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.
Post-Effective Amendment No.
and/or
--
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
--
Amendment No.
(Check appropriate box or boxes)
PROFIT FUNDS INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (301) 951-9173
Eugene A. Profit
Investor Resources Group
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
(Name and Address of Agent for Service)
Copies to:
Tina D. Hosking
MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
Registrant hereby declares its intention to register an indefinite
number of shares of beneficial interest pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
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PROFIT FUNDS INVESTMENT TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
PART A
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 Offered How to Purchase Shares;
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 Holders Inapplicable
of Securities
16. Investment Advisory and
Other Services The Investment Manager; The
Investment Adviser;
Distribution Plan;
Custodian; Auditors;
MGF Service Corp.
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)
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PROSPECTUS
_______, 1996
PROFIT FUNDS INVESTMENT TRUST
2 WISCONSIN CIRCLE, SUITE 510
CHEVY CHASE, MARYLAND 20815
(301) 951-9173
PROFIT LOMAX VALUE FUND
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The Profit Lomax Value Fund (the "Fund"), a separate series of Profit
Funds Investment Trust, seeks a superior long-term rate of return, consistent
with the preservation of capital and maintenance of liquidity, by investing in
the common stock of established, larger capitalization companies. Dividend
income is only an incidental consideration to the Fund's investment objective.
Investor Resources Group (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.
This Prospectus sets forth concisely the information about the Fund that
you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated _______, 1996 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling the number listed below.
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For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . . 800-___-____
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
invstres.pro June 20, 1996
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EXPENSE INFORMATION
Shareholder Transaction Expenses
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends. . . . . . . . . . None
Redemption Fee. . . . . . . . . . . . . . . . . . . . . . . . None*
* A wire transfer fee is charged by the Fund's Custodian in the case
of redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers) . . . . . . . . . . ____%(A)
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . None(B)
Other Expenses. . . . . . . . . . . . . . . . . . . ____%
Total Fund Operating Expenses (after waivers) . . . 1.95%(C)
(A) Absent waivers of management fees, such fees would be 1.25%.
(B) The Fund may incur 12b-1 fees of up to .25% per annum. 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.
(C) Absent waivers of management fees, total Fund operating expenses
would be ____%.
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 (1) 5% annual return and
(2) redemption at the end of each time period: 1 Year $20
3 Years 61
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INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS
The Fund is a series of Profit Funds Investment Trust (the "Trust"). The
investment objective of the Fund is to seek a superior long-term rate of return,
consistent with the preservation of capital and maintenance of liquidity, by
investing in the common stock of established, larger capitalization companies.
Dividend income is only an incidental consideration to the Fund's investment
objective. The Fund is not intended to be a complete investment program, and
there is no assurance that its investment objective can be achieved. The Fund's
investment objective may be changed by the Board of Trustees without shareholder
approval, but only after notification has been given to shareholders and after
this Prospectus has been revised accordingly. If there is a change in the Fund's
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs. Unless otherwise indicated, all investment practices and limitations of
the Fund are nonfundamental policies which may be changed by the Board of
Trustees without shareholder approval. Neither the Manager nor Edgar Lomax 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
- strong balance sheet ratios
- high and/or stable dividend yields
- low price/book ratios
The Fund will invest primarily in the common stock of established, larger
capitalization companies - the type of stocks with which a more conservative
investor would be comfortable. Edgar Lomax believes these stocks enjoy low
expectations from investors in general and are undervalued. As a result, average
"earnings" performance can cause superior stock performance, and disappointing
"earnings" should cause 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
Depository Receipts (certificates of
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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 stocks, the Fund may also invest in securities
convertible into common stock (such as convertible bonds, convertible preferred
stocks and warrants). The Fund may invest in convertible preferred stocks and
convertible bonds which are rated at the time of purchase in the four highest
grades 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.
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. 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.
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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. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, banks having assets in excess of $10 billion, and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. The Fund will enter into
repurchase agreements which are collateralized by U.S. Government obligations or
other liquid high-grade debt obligations. Collateral for repurchase agreements
is held in safekeeping in the customer-only account of the Fund's Custodian at
the Federal Reserve Bank. At the time the Fund enters into a repurchase
agreement, the value of the collateral, including accrued interest, will equal
or exceed the value of the repurchase agreement and, in the case of a repurchase
agreement exceeding one day, the seller agrees to maintain sufficient collateral
so that the value of the underlying collateral, including accrued interest, will
at all times equal or exceed the value of the repurchase agreement. The Fund
will not enter into a repurchase agreement not terminable within seven days if,
as a result thereof, more than 15% of the value of the net assets of the Fund
would be invested in such securities and other illiquid securities.
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
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to at least 100% of the current value of the loaned securities plus accrued
interest. Although the Fund does have 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
there is 300% asset coverage) or from banks or other persons for temporary
purposes (in an amount not exceeding 5% of the Fund's total assets). The Fund
will not make any borrowing which would cause its outstanding borrowings to
exceed one-third of its total assets. 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 involves correspondingly greater
commission expenses and transaction costs and increases the possibility that the
Fund will not qualify as a regulated investment company under
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Subchapter M of the Internal Revenue Code. The Fund will not qualify as a
regulated investment company if it derives 30% or more of its gross income from
gains (without offset for losses) from the sale or other disposition of
securities held for less than three months. High turnover may result in the Fund
recognizing greater amounts of income and capital gains, which would increase
the amount of income and capital gains which the Fund must distribute to
shareholders in order to maintain its status as a regulated investment company
and to avoid the imposition of federal income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
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, MGF Service Corp., by 5:00 p.m.,
Eastern time, that day are confirmed at the net asset value determined as of the
close of the regular session of trading on the New York Stock Exchange on that
day. It is the responsibility of dealers to transmit properly completed orders
so that they will be received by MGF Service Corp. by 5:00 p.m., Eastern time.
Dealers may charge a fee for effecting purchase orders. Direct purchase orders
received by MGF Service Corp. by 4:00 p.m., Eastern time, are confirmed at that
day's net asset value. Direct investments received by MGF Service Corp. after
4:00 p.m., Eastern time, and orders received from dealers after 5:00 p.m.,
Eastern time, are confirmed at the net asset value next determined on the
following business day.
You may open an account and make an initial investment in the Fund by
sending a check and a completed account application form to MGF Service Corp.,
P.O. Box 5354, Cincinnati, Ohio 45201- 5354. Checks should be made payable to
the "Profit Lomax Value Fund." An account application is included in 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, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services made available to investors.
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Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Fund or MGF Service Corp. in the transaction.
You may also purchase shares of the Fund by wire. Please telephone MGF
Service Corp. (Nationwide call toll-free 800-___- ____) for instructions. You
should be prepared to give the name in which the account is to be established,
the address, telephone number and taxpayer identification number for the
account, and the name of the bank which will wire the money.
Your investment will be made at the 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. To make
your initial wire purchase, you are required to mail a completed account
application to MGF Service Corp. Your bank may impose a charge for sending your
wire. There is presently no fee for receipt of wired funds, but MGF Service
Corp. reserves the right to charge shareholders for this service upon thirty
days' prior notice to shareholders.
You may purchase and add shares to your account by mail or by bank wire.
Checks should be sent to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio
45201-5354. Checks should be made payable or endorsed to the "Profit Lomax Value
Fund." Bank wires should be sent as outlined above. You may also make additional
investments at the Fund's offices at 312 Walnut Street, 21st Floor, Cincinnati,
Ohio 45202. Each additional purchase request must contain the name of your
account and your account number to permit proper crediting to your account.
While there is no minimum amount required for subsequent investments, the Fund
reserves the right to impose such a requirement.
SHAREHOLDER SERVICES
Contact MGF Service Corp. (Nationwide call toll-free 800-___-____) for
additional information about the shareholder services described below.
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.
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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
and subsequent investments must be $50 under the plan. MGF Service Corp. pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make 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.
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Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States.
If your instructions request a redemption by wire, you will be charged an $8
processing fee by the Fund's Custodian. The Fund reserves the right, upon thirty
days' written notice, to change the processing fee. All charges will be deducted
from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Fund or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
You will receive the net asset value per share next determined after
receipt by MGF Service Corp. of your redemption request in the form described
above. Payment will be made within three business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Fund by certified check or wire.
At the discretion of the Fund or MGF Service Corp., corporate investors
and other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Fund reserves the
right to require you to close your account if at any time the value of your
shares is less than $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 the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
DIVIDENDS AND DISTRIBUTIONS
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The Fund expects to distribute substantially all of its net investment
income, 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.
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
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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.
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 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 retains Investor Resources Group (the "Manager"), 2 Wisconsin
Circle, Suite 510, Chevy Chase Maryland 20815, to provide general investment
supervisory services to the Fund and to manage the Fund's business affairs. 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 its management fees to the extent
necessary to limit the total operating expenses of the Fund to 1.95% per annum
of its average daily net assets. However, there is no assurance that any fees
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, has been retained by the Manager to manage the Fund's
investments. The Manager (not the Fund) 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
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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 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 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 retained MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio,
to serve as the Fund's transfer agent, dividend paying agent and shareholder
service agent. MGF Service Corp. is a subsidiary of Leshner Financial, Inc., of
which Robert H. Leshner is the controlling shareholder.
MGF Service Corp. also provides accounting and pricing services to the
Fund. MGF Service Corp. receives a monthly fee from the Fund for calculating
daily net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties.
In addition, MGF Service Corp. has been retained to provide administrative
services to the Fund. In this capacity, MGF Service Corp. supplies executive,
administrative and regulatory services, supervises the preparation of tax
returns, and coordinates the preparation of reports to shareholders and reports
to and filings with the Securities and Exchange Commission and state securities
authorities. The Fund pays MGF Service Corp. a fee for these administrative
services at the annual rate of .15% of the average value of its daily net assets
up to $25,000,000, .125% of such assets from $25,000,000 to $50,000,000 and .10%
of such assets in excess of $50,000,000; provided, however, that the minimum fee
is $1,000 per month.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its objective of seeking best execution
of portfolio transactions, Edgar Lomax may give consideration to sales of shares
of the Fund
- 13 -
<PAGE>
as a factor in the selection of 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 shall promptly call and give notice of a meeting of shareholders for
the purpose of voting upon removal of any Trustee when requested to do so in
writing by shareholders holding 10% or more of the Fund's outstanding shares.
The Fund will comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 in order to facilitate communications among shareholders.
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: 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 services not otherwise provided by MGF Service Corp.;
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 .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.
- 14 -
<PAGE>
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; however,
in selecting investments for the Funds, 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 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
- 15 -
<PAGE>
which market quotations are not readily available are valued at their fair value
as determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees. The
net asset value per share of the Fund will fluctuate with the value of the
securities it holds.
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 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
- 16 -
<PAGE>
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 October 1, 1990 forward, the performance for
all of Edgar Lomax's portfolios (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.
Performance after January 1, 1994 includes only portfolios which exceed $1
million in market value. All rates of return shown are net of brokerage
commissions (except with respect to any brokerage "wrap fee" account) and assume
reinvestment of dividends and income.
While the Fund will employ investment objectives and strategies that are
substantially similar to those that were 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. Examples include
limits on the percentage of assets invested in securities of issuers in a single
industry, and requirements on distributing income to shareholders. Operating
expenses will be 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.
PERIODIC RATES OF RETURN
Total Return S&P
Period (Net of Mgmt Fees) 500
October 1 -
December 31, 1990* 3.25% 8.96%
Year Ended
December 31, 1991 27.75% 30.45%
Year Ended
December 31, 1992 6.35% 7.62%
Year Ended
December 31, 1993 25.02% 10.06%
Year Ended
December 31, 1994 3.38% 1.30%
Year Ended
December 31, 1995 45.74% 37.53%
October 1, 1990 through
December 31, 1995
Annualized Return 20.33% 17.63%
Cumulative Return 164.23% 134.55%
* Not Annualized
- 17 -
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
Nationwide: (Toll-Free) 800-___-____
BOARD OF TRUSTEES
Eugene Profit
- -------------------
- -------------------
- -------------------
- -------------------
INVESTMENT MANAGER
INVESTOR RESOURCES GROUP
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
INVESTMENT ADVISER
THE EDGAR LOMAX COMPANY
6564 Loisdale Court, Suite 310
Springfield, Virginia 22150
TRANSFER AGENT
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
Nationwide: (Toll-Free) 800-___-____
Rate Line
Nationwide: (Toll-Free) 800-852-4052
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.......................................................
- -----------------------------------------------------------------
- 18 -
<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.
- 19 -
<PAGE>
PROSPECTUS
_______, 1996
PROFIT FUNDS INVESTMENT TRUST
2 WISCONSIN CIRCLE, SUITE 510
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, seeks a superior long-term rate of
return, consistent with the preservation of capital and maintenance of
liquidity, by investing in the common stock of established, larger
capitalization companies. Dividend income is only an incidental consideration to
the Fund's investment objective.
Investor Resources Group (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.
This Prospectus sets forth concisely the information about the Fund that
you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated _______, 1996 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling the number listed below.
- -----------------------------------------------------------------
For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . . 800-___-____
- -----------------------------------------------------------------
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.
- 1 -
<PAGE>
EXPENSE INFORMATION
Shareholder Transaction Expenses
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends. . . . . . . . . . None
Redemption Fee. . . . . . . . . . . . . . . . . . . . . . . . None*
* A wire transfer fee is charged by the Fund's Custodian in the case
of redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers) . . . . . . . . . . ____%(A)
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . None
Other Expenses. . . . . . . . . . . . . . . . . . . ____%
Total Fund Operating Expenses (after waivers) . . . .95%(B)
(A) Absent waivers of management fees, such fees would be .60%.
(B) Absent waivers of management fees, total Fund operating expenses
would be ___%.
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 (1) 5%annual return and
(2) redemption at the endof each time period: 1 Year $10
3 Years 30
- 2 -
<PAGE>
INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS
The Fund is a series of Profit Funds Investment Trust (the "Trust"). The
investment objective of the Fund is to seek a superior long-term rate of return,
consistent with the preservation of capital and maintenance of liquidity, by
investing in the common stock of established, larger capitalization companies.
Dividend income is only an incidental consideration to the Fund's investment
objective. The Fund is not intended to be a complete investment program, and
there is no assurance that its investment objective can be achieved. The Fund's
investment objective may be changed by the Board of Trustees without shareholder
approval, but only after notification has been given to shareholders and after
this Prospectus has been revised accordingly. If there is a change in the Fund's
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs. Unless otherwise indicated, all investment practices and limitations of
the Fund are nonfundamental policies which may be changed by the Board of
Trustees without shareholder approval. Neither the Manager nor Edgar Lomax 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
- strong balance sheet ratios
- high and/or stable dividend yields
- low price/book ratios
The Fund will invest primarily in the common stock of established, larger
capitalization companies - the type of stocks with which a more conservative
investor would be comfortable. Edgar Lomax believes these stocks enjoy low
expectations from investors in general and are undervalued. As a result, average
"earnings" performance can cause superior stock performance, and disappointing
"earnings" should cause 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
Depository Receipts (certificates of
- 3 -
<PAGE>
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 stocks, 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 stocks and
convertible bonds which are rated at the time of purchase in the four highest
grades 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.
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. 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.
- 4 -
<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. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, banks having assets in excess of $10 billion, and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. The Fund will enter into
repurchase agreements which are collateralized by U.S. Government obligations or
other liquid high-grade debt obligations. Collateral for repurchase agreements
is held in safekeeping in the customer-only account of the Fund's Custodian at
the Federal Reserve Bank. At the time the Fund enters into a repurchase
agreement, the value of the collateral, including accrued interest, will equal
or exceed the value of the repurchase agreement and, in the case of a repurchase
agreement exceeding one day, the seller agrees to maintain sufficient collateral
so that the value of the underlying collateral, including accrued interest, will
at all times equal or exceed the value of the repurchase agreement. The Fund
will not enter into a repurchase agreement not terminable within seven days if,
as a result thereof, more than 15% of the value of the net assets of the Fund
would be invested in such securities and other illiquid securities.
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
- 5 -
<PAGE>
to at least 100% of the current value of the loaned securities plus accrued
interest. Although the Fund does have 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
there is 300% asset coverage) or from banks or other persons for temporary
purposes (in an amount not exceeding 5% of the Fund's total assets). The Fund
will not make any borrowing which would cause its outstanding borrowings to
exceed one-third of its total assets. 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 involves correspondingly greater
commission expenses and transaction costs and increases the possibility that the
Fund will not qualify as a regulated investment company under
- 6 -
<PAGE>
Subchapter M of the Internal Revenue Code. The Fund will not qualify as a
regulated investment company if it derives 30% or more of its gross income from
gains (without offset for losses) from the sale or other disposition of
securities held for less than three months. High turnover may result in the Fund
recognizing greater amounts of income and capital gains, which would increase
the amount of income and capital gains which the Fund must distribute to
shareholders in order to maintain its status as a regulated investment company
and to avoid the imposition of federal income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
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, MGF Service Corp., by 5:00 p.m., Eastern time, that day
are confirmed at the net asset value determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by MGF Service Corp. by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
MGF Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's net
asset value. Direct investments received by MGF Service Corp. after 4:00 p.m.,
Eastern time, and orders received from dealers after 5:00 p.m., Eastern time,
are confirmed at the net asset value next determined on the following business
day.
You may open an account and make an initial investment in the Fund by
sending a check and a completed account application form to MGF Service Corp.,
P.O. Box 5354, Cincinnati, Ohio 45201- 5354. Checks should be made payable to
the "Profit Lomax Institutional Equity Fund." An account application is included
in 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, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services made available to investors.
- 7 -
<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 MGF Service Corp. in the transaction.
You may also purchase shares of the Fund by wire. Please telephone MGF
Service Corp. (Nationwide call toll-free 800-___- ____) for instructions. You
should be prepared to give the name in which the account is to be established,
the address, telephone number and taxpayer identification number for the
account, and the name of the bank which will wire the money.
Your investment will be made at the 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. To make
your initial wire purchase, you are required to mail a completed account
application to MGF Service Corp. Your bank may impose a charge for sending your
wire. There is presently no fee for receipt of wired funds, but MGF Service
Corp. reserves the right to charge shareholders for this service upon thirty
days' prior notice to shareholders.
You may purchase and add shares to your account by mail or by bank wire.
Checks should be sent to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio
45201-5354. Checks should be made payable or endorsed to the "Profit Lomax
Institutional Equity Fund." Bank wires should be sent as outlined above. You may
also make additional investments at the Fund's offices at 312 Walnut Street,
21st Floor, Cincinnati, Ohio 45202. Each additional purchase request must
contain the name of your account and your account number to permit proper
crediting to your account. While there is no minimum amount required for
subsequent investments, the Fund reserves the right to impose such 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
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<PAGE>
brokerage firm in the United States. If your instructions request a redemption
by wire, you will be charged an $8 processing fee by the Fund's Custodian. The
Fund reserves the right, upon thirty days' written notice, to change the
processing fee. All charges will be deducted from your account by redemption of
shares in your account. Your bank or brokerage firm may also impose a charge for
processing the wire. In the event that wire transfer of funds is impossible or
impractical, the redemption proceeds will be sent by mail to the designated
account.
You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Fund or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
You will receive the net asset value per share next determined after
receipt by MGF Service Corp. of your redemption request in the form described
above. Payment will be made within three business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Fund by certified check or wire.
At the discretion of the Fund or MGF Service Corp., corporate investors
and other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Fund reserves the
right to require you to close your account if at any time the value of your
shares is less than $1,000,000 (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.
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<PAGE>
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term
capital gains distributions paid in
cash; long-term capital gains
distributions reinvested in additional
shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
You should indicate your choice of option on your application. If no
option is specified on your application, distributions will automatically be
reinvested in additional shares. All distributions will be based on the net
asset value in effect on the payable date.
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
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<PAGE>
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 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 retains Investor Resources Group (the "Manager"), 2 Wisconsin
Circle, Suite 510, Chevy Chase Maryland 20815, to provide general investment
supervisory services to the Fund and to manage the Fund's business affairs. The
Fund pays the Manager a fee at the annual rate of .60% of the average value of
the Fund's daily net assets.
The Manager currently intends to waive its management fees to the extent
necessary to limit the total operating expenses of the Fund to .95% per annum of
its average daily net assets. However, there is no assurance that any fees will
be waived in the current or future fiscal years, and expenses of the Fund may
therefore exceed .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, has been retained by the Manager to manage the Fund's
investments. Edgar Lomax was organized in 1986 and specializes in the management
of institutional portfolios. The Manager (not the Fund) pays Edgar Lomax a fee
at the annual rate of .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,
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<PAGE>
expenses of registering 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 retained MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio,
to serve as the Fund's transfer agent, dividend paying agent and shareholder
service agent. MGF Service Corp. is a subsidiary of Leshner Financial, Inc., of
which Robert H. Leshner is the controlling shareholder.
MGF Service Corp. also provides accounting and pricing services to the
Fund. MGF Service Corp. receives a monthly fee from the Fund for calculating
daily net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties.
In addition, MGF Service Corp. has been retained to provide administrative
services to the Fund. In this capacity, MGF Service Corp. supplies executive,
administrative and regulatory services, supervises the preparation of tax
returns, and coordinates the preparation of reports to shareholders and reports
to and filings with the Securities and Exchange Commission and state securities
authorities. The Fund pays MGF Service Corp. a fee for these administrative
services at the annual rate of .15% of the average value of its daily net assets
up to $25,000,000, .125% of such assets from $25,000,000 to $50,000,000 and .10%
of such assets in excess of $50,000,000; provided, however, that the minimum fee
is $1,000 per month.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its objective of seeking best execution
of portfolio transactions, 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. 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
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<PAGE>
owned and fractional votes for fractional shares owned. The Fund does not
normally hold annual meetings of shareholders. The Trustees shall promptly call
and give notice of a meeting of shareholders for the purpose of voting upon
removal of any Trustee when requested to do so in writing by shareholders
holding 10% or more of the Fund's outstanding shares. The Fund will comply with
the provisions of Section 16(c) of the Investment Company Act of 1940 in order
to facilitate communications among shareholders.
CALCULATION OF SHARE PRICE
On each day that the Fund is open for business, the share price (net asset
value) of the Fund's shares is determined as of the close of the regular session
of trading on the New York Stock Exchange, currently 4:00 p.m., Eastern time.
The Fund is open for business on each day the New York Stock Exchange is open
for business and on any other day when there is sufficient trading in the Fund's
investments that its net asset value might be materially affected. The net asset
value per share of the Fund is calculated by dividing the sum of the value of
the securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the Fund, rounded to the nearest cent.
Portfolio securities are valued as follows: (i) securities which are
traded on stock exchanges or are quoted by NASDAQ are valued at the last
reported sale price as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, or, if not
traded on a particular day, at the closing bid price, (ii) securities traded in
the over-the-counter market, and which are not quoted by NASDAQ, are valued at
the last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (iii) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (iv) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
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.
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<PAGE>
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 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 October 1, 1990 forward, the performance for
all of Edgar Lomax's portfolios (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.
Performance after January 1, 1994 includes only portfolios which exceed $1
million in market value. All rates of return shown are net of brokerage
commissions (except with respect to any brokerage "wrap fee" account) and assume
reinvestment of dividends and income.
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<PAGE>
While the Fund will employ investment objectives and strategies that are
substantially similar to those that were 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. Examples include
limits on the percentage of assets invested in securities of issuers in a single
industry, and requirements on distributing income to shareholders. Operating
expenses will be 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.
PERIODIC RATES OF RETURN
Total Return S&P
Period (Net of Mgmt Fees) 500
October 1 -
December 31, 1990* 3.25% 8.96%
Year Ended
December 31, 1991 27.75% 30.45%
Year Ended
December 31, 1992 6.35% 7.62%
Year Ended
December 31, 1993 25.02% 10.06%
Year Ended
December 31, 1994 3.38% 1.30%
Year Ended
December 31, 1995 45.74% 37.53%
October 1, 1990 through
December 31, 1995
Annualized Return 20.33% 17.63%
Cumulative Return 164.23% 134.55%
* Not Annualized
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<PAGE>
PROFIT FUNDS INVESTMENT TRUST
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
Nationwide: (Toll-Free) 800-___-____
BOARD OF TRUSTEES
Eugene Profit
___________________
___________________
___________________
___________________
INVESTMENT MANAGER
INVESTOR RESOURCES GROUP
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
INVESTMENT ADVISER
THE EDGAR LOMAX COMPANY
6564 Loisdale Court, Suite 310
Springfield, Virginia 22150
TRANSFER AGENT
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
Nationwide: (Toll-Free) 800-___-____
Rate Line
Nationwide: (Toll-Free) 800-852-4052
TABLE OF CONTENTS
Expense Information............................................................
Investment Objective, Investment Policies and
Risk Considerations..........................................................
How to Purchase Shares.........................................................
How to Redeem Shares. . . . . .................................................
Dividends and Distributions....................................................
Taxes..........................................................................
Operation of the Fund..........................................................
Calculation of Share Price.....................................................
Performance Information........................................................
- -----------------------------------------------------------------
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<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.
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<PAGE>
PROFIT FUNDS INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
_______, 1996
Profit Lomax Value Fund
Profit Lomax Institutional Equity Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the applicable Fund of the Profit
Funds Investment Trust dated _______, 1996. A copy of a Fund's Prospectus can be
obtained by writing the Fund at 2 Wisconsin Circle, Suite 510, Chevy Chase,
Maryland 20815, or by calling the Fund nationwide toll-free 800-___-____.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Profit Funds Investment Trust
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
TABLE OF CONTENTS
PAGE
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . .
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS. . . . . . . .
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS. . .
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . .
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . .
THE INVESTMENT MANAGER . . . . . . . . . . . . . . . . . . .
THE INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . .
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . .
SECURITIES TRANSACTIONS. . . . . . . . . . . . . . . . . . .
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . .
CALCULATION OF SHARE PRICE . . . . . . . . . . . . . . . . .
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . .
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . .
HISTORICAL PERFORMANCE INFORMATION . . . . . . . . . . . . .
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . .
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . .
MGF SERVICE CORP . . . . . . . . . . . . . . . . . . . . . .
STATEMENTS OF ASSETS AND LIABILITIES . . . . . . . . . . . .
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<PAGE>
THE TRUST
Profit Funds Investment Trust (the "Trust") was organized as a
Massachusetts business trust on June 14, 1996. The Trust currently offers two
series of shares to investors: the Profit Lomax Value Fund and the Profit Lomax
Institutional Equity Fund (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 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
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<PAGE>
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 three highest categories by
either Moody's Investors Service, Inc. (Prime-1, Prime-2 or Prime-3) or Standard
& Poor's Ratings Group (A-1, A-2 or A-3), or which, in the opinion of the
Adviser, is of equivalent investment quality. 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, such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial strength of the parent company and the relationships which
exist with the issuer; and, recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such
- 4 -
<PAGE>
obligations. These factors are all considered in determining whether the
commercial paper is rated Prime-1, Prime-2 or Prime- 3. 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, A-2, or A-3.
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 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
- 5 -
<PAGE>
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. Repurchase agreements are transactions by which
a Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. 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 would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time 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.
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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, 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
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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 or other affiliated person. 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. Because the Funds may invest in foreign
securities, investment in the Funds involves risks that are different in some
respects from an investment in a fund which invests only in securities of U.S.
domestic issuers. Foreign investments may be affected favorably or unfavorably
by changes in currency rates and exchange control regulations. There may be less
publicly available information about a foreign company than about a U.S. company
and foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. There may be less governmental supervision of securities markets,
brokers and issuers of securities. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
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
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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.
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.
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
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weakened capacity to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
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.
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.
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.
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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 (a) from a bank,
provided that immediately after such borrowing there is asset coverage of 300%
for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets.
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." Nor will
the Fund purchase securities on margin or write put or call options.
5. Commodities. The Fund will not purchase or sell commodities or commodity
contracts, including futures.
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
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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 Fund or
officers, directors, or principals of its 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.
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
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<PAGE>
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 either Fund. The Trust does not intend to make short sales of securities
"against the box" as described in investment limitation 4. 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 following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the Investment Company Act of 1940, is indicated by an asterisk.
NAME AGE POSITION HELD
---- --- -------------
*Eugene A. Profit 31 President/Trustee
*________________ __ Trustee
+________________ __ Trustee
+________________ __ Trustee
+________________ __ Trustee
Tina D. Hosking 27 Secretary
Mark J. Seger 34 Treasurer
* Mr. Profit, as a principal of Investor Resources Group, the Trust's
investment manager, is an "interested person" of the Trust within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940.
+ Member of Audit Committee.
The principal occupations of the remaining Trustees and executive
officers of the Trust during the past five years are set forth below:
[TO BE INSERTED]
[TRUSTEE COMPENSATION TO BE INSERTED]
THE INVESTMENT MANAGER
Investor Resources Group (the "Manager") performs management, statistical,
portfolio adviser selection and other services for the Trust. Eugene A. Profit
is the controlling shareholder of the Manager. Mr. Profit, as a principal of the
Manager, may directly or indirectly receive benefits from the management fees
paid to the Manager. Under the terms of the management agreement between the
Trust and the Manager, the
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<PAGE>
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 Manager a fee computed and accrued daily and paid monthly at an
annual rate of .60% 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 may have an
obligation 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 management agreement will remain in force
until ___________, 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 Trust's management agreement may be terminated at any time,
on sixty days' written notice, without the payment of any penalty, by the Board
of Trustees, by a vote of the majority of a 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 the Funds to the extent that the expenses of
a 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 Funds at the end of such month. Certain expenses such as
brokerage commissions, if any, taxes, interest, extraordinary items and other
expenses subject to approval of state securities administrators are excluded
from such
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<PAGE>
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.
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 discretionary portfolio adviser of the Funds. 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. Randall R. Eley is the controlling shareholder of the
Adviser. 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 __________,
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, on sixty days' written
notice, without the payment of any penalty, by the Board of Trustees, by a vote
of the majority of a 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.
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<PAGE>
DISTRIBUTION PLAN
As stated in its Prospectus, 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,
including but not limited to, the printing of prospectuses, statements of
additional information and reports used for sales purposes, advertisements,
expenses of preparation and printing of sales literature, promotion, marketing
and sales expenses and other distribution-related expenses, including any
distribution fees paid to securities dealers or other firms who have executed a
distribution or service agreement with the Trust. The Plan expressly limits
payment of the distribution expenses listed above in any fiscal year to a
maximum of .25% of the average daily net assets of the Value Fund. Unreimbursed
expenses will not be carried over from year to year.
Agreements implementing the Plan (the "Implementation Agreements"),
including agreements with dealers wherein such dealers agree for a fee to act as
agents for the sale of the Value Fund's shares, are in writing and have been
approved by the Board of Trustees. All payments made pursuant to the Plan are
made in accordance with written agreements.
The continuance of the Plan and the Implementation Agreements 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 or any
Implementation Agreement (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. Each Implementation Agreement terminates automatically in the
event of its assignment and 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 on not more than 60 days' written
notice to any other party to the Implementation Agreement. 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
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<PAGE>
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
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, Mr. Profit may be deemed to have a
financial interest in the operation of the Plan and the Implementation
Agreements.
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.
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<PAGE>
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 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
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securities owned by a Fund during the fiscal year. High portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Funds. 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%.
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. For a description of the methods used to
determine the share price, see "Calculation of Share Price" in the Prospectus.
TAXES
Each Fund's Prospectus describes generally the tax treatment of
distributions by the Funds. This section of the Statement of Additional
Information includes additional information concerning federal 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
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<PAGE>
or securities; and (iii) diversify its holdings so that at the end of each
quarter of its taxable year the following two conditions are met: (a) at least
50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities (for this purpose such other securities will qualify only if
the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
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 (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 the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each 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.
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<PAGE>
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
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
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<PAGE>
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 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 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. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
CUSTODIAN
The ___________ Bank, ________________________, __________, ____, has
been retained to act as Custodian for the Fund's investments. The ___________
Bank acts as each Fund's depository, safekeeps its portfolio securities,
collects all income and other payments with respect thereto, disburses funds as
instructed and maintains records in connection with its duties.
AUDITORS
The firm of ___________________ has been selected as independent public
accountants for the Trust for the fiscal year ending ___________, 1997.
___________________, _______________, __________, ____, performs an annual audit
of the Trust's financial statements and advises the Trust as to certain
accounting matters.
MGF SERVICE CORP.
The Trust's transfer agent, MGF Service Corp. ("MGF"), maintains the
records of each shareholder's account, answers
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<PAGE>
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. MGF receives for its
services as transfer agent a fee payable monthly at an annual rate of $17 per
account, provided, however, that the minimum fee is $1,000 per month. In
addition, the Funds pay out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, record storage and
communication lines.
MGF also provides accounting and pricing services to the Funds. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable MGF to perform its duties, each Fund pays MGF
a fee in accordance with the following schedule:
Average Monthly Net Assets Monthly Fee
0 - $ 50,000,000 $2,000
50 - 100,000,000 2,500
100 - 200,000,000 3,000
Over 200,000,000 4,000
In addition, each Fund pays all costs of external pricing services.
In addition, MGF is retained to provide administrative services to the
Funds. In this capacity, MGF supplies non-investment related statistical and
research data, internal regulatory compliance services and executive and
administrative services. MGF supervises the preparation of tax returns, reports
to shareholders of the Funds, reports to and filings with the Securities and
Exchange Commission and state securities commissions, and materials for meetings
of the Board of Trustees. For the performance of these administrative services,
each Fund pays MGF a fee at the annual rate of .15% of the average value of its
daily net assets up to $25,000,000, .125% of such assets from $25,000,000 to
$50,000,000 and .10% of such assets in excess of $50,000,000; provided, however,
that the minimum fee is $1,000 per month for each Fund.
STATEMENTS OF ASSETS AND LIABILITIES
Each Fund's Statement of Assets and Liabilities as of ___________,
1996, which have been audited by __________________, is attached to this
Statement of Additional Information.
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<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:
Statements of Assets and Liabilities,
___________, 1996*
Notes to Financial Statements*
Report of Independent Accountants*
(b) Exhibits
(1) Agreement and Declaration of Trust
(2) Bylaws
(3) Inapplicable
(4) Inapplicable
(5) (i) Form of Management Agreement with Investor
Resources Group
(ii) Form of Investment Advisory Agreement with
The Edgar Lomax Company
(6) Inapplicable
(7) Inapplicable
(8) Form of Custody Agreement with ___________*
(9) (i) Form of Administrative Services Agreement
with MGF Service Corp.
(ii) Form of Accounting Services Agreement with
MGF Service Corp.
(iii) Form of Transfer, Dividend Disbursing,
Shareholder Service and Plan Agency Agreement
with MGF Service Corp.
(10) Opinion and Consent of Counsel*
- 1 -
<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
(17) Financial Data Schedule*
(18) Inapplicable
- --------------------------------------
* To be filed by Amendment.
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 June 17, 1996, there are no holders of the shares of
beneficial interest of the Registrant.
Item 27. Indemnification
Article VI of the Registrant's Agreement and Declaration of
Trust provides for indemnification of officers and Trustees as
follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS,
ETC. Subject to and except as otherwise provided in
the Securities Act of 1933, as amended, and the 1940
Act, the Trust shall indemnify each of its Trustees
and officers, including persons who serve at the
Trust's request as directors, officers or trustees of
another organization in which the Trust has any
interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person")
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<PAGE>
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
- 3 -
<PAGE>
undertaking, (ii) the Trust 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
- 4 -
<PAGE>
the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant expects to maintain a standard mutual fund and
investment advisory professional and directors and officers
liability policy. The policy will provide coverage to the
Registrant, its Trustees and officers, Investor Resources
Group (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.
- 5 -
<PAGE>
The Adviser, a Delaware corporation organized in
1988, 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:
(i) Eugene Profit - Chairman of the Board,
President, Chief Executive Officer and
Secretary of the Adviser.
President of the Registrant.
(ii) Joseph A. Quash, M.D. - Executive Vice
President of Corporate Strategy of the
Adviser.
Senior Partner of Capital Cardiology Group.
(iii) Michelle D. Quash - Executive Vice President
and Secretary of the Adviser.
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:
(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.
- 6 -
<PAGE>
(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.
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
- 7 -
<PAGE>
at 2 Wisconsin Circle, Suite 510, Chevy Chase, Maryland 20815
as well as at the offices of the Registrant's transfer agent
located at 312 Walnut Street, 21st Floor, Cincinnati, Ohio
45202.
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.
- 8 -
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of Chevy Chase and State of Maryland, on the 20th day of
June, 1996.
PROFIT FUNDS INVESTMENT TRUST
By:/s/ Eugene A. Profit
Eugene A. Profit
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Eugene A. Profit President June 20, 1996
Eugene A. Profit and Trustee
/s/ Mark J. Seger Treasurer June 20, 1996
Mark J. Seger
<PAGE>
<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 Administrative Services Agreement
(9)(ii) Form of Accounting Services Agreement
(9)(iii) Form of Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Public Accountants*
(12) Inapplicable
(13) Form of Agreement Relating to Initial Capital
(14) Inapplicable
(15) Form of Plan of Distribution Pursuant to Rule 12b-1
(16) Inapplicable
(17) Financial Data Schedule*
(18) Inapplicable
- ----------------------------
* To be filed by Amendment
PROFIT FUNDS INVESTMENT TRUST
AGREEMENT AND DECLARATION OF TRUST
JUNE 12, 1996
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
AGREEMENT AND DECLARATION OF TRUST
PAGE
ARTICLE I. NAME AND DEFINITIONS..........................................1
- ---------- --------------------
Section 1.1 Name..........................................................1
Section 1.2 Definitions...................................................1
(a) "Trust"..............................................1
(b) "Trustees"...........................................1
(c) "Shares".............................................1
(d) "Series".............................................1
(e) "Shareholder"........................................2
(f) "1940 Act"...........................................2
(g) "Commission".........................................2
(h) "Declaration of Trust"...............................2
(i) "Bylaws".............................................2
ARTICLE II. PURPOSE OF TRUST..............................................2
- ---------- ----------------
ARTICLE III. THE TRUSTEES..................................................2
- ------------ ------------
Section 3.1 Number, Designation, Election, Term, etc......................2
(a) Initial Trustees.....................................2
(b) Number...............................................2
(c) Term.................................................3
(d) Resignation and Retirement...........................3
(e) Removal..............................................3
(f) Vacancies............................................3
(g) Effect of Death, Resignation, etc....................4
(h) No Accounting........................................4
Section 3.2 Powers of the Trustees........................................4
(a) Investments..........................................5
(b) Disposition of Assets................................5
(c) Ownership Powers.....................................5
(d) Subscription.........................................5
(e) Form of Holding......................................6
(f) Reorganization, etc..................................6
(g) Voting Trusts, etc...................................6
(h) Compromise...........................................6
(i) Partnerships, etc....................................6
- i -
<PAGE>
(j) Borrowing and Security...............................6
(k) Guarantees, etc......................................6
(l) Insurance............................................7
(m) Pensions, etc........................................7
Section 3.3 Certain Contracts.............................................7
(a) Advisory.............................................8
(b) Administration.......................................8
(c) Distribution.........................................8
(d) Custodian and Depository.............................8
(e) Transfer and Dividend Disbursing Agency..............8
(f) Shareholder Servicing................................8
(g) Legal, Accounting, Taxes and Other...................9
Section 3.4 Payment of Trust Expenses and Compensation
of Trustees...................................................10
Section 3.5 Ownership of Assets of the Trust..............................10
ARTICLE IV. SHARES........................................................10
- ---------- ------
Section 4.1 Description of Shares.........................................10
Section 4.2 Establishment and Designation of Series.......................12
(a) Assets Belonging to Series...........................12
(b) Liabilities Belonging to Series......................13
(c) Dividends............................................13
(d) Liquidation..........................................14
(e) Voting...............................................15
(f) Redemption by Shareholder............................15
(g) Redemption by Trust..................................16
(h) Net Asset Value......................................16
(i) Transfer.............................................16
(j) Equality.............................................16
(k) Fractions............................................17
(l) Conversion Rights....................................17
Section 4.3 Ownership of Shares...........................................17
Section 4.4 Investments in the Trust......................................17
Section 4.5 No Preemptive Rights..........................................18
Section 4.6 Status of Shares and Limitation of Personal
Liability.....................................................18
- ii -
<PAGE>
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS......................18
- --------- ----------------------------------------
Section 5.1 Voting Powers.................................................18
Section 5.2 Meetings......................................................19
Section 5.3 Record Dates..................................................19
Section 5.4 Quorum and Required Vote......................................20
Section 5.5 Action by Written Consent.....................................20
Section 5.6 Inspection of Records.........................................20
Section 5.7 Additional Provisions.........................................20
ARTICLE VI. LIMITATION OF LIABILITY; INDEMNIFICATION......................21
- ---------- ----------------------------------------
Section 6.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice................................................21
Section 6.2 Trustee's Good Faith Action; Expert Advice;
No Bond or Surety.............................................21
Section 6.3 Indemnification of Shareholders...............................22
Section 6.4 Indemnification of Trustees, Officers, etc....................22
Section 6.5 Advances of Expenses..........................................23
Section 6.6 Indemnification Not Exclusive, etc............................23
Section 6.7 Liability of Third Persons Dealing with
Trustees......................................................24
ARTICLE VII. MISCELLANEOUS.................................................24
- ----------- -------------
Section 7.1 Duration and Termination of Trust.............................24
Section 7.2 Reorganization................................................24
Section 7.3 Amendments....................................................25
Section 7.4 Filing of Copies; References; Headings........................25
Section 7.5 Applicable Law................................................26
Section 7.6 Resident Agent................................................26
- iii -
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made this 12th day of June, 1996, by
the Trustees hereunder, and by the holders of Shares of beneficial interest to
be issued hereunder as hereinafter provided.
WITNESSETH:
WHEREAS, this Trust is being formed to carry on the business
of an investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of Shares of beneficial interest in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 NAME. This Trust shall be known as "Profit Funds Investment
Trust" and the Trustees shall conduct the business of the Trust under that name
or any other name as they may from time to time determine. Until the Trustees
determine otherwise, the principal place of business of the Trust is 2 Wisconsin
Circle, Suite 510, Chevy Chase, Maryland 20815.
Section 1.2 DEFINITIONS. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust,
as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article III;
(c) "Shares" refers to the transferable units of interest into
which the beneficial interest in the Trust or any Series of
the Trust (as the context may require) shall be divided from
time to time;
(d) "Series" refers to Series of Shares established and
designated under or in accordance with the provisions of
Article IV;
(e) "Shareholder" means a record owner of Shares;
- 5 -
<PAGE>
(f) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as
amended from time to time;
(g) "Commission" shall have the meaning given it in the 1940
Act;
(h) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to
time; and
(i) "Bylaws" shall mean the Bylaws of the Trust as amended
from time to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to operate as an investment company, to
offer Shareholders one or more investment programs primarily in securities and
debt instruments and to engage in any and all lawful acts or activities.
ARTICLE III
THE TRUSTEES
Section 3.1 NUMBER, DESIGNATION, ELECTION, TERM, ETC.
----------- -----------------------------------------
(a) Initial Trustees. Upon execution of this Declaration of
Trust or a counterpart hereof or some other writing in
which he accepts such Trusteeship and agrees to the
provisions hereof Eugene A. Profit shall become a Trustee
hereof.
(b) Number. The Trustees serving as such, whether named
above or hereafter becoming a Trustee, may increase or
decrease the number of Trustees to a number other than
the number theretofore determined. No decrease in the
number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term,
but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to
subsection (e) of this Section 3.1.
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(c) Term. Each Trustee shall serve as a Trustee during the
lifetime of the Trust and until its termination as
hereinafter provided or until such Trustee sooner dies,
resigns, retires or is removed. The Trustees may elect
their own successors and may, pursuant to Section 3.1(f)
hereof, appoint Trustees to fill vacancies; provided
that, immediately after filling a vacancy, at least two-
thirds of the Trustees then holding office shall have
been elected to such office by the Shareholders at an
annual or special meeting. If at any time less than a
majority of the Trustees then holding office were so
elected, the Trustees shall forthwith cause to be held as
promptly as possible, and in any event within 60 days, a
meeting of Shareholders for the purpose of electing
Trustees to fill any existing vacancies.
(d) Resignation and Retirement. Any Trustee may resign his trust
or retire as a Trustee, by written instrument signed by him
and delivered to the other Trustees or to any officer of the
Trust, and such resignation or retirement shall take effect
upon such delivery or upon such later date as is specified in
such instrument.
(e) Removal. Any Trustee may be removed with or without
cause at any time: (i) by written instrument, signed by
at least two-thirds of the number of Trustees prior to
such removal, specifying the date upon which such removal
shall become effective, (ii) by vote of the Shareholders
holding not less than two-thirds of the Shares then
outstanding, cast in person or by proxy at any meeting
called for the purpose, or (iii) by a declaration in
writing signed by Shareholders holding not less than two-
thirds of the Shares then outstanding and filed with the
Trust's Custodian.
(f) Vacancies. Any vacancy or anticipated vacancy resulting
from any reason, including without limitation, the death,
resignation, retirement, removal or incapacity of any of
the Trustees or resulting from an increase in the number
of Trustees by the Trustees, may (but so long as there
are at least three remaining Trustees, need not unless
required by the 1940 Act) be filled either by a majority
of the remaining Trustees through the appointment in
writing of such other person as such remaining Trustees
in their discretion shall determine (unless a shareholder
election is required by the 1940 Act) or by the election
by the Shareholders, at a meeting called for the purpose,
of a person to fill such vacancy, and such appointment or
election shall be effective upon the written acceptance
of the person named therein to serve as a Trustee and
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agreement by such person to be bound by the provisions of this
Declaration of Trust, except that any such appointment or
election in anticipation of a vacancy to occur by reason of
retirement, resignation, or increase in number of Trustees to
be effective at a later date shall become effective only at or
after the effective date of said retirement, resignation, or
increase in number of Trustees. As soon as any Trustee so
appointed or elected shall have accepted such appointment or
election and shall have agreed in writing to be bound by this
Declaration of Trust and the appointment or election is
effective, the Trust estate shall vest in the new Trustee,
together with the continuing Trustees, without any further act
or conveyance.
(g) Effect of Death, Resignation, etc. The death, resignation,
retirement, removal, or incapacity of the Trustees, or any one
of them, shall not operate to annul or terminate the Trust or
to revoke or terminate any existing agency or contract created
or entered into pursuant to the terms of this Declaration of
Trust.
(h) No Accounting. Except to the extent required by the 1940 Act
or under circumstances which would justify his removal for
cause, no person ceasing to be a Trustee as a result of his
death, resignation, retirement, removal or incapacity (nor the
estate of any such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such
cessation.
Section 3.2 POWERS OF THE TRUSTEES. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. Without limiting the
foregoing, the Trustees may: adopt Bylaws not inconsistent with this Declaration
of Trust providing for the conduct of the business and affairs of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders; they may, as they consider appropriate, elect and
remove officers and appoint and terminate agents and consultants and hire and
terminate employees, any one or more of the foregoing of whom may be a Trustee,
and may provide for the compensation of all of the foregoing; they may appoint
from their own number, and terminate, any one or more committees consisting of
two or more Trustees, including without implied limitation an executive
committee, which may, when the Trustees are not in session and subject to the
1940 Act, exercise some or all of the power and authority of the Trustees as the
Trustees may determine; in accordance with Section 3.3 they may employ one or
more advisers, administrators, depositories and custodians and may
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authorize any depository or custodian to employ subcustodians or agents and to
deposit all or any part of such assets in a system or systems for the central
handling of securities and debt instruments, retain transfer, dividend,
accounting or Shareholder servicing agents or any of the foregoing, provide for
the distribution of Shares by the Trust through one or more distributors,
principal underwriters or otherwise, set record dates or times for the
determination of Shareholders or various of them with respect to various
matters; they may compensate or provide for the compensation of the Trustees,
officers, advisers, administrators, custodians, other agents, consultants and
employees of the Trust or the Trustees on such terms as they deem appropriate;
and in general they may delegate to any officer of the Trust, to any committee
of the Trustees and to any employee, adviser, administrator, distributor,
principal underwriter, depository, custodian, transfer and dividend disbursing
agent, or any other agent or consultant of the Trust such authority, powers,
functions and duties as they consider desirable or appropriate for the conduct
of the business and affairs of the Trust, including without implied limitation
the power and authority to act in the name of the Trust and of the Trustees, to
sign documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority:
(a) Investments. To invest and reinvest cash and other
property, and to hold cash or other property uninvested
without in any event being bound or limited by any
present or future law or custom in regard to investments
by trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or
all of the assets of the Trust;
(c) Ownership Powers. To vote or give assent, or exercise
any rights of ownership, with respect to stock or other
securities, debt instruments or property and to execute
and deliver proxies or powers of attorney to such person
or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with
relation to securities, debt instruments or property as
the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of
subscription or otherwise which in any manner arise out
of ownership of securities or debt instruments;
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(e) Form of Holding. To hold any security, debt instrument or
property in a form not indicating any trust, whether in
bearer, unregistered or other negotiable form, or in the name
of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depository or a nominee or nominees or
otherwise;
(f) Reorganization, etc. To consent to or participate in any
plan for the reorganization, consolidation or merger of
any corporation or issuer, any security or debt
instrument of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or
sale of property by such corporation or issuer, and to
pay calls or subscriptions with respect to any security
or debt instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of any
securities or debt instruments in acting through a
committee, depository, voting trustee or otherwise, and
in that connection to deposit any security or debt
instrument with, or transfer any security or debt
instrument to, any such committee, depository or trustee,
and to delegate to them such power and authority with
relation to any security or debt instrument (whether or
not so deposited or transferred) as the Trustees shall
deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such
committee, depository or trustee as the Trustees shall
deem proper;
(h) Compromise. To compromise, arbitrate or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy, including but not limited to claims for
taxes;
(i) Partnerships, etc. To enter into joint ventures, general
or limited partnerships and any other combinations or
associations;
(j) Borrowing and Security. To borrow funds and to mortgage
and pledge the assets of the Trust or any part thereof to
secure obligations arising in connection with such
borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment of any
notes or other obligations of any person; to make contracts of
guaranty or suretyship, or otherwise assume liability for
payment thereof; and to mortgage and pledge the Trust property
or any part thereof to secure any of or all such obligations;
and
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(l) Insurance. To purchase and pay for entirely out of Trust
property such insurance as they may deem necessary or
appropriate for the conduct of the business, including,
without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance
policies insuring the Shareholders, Trustees, officers,
employees, agents, consultants, investment advisers,
managers, administrators, distributors, principal
underwriters, or independent contractors, or any thereof
(or any person connected therewith), of the Trust
individually against all claims and liabilities of every
nature arising by reason of holding, being or having held
any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person
in any such capacity, including any action taken or
omitted that may be determined to constitute negligence;
provided, however, that insurance which protects the
Trustees and officers against liabilities rising from
action involving willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of their offices may not be purchased.
(m) Pensions, etc. To pay pensions for faithful service, as
deemed appropriate by the Trustees, and to adopt,
establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the Bylaws, any action to be taken by the Trustees
may be taken by a majority of the Trustees present at a meeting of Trustees (a
quorum, consisting of at least a majority of the Trustees then in office, being
present), within or without Massachusetts, including any meeting held by means
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other at the same time
and participation by such means shall constitute presence in person at a
meeting, or by written consents of a majority of the Trustees then in office (or
such larger or different number as may be required by the 1940 Act or other
applicable law).
Section 3.3 CERTAIN CONTRACTS. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or
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more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other type of organizations, or individuals
("Contracting Party") to provide for the performance and assumption of some or
all of the following services, duties and responsibilities to, for or of the
Trust and/or the Trustees, and to provide for the performance and assumption of
such other services, duties and responsibilities in addition to those set forth
below as the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the
Trustees and in conformity with the stated policy of the
Trustees with respect to the investments of the Trust or
of the assets belonging to any Series of Shares of the
Trust (as that phrase is defined in subsection (a) of
Section 4.2), to manage such investments and assets, make
investment decisions with respect thereto, and to place
purchase and sale orders for portfolio transactions
relating to such investments and assets;
(b) Administration. Subject to the general supervision of
the Trustees and in conformity with any policies of the
Trustees with respect to the operations of the Trust, to
supervise all or any part of the operations of the Trust,
and to provide all or any part of the administrative and
clerical personnel, office space and office equipment and
services appropriate for the efficient administration and
operations of the Trust;
(c) Distribution. To distribute the Shares of the Trust, to
be principal underwriter of such Shares, and/or to act as
agent of the Trust in the sale of Shares and the
acceptance or rejection of orders for the purchase of
Shares;
(d) Custodian and Depository. To act as depository for and
to maintain custody of the property of the Trust and
accounting records in connection therewith;
(e) Transfer and Dividend Disbursing Agency. To maintain
records of the ownership of outstanding Shares, the
issuance and redemption and the transfer thereof, and to
disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest
any such dividends;
(f) Shareholder Servicing. To provide service with respect
to the relationship of the Trust and its Shareholders,
records with respect to Shareholders and their Shares,
and similar matters; and
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(g) Legal, Accounting, Taxes and Other. To handle all or any
part of the legal, accounting, tax or other
responsibilities, whether with respect to the Trust's
properties, Shareholders or otherwise.
The same person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine. Nothing herein
shall preclude, prevent or limit the Trust or a Contracting Party from entering
into subcontractual arrangements relative to any of the matters referred to in
Sections 3.3(a) through (g) hereof.
Subject to the provisions of the 1940 Act, the fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any Contracting Party, or of or for any parent or affiliate of any
Contracting Party or that the Contracting Party or any parent or
affiliate thereof is a Shareholder or has an interest in the Trust, or
that
(ii) any Contracting Party may have a contract providing for
the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited partnerships
or other organizations, or has other business or interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust and/or the
Trustees or disqualify any Shareholder, Trustee or officer of the Trust from
voting upon or executing the same or create any liability or accountability to
the Trust or its Shareholders, provided that in the case of any relationship or
interest referred to in the preceding clause (i) on the part of any Trustee or
officer of the Trust either (1) the material facts as to such relationship or
interest have been disclosed to or are known by the Trustees not having any such
relationship or interest and the contract involved is approved in good faith
reasonably justified by such facts by a majority of such Trustees not having any
such relationship or interest (even though such unrelated or disinterested
Trustees are less than a quorum of all of the Trustees), or (2) the specific
contract involved is fair to the Trust as of the time it is authorized, approved
or ratified by the Trustees or by the Shareholders.
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Section 3.4 PAYMENT OF TRUST EXPENSES AND COMPENSATION OF TRUSTEES. The
Trustees are authorized to pay or to cause to be paid out of the principal or
income of the Trust, or partly out of principal and partly out of income, and to
charge or allocate the same to, between or among such one or more of the Series
that may be established and designated pursuant to Article IV, as the Trustees
deem fair, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the Trust, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees,
investment adviser, administrator, distributor, principal underwriter, auditor,
counsel, depository, custodian, transfer agent, dividend disbursing agent,
accounting agent, Shareholder servicing agent, and such other agents,
consultants, and independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur. Without limiting the
generality of any other provision hereof, the Trustees shall be entitled to
reasonable compensation from the Trust for their services as Trustees and may
fix the amount of such compensation.
Section 3.5 OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of the Trust shall at all times be considered as vested in the Trustees.
ARTICLE IV
SHARES
Section 4.1 DESCRIPTION OF SHARES. The beneficial interest in the Trust
shall be divided into Shares, all without par value, but the Trustees shall have
the authority from time to time to divide the Shares into two or more Series of
Shares, as they deem necessary or desirable, to establish and designate such
Series, and to fix and determine the relative rights and preferences as between
the different Series of Shares as to right of redemption and the price, terms
and manner of redemption, special and relative rights as to dividends and other
distributions and on liquidation, sinking or purchase fund provisions,
conversion rights, and conditions under which the several Series shall have
separate voting rights or no voting rights. Except as aforesaid all Shares of
the different Series shall be identical.
The Shares of each Series may be issued or reissued from time to time
in one or more classes ("Classes"), as determined by the Board of Trustees
pursuant to resolution. Each Class shall be appropriately designated, prior to
the issuance of any shares thereof, by some distinguishing letter, number or
title. All Shares within a Class shall be alike in every particular. All Shares
of each Series shall be of equal rank and have the same
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powers, preferences and rights, and shall be subject to the same qualifications,
limitations and restrictions without distinction between the shares of different
Classes thereof, except with respect to such differences among such Classes, as
the Board of Trustees shall from time to time determine to be necessary or
desirable, including differences in the rate or rates of dividends or
distributions. The Board of Trustees may from time to time increase the number
of Shares allocated to any Class already created by providing that any unissued
Shares of the applicable Series shall constitute part of such Class, or may
decrease the number of Shares allocated to any Class already created by
providing that any unissued Shares previously assigned to such Class shall no
longer constitute part thereof. The Board of Trustees is hereby empowered to
classify or reclassify from time to time any unissued Shares of each Series by
fixing or altering the terms thereof and by assigning such unissued shares to an
existing or newly created Class. Notwithstanding anything to the contrary in
this paragraph the Board of Trustees is hereby empowered (i) to redesignate any
issued Shares of any Series by assigning a distinguishing letter, number or
title to such shares and (ii) to reclassify all or any part of the issued Shares
of any Series to make them part of an existing or newly created Class.
The number of authorized Shares and the number of Shares of each Series
that may be issued is unlimited, and the Trustees may issue Shares of any Series
for such consideration and on such terms as they may determine (or for no
consideration if pursuant to a Share dividend or split-up), all without action
or approval of the Shareholders. All Shares when so issued on the terms
determined by the Trustees shall be fully paid and non-assessable (but may be
subject to mandatory contribution back to the Trust as provided in subsection
(g) of Section 4.2). The Trustees may classify or reclassify any unissued Shares
or any Shares previously issued and reacquired of any Series into one or more
Series that may be established and designated from time to time. The Trustees
may hold as treasury Shares (of the same or some other Series), reissue for such
consideration and on such terms as they may determine, or cancel, at their
discretion from time to time, any Shares of any Series reacquired by the Trust.
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Series of Shares in addition
to that established and designated in Section 4.2, or of any Class of Shares,
shall be effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights and
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preferences of such Series or Class, or as otherwise provided in such
instrument. At any time that there are no Shares outstanding of any particular
Series or Class previously established and designated the Trustees may by an
instrument executed by a majority of their number abolish that Series or Class
and the establishment and designation thereof. Each instrument referred to in
this paragraph shall have the status of an amendment to this Declaration of
Trust.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested, may acquire, own, hold and dispose of
Shares of any Series of the Trust to the same extent as if such person were not
a Trustee, officer or other agent of the Trust; and the Trust may issue and sell
or cause to be issued and sold and may purchase Shares of any Series from any
such person or any such organization subject only to the general limitations,
restrictions or other provisions applicable to the sale or purchase of Shares of
such Series generally.
Section 4.2 ESTABLISHMENT AND DESIGNATION OF SERIES. Without limiting
the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Series, the Trustees hereby establish and designate two
Series of Shares: The "Profit Lomax Value Fund" and the "Profit Lomax
Institutional Equity Fund". The Shares of the Profit Lomax Value Fund and the
Profit Lomax Institutional Equity Fund and any Shares of any further Series that
may from time to time be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some further Series or
Class at the time of establishing and designating the same) have the following
relative rights and preferences:
(a) Assets Belonging to Series. All consideration received
by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such
consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors,
and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings,
profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same
may be, together with any General Items allocated to that
Series as provided in the following sentence, are herein
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referred to as "assets belonging to" that Series. In the event
that there are any assets, incomes, earnings, profits, and
proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Series
(collectively "General Items"), the Trustees shall allocate
such General Items to and among any one or more of the Series
established and designated from time to time in such manner
and on such basis as they, in their sole discretion, deem fair
and equitable; and any General Items so allocated to a
particular Series shall belong to that Series. Each such
allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes.
The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall
be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding
upon the Shareholders.
(b) Liabilities Belonging to Series. The assets belonging to
each particular Series shall be charged with the
liabilities of the Trust in respect of that Series and
all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees to
and among any one or more of the Series established and
designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges
and reserves allocated and so charged to a Series are
herein referred to as "liabilities belonging to" that
Series. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive
and binding upon the holders of all Series for all
purposes.
(c) Dividends. Dividends and distributions on Shares of a
particular Series may be paid with such frequency as the
Trustees may determine, which may be daily or otherwise
pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Series, from
such of the estimated income and capital gains, accrued
or realized, from the assets belonging to that Series, as
the Trustees may determine, after providing for actual
and accrued liabilities belonging to that Series. All
dividends and distributions on Shares of a particular
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Series shall be distributed pro rata to the holders of that
Series in proportion to the number of Shares of that Series
held by such holders at the date and time of record
established for the payment of such dividends or
distributions, except that in connection with any dividend or
distribution program or procedure the Trustees may determine
that no dividend or distribution shall be payable on Shares as
to which the Shareholder's purchase order and/or payment have
not been received by the time or times established by the
Trustees under such program or procedure, and except that if
Classes have been established for any Series, the rate of
dividends or distributions may vary among such Classes
pursuant to resolution, which may be a standing resolution, of
the Board of Trustees. Such dividends and distributions may be
made in cash or Shares or a combination thereof as determined
by the Trustees or pursuant to any program that the Trustees
may have in effect at the time for the election by each
Shareholder of the mode of the making of such dividend or
distribution to that Shareholder. Any such dividend or
distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with subsection (h)
of Section 4.2.
The Trust intends to qualify each Series as a "regulated
investment company" under the Internal Revenue Code of 1986,
as amended, or any successor or comparable statute thereto,
and regulations promulgated thereunder. Inasmuch as the
computation of net income and gains for federal income tax
purposes may vary from the computation thereof on the books of
the Trust, the Board of Trustees shall have the power, in its
sole discretion, to distribute in any fiscal year as
dividends, including dividends designated in whole or in part
as capital gains distributions, amounts sufficient, in the
opinion of the Board of Trustees, to enable each Series to
qualify as a regulated investment company and to avoid
liability of the Series for federal income tax in respect of
that year. However, nothing in the foregoing shall limit the
authority of the Board of Trustees to make distributions
greater than or less than the amount necessary to qualify as a
regulated investment company and to avoid liability of each
Series for such tax.
(d) Liquidation. In event of the liquidation or dissolution of the
Trust, the Shareholders of each Series that has been
established and designated shall be entitled to receive, as a
Series, when and as declared by the Trustees, the excess of
the assets belonging to that Series over the liabilities
belonging to that Series.
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The assets so distributable to the Shareholders of any
particular Series shall be distributed among such Shareholders
in proportion to the number of Shares of that Series held by
them and recorded on the books of the Trust. The liquidation
of any particular Series may be authorized by vote of a
majority of the Trustees then in office subject to the
approval of a majority of the outstanding voting Shares of
that Series, as defined in the 1940 Act.
(e) Voting. All shares of all Series shall have "equal
voting rights" as such term is defined in the Investment
Company Act of 1940 and except as otherwise provided by
that Act or rules, regulations or orders promulgated
thereunder. On each matter submitted to a vote of the
Shareholders, all Shares of all Series shall vote as a
single class ("Single Class Voting"); provided, however,
that (a) as to any matter with respect to which a
separate vote of any Series is required by the 1940 Act
or rules and regulations promulgated thereunder, or would
be required under the Massachusetts Business Corporation
Law if the Trust were a Massachusetts corporation, such
requirements as to a separate vote by that Series shall
apply in lieu of Single Class Voting as described above;
(b) in the event that the separate vote requirements
referred to in (a) above apply with respect to one or
more Series, then, subject to (c) below, the Shares of
all other Series shall vote as a single class; and (c) as
to any matter which does not affect the interest of a
particular Series, only the holders of Shares of the one
or more affected Series shall be entitled to vote.
(f) Redemption by Shareholder. Each holder of Shares of a
particular Series shall have the right at such times as
may be permitted by the Trust, but no less frequently
than once each week, to require the Trust to redeem all
or any part of his Shares of that Series at a redemption
price equal to the net asset value per Share of that
Series next determined in accordance with subsection (h)
of this Section 4.2 after the Shares are properly
tendered for redemption. Payment of the redemption price
shall be in cash; provided, however, that if the Trustees
determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise
or undesirable, the Trust may make payment wholly or
partly in securities or other assets belonging to the
Series of which the Shares being redeemed are part at the
value of such securities or assets used in such
determination of net asset value.
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Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the
holders of Shares of any Series to require the Trust to redeem
Shares of that Series during any period or at any time when
and to the extent permissible under the 1940 Act, and such
redemption is conditioned upon the Trust having funds or
property legally available therefor.
(g) Redemption by Trust. Each Share of each Series that has
been established and designated is subject to redemption
by the Trust at the redemption price which would be
applicable if such Share was then being redeemed by the
Shareholder pursuant to subsection (f) of this Section
4.2: (a) at any time, if the Trustees determine in their
sole discretion that failure to so redeem may have
materially adverse consequences to all or any of the
holders of the Shares, or any Series thereof, of the
Trust, or (b) upon such other conditions as may from time
to time be determined by the Trustees and set forth in
the then current Prospectus of the Trust with respect to
maintenance of Shareholder accounts of a minimum amount.
Upon such redemption the holders of the Shares so
redeemed shall have no further right with respect thereto
other than to receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any
Series shall be the quotient obtained by dividing the
value of the net assets of that Series (being the value
of the assets belonging to that Series less the
liabilities belonging to that Series) by the total number
of Shares of that Series outstanding, all determined in
accordance with the methods and procedures, including
without limitation those with respect to rounding,
established by the Trustees from time to time.
(i) Transfer. All Shares of each particular Series shall be
transferable, but transfers of Shares of a particular Series
will be recorded on the Share transfer records of the Trust
applicable to that Series only at such times as Shareholders
shall have the right to require the Trust to redeem Shares of
that Series and at such other times as may be permitted by the
Trustees.
(j) Equality. All Shares of each particular Series shall represent
an equal proportionate interest in the assets belonging to
that Series (subject to the liabilities belonging to that
Series), and each Share of any particular Series shall be
equal to each other Share of that Series; but the provisions
of this sentence shall
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not restrict any distinctions permissible under subsection (c)
of this Section 4.2 that may exist with respect to dividends
and distributions on Shares of the same Series. The Trustees
may from time to time divide or combine the Shares of any
particular Series into a greater or lesser number of Shares of
that Series without thereby changing the proportionate
beneficial interest in the assets belonging to that Series or
in any way affecting the rights of Shares of any other Series.
(k) Fractions. Any fractional Share of any Series or Class, if any
such fractional Share is outstanding, shall carry
proportionately all the rights and obligations of a whole
Share of that Series or Class, including with respect to
voting, receipt of dividends and distributions, redemption of
Shares, and liquidation of the Trust.
(l) Conversion Rights. Subject to compliance with the requirements
of the 1940 Act, the Trustees shall have the authority to
provide that holders of Shares of any Series shall have the
right to convert said Shares into Shares of one or more other
Series of Shares in accordance with such requirements and
procedures as may be established by the Trustees.
Section 4.3 OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Series
that has been established and designated. No certificates certifying the
ownership of Shares need be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the use of facsimile
signatures, the transfer of Shares and similar matters. The record books of the
Trust as kept by the Trust or any transfer or similar agent, as the case may be,
shall be conclusive as to who are the Shareholders and as to the number of
Shares of each Series and Class held from time to time by each such Shareholder.
Section 4.4 INVESTMENTS IN THE TRUST. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares whether or not conforming to such
authorized terms.
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Section 4.5 NO PREEMPTIVE RIGHTS. Shareholders shall have
no preemptive or other right to subscribe to any additional Shares
or other securities issued by the Trust.
Section 4.6 STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance of
the Trust shall not operate to terminate the Trust nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders as
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor,
except as specifically provided herein, to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Section 3.1,
(ii) with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is required by the 1940 Act, (iii)
with respect to any termination or reorganization of the Trust or any Series to
the extent and as provided in Sections 7.1 and 7.2, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Section
7.3, (v) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the Shareholders, and (vi) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act, this
Declaration of Trust, the Bylaws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. There shall be no cumulative voting in the
election of any Trustee or Trustees. Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless
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at or prior to exercise of the proxy the Trust receives a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on the
challenger. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of Trust
or the Bylaws to be taken by Shareholders.
Section 5.2 MEETINGS. Meetings (including meetings involving only the
holders of Shares of one or more but less than all Series) of Shareholders may
be called by the Trustees from time to time for the purpose of taking action
upon any matter requiring the vote or authority of the Shareholders as herein
provided or upon any other matter deemed by the Trustees to be necessary or
desirable. Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at least seven days
before such meeting, postage prepaid, stating the time, place and purpose of the
meeting, to each Shareholder at the Shareholder's address as it appears on the
records of the Trust. The Trustees shall promptly call and give notice of a
meeting of Shareholders for the purpose of voting upon removal of any Trustee of
the Trust when requested to do so in writing by Shareholders holding not less
than 10% of the Shares then outstanding. If the Trustees shall fail to call or
give notice of any meeting of Shareholders (including a meeting involving only
the holders of Shares of one or more but less than all Series) for a period of
30 days after written application by Shareholders holding at least 25% of the
Shares then outstanding requesting a meeting be called for any other purpose
requiring action by the Shareholders as provided herein or in the Bylaws, then
Shareholders holding at least 25% of the Shares then outstanding may call and
give notice of such meeting, and thereupon the meeting shall be held in the
manner provided for herein in case of call thereof by the Trustees.
Section 5.3 RECORD DATES. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 60 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated as Shareholders
of record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or (subject to any
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provisions permissible under subsection (c) of Section 4.2 with respect to
dividends or distributions on Shares that have not been ordered and/or paid for
by the time or times established by the Trustees under the applicable dividend
or distribution program or procedure then in effect) to be treated as a
Shareholder of record for purposes of such other action, even though he has
since that date and time disposed of his Shares, and no Shareholder becoming
such after that date and time shall be so entitled to vote at such meeting or
any adjournment thereof or to be treated as a Shareholder of record for purposes
of such other action.
Section 5.4 QUORUM AND REQUIRED VOTE. A majority of the Shares entitled
to vote shall be a quorum for the transaction of business at a Shareholders'
meeting, but any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting without the necessity of further notice. A
majority of the Shares voted, at a meeting of which a quorum is present, shall
decide any questions and a plurality shall elect a Trustee, except when a
different vote is required or permitted by any provision of the 1940 Act or
other applicable law or by this Declaration of Trust or the Bylaws.
Section 5.5 ACTION BY WRITTEN CONSENT. Subject to the provisions of the
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such other proportion thereof as shall be required by the 1940 Act or by any
express provision of this Declaration of Trust or the Bylaws) consent to the
action in writing and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
Section 5.6 INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Massachusetts business corporation under the Massachusetts
Business Corporation Law.
Section 5.7 ADDITIONAL PROVISIONS. The Bylaws may include
further provisions for Shareholders' votes and meetings and related
matters not inconsistent with the provisions hereof.
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ARTICLE VI
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 6.1 TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Trust for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Every note, bond, contract,
instrument, certificate or undertaking and every other act or thing whatsoever
executed or done by or on behalf of the Trust or the Trustees or any of them in
connection with the Trust shall be conclusively deemed to have been executed or
done only by or for the Trust or the Trustees and not personally. Nothing in
this Declaration of Trust shall protect any Trustee or officer against any
liability to the Trust or the Shareholders to which such Trustee or officer
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
this Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and shall recite to the effect that the same was executed or made
by or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are not
binding upon any of them or the Shareholders individually but are binding only
upon the assets and property of the Trust, but the omission thereof shall not
operate to bind any Trustees or Trustee or officers or officer or Shareholders
or Shareholder individually.
Section 6.2 TRUSTEE'S GOOD FAITH ACTION; EXPERT ADVICE; NO BOND OR
SURETY. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent, employee,
consultant, adviser, administrator, distributor or principal underwriter,
custodian or transfer, dividend disbursing, Shareholder servicing or accounting
agent of the Trust, nor shall any Trustee be responsible for the act or omission
of any other Trustee; (b) the Trustees may take
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advice of counsel or other experts with respect to the meaning and operation of
this Declaration of Trust and their duties as Trustees, and shall be under no
liability for any act or omission in accordance with such advice or for failing
to follow such advice; and (c) in discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by any officer appointed by
them, any independent public accountant, and (with respect to the subject matter
of the contract involved) any officer, partner or responsible employee of a
Contracting Party appointed by the Trustees pursuant to Section 3.3. The
Trustees as such shall not be required to give any bond or surety or any other
security for the performance of their duties.
Section 6.3 INDEMNIFICATION OF SHAREHOLDERS. In case any
Shareholder or former Shareholder shall be charged or held to be
personally liable for any obligation or liability of the Trust
solely by reason of being or having been a Shareholder and not
because of such Shareholder's acts or omissions or for some other
reason, the Trust (upon proper and timely request by the
Shareholder) shall assume the defense against such charge and
satisfy any judgment thereon, and the Shareholder or former
Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out of
the assets of the Trust estate to be held harmless from and
indemnified against all loss and expense arising from such
liability.
Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. Subject to and
except as otherwise provided in the Securities Act of 1933, as amended, and the
1940 Act, the Trust shall indemnify each of its Trustees and officers, including
persons who serve at the Trust's request as directors, officers or trustees of
another organization in which the Trust has any interest as a shareholder,
creditor or otherwise (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
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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 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.
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Section 6.7 LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
ARTICLE VII
MISCELLANEOUS
Section 7.1 DURATION AND TERMINATION OF TRUST. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by a majority of the Trustees then in office
subject to a favorable vote of a majority of the outstanding voting Shares, as
defined in the 1940 Act, of each Series voting separately by Series.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of subsection (d) of Section 4.2.
Section 7.2 REORGANIZATION. The Trustees may sell, convey and transfer
the assets of the Trust, or the assets belonging to any one or more Series, to
another trust, partnership, association or corporation organized under the laws
of any state of the United States, or to the Trust to be held as assets
belonging to another Series of the Trust, in exchange for cash, shares or other
securities (including, in the case of a transfer to another Series of the Trust,
Shares of such other Series) with such transfer being made subject to, or with
the assumption by the transferee of, the liabilities belonging to each Series
the assets of which are so transferred; provided, however, that if shareholder
approval is required by the 1940 Act, no assets belonging to any particular
Series shall be so transferred unless the terms of such transfer shall have
first been approved at a meeting called for the purpose by the affirmative vote
of the holders of a majority of the outstanding voting Shares, as defined in the
1940 Act, of that Series. Following such transfer, the Trustees shall distribute
such cash, shares or other securities (giving due effect to the assets and
liabilities belonging to and any other differences among the various Series the
assets belonging to which have so been transferred) among the Shareholders of
the Series the assets belonging to which have been so transferred; and if all of
the assets of the Trust have been so transferred, the Trust shall be terminated.
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Section 7.3 AMENDMENTS. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time by an instrument in
writing signed by a majority of the then Trustees (or by an officer of the Trust
pursuant to the vote of a majority of such Trustees), when authorized so to do
by the vote in accordance with subsection (e) of Section 4.2 of Shareholders
holding a majority of the Shares entitled to vote, except that amendments either
(a) establishing and designating any new Series of Shares not established and
designated in Section 4.2, or any Class or (b) having the purpose of changing
the name of the Trust or the name of any Shares theretofore established and
designated or of supplying any omission, curing any ambiguity or curing,
correcting or supplementing any provision hereof which is internally
inconsistent with any other provision hereof or which is defective or
inconsistent with the 1940 Act or with the requirements of the Internal Revenue
Code and applicable regulations for the Trust's obtaining the most favorable
treatment thereunder available to regulated investment companies, shall not
require authorization by Shareholder vote. Subject to the foregoing, any such
amendment shall be effective as provided in the instrument containing the terms
of such amendment or, if there is no provision therein with respect to
effectiveness, upon the execution of such instrument and of a certificate (which
may be a part of such instrument) executed by a Trustee or officer of the Trust
to the effect that such amendment has been duly adopted.
Section 7.4 FILING OF COPIES; REFERENCES; HEADINGS. The
original or a copy of this instrument and of each amendment hereto
shall be kept at the office of the Trust where it may be inspected
by any Shareholder. A copy of this instrument and of each
amendment hereto shall be filed by the Trust with the Secretary of
the Commonwealth of Massachusetts and with the Boston City Clerk,
as well as any other governmental office where such filing may from
time to time be required, but the failure to make any such filing
shall not impair the effectiveness of this instrument or any such
amendment. Anyone dealing with the Trust may rely on a certificate
by an officer of the Trust as to whether or not any such amendments
have been made, as to the identities of the Trustees and officers,
and as to any matters in connection with the Trust hereunder; and,
with the same effect as if it were the original, may rely on a copy
certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in
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any such amendment, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder" shall be deemed to refer to this instrument
as a whole as the same may be amended or affected by any such amendments. The
masculine gender shall include the feminine and neuter genders. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
Section 7.5 APPLICABLE LAW. This Declaration of Trust is created under
and is to be governed by and construed and administered according to the laws of
the Commonwealth of Massachusetts, including the Massachusetts Business
Corporation Law as the same may be amended from time to time, but the reference
to said Corporation Law is not intended to give the Trust, the Trustees, the
Shareholders or any other person any right, power, authority or responsibility
available only to or in connection with an entity organized in corporate form.
The Trust shall be of the type referred to in Section 1 of Chapter 182 of the
Massachusetts General Laws and of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 7.6 RESIDENT AGENT. The Trust shall maintain a resident agent
in the Commonwealth of Massachusetts, which agent shall initially be CT
Corporation System, Two Oliver Street, Boston, Massachusetts 02109. The Trustees
may designate a successor resident agent; provided, however, that such
appointment shall not become effective until written notice thereof is delivered
to the office of Secretary of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands for
themselves and their assigns, as of the day and year first above written.
/s/ Eugene A. Profit
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BYLAWS
OF
PROFIT FUNDS INVESTMENT TRUST
ARTICLE 1
Agreement and Declaration of Trust and Offices
1.1 Agreement and Declaration of Trust. These Bylaws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Profit Funds Investment Trust, the Massachusetts
business trust established by the Declaration of Trust (the "Trust").
1.2 Offices. The Trust may maintain one or more other offices,
including its principal office, in or outside of Massachusetts, in such cities
as the Trustees may determine from time to time. Unless the Trustees otherwise
determine, the principal office of the Trust shall be located in Chevy Chase,
Maryland.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees. A regular
meeting of the Trustees may be held without call or notice immediately after and
at the same place as any meeting of the shareholders.
2.2 Special Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Board or the Treasurer or by two or more Trustees,
sufficient notice thereof being given to each Trustee by the Secretary or an
Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his or
her usual or last known business or residence address or to give notice to him
or her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any
<PAGE>
Trustee if a written waiver of notice, executed by him or her before or after
the meeting, is filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to him or her. Neither notice of a meeting nor a waiver of a
notice need specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5 Participation by Telephone. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting except as
otherwise provided by the Investment Company Act of 1940.
2.6 Action by Consent. Any action required or permitted to be taken at
any meeting of the Trustees or any committee thereof may be taken without a
meeting, if a written consent of such action is signed by a majority of the
Trustees then in office or a majority of the members of such committee, as the
case may be, and such written consent is filed with the minutes of the
proceedings of the Trustees or such committee.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
President, a Treasurer, a Secretary and such other officers, including Vice
Presidents, if any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from time to time may
in their discretion appoint. The President of the Trust shall be a Trustee and
may but need not be a shareholder; and any other officer may be but none need be
a Trustee or shareholder. Any two or more offices may be held by the same
person.
3.2 Election. The President, the Treasurer and the Secretary shall be
elected annually by the Trustees. Other officers, if any, may be elected or
appointed by the Trustees at any time. Vacancies in any office may be filled at
any time.
3.3 Tenure. The President, the Treasurer and the Secretary shall hold
office for one year and until their respective
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successors are chosen and qualified, or in each case until he or she sooner
dies, resigns, is removed or becomes disqualified. Each other officer shall hold
office and each agent shall retain authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these Bylaws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5 President. Unless the Trustees otherwise provide, the President, or
in the absence of the President, any other Trustee chosen by the Trustees, shall
preside at all meetings of the shareholders and of the Trustees. The President
shall be the chief executive officer of the Trust.
3.6 Treasurer. The Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or transfer, shareholder servicing or
similar agent, be in charge of the valuable papers, books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
3.7 Secretary. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.8 Resignations and Removals. Any Trustee or officer may resign at any
time by written instrument signed by him or her and delivered to the Chairman of
the Board or the Secretary or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. The Trustees may remove any officer elected by them with or without cause.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee or officer resigning and no officer removed shall have any right to
any compensation for any period following his or her resignation or removal, or
any right to damages on account of such removal.
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ARTICLE 4
Committees
4.1 General. The Trustees, by vote of a majority of the Trustees then
in office, may elect from their number an Executive Committee or other
committees and may delegate thereto some or all of their powers except those
which by law, by the Declaration of Trust, or by these Bylaws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these Bylaws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its action to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. The fiscal year of the Trust shall be fixed, and shall be
subject to change by the Trustees.
ARTICLE 7
Seal
7.1 General. If required by applicable law, the seal of the Trust shall
consist of a flat-faced die with the word "Massachusetts", together with the
name of the Trust and the year of its organization cut or engraved thereon, but,
unless otherwise required by the Trustees, the seal shall not be necessary to be
placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
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ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the Chairman of the Board, the President, any Vice President, the Secretary or
the Treasurer and need not bear the seal of the Trust, but shall state the
substance of or make reference to the provisions of Section 6.1 of the
Declaration of Trust.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to a certificate
stating the number of shares owned by him, in such form as shall be prescribed
from time to time by the Trustees. Such certificate shall be signed by the
President and by the Treasurer or Assistant Treasurer. Such signatures may be
facsimiles if the certificate is signed by a transfer agent, or by a registrar,
other than a Trustee, officer or employee of the Trust. In case any officer who
has signed or whose facsimile signature has been placed on such certificate
shall cease to be such officer before such certificate is issued, it may be
issued by the Trust with the same effect as if he were such officer at the time
of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificate to Pledgee. In the event certificates
have been issued, a pledgee of shares transferred as collateral security shall
be entitled to a new certificate if the instrument of transfer substantially
describes the debt or duty that is intended to be secured thereby. Such new
certificate shall express on its face that it is held as collateral security,
and the name of the pledgor shall be stated thereon, who alone shall be liable
as a shareholder, and entitled to vote thereon.
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9.4 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of share certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
ARTICLE 10
Custodian
10.1 General. The Trust shall at all times employ a bank or trust
company having a capital, surplus and undivided profits of at least Five Hundred
Thousand ($500,000) Dollars as Custodian of the capital assets of the Trust. The
Custodian shall be compensated for its services by the Trust and upon such basis
as shall be agreed upon from time to time between the Trust and the Custodian.
ARTICLE 11
Dealings with Trustees and Officers
11.1 General. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of shares of the Trust to the same extent as if he were
not a Trustee, officer or agent; and the Trustees may accept subscriptions to
shares or repurchase shares from any firm or company in which he is interested.
ARTICLE 12
Shareholders
12.1 Meetings. A meeting of the shareholders of the Trust shall be held
whenever called by the Trustees, whenever election of a Trustee or Trustees by
shareholders is required by the provisions of Section 16(a) of the Investment
Company Act of 1940 for that purpose or whenever otherwise required pursuant to
the Declaration of Trust. Any meeting shall be held on such day and at such time
as the President or the Trustees may fix in the notice of the meeting.
12.2 Record Dates. For the purpose of determining the shareholders who
are entitled to vote or act at any meeting or any adjournment thereof, or who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a time, which shall be not more than 60
days before the date of any meeting of shareholders or the date for the payment
of any dividend or of any other distribution, as the record date for determining
the shareholders having the right to notice of and to vote at such meeting and
any adjournment
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thereof or the right to receive such dividend or distribution, and in such case,
only shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any such
purposes close the register or transfer books for all or any part of such
period.
ARTICLE 13
Amendments to the Bylaws
13.1 General. These Bylaws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made this ____ day of _______, 1996,
between Profit Funds Investment Trust (the "Trust"), a business trust organized
under the laws of the Commonwealth of Massachusetts, and Investor Resources
Group (the "Manager"), a corporation organized under the laws of the State of
Delaware.
WHEREAS, the Trust has been organized to operate as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, the Trust currently consists of two series, the Profit Lomax
Value Fund and the Profit Lomax Institutional Equity (the "Funds"), and the
Trustees have the power to create additional series; and
WHEREAS, each Fund has been created for the purpose of investing and
reinvesting its assets in securities pursuant to the investment objective and
policies as set forth in the Trust's registration statements under the Act and
the Securities Act of 1933 ("Registration Statements"), as heretofore amended
and supplemented; and the Trust desires to avail itself of the services,
information, advice, assistance and facilities of a manager and to have a
manager provide or perform for it various management, statistical, portfolio
adviser selection and other services for the Funds; and
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended;
NOW, THEREFORE, the Trust and Manager agree as follows:
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1. Employment of the Manager. The Trust hereby employs the Manager to
manage the investment and reinvestment of the assets of each Fund in the manner
set forth in subparagraph 2B of this Agreement, subject to the direction of the
Board of Trustees and the officers of the Trust, for the period, in the manner,
and on the terms hereinafter set forth. The Manager hereby accepts such
employment and agrees during such period to render the services and to assume
the obligations herein set forth. The Manager shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or
represent the Funds in any way or otherwise be deemed an agent of the Funds.
2. Obligation of and Services to be Provided by the Manager. The Manager
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
A. Investment Management Services.
(a) The Manager shall have overall supervisory responsibility for the
general management and investment of the assets and portfolio
securities of each Fund subject to and in accordance with the
investment objective and policies of each Fund, and any directions
which the Trust's Board of Trustees may issue to the Manager from time
to time.
(b) The Manager shall provide overall investment programs and strategies
for each Fund, shall revise such programs as necessary and shall
monitor and report periodically to the Board of Trustees concerning
the implementation of the programs.
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(c) The Manager, with the approval of the Board of Trustees of the Trust
as to particular appointments, intends to (i) appoint one or more
persons or companies (the "Adviser") and, subject to the terms and
conditions of this Agreement, the Adviser shall have full investment
discretion and shall make all determinations with respect to the
investment of each Fund's assets and the purchase and sale of
portfolio securities with those assets, and (ii) take such steps as
may be necessary to implement such appointments. The Manager shall be
solely responsible for paying the fees and expenses of the Adviser for
its services to the Funds. The Manager shall not be responsible or
liable for the investment merits of any decision by the Adviser to
purchase, hold or sell a portfolio security for the Funds.
(d) The Manager shall evaluate advisers and shall recommend to the Board
of Trustees the adviser which the Manager believes is best suited to
invest the assets of each Fund; shall monitor and evaluate the
investment performance of the Adviser; shall recommend changes in the
Adviser when appropriate; shall coordinate the investment activities
of the Adviser to ensure compliance with applicable restrictions and
limitations applicable to the Fund; and shall compensate the Adviser.
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(e) The Manager shall render regular reports to the Trust, at regular
meetings of the Board of Trustees, of, among other things, the
portfolio investments of the Funds and measurement and analysis of the
results achieved by the Funds.
(f) The Manager shall employ or provide and compensate the executive,
administrative, secretarial and clerical personnel necessary to
provide the services set forth in this subparagraph 2B, and shall bear
the expense thereof, except as may otherwise be provided in Section 4
of this Agreement. The Manager shall also compensate all officers and
employees of the Trust who are officers or employees of the Manager.
(g) The Manager shall pay all expenses incurred in connection with the
sale or distribution of a Fund's shares; however, with respect to the
Profit Lomax Value Fund, the Manager shall pay such expenses only to
the extent such expenses are not assumed by the Profit Lomax Value
Fund under the Trust's Plan of Distribution.
B. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.
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The Manager will make available and provide financial, accounting and
statistical information required by the Trust in the preparation of registration
statements, reports and other documents required by federal and state securities
laws, and such information as the Trust may reasonably request for use in the
preparation of registration statements, reports and other documents required by
federal and state securities laws. C. Other Obligations and Services.
The Manager shall make available its officers and employees
to the Board of Trustees and officers of the Trust for
consultation and discussions regarding the administration
and management of the Funds and their investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The
Adviser, subject to the limitations contained in this paragraph 3, shall place,
on behalf of each Fund, orders for the execution of portfolio transactions. The
Adviser is not authorized by the Funds to take any action, including the
purchase or sale of securities for either Fund's account, (a) in contravention
of (i) any investment restrictions set forth in the Act and the rules
thereunder, (ii) specific instructions adopted by the Board of Trustees and
communicated to the Adviser, (iii) the investment objective, policies and
restrictions of a Fund as set forth in the Trust's Registration Statement, or
(iv) instructions from the Manager communicated to the Adviser, or (b) which
would have the effect of causing a Fund to fail to qualify or to cease to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended, or any succeeding statute.
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Subject to the foregoing, the Adviser shall determine the securities to be
purchased or sold by a Fund and will place orders pursuant to its determination
with or through such persons, brokers or dealers in conformity with the policy
with respect to brokerage as set forth in the Trust's Registration Statement or
as the Board of Trustees may direct from time to time. It is recognized that, in
providing the Funds with investment supervision of the placing of orders for
portfolio transactions, the Adviser will give primary consideration to securing
the best qualitative execution, 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.
Consistent with this policy, the Adviser may select brokers or dealers who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to other funds and/or the other
accounts over which it exercises investment discretion. It is understood that
neither the Trust, the Manager nor the Adviser have adopted a formula for
allocation of the Trust's investment transaction business. It is also understood
that it is desirable for the Trust that the Adviser have access to supplemental
investment and market research and security and economic analyses provided by
certain brokers who may execute brokerage transactions at a higher commission to
the Trust than may result when allocating brokerage to other brokers on the
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basis of seeking the lowest commission. Therefore, the Adviser is authorized to
place orders for the purchase and sale of securities for the Funds with such
certain brokers, subject to review by the Trust's Board of Trustees from time to
time with respect to the extent and continuation of this practice, provided that
the Adviser determines in good faith that the amount of the commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker or dealer. The determination may be viewed in
terms of either a particular transaction or the Adviser's overall
responsibilities with respect to the Funds and to other accounts over which it
exercises investment discretion. It is understood that although the information
may be useful to the Trust and the Adviser, it is not possible to place a dollar
value on such information. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
the Funds as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Funds.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Funds as well as other clients, the Adviser,
to the extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so purchased
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or sold, as well as expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Trust and to such other clients.
The Adviser will not execute any portfolio transactions for a Fund's
account with a broker or dealer which is an "affiliated person" (as defined in
the Act) of the Trust, the Manager or the Adviser without the prior written
approval of the Manager. The Manager agrees that it will provide the Adviser
with a list of brokers and dealers which are "affiliated persons" of the Trust,
the Manager or the Adviser.
The Adviser shall render regular reports to the Trust of the total
brokerage business placed by the Funds and the manner in which the allocation
has been accomplished.
4. Expenses of the Funds. It is understood that each Fund will pay, or
that the Trust will enter into arrangements that require third parties to pay,
all expenses of the Funds other than those expressly assumed by the Manager
herein, which expenses payable by the Funds shall include:
A. Expenses of all audits by independent public accountants;
B. Expenses of transfer agent, dividend disbursing agent,
accounting and pricing agent and shareholder recordkeeping
services;
C. Expenses of custodial services, including recordkeeping
services provided by the custodian;
D. Expenses of obtaining security valuation quotations for
calculating the value of each Fund's net assets;
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E. Salaries and other compensation of any of its executive
officers and employees, if any, who are not officers,
directors, stockholders or employees of the Manager or the
Adviser;
F. Taxes or governmental fees levied against the Funds;
G. Brokerage fees and commissions in connection with the
purchase and sale of the Funds' portfolio securities;
H. Costs, including the interest expense, of borrowing money;
I. Costs and/or fees incident to Board of Trustee and
shareholder meetings, the preparation and mailings of
prospectuses, reports and notices to the existing shareholders
of the Funds, the filing of reports with regulatory bodies,
the maintenance of the Trust's existence as a business trust,
membership in investment company organizations, and the
registration of shares with federal and state securities
authorities;
J. Legal fees, including the legal fees related to the
registration and continued qualification of each Fund's shares
for sale and legal fees arising from litigation to which the
Trust may be a party and indemnification of the Trust's
officers and trustees with respect thereto;
K. Costs of printing share certificates (in the event such
certificates are issued) representing shares of the Funds;
L. Trustees' fees and expenses of Trustees who are not
directors, officers, employees or stockholders of the
Manager, the Adviser or any of their affiliates; and
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M. Each Fund's pro rata portion of the fidelity bond required
by Section 17(g) of the Act and other insurance premiums.
5. Activities and Affiliates of the Manager.
A. The services of the Manager hereunder are not to be
deemed exclusive, and the Manager and any of its affiliates
shall be free to render similar services to others. The
Manager shall use the same skill and care in the management
of the Funds' assets as it uses in the administration of
other accounts to which it provides asset management,
consulting and portfolio manager selection services, but
shall not be obligated to give the Funds more favorable or
preferential treatment vis-a-vis its other clients.
B. Subject to and in accordance with the Agreement and
Declaration of Trust and Bylaws of the Trust and to
Section 10(a) of the Act, it is understood that Trustees,
officers and agents of the Trust and shareholders of the
Funds are or may be interested in the Manager or its
affiliates as directors, officers, agents or stockholders
of the Manager or its affiliates; that directors,
officers, agents and stockholders of the Manager or its
affiliates are or may be interested in the Trust as
Trustees, officers, agents, shareholders or otherwise;
that the Manager or its affiliates may be interested in
the Trust as shareholders or otherwise; and that the
effect of any such interests shall be governed by said
Declaration of Trust, Bylaws and the Act.
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6. Compensation of the Manager. For all of the services to be rendered and
payments made as provided in this Agreement, the Profit Lomax Value Fund will
pay the Manager a fee, computed and accrued daily and paid monthly, at the
annual rate of 1.25% of such Fund's average daily net assets and the Profit
Lomax Institutional Equity Fund will pay the Manager a fee, computed and accrued
daily and paid monthly, at the annual rate of .60% of such Fund's average daily
net assets.
The value of the daily net assets of each Fund shall be determined
pursuant to the applicable provisions of the Declaration of Trust and to
resolutions of the Board of Trustees of the Trust. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this paragraph 6, the value of the net
assets of a Fund as last determined shall be deemed to be the value of its net
assets as of the close of business on that day, or as of such other time as the
value of such Fund's net assets may lawfully be determined on that day. If the
determination of the net asset value of a Fund's shares has been suspended for a
period including such month, the Manager's compensation payable for such month
shall be computed on the basis of the value of the net assets of such Fund as
last determined (whether during or prior to such month). The Manager agrees that
its compensation with respect to a Fund for any fiscal year shall be reduced by
the amount, if any, by which the expenses of such Fund for such fiscal year
exceed the lowest applicable expense limitation established pursuant to the
statutes or regulations of any jurisdiction in which the shares of such Fund are
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qualified for offer or sale. The Manager shall refund to a Fund the amount of
any reduction of the Manager's compensation pursuant to this paragraph 6 as
promptly as practicable after the end of such fiscal year, provided that the
Manager will not be required to pay an amount greater than the fee paid to the
Manager with respect to such Fund for such year pursuant to this Agreement. As
used in this paragraph 6, "expenses" shall mean those expenses included in the
applicable expense limitation having the broadest specification thereof, and
"expense limitation" means a limit on the maximum annual expenses which may be
incurred by an investment company or series of an investment company determined
by multiplying a fixed percentage by the average, or by multiplying more than
one such percentage by different specified amounts of the average, of the values
of the investment company or series' net assets for a fiscal year. The words
"lowest applicable expense limitation" shall be construed to result in the
largest reduction of the Manager's compensation for any fiscal year of the
Funds.
7. Liabilities of the Manager.
A. Except as provided below in this paragraph 7, in the
absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager ("disabling
conduct"), the Manager shall not be subject to liability
to the Trust or to any shareholder of the Funds for any
act or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
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B. The Manager shall not be indemnified for any liability
unless (i) a final decision is made on the merits by a
court or other body before whom the proceeding was brought
that the Manager was not liable by reason of disabling
conduct, or (ii) in the absence of such a decision, a
reasonable determination is made, based upon a review of
the facts, that the Manager was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the Trustees who are not interested persons of
the Trust or the Manager or (b) an independent legal
counsel in a written opinion. The Trust will advance
attorneys' fees or other expenses incurred by the Manager
in defending a proceeding, upon the undertaking by or on
behalf of the Manager to repay the advance unless it is
ultimately determined that the Manager is entitled to
indemnification, so long as the Manager meets at least one
of the following as a condition to the advance: (i) the
Manager shall provide a security for its undertaking, (ii)
the Trust shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a
quorum of the Trustees who are not interested persons of
the Trust or the Manager, or an independent legal counsel
in a written opinion, shall determine, based on a review
of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that
the Manger ultimately will be found entitled to
indemnification. Any person employed by the Manager who
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may also be or become an employee of the Trust shall be
deemed, when acting within the scope of his employment by the
Trust, to be acting in such employment solely for the Trust
and not as the Manager's employee or agent.
C. No provision of this Agreement shall be construed to
protect any Trustee, director, officer or agent of the
Trust or the Manager from liability in violation of
Sections 17(h) and (i) of the Act.
8. Renewal and Termination.
A. This Agreement shall become effective on the date first
written above and shall remain in full force and effect
for two (2) years from the date hereof and from year to
year thereafter, but only so long as such continuance is
specifically approved at least annually by the vote of a
majority of the Trustees who are not interested persons of
the Trust, the Manager or the Adviser, cast in person at a
meeting called for the purpose of voting on such approval
and by a vote of the Board of Trustees or of a majority of
the outstanding voting securities. The aforesaid
provision that this Agreement may be continued "annually"
shall be construed in a manner consistent with the Act and
the rules and regulations thereunder.
B. This Agreement:
(a) may at any time be terminated with respect to a Fund,
without the payment of any penalty, either by vote of
the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of such
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Fund, on sixty (60) days' written notice to the
Manager;
(b) shall immediately terminate in the event of its
assignment; and
(c) may be terminated by the Manager on sixty (60) days'
written notice to the Trust.
C. As used in this Section 8, the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
D. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postpaid, to the other
party to this Agreement at its principal place of
business.
9. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.
10. Limitation of Liability. It is expressly agreed that the
obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust,
personally, but bind only the trust property of the Trust, as provided in the
Declaration of Trust of the Trust. The execution and delivery of this Agreement
have been authorized by the Trustees and shareholders of the Trust and signed by
the officers of the Trust, acting as such, and neither such authorization by
such
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Trustees and shareholders nor such execution and delivery by such officers shall
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Declaration of Trust.
11. Use of Name. The Manager may use the name "Profit Funds" or any
derivation thereof in connection with another business enterprise, including any
registered investment company with which the Manager is, or may become
associated, so long as such use is permitted under the Act and other applicable
law.
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, and no amendment of this
Agreement shall be effective until approved by vote of the holders of a majority
of the outstanding voting securities of the Fund(s) to which the amendment
relates and by the Board of Trustees, including a majority of the Trustees who
are not interested persons of the Manager or of the Trust, cast in person at a
meeting called for the purpose of voting on such approval.
13. Governing Law. To the extent that state law has not been
preempted by the provisions of any law of the United States
heretofore or hereafter enacted, as the same may be amended from
time to time, this Agreement shall be administered, construed and
enforced according to the laws of the State of Delaware.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
PROFIT FUNDS INVESTMENT TRUST
ATTEST: By:
Title: President
INVESTOR RESOURCES GROUP
ATTEST: By:
Title: President
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INVESTMENT ADVISORY AGREEMENT
The Edgar Lomax Company
6564 Loisdale Court, Suite 310
Springfield, VA 22150
Ladies and Gentlemen:
Profit Funds Investment Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "Act"), and subject to the rules and regulations
promulgated thereunder. The Trust currently consists of two series of shares,
the Profit Lomax Value Fund and the Profit Lomax Institutional Equity Fund (the
"Funds"). Each share of a Fund represents an undivided interest in the assets,
subject to the liabilities, of that Fund.
Investor Resources Group (the "Manager") acts as the investment manager
for the Funds pursuant to the terms of a Management Agreement. The Manager is
responsible for the coordination of investment of each Fund's assets in
portfolio securities. However, specific portfolio purchases and sales for the
investment portfolios of the Funds are to be made by advisory organizations
recommended by the Manager and approved by the Board of Trustees of the Trust.
1. Appointment as an Adviser. The Trust being duly authorized hereby
appoints and employs The Edgar Lomax Company (the "Adviser") as the
discretionary portfolio manager of the Funds, on the terms and conditions set
forth herein.
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2. Acceptance of Appointment; Standard of Performance. The Adviser accepts
the appointment as the discretionary portfolio manager and agrees to use its
best professional judgment to make timely investment decisions for the Funds in
accordance with the provisions of this Agreement.
3. Portfolio Management Services of Adviser. The Adviser is hereby employed
and authorized to select portfolio securities for investment by the Funds, to
purchase and sell securities of the Funds, and upon making any purchase or sale
decision, to place orders for the execution of such portfolio transactions in
accordance with paragraphs 5 and 6 hereof. In providing portfolio management
services to the Funds, the Adviser shall be subject to such investment
restrictions as are set forth in the Act and the rules thereunder, the Internal
Revenue Code, applicable state securities laws, the supervision and control of
the Board of Trustees of the Trust, such specific instructions as the Board of
Trustees may adopt and communicate to the Adviser, the investment objective,
policies and restrictions of each Fund's furnished pursuant to paragraph 4, the
provisions of Schedule A hereto and instructions from the Manager. The Adviser
is not authorized by the Trust to take any action, including the purchase or
sale of securities for the Funds, in contravention of any restriction,
limitation, objective, policy or instruction described in the previous sentence.
The Adviser shall maintain on behalf of each Fund the records listed in Schedule
A hereto (as amended from time to time). At the Trust's reasonable request, the
Adviser will consult with the Manager with respect to any decision made by it
with respect to the investments of the Funds.
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4. Investment Objective, Policies and Restrictions. The Trust will provide
the Adviser with the statement of investment objective, policies and
restrictions applicable to each Fund as contained in the Trust's registration
statements under the Act and the Securities Act of 1933, and any instructions
adopted by the Board of Trustees supplemental thereto. The Trust will provide
the Adviser with such further information concerning the investment objective,
policies and restrictions applicable thereto as the Adviser may from time to
time reasonably request. The Trust retains the right, on written notice to the
Adviser from the Trust or the Manager, to modify any such objective, policies or
restrictions in any manner at any time.
5. Transaction Procedures. All transactions will be consummated by payment
to or delivery by __________________ or any successor custodian (the
"Custodian"), or such depositories or agents as may be designated by the
Custodian in writing, as custodian for the Funds, of all cash and/or securities
due to or from a Fund, and the Adviser shall not have possession or custody
thereof. The Adviser shall advise the Custodian and confirm in writing to the
Trust and to the Manager all investment orders for the Funds placed by it with
brokers and dealers. The Adviser shall issue to the Custodian such instructions
as may be appropriate in connection with the settlement of any transaction
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initiated by the Adviser. It shall be the responsibility of the Adviser to take
appropriate action if the Custodian fails to confirm in writing proper execution
of the instructions.
6. Allocation of Brokerage. The Adviser shall have the authority and
discretion to select brokers and dealers to execute portfolio transactions
initiated by the Adviser, and for the selection of the markets on or in which
the transactions will be executed.
A. In doing so, the Adviser will give primary consideration to securing the
best qualitative execution, 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. Consistent
with this policy, the Adviser may select brokers or dealers who also provide
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) to the other accounts over which it
exercises investment discretion. It is understood that neither the Trust, the
Manager nor the Adviser have adopted a formula for allocation of the Trust's
investment transaction business. It is also understood that it is desirable for
the Trust that the Adviser have access to supplemental investment and market
research and security and economic analyses provided by certain brokers who may
execute brokerage transactions at a higher commission to the Funds than may
result when allocating
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brokerage to other brokers on the basis of seeking the lowest commission.
Therefore, the Adviser is authorized to place orders for the purchase and sale
of securities for the Funds with such certain brokers, subject to review by the
Trust's Board of Trustees from time to time with respect to the extent and
continuation of this practice, provided that the Adviser determines in good
faith that the amount of the commission is reasonable in relation to the value
of the brokerage and research services provided by the executing broker or
dealer. The determination may be viewed in terms of either a particular
transaction or the Adviser's overall responsibilities with respect to the Funds
and to the other accounts over which it exercises investment discretion. It is
understood that although the information may be useful to the Trust and the
Adviser, it is not possible to place a dollar value on such information.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best qualitative execution, the
Adviser may give consideration to sales of shares of the Funds as a factor in
the selection of brokers and dealers to execute portfolio transactions of the
Funds.
On occasions when the Adviser deems the purchase or sale of a security to
be in the best interest of the Funds as well as other clients, the Adviser, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
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obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as expenses incurred in the transaction, will be made by the Adviser in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Trust and to such other clients.
For each fiscal quarter of the Trust, the Adviser shall prepare and
render reports to the Manager and the Trust's Board of Trustees of the total
brokerage business placed and the manner in which the allocation has been
accomplished. Such reports shall set forth at a minimum the information required
to be maintained by Rule 31a-1(b)(9) under the Act.
B. Adviser agrees that it will not execute any portfolio transactions for a
Fund's accounts with a broker or dealer which is an "affiliated person" (as
defined in the Act) of the Trust, the Manager, the Adviser or any portfolio
manager of the Trust without the prior written approval of the Manager. The
Manager agrees that it will provide the Adviser with a list of brokers and
dealers which are "affiliated persons" of the Trust, the Manager or the Adviser.
7. Proxies. The Trust will vote all proxies solicited by or with respect to
the issuers of securities in which assets of the Funds may be invested from time
to time. At the Trust's request, the Adviser shall provide the Trust with its
recommendations as to the voting of such proxies.
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8. Reports to the Adviser. The Trust will provide the Adviser with such
periodic reports concerning the status of the Funds as the Adviser may
reasonably request.
9. Fees for Services. For the services provided to the Trust, the Manager
shall pay the Adviser a fee equal to the annual rate of .50% of the value of the
daily net assets of the Profit Lomax Value Fund and .37% of the value of the
daily net assets of the Profit Lomax Institutional Equity Fund. The Adviser's
fees shall be payable monthly within ten days following the end of each month.
Pursuant to the provisions of the Management Agreement between the Trust and the
Manager, the Manager is solely responsible for the payment of fees to the
Adviser, and the Adviser agrees to seek payment of the Adviser's fees solely
from the Manager.
10. Other Investment Activities of the Adviser. The Trust acknowledges that
the Adviser or one or more of its affiliates may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that the Adviser, its
affiliates or any of its or their directors, officers, agents or employees may
buy, sell or trade in any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the
Trust agrees that the Adviser or its affiliates may give advice or exercise
investment responsibility and take such other action with respect to other
Affiliated Accounts which may differ from the advice given or the timing or
nature of action taken with respect to the Funds, provided that the Adviser acts
in good faith, and provided further, that it is the Adviser's policy to
allocate, within its reasonable
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discretion, investment opportunities to each Fund over a period of time on a
fair and equitable basis relative to the Affiliated Accounts, taking into
account the investment objectives and policies of each Fund and any specific
investment restrictions applicable thereto. The Trust acknowledges that one or
more of the Affiliated Accounts may at any time hold, acquire, increase,
decrease, dispose of or otherwise deal with positions in investments in which a
Fund may have an interest from time to time, whether in transactions which
involve a Fund or otherwise. The Adviser shall have no obligation to acquire for
a Fund a position in any investment which any Affiliated Account may acquire,
and the Trust shall have no first refusal, co-investment or other rights in
respect of any such investment, either for the Funds or otherwise.
11. Certificate of Authority. The Trust, the Manager and the Adviser shall
furnish to each other from time to time certified copies of the resolutions of
their Board of Trustees or Board of Directors or executive committees, as the
case may be, evidencing the authority of officers and employees who are
authorized to act on behalf of the Trust, the Manager and/or the Adviser.
12. Limitation of Liability. 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 this Agreement, or in accordance with (or in
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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 this
Agreement or breach of its duty or of its obligations hereunder. Nothing in this
paragraph 12 shall be construed in a manner inconsistent with Sections 17(h) and
(i) of the Act.
13. Confidentiality. Subject to the duty of the Adviser and the Trust to
comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Funds and the actions of the Adviser and the
Trust in respect thereof.
14. Assignment. No assignment of this Agreement shall be made by the
Adviser, and this Agreement shall terminate automatically in the event of such
assignment. The Adviser shall notify the Trust in writing sufficiently in
advance of any proposed change of control, as defined in Section 2(a)(9) of the
Act, as will enable the Trust to consider whether an assignment will occur, and
to take the steps necessary to enter into a new contract with the Adviser.
15. Representations, Warranties and Agreements of the Trust. The Trust
represents, warrants and agrees that:
A. The Adviser has been duly appointed by the Board of Trustees of the
Trust to provide investment services to the Funds as contemplated hereby.
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B. The Trust will deliver to the Adviser a true and complete copy of the
then current prospectus and statement of additional information for each Fund as
effective from time to time and such other documents or instruments governing
the investments of the Funds and such other information as is necessary for the
Adviser to carry out its obligations under this Agreement.
C. The Trust is currently in compliance and shall at all times comply with
the requirements imposed upon the Funds by applicable laws and regulations.
16. Representations, Warranties and Agreements of the Adviser. The Adviser
represents, warrants and agrees that:
A. The Adviser is registered as an "investment adviser" under the
Investment Advisers Act of 1940.
B. The Adviser will maintain, keep current and preserve on behalf of the
Trust, in the manner and for the time periods required or permitted by the Act,
the records identified in Schedule A. The Adviser agrees that such records
(unless otherwise indicated on Schedule A) are the property of the Trust, and
will be surrendered to the Trust promptly upon request.
C. The Adviser will complete such reports concerning purchases or sales of
securities on behalf of the Funds as the Manager or the Trust may from time to
time require to ensure compliance with the Act, the Internal Revenue Code and
applicable state securities laws.
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D. The Adviser will adopt a written code of ethics complying with the
requirements of Rule 17j-1 under the Act and will provide the Trust with a copy
of the code of ethics and evidence of its adoption. Within forty-five (45) days
of the end of the last calendar quarter of each year while this Agreement is in
effect, the president or a vice president of the Adviser shall certify to the
Trust that the Adviser has complied with the requirements of Rule 17j-1 during
the previous year and that there has been no violation of the Adviser's code of
ethics or, if such a violation has occurred, that appropriate action was taken
in response to such violation. Upon the written request of the Trust, the
Adviser shall submit to the Trust the reports required to be made to the Adviser
by Rule 17j-1(c)(1).
E. The Adviser will promptly after filing with the Securities and Exchange
Commission an amendment to its Form ADV furnish a copy of such amendment to the
Trust and to the Manager.
F. Upon request of the Trust, the Adviser will provide assistance to the
Custodian in the collection of income due or payable to the Funds. With respect
to income from foreign sources, the Adviser will undertake any reasonable
procedural steps required to reduce, eliminate or reclaim non-U.S. withholding
taxes under the terms of applicable United States income tax treaties.
G. The Adviser will immediately notify the Trust and the Manager of the
occurrence of any event which would disqualify the Adviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the Act
or otherwise.
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17. Amendment. This Agreement may be amended at any time, but only by
written agreement between the Adviser and the Trust, which amendment, other than
amendments to Schedule A, is subject to the approval of the Board of Trustees
and the shareholders of the affected Fund(s) in the manner required by the Act
and the rules thereunder, subject to any applicable exemptive order of the
Securities and Exchange Commission modifying the provisions of the Act with
respect to approval of amendments to this Agreement.
18. Effective Date; Term. This Agreement shall become effective on the date
of its execution and shall remain in full force and effect for two (2) years
from the date hereof and from year to year thereafter but only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Trustees who are not interested persons of the Trust, the Manager or the
Adviser, cast in person at a meeting called for the purpose of voting on such
approval, and by a vote of the Board of Trustees or of a majority of the
outstanding voting securities of the Funds. The aforesaid requirement that this
Agreement may be continued "annually" shall be construed in a manner consistent
with the Act and the rules and regulations thereunder.
19. Termination. This Agreement may be terminated by either party hereto,
without the payment of any penalty, immediately upon written notice to the other
in the event of a
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breach of any provision thereof by the party so notified, or otherwise upon
sixty (60) days' written notice to the other, but any such termination shall not
affect the status, obligations or liabilities of any party hereto to the other.
20. Shareholder Liability. The Adviser is hereby expressly put on notice of
the limitation of shareholder liability as set forth in the Declaration of Trust
of the Trust and agrees that obligations assumed by the Trust pursuant to this
Agreement shall be limited in all cases to the Trust and its assets. The Adviser
agrees that it shall not seek satisfaction of any such obligations from the
shareholders or any individual shareholder of the Funds, nor from the Trustees
or any individual Trustee of the Trust.
21. Use of Name. The Adviser may use the name "Lomax" or any derivation
thereof in connection with another business enterprise, including any registered
investment company with which the Adviser is, or may become associated, so long
as such use is permitted under the Act and other applicable law.
22. Definitions. As used in paragraphs 14 and 18 of this Agreement, the
terms "assignment," interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
23. Applicable Law. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of Delaware.
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INVESTOR RESOURCES GROUP PROFIT FUNDS INVESTMENT TRUST
By: By:
Title: Title:
Date: __________, 1996 Date: __________, 1996
ACCEPTANCE
The foregoing Agreement is hereby accepted.
THE EDGAR LOMAX COMPANY
By:
Title:
Date: __________, 1996
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SCHEDULE A
RECORDS TO BE MAINTAINED BY THE ADVISER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all
other portfolio purchases or sales, given by the Adviser on behalf of
the Funds for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such records shall
include:
A. The name of the broker;
B. The terms and conditions of the order and of any
modification or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf
of the Trust.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the
basis or bases upon which the allocation of orders for the purchase and
sale of portfolio securities to named brokers or dealers was effected,
and the division of brokerage commissions or other compensation on such
purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Trust by brokers or
dealers.
(ii) The supplying of services or benefits by brokers
or dealers to:
(a) The Trust;
(b) the Manager;
(c) the Adviser;
(d) any other portfolio adviser of the Trust; and
(e) any person affiliated with the foregoing
persons.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as
such.
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B. Shall show the nature of the services or benefits made
available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the
determination of such allocation and such division of
brokerage commissions or other compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing
the purchase or sale of portfolio securities. Where an authorization
is made by a committee or group, a record shall be kept of the names
of its members who participate in the authorization. There shall be
retained as part of this record: any memorandum, recommendation or
instruction supporting or authorizing the purchase or sale of
portfolio securities and such other information as is appropriate to
support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are
required to be maintained by registered investment advisers by rules
adopted under Section 204 of the Investment Advisers Act of 1940, to
the extent such records are necessary or appropriate to record the
Adviser's transactions with respect to the Funds.
*Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage firms
(including their recommendation; i.e., buy, sell, hold) or any internal reports
or portfolio adviser reviews.
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ADMINISTRATION AGREEMENT
AGREEMENT dated as of ______, 1996 between Profit Funds Investment
Trust (the "Trust"), a Massachusetts business trust and MGF Service Corp.
("MGF"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of MGF to serve as its
administrative agent; and
WHEREAS, MGF wishes to provide such services under the conditions set
forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and MGF agree as follows:
1. APPOINTMENT.
The Trust hereby appoints and employs MGF as agent to perform
those services described in this Agreement for the Trust. MGF shall act under
such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. DOCUMENTATION.
The Trust will furnish from time to time the following
documents:
A. Each resolution of the Board of Trustees of the Trust
authorizing the original issue of its shares;
B. Each Registration Statement filed with the Securities
and Exchange Commission (the "SEC") and amendments
thereof;
C. A certified copy of each amendment to the Agreement and
Declaration of Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions to
MGF;
E. Specimens of all new forms of share certificates
accompanied by Board of Trustees' resolutions approving
such forms;
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F. Such other certificates, documents or opinions which
MGF may, in its discretion, deem necessary or
appropriate in the proper performance of its duties;
G. Copies of all Underwriting and Dealer Agreements in
effect;
H. Copies of all Investment Advisory Agreements in effect;
and
I. Copies of all documents relating to special investment
or withdrawal plans which are offered or may be offered
in the future by the Trust and for which MGF is to act
as plan agent.
3. TRUST ADMINISTRATION.
Subject to the direction and control of the Trustees of the
Trust, MGF shall supervise the Trust's business affairs not otherwise supervised
by other agents of the Trust. To the extent not otherwise the primary
responsibility of, or provided by, other agents of the Trust, MGF shall supply
(i) office facilities, (ii) internal auditing and regulatory services, and (iii)
executive and administrative services. MGF shall coordinate the preparation of
(i) tax returns, (ii) reports to shareholders of the Trust, (iii) reports to and
filings with the SEC and state securities authorities including preliminary and
definitive proxy materials, post-effective amendments to the Trust's
registration statement, and the Trust's Form N-SAR, and (iv) necessary materials
for Board of Trustees' meetings unless prepared by other parties under agreement
with the Trust. MGF shall provide personnel to serve as officers of the Trust if
so elected by the Board of Trustees; provided, however, that the Trust shall
reimburse MGF for the reasonable out-of-pocket expenses incurred by such
personnel in attending Board of Trustees' meetings and shareholders' meetings of
the Trust.
4. RECORDKEEPING AND OTHER INFORMATION.
MGF shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
contract with the Trust. All such records shall be the property of the Trust at
all times and shall be available for inspection and use by the Trust. Where
applicable, such records shall be maintained by MGF for the periods and in the
places required by Rule 31a-2 under the 1940 Act. The retention of such records
shall be at the expense of the Trust. MGF shall make available during regular
business hours all records and other data created and maintained pursuant to
this Agreement for reasonable audit and inspection by the Trust, any person
retained by the Trust, or any regulatory agency having authority over the Trust.
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5. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
6. COMPENSATION.
For the performance of MGF's obligations under this Agreement,
each series of the Trust shall pay MGF, on the first business day following the
end of each month, a monthly fee at the annual rate of .15% of such series'
average daily net assets up to $25 million; .125% of such assets from $25 to $50
million; and .1% of such assets in excess of $50 million; provided, however,
that the minimum fee shall be $1,000 per month for each series. MGF shall not be
required to reimburse the Trust or the Trust's investment advisers for (or have
deducted from its fees) any expenses in excess of expense limitations imposed by
certain state securities commissions having jurisdiction over the Trust.
7. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require MGF to perform any services for
the Trust which services could cause MGF to be deemed an "investment adviser" of
the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede
or contravene the Trust's prospectus or statement of additional information or
any provisions of the 1940 Act and the rules thereunder. Except as otherwise
provided in this Agreement and except for the accuracy of information furnished
to it by MGF, the Trust assumes full responsibility for complying with all
applicable requirements of the 1940 Act, the Securities Act of 1933, as amended,
and any other laws, rules and regulations of governmental authorities having
jurisdiction.
8. REFERENCES TO MGF.
The Trust shall not circulate any printed matter which
contains any reference to MGF without the prior written approval of MGF,
excepting solely such printed matter as merely identifies MGF as Administrative
Services Agent, Transfer, Shareholder Servicing and Dividend Disbursing Agent
and Accounting Services Agent. The Trust will submit printed matter requiring
approval to MGF in draft form, allowing sufficient time for review by MGF and
its counsel prior to any deadline for printing.
9. INDEMNIFICATION OF MGF.
A. MGF may rely on information reasonably believed by it to be accurate
and reliable. Except as may otherwise be required by the 1940 Act and the rules
thereunder, neither MGF nor its
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shareholders, officers, directors, employees, agents, control persons or
affiliates of any thereof shall be subject to any liability for, or any damages,
expenses or losses incurred by the Trust in connection with, any error of
judgment, mistake of law, any act or omission connected with or arising out of
any services rendered under or payments made pursuant to this Agreement or any
other matter to which this Agreement relates, except by reason of willful
misfeasance, bad faith or gross negligence on the part of any such persons in
the performance of the duties of MGF under this Agreement or by reason of
reckless disregard by any of such persons of the obligations and duties of MGF
under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of MGF, or any of its affiliates, who may be or become an
officer, trustee, employee or agent of the Trust, shall be deemed, when
rendering services to the Trust or acting on any business of the Trust, to be
rendering such services to or acting solely as an officer, trustee, employee or
agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of MGF or any of its affiliates,
even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, the Trust
shall indemnify and hold harmless MGF, its directors, officers, employees,
shareholders, agents, control persons and affiliates from and against any and
all claims, demands, expenses and liabilities (whether with or without basis in
fact or law) of any and every nature which MGF may sustain or incur or which may
be asserted against MGF by any person by reason of, or as a result of: (i) any
action taken or omitted to be taken by MGF in good faith in reliance upon any
certificate, instrument, order or share certificate reasonably believed by it to
be genuine and to be signed, countersigned or executed by any duly authorized
person, upon the oral instructions or written instructions of an authorized
person of the Trust or upon the opinion of legal counsel for the Trust or its
own counsel; or (ii) any action taken or omitted to be taken by MGF in
connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. However, indemnification under
this subparagraph shall not apply to actions or omissions of MGF or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
10. TERMINATION
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by MGF, (2) by vote, cast in person
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<PAGE>
at a meeting called for the purpose, of a majority of the Trust's trustees who
are not parties to this Agreement or interested persons (as defined in the 1940
Act) of any such party, and (3) by vote of a majority of the Trust's Board of
Trustees or a majority of the Trust's outstanding voting securities.
B. Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefore. Upon termination of this
Agreement, the Trust shall pay to MGF such compensation as may be due as of the
date of such termination, and shall likewise reimburse MGF for any out-of-pocket
expenses and disbursements reasonably incurred by MGF to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of MGF's duties or responsibilities under this
Agreement is designated by the Trust by written notice to MGF, MGF shall,
promptly upon such termination and at the expense of the Trust, transfer all
records maintained by MGF under this Agreement and shall cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from MGF's cognizant personnel in the establishment of books, records and other
data by such successor.
11. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent MGF or any affiliated
person (as defined in the 1940 Act) of MGF from providing services for any other
person, firm or corporation (including other investment companies); provided,
however, that MGF expressly represents that it will undertake no activities
which, in its judgment, will adversely affect the performance of its obligations
to the Trust under this Agreement.
12. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
13. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
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<PAGE>
14. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the SEC issued pursuant to said 1940 Act. In addition, where the
effect of a requirement of the 1940 Act, reflected in any provision of this
Agreement, is revised by rule, regulation or order of the SEC, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
15. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: Profit Funds Investment Trust
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
Attention: Eugene A. Profit
To MGF: MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 15. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
16. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
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<PAGE>
17. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
18. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19. FORCE MAJEURE.
If MGF shall be delayed in its performance of services or
prevented entirely or in part from performing services due to causes or events
beyond its control, including and without limitation, acts of God, interruption
of power or other utility, transportation or communication services, acts of
civil or military authority, sabotages, national emergencies, explosion, flood,
accident, earthquake or other catastrophe, fire, strike or other labor problems,
legal action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
20. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PROFIT FUNDS INVESTMENT TRUST
By:_____________________________
Its: President
MGF SERVICE CORP.
By:_____________________________
Its: President
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<PAGE>
ACCOUNTING SERVICES AGREEMENT
AGREEMENT dated as of ______, 1996 between Profit Funds Investment
Trust (the "Trust"), a Massachusetts business trust, and MGF Service Corp.
("MGF"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of MGF to provide the
Trust with certain accounting and pricing services; and
WHEREAS, MGF wishes to provide such services under the conditions set
forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and MGF agree as follows:
1. APPOINTMENT.
The Trust hereby appoints and employs MGF as agent to perform
those services described in this Agreement for the Trust. MGF shall act under
such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. CALCULATION OF NET ASSET VALUE.
MGF will calculate the net asset value of each series of the
Trust and the per share net asset value of each series of the Trust, in
accordance with the Trust's current prospectus and statement of additional
information, once daily as of the time selected by the Trust's Board of
Trustees. MGF will prepare and maintain a daily valuation of all securities and
other assets of the Trust in accordance with instructions from a designated
officer of the Trust or its investment adviser and in the manner set forth in
the Trust's current prospectus and statement of additional information. In
valuing securities of the Trust, MGF may contract with, and rely upon market
quotations provided by, outside services.
3. BOOKS AND RECORDS.
MGF will maintain and keep current the general ledger for each
series of the Trust, recording all income and expenses, capital share activity
and security transactions of the Trust. MGF will maintain such further books and
records as are necessary to enable it to perform its duties under this
Agreement, and will periodically provide reports to the Trust and its
authorized agents regarding share purchases and redemptions and trial balances
of each series of the Trust. MGF will prepare and maintain complete, accurate
and current all records with respect to the Trust required to be maintained by
the Trust under the Internal Revenue Code of 1986, as amended, and under the
rules and regulations of the 1940 Act, and will preserve said records in the
manner and for the periods prescribed in the Code and the 1940 Act. The
retention of such records shall be at the expense of the Trust.
All of the records prepared and maintained by MGF pursuant to this
Section 3 which are required to be maintained by the Trust under the Code and
the 1940 Act will be the property of the Trust. In the event this Agreement is
terminated, all such records shall be delivered to the Trust at the Trust's
expense, and MGF shall be relieved of responsibility for the preparation and
maintenance of any such records delivered to the Trust.
4. PAYMENT OF TRUST EXPENSES.
MGF shall process each request received from the Trust or its
authorized agents for payment of the Trust's expenses. Upon receipt of written
instructions signed by an officer or other authorized agent of the Trust, MGF
shall prepare checks in the appropriate amounts which shall be signed by an
authorized officer of MGF and mailed to the appropriate party.
5. FORM N-SAR.
MGF shall maintain such records within its control and shall
be requested by the Trust to assist the Trust in fulfilling the requirements of
Form N-SAR.
6. COOPERATION WITH ACCOUNTANTS.
MGF shall cooperate with the Trust's independent public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
7. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
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<PAGE>
8. FEES.
For the performance of the services under this Agreement, each
series of the Trust shall pay MGF a monthly fee in accordance with the schedule
attached hereto as Schedule A. The fees with respect to any month shall be paid
to MGF on the last business day of such month. The Trust shall also promptly
reimburse MGF for the cost of external pricing services utilized by MGF. MGF
shall not be required to reimburse the Trust or the Trust's investment advisers
for (or have deducted from its fees) any expenses in excess of expense
limitations imposed by certain state securities commissions having jurisdiction
over the Trust.
9. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require MGF to perform any services for
the Trust which services could cause MGF to be deemed an "investment adviser" of
the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede
or contravene the Trust's prospectus or statement of additional information or
any provisions of the 1940 Act and the rules thereunder. Except as otherwise
provided in this Agreement and except for the accuracy of information furnished
to it by MGF, the Trust assumes full responsibility for complying with all
applicable requirements of the 1940 Act, the Securities Act of 1933, as amended,
and any other laws, rules and regulations of governmental authorities having
jurisdiction.
10. REFERENCES TO MGF.
The Trust shall not circulate any printed matter which
contains any reference to MGF without the prior written approval of MGF,
excepting solely such printed matter as merely identifies MGF as Administrative
Services Agent, Transfer, Shareholder Servicing and Dividend Disbursing Agent
and Accounting Services Agent. The Trust will submit printed matter requiring
approval to MGF in draft form, allowing sufficient time for review by MGF and
its counsel prior to any deadline for printing.
11. EQUIPMENT FAILURES.
MGF shall take all steps necessary to minimize or avoid
service interruptions, and has entered into one or more agreements making
provision for emergency use of electronic data processing equipment. MGF shall
have no liability with respect to equipment failures beyond its control.
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<PAGE>
12. INDEMNIFICATION OF MGF.
A. MGF may rely on information reasonably believed by it to be accurate
and reliable. Except as may otherwise be required by the 1940 Act and the rules
thereunder, neither MGF nor its shareholders, officers, directors, employees,
agents, control persons or affiliates of any thereof shall be subject to any
liability for, or any damages, expenses or losses incurred by the Trust in
connection with, any error of judgment, mistake of law, any act or omission
connected with or arising out of any services rendered under or payments made
pursuant to this Agreement or any other matter to which this Agreement relates,
except by reason of willful misfeasance, bad faith or gross negligence on the
part of any such persons in the performance of the duties of MGF under this
Agreement or by reason of reckless disregard by any of such persons of the
obligations and duties of MGF under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder, or agent of MGF, or any of its affiliates, who may be or become an
officer, trustee, employee or agent of the Trust, shall be deemed, when
rendering services to the Trust or acting on any business of the Trust, to be
rendering such services to or acting solely as an officer, trustee, employee or
agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of MGF or any of its affiliates,
even though paid by one of those entities.
C. Notwithstanding any other provision of this Agreement, the Trust
shall indemnify and hold harmless MGF, its directors, officers, employees,
shareholders, agents, control persons and affiliates from and against any and
all claims, demands, expenses and liabilities (whether with or without basis in
fact or law) of any and every nature which MGF may sustain or incur or which may
be asserted against MGF by any person by reason of, or as a result of: (i) any
action taken or omitted to be taken by MGF in good faith in reliance upon any
certificate, instrument, order or share certificate reasonably believed by it to
be genuine and to be signed, countersigned or executed by any duly authorized
person, upon the oral instructions or written instructions of an authorized
person of the Trust or upon the opinion of legal counsel for the Trust or its
own counsel; or (ii) any action taken or omitted to be taken by MGF in
connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. However, indemnification under
this subparagraph shall not apply to actions or omissions of MGF or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
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<PAGE>
13. TERMINATION.
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by MGF, (2) by vote, cast in person at a
meeting called for the purpose, of a majority of the Trust's trustees who are
not parties to this Agreement or interested persons (as defined in the 1940 Act)
of any such party, and (3) by vote of a majority of the Trust's Board of
Trustees or a majority of the Trust's outstanding voting securities.
B. Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefore. Upon termination of this
Agreement, the Trust shall pay to MGF such compensation as may be due as of the
date of such termination, and shall likewise reimburse MGF for any out-of-pocket
expenses and disbursements reasonably incurred by MGF to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of MGF's duties or responsibilities under this
Agreement is designated by the Trust by written notice to MGF, MGF shall,
promptly upon such termination and at the expense of the Trust, transfer all
records maintained by MGF under this Agreement and shall cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from MGF's cognizant personnel in the establishment of books, records and other
data by such successor.
14. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent MGF or any affiliated
person (as defined in the 1940 Act) of MGF from providing services for any other
person, firm or corporation (including other investment companies); provided,
however, that MGF expressly represents that it will undertake no activities
which, in its judgment, will adversely affect the performance of its obligations
to the Trust under this Agreement.
15. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
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<PAGE>
16. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
17. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission issued pursuant to said 1940
Act. In addition, where the effect of a requirement of the 1940 Act, reflected
in any provision of this Agreement, is revised by rule, regulation or order of
the Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
18. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: Profit Funds Investment Trust
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
Attention: Eugene A. Profit
To MGF: MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 18. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
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<PAGE>
19. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
20. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
21. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
22. FORCE MAJEURE.
If MGF shall be delayed in its performance of services or
prevented entirely or in part from performing services due to causes or events
beyond its control, including and without limitation, acts of God, interruption
of power or other utility, transportation or communication services, acts of
civil or military authority, sabotages, national emergencies, explosion, flood,
accident, earthquake or other catastrophe, fire, strike or other labor problems,
legal action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
23. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PROFIT FUNDS INVESTMENT TRUST
By:_____________________________
Its: President
MGF SERVICE CORP.
By:_____________________________
Its: President
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<PAGE>
Schedule A
COMPENSATION
The Trust will pay MGF a monthly fee with respect to each series of the
Trust, according to the average net assets of such series during such month, as
follows:
Monthly Fee Average Net Assets During Month
$2,000 $0 - $ 50,000,000
$2,500 $50,000,000 - $100,000,000
$3,000 $100,000,000 - $200,000,000
$4,000 Over $200,000,000
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<PAGE>
TRANSFER, DIVIDEND DISBURSING, SHAREHOLDER SERVICE
AND PLAN AGENCY AGREEMENT
AGREEMENT dated as of ______, 1996 between Profit Funds Investment
Trust (the "Trust"), a Massachusetts business trust, and MGF Service Corp.
("MGF"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust wishes to employ the services of MGF to serve as its
transfer, dividend disbursing, shareholder service and plan agent; and
WHEREAS, MGF wishes to provide such services under the conditions set
forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and MGF agree as follows:
1. APPOINTMENT.
The Trust hereby appoints and employs MGF as agent to perform
those services described in this Agreement for the Trust. MGF shall act under
such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. DOCUMENTATION.
The Trust will furnish from time to time the following
documents:
A. Each resolution of the Board of Trustees of the Trust
authorizing the original issue of its shares;
B. Each Registration Statement filed with the Securities
and Exchange Commission (the "SEC") and amendments
thereof;
C. A certified copy of each amendment to the Agreement and
Declaration of Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions to
MGF;
E. Specimens of all new forms of share certificates
accompanied by Board of Trustees' resolutions approving
such forms;
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<PAGE>
F. Such other certificates, documents or opinions which
MGF may, in its discretion, deem necessary or
appropriate in the proper performance of its duties;
G. Copies of all Investment Advisory Agreements in effect;
and
H. Copies of all documents relating to special investment
or withdrawal plans which are offered or may be offered
in the future by the Trust and for which MGF is to act
as plan agent.
3. MGF TO RECORD SHARES.
MGF shall record the issuance of shares of the Trust and
maintain pursuant to applicable rules of the SEC a record of the total number of
shares of the Trust which are authorized, issued and outstanding, based upon
data provided to it by the Trust. MGF shall also provide the Trust on a regular
basis or upon reasonable request the total number of shares which are
authorized, issued and outstanding, but shall have no obligation when recording
the issuance of the Trust's shares, except as otherwise set forth herein, 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 Trust.
4. MGF TO VALIDATE TRANSFERS.
Upon receipt of a proper request for transfer and upon
surrender to MGF of certificates, if any, in proper form for transfer, MGF shall
approve such transfer and shall take all necessary steps to effectuate the
transfer as indicated in the transfer request. Upon approval of the transfer,
MGF shall notify the Trust in writing of each such transaction and shall make
appropriate entries on the shareholder records maintained by MGF.
5. SHARE CERTIFICATES.
If the Trust authorizes the issuance of share certificates and
an investor requests a share certificate, MGF will countersign and mail, by
insured first class mail, a share certificate to the investor at his address as
set forth on the transfer books of the Trust, subject to any other instructions
for delivery of certificates representing newly purchased shares and subject to
the limitation that no certificates representing newly purchased shares shall be
mailed to the investor until the cash purchase price of such shares has been
collected and credited to the account of the Trust maintained by the Custodian.
The Trust shall supply MGF with a sufficient supply of blank share certificates
and from time to time shall renew such supply
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<PAGE>
upon request of MGF. Such blank share certificates shall be properly signed,
manually or, if authorized by the Trust, by facsimile; and notwithstanding the
death, resignation or removal of any officers of the Trust authorized to sign
share certificates, MGF may continue to countersign certificates which bear the
manual or facsimile signature of such officer until otherwise directed by the
Trust. In case of the alleged loss or destruction of any share certificate, no
new certificates shall be issued in lieu thereof, unless there shall first be
furnished an appropriate bond satisfactory to MGF and the Trust, and issued by a
surety company satisfactory to MGF and the Trust.
6. RECEIPT OF FUNDS.
Upon receipt of any check or other instrument drawn or
endorsed to it as agent for, or identified as being for the account of, the
Trust, MGF shall stamp the check or instrument with the date of receipt,
determine the amount thereof due the Trust and shall forthwith process the same
for collection. Upon receipt of notification of receipt of funds eligible for
share purchases in accordance with the Trust's then current prospectus and
statement of additional information, MGF shall notify the Trust, at the close of
each business day, in writing of the amount of said funds credited to the Trust
and deposited in its account with the Custodian.
7. PURCHASE ORDERS.
Upon receipt of an order for the purchase of shares of the
Trust, accompanied by sufficient information to enable MGF to establish a
shareholder account, MGF shall, as of the next determination of net asset value
after receipt of such order in accordance with the Trust's then current
prospectus and statement of additional information, compute the number of shares
due to the shareholder, credit the share account of the shareholder, subject to
collection of the funds, with the number of shares so purchased, shall notify
the Trust in writing or by computer report at the close of each business day of
such transactions and shall mail to the shareholder and/or dealer of record a
notice of such credit when requested to do so by the Trust.
8. RETURNED CHECKS.
In the event that MGF is notified by the Trust's Custodian
that any check or other order for the payment of money is returned unpaid for
any reason, MGF will:
A. Give prompt notification to the Trust of the non- payment of said
check;
B. In the absence of other instructions from the Trust, take such steps
as may be necessary to redeem any shares purchased on the basis of such returned
check and cause the proceeds of such redemption plus any dividends declared with
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<PAGE>
respect to such shares to be credited to the account of the Trust and to request
the Trust's Custodian to forward such returned check to the person who
originally submitted the check; and
C. Notify the Trust of such actions and correct the Trust's records
maintained by MGF pursuant to this Agreement.
9. DIVIDENDS AND DISTRIBUTIONS.
The Trust shall furnish MGF with appropriate evidence of
Trustee action authorizing the declaration of dividends and other distributions.
MGF shall establish procedures in accordance with the Trust's then current
prospectus and statement of additional information and with other authorized
actions of the Trust's Board of Trustees under which it will have available from
the Custodian or the Trust any required information for each dividend and other
distribution. After deducting any amount required to be withheld by any
applicable laws, MGF shall, as agent for each shareholder who so requests,
invest the dividends and other distributions in full and fractional shares in
accordance with the Trust's then current prospectus and statement of additional
information. If a shareholder has elected to receive dividends or other
distributions in cash, then MGF shall disburse dividends to shareholders of
record in accordance with the Trust's then current prospectus and statement of
additional information. MGF shall, on or before the mailing date of such checks,
notify the Trust and the Custodian of the estimated amount of cash required to
pay such dividend or distribution, and the Trust shall instruct the Custodian to
make available sufficient funds therefor in the appropriate account of the
Trust. MGF shall mail to the shareholders periodic statements, as requested by
the Trust, showing the number of full and fractional shares and the net asset
value per share of shares so credited. When requested by the Trust, MGF shall
prepare and file with the Internal Revenue Service, and when required, shall
address and mail to shareholders, such returns and information relating to
dividends and distributions paid by the Trust as are required to be so prepared,
filed and mailed by applicable laws, rules and regulations.
10. UNCLAIMED DIVIDENDS AND UNCLAIMED REDEMPTION PROCEEDS.
MGF shall, at least annually, furnish in writing to the Trust
the names and addresses, as shown in the shareholder accounts maintained by MGF,
of all shareholders for which there are, as of the end of the calendar year,
dividends, distributions or redemption proceeds for which checks or share
certificates mailed in payment of distributions have been returned. MGF shall
use its best efforts to contact the shareholders affected and to follow any
other written instructions received from the Trust concerning the disposition of
any such unclaimed dividends, distributions or redemption proceeds.
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<PAGE>
11. REDEMPTIONS AND EXCHANGES.
A. MGF shall process, in accordance with the Trust's then current
prospectus and statement of additional information, each order for the
redemption of shares accepted by MGF. Upon its approval of such redemption
transactions, MGF, if requested by the Trust, shall mail to the shareholder
and/or dealer of record a confirmation showing trade date, number of full and
fractional shares redeemed, the price per share and the total redemption
proceeds. For each such redemption, MGF shall either: (a) prepare checks in the
appropriate amounts for approval and verification by the Trust and signature by
an authorized officer of MGF and mail the checks to the appropriate person, or
(b) in the event redemption proceeds are to be wired through the Federal Reserve
Wire System or by bank wire, cause such proceeds to be wired in federal funds to
the bank account designated by the shareholder, or (c) effectuate such other
redemption procedures which are authorized by the Trust's Board of Trustees or
its then current prospectus and statement of additional information. The
requirements as to instruments of transfer and other documentation, the
applicable redemption price and the time of payment shall be as provided in the
then current prospectus and statement of additional information, subject to such
supplemental instructions as may be furnished by the Trust and accepted by MGF.
If MGF or the Trust determines that a request for redemption does not comply
with the requirements for redemptions, MGF shall promptly notify the shareholder
indicating the reason therefor.
B. If shares of the Trust are eligible for exchange with shares of any
other investment company, MGF, in accordance with the then current prospectus
and statement of additional information and exchange rules of the Trust and such
other investment company, or such other investment company's transfer agent,
shall review and approve all exchange requests and shall, on behalf of the
Trust's shareholders, process such approved exchange requests.
C. MGF shall notify the Trust and the Custodian on each business day of
the amount of cash required to meet payments made pursuant to the provisions of
this Paragraph 11, and, on the basis of such notice, the Trust shall instruct
the Custodian to make available from time to time sufficient funds therefor in
the appropriate account of the Trust. Procedures for effecting redemption orders
accepted from shareholders or dealers of record by telephone or other methods
shall be established by mutual agreement between MGF and the Trust consistent
with the Trust's then current prospectus and statement of additional
information.
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<PAGE>
D. The authority of MGF to perform its responsibilities under Paragraph
7, Paragraph 9, and this Paragraph 11 shall be suspended with respect to any
series of the Trust upon receipt of notification by it of the suspension of the
determination of such series' net asset value.
12. AUTOMATIC WITHDRAWAL PLANS.
MGF will process automatic withdrawal orders pursuant to the
provisions of the withdrawal plans duly executed by shareholders and the current
prospectus and statement of additional information of the Trust. Payments upon
such withdrawal order shall be made by MGF from the appropriate account
maintained by the Trust with the Custodian on approximately the last business
day of each month in which a payment has been requested, and MGF will withdraw
from a shareholder's account and present for repurchase or redemption as many
shares as shall be sufficient to make such withdrawal payment pursuant to the
provisions of the shareholder's withdrawal plan and the current prospectus and
statement of additional information of the Trust. From time to time on new
automatic withdrawal plans a check for a payment date already past may be issued
upon request by the shareholder.
13. WIRE-ORDER PURCHASES.
MGF will send written confirmations to the dealers of record
containing all details of the wire-order purchases placed by each such dealer by
the close of business on the business day following receipt of such orders by
MGF. Upon receipt of any check drawn or endorsed to the Trust (or MGF, as agent)
or otherwise identified as being payment of an outstanding wire- order, MGF will
stamp said check with the date of its receipt and deposit the amount represented
by such check to MGF's deposit accounts maintained with the Custodian. MGF will
cause the Custodian to transfer federal funds in an amount equal to the net
asset value of the shares so purchased to the Trust's account with the Custodian
and will notify the Trust before noon of each business day of the total amount
deposited in the Trust's deposit accounts, and in the event that payment for a
purchase order is not received by MGF or the Custodian on the tenth business day
following receipt of the order, prepare an NASD "notice of failure of dealer to
make payment."
14. OTHER PLANS.
MGF will process such accumulation plans, group programs and
other plans or programs for investing in shares of the Trust as are now provided
for in the Trust's current prospectus and statement of additional information
and will act as plan agent for shareholders pursuant to the terms of such plans
and programs duly executed by such shareholders.
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<PAGE>
15. RECORDKEEPING AND OTHER INFORMATION.
MGF shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
contract with the Trust. All such records shall be the property of the Trust at
all times and shall be available for inspection and use by the Trust. Where
applicable, such records shall be maintained by MGF for the periods and in the
places required by Rule 31a-2 under the 1940 Act. The retention of such records
shall be at the expense of the Trust. MGF shall make available during regular
business hours all records and other data created and maintained pursuant to
this Agreement for reasonable audit and inspection by the Trust, any person
retained by the Trust, or any regulatory agency having authority over the Trust.
16. SHAREHOLDER RECORDS.
MGF shall maintain records for each shareholder account
showing the following:
A. Names, addresses and tax identifying numbers;
B. Name of the dealer of record, if any;
C. Number of shares held of each series;
D. Historical information regarding the account of each
shareholder, including dividends and distributions in
cash or invested in shares;
E. Information with respect to the source of all dividends
and distributions allocated among income, realized
short-term gains and realized long-term gains;
F. Any instructions from a shareholder including all forms
furnished by the Trust and executed by a shareholder
with respect to (i) dividend or distribution elections
and (ii) elections with respect to payment options in
connection with the redemption of shares;
G. Any correspondence relating to the current maintenance
of a shareholder's account;
H. Certificate numbers and denominations for any
shareholder holding certificates;
I. Any stop or restraining order placed against a
shareholder's account;
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J. Information with respect to withholding in the case of
a foreign account or any other account for which
withholding is required by the Internal Revenue Code of
1986, as amended; and
K. Any information required in order for MGF to perform
the calculations contemplated under this Agreement.
17. TAX RETURNS AND REPORTS.
MGF will prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies and, if required, mail
to shareholders of the Trust such returns for reporting dividends and
distributions paid by the Trust as are required to be so prepared, filed and
mailed and shall withhold such sums as are required to be withheld under
applicable federal and state income tax laws, rules and regulations.
18. OTHER INFORMATION TO THE TRUST.
Subject to such instructions, verification and approval of the
Custodian and the Trust as shall be required by any agreement or applicable law,
MGF will also maintain such records as shall be necessary to furnish to the
Trust the following: annual shareholder meeting lists, proxy lists and mailing
materials, shareholder reports and confirmations and checks for disbursing
redemption proceeds, dividends and other distributions or expense disbursements.
19. ACCESS TO SHAREHOLDER INFORMATION.
Upon request, MGF shall arrange for the Trust's investment
adviser to have direct access to shareholder information contained in MGF's
computer system, including account balances, performance information and such
other information which is available to MGF with respect to shareholder
accounts.
20. COOPERATION WITH ACCOUNTANTS.
MGF shall cooperate with the Trust's independent public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
21. SHAREHOLDER SERVICE AND CORRESPONDENCE.
MGF will provide and maintain adequate personnel, records and
equipment to receive and answer all shareholder and dealer inquiries relating to
account status, share purchases, redemptions and exchanges and other investment
plans available to
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<PAGE>
Trust shareholders. MGF will answer written correspondence from shareholders
relating to their share accounts and such other written or oral inquiries as may
from time to time be mutually agreed upon, and MGF will notify the Trust of any
correspondence or inquiries which may require an answer from the Trust.
22. PROXIES.
MGF shall assist the Trust in the mailing of proxy cards and
other material in connection with shareholder meetings of the Trust, shall
receive, examine and tabulate returned proxies and shall, if requested by the
Trust, provide at least one inspector of election to attend and participate as
required by law in shareholder meetings of the Trust.
23. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
24. COMPENSATION.
For the performance of MGF's obligations under this Agreement,
the Trust shall pay MGF, on the first business day following the end of each
month, a monthly fee in accordance with the schedule attached hereto as Schedule
A. MGF shall not be required to reimburse the Trust or the Trust's investment
adviser for (or have deducted from its fees) any expenses in excess of expense
limitations imposed by certain state securities commissions having jurisdiction
over the Trust. The Trust shall promptly reimburse MGF for any out-of-pocket
expenses and advances which are to be paid by the Trust in accordance with
Paragraph 25.
25. EXPENSES.
MGF shall furnish, at its expense and without cost to the
Trust (i) the services of its personnel to the extent that such services are
required to carry out its obligations under this Agreement and (ii) use of data
processing equipment. All costs and expenses not expressly assumed by MGF under
this Paragraph 25 shall be paid by the Trust, including, but not limited to,
costs and expenses of officers and employees of MGF in attending meetings of the
Board of Trustees and shareholders of the Trust, as well as costs and expenses
for postage, envelopes, checks, drafts, continuous forms, reports,
communications, statements and other materials, telephone, telegraph and remote
transmission lines, use of outside pricing services, use of outside mailing
firms, necessary outside record storage, media for storage of records (e.g.,
microfilm, microfiche, computer tapes), printing, confirmations and any
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<PAGE>
other shareholder correspondence and any and all assessments, taxes or levies
assessed on MGF for services provided under this Agreement. Postage for mailings
of dividends, proxies, reports and other mailings to all shareholders shall be
advanced to MGF three business days prior to the mailing date of such materials.
26. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require MGF to perform any services for
the Trust which services could cause MGF to be deemed an "investment adviser" of
the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede
or contravene the Trust's prospectus or statement of additional information or
any provisions of the 1940 Act and the rules thereunder. Except as otherwise
provided in this Agreement and except for the accuracy of information furnished
to it by MGF, the Trust assumes full responsibility for complying with all
applicable requirements of the 1940 Act, the Securities Act of 1933, as amended,
and any other laws, rules and regulations of governmental authorities having
jurisdiction.
27. REFERENCES TO MGF.
The Trust shall not circulate any printed matter which
contains any reference to MGF without the prior written approval of MGF,
excepting solely such printed matter as merely identifies MGF as Administrative
Services Agent, Transfer, Shareholder Servicing and Dividend Disbursing Agent
and Accounting Services Agent. The Trust will submit printed matter requiring
approval to MGF in draft form, allowing sufficient time for review by MGF and
its counsel prior to any deadline for printing.
28. EQUIPMENT FAILURES.
MGF shall take all steps necessary to minimize or avoid
service interruptions, and has entered into one or more agreements making
provision for emergency use of electronic data processing equipment. MGF shall
have no liability with respect to equipment failures beyond its control.
29. INDEMNIFICATION OF MGF.
A. MGF may rely on information reasonably believed by it to be accurate
and reliable. Except as may otherwise be required by the 1940 Act and the rules
thereunder, neither MGF nor its shareholders, officers, directors, employees,
agents, control persons or affiliates of any thereof shall be subject to any
liability for, or any damages, expenses or losses incurred by the Trust in
connection with any error of judgment, mistake of law, any act or omission
connected with or arising out of any services rendered under or payments made
pursuant to this Agreement or any
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<PAGE>
other matter to which this Agreement relates, except by reason of willful
misfeasance, bad faith or gross negligence on the part of any such persons in
the performance of the duties of MGF under this Agreement or by reason of
reckless disregard by any of such persons of the obligations and duties of MGF
under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of MGF, or any of its affiliates, who may be or become an
officer, trustee, employee or agent of the Trust, shall be deemed, when
rendering services to the Trust or acting on any business of the Trust, to be
rendering such services to or acting solely as an officer, trustee, employee or
agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of MGF or any of its affiliates,
even though paid by one of these entities.
C. The Trust shall indemnify and hold harmless MGF, its directors,
officers, employees, shareholders, agents, control persons and affiliates from
and against any and all claims, demands, expenses and liabilities (whether with
or without basis in fact or law) of any and every nature which MGF may sustain
or incur or which may be asserted against MGF by any person by reason of, or as
a result of: (i) any action taken or omitted to be taken by MGF in good faith in
reliance upon any certificate, instrument, order or share certificate reasonably
believed by it to be genuine and to be signed, countersigned or executed by any
duly authorized person, upon the oral instructions or written instructions of an
authorized person of the Trust or upon the opinion of legal counsel for the
Trust or its own counsel; or (ii) any action taken or omitted to be taken by MGF
in connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. However, indemnification under
this subparagraph shall not apply to actions or omissions of MGF or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
30. TERMINATION
A. The provisions of this Agreement shall be effective on the date
first above written, shall continue in effect for two years from that date and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by MGF, (2) by vote, cast in person at a meeting
called for the purpose, of a majority of the Trust's trustees who are not
parties to this Agreement or interested persons (as defined in the 1940 Act) of
any such party, and (3) by vote of a majority of the Trust's Board of Trustees
or a majority of the Trust's outstanding voting securities.
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<PAGE>
B. Either party may terminate this Agreement on any date by giving the
other party at least sixty (60) days' prior written notice of such termination
specifying the date fixed therefore. Upon termination of this Agreement, the
Trust shall pay to MGF such compensation as may be due as of the date of such
termination, and shall likewise reimburse MGF for any out-of-pocket expenses and
disbursements reasonably incurred by MGF to such date.
C. In the event that in connection with the termination of this
Agreement a successor to any of MGF's duties or responsibilities under this
Agreement is designated by the Trust by written notice to MGF, MGF shall,
promptly upon such termination and at the expense of the Trust, transfer all
records maintained by MGF under this Agreement and shall cooperate in the
transfer of such duties and responsibilities, including providing for assistance
from MGF's cognizant personnel in the establishment of books, records and other
data by such successor.
31. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent MGF or any affiliated
person (as defined in the 1940 Act) of MGF from providing services for any other
person, firm or corporation (including other investment companies); provided,
however, that MGF expressly represents that it will undertake no activities
which, in its judgment, will adversely affect the performance of its obligations
to the Trust under this Agreement.
32. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
33. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
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<PAGE>
34. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio` . Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1940 Act shall be resolved by reference to such term or provision of the
1940 Act and to interpretations thereof, if any, by the United States Courts or
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the SEC issued pursuant to said 1940 Act. In addition,
where the effect of a requirement of the 1940 Act, reflected in any provision of
this Agreement, is revised by rule, regulation or order of the SEC, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
35. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: Profit Funds Investment Trust
2 Wisconsin Circle, Suite 510
Chevy Chase, Maryland 20815
Attention: Eugene A. Profit
To MGF: MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 35. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
36. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
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<PAGE>
37. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
38. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
39. FORCE MAJEURE.
If MGF shall be delayed in its performance of services or
prevented entirely or in part from performing services due to causes or events
beyond its control, including and without limitation, acts of God, interruption
of power or other utility, transportation or communication services, acts of
civil or military authority, sabotages, national emergencies, explosion, flood,
accident, earthquake or other catastrophe, fire, strike or other labor problems,
legal action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
40. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PROFIT FUNDS INVESTMENT TRUST
By:_____________________________
Its: President
MGF SERVICE CORP.
By:_____________________________
Its: President
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<PAGE>
Schedule A
COMPENSATION
As Transfer, Dividend Disbursing and
Shareholder Service Agent
Profit Lomax Value Fund Payable monthly at
rate of $17/account per
year; subject to minimum
of $1,000 per month
Profit Lomax Institutional
Equity Fund Payable monthly at
rate of $17/account per
year; subject to minimum
of $1,000 per month
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<PAGE>
AGREEMENT RELATING TO INITIAL CAPITAL
_______, 1996
PROFIT FUNDS INVESTMENT TRUST
2 Wisconsin Circle
Suite 510
Chevy Chase, Maryland 20815
Dear Sir/Madam:
In conjunction with the purchase by __________________ (the
"Purchaser") of ______ shares of beneficial interest of the Profit Lomax Value
Fund and ______ shares of beneficial interest of the Profit Lomax Institutional
Equity Fund of the Profit Funds Investment Trust (The "Shares"), the Purchaser
hereby represents that it is acquiring the Shares for investment with no
intention of reselling or otherwise distributing the Shares. The Purchaser
hereby further agrees that any transfer of any of the Shares or any interest
therein shall be subject to the following conditions:
1. The Purchaser shall furnish you and counsel satisfactory to you
prior to the time of transfer, a written description of the
proposed transfer specifying its nature and consequence and
giving the name of the proposed transferee.
2. You shall have obtained from your counsel a written opinion
stating whether in the opinion of such counsel the proposed
transfer may be effected without registration under the
Securities Act of 1933. If such opinion states that such transfer
may be so effected, the Purchaser shall then be entitled to
transfer the Shares in accordance with the terms specified in its
description of the transaction to you. If such opinion states
that the proposed transfer may not be so effected, the Purchaser
will not be entitled to transfer the Shares unless the Shares are
registered.
The Purchaser hereby authorizes you to take such action as you shall
reasonably deem appropriate to prevent any violation of the Securities Act of
1933 in connection with the transfer of the Shares, including the imposition of
a requirement that any transferee of the Shares sign a letter agreement similar
to this one. The Purchaser agrees that in the event the Shares are redeemed
by the Purchaser or its successors or any current holder prior to the
complete amortization of organization expenses by the Profit Lomax Value
Fund or the Profit Lomax Institutional Equity Fund, the redemption proceeds
payable in respect of the Shares so redeemed shall be reduced by the pro-rata
share (based on the proportionate share of the Shares redeemed to the total
number of the Shares outstanding at the time of redemption) of the then
unamortized deferred organization expenses as of the date of such redemption.
Very truly yours,
By: ___________________________
Its:
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<PAGE>
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1
WHEREAS, Profit Funds Investment Trust (the "Trust"), an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts,
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares
of beneficial interest without par value (the "Shares"), which may be divided
into one or more Series of Shares, one such Series being the Profit Lomax Value
Fund (the "Fund"); and
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Rule 12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Section 36(a) and (b) of the 1940 Act, that there is a
reasonable likelihood that this Plan will benefit the Fund and its shareholders,
have approved this Plan by votes cast in person at a meeting called for the
purpose of voting hereon and on any agreements related hereto; and
WHEREAS, the Plan has been approved by the vote of at least a majority
of the outstanding voting securities (as defined in the 1940 Act) of the Fund;
NOW, THEREFORE, the Trust, on behalf of the Fund, hereby adopts this
Plan in accordance with Rule 12b-1 under the 1940 Act, on the following terms
and conditions:
1. Distribution Activities. Subject to the supervision of the Trustees
of the Trust, the Trust, on behalf of the Fund, may, directly or indirectly,
engage in any activities related to the distribution of Shares of the Fund,
which activities may include, but are not limited to, the following: (a)
payments to securities dealers and others who are engaged in the sale of Shares
of the Fund and who may be advising shareholders of the Fund regarding the
purchase, sale or retention of Shares of the Fund; (b) expenses of maintaining
personnel (including personnel of organizations with which the Trust has entered
into agreements related to this Plan) who engage in or support distribution of
Shares of the Fund or who render shareholder support services not otherwise
provided by the Fund's transfer agent, including, but not limited to, office
space and equipment, telephone facilities and expenses, answering routine
inquiries regarding the Fund, processing shareholder transactions, and
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<PAGE>
providing such other shareholder services as the Fund may reasonably request;
(c) formulating and implementing of marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (d) preparing, printing
and distributing sales literature; (e) preparing, printing and distributing
prospectuses and statements of additional information and reports of the Fund
for recipients other than existing shareholders of the Fund; and (f) obtaining
such information, analyses and reports with respect to marketing and promotional
activities as the Fund may, from time to time, deem advisable. The Trust, on
behalf of the Fund, is authorized to engage in the activities listed above, and
in any other activities related to the distribution of Shares of the Fund,
either directly or through other persons with which the Trust has entered into
agreements related to this Plan.
2. Maximum Expenditures. The expenditures to be made by the Fund
pursuant to this Plan and the basis upon which payment of such expenditures will
be made shall be determined by the Trustees of the Trust, but in no event may
such expenditures exceed in any fiscal year an amount calculated at the rate of
.25% of the average daily net asset value of the Fund. Such payments for
distribution activities may be made directly by the Fund or the Fund's
investment adviser may incur such expenses and obtain reimbursement from the
Fund.
3. Term and Termination. (a) This Plan shall become effective on the
date hereof. Unless terminated as herein provided, this Plan shall continue in
effect for one year from the date hereof and shall continue in effect for
successive periods of one year thereafter, but only so long as each such
continuance is specifically approved by votes of a majority of both (i) the
Trustees of the Trust and (ii) the Rule 12b-1 Trustees, cast in person at a
meeting called for the purpose of voting on such approval.
(b) This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund.
4. Amendments. This Plan may not be amended to increase materially the
amount of expenditures provided for in Section 2 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities of the
Fund (as defined in the 1940 Act), and no material amendment to this Plan shall
be made unless approved in the manner provided for annual renewal of this Plan
in Section 3(a) hereof.
5. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of Trustees who are not interested persons (as
defined in the 1940 Act) of the Trust shall be committed to the discretion of
the Trustees who are not interested persons of the Trust.
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<PAGE>
6. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees and the Trustees shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
7. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 6 hereof, for a
period of not less than six years from the date of this Plan, the agreements or
such reports, as the case may be, the first two years in an easily accessible
place.
8. Limitation of Liability. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of the Commonwealth of
Massachusetts and notice is hereby given that this Plan 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 the Trustees or shareholders
of the Trust individually but are binding only upon the assets and property of
the Trust.
IN WITNESS WHEREOF, the Trust, on behalf of the Fund, has caused this
Plan to be executed as of the date set forth below.
Dated: _________, 1996
Attest:
__________________________ By: __________________________
Secretary President
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<PAGE>
