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Securities Act File No. 33-12213
Investment Company Act File No. 811-5037
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 \ \
Pre-Effective Amendment No. \ \
Post-Effective Amendment No. 29 \x\
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
Amendment No. 30 \x\
(Check appropriate box or boxes)
PROFESSIONALLY MANAGED PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
479 West 22nd Street
New York, NY 10011
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 633-9700
Steven J. Paggioli
Professionally Managed Portfolios
479 West 22nd Street
New York, NY 10011
(Name and Address of Agent for Service)
Copy to: Julie Allecta, Esq.
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA, 94104
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It is proposed that this filing will become effective:
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Immediately upon filing pursuant to paragraph (b)
\ \ On pursuant to paragraph (b)
\ \ 60 days after filing pursuant to paragraph (a)(1)
\ \ On pursuant to paragraph (a)(1)
\x\ 75 days after filing pursuant to paragraph (a)(2)
\ \ On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
\ \ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
elected to register an indefinite number of shares of beneficial interest, no
par value. The most recent notice required by Rule 24f-2 was filed on May 30,
1996.
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A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
PRELIMINARY PROSPECTUS DATED
SUBJECT TO COMPLETION
PACIFIC GEMINI KOREA EQUITY GROWTH FUND
KOREA EQUITY GROWTH FUND
633 WEST FIFTH STREET, SUITE 3600
LOS ANGELES, CA 90071
213-624-3355
THE PACIFIC GEMINI KOREA EQUITY GROWTH FUND (THE "FUND") IS A MUTUAL
FUND WITH THE INVESTMENT OBJECTIVE OF SEEKING LONG-TERM GROWTH OF CAPITAL.
THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING ITS ASSETS IN THE
SECURITIES OF KOREAN ISSUERS. UNDER NORMAL CIRCUMSTANCES, AT LEAST 65% OF
ITS TOTAL ASSETS WILL BE INVESTED IN EQUITY SECURITIES OF KOREAN ISSUERS. AT
SUCH TIME IN THE FUTURE AS KOREAN LAWS AND REGULATIONS PERMIT THE PURCHASE
OF FIXED-INCOME SECURITIES OF KOREAN ISSUERS BY FOREIGN INVESTORS, THE FUND
MAY PURCHASE SUCH SECURITIES THAT ARE CONSISTENT WITH ITS INVESTMENT
OBJECTIVE.
Pacific Gemini Partners LLC (the "Advisor") acts as investment adviser
to the Fund.
THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT
OBJECTIVE. THE FUND IS AN INVESTMENT COMPANY DESIGNED FOR LONG-TERM
INVESTORS AND NOT AS A TRADING VEHICLE. THE FUND DOES NOT PRESENT A COMPLETE
INVESTMENT PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS. AN INVESTMENT
IN THE FUND IS SUBJECT TO SPECIAL RISK FACTORS, RELATED PRIMARILY TO THE
FUND'S INVESTMENTS IN KOREA, WHICH SHOULD BE REVIEWED CAREFULLY BY POTENTIAL
INVESTORS.
This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated
August , 1996, as may be amended from time to time, has been filed with
the Securities and Exchange Commission and is incorporated herein by
reference. The Statement of Additional Information is available without
charge upon written request to the Fund at the address given above.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Table..................................................... 2
Objective and Investment Approach of the Fund; Risk Factors....... 2
Management of the Fund............................................ 7
Distribution Plan................................................. 7
How to Invest in the Fund......................................... 8
How to Redeem an Investment in the Fund........................... 9
Services Available to the Fund's Shareholders..................... 10
How the Fund's Per Share Value Is Determined...................... 11
Distributions and Taxes........................................... 11
General Information............................................... 12
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated August , 1996
<PAGE> 4
EXPENSE TABLE
Expenses are one of several factors to consider when investing in the Fund.
The purpose of the following fee table is to provide an understanding of the
various costs and expenses which may be borne directly or indirectly by an
investor in the Fund. Actual expenses may be more or less than those shown. The
Fund has adopted a plan of distribution under which the Fund will pay fees for
distribution and related expenses at the annual rate of up to 0.25% of the
Fund's net assets. A long-term shareholder may pay more, directly and
indirectly, in such fees than the maximum sales charge permitted under the rules
of the National Association of Securities Dealers.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
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Maximum Sales Load Imposed on Purchases................................. None
Maximum Sales Load Imposed on Reinvested Dividends...................... None
Deferred Sales Load..................................................... None
Redemption Fees......................................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees........................................................... 1.00%
12b-1 Expenses.......................................................... 0.25%
Other Expenses (after deferral)......................................... 1.25%*
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Total Fund Operating Expenses (after deferral).......................... 2.50%*
=====
</TABLE>
* The Advisor has undertaken to defer its fees or make payments to assure that
the Fund's ratio of operating expenses to average net assets will not exceed
the most restrictive state expense limitation, currently 2.50% of the first
$30 million of average net assets annually. It is estimated that the annual
ratio of operating expenses to average net assets of the Fund during its
initial fiscal year in the absence of this undertaking would be 5.00%.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
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<S> <C> <C>
This table illustrates the net transaction and operating
expenses that would be incurred for an investment in the
Fund over different time periods assuming a $1,000 investment,
a 5% annual return, and redemption at the end of each time
period........................................................ $ 25 $53
</TABLE>
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN SHOWN. IN
ADDITION, FEDERAL REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL RETURN,
BUT THE FUND'S ACTUAL RETURN MAY BE HIGHER OR LOWER. SEE "MANAGEMENT OF THE
FUND."
The Fund is a non-diversified series of Professionally Managed Portfolios
(the "Trust"), an open-end management investment company offering redeemable
shares of beneficial interest. Shares of the Fund may be purchased at their net
asset value per share. The minimum initial investment is US$25,000 with
subsequent investments of US$5,000 or more. Shares will be redeemed at net asset
value per share.
OBJECTIVE AND INVESTMENT APPROACH OF THE FUND; RISK FACTORS
The investment objective of the Fund is to seek long-term growth of
capital. The Fund seeks to attain its objective by investing in the securities
of Korean issuers. Under normal circumstances, the Fund will invest at least 65%
of its total assets in equity securities of Korean issuers, consisting of common
stock and preferred stock,
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debt securities convertible into common stock and common stock purchase warrants
that are listed and primarily traded on the Korean Stock Exchange. The Fund also
may purchase securities in the form of American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs").
These Depositary Receipts, which may be sponsored or unsponsored, are receipts
typically issued by a bank or trust company evidencing ownership of underlying
foreign securities. The issuers of securities underlying unsponsored Depositary
Receipts are not obligated to disclose material information in the United States
and, accordingly, there may not be a correlation between such information and
the market value of the Depositary Receipts. At such time in the future as
Korean laws and regulations permit the purchase of fixed-income securities by
foreign investors, the Fund may also invest in bonds, notes, debentures or other
forms of indebtedness of Korean issuers that may be developed in the future that
are consistent with its investment objective, upon notice and disclosure to
shareholders. There is, of course, no assurance that the Fund's objective will
be achieved. Because prices of securities held by the Fund fluctuate, the value
of an investment in the Fund will vary as the market value of its investment
portfolio changes, and when shares are redeemed, they may be worth more or less
than their original cost.
INVESTMENT APPROACH. The Advisor believes that the Korean stock market
represents an extremely attractive investment opportunity. Korea's strong
economic growth, rapidly increasing corporate earnings, attractive valuation
levels, improving market liquidity and diminishing regulatory constraints, among
other factors, are expected by the Advisor to lead to promising investment
opportunities for investors.
The Advisor undertakes extensive research on potential investment
opportunities through both "top-down" and "bottom-up" analysis. First, economic,
regulatory, demographic and market trends specific to Korea are examined,
together with worldwide factors that are expected to affect Korea and the Korean
stock market.
Based on this analysis, the Advisor then seeks to identify fundamentally
strong, undervalued Korean companies, primarily within those sectors and
industries believed to enjoy the most favorable prospects. Factors which may be
considered include, among others, a company's overall growth prospects,
financial condition, earnings potential, competitive position, operating and
financial cost structure, technology, productivity, strength of senior
management, and valuation levels relative to other participants in the same
industry.
Although momentum analysis may be used to augment this fundamental analysis
of companies, the Advisor believes that superior returns are likely to be
achieved through an investment approach emphasizing long-term fundamental value.
The Fund may invest in companies with both large and small capitalizations
and may purchase securities of companies in a variety of industries.
INVESTMENT COMPANIES. Consistent with the provisions of the Investment
Company Act of 1940 (the "1940 Act"), the Fund may invest in the securities of
other investment companies that invest in Korean securities. Absent special
relief from the Securities and Exchange Commission (the "SEC"), the Fund may
invest up to 10% of its assets in the aggregate in shares of other investment
companies and up to 5% of its assets in any one investment company, as long as
that investment does not represent more than 3% of the voting stock of the
acquired investment company. As a shareholder in any investment company, the
Fund will bear its ratable share of such company's expenses, including its
advisory and administration fees. The Advisor has agreed to waive its management
fees with respect to that portion of the Fund's assets invested in shares of
other open-end investment companies, but the Fund would continue to pay its
management fees and expenses with respect to its investments in shares of
closed-end investment companies.
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SHORT-TERM INVESTMENTS. At times, the Fund may invest in short-term
cash-equivalent securities either for temporary, defensive purposes, or when it
views the market as significantly overvalued. These consist of high quality debt
obligations maturing in one year or less from the date of purchase, such as
securities issued by the U.S. Government, its agencies and instrumentalities,
certificates of deposit, bankers' acceptances and commercial paper. High quality
means that the obligations have been rated at least A-1 by Standard & Poor's
Corporation ("S&P") or Prime-1 by Moody's Investor's Service, Inc. ("Moody's"),
have an outstanding issue of debt securities rated at least AA by S&P or Aa by
Moody's, or are of comparable quality in the opinion of the Advisor.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements in
order to earn additional income on available cash, or as a defensive investment
in periods when the Fund is invested primarily in short-term securities. A
repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Fund) acquires ownership of a U.S. Government security (which may be of any
maturity) and the seller agrees to repurchase the obligation at a future time at
a set price, thereby determining the yield during the purchaser's holding period
(usually not more than seven days from the date of purchase). Any repurchase
transaction in which the Fund engages will require full collateralization of the
seller's obligation during the entire term of the repurchase agreement. In the
event of a bankruptcy or other default of the seller, the Fund could experience
both delays in liquidating the underlying security and losses in value. However,
the Fund intends to enter into repurchase agreements only with banks with assets
of $500 million or more that are insured by the Federal Deposit Insurance
Corporation and the most creditworthy registered securities dealers pursuant to
procedures adopted and regularly reviewed by the Trust's Board of Trustees. The
Advisor monitors the creditworthiness of the banks and securities dealers with
whom the Fund engages in repurchase transactions.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued
basis, for payment and delivery at a later date, generally from 15 to 45 days
after the transaction. The price and yield are generally fixed on the date of
commitment to purchase, and the value of the security is thereafter reflected in
the Fund's net asset value. During the period between purchase and settlement,
no payment is made by the Fund and no interest accrues to the Fund. There is a
risk in these transactions that the value of the securities at settlement may be
more or less than the agreed upon price, or that the party with which a Fund
enters into such transaction may not perform its commitment. When the Fund
purchases securities on a when-issued basis, it maintains liquid assets in a
segregated account with its Custodian in an amount equal to the purchase price
as long as the obligation to purchase continues.
PORTFOLIO TURNOVER. The annual rate of portfolio turnover is anticipated
to be approximately 50-75%. In general, the Advisor will not consider the rate
of portfolio turnover to be a limiting factor in determining when or whether to
purchase or sell securities in order to achieve the Fund's objective.
RISK FACTORS: NON-DIVERSIFICATION AND THE KOREAN MARKETS. Because the Fund
is a non-diversified company, its portfolio will be subject to economic,
political and regulatory developments in Korea. The only portfolio
diversification requirements to which the Fund is subject are contained in (a)
rules of the Securities and Exchange Commission of Korea (the "KSEC.") under
which the Fund currently may not hold more than 4% of certain equity securities
of any Korean issuer acquired upon exercise of certain conversion rights,
commonly referred to as "Converted Shares" and more than 4% of any equity
securities of Korean issuers acquired through reinvestment of the proceeds of
any sale of Converted Shares which result in the Fund acquiring "Reinvested
Shares," and may not acquire Government and corporate bonds (excluding
convertible bonds, bonds with warrants and other debt securities issued by
Korean companies in non-Korean markets in currencies other than
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the Korean Won); and (b) the rules applicable to regulated investment companies
under the Internal Revenue Code.
While the relatively greater concentration in securities of particular
companies permitted to the Fund as a non-diversified company is expected to
increase risk, and could result in greater fluctuation in the Fund's net asset
value than for a diversified company, it also reflects the composition of the
Korean securities market, in that securities of relatively few companies account
for a greater share of the total capitalization of such market and trading in
those securities represents a greater share of the total trading market than is
the case in the United States.
The Fund's investment in Korean issuers involves certain risk factors not
typically associated with investing in most U.S. issuers. The securities market
is substantially smaller, less developed, less liquid and more volatile than the
major securities markets in the United States. Disclosure and regulatory
standards are in many respects less stringent that U.S. standards. Furthermore,
there is a lower level of monitoring and regulation of the markets and the
activities of investors in such markets, and enforcement of existing regulations
has been extremely limited.
The limited size of the Korean securities market and limited trading volume
in issues compared to volume of trading in U.S. securities could cause prices to
be erratic for reasons apart from factors that affect the quality of the
securities. For example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of portfolio securities, especially in these
markets.
Further, there is a risk that an emergency situation may arise in the
Korean market as a result of which prices for portfolio securities in such
markets may not be readily available. Section 22(e) of the 1940 Act permits a
registered investment company such as the Fund to suspend redemption of its
shares for any period during which an emergency, as determined by the SEC,
exists. Accordingly, if the Fund believes that appropriate circumstances exist,
it will promptly apply to the SEC for a determination that an emergency, within
the meaning of Section 22(e) of the 1940 Act, is present. During the period
commencing from the Fund's identification of such conditions until the date of
SEC action, the Fund's portfolio securities in the affected markets will be
valued at fair value in good faith by or under the direction of the Board of
Trustees.
The Fund may not invest more than 15% of its net assets in illiquid
securities. The Fund will treat any Korean securities that are subject to
restrictions on repatriation for more than seven days as illiquid securities for
purposes of this limitation. The Fund will also treat as illiquid for this
purpose repurchase agreements with maturities in excess of seven days,
securities subject to conversion and transfer restrictions, securities in which
the Fund cannot receive the approximate amount at which it values such
securities within seven days, securities of Korean companies that are not
publicly traded and over-the-counter options and their underlying securities.
Restricted securities issued pursuant to Rule 144A under the Securities Act
of 1933 that have a readily available market are not deemed illiquid for
purposes of this limitation. Investing in Rule 144A securities could result in
increasing the level of a Fund's illiquidity if qualified institutional buyers
become, for a time, uninterested in purchasing these securities. The Advisor
will monitor the liquidity of such securities subject to review by the Board of
Trustees.
Because the Fund invests in securities denominated in Korean Won, changes
in the value of the Won against the U.S. dollar will result in corresponding
changes in the U.S. dollar value of the Fund's assets denominated in Won. Such
changes also will affect the Fund's income.
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The economy of Korea may differ favorably or unfavorably from the U.S.
economy in such respects as the rate of growth of domestic product, the rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Companies in Korea are subject to accounting, auditing, and
financial standards and requirements that differ from those applicable to U.S.
companies. There is substantially less publicly available information about
Korean companies and the Korean government than there is about U.S. companies
and the U.S. Government. SEE "APPENDIX -- KOREAN RISK FACTORS."
The Fund has adopted certain investment restrictions, which are described
fully in the Statement of Additional Information. Like the Fund's investment
objective, certain of these restrictions are fundamental and may be changed only
by a majority vote of the Fund's outstanding shares.
ADVISOR INVESTMENT RETURNS
Set forth in the table below are certain performance data provided by the
Advisor relating to the Pacific Gemini Partners Korea Equity Select Fund
("KESF"), a foreign based investment company with current assets of
approximately US$85 million. KESF has substantially the same investment
objective as the Fund and has been managed using substantially similar
investment strategies and techniques as those contemplated for use by the Fund.
See "Objective and Investment Approach of the Fund" above. The Portfolio Manager
for KESF is the same individual who will manage the Fund. The results presented
are not intended to predict or suggest the return to be experienced by the Fund
or the return an investor might achieve by investing in the Fund. The Fund's
results may differ because of, among other things, differences in brokerage
commissions paid, operating expenses, diversification of securities, timing of
purchases and sales, timing of cash additions and withdrawals, and the
tax-exempt status of some KESF shareholders compared with shareholders in the
Fund. Investors should be aware that the use of different methods of determining
performance could result in different performance results. Investors should not
rely on the following performance data as an indication of future performance of
the Advisor or the Fund.
TOTAL RETURN (%)
<TABLE>
<CAPTION>
KOREA EQUITY KOREA COMPOSITE
PERIOD SELECT FUND STOCK INDEX
- ------------------------------ ------------ ---------------
<S> <C> <C>
July 1, 1995 - June 30, 1996 -- -- --(US$)
</TABLE>
Notes:
1. Investors should note that the Fund will compute and disclose its
average annual compounded rate of return using the standard formula set forth in
SEC rules, which is the same as that used in calculating the KESF performance.
The SEC total return calculation method calls for computation and disclosure of
an average annual compounded rate of return for one, five and ten year periods
or shorter periods from inception. The calculation provides a rate of return
that equates a hypothetical initial investment of $1,000 to an ending redeemable
value. See "Performance Information" at page 12.
2. The Korea Composite Stock Index is an unmanaged index which is a measure
of the aggregate market value of all common stocks listed on the Korean Stock
Exchange.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. The Advisor is located at 633
West Fifth Street, Suite 3600, Los Angeles, CA 90071.
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The Advisor was established in 1995 as a joint venture between Ssangyong
Investment & Securities Co., Ltd., Korea's fifth largest securities firm, and
White Tiger Capital, Inc., a corporation controlled by Mr. Stewart Kim. The
Advisor provides investment advisory and sub-advisory services to individual and
institutional investors and private investment companies with assets of more
than $120 million. Mr. Jung C. Rhee, Senior Portfolio Manager for the Advisor,
is the Fund's Portfolio Manager. Mr. Rhee has managed individual and
institutional advisory accounts and private investment companies for the Advisor
since July, 1995. While the Advisor has not previously advised a registered
investment company, Mr. Rhee previously was portfolio manager of a registered
closed-end investment company investing in the securities of Korean issuers.
The Advisor provides the Fund with advice on buying and selling securities,
manages the investments of the Fund, furnishes the Fund with office space and
certain administrative services, and provides most of the personnel needed by
the Fund. As compensation, the Fund pays the Advisor a monthly management fee
(accrued daily) based upon the average daily net assets of the Fund at the rate
of 1.00% annually.
Investment Company Administration Corporation (the "Administrator") acts as
the Fund's Administrator under an Administration Agreement. Under that
agreement, the Administrator prepares various federal and state regulatory
filings, reports and returns for the Fund, prepares reports and materials to be
supplied to the trustees, monitors the activities of the Fund's custodian,
transfer agent and accountants, and coordinates the preparation and payment of
Fund expenses and reviews the Fund's expense accruals. For its services, the
Administrator receives a fee at the annual rate of 0.20% on the first $50
million of the Fund's assets, subject to a $30,000 annual minimum fee.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to limit the Fund's operating expenses to assure that the Fund's ratio of
operating expenses to average net assets will not exceed the limit imposed by
the most restrictive applicable state regulation, currently 2.50% of the first
$30 million of the Fund's assets. The Advisor also may reimburse additional
amounts to the Fund at any time in order to reduce the Fund's expenses, or to
the extent required by applicable securities laws. Reductions made by the
Advisor in its fees or payments or reimbursement of expenses which are the
Fund's obligation are subject to reimbursement by the Fund provided the Fund is
able to do so and remain in compliance with applicable expense limitations.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors include, but
are not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Advisor may also
consider the sale of Fund shares as a factor in selecting broker-dealers for the
Fund's portfolio transactions.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1. The
Distribution Plan provides that the Fund may pay for distribution and related
expenses of up to an annual rate of 0.25% of the Fund's average net assets to
the Advisor as Distribution Coordinator. Expenses permitted to be paid by the
Fund under its Plan include: preparation, printing and mailing of prospectuses;
shareholder reports such as semiannual and annual reports, performance reports
and newsletters; sales literature and other promotional material to prospective
investors; direct mail solicitation; advertising; public relations; compensation
of sales personnel, advisors or other third parties for their assistance with
respect to the distribution of the Fund's shares; payments to financial
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intermediaries for shareholder support; administrative and accounting services
with respect to the shareholders of the Fund; and such other expenses as may be
approved from time to time by the Board of Trustees.
The Distribution Plan allows excess distribution expenses to be carried
forward by the Advisor, as Distribution Coordinator, and resubmitted in a
subsequent fiscal year provided that (i) distribution expenses cannot be carried
forward for more than three years following initial submission; (ii) the Board
of Trustees has made a determination at the time of initial submission that the
distribution expenses are appropriate to be carried forward; and (iii) the Board
of Trustees makes a further determination, at the time any distribution expenses
which have been carried forward are resubmitted for payment, to the effect that
payment at the time is appropriate, consistent with the objectives of the
Distribution Plan and in the current best interests of shareholders.
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund is US$25,000. Subsequent
investments must be at least $5,000, except for purchases made using the Fund's
Automatic Investment Plan. First Fund Distributors, Inc. (the "Distributor")
acts as Distributor of the Fund's shares. The Distributor may, at its
discretion, waive the minimum investment requirements for purchases in
conjunction with certain group or periodic plans. In addition to cash purchases,
shares may be purchased by tendering payment in kind in the form of shares of
stock, bonds or other securities, provided that any such tendered security is
readily marketable, its acquisition is consistent with the Fund's objective and
it is otherwise acceptable to the Advisor.
Shares of the Fund are offered continuously for purchase at their net asset
value per share next determined after a purchase order is received. Investors
may purchase shares of the Fund by check or wire:
BY CHECK: For initial investments, an investor should complete the Fund's
Account Application (included with this Prospectus). The completed application,
together with a check payable to "Pacific Gemini Korea Equity Growth Fund,"
should be mailed to: Pacific Gemini Korea Equity Growth Fund, P.O. Box 856,
Cincinnati, OH 45264-0856.
A stub is attached to the account statement sent to shareholders after each
transaction. For subsequent investments the stub should be detached from the
statement and, together with a check payable to "Pacific Gemini Korea Equity
Growth Fund," and mailed to the Fund in the envelope provided at the address
indicated above. The investor's account number should be written on the check.
BY WIRE: For initial investments, before wiring funds, an investor should
call the Fund at (800) 385-7003 between the hours of 9:00 a.m. and 4:00 p.m.
Eastern time, on a day when the New York Stock Exchange (the "NYSE") is open for
trading, in order to receive an account number. It is necessary to notify the
Fund prior to each wire purchase. Wires sent without notifying the Fund will
result in a delay of the effective date of purchase. American Data Services,
Inc. (the "Transfer Agent") will request the investor's name, address, taxpayer
identification number, amount being wired and wiring bank. The investor should
then instruct the wiring bank to transfer funds by wire to: Star Bank, N.A.
Cinti/Trust, ABA #0420-0004-3 DDA # , for credit to Pacific Gemini
Korea Equity Growth Fund, for further credit to [investor's name and account
number]. The investor should also ensure that the wiring bank includes the name
of the Fund and the account number with the wire. If the funds are received by
the Transfer Agent prior to the time that the Fund's net asset value is
calculated, the funds will be invested on that day; otherwise they will be
invested on the next business day. Finally, the investor should write the
account number provided by the Transfer Agent on the Application Form and mail
the Form promptly to the Transfer Agent.
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For subsequent investments, the investor should first notify the Fund, and
then the investor's bank should wire funds as indicated above. It is essential
that complete information regarding the investor's account be included in all
wire instructions in order to facilitate prompt and accurate handling of
investments. Investors may obtain further information from the Transfer Agent
about remitting funds in this manner and from their own banks about any fees
that may be imposed.
GENERAL. Investors will not be permitted to redeem any shares purchased
with an initial investment made by wire until one business day after the
completed Account Application is received by the Fund. All investments must be
made in U.S. dollars and, to avoid fees and delays, checks should be drawn only
on U.S. banks and should not be made by third party check. A charge may be
imposed if any check used for investment does not clear. The Fund and the
Distributor reserve the right to reject any purchase order in whole or in part.
Federal tax law requires that investors provide a certified taxpayer
identification number and certain other required certifications upon opening or
reopening an account in order to avoid backup withholding of taxes at the rate
of 31% on taxable distributions and proceeds of redemptions. See the Fund's
Account Application for further information concerning this requirement.
The Fund is not required to issue share certificates. All shares are
normally held in non-certificated form registered on the books of the Fund and
the Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUND
A shareholder has the right to have the Fund redeem all or any portion of
his outstanding shares at their current net asset value on each day the NYSE is
open for trading. The redemption price is the net asset value per share next
determined after the shares are validly tendered for redemption.
DIRECT REDEMPTION. A written request for redemption must be received by
the Transfer Agent in order to constitute a valid tender for redemption.
Requests for redemption of fund shares should be mailed to Pacific Gemini Korea
Equity Growth Fund, c/o American Data Services, 24 West Carver Street,
Huntington, NY 11743. To protect the Fund and its shareholders, a signature
guarantee is required for certain transactions, including redemptions.
Signature(s) on the redemption request must be guaranteed by an "eligible
guarantor institution" as defined in the federal securities laws. These
institutions include banks, broker-dealers, credit unions and savings
institutions. A broker-dealer guaranteeing signatures must be a member of a
clearing corporation or maintain net capital of at least $100,000. Credit unions
must be authorized to issue signature guarantees. Signature guarantees will be
accepted from any eligible guarantor institution which participates in a
signature guarantee program. A notary public is not an acceptable guarantor.
TELEPHONE REDEMPTION. Shareholders who complete the Redemption by
Telephone portion of the Fund's Account Application may redeem shares on any
business day the NYSE is open by calling the Transfer Agent at (800) 385-7003
between the hours of 9:00 a.m. and 4:00 p.m. Eastern time. Redemption proceeds
will be mailed to the address of record or wired at the shareholder's direction
the next business day to the predesignated account. The minimum amount that may
be wired is $1,000 (wire charges, if any, will be deducted from redemption
proceeds).
By establishing telephone redemption privileges, a shareholder authorizes
the Fund and its Transfer Agent to act upon the instruction of any person by
telephone to redeem from the account for which such service has been authorized
and send the proceeds to the address of record on the account or transfer the
proceeds to the bank account designated in the Authorization. The Fund and the
Transfer Agent will use procedures to confirm
9
<PAGE> 12
that redemption instructions received by telephone are genuine, including
recording of telephone instructions and requiring a form of personal
identification before acting on such instructions. If these identification
procedures are not followed, the Fund or its agents could be liable for any
loss, liability or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
The Fund may change, modify, or terminate these privileges at any time upon at
least 60 days' notice to shareholders.
Shareholders may request telephone redemption after an account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.
GENERAL. Payment of redemption proceeds will be made promptly, but not
later than seven days after the receipt of all documents in proper form,
including a written redemption order with appropriate signature guarantee in
cases where telephone redemption privileges are not being utilized. The Fund may
suspend the right of redemption under certain extraordinary circumstances in
accordance with the rules of the SEC. In the case of shares purchased by check
and redeemed shortly after purchase, the Fund will not mail redemption proceeds
until it has been notified that the check used for the purchase has been
collected, which may take up to 15 days from the purchase date. To minimize or
avoid such delay, investors may purchase shares by certified check or federal
funds wire. A redemption may result in recognition of a gain or loss for federal
income tax purposes.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account, other than retirement plan
or Uniform Gifts/Transfers to Minors Act accounts, if at any time, due to
redemptions by the shareholder, the total value of a shareholder's account does
not equal at least $5,000. If the Fund determines to make such an involuntary
redemption, the shareholder will first be notified that the value of his account
is less than $5,000 and will be allowed 30 days to make an additional investment
to bring the value of his account to at least $5,000 before the Fund takes any
action.
SERVICES AVAILABLE TO THE FUND'S SHAREHOLDERS
RETIREMENT PLANS. The Fund offers a prototype Individual Retirement
Account ("IRA") plan, and information is available from the Distributor or from
a securities dealer with respect to Keogh, Section 403(b) and other retirement
plans offered. Investors should consult a tax adviser before establishing any
retirement plan.
AUTOMATIC INVESTMENT PLAN. For the convenience of shareholders, the Fund
offers a preauthorized check service under which a check is automatically drawn
on the shareholder's personal checking account each month for a predetermined
amount (but not less than $100), as if the shareholder had written it himself.
Upon receipt of the withdrawn funds, the Fund automatically invests the money in
additional shares of the Fund at the current offering price. Applications for
this service are available from the Distributor. There is no charge by the Fund
for this service. The Distributor may terminate or modify this privilege at any
time, and shareholders may terminate their participation by notifying the
Transfer Agent in writing, sufficiently in advance of the next scheduled
withdrawal.
AUTOMATIC WITHDRAWALS. As another convenience, the Fund offers a
Systematic Withdrawal Program whereby shareholders may request that a check
drawn in a predetermined amount be sent to them each month or calendar quarter.
A shareholder's account must have Fund shares with a value of at least $10,000
in order to start a Systematic Withdrawal Program, and the minimum amount that
may be withdrawn each month or quarter under the Systematic Withdrawal Program
is $100. This Program may be terminated or modified by a shareholder or the Fund
at any time without charge or penalty.
10
<PAGE> 13
A withdrawal under the Systematic Withdrawal Program is treated as a
redemption of shares, and may result in a gain or loss for federal income tax
purposes. In addition, if the amounts withdrawn exceed the dividends credited to
the shareholder's account, the account ultimately may be depleted.
HOW THE FUND'S PER SHARE VALUE IS DETERMINED
The net asset value of a Fund share is determined once daily as of the
close of public trading on the NYSE (currently 4:00 p.m. Eastern time) on each
day that Exchange is open for trading. Net asset value per share is calculated
by dividing the value of the Fund's total assets, less its liabilities, by the
number of Fund shares outstanding.
Portfolio securities are valued using current market values, if available.
Securities for which market quotations are not readily available are valued at
fair values as determined in good faith by or under the supervision of the
Trust's officers in accordance with methods which are specifically authorized by
the Board of Trustees. Short-term obligations with remaining maturities of 60
days or less are valued at amortized cost as reflecting fair value.
Because the Fund's portfolio securities are listed primarily on the Korean
Stock Exchange, which trades on days when the NYSE may be closed (such as a
Saturday), the net asset values of the Fund may be significantly affected by
such trading on days when shareholders have no access to the Fund.
Current restrictions which govern the Korean stock market provide that on
any given trading day, a security's price is permitted to move a maximum of 6%
from the previous day's closing price. Also, to the extent that the Fund owns
certain securities which have reached the limits imposed on ownership by foreign
entities, such securities trade at a premium, as a result of heavy demand and
limited supply.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Any dividends from net investment income
(which includes realized short term capital gains) are declared and paid at
least annually, typically after the end of the Fund's fiscal year (March 31).
Any undistributed long term net capital gains realized during the 12-month
period ended each October 31, as well as any additional undistributed capital
gains realized during the Fund's fiscal year, will also be distributed to
shareholders on or about December 31 of each year.
Dividends and capital gain distributions (net of any required tax
withholding) are automatically reinvested in additional shares of the Fund at
the net asset value per share on the reinvestment date unless the shareholder
has previously requested in writing to the Transfer Agent that distributions be
made in cash.
Any dividend or distribution paid by the Fund has the effect of reducing
the net asset value per share on the reinvestment date by the amount of the
dividend or distribution. Investors should note that a dividend or distribution
paid on shares purchased shortly before such dividend or distribution was
declared will be subject to income taxes as discussed below even though the
dividend or distribution represents, in substance, a partial return of capital
to the shareholder.
TAXES. The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986 (the
"Code"). As long as the Fund continues to so qualify, and as long as the Fund
distributes all of its income each year to the shareholders, the Fund will not
be subject to any federal income tax or excise taxes based on net income.
Distributions made by the Fund will be taxable to shareholders whether received
in shares (through dividend reinvestment) or in cash. Distributions derived from
11
<PAGE> 14
net investment income, including net short-term capital gains, are taxable to
shareholders as ordinary income. Distributions designated as capital gains
dividends are taxable as long-term capital gains regardless of the length of
time shares of the Fund have been held. Although distributions are generally
taxable when received, certain distributions made in January are taxable as if
received the prior December. Shareholders will be informed annually of the
amount and nature of the Fund's distributions. Additional information about
taxes is set forth in the Statement of Additional Information. Shareholders
should consult their own advisers concerning federal, state and local tax
consequences of investing in from the Fund.
GENERAL INFORMATION
THE TRUST. The Trust was organized as a Massachusetts business trust on
February 17, 1987, and has a number of series of shares managed by different
investment advisors. The Agreement and Declaration of Trust permits the Board of
Trustees to issue an unlimited number of full and fractional shares of
beneficial interest, without par value, which may be issued in any number of
series. The Board of Trustees may from time to time classify shares and issue
other series, the assets and liabilities of which will be separate and distinct
from any other series.
SHAREHOLDER RIGHTS. Shares issued by the Fund have no preemptive,
conversion, or subscription rights. Shareholders have equal and exclusive rights
as to dividends and distributions as declared by the Fund and to the net assets
of the Fund upon liquidation or dissolution. The Fund, as a separate series of
the Trust, votes separately on matters affecting only the Fund (e.g., approval
of the Advisory Agreement); all series of the Trust vote as a single class on
matters affecting all series jointly or the Trust as a whole (e.g., election or
removal of Trustees). Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in any election of Trustees can, if they so
choose, elect all of the Trustees. While the Trust is not required and does not
intend to hold annual meetings of shareholders, such meetings may be called by
the Trustees in their discretion, or upon demand by the holders of 10% or more
of the outstanding shares of the Trust for the purpose of electing or removing
Trustees.
PERFORMANCE INFORMATION. From time to time, the Fund may publish its total
return in advertisements and communications to investors. Total return
information will include the Fund's average annual compounded rate of return
over the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average total
return information over different periods of time. The Fund's total return will
be based upon the value of the shares acquired through a hypothetical $1,000
investment at the beginning of the specified period and the net asset value of
such shares at the end of the period, assuming reinvestment of all
distributions. Total return figures will reflect all recurring charges against
Fund income. Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period.
CUSTODIAN AND TRANSFER AGENT; SHAREHOLDER INQUIRIES. Star Bank, N.A., 425
Walnut St., Cincinnati, OH 45202, serves as custodian of the Fund's assets.
Standard Chartered Equitor Group, 13 Nae Wei Building, 6, 2-ka, ulchi-ro,
Chung-ku, Seoul, Republic of Korea serves as sub-custodian for the Fund.
American Data Services, Inc., 24 West Carver St., Huntington, NY 11743 is the
Fund's Transfer and Dividend Disbursing Agent. Shareholder inquiries should be
directed to the Transfer Agent at (800) 385-7003.
12
<PAGE> 15
APPENDIX: KOREAN RISK FACTORS
Investing in securities of Korean companies and of the government of the
Republic of Korea (the "Republic" or "Korea") involves certain risks not
typically associated with investing in securities of United States companies or
the United States Government, in addition to those discussed under "Prospectus
Summary" and "Investment Objective, Policies and Risks."
Investment and Repatriation Restrictions. As of April 1, 1996, Korean
security regulations limit the percentage of any class of equity shares of an
issue that may be held by a particular foreign investor to 4% and to 18% by all
foreign investors as a group. The Korean government has announced that the
aggregate foreign ownership limit and the individual foreign ownership limit
will be raised to 20% and 5%, respectively, sometime during the second half of
1996.
Transfer of funds from Korea to foreign countries and repatriation of
foreign capital invested in Korea are subject to certain regulatory approvals
pursuant to foreign exchange control laws and regulations. Generally, as long as
the original investment was approved or allowed under the applicable laws and
regulations of Korea, the conversion and remittance of cash or cash equivalents
into U.S. dollars in relation to such investment will be freely allowed upon
receipt of the appropriate payment approvals from the Bank of Korea or a
designated Class A foreign exchange bank depending on the type of transaction.
Currency Fluctuations. The Fund's assets will be invested primarily in
Korean securities, the market value of which is determined in Won, and
substantially all of its income will be received or realized in Won. The Fund
will be required, however, to compute its net asset value and income, and to
distribute its income, in U.S. dollars. As a result, the Fund's net asset value
and its distribution amounts will be subject to foreign exchange rate
fluctuations.
The Korean Won was devalued against the U.S. dollar in the early 1980's to
reach approximately 890 Won to the US dollar by the end of 1985. The Won
appreciated against the US dollar from 1986 to approximately 665 Won per US
dollar by May 1989. Since then the Won has slowly lost value against the US
dollar and the exchange rate stood at approximately Won per US dollar as of
the date of this Prospectus.
The Fund expects to incur certain transaction costs in connection with its
conversions between currencies and, in light of the history of the fluctuating
currency values of the Won relative to the dollar, it is impossible to predict
what effect currency conversion costs may have on the operations of this Fund.
Potential Market Volatility. The Korean securities market is still
relatively small in comparison to the Japanese, United States and other major
securities markets. Because of its small size and low trading volume, the Korean
securities market is subject to greater price volatility and less liquidity than
is usual in the Japanese, United States or major European securities markets.
Because of these liquidity limitations and the Fund's investment policies, it
may be more difficult for the Fund to purchase and sell portfolio positions than
would be the case in the United States. Accordingly, in periods of rising market
prices, the Fund may be unable to participate fully in such price increases to
the extent that it is unable to acquire desired portfolio positions quickly;
conversely, the Fund's inability to dispose fully and promptly of positions in
declining markets will cause its net asset value to decline as the value of
unsold positions is determined by references to lower prices.
Political and Economic Factors. The partition of Korea following World War
II has created a political risk to the Republic. The Demilitarized Zone at the
boundary between the Republic and North Korea established after the Korean War
of 1950-53 is supervised by United Nations forces. The United States maintains a
significant military force in the Republic. The situation remains a source of
tension, although negotiations to
13
<PAGE> 16
resolve the political division of the Korean peninsula have been carried on
intermittently for several years, and in recent years there have been several
meetings between representatives of the Republic and of North Korea on
political, economic and humanitarian issues.
The domestic political situation in Korea has been relatively stable since
Kim Young Sam, who had been for many years a leader of an opposition party, was
elected as president of Korea in December 1992. During the last quarter of 1995,
the Kim administration initiated a campaign to prosecute illegal slush fund
contributors. Contributions were made to major political figures, including two
former Presidents, mostly by heads of Korean corporations. Such reform caused
uncertainty in the Korean securities market and had a significant adverse impact
on security prices. Nonetheless, many observers believe that benefits will be
realized from these reforms in the long term. Such activities are expected to
provide increased political stability and reduce corruption.
14
<PAGE> 17
ADVISOR
Pacific Gemini Partners LLC
633 West Fifth St., Suite 3600
Los Angeles, CA 90071
(800) 685-4277
--
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261E
Phoenix, AZ 85018
--
CUSTODIAN
Star Bank, N.A.
425 Walnut St.
Cincinnati, Ohio 45202
--
SUB-CUSTODIAN
Standard Chartered Equitor Group
13 Nae Wei Building
6, 2-ka, ulchi-ro, Chung-ku
Seoul, Republic of Korea
--
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services, Inc.
24 West Carver St.
Huntington, NY 11743
(800) 385-7003
--
AUDITORS
Ernst & Young LLP
515 South Flower St.
Los Angeles, CA 90071
<PAGE> 18
STATEMENT OF ADDITIONAL INFORMATION
August , 1996
PACIFIC GEMINI KOREA EQUITY GROWTH FUND
series of
PROFESSIONALLY MANAGED PORTFOLIOS
633 W. Fifth Street, Suite 3600
Los Angeles, CA 90071
(213) 624-3355
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the prospectus of the Pacific Gemini Korea Equity
Growth Fund (the "Fund"). A copy of the prospectus of the Fund dated August ,
1996 is available by calling the number listed above or (212) 633-9700.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Cross-reference to
page in prospectus Page
------------------ ----
The Trust................................................. 12 B-1
Investment Objective and Policies......................... 2 B-1
Investment Restrictions................................... 6 B-7
Distributions and Tax Information......................... 11 B-9
Management................................................ 7 B-14
The Fund's Investment Advisor............................. 7 B-15
The Fund's Administrator.................................. 7 B-16
The Fund's Distributor.................................... 8 B-16
Execution of Portfolio Transactions....................... 7 B-17
Additional Purchase and Redemption Information............ 8 B-19
Determination of Share Price.............................. 11 B-20
Performance Information................................... 12 B-21
General Information....................................... 12 B-22
</TABLE>
B-1
<PAGE> 19
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust. The
Trust consists of various series which represent separate investment portfolios.
This Statement of Additional Information relates only to the Pacific Gemini
Korea Equity Growth Fund series (the "Fund"). Pacific Gemini Partners LLC (the
"Advisor") is the Fund's investment advisor.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a mutual fund with the investment objective of long-term
growth of capital. The following discussion supplements the discussion of the
Fund's investment objectives and policies as set forth in the Prospectus. There
can be no assurance the objective of the Fund will be attained.
Depositary Receipts
The Fund may invest up to 5% of it total assets in securities of
foreign issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other
securities convertible into securities of Korean issuers. These securities may
not necessarily be denominated in the same currency as the securities for which
they may be exchanged. The Fund may also hold American Depository Shares
("ADSs") which are similar to ADRs. ADRs and ADSs are typically issued by an
American bank or trust company and evidence ownership of underlying securities
issued by a foreign corporation. EDRs, which are sometimes referred to as
Continental Depository Receipts ("CDRs"), are receipts issued in Europe
typically by foreign banks and trust companies that evidence ownership of either
foreign or domestic securities. Generally, ADRs in registered form are designed
for use in U.S. securities markets. For purposes of the Fund's investment
policies, the Fund's investments in ADRs, ADSs, EDRs, GDRs and CDRs will be
deemed to be investments in the equity securities representing securities of
foreign issues into which they may be converted.
Repurchase Agreements
The Fund may enter into repurchase agreements as discussed in the
Prospectus. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the U.S.
Government security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
B-2
<PAGE> 20
by the Federal Reserve Board and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration.
The Fund will generally enter into repurchase agreements of short durations,
from overnight to one week, although the underlying securities generally have
longer maturities. The Fund may not enter into a repurchase agreement with more
than seven days to maturity if, as a result, more than 15% of the value of the
Fund's total assets would be invested in illiquid securities including such
repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
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 instrument purchased for
the Fund, the Advisor seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, the
Fund will always receive as collateral for any repurchase agreement to which it
is a party securities acceptable to it, the market value of which is equal to at
least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government 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 impose on the seller a contractual
obligation to deliver additional securities.
B-3
<PAGE> 21
When-Issued Securities
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase; during the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
securities may be sold prior to the settlement date, the Fund intends to
purchase such securities with the purpose of actually acquiring them unless a
sale appears desirable for investment reasons. At the time the Fund makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The market value of the when-issued securities may be more or less than
the purchase price. The Fund does not believe that net asset value or income
will be adversely affected by its purchase of securities on a when-issued
basis. The Fund will establish a segregated account with its Custodian in which
it will maintain cash and marketable securities equal in value to commitments
for when-issued securities.
Forward Currency Contracts and Options on Currency
A forward currency contract ("Forward Contract" or "Contract") is an
obligation to purchase or sell a currency against another currency at a future
date and price as agreed upon by the parties. The Fund may either accept or make
delivery of the currency at the maturity of the Forward Contract or, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. The Fund will utilize Forward Contracts only on a covered
basis, which means that the Fund will maintain in a segregated account cash,
U.S. Government securities or other liquid high-grade debt securities in an
amount not less than the contract price at all times while the contract is
outstanding. The Fund will engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates.
The Fund may enter into Forward Contracts either with respect to specific
transactions or with respect to the Fund's portfolio positions. For example,
when the Fund anticipates making a purchase or sale of a security, it may enter
into a Forward Contract to set the rate (either relative to the U.S. dollar, the
Korean Won or another currency) at which a currency exchange transaction related
to the purchase or sale will be made. Further, when the Advisor believes that
the Won may decline compared to the U.S. dollar or another currency, the Fund
may enter into a Forward Contract to sell the Won or other currency the Advisor
expects to decline in an amount approximating the value of some or all of the
Fund's portfolio securities denominated in that currency.
B-4
<PAGE> 22
Forward Contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A Forward Contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. The Fund will enter into such
Forward Contracts with major U.S. or foreign banks and securities or currency
dealers in accordance with guidelines approved by the Trust's Board of Trustees.
The Fund may enter into Forward Contracts either with respect to
specific transactions or with respect to the Fund's portfolio positions. The
precise matching of the Forward Contract amounts and the value of specific
securities will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the Forward Contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency the Fund is obligated to deliver. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. Forward Contracts involve
the risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these Contracts and transaction costs.
At or before the maturity of a Forward Contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency which it is obligated to deliver. Similarly, the Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second Contract entitling it to sell the same amount of the same
currency on the maturity date of the first Contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting Forward Contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution of the first Contract and the
offsetting Contract.
B-5
<PAGE> 23
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts are usually
entered into on a principal basis, no fees or commissions are involved. The use
of Forward Contracts does not eliminate fluctuations in the prices of the
underlying securities the Fund owns or intends to acquire, but it does
establish a rate of exchange in advance. In addition, although Forward
Contracts limit the risk of loss due to a decline in the value of the hedge
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
While Forward Contracts are not presently regulated by the U.S.
Commodity Futures Trading Commission ("CFTC"), the CFTC may in the future assert
authority to regulate Forward Contracts. In that event, the Fund's ability to
utilize Forward Contracts in the manner set forth above may be restricted.
RISK FACTORS
Political and Economic Risks. Investing in securities of Korean issuers
may entail additional risks due to the potential of political and economic
instability in Korea and the risks of expropriation, nationalization,
confiscation or the imposition of restrictions on foreign investment and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by Korea, the Fund could lose its entire
investment in any such country. See "Appendix A - The Korean Securities Market."
Illiquid Securities. The Fund may invest no more than 15% of its total
assets in illiquid securities. Securities may be considered illiquid if, among
other things, the Fund cannot reasonably expect to receive approximately the
amount at which the Fund values such securities within seven days. See
"Investment Limitations" and "Additional Risk Factors" in the Prospectus. The
sale of illiquid securities, if they can be sold at all, generally will require
more time and result in higher brokerage charges or dealer discounts and other
selling expense than will the sale of liquid securities such as securities
eligible for trading on U.S. securities exchanges or in the over-the-counter
markets. Moreover, restricted securities, which may be illiquid for purposes of
this limitation, often sell, if at all, at a price lower than similar securities
that are not subject to restrictions on resale.
With respect to liquidity determinations generally, the Board of
Trustees has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the Advisor pursuant to
guidelines established by the Board. The Advisor will take into account a number
of factors in reaching liquidity decisions, including, but not limited to: (i)
the frequency of trading in the security; (ii) the number of dealers that make
B-6
<PAGE> 24
quotes for the security; (iii) the number of dealers that have undertaken
to make a market in the security; (iv) the number of other potential
purchasers; and (v) the nature of the security and how trading is effected
(e.g., the time needed to sell the security, how offers are solicited and the
mechanics of transfer). The Advisor will monitor the liquidity of securities in
the Fund's portfolio and report periodically on such decisions to the Board of
Trustees.
Illiquid securities are more difficult to value accurately due to,
among other things, the fact that such securities often trade infrequently or
only in smaller amounts. In addition, certain major events affecting Korean
markets may cause all or a high proportion of the Fund's holdings to become
illiquid. Such circumstances may make it impossible to determine net asset value
per share which, in turn, would cause the Fund to suspend sales and redemptions
of its shares until net asset value could be determined. In such a case, the
Fund would apply to the SEC for a determination that an emergency, within the
meaning of Section 22(e) of the 1940 Act, is present.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b)
through the lending of its portfolio securities as described above and in its
Prospectus, or (c) to the extent the entry into a repurchase agreement is deemed
to be a loan.
2. (a) Borrow money, except temporarily for extraordinary or emergency
purposes from a bank and then not in excess of 10% of its total assets (at the
lower of cost or fair market value; any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least 300% of all
borrowings and no additional investments may be made while any borrowings are
in excess of 5% of total assets.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities,
except that this restriction does not preclude the Fund from obtaining such
short-term credit as may be necessary for the clearance of purchases and sales
of its portfolio securities.
B-7
<PAGE> 25
4. Purchase or sell commodities or commodity contracts, except that the
Fund may purchase or sell currencies (including forward currency exchange
contracts), futures contracts and related options generally as described in the
Prospectus and this Statement of Additional Information.
5. Invest more than 25% of the market value of its assets in the
securities of companies engaged in any one industry, except that this
restriction does not apply to investment in the securities of the U.S.
Government, its agencies or instrumentalities.
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into repurchase
transactions.
7. Invest in any issuer for purposes of exercising control or
management.
The Fund observe the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The Fund may
not:
8. Buy or sell interests in oil, gas, mineral exploration or
development programs or leases, or real estate, provided that this restriction
does not preclude the investment in marketable securities of issuers engaged in
real estate related activities.
9. Purchase or hold securities of any issuer, if, at the time of
purchase or thereafter, any of the Trustees or officers of the Trust or the
Fund's investment manager owns beneficially more than 1/2 of 1%, and all such
Trustees or officers holding more than 1/2 of 1% together own beneficially more
than 5% of the issuer's securities.
10. Invest in securities of other investment companies which would
result in the Fund owning more than 3% of the outstanding voting securities of
any one such investment company, the Fund owning securities of another
investment company having an aggregate value in excess of 5% of the value of the
Fund's total assets, or the Fund owning securities of investment companies in
the aggregate which would exceed 10% of the value of the Fund's total assets.
11. Invest, in the aggregate, more than 15% of its total assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
Under applicable provisions of Texas law, any investment by the Fund in
warrants may not exceed 5% of the value of the Fund's net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's net assets
B-8
<PAGE> 26
may be warrants which are not listed on the New York or American Stock
Exchange. Also, as provided for under Texas law, the Fund may not purchase real
estate limited partnership interests.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except
with respect to borrowing and illiquid securities, or as otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually, as described in the
Prospectus, after the conclusion of the Fund's fiscal year (March 31). Also, the
Fund expects to distribute any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the period
ended October 31 of each year will also be distributed by December 31 of each
year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund expects to continue to qualify and be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986 (the "Code") provided it complies with all applicable requirements
regarding the source of its income, diversification of its assets and timing of
distributions. The Fund's policy is to distribute to its shareholders all of its
investment company taxable income and any net realized long-term capital gains
for each fiscal year in a manner that complies with the distribution
requirements of the Code, so that the Fund will not be subject to any federal
income or excise taxes. To comply with the requirements, the Fund must also
distribute (or be deemed to have distributed) by December 31 of each calendar
year (i) at least 98% of its ordinary income for such year, (ii) at least 98% of
the excess of its realized capital gains over its realized capital losses for
the 12-month period ending on October 31 during such year and (iii) any amounts
from the prior calendar year that were not distributed and on which the Fund
paid no federal income tax.
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carry forward of the Fund.
B-9
<PAGE> 27
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment policy, it is
unlikely that any dividends from domestic corporations will be part of the
Fund's gross income and, accordingly, it is unlikely that any part of the
distributions by the Fund may be eligible for the dividends-received deduction
for corporate shareholders. The deduction, if any, may be reduced or eliminated
if the Fund shares held by a corporate investor are treated as debt-financed or
are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
A redemption or exchange of Fund shares may result in recognition of a
taxable gain or loss. Any loss realized upon a redemption or exchange of shares
within six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gains during such six-month period. In determining gain or loss from an
exchange of Fund shares for shares of another mutual fund, the sales charge
incurred in purchasing the shares that are surrendered will be excluded from
their tax basis to the extent that a sales charge that would otherwise be
imposed in the purchase of the shares received in the exchange is reduced. Any
portion of a sales charge excluded from the basis of the shares surrendered will
be added to the basis of the shares received. Any loss realized upon a
redemption or exchange may be disallowed under certain wash sale rules to the
extent shares of the same Fund are purchased (through reinvestment of
B-10
<PAGE> 28
distributions or otherwise) within 30 days before or after the redemption or
exchange.
Under the Code, the Fund will be required to report to the Internal
Revenue Service all distributions of taxable income and capital gains as well
as gross proceeds from the redemption or exchange of Fund shares, except in the
case of exempt shareholders, which includes most corporations. Pursuant to the
backup withholding provisions of the Code, distributions of any taxable income
and capital gains and proceeds from the redemption of Fund shares may be
subject to withholding of federal income tax at the rate of 31 percent in the
case of non-exempt shareholders who fail to furnish the Fund with their
taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the withholding provisions
are applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Fund with
their taxpayer identification numbers or certify their exempt status in order
to avoid possible erroneous application of backup withholding. The Fund
reserves the right to refuse to open an account for any person failing to
provide a certified taxpayer identification number.
The Fund will not be subject to tax in the Commonwealth of
Massachusetts as long as it qualifies as a regulated investment company for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state and local income taxes, and the
tax treatment thereof may differ from the federal income tax treatment.
The Fund will be subject to Korean income taxes, including certain
withholding taxes. So long as more than 50% in value of the Fund's total assets
at the close of any taxable year in which it is a regulated investment company
consists of stocks or securities of non-U.S. corporations, the Fund may elect to
treat any such foreign "income" taxes paid by it during such year as paid by its
shareholders. The Fund expects to qualify for this election annually. The Fund
will notify shareholders in writing each year if it makes the election and of
the amount of foreign income taxes, if any, to be treated as paid by the
shareholders and the amount to be treated by them as income from non-U.S.
sources. If the Fund makes the election, shareholders will be required to
include in income their proportionate shares of the amount of foreign income
taxes paid by the Fund and will be entitled to claim either a credit (subject to
the limitations discussed below) or, if they itemize their deductions, a
deduction for their shares of the foreign income taxes in computing their U.S.
Federal income tax liability. (No deduction will be permitted in computing the
alternative minimum tax imposed on corporations and individuals.) Shareholders
that are exempt from tax under Section 501(a) of the Code, such as pension,
plans, generally will derive no benefit from the Fund's election. However, such
B-11
<PAGE> 29
shareholders should not be disadvantaged because the amount of additional
income they are deemed to receive generally will not be subject to U.S. Federal
income tax.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. federal income tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of
distributions paid by the Fund from its foreign source income, will be treated
as foreign source income. The Fund's gains from the sale of securities will
generally be treated as derived from U.S. sources, and certain currency
fluctuation gains and losses, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables will be treated as derived
from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source "passive income", such as the portion of dividends
received from the Fund which qualifies as foreign source income. In addition,
the foreign tax credit is allowed to offset only 90% of the alternative minimum
tax imposed on corporations and individuals. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by the Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
Passive Foreign Investment Companies
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain from disposition of that stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
B-12
<PAGE> 30
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. If the Fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund" ("QEF") then in lieu
of the foregoing tax and interest obligation, the Fund will be required to
include in income each year its pro rata share of the QEF's annual ordinary
earnings and net capital gain, even if they are not distributed to the Fund;
those amounts would be subject to the distribution requirements described
above. In most instances it will be very difficult, if not impossible, to make
this election because of certain requirements thereof.
Korean Taxes
As stated above, under current Korean law, payments to nonresidents of
Korea (such as the Fund) by Korean corporations in respect of income are
subject to Korean withholding tax and capital gains derived by nonresidents of
Korea (such as the Fund) with respect to stock and securities of Korean
corporations are subject to Korean withholding tax, unless exempted by relevant
laws or tax treaties.
The applicable withholding tax rate under the United States-Korea
income tax treaty, as presently in effect, generally is 15%, plus a resident tax
of 7.5% of such amount, or a total of 16.125%, on dividends paid to the Fund by
Korean issuers, and generally 12% (plus a resident tax of 7.5% of such amount,
or a total of 12.9%) on interest paid to the Fund by Korean issuers. Under the
United States-Korea income tax treaty, as presently in effect, no withholding
tax will be applicable to capital gains realized by the Fund. This tax treatment
could change in the event of changes in Korean or United States tax laws or
changes, in the terms of, or the Korean Ministry of Finance and Economy's
interpretation of, the United States-Korea income tax treaty.
Notwithstanding the foregoing, the Tax Exemption and Reduction Control
Law (the "TERCL") exempts interest on bonds denominated in a non-Korean
currency, from Korean income and corporation taxes. The residents tax referred
to above is therefore eliminated with respect to such investments.
Under present Korean law, the Korean Inheritance and Gift Tax will not
apply to any testate, intestate or inter vivos transfer of shares of the Fund to
the extent the deceased or the donee, as the case may be, is not domiciled in
Korea; Korean stamp duty will not apply to transfers of Fund shares unless any
document for, such transfer is executed in Korea, nor to the Fund's portfolio
securities transactions; but the Korean Securities Transaction Tax will apply to
the sale of securities made through the Stock Exchange by the Fund.
This discussion and the related discussion in the prospectus have been
prepared by Fund management, and counsel to the Fund has expressed no opinion
in respect thereof.
B-13
<PAGE> 31
MANAGEMENT
TRUSTEES
The Trustees of the Trust, who were elected for an indefinite term by
the initial shareholders of the Trust, are responsible for the overall
management of the Trust, including general supervision and review of the
investment activities of the Fund. The Trustees, in turn, elect the officers of
the Trust, who are responsible for administering the day-to-day operations of
the Trust and its separate series. The current Trustees and officers and their
affiliations and principal occupations for the past five years are set forth
below.
Steven J. Paggioli,* 46 President and Trustee
479 West 22nd Street, New York, New York 10011. Executive Vice President, Robert
H. Wadsworth & Associates, Inc. (consultants) since 1986; Executive Vice
President of Investment Company Administration Corporation ("ICAC"; mutual fund
administration), and Vice President of First Fund Distributors, Inc. ("FFD";
registered broker-dealer and the Fund's Distributor) since 1990.
Dorothy A. Berry, 52 Trustee
Wildflower Hill, Ancram, New York 12502. President, Talon Industries (venture
capital and business consulting); formerly Chief Operating Officer, Integrated
Asset Management (investment advisor and manager) and formerly President, Value
Line, Inc., (investment advisory and financial publishing firm).
Wallace L. Cook, 56 Trustee
30 Rockefeller Plaza, New York, New York 10112. Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel, 57 Trustee
333 Technology Dr., Malvern, PA. Managing Director, Premier Solutions, Ltd.
Formerly President and Founder, National Investor Data Services, Inc.
(investment related computer software).
Rowley W.P. Redington, 51 Trustee
260 Washington Street, Newark, New Jersey 07102. Vice President, PRS of New
Jersey, Inc. (management consulting); Chief Financial Officer, Jersey
Electronics, Inc. (formerly ESI, Inc.) (consumer electronics service and
marketing); formerly President, Aveco Inc. (consumer electronic service and
marketing) and formerly Chief Executive Officer, Rowley Associates
(consultants).
B-14
<PAGE> 32
Eric M. Banhazl*, 38 Treasurer
2025 E. Financial Way, Suite 101, Glendora, California 91741. Senior Vice
President, Robert H. Wadsworth & Associates, Inc., Senior Vice President of ICAC
and Vice President of FFD since 1990. Formerly Vice President, Huntington
Advisors, Inc. (investment advisors) 1988-90.
Robin Berger*, 39 Secretary
479 West 22nd St., New York, New York 10011. Vice President, Robert H. Wadsworth
& Associates, Inc. since June, 1993; formerly Regulatory and Compliance
Coordinator, Equitable Capital Management, Inc. (1991-93), and Legal Product
Manager, Mitchell Hutchins Asset Management (1988-91).
Robert H. Wadsworth*, 56 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018. President of Robert
H. Wadsworth & Associates, Inc. since 1982, President of ICAC and FFD since
1990.
*Indicates an "interested person" of the Trust as defined in the
1940 Act.
Set forth below is the total compensation received by the following
Trustees from other portfolios of the Trust. This total amount is allocated
among the portfolios. Disinterested Trustees are also reimbursed for expenses in
connection with each Board meeting attended. No other compensation or retirement
benefits were received by any Trustee or officer from the Fund or any other
portfolios of the Trust. It is estimated that the Fund's portion of such fees
and expenses will not exceed $2,500 in its first year of operations.
<TABLE>
<CAPTION>
Name of Trustee Total Compensation
- --------------- ------------------
<S> <C>
Dorothy A. Berry $10,000
Wallace L. Cook $10,000
Carl A. Froebel $10,000
Rowley W.P Redington $10,000
</TABLE>
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided
to the Fund by the Advisor, pursuant to an Investment Advisory Agreement.
The Investment Advisory Agreement continues in effect from year to year
so long as such continuation is approved at least annually by (1) the Board of
Trustees of the Trust or the vote of a majority of the outstanding shares of the
Fund, and (2) a majority of the Trustees who are not interested persons of any
party to the Agreement, in each case cast in person at a meeting called for the
purpose of voting on such approval. The Agreement may be terminated at any time,
B-15
<PAGE> 33
without penalty, by either the Fund or the Advisor upon sixty days' written
notice and is automatically terminated in the event of its assignment as
defined in the 1940 Act.
The Advisor has agreed to reduce fees payable to it by the Fund to the
extent necessary to limit the Fund's aggregate annual operating expenses to the
most stringent limits prescribed by any state in which the Fund's sales are
offered for sale. Currently, the expense limit is 2.5% on the first $30 million
of net assets, 2% on the next $70 million of net assets and 1 1/2% thereafter.
THE FUND'S ADMINISTRATOR
The Fund has entered into an Administrative Agreement with Investment
Company Administration Corporation (the "Administrator"), a corporation owned in
part and controlled by Messrs. Banhazl, Paggioli and Wadsworth. The
Administrative Agreement provides that the Administrator will prepare and
coordinate reports and other materials supplied to the Trustees; prepare and/or
supervise the preparation and filing of all securities filings, periodic
financial reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required filings necessary to maintain
the Fund's qualification and/or registration to sell shares in all states where
the Fund currently does, or intends to do business; coordinate the preparation,
printing and mailing of all materials (e.g., Annual Reports) required to be sent
to shareholders; coordinate the preparation and payment of Fund related
expenses; monitor and oversee the activities of the Fund's servicing agents
(i.e., transfer agent, custodian, fund accountants, etc.); review and adjust as
necessary the Fund's daily expense accruals; and perform such additional
services as may be agreed upon by the Fund and the Administrator. For its
services, the Administrator receives a monthly fee at the following annual rate:
<TABLE>
<CAPTION>
Average net assets Fee or Fee rate
- ------------------ ---------------
<S> <C>
under $15 million $30,000
$15 million to $50 million 0.20% of average net assets
$50 million to $100 million 0.15% of average net assets
$100 million to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
</TABLE>
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), an affiliate of the
Administrator, acts as the Fund's principal underwriter in a continuous public
offering of the Fund's shares. The Distribution Agreement between the Fund and
the Distributor continues in effect from year to year if approved at least
annually by (i) the Board of Trustees or the vote of a majority of the
outstanding shares of the Fund (as defined in the 1940 Act) and (ii) a
B-16
<PAGE> 34
majority of the Trustees who are not interested persons of any such
party, in each case cast in person at a meeting called for the purpose of voting
on such approval. The Distribution Agreement may be terminated without penalty
by the parties thereto upon sixty days' written notice, and is automatically
terminated in the event of its assignment as defined in the 1940 Act.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the Fund, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Investment Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Fund and which broker-dealers are
eligible to execute the Fund's portfolio transactions, subject to the
instructions of and review by the Fund. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
"market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Advisor will use its best
efforts to choose a broker-dealer capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers which furnish or supply research and statistical
information to the Advisor that it may lawfully and appropriately use in its
investment advisory capacities, as well as provide other services in addition to
execution services. The Advisor considers such information, which is in addition
to and not in lieu of the services required to be performed by it under its
Agreement with the Fund, to be useful in varying degrees, but of indeterminable
value. The placement of portfolio transactions with broker-dealers who sell
B-17
<PAGE> 35
shares of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. Provided the Trust's officers are satisfied that the
Fund are receiving the most favorable price and execution available, the Fund
may also consider the sale of its shares as a factor in the selection of
broker-dealers to execute its portfolio transactions.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available, in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight may also be given to the ability of
a broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services were not imputed just to the Fund and may
be useful to the Advisor in advising other clients. In negotiating any
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Fund and the Advisor to be reasonable in relation to the value of the
brokerage and/or research services provided by such broker-dealer, which
services either produce a direct benefit to the Fund or assist the Advisor in
carrying out its responsibilities to the Fund. The standard of reasonableness is
to be measured in light of the Advisor's overall responsibilities to the Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds managed or advised by the Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts or other
Fund. In such event, the position of the Fund and such client account(s) or
other Fund in the same issuer may vary and the length of time that each may
choose to hold its investment in the same issuer may likewise vary. However, to
the extent any of these client accounts or other Fund seeks to acquire the same
security as the Fund at the same time, the Fund may not be able to acquire as
large a portion of such security as it desires, or it may have to pay a higher
price or obtain a lower yield for such security. Similarly, the Fund may not be
able to obtain as high a price for, or as large an execution of, an order to
sell any particular security at the same time. If one or more of such client
accounts or other Fund simultaneously purchases or sells the same security that
the Fund is purchasing or selling, each day's transactions in such security will
be allocated between the Fund and all such client accounts or other Fund in a
manner deemed equitable by the Advisor, taking into account the respective sizes
of the accounts and the amount being purchased or sold. It is recognized that in
some cases this system could have a detrimental effect on the price or value of
the security insofar as the Fund are concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions may
produce better executions for the Fund.
B-18
<PAGE> 36
The Fund contemplates purchasing most Korean equity securities through
the Korea Stock Exchange or in the over-the-counter markets to the extent the
securities available in the over-the-counter markets are consistent with the
investment policies of the Fund. There generally is less government supervision
and regulation of the Korea Stock Exchange and brokers than in the United
States. Security settlements of Korean securities may in some instances be
subject to delays and related administrative uncertainties.
The Fund do not effect securities transactions through brokers in
accordance with any formula, nor do they effect securities transactions through
such brokers solely for selling shares of the Fund, although the Fund may
consider the sale of shares as a factor in allocating brokerage. However, as
stated above, broker-dealers who execute brokerage transactions may effect
purchase of shares of the Fund for their customers.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Advisor or the Distributor such rejection
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
Payments to shareholders for shares of the Fund redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which they have not yet received confirmation of
good payment; in this circumstance, the Fund may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Fund may
make payment partly in securities with a current market value equal to the
redemption price. Although the Fund do not anticipate that they will make any
part of a redemption payment in securities, if such payment were made, an
investor may incur brokerage costs in converting such securities to cash. The
Fund has elected to be governed by the provisions of Rule 18f-1 under the 1940
B-19
<PAGE> 37
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption or repurchase.
As discussed in the Prospectus, the Fund provides a Check-A-Matic Plan
for the convenience of investors who wish to purchase shares of the Fund on a
regular basis. All record keeping and custodial costs of the Check-A-Matic Plan
are paid by the Fund. The market value of the Fund's shares is subject to
fluctuation, so before undertaking any plan for systematic investment, the
investor should keep in mind that this plan does not assure a profit nor protect
against depreciation in declining markets.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of 4:00 p.m., New York City
time, on each day the New York Stock Exchange (the "NYSE") is open for trading.
It is expected that the Exchange will be closed on Saturdays and Sundays and on
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas. The Fund does not expect to
determine the net asset value of its shares on any day when the Exchange is
not open for trading even if there is sufficient trading in their portfolio
securities on such days to materially affect the net asset value per share.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on The Korean Stock Exchange, a
national securities exchange or NASDAQ are valued at the last sale price on
the business day as of which such value is being determined. If there has been
no sale on such exchange or on NASDAQ on such day, the security is valued at
the closing bid price on such day. Readily marketable securities traded only in
an over-the-counter market and not on NASDAQ are valued at the current or last
bid price. If no bid is quoted on such day, the security is valued by such
method as the Board of Trustees of the Trust shall determine in good faith to
reflect the security's fair value. All other assets of the Fund are valued in
such manner as the Board of Trustees in good faith deems appropriate to reflect
their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
B-20
<PAGE> 38
Although the Fund values its assets daily in terms of U.S. dollars, the
Fund does not intend to convert its holdings of Korean Won into U.S. dollars on
a daily basis. The Fund will do so from to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to sell that
currency to the dealer.
Any assets or liabilities initially expressed in terms of Korean Won or
other foreign currencies are translated into U.S. dollars at the official
exchange rate or, alternatively, at the mean of the current bid and asked prices
of such currencies against the U.S. dollar last quoted by a major bank that is a
regular participant in the foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If neither of these alternatives is available or both are deemed not to
provide a suitable methodology for converting a foreign currency into U.S.
dollars, the Board of Trustees in good faith will establish a conversion rate
for such currency.
Korean securities trading may not take place on all days on which the
NYSE is open, or trading may take place on days on which the NYSE is not open
and therefore the Fund's net asset value is not calculated. The calculation of
the Fund's net asset value, therefore, may not take place contemporaneously with
the determination of the prices of securities held by the Fund. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of the NYSE will not be reflected in the Fund's net
asset value unless the Advisor, under the supervision of the Board of Trustees,
determines that the particular event would materially affect net asset value. As
a result, the Fund's net asset value may be significantly affected by such
trading on days when a shareholder has no access to the Fund.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in
advertisements and investor communications. Total return may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return will be accompanied by information on the Fund's
average annual compounded rate of return over the most recent four calendar
quarters and the period from the Fund's inception of operations. The Fund may
also advertise aggregate and average total return information over different
periods of time.
B-21
<PAGE> 39
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial purchase order of $1,000
from which the maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of the Fund's
performance by independent sources may also be used in advertisements and in
information furnished to present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202 acts as
Custodian of the securities and other assets of the Fund. American Data
Services, 24 West Carver St., Huntington, NY 11743 and as the Fund's transfer
and shareholder service agent. The Custodian does not participate in decisions
relating to the purchase and sale of securities by the Fund.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any
B-22
<PAGE> 40
shareholder held personally liable for obligations of the Fund or Trust. The
Agreement and Declaration of Trust provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund or Trust and satisfy any judgment thereon. All such
rights are limited to the assets of the Fund. The Agreement and Declaration of
Trust further provides that the Trust may maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the protection
of the Trust, its shareholders, trustees, officers, employees and agents to
cover possible tort and other liabilities. Furthermore, the activities of the
Trust as an investment company would not likely give rise to liabilities in
excess of the Trust's total assets. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance exists and the Fund itself is unable to meet
its obligations.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
APPENDIX A
KOREAN RISK FACTORS
Investing in securities of Korean companies and of the government (the
"Government") of the Republic of Korea (the "Republic" or "Korea") involves
certain risks not typically associated with investing in securities of United
States companies or the United States government, in addition to those discussed
under "Prospectus Summary" and "Investment Objective, Policies and Risks."
INVESTMENT AND REPATRIATION RESTRICTIONS. Until recently, Korean
security regulations limited the percentage of any class of equity shares of an
issuer that may be held by a particular foreign investor to 3% and to 12% by all
foreign investors as a group. Currently, the limit on direct foreign investment
is up to 15% of any class of equity shares outstanding. The Ministry of Finance
will consider removing the ceiling on direct foreign investment in the future.
Transfer of funds from Korea to foreign countries and repatriation of
foreign capital invested in Korea are subject to certain regulatory approvals
pursuant to foreign exchange control laws and regulations. Generally, as long as
the original investment was approved or allowed under the applicable laws and
regulations of Korea, the conversion and remittance of cash or cash equivalents
into U.S. dollars in relation to such investment will be freely allowed upon
B-23
<PAGE> 41
receipt of the appropriate payment approvals from the Bank of Korea or a
designated Class A foreign exchange bank such as the Bank of Seoul, the Korean
sub-custodian for the Fund's assets, depending on the type of transaction.
CURRENCY FLUCTUATIONS. The Fund's assets will be invested primarily in
Korean securities, the market value of which is determined in Won, and
substantially all of its income will be received or realized in the Korean Won.
The Fund will be required, however, to compute its net asset value and income,
and to distribute its income, in U.S. dollars. As a result, the Fund's net asset
value and its distribution amounts will be subject to foreign exchange rate
fluctuations.
The Korean Won was devalued against the US dollar in the early 1980s to
reach approximately Won 890 to the US dollar by the end of 1985. The Korean Won
appreciated against the US dollar from 1986 to approximately 665 Won per US
dollar by May 1989. Since then the Korean Won has slowly lost value against the
US dollar and the exchange rate stood at approximately Won 770 US dollar at the
end of 1995..
The Fund expects to incur certain transaction costs in connection with
its conversions between currencies and, in light of the history of fluctuating
currency values of the Korean Won relative to the dollar, it is impossible to
predict what effect currency conversion costs may have on the operations of the
Fund.
POTENTIAL MARKET VOLATILITY. The Korean securities market is still
relatively small in comparison to the Japanese, United States and major European
securities markets. Because of this small size and low volume, the Korean
securities market is subject to greater price volatility and lesser liquidity
than is usual in the Japanese, United States or major European securities
markets. Because of these liquidity limitations and the Fund's investment
policies, it may be more difficult for the Fund to purchase and sell portfolio
positions than would be the case in the United States. Accordingly, in periods
of rising market prices, the Fund may be unable to participate fully in such
price increases to the extent that it is unable to acquire desired portfolio
positions quickly; conversely, the Fund's inability to dispose fully and
promptly of positions in declining markets will cause its net asset value to
decline as the value of unsold positions is determined by references to lower
prices.
POLITICAL AND ECONOMIC FACTORS. The partition of Korea following World
War II has created a political risk to the Republic. The demilitarized zone at
the boundary between the Republic and North Korea established after the Korean
War of 1950-1953 is supervised by United Nations forces. The United States
maintains a significant military force in the Republic. The situation remains a
B-24
<PAGE> 42
source of tension, although negotiations to resolve the political division
of the Korean peninsula have been carried on intermittently for several years,
and in recent years there have been several meetings between representatives of
the Republic and of North Korea on political, economic and humanitarian issues.
See "Appendix A--The Korean Securities Market" in the Statement of Additional
Information.
The domestic political situation in Korea has been relatively stable
since Kim, Young Sam, who had been for many years a leader of an opposition
party, was elected as president of Korea in December 1992. During last quarter
of 1995, the Kim administration initiated a campaign to prosecute illegal slush
fund contributors. Contributions were made to major political figures, including
two former Presidents, mostly Korean corporations. Such reform caused
uncertainty in the Korean securities market and had a significant adverse impact
on the security prices. Nonetheless, management believes that the Fund will
benefit from these reforms. Such activities is believed to provide political
stability and reduce corruption.
B-25
<PAGE> 43
PROFESSIONALLY MANAGED PORTFOLIOS
FORM N-1A
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements: Financial Statements for the fiscal year
ended March 31, 1996: Incorporated by reference from the annual
reports to shareholders for the fiscal year ended March 31, 1996;
(Avondale Total Return, Crescent, Hodges,Osterweis, Perkins
Opportunity, and Women's Equity Mutual Fund Series).
Financial Statements for the fiscal year ended August 31, 1995:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended August 31, 1995 (Academy Value and Trent Equity
Fund Series).
Financial Statements for the fiscal period ended December 31, 1995;
Incorporated by Reference from the annual reports to shareholders for
the fiscal period ended December 31, 1995 (Kayne, Anderson Rising
Dividend Fund Series, Insightful Investor Growth Fund Series, Matrix
Growth Fund Series, Matrix Emerging Growth Fund Series) and semi-annual
report for the fiscal period ended December 31, 1995 (Boston Managed
Growth Fund series).
(b) Exhibits:
(1) Agreement and Declaration of Trust-2
(2) By-Laws--2
(3) Voting Trust Agreement -- Not applicable
(4) Specimen Share Certificate-3
(5) Form of Investment Advisory Agreement-1
(6) Form of Distribution Agreement-1
C-1
<PAGE> 44
(7) Benefit Plan -- Not applicable
(8) Form of Custodian and Transfer Agent
Agreements-6
(9) Form of Administration Agreement-1
(10) Consent and Opinion of Counsel as to legality of
shares-3
(11) Consent of Accountants-2
(12) All Financial Statements omitted from Item 23 --
Not applicable
(13) Letter of Understanding relating to initial
capital-3
(14) Model Retirement Plan Documents - Not applicable
(15) Form of Plan pursuant to Rule 12b-1-6
(16) Schedule for Computation of Performance
Quotations-5
1 Incorporated by reference from Post-Effective Amendment No. 24 to
the Registration Statement on Form N-1A, filed on January 16, 1996.
2 Incorporated by reference from Post-Effective Amendment No. 23 to
the Registration Statement on Form N-1A, filed on December 29 ,
1995.
3 Incorporated by reference from Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A, filed on April 13, 1987.
4 Incorporated by reference to Post-effective Amendment No. 5 to
the Registration Statement on Form N-1A, filed on May 2, 1991.
5 Incorporated by reference to Post-Effective Amendment No. 7 to
the Registration Statement on Form N-1A filed on June 17, 1992.
6 To be filed by amendment.
C-2
<PAGE> 45
Item 25. Persons Controlled by or under Common Control with Registrant.
As of the date of this Amendment to the Registration Statement, there
are no persons controlled or under common control with the Registrant.
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class April 24, 1996
Shares of Beneficial Interest, no par value:
<S> <C>
Academy Value Fund 132
Avondale Total Return Fund 147
Boston Managed Growth Fund 131
Crescent Fund 113
Hodges Fund 643
Osterweis Fund 128
Perkins Opportunity Fund 6,023
ProConscience Womens Equity Fund 471
Trent Equity Fund 229
Matrix Growth Fund 478
Matrix Emerging Growth Fund 58
Kayne, Anderson Rising Dividend Fund 130
Insightful Investor Growth Fund 126
Leonetti Balanced Fund 251
Lighthouse Growth Fund 245
U.S.Global Leaders Growth Fund 29
Harris, Bretall, Sullivan & Smith
Growth Equity Fund 19
Pzena Focused Value Fund 0
Titan Financial Services Fund 14
</TABLE>
Item 27. Indemnification
The information on insurance and indemnification is
incorporated by reference to Pre-Effective Amendment No. 1 and
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement.
In addition, insurance coverage for the officers and trustees of the
Registrant also is provided under a Directors and Officers/Errors and Omissions
Liability insurance policy issued by ICI Mutual Insurance Company with a
$1,000,000 limit of liability.
C-3
<PAGE> 46
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares 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 Securities Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
With respect to Investment Advisors, the response to this item is
incorporated by reference to their Form ADVs as amended:
<TABLE>
<S> <C>
Herbert R. Smith & Co, Inc. File No. 801-7098
Hodges Capital Management, Inc. File No. 801-35811
Perkins Capital Management, Inc. File No. 801-22888
Crescent Research & Management File No. 801-36828
Osterweis Capital Management File No. 801-18395
Pro-Conscience Funds, Inc. File No. 801-43868
Trent Capital Management, Inc. File No. 801-34570
Academy Capital Management File No. 801-27836
Kayne, Anderson Investment Mgmnt. File No. 801-24241
Sena, Weller, Rohs, Williams File No. 801-5326
Insightful Management Company File No. 801-46565
Leonetti & Associates, Inc. File No. 801-36381
Lighthouse Capital Management File No. 801-32168
Yeager, Wood & Marshall, Inc. File No. 801-4995
Harris Bretall Sullivan & Smith File No. 801-7369
Pzena Investment Management LLC File No. 801-50838
Titan Investment Advisers, LLC File No. 801-51306
Pacific Gemini Partners LLC File No. 801-50007
</TABLE>
C-4
<PAGE> 47
With respect to United States Trust Company of Boston, the response to
this item is incorporated by reference to the responses to Item 5 of Part A and
Item 16 of Part B ("Management")of Post-Effective Amendment No. 20 to the
Registration Statement.
Item 29. Principal Underwriters.
(a) First Fund Distributors, Inc. (the "Distributor") is the principal
underwriter all series of the Registrant except for the Hodges Fund, the Matrix
Growth Fund, the Matrix Emerging Growth Fund and the Insightful Investor Growth
Fund. The Distributor acts as principal underwriter for the following other
investment companies:
RNC Liquid Assets Fund, Inc.
Hotchkis and Wiley Funds
PIC Investment Trust
Rainier Investment Management Mutual Funds
Guinness Flight Investment Funds
Jurika & Voyles Fund Group
First Dallas Securities, Inc., 2311 Cedar Springs Rd., Ste. 100,
Dallas, TX 75201, an affiliate of Hodges Capital Management, acts as Distributor
of the Hodges Fund. The President and Chief Financial Officer of First Dallas
Securities, Inc. is Don W. Hodges. First Dallas does not act as principal
underwriter for any other investment companies. Reynolds, DeWitt Securities Co.,
an affiliate of Sena Weller Rohs Williams, 300 Main St., Cincinnati, OH 45202,
acts as Distributor for the Matrix Growth Fund and Matrix Emerging Growth Fund.
Newcomb & Company, 6 New England Executive Park, Ste. 400, Burlington, MA 01803
acts as Distributor for the Insightful Investor Growth Fund.
(b) The officers of First Fund Distributors, Inc. are:
Robert H. Wadsworth President & Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Secretary
Each officer's business address is 4455 E. Camelback Rd., Ste. 261-E,
Phoenix, AZ 85018. Mr. Paggioli serves as President and a Trustee of the
Registrant. Mr. Wadsworth serves as Vice President of the Registrant. Mr.
Banhazl serves as Treasurer of the Registrant.
C-5
<PAGE> 48
c. Incorporated by reference from the Statement of Additional
Information filed herewith as Part B.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession the Registrant's
custodian and transfer agent, except those records relating to portfolio
transactions and the basic organizational and Trust documents of the Registrant
(see Subsections (2) (iii). (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which, with respect to portfolio transactions are kept by each Fund's
Advisor at its address set forth in the prospectus and statement of additional
information and with respect to trust documents by its administrator at 479 West
22nd Street, New York, NY 10011.
Item 31. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 32. Undertakings
The registrant undertakes to file a post-effective amendment using
financial statements, which need not be certified within four to six months from
the effective date of this amendment, as such requirement is interpreted by the
staff in its generic comment letter dated February 25, 1994.
The registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of each Fund's latest annual report to
shareholders, upon request and without charge.
C-6
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York in the State of New York on
June 7, 1996.
PROFESSIONALLY MANAGED PORTFOLIOS
By: Steven J. Paggioli
Steven J. Paggioli
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Steven J. Paggioli Trustee June 7, 1996
Steven J. Paggioli
Eric M. Banhazl Principal June 7, 1996
Eric M. Banhazl Financial
Officer
Dorothy A. Berry Trustee June 7, 1996
*Dorothy A. Berry
Wallace L. Cook Trustee June 7, 1996
*Wallace L. Cook
Carl A. Froebel Trustee June 7, 1996
*Carl A. Froebel
Rowley W. P. Redington Trustee June 7, 1996
*Rowley W. P. Redington
* By: Steven J. Paggioli
Steven J. Paggioli, Attorney-in-Fact
under powers of attorney as filed with
Post-Effective Amendment No. 20 to the
Registration Statement.
C-7
