<PAGE>
As filed with the Securities and Exchange Commission on November 8,
1996
File No. 333-06849
File No. 811-07677
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
__
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
--
Pre-Effective Amendment No. 2
and/or
__
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
--
Amendment No. 2
-------------------------------------------
(Check appropriate box or boxes)
PROFIT FUNDS INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (301) 951-9173
--------------------------------------------
Eugene A. Profit
President, Chief Executive Officer and Secretary
Profit Funds Investment Trust
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
(Name and Address of Agent for Service)
Copies to:
Wendell M. Faria, Esq.
Paul, Hastings, Janofsky & Walker LLP
1299 Pennsylvania Avenue, N.W., Tenth Floor
Washington, D.C. 20004
-------------------------------------------------
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
<PAGE>
Company Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal year end
September 30, 1997 will be filed with the Commission on or before November 30,
1997.
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.
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
--------------------------------
PART A
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Item No. Registration Statement Caption Caption in Prospectus
- -------- ------------------------------ ---------------------
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 How to Purchase Shares;
Offered Shareholder Services;
Distribution Plan;
Calculation of Share Price;
Application
8. Redemption or Repurchase How to Redeem Shares;
Shareholder Services;
Distribution Plan
9. Pending Legal Proceedings Inapplicable
PART B
- ------
Caption in Statement
of Additional
Item No. Registration Statement Caption Information
- -------- ------------------------------ --------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
(i)
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12. General Information and History The Trust
13. Investment Objectives and Policies Definitions, Policies
and Risk Considerations;
Quality Ratings of
Corporate Bonds and
Preferred Stocks;+
Investment Limitations;
Securities Transactions;
Portfolio Turnover
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Inapplicable
Holders of Securities
16. Investment Advisory and Other The Investment Manager;
Services The Investment Adviser;
Distribution Plan;
Custodian; Auditors;
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Trust
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 Statements of Assets and
Liabilities
PART C
- ------
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)
<PAGE>
PROSPECTUS
_______, 1996
PROFIT FUNDS INVESTMENT TRUST
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
(301) 951-9173
PROFIT LOMAX VALUE FUND
------------------------------------------------------------
The Profit Lomax Value Fund (the "Fund"), a separate series of Profit Funds
Investment Trust (the "Trust"), seeks to provide investors with a high long-term
total return, consistent with the preservation of capital and maintenance of
liquidity, by investing primarily in the common stock of established, larger
capitalization companies: i.e., companies having a market capitalization
----
exceeding $1 billion. Dividend income is only an incidental consideration to the
Fund's investment objective.
Investor Resources Group, Inc. (the "Manager") serves as the investment
manager to the Fund. The Edgar Lomax Company ("Edgar Lomax") manages the Fund's
investments under the supervision of the Manager.
The name "PROFIT" is derived from the name of the founder and principal
shareholder of the Manager, Eugene A. Profit, and is not intended as an
indication of the investment objective and policies of the Fund nor of any
series of the Trust.
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
may be obtained at no charge by calling the toll-free number listed below.
- ------------------------------------------------------------
For Information or Assistance in Opening An Account, Please Call:
1
<PAGE>
Nationwide (Toll-Free) . . . . . . . . . . . . 888-744-2337
____________________________________________________________
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.
2
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EXPENSE INFORMATION
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<TABLE>
Shareholder Transaction Expenses
- --------------------------------
<S> <C>
Sales Load Imposed on Purchases . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends. . . . None
Redemption Fee. . . . . . . . . . . . . . . . . . None*
</TABLE>
* Shareholders may be required to pay a wire transfer fee charged by their
receiving bank in the case of redemptions made by wire. See "How to Redeem
Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
- ------------------------------
<TABLE>
<S> <C>
Management Fees . . . . . . . . . . . . . . . 1.25%/(A)/
12b-1 Fees. . . . . . . . . . . . . . . . . . 0.25%/(B)/
Other Expenses. . . . . . . . . . . . . . . . 0.45%/(C)/
-----
Total Fund Operating Expenses (after waivers) 1.95%/(A)/
=====
</TABLE>
/(A)/ The Manager has voluntarily agreed to waive its management fee, and to
reimburse the Fund for expenses incurred, to the extent necessary to
enable the Fund to maintain total Fund operating expenses at a maximum
level of 1.95%. Absent waiver of the management fee and reimbursement of
Fund expenses, total Fund operating expenses for the current fiscal year
would be 3.2%.
/(B)/ The Fund incurs 12b-1 fees of up to .25% per annum. As a result,
long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales loads permitted by the National Association of
Securities Dealers, Inc.
/(C)/ The percentage included under "Other Expenses" is an estimate of Fund
expenses for the current fiscal year based on expected fund average net
asset size of $10 million.
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 below should not
be considered a representation of
3
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past or future expenses and actual expenses may be greater or less than those
shown.
Example
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 $20
3 Years 61
INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS
- -----------------------------------------------------------------
The investment objective of the Fund is to seek a high long-term total
return, consistent with the preservation of capital and maintenance of
liquidity, by investing primarily in the common stock of established, larger
capitalization companies: i.e., companies having a market capitalization
----
exceeding $1 billion. At least 65% of the Fund's total assets will be invested
in equity securities, which include common stock, preferred stock and bonds
convertible into common stock, and warrants and rights for the purchase of
common stock. Dividend income is only an incidental consideration to the Fund's
investment objective. The Fund is not intended to be a complete investment
program for any investor, 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.
Neither the Manager nor Edgar Lomax has previously provided investment advisory
services to a registered investment company.
4
<PAGE>
The Fund's investment strategy is designed to fully participate in rising
equity markets while limiting, as much as possible, the downside volatility
which can accompany equity investing. Edgar Lomax uses a disciplined, value-
oriented process in order to select stocks generally having the following
characteristics:
- low price/earnings ratios
- strong balance sheet ratios
- high and/or stable dividend yields
- low price/book ratios
The Fund will invest primarily in the common stocks of established, larger
capitalization companies (i.e., companies having a market capitalization
----
exceeding $1 billion). Edgar Lomax believes these stocks enjoy low expectations
from investors in general and are undervalued. As a result, in Edgar Lomax's
opinion, average "earnings" performance by such companies can result in superior
stock performance, and disappointing "earnings" should result in minimal
negative stock performance.
Investments in common stock and other types of equity securities (such as
preferred stock, convertible securities and warrants) are subject to inherent
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of Edgar Lomax. As a result, the return and
net asset value of the Fund will fluctuate.
The Fund will invest primarily in domestic securities, although it may
invest in foreign companies through the purchase of sponsored American
Depositary 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, Edgar
Lomax will seek to invest in securities that have investment characteristics and
qualities comparable to the kinds of domestic securities in which the Fund
invests. 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.
5
<PAGE>
The Fund expects to invest primarily in securities currently paying
dividends, although it may buy securities that are not paying dividends but
offer prospects for growth of capital or future income. Although the Fund
invests primarily in common stock, the Fund may also invest in securities
convertible into common stock (such as convertible bonds, convertible preferred
stock and warrants). The Fund may invest in convertible preferred stock and
convertible bonds which are rated at the time of purchase in the four highest
rating categories assigned by Moody's Investors Service, Inc. (Aaa, Aa, A or
Baa) or Standard & Poor's Ratings Group (AAA, AA, A or BBB) or unrated
securities determined by Edgar Lomax to be of comparable quality. Preferred
stock and bonds rated Baa or BBB have speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to pay principal and interest or to pay the preferred stock
obligations than is the case with higher grade securities. Subsequent to its
purchase by the Fund, a security's rating may be reduced below Baa or BBB and
Edgar Lomax will sell such security, subject to market conditions and Edgar
Lomax's assessment of the most opportune time for sale. The Fund does not intend
to hold more than 5% of its net assets in securities rated Baa (or BBB) or
lower, or, if unrated, which Edgar Lomax determines to be of comparable quality.
When Edgar Lomax believes substantial price risks exist for common stocks
and securities convertible into common stock because of uncertainties in the
investment outlook or when in the judgment of Edgar Lomax it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold for defensive purposes all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits), commercial paper, shares of money market
investment companies, U.S. Government obligations having a maturity of less than
one year or repurchase agreements. Investments in commercial paper for
temporary defensive purposes will be limited to commercial paper rated A-2 or
better by Standard & Poor's Ratings Group or Prime-2 or better by Moody's
Investors Services, Inc. The Fund may invest up to 10% of its total assets in
shares of money market investment companies. Investments by the Fund in shares
of money market investment companies may result in duplication of advisory,
administrative and distribution fees. The Fund will not invest more than 5% of
its total assets in securities of any single investment company and will not
purchase more than 3% of the outstanding voting securities of any investment
company.
6
<PAGE>
The Fund may also engage in the following investment techniques, each of
which may involve certain risks:
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. The Fund intends to enter into repurchase
agreements only with its Custodian, banks having assets in excess of $10
billion, and broker-dealers who are recognized as primary dealers in U.S.
Government obligations by the Federal Reserve Bank of New York. Such agreements
will be collateralized by U.S. Government obligations or other liquid high-grade
debt obligations which will be held in safekeeping in the customer-only account
of the Fund's Custodian at the Federal Reserve Bank or in the Federal reserve
Book Entry System, and will be maintained at a value that equals or exceeds 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 will be invested in such
securities and other illiquid securities.
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 shorter 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 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.
7
<PAGE>
Lending Portfolio Securities. The Fund may, from time to time, lend
securities on a short-term basis (i.e., for up to seven days) to banks, brokers
and dealers and receive as collateral cash, U.S. Government obligations or
irrevocable bank letters of credit (or any combination thereof), which
collateral will be required to be maintained at all times in an amount equal to
at least 100% of the current value of the loaned securities plus accrued
interest. Although the Fund has the ability to make loans of all of its
portfolio securities, it is the present intention of the Fund, which may be
changed without shareholder approval, that such loans will not be made with
respect to the Fund if as a result the aggregate of all outstanding loans
exceeds one-third of the value of the Fund's total assets. Securities lending
will afford the Fund the opportunity to earn additional income because the Fund
will continue to be entitled to the interest payable on the loaned securities
and also will either receive as income all or a portion of the interest on the
investment of any cash loan collateral or, in the case of collateral other than
cash, a fee negotiated with the borrower. Such loans will be terminable at any
time. Loans of securities involve risks of delay in receiving additional
collateral or in recovering the securities lent or even loss of rights in the
collateral in the event of the insolvency of the borrower of the securities. The
Fund will have the right to regain record ownership of loaned securities in
order to exercise beneficial rights. The Fund may pay reasonable fees in
connection with arranging such loans.
Borrowing and Pledging. The Fund may borrow money from banks, provided
that immediately after such borrowing, there is an asset coverage of at least
300% for all borrowings of the Fund. The Fund may pledge assets in connection
with borrowings but will not pledge more than one-third of its total assets.
Borrowing magnifies the potential for gain or loss on the portfolio securities
of the Fund and, therefore, if employed, increases the possibility of
fluctuation in the Fund's net asset value. This is the speculative factor known
as leverage. The Fund's policies on borrowing and pledging are fundamental
policies which may not be changed without the affirmative vote of a majority of
its outstanding shares. It is the Fund's present intention, which may be
changed by the Board of Trustees without
8
<PAGE>
shareholder approval, to borrow only for emergency or extraordinary purposes and
not for leverage.
Portfolio Turnover. 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 Edgar Lomax. 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 may require the payment of correspondingly
greater commission expenses and transaction costs and increases the possibility
that the Fund will not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. (See discussion under "Taxes")
HOW TO PURCHASE SHARES
- ----------------------
Your initial investment in the Fund ordinarily must be at least $2,500
($1,000 for tax-deferred retirement plans). The Fund may, in the Manager's sole
discretion, accept certain accounts with less than the stated minimum initial
investment. 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, State Street Bank and Trust
Company ("State Street"), 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 received by State
Street by 5:00 p.m., Eastern time. Dealers may charge a fee for effecting
purchase orders. Direct purchase orders received by State Street by 4:00 p.m.,
Eastern time, are confirmed at that day's net asset value. Direct investments
received by State Street after 4:00 p.m.,
9
<PAGE>
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 signed completed account application form to State Street
Bank and Trust Company, P.O. Box 8020, Boston, Massachusetts 02266-8020, or to
the Fund, 2 Wisconsin Circle, Suite 700, Chevy Chase, Maryland 20815. Checks
should be made payable to the "Profit Lomax Value Fund" and should be in U.S.
dollars. Third party checks, credit cards, credit card checks and cash will not
be accepted. An account application is included with this Prospectus.
The Fund will mail 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, State Street, 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 State Street in the transaction.
You may also open an account and make an initial investment in the Fund by
wire. Please telephone State Street (Nationwide call toll-free 888-744-2337) for
instructions before wiring funds. 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. The wiring bank generally will be a member of the Federal
Reserve Banking System or have a relationship with a bank that is. This bank
will normally charge you a fee for handling the transaction.
Federal funds should be wired to
10
<PAGE>
State Street Bank and Trust Company
ABA #01100028
For Credit to DDA Account #9905-201-1
Profit Lomax Value Fund
For further credit to Account #(insert your account number, name and control
number assigned by State Street).
As long as you have read the Prospectus, you may establish most new
accounts by wire. When new accounts are established in this manner, the
distribution options will be set to reinvestment of such distribution and your
social security or tax identification number ("TIN") will not be certified until
a signed application is received by BFDS. Completed applications should be
forwarded immediately to BFDS or to the Fund. With the purchase application,
the shareholder may specify other distribution options (i.e., other than
----
reinvest) and may add any special features offered by the Fund. Should any
dividend distributions or redemptions be paid before the TIN is certified, they
will be subject to 31% Federal tax withholding.
Your investment in the Fund will be made at the net asset value next
determined 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.
You may purchase additional shares of the Fund by mail or by bank wire.
Checks should be sent to State Street Bank and Trust Company, P.O. Box 8020,
Boston, Massachusetts 02266-8020, or to the Fund, 2 Wisconsin Circle, Suite 700,
Chevy Chase, Maryland 20815. Checks should be made payable or endorsed to the
"Profit Lomax Value Fund." Bank wires should be sent as outlined above. Each
additional purchase request must contain the name of your account and your
account number to permit proper crediting. While there is no minimum amount
required for
11
<PAGE>
subsequent investments, the Fund reserves the right to impose such
a requirement.
SHAREHOLDER SERVICES
- --------------------
The Fund provides special services to shareholders in connection with
certain purchase and redemption plans. You should contact the Fund or State
Street Bank and Trust Company (Nationwide call toll-free 888-744-2337) for
additional information about the shareholder services described below.
Tax-Deferred Retirement Plans
-----------------------------
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses
-- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
Direct Deposit Plans
--------------------
Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
-------------------------
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
investment under this plan is $500 and subsequent investments must be $50. State
Street pays the costs
12
<PAGE>
associated with these transfers, but reserves the right, upon thirty days'
written notice, to assess reasonable charges for this service. Your depository
institution may impose its own charge for debiting your account, which would
reduce your return from an investment in the Fund.
HOW TO REDEEM SHARES
- --------------------
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 may be charged a
processing fee by your bank. 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 request through a
securities broker or dealer. Broker-dealers that are unaffiliated with the Trust
or the Fund's Manager or Adviser may charge you a fee for this service. You will
receive the net asset value per share next determined after receipt by the Fund
or State Street of your wire redemption request. It is the responsibility of
broker-dealers to properly transmit wire redemption orders to State Street.
Payment will be made within three business days after tender is made to the Fund
or State Street in proper form, provided that payment in redemption of shares
purchased by check will be effected only after the check has been collected,
which
13
<PAGE>
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 State Street, 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 $2,500 (based on actual amounts invested, unaffected by
market fluctuations), or $1,000 in the case of tax-deferred retirement plans, 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 your 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.
Automatic Withdrawal Plan
-------------------------
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service.
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
The Fund expects to distribute substantially all of its net investment
income, if any, on an annual basis. The Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
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
14
<PAGE>
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.
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
- -----
The Fund intends 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 realized capital gains to its shareholders.
Distributions of net investment income and 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. Redemptions
of shares of the Fund are taxable events on which a shareholder may realize a
gain or loss.
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 and
the use of the Automatic Withdrawal Plan. The tax consequences described in
this section apply whether distributions are taken in cash or reinvested in
additional shares. See "Taxes" in the Statement of Additional Information for
further information.
15
<PAGE>
OPERATION OF THE FUND
- ---------------------
The Fund is a diversified series of Profit Funds Investment Trust, an
open-end management investment company organized as a Massachusetts business
trust on June 14, 1996. The Fund commenced operations on the date of the
Prospectus and has no prior operating history. The Board of Trustees supervises
the business activities of the Fund. Like other mutual funds, the Fund retains
various organizations to perform specialized services for the Fund.
The Fund has retained Investor Resources Group, Inc. (the "Manager"), 2
Wisconsin Circle, Suite 700, Chevy Chase, Maryland 20815, to provide general
investment supervisory services to the Fund and to manage the Fund's business
affairs. The Manager, which was incorporated in the State of Delaware on
February 16, 1996, has not previously served as investment manager to a
registered investment company.
The Fund pays the Manager a fee at the annual rate of 1.25% of the
average value of the Fund's daily net assets.
The Manager currently intends to waive this fee to the extent necessary
to limit the total operating expenses of the Fund to [1.95%] per annum of its
average daily net assets. There is no assurance, however, that the management
fee will be waived in the current or future fiscal years, and expenses of the
Fund may therefore exceed [1.95%] of its average daily net assets.
Eugene A. Profit is the controlling shareholder of the Manager. As of the
date of this Prospectus, the Manager is the sole shareholder of the Fund.
The Edgar Lomax Company ("Edgar Lomax"), 6564 Loisdale Court, Suite 310,
Springfield, Virginia 22150 has been retained by the Manager to serve as
subadviser to the Fund. Edgar Lomax was organized in 1986 and specializes in
the management of institutional portfolios. For its services, the Manager pays
Edgar Lomax a fee at the annual rate of .50% of the average value of the Fund's
daily net assets.
Randall R. Eley, the President, Chief Investment Officer and controlling
shareholder of Edgar Lomax, is primarily responsible for managing the Fund's
portfolio. Mr. Eley founded Edgar Lomax in 1986.
In addition to the management fee, the Fund is responsible for the
payment of all operating expenses,
16
<PAGE>
including organizational expenses, fees and expenses in connection with
membership in investment company organizations, brokerage fees and commissions,
legal, auditing and accounting expenses, expenses of registering shares under
federal and state securities laws, expenses related to the distribution of the
Fund's shares (see "Distribution Plan"), insurance expenses, taxes or
governmental fees, fees and expenses of the Fund's administrator, custodian and
transfer agent, fees and expenses of members of the Board of Trustees who are
not affiliated persons of the Fund, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Fund
may be a party and indemnification of the Fund's officers and Trustees with
respect thereto.
The Fund has entered into an Administration Agreement with SEI Fund
Resources ("SEI" or "Administrator"), 680 E. Swedesford Road, Wayne,
Pennsylvania 19087-1658, under which SEI provides administrative and accounting
services to the Fund. As Administrator, SEI supplies executive, administrative
and regulatory services, supervises the preparation of 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. SEI also provides fund accounting and related portfolio accounting
services to the Fund. For providing these services, the Fund pays SEI a fee
equal on an annual basis to the greater of (i) 0.15% of the average daily net
assets on the first $50 million of the Trust, 0.125% of the average daily net
assets
17
<PAGE>
on the next $50 million, and 0.10% of the average daily net assets on all assets
over $100 million, or (ii) $65,000.
The Fund has retained State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110-3875 as its Transfer Agent. Boston
Financial Data Services, Inc., Two Heritage Drive, Quincy, Massachusetts 02171
serves as the Fund's dividend disbursing agent and shareholder service agent.
BFDS is a subsidiary of State Street Bank and Trust Company.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to its objective of seeking best execution
of portfolio transactions, Edgar Lomax 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. Consistent with its obligations to seek best
execution for the Fund, Edgar Lomax may also consider such factors as price
(including the applicable brokerage commission or dealer spread), execution
capability, financial responsibility, responsiveness, and brokerage and research
services provided when selecting brokers and dealers to execute portfolio
transactions of the Fund. Subject to the requirements of the Investment Company
Act of 1940 and procedures adopted by the Board of Trustees, the Fund may
execute portfolio transactions through any broker or dealer and pay brokerage
commissions to a broker (i) which is an affiliated person of the Fund, or (ii)
which is an affiliated person of such person, or (iii) an affiliated person of
which is an affiliated person of the Fund, the Manager or Edgar Lomax.
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 does not normally hold annual meetings of shareholders. The
Trustees will 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.
DISTRIBUTION PLAN
- -----------------
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Manager for certain distribution-related
expenses, including the following: payments to securities dealers and others who
are engaged in the sale of shares of the Fund and who may be advising investors
regarding the purchase, sale or retention of such shares; expenses of
maintaining personnel who engage in or support distribution of shares or who
render shareholder support
18
<PAGE>
services not otherwise provided by the Manager; expenses of formulating and
implementing marketing and promotional activities, including direct mail
promotions and mass media advertising; expenses of preparing, printing and
distributing sales literature and prospectuses and statements of additional
information and reports for recipients other than existing shareholders of the
Fund; expenses of obtaining such information, analyses and reports with respect
to marketing and promotional activities as the Fund may, from time to time, deem
advisable; and, any other expenses related to the distribution of the Fund's
shares.
The annual limitation for payment of expenses pursuant to the Plan is
0.25% of the Fund's average daily net assets. Unreimbursed expenditures will not
be carried over from year to year. In the event the Plan is terminated by the
Fund in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred by the Manager after the date the Plan
terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the Fund
believes that the Glass-Steagall Act should not preclude a bank from providing
such services. However, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Fund believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by regulatory authorities, and the
overall return to those shareholders availing themselves of the bank services
will be lower than to those shareholders who do not. The Fund may from time to
time purchase securities issued by banks which provide such services. In
selecting investments for the Fund, however, no preference will be shown for
such securities.
CALCULATION OF SHARE PRICE
- --------------------------
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
19
<PAGE>
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 procedures
established by the Board of Trustees. The net asset value per share of the Fund
will fluctuate with the value of the securities it holds.
PERFORMANCE INFORMATION
- -----------------------
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
or, where the Fund has not been in operation for such period, over the life of
the Fund (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
20
<PAGE>
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 and the Standard & Poor's
500 Stock 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 Edgar Lomax's view of current or past market conditions or historical trends.
Prior Performance of Edgar Lomax. The investment performance of Edgar
Lomax illustrated below represents, from January 1, 1994 to the end of the third
quarter of 1996 the performance for all of Edgar Lomax's portfolios with a
market value of $1 million or more (the "Portfolios") which were managed with
investment objectives, policies and strategies substantially similar to those
employed by Edgar Lomax in managing the Fund. All rates of return shown are net
of management fees and brokerage commissions (including commissions paid in
connection with any brokerage "wrap fee" account) and assume reinvestment of
dividends and income.
While the Fund employs investment objectives and policies that are
substantially similar to those employed by Edgar Lomax in managing the
Portfolios, the Fund may be subject to certain
21
<PAGE>
restrictions on its investment activities to which Edgar Lomax was not
previously subject and which may affect Fund performance. For example, unlike
the Portfolios, the Fund is subject to diversification requirements imposed by
the Investment Company Act of 1940 and the Internal Revenue Code of 1986
(including the rules and regulations issued thereunder), and requirements on
distributing income to shareholders. The Fund is also subject to other
investment restrictions imposed by the Investment Company Act. Operating
expenses are incurred by the Fund which were not incurred by Edgar Lomax in
managing the Portfolios. It is not intended that the following performance data
be relied upon by investors as an indication of future performance of the Fund.
22
<PAGE>
<TABLE>
<CAPTION>
Periodic Rates of Return
S&P
Period Total Return* 500 Index
- ------ ------------- ---------
<S> <C> <C>
December 31, 1994 3.38% 1.30%
Year Ended
December 31, 1995 45.74% 37.53%
January 1 -
September 30, 1996** 14.08% 13.49%
October 1, 1990 through
September 30, 1996
- -----------------------
Annualized Return 21.77% 18.13%
Cumulative Return 171.88% 158.12%
</TABLE>
* The performance results shown have been computed and presented in
accordance with guidelines promulgated by the Association for Investment
Management and Research. The results reflect the total return on
discretionary accounts for which Edgar Lomax served as investment adviser
during the periods shown, less investment advisory fees (and brokerage
commissions, including commissions that were paid in connection with a wrap
fee brokerage account).
** Not Annualized
23
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
Nationwide: (Toll-Free) 888-744-2337
Board of Trustees
Eugene A. Profit
Joseph A. Quash, M.D.
Raymond S. McGaugh
Robert M. Milanicz
Ronald R. Davenport, Jr.
Larry E. Jennings, Jr.
Investment Manager
INVESTOR RESOURCES GROUP, INC.
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
Investment Adviser
THE EDGAR LOMAX COMPANY
6564 Loisdale Court, Suite 310
Springfield, Virginia 22150
Transfer Agent
STATE STREET BANK AND TRUST COMPANY
P.O. Box 8020
Boston, Massachusetts 02266-8020
Shareholder Service
- -------------------
Nationwide: (Toll-Free) 888-744-2337
TABLE OF CONTENTS
Expense Information.............................................
Investment Objective, Investment Policies and
Risk Considerations...........................................
How to Purchase Shares..........................................
Shareholder Services............................................
How to Redeem Shares............................................
Dividends and Distributions.....................................
Taxes...........................................................
Operation of the Fund...........................................
Distribution Plan...............................................
Calculation of Share Price......................................
Performance Information.........................................
____________________________________________________________ _____
24
<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.
25
<PAGE>
PROSPECTUS
_______, 1996
PROFIT FUNDS INVESTMENT TRUST
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
(301) 951-9173
PROFIT LOMAX INSTITUTIONAL EQUITY FUND
The Profit Lomax Institutional Equity Fund (the "Fund"), a separate series
of Profit Funds Investment Trust (the "Trust"), seeks to provide investors with
a high long-term total return, consistent with the preservation of capital and
maintenance of liquidity, by investing primarily in the common stock of
established, larger capitalization companies: i.e., companies having a market
capitalization exceeding $1 billion. Dividend income is only an incidental
consideration to the Fund's investment objective.
Investor Resources Group, Inc. (the "Manager") serves as the investment
manager to the Fund. The Edgar Lomax Company ("Edgar Lomax") manages the Fund's
investments under the supervision of the Manager.
The name "PROFIT" is derived from the name of the founder and principal
shareholder of the Manager, Eugene A. Profit, and is not intended as an
indication of the investment objective and policies of the Fund nor of any
series of the Trust.
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
may be obtained at no charge by calling the toll-free number listed below.
For Information or Assistance in Opening An Account, Please Call:
1
<PAGE>
Nationwide (Toll-Free) . . . . . . . . . . . 888-744-2337
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.
2
<PAGE>
EXPENSE INFORMATION
- -------------------
Shareholder Transaction Expenses
- --------------------------------
Sales Load Imposed on Purchases . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends. . . . None
Redemption Fee. . . . . . . . . . . . . . . . . . None*
* Shareholders may be required to pay a wire transfer fee charged by their
receiving bank in the case of redemptions made by wire. See "How to Redeem
Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
- ------------------------------
Management Fees . . . . . . . . . .. . . . . . 1.25%/(A)/
12b-1 Fees . . . . . . . . . . . . . . . . . . None
Other Expenses. . . . . . . . . . . . . . . . . 0.45%/(B)/
-----
Total Fund Operating Expenses (after waivers) 1.70%/(C)/
=====
/(A)/ The Manager has voluntarily agreed to waive its management fee, and to
reimburse the Fund for expenses incurred, to the extent necessary to
enable the Fund to maintain total Fund operating expenses at a maximum
level of 1.70%. Absent waiver of the management fee and reimbursement of
Fund expenses, total fund operating expenses for the current fiscal year
would be 3.2%.
/(B)/ The percentage included under "Other Expenses" is an estimate of fund
expenses for the current fiscal year based on an expected Fund average net
asset size of $10 million.
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 below should not
be considered a representation of past or future expenses and actual expenses
may be greater or less than those shown.
Example
- -------
You would pay the following
expenses on a $1,000
investment, assuming
3
<PAGE>
(1) 5% annual return and
(2) redemption at the end
of each time period: 1 Year $17
3 Years 54
4
<PAGE>
INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS
- -----------------------------------------------------------------
The investment objective of the Fund is to seek a high long-term total
return, consistent with the preservation of capital and maintenance of
liquidity, by investing primarily in the common stock of established, larger
capitalization companies: i.e., companies having a market capitalization
exceeding $1 billion. At least 65% of the Fund's total assets will be invested
in equity securities, which include common stock, preferred stock and bonds
convertible into common stock, and warrants and rights for the purchase of
common stock. Dividend income is only an incidental consideration to the Fund's
investment objective.
The Fund is not intended to be a complete investment program for any
investor, 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.
Neither the Manager nor Edgar Lemax has previously provided investment advisory
services to a registered investment company.
The Fund's investment strategy is designed to fully participate in rising
equity markets while limiting, as much as possible, the downside volatility
which can accompany equity investing. Edgar Lomax uses a disciplined, value-
oriented process in order to select stocks generally having the following
characteristics:
- low price/earnings ratios
- strong balance sheet ratios
- high and/or stable dividend yields
- low price/book ratios
The Fund will invest primarily in the common stocks of established, larger
capitalization companies (i.e., companies having a market capitalization
exceeding $1 billion). Edgar Lomax believes these stocks enjoy low expectations
from investors in general and are
5
<PAGE>
undervalued. As a result, in Edgar Lomax's opinion, average "earnings"
performance by such companies can result in superior stock performance, and
disappointing "earnings" should result in minimal negative stock performance.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions and other factors
beyond the control of Edgar Lomax. As a result, the return and net asset value
of the Fund will fluctuate.
The Fund will invest primarily in domestic securities, although it may
invest in foreign companies through the purchase of sponsored American
Depositary 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, Edgar
Lomax will seek to invest in securities that have investment characteristics and
qualities comparable to the kinds of domestic securities in which the Fund
invests. 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.
The Fund expects to invest primarily in securities currently paying
dividends, although it may buy securities that are not paying dividends but
offer prospects for growth of capital or future income. Although the Fund
invests primarily in common stock, the Fund may invest in securities convertible
into common stock (such as convertible bonds, convertible preferred stocks and
warrants). The Fund may invest in convertible preferred stock and convertible
bonds which are rated at the time of purchase in the four highest rating
categories assigned by Moody's Investors Service, Inc. (Aaa, Aa, A or Baa) or
Standard & Poor's Ratings Group (AAA, AA, A or BBB) or unrated securities
determined by Edgar Lomax to be of comparable quality. Preferred stocks and
bonds rated Baa or BBB have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to pay principal and interest or to pay the preferred stock obligations than is
the case with higher grade securities. Subsequent to its purchase by the Fund,
a security's rating may be reduced below Baa or BBB and Edgar Lomax will sell
such security, subject to market conditions and Edgar Lomax's assessment of the
most opportune time for sale. The Fund does not intend to hold
6
<PAGE>
more than 5% of its net assets in securities rated Baa (or BBB) or lower, or,
if unrated, which Edgar Lomax determines to be of comparable quality.
When Edgar Lomax believes substantial price risks exist for common stocks
and securities convertible into common stock because of uncertainties in the
investment outlook or when in the judgment of Edgar Lomax it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold for defensive purposes all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits), commercial paper, shares of money market
investment companies, U.S. Government obligations having a maturity of less than
one year or repurchase agreements. Investments in commercial paper for temporary
defensive purposes will be limited to commercial paper rated A-2 or better by
Standard & Poor's Ratings Group or Prime-2 or better by Moody's Investors
Services, Inc. The Fund may invest up to 10% of its total assets in shares of
money market investment companies. Investments by the Fund in shares of money
market investment companies may result in duplication of advisory,
administrative and distribution fees. The Fund will not invest more than 5% of
its total assets in securities of any single investment company and will not
purchase more than 3% of the outstanding voting securities of any investment
company.
The Fund may also engage in the following investment techniques, each of
which may involve certain risks:
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. The Fund intends to enter into repurchase
agreements only with its Custodian, banks having assets in excess of $10
billion, and broker-dealers who are recognized as primary dealers in U.S.
Government obligations by the Federal Reserve Bank of New York. Such agreements
will be collateralized by U.S. Government obligations or other liquid
high-grade debt obligations which will be held in safekeeping in the
customer-only account of the Fund's Custodian at the Federal
7
<PAGE>
Reserve Bank or in the Federal Reserve Book Entry System, and will be maintained
at a value that equals or exceeds 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 will be invested in such securities and other illiquid securities.
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 shorter 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 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.
Lending Portfolio Securities. The Fund may, from time to time, lend
securities on a short-term basis (i.e., for up to seven days) to banks, brokers
and dealers and receive as collateral cash, U.S. Government obligations or
irrevocable bank letters of credit (or any combination thereof), which
collateral will be required to be maintained at all times in an amount equal to
at least 100% of the current value of the loaned securities plus accrued
interest. Although the Fund has the ability to make loans of all of its
portfolio securities, it is the present intention of the Fund, which may be
changed without shareholder approval, that such loans will not be made with
respect to the Fund if as a result the aggregate of all outstanding loans
exceeds one-third of the value of the Fund's total assets. Securities lending
will afford the Fund the opportunity to earn additional income because the Fund
will continue to be entitled to the interest payable on the loaned securities
and also will either receive as income all or a portion of the interest on the
investment of any cash loan collateral or, in the case of collateral other than
cash, a fee negotiated with the borrower. Such loans will be terminable at any
time. Loans of securities involve risks of delay in receiving additional
collateral or in
8
<PAGE>
recovering the securities lent or even loss of rights in the collateral in the
event of the insolvency of the borrower of the securities. The Fund will have
the right to regain record ownership of loaned securities in order to exercise
beneficial rights. The Fund may pay reasonable fees in connection with arranging
such loans.
Borrowing and Pledging. The Fund may borrow money from banks, provided
that immediately after such borrowing, there is an asset coverage of at least
300% for all borrowings of the Fund. The Fund may pledge assets in connection
with borrowings but will not pledge more than one-third of its total assets.
Borrowing magnifies the potential for gain or loss on the portfolio securities
of the Fund and, therefore, if employed, increases the possibility of
fluctuation in the Fund's net asset value. This is the speculative factor known
as leverage. The Fund's policies on borrowing and pledging are fundamental
policies which may not be changed without the affirmative vote of a majority of
its outstanding shares. It is the Fund's present intention, which may be
changed by the Board of Trustees without shareholder approval, to borrow only
for emergency or extraordinary purposes and not for leverage.
Portfolio Turnover. 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 Edgar Lomax. 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 may require the payment of
correspondingly greater commission expenses and transaction costs and increases
the possibility that the Fund will not qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code.
9
<PAGE>
(see "Taxes")
HOW TO PURCHASE SHARES
- ----------------------
Your initial investment in the Fund ordinarily must be at least $1,000,000.
The Fund may, in the Manager's sole discretion, accept certain accounts with
less than the stated minimum initial investment. 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, Boston Financial Data Services, Inc. State Street Bank and Trust Company
("State Street"), 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 received by State Street
by 5:00 p.m., Eastern time. Dealers may charge a fee for effecting purchase
orders. Direct purchase orders received by State Street by 4:00 p.m., Eastern
time, are confirmed at that day's net asset value. Direct investments received
by State Street 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 State Street Bank
and Trust Company, P.O. Box 8020, Boston, Massachusetts 02266-8020, or to the
Fund, 2 Wisconsin Circle, Suite 700, Chevy Chase, Maryland 20815. Checks should
be made payable to the "Profit Lomax Institutional Equity Fund." An account
application is included with this Prospectus.
The Fund will mail 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, State Street 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.
10
<PAGE>
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 State Street in the transaction.
You may also open an account and make an initial investment in the Fund by
wire. Please telephone State Street (Nationwide call toll-free 888-744-2337) 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. The wiring
bank generally will be a member of the Federal Reserve Banking System or have a
relationship with a bank that is. This bank will normally charge you a fee for
handling this transaction.
As long as you have read the Prospectus, you may establish most new
accounts by wire. When new accounts are established in this manner, the
distribution options available to you will be set to reinvestment of such
distribution and your social security number or tax identification number
("TIN") will not be certified until a signed application is received by State
Street. Completed applications should be forwarded immediately to State Street
or to the Fund. With the purchase application, the shareholder may specify other
distribution options (i.e., other than reinvest) and may add any special
features offered by the Fund. Should any dividend distributions or redemptions
be paid before the TIN is certified, they will be subject to federal tax
withholding.
Your investment in the Fund will be made at the net asset value next
determined 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.
You may purchase additional shares of the Fund by mail or by bank wire.
Checks should be sent to State Street Bank and Trust Company, P.O. Box
8020,
11
<PAGE>
Boston, Massachusetts 02266-8020, or to the Fund, 2 Wisconsin Circle, Suite 700,
Chevy Chase, Maryland 20815. Checks should be made payable or endorsed to the
"Profit Lomax Institutional Equity Fund." Bank wires should be sent as outlined
above. Each additional purchase request must contain the name of your account
and your account number to ensure proper crediting. While there is no minimum
amount required for subsequent investments, the Fund reserves the right to
impose such a requirement.
HOW TO REDEEM SHARES
- --------------------
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 may be charged a
processing fee by your bank. 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 request through a
securities broker or dealer. Broker-dealers that are unaffiliated with the Trust
as the Fund's Manager or Adviser may charge you a fee for this service. You will
receive the net asset value per share next determined after receipt by the Fund
or State Street of your wire redemption request. It is the responsibility of
broker-dealers to properly transmit wire redemption orders to State Street.
12
<PAGE>
Payment will be made within three business days after tender is made to the Fund
or to State Street in proper 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 State Street, 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 $1,000,000 (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
- ---------------------------
The Fund expects to distribute substantially all of its net investment
income, if any, on an annual basis. The Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
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.
13
<PAGE>
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.
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
- -----
The Fund intends 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 realized capital gains to its shareholders.
Distributions of net investment income and 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.
Redemptions of shares of the Fund are taxable events on which a shareholder may
realize a gain or loss.
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. See "Taxes" in the Statement of
Additional Information or further information.
OPERATION OF THE FUND
- ---------------------
The Fund is a diversified series of Profit Funds Investment Trust, an open-
end management investment company organized as a Massachusetts business trust on
June 14, 1996. The Fund commenced operations on the date of the Prospectus and
has no prior operating history. The Board of Trustees supervises the business
activities of the Fund. Like other mutual funds, the Fund
14
<PAGE>
retains various organizations to perform specialized services for the Fund.
The Fund has retained Investor Resources Group, Inc. (the "Manager"), 2
Wisconsin Circle, Suite 700, Chevy Chase Maryland 20815, to provide general
investment supervisory services to the Fund and to manage the Fund's business
affairs. The Manager, which was incorporated in the State of Delaware on
February 16, 1996, has not previously served as investment manager to a
registered investment company.
The Fund pays the Manager a fee at the annual rate of 1.25% of the average
value of the Fund's daily net assets. The Manager currently intends to waive
this fee to the extent necessary to limit the total operating expenses of the
Fund to 1.70% per annum of its average daily net assets. There is no
assurance, however, that the management fee will be waived in the current or
future fiscal years, and expenses of the Fund may therefore exceed 1.70% of
its average daily net assets.
Eugene A. Profit is the controlling shareholder of the Manager. As of the
date of this Prospectus, the Manager is the sole shareholder of the Fund.
The Edgar Lomax Company ("Edgar Lomax"), 6564 Loisdale Court, Suite 310,
Springfield, Virginia 22150 has been retained by the Manager to serve as
subadviser to the Fund. Edgar Lomax was organized in 1986 and specializes in
the management of institutional portfolios. For its services, the Manager pays
Edgar Lomax a fee at the annual rate of 0.37% of the average value of the Fund's
daily net assets.
Randall R. Eley, the President, Chief Investment Officer and controlling
shareholder of Edgar Lomax, is primarily responsible for managing the Fund's
portfolio. Mr. Eley founded Edgar Lomax in 1986.
In addition to the management fee, the Fund is responsible for the payment
of all operating expenses, including organizational expenses, fees and expenses
in connection with membership in investment company organizations, brokerage
fees and commissions, legal, auditing and accounting expenses, expenses of
registering
15
<PAGE>
shares under federal and state securities laws, insurance expenses, taxes or
governmental fees, fees and expenses of the custodian, transfer agent,
administrator, and accounting and pricing agent of the Fund, fees and expenses
of members of the Board of Trustees who are not interested persons of the Fund,
the cost of preparing and distributing prospectuses, statements, reports and
other documents to shareholders, expenses of shareholders' meetings and proxy
solicitations, and such extraordinary or non-recurring expenses as may arise,
including litigation to which the Fund may be a party and indemnification of the
Fund's officers and Trustees with respect thereto.
The Fund has entered into an Administration Agreement with SEI Fund
Resources ("SEI" or "Administrator"), 680 E. Swedesford Road, Wayne,
Pennsylvania 19087, under which SEI provides administrative and accounting
services to the Fund. As Administrator, SEI supplies supplies executive,
administrative and regulatory services, supervises the preparation of 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. SEI also provides fund accounting and related portfolio accounting
services to the Fund. For providing these services, the Fund pays SEI a fee
equal on an annual basis to the greater of (i) 0.15% of the average daily net
assets of the first $50 million of the Trust, 0.125% of the average daily net
assets of the next $50 million, and 0.10% of the average daily net assets on all
assets over $100 million, or (ii) $65,000.
The Fund has retained Boston Financial Data Services, Inc., P.O. Box 8020,
Boston, Massachusetts 02266
16
<PAGE>
to serve as the Fund's transfer agent, dividend paying agent and shareholder
service agent. BFDS is owned by State Street Bank and Trust Company and DST,
Inc.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to its objective of seeking best execution of
portfolio transactions, Edgar Lomax 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. Consistent with its obligation to seek best
execution for the Fund, Edgar Lomax may also consider such factors as price
(including the applicable brokerage commission or dealer spread), execution
capability, financial responsibility, responsiveness, and brokerage and research
services provided when selecting brokers and dealers to execute portfolio
transactions of the Fund. Subject to the requirements of the Investment Company
Act of 1940 and procedures adopted by the Board of Trustees, the Fund may
execute portfolio transactions through any broker or dealer and pay brokerage
commissions to a broker (i) which is an affiliated person of the Fund, or (ii)
which is an affiliated person of such person, or (iii) an affiliated person of
which is an affiliated person of the Fund, the Manager or Edgar Lomax.
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 does not normally hold annual meetings of shareholders. The
Trustees will 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
- --------------------------
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.
17
<PAGE>
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 procedures
established by the Board of Trustees. The net asset value per share of the Fund
will fluctuate with the value of the securities it holds.
PERFORMANCE INFORMATION
- -----------------------
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 or,
where the Fund has not been in operation for such period, over the life of the
Fund (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
18
<PAGE>
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 and the Standard & Poor's
500 Stock 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 Edgar Lomax's view of current or past market conditions or historical trends.
Prior Performance of Edgar Lomax. The investment performance of Edgar
Lomax illustrated below represents, from January 1, 1994 to the end of the third
quarter of 1996, the performance for all of Edgar Lomax's portfolios with a
market value or $1 million or more (the "Portfolios") which were managed with
investment objectives, policies and strategies substantially similar to those to
be employed by Edgar Lomax in managing the Fund. All rates of return shown are
net of management fees and brokerage commissions (including commissions paid in
connection with any brokerage "wrap fee" account) and assume reinvestment of
dividends and income.
While the Fund employs investment objectives and strategies that are
substantially similar to those employed by Edgar Lomax in managing the
Portfolios, the Fund may be subject to certain restrictions on its investment
activities to which Edgar Lomax was not previously subject and which may affect
Fund performance. For example, unlike the Portfolios, the Fund is subject to
diversification requirements imposed by the Investment Company Act of 1940 and
the Internal Revenue Code of 1986 (including the rules and regulations issued
19
<PAGE>
thereunder), and requirements on distributing income to shareholders. The Fund
is also subject to other investment restrictions imposed by the Investment
Company Act. Operating expenses are incurred by the Fund which were not incurred
by Edgar Lomax in managing the Portfolios. It is not intended that the following
performance data be relied upon by investors as an indication of future
performance of the Fund.
20
<PAGE>
Periodic Rates of Return
<TABLE>
<CAPTION>
S&P
Period Total Return* ---
- ------ -------------
500
-------
<S> <C> <C>
December 31, 1994 3.38% 1.30%
Year Ended
December 31, 1995 45.74% 37.53%
January 1 -
September 30, 1996** 14.08% 13.49%
October 1, 1990 through
September 30, 1996
Annualized Return 21.77% 18.13%
Cumulative Return 171.88% 158.12%
</TABLE>
* The performance results shown have been computed and presented in
accordance with guidelines promulgated by the Association for Investment
Management and Research. The results reflect the total return on
discretionary accounts for which Edgar Lomax served as investment adviser
during the periods shown, less investment advisory fees (and brokerage
commission, including commissions that were paid in connection with a wrap
fee brokerage account).
** Not Annualized
21
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
Nationwide: (Toll-Free) 888-744-2337
Board of Trustees
Eugene A. Profit
Joseph A. Quash, M.D.
Raymond S. McGaugh
Robert M. Milanicz
Ronald R. Davenport, Jr.
Larry E. Jennings, Jr.
Investment Manager
INVESTOR RESOURCES GROUP, INC.
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
Investment Adviser
THE EDGAR LOMAX COMPANY
6564 Loisdale Court, Suite 310
Springfield, Virginia 22150
Transfer Agent
STATE STREET BANK AND TRUST COMPANY
P.O. Box 8020
Boston, Massachusetts 02266-8020
Shareholder Service
- -------------------
Nationwide: (Toll-Free) 888-744-2337
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. . . . . . . . . . . . . . . . . . . . .
- ------------------------------------------------------------------
22
<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.
23
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
_______________, 1996
Profit Lomax Value Fund
Profit Lomax Institutional Equity Fund
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C>
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . .
Definitions, Policies and Risk Considerations. . . . . . . .
Quality Ratings of Corporate Bonds and Preferred Stock . . .
Investment Limitations . . . . . . . . . . . . . . . . . . .
Trustees and Officers . . . . . . . . . . . . . . . . . . .
The Investment Manager . . . . . . . . . . . . . . . . . . .
The Investment Adviser . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Distribution Plan . . . . . . . . . . . . . . . . . . . . .
Administrator . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent, Dividend Disbursing Agent,
Shareholder Servicing Agent . . . . . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . . . . . . . . . . .
Auditors . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . .
Securities Transactions . . . . . . . . . . . . . . . . .
Portfolio Turnover . . . . . . . . . . . . . . . . . . .
Calcuation of Share Price . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption in Kind . . . . . . . . . . . . . . . . . . .
Historical Performance Information . . . . . . . . . . .
Statements of Assets and Liabilities . . . . . . . . .
</TABLE>
This Statement of Additional Information supplements the Prospectuses
offering of shares of the Profit Lomax Value Fund and the Profit Lomax
Instititutional Equity Fund. Each Fund is a series of the Profit Funds
Investment Trust, a registered open-end management investment company (the
"Trust"). The Statement of Additional Information, which is incorporated by
reference in its entirety into the Prospectuses, should be read only in
conjunction with the Prospectuses for the Funds, dated ____________, 1996, as
they may from time to time be revised.
Because this Statement of Additional Information is not a prospectus, no
investment in shares of any Fund should be made solely on the basis of the
information contained herein. It should be read in conjunction with the
Prospectus of the applicable Fund to which it relates. A copy of a Fund's
Prospectus may be obtained by writing the Fund at 2 Wisconsin Circle, Suite 700,
Chevy Chase, Maryland 20815, or by calling the Fund toll-free at 888-744-2337.
Capitalized terms used but not defined herein have the same meaning as in the
Prospectuses.
<PAGE>
The name "PROFIT" is derived from Eugene A. Profit, the founder and
principal shareholder of Investor Resources Group, Inc., the Manager of the
Trust. "PROFIT" is not intended to be an indication of the investment objective
and policies of any series or Funds of the Trust.
<PAGE>
THE TRUST
---------
Profit Funds Investment Trust (the "Trust") was organized as a
Massachusetts business trust on June 14, 1996. The Trust currently offers only
the Profit Lomax Value Fund, a series of the Trust, to investors, but may in the
future offer the Profit Lomax Institutional Equity Fund and other series. (Each
series of the Trust is referred to individually as a "Fund" and collectively as
the "Funds"). Each Fund has its own investment objective and policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that 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 any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of
a Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging
to a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of any instance where such result has occurred. In addition, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The
<PAGE>
Agreement and Declaration of Trust also provides for the indemnification out of
the Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Moreover, it provides that
the Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. As a result, and particularly because the Trust assets are readily
marketable and ordinarily substantially exceed liabilities, management believes
that the risk of shareholder liability is slight and limited to circumstances in
which the Trust itself would be unable to meet its obligations. Management
believes that, in view of the above, the risk of personal liability is remote.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectuses (see "Investment Objective, Investment
Policies and Risk Considerations") appears below:
Majority. As used in the Prospectuses and this Statement of
--------
Additional Information, the term "majority" of the outstanding shares of the
Trust (or of either Fund) means the lesser of (1) 67% or more of the outstanding
shares of the Trust (or the applicable Fund) present at a meeting, if the
holders of more than 50% of the outstanding shares of the Trust (or the
applicable Fund) are present or represented at such meeting or (2) more than 50%
of the outstanding shares of the Trust (or the applicable 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. Each Fund will
only invest in commercial paper rated in one of the two highest categories by
either Moody's Investors Service, Inc. (Prime-1 or Prime-2) or Standard & Poor's
Ratings Group (A-1 or A-2) or, if unrated, which Edgar Lomax determines to be of
equivalent quality in accordance with guidelines established by the Board of
Trustees. 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 each Fund's restriction on illiquid investments (see "Investment
Limitations") unless, in the judgment of the Adviser, pursuant to guidelines
established by the Board of Trustees, such note is considered to be liquid.
<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; and the financial strength of the parent company and the relationships
which exist with the issuer. These factors are all considered in determining
whether the commercial paper is rated Prime-1 or Prime-2. 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
or A-2.
Bank Debt Instruments. Bank debt instruments in which the Funds may
---------------------
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or 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. Time deposits
are non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Each Fund will not
<PAGE>
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.
U.S. Government Obligations. "U.S. Government obligations" include
---------------------------
securities which are issued or guaranteed by the United States Treasury, by
various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes and Treasury bonds.
Agencies and instrumentalities established by the United States Government
include the Federal Home Loan Banks, the Federal Land Bank, the Government
National Mortgage Association, the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association,
the Small Business Administration, the Bank for Cooperatives, the Federal
Intermediate Credit Bank, the Federal Financing Bank, the Federal Farm Credit
Banks, the Federal Agricultural Mortgage Corporation, the Financing Corporation
of America and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the United States Government while
others are supported only by the credit of the agency or instrumentality, which
may include the right of the issuer to borrow from the United States Treasury.
U.S. Government obligations are subject to price fluctuations based upon changes
in the level of interest rates, which will generally result in all those
securities changing in price in the same way, i.e. all those securities
experiencing appreciation when interest rates decline and depreciation when
interest rates rise.
Repurchase Agreements. Each Fund may enter into repurchase
agreements only with its Custodian, with banks having assets in excess of $10
billion and broker-dealers who are recognized as primary dealers in U.S.
Government obligations by the Federal Reserve Bank of New
<PAGE>
York. A 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
will 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 will never be more
than one year after the Fund's acquisition of the securities and normally will
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 a 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 a 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 a Fund to the seller subject to the repurchase
agreement and is therefore subject to that Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by a Fund subject to a repurchase agreement as being owned
by that 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, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the security. If a court characterized the transaction as a loan and a
Fund has not perfected a security interest in the security, that 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, a 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 a 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,
<PAGE>
there is also the risk that the seller may fail to repurchase the security, in
which case a Fund may incur a loss if the proceeds to that 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 involved 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 a Fund will be unsuccessful in
seeking to enforce the seller's contractual obligation to deliver additional
securities.
Loans of Portfolio Securities. Each Fund may lend its portfolio
-----------------------------
securities subject to the restrictions stated in its Prospectus. 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 a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Funds receive amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Funds 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 Trust or an affiliated person of the
Adviser. The terms of the Funds' loans must meet applicable tests under the
Internal Revenue Code and permit the Funds to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
Foreign Securities. Subject to each Fund's investment policies and
------------------
quality and maturity standards, the Funds may invest in the securities (payable
in U.S. dollars) of foreign issuers. Investments in foreign securities may
include investments in sponsored American Depository Receipts ("ADRs"), which
are receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs, in registered form, are
designed for use in U.S. securities markets.
Investment in foreign securities, including ADRs, 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
<PAGE>
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 than in
this U.S. 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.
Convertible Securities. The Funds may invest in covertible securities:
----------------------
i.e., preferred stock or preferred bonds which may be exchanged for, converted
- ----
into, or exercised to acquire a predetermined number of shares of an issuer's
common stock at the option of the holder during a specified period of time.
Convertible securities are senior to common stock in a corporation's capital
structure, but are usually subordinated to similar nonconvertible securities.
While providing a fixed income stream (generally higher in yield than the income
that may be derived from a common stock but lower than that afforded by a
similar nonconvertible security), a convertible security also affords an
investor the opportunity, through its coversion feature, to participate in the
capital appreciation attendant upon a market price advance in the covertible
security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
----
its "conversion value" (i.e., its value upon conversion into its underlying
----
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
tends to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying stock declines. While
no securities investment is without some risk, investments in convertible
securities generally entail less risk than investments in the common stock of
the same issuer.
<PAGE>
Investment in Lower-Rated Debt Securities. The Funds may invest in debt
-----------------------------------------
securities rated below investment grade by a nationally-recognized rating agency
(e.g., rated below Baa by Moody's Investors Services, Inc. ("Moody's") or BBB by
----
Standard & Poor's Ratings Group ("S&P") or in unrated debt securities which, in
the judgment of Edgar Lomax, possess similar credit characteristics as debt
securities rated below investment grade (commonly known as "junk bonds").
Investment in junk bonds involves substantial risk. Securities rated Ba or
lower by Moody's or BB or lower by S&P are considered by those rating agencies
to be predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the security, and generally
involve greater volatility of price than securities in higher rating categories.
More specifically, junk bonds may be issued by less creditworthy companies or by
larger, highly leveraged companies and are frequently issued in corporate
restructurings such as mergers and leveraged buyouts. Such securities are
particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. Junk bonds frequently are junior obligations of
their issuers, so that in the event of the issuer's bankruptcy, claims of the
holders of junk bonds will be satisfied only after satisfaction of the claims of
senior security holders. While the junk bonds in which the Funds may invest do
not include securities which, at the time of investment, are in default or the
issuers of which are in bankruptcy, there can be no assurance that such events
will not occur after the Funds purchase a particular security, in which case the
Funds may experience losses and incur costs.
Junk bonds tend to be more volatile than higher rated fixed income
securities, so that adverse economic events may have a greater impact on the
prices of junk bonds than on higher rated fixed income securities. Like higher
rated fixed income securities, junk bonds are generally purchased and sold
through dealers who make a market in such securities for their own accounts.
However, there are fewer dealers in the junk bond market, which may be less
liquid than the market for higher rated fixed income securities even under
normal economic conditions. In addition, there may be significant disparities
in the prices quoted for junk bonds by various dealers. Adverse economic
conditions or investor perceptions may impair the liquidity of this market and
may cause prices the Funds receive for its junk bond holdings to be reduced, or
the Funds may experience difficulty in liquidating a portion of its portfolio.
Under such conditions, judgment may play a greater role in valuing certain of
the portfolio securities held by a Fund than in the case of securities trading
in a more liquid market.
<PAGE>
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
-------------------------------------------------------
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; the
bonds' future cannot be considered to be well assured. Often the protection of
interest and principal payments may be very moderate and thus not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments of or
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds rated Caa are of poor standing. Such issues may in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations which are speculative to a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
<PAGE>
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C and D - Bonds rated in each of these categories are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms or the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. Bonds are rated D when the issue is in
payment default, or the obligor has filed for bankruptcy.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Fund may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba - An issue rated ba is considered to have speculative elements and its
future cannot be considered well assured. Earnings and asset protection may be
very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b - An issue rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
caa - An issue rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
ca - An issue rated ca is speculative to a high degree and is likely to
be in arrears on dividends with little likelihood of eventual payments.
c - An issue rated c is in the lowest rated class of preferred stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category. The modifier 2 indicates a mid-range
ranking. the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
<PAGE>
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B and CCC - An issue rated in any of these categories is regarded, on
balance, as predominately speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation,
and CCC the highest degree of sepeculation. While such issues will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C - An issue rated C is a non-paying issue of preferred stock.
D - An issue rated D is a non-paying issue with the issuer in default on
debt instruments.
NR - An issue designated NR indicates that no rating has been requested,
that there is insufficient information on which to base a rating, or that S&P
does not rate a particular type of obligation as a matter of policy.
To provide more detailed indications of preferred stock quality, the
ratings from AA to CCC may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating catagories.
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in the Funds. These limitations may not be
changed without the affirmative vote of a majority of the outstanding shares of
that Fund.
The limitations applicable to each Fund are:
1. Borrowing Money. The Fund will not borrow money, except from a bank,
---------------
provided that immediately after such borrowing there is asset coverage of 300%
for all borrowings of the Fund.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
--------
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. Margin Purchases. The Fund will not purchase any securities on
----------------
"margin" (except such short-term credits as are necessary for the clearance of
transactions).
4. Short Sales. The Fund will not make short sales of securities, or
-----------
maintain a short position, other than short sales "against the box." In
addition, the Fund will not write put or call options.
5. Commodities. The Fund will not purchase or sell commodities or
-----------
commodity contracts, including futures.
<PAGE>
6. Mineral Leases. The Fund will not purchase oil, gas or other mineral
--------------
leases, rights or royalty contracts.
7. Underwriting. The Fund will not act as underwriter of securities
------------
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities, the Fund may be
deemed an underwriter under certain federal securities laws.
8. Illiquid Investments. The Fund will not purchase securities for which
--------------------
no readily available market exists or engage in a repurchase agreement maturing
in more than 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.
9. Real Estate. The Fund will not purchase, hold or deal in real estate
-----------
or real estate mortgage loans, including real estate limited partnership
interests, except that the Fund may purchase (a) securities of companies (other
than limited partnerships) which deal in real estate or (b) securities which are
secured by interests in real estate or by interests in mortgage loans including
securities secured by mortgage-backed securities.
10. Loans. The Fund will not make loans to other persons, except (a) by
-----
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
marketable bonds, debentures, commercial paper or corporate notes, and similar
marketable evidences of indebtedness which are part of an issue for the public.
11. Investing for Control. The Fund will not invest in companies for the
---------------------
purpose of exercising control or management.
12. Other Investment Companies. The Fund will not invest more than 10% of
--------------------------
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company. The Fund will not hold more than 3% of the outstanding
voting stock of any single investment company.
13. Securities Owned by Affiliates. The Fund will not purchase or retain
------------------------------
the securities of any issuers if those officers and Trustees of the Trust or
officers, directors, or principals of Investor Resources Group, Inc. (the
"Manager") or its Adviser, owning individually more than one-half of 1% of the
securities of such issuer, own in the aggregate more than 5% of the securities
of such issuer.
14. Industry Concentration. The Fund will not invest more than 25% of its
----------------------
total assets in any particular industry.
<PAGE>
15. Senior Securities. The Fund will not issue or sell any senior
-----------------
security as defined by the Investment Company Act of 1940 except in so far as
any borrowing that the Fund may engage in may be deemed to be an issuance of a
senior security.
With respect to the percentages adopted by the Trust as maximum limitations
on a 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 Trust does not intend to pledge, mortgage or hypothecate the assets of
the Funds. The Trust does not intend to make short sales of securities "against
the box" as described above in investment limitation 4. The Trust does not
intend to purchase securities which are secured by interests in real estate or
by interests in mortgage loans, including securities serviced by mortgage-backed
securities, as described above in investment limitation 9. The statements of
intention in this paragraph reflect nonfundamental policies which may be changed
by the Board of Trustees without shareholder approval.
TRUSTEES AND OFFICERS
- ---------------------
The trustees and officers of the Trust, their ages, and their principal
occupations during the past five years are set forth below. Each Trustee who is
an "interested person" of the Trust, as defined by the Investment Company Act of
1940, is indicated by a single asterisk.
Trustees of the Trust
EUGENE A. PROFIT* (31) -- President and Chief Executive Officer, Investor
Resources Group, Inc. (February, 1996 to Present). Investment Executive, Legg
Mason Wood Walker (1994-1996). Marketing Director, Crossroads Group,
Parsippany, New Jersey (1993-1994). Owner, Cravings Bakery (1991-1993).
Player, National Football League (1986-1991). His address is 2 Wisconsin
Circle, Suite 700, Chevy Chase, Maryland 20815.
<PAGE>
JOSEPH A. QUASH, M.D.* (56) -- Cardiologist, Capital Cardiology Group,
Washington, D.C. (1976 to Present). His address is 8005 Split Oak Drive,
Bethesda, Maryland 20815.
RAYMOND S. McGAUGH* (42) -- Vice President of Finance and General Counsel, The
Edgar Lomax Company (1995 to Present). Principal, Albert, Bates, Whitehead &
McGaugh, P.C., Chicago, Illinois (1992-1995). Associate, Bell, Boyd & Lloyd,
Chicago, Illinois (1990-1992). His address is 6564 Loisdale Court, Suite 310,
Springfield, Virginia 22150.
ROBERT M. MILANICZ (47) -- Comptroller, American Psychiatric Association,
Washington, D.C. (1978 to Present). His address is 1400 K Street, N.W.,
Washington, D.C. 20005.
RONALD R. DAVENPORT, Jr. (33) -- General Counsel, Sheridan Broadcasting Corp.
(1993 to Present). Manager of Affiliate Relations, American Urban Radio
Networks (1993 to Present). Attorney, Board of Governors of the Federal Reserve
System (1988-1993). His address is 301 E.94th Street, Apt. 5D, New York, NY
10128.
LARRY E. JENNINGS, Jr. (33) -- Managing Director and Chief Executive Officer,
Carnegie Morgan Energy Co., Baltimore, Maryland (November 1994 to Present).
Managing Director, Legg Mason Wood Walker (May 1987 to November 1994).
Officers of the Trust
EUGENE A. PROFIT (31) -- President, Chief Executive Officer and Secretary of the
Trust.
STEPHEN G. MEYER** (31) -- Treasurer of the Trust. Controller, Funds
Accounting, SEI Corporation, Wayne, Pennsylvania (1992 to Present). Senior
Associate, Coopers & Lybrand (1990-1992).
BARBARA A. NUGENT** (40) -- Vice President and Assistant Secretary of the Trust.
Vice President, Legal, SEI Corporation, Wayne, Pennsylvania (1996 to Present).
Associate, Drinker, Biddle & Reath (1994-1996). Assistant Vice
President/Administration, Delaware Service Company (prior to 1994).
TODD CIPPERMAN** (30) -- Vice President and Assistant Secretary of the Trust.
Vice President and Assistant Secretary, SEI Corporation (November 1995 to
Present). Associate, Dewey
<PAGE>
Ballantine (1994 to May 1995). Associate, Winston & Strawn (prior to 1994).
JOSEPH LYDON** (37) -- Vice President and Assistant Secretary of the Trust.
Director of Business Administration, SEI Fund Resources, a division of SEI
Corporation (November 1995 to Present). Vice President, Fund Group, Vice
President of the Adviser, Dreman Value Management, L.P., and President of Dreman
Financial Services, Inc. (1989 to April 1995).
SANDRA K. ORLOW** (43) -- Vice President and Assistant Secretary of the Trust.
Vice President and Assistant Secretary, SEI Fund Resources and SEI Financial
Services, Inc. (1983 to Present).
KEVIN P. ROBINS** (35) -- Vice President and Assistant Secretary of the Trust.
Senior Vice President and General Counsel, SEI Corporation and SEI Financial
Services, Inc. (1994 to Present). Vice President and Assistant Secretary, SEI
Fund Resources and SEI Financial Services, Inc. (1992 to 1994). Associate,
Morgan, Lewis & Bockius LLP (before 1992).
KATHRYN L. STANTON** (38) -- Vice President and Assistant Secretary of the
Trust. Vice President and Assistant Secretary, SEI Fund Resources and SEI
Financial Services, Inc. (1994 to Present). Associate, Morgan, Lewis & Bockius
LLP (before 1994).
MARC CAHN** (39) -- Vice President and Assistant Secretary of the Trust.
Attorney, SEI Corporation (1996 to Present). Associate General Counsel,
Barclays Bank PLC (1994 to 1996). ERISA Counsel, First Fidelity Bancorporation
(prior to 1994).
** The address of each person designated by a double asterisk is 680 E.
Swedesford Road, Wayne, Pennsylvania 19087-1658.
The following table sets forth the aggregate compensation to be paid by the
Trust for the fiscal year ending September 30, 1997, to the Trustees who are not
affiliated persons of the Trust or of the Manager or Adviser:
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Total
Compensation Accrued as Estimated Annual Compensation
Name of from Part of Fund Benefits upon from
Trustee Registrant* Expenses Retirement Registrant
- ------- ------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Robert Milanicz $4,000 None N/A $4,000
R. Davenport $4,000 None N/A $4,000
L. Jennings $4,000 None N/A $4,000
</TABLE>
* Each Trustee that is not affiliated with the Trust or the Manager or
Adviser receives a fee equal to $1,000 for each regularly scheduled and special
meeting of the Trust attended. Such Trustees are also reimbursed for all of out-
of-pocket expenses incurred in attending such meetings.
THE INVESTMENT MANAGER
- ----------------------
Investor Resources Group, Inc. (the "Manager") performs management,
statistical, portfolio adviser selection and other services for the Trust
pursuant to an Investment Management Agreement. The Manager was formed in
February, 1996 as a Delaware corporation for the purpose of providing investment
advice and distribution services to the Trust and to other registered investment
companies.
Under the terms of the Investment Management Agreement,
the Manager manages the Funds' investments. The Profit Lomax Value Fund pays
the Manager a fee computed and accrued daily and paid monthly at an annual rate
of 1.25% of its average daily net assets. The Profit Lomax Institutional Equity
Fund pays the
<PAGE>
Manager a fee computed and accrued daily and paid monthly at an annual rate of
1.25% of its average daily net assets.
The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds are obligated
to indemnify the Trust's officers and Trustees with respect to such
litigation, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties. The Manager bears promotional expenses in
connection with the distribution of the Funds' shares to the extent that such
expenses are not assumed by the Funds under their plan of distribution (see
below). The compensation and expenses of any officer, Trustee or employee of
the Trust who is an officer, director or employee of the Manager are paid by the
Manager.
By its terms, the Trust's Investment Management Agreement will remain in
force until October 25, 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 a 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
Trust, by a vote cast in person at a meeting called for the purpose of voting
for such approval. The Trust's management agreement may be terminated at any
time with respect to either Fund, 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 Manager. The management
agreement automatically terminates in the event of its assignment, as defined by
the Investment Company Act of 1940 and the rules thereunder.
The Manager will reimburse a Fund, up to the amount of its fee for such
Fund for any fiscal year, to the extent that the expenses of such 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 such
other expenses as may be permitted by state securities administrators are
excluded from such limitations. If the expenses of a Fund approach the
applicable limitation in any state, the Trust will consider the various actions
that are available to it, including suspension of sales to residents of that
state.
<PAGE>
The name "Profit" is a property right of the Manager. The Manager may use
the name "Profit" in other connections and for other purposes, including in the
name of other investment companies. The Trust has agreed to discontinue any use
of the name "Profit" if the Manager ceases to be employed as the Fund's
investment manager.
THE INVESTMENT ADVISER
- ----------------------
The Edgar Lomax Company (the "Adviser") has been retained by the Manager to
serve as the subadviser to the Funds pursuant to an Investment Advisory
Agreement. The Adviser, which was established in 1986, provides investment
management services to institutions, and currently has approximately $350
million under mangement.
Under the terms of the Investment Advisory Agreement, the Adviser selects
the portfolio securities for investment by each Fund, purchases and sells
securities of each Fund and places orders for the execution of such portfolio
transactions, subject to the general supervision of the Board of Trustees and
the Manager. The Adviser receives a fee computed and accrued daily and paid
monthly at an annual rate of .50% of the value of the daily net assets of the
Profit Lomax Value Fund and .37% of the Profit Lomax Institutional Equity Fund.
The services provided by the Adviser are paid for wholly by the Manager. The
compensation of any officer, director or employee of the Adviser who is
rendering services to the Funds is paid by the Adviser.
The employment of the Adviser will remain in force until October 25, 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 a 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 Trust, by a
vote cast in person at a meeting called for the purpose of voting such approval.
The employment of the Adviser may be terminated at any time with respect to
either Fund, 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, by the Manager, or by the Adviser. The agreement with the
Adviser automatically terminates in the event of its assignment, as defined by
the Investment Company Act of 1940 and the rules thereunder.
The name "Lomax" is a property right of the Adviser. The Adviser may use
the name "Lomax" in other connections and for other purposes, including in the
name of other investment companies. The Trust has agreed to discontinue any use
of the name "Lomax" if the Adviser ceases to be employed as the Fund's
investment adviser.
DISTRIBUTION PLAN
- -----------------
The Profit Lomax Value Fund (the "Value Fund") has adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940 which permits the Value Fund to pay for expenses incurred in the
distribution and promotion of the Value Fund's shares.
<PAGE>
Under the terms of the Plan, the Value Fund may pay directly for various
expenses incurred in connection with the distribution of shares of the Fund,
including direct mail promotions and television, radio, newspaper, magazine and
other mass media advertising, or in connection with shareholder support services
which the Value Fund may reasonably request and which are not otherwise provided
by the Fund's transfer agent. Alternatively, the Value Fund may, under the terms
of the Plan, reimburse the Manager for the foregoing expenses incurred on behalf
of the Fund. Unreimbursed expenses will not be carried over from year to year,
nor will the Fund have any obligation to pay for unreimbursed expenses upon
termination of the Plan.
The continuance of the Plan must be specifically approved at least annually
by a vote of the Trust's Board of Trustees and by a vote of the Trustees who are
not interested persons of the Trust and have no direct or indirect financial
interest in the Plan (the "Independent Trustees") at a meeting called for the
purpose of voting on such continuance. The Plan may be terminated at any time
by a vote of a majority of the Independent Trustees or by a vote of the holders
of a majority of the outstanding shares of the Value Fund. In the event the Plan
is terminated in accordance with its terms, the Value Fund will not be required
to make any payments for expenses incurred by the Adviser after the termination
date. The Plan may not be amended to increase materially the amount to be spent
for distribution without shareholder approval. All material amendments to the
Plan must be approved by a vote of the Trust's Board of Trustees and by a vote
of the Independent Trustees.
In approving the Plan, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plan will benefit the Value Fund and its
shareholders. The Board of Trustees believes that expenditure of the Value
Fund's assets for distribution expenses under the Plan should assist in the
growth of the Value Fund which will benefit the Value Fund and its shareholders
through increased economies of scale, greater investment flexibility, greater
portfolio diversification and less chance of disruption of planned investment
strategies. The Plan will be renewed only if the Trustees make a similar
determination for each subsequent year of
<PAGE>
the Plan. There can be no assurance that the benefits anticipated from the
expenditure of the Value Fund's assets for distribution will be realized. While
the Plan is in effect, all amounts spent by the Value Fund pursuant to the Plan
and the purposes for which such expenditures were made must be reported
quarterly to the Board of Trustees for its review. In addition, the selection
and nomination of those Trustees who are not "interested persons" of the Trust
are committed to the discretion of the Independent Trustees during such
period.
As a principal of the Manager, Eugene A. Profit may be deemed to have a
financial interest in the operation of the Plan.
ADMINISTRATOR
- -------------
SEI Fund Resources ("SEI" a " Administrator"), 680 E. Swedesford Road,
Wayne, Pennsylvania 19087, serves as Administrator to the Trust pursuant to an
Administration Agreement. As Administrator, SEI supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services. SEI supervises the preparation of tax
returns, reports to shareholders of the Funds, reports to and filings with the
Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. SEI also provides accounting
services for the Trust.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, SHAREHOLDER SERVICING AGENT
- ----------------------------------------------------------------------
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110 serves as Transfer Agent to the Trust pursuant
to a Transfer Agency and Service Agreement. Boston Financial Data Services
("BFDS"), Inc., Two Heritage Drive, Quincy, Massachusetts 02171 serves as
dividend disbursing agent and shareholder servicing agent for the Trust. BFDS is
a subsidiary of State Street Bank and Trust Company. In their respective roles,
State Street and BFDS maintain the records of each shareholder's account, answer
shareholders' inquiries concerning their accounts, process purchases and
redemptions of the Funds' shares, act as dividend and distribution disbursing
agent and perform other shareholder service functions.
CUSTODIAN
- ---------
CoreStates Bank, N.A., 530 Walnut Street, Philadelphia, Pennsylvania 19101-
7618, serves as custodian to the Trust pursuant to a Custodian Agreement. As
custodian, CoreStates Bank acts as each Fund's depository, safekeeps its
portfolio securities, collects all income and other payments with
<PAGE>
respect thereto, disburses funds as instructed and maintains records in
connection with its duties.
AUDITORS
- --------
Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103-2962 serves as independent certified public accountants to
the Trust.
LEGAL COUNSEL
- -------------
Paul, Hastings, Janofsky & Walker LLP, 1299 Pennsylvania Avenue, N.W.,
Tenth Floor, Washington, D.C. 20004 serves as counsel to the Trust. Goodwin,
Procter & Hoar LLP, 53 State Street, 24th Floor, Boston, Massachusetts 02109
serves as special Massachusetts counsel to the Trust.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Funds and the placing of the
Funds' 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 Trust. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Funds, 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.
The Adviser is specifically authorized to select brokers who also provide
brokerage and research services to the Funds 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 Funds 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 Funds and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information
<PAGE>
is useful to the Funds and the Adviser, it is not possible to place a dollar
value on it. Research services furnished by brokers through whom the Funds
effect 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 Funds.
The Adviser may aggregate purchase and sale orders for the Funds and its
other clients if it believes such aggregation is consistent with its duty to
seek best execution for the Funds and its other clients. The Adviser will not
favor any advisory account over any other account, and each account that
participates in an aggregated order will participate at the average share price
for all transactions of the Adviser in that security on a given business day,
with all transaction costs shared on a pro rata basis.
Code of Ethics. The Trust, the Manager 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 Manager and the Adviser and, as described below, imposes additional, more
onerous, restrictions on investment personnel of each. The Code requires that
all employees of both the Manager and the Adviser preclear any personal
securities transactions (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 either
Fund. The substantive restrictions applicable to investment personnel of the
Manager and 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 Manager and Adviser within
periods of trading by either Fund in the same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
A 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 a Fund's portfolio securities
were replaced once within a one year period. The Adviser anticipates that the
portfolio turnover rate for each Fund normally will not exceed 50%.
<PAGE>
Generally, each 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 each Fund 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) on each day the Trust is open for business.
The Trust 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 Trust may also be
open for business on other days in which there is sufficient trading in either
Fund's portfolio securities that its net asset value might be materially
affected.
TAXES
- -----
Each Fund 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 a 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
<PAGE>
securities or securities of other regulated investment companies).
A 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.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a 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 Funds intend to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(currently 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 or
demonstrates an exemption from withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a 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, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require each 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, each 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
<PAGE>
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)
The calculation of average annual total return assumes the reinvestment of
all dividends and distributions. If a 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. Each 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 a 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 a Fund might satisfy
their investment objective, advertisements regarding each 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 Funds 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 Funds may provide comparative
performance information appearing in the Lipper growth funds category. In
addition, the Funds may use comparative performance information of relevant
indices, including the S&P 500 Index and the Dow Jones Industrial Average. 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
<PAGE>
movement for 30 widely held stocks listed on the New York Stock Exchange.
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.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------
The Statement of Assets and Liabilities for the Profit Lomax Value
Fund, as of October 25, 1996, which has been audited by Coopers & Lybrand, LLP,
is attached to this Statement of Additional Information.
REGISTRATION STATEMENT
- ----------------------
The Trust's Prospectuses and this Statement of Additional Information
do not contain all of the information set forth in the Trust's Registration
Statement and related forms as filed with the Securities and Exchange Commission
certain portions of which are omitted in accordance with rules and regulation of
the Commission. The registration statement and related forms may be inspected at
the Public Reference Room of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington D.C. 20549, and copies thereof may be obtained from the Commission at
prescribed rates.
Statements contained in the Trust's Prospectuses or this Statement of
Additional Information as to the contents of any contract or other document
referred to herein or in the Prospectuses are not necessarily complete and in
such instance, reference is made to the copy of such contract or other document
filed as exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
<PAGE>
Profit Funds Investment Trust
Profit Lomax Value Fund
Statement of Assets and Liabilities
October 25, 1996
Report of Independent Accountants
To the Shareholders and Board of Trustees of the Profit Funds Investment Trust:
We have audited the Statement of Assets and Liabilities of the Profit Lomax
Value Fund as of October 25, 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 financial statement is free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting amounts and disclosures in the financial statement. 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 financial statement referred to above represents fairly, in
all material respects, the financial position of the Profit Lomax Value Fund as
of October 25, 1996 in conformity with generally accepted accounting
principles.
Coopers & Lybrand, L.L.P.
2400 Blaven Penn Center
Philadelphia, Pennsylvania
October 29,1996
<PAGE>
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Profit Lomax Value Fund as
of October 25, 1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 29, 1996
Profit Funds Investment Trust
Profit Lomax Value Fund
Statement of Assets and Liabilities
October 25, 1996
Assets:
Cash $100,000
Deferred Organizational Costs 65,000
--------
Total Assets 165,000
Liabilities:
Organizational Costs Payable 65,000
--------
Net Assets:
Portfolio shares of the Fund (unlimited
authorization - no par value) based on
10,000 outstanding shares of beneficial
interest $100,000
Net Asset Value, Offering and Redemption Price
Per Share $ 10.00
The accompanying notes are an integral part of the financial statement.
Notes to the Financial Statements
October 25, 1996
1. Organization:
The Profit Funds Investment Trust (the "Trust") was organized as a Massachusetts
business trust under a Declaration of Trust dated June 14, 1996. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end
<PAGE>
management investment Trust with two funds: the Profit Lomax Value Fund, and the
Profit Lomax Institutional Equity Fund. Currently the Trust is only offering
shares of the Profit Lomax Value Fund (the "Fund") to investors, but may in the
future offer shares of the Profit Lomax Institutional Equity Fund and other
funds. The statement presented in this report pertain exclusively to the Profit
Lomax Value Fund.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Trust. These policies are in conformity with generally accepted accounting
principles. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statement, and reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from these estimates.
Security Valuation - Equity securities that are traded on a national securities
exchange (or reported on the NASDAQ national market system) will be stated at
the last quoted sales price--if readily available for such equity
securities--on each business day. If there is no such reported sale, these
securities, and unlisted securities for which market quotations are readily
available, will be valued at the most recently quoted bid price.
Debt obligations exceeding 60 days to maturity for which market quotations are
readily available will be valued at the most recently quoted bid price. Debt
obligations with 60 days or less until maturity may be valued either at the most
recently quoted bid price or at their amortized cost.
Federal Income Taxes - It is the Fund's intention to qualify as a regulated
investment Trust by complying with the appropriate provisions of the Internal
Revenue Code of 1986, as amended. Accordingly, no provisions for Federal income
or excise taxes will be required.
Security Transactions and Investment Income - Security transactions will be
accounted for on the trade date of the security purchase or sale. Dividend
income will be recognized on ex-dividend date, and interest income will be
recognized on an accrual basis and includes, where applicable, the pro rata
amortization of premium or accretion of discount. The cost used in determining
net realized capital gains and losses on the sale of securities will be those of
the specific securities sold, adjusted for the accretion and amortization of
purchase discounts and premiums during the applicable holding period. Purchase
discounts and premiums on securities held by the Fund will be accreted and
amortized to maturity using the scientific
<PAGE>
interest method, which approximates the effective interest method.
Net Asset Value Per Share - The net asset value per share of the Fund will be
calculated each business day. In general, it will be computed by dividing the
assets of the Fund, less its liabilities, by the number of shares outstanding.
The maximum offering price of the Fund will be equal to its net asset value.
Other- Distributions from net investment income and net realized capital gains
for the Fund will be declared and paid to shareholders at least once per year.
3. Administration and Transfer Agent Agreements
The Trust and SEI Fund Resources (the "Administrator") are parties to an
administration agreement (the "Administration Agreement") under which the
Administrator will provide administration services in exchange for an annual fee
equal to the greater of (1) 0.15% of the average daily net assets up to $50
million, 0.125% of the average daily net assets on the next $50 million, and
0.10% of the average daily net assets for over $100 million or (2) $65,000.
The Trust and Boston Financial Data Services ("BFDS"), a subsidiary of State
Street Bank and Trust Company, are parties to a Transfer Agency servicing
agreement under which BFDS will provide transfer agency services to the Trust.
4. Investment Advisory Agreement
The Trust and Investor Resources Group, Inc. (the "Adviser") are parties to an
investment advisory agreement (the "Advisory Agreement") under which the Adviser
is entitled to receive a fee from the Fund, computed daily and paid monthly, at
an annual rate of 1.25% of the average daily net assets of the Fund. The Adviser
and the Edgar Lomax Company have entered into an investment sub-advisory
agreement (the "Sub-Advisory Agreement") under which the Sub-Adviser is entitled
to a fee from the Adviser, computed daily and paid monthly, at an annual rate
of 0.50% of the average daily net assets of the Fund. The Adviser has
voluntarily agreed to waive a portion of its fee and contribute amounts in
excess of its fee to enable the Fund to maintain an expense ratio of 1.95%.
These waivers and contributions are voluntary and may be terminated at any time.
5. Organizational Costs and Transactions with Affiliates
The organizational costs of the Fund have, or will be, been paid by the
Administrator. The Administrator will be reimbursed by the Fund for these costs
after the Fund's commencement of operations. The Fund will capitalize these
organizational costs and amortize
<PAGE>
them, upon commencement of operations, on a straight line basis over a maximum
of sixty months. In the event any of the initial shares of the Fund are redeemed
by any holder thereof during the period that the Fund is amortizing its
organizational costs, the redemption proceeds payable to the holder thereof will
be reduced by the unamortized organizational costs in the same ratio as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of redemption.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust for serving as officers of the Trust.
<PAGE>
PROFIT FUNDS 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 of the Profit Lomax Value Fund
as of October 25 ___________, 1996
Notes to the Financial Statement
Report of Independent Accountants dated October 29, 1996
(b) Exhibits
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) (i) Form of Management Agreement with Investor Resources Group,
Inc.*
(ii) Form of Investment Advisory Agreement with The Edgar Lomax
Company*
(6) Inapplicable
(7) Inapplicable
(8) Form of Custody Agreement with CoreStates Bank, N.A.
(9) (i) Form of Administration Agreement with SEI Fund Resources
(ii) Form of Transfer Agency and Service Agreement with State
Street Bank and Trust Company
(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) Form of Plan of Distribution Pursuant to Rule 12b-1*
(16) Inapplicable
(18) Inapplicable
(27) Financial Data Schedule
______________________________________
* Filed previously and incorporated herein by reference.
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 October 25th, 1996, Investor Resources Group, Inc. was the sole
shareholder 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
<PAGE>
Trust has any interest as a shareholder, creditor or otherwise
(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 (disabling conduct).
Anything herein contained to the contrary notwithstanding, no Covered
Person shall be indemnified for any liability to the Trust or its
shareholders to which such Covered Person would otherwise be subject
unless (1) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the Covered Person to be
indemnified was not liable by reason of disabling conduct or, (2) in the
absence of such a decision, a reasonable determination is made, based
upon a review of the facts, that the Covered Person was not liable by
reason of disabling conduct, by (a) the vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Company as defined
in the Investment Company Act of 1940 nor parties to the proceeding
("disinterested, non-party Trustees"), or (b) an independent legal
counsel in a written opinion.
Section 6.5 Advances of Expenses. The Trust shall advance attorneys'
-----------
fees or other expenses incurred by a Covered Person in defending a
proceeding, upon the undertaking by or on behalf of the Covered Person to
repay the advance unless it is ultimately determined that such Covered
Person is entitled to indemnification, so long as one of the following
conditions is met: (i) the Covered Person shall provide security for his
undertaking, (ii) the Trust
<PAGE>
shall be insured against losses arising by reason of any lawful advances,
or (iii) a majority of a quorum of the disinterested non-party Trustees
of the Trust, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as opposed to
full trial-type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to indemnification.
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; an "interested Covered Person" is
one against whom the action, suit or other proceeding in question or
another action, suit or other proceeding on the same or similar grounds
is then or has been pending or threatened, and a "disinterested" person
is a person against whom none of such actions, suits or other proceedings
or another action, suit or other proceeding on the same or similar
grounds is then or has been pending or threatened. 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."
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.
<PAGE>
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, Investor
Resources Group, Inc. (the "Manager") and The Edgar Lomax Company (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 Management Agreement with the Manager provides that, in the absence
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
obligations or duties under the Management Agreement on the part of the Manager,
the Manager shall not be subject to liability to the Fund or to any shareholder
of the Fund for any act or omission in the course of, or connected with,
rendering services under the Management Agreement or for any losses that may be
sustained in the purchase, holding or sale of any security.
The Investment Advisory Agreement with the Adviser provides that the
Adviser shall not be liable for any action taken, omitted or suffered to be
taken by it in its reasonable judgment, in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by the
Investment Advisory Agreement, or in accordance with (or in the absence of)
specific directions or instructions from the Trust, provided, however, that such
acts or omissions shall not have resulted from the Adviser's willful
misfeasance, bad faith or gross negligence, a violation of the standard of care
established by and applicable to the Adviser in its actions under the Investment
Advisory Agreement or breach of its duty or of its obligations under the
Investment Advisory Agreement.
Item 28. Business and Other Connections of the Investment Adviser
- ------- ------------------------------------------------ -------
(a) The Manager, a Delaware corporation organized in February, 1996,
is an investment advisory firm providing investment advice to individuals,
employee benefit plans and corporations.
The Adviser, a Delaware corporation organized in 1986, is a registered
investment adviser providing investment advisory services to the Registrant and
various other individual and institutional clients. The Adviser has no other
business of a substantial nature.
(b) The directors and officers of the Manager and any other business,
profession, vocation or employment of a substantial nature engaged in at any
time during the past two years by the Manager or its directors and officers, are
described below:
<PAGE>
(i) Eugene Profit - Chairman of the Board, President and Chief
Executive Officer of the Manager.
President of the Registrant.
(ii) Joseph A. Quash, M.D. - Executive Vice President of Corporate
Strategy of the Manager.
Senior Partner of Capital Cardiology Group.
(iii) Michelle D. Quash - Executive Vice President and Secretary of
the Manager.
Staff Attorney, Federal Reserve Board.
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 by the Adviser or its directors and
officers, are described below:
(i) Randall R. Eley - President and Director of the Adviser.
A General Partner of the Lomax Investment Limited Partnership,
a partnership investing in stock index futures and underlying
common stock.
(ii) Raymond S. McGaugh - Vice President of the Adviser.
Principal of Albert, Bates, Whitehead & McGaugh, a law firm,
until October, 1995.
(iii) Dena L. Hudgins - Vice President of the Adviser.
Business Analyst and Operations Manager with Fidelity
Investments, a brokerage firm, until December, 1995.
(iv) Arnold L. Johnson - Director Emeritus of the Adviser.
(v) Melvin C. Eley, Jr. - Director of the Adviser.
Computer Specialist with the U.S. Government Printing Office.
(vi) Michael A. Kallish - Director of the Adviser.
Home Care Coordinator for Walter Reed Army Medical Center.
(vii) Leonard A. DeCecchis - Director of the Adviser.
Executive Vice President of Prestone Products, a consumer
products company.
(viii) Felicia O. Flowers-Smith - Director of the Adviser.
<PAGE>
Vice President of Everern Securities, an investment banking
firm. Vice President of Kemper Securities, Inc., an investment
banking firm, until 1995.
(ix) William O. Kafes - Director of the Adviser.
(x) Darlyce M. Eley - Secretary 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 2
Wisconsin Circle, Suite 700, Chevy Chase, Maryland 20815 as well as at the
offices of the Registrant's transfer agent located at 225 Franklin Street,
Boston, MA 02110.
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) The Registrant undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(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.
<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 amendment to
its Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of Chevy Chase and State of Maryland, on
the 6th day of November, 1996.
PROFIT FUNDS INVESTMENT TRUST
By:/s/ Eugene A. Profit
---------------------------------
Eugene A. Profit
President & Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Eugene A. Profit President November 6th, 1996
- ---------------------------- and Trustee
Eugene A. Profit
/s/ Stephen G. Meyer Treasurer November 6th, 1996
- ----------------------------
Stephen G. Meyer
/s/ Joseph A. Quash, M.D. Trustee November 6th, 1996
- ----------------------------
Joseph A. Quash, M.D.
/s/ Raymond S. McGaugh Trustee November 6th, 1996
- ----------------------------
Raymond S. McGaugh
/s/ Robert M. Milanicz Trustee November 6th, 1996
- ----------------------------
Robert M. Milanicz
Trustee November th, 1996
- ----------------------------
Ronald R. Davenport, Jr.
Larry E. Jennings, Jr. Trustee November th, 1996
- ----------------------------
</TABLE>
<PAGE>
INDEX TO EXHIBITS
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) (i) Form of Management Agreement*
(ii) Form of Investment Advisory Agreement*
(6) Inapplicable
(7) Inapplicable
(8) Form of Custody Agreement
(9)(i) Form of Administration Agreement
(9)(ii) Form of Transfer Agency and Service 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) Form of Plan of Distribution Pursuant to Rule 12b-1*
(16) Inapplicable
(18) Inapplicable
(27) Financial Data Schedule
____________________________
* Filed previously in initial Registration Statement or by amendment.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 165
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 165
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65
<TOTAL-LIABILITIES> 65
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 10
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 8
CUSTODIAN AGREEMENT
PROFIT FUNDS INVESTMENT TRUST
This agreement dated as of the 1st day of November 1996 by and between The
Profit Funds Investment Trust (the "Trust"), a business trust duly organized
under the laws of the Commonwealth of Massachusetts and CoreStates Bank, N.A.
(the "Bank").
WHEREAS, the Trust desires to appoint the Bank to act as Custodian of its
portfolio securities, cash and other property from time to time deposited with
or collected by the Bank for the Trust;
WHEREAS, the Bank is qualified and authorized to act as Custodian for the
Trust and the separate series thereof (each a "Fund" and collectively, the
"Funds"), and is willing to act in such capacity upon the terms and conditions
herein set forth;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto, intending to be legally bound, do hereby
agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this
- ----------
Agreement, or in any amendment or supplement hereto, shall have meanings herein
specified unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean the Bank in its capacity as Custodian
under this Agreement.
DEPOSITORY: The term Depository means any depository service which acts as a
system for the central handling of securities where all securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred by bookkeeping entry without physical
delivery.
PROPER INSTRUCTIONS: For purposes of this Agreement, the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals of facsimile
transmissions), telephone or telegraphic instructions from a person or persons
authorized from time to time by the Trustees of the Trust to give the particular
class of
- 1 -
<PAGE>
instructions. Telephone or telegraphic instructions shall be confirmed
in writing by such persons as said Trustees shall have from time to time
authorized to give the particular class of instructions in question. The
Custodian may act upon telephone or telegraphic instructions without awaiting
receipt of written confirmation, and shall not be liable for the Trust's failure
to confirm such instructions in writing.
SECURITIES: The term Securities means stocks, bonds, rights, warrants and all
other negotiable or non-negotiable paper issued in certificated or book-entry
form commonly known as "Securities" in banking custom or practice.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Trust in accordance with the registry records
maintained by the Trust or agents on its behalf.
SECTION 2. The Trust hereby appoints the Custodian as Custodian of the Trust's
- ----------
cash. Securities and other property, to be held by the Custodian as provided in
this Agreement. The Custodian hereby accepts such appointment subject to the
terms and conditions hereinafter provided. The Bank shall open a separate
custodial account in the name of the Trust on the books and records of the Bank
to hold the Securities of the Trust deposited with, transferred to or collected
by the Bank for the account of each Fund of the Trust, and a separate cash
account to which the Bank shall credit monies received by the Bank for the
account of or from each Fund of the Trust. Such cash shall be segregated from
the assets of others and shall be and remain the sole property of the Trust.
SECTION 3. The Trust shall from time to time file with the Custodian a
- ----------
certified copy of each resolution of its Board of Trustees authorizing the
person or persons to give Proper Instructions and specifying the class of
instructions that may be given by each person to the Custodian under this
Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper
- 2 -
<PAGE>
Instructions, the certification shall be also signed by a second officer of the
Trust.
SECTION 4. The Trust will cause to be deposited with the Custodian hereunder
- ----------
the applicable net asset value of Shares sold from time to time whether
representing initial issue, other stock or reinvestments of dividends and/or
distributions payable to Shareholders.
SECTION 5. The Bank, acting as agent for the Trust, is authorized, directed and
- ----------
instructed subject to the further provisions of this Agreement.
(a) to hold Securities issued only in bearer from in bearer form;
(b) to register in the name of the nominee of the Bank, the Bank's
Depositories, or sub-custodians, (I) Securities issued only in
registered form, and (ii) Securities issued in both bearer and
registered form, which are freely interchangeable without penalty;
(c) to deposit any securities which are eligible for deposit (I) with any
domestic or foreign Depository on such terms and conditions as such
Depository may require, including provisions for limitation or
exclusion of liability on the part of the Depository; and (ii) with
any sub-custodian which the Bank uses, including any subsidiary or
affiliate of the Bank;
(d) (i) to credit for the account of the Trust all proceeds received
and payable on or in respect of the assets maintained
hereunder,
(ii) to debit the account of the Trust for the cost of acquiring
Securities the Bank has received for the Trust, against
delivery of such Securities to the Bank,
(iii) to present for payment Securities and other obligations
(including coupons) upon maturity, when called for
redemption, and when income payments are due, and
- 3 -
<PAGE>
(iv) to make exchanges of Securities which, in the Bank's
opinion, are purely ministerial as, for example, the
exchange of Securities in temporary form for Securities in
definitive form or the mandatory exchange of certificates;
(e) to forward to the Trust, and/or any other person designated by the
Trust, all proxies and proxy materials received by the Bank in
connection with Securities held in the Trust's account, which have
been registered in the name of the Bank's nominee, or are being held
by any Depository, or sub-custodian, on behalf the Bank;
(f) to sell any fractional interest of any Securities which the Bank has
received resulting from any stock dividend, stock split, distribution,
exchange, conversion or similar activity;
(g) to release the Trust's name, address and aggregate share position to
the issuers of any domestic Securities in the account of the Trust,
provided any such information to any issuer;
(h) to endorse and collect all checks, drafts or other orders for the
payment of money received by the Bank for the account of or from the
Trust;
(i) at the direction of the Trust, to enroll designated Securities
belonging to the Trust and held hereunder in a program for the
automatic reinvestment of all income and capital gains distributions
on those Securities in new shares (an "Automatic Reinvestment
Program"), or instruct any Depository holding such;
(j) Securities to enroll those Securities in an Automatic Reinvestment
Program at the direction of the Trust, to receive, deliver and
transfer Securities and make payments and collections of monies in
connection therewith, enter purchase and sale orders and perform any
other acts incidental or necessary to the performance of the above
acts with brokers, dealers or similar agents selected by the Trust,
including any broker, dealer or similar agent affiliated with the
Bank, for the
- 4 -
<PAGE>
account and risk of the Trust in accordance with accepted industry
practice in the relevant market, provided, however, if it is
determined that any certificated Securities transferred to a
Depository or sub-custodian, the Bank, or the Bank's nominee, the
Bank's sole responsibility for such Securities under this Agreement
shall be to safekeep the Securities in accordance with Section 11
hereof; and
(k) to notify the Trust and/or any other person designated by the Trust
upon receipt of notice by the Bank of any call for redemption, tender
offer, subscription rights, merger, consolidation reorganization or
recapitalization which (I) appears in The Wall Street Journal (New
York edition), The Standard & Poor's Called Bond Record for Preferred
Stocks, Financial Daily Called Bond Service, The Kenny Services, any
official notifications from The Depository Trust Company and such
other publications or services to which the Bank may from time to time
subscribe, (ii) requires the Bank to act in response thereto, and
(iii) pertain to Securities belonging to the Trust and held hereunder
which have been registered in the name of the Bank's nominee or are
being held by a Depository or sub-custodian on behalf of the Bank.
Notwithstanding anything contained herein to the contrary, the Trust
shall have the sole responsibility for monitoring the applicable dates
on which Securities with put option features must be exercised. All
solicitation fees payable to the Bank as agent in connection herewith
will be retained by the Bank unless expressly agreed to contrary in
writing by the Bank.
Notwithstanding anything in this Section to the contrary, the Bank is authorized
to hold Securities for the Trust which have transfer limitations imposed upon
them by the Securities Act of 1993, as amended, or represent shares of mutual
funds (I) in the name of the Trust, (ii) in the name of the Bank's nominee, or
(iii) with any Depository or sub-custodian.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule A
- ----------
hereto attached, or as shall be set
- 5 -
<PAGE>
forth in amendments to such schedule approved by the Trust and to the extent
such compensation relates to services provided hereunder to such Fund. All
expenses and taxes payable with respect to the Securities in the account of the
Trust including, without limitation, commission charges on purchases and sales
and the amount of any loss or liability for stockholders' assessments or
otherwise, claimed or asserted against the bank or against the Bank's nominee by
reason of any registration hereunder shall be charged to the Trust.
SECTION 7. In connection with its functions under this Agreement, the Custodian
- ----------
shall:
(a) render to the Trust a daily report of all monies received or paid on
behalf of the Trust; and
(b) create, maintain and retain all records relating to its activities and
obligations under this Agreement in such manner as will meet the
obligations of the Trust with respect to said Custodian's activities
in accordance with generally accepted accounting principles. All
records maintained by the Custodian in connection with the performance
of its duties under this Agreement will remain the property of the
Trust and in the event of termination of this Agreement win be
relinquished to the Trust.
SECTION 8. Any Securities deposited with any Depository or with any sub-
- ---------
custodian will be represented in accounts in the name of the Bank which include
only property held by the Bank as Custodian for customers in which the Bank acts
in a fiduciary or agency capacity.
Should any Securities which are forwarded to the Bank by the Trust, and which
are subsequently deposited to the Bank's account in any Depository or with any
sub-custodian, or which the Trust may arrange to deposit in the Bank's account
in any Depository or with any sub-custodian, not be deemed acceptable for
deposit by such Depository or sub-custodian, for any reason and as a result
thereof there is a short position in the account of the Bank with the Depository
for such Security, the Trust agrees to furnish the Bank immediately with like
Securities in acceptable form.
- 6 -
<PAGE>
SECTION 9. The Trust represents and warrants that: (I) it has the legal right,
- ----------
power and authority to execute, deliver and perform this Agreement and to carry
out all of the transactions contemplated hereby; (ii) it has obtained all
necessary authorizations; (iii) the execution, delivery and performance of this
Agreement and the carrying out of any of the transactions contemplated hereby
will not be in conflict with, result in a breach of or constitute a default
under any agreement or other instrument to which the Trust is a party or which
is otherwise known to the Trust; (iv) it does not require the consent or
approval of any governmental agency or instrumentality, except any such consents
and approvals which the Trust has obtained; (v) the execution and delivery of
this Agreement by the Trust will not violate any law, regulation, charter, by-
law, order of any court or governmental agency or judgment applicable to the
Trust; and (vi) all persons executing this Agreement on behalf of the
Trust and carrying out the transactions contemplated hereby on behalf of the
Trust are duly authorized to do so.
In the event any of the foregoing representations should become untrue,
incorrect or misleading, the Trust agrees to notify the Bank immediately in
writing thereof.
SECTION 10. The Bank represents and warrants that: (I) it has the legal right,
- -----------
power and authority to execute, deliver and perform this Agreement and to carry
out all of the transactions contemplated hereby; (ii) it has obtained all
necessary authorization; (iii) the execution, delivery and performance of this
Agreement and the carrying out of any of the transactions contemplated hereby
will not be in conflict with, result in a breach of or constitute a default
under any agreement or other instrument to which the Bank is a party or which is
otherwise known to the Bank; (iv) it does not require the consent or approval of
any governmental agency or instrumentality, except any such consents and
approvals which the Bank has obtained; (v) the execution and delivery of this
Agreement by the Bank will not violate any law, regulation, charter, by-law,
order of any court or governmental agency or judgment applicable to the Bank,
and (vi) all persons executing this Agreement on behalf of the Bank and carrying
out the transactions contemplated hereby on behalf of the Bank are duly
authorized to do so. In the event that any of the foregoing representations
should become untrue, incorrect or misleading, the Bank agrees to notify the
Trust immediately in writing thereof.
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<PAGE>
SECTION 11. All cash and Securities held by the Bank hereunder shall be kept
- -----------
with the care exercised as to the Bank's own similar property. The Bank may at
its option insure itself against loss from any cause but shall be under no
obligation to insure for the benefit of the Trust.
SECTION 12. No liability of any kind shall be attached to or incurred by the
- -----------
Custodian by reason of its custody of the Trust's assets held by it from time to
time under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Custodian
Agreement. Without limiting the generality of the foregoing sentence, the
Custodian:
(a) may rely upon the advice of counsel for the Trust; and for any action
taken or suffered in good faith based upon such advice or statements
the Custodian shall not be liable to anyone;
(b) shall not be liable for anything done or suffered to be done in good
faith in accordance with any request or advice of, or based upon
information furnished by, the Trust or its authorized officers or
agents;
(c) is authorized to accept a certificate of the Secretary or Assistant
Secretary of the Trust, or Proper Instructions, to the effect that a
resolution in the form submitted has been duly adopted by its Board of
Trustees or by the Shareholders, as conclusive evidence that such
resolution has been duly adopted and is in full force and effect; and
(d) may rely and shall be protected in acting upon any signature, written
(including telegraph or other mechanical) instructions, request,
letter of transmittal, certificate, opinion of counsel, statement,
instrument, report, notice, consent, order, or other paper or document
reasonably believed by it to be genuine and to have been signed,
forwarded or presented by the purchaser, Trust or other proper party
or parties.
- 8 -
<PAGE>
SECTION 13. The Trust, its successors and assigns do hereby fully indemnify and
- -----------
hold harmless the Custodian its successors and assigns, from any and all loss,
liability, claims, demand, actions, suits and expenses of any nature as the same
may arise from the failure of the Trust to comply with any law, rule regulation
or order of the United States, any state or any other jurisdiction, governmental
authority, body, or board relating to the sale, registration, qualification of
units of beneficial interest in the Trust, or from the failure of the Trust to
perform any duty or obligation under this Agreement.
Upon written request of the Custodian, the Trust shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 13 shall indefinitely survive termination of
this Agreement.
SECTION 14. This Agreement may be amended from time to time without notice to
- ------------
or approval of the Shareholders by a supplemental agreement executed by the
Trust and the Bank and amending and supplementing this Agreement in the manner
mutually agreed.
SECTION 15. Either the Trust or the Custodian may give one hundred twenty
- -----------
(120) days' written notice to the other of the termination of this Agreement,
such termination to take effect at the time specified in the notice. In case
such notice of termination is given either by the Trust or by the Custodian, the
Trustees of the Trust shall, by resolution duly adopted, promptly appoint a
successor Custodian (the "Successor Custodian") which Successor Custodian shall
be a bank, trust company, or a bank and trust company in good standing, with
legal capacity to accept custody of the cash and Securities of a mutual fund.
Upon receipt of written notice from the Trust of the appointment of such
Successor Custodian and upon receipt of Proper Instructions, the Custodian shall
deliver such cash and Securities as it may then be holding hereunder directly
and only to the Successor Custodian. Unless or until a Successor Custodian has
been appointed as above provided, the Custodian then acting shall continue to
act as Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the
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<PAGE>
rights, powers, obligations and custody of its predecessor Custodian. The
Custodian ceasing to act shall nevertheless, upon request of the Trust and the
Successor Custodian and upon payment of its charges and disbursements, execute
and instrument in form approved by its counsel transferring to the Successor
Custodian all the predecessor Custodian's rights, duties, obligations and
Custody.
Subject to the provisions of Section 21 hereof, in case the Custodian shall
consolidate with or merge into any other corporation, the corporation remaining
after or resulting from such consolidation or merger shall ipso facto without
the execution of filing of any papers or other documents, succeed to and be
substituted for the Custodian with like effect as though originally named as
such, provided, however, in every case that said Successor corporation maintains
-------- -------
the qualifications set out in Section 17(f) of the Investment Company Act of
1940, as amended.
SECTION 16. This Agreement shall take effect when assets of the Trust are first
- -----------
delivered to the Custodian.
SECTION 17. This Agreement may be executed in two or more counterparts, each of
- -----------
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 18. A copy of the Declaration of Trust of the Trust is on file with the
- -----------
Secretary of Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees and
not individually and that the obligations of this instrument are not binding
upon any of the Trustees, officers or Shareholders of the Trust individually,
but binding only upon the assets and property of the Trust. No Fund of the
Trust shall be liable for the obligations of any other Fund of the Trust.
SECTION 19. The Custodian shall create and maintain all records relating to its
- -----------
activities and obligations under this Agreement in such manner as will meet the
obligations of the Trust under the Investment Company Act of 1940, as amended,
with particular attention To Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, applicable Federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Trust.
- 10 -
<PAGE>
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian, the books and
records of the Custodian pertaining to this Agreement shall be open to
inspection and audit at any reasonable times by officers of, attorneys for, and
auditors employed by, the Trust.
SECTION 20. Any sub-custodian appointed hereunder shall be qualified under
- -----------
Section 17(f) of the 1940 Act and will perform its duties in accordance with the
requirements of this Agreement.
SECTION 21. Nothing contained in this Agreement is intended to or shall require
- -----------
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
SECTION 22. This Agreement shall extend to and shall be binding upon the
- -----------
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of the Custodian, or by the Custodian without the written consent of the
Trust, authorized or approved by a resolution of its Board of Trustees.
SECTION 23. All communications (other than Proper instructions which are to be
- -----------
furnished hereunder to either party, or under any amendment hereto, shall be
sent by mail to the address listed below, provided that in the event that the
Bank, in its sole discretion, shall determine that an emergency exists, the Bank
may use such other means of communications as the Bank deems advisable.
To the Trust: Profit Investment Trust
2 Wisconsin Circle, Suite 510
Chevy Chase, MD 20815
To the Bank: CoreStates Bank N.A.
530 Walnut St.
Philadelphia, PA 19101-7618
SECTION 24. This Agreement, and any amendments hereto, shall be governed,
- -----------
construed and interpreted in accordance
- 11 -
<PAGE>
with the laws of The Commonwealth of Pennsylvania applicable to agreements made
and to be performed entirely within such Commonwealth.
IN WITNESS WHEREOF, the Trust and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
By: PROFIT FUNDS INVESTMENT TRUST
________________________
Name:
Title:
By: CORESTATES BANK, N.A.
________________________
Name: Paul T. Cahill
Title: Vice President
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<PAGE>
SCHEDULE A
FEE SCHEDULE
1.00 basis points on the first $2.5 billion
.75 basis points on the next $2.5 billion
.50 basis points on the next $5 billion
.40 basis points on remainder
Transactions billed separately by portfolio at the now current rates. Asset
level charges billed as one invoice covering all Profit Investment Trust
portfolios custodied at CoreStates. SEI will allocate charges back to
individual portfolios. Transactions charges are subject to change.
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<PAGE>
SCHEDULE B
CUSTODY SERVICES
Transaction Fees
$ 4.00 Per trade and maturity clearing through Depository Trust
Company.
$10.00 Per trade and maturity clearing book entry through Federal
Reserve.
$15.00 Per trade and maturity for assets requiring physical
settlement.
$10.00 Per trade and maturity clearing through Participants Trust
Company.
$ 4.00 Paydowns on mortgage-backed securities.
$ 5.50 Fed wire charge on Repo collateral in/out.
$ 5.50/7.50 Other cash wire transfers in/out.
$ 5.50 Dividend reinvestment.
$ 2.50 Fed charge for sale/return of collateral.
- 14 -
<PAGE>
Exhibit 9(i)
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this ___ day of_______, 1996, by and between
Profit Funds Investment Trust, a Massachusetts business trust (the "Trust"), and
SEI Fund Resources (the "Administrator"), a Delaware business trust.
WHEREAS, the Trust is an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended (the " 1940
Act"), consisting of several series of shares of Common Stock; and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such portfolios of the Trust as the Trust and the Administrator may agree on
("Portfolios") and as listed on the schedules attached hereto ("Schedules") and
made a part of this Agreement, on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. Retention of the Administrator. The Trust hereby retains the
------------------------------
Administrator to act as the administrator of the Portfolios and to furnish the
Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform
the duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. Administrative and Accounting Services. The Administrator
--------------------------------------
shall perform or supervise the performance by others of other administrative
services in connection with the operations of the Portfolios, and, on behalf of
the Trust, will investigate, assist in the selection of and conduct relations
with custodians, depositories, accountants, legal counsel, underwriters, brokers
and dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations.
The Administrator shall provide the Trustees of the Trust with such reports
regarding investment performance and compliance with investment policies and
applicable laws, rules and regulations as they may reasonably request but shall
have no responsibility for
<PAGE>
supervising the performance by any investment adviser or sub-adviser of its
responsibilities. The Administrator may appoint a sub-administrator to perform
certain of the services to be performed by the Administrator hereunder.
The Administrator shall provide the Trust with administrative services,
regulatory reporting, fund accounting and related portfolio accounting services,
all necessary office space, equipment, personnel, compensation and facilities
(including facilities for Shareholders' and Trustees' meetings) for handling the
affairs of the Portfolios and such other services as the Trustees may, from time
to time, reasonably request and the Administrator shall, from time to time,
reasonably determine to be necessary to perform its obligations under this
Agreement. In addition, at the request of the Trust's Board of Trustees (the
"Trustees"), the Administrator shall make reports to the Trustees concerning the
performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator shall,
in concert with the Advisor, where applicable:
(A) calculate contractual Trust expenses and control all disbursements for
the Trust, and as appropriate compute the Trust's yields, total
return, expense ratios, portfolio turnover rate and, if required,
portfolio average dollar-weighted maturity;
(B) assist Trust counsel with the preparation of prospectuses, statements
of additional information, registration statements, and proxy
materials;
(C) prepare such reports, applications and documents (including reports
regarding the sale and redemption of Shares as may be required in
order to comply with Federal and state securities law) as may be
necessary or desirable to register the Trust's shares with state
securities authorities, monitor sale of Trust shares for compliance
with state securities laws, and file with the appropriate state
securities authorities the registration statements and reports for the
Trust and the Trust's shares and all amendments thereto, as may be
necessary or convenient to register and keep effective the Trust and
the Trust's shares with state securities authorities to enable the
Trust to make a continuous offering of its shares;
(D) develop and prepare communications to shareholders, including the
annual report to shareholders, coordinate mailing prospectuses,
notices, proxy statements, proxies and other reports to Trust
shareholders, and
- 2 -
<PAGE>
supervise and facilitate the solicitation of proxies solicited by
the Trust for all shareholder meetings, including tabulation process
for shareholder meetings;
(E) coordinate with Trust counsel the preparation and negotiation of, and
administer contracts on behalf of the Trust with, among others, the
Trust's investment adviser, distributor, custodian, and transfer
agent;
(F) maintain the Trust's general ledger and prepare the Trust's financial
statements, including expense accruals and payments, determine the net
asset value of the Trust's assets and of the Trust's shares, and
supervise the Trust's transfer agent with respect to the payment of
dividends and other distributions to shareholders;
(G) calculate performance data of the Trust and its portfolios for
dissemination to information services covering the investment company
industry;
(H) coordinate and supervise the preparation and filing of the Trust's tax
returns"
(I) examine and review the operations and performance of the various
organizations providing services to the Trust or any Portfolio of the
Trust, including, without limitation, the Trust's investment adviser,
distributor, custodian, transfer agent, outside legal counsel and
independent public accountants, and at the request of the Trustees,
report to the Trustees on the performance of organizations;
(J) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing of the
Trust's semi-annual and annual reports to shareholders;
(K) provide internal legal and administrative services as requested by the
Trust from time to time;
(L) assist with the design, development, and operation of the Trust,
including new portfolio and class investment objectives, policies and
structure;
- 3 -
<PAGE>
(M) provide individuals acceptable to the Trustees for nomination,
appointment, or election as officers of the Trust, who will be
responsible for the management of certain of the Trust's affairs as
determined by the Trustees;
(N) advise the Trust and its Trustees on matters concerning the Trust and
its affairs;
(O) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Trust in
accordance with the requirements of Rules 17g-1 and 17d-1(7) under the
1940 Act as such bonds and policies are approved by the Trust's Board
of Trustees;
(P) monitor and advise the Trust and its Portfolios on their registered
investment company status under the Internal Revenue Code of 1986, as
amended;
(Q) perform all administrative services and functions of the Trust and
each Portfolio to the extent administrative services and functions are
not provided to the Trust or such Portfolio pursuant to the Trust's or
such Portfolio's investment advisory agreement, distribution
agreement, custodian agreement and transfer agent agreement;
(R) furnish advice and recommendations with respect to other aspects of
the business and affairs of the Portfolios as the Trust and the
Administrator shall determine desirable; and
(S) prepare and file with the SEC the semi-annual report for the Trust on
Form N-SAR and all required notices pursuant to Rule 24f-2.
Also, the Administrator will perform other services for the Trust as agreed from
time to time, including, but not limited to performing internal audit
examinations; mailing the annual reports of the Portfolios; preparing an annual
list of shareholders; and mailing notices of shareholders' meetings, proxies and
proxy statements, for all of which the Trust will pay the Administrator's out-
of-pocket expenses.
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<PAGE>
ARTICLE 3. Allocation of Charges and Expenses.
----------------------------------
(A) The Administrator. The Administrator shall furnish at its own expense
-----------------
the executive, supervisory and clerical personnel necessary to perform its
obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all Trustees of the
Trust who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Trust retained by the Trustees of the Trust
to perform services on behalf of the Trust.
(B) The Trust. The Trust assumes and shall pay or cause to be paid all
---------
other expenses of the Trust not otherwise allocated herein, including, without
limitation organizational costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of pricing
services, the costs of custodial services, the cost of initial and ongoing
registration of the Shares under Federal and state securities laws, fees and
out-of-pocket expenses of Trustees who are not affiliated persons of the
Administrator or the investment adviser to the Trust or any affiliated
corporation of the Administrator or the investment Adviser, the costs of
Trustees' meetings, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Trust.
ARTICLE 4. Compensation of the Administrator.
---------------------------------
(A) Administration Fee. For the services to be rendered, the facilities
------------------
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Trust shall pay to the Administrator compensation at any annual
rate specified in the Schedule. Such compensation shall be calculated and
accrued daily, and paid to the Administrator monthly. The Trust shall also
reimburse the Administrator for its reasonable out-of-pocket expenses, including
the travel and lodging expenses incurred by its officers and employees in
connection with attendance at meetings of the Trust's Board of Trustees.
If this Agreement becomes effective subsequent to the first day of a month
or terminates before the last day of a month, the Administrator's compensation
for that part of the month in which this Agreement is in effect shall be
prorated in a
- 5 -
<PAGE>
manner consistent with the calculation of the fees as set forth above. Payment
of the Administrator's compensation for the preceding month shall be made
promptly.
(B) Compensation from Transactions. The Trust hereby authorizes any entity
------------------------------
or person associated with the Administrator which is a member of a national
securities exchange to effect any transaction on the exchange for the account of
the Trust which is permitted by Section 11 (a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the
retention of compensation for such transactions in accordance with Rule 11a2-
2(T)(a) (2) (iv).
(C) Survival of Compensation Rates. All rights of compensation under this
------------------------------
Agreement for services performed as of the termination date shall survive the
termination of this Agreement.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of
--------------------------------------------
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
law which cannot be waived or modified hereby. (As used in this Article 5, the
term "Administrator" shall include directors, officers, employees and other
agents of the Administrator as well as that corporation itself.)
So long as the Administrator, or its agents, acts in good faith and with
due diligence the Trust assumes full responsibility and shall indemnify the
Administrator and hold it harmless from and against any and all actions, suits
and claims, whether groundless or otherwise, and from and against any and all
losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation expenses)
arising directly or indirectly out of said administration, transfer agency, and
dividend disbursing relationships to the Trust or any other service rendered to
the Trust hereunder. The indemnity and defense provisions set forth herein
shall indefinitely survive the termination of this Agreement.
- 6 -
<PAGE>
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not affect the rights
hereunder.
The Trust shall be entitled to participate at its own expense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity provision. If the Trust elects to assume the defense of any
such claim, the defense shall be conducted by counsel chosen by the Trust and
satisfactory to the Administrator, whose approval shall not be unreasonably
withheld. In the event that the Trust elects to assume the defense of any suit
and retain counsel, the Administrator shall bear the fees and expenses of any
additional counsel retained by it. If the Trust does not elect to assume the
defense of a suit, it will reimburse the Administrator for the reasonable fees
and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Trust at any time for instructions and
may consult counsel for the Trust or its own counsel and with accountants and
other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Administrator be held to have
notice of any change of authority of any officers, employee or agent of the
Trust until receipt of written notice thereof from the Trust.
ARTICLE 6. Activities of the Administrator. The services of the
-------------------------------
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Trustees, officers, employees
and Shareholders of
- 7 -
<PAGE>
the Trust are or may be or become interested in the Administrator, as directors,
officers, employees and shareholders or otherwise and that directors, officers,
employees and shareholders of the Administrator and its counsel are or may be or
become similarly interested in the Trust, and that the Administrator may be or
become interested in the Trust as a Shareholder or otherwise.
ARTICLE 7. Confidentiality. The Administrator agrees on behalf of
---------------
itself and its employees to treat confidentially all records and other
information relative to the Trust and its prior, present or potential
Shareholders and relative to the Adviser and its prior, present or potential
customers, except, after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where the Administrator may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
ARTICLE 8. Equipment Failures. In the event of equipment failures
------------------
beyond the Administrator's control, the Administrator shall, at no additional
expense to the Trust, take reasonable steps to minimize service interruptions
but shall have no liability with respect thereto. The Administrator shall
develop and maintain a plan for recovery from equipment failures which may
include contractual arrangements with appropriate parties making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available.
ARTICLE 9. Compliance With Governmental Rules and Regulations. The
--------------------------------------------------
Administrator undertakes to comply with all applicable requirements of the 1933
Act, the 1934 Act, the 1940 Act and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by the Administrator hereunder.
ARTICLE 10. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective on the date set forth in the Schedules and shall remain
in effect for the initial term of the Agreement (the "Initial Term") and each
renewal term thereof (each, a "Renewal Term"), each as set forth in the
Schedules, unless terminated in accordance with the provisions of this Article
10. This Agreement may be terminated only: (a) by the mutual written agreement
of the parties; (b) by either party hereto on 90 days' written notice, as of the
end of the Initial Term or the end of any Renewal Term; (c) by either party
hereto on such date as is specified in written notice given by the terminating
party, in the event of a
- 8 -
<PAGE>
material breach of this Agreement by the other party, provided the terminating
party has notified the other party of such breach at least 45 days prior to the
specified date of termination and the breaching party has not remedied such
breach by the specified date; (d) effective upon the liquidation of the
Administrator; or (e) as to any Portfolio or the Trust, effective upon the
liquidation of such Portfolio or the Trust, as the case may be. For purposes of
this Article 10, the term "liquidation" shall mean a transaction in which the
assets of the Administrator, the Trust or a Portfolio are sold or otherwise
disposed of and proceeds therefrom are distributed in cash to the shareholders
in complete liquidation of the interests of such shareholders in the entity.
This Agreement shall not be assignable by the Administrator, without the
prior written consent of the Trust, except to an entity that is controlled by,
or under common control, with, the Administrator.
ARTICLE 11. Amendments. This Agreement or any part hereof may be changed
----------
or waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
ARTICLE 12. Certain Records. The Administrator shall maintain customary
---------------
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and 31a-
2 under the 1940 Act which are prepared or maintained by the Administrator on
behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made available
to or surrendered promptly to the Trust on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.
ARTICLE 13. Definitions of Certain Terms. The terms "interested person"
----------------------------
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
- 9 -
<PAGE>
ARTICLE 14. Notice. Any notice required or permitted to be given by
------
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Trust, at c/o Kevin P. Robins, General Counsel, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, PA 19087; and if to the
Administrator at 680 East Swedesford Road, Wayne, PA 19087-1658.
ARTICLE 15. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
ARTICLE 16. Multiple Originals. This Agreement may be executed in two or
------------------
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 17. Limitation of Liability. The Administrator is hereby
-----------------------
expressly put on notice of the limitation of liability as set forth in Article
XI of the Trust's Declaration of Trust and agrees that the obligations pursuant
to this Agreement of a particular Portfolio and of the Trust with respect to
that Portfolio shall be limited solely to the assets of that Portfolio, and the
Administrator shall not seek satisfaction of any such obligation from any other
Portfolio, the shareholders of any Portfolio, the Trustees, officers, employees
or agents of the Trust, or any of them.
ARTICLE 18. Binding Agreement. This Agreement, and the rights and
-----------------
obligations of the parties and the Portfolios hereunder, shall be binding on,
and inure to the benefit of, the parties and the Portfolios and the respective
successors and assigns of each of them.
- 10 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
PROFIT FUNDS INVESTMENT TRUST
By:
----------------------------
Attest:
------------------------
SEI FUND RESOURCES
BY:
---------------------------
Attest:
-----------------------
- 11 -
<PAGE>
SCHEDULE
TO THE ADMINISTRATION AGREEMENT
DATED AS OF AUGUST 16, 1996
BETWEEN
PROFIT FUNDS INVESTMENT TRUST
AND
SEI FUND RESOURCES
Portfolios: This Agreement shall apply to all Portfolios of the Trust, either
now in the future created. The following is a listing of the
current portfolios of the Trust: Profit Lomax Institutional
Equity Fund and Profit Lomax Value Fund (collectively, the
"Portfolios").
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the
Portfolios at an annual rate, which is calculated daily and paid
monthly, at a maximum administrative fee equal to the greater of
.150% of the average daily net assets on the first $50 million;
.125% of the average daily net assets on the next $50 million;
and .100% of the average daily net assets on all assets over $100
million of the Portfolios' average daily net assets, or $65,000.
Term: This Agreement shall become effective on August 16, 1996, and
shall remain in effect for an Initial Term of three (3) years
from such date and, therefore, for successive Renewal Terms of
one (1) year each, unless and until this Agreement is terminated
in accordance with the provisions of Article 10 hereof.
- 12 -
<PAGE>
Exhibit 9(ii)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PROFIT FUNDS INVESTMENT TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
1. Terms of Appointment: Duties of the Bank............................. 1
2. Fees and Expenses.................................................... 5
3. Representations and Warranties of the Bank........................... 5
4. Representations and Warranties of the Fund........................... 6
5. Data Access and Proprietary Information.............................. 6
6. Indemnification...................................................... 8
7. Standard of Care..................................................... 10
8. Covenants of the Fund and the Bank................................... 10
9. Termination of Agreement............................................. 11
10. Additional Funds..................................................... 12
11. Assignment............................................................ 12
12. Amendment............................................................. 12
13. Massachusetts Law to Apply............................................ 13
14. Force Majeure......................................................... 13
15. Consequential Damages................................................. 13
16. Merger of Agreement................................................... 13
17. Limitations of Liability of the Trustees and
Shareholders.......................................................... 13
18. Counterparts.......................................................... 14
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the day of , 1996, by and between
-------- --------------
PROFIT FUNDS INVESTMENT TRUST, a Massachusetts business trust, having its
principal office and place of business at 2 Wisconsin Circle, Suite 510, Chevy
Chase, Maryland 20815 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, the Profit
Lomax Value Fund and Profit Lomax Institutional Equity Fund (each such series,
together with all other series subsequently established by the Fund and made
subject to this Agreement in accordance with Article 10, being herein referred
to as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment: Duties of the Bank
----------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of its common stock, $ par value, ("Shares"),
dividend disbursing agent, custodian of certain retirement plans and agent
in connection with any accumulation, open-account or similar plans provided
to the shareholders of each of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectus and
statement of additional information ("prospectus") of the Fund on behalf of
the applicable Portfolio, including without limitation any periodic
investment plan or periodic withdrawal program.
<PAGE>
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of the Fund author pursuant to the
Declaration of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by
- 2 -
<PAGE>
the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt
by the Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its
option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and
without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares
or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies,
- 3 -
<PAGE>
mailing Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions
by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions
in Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section I may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
- 4 -
<PAGE>
2. Fees and Expenses
-----------------
2.1 For the performance by the Bank pursuant to this Agreement, the Fund agrees
on behalf of each of the Portfolios to pay the Bank an annual maintenance
fee for each Shareholder account as set out in the initial fee schedule
attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.2 below may be changed from time to time subject
to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records
storage, or advances incurred by Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the
Bank at the request or with the consent of the Fund, will be reimbursed by
the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all shareholder accounts shall be advanced to
the Bank by the Fund at least seven (7) days prior to the mailing date of
such materials.
3. Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
- 5 -
<PAGE>
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
4.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of the Fund being
offered for sale.
5. Data Access and Proprietary Information
---------------------------------------
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part-of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat
all Proprietary Information as
- 6 -
<PAGE>
proprietary to the Bank and further agrees that it shall not divulge any
Proprietary Information to any person or organization except as may be
provided hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other location,
except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible
for the
- 7 -
<PAGE>
contents of such data and the Fund agrees to make no claim against the Bank
arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE
PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
5.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity
with security procedures established by the Bank from time to time.
6. Indemnification
---------------
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and against,
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the
- 8 -
<PAGE>
Fund or any other person or firm on behalf of the Fund including but
not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
(f) The negotiation and processing by the Bank of checks not made payable
to the order of the Bank, the Fund, the Fund's management company,
transfer agent or distributor or the retirement account custodian or
trustee for a plan account investing in Shares, which checks are
tendered to the Bank for the purchase of Shares (i.e., checks made
payable to prospective or existing Shareholders, such checks are
commonly known as "third party checks").
6.2 At any time the Bank may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund on behalf of the applicable
Portfolio for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. The Bank, its agents and
subcontractors shall be protected and indemnified in acting upon any paper
or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank
or its agents or subcontractors by machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and shall not be held
to have notice of any
- 9 -
<PAGE>
change of authority of any person, until receipt of written notice thereof
from the Fund. The Bank, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of
the officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or co-
registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend against
said claim in its own name or in the name of the Bank. The Bank shall in
no case confess any claim or make any compromise in any case in which the
Fund may be required to indemnify the Bank except with the Fund's prior
written consent.
7. Standard of Care
----------------
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not
be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
----------------------------------
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
- 10 -
<PAGE>
8.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms
and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
9. Termination of Agreement
------------------------
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket expenses
associated with the movement of records and material will be borne by the
Fund on behalf of the applicable Portfolio(s). Additionally, the Bank
reserves the right to charge for any other
- 11 -
<PAGE>
reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
10. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Profit Lomax Value Fund and Profit Lomax Institutional Equity
Fund with respect to which it desires to have the Bank render services as
transfer agent under the terms hereof, it shall so notify the Bank in
writing, and if the Bank agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.
11. Assignment
----------
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc., a
Massachusetts corporation ("BFDS") which is duly registered as a transfer
agent pursuant to Section 17A(c)(2) of the Securities Exchange Act of 1934,
as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly registered as
a transfer agent pursuant to Section 17A(c)(2) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund
for the acts and omissions of any subcontractor as it is for its own acts
and omissions.
12. Amendment
---------
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Trustees of the Fund.
- 12 -
<PAGE>
13. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
14. Force Majeure
-------------
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform
or otherwise from such causes.
15. Consequential Damages
---------------------
Neither party to this Agreement shall be liable to -the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. Merger of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
---------------------------------------------------------
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or Shareholders individually but
are binding only upon the assets and property of the Fund.
- 13 -
<PAGE>
18. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
PROFIT FUNDS INVESTMENT TRUST
BY:
--------------------------------------
ATTEST:
- ---------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:
---------------------------------------
Executive Vice President
ATTEST:
- ---------------------------
- 14 -
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICES RESPONSIBILITY*
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- ----------------
Bank Fund
---- ----
<S> <C> <C>
1. Receives order for the
purchase of Shares.
2. Issue Shares and hold Shares
in Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3
above directly with broker-
dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit
dividends and distributions.
8. Issue Replacement
Certificates.
9. Reporting of abandoned
property.
10. Maintain records of account.
11. Maintain and keep a current
and accurate control book
for each issue of
securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S.
resident and non-resident
alien accounts.
16. Prepare and file U.S.
Treasury Department forms.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- ----------------
Bank Fund
---- ----
<S> <C> <C>
17. Prepare and mail accounts
and confirmation statements
for Shareholders.
18. Provide Shareholder account
information.
19. Blue Sky reporting.
</TABLE>
*Such services are more fully described in Section 1.2(a), (b) and (c) of the
Agreement.
PROFIT FUNDS INVESTMENT TRUST
BY:
--------------------------------------
ATTEST:
- ---------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:
--------------------------------------
Executive Vice President
ATTEST:
- ---------------------------
<PAGE>
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
PROFIT FUNDS INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual Account Service Fees
- ---------------------------
<S> <C>
Daily Dividend Fund $ 14.00
Non-Daily Dividend Fund $ 12.00
Closed Account Fee $ 1.50
Minimum (per Fund/Class)
Year 1 $19,000
Year 2 $26,000
Year 3 $40,000
</TABLE>
Each class is considered a fund and will be billed accordingly.
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or close.
Account service fees are the higher of: open account charges plus closed account
charges or the fund minimum.
<TABLE>
<S> <C>
Activity Based Fees
- -------------------
New Account Set-up $ 5.00/each
Manual Transactions $ 1.50/each
Telephone Calls $ 2.50/each
Banking Services, (If Applicable)
- ---------------------------------
Checkwriting Setup $ 5.00
Checkwriting (per draft) $ 1.00
ACH $ .35
Other Fees, (If Applicable)
- ---------------------------
Investor Processing $ 1.80/Investor
12b-1 Commissions $ 1.20/account
IRA Custodial Fees
- ------------------
$ 10.00/account
Annual Maintenance
Out-of-Pocket Expenses Billed as incurred
- ----------------------
</TABLE>
Out-of-Pocket expenses include but are not limited to: confirmation statements,
investor statements, postage, forms, audio response, telephone, records
retention, federal wire, transcripts, microfilm, microfiche, and expenses
incurred at the specific direction of the fund.
PROFIT-LOMAX FUNDS STATE STREET BANK AND TRUST CO.
By By
------------------------------ ----------------------------------
Title Title
--------------------------- -------------------------------
Date Date
---------------------------- --------------------------------
<PAGE>
[LETTERHEAD OF GOODWIN, PROCTER & HOAR APPEARS HERE]
NOVEMBER 6, 1996
Profit Funds Investment Trust
2 Wisconsin Circle, Suite 700
Chevy Chase, Maryland 20815
Ladies and Gentlemen:
As special Massachusetts counsel to Profit Funds Investment Trust, a
Massachusetts business trust (the "Trust"), we have been asked to render our
opinion with respect to the issuance of an indefinite number of shares of
beneficial interest, no par value, of the Trust (the "Shares") representing
interests in each of Profit Lomax Value Fund and Profit Lomax Institutional
Equity Fund, as more fully described in the Prospectuses and Statement of
Additional Information contained in Pre-Effective Amendment No. 2 (the
"Amendment") to the Trust's Registration Statement on Form N-1A (Registration
No. 333-06849) filed with the Securities and Exchange Commission.
We have examined the Trust's Agreement and Declaration of Trust dated
June 12, 1996, the Bylaws of the Trust, records of certain meetings of the
Trustees, and such other documents, records and certificates as we have deemed
necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when
issued and sold in accordance with the terms of the applicable Prospectus and
the Statement of Additional Information in effect at the time of sale, will be
legally issued, fully paid and non-assessable by the Trust.
We hereby consent to the filling of this opinion as an exhibit to the
Amendment and to the reference to this firm as special Massachusetts legal
counsel for the Trust in the Statement of Additional Information contained in
the Amendment.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated October 29, 1996 on our audit of
the Statement of Assets and Liabilities of the Profit Funds Investment Trust,
comprised of the Profit Lomax Value Fund as of October 25, 1996 with respect to
Pre-Effective Amendment No. 2 to the Registration Statement (No. 333-06849)
under the Securities Act of 1933 on Form N-1A. We also consent to the reference
to our Firm under the headings "Auditors" and "Statement of Assets and
Liabilities" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 1, 1996