Prospectus
September 28, 1999,
as supplemented March 13, 2000
Badgley Funds, Inc.
BADGLEY GROWTH FUND
BADGLEY BALANCED FUND
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
1-877-BADGLEY
www.badgleyfunds.com
The investment objective of the Badgley Growth
Fund (the "Growth Fund") is long-term capital
appreciation. The investment objective of the Badgley
Balanced Fund (the "Balanced Fund") is long-term
capital appreciation and income. The Growth Fund and
Balanced Fund each invest primarily in common stocks
and the Balanced Fund also invests in investment grade
bonds and other fixed income securities. Each Fund's
common stock investments are made based on long-term
growth potential which may result in lower turnover,
transaction costs and capital gains distributions.
This Prospectus contains information you should
consider before you invest in one or more of the Funds.
Please read it carefully and keep it for future
reference.
____________________
The Securities and Exchange Commission (the "SEC")
has not approved or disapproved of these securities or
passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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In deciding whether to invest in one or more of
the Funds, you should rely only on information in this
Prospectus or the Statement of Additional Information
(the "SAI"). The Funds have not authorized others to
provide additional information. The Funds do not
authorize the use of this Prospectus in any state or
jurisdiction in which such offering may not legally be
made.
TABLE OF CONTENTS
Page No.
HIGHLIGHTS AND RISKS 1
FEES AND EXPENSES OF THE FUNDS 2
INVESTMENT OBJECTIVES 3
HOW THE FUNDS INVEST 3
FINANCIAL HIGHLIGHTS 5
FUND MANAGEMENT 5
HOW TO PURCHASE SHARES 7
HOW TO REDEEM SHARES 9
VALUATION OF FUND SHARES 11
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN 11
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX TREATMENT 11
<PAGE>
HIGHLIGHTS AND RISKS
What are the goals of each Fund?
The Growth Fund's goal is long-term capital
appreciation. The Balanced Fund's goal is long-term
capital appreciation and income (i.e., risk-adjusted
total return). These goals are sometimes referred to
as the Funds' investment objectives. For more
information, see "Investment Objectives" and "How the
Funds Invest."
What will the Funds invest in?
The Funds invest primarily in companies with
medium-to-large market capitalizations. The Growth
Fund primarily invests in common stocks. The Balanced
Fund primarily invests in common stocks and investment
grade bonds and other fixed income securities. In
trying to achieve the Funds' goals, Badgley, Phelps and
Bell, Inc. (the "Adviser") selects stocks that the
Adviser believes have the potential to grow revenues,
earnings and dividends in excess of the Standard &
Poor's 500 Stock Index (the "S&P 500") over a three to
five-year time period. The Adviser generally purchases
common stocks with a longer-term investment horizon,
which may result in lower turnover, transaction costs
and capital gains distributions. The Adviser generally
sells common stocks that the Adviser believes show
deteriorating fundamentals or are overvalued. The
Adviser generally sells bonds that fall below the
Balanced Fund's credit quality standards. For more
information, see "How the Funds Invest."
What are the main risks of investing in the Funds?
The main risks of investing in one or more of the Funds are:
* Stock Market Risk: The Funds are subject to stock market risks
and significant fluctuations in value. If the
stock market declines in value, the Funds are
likely to decline in value. Increases or
decreases in value of stocks are generally greater
than for bonds or other debt investments.
* Stock Selection Risk: The stocks selected by the Adviser may decline
in value or not increase in value when the stock
market in general is rising.
In addition, the Balanced Fund is subject to the following risks:
* Bond Market Risk: The Balanced Fund is subject to market
risks associated with fixed income investments.
If interest rates rise, bond prices in general
are likely to decline over short or even
extended periods.
* Credit Risk: Individual issues of fixed income securities
may be subject to the credit risk of the issuer.
Neither Fund can guarantee that it will achieve
its goal. You should be aware that you may lose money
by investing in the Growth Fund or the Balanced Fund.
Is the Growth Fund or the Balanced Fund an appropriate investment for me?
The Funds are suitable for long-term investors
only. The Funds are not short-term investment
vehicles.
An investment in the Growth Fund may be appropriate if:
* your goal is long-term capital appreciation;
* you do not require current income from this investment; and
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* you are willing to accept short-term to
intermediate-term fluctuations in value to seek
possible higher long-term returns.
An investment in the Balanced Fund may be appropriate if:
* your goal is long-term capital appreciation and income;
* you want to receive a moderate level of current
income from this investment; and
* you are willing to accept some short-term to
intermediate-term fluctuations in value to seek
possible higher long-term returns.
Because the Funds have been in operation for less
than a full calendar year, the Funds have no annual
return history.
FEES AND EXPENSES OF THE FUNDS
The following table describes the fees and
expenses that you may pay if you buy and hold shares of
one or more of the Funds.
Shareholders Fees (fees paid directly from your investment)
Growth Balanced
Fund Fund
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Growth Balanced
Fund Fund
Management Fees 1.00% 0.90%
Distribution and Service (12b-1) Fees 0.25% 0.25%
Other Expenses(1) 4.87% 2.68%
Total Annual Fund Operating Expenses(1) 6.12% 3.83%
Fee Waiver/Expense Reimbursement (1) 4.62% 2.53%
Net Expenses 1.50% 1.30%
____________
(1) The Adviser has contractually agreed to waive
its fee and/or reimburse the Funds' other expenses
to the extent necessary to ensure that the Growth
Fund's total operating expenses do not exceed 1.50%
of its average daily net assets and that the
Balanced Fund's total operating expenses do not
exceed 1.30% of its average daily net assets until
September 30, 2000. After such date, the total
operating expense limitations may be terminated or
revised at any time. Any waiver or reimbursement
is subject to later adjustment to allow the Adviser
to recoup amounts waived or reimbursed to the
extent actual fees and expenses for a period are
less than the expense limitation caps, provided,
however, that the Adviser shall only be entitled to
recoup such amounts for a period of three years
from the date such amount was waived or reimbursed.
For additional information, see "Fund Management."
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Example
The following Example is intended to help you
compare the cost of investing in a Fund with the cost
of investing in other mutual funds. The Example
assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes
that your investment has a 5% return each year and that
each Fund's total annual operating expenses remain the
same each year. Although your actual costs may be
higher or lower, based on these assumptions your costs
would be as follows:
1 Year 3 Years 5 Years 10 Years
Growth Fund $153 $1,405 $2,630 $5,574
Balanced Fund $132 $ 936 $1,759 $3,901
INVESTMENT OBJECTIVES
The Growth Fund's investment objective is long-
term capital appreciation. The Balanced Fund's
investment objective is long-term capital appreciation
and income (i.e., risk-adjusted total return).
HOW THE FUNDS INVEST
Growth Fund
The Growth Fund seeks to achieve its investment
objective by investing primarily in common stocks of
companies with medium to large capitalizations. The
Growth Fund typically invests in companies with market
capitalizations of $2.0 billion or more.
The Growth Fund will focus on equity securities of
companies that the Adviser believes have superior
growth prospects relative to the S&P 500. In
identifying equity securities for the Growth Fund, the
Adviser generally evaluates the fundamental prospects
for each company using both internal and external
research. In compiling its internal research, the
Adviser uses a number of research sources, including
industry resources, the management of companies and
other institutional providers. In the research
process, the Adviser reviews certain fundamental
attributes that it believes a security should have for
the Growth Fund to invest in it, including:
* Consistent and predictable growth characteristics
(growing revenues, earnings and dividends);
* Low financial risk which includes low debt and
lease obligations and strong cash flow;
* Market dominance;
* Significant barriers to entry; and
* Strong management.
The Adviser also considers its ability to effectively
analyze and follow the industry in which the company
participates and the company's particular business.
Finally, the Adviser values companies by considering
the relationship between the earnings per share growth
rate of a company and its price to earnings ratio, and
by considering the range of a company's historical
relative price to earnings ratio.
The Growth Fund holds securities for an extended
time, which may result in lower turnover, transaction
costs and capital gains distributions. The Growth Fund
sells a security when the Adviser believes it shows
deteriorating fundamentals or is overvalued or to
change the weighting of a security or a sector.
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Under normal circumstances, the Growth Fund
expects to be fully invested in common stocks. Common
stocks are units of ownership of a corporation.
Although not part of its principal investment
strategy, the Growth Fund may invest up to 15% of its
net assets in American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs") or other foreign
instruments. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the
underlying foreign security and denominated in U.S.
dollars. EDRs are European receipts evidencing a
similar arrangement. Pending investment or to pay
redemption requests and expenses, the Growth Fund may
hold a portion of its assets in short-term, investment
grade money market securities and cash. The Growth
Fund may also invest a limited amount of assets in
illiquid securities. See the Funds' SAI for additional
information.
Balanced Fund
The Balanced Fund seeks to achieve its investment
objective by investing primarily in common stocks and
investment grade bonds and other fixed income
securities. The Balanced Fund will focus on the
securities of companies with medium-to-large market
capitalizations with respect to equity and corporate
debt securities investments. The Balanced Fund
typically invests in companies with market
capitalizations of $2.0 billion or more.
In selecting equity securities for the Balanced
Fund, the Adviser uses the same methods used for the
Growth Fund as discussed above. In addition to equity
securities, the Balanced Fund invests in investment
grade bonds and other fixed income securities,
including corporate and government securities,
repurchase agreements and mortgage-backed securities.
The Balanced Fund will focus on intermediate term
investment grade bonds with an average dollar-weighted
portfolio of three to seven-year maturities with
individual maturities ranging from one to 10 years.
In identifying debt securities for the Balanced
Fund, the Adviser generally conducts a relative value
analysis. In the investment process, the Adviser
reviews attributes that it believes a debt security
should have for the Balanced Fund to invest in it,
including:
* Credit quality of investment grade or higher;
* Liquidity; and
* Relative value within the issue's specific sector.
The Balanced Fund holds securities for an extended
time, which may result in lower turnover, transaction
costs and capital gains distributions. In selling
equity securities for the Balanced Fund, the Adviser
uses the same methods used for the Growth Fund as
discussed above. The Balanced Fund sells a debt
security when it falls below the Balanced Fund's credit
quality standards or the Adviser identifies more
attractive debt securities or to upgrade the Balanced
Fund's overall yield, quality or liquidity.
Under normal circumstances, the Balanced Fund
invests at least 25% of its total assets in fixed
income senior securities, including bonds, other debt
securities and non-convertible preferred stocks. Debt
securities are obligations of the issuer to pay
interest and repay principal. Preferred stocks have
rights senior to a company's common stock, but junior
to a company's creditors and, if held by the Balanced
Fund as a fixed income security, will generally pay a
dividend.
Although not part of its principal investment
strategy, the Balanced Fund may invest up to 15% of its
net assets in ADRs, EDRs or other foreign instruments.
Pending investment or to pay redemption requests and
expenses, the Balanced Fund may hold a portion of its
assets in short-term, investment grade money market
securities and cash. The Balanced Fund may also invest
a limited amount of assets in illiquid securities. See
the Funds' SAI for additional information.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help
you understand the Funds' financial performance for the
period from June 25, 1998 (commencement of operations)
to May 31, 1999. Certain information reflects
financial results for a single Fund share. The total
returns in the table represent the rate that an
investor would have earned on an investment in the Fund
for the stated period (assuming reinvestment of all
dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose
report, along with the Funds' financial statements, are
included in the Funds' annual report, which is
available upon request.
Balanced Growth
Fund Fund
Net asset value, beginning of period $ 10.00 $ 10.00
Income from investment operations:
Net investment income (loss) 0.18 (0.02)
Net realized and unrealized gain (loss) on investments 0.68 1.48
Total from investment operations 0.86 1.46
Less:
Dividends from net investment income (0.17) (0.04)
Net asset value, end of period $ 10.69 $ 11.42
Total return(1) 8.66% 14.65%
Supplemental data and ratios:
Net assets, end of period $16,524,409 $6,503,740
Ratio of net expenses to average net assets:
Before expense reimbursement(2) 3.83% 6.12%
After expense reimbursement(2) 1.30% 1.50%
Ratio of net investment income to average net assets:
Before expense reimbursement(2) (0.80)% (5.22)%
After expense reimbursement(2) 1.73% (0.60)%
Portfolio turnover rate 16.17% 30.28%
(1) Not annualized.
(2) Annualized.
FUND MANAGEMENT
Adviser
Badgley, Phelps and Bell, Inc. (the "Adviser") is
the investment adviser to the Funds. The Funds have
entered into an Investment Advisory Agreement with the
Adviser under which the Adviser manages each of the
Fund's investments and business affairs, subject to the
supervision of the Funds' Board of Directors. The
Adviser, 1420 Fifth Avenue, Suite 4400, Seattle,
Washington 98101, is a Washington corporation founded
in 1966. The Adviser is controlled by several of its
officers. As of August 31, 1999, the Adviser managed
approximately $1.4 billion for individual and
institutional clients. Under the Investment Advisory
Agreement, the Funds compensate the Adviser for its
management services at the annual rate of 1.00% of the
Growth Fund's average daily net assets and 0.90% of the
Balanced Fund's average daily net assets. The advisory
fee is accrued daily and paid monthly. For the fiscal year
<PAGE>
ended May 31, 1999, the Adviser waived its
management fee and reimbursed the Funds' other expenses
so that the Growth Fund's total operating expenses (on
an annual basis) did not exceed 1.50% of its average
daily net assets and that the Balanced Fund's total
operating expenses (on an annual basis) did not exceed
1.30% of its average daily net assets. Until September
30, 2000, the Adviser has contractually agreed to
continue to waive its management fee and/or reimburse
the Funds' other expenses to the extent necessary to
ensure that the Growth Fund's total operating expenses
(on an annual basis) do not exceed 1.50% of its average
daily net assets and that the Balanced Fund's total
operating expenses (on an annual basis) do not exceed
1.30% of its average daily net assets. After such
time, the Adviser may voluntarily waive all or a
portion of its management fee and/or reimburse all or a
portion of Fund operating expenses. Any waiver of fees
or reimbursement of expenses will be made on a monthly
basis and, with respect to the latter, will be paid to
the Funds by reduction of the Adviser's fee. Any
waivers or reimbursements will have the effect of
lowering the overall expense ratio for a Fund and
increasing its overall return to investors at the time
any such amounts were waived and/or reimbursed. Any
such waiver or reimbursement is subject to later
adjustment during the term of the Investment Advisory
Agreement to allow the Adviser to recoup amounts waived
or reimbursed to the extent actual fees and expenses
for a period are less than the expense limitation caps,
provided, however, that the Adviser shall only be
entitled to recoup such amounts for a period of three
years from the date such amount was waived or
reimbursed.
Under the Investment Advisory Agreement, the
Adviser is responsible for management of each Fund's
assets, as well as for portfolio transactions and
brokerage.
Portfolio Managers. The following individuals are
co-managers of the Funds:
Steven C. Phelps. Mr. Phelps graduated Phi Beta
Kappa and magna cum laude from Williams College in 1983
with a degree in political economy and was subsequently
awarded a Fulbright Scholarship at the University of
Frankfurt, Germany for research on policy issues
relating to international monetary coordination. Mr.
Phelps has been President and a Director of the Adviser
since 1990. Mr. Phelps joined the Adviser in 1986
after working for two years with PACCAR, Inc. as a
finance analyst and as an independent researcher on the
economics of the transportation industry. Mr. Phelps
is a Chartered Financial Analyst and a Chartered
Investment Counselor.
Mitzi W. Carletti. Ms. Carletti received a
Bachelor of Arts degree with honors from the University
of Puget Sound in 1978. Prior to joining the Adviser
as a portfolio manager in 1995, Ms. Carletti worked as
a senior research analyst at Frank Russell Company, a
pension fund consulting firm, from 1988 until 1995, and
as a financial consultant with Merrill Lynch from 1979
to 1988.
Mark W. Broughton. Mr. Broughton earned a
Bachelor of Science degree in finance and a Masters of
Business Administration in finance and international
finance/business economics from the University of
Southern California in 1989 and 1995, respectively.
Prior to joining the Adviser in 1996 as a portfolio
manager, Mr. Broughton worked as a portfolio associate
and research analyst at Provident Investment Counsel
for over five years and as an account specialist at
State Street Research & Management for one and a half
years. Mr. Broughton is a Chartered Financial Analyst
and a Chartered Investment Counselor.
The following individual is also a co-manager of
the Balanced Fund concentrating on the Balanced Fund's
fixed income securities.
Andrea L. Blesi. Ms. Blesi received a Bachelor of
Science degree in economics from the University of
Minnesota in 1992. Prior to joining the Adviser as a
portfolio manager and trader in 1998, Ms. Blesi was an
associate vice president in the fixed income capital
markets division at Dain Rauscher, Inc. for seven
years.
Custodian
Firstar Bank Milwaukee, N.A. ("Firstar Bank"), 777
East Wisconsin Avenue, Milwaukee, Wisconsin 53202 acts
as custodian of the Funds' assets.
<PAGE>
Transfer Agent and Administrator
Firstar Mutual Fund Services, LCC ("Firstar"),
Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202 acts as transfer agent for the Funds
(the "Transfer Agent") and as the Funds' administrator.
Distributor
Rafferty Capital Markets, Inc., 1311 Mamaroneck
Avenue, White Plains, New York 10605, a registered
broker-dealer and member of the National Association of
Securities Dealers, Inc., acts as distributor of each
Fund's shares (the "Distributor"). The Distributor is
not affiliated with the Adviser.
HOW TO PURCHASE SHARES
Shares of the Funds may be purchased at net asset
value (as defined below) through any dealer which has
entered into a sales agreement with the Distributor, in
its capacity as principal underwriter of shares of the
Funds, or through the Distributor directly. The
Transfer Agent may also accept purchase applications.
Purchase of Fund Shares
Payment for Fund shares should be made by check or
money order in U.S. dollars drawn on a U.S. bank,
savings and loan, or credit union. The minimum initial
investment in a Fund is $2,000. Subsequent investments
of at least $250 may be made by mail or by wire. For
investors using the Automatic Investment Plan, as
described below, the minimum investment is $1,000 with
a minimum monthly investment of $100. These minimums
can be changed or waived by the Funds at any time. The
Funds will waive the minimums for employees of the
Adviser and their family members. Shareholders will be
given at least 30 days' notice of any increase in the
minimum dollar amount of subsequent investments.
Net Asset Value
Shares of the Funds are sold on a continual basis
at the net asset value per share next computed
following receipt of an order in proper form (as
described below under "Initial Investment" and
"Subsequent Investment") by a dealer, the Distributor
or the Transfer Agent, as the case may be. Net asset
value per share is calculated once daily as of the
close of trading (currently 4:00 p.m., Eastern Standard
Time) on each day the New York Stock Exchange ("NYSE")
is open. See "Valuation of Fund Shares."
Initial Investment - Minimum $2,000
You may purchase Fund shares by completing the
enclosed shareholder application and mailing it and a
check or money order payable to "Badgley Funds, Inc."
to your securities dealer, the Distributor or the
Transfer Agent, as the case may be. The minimum
initial investment is $2,000. If mailing to the
Distributor or Transfer Agent, please send to the
following address:
By Mail By Overnight Courier
Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
P.O. Box 701 Third Floor
Milwaukee, Wisconsin 53201-0701 615 East Michigan Street
Milwaukee, Wisconsin 53202
The Funds do not consider the U.S. Postal Service or
other independent delivery services to be their agents.
Therefore, deposit in the mail or with such services,
or receipt at the Transfer Agent's post office box, of
purchase applications does not constitute receipt by
the Transfer Agent or a Fund. Do not mail letters by
overnight courier to the post office box.
<PAGE>
If the securities dealer you have chosen to
purchase Fund shares through has not entered into a
sales agreement with the Distributor, such dealer may,
nevertheless, offer to place your order for the
purchase of Fund shares. Purchases made through such
dealers will be effected at the net asset value next
determined after receipt by a Fund of the dealer's
order to purchase shares. Such dealers may also charge
a transaction fee, as determined by the dealer. That
fee may be avoided if shares are purchased through a
dealer who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If your check does not clear, you will be charged
a $20 service fee. You will also be responsible for
any losses suffered by a Fund as a result. Neither
cash nor third-party checks will be accepted. All
applications to purchase Fund shares are subject to
acceptance by a Fund and are not binding until so
accepted. The Funds will not accept your application
unless it is in good form and accompanied by a check or
money order payable to "Badgley Funds, Inc." for at
least the minimum investment amount. The Funds reserve
the right to decline or accept a purchase order
application in whole or in part.
Wire Purchases
You may also purchase Fund shares by wire. The
following instructions should be followed when wiring
funds to the Transfer Agent for the purchase of Fund
shares:
Wire to: Firstar Bank Milwaukee, N.A.
ABA Number: 075000022
Credit: Firstar Mutual Fund Services, LLC
Account: 112-952-137
Further Credit: Badgley Funds, Inc.
(shareholder account number)
(shareholder name/account registration)
Please call 1-877-BADGLEY (1-877-223-4539) prior
to wiring any funds to notify the Transfer Agent that
the wire is coming and to verify the proper wire
instructions so that the wire is properly applied when
received. The Funds are not responsible for the
consequences of delays resulting from the banking or
Federal Reserve wire system.
Telephone Purchases
The telephone purchase option allows investors to
make subsequent investments directly from a bank
checking or savings account. To establish the
telephone purchase option on your account, complete the
appropriate section in the shareholder application.
Only bank accounts held at domestic financial
institutions that are Automated Clearing House ("ACH")
members may be used for telephone transactions. This
option will become effective approximately 15 business
days after the application form is received by the
Transfer Agent. Purchases must be in amounts of $250
or more and may not be used for initial purchases of a
Fund's shares. To have Fund shares purchased at the
net asset value determined at the close of regular
trading on a given date, the Transfer Agent must
receive both your purchase order and payment by
Electronic Funds Transfer through the ACH system prior
to the close of regular trading on such date. Most
transfers are completed within one business day.
Subsequent investments may be made by calling 1-877-
BADGLEY (1-877-223-4539).
Purchasing Shares Through Financial Intermediaries
If you purchase shares through a financial
intermediary (such as a broker-dealer), certain
features of a Fund relating to such transactions may
not be available or may be modified. In addition,
certain operational policies of a Fund, including those
related to settlement and dividend accrual, may vary
from those applicable to direct shareholders of the
Fund and may vary among intermediaries. You should
consult your financial intermediary for more
information regarding these matters. Certain financial
intermediaries may charge you transaction fees for
their services. You will not be charged these fees
directly by a Fund if you purchase your Fund shares
directly from the Fund without the
<PAGE>
intervention of a financial intermediary. Each Fund may,
however, compensate financial intermediaries for assistance
under the Funds' Distribution and Shareholder Servicing
Plan (i.e., Rule 12b-1 plan) or otherwise.
Automatic Investment Plan - Minimum $1,000
The Automatic Investment Plan ("AIP") allows you
to make regular, systematic investments in one or more
of the Funds from your bank checking or NOW account.
The minimum initial investment for investors using the
AIP is $1,000 with a monthly minimum investment of
$100. To establish the AIP, complete the appropriate
section in the shareholder application. You should
consider your financial ability to continue in the AIP
until the minimum initial investment amount is met
because the Funds have the right to close an investor's
account for failure to reach the minimum initial
investment. For additional information on the AIP,
please see the SAI.
Individual Retirement Accounts
You may invest in a Fund by establishing a tax-
sheltered individual retirement account ("IRA"). The
Funds offer the Traditional IRA and Roth IRA. For
additional information on IRA options, please see the
SAI.
Subsequent Investments - Minimum $250
Additions to your account may be made by mail or
by wire. Any subsequent investment must be for at
least $250. When making an additional purchase by
mail, enclose a check payable to "Badgley Funds, Inc."
and the Additional Investment Form provided on the
lower portion of your account statement. To make an
additional purchase by wire, please call 1-877-BADGLEY
(1-877-223-4539) for complete wiring instructions.
HOW TO REDEEM SHARES
In General
You may request redemption of part or all of your
Fund shares at any time at the next determined net
asset value. See "Valuation of Fund Shares." No
redemption request will become effective until a
redemption request is received in proper form (as
described below) by the Transfer Agent. You should
contact the Transfer Agent for further information
concerning redemption of Fund shares. A Fund normally
will mail your redemption proceeds the next business
day and, in any event, no later than seven days after
receipt of a redemption request in good order.
However, when a purchase has been made by check, a Fund
may hold payment on redemption proceeds until it is
reasonably satisfied that the check has cleared, which
may take up to 12 days.
Redemptions may also be made through brokers or
dealers. Such redemptions will be effected at the net
asset value next determined after receipt by a Fund of
the broker or dealer's instruction to redeem shares.
Some brokers or dealers may charge a fee in connection
with such redemptions.
Investors who have an IRA must indicate on their
redemption requests whether or not federal income tax
should be withheld. Redemption requests failing to
make an election will be subject to withholding.
Your account may be terminated by the Funds on not
less than 30 days' written notice if, at the time of
any redemption of shares in your account, the value of
the remaining shares in the account falls below $2,000.
Upon any such termination, a check for the proceeds of
redemption will be sent to you within seven days of the
redemption.
Written Redemption
For most redemption requests, you need only
furnish a written, unconditional request to redeem your
shares at net asset value to the Transfer Agent:
<PAGE>
By Mail By Overnight Courier
Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
P.O. Box 701 Third Floor
Milwaukee, Wisconsin 53201-0701 615 East Michigan Street
Milwaukee, Wisconsin 53202
Requests for redemption must (i) be signed exactly as
the shares are registered, including the signature of
each owner, and (ii) specify the number of shares or
dollar amount to be redeemed. Redemption proceeds made
by written redemption request may also be wired to a
commercial bank that you have authorized on your
account application. The Transfer Agent will charge a
$12.00 service fee for wire transactions. Additional
documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents
or attorneys-in-fact. The Funds do not consider the
U.S. Postal Service or other independent delivery
services to be their agents. Therefore, deposit in the
mail or with such services, or receipt at the Transfer
Agent's post office box of redemption requests does not
constitute receipt by the Transfer Agent or the Funds.
Do not mail letters by overnight courier to the post
office box. Any written redemption requests received
within 15 days after an address change must be
accompanied by a signature guarantee.
Telephone Redemption
You may also redeem your shares by calling the
Transfer Agent at 1-877-BADGLEY (1-877-223-4539).
Redemption requests by telephone are available for
redemptions of $500 or more. Redemption requests for
less than $500 must be in writing. In order to utilize
this procedure, you must have previously elected this
option on your shareholder application and the
redemption proceeds must be mailed directly to you or
transmitted to your predesignated account via wire or
ACH transfer. Funds sent via ACH are automatically
credited to your account within three business days.
There is currently no charge for this service. To
change the designated account, send a written request
with signature(s) guaranteed to the Transfer Agent. To
change the address, call the Transfer Agent or send a
written request with signature(s) guaranteed to the
Transfer Agent. Additional documentation may be
requested from corporations, executors, administrators,
trustees, guardians, agents or attorneys-in-fact. No
telephone redemption requests will be allowed within 15
days of such a change. The Funds reserve the right to
limit the number of telephone redemptions you may make.
Once made, telephone redemptions may not be modified or
canceled.
The Transfer Agent will use reasonable procedures
to ensure that instructions received by telephone are
genuine. These procedures may include requiring some
form of personal identification prior to acting upon
telephone instructions, recording telephonic
transactions and/or sending written confirmation of
such transactions to investors. Assuming procedures
such as the above have been followed, neither the Funds
nor the Transfer Agent will be liable for any loss,
cost or expense for acting upon an investor's
instructions or for any unauthorized telephone
redemption. The Funds reserve the right to refuse a
telephone redemption request if so advised.
Redeeming Shares Through Financial Intermediaries
If you redeem shares through a financial
intermediary (such as a broker-dealer), such financial
intermediary may charge you transaction fees for their
services. You will not be charged such fees if you
redeem Fund shares directly through a Fund without the
intervention of a financial intermediary.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan ("SWP") allows you
to make automatic withdrawals from your account at
regular intervals. Redemptions for the purpose of
satisfying such withdrawals may reduce or even exhaust
your account. If the amount remaining in your account
is not sufficient to make a SWP payment, the remaining
amount will be redeemed and the SWP will be terminated.
Please see the SAI for more information.
<PAGE>
Signature Guarantees
Signature guarantees are required for:
* redemption requests to be mailed or wired to a
person other than the registered owner(s) of the
shares;
* redemption requests to be mailed or wired to other
than the address that appears of record; and
* any redemption request if a change of address has
been received by the Funds or Transfer Agent within the
last 15 days.
A signature guarantee may be obtained from any eligible
guarantor institution, as defined by the SEC. These
institutions include banks, saving associations, credit
unions, brokerage firms and others. Please note that a
notary public stamp or seal is not acceptable.
Exchange Privilege
The Funds have established a program which permits
Fund shareholders to exchange Fund shares for shares of
any other Badgley Fund or for shares of the Firstar
Money Market Funds. Please see the SAI for more
information on the exchange privilege.
VALUATION OF FUND SHARES
Net asset value is calculated by taking the value
of a Fund's total assets, including interest or
dividends accrued, but not yet collected, less all
liabilities, and dividing by the total number of shares
outstanding. The result, rounded to the nearest cent,
is the net asset value per share. The net asset value
per share is determined as of the close of trading
(generally 4:00 p.m. Eastern Standard Time) on each day
the NYSE is open for business. Purchase orders
received or shares tendered for redemption on a day the
NYSE is open for trading, prior to the close of trading
on that day, will be valued as of the close of trading
on that day. Net asset value is not determined on days
the NYSE is closed. Applications for purchase of
shares and requests for redemption of shares received
after the close of trading on the NYSE will be valued
as of the close of trading on the next day the NYSE is
open. A Fund's net asset value may not be calculated
on days during which the Fund receives no orders to
purchase shares and no shares are tendered for
redemption. In determining net asset value, expenses
are accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. Any securities or other assets
for which market quotations are not readily available
are valued at fair value as determined in good faith by
the Board of Directors of the Funds.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Funds have adopted a plan pursuant to Rule 12b-
1 under the 1940 Act (the "12b-1 Plan"), which
authorizes it to pay the Distributor and certain
financial intermediaries (such as broker-dealers) who
assist in distributing Fund shares or who provide
shareholder services to Fund shareholders a
distribution and shareholder servicing fee of 0.25% of
each Fund's average daily net assets (computed on an
annual basis). The 12b-1 Plan has the effect of
increasing a Fund's expenses from what they would
otherwise be. Because Rule 12b-1 fees are paid out of
a Fund's net assets on an on-going basis, over time
these fees will increase the cost of your investment
and could cost long-term investors of a Fund more than
paying other types of sales charges. For additional
information on the 12b-1 Plan, please see the SAI.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX TREATMENT
For federal income tax purposes, all dividends
paid by the Funds and distributions of net realized
short-term capital gains are taxable as ordinary income
whether reinvested or received in cash unless you are
exempt from taxation or entitled to a tax deferral.
Distributions paid by a Fund from net realized long-
term capital gains, whether received in cash or
reinvested in additional shares, are taxable as a
capital gain. The capital gain holding period is
determined by the length of time the Fund has held the
security and not the length of time you have held
shares in the Fund. The
<PAGE>
Growth Fund expects that,
because of its investment objective, its distributions
will consist primarily of long-term capital gains. The
Balanced Fund expects that, because of its investment
objective, its distributions will consist primarily of
long-term capital gains and ordinary income. Investors
are informed annually as to the amount and nature of
all dividends and capital gains paid during the prior
year. Such capital gains and dividends may also be
subject to state or local taxes. If you are not
required to pay taxes on your income, you are generally
not required to pay federal income taxes on the amounts
distributed to you.
The Growth Fund intends to pay dividends from net
investment income annually, and the Balanced Fund
intends to pay dividends from net investment income
quarterly. The Funds intend to distribute capital
gains, if any, at least annually. When a dividend or
capital gain is distributed, a Fund's net asset value
decreases by the amount of the payment. If you
purchase shares shortly before a distribution, you will
be subject to income taxes on the distribution, even
though the value of your investment (plus cash
received, if any) remains the same. All dividends and
capital gains distributions will automatically be
reinvested in additional Fund shares at the then
prevailing net asset value unless an investor
specifically requests that either dividends or capital
gains or both be paid in cash. An investor may change
an election by telephone, subject to certain
limitations, by calling the Transfer Agent at 1-877-
BADGLEY (1-877-223-4539).
Investors who request to have dividends and/or
capital gains in cash may have such amounts mailed or
sent via electronic funds transfer ("EFT"). Transfers
via EFT generally take up to three business days to
reach the investor's bank account.
If an investor elects to receive distributions and
dividends by check and the post office cannot deliver
such check, or if such check remains uncashed for six
months, a Fund reserves the right to reinvest the
distribution check in the shareholder's account at the
Fund's then current net asset value per share and to
reinvest all subsequent distributions in shares of the
Fund.
If you do not furnish the Funds with your correct
social security number or taxpayer identification
number, the Funds are required by federal law to
withhold federal income tax from your distributions and
redemption proceeds at a rate of 31%.
An exchange of Fund shares for shares pursuant to
the Funds' exchange privilege is treated the same as an
ordinary sale and purchase for federal income tax
purposes and you will realize a capital gain or loss.
An exchange is not a tax-free transaction.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on you. There may be other federal, state,
or local tax considerations applicable to a particular
investor. You are urged to consult your own tax
advisor.
<PAGE>
DIRECTORS CUSTODIAN
J. Kevin Callaghan First Bank Milwaukee, N.A.
Steven C. Phelps 777 East Wisconsin Avenue
Frank S. Bayley Milwaukee, Wisconsin 53202
Madelyn B. Smith
Graham S. Anderson ADMINISTRATOR, TRANSFER AGENT AND
DIVEND-DISBURSING AGENT
PRINCIPAL OFFICERS
Firstar Mutual Fund Services, LLC
Otis P. Heald III (Tres), President Third Floor
Lisa P. Guzman, Treasurer 615 East Michigan Street
and Secretary Milwaukee, Wisconsin 53202
INVESTMENT ADVISER INDEPENDENT ACCOUNTANTS
Badgley, Phelps and Bell, Inc. PricewaterhouseCoopers LLP
1420 Fifth Avenue, Suite 4400 100 East Wisconsin Avenue, Suite 1500
Seattle, Washington 98101 Milwaukee, Wisconsin 53202
DISTRIBUTOR LEGAL COUNSEL
Rafferty Capital Markets, Inc. Godfrey & Kahn, S.C.
1311 Mamaroneck Avenue 780 North Water Street
White Plains, New York 10605 Milwaukee, Wisconsin 53202
The SAI contains additional information about the
Funds. Additional information about the Funds'
investments is contained in the Funds' annual and semi-
annual reports to shareholders. The Funds' annual
report provides a discussion of the market conditions
and investment strategies that significantly affected
the Funds' performance during the last fiscal year.
The Funds' SAI, which is incorporated by reference into
this Prospectus, annual reports and semi-annual reports
are available without charge upon request to the
address or toll-free telephone number noted on the
cover page of this Prospectus. These documents may
also be obtained from certain financial intermediaries,
including the Distributor, who purchase and sell Fund
shares. General inquiries regarding the Funds can be
directed to the Funds at the address and toll-free
telephone number on the cover page of this Prospectus.
Information about the Funds (including the SAI)
can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Please call the SEC
at 1-800-SEC-0330 for information relating to the
operation of the Public Reference Room. Reports and
other information about the Funds are available on the
SEC's Internet site at http://www.sec.gov or upon
payment of a duplicating fee, by writing the Public
Reference Room of the SEC, Washington, D.C. 20549-6009.
The Funds' 1940 Act File Number is 811-8769.
