U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
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Post-Effective Amendment No. 6
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 8
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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: (703) 506-9400
Eugene A. Profit
Investor Resources Group, LLC
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 Avenue NW/Suite 1000
Washington, D.C. 20036
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to Rule 485(b)
/X/ on February 1, 2000 pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)
/ / on (date) pursuant to Rule 485(a)
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PROFIT FUNDS INVESTMENT TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
PART A
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Item No. Registration Statement Caption Caption in Prospectus
- -------- ------------------------------ ---------------------
1. Front and Back Cover Pages Cover Page
2. Risk/Return Summary: Investments, Risks Risk/Return Summary
and Performance
3. Risk/Return Fee Table Expense Information
4. Investment Objective, Principal Risk/Return Summary
Investment Strategies and Related Risks
5. Management's Discussion of Fund Inapplicable (Included in
Performance Annual Report)
6. Management, Organization and Capital Operation of the Fund
Structure
7. Shareholder Information Calculation of Share Price;
and Public Offering
Price; How to Purchase
Shares; How to Redeem
Shares; Dividends and
Distributions; Taxes
8. Distribution Arrangements How to Purchase Shares;
Distribution Plan
9. Financial Highlights Financial Highlights
PART B
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Caption in Statement
of Additional
Item No. Registration Statement Caption Information
- -------- ------------------------------ --------------------
10. Cover Page and Table of Contents Cover Page
11. Fund History The Trust
12. Description of the Fund and Its Definitions, Policies and
Investments and Risks Risk Considerations; Quality
Ratings of Corporate Bonds
and Preferred Stock;
Investment Limitations;
Portfolio Turnover
13. Management of the Fund Trustees and Officer
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14. Control Persons and Principal Principal Security Holders
Holders of Securities
15. Investment Advisory and Other Services The Investment Adviser; The
Holders of Securities Distributor; Distribution
Plan; Countrywide Fund
Services; Custodian;
Auditor; Legal Counsel
16. Brokerage Allocation and Other Securities Transactions
Practices
17. Capital Stock and Other Securities The Trust
18. Purchase, Redemption and Pricing of Other Purchase Information;
Shares Redemption in Kind
19. Taxation of the Fund Taxes
20. Underwriters The Distributor
21. Calculation of Performance Data Historical Performance
Information
22. 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.
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PROSPECTUS
February 1, 2000
[front cover]
PROFIT VALUE FUND
These Securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this Prospectus. Any representation to the contrary
is a criminal offense.
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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") seeks to provide investors with a high
long-term total return, consistent with the preservation of capital and
maintenance of liquidity, by investing primarily in the common stock of
established, larger capitalization companies (i.e., companies having a market
capitalization exceeding $1 billion). Dividend income is only an incidental
consideration to the Fund's investment objective.
Investor Resources Group, LLC (the "Adviser") serves as the investment
adviser to the Fund and manages the Fund's investments.
This Prospectus has the information about the Fund that you should know
before investing. You should read this Prospectus and keep it for future
reference.
TABLE OF CONTENTS
Risk/Return Summary .....................................................
Expense Information......................................................
How to Purchase Shares ..................................................
Shareholder Services ....................................................
How to Redeem Shares ....................................................
Dividends and Distributions .............................................
Taxes ...................................................................
Operation of the Fund ...................................................
Distribution Plan .......................................................
Calculation of Share Price and Public Offering Price ....................
Financial Highlights.....................................................
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RISK/RETURN SUMMARY
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WHAT IS THE FUND'S INVESTMENT GOAL?
The Fund seeks 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).
The Fund's investment objective may be changed by the Board of Trustees
without shareholder approval, but only after shareholders have been notified.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The Fund's investment strategy is designed to participate in rising equity
markets while limiting, as much as possible, the downside volatility which can
accompany equity investing. The Adviser uses a disciplined, value-oriented
process to select stocks generally having the following characteristics:
o low price/earnings ratios relative to a company's sector or historical
performance,
o strong balance sheet ratios,
o high return on capital,
o low price/book ratios relative to a company's sector.
In the Adviser's opinion, these stocks typically enjoy low expectations
from investors in general and are undervalued. As a result, in the Adviser's
opinion, average "earnings" performance by such companies can result in superior
stock performance, and disappointing "earnings" should result in minimal
negative stock performance.
After purchasing a stock, the Adviser continues to monitor its progress in
relation to the overall market and its peers. In evaluating whether to sell a
stock, the Adviser considers, among other factors, whether:
o the stock is overvalued relative to other investments,
o the stock has met the Adviser's earnings expectations,
o political, economic, or other events could affect the company's
performance,
o the Adviser identifies a more attractive opportunity.
The Adviser will not necessarily sell a security based on its relationship to
these or other factors.
Normally, the Fund will invest at least 65% of its total assets in common
stocks. The Fund expects to invest a portion of its assets in stocks currently
paying dividends, although it may
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buy stocks 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 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, BBB) or unrated securities determined by the Adviser to be of comparable
quality.
When the Adviser believes substantial price risks exist for common stocks
because of uncertainties in the investment outlook, or when in the judgment of
the Adviser 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. Although the Fund primarily will
invest in these securities to avoid losses, this type of investing also could
prevent the Fund from achieving its investment objective. During these times,
the Adviser may make frequent securities trades that could result in increased
fees, expenses, and taxes.
The Fund does not intend to use short-term trading as a primary means of
achieving its investment objective. However, the Fund's rate of portfolio
turnover will depend upon market and other conditions, and it will not be a
limiting factor when portfolio changes are deemed necessary or appropriate by
the Adviser. Although the annual portfolio turnover rate of the Fund cannot be
accurately predicted, it is not expected to exceed 100%, but may be either
higher or lower.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The Fund is designed for investors with above-average risk tolerance.
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
MARKET RISK. The market may drop and you may lose money. Investments in common
stock are subject to inherent market risks and fluctuations in value due to
earnings, economic conditions and other factors beyond the control of the
Adviser. As a result, the return and net asset value of the Fund will fluctuate.
STYLE RISK. The Adviser's value approach focuses on stocks believed to be
selling at a discount relative to the market and
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its peers. It is the Adviser's expectation that these companies will ultimately
be recognized by the market and thus, appreciate in value. If the market does
not recognize these companies, the price of the stock may remain stable or
decrease in value.
CREDIT RISK. 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.
INTEREST RATE RISK. It is the risk that when interest rates fluctuate, so will
the Fund's net asset level. When interest rates rise, the value of the Fund's
portfolio can be expected to decline.
PAST PERFORMANCE
- ----------------
The following bar chart and table indicate the risks and variability of
investing in the Fund by illustrating:
- - how the Fund's performance has varied for each full calendar year, and
- - how the Fund's average annual returns compare to a recognized index.
BAR CHART
1997 19.73% 1998 32.55% 1999 27.62%
Highest quarterly return during this period 30.98% (December 1998). Lowest
quarterly return during this period -8.06% (September 1998).
The Fund's 4% front-end load is not reflected in the bar chart; if reflected,
returns would be less than those shown. Past performance is no guarantee of
future results.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1999:
1 Year Since Inception
(11/15/1996)
Profit Value Fund 22.51% 25.89%
S&P 500 Index(a) 21.04% 26.67%
For purposes of this calculation we assumed:
o a sales charge of 4%,
o no adjustments for taxes paid by an investor on the reinvested income and
capital gains.
(a) The Standard & Poor's 500 Index ("S&P 500 Index"), an unmanaged list of
common stocks, is frequently used as a general measure of market performance.
The index reflects reinvestment of all distributions and changes in market
prices, but excludes brokerage commissions and other fees.
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EXPENSE INFORMATION
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SHAREHOLDER FEES(fees paid directly from your investment)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............................4%
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price)..................None*
Maximum Sales Load Imposed on Reinvested Dividends................None
Redemption Fee....................................................None
* Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of 1% if a redemption occurred
within 12 months of purchase and a commission was paid by the Adviser to a
participating unaffiliated dealer.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
Fund assets)
Management and Advisory Fees ............................... 1.25%
Distribution (12b-1) Fees .................................. .25%
Other Expenses After Reimbursements......................... 5.37%
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Total Annual Fund Operating Expenses........................ 6.87%(A)
=====
Fee Waiver and Expense Reimbursement ....................... 4.92%(B)
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Net Expenses ............................................... 1.95%(B)
=====
(A) The Adviser currently intends to waive management fees and reimburse the
Fund for expenses incurred to the extent necessary to enable the Fund to
maintain annual Fund operating expenses at a maximum level of 1.95%. The
waiver and reimbursement described above may be terminated at any time and
without notice.
(B) Pursuant to a written contract between the Adviser and the Fund, the
Adviser has agreed to waive a portion of its advisory fees and/or assume
certain expenses of the Fund other than brokerage commissions,
extraordinary items, interest and taxes to the extent "Annual Fund
Operating Expenses" will not exceed 1.95% of the Fund's average daily net
assets. The Adviser has agreed to maintain these expense limitations
through February 1, 2001.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 for the time periods indicated and then redeem all of
your shares at the end of those periods. Also assume the Fund earns a 5% annual
return and that the operating expenses remain the same each year. Although your
actual costs may be higher or lower, based on those assumptions, your costs
would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Profit Value Fund* $590 $1,924 $3,209 $6,216
*Includes a 4% sales charge
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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). You may open an account and make an
initial investment through securities dealers having a sales agreement with the
Fund's principal underwriter (the "Distributor"). You may also make a direct
initial investment by sending a check and a completed account application form
to Profit Value Fund, P.O. Box 5354, Cincinnati, Ohio 45201-5354. Be sure and
make your check payable to the "Profit Value Fund." An account application is
included in this Prospectus.
Shares of the Fund are sold on a continuous basis at the public offering
price next determined after receipt of a purchase order by the Fund. Purchase
orders received by dealers prior to the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m., Eastern time) and transmitted to the Distributor
within 1 hour of the close of the NYSE (normally by 5:00 p.m., Eastern time)
that day are confirmed at the public offering price determined as of the close
of trading on the NYSE that day. It is the responsibility of dealers to transmit
properly completed orders so that they will be received by the Distributor in a
timely manner. Dealers may charge a fee for effecting purchase orders. Direct
purchase orders received by the Fund's transfer agent (the "Transfer Agent") by
the close of the NYSE (normally 4:00 p.m., Eastern time) are confirmed at that
day's public offering price. Direct investments received by the Transfer Agent
after the close of NYSE and orders received from dealers later than 1 hour from
the close the NYSE are confirmed at the public offering price next determined on
the following business day.
The public offering price of shares of the Fund is the next determined net
asset value ("NAV") per share plus a sales load as shown in the following table.
Dealer
Sales Load as % of: Reallowance
------------------- as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
- -------------------- ------- -------- --------
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50% 3.63% 3.30%
$250,000 but less than $500,000 2.50% 2.56% 2.30%
$500,000 but less than $1,000,000 2.00% 2.04% 1.80%
$1,000,000 or more None* None*
* There is no front-end sales load on purchases of $1 million or more but a
contingent deferred sales load of 1% may apply if a commission was paid to a
participating unaffiliated dealer and the shares are redeemed within 12 months
from the date of purchase.
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Under certain circumstances, the Distributor may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Distributor
retains the entire sales load on all direct initial investments in the Fund and
on all investments in accounts with no designated dealer of record.
ADDITIONAL INFORMATION. Each additional purchase request must contain the name
of your account and your account number in order to permit proper crediting to
your account. While there is no minimum amount required for subsequent
investments, the Fund reserves the right to impose such requirement. All
purchases are made at the public offering price next determined after receipt of
a purchase order by the Fund. If a broker-dealer received concessions for
selling shares of the Fund to a current shareholder, such broker-dealer will
receive the concessions described above with respect to additional investments
by the shareholder.
Please direct inquiries concerning the services described in this section to the
Transfer Agent at the address or numbers listed within.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine the cost or
current NAV (whichever is higher) of your existing Fund shares with the amount
of your current purchases in order to take advantage of the reduced sales loads
set forth in the table above. Purchases made pursuant to a Letter of Intent may
also be eligible for the reduced sales loads. The minimum initial investment
under a Letter of Intent is $10,000. You should contact the Transfer Agent for
information about the Right of Accumulation and Letter of Intent.
PURCHASES AT NET ASSET VALUE. Current Fund shareholders as of the date of this
Prospectus may purchase additional shares of the Fund at NAV.
You may purchase Fund shares at NAV when your payment for investment represents
the proceeds from the redemption of shares of any other mutual fund which has a
front-end sales load and is not distributed by the Distributor. Your investment
will qualify for this provision if the purchase price of the shares of the other
fund included a sales load and the redemption occurred within 1 year of the
purchase of such shares and no more than 60 days prior to the purchase of shares
of the Fund. To make a purchase at NAV pursuant to this provision, you must
submit photocopies of the confirmations (or similar evidence) showing the
purchase and redemption of shares of the other fund. Payment may be made with
the redemption check representing the proceeds of the shares redeemed, endorsed
to the order of the Fund. The redemption of shares of the other fund is, for
federal income tax purposes, a sale on which you may realize a gain or loss.
These
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provisions may be modified or terminated at any time. Contact your securities
dealer or the Fund for further information.
Shares of the Fund may be purchased at NAV by pension and profit sharing plans,
pension funds and other company-sponsored benefit plans that (1) have plan
assets of $500,000 or more, or (2) have, at the time of purchase, 100 or more
eligible participants, or (3) certify that they project to have annual plan
purchases of $200,000 or more, or (4) are provided administrative services by
certain third-party administrators that have entered into a special service
arrangement with the Adviser relating to such plan.
Banks, bank trust departments and savings and loan associations, in their
fiduciary capacity or for their own accounts, may also purchase shares of the
Fund at NAV. To the extent permitted by regulatory authorities, a bank trust
department may charge fees to clients for whose account it purchases shares at
NAV. Federal and state credit unions may also purchase shares at NAV.
In addition, shares of the Fund may be purchased at NAV by broker-dealers who
have a sales agreement with the Distributor, and their registered personnel and
employees, including members of the immediate families of such registered
personnel and employees.
Clients of investment advisers may also purchase shares of the Fund at NAV if
their investment adviser or broker-dealer has made arrangements to permit them
to do so with the Fund and the Distributor. The investment adviser must notify
the Transfer Agent that an investment qualifies as a purchase at NAV.
Associations and affinity groups and their members may purchase shares of the
Fund at NAV provided that management of these groups or their financial adviser
has made arrangements to permit them to do so with the Fund. Investors or their
financial adviser must notify the Transfer Agent that an investment qualifies as
a purchase at NAV.
Employees, officers and directors of the Fund, the Adviser or the Distributor or
any affiliated company, including members of the immediate family of such
individuals and employee benefit plans established by such entities, may also
purchase shares of the Fund at NAV.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF SHARES. A contingent
deferred sales load is imposed upon certain redemptions of shares of the Fund
purchased at NAV in amounts totaling $1 million or more, if the dealer's
commission described above was paid by the Distributor and the shares are
redeemed within 12 months from the date of purchase. The contingent deferred
sales load will be paid to the Distributor and will be equal to 1% of the lesser
of (1) the NAV at the time of purchase of the shares being redeemed or (2) the
NAV of such shares at the
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time of redemption. In determining whether the contingent deferred sales load is
payable, it is assumed that shares not subject to the contingent deferred sales
load are the first redeemed followed by other shares held for the longest period
of time. The contingent deferred sales load will not be imposed upon shares
representing reinvested dividends or capital gains distributions, or upon
amounts representing share appreciation. If your purchase is subject to the
contingent deferred sales load, you will be notified on the confirmation for
your purchase.
Redemptions of such shares of the Fund held for at least 12 months will not be
subject to the contingent deferred sales load. The contingent deferred sales
load is currently waived for any partial or complete redemption following death
or disability (as defined in the Internal Revenue Code) of a shareholder
(including one who owns the shares with his or her spouse as a joint tenant with
rights of survivorship) from an account in which the deceased or disabled is
named. The Adviser may require documentation prior to waiver of the charge,
including death certificates, physicians' certificates, etc.
The Fund mails you confirmations of all purchases or redemptions of Fund shares.
Certificates representing shares are not issued. The Fund and the Distributor
reserve the rights to limit the amount of investments and to refuse to sell to
any person.
You should be aware that the Fund's account application contains provisions in
favor of the Fund, the Transfer Agent 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 the Transfer Agent in the transaction.
SHAREHOLDER SERVICES
- --------------------
The Fund provides special services to shareholders in connection with certain
purchase and redemption plans. Contact the Transfer Agent (Nationwide call
toll-free 888-744-2337) for additional information about the shareholder
services described below.
TAX-DEFERRED RETIREMENT PLANS
Shares of the Fund are available for purchase in connection with the following
tax-deferred retirement plans:
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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
DIRECT DEPOSIT PLANS
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable you to have all or
a portion of your payroll or social security checks transferred automatically to
purchase shares of the Fund.
AUTOMATIC INVESTMENT PLAN
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
investment under this plan is $500 and subsequent investments must be $50. The
Transfer Agent pays the costs associated with these transfers, but reserves the
right, upon 30 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. Purchases of additional shares of the Fund while the
plan is in effect are generally undesirable because a sales load is incurred
whenever purchases are made.
REINVESTMENT PRIVILEGE
If you have redeemed shares of the Fund, you may reinvest all or a part of
the proceeds without any additional sales load. This reinvestment must occur
within 90 days of the redemption and the privilege may only be exercised once
per year.
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HOW TO REDEEM SHARES
- --------------------
GENERAL INFORMATION. Shares are redeemed at their NAV per share next
determined after receipt by the Transfer Agent of a proper redemption request in
the form described below, less any applicable contingent deferred sales load.
Payment is normally made within 3 business days after tender in such form,
provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to 15 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 the Transfer Agent, 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 60 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 3 business days under unusual
circumstances as determined by the Securities and Exchange Commission.
BY MAIL. You may redeem shares of the Fund on each day that the Fund is
open for business by sending a written request to the Transfer Agent. 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. If the name(s) or the address on your account has been
changed within 30 days of your redemption request, your signature must be
guaranteed regardless of the value of the shares being redeemed.
BY WIRE. You may also redeem shares by placing a wire redemption request
through a securities broker or dealer. Unaffiliated broker-dealers may impose a
fee on the shareholder for this service. You will receive the NAV per share next
determined after receipt by the Fund or its agent of your wire
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redemption request. It is the responsibility of broker-dealers to properly
transmit wire redemption orders.
If your instructions request a redemption by wire, the proceeds will be
wired directly to your existing account in any commercial bank or brokerage firm
in the United States as designated on your application and you will be charged
an $8 processing fee. The Fund reserves the right, upon 30 days' written notice,
to change the processing fee. All charges will be deducted from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.
Redemption requests may direct that the proceeds be deposited directly in
your account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
The Fund expects to distribute substantially all of its net investment
income, if any, on an annual basis. The Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains distributions reinvested
in additional shares.
Income Option - income distributions and short-term capital gains distributions
paid in cash; long-term capital gains distributions reinvested
in additional shares.
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 6
months, your dividends may be reinvested in your account at the then current NAV
and your account will be
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converted to the Share Option. No interest will accrue on amounts represented by
uncashed dividend checks.
If you have received in cash any dividend or capital gains distribution
from the Fund you may return the distribution within 30 days of the distribution
date to the Transfer Agent for reinvestment at the NAV next determined after its
return. You or your dealer must notify the Transfer Agent that a distribution is
being reinvested pursuant to this provision.
TAXES
- -----
The Fund has qualified in all prior years and intends to continue to
qualify for the special tax treatment afforded a "regulated investment company"
under Subchapter M of the Internal Revenue Code so that it does not pay federal
taxes on income and capital gains distributed to shareholders. The Fund intends
to distribute substantially all of its net investment income and any 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. Redemptions of
shares of the Fund are taxable events on which a shareholder may realize a gain
or loss.
If you buy shares shortly before the record date of a distribution you will
pay taxes on money earned by the Fund before you were a shareholder. You will
pay the full pre-distribution price for the shares, then receive a portion of
your investment back as a distribution, which is taxable.
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. Selling shares held in an IRA or qualified
retirement account may subject you to federal taxes, penalties and reporting
requirements.
IMPORTANT. Shareholders should consult their tax advisors about the tax
effect of distributions and withdrawals from the Fund and the use of the
Automatic Withdrawal Plan. The tax consequences described in this section apply
whether distributions are taken in cash or reinvested in additional shares. See
"Taxes" in the Statement of Additional Information for further information.
12
<PAGE>
OPERATION OF THE FUND
- ---------------------
The Fund is a diversified series of Profit Funds Investment Trust. The
Board of Trustees supervises the business activities of the Fund. Like other
mutual funds, the Fund retains various organizations to perform specialized
services for the Fund.
The Fund retains Investor Resources Group, LLC (the "Adviser"), 8720
Georgia Avenue, Suite 808, Silver Spring, Maryland 20910, to manage the Fund's
investments. Eugene A. Profit and Dr. Joseph A. Quash are the controlling
shareholders of the Adviser.
The Fund pays the Adviser a fee at the annual rate of 1.25% of the average
value of the Fund's daily net assets. The Adviser has contractually agreed 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 through February 1, 2001. Since the
Fund's inception date the Adviser has waived its entire Advisory fee.
Eugene A. Profit, the President of the Adviser, is primarily responsible
for managing the portfolio of the Fund and has acted in this capacity since
October 31, 1997. Mr. Profit has been the President and Chief Executive Officer
of the Adviser since February, 1996. He was previously an Investment Executive
at Legg Mason Wood Walker (1994-1996); Marketing Director, Crossroads Group,
Parsippany, New Jersey (1993-1994); Owner, Cravings Bakery (1991-1993); and a
Player in the National Football League from 1986 to 1991.
The name "PROFIT" is derived from the name of the founder and principal
shareholder of the Adviser, Eugene A. Profit, and is not intended as an
indication of the investment objective and policies of the Fund.
DISTRIBUTION PLAN
- -----------------
The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 that allows it to pay distribution and servicing-related fees for the
sale of shares. The annual limitation pursuant to the Plan is 0.25% of the
Fund's average daily net assets. Because these fees are paid out of the Fund's
assets on an on-going basis, the fees may cost long-term shareholders more than
paying other types of sales charges imposed by some mutual funds.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
On each day that the Fund is open for business, the public offering price
(NAV plus applicable sales load) of shares of the Fund is determined as of the
close of the regular session of
13
<PAGE>
trading on the NYSE (normally 4:00 p.m., Eastern time). The Fund is open for
business on each day the NYSE is open for business. The public offering price is
not determined on days the NYSE is closed (generally New Year's Day, Martin
Luther Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas). The NAV 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. The
Fund's investments are valued based on market value, or where market quotations
are not readily available, based on fair value as determined by the Board of
Trustees in good faith. The Fund may use pricing services to determine market
value.
FINANCIAL HIGHLIGHTS
- --------------------
The financial highlights table is intended to help you understand the Fund's
financial performance. Certain information reflects financial results for a
single Fund share. The total returns in the table represent rate of that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are included in the Statement of Additional Information,
which is available upon request.
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=====================================================================================================
Year Year Period
Ended Ended Ended
September 30, September 30, September 30,
1999 1998 1997 (a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 12.66 $ 12.88 $ 10.00
--------------- --------------- ---------------
Income (loss) from investment operations:
Net investment income (loss) (0.12) (0.02) 0.07
Net realized and unrealized gains 5.50 (0.06) 2.81
(losses) on investments
--------------- --------------- ---------------
Total from investment operations 5.38 (0.08) 2.88
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income -- (0.09) --
Distributions from net realized gains (0.02) (0.05) --
--------------- --------------- ---------------
Total distributions (0.02) (0.14) --
--------------- --------------- ---------------
Net asset value at end of period $ 18.02 $ 12.66 $ 12.88
=============== =============== ===============
Total return (b) 42.52% (0.57%) 28.80% (d)
=============== =============== ===============
Net assets at end of period (000's) $ 3,911 $ 2,016 $ 2,010
=============== =============== ===============
Ratio of net expenses to average 1.95% 1.95% 1.95% (e)
net assets (c)
Ratio of net investment income (loss) (0.82%) (0.18%) 1.19% (e)
to average net assets
Portfolio turnover rate 23% 101% 10% (e)
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents the period from the initial public offering of shares (November
15, 1996) through September 30, 1997.
(b) Total returns shown exclude the effect of applicable sales loads.
(c) Absent fee waivers and expense reimbursements, the ratios of expenses to
average net assets would have been 6.87%, 8.36% and 18.57% (e) for the
periods ended September 30, 1999, 1998 and 1997, respectively.
(d) Not annualized.
(e) Annualized.
14
<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.
Deborah T. Owens
INVESTMENT ADVISER
INVESTOR RESOURCES GROUP, LLC
8720 Georgia Avenue, Suite 808
Silver Spring, Maryland 20910
(301) 650-0059
SHAREHOLDER SERVICE
- -------------------
Nationwide: (Toll-Free) 888-744-2337
Additional information about the Fund is included in the Statement of Additional
Information, which is incorporated by reference in its entirety. Additional
information about the Fund's investments is available in the Fund's annual and
semiannual reports to shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and strategies that significantly affected
the Fund's performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
1-888-744-2337.
Information about the Fund, including the SAI, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-202-942-8090. Reports and other information about
the Fund are available on the Commission's Internet site at HTTP://WWW.SEC.GOV.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing to: Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-0102.
File No. 811-7677
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
Feburary 1, 2000
Profit Value Fund
TABLE OF CONTENTS
-----------------
PAGE
----
The Trust .................................................................
Definitions, Policies and Risk Considerations .............................
Quality Ratings of Corporate Bonds and Preferred Stock ....................
Investment Limitations ....................................................
Trustees and Officers .....................................................
The Investment Adviser ....................................................
The Distributor ...........................................................
Distribution Plan .........................................................
Countrywide Fund Services, Inc.............................................
Principal Security Holders.................................................
Custodian .................................................................
Auditors ..................................................................
Legal Counsel .............................................................
Securities Transactions ...................................................
Portfolio Turnover ........................................................
Calculation of Share Price and Public Offering Price ......................
Other Purchase Information ................................................
Taxes .....................................................................
Redemption in Kind ........................................................
Historical Performance Information ........................................
Financial Statements.......................................................
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 February 1, 2000, 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 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
- 2 -
<PAGE>
personally liable for the obligations of the Trust. Moreover, it provides that
the Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. As a result, and particularly because the Trust assets are readily
marketable and ordinarily substantially exceed liabilities, management believes
that the risk of shareholder liability is slight and limited to circumstances in
which the Trust itself would be unable to meet its obligations. The Adviser
believes that, in view of the above, the risk of personal liability is remote.
The name "PROFIT" is derived from Eugene A. Profit, the founder and
principal shareholder of Investor Resources Group, LLC, the Adviser of the Fund.
"PROFIT" is not intended to be an indication of the investment objective and
policies of the Fund.
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 Adviser 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 Adviser, pursuant to guidelines
established by the Board of Trustees, such note is considered to be liquid.
- 3 -
<PAGE>
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; and the financial strength of the parent company and the relationships
which exist with the issuer. These factors are all considered in determining
whether the commercial paper is rated Prime-1 or Prime-2. Commercial paper rated
A-1 (highest quality) by Standard & Poor's Ratings Group has the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; the issuer has access to at least two additional
channels of borrowing; basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position within the industry; and
the reliability and quality of management are unquestioned. The relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated A-1 or A-2.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the 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 sated 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
comparable securities.
- 4 -
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. "U.S. Government obligations" include
securities which are issued or guaranteed by the United States Treasury, by
various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes and Treasury bonds.
Agencies and instrumentalities established by the United States Government
include the Federal Home Loan Banks, the Federal Land Bank, the Government
National Mortgage Association, the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association,
the Small Business Administration, the Bank for Cooperatives, the Federal
Intermediate Credit Bank, the Federal Financing Bank, the Federal Farm Credit
Banks, the Federal Agricultural Mortgage Corporation, the Financing Corporation
of America and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the United States Government while
others are supported only by the credit of the agency or instrumentality, which
may include the right of the issuer to borrow from the United States Treasury.
U.S. Government obligations are subject to price fluctuations based upon changes
in the level of interest rates, which will generally result in all those
securities changing in price in the same way, i.e. all those securities
experiencing appreciation when interest rates decline and depreciation when
interest rates rise.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at
a specified price and are valid for a specific time period. Rights are similar
to warrants, but normally have a shorter duration and are distributed by the
issuer to its shareholders. The Fund may purchase warrants and rights, provided
that the Fund does not invest more than 5% of its net assets at the time of
purchase in warrants and rights other than those that have been acquired in
units or attached to other securities. Of such 5%, no more than 2% of the Fund's
assets at the time of purchase may be invested in warrants which are not listed
on either the New York Stock Exchange or the American Stock Exchange.
OPTIONS. The Fund may write (sell) covered call and covered put options on
equity securities that are eligible for purchase by the Fund. Call options
written by the Fund give the holder the right to buy the underlying securities
from the Fund at a stated exercise price; put options give the holder the right
to sell the underlying security to the Fund. These options are covered by the
Fund because, in the case of call options, it will
- 5 -
<PAGE>
own the underlying securities as long as the option is outstanding or because,
in the case of put options, it will maintain a segregated account of cash or
liquid securities which can be liquidated promptly to satisfy any obligation of
the Fund to purchase the underlying securities. The Fund may also write
straddles (combinations of puts and calls on the same underlying security). The
Fund will receive a premium from writing a put or call option, which increases
the Fund's return in the event the option expires unexercised or is closed out
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option and the remaining term of the option. By writing a call
option, the Fund limits its opportunity to profit from any increase in the
market value of the underlying security above the exercise price of the option.
By writing a put option, the Fund assumes the risk that it may be required to
purchase the underlying security for an exercise price higher than its then
current market value, resulting in a potential capital loss unless the security
subsequently appreciates in value.
The Fund may purchase put or call options. In purchasing a call option, the
Fund would be in a position to realize a gain if, during the option period, the
price of the security increased by an amount greater than the premium paid. The
Fund would realize a loss if the price of the security or decreased or remained
the same or did not increase during the period by more than the amount of the
premium. If a put or call option purchased by the Fund were permitted to expire
without being sold or exercised, its premium would represent a realized loss to
the Fund.
The purchaser of an option risks a total loss of the premium paid for the
option if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unrecognized and may
be required to pay a price in excess of current market value in the case of a
put option.
The Fund may purchase and sell options listed on an exchange or in the
over-the-counter market. The Fund's ability to terminate options positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Fund. The Fund will not purchase any option, which in the opinion of the
Adviser, is illiquid if, as a result
- 6 -
<PAGE>
thereof, more than 15% of the Fund's net assets would be invested in illiquid
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 Adviser or any affiliated person of the
Trust or an affiliated person of the Adviser. 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.
BORROWING AND PLEDGING. The Fund may borrow money from banks, provided that
immediately after such borrowing, there is an asset coverage of at least 300%
for all borrowings of the Fund. The Fund may pledge assets in connection with
borrowings but will not pledge more than one-third of its total assets.
Borrowing magnifies the potential for gain or loss on the portfolio securities
of the Fund and, therefore, if employed, increases the possibility of
fluctuation in the Fund's net asset value. This is the speculative factor known
as leverage. The Fund's policies on borrowing and pledging are fundamental
policies which may not be changed without the affirmative vote of a majority of
its outstanding shares. It is the Fund's present intention, which may be changed
by the Board of Trustees without shareholder approval, to borrow only for
emergency or extraordinary purposes and not for leverage.
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.
- 7 -
<PAGE>
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
United States. Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies and foreign brokerage commissions and
custodian fees are generally higher than in the United States. Settlement
practices may include delays and may differ from those customary in United
States markets. Investments in foreign securities may also be subject to other
risks different from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
CONVERTIBLE SECURITIES. The 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
- 8 -
<PAGE>
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 Adviser, possess similar credit characteristics as debt
securities rated below investment grade (commonly known as "junk bonds").
Investment in junk bonds involves substantial risk. Securities rated Ba or
lower by Moody's or BB or lower by S&P are considered by those rating agencies
to be predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the security, and generally
involve greater volatility of price than securities in higher rating categories.
More specifically, junk bonds may be issued by less creditworthy companies or by
larger, highly leveraged companies and are frequently issued in corporate
restructurings such as mergers and leveraged buyouts. Such securities are
particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. Junk bonds frequently are junior obligations of
their issuers, so that in the event of the issuer's bankruptcy, claims of the
holders of junk bonds will be satisfied only after satisfaction of the claims of
senior security holders. While the junk bonds in which the 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
- 9 -
<PAGE>
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.
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
- 10 -
<PAGE>
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 Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case, the
seller.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security, in which case the
Fund may incur a loss if the proceeds to the Fund of the sale of the security to
a third party are less than the repurchase price. However, if the market value
of the securities subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of the
security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
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.
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<PAGE>
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; the bonds'
future cannot be considered to be well assured. Often the protection of interest
and principal payments may be very moderate and thus not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may 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.
- 12 -
<PAGE>
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a 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.
- 13 -
<PAGE>
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated Baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba - An issue rated ba is considered to have speculative elements and its
future cannot be considered well assured. Earnings and asset protection may be
very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b - An issue rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
caa - An issue rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
ca - An issue rated ca is speculative to a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payments.
c - An issue rated c is in the lowest rated class of preferred stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category. The modifier 2 indicates a mid-range
ranking. The modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay
- 14 -
<PAGE>
preferred stock obligations is very strong, although not as overwhelming as for
issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
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:
- 15 -
<PAGE>
1. BORROWING MONEY. The Fund will not borrow money, except from a bank,
provided that immediately after such borrowing there is asset coverage of 300%
for all borrowings of the Fund.
2. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. MARGIN PURCHASES. The Fund will not purchase any securities on "margin"
(except such short-term credits as are necessary for the clearance of
transactions).
4. SHORT SALES. The Fund will not make short sales of securities, or
maintain a short position, other than short sales "against the box."
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.
- 16 -
<PAGE>
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, LLC (the
"Adviser") owning individually more than one-half of 1% of the securities of
such issuer, own in the aggregate more than 5% of the securities of such issuer.
14. INDUSTRY CONCENTRATION. The Fund will not invest more than 25% of its
total assets in any particular industry.
15. SENIOR SECURITIES. The Fund will not issue or sell any senior security
as defined by the Investment Company Act of 1940 except in so far as any
borrowing that the Fund may engage in may be deemed to be an issuance of a
senior security.
With respect to the percentages adopted by the Trust as maximum limitations
on 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
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<PAGE>
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 an asterisk.
TRUSTEES AND OFFICERS OF THE TRUST
EUGENE A. PROFIT* (35) -- (Trustee and Officer) President and Chief Executive
Officer, Investor Resources Group, LLC (February, 1996 to Present) and President
and Chief Executive Officer of the Trust. 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.* (59) -- (Trustee) Chairman of the Board, Investor
Resources Group, LLC. Cardiologist, Capital Cardiology Group, Washington, D.C.
(1976 to Present). His address is 8005 Split Oak Drive, Bethesda, Maryland
20815.
ROBERT M. MILANICZ (51) -- (Trustee) Comptroller, American Psychiatric
Association, Washington, D.C. (1978 to Present). His address is 1400 K Street,
N.W., Washington, D.C. 20005.
LARRY E. JENNINGS, Jr. (36) -- (Trustee) 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.
DEBORAH T. OWENS (40) - (Trustee) 9575 Sea Shadow, Columbia, Maryland, 21046 is
the President of Moneyworks, Inc. and a Radio Talk Show Host and Seminar
Presenter. Ms. Owens was previously a Senior Financial Representative and Branch
Manager for Fidelity Investments in Washington, D.C. and Towson, Maryland.
- 18 -
<PAGE>
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 Adviser:
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
- ------- ----------- -------- ---------- ----------
Robert M. Milanicz $4,000 None None $4,000
Larry E. Jennings $4,000 None None $4,000
Deborah T. Owens $4,000 None None $4,000
* Each Trustee that is not affiliated with the Trust or the Adviser receives a
fee equal to $1,000 for each regularly scheduled and special meeting of the
Trust attended. Such Trustees are also reimbursed for all of out-of-pocket
expenses incurred in attending such meetings. The Trustees have agreed to
voluntarily waive compensation until Trust assets exceed $12 million or until
further notice.
THE INVESTMENT ADVISER
- ----------------------
Investor Resources Group, LLC (the "Adviser") performs portfolio management
and other services for the Trust pursuant to an Investment Management Agreement.
The Adviser 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 Management Agreement, the Adviser 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 Adviser a fee computed and accrued daily and paid
monthly at an annual rate of 1.25% of its average daily net assets. For the
fiscal year ended September 30, 1999, the Fund accrued advisory fees of $39,860;
however, in order to reduce the operating expenses of the Fund, the Adviser
voluntarily waived all of its advisory fee and reimbursed the Fund for $117,215
of its other operating expenses. For the fiscal year ended September 30, 1998,
the Fund accrued advisory fees of $27,115; however, in order to reduce the
operating expenses of the Fund, the Adviser voluntarily waived its entire
advisory fee and reimbursed the Fund for $121,105 of its other operating
expenses. For the fiscal period ended September 30, 1997, the Fund accrued
advisory fees of $11,880; however, in order to reduce the
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<PAGE>
operating expenses of the Fund, the Adviser voluntarily waived its entire
advisory fee and reimbursed the Fund for $128,179 of its other operating
expenses.
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 performance of their
duties. The Adviser 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 Adviser are paid by the Adviser.
By its terms, the Management Agreement will remain in force until November
30, 2000 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 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
Adviser. The Management Agreement automatically terminates in the event of its
assignment, as defined by the Investment Company Act of 1940 and the rules
thereunder.
The Adviser 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 terminated
at any time and without notice.
The name "Profit" is a property right of the Adviser. The Adviser may use
the name "Profit" in other connections and for
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<PAGE>
other purposes, including in the name of other investment companies. The Trust
has agreed to discontinue any use of the name "Profit" if the Adviser ceases to
be employed as the Fund's investment manager.
THE DISTRIBUTOR
- ---------------
CW Fund Distributors, 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 from year to year 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 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 described under "Distribution Plan" below),
the Fund or the Adviser 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
Adviser by the Fund as reimbursement for distribution expenses incurred by the
Adviser. For the fiscal year ended September 30, 1999, the Fund paid the
Underwriter $6,261.
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
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<PAGE>
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 Adviser
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.
During the fiscal years ended September 30, 1999 and 1998, the Fund
incurred distribution expenses of $4,454 and $1,236, respectively, which were
used for the preparation and printing of prospectuses and reports for
prospective investors.
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 Adviser after the termination date.
The Plan may not be amended to increase materially the amount to be spent for
distribution without shareholder approval. All material amendments to the Plan
must be approved by a vote of the Trust's Board of Trustees and by a vote of
those Trustees who are not interested persons of the Trust.
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
- 22 -
<PAGE>
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.
COUNTRYWIDE FUND SERVICES, INC.
- -------------------------------
The Fund's transfer agent, Countrywide Fund Services, Inc. (the "Transfer
Agent"), maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. The Transfer Agent
receives for its services as transfer agent a fee payable monthly at an annual
rate of $17 per account; provided, however, that the minimum fee is $1,000 per
month. In addition, the Fund pays out-of-pocket expenses, including but not
limited to, postage, envelopes, checks, drafts, forms, reports, record storage
and communication lines.
The Transfer Agent also provides accounting and pricing services to the
Fund. For calculating daily net asset value per share and maintaining such books
and records as are necessary to enable the Transfer Agent to perform its duties,
the Fund pays the Transfer Agent a fee in accordance with the following
schedule:
Average Monthly Net Assets Monthly Fee
-------------------------- -----------
$ 0 - $ 50,000,000 $2,000
50 - 100,000,000 2,500
100 - 200,000,000 3,000
Over - 200,000,000 4,000
In addition, the Fund pays all costs of external pricing services.
In addition, the Transfer Agent is retained to provide administrative
services to the Fund. In this capacity, the Transfer Agent supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. The Transfer
Agent supervises the preparation of tax returns, reports to shareholders of the
Fund, reports to and filings with the Securities and Exchange Commission and
state securities commissions, and materials for meetings of the Board of
Trustees. For the performance of these administrative services, the Fund pays
the Transfer Agent a fee at the annual rate of .15% of the average value of its
daily net assets up to $25,000,000, .125% of such assets from $25,000,000 to
$50,000,000 and .10% of such assets in excess of $50,000,000; provided, however,
that the minimum fee is $1,000 per month. For the fiscal year ended September
30, 1999, the Fund paid in Transfer Agent fees $48,000.
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<PAGE>
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of January 7, 2000, 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 34.99% of the outstanding shares of the
Fund; Joseph A. Quash/Thomas Pinder Capital Cardiology Consultants Profit
Sharing Plan, 1160 Varnum Street, N.E., Suite 100, Washington, D.C. 20017, owned
of record 5.24% of the outstanding shares of the Fund.
As of January 7, 2000, the Trustees and officers of the Trust as a group
owned of record or beneficially 7.10% of the outstanding shares of the Fund.
CUSTODIAN
- ---------
First Union Bank, 530 Walnut Street, Philadelphia, Pennsylvania 19101,
serves as custodian to the Fund pursuant to a Custodian Agreement. As custodian,
First Union 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
- --------
PricewaterhouseCoopers LLP, 100 East Broad Street, Columbus, Ohio 43215,
serves as independent certified public accountants to the Fund.
PricewaterhouseCoopers performs an annual audit of the Fund's financial
statements and advises the Fund as to certain accounting matters.
LEGAL COUNSEL
- -------------
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Tenth Floor,
Washington, D.C. 20036, serves as counsel to the Trust and its Independent
Trustees.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the placing of the
Fund's securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and
- 24 -
<PAGE>
responsiveness of the broker or dealer and the brokerage and research services
provided by the broker or dealer. The Adviser generally seeks favorable prices
and commission rates that are reasonable in relation to the benefits received.
For the fiscal years ended September 30, 1999 and 1998, the Fund paid brokerage
commissions of $3,153 and $4,656, respectively.
The Adviser is specifically authorized to select brokers who also provide
brokerage and research services to the Fund and/or other accounts over which the
Adviser exercises investment discretion and to pay such brokers a commission in
excess of the commission another broker would charge if the Adviser determines
in good faith that the commission is reasonable in relation to the value of the
brokerage and research services provided. The determination may be viewed in
terms of a particular transaction or the Adviser's overall responsibilities with
respect to the Fund and to accounts over which it exercises investment
discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Fund.
The Adviser 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 Adviser will not
favor any advisory account over any other account, and each account that
participates in an aggregated order will participate at the average share price
for all transactions of the Adviser in that security on a given business day,
with all transaction costs shared on a pro rata basis.
CODE OF ETHICS. The Trust and the Adviser have each adopted a Code of
Ethics under Rule 17j-1 of the Investment Company Act of 1940. The Code
significantly restricts the personal investing activities of all employees of
the Adviser and, as described below, imposes additional, more onerous,
restrictions on investment personnel of the Adviser. The Code requires that all
employees of the Adviser preclear any personal securities transactions (with
limited exceptions, such as U.S. Government obligations). The
- 25 -
<PAGE>
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. In
addition, no employee may purchase or sell any security which, at that time, is
being purchased or sold (as the case may be), or to the knowledge of the
employee is being considered for purchase or sale, by the Fund. The substantive
restrictions applicable to investment personnel of the Adviser include a ban on
acquiring any securities in an initial public offering. Furthermore, the Code
provides for trading "blackout periods" which prohibit trading by investment
personnel of the Adviser within periods of trading by the Fund in the same (or
equivalent) security.
PORTFOLIO TURNOVER
- ------------------
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. A 100% turnover rate would occur if all of the Fund's portfolio securities
were replaced once within a one year period. For the fiscal years ended
September 30, 1999 and 1998, the Fund's portfolio turnover rate was 23% and
101%, respectively.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
The share price (net asset value) and the public offering price (net asset
value plus applicable sales load) of the shares of the Fund are 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.
Portfolio securities are valued as follows: (i) securities which are traded
on stock exchanges or are quoted by NASDAQ are
- 26 -
<PAGE>
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.
OTHER PURCHASE INFORMATION
- --------------------------
The Prospectus describes generally how to purchase shares of the Fund.
Additional information with respect to certain types of purchases of shares of
the Fund is set forth below.
RIGHT OF ACCUMULATION. A "purchaser" (as defined in the Prospectus) of
shares of the fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing shares of the Fund with the amount of his
current purchases in order to take advantage of the reduced sales loads set
forth in the tables in the Prospectus. The purchaser or his dealer must notify
the Transfer Agent that an investment qualifies for a reduced sales load. The
reduced sales load will be granted upon confirmation of the purchaser's holdings
by the Transfer Agent.
LETTER OF INTENT. The reduced sales loads set forth in the tables in the
Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of shares of the Fund who submits a Letter of Intent to the Transfer
Agent. The Letter must state an intention to invest in the Fund within a
thirteen month period a specified amount which, if made at one time, would
qualify for a reduced sales load. A Letter of Intent may be submitted with a
purchase at the beginning of the thirteen month period or within ninety days of
the first purchase under the Letter of Intent. Upon acceptance of this Letter,
the purchaser becomes eligible for the reduced sales load applicable to the
level of investment covered by such Letter of Intent as if the entire amount
were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Fund to sell, the full amount indicated. During the term of a
Letter of Intent, shares
- 27 -
<PAGE>
representing 5% of the intended purchase will be held in escrow. These shares
will be released upon the completion of the intended investment. If the Letter
of Intent is not completed during the thirteen month period, the applicable
sales load will be adjusted by the redemption of sufficient shares held in
escrow, depending upon the amount actually purchased during the period. The
minimum initial investment under a Letter of Intent is $10,000.
A ninety-day backdating period can be used to include earlier purchases at
the purchaser's cost (without a retroactive downward adjustment of the sales
load). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
OTHER INFORMATION. The Fund does not impose a sales load or imposes a
reduced sales load in connection with purchases of shares of the Fund made under
the reinvestment privilege or the purchases described in the "Reduced Sales
Load" or "Purchases at Net Asset Value" sections in the Prospectus because such
purchases require minimal sales effort by the Underwriter. Purchases described
in the "Purchases at Net Asset Value" section may be made for investment only,
and the shares may not be resold except through redemption by or on behalf of
the Fund.
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, 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
- 28 -
<PAGE>
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
- 29 -
<PAGE>
10 year periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
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 average
annual total returns of the Fund for the periods ended December 31, 1999 are as
follows:
1 year 22.51%
Since inception (November 15, 1996) 25.89%
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. This computation does not include
the effect of the applicable initial sales charge which, if included, would
reduce total return. A nonstandardized quotation may also indicate average
annual compounded rates of return without including the effect of the applicable
initial sales charge or 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
Fund's total returns (excluding the effect of applicable sales charges) for the
periods ended December 31, 1999 are as follows:
1 year 27.62%
Since inception (November 15, 1996) 27.54%
- 30 -
<PAGE>
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.
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, 1999 are
attached to this Statement of Additional Information.
-31-
<PAGE>
================================================================================
PROFIT FUNDS INVESTMENT TRUST
-----------------------------
PROFIT VALUE FUND
-----------------
ANNUAL REPORT
September 30, 1999
INVESTMENT ADVISER ADMINISTRATOR
------------------ -------------
INVESTOR RESOURCES GROUP, LLC COUNTRYWIDE FUND SERVICES, INC.
8720 Georgia Avenue, Suite 808 P.O. Box 5354
Silver Spring, Maryland 20910 Cincinnati, Ohio 45201-5354
1.888.744.2337
================================================================================
<PAGE>
LETTER TO SHAREHOLDERS NOVEMBER 8, 1999
TOP PERFORMING LARGE-CAP VALUE FUND
Dear Profit Value Fund Shareholder:
I have exciting news. For the twelve months coinciding with the Profit
Value Fund's fiscal year ended September 30, 1999, your Fund's 42.52% total
return ranked it #1 out of 251 Large-Cap Value Funds according to data compiled
by Lipper Analytical Services, Inc. During this period, the performance of
traditional "value" funds lagged significantly behind the S&P 500 Index;
however, your Fund outpaced the S&P 500 Index by a large margin.
In its second full year of operations, the Profit Value Fund performed
impressively and gained many new investors. The Fund and its portfolio manager
continued to receive positive media coverage, being featured in several national
publications. Many shareholders have commented positively about their improved
statements and the 24-hour availability of automated shareholder and net asset
value (NAV) information. A shareholder survey gave us high marks for exceeding
your expectations. We will continue to work diligently to maintain the
confidence you have entrusted in us through your investment.
For the fiscal year ended September 30, 1999, the Profit Value Fund closed
at a NAV of $18.02 per share and had a total return (excluding the effect of
applicable sales loads) of 42.52%, as compared to an S&P 500 Index total return
of 27.80% and a Russell Top 200 Value Index average return of 23.43%. The Fund's
outperformance of the market and its value-oriented competitors during the
fiscal year indicates the merits of the Fund's investment style. Even when the
market declined sharply during the quarter ended September 30, 1999, the Fund's
- -3.79% return outperformed both the S&P 500 Index and the Russell Top 200 Value
Index which declined 6.25% and 9.44%, respectively.
Investor Resources Group, as investment adviser, continues to manage the
portfolio as conditions warrant. The turnover ratio of the portfolio was a tax
efficient 23%. In our opinion, one of the best ways to outperform across a
market cycle is by investing in the common stocks of companies that are
currently trading at a discounted price relative to the market and their peers,
yet display a catalyst to return to a normal price relationship. During the
fiscal year, advances in the equity market continued to reward our investment
approach. Management's positioning of the portfolio last year, specifically with
the addition of EMC, Intel, Microsoft, America Online and Sun Microsystems,
placed the Fund in a good position to benefit from the economy's drive toward
technology. Healthcare related companies Merck, Pfizer and Amgen and financial
<PAGE>
services companies Legg Mason, Marsh & McClennan and T. Rowe Price positioned
the portfolio to benefit from the aging of the population.
During the past twelve months, two major issues have continued to
negatively impact the market. First, rising interest rates and inflationary
concerns have tended to overshadow the strong profit growth that U.S. companies
are enjoying. Second, the end of this century has focused significant attention
and resources on the Y2K computer glitch concern. After both of these issues are
addressed, investors will likely refocus on constructive fundamentals, and we
have positioned the portfolio to take advantage of this upcoming environment.
Regardless of the direction the markets take in the coming year, we believe
that the Profit Value Fund will continue to offer an attractive investment
opportunity for individual and institutional investors. We continue to evaluate
companies in a prudent and cautious manner, seeking companies that represent
good valuations relative to their industry and competitors that are not solely
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.
At Profit Funds, we are committed to helping you pursue your financial
goals, whether it's saving for retirement, paying for college tuition, buying a
home or building your own business. Our investment philosophy is that, over the
long term, the most promising investment opportunities can be found among
established, larger capitalization companies which at the time of investment
show an attractive valuation discount relative to their peers.
We would like to again take this opportunity to express our sincere
appreciation to 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 for many years to come.
Sincerely,
Eugene A. Profit
President
<PAGE>
PROFIT VALUE FUND
Comparison of the Change in Value of a $10,000 Investment in the
Profit Value Fund and the Standard & Poor's (S&P) 500 Index
S&P 500 INDEX: PROFIT VALUE FUND:
-------------- ------------------
DATE BALANCE DATE BALANCE
---- ------- ---- -------
11/15/96 10,000 11/15/96 10,000
12/31/96 10,092 12/31/96 10,240
03/31/97 10,363 03/31/97 10,430
06/30/97 12,172 06/30/97 11,650
09/30/97 13,084 09/30/97 12,880
12/31/97 13,459 12/31/97 12,655
03/31/98 15,337 03/31/98 13,778
06/30/98 15,843 06/30/98 13,929
09/30/98 14,267 09/30/98 12,806
12/31/98 17,306 12/31/98 16,773
03/31/99 18,168 03/31/99 18,982
06/30/99 19,449 06/30/99 18,971
09/30/99 18,234 09/30/99 18,252
-----------------------------
Profit Value Fund
Average Annual Total Return
1 Year Since Inception*
------ ----------------
36.82% 21.53%
-----------------------------
* Initial public offering of shares commenced on November 15, 1996.
<PAGE>
PROFIT VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
================================================================================
ASSETS
Investments in securities:
At acquisition cost $ 2,807,590
==============
At value (Note 1) $ 3,695,440
Cash 45,000
Receivable for securities sold 109,884
Receivable for capital shares sold 5,130
Dividends receivable 3,462
Receivable from Adviser (Note 3) 8,983
Organization costs, net (Note 1) 49,453
Other assets 8,492
--------------
TOTAL ASSETS 3,925,844
--------------
LIABILITIES
Payable to Administrator (Note 3) 4,000
Other accrued expenses and liabilities 11,157
--------------
TOTAL LIABILITIES 15,157
--------------
NET ASSETS $ 3,910,687
==============
Net assets consist of:
Paid-in capital $ 2,808,086
Accumulated net realized gains from security transactions 214,751
Net unrealized appreciation on investments 887,850
--------------
Net assets $ 3,910,687
==============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 217,072
==============
Net asset value and redemption price per share (Note 1) $ 18.02
==============
Maximum offering price per share (Note 1) $ 18.77
==============
See accompanying notes to financial statements.
<PAGE>
PROFIT VALUE FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
================================================================================
INVESTMENT INCOME
Dividends $ 35,826
---------------
EXPENSES
Investment advisory fees (Note 3) 39,860
Professional fees 31,662
Accounting services fees (Note 3) 24,000
Organization expense (Note 1) 23,661
Transfer agent fees (Note 3) 18,119
Trustees' fees and expenses 16,211
Insurance expense 13,725
Administration fees (Note 3) 12,000
Custodian fees 11,705
Registration fees 11,669
Postage and supplies 8,310
Distribution expense (Note 3) 4,454
Reports to shareholders 2,836
Other expenses 944
---------------
TOTAL EXPENSES 219,156
Fees waived and expenses reimbursed (Note 3) (157,075)
---------------
NET EXPENSES 62,081
---------------
NET INVESTMENT LOSS (26,255)
---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 241,006
Net change in unrealized appreciation/ 620,078
depreciation on investments ---------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 861,084
---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 834,829
===============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PROFIT VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
========================================================================================================
Year Year
Ended Ended
September 30, September 30,
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss $ (26,255) $ (3,902)
Net realized gains from security transactions 241,006 3,421
Net change in unrealized appreciation/depreciation
on investments 620,078 (34,188)
---------------- ----------------
Net increase (decrease) in net assets from operations 834,829 (34,669)
---------------- ----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income --- (13,477)
Distributions from net realized gains (3,407) (8,347)
---------------- ----------------
Decrease in net assets from distributions to shareholders (3,407) (21,824)
---------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 1,512,964 979,553
Net asset value of shares issued in
reinvestment of distributions to shareholders 3,397 21,756
Payments for shares redeemed (453,228) (938,460)
---------------- ----------------
Net increase in net assets from capital share transactions 1,063,133 62,849
---------------- ----------------
TOTAL INCREASE IN NET ASSETS 1,894,555 6,356
NET ASSETS
Beginning of year 2,016,132 2,009,776
---------------- ----------------
End of year $ 3,910,687 $ 2,016,132
================ ================
CAPITAL SHARE ACTIVITY
Shares sold 85,572 73,832
Shares issued in reinvestment of distributions to shareholders 206 1,766
Shares redeemed (27,917) (72,439)
---------------- ----------------
Net increase in shares outstanding 57,861 3,159
Shares outstanding, beginning of year 159,211 156,052
---------------- ----------------
Shares outstanding, end of year 217,072 159,211
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PROFIT VALUE FUND
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=====================================================================================================
Year Year Period
Ended Ended Ended
September 30, September 30, September 30,
1999 1998 1997 (a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 12.66 $ 12.88 $ 10.00
--------------- --------------- ---------------
Income (loss) from investment operations:
Net investment income (loss) (0.12) (0.02) 0.07
Net realized and unrealized gains 5.50 (0.06) 2.81
(losses) on investments
--------------- --------------- ---------------
Total from investment operations 5.38 (0.08) 2.88
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income -- (0.09) --
Distributions from net realized gains (0.02) (0.05) --
--------------- --------------- ---------------
Total distributions (0.02) (0.14) --
--------------- --------------- ---------------
Net asset value at end of period $ 18.02 $ 12.66 $ 12.88
=============== =============== ===============
Total return (b) 42.52% (0.57%) 28.80% (d)
=============== =============== ===============
Net assets at end of period (000's) $ 3,911 $ 2,016 $ 2,010
=============== =============== ===============
Ratio of net expenses to average 1.95% 1.95% 1.95% (e)
net assets (c)
Ratio of net investment income (loss) (0.82%) (0.18%) 1.19% (e)
to average net assets
Portfolio turnover rate 23% 101% 10% (e)
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents the period from the initial public offering of shares (November
15, 1996) through September 30, 1997.
(b) Total returns shown exclude the effect of applicable sales loads.
(c) Absent fee waivers and expense reimbursements, the ratios of expenses to
average net assets would have been 6.87%, 8.36% and 18.57% (e) for the
periods ended September 30, 1999, 1998 and 1997, respectively (Note 3).
(d) Not annualized.
(e) Annualized.
See accompanying notes to financial statements.
<PAGE>
PROFIT VALUE FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1999
================================================================================
MARKET
COMMON STOCKS - 92.7% SHARES VALUE
- --------------------------------------------------------------------------------
AUTOMOBILES - 4.6%
DaimlerChrysler AG 1,000 $ 69,437
Ford Motor Co. 2,200 110,412
---------------
179,849
---------------
BASIC & SPECIALTY CHEMICALS - 4.6%
Dow Chemical Co. 720 81,810
E.I. du Pont de Nemours & Co. 1,584 96,426
---------------
178,236
---------------
BEVERAGES - 1.6%
Pepsico, Inc. 2,000 60,500
---------------
CONGLOMERATE - 2.8%
Berkshire Hathaway, Inc. - Class A* 2 110,000
---------------
CONSUMER STAPLES - 1.9%
Eastman Kodak Co. 1,000 75,438
---------------
ELECTRIC UTILITIES - 1.6%
Southern Co. 2,460 63,345
---------------
ENERGY & RESOURCES - 5.2%
Conoco Inc. - Class B 1,227 33,589
El Paso Energy Corp. 1,500 59,719
Exxon Corp. 800 60,750
Mobil Corp. 500 50,375
---------------
204,433
---------------
FINANCIAL & INSURANCE - 16.0%
American General Corp. 1,375 86,883
Chase Manhattan Corp. 1,300 97,988
Citigroup, Inc. 1,500 66,000
Fannie Mae 2,000 125,375
Legg Mason, Inc. 2,000 76,625
Marsh & McLennan Co., Inc. 750 51,375
Merrill Lynch & Co. 1,000 67,188
T. Rowe Price Associates, Inc. 2,000 54,875
---------------
626,309
---------------
HEALTHCARE - 6.6%
Amgen, Inc.* 1,400 114,100
Merck & Co., Inc. 1,400 90,737
Pfizer, Inc. 1,500 53,906
---------------
258,743
---------------
MEDICAL PRODUCTS - 3.9%
Medtronic, Inc. 2,000 71,000
Safeskin Corp.* 10,000 82,187
---------------
153,187
---------------
<PAGE>
PROFIT VALUE FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1999
================================================================================
Market
COMMON STOCKS - 92.7% (Continued) Shares Value
- --------------------------------------------------------------------------------
MULTI-MEDIA - 2.3%
The Walt Disney Co. 3,500 $ 90,563
---------------
RETAIL - 7.3%
CompUSA, Inc.* 4,000 24,500
The Limited, Inc. 1,500 57,375
Nike, Inc. - Class B 1,000 56,875
Too, Inc.* 214 3,839
Wal-Mart Stores, Inc. 3,000 142,687
---------------
285,276
---------------
RETIREMENT/AGED CARE - 1.0%
Sunrise Assisted Living, Inc.* 1,500 39,844
---------------
TECHNOLOGY - 24.5%
America Online, Inc.* 2,400 249,600
Cisco Systems, Inc.* 2,055 140,896
EMC Corp.* 3,000 214,312
Intel Corp. 2,000 148,625
Microsoft Corp.* 1,200 108,675
Sun Microsystems, Inc.* 1,000 93,000
---------------
955,108
---------------
TELECOMMUNICATIONS - 8.8%
AT&T Corp. 2,912 126,672
Bell Atlantic Corp. 1,500 100,969
MCI WorldCom, Inc.* 1,624 116,725
---------------
344,366
---------------
TOTAL COMMON STOCKS - 92.7% (Cost $2,737,347) $ 3,625,197
---------------
MONEY MARKETS - 1.8%
Fidelity Institutional Cash Portfolio - Government 31,986 $ 31,986
Fidelity Institutional Cash Portfolio - Class I 38,257 38,257
---------------
TOTAL MONEY MARKETS - 1.8% (Cost $70,243) $ 70,243
---------------
TOTAL INVESTMENTS AT VALUE - 94.5% (Cost $2,807,590) $ 3,695,440
OTHER ASSETS IN EXCESS OF LIABILITIES - 5.5% 215,247
---------------
NET ASSETS - 100.0% $ 3,910,687
===============
* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
The Profit Value Fund (the Fund) is a diversified series of Profit Funds
Investment Trust (the Trust), an open-end management investment company
registered under the Investment Company Act of 1940. The Trust was organized as
a Massachusetts business trust on June 14, 1996. The public offering of shares
of the Fund commenced on November 15, 1996. The Fund had no operations prior to
the public offering of shares except for the initial issuance of shares.
The Fund seeks 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.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time). Securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the closing sales price
or, if not traded on a particular day, at the closing bid price. Securities
traded in the over-the-counter market, and which are not quoted by NASDAQ, are
valued at the last sales price, if available, otherwise, at the last quoted bid
price. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith in accordance with procedures
established by and under the general supervision of the Board of Trustees.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding, rounded to the nearest cent. The maximum offering
price per share of the Fund is equal to the net asset value per share plus a
sales load equal to 4.17% of the net asset value (or 4% of the offering price).
The redemption price per share of the Fund is equal to the net asset value per
share.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned.
Distributions to shareholders -- Distributions to shareholders arising from net
investment income and net realized capital gains, if any, are distributed at
least once each year. Dividends from net investment income and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Organization costs -- Costs incurred by the Fund in connection with its
organization and registration of shares, net of certain expenses, have been
capitalized and are being amortized on a straight-line basis over a five year
period beginning with the commencement of operations. In the event any of the
initial shares of the Fund are redeemed during the amortization period, the
redemption proceeds will be reduced by a pro rata portion of any unamortized
organization costs in the same proportion as the number of initial shares being
redeemed bears to the number of initial shares of the Fund outstanding at the
time of redemption. As of September 30, 1999, unamortized organization costs of
$49,453 are scheduled to be amortized over a remaining 25 months.
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code (the Code) available to regulated
investment companies. As provided therein, in any fiscal year in which the Fund
so qualifies and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
As of September 30, 1999, net unrealized appreciation on investments was
$887,850 for federal income tax purposes, of which $1,077,063 related to
appreciated securities and $189,213 related to depreciated securities based on a
federal income tax cost basis of $2,807,590.
Reclassification of capital accounts - As of September 30, 1999, the Fund
reclassified $26,255 of accumulated net investment loss against accumulated net
realized gains from security transactions on the Statement of Assets and
Liabilities. The reclassification, a result of permanent differences between
financial statement and income tax reporting requirements, had no effect on the
Fund's net assets or net asset value per share.
2. INVESTMENT TRANSACTIONS
During the year ended September 30, 1999, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$1,675,101 and $667,693, respectively.
3. TRANSACTIONS WITH AFFILIATES
The President of the Trust is also the President of Investor Resources Group,
LLC (the Adviser). Certain other Trustees and officers of the Trust are also
officers of the Adviser, or of Countrywide Fund Services, Inc. (CFS), the
administrative services agent, shareholder servicing and transfer agent, and
accounting services agent for the Trust, or of CW Fund Distributors, Inc. (the
Underwriter), the principal underwriter for the Fund and exclusive agent for the
distribution of shares of the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser pursuant to the terms of an
Investment Advisory Agreement. The Fund pays the Adviser an investment advisory
fee, computed and accrued daily and paid monthly, at an annual rate of 1.25% of
average daily net assets of the Fund.
During the year ended September 30, 1999, the Adviser voluntarily waived its
investment advisory fees of $39,860 and reimbursed the Fund for $117,215 of
other operating expenses in order to limit total operating expenses of the Fund
to 1.95% of the Fund's average daily net assets.
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, CFS supplies non-investment
related statistical and research data, internal regulatory compliance services
and executive and administrative services for the Fund. CFS supervises the
preparation of tax returns, reports to shareholders of the Fund, reports to and
filings with the Securities and Exchange Commission and state securities
commissions and materials for meetings of the Board of Trustees. For these
services, CFS receives a monthly fee at an annual rate of 0.15% of the Fund's
average daily net assets up to $25 million; 0.125% of such net assets between
$25 million and $50 million; and 0.10% of such net assets in excess of $50
million, subject to a minimum monthly fee of $1,000. During the year ended
September 30, 1999, CFS earned $12,000 of administration fees under the
Administration Agreement.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, CFS calculates the daily
net asset value per share and maintains the financial books and records of the
Fund. For these services, CFS receives a fee, based on current asset levels, of
$2,000 per month from the Fund. During the year ended September 30, 1999, CFS
earned $24,000 of accounting fees under the Accounting Services Agreement. In
addition, the Fund reimburses CFS for out-of-pocket expenses related to the
pricing of the Fund's portfolio securities.
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement, CFS maintains the records of each shareholder's account,
answers shareholders' inquiries concerning their accounts, processes purchases
and redemptions of the Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, CFS receives a monthly fee at an annual rate of $17 per shareholder
account from the Fund, subject to a $1,000 minimum monthly fee. During the year
ended September 30, 1999, CFS earned $12,000 of transfer agent fees under the
Transfer Agent Agreement. In addition, the Fund reimburses CFS for out-of-pocket
expenses including, but not limited to, postage and supplies.
UNDERWRITING AGREEMENT
Under the terms of an Underwriting Agreement between the Trust and the
Underwriter, the Underwriter earned $6,261 from underwriting and brokerage
commissions on the sale of shares of the Fund during the year ended September
30, 1999.
DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution (the Plan) under which the Fund may
directly incur or reimburse the Adviser for expenses related to the distribution
and promotion of Fund shares. The annual limitation for payment of such expenses
under the Plan is 0.25% of the Fund's average daily net assets. The Fund
incurred distribution expenses of $4,454 under the Plan during the year ended
September 30, 1999.
4. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
On December 31, 1998, the Fund declared and paid a long-term capital gain
distribution of $3,407 or $0.02163 per share. In January of 1999, shareholders
were provided with Form 1099-DIV which reported the amount and tax status of the
capital gain distribution paid during calendar year 1998.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees
Profit Funds Investment Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Profit Value Fund (hereafter
referred to as the "Fund") at September 30, 1999, and the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which includes confirmation of securities at September 30, 1999 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Columbus, Ohio
November 10, 1999
- 31 -
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
-----------------------------
PART C: OTHER INFORMATION
- ------- -----------------
Item 23. Exhibits
- -------- --------
(a) Declaration of Trust*
(b) By-Laws*
(c) Incorporated by Reference to Agreement and Declaration of Trust and
Bylaws
(d) Investment Advisory Contract*
(e) Underwriting Agreement with CW Fund Distributors, Inc.*
(f) Inapplicable
(g) Custody Agreement*
(h) (i) Administration Agreement with Countrywide Fund Services, Inc.*
(ii) Accounting Services Agreement with Countrywide Fund Services, Inc.*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement with Countrywide Fund Services, Inc.*
(i) Opinion and Consent of Counsel*
(j) Auditor's Consent
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m) Plan of Distribution Pursuant to Rule 12b-1*
(n) Inapplicable
(o) Inapplicable
- -------------------------------
* Incorporated herein by reference to this Registration Statement as
originally filed with the Securities and Exchange Commission or as
subsequently amended.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with the Fund.
- -------- ------------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
Article VII of the Registrant's Declaration of Trust, incorporated
herein by reference, provides for the indemnification of officers and
Trustees. Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers,
employees 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,
employee or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
Trustee, officer, employee 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,
and Investor Resources Group, LLC (the "Adviser"). Coverage under the
policy will include losses by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty.
The Management Agreement with the Adviser provides that the Adviser
shall not be liable for any action taken, omitted or suffered to be
taken by it in its reasonable judgment, in good faith and believed by
it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement, or in accordance with (or in the
absence of) specific directions or instructions from the Trust,
provided, however, that such acts or omissions shall not have resulted
from the Adviser's willful misfeasance, bad faith or gross negligence,
a violation of the standard of care established by and applicable to
the Adviser in its actions under the Agreement or breach of its duty
or of its obligations thereunder.
<PAGE>
The Underwriting Agreement provides that the Underwriter, its
directors, officers, employees, shareholders and control persons shall
not be liable for any error of judgment or mistake of law or for any
loss suffered by Registrant in connection with the matters to which
the 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 the Agreement. Registrant 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.
Item 26. Business and Other Connections of the Investment Adviser
- -------- --------------------------------------------------------
(a) The Adviser is a registered investment adviser, providing
investment advisory services to the Registrant.
(b) The directors and officers of the Adviser and any other business,
profession, vocation or employment of a substantial nature
engaged in at any time during the past two years:
(i) Eugene A. Profit - President and Chief Executive Officer,
Investor Resources Group (February, 1996 to Present).
(ii) Dr. Joseph A. Quash - Chairman of the Board, Investor
Resources Group. Cardiologist, Capital Cardiology Group,
Washington, D.C. 1976 to Present).
Item 27. Principal Underwriters
- -------- ----------------------
(a) CW Fund Distributors, Inc. (the "Distributor") also acts as
principal underwriter for other open-end investment companies:
The Firsthand Funds, The Caldwell & Orkin Funds, Inc., Brundage,
Story and Rose Investment Trust, Lake Shore Family of Funds, UC
Investment Trust, The Winter Harbor Fund and The James Advantage
Funds.
(b) The following list sets forth the directors and executive
officers of the Distributor. Unless otherwise noted with an
asterisk(*), the address of the persons named below is 312 Walnut
Street, Cincinnati, Ohio 45202.
<PAGE>
*The address is 400 Broadway, Cincinnati, Ohio California 45202.
Position Position
with with
Name Distributor Registrant
---- ----------- ----------
*William F. Ledwin Director None
*Jill T. McGruder Director None
Robert H. Leshner President/ None
Vice Chairman/
Chief Executive
Officer/Director
Maryellen Peretzky Vice President/ None
Secretary
Robert L. Bennett Vice President/ Treasurer
Chief Operations
Officer
Terrie A. Wiedenheft Vice President/ None
Chief Financial
Officer
(c) Inapplicable
Item 28. 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
administrator and transfer agent located at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202.
Item 29. Management Services.
- -------- --------------------
Not Applicable
Item 30. Undertakings.
- -------- -------------
Not Applicable
<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 28th day
of January, 2000.
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 28, 2000
- ------------------------- and Trustee
Eugene A. Profit
/s/ Robert L. Bennett Treasurer January 28, 2000
- -------------------------
Robert L. Bennett
Trustee
- -------------------------
Larry E. Jennings, Jr.*
Trustee By: /s/ Tina D. Hosking
- ------------------------- -------------------
Robert M. Milanicz* Tina D. Hosking
Attorney-in-Fact*
Trustee January 28, 2000
- -------------------------
Joseph A. Quash*
Trustee
- -------------------------
Deborah Owens*
<PAGE>
INDEX TO EXHIBITS
-----------------
(a) Declaration of Trust*
(b) By-Laws*
(c) Incorporated by Reference to Agreement and Declaration of Trust and
Bylaws
(d) Investment Advisory Contract*
(e) Underwriting Agreement with CW Fund Distributors, Inc.*
(f) Inapplicable
(g) Custody Agreement*
(h) (i) Administration Agreement with Countrywide Fund Services, Inc.*
(ii) Accounting Services Agreement with Countrywide Fund Services, Inc.*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement with Countrywide Fund Services, Inc.*
(i) Opinion and Consent of Counsel*
(j) Auditor's Consent
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m) Plan of Distribution Pursuant to Rule 12b-1*
(n) Inapplicable
(o) Inapplicable
- ------------------------
* Incorporated herein by reference to this Registration Statement as
originally filed with the Securities and Exchange Commission or as
subsequently amended.
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated November 10, 1999, relating to the financial statements and
financial highlights of the Profit Value Fund, which appear in such Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" and "Auditors", in such Registration Statement.
Columbus, Ohio
January 28, 2000
