U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 2
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and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
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Amendment No. 4
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(Check appropriate box or boxes)
PROFIT FUNDS INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
8720 Georgia Avenue, Suite 808
Silver Spring, Maryland 20910
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (301) 650-0059
Eugene A. Profit
Investor Resources Group
8720 Georgia Avenue, Suite 808
Silver Spring, Maryland 20910
(Name and Address of Agent for Service)
Copies to:
David M. Leahy, Esq.
Sullivan & Worcester LLP
1025 Connecticut Ave., NW
Suite 1000
Washington, DC 20036
It is proposed that this filing will become effective (check appropriate box)
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/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / __ days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
Registrant has registered an indefinite number of shares of beneficial
interest pursuant to Rule 24f-2 under the Investment Company Act of 1940.
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
REGISTRATION STATEMENT ON FORM N-1A
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
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PART A
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Item No. Registration Statement Caption Caption in Prospectus
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1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Information Financial Highlights;
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
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of Additional
Item No. Registration Statement Caption Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
(i)
<PAGE>
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 Principal Security Holders
of Securities
16. Investment Advisory and Other Services The Investment Manager;
The Distributor; Distribution
Plan; Administrator and Fund
Accountant; Transfer Agent,
Dividend Disbursing Agent and
Shareholder Servicing Agent;
Custodian; Auditors
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Trust
19. Purchase, Redemption and Pricing of Calculation of Share
Securities Being Offered Price; Redemption in Kind
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Performance Data Historical Performance
Information
23. Financial Statements Financial Statements
PART C
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The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
(ii)
<PAGE>
PROSPECTUS
January 16, 1998
PROFIT FUNDS INVESTMENT TRUST
8720 Georgia Avenue, Suite 808
Silver Spring, Maryland 20910
301-650-0059
PROFIT VALUE FUND
The Profit Value Fund (the "Fund"), a separate series of Profit Funds
Investment Trust (the "Trust"), seeks to provide investors with a high long-term
total return, consistent with the preservation of capital and maintenance of
liquidity, by investing primarily in the common stock of established, larger
capitalization companies (i.e. companies having a market capitalization
exceeding $1 billion). Dividend income is only an incidental consideration to
the Fund's investment objective.
Quash Profit Productions, LLC T/A Investor Resources Group (the "Manager")
serves as the investment manager to the Fund and manages the Fund's investments.
The name "PROFIT" is derived from the name of the founder and principal
shareholder of the Manager, Eugene A. Profit, and is not intended as an
indication of the investment objective and policies of the Fund nor of any
series of the Trust.
This Prospectus sets forth concisely the information about the Fund that
you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated January 16, 1998 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information may
be obtained at no charge by calling the toll-free number listed below.
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For Information or Assistance in Opening An Account,
Please Call: Nationwide (Toll-Free). . . . . . 888-744-2337
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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.
<PAGE>
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 ...............................................
EXPENSE INFORMATION
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Shareholder Transaction Expenses
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Sales Load Imposed on Purchases ................................... None
Sales Load Imposed on Reinvested Dividends ........................ None
Redemption Fee .................................................... None*
* Shareholders may be required to pay a wire transfer fee charged by their
receiving bank in the case of redemptions made by wire. See "How to Redeem
Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
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Management Fees After Waivers...................................... .00%(A)
12b-1 Fees ........................................................ .00%(B)
Other Expenses After Requirements ................................. 1.95%(C)
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Total Fund Operating Expenses After Waivers
and Reimbursements............................................ 1.95%(C)
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(A) Absent waivers of management fees, such fees would have been 1.25%.
(B) The Fund may incur 12b-1 fees of up to .25% per annum. As a result,
long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales loads permitted by the National Association of
Securities Dealers, Inc.
(C) The Manager currently intends to waive management fees and reimburse the
Fund for expenses incurred to the extent necessary to enable the Fund to
maintain total Fund operating expenses at a maximum level of 1.95%. Absent
such waivers and reimbursements, Other Expenses would have been 17.32% and
Total Fund Operating Expenses would have been 18.57% for the fiscal period
ended September 30, 1997. The waiver and reimbursement described above may
be removed at any time and without notice.
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<PAGE>
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 amounts incurred during the most recent 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
5 Years 105
10 Years 227
FINANCIAL HIGHLIGHTS
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The following information, which has been audited by Coopers & Lybrand
L.L.P., is an integral part of the audited financial statements and should be
read in conjunction with the financial statements. The financial statements as
of September 30, 1997 and related auditors' report appear in the Statement of
Additional Information of the Fund, which can be obtained by shareholders at no
charge by calling the Fund toll-free 888-744- 2337 or by writing to the Fund at
the address on the front of this Prospectus.
FINANCIAL HIGHLIGHTS
For the period November 15, 1996 to September 30, 1997
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Ratio
Net Ratio of Expenses
Net Realized and Net of Net to Average
Asset Unrealized Asset Net Ratio Investment Net Assets
Value Net Gains or Value Assets of Expenses Income (Excluding
Beginning Investment (Losses) on End Total End to Average to Average Waivers and
of Period Income Investments of Period Return of Period Net Assets Net Assets Reimbursements)
--------- ---------- ------------ --------- ------ --------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997(1) $10.00 $0.07 $2.81 $12.88 28.80%(3) $2,009,776 1.95% 1.19% 18.57%
<CAPTION>
Ratio
of Net
Investment
Income (Loss)
to Average
Net Assets
(Excluding Portfolio Average
Waivers and Turnover Commission
Reimbursements) Rate Rate (2)
--------------- --------- ----------
<S> <C> <C> <C>
1997(1) (15.43)% 9.59% $0.0600
</TABLE>
All amounts have been annualized unless otherwise noted.
(1) The Fund commenced operations on November 15, 1996.
(2) Average commission rate paid per share for security purchases and sales
during the period.
(3) Total return has not been annualized.
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<PAGE>
INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS
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The investment objective of the Fund is to seek a high long-term total
return, consistent with the preservation of capital and maintenance of
liquidity, by investing primarily in the common stock of established, larger
capitalization companies (i.e. companies having a market capitalization
exceeding $1 billion). At least 65% of the Fund's total assets will be invested
in equity securities, which include common stock, preferred stock and bonds
convertible into common stock, and warrants and rights for the purchase of
common stock. Dividend income is only an incidental consideration to the Fund's
investment objective. The Fund is not intended to be a complete investment
program for any investor, and there is no assurance that its investment
objective can be achieved.
The Fund's investment objective may be changed by the Board of Trustees
without shareholder approval, but only after notification has been given to
shareholders and after this Prospectus has been revised accordingly. If there is
a change in the Fund's investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. Unless otherwise indicated, all investment
practices and limitations of the Fund are nonfundamental policies which may be
changed by the Board of Trustees without shareholder approval.
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. The Manager uses a disciplined,
value-oriented process in order to select stocks generally having the following
characteristics:
o low price/earnings ratios
o strong balance sheet ratios
o high and/or stable dividend yields
o low price/book ratios
The Fund will invest primarily in the common stocks of established, larger
capitalization companies (i.e. companies having a market capitalization
exceeding $1 billion). The Manager believes these stocks enjoy low expectations
from investors in general and are undervalued. As a result, in the Manager's
opinion, average "earnings" performance by such companies can result in superior
stock performance, and disappointing "earnings" should result in minimal
negative stock performance.
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<PAGE>
Investments in common stock and other types of equity securities (such as
preferred stock, convertible securities and warrants) are subject to inherent
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Manager. 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 ownership issued by an American bank or
trust company as a convenience to investors in lieu of the underlying shares
which it holds in custody) or other securities of foreign issuers that are
publicly traded in the United States. When selecting foreign investments, the
Manager will seek to invest in securities that have investment characteristics
and qualities comparable to the kinds of domestic securities in which the Fund
invests. Foreign investments may be subject to special risks, including future
political and economic developments and the possibility of seizure or
nationalization of companies, imposition of withholding taxes on income,
establishment of exchange controls or adoption of other restrictions that might
affect an investment adversely.
The Fund expects to invest primarily in securities currently paying
dividends, although it may buy securities that are not paying dividends but
offer prospects for growth of capital or future income. Although the Fund
invests primarily in common stock, the Fund may also invest in securities
convertible into common stock (such as convertible bonds, convertible preferred
stock and warrants). The Fund may invest in convertible preferred stock and
convertible bonds which are rated at the time of purchase in the four highest
rating categories assigned by Moody's Investors Service, Inc. (Aaa, Aa, A or
Baa) or Standard & Poor's Ratings Group (AAA, AA, A or BBB) or unrated
securities determined by the Manager to be of comparable quality. Preferred
stock and bonds rated Baa or BBB have speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to pay principal and interest or to pay the preferred stock
obligations than is the case with higher grade securities. Subsequent to its
purchase by the Fund, a security's rating may be reduced below Baa or BBB and
the Manager will sell such security, subject to market conditions and the
Manager's assessment of the most opportune time for sale. The Fund does not
intend to hold more than 5% of its net assets in securities rated Baa (or BBB)
or lower, or, if unrated, which the Manager determines to be of comparable
quality.
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<PAGE>
When the Manager 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 the Manager it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold for defensive purposes all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits), commercial paper, shares of money market
investment companies, U.S. Government obligations having a maturity of less than
one year or repurchase agreements. Investments in commercial paper for temporary
defensive purposes will be limited to commercial paper rated A-2 or better by
Standard & Poor's Ratings Group or Prime-2 or better by Moody's Investors
Services, Inc. The Fund may invest up to 10% of its total assets in shares of
money market investment companies. Investments by the Fund in shares of money
market investment companies may result in duplication of advisory,
administrative and distribution fees. The Fund will not invest more than 5% of
its total assets in securities of any single investment company and will not
purchase more than 3% of the outstanding voting securities of any investment
company.
The Fund may also engage in the following investment techniques, each of
which may involve certain risks:
Repurchase Agreements. Repurchase agreements are transactions by which the
Fund purchases a security and simultaneously commits to resell that security to
the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. The Fund intends to enter into repurchase
agreements only with its Custodian, banks having assets in excess of $10
billion, and broker-dealers who are recognized as primary dealers in U.S.
Government obligations by the Federal Reserve Bank of New York. Such agreements
will be collateralized by U.S. Government obligations or other liquid high-grade
debt obligations, which will be held in safekeeping in the customer-only account
of the Fund's Custodian at the Federal Reserve Bank or in the Federal Reserve
Book Entry System, and will be maintained at a value that equals or exceeds the
value of the repurchase agreement. The Fund will not enter into a repurchase
agreement not terminable within seven days if, as a result thereof, more than
15% of the value of the net assets of the Fund will be invested in such
securities and other illiquid securities.
Warrants and Rights. Warrants are options to purchase equity securities at
a specified price and are valid for a specific time period. Rights are similar
to warrants, but
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<PAGE>
normally have a shorter duration and are distributed by the issuer to its
shareholders. The Fund may purchase warrants and rights, provided that the Fund
does not invest more than 5% of its net assets at the time of purchase in
warrants and rights other than those that have been acquired in units or
attached to other securities. Of such 5%, no more than 2% of the Fund's assets
at the time of purchase may be invested in warrants which are not listed on
either the New York Stock Exchange or the American Stock Exchange.
Lending Portfolio Securities. The Fund may, from time to time, lend
securities on a short-term basis (i.e. for up to seven days) to banks, brokers
and dealers and receive as collateral cash, U.S. Government obligations or
irrevocable bank letters of credit (or any combination thereof), which
collateral will be required to be maintained at all times in an amount equal to
at least 100% of the current value of the loaned securities plus accrued
interest. Although the Fund has the ability to make loans of all of its
portfolio securities, it is the present intention of the Fund, which may be
changed without shareholder approval, that such loans will not be made with
respect to the Fund if as a result the aggregate of all outstanding loans
exceeds one-third of the value of the Fund's total assets. Securities lending
will afford the Fund the opportunity to earn additional income because the Fund
will continue to be entitled to the interest payable on the loaned securities
and also will either receive as income all or a portion of the interest on the
investment of any cash loan collateral or, in the case of collateral other than
cash, a fee negotiated with the borrower. Such loans will be terminable at any
time. Loans of securities involve risks of delay in receiving additional
collateral or in recovering the securities lent or even loss of rights in the
collateral in the event of the insolvency of the borrower of the securities. The
Fund will have the right to regain record ownership of loaned securities in
order to exercise beneficial rights. The Fund may pay reasonable fees in
connection with arranging such loans.
Borrowing and Pledging. The Fund may borrow money from banks, provided that
immediately after such borrowing, there is an asset coverage of at least 300%
for all borrowings of the Fund. The Fund may pledge assets in connection with
borrowings but will not pledge more than one-third of its total assets.
Borrowing magnifies the potential for gain or loss on the portfolio securities
of the Fund and, therefore, if employed, increases the possibility of
fluctuation in the Fund's net asset value. This is the speculative factor known
as leverage. The Fund's policies on borrowing and pledging are fundamental
- 7 -
<PAGE>
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 The Manager . Although the annual portfolio turnover rate of the Fund cannot
be accurately predicted, it is not expected to exceed 50%, but may be either
higher or lower. High turnover may require the payment of correspondingly
greater commission expenses and transaction costs and may result in the Fund
recognizing greater amounts of income and capital gains, which would increase
the amount of income and capital gains which the Fund must distribute to its
shareholders in order to maintain its status as a regulated investment company
and to avoid the imposition of federal income or excise taxes. (See discussion
under "Taxes").
HOW TO PURCHASE SHARES
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Your initial investment in the Fund ordinarily must be at least $2,500
($1,000 for tax-deferred retirement plans). The Fund may, in the Manager's sole
discretion, accept certain accounts with less than the stated minimum initial
investment. Shares of the Fund are sold on a continuous basis at the net asset
value next determined after receipt of a purchase order by the Fund. Purchase
orders received by dealers prior to 4:00 p.m., Eastern time, on any business day
and transmitted to the Fund's transfer agent, State Street Bank and Trust
Company ("State Street"), by 5:00 p.m., Eastern time, that day are confirmed at
the net asset value determined as of the close of the regular session of trading
on the New York Stock Exchange on that day. It is the responsibility of dealers
to transmit properly completed orders so that they will be received by State
Street by 5:00 p.m., Eastern time. Dealers may charge a fee for effecting
purchase orders. Direct purchase orders received by State Street by 4:00 p.m.,
Eastern time, are confirmed at that day's net asset value. Direct investments
received by State Street after 4:00 p.m., Eastern time, and orders received from
dealers after 5:00 p.m., Eastern time, are confirmed at the net asset value next
determined on the following business day.
You may open an account and make an initial investment in the Fund by
sending a check and a signed completed account application to State Street Bank
and Trust Company, P.O. Box
- 8 -
<PAGE>
8020, Boston, Massachusetts 02266-8020, or to the Fund, 8720 Georgia Avenue,
Suite 808, Silver Spring, Maryland 20910. Checks should be made payable to the
"Profit Value Fund" and should be in U.S. dollars. Third party checks, credit
cards, credit card checks and cash will not be accepted. An account application
is included with this Prospectus.
The Fund will mail you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are not issued. The Fund reserves
the rights to limit the amount of investments and to refuse to sell to any
person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Fund, State Street, and certain of their affiliates,
excluding such entities from certain liabilities (including, among others,
losses resulting from unauthorized shareholder transactions) relating to the
various services made available to investors. Should an order to purchase shares
be canceled because your check does not clear, you will be responsible for any
resulting losses or fees incurred by the Fund or State Street in the
transaction.
You may also open an account and make an initial investment in the Fund by
wire. Please telephone State Street for instructions (Nationwide call toll-free
888-744-2337) before wiring funds. You should be prepared to give the name in
which the account is to be established, the address, telephone number and
taxpayer identification number for the account, and the name of the bank which
will wire the money. The wiring bank generally will be a member of the Federal
Reserve Banking System or have a relationship with a bank that is. This bank
will normally charge you a fee for handling the transaction.
Federal funds should be wired to
State Street Bank and Trust Company
ABA # 011000028
For Credit to Account # 9905-233-4
Profit Value Fund
For further credit to Account # (insert your account number, name and
control number assigned by State Street)
As long as you have received the Prospectus, you may establish most new
accounts by wire. When new accounts are established in this manner, the
distribution options will be set to reinvestment of such distribution and your
social security or tax identification number ("TIN") will not be certified until
a signed application is received by State Street. Completed applications should
be forwarded immediately to State Street or to the Fund. With the purchase
application, the shareholder may specify other
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<PAGE>
distribution options (i.e. other than reinvest) and may add any special features
offered by the Fund. Should any dividend distributions or redemptions be paid
before the TIN is certified, they will be subject to Federal tax withholding.
Your investment in the Fund will be made at the net asset value next
determined after your wire is received together with the account information
indicated above. If the Fund does not receive timely and complete account
information, there may be a delay in the investment of your money and any
accrual of dividends.
You may purchase additional shares of the Fund by mail or by bank wire.
Checks should be sent to State Street Bank and Trust Company, P.O. Box 8020,
Boston, Massachusetts 02266-8020, or to the Fund, 8720 Georgia Avenue, Suite
808, Silver Spring, Maryland 20910. Checks should be made payable or endorsed to
the "Profit Value Fund." Bank wires should be sent as outlined above. Each
additional purchase request must contain the name of your account and your
account number to permit proper crediting. While there is no minimum amount
required for subsequent investments, the Fund reserves the right to impose such
a requirement.
SHAREHOLDER SERVICES
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The Fund provides special services to shareholders in connection with
certain purchase and redemption plans. You should contact the Fund or Boston
Financial Data Services, Inc. ("BFDS"), the Fund's shareholder servicing agent
(Nationwide call toll-free 888-744-2337) for additional information about the
shareholder services described below.
Tax-Deferred Retirement Plans
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Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
o Keogh Plans for self-employed individuals
o Individual retirement account (IRA) plans for individuals and their non
employed spouses, including Roth IRAs and Education IRAs.
o Qualified pension and profit-sharing plans for employees,
including those profit-sharing plans with a 401(k) provision
o 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
- 10 -
<PAGE>
Direct Deposit Plans
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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
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You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
investment under this plan is $500 and subsequent investments must be $50. BFDS
pays the costs associated with these transfers, but reserves the right, upon
thirty days' written notice, to assess reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account,
which would reduce your return from an investment in the Fund.
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.
HOW TO REDEEM SHARES
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You may redeem shares of the Fund on each day that the Fund is open for
business by sending a written request to the Fund. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Fund's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States.
If your instructions request a redemption by wire, you may be charged a
processing fee by your bank. In the event that wire transfer of funds is
impossible or impractical, the redemption proceeds will be sent by mail to the
designated account.
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<PAGE>
You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. Broker-dealers that are unaffiliated with the Trust
or the Manager may charge you a fee for this service. You will receive the net
asset value per share next determined after receipt by the Fund or BFDS of your
wire redemption request. It is the responsibility of broker-dealers to properly
transmit wire redemption orders to State Street. Payment will be made within
three business days after tender is made to the Fund or State Street in proper
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Fund by certified check or wire.
At the discretion of the Fund or State Street, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Fund reserves the
right to require you to close your account if at any time the value of your
shares is less than $2,500 (based on actual amounts invested, unaffected by
market fluctuations), or $1,000 in the case of tax-deferred retirement plans, or
such other minimum amount as the Fund may determine from time to time. After
notification to you of the Fund's intention to close your account, you will be
given sixty days to increase the value of your account to the minimum amount.
The Fund reserves the right to suspend your right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
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
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<PAGE>
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. No interest
will accrue on amounts represented by uncashed dividend checks.
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 capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) by the Fund to its
shareholders are taxable to the recipient shareholders as capital gains, without
regard to the length of time a shareholder has held Fund shares. The maximum
capital gains rate for individuals is 28% with respect to assets held for more
than 12 months, but not more than 18 months, and 20% with respect to assets held
more than 18 months. The maximum capital gains rate for corporate shareholders
is the same as the maximum tax rate for ordinary income. 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
- 13 -
<PAGE>
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 Fund commenced operations on November 15, 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 has retained Quash Profit Productions, LLC T/A Investor Resources
Group (the "Manager"), 8720 Georgia Avenue, Suite 808, Silver Spring, Maryland
20910, to provide general investment supervisory services to the Fund, to manage
the Fund's business affairs, and to manage the Fund's portfolio. Eugene A.
Profit is the controlling shareholder of the Manager.
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 reimburse
the Fund for expenses incurred to the extent necessary to enable the Fund to
maintain total operating expenses at a maximum level of 1.95% per annum of the
Fund's average daily net assets. There is no assurance, however, that such
reimbursement will be made in the current or future fiscal years, and expenses
of the Fund may therefore exceed 1.95% of its average daily net assets.
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 Fund's
administrator, custodian and transfer agent, fees and expenses of members of the
Board of Trustees who are not affiliated persons of the Fund, the cost of
preparing and distributing prospectuses, statements, reports and other documents
to shareholders, expenses of shareholders' meetings and proxy solicitations, and
such extraordinary or non-recurring expenses as may arise, including litigation
to which the Fund may be a party and indemnification of the Fund's officers and
Trustees with respect thereto.
- 14 -
<PAGE>
The Fund has entered into an Underwriting Agreement with Countrywide
Investments, Inc. (the "Distributor"), 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202, under which the Distributor provides distribution
services to the Fund. Under the terms of the Underwriting Agreement, and in
accordance with the Fund's Distribution Plan, the Fund or the Manager pays all
costs relating to distribution of Fund shares, subject to a limit of 0.25% per
annum of the average daily net asset value of the Fund, for payments made
directly by the Fund or for payments made to the Manager by the Fund as
reimbursement for distribution expenses incurred by the Manager. The Distributor
is an indirect wholly-owned subsidiary of Countrywide Credit Industries, Inc., a
New York Stock Exchange listed company principally engaged in the business of
residential mortgage lending. Robert G. Dorsey and John F. Splain are officers
of both the Trust and the Distributor.
The Fund has entered into an Administration Agreement with Countrywide Fund
Services, Inc. (the "Administrator"), 312 Walnut Street, 21st Floor, Cincinnati,
Ohio 45202, an indirect wholly-owned subsidiary of Countrywide Credit
Industries, Inc., to provide administrative services to the Fund. The
Administrator 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. For providing these
administrative services, the Fund pays the Administrator a fee equal on an
annual basis to the greater of (i) 0.15% of the average daily net assets up to
$25 million of the Trust, 0.125% of the average daily net assets from $25
million to $50 million, and 0.10% of the average daily net assets on all assets
over $50 million, or (ii) $12,000.
The Fund has also entered into an Accounting Services Agreement with the
Administrator. In this capacity, the Administrator provides fund accounting and
related portfolio accounting services to the Fund. For providing these
accounting services, the Fund pays the Administrator a monthly fee according to
the average net assets of the Fund 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
- 15 -
<PAGE>
The Fund has retained State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, as its Transfer Agent. Boston Financial
Data Services, Inc., Two Heritage Drive, Quincy, Massachusetts 02171 serves as
the Fund's dividend disbursing agent and shareholder service agent. BFDS is a
subsidiary of State Street Bank and Trust Company.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to its objective of seeking best execution of
portfolio transactions, the Manager may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Fund. Consistent with its obligation to seek best
execution for the Fund, the Manager may also consider such factors as price
(including the applicable brokerage commission or dealer spread), execution
capability, financial responsibility, responsiveness, and brokerage and research
services provided when selecting brokers and dealers to execute portfolio
transactions of the Fund. Subject to the requirements of the Investment Company
Act of 1940 and procedures adopted by the Board of Trustees, the Fund may
execute portfolio transactions through any broker or dealer and pay brokerage
commissions to a broker (i) which is an affiliated person of the Fund, or (ii)
which is an affiliated person of such person, or (iii) an affiliated person of
which is an affiliated person of the Fund or the Manager .
Shares of the Fund have equal voting rights and liquidation rights. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each full share owned and fractional votes for fractional shares
owned. The Fund does not normally hold annual meetings of shareholders. The
Trustees will promptly call and give notice of a meeting of shareholders for the
purpose of voting upon removal of any Trustee when requested to do so in writing
by shareholders holding 10% or more of the Fund's outstanding shares. The Fund
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.
DISTRIBUTION PLAN
- -----------------
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Manager for certain distribution-related
expenses, including the following: payments to securities dealers and others who
are engaged in the sale of shares of the Fund and who may be advising investors
regarding the purchase, sale or retention of such shares; expenses of
maintaining personnel who engage in or
- 16 -
<PAGE>
support distribution of shares or who render shareholder support services not
otherwise provided by the Manager; expenses of formulating and implementing
marketing and promotional activities, including direct mail promotions and mass
media advertising; expenses of preparing, printing and distributing sales
literature and prospectuses and statements of additional information and reports
for recipients other than existing shareholders of the Fund; expenses of
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Fund may, from time to time, deem advisable; and
any other expenses related to the distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is 0.25%
of the Fund's average daily net assets. Unreimbursed expenditures will not be
carried over from year to year. In the event the Plan is terminated by the Fund
in accordance with its terms, the Fund will not be required to make any payments
for expenses incurred by the Manager after the date the Plan terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the Fund
believes that the Glass-Steagall Act should not preclude a bank from providing
such services. However, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Fund believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by regulatory authorities, and the
overall return to those shareholders availing themselves of the bank services
will be lower than to those shareholders who do not. The Fund may from time to
time purchase securities issued by banks which provide such services. In
selecting investments for the Fund, however, no preference will be shown for
such securities.
CALCULATION OF SHARE PRICE
- --------------------------
On each day that the Fund is open for business, the share price (net asset
value) of the Fund's shares is determined as of the close of the regular session
of trading on the New York Stock
- 17 -
<PAGE>
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 procedures
established by the Board of Trustees. The net asset value per share of the Fund
will fluctuate with the value of the securities it holds.
PERFORMANCE INFORMATION
- -----------------------
From time to time, the Fund may advertise its "average annual total
return." Average annual total return figures are based on historical earnings
and are not intended to indicate future performance. The "average annual total
return" of the Fund refers to the average annual compounded rates of return over
the most recent 1, 5 and 10 year periods or, where the Fund has not been in
operation for such period, over the life of the Fund (which periods will be
stated in the advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment.
The calculation of "average annual total return" assumes the reinvestment of all
dividends and distributions.
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from "average annual total return". A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in
- 18 -
<PAGE>
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 the Manager's view of current or past market conditions or historical trends.
Further information about the Fund's performance is contained in the Fund's
annual report which can be obtained by shareholders at no charge by calling the
Fund toll-free 888-744-2337 or by writing to the Fund at the address on the
front of this Prospectus.
- 19 -
<PAGE>
For Information or Assistance in Opening an Account,
Please Call: Nationwide (Toll-Free) . . . 888 744-2337
PROFIT FUNDS INVESTMENT TRUST
8720 Georgia Avenue, Suite 808
Silver Spring, Maryland 20910
Board of Trustees
Eugene A. Profit
Larry E. Jennings, Jr.
Robert M. Milanicz
Joseph A. Quash, M.D.
Investment Manager
INVESTOR RESOURCES GROUP
8720 Georgia Avenue, Suite 808
Silver Spring, Maryland 20910
(301) 650-0059
Transfer Agent
STATE STREET BANK AND TRUST COMPANY
P.O. Box 8020
Boston, Massachusetts 02266-8020
Distributor
COUNTRYWIDE INVESTMENTS, INC.
312 Walnut Street
Cincinnati, Ohio 45202
Shareholder Service
-------------------
Nationwide: (Toll-Free) 888-744-2337
------------------------------------------------------------
------------
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.
------------------------------------------------------------
------------
- 20 -
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
January 16, 1998
Profit Value Fund
TABLE OF CONTENTS
-----------------
PAGE
----
The Trust ................................................................. 2
Definitions, Policies and Risk Considerations ............................. 3
Quality Ratings of Corporate Bonds and Preferred Stock .................... 8
Investment Limitations .................................................... 12
Trustees and Officers ..................................................... 14
The Investment Manager .................................................... 16
The Distributor ........................................................... 17
Distribution Plan ......................................................... 18
Administrator and Fund Accountant ......................................... 19
Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent ............................................. 19
Principal Security Holders................................................. 20
Custodian ................................................................. 20
Auditors .................................................................. 20
Legal Counsel ............................................................. 20
Securities Transactions ................................................... 20
Portfolio Turnover ........................................................ 22
Calculation of Share Price ................................................ 22
Taxes ..................................................................... 22
Redemption in Kind ........................................................ 23
Historical Performance Information ........................................ 23
Financial Statements....................................................... 25
Registration Statement..................................................... 25
This Statement of Additional Information supplements the Prospectus
offering shares of the Profit Value Fund. The Fund is a series of the Profit
Funds Investment Trust, a registered open-end management investment company (the
"Trust"). This Statement of Additional Information, which is incorporated by
reference in its entirety into the Prospectus, should be read only in
conjunction with the Prospectus for the Fund, dated January 16, 1998, as it may
from time to time be revised.
Because this Statement of Additional Information is not a prospectus, no
investment in shares of the Fund should be made solely on the basis of the
information contained herein. It should be read in conjunction with the
Prospectus of the Fund. A copy of the Fund's Prospectus may be obtained by
writing the Fund at 8720 Georgia Avenue, Suite 808, Silver Spring, Maryland
20910, or by calling the Fund toll-free at 888-744-2337. Capitalized terms used
but not defined herein have the same meaning as in the Prospectus.
<PAGE>
The name "PROFIT" is derived from Eugene A. Profit, the founder and
principal shareholder of Quash Profit Productions, LLC T/A Investor Resources
Group, the Manager of the Trust. "PROFIT" is not intended to be an indication of
the investment objective and policies of any series of the Trust.
THE TRUST
---------
Profit Funds Investment Trust (the "Trust") was organized as a
Massachusetts business trust on June 14, 1996. The Trust currently offers for
sale the shares of the Profit Value Fund, a series of the Trust, but may in the
future offer other series to investors. The discussion below contemplates the
existence of more than one series of the Trust. (Each series of the Trust is
referred to individually as a "Fund" and collectively as the "Funds"). Each Fund
has its own investment objective and policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Under Massachusetts law, in 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
- 2 -
<PAGE>
and satisfy any judgment thereon. As a result, and particularly because the
Trust assets are readily marketable and ordinarily substantially exceed
liabilities, management believes that the risk of shareholder liability is
slight and limited to circumstances in which the Trust itself would be unable to
meet its obligations. Management believes that, in view of the above, the risk
of personal liability is remote.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objective, Investment
Policies and Risk Considerations") appears below:
Majority. As used in the Prospectus and this Statement of Additional
--------
Information, the term "majority" of the outstanding shares of the Trust (or of
the Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the Fund) present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust (or the Fund) are present or represented at such
meeting or (2) more than 50% of the outstanding shares of the Trust (or the
Fund).
Commercial Paper. Commercial paper consists of short-term (usually from one
----------------
to two hundred and seventy days) unsecured promissory notes issued by
corporations in order to finance their current operations. The Fund will only
invest in commercial paper rated in one of the two highest categories by either
Moody's Investors Service, Inc. (Prime-1 or Prime-2) or Standard & Poor's
Ratings Group (A-1 or A-2) or, if unrated, which the Manager determines to be of
equivalent quality in accordance with guidelines established by the Board of
Trustees. Certain notes may have floating or variable rates. Variable and
floating rate notes with a demand notice period exceeding seven days will be
subject to the Fund's restriction on illiquid investments (see "Investment
Limitations") unless, in the judgment of the Manager, pursuant to guidelines
established by the Board of Trustees, such note is considered to be 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; and the financial strength of the parent company and the relationships
which exist with the issuer. These factors are all considered in determining
whether the commercial paper is rated Prime-1 or Prime-2. Commercial paper rated
A-1 (highest quality) by Standard & Poor's Ratings Group has the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better,
- 3 -
<PAGE>
although in some cases "BBB" credits may be allowed; the issuer has access to at
least two additional channels of borrowing; basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; typically, the
issuer's industry is well established and the issuer has a strong position
within the industry; and the reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1 or A-2.
Bank Debt Instruments. Bank debt instruments in which the Fund 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. The Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 15%
of the value of its net assets would be invested in such securities and other
illiquid securities.
U.S. Government Obligations. "U.S. Government obligations" include
------------------------------
securities which are issued or guaranteed by the United States Treasury, by
various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes and Treasury bonds.
Agencies and instrumentalities established by the United States Government
include the Federal Home Loan Banks, the Federal Land Bank, the Government
National Mortgage Association, the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association,
the Small Business Administration, the Bank for Cooperatives, the Federal
Intermediate Credit Bank, the Federal Financing Bank, the Federal Farm Credit
Banks, the Federal Agricultural Mortgage Corporation, the Financing Corporation
of America and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the United States Government while
others are supported only by the credit of the agency or instrumentality, which
may include the right of the issuer to borrow from the United States Treasury.
U.S. Government obligations are subject to price fluctuations based upon changes
in the level of interest rates, which will generally result in all those
securities changing in price
- 4 -
<PAGE>
in the same way, i.e. all those securities experiencing appreciation when
interest rates decline and depreciation when interest rates rise.
Repurchase Agreements. The Fund may enter into repurchase agreements with
----------------------
its Custodian, with banks having assets in excess of $10 billion and
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. The Fund will not enter
into a repurchase agreement not terminable within seven days if, as a result
thereof, more than 15% of the value of its net assets will be invested in such
securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase will never be more
than one year after the Fund's acquisition of the securities and normally will
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and, in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to the Fund's investment criteria for portfolio
securities and will be held by the Custodian or in the Federal Reserve Book
Entry System.
For purposes of the Investment Company Act of 1940, a repurchase agreement
is deemed to be a loan from the Fund to the seller subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, the Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the security. If a court characterized the transaction as a loan and
the Fund has not perfected a security interest in the security, the Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for the Fund, the
Manager 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
- 5 -
<PAGE>
case the Fund may incur a loss if the proceeds to the Fund of the sale of the
security to a third party are less than the repurchase price. However, if the
market value of the securities subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
Loans of Portfolio Securities. The Fund may 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 the Fund if the demand meets the terms of the letter. Such terms and
the issuing bank must be satisfactory to the Fund. The Fund receives amounts
equal to the dividends or interest on loaned securities and also 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 Fund may also pay
fees to placing brokers as well as custodian and administrative fees in
connection with loans. Fees may only be paid to a placing broker provided that
the Trustees determine that the fee paid to the placing broker is reasonable and
based solely upon services rendered, that the Trustees separately consider the
propriety of any fee shared by the placing broker with the borrower, and that
the fees are not used to compensate the Manager or any affiliated person of the
Trust or an affiliated person of the Manager. The terms of the Fund's loans must
meet applicable tests under the Internal Revenue Code and permit the Fund to
reacquire loaned securities on five days' notice or in time to vote on any
important matter.
Foreign Securities. Subject to the Fund's investment policies and quality
-------------------
and maturity standards, the Fund may invest in the securities (payable in U.S.
dollars) of foreign issuers. Investments in foreign securities may include
investments in sponsored American Depository Receipts ("ADRs"), which are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs, in registered form, are
designed for use in U.S. securities markets.
Investments in foreign securities, including ADRs, involves risks that are
different in some respects from an investment in a fund which invests only in
securities of U.S. domestic issuers. Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information about a foreign
company than about a U.S. company and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. There may be less governmental
supervision of securities markets, brokers and issuers of securities than in the
U.S. Securities of some foreign companies are less
- 6 -
<PAGE>
liquid or more volatile than securities of U.S. companies and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
Convertible Securities. The Fund may invest in convertible securities:
-----------------------
i.e., preferred stock or preferred bonds which may be exchanged for, converted
- ----
into, or exercised to acquire a predetermined number of shares of an issuer's
common stock at the option of the holder during a specified period of time.
Convertible securities are senior to common stock in a corporation's capital
structure, but are usually subordinated to similar nonconvertible securities.
While providing a fixed income stream (generally higher in yield than the income
that may be derived from a common stock but lower than that afforded by a
similar nonconvertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation attendant upon a market price advance in the convertible
security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
----
its "conversion value" (i.e., its value upon conversion into its underlying
----
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
tends to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying stock declines. While no
securities investment is without some risk, investments in convertible
securities generally entail less risk than investments in the common stock of
the same issuer.
Investment in Lower-Rated Debt Securities. The Fund may invest in debt
---------------------------------------------
securities rated below investment grade by a nationally-recognized rating agency
(e.g., rated below Baa by Moody's Investors Services, Inc. ("Moody's") or BBB by
----
Standard & Poor's Ratings Group ("S&P") or in unrated debt securities which, in
the judgment of the Manager, possess similar credit characteristics as debt
securities rated below investment grade (commonly known as "junk bonds").
Investment in junk bonds involves substantial risk. Securities rated Ba or
lower by Moody's or BB or lower by S&P are considered by those rating agencies
to be predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the security, and generally
involve greater volatility of price than securities in higher rating categories.
More specifically, junk bonds may be issued by less creditworthy
- 7 -
<PAGE>
companies or by larger, highly leveraged companies and are frequently issued in
corporate restructurings such as mergers and leveraged buyouts. Such securities
are particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. Junk bonds frequently are junior obligations of
their issuers, so that in the event of the issuer's bankruptcy, claims of the
holders of junk bonds will be satisfied only after satisfaction of the claims of
senior security holders. While the junk bonds in which the Fund may invest do
not include securities which, at the time of investment, are in default or the
issuers of which are in bankruptcy, there can be no assurance that such events
will not occur after the Fund purchases a particular security, in which case the
Fund may experience losses and incur costs.
Junk bonds tend to be more volatile than higher rated fixed income
securities, so that adverse economic events may have a greater impact on the
prices of junk bonds than on higher rated fixed income securities. Like higher
rated fixed income securities, junk bonds are generally purchased and sold
through dealers who make a market in such securities for their own accounts.
However, there are fewer dealers in the junk bond market, which may be less
liquid than the market for higher rated fixed income securities even under
normal economic conditions. In addition, there may be significant disparities in
the prices quoted for junk bonds by various dealers. Adverse economic conditions
or investor perceptions may impair the liquidity of this market and may cause
prices the Fund receives for its junk bond holdings to be reduced, or the Fund
may experience difficulty in liquidating a portion of its portfolio. Under such
conditions, judgment may play a greater role in valuing certain of the portfolio
securities held by the Fund than in the case of securities trading in a more
liquid market.
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 Fund may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
- 8 -
<PAGE>
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; the
bonds' future cannot be considered to be well assured. Often the protection of
interest and principal payments may be very moderate and thus not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments of or
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations which are speculative to a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
- 9 -
<PAGE>
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 weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C and D - Bonds rated in each of these categories are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. Bonds are rated D when the issue is in
payment default, or the obligor has filed for bankruptcy.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Fund may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top- quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a - An issue which is rated a is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated Baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
- 10 -
<PAGE>
ba - An issue rated ba is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b - An issue rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa - An issue rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca - An issue rated ca is speculative to a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payments.
c - An issue rated c is in the lowest rated class of preferred stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category. The modifier 2 indicates a mid-range
ranking. The modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
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
- 11 -
<PAGE>
make payments for a preferred stock in this category than for issues in the A
category.
BB, B and CCC - An issue rated in any of these categories is regarded,
on balance, as predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. BB indicates the lowest degree of
speculation, and CCC the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C - An issue rated C is a non-paying issue of preferred stock.
D - An issue rated D is a non-paying issue with the issuer in default
on debt instruments.
NR - An issue designated NR indicates that no rating has been
requested, that there is insufficient information on which to base a rating, or
that S&P does not rate a particular type of obligation as a matter of policy.
To provide more detailed indications of preferred stock quality, the
ratings from AA to CCC may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in the Fund. These limitations may not be
changed without the affirmative vote of a majority of the outstanding shares of
the Fund.
The limitations applicable to the Fund are:
1. Borrowing Money. The Fund will not borrow money, except from a bank,
----------------
provided that immediately after such borrowing there is asset coverage of 300%
for all borrowings of the Fund.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
--------
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. Margin Purchases. The Fund will not purchase any securities on "margin"
----------------
(except such short-term credits as are necessary for the clearance of
transactions).
- 12 -
<PAGE>
4. Short Sales. The Fund will not make short sales of securities, or
------------
maintain a short position, other than short sales "against the box." In
addition, the Fund will not write put or call options.
5. Commodities. The Fund will not purchase or sell commodities or commodity
-----------
contracts, including futures.
6. Mineral Leases. The Fund will not purchase oil, gas or other mineral
---------------
leases, rights or royalty contracts.
7. Underwriting. The Fund will not act as underwriter of securities issued
------------
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
an underwriter under certain federal securities laws.
8. Illiquid Investments. The Fund will not purchase securities for which no
--------------------
readily available market exists or engage in a repurchase agreement maturing in
more than seven days if, as a result thereof, more than 15% of the value of the
net assets of the Fund would be invested in such securities.
9. Real Estate. The Fund will not purchase, hold or deal in real estate or
-----------
real estate mortgage loans, including real estate limited partnership interests,
except that the Fund may purchase (a) securities of companies (other than
limited partnerships) which deal in real estate or (b) securities which are
secured by interests in real estate or by interests in mortgage loans, including
securities secured by mortgage-backed securities.
10. Loans. The Fund will not make loans to other persons, except (a) by
-----
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
marketable bonds, debentures, commercial paper or corporate notes, and similar
marketable evidences of indebtedness which are part of an issue for the public.
11. Investing for Control. The Fund will not invest in companies for the
----------------------
purpose of exercising control or management.
12. Other Investment Companies. The Fund will not invest more than 10% of
---------------------------
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company. The Fund will not hold more than 3% of the outstanding
voting stock of any single investment company.
13. Securities Owned by Affiliates. The Fund will not purchase or retain
-------------------------------
the securities of any issuers if those officers and Trustees of the Trust or
officers, directors, or principals of Investor Resources Group, Inc. (the
"Manager") 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.
- 13 -
<PAGE>
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 the Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities) will not be a violation of the
policy or restriction unless the excess results immediately and directly from
the acquisition of any security or the action taken.
The Trust does not intend to pledge, mortgage or hypothecate the assets of
the Fund. The Trust does not intend to make short sales of securities "against
the box" as described above in investment limitation 4. The Trust does not
intend to purchase securities which are secured by interests in real estate or
by interests in mortgage loans, including securities secured by mortgage-backed
securities, as described above in investment limitation 9. The statements of
intention in this paragraph reflect nonfundamental policies which may be changed
by the Board of Trustees without shareholder approval.
TRUSTEES AND OFFICERS
- ---------------------
The Trustees and officers of the Trust, their ages, and their principal
occupations during the past five years are set forth below. Each Trustee who is
an "interested person" of the Trust, as defined by the Investment Company Act of
1940, is indicated by a single asterisk.
Trustees of the Trust
EUGENE A. PROFIT* (33) -- President and Chief Executive Officer, Quash Profit
Productions, LLC T/A Investor Resources Group (February, 1996 to Present).
Investment Executive, Legg Mason Wood Walker (1994-1996). Marketing Director,
Crossroads Group, Parsippany, New Jersey (1993-1994). Owner, Cravings Bakery
(1991-1993). Player, National Football League (1986-1991). His address is 8720
Georgia Avenue, Suite 808, Silver Spring, Maryland 20910.
JOSEPH A. QUASH, M.D.* (57) -- Chairman of the Board, Quash Profit Productions,
LLC T/A Investor Resources Group. Cardiologist, Capital Cardiology Group,
Washington, D.C. (1976 to Present). His address is 8005 Split Oak Drive,
Bethesda, Maryland 20815.
ROBERT M. MILANICZ (48) -- Comptroller, American Psychiatric Association,
Washington, D.C. (1978 to Present). His address is 1400 K Street, N.W.,
Washington, D.C. 20005.
- 14 -
<PAGE>
LARRY E. JENNINGS, Jr. (34) -- Managing Director and Chief Executive Officer,
Carnegie Morgan Energy Co., Baltimore, Maryland (November 1994 to Present).
Managing Director, Legg Mason Wood Walker (May 1987 to November 1994). His
address is 210 East Lexington, Suite 400, Baltimore, Maryland 21202.
Officers of the Trust
EUGENE A. PROFIT (33) -- President and Chief Executive Officer of the
Trust.
MARK J. SEGER (35) -- Treasurer and Chief Financial Officer of the
Trust. Vice President and Chief Operating Officer
of Countrywide Fund Services, Inc. He is also
Treasurer of Countrywide Investment Trust,
Countrywide Tax-Free Trust, Countrywide Strategic
Trust, Brundage, Story and Rose Investment Trust,
Williamsburg Investment Trust, Markman MultiFund
Trust, PRAGMA Investment Trust, Maplewood
Investment Trust, a series company, The Thermo
Opportunity Fund, Inc., the New York State
Opportunity Funds and the Dean Family of Funds and
Assistant Treasurer of Schwartz Investment Trust,
The Tuscarora Investment Trust, The Gannett Welsh
& Kotler Funds and Interactive Investments, all of
which are registered investment companies.
JOHN F. SPLAIN (41) -- Vice President and Secretary of the Trust. Vice
President, Secretary and General Counsel of
Countrywide Fund Services, Inc. and Secretary and
General Counsel of Countrywide Investments, Inc.
and Countrywide Financial Services, Inc. He is
also Secretary of Countrywide Investment Trust,
Countrywide Tax-Free Trust, Countrywide Strategic
Trust, Brundage, Story and Rose Investment Trust,
Williamsburg Investment Trust, Markman MultiFund
Trust, The Tuscarora Investment Trust, PRAGMA
Investment Trust, Maplewood Investment Trust, a
series company, and The Thermo Opportunity Fund,
Inc. and Assistant Secretary of Schwartz
Investment Trust, The Gannett Welsh & Kotler
Funds, Interactive Investments, the New York State
Opportunity Funds and the Dean Family of Funds.
ROBERT G. DORSEY (40) -- Vice President and Assistant Secretary of the
Trust. President and Treasurer of Countrywide Fund
Services, Inc., Vice President - Finance and
Treasurer of Countrywide Financial Services, Inc.
and Treasurer of Countrywide Investments, Inc. He
is also Vice President of Countrywide Investment
Trust, Countrywide Tax-Free Trust, Countrywide
Strategic Trust, Brundage, Story and Rose
Investment Trust, Markman MultiFund Trust, PRAGMA
Investment Trust, Maplewood Investment Trust, a
series company, the Thermo Opportunity Fund,
- 15 -
<PAGE>
Inc., The Dean Family of Funds and the New York
State Opportunity Funds and Assistant Vice
President of Williamsburg Investment Trust,
Schwartz Investment Trust, The Tuscarora
Investment Trust, The Gannett Welsh & Kotler Funds
and Interactive Investments.
The following table sets forth the aggregate annual compensation paid by
the Trust to the Trustees who are not affiliated persons of the Trust or of the
Manager:
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Estimated Total
Compensation Accrued As Annual Compensation
Name From Part of Fund Benefits Upon From
Trustee Registrant* Expenses Retirement Registrant
- ------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Robert Milanicz $4,000 None N/A $4,000
Larry Jennings $4,000 None N/A $4,000
</TABLE>
* Each Trustee that is not affiliated with the Trust or the Manager receives a
fee equal to $1,000 for each regularly scheduled and special meeting of the
Trust attended. Such Trustees are also reimbursed for all of out-of-pocket
expenses incurred in attending such meetings. The Trustees have agreed to
voluntarily waive compensation until Trust assets exceed $12 million or until
further notice.
THE INVESTMENT MANAGER
- ----------------------
Quash Profit Productions, LLC T/A Investor Resources Group (the "Manager")
performs management, portfolio management, statistical, portfolio adviser
selection and other services for the Trust pursuant to an Investment Management
Agreement. The Manager was formed in February, 1996 as a Delaware Limited
Liability Corporation for the purpose of providing investment advice and
distribution services to the Trust and to other registered investment companies.
Under the terms of the Investment Management Agreement, the Manager manages
the Fund's investments, selects the portfolio securities for investment by the
Fund, purchases securities for the Fund and places orders for execution of such
portfolio transactions, subject to the general supervision of the Board of
Trustees. The 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 Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Fund is obligated to
indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in the
- 16 -
<PAGE>
performance of their duties. The Manager bears promotional expenses in
connection with the distribution of the Fund's shares to the extent that such
expenses are not assumed by the Fund under its 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 Investment Management Agreement will remain in force
until October 25, 1998 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of the
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not "interested persons"
of the Trust, by a vote cast in person at a meeting called for the purpose of
voting for such approval. The Investment 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 the Fund's outstanding
voting securities, or by the Manager. The Investment 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 intends to reimburse the Fund to the extent that the expenses
of the Fund for such fiscal year exceed 1.95% of its average daily net assets.
If any such reimbursement is required, the payment of the advisory fee at the
end of any month will be reduced or postponed or, if necessary, a refund will be
made to the Fund at the end of such month. Certain expenses such as brokerage
commissions, if any, taxes, interest, and extraordinary items are excluded from
such limitations. The waiver and reimbursement described above may be removed at
any time and without notice.
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 DISTRIBUTOR
- ---------------
Countrywide Investments, Inc. (the "Distributor"), 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202, serves as principal underwriter for the Trust
pursuant to an Underwriting Agreement. Shares are sold on a continuous basis by
the Distributor. The Distributor has agreed to use its best efforts to solicit
orders for the sale of Trust shares, but it is not obliged to sell any
particular amount of shares. The Underwriting Agreement provides that, unless
sooner terminated, it will continue in effect for two years from the date of its
execution, and for continuous one-year periods thereafter if such continuance is
approved at least annually (i) by the Board of Trustees or a vote of a majority
of the outstanding shares, and (ii) by a majority of the Trustees who are not
- 17 -
<PAGE>
interested persons of the Trust or of the Distributor by vote cast in person at
a meeting called for the purpose of voting on such approval.
Under the terms of the Underwriting Agreement, and in accordance with a
distribution plan for the Fund (as defined under "Distribution Plan" below), the
Fund or the Manager pays all costs relating to distribution of shares of the
Fund, subject to a limit of 0.25% per annum of the average daily net assets of
the Fund for payments made directly by the Fund or for payments made to the
Manager by the Fund as reimbursement for distribution expenses incurred by the
Manager.
The Underwriting Agreement may be terminated by the Fund at any time,
without the payment of any penalty, by vote of a majority of the entire Board of
Trustees of the Trust or by vote of a majority of the outstanding shares of the
Fund on 60 days' written notice to the Distributor, or by the Distributor at any
time, without the payment of any penalty, on 60 days' written notice to the
Trust. The Underwriting Agreement will automatically terminate in the event of
its assignment.
DISTRIBUTION PLAN
- -----------------
The Fund has adopted a plan of distribution (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940, which permits the Fund to pay
for expenses incurred in the distribution and promotion of the Fund's shares.
Under the terms of the Plan, the Fund may pay directly for various expenses
incurred in connection with the distribution of shares of the Fund, including
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, or in connection with shareholder support services which the
Fund may reasonably request and which are not otherwise provided by the Trust's
transfer agent. Alternatively, the Fund may, under the terms of the Plan,
reimburse the Manager for the foregoing expenses incurred on behalf of the Fund.
Unreimbursed expenses will not be carried over from year to year, nor will the
Fund have any obligation for unreimbursed expenses upon termination of the Plan.
The continuance of the Plan must be specifically approved at least annually
by a vote of the Trust's Board of Trustees and by a vote of the Trustees who are
not "interested persons" of the Trust and have no direct or indirect financial
interest in the Plan (the "Independent Trustees") at a meeting called for the
purpose of voting on such continuance. The Plan may be terminated at any time by
a vote of a majority of the Independent Trustees or by a vote of the holders of
a majority of the outstanding shares of the Fund. In the event the Plan is
terminated in accordance with its terms, the Fund will not be required to make
any payments for expenses incurred by the Manager after the termination date.
The Plan may not be amended to increase materially the amount to be spent for
distribution without shareholder approval. All material amendments to the Plan
must be approved by a vote of the Trust's Board of Trustees and by a vote of
those Trustees who are not interested persons of the Trust.
- 18 -
<PAGE>
In approving the Plan, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Fund, which will benefit the 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 Fund's assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the 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 their discretion during such period.
ADMINISTRATOR AND FUND ACCOUNTANT
- ---------------------------------
Countrywide Fund Services, Inc. ("Countrywide"), 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202, serves as Administrator to the Trust pursuant to
an Administration Agreement. As Administrator, Countrywide supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. Countrywide
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.
Countrywide also provides accounting services to the Trust.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, SHAREHOLDER SERVICING AGENT
- ----------------------------------------------------------------------
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, serves as Transfer Agent to the Trust pursuant to a
Transfer Agency and Service Agreement. Boston Financial Data Services, Inc.
("BFDS"), Two Heritage Drive, Quincy, Massachusetts 02171, serves as dividend
disbursing agent and shareholder servicing agent for the Trust. BFDS is a
subsidiary of State Street Bank and Trust Company. In their respective roles,
State Street and BFDS maintain the records of each shareholder's account, answer
shareholders' inquiries concerning their accounts, process purchases and
redemptions of the Fund's shares, act as dividend and distribution disbursing
agent and perform other shareholder service functions.
- 19 -
<PAGE>
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of December 31, 1997, National Financial Services Corp. for the
exclusive benefit of its customers, 200 Liberty Street, 1 World Financial
Centre, New York, New York 10281, owned of record 21.8% of the outstanding
shares of the Fund; Independent Trust Corporation FBO Robert Simmons, 6407
Brookside Drive, Chevy Chase, Maryland 20815, owned of record 9.8% of the
outstanding shares of the Fund; Capital Cardiology Consultants Profit Sharing
Plan, 1160 Vernum Street, N.E., Suite 100, Washington, D.C. 20017, owned of
record 8.4% of the outstanding shares of the Fund.
As of December 31, 1997, the Trustees and officers of the Trust as a group
owned of record or beneficially 16.0% of the outstanding shares of the Fund.
CUSTODIAN
- ---------
CoreStates Bank, N.A., 530 Walnut Street, Philadelphia, Pennsylvania
19101-7618, serves as custodian to the Trust pursuant to a Custodian Agreement.
As custodian, CoreStates Bank acts as the Fund's depository, safekeeps its
portfolio securities, collects all income and other payments with respect
thereto, disburses funds as instructed and maintains records in connection with
its duties.
AUDITORS
- --------
Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103-2962, serves as independent certified public accountants to
the Trust.
LEGAL COUNSEL
- -------------
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Tenth Floor,
Washington, D.C. 20036, serves as counsel to the Trust.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the placing of the
Fund's securities transactions and negotiation of commission rates where
applicable are made by the Manager and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Manager seeks best execution for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Manager
- 20 -
<PAGE>
generally seeks favorable prices and commission rates that are reasonable in
relation to the benefits received.
The Manager is specifically authorized to select brokers who also provide
brokerage and research services to the Fund and/or other accounts over which the
Manager exercises investment discretion and to pay such brokers a commission in
excess of the commission another broker would charge if the Manager 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 Manager's overall responsibilities with
respect to the Fund and to accounts over which it exercises investment
discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Manager, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Manager in servicing all of its accounts and not all such
services may be used by the Manager in connection with the Fund.
The Manager may aggregate purchase and sale orders for the Fund and its
other clients if it believes such aggregation is consistent with its duty to
seek best execution for the Fund and its other clients. The Manager 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 Manager in that security on a given business day,
with all transaction costs shared on a pro rata basis.
Code of Ethics. The Trust and the Manager 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, as described below, imposes additional, more onerous,
restrictions on investment personnel of the Manager. The Code requires that all
employees of the Manager 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 the Fund. The substantive restrictions
applicable to investment personnel of the Manager 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
- 21 -
<PAGE>
personnel of the Manager within periods of trading by the Fund in the same (or
equivalent) security.
PORTFOLIO TURNOVER
- ------------------
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. A 100% turnover rate would occur if all of the Fund's portfolio securities
were replaced once within a one year period. The Manager anticipates that the
portfolio turnover rate for the Fund normally will not exceed 50%.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Manager believes that portfolio changes
are appropriate.
CALCULATION OF SHARE PRICE
- --------------------------
The share price (net asset value) of the shares of the Fund is determined
as of the close of the regular session of trading 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, Martin Luther King, Jr. 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 the Fund's portfolio securities that its net asset
value might be materially affected.
TAXES
- -----
The 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 the Fund must, among other things, (i) derive at
least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currency, or certain other income
(including but not limited to gains from options, futures and forward contracts)
derived with respect to its business of investing in stock, securities or
currencies and (ii) 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,
- 22 -
<PAGE>
securities of other regulated investment companies and other securities (for
this purpose such other securities will qualify only if the Fund's investment is
limited in respect to any issuer to an amount not greater than 5% of the Fund's
assets and 10% of the outstanding voting securities of such issuer) and (b) not
more than 25% of the value of the Fund's assets is invested in securities of any
one issuer (other than U.S. Government securities or securities of other
regulated investment companies).
The Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(currently 31%) of dividend income on any account unless the shareholder
provides a taxpayer identification number and certifies that such number is
correct and that the shareholder is not subject to backup withholding or
demonstrates an exemption from withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Fund to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
- 23 -
<PAGE>
n
P (1 + T) = 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 the Fund has been in existence less than
one, five or ten years, the time period since the date of the initial public
offering of shares will be substituted for the periods stated. The Fund may also
advertise total return (a "nonstandardized quotation") which is calculated
differently from average annual total return. A nonstandardized quotation of
total return may be a cumulative return which measures the percentage change in
the value of an account between the beginning and end of a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation may also indicate average annual
compounded rates of return over periods other than those specified for average
annual total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's average annual total return as described above.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Fund may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and average
current yield for the mutual fund industry and ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Fund may provide comparative
performance information appearing in the Lipper growth funds category. In
addition, the Fund 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.
- 24 -
<PAGE>
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.
FINANCIAL STATEMENTS
- --------------------
The audited financial statements for the Fund as of September 30, 1997 are
attached to this Statement of Additional Information.
REGISTRATION STATEMENT
- ----------------------
The Fund's Prospectus and this Statement of Additional Information do not
contain all of the information set forth in the Trust's Registration Statement
and related forms as filed with the Securities and Exchange Commission. The
Registration Statement and related forms may be inspected at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and copies thereof may be obtained from the Commission at prescribed
rates.
- 25 -
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
PROFIT VALUE FUND
ANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
<PAGE>
LETTER TO SHAREHOLDERS PROFIT VALUE FUND
September 30, 1997
Dear Profit Value Fund Shareholder:
It is always a pleasure to report on success, and the year 1997 brought
numerous successes for The Profit Value Fund. In its initial year of operation,
the Profit Value Fund performed competitively, gained many new investors, and
ended the year as one of the fastest growing mutual funds managed by an African
American-owned firm.
For the fiscal year ended September 30, 1997, the Profit Value Fund closed
at a value of $12.88 per share for a total return of 28.80%, comparable with a
28.72% return for its benchmark, the Standard & Poor's 500 Composite Stock
Index. The Fund's performance reflects the broad market strength over the fiscal
year. The portfolio mix of blue chip stocks across several major industries
allowed the Fund to benefit from the rising equity markets while limiting the
downside movement during the brief declines experienced during the fiscal year.
During the Fund's fiscal year, strength in the broad market continued to
attract mutual fund inflows. Advances in the equity market were led by the
performance of the larger, more liquid issues with stable earnings. The question
whether another Federal Reserve tightening will come in November remains open,
however we do not at this point believe a major change in Fed policy is
imminent. We remain convinced that over the near term there are no serious
threats to the positive investment environment of low inflation, expanding
corporate profitability, and increased efficiencies, but we will remain vigilant
for unexpected shocks to the current economy.
While we are pleased with the Fund's performance in the fiscal year just
ended, we understand that the market strength shown in 1995, 1996, and 1997
might be temporary in nature, and the market should not be expected to provide
this type of strong upward momentum on a regular basis. Therefore, we continue
to supervise the management of the Fund's assets in a prudent and cautious
manner, seeking relative value growth that is not dependent upon an excessive
upward market trend.
We urge shareholders to take a similar approach. That is, invest for the
long run, avoid the temptation to "time" your investment based on market
predictions, and diversify among stocks, bonds, and mutual funds based on your
individual needs and time horizons. Finally, invest on a consistent basis,
regardless of whether the markets are up or down.
Regardless of the direction the markets take in the coming year, we believe
that The Profit Value Fund will continue to offer a valuable alternative for
individual and institutional investors. We would like to take this opportunity
to thank you, our valued and growing family of shareholders, for your continued
support of and confidence in The Profit Value Fund. We look forward to serving
your investment needs in the years to come.
Sincerely,
/s/ Eugene A. Profit
Eugene A. Profit
President
1
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
PERFORMANCE CHART
[LINE GRAPH]
THE PROFIT VALUE FUND VS. S&P 500 INDEX
NOVEMBER 1996 - SEPTEMBER 1997
PROFIT VALUE FUND S&P 500 INDEX
----------------- -------------
11/30/96 10,000 10,000
12/31/96 10,020 9,802
1/31/97 10,264 10,414
2/28/97 10,450 10,496
3/31/97 10,205 10,065
4/30/97 10,431 10,666
5/31/97 11,096 11,315
6/30/97 11,399 11,821
7/31/97 12,466 12,762
8/31/97 12,035 12,047
9/30/97 12,603 12,707
TOTAL SINCE
RETURN NOV. 15, 1996
- --------------------------------------
28.80%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS PROFIT VALUE FUND
September 30, 1997
To the Shareholders and Board of Trustees
of Profit Funds Investment Trust.:
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of Profit Funds Investment Trust, Profit Value Fund
as of September 30, 1997, and the related statements of operations, changes in
net assets and the financial highlights for the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of September 30, 1997
by correspondence with the custodians and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Profit Funds Investment Trust, Profit Value Fund as of September 30, 1997, and
the results of its operations, changes in its net assets, and its financial
highlights for the period then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 15, 1997
3
<PAGE>
PROFIT VALUE FUND
SCHEDULE OF INVESTMENTS
September 30, 1997
PROFIT Market
VALUE FUND Shares Value
- ---------------------------------------------------------
COMMON STOCK (94.9%)
AEROSPACE & DEFENSE (3.4%)
Raytheon 1,160 $ 68,585
----------
AUTOMOTIVE (4.7%)
General Motors 1,395 93,378
----------
BANKS (6.5%)
First Chicago 1,025 77,131
J.P. Morgan 475 53,972
----------
131,103
----------
CHEMICALS (3.1%)
E.I. du Pont de Nemours 1,000 61,562
----------
COMPUTERS & SERVICES (3.8%)
Harris 1,630 74,572
NCR* 32 1,118
----------
75,690
----------
ELECTRICAL UTILITIES (5.8%)
American Electric Power 1,350 61,425
Southern 2,460 55,504
----------
116,929
----------
FOOD, BEVERAGE & TOBACCO (2.5%)
Philip Morris 1,230 51,122
----------
INSURANCE (7.4%)
American General 1,375 71,328
Cigna 415 77,294
----------
148,622
----------
MANUFACTURING (4.3%)
Minnesota Mining & Manufacturing 940 86,950
----------
PAPER & PAPER PRODUCTS (8.4%)
International Paper 1,760 96,910
Weyerhaeuser 1,205 71,547
----------
168,457
----------
PETROLEUM & FUEL PRODUCTS (3.6%)
Atlantic Richfield 850 72,622
----------
PETROLEUM REFINING (15.9%)
Amoco 705 67,944
Chevron 1,190 98,993
Exxon 1,520 97,375
Texaco 900 55,294
----------
319,606
----------
RAILROADS (3.2%)
Norfolk Southern 615 63,499
----------
Shares/
Face Market
Amount (000) Value
- ---------------------------------------------------------
RETAIL (11.4%)
May Department Stores 1,195 $ 65,127
The Limited 3,065 74,901
Wal-Mart Stores 2,460 90,098
----------
230,126
----------
RUBBER & PLASTIC (3.2%)
Dow Chemical 720 65,295
----------
SEMI-CONDUCTORS/INSTRUMENTS (3.8%)
AMP 1,440 77,130
----------
TELEPHONES & TELECOMMUNICATION (3.9%)
AT&T 1,775 78,655
----------
TOTAL COMMON STOCK
(Cost $1,607,371) 1,909,331
----------
CASH EQUIVALENT (0.9%)
Corestates Liquidity Fund
(Cost $18,944) 18 18,944
----------
TRI-PARTY REPURCHASE AGREEMENT (4.2%)
Lehman Brothers
5.32%, dated 09/30/97, matures
10/01/97, repurchase price
$84,332 (collateralized by
U.S. Treasury Bond, par value
$68,712, 10.00%, due 05/15/10,
market value $86,857)
(Cost $84,319) $84 84,319
----------
TOTAL INVESTMENTS (100.0%)
(Cost $1,710,634) 2,012,594
==========
*NON-INCOME PRODUCING SECURITY
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PROFIT VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
ASSETS:
Investment securities at market value
(cost basis $1,710,634)*................................... $2,012,594
Receivables:
Dividends and interest.................................... 3,471
Fund shares sold.......................................... 150
Reimburseable expenses due from manager................... 68,963
Other assets................................................ 6,825
Deferred organizational costs............................... 96,774
----------
TOTAL ASSETS.............................................. 2,188,777
----------
LIABILITIES:
Accrued expenses payable.................................... 45,723
Due to administrator for organizational expenses paid....... 118,301
Payable for fund shares redeemed............................ 14,977
----------
TOTAL LIABILITIES ........................................ 179,001
----------
NET ASSETS:
Fund shares (unlimited authorization - no par
value) based on 156,052 shares outstanding................ 1,688,119
Undistributed net investment income......................... 11,364
Accumulated net realized gain on investments................ 8,333
Net unrealized appreciation of investments ................. 301,960
----------
TOTAL NET ASSETS ......................................... $2,009,776
==========
NET ASSET VALUE PER SHARE ..................................... $ 12.88
==========
*Also cost for Federal Income Tax purposes
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PROFIT VALUE FUND
STATEMENT OF OPERATIONS
For the period November 15, 1996 to September 30, 1997
INVESTMENT INCOME:
Dividend income.............................................. $ 27,034
Interest income.............................................. 2,873
--------
Total investment income.................................... 29,907
--------
EXPENSES:
Investment advisory fees .................................... 11,880
Less: Waiver of investment advisory fees..................... (11,880)
Administration fees ......................................... 56,317
Less: Waiver of administration fees ......................... (18,405)
Professional fees ........................................... 23,140
Transfer Agency fees ........................................ 25,421
Pricing fees ................................................ 1,754
Printing expenses............................................ 5,248
Custody fees................................................. 2,507
Registration fees ........................................... 16,640
Organization expense ........................................ 20,620
Trustee fees ................................................ 10,522
Insurance expense ........................................... 2,315
Miscellaneous expense........................................ 643
--------
Total expenses before reimbursement ......................... 146,722
Less: Reimbursement of expenses by manager................... (128,179)
--------
Total expenses, net of reimbursement ...................... 18,543
--------
NET INVESTMENT INCOME .......................................... 11,364
--------
Net realized gain from securities sold ...................... 8,333
Net change in unrealized appreciation on investments ........ 301,960
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ................ 310,293
--------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $321,657
========
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
PROFIT VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period November 15, 1996 to September 30, 1997
OPERATIONS:
Net investment income....................................... $ 11,364
Net realized gain from investments sold..................... 8,333
Net change in unrealized appreciation on investments........ 301,960
----------
Net increase in net assets resulting from operations...... 321,657
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................................. 1,674,905
Cost of shares repurchased.................................. (86,786)
----------
Increase in net assets derived from
capital share transactions............................... 1,588,119
----------
Total increase in net assets.............................. 1,909,776
----------
NET ASSETS:
Beginning of period ........................................ 100,000
----------
End of period............................................... $2,009,776
==========
CAPITAL SHARE TRANSACTIONS:
Shares issued............................................... 153,642
Shares repurchased.......................................... (7,590)
----------
Net capital share activity................................ 146,052
==========
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
PROFIT VALUE FUND
FINANCIAL HIGHLIGHTS
For the period November 15, 1996 to September 30, 1997
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Ratio
Net Ratio of Expenses
Net Realized and Net of Net to Average
Asset Unrealized Asset Net Ratio Investment Net Assets
Value Net Gains or Value Assets of Expenses Income (Excluding
Beginning Investment (Losses) on End Total End to Average to Average Waivers and
of Period Income Investments of Period Return of Period Net Assets Net Assets Reimbursements)
--------- ---------- ------------ --------- ------ --------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997(1) $10.00 $0.07 $2.81 $12.88 28.80%(3) $2,009,776 1.95% 1.19% 18.57%
<CAPTION>
Ratio
of Net
Investment
Income (Loss)
to Average
Net Assets
(Excluding Portfolio Average
Waivers and Turnover Commission
Reimbursements) Rate Rate (2)
--------------- --------- ----------
<S> <C> <C> <C>
1997(1) (15.43)% 9.59% $0.0600
</TABLE>
All amounts have been annualized unless otherwise noted.
(1) The Fund commenced operations on November 15, 1996.
(2) Average commission rate paid per share for security purchases and sales
during the period.
(3) Total return has not been annualized.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
1. ORGANIZATION:
The Profit Funds Investment Trust (the "Trust") was organized as a Massachusetts
business trust under a Declaration of Trust dated June 14, 1996. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company with two portfolios: the Profit Value Fund
(formerly the Profit Lomax Value Fund) (the "Fund") and the Profit Institutional
Equity Fund (formerly the Profit Lomax Institutional Equity Fund). As of
September 30, 1997, the Profit Institutional Equity Fund had not commenced
operations. The Fund's prospectus provides a description of the Fund's
investment objectives, policies and strategies. The assets of the Fund are
segregated, and a shareholder's interest is limited to the Fund in which shares
are held.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund. These policies are in conformity with generally accepted accounting
principles.
SECURITY VALUATION -- Investments in equity securities that are traded on a
national securities exchange (or reported on the NASDAQ national market
system) are stated at the last quoted sales price if readily available for
such equity securities on each business day. If there is no such reported
sale, these securities, and unlisted securities for which market quotations
are readily available, are valued at the most recently quoted bid price.
Debt obligations exceeding sixty days to maturity for which market
quotations are readily available are valued at the most recently quoted bid
price. Debt obligations with sixty days or less until maturity may be
valued either at the most recently quoted bid price or at their amortized
cost.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date of the security purchase or sale. Dividend
income is recognized on ex-dividend date, and interest income is recognized
on an accrual basis and includes, where applicable, the pro rata
amortization of premium or accretion of discount. The cost used in
determining net realized capital gains and losses on the sale of securities
are those of the specific securities sold, adjusted for the accretion and
amortization of purchase discounts and premiums during the applicable
holding period. Purchase discounts and premiums on securities held by the
Fund are accreted and amortized to maturity using the scientific interest
method, which approximates the effective interest method.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no
provisions for Federal income taxes is required.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the repurchase agreements
mature. Provisions of the repurchase agreements ensure that the market
value of the collateral, including accrued interest thereon, is sufficient
in the event of default of the counterparty. If the counterparty defaults
and the value of the collateral declines or if the counterparty enters an
insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
NET ASSET VALUE PER SHARE -- The net asset value per share of the Fund is
calculated each business day. In general, it is completed by dividing the
assets of the Fund, less its liabilities, by the number of outstanding
shares of the Fund.
OTHER -- Distributions from net investment income for the Fund are declared
and paid annually to shareholders. Any net realized capital gains are
distributed to shareholders at least annually.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial
9
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS (concluded)
September 30, 1997
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVESTMENT ADVISORY AGREEMENT:
The Fund has an agreement with Investor Resources Group, Inc. (the "Manager"),
to provide general investment advisory services to the Fund and to manage the
Fund's business affairs. The agreement requires the Fund to pay the Manager a
monthly fee at the annual rate of 1.25% of the Fund's average daily net assets.
The Manager currently intends to waive its fee and reimburse the Fund for
expenses incurred to the extent necessary to enable the Fund to maintain total
operating expenses at a maximum level of 1.95% per annum of the Fund's average
daily net assets. The waiver and reimbursement are voluntary and may be
discontinued at any time.
The Manager retained the Edgar Lomax Company ("Edgar Lomax"), to serve as
subadviser to the Fund through 10/31/97. For its services, the Manager paid
Edgar Lomax a fee at the annual rate of 0.50% of the Fund's average daily net
assets.
Effective 11/1/97, the Manager assumed full responsibility for Investment
Advisory Services.
CoreStates Bank, N.A., acts as Custodian for the Fund. The Custodian plays no
role in determining the investment policies of the Fund or which securities are
to be purchased or sold in the Fund.
4. ADMINISTRATION AGREEMENTS:
The Fund has entered into a Fund Accounting and Administration Agreement with
SEI Fund Resources (SEI). For its services, the Fund pays SEI a fee equal on an
annual basis to the greater of (i) 0.15% of the average daily net assets on the
first $50 million of the Fund, 0.125% of the average daily net assets on the
next $50 million, and 0.10% of the average daily net assets on all assets over
$100 million, or (ii) $65,000. Effective 12/1/97, Fund Accounting and
Administration will be provided by Countrywide Investments, Inc.
The Fund has retained State Street Bank and Trust Company as its Transfer Agent.
Boston Financial Data Services, Inc., serves as the Fund's dividend disbursing
agent and shareholder service agent. BFDS is a subsidiary of State Street Bank
and Trust Company.
5. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
Organizational costs have been capitalized by the Fund and are being amortized
on a straight line basis over a maximum of sixty months following commencement
of operations. In the event any of the initial shares of the Fund are redeemed
by any holder thereof during the period that the Fund is amortizing its
organizational costs, the redemption proceeds payable to the holder thereof by
the Fund will be reduced by the unamortized organizational cost in the same
ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
Certain officers of the Fund are also officers of the Manager or the current
Administrator. Such officers are paid no fees by the Fund for serving as
officers of the Fund.
6. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from security sales, excluding
short-term investments, for the year ended September 30, 1997 were as follows:
PURCHASES SALES
--------- --------
Profit
Value Fund $1,701,387 $102,349
The aggregate gross unrealized appreciation and depreciation for securities held
by the Fund at September 30, 1997 was as follows:
NET UNREALIZED
APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
------------ ------------ --------------
Profit
Value Fund $301,960 $-- $301,960
10
<PAGE>
PROFIT VALUE FUND
NOTICE TO SHAREHOLDERS
September 30, 1997
(UNAUDITED)
FOR TAXPAYERS FILING ON A CALENDAR YEAR BASIS, THIS NOTICE IS FOR INFORMATIONAL
PURPOSES ONLY.
Dear Profit Fund Shareholders:
For the fiscal year ended September 30, 1997, each portfolio is designating
long-term capital gains, qualifying dividends and exempt income with regard to
distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY (C) (E)
CAPITAL GAINS INCOME TOTAL (D) TAX (F)
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS QUALIFYING EXEMPT FOREIGN
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS(1) INTEREST TAX CREDIT
- --------- ------------- ------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Profit Value Fund 0% 0% 0% 75% 0% 0%
</TABLE>
Please consult your tax adviser for proper treatment of this information.
- -----------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (a) and (b) are based on a percentage of the portfolio's total
distributions.
** Items (d), (e) and (f) are based on a percentage of ordinary income
distributions of the portfolio.
11
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
-----------------------------
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) (i) Financial Statements included in Part A:
Financial Highlights for the period
November 15, 1996 to September 30, 1997
(ii) Financial Statements included in Part B:
Report of Independent Accountants dated
November 15, 1997
Statement of Assets and Liabilities as of
September 30, 1997
Statement of Operations for the period
November 15, 1996 to September 30, 1997
Statement of Changes in Net Assets for the period
November 15, 1996 to September 30, 1997
Financial Highlights for the period
November 15, 1996 to September 30, 1997
Notes to the Financial Statements
(b) Exhibits
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Management Agreement with Investor Resources
Group, Inc.*
(6) Underwriting Agreement with Countrywide
Investments, Inc.
(7) Inapplicable
(8) Custody Agreement with CoreStates Bank, N.A.*
(9)(i)Administrative Services Agreement with
Countrywide Fund Services, Inc.
<PAGE>
(ii)Accounting Services Agreement with Countrywide
Fund Services, Inc.
(iii)Transfer Agency and Service Agreements with State
Street Bank and Trust Company and Boston
Financial Data Services, Inc.*
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Agreement Relating to Initial Capital*
(14) Inapplicable
(15) Plan of Distribution Pursuant to Rule 12b-1*
(16) Inapplicable
(17) Financial Data Schedule
(18) Inapplicable
- --------------------------------------
* Filed previously as Exhibit to initial Registration Statement or in
Amendment to the Registration Statement, and incorporated herein by
reference.
Item 25. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 26. Number of Holders of Securities.
- -------- --------------------------------
As of December 31, 1997, there were 175 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") against all liabilities, including but not
limited to amounts paid in
<PAGE>
satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and
counsel fees, incurred by any Covered Person in connection with
the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, and except that no
Covered Person shall be indemnified against any liability to the
Trust or its Shareholders to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of such Covered Person's office (disabling conduct).
Anything herein contained to the contrary notwithstanding, no
Covered Person shall be indemnified for any liability to the
Trust or its shareholders to which such Covered Person would
otherwise be subject unless (1) a final decision on the merits is
made by a court or other body before whom the proceeding was
brought that the Covered Person to be indemnified was not liable
by reason of disabling conduct or, (2) in the absence of such a
decision, a reasonable determination is made, based upon a review
of the facts, that the Covered Person was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Company as
defined in the Investment Company Act of 1940 nor parties to the
proceeding ("disinterested, non- party Trustees"), or (b) an
independent legal counsel in a written opinion.
Section 6.5 Advances of Expenses. The Trust shall advance
------------
attorneys' fees or other expenses incurred by a Covered Person in
defending a proceeding, upon the undertaking by or on behalf of
the Covered Person to repay the advance unless it is ultimately
determined that such Covered Person is entitled to
indemnification, so long as one of the following conditions is
met: (i) the Covered Person shall provide security for his
undertaking, (ii) the Trust 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
<PAGE>
the Covered Person ultimately will be found entitled to
indemnification.
Section 6.6 Indemnification Not Exclusive, etc. The right of
-----------
indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators; an "interested Covered Person" is one against
whom the action, suit or other proceeding in question or another
action, suit or other proceeding on the same or similar grounds
is then or has been pending or threatened, and a "disinterested"
person is a person against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending or
threatened. Nothing contained in this article shall affect any
rights to indemnification to which personnel of the Trust, other
than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such
person."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Registrant maintains a standard mutual fund and investment
advisory professional and directors and officers liability policy. The
policy provides coverage to the Registrant, its Trustees and officers,
<PAGE>
and Quash Profit Productions, LLC T/A Investor Resources Group (the
"Manager"). 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.
Item 28. Business and Other Connections of the Investment Adviser
- -------- --------------------------------------------------------
(a) The Manager, a Delaware Limited Liability Corporation organized
in February, 1996, is a registered investment adviser formed for
the purpose of providing investment advisory and related services
to individuals and institutional investors.
(b) The directors and officers of the Manager and any other business,
profession, vocation or employment of a substantial nature
engaged in at any time during the past two years by the Manager
or its directors and officers, are described below:
(i) Eugene Profit - President and Chief Executive Officer of the
Manager.
President and Chief Executive Officer of the Registrant.
(ii) Joseph A. Quash, M.D. - Chairman of the Board of the
Manager.
Senior Partner of Capital Cardiology Group.
(iii) Michelle D. Quash - Executive Vice President and Secretary
of the Manager.
Staff Attorney, Federal Reserve Board.
<PAGE>
Item 29. Principal Underwriters
- -------- ----------------------
(a) Countrywide Investments, Inc. serves as the principal underwriter for the
Trust. Countrywide Investments, Inc. also serves as principal underwriter for
the following investment companies: Countrywide Tax-Free Trust, Countrywide
Investment Trust, Countrywide Strategic Trust and Brundage, Story and Rose
Investment Trust.
(b) The following persons serve as directors or officers of Countrywide
Investments, Inc. Unless otherwise indicated by an asterisk (*), the address of
the persons listed below is 312 Walnut Street, Cincinnati, Ohio 45202. the
address of those persons denoted by an asterisk (*) is 4500 Park Granada Road,
Calabasas, California 91302.
Positions and
Name and Principal Positions and Offices Offices with
Business Address with Underwriter Registrant
- ---------------- ---------------- ----------
Angelo R. Mozilo* Chairman and Director None
Robert H. Leshner President and Director None
Andrew S. Bielanski* Director None
Thomas H. Boone* Director None
Marshall M. Gates* Director None
John J. Goetz Vice President and None
Chief Investment Officer
Maryellen Peretzky Vice President - None
Administration, Human
Resources and Operations
Sharon L. Karp Vice President - None
Marketing
John F. Splain Secretary and Vice President/
General Counsel Secretary
Robert G. Dorsey Treasurer Vice President/
Asst. Secretary
Susan F. Flischel Vice President - None
Investments
Scott Weston Assistant Vice President None
- Investments
(c) Inapplicable
<PAGE>
Item 30. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and the Rules promulgated thereunder will
be maintained by the Registrant at its offices located at 8720 Georgia Avenue,
Suite 808, Silver Spring, Maryland 20910 as well as at the offices of the
Registrant's transfer agent located at 225 Franklin Street, Boston,
Massachusetts 02110, and Registrant's administrator 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) Inapplicable
(c) The Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
(d) The Registrant undertakes to call a meeting of shareholders, if requested to
do so by holders of at least 10% of the Fund's outstanding shares, for the
purpose of voting upon the question of removal of a trustee or trustees and to
assist in communications with other shareholders as required by Section 16(c) of
the Investment Company Act of 1940.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of Silver Spring and State of Maryland,
on the 16th day of January, 1998.
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 January 16, 1998
- -------------------------- and Trustee
Eugene A. Profit
/s/ Mark J. Seger Treasurer January 16, 1998
- --------------------------
Mark J. Seger
/s/ Joseph A. Quash Trustee January 16, 1998
- --------------------------
Joseph A. Quash, M.D.
/s/ Robert M. Milanicz Trustee January 16, 1998
- --------------------------
Robert M. Milanicz
/s/ Larry E. Jennings, Jr. Trustee January 16, 1998
- ---------------------------
Larry E. Jennings, Jr.
<PAGE>
INDEX TO EXHIBITS
-----------------
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Management Agreement*
(6) Underwriting Agreement
(7) Inapplicable
(8) Custody Agreement*
(9)(i) Administrative Services Agreement
(9)(ii) Accounting Services Agreement
(9)(iii) Transfer Agency and Service Agreements*
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Agreement Relating to Initial Capital*
(14) Inapplicable
(15) Plan of Distribution Pursuant to Rule 12b-1*
(16) Inapplicable
(17) Financial Data Schedule
(18) Inapplicable
- ----------------------------
* Filed previously as Exhibit to Registration Statement or in Amendment to
the Registration Statement, and incorporated herein by reference.
UNDERWRITING AGREEMENT
----------------------
This Agreement made as of April 1, 1997 by and between Profit Funds
Investment Trust (the "Trust"), and Countrywide Investments, Inc., an Ohio
corporation ("Underwriter").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, Underwriter is a broker-dealer registered with the Securities and
Exchange Commission and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, the Trust and Underwriter are desirous of entering into an
agreement providing for the distribution by Underwriter of shares of beneficial
interest (the "Shares") of each series of shares of the Trust (the "Series");
NOW, THEREFORE, in consideration of the promises and agreements of the
parties contained herein, the parties agree as follows:
1. Appointment.
------------
The Trust hereby appoints Underwriter as its exclusive agent for the
distribution of the Shares, and Underwriter hereby accepts such appointment
under the terms of this Agreement. While this Agreement is in force, the Trust
shall not sell any Shares except on the terms set forth in this Agreement.
Notwithstanding any other provision hereof, the Trust may terminate, suspend or
withdraw the offering of Shares whenever, in its sole discretion, it deems such
action to be desirable.
<PAGE>
2. Sale and Repurchase of Shares.
------------------------------
(a) Underwriter will have the right, as agent for the Trust, to enter
into dealer agreements with responsible investment dealers, and to sell Shares
to such investment dealers against orders therefor at the public offering price
(as defined in subparagraph 2(d) hereof) stated in the Trust's effective
Registration Statement on Form N-1A under the Securities Act of 1933, as
amended, including the then current prospectus and statement of additional
information (the "Registration Statement"). Upon receipt of an order to purchase
Shares from a dealer with whom Underwriter has a dealer agreement, Underwriter
will promptly cause such order to be filled by the Trust.
(b) Underwriter will also have the right, as agent for the Trust, to
sell such Shares to the public against orders therefor at the public offering
price.
(c) Underwriter will also have the right to take, as agent for the
Trust, all actions which, in Underwriter's judgment, are necessary to carry into
effect the distribution of the Shares.
(d) The public offering price for the Shares of each Series shall be
the respective net asset value of the Shares of that Series then in effect, plus
any applicable sales charge determined in the manner set forth in the
Registration Statement or as permitted by the Act and the rules and regulations
of the Securities and Exchange Commission promulgated thereunder. In no
- 2 -
<PAGE>
event shall any applicable sales charge exceed the maximum sales charge
permitted by the Rules of the NASD.
(e) The net asset value of the Shares of each Series shall be
determined in the manner provided in the Registration Statement, and when
determined shall be applicable to transactions as provided for in the
Registration Statement. The net asset value of the Shares of each Series shall
be calculated by the Trust or by another entity on behalf of the Trust.
Underwriter shall have no duty to inquire into or liability for the accuracy of
the net asset value per Share as calculated.
(f) On every sale, the Trust shall receive the applicable net asset
value of the Shares promptly, but in no event later than the third business day
following the date on which Underwriter shall have received an order for the
purchase of the Shares.
(g) Upon receipt of purchase instructions, Underwriter will transmit
such instructions to the Trust or its transfer agent for registration of the
Shares purchased.
(h) Nothing in this Agreement shall prevent Underwriter or any
affiliated person (as defined in the Act) of Underwriter from acting as
underwriter or distributor for any other person, firm or corporation (including
other investment companies) or in any way limit or restrict Underwriter or any
such affiliated person from buying, selling or trading any securities for its or
their own account or for the accounts of
- 3 -
<PAGE>
others for whom it or they may be acting; provided, however, that Underwriter
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.
(i) Underwriter, as agent of and for the account of the Trust, may
repurchase the Shares at such prices and upon such terms and conditions as shall
be specified in the Registration Statement.
3. Sale of Shares by the Trust.
----------------------------
The Trust reserves the right to issue any Shares at any time directly
to the holders of Shares ("Shareholders"), to sell Shares to its Shareholders or
to other persons approved by Underwriter at not less than net asset value and to
issue Shares in exchange for substantially all the assets of any corporation or
trust or for the shares of any corporation or trust.
4. Basis of Sale of Shares.
------------------------
Underwriter does not agree to sell any specific number of Shares.
Underwriter, as agent for the Trust, undertakes to sell Shares on a best efforts
basis only against orders therefor.
5. Rules of NASD, etc.
-------------------
(a) Underwriter will conform to the Rules of the NASD and the
securities laws of any jurisdiction in which it sells, directly or indirectly,
any Shares.
(b) Underwriter will require each dealer with whom Underwriter has a
dealer agreement to conform to the applicable
- 4 -
<PAGE>
provisions hereof and the Registration Statement with respect to the public
offering price of the Shares, and neither Underwriter nor any such dealers shall
withhold the placing of purchase orders so as to make a profit thereby.
(c) Underwriter agrees to furnish to the Trust sufficient copies of
any agreements, plans or other materials it intends to use in connection with
any sales of Shares in adequate time for the Trust to file and clear them with
the proper authorities before they are put in use, and not to use them until so
filed and cleared.
(d) Underwriter, at its own expense, will qualify as dealer or broker,
or otherwise, under all applicable State or federal laws required in order that
Shares may be sold in such States as may be mutually agreed upon by the parties.
(e) Underwriter shall not make, or permit any representative, broker
or dealer to make, in connection with any sale or solicitation of a sale of the
Shares, any representations concerning the Shares except those contained in the
then current prospectus and statement of additional information covering the
Shares and in printed information approved by the Trust as information
supplemental to such prospectus and statement of additional information. Copies
of the then effective prospectus and statement of additional information and any
such printed supplemental information will be supplied by the Trust to
Underwriter in reasonable quantities upon request.
- 5 -
<PAGE>
6. Records to be Supplied by Trust.
--------------------------------
The Trust shall furnish to Underwriter copies of all information,
financial statements and other papers which Underwriter may reasonably request
for use in connection with the distribution of the Shares, and this shall
include, but shall not be limited to, one certified copy, upon request by
Underwriter, of all financial statements prepared for the Trust by independent
public accountants.
7. Expenses.
---------
In the performance of its obligations under this Agreement,
Underwriter will pay only the costs incurred in qualifying as a broker or dealer
under state and federal laws and in establishing and maintaining its
relationships with the dealers selling the Shares. All other costs in connection
with the offering of the Shares will be paid by the Trust or the Trust's
investment adviser (the "Adviser") in accordance with agreements between them as
permitted by applicable law, including the Act and rules and regulations
promulgated thereunder.
8. Indemnification of Trust.
-------------------------
Underwriter agrees to indemnify and hold harmless the Trust, the
Adviser and each person who has been, is, or may hereafter be a trustee,
director, officer, employee, partner, shareholder or control person of the Trust
or the Adviser, against any loss, damage or expense (including the reasonable
costs of investigation) reasonably incurred by any of them in
- 6 -
<PAGE>
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, which arises out of or is alleged to arise
out of or is based upon any untrue statement or alleged untrue statement of a
material fact, or the omission or alleged omission to state a material fact
necessary to make the statements not misleading, on the part of Underwriter or
any agent or employee of Underwriter or any other person for whose acts
Underwriter is responsible, unless such statement or omission was made in
reliance upon written information furnished by the Trust or the Adviser.
Underwriter likewise agrees to indemnify and hold harmless the Trust, the
Adviser and each such person in connection with any claim or in connection with
any action, suit or proceeding which arises out of or is alleged to arise out of
Underwriter's failure to exercise reasonable care and diligence with respect to
its services, if any, rendered in connection with investment, reinvestment,
automatic withdrawal and other plans for Shares. The term "expenses" for
purposes of this and the next paragraph includes amounts paid in satisfaction of
judgments or in settlements which are made with Underwriter's consent. The
foregoing rights of indemnification shall be in addition to any other rights to
which the Trust, the Adviser or each such person may be entitled as a matter of
law.
9. Indemnification of Underwriter.
-------------------------------
Underwriter, its directors, officers, employees, shareholders and
control persons shall not be liable for any
- 7 -
<PAGE>
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
any of such persons in the performance of Underwriter's duties or from the
reckless disregard by any of such persons of Underwriter's obligations and
duties under this Agreement. The Trust will advance attorneys' fees or other
expenses incurred by any such person in defending a proceeding, upon the
undertaking by or on behalf of such person to repay the advance if it is
ultimately determined that such person is not entitled to indemnification. Any
person employed by Underwriter who may also be or become an officer or 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 an
employee or agent of Underwriter.
10. Termination and Amendment of this Agreement.
--------------------------------------------
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment. This Agreement may be amended only
if such amendment is approved (i) by Underwriter, (ii) either by action of the
Board of Trustees of the Trust or at a meeting of the Shareholders of the Trust
by the affirmative vote of a majority of the outstanding Shares, and (iii) by a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of Underwriter by vote cast in
- 8 -
<PAGE>
person at a meeting called for the purpose of voting on such approval.
Either the Trust or Underwriter may at any time terminate this
Agreement on sixty (60) days' written notice delivered or mailed by registered
mail, postage prepaid, to the other party.
11. Effective Period of this Agreement.
-----------------------------------
This Agreement shall take effect upon its execution and shall remain
in full force and effect for a period of two (2) years from the date of its
execution (unless terminated automatically as set forth in Section 10), and from
year to year thereafter, subject to annual approval (i) by Underwriter, (ii) by
the Board of Trustees of the Trust or a vote of a majority of the outstanding
Shares, and (iii) by a majority of the Trustees of the Trust who are not
interested persons of the Trust or of Underwriter by vote cast in person at a
meeting called for the purpose of voting on such approval.
12. Limitation of Liability.
------------------------
The term "Profit Funds Investment Trust" means and refers to the
Trustees from time to time serving under the Trust's Agreement and Declaration
of Trust as the same may subsequently thereto have been, or subsequently hereto
be, amended. 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
- 9 -
<PAGE>
Trust, personally, but bind only the trust property of the Trust, as provided in
the Agreement and Declaration of Trust 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 as provided
in its Agreement and Declaration of Trust.
13. New Series.
-----------
The terms and provisions of this Agreement shall become automatically
applicable to any additional series of the Trust established during the initial
or renewal term of this Agreement.
14. Successor Investment Company.
-----------------------------
Unless this Agreement has been terminated in accordance with Paragraph
10, the terms and provisions of this Agreement shall become automatically
applicable to any investment company which is a successor to the Trust as a
result of reorganization, recapitalization or change of domicile.
15. 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.
- 10 -
<PAGE>
16. Questions of Interpretation.
----------------------------
(a) This Agreement shall be governed by the laws of the State of Ohio.
(b) 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 Act shall be resolved by reference to such term or provision of the Act
and to interpretation 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 Act. In
addition, where the effect of a requirement of the 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.
17. Notices.
--------
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Trust for this purpose
shall be 8720 Georgia Avenue, Suite 808, Silver Spring, Maryland 20910, and that
the address of Underwriter for this purpose shall be 312 Walnut Street,
Cincinnati, Ohio 45202.
- 11 -
<PAGE>
IN WITNESS WHEREOF, the Trust and Underwriter have each caused this
Agreement to be signed in duplicate on their behalf, all as of the day and year
first above written.
ATTEST: PROFIT FUNDS INVESTMENT TRUST
By: /s/ Eugene A. Profit
- -------------------------- -----------------------------
Its: President
-----------------------------
ATTEST: COUNTRYWIDE INVESTMENTS, INC.
/s/ John F. Splain By: /s/Robert H. Leshner
- -------------------------- -----------------------------
Its: President
-----------------------------
- 12 -
ADMINISTRATION AGREEMENT
------------------------
AGREEMENT dated as of January 12, 1998 between Profit Funds Investment
Trust (the "Trust"), a Massachusetts business trust and Countrywide Fund
Services, Inc. ("Countrywide"), 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 Countrywide to serve as
its administrative agent; and
WHEREAS, Countrywide 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 Countrywide agree as follows:
1. APPOINTMENT.
------------
The Trust hereby appoints and employs Countrywide as agent to perform
those services described in this Agreement for the Trust. Countrywide 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 Countrywide;
E. Specimens of all new forms of share certificates accompanied by Board
of Trustees' resolutions approving such forms;
<PAGE>
F. Such other certificates, documents or opinions which Countrywide 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 Countrywide is to act as plan agent.
3. TRUST ADMINISTRATION.
---------------------
Subject to the direction and control of the Trustees of the Trust,
Countrywide 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, Countrywide shall
supply (i) office facilities, (ii) internal auditing and regulatory services,
and (iii) executive and administrative services. Countrywide 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. Countrywide 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 Countrywide 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.
------------------------------------
Countrywide 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 Countrywide 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. Countrywide shall
- 2 -
<PAGE>
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.
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 Countrywide's obligations under this Agreement,
each series of the Trust shall pay Countrywide, 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. Countrywide 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 Countrywide to perform any services for the Trust
which services could cause Countrywide 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 Countrywide, 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 COUNTRYWIDE.
--------------------------
The Trust shall not circulate any printed matter which contains any
reference to Countrywide without the prior written approval of Countrywide,
excepting solely such printed matter as merely identifies Countrywide as
Administrative Services Agent, Transfer, Shareholder Servicing and Dividend
Disbursing Agent and Accounting Services Agent. The Trust will submit printed
matter requiring approval to Countrywide in draft form, allowing sufficient time
for review by Countrywide and its counsel prior to any deadline for printing.
- 3 -
<PAGE>
9. INDEMNIFICATION OF COUNTRYWIDE.
-------------------------------
A. Countrywide 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 Countrywide 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
Countrywide under this Agreement or by reason of reckless disregard by any of
such persons of the obligations and duties of Countrywide under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of Countrywide, 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 Countrywide 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 Countrywide, 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 Countrywide may sustain or
incur or which may be asserted against Countrywide by any person by reason of,
or as a result of: (i) any action taken or omitted to be taken by Countrywide 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 Countrywide 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 Countrywide 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.
- 4 -
<PAGE>
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 Countrywide, (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 Countrywide such compensation as may be due as of the date of
such termination, and shall likewise reimburse Countrywide for any out-of-pocket
expenses and disbursements reasonably incurred by Countrywide to such date.
C. In the event that in connection with the termination of this
Agreement a successor to any of Countrywide's duties or responsibilities under
this Agreement is designated by the Trust by written notice to Countrywide,
Countrywide shall, promptly upon such termination and at the expense of the
Trust, transfer all records maintained by Countrywide under this Agreement and
shall cooperate in the transfer of such duties and responsibilities, including
provision for assistance from Countrywide'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 Countrywide or any affiliated
person (as defined in the 1940 Act) of Countrywide from providing services for
any other person, firm or corporation (including other investment companies);
provided, however, that Countrywide 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
- 5 -
<PAGE>
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.
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
8720 Georgia Avenue, Suite 808
Silver Spring, Maryland 20910
Attention: Eugene A. Profit
To Countrywide: Countrywide Fund Services, Inc.
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
- 6 -
<PAGE>
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.
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 Countrywide 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.
- 7 -
<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: /s/ Eugene A. Profit
------------------------------
Its: President
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
------------------------------
Its: President
- 8 -
ACCOUNTING SERVICES AGREEMENT
AGREEMENT dated as of January 12, 1998 between Profit Funds Investment
Trust (the "Trust"), a Massachusetts business trust, and Countrywide Fund
Services, Inc. ("Countrywide"), 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 Countrywide to provide
the Trust with certain accounting and pricing services; and
WHEREAS, Countrywide 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 Countrywide agree as follows:
1. APPOINTMENT.
------------
The Trust hereby appoints and employs Countrywide as agent to perform
those services described in this Agreement for the Trust. Countrywide shall act
under such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. CALCULATION OF NET ASSET VALUE.
-------------------------------
Countrywide 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. Countrywide 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, Countrywide may contract with, and rely upon
market quotations provided by, outside services.
3. BOOKS AND RECORDS.
------------------
Countrywide 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. Countrywide will maintain such further
books and records
<PAGE>
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. Countrywide 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 Countrywide 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 Countrywide shall be relieved of responsibility for the preparation
and maintenance of any such records delivered to the Trust.
4. PAYMENT OF TRUST EXPENSES.
--------------------------
Countrywide 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,
Countrywide shall prepare checks in the appropriate amounts which shall be
signed by an authorized officer of Countrywide and mailed to the appropriate
party.
5. FORM N-SAR.
-----------
Countrywide 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.
-----------------------------
Countrywide 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.
- 2 -
<PAGE>
8. FEES.
-----
For the performance of the services under this Agreement, each series
of the Trust shall pay Countrywide a monthly fee in accordance with the schedule
attached hereto as Schedule A. The fees with respect to any month shall be paid
to Countrywide on the last business day of such month. The Trust shall also
promptly reimburse Countrywide for the cost of external pricing services
utilized by Countrywide. Countrywide 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 Countrywide to perform any services for the Trust
which services could cause Countrywide 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 Countrywide, 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 COUNTRYWIDE.
--------------------------
The Trust shall not circulate any printed matter which contains any
reference to Countrywide without the prior written approval of Countrywide,
excepting solely such printed matter as merely identifies Countrywide as
Administrative Services Agent, Transfer, Shareholder Servicing and Dividend
Disbursing Agent and Accounting Services Agent. The Trust will submit printed
matter requiring approval to Countrywide in draft form, allowing sufficient time
for review by Countrywide and its counsel prior to any deadline for printing.
11. EQUIPMENT FAILURES.
-------------------
Countrywide 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. Countrywide
shall have no liability with respect to equipment failures beyond its control.
12. INDEMNIFICATION OF COUNTRYWIDE.
-------------------------------
A. Countrywide 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
- 3 -
<PAGE>
Countrywide 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 Countrywide under this Agreement or
by reason of reckless disregard by any of such persons of the obligations and
duties of Countrywide under this Agreement.
B. Any person, even though also a director, officer, employee, shareholder,
or agent of Countrywide, 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 Countrywide 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 Countrywide, 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 Countrywide may sustain or incur or
which may be asserted against Countrywide by any person by reason of, or as a
result of: (i) any action taken or omitted to be taken by Countrywide 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 Countrywide 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 Countrywide 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.
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
- 4 -
<PAGE>
continuance is approved (1) by Countrywide, (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 Countrywide such compensation as may be due as of the date of
such termination, and shall likewise reimburse Countrywide for any out-of-pocket
expenses and disbursements reasonably incurred by Countrywide to such date.
C. In the event that in connection with the termination of this
Agreement a successor to any of Countrywide's duties or responsibilities under
this Agreement is designated by the Trust by written notice to Countrywide,
Countrywide shall, promptly upon such termination and at the expense of the
Trust, transfer all records maintained by Countrywide under this Agreement and
shall cooperate in the transfer of such duties and responsibilities, including
provision for assistance from Countrywide'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 Countrywide or any affiliated
person (as defined in the 1940 Act) of Countrywide from providing services for
any other person, firm or corporation (including other investment companies);
provided, however, that Countrywide 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.
- 5 -
<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
8720 Georgia Avenue, Suite 808
Silver Spring, Maryland 20910
Attention: Eugene A. Profit
To Countrywide: Countrywide Fund Services, Inc.
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.
- 6 -
<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 Countrywide 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.
- 7 -
<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: /s/ Eugene A. Profit
------------------------------
Its: President
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
------------------------------
Its: President
- 8 -
<PAGE>
Schedule A
----------
COMPENSATION
------------
The Trust will pay Countrywide 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
- 9 -
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 2 to the
Registration Statement (File No. 333-06849) of Profit Funds Investment Trust on
Form N-1A under the Securities Act of 1933 of our report dated November 15, 1997
on our audit of the financial statements and financial highlights of the Trust,
which report is included in the Annual Report to Shareholders for the period
ended September 30, 1997 which is included in the Post-Effective Amendment to
the Registration Statement. We also consent to the reference to our Firm under
the heading "Financial Highlights" in the Prospectus and under the headings,
"Auditors" and "Financial Statements" in the Statement of Additional
Information.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 15, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001016887
<NAME> PROFIT FUNDS INVESTMENT TRUST
<SERIES>
<NUMBER> 011
<NAME> PROFIT VALUE FUND
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> NOV-15-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1,710,634
<INVESTMENTS-AT-VALUE> 2,012,594
<RECEIVABLES> 72,584
<ASSETS-OTHER> 6,825
<OTHER-ITEMS-ASSETS> 96,774
<TOTAL-ASSETS> 2,188,777
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 179,001
<TOTAL-LIABILITIES> 179,001
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,688,119
<SHARES-COMMON-STOCK> 156,052
<SHARES-COMMON-PRIOR> 10,000
<ACCUMULATED-NII-CURRENT> 11,364
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,333
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 301,960
<NET-ASSETS> 2,009,776
<DIVIDEND-INCOME> 27,034
<INTEREST-INCOME> 2,873
<OTHER-INCOME> 0
<EXPENSES-NET> 18,543
<NET-INVESTMENT-INCOME> 11,364
<REALIZED-GAINS-CURRENT> 8,333
<APPREC-INCREASE-CURRENT> 301,960
<NET-CHANGE-FROM-OPS> 321,657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 153,642
<NUMBER-OF-SHARES-REDEEMED> 7,590
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,909,776
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,880
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 177,007
<AVERAGE-NET-ASSETS> 951,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 2.81
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.88
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
