Fund or the Adviser,
will receive reciprocal brokerage business as a result of the brokerage business
transacted by the Fund with other brokers.
CODE OF ETHICS. The Fund and the Adviser have each adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act of 1940. The code significantly
restricts the personal investing activities of all employees of the Adviser and,
as described below, imposes additional, more onerous, restrictions on investment
personnel of the Adviser. The Code requires that all employees of the Adviser
preclear any personal securities investment (with limited exceptions, such as
U.S. Government obligations). The preclearance requirement and associated
procedures are designed to identify any substantive prohibition or limitation
applicable to the proposed investment. In addition, no employee may purchase or
sell any security which, at that time, is being purchased or sold (as the case
may be), or to the knowledge of the employee is being considered for purchase or
sale, by the Fund. The substantive restrictions applicable to investment
personnel of the Adviser include a ban on acquiring any securities in an initial
public offering. Furthermore, the Code provides for trading "blackout periods"
which prohibit trading by investment personnel of the Adviser within periods of
trading by the Fund in the same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. A 100% turnover rate would occur if all of the Fund's portfolio securities
were replaced once within a one year period.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate.
CALCULATION OF SHARE PRICE
- --------------------------
The share price (net asset value) of the shares of the Fund is determined
as of the close of the regular session of trading
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<PAGE>
on the New York Stock Exchange (currently 4:00 p.m., Eastern time) on each day
the Fund is open for business. The Fund is open for business on every day except
Saturdays, Sundays and the following holidays: New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Fund may also be open for business on other days in which there
is sufficient trading in the Fund's portfolio securities that its net asset
value might be materially affected. For a description of the methods used to
determine the share price, see "Calculation of Share Price" in the Prospectus.
TAXES
- -----
The Prospectus describes generally the tax treatment of distributions by
the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
The Fund has qualified and intends to qualify annually for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. To so qualify the Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; (ii) derive less than 30% of its gross income
in each taxable year from the sale or other disposition of the following assets
held for less than three months: (a) stock or securities, (b) options, futures
or forward contracts not directly related to its principal business of investing
in stock or securities; and (iii) diversify its holdings so that at the end of
each quarter of its taxable year the following two conditions are met: (a) at
least 50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities (for this purpose such other securities will qualify only if
the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
The Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
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<PAGE>
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Fund is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Fund to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 and 10 year periods
at the end of the 1, 5 or 10 year periods (or fractional
portion thereof)
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<PAGE>
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions. If the Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated.
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A nonstandardized quotation may
also indicate average annual compounded rates of return over periods other than
those specified for average annual total return. A nonstandardized quotation of
total return will always be accompanied by the Fund's average annual total
return as described above.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Fund may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and average
current yield for the mutual fund industry and ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Fund may provide comparative
performance information appearing in the Growth Funds category. In addition, the
Fund may use comparative performance information of relevant indices, including
the S&P 500 Index, the Dow Jones Industrial Average, the Russell 2000 Index, the
NASDAQ Composite Index and the Value Line Composite Index. The S&P 500 Index is
an unmanaged index of 500 stocks, the purpose of which is to portray the pattern
of common stock price movement. The Dow Jones Industrial Average is a
measurement of general market price movement for 30 widely held stocks listed on
the New York Stock Exchange. The Russell 2000 Index, representing approximately
11% of the U.S. equity market, is an unmanaged index comprised of the
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<PAGE>
2,000 smallest U.S. domiciled publicly-traded common stocks in the Russell 3000
Index (an unmanaged index of the 3,000 largest U.S. domiciled publicly-traded
common stocks by market capitalization representing approximately 98% of the
U.S. publicly-traded equity market). The NASDAQ Composite Index is an unmanaged
index which averages the trading prices of more than 3,000 domestic
over-the-counter companies. The Value Line Composite Index is an unmanaged index
comprised of approximately 1,700 stocks, the purpose of which is to portray the
pattern of common stock price movement.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
CUSTODIAN
- ---------
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained to
act as Custodian for the Fund's investments. Star Bank, N.A. acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent auditors
for the Fund for the fiscal year ending March 31, 1997. Arthur Andersen LLP, 425
Walnut Street, Cincinnati, Ohio, performs an annual audit of the Fund's
financial statements and advises the Fund as to certain accounting matters.
MGF SERVICE CORP.
- ----------------
The Fund's transfer agent, MGF Service Corp. ("MGF"), maintains the records
of each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. MGF receives for its services as transfer agent a fee payable
monthly at an annual rate of $17 per account, provided, however, that the
minimum fee is $1,000 per month. This fee is paid by the Adviser out of the
investment advisory fee paid to the Adviser by the Fund. In addition, the
Adviser
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<PAGE>
reimburses MGF for its out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, record storage and
communication lines.
MGF also provides accounting and pricing services to the Fund. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable MGF to perform its duties, MGF receives from
the Adviser (not the Fund) $2,000 per month when the Fund's average daily net
assets are less than $50 million, $2,500 per month when the Fund's average daily
net assets are between $50 million and $100 million, $3,000 per month when such
assets are between $100 million and $200 million and $4,000 per month when the
Fund's average daily net assets are $200 million or more.
In addition, MGF is retained to provide administrative services to the
Fund. In this capacity, MGF supplies non-investment related statistical and
research data, internal regulatory compliance services and executive and
administrative services. MGF supervises the preparation of tax returns, reports
to shareholders of the Fund, reports to and filings with the Securities and
Exchange Commission and state securities commissions, and materials for meetings
of the Board of Trustees. For the performance of these administrative services,
the Adviser (not the Fund) pays MGF a fee at the annual rate of .15% of the
average value of its daily net assets up to $25,000,000, .125% of such assets
from $25,000,000 to $50,000,000 and .10% of such assets in excess of
$50,000,000; provided, however, that the minimum fee is $1,000 per month.
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------
The Fund's Statement of Assets and Liabilities as of February 20, 1996 is
attached to this Statement of Additional Information.
- 19 -
<PAGE>
THE PRAGMA PROVIDENCE FUND
OF
PRAGMA INVESTMENT TRUST
STATEMENT OF ASSETS AND LIABILITIES
AS OF
FEBRUARY 20, 1996
TOGETHER WITH
AUDITORS' REPORT
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<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholder of
Pragma Providence Fund:
We have audited the accompanying statement of assets and liabilities of
the Pragma Providence Fund as of February 20, 1996. This financial statement is
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to
above presents fairly, in all material respects, the financial position of the
Pragma Providence Fund as of February 20, 1996 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
-----------------------
Cincinnati, Ohio
February 20, 1996
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<PAGE>
THE PRAGMA PROVIDENCE FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF FEBRUARY 20, 1996
ASSETS:
Cash $500,000
Organization costs (Note 2) 35,000
--------
Total assets 535,000
LIABILITIES:
Accrued expenses (Note 2) 35,000
--------
Total liabilities 35,000
--------
Net assets for shares of
beneficial interest outstanding $500,000
========
Shares outstanding 50,000
========
Net asset value, offering price
and redemption price per share $ 10.00
========
The accompanying notes are an integral
part of this statement.
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<PAGE>
THE PRAGMA PROVIDENCE FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF FEBRUARY 20, 1996
(1) PRAGMA Investment Trust (the Trust) is a diversified open-end
investment company established as an Ohio business trust under a Declaration of
Trust dated January 4, 1996. The Trust has established one fund series to date,
The PRAGMA Providence Fund (the Fund). The Trust has had no operations except
for the initial issuance of shares. On February 13, 1996, 50,000 shares of the
Fund were issued for cash at $10.00 per share.
(2) Expenses incurred in connection with the organization of the Fund and
the initial offering of shares are estimated to be $35,000, which includes
$30,000 paid to MGF Service Corp., the Fund's administrator. These expenses have
been paid by PRAGMA, Inc. (the Adviser). Upon commencement of the public
offering of shares of the Fund, the Fund will reimburse the Adviser for such
expenses, with that amount being capitalized and amortized on a straight-line
basis over five years. As of February 20, 1996, all outstanding shares of the
Fund were held by an affiliate of the Adviser, who purchased these initial
shares in order to provide the Trust with its required capital. In the event the
initial shares of the Fund are redeemed below the required minimum initial
capitalization of $100,000 by an holder thereof at any time prior to the
complete amortization of organizational expenses, the redemption proceeds
payable with respect to such shares will be reduced by the pro rata (based upon
the portion of the shares redeemed in relation to the required minimum initial
capitalization) of the unamortized deferred organizational expenses as of the
date of such redemption.
(3) Reference is made to the Prospectus and this Statement of Additional
Information for a description of the Management Agreement, the Administration
Agreement, tax aspects of the Fund and the calculation of the net asset value of
shares of the Fund.
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<PAGE>
PRAGMA INVESTMENT TRUST
-----------------------
PART C. OTHER INFORMATION
- ------ -----------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) (i) Financial Statements included in Part A:
None
(ii) Financial Statements included in Part B:
Statement of Assets and Liabilities, February 20,
1996
Notes to Financial Statements
Report of Independent Accountants
(b) Exhibits
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Form of Investment Advisory Agreement with
PRAGMA, Inc.*
(6) Inapplicable
(7) Inapplicable
(8) Form of Custody Agreement with Star Bank,
N.A.*
(9) (i) Form of Administrative Services Agreement
with MGF Service Corp.*
(ii) Form of Accounting Services Agreement with
MGF Service Corp.*
(iii) Form of Transfer, Dividend Disbursing,
Shareholder Service and Plan Agency Agreement
with MGF Service Corp.*
(10) Opinion and Consent of Counsel
<PAGE>
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Form of Agreement Relating to Initial
Capital*
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17) Financial Data Schedule
(18) Inapplicable
- --------------------------------------
* Incorporated by reference to the Trust's initial
registration statement on Form N-1A.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
After commencement of the public offering of the Registrant's
shares, the Registrant expects that no person will be directly
or indirectly controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 27, 1996, there is one holder of the shares of
beneficial interest of the Registrant.
ITEM 27. INDEMNIFICATION
Article VI of the Registrant's Agreement and Declaration of
Trust provides for indemnification of officers and Trustees as
follows:
"SECTION 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS,
ETC. Subject to and except as otherwise provided in
the Securities Act of 1933, as amended, and the 1940
Act, the Trust shall indemnify each of its Trustees
and officers, including persons who serve at the
Trust's request as directors, officers or trustees of
another organization in which the Trust has any
interest as a shareholder, creditor or otherwise
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<PAGE>
(hereinafter referred to as a "Covered Person")
against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which
such Covered Person may be or may have been involved
as a party or otherwise or with which such person may
be or may have been threatened, while in office or
thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, and except
that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to
which such Covered Person would otherwise be subject
by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's
office.
SECTION 6.5 ADVANCES OF EXPENSES. The Trust shall
advance attorneys' fees or other expenses incurred by
a Covered Person in defending a proceeding to the
full extent permitted by the Securities Act of 1933,
as amended, the 1940 Act, and Ohio Revised Code
Chapter 1707, as amended. In the event any of these
laws conflict with Ohio Revised Code Section
1701.13(E), as amended, these laws, and not Ohio
Revised Code Section 1701.13(E), shall govern.
SECTION 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The
right of indemnification provided by this Article VI
shall not be exclusive of or affect any other rights
to which any such Covered Person may be entitled. As
used in this Article VI, "Covered Person" shall
include such person's heirs, executors and
administrators. Nothing contained in this article
shall affect any rights to indemnification to which
personnel of the Trust, other than Trustees and
officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on
behalf of any such person."
- 3 -
<PAGE>
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee,
officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
The Registrant expects to maintain a standard mutual fund and
investment advisory professional and directors and officers
liability policy. The policy will provide coverage to the
Registrant, its Trustees and officers and PRAGMA, Inc. (the
"Adviser"). Coverage under the policy will include losses by
reason of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty.
The Investment Advisory Agreement with the Adviser provides
that the Adviser shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Registrant
in connection with any investment policy or the purchase,
sale, or retention of any investment on the recommendation of
the Adviser; PROVIDED, HOWEVER, that nothing therein contained
shall be construed to protect the Adviser against any
liability to the Registrant by reason of willful misfeasance,
bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations
and duties under the Investment Advisory Agreement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT
ADVISER
(a) The Adviser is a Texas corporation organized in
1981. In addition to its investment advisory
- 4 -
<PAGE>
activities the Adviser is also registered as a
Commodity Trading Advisor (CTA) and a Commodity Pool
Operator (CPO). The Adviser's CTA registration has
been effective since July 1981 while its Commodity
Pool Operator registration has been effective since
July 1984. The Adviser is the general partner and
trading advisor for The PRAGMA Beta Futures Fund I, a
limited partnership that speculates in the futures
markets. As an investment adviser, the Adviser does
not provide advice regarding investment in commodity
pools or commodity limited partnerships.
(b) The directors and officers of the Adviser and any
other business, profession, vocation or employment of
a substantial nature engaged in at any time during
the past two years:
(i) John H. Alban, Jr. - President of the
Adviser.
Chairman of the Board of the Registrant.
(ii) B. David Cranfill - Senior Vice President
and Secretary of the Adviser.
(iii) John H. Alban, III - Vice President and
Treasurer of the Adviser.
President of the Registrant.
(iv) Elizabeth A. Dunn - Vice President of the
Adviser.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant at its offices located at 7150 Greenville Avenue,
Suite 101 - LB 340, Dallas, Texas 75231 as well as at the
offices of the Registrant's transfer agent located at 312
Walnut Street, 21st Floor, Cincinnati, Ohio 45202.
- 5 -
<PAGE>
ITEM 31. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A OR B
Inapplicable
ITEM 32. UNDERTAKINGS
(a) Inapplicable
(b) The Registrant undertakes to file a post-effective
amendment, using financial statements which need not
be certified, within four to six months from the
effective date of this Registration Statement.
(c) Inapplicable
(d) The Registrant undertakes to call a meeting of
shareholders, if requested to do so by holders of
at least 10% of the Fund's outstanding shares, for
the purpose of voting upon the question of removal
of a trustee or trustees and to assist in
communications with other shareholders as required
by Section 16(c) of the Investment Company Act of
1940.
- 6 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas and State of Texas, on the 15th day of March,
1996.
PRAGMA INVESTMENT TRUST
By:/S/ JOHN H. ALBAN, JR.
---------------------
John H. Alban, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ JOHN H. ALBAN, JR. Chairman March 15, 1996
- ------------------------ of the Board
John H. Alban, Jr. and Trustee
/S/ JOHN H. ALBAN, III President March 15, 1996
- ------------------------ and Trustee
John H. Alban, III
/S/ MARK J. SEGER Treasurer March 15, 1996
- ------------------------
Mark J. Seger
<PAGE>
INDEX TO EXHIBITS
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Form of Investment Advisory Agreement*
(6) Inapplicable
(7) Inapplicable
(8) Form of Custody Agreement*
(9)(i) Form of Administrative Services Agreement*
(9)(ii) Form of Accounting Services Agreement*
(9)(iii) Form of Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement*
(10) Opinion and Consent of Counsel
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Form of Agreement Relating to Initial Capital*
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17) Financial Data Schedule
(18) Inapplicable
- ----------------------------
* Incorporated by reference to the Trust's initial
registration statement on Form N-1A.
MGF
SERVICE CORP
February 22, 1996
PRAGMA Investment Trust
7150 Greenville Avenue, Suite 101-LB 340
Dallas, Texas 75231
Gentlemen:
You have requested my opinion in connection with the registration by PRAGMA
Investment Trust, an Ohio business trust (the "Trust"), of an indefinite number
of shares of beneficial interest of The PRAGMA Providence Fund of the Trust (the
"Shares") authorized by the Trust's Agreement and Declaration of Trust, to be
filed with the Securities and Exchange Commission as an exhibit to the Trust's
registration statement on Form N-1A (File No. 33-42113), as amended (the
"Registration Statement"), under the Securities Act of 1933 and the Investment
Company Act of 1940.
I have examined and relied upon originals or copies, certified or otherwise
identified to my satisfaction, of such records, agreements, documents and other
instruments and certificates or comparable documents of public officials and of
officers and representatives of the Trust, and I have made such inquiries of the
officers and representatives of the Trust, as I have deemed relevant and
necessary as the basis for the opinion hereinafter set forth.
In such examination, I have assumed, without independent verification, the
genuineness of all signatures (whether original or photostatic) and the
authenticity of all documents submitted to me as originals and the conformity to
authentic original documents of all documents submitted to me as certified or
photostatic copies. As to all questions of fact material to such opinion, I have
relied upon the certificates referred to hereinabove. I have assumed, without
independent verification, the accuracy of the relevant facts stated therein.
This letter expresses my opinion as to the provisions of the Trust's Agreement
and Declaration of Trust and the laws of the State of Ohio applying to business
trusts generally, but does not extend to the Ohio Securities Act or to federal
securities or other laws.
MGF Service Corp.
a subsidiary of Leshner Financial, Inc.
312 Walnut Street / Cincinnati, Ohio 45202 / 513.629.2000 / 800.543.8721
<PAGE>
PRAGMA Investment Trust
February 22, 1996
Page Two
Based on the foregoing, and subject to the qualifications set forth herein, I am
of the opinion that the Shares have been duly and validly authorized, and, when
issued and delivered as described in the Registration Statement, will be fully
paid and nonassessable by the Trust.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving such consent, I do not thereby admit that I come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or under the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/S/ TINA D. HOSKING
Tina D. Hosking
Counsel
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Pre-Effective Amendment No. 1 of our report dated February 20, 1996 and to all
references to our Firm included in or made as part of this Pre-Effective
Amendment No. 1.
/S/ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
February 23, 1996
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