STATEMENT OF ADDITIONAL INFORMATION
October 1, 1995
Revised June 1, 1996
U.S. GLOBAL LEADERS GROWTH FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
630 Fifth Avenue
New York, NY 10111
(212) 765-5350
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the prospectus of the U.S. Global Leaders Growth Fund
(the "Fund"). A copy of the prospectus of the Fund dated October 1, 1995 is
available by calling the number listed above or (212) 633-9700.
TABLE OF CONTENTS
Page
The Trust . . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Objective and Policies . . . . . . . . . . . . B-2
Investment Restrictions . . . . . . . . . . . . . . . . . B-4
Distributions and Tax Information . . . . . . . . . . . . B-6
Management . . . . . . . . . . . . . . . . . . . . . . . B-9
The Fund's Investment Advisor . . . . . . . . . . . . . . B-11
The Fund's Administrative Manager . . . . . . . . . . . . B-12
The Fund's Distributor . . . . . . . . . . . . . . . . . B-12
Execution of Portfolio Transactions . . . . . . . . . . . B-12
Additional Purchase and Redemption Information . . . . . B-15
Determination of Share Price . . . . . . . . . . . . . . B-16
Performance Information . . . . . . . . . . . . . . . . . B-16
General Information . . . . . . . . . . . . . . . . . . . B-17
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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 U.S. Global Leaders
Growth Fund series (the "Fund").
INVESTMENT OBJECTIVE AND POLICIES
The U.S. Global Leaders Growth Fund (the "Fund") is a mutual fund with the
investment objective of seeking growth of capital. The following discussion
supplements the discussion of the Fund's investment objective and policies as
set forth in the Prospectus. There can be no assurance the objective of the Fund
will be attained.
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 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 10% 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
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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 investment manager 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.
Foreign Investments.
The Advisor is permitted to invest up to 25% of the Fund's net assets in foreign
companies, although the level of such investment is not expected to exceed 15%
under normal circumstances. The Advisor intends to invest only in large
capitalization, well established foreign issuers the securities of which are
traded in the U.S., and which present their financial data in accordance with
generally accepted accounting principles in the U.S. Thus, the Advisor thus
expects that there will be little, if any risk associated with its foreign
investments.
The risks associated with foreign issuers include political and
economic risks. Foreign investments may be affected by actions of
foreign governments adverse to the interests of U.S. investors,
including the possibility of expropriation or nationalization of
assets, confiscatory taxation, restrictions on U.S. investment or
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on the ability to repatriate assets or convert currency into U.S. dollars, or
other government intervention. There may be a greater possibility of default by
foreign governments or foreign government-sponsored enterprises. Investments in
foreign countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
While the Advisor believes it unlikely that the companies and countries in which
the Advisor invests would be subject to such circumstances, there is no
assurance that the Advisor will be able to anticipate or counter these potential
events in selecting foreign issuers for the Fund's portfolio.
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 occasional purchase of debt
securities in accordance with its investment objectives and policies, (b) to the
extent the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except as stated in the Prospectus and
this Statement of Additional Information. Any such borrowing will
be made only if immediately thereafter there is an asset coverage
of at least 300% of all borrowings.
(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. (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.)
4. Purchase or sell commodities or commodity contracts (the Board of Trustees
may in the future authorize the Fund to engage in certain activities regarding
futures contracts for bona fide hedging purposes; any such authorization will be
accompanied by appropriate notification to shareholders).
5. Invest 25% or more of the market value of its assets in the
securities of companies engaged in any one industry. (Does not
apply to investment in the securities of the U.S. Government, its
agencies or instrumentalities.)
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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 observes the following policies, which are not deemed fundamental and
which may be changed without shareholder vote.
The Fund may not:
8. 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 advisor 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.
9. 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.
10. Invest, in the aggregate, more than 10% 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.
11. Buy or sell interests in oil, gas or mineral exploration or development
programs or related leases or real estate. (Does not preclude investments in
marketable securities of issuers engaged in such activities.)
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 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 as
otherwise noted.
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DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits from the
sale of securities, if any, are generally made annually by the Fund after the
conclusion of its fiscal year (June 30). 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 twelve month 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
The Fund is treated as a separate entity for federal income tax purposes. 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"). In
order to qualify, the Fund must comply with all applicable requirements
regarding the source of its income, diversification of its assets and timing of
its 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 tax or excise taxes based on net income. The Fund will generally be
subject to federal income tax on its undistributed net investment income and
capital gains. To avoid federal excise taxes based on its net income, the Fund
must 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.
Net investment income consists of interest and dividend income and foreign
currency gain, less expenses. Net realized capital gains for a fiscal period are
computed by taking into account any capital loss carryforward of the Fund.
Distributions of net investment income and the excess of net
short-term capital gain over net long-term capital loss are
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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
expected that dividends from domestic corporations will be part of the Fund's
gross income and that, accordingly, part of the distributions by the Fund may be
eligible for the dividends-received deduction for corporate shareholders.
However, the portion of the Fund's gross income attributable to qualifying
dividends is largely dependent on the Fund's investment activities for a
particular year and therefore cannot be predicted with any certainty. The
deduction 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 the shareholders 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.
One of the requirements for qualification as a regulated investment company is
that less than 30% of the Fund's gross income must be derived from gains from
the sale or other disposition of securities held for less than three months.
Accordingly, the Fund may be restricted in effecting closing transactions within
three months after entering into an option contract.
A redemption of Fund shares may result in recognition of a taxable gain or loss.
Any loss realized upon a redemption 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. Any loss realized upon a redemption of Fund
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shares may be disallowed under certain wash sale rules to the extent shares of
the Fund are purchased (through reinvestment of distributions or otherwise)
within 30 days before or after the redemption.
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 Code. 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. Moreover, the above
discussion is not intended to be a complete discussion of all applicable tax
consequences of an investment in the Fund. Shareholders are advised to consult
with their own tax advisers concerning the application of federal, state and
local taxes to an investment in the Fund.
Non-U.S. Shareholders. Dividends paid by the Fund to a shareholder who, as to
the United States, is a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation or foreign partnership
("foreign shareholder") will be subject to U.S. withholding tax (at a rate of
30% or lower treaty rate). Withholding will not apply if a dividend paid by the
Fund to a foreign shareholder is "effectively connected with the conduct of a
U.S. trade or business," in which case the reporting and withholding
requirements applicable to domestic shareholders will apply. Distributions of
net capital gain are not subject to withholding, but in the case of a foreign
shareholder who is a nonresident alien individual, those distributions
ordinarily will be subject
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to U.S. income tax at a rate of 30% (or lower treaty rate), if the individual is
physically present in the United States for more than 182 days during the
taxable year and the distributions are attributable to a fixed place of business
maintained by the individual in the United States.
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.
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 administrator and
the Fund's Administrator), 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.
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Carl A. Froebel, 57 Trustee
333 Technology Dr., Malvern, PA 19355. Managing Director, Premier
Solutions, Ltd. Formerly President, 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).
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.
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.
The Trustees of the Trust who are not interested persons receive a total annual
retainer of $10,000 paid quarterly, and fees and expenses for each Board meeting
attended. These amounts are allocated among all series of the Trust. The Fund
has not yet paid any portion of such trustees' fees or expenses. The officers of
the Trust receive no compensation directly from it for performing the duties of
their offices. However, those officers and Trustees of the Trust who are
officers and/or stockholders of those companies that render administrative
services to the Trust as noted below may receive remuneration indirectly because
of fees that these companies receive from the Trust. As of the date of this
Statement of Additional Information, the Trustees and officers of the Trust as a
group did not own more than 1% of the outstanding shares of
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any Fund. Trustees receive no retirement benefits or deferred
compensation from the Trust.
The Fund receives investment advisory services pursuant to agreements with the
Advisor and the Trust. Each such agreement, after its initial term, continues in
effect for successive annual periods so long as such continuation is approved at
least annually by the vote of (1) the Board of Trustees of the Trust (or a
majority of the outstanding shares of the Fund to which the agreement applies),
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. Any such agreement may be terminated at any
time, without penalty, by either party to the agreement upon sixty days' written
notice and is automatically terminated in the event of its "assignment," as
defined in the 1940 Act.
Investment Advisor
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 630
Fifth Avenue, New York, NY 10111. The Advisor was founded in 1968 and is
controlled by Mr. George M. Yeager, President. While the Advisor has not
previously advised a registered investment company, it provides investment
advisory services to individual and institutional investors with assets of over
$250 million. Mr. Yeager is responsible for management of the Fund's portfolio.
Under the Investment Advisory Agreement with the Fund, 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.
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,
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.
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Administrator
The Fund has entered into an Administrative Agreement with Investment Company
Administration Corp. ("ICAC"), a corporation owned in part and controlled by
Messrs. Banhazl, Paggioli and Wadsworth. The Agreement provides that ICAC 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 ICAC. For its
services, ICAC receives a monthly fee at the following annual rate:
Average net assets Fee or fee rate
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 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
Distributor
First Fund Distributors, (the "Distributor") a corporation owned by Messrs.
Banhazl, Paggioli and Wadsworth, acts as the Fund's distributor and 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 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
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consideration is to obtain the most favorable price and execution available.
Pursuant to the Investment Management 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 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 is
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.
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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 ("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 Funds.
In such event, the position of the Fund and such client account(s) or Funds 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 Funds 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 Funds 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 Funds 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 is
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.
Because the Fund's Distributor is a member of the National Association of
Securities Dealers, it is sometimes entitled to obtain certain fees when the
Fund tenders portfolio securities pursuant to a tender-offer solicitation. As a
means of recapturing brokerage for the benefit of the Fund, any portfolio
securities
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tendered by the Fund will be tendered through the Distributor if it
is legally permissible to do so.
The Fund does not effect securities transactions through brokers in accordance
with any formula, nor does it 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. The Fund does not use the Distributor to
execute its portfolio transactions.
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 it has 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, which may take up to fifteen days after purchase.
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 does not anticipate that it 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 Act, which contains a
formula for determining the minimum redemption amounts that must be paid in
cash.
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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.
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 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 its 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 a national securities exchange or on 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 the 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 each 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.
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.
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<PAGE>
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 and gives effect to the maximum applicable sales charge.
The Fund's total return may be compared to that of certain broad based
statistical market averages, such as the Dow Jones Industrial Average, Standard
& Poor's 500 Composite Stock Index and indices published by Lipper Analytical
Services, Inc. From time to time, evaluations of a Fund's performance by
independent sources may also be used in advertisements and in information
furnished to present or prospective investors in the Funds.
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, 425 Walnut Street, Cincinnati, OH 45202 acts as Custodian of the
securities and other assets of the Fund. The Custodian does not participate in
decisions relating to the purchase and sale of securities by the Fund. American
Data Services, 24 West Carver St., Huntington, NY 11743 is the Fund's
Transfer and Dividend Disbursing Agent.
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<PAGE>
Ernst & Young, 515 S. Flower St., Los Angeles, CA 90071 are the independent
auditors for the Fund.
Heller, Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California
94104, are legal counsel to 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 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.
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