SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Professionally Managed Portfolios
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(Name of Registrant as Specified In Its Charter)
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Payment of Filing Fee (Check the appropriate box):
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/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
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4) Proposed maximum aggregate value of transaction:
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/X/ Fee paid previously with preliminary materials.
/_/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid: _________________________________________________
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PROFESSIONALLY MANAGED PORTFOLIOS
Kayne, Anderson Rising Dividends Fund
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
(310) 556-2721
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 30, 1996
------------------
TO THE SHAREHOLDERS OF THE KAYNE, ANDERSON RISING DIVIDENDS FUND series (the
"Fund") of Professionally Managed Portfolios (the "Trust"):
You are cordially invited to the Special Meeting (the "Meeting") of the
Shareholders of the Fund to be held on Monday, September 30, 1996 at 10:00 a.m.,
Pacific time, at the offices of Kayne Anderson Investment Management, L.P., the
investment adviser to the Fund (the "Adviser"), for the purpose of considering
the proposal set forth below and for the transaction of such other business as
may be properly brought before the meeting or any adjournment(s) thereof,
including any adjournment(s) necessary to obtain requisite quorums and/or
approvals.
Proposal: To approve a proposed Agreement and Plan of Reorganization
and the transactions contemplated thereby, which include: (a) the
transfer of all assets of the Fund to a newly formed series also called
the Kayne Anderson Rising Dividends Fund (the "New Fund") of Kayne
Anderson Mutual Funds, a Delaware business trust (the "New Trust"), in
exchange for shares of the New Fund, and the assumption by the New Fund
of liabilities of the Fund; and (b) the distribution to Fund
shareholders of such New Fund's shares.
Shareholders of record at the close of business on September 12, 1996, are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
ALL SHAREHOLDERS OF THE FUND ARE CORDIALLY INVITED TO ATTEND THE SPECIAL
MEETING. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID RETURN
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE SO THAT YOU MAY RETURN YOUR PROXY CARD
AS SOON AS POSSIBLE. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN
YOUR PROXY CARD AND RETURN IT SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. YOUR PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
By Order of the Board of Trustees
Robin Berger, Secretary
September 17, 1996
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PROFESSIONALLY MANAGED PORTFOLIOS
Kayne, Anderson Rising Dividends Fund
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
(310) 556-2721
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PROXY STATEMENT
SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD
SEPTEMBER 30, 1996
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Trustees of Professionally Managed Portfolios (the "Trust")
for use at the Special Meeting of Shareholders of the Trust's Kayne, Anderson
Rising Dividends Fund (the "Fund") to be held at 10:00 a.m., Pacific time, on
Monday, September 30, 1996 or at any adjournment thereof (the "Meeting"), and is
intended to be mailed to shareholders on or about September 12, 1996. The
Meeting will be held at the offices of Kayne Anderson Investment Management,
L.P., the investment adviser to the Fund (the "Adviser"), 1800 Avenue of the
Stars, 2nd Floor, Los Angeles, California, 90067. Even if you sign and return
the accompanying proxy, you may revoke it by giving written notice of such
revocation to the Secretary of the Trust before the Meeting or by delivering a
subsequently dated proxy or by attending and voting at the Meeting in person.
The Trust expects to solicit proxies principally by mail. In addition to the
solicitation of proxies by mail, directors and officers of the Trust, and
officers and employees of the Adviser may solicit proxies in person or by
telephone. The costs of solicitation will be borne by the Adviser.
IF THE ACCOMPANYING FORM OF PROXY IS EXECUTED PROPERLY AND RETURNED,
SHARES WILL BE VOTED AT THE MEETING IN ACCORDANCE WITH THE INSTRUCTIONS ON THE
PROXY. HOWEVER, IF NO INSTRUCTIONS ARE SPECIFIED, SHARES WILL BE VOTED FOR THE
APPROVAL OF THE PROPOSED AGREEMENT AND PLAN OF REORGANIZATION.
On September 12, 1996, the record date for the determination of the
shareholders entitled to notice of, and to vote at, the Meeting, there were
issued and outstanding 1,769,047 shares of the Fund. Each outstanding share is
entitled to one vote on each matter to come before the Meeting, and any
fractional share outstanding is entitled to a proportional fractional vote.
Financial information about the Fund has been provided to shareholders
in the form of an audited annual report for the fiscal year ended December 31,
1995 and an unaudited semi-annual report for the fiscal period ended June 30,
1996. ANY SHAREHOLDER WANTING A COPY OF THE ANNUAL OR SEMI-ANNUAL REPORT IN
CONNECTION WITH THIS SHAREHOLDER MEETING SHOULD CONTACT THE ADVISER AT (310)
556-2721 (collect).
The Meeting has been called to consider the proposal set forth below.
Counsel to the Trust advises that the favorable vote of more than 50 percent of
the Fund's shares outstanding and entitled to vote is required for the approval
of the proposal relating to the proposed Agreement and Plan of Reorganization
(the "Reorganization Plan").
Because the Trust is organized as a Massachusetts business trust, it is
not required to hold annual shareholders' meetings. Similarly, Delaware business
trust law does not require registered investment companies such as the New Trust
to hold annual shareholders' meetings.
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PROPOSAL: THE PROPOSED AGREEMENT AND PLAN OF REORGANIZATION
General Information
At a meeting held on August 20, 1996, the Board of Trustees of the
Trust was presented with the Reorganization Plan substantially in the form
attached to this Proxy Statement as Exhibit A and was requested by the Adviser
to submit the Reorganization Plan to shareholders of the Fund. The Plan provides
for a reorganization of the Fund (the "Reorganization") pursuant to which all
assets of the Fund and the liabilities of the Fund will be transferred to a
newly formed series called the Kayne Anderson Rising Dividends Fund (the "New
Fund") of the New Trust, in exchange for shares of beneficial interest of the
New Fund. The preliminary prospectus for the New Fund is attached to this Proxy
Statement as Exhibit B. Following this exchange, the Fund will distribute to its
shareholders these shares of the New Fund in liquidation of the Fund. The New
Fund will have substantially the same investment objective and policies as the
Fund, and the investment restrictions of the New Fund will be substantially the
same as those of the Fund. The net asset value of shares of the New Fund
immediately following the Reorganization will be the same as the net asset value
of shares of the Fund immediately before the Reorganization.
THE ADVISER HAS AGREED TO PAY ALL COSTS ASSOCIATED WITH THE
REORGANIZATION. Therefore, shareholders will bear NONE of these costs. In
addition, the Reorganization will be a tax-free transaction as described below.
Shareholders, however, will bear the costs associated with the organization of
the New Fund. These organization costs will not exceed $20,000. Such costs will
be capitalized and amortized over a five-year period and will be included within
the operating expenses of the New Fund (as expensed) subject to the 1.20%
expense cap as described below.
The Reorganization is intended to facilitate the consolidation of the
Fund in the proposed family of funds to be advised by the Adviser. As a result
of the Reorganization, the Fund and the four series of the New Trust will all be
separate series of the same New Trust, Kayne Anderson Mutual Funds. Shareholders
of the Fund would be able to exchange into the other series of the New Trust,
and into other series which are subsequently established and advised by the
Adviser. Inclusion of the Fund as a series of the New Trust should more clearly
establish the identity of the Fund as a member of the family of funds advised by
the Adviser, and allow the Adviser more direct oversight of and responsibility
for the operations of the New Fund. This is because, among other reasons, the
New Fund would be governed by the same Board of Trustees as the other funds
advised by the Adviser.
The four additional mutual funds of the New Trust will be the Kayne
Anderson Small-Mid Cap Rising Dividends Fund, the Kayne Anderson International
Rising Dividends Fund, the Kayne Anderson Intermediate Total Return Bond Fund
and the Kayne Anderson Intermediate Tax-Free Bond Fund. These are intended to
provide an array of investment choices to investors. The Reorganization would
also permit the New Trust to offer exchange privileges with each of these funds.
From May 1, 1995 (the commencement of operations) through December 31,
1995 the Fund's expenses amounted to an annualized rate of 1.31%.
After the Reorganization, the Adviser has agreed to limit the operating
expenses of the New Fund to a maximum annual rate of 1.20% of average daily net
assets for the then-current fiscal year. The Adviser may terminate this
agreement at any time. The Adviser intends to limit expenses through asset
growth and by either waiving a portion of its advisory fee or absorbing New Fund
expenses or both. In the proposed advisory agreement between the Adviser and the
New Fund (the "Proposed Advisory Agreement"), the Adviser is expressly permitted
to subsidize, absorb and/or otherwise reimburse the New Fund for expenses which
are the obligation of the New Fund. The Proposed Advisory Agreement would permit
the Adviser to recapture such fee waiver or expense absorption only within the
three fiscal years following the waiver and only if the series could
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make such repayment and still stay within the total operating expense cap, if
any, then established for the New Fund. The expense cap will, however, be
automatically terminated if and when the Adviser ceases to act as the Adviser
for the New Fund.
Should the Adviser request such reimbursement, such request for
reimbursement must be reviewed and approved by the New Trust's Board of
Trustees. If the Adviser elects to seek such reimbursement, the total operating
expenses for that year will be higher than the actual operating expenses for
that year but will still remain at or below the 1.20% expense cap. See "Certain
Comparative Information About the Proposed Investment Advisory Agreement" below
for additional information.
The net asset value of shares of the Fund will not be affected by the
Reorganization. The Reorganization will have no effect on the management of the
Fund's investments. The Adviser, as the sole initial shareholder of the New
Fund, will approve the Proposed Advisory Agreement and take other ministerial
actions for the New Fund. If the shareholders of the Fund vote to approve the
Reorganization Plan, the several actions described below will occur without the
need for further shareholder involvement, with the result that the
Reorganization will become effective on or about September 30, 1996 (the
"Reorganization Date"). The various services currently provided to shareholders
of the other series of the Trust will not be affected by the Reorganization.
The following table provides a pro forma comparative analysis of
expenses for the Fund and for the New Fund (after the proposed Reorganization).
This analysis assumes that the total assets in the Fund and the New Fund for the
periods indicated are the approximate current total assets of the Fund.
Pro Forma Comparison of Annual Shareholder Expenses
As a Percentage of
Current Expenses of Fund (based on Average Net Assets
expenses for the six-month period ------------------
ended June 30, 1996)
- --------------------
Management fees .75%
Other expenses .56%
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Total operating expenses 1.31%
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Anticipated Expenses of New Fund As a Percentage of
(if the Proposal is approved) Average Net Assets
- ----------------------------- ------------------
Management fees .75%
Other expenses after expense reimbursement .45%
-----
Total operating expenses after expense reimbursement 1.20%
=====
The annual rate of total operating expenses for the New Fund is
expected to be 1.38% before the Adviser's voluntary expense reimbursement,
representing a slight increase from the actual annual rate of total expenses for
the Fund. Although the Administrator's contractual rate is lower for the New
Fund, the same minimum fee applies to both the Fund and the New Fund at lower
asset levels (as discussed later). Increases in custodian and transfer agent
fees are expected to account for the initial overall increase. The Adviser
believes that those higher fees are justified by improved quality and
reliability of service to the New Fund and its shareholders.
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Example
This table illustrates the expenses that would be incurred by an
investment in the Fund and the New Fund over different time periods assuming a
$1,000 investment, a 5% annual return, and redemption at the end of each period.
The Example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown.
Fund New Fund
-----------------------------------
One year . . . . . . . $ 13 $ 12
Three years . . . . . $ 42 $ 38
Five years . . . . . . $ 72 $ 66
Ten years . . . . . . $158 $145
The Example shown above assumes that the Adviser will limit the annual
operating expenses of the New Fund to the totals shown. In addition, federal
regulations require the Example to assume a 5% annual return, but actual returns
may be higher or lower.
Summary of the Reorganization Plan
ALL INFORMATION REGARDING THE NEW TRUST, ITS OPERATIONS AND THE VARIOUS
AGREEMENTS BETWEEN THE NEW TRUST AND ITS SEVERAL SERVICE PROVIDERS HAS BEEN
SUPPLIED BY THE ADVISER, AND NEITHER THE TRUST NOR ANY OF ITS TRUSTEES OR
OFFICERS HAS INDEPENDENTLY VERIFIED THE ACCURACY OF SUCH INFORMATION.
Before the effective time of the Reorganization, the Reorganization
Plan authorizes the issuance of a single New Fund share to the Adviser. Pursuant
to the Reorganization Plan, the Adviser, as the sole shareholder of the New
Fund, will approve the Proposed Advisory Agreement. Promptly thereafter, and
before the effective time of the Reorganization, the New Fund share held by the
Adviser will be redeemed and canceled by the New Trust. At the effective time of
the Reorganization, the Fund will transfer all of its assets and liabilities to
the New Fund of the New Trust in exchange for a number of shares of the New Fund
of the New Trust equal to the number of shares of beneficial interest of the
Fund outstanding immediately before the Reorganization. Immediately thereafter,
the Fund will distribute its shares of the New Fund to its shareholders in
complete liquidation of the Fund. Upon completion of the Reorganization, each
shareholder of the Fund will own full and fractional shares of the New Fund
equal in number and aggregate net asset value to the shares he or she held in
the Fund immediately before the Reorganization.
The obligations of the Trust on behalf of the Fund and the New Trust
under the Reorganization Plan are subject to various conditions as stated
therein. In order to provide for unforeseen events, the Reorganization Plan may
be terminated at any time before the closing of the Reorganization by action of
either the Board of Trustees of the Trust or the Board of Trustees of the New
Trust, notwithstanding the approval of the Reorganization Plan by the
shareholders of the Fund. The Board of Trustees of the Trust may at any time
waive the Board of Trustees of the New Trust's obligation to comply with any of
the covenants and conditions contained in the Reorganization Plan. Similarly,
the Board of Trustees of the New Trust may at any time waive the Board of
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Trustees of the Trust's obligation to comply with any of the covenants and
conditions contained in the Reorganization Plan.
Investment Advisory Services. As noted above, the Reorganization Plan
authorizes the Adviser, as sole shareholder of the New Fund before the effective
time of the Reorganization, to approve the Proposed Advisory Agreement. The
Proposed Advisory Agreement is set forth as Exhibit C and will be similar in all
material terms to the current investment advisory agreement between the Trust,
on behalf of the Fund, and the Adviser dated December 31, 1994 (the "Current
Advisory Agreement").
Continuation of Shareholder Accounts and Plans. The New Trust's
transfer agent will establish an account for each shareholder containing the
appropriate number of shares. Such accounts will be identical in all respects to
the accounts currently maintained by the Fund's transfer agent for each
shareholder of the Fund. At the current time, it is not expected that any
further action will be necessary in order to continue any retirement plan
currently maintained by a shareholder with respect to Fund shares. Shareholders
will be contacted if action is necessary.
Tax Consequences. Management of the New Trust and the Trust have been
advised by Heller, Ehrman, White & McAuliffe, counsel to the New Trust, that the
transactions contemplated by the Reorganization Plan will constitute a tax-free
reorganization for federal income tax purposes pursuant to Section 368(a)(1) of
the Internal Revenue Code of 1986, as amended, and will not affect the federal
income tax status of shares held before the Reorganization. Therefore,
shareholders should not recognize any gain or loss on the exchange of their
shares of the Fund for shares of the New Fund as a result of the Reorganization.
The management of the New Trust has not obtained an Internal Revenue Service
("IRS") private letter ruling, and the IRS is not bound by advice of counsel.
While the Fund is not aware of any adverse state or local tax consequences of
the proposed Reorganization, it has not made any investigation as to such
consequences. Shareholders may wish to consult their own tax advisers with
respect to such matters.
Certain Comparative Information About the Trust and the New Trust
Structure of the New Trust and Trust. The New Trust was established
pursuant to an Agreement and Declaration of Trust (the "New Trust's Declaration
of Trust") under Delaware law, and its operations are governed by the New
Trust's Declaration of Trust and applicable Delaware law. The New Fund's fiscal
year will end on December 31 of each year. The current Trust was established
pursuant to an Agreement and Declaration of Trust (the "Trust's Declaration of
Trust") under Massachusetts law, and its operations are governed by the Trust's
Declaration of Trust and by Chapter 182 of the General Laws of the Commonwealth
of Massachusetts, which governs business trusts in Massachusetts. The Trust's
fiscal year also ends on December 31 of each year.
The two forms of organization are very similar. The operations of the
New Trust, like those of the Trust, are subject to the provisions of the 1940
Act, and to the rules and regulations of the SEC thereunder.
Trustees and Officers of the New Trust and Trust. Subject to the
provisions of its Declaration of Trust, the business of the New Trust is managed
by its Trustees, who (like the Trustees of the Trust) serve indefinite terms and
have all powers necessary or convenient to carry out that responsibility. The
responsibilities, powers and fiduciary duties of the New Trust Trustees are
substantially the same as those of the Trustees of the current Trust under its
Declaration of Trust. The Officers of the New Trust are identified and their
backgrounds are described below.
State of Organization. The Trust is organized as a Massachusetts
business trust; the New Trust is organized as a Delaware business trust.
Massachusetts law does not expressly provide that claims of third parties
against shareholders, trustees, officers, employees and agents of the Trust for
any act, omission or obligation of the Trust are limited to the assets of the
Trust. Because of this silence of Massachusetts business trust law on this
issue, some commentators believe that Massachusetts trust shareholders under
certain circumstances could be held personally liable for trust obligations.
Under Delaware law, the shareholders, trustees, officers, employees and agents
of a trust are not liable to third persons for any act, omission or obligation
of the trust unless
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otherwise provided in the certificate of trust. The New Trust's Certificate of
Trust does not contain any such provisions.
The foregoing is only a brief summary of certain similarities between
the Trust's Declaration of Trust and Massachusetts law, and the New Trust's
Declaration of Trust and Delaware law. It is not a complete list of the
similarities or differences. Shareholders should refer to the provisions of the
Trust's Declaration of Trust, Massachusetts law, the New Trust's Declaration of
Trust and Delaware law directly for a more thorough comparison. Copies of the
New Trust's Declaration of Trust and By-Laws are available to shareholders
without charge upon written request to the New Trust at 1800 Avenue of the
Stars, Second Floor, Los Angeles, California 90067.
Statement of Investment Objective and Policies. There is no substantive
difference between the investment objective, policies and practices of the Fund
and the New Fund. Both the Fund and the New Fund share the same investment
objective, which is long-term capital appreciation, with dividend income as a
secondary objective. The Fund seeks to achieve this objective primarily by
investing principally in equity securities. The New Fund will also invest
principally in equity securities. The Fund maintains a diversified portfolio
without excessive representation in any single industry group. The policy of the
Fund is to maintain substantially all Fund assets in common stocks. Similarly,
the New Fund will maintain a diversified portfolio with substantially all New
Fund assets in common stocks.
This is only a summary comparison of the investment policies of the
Fund and the New Fund. Certain minor differences may exist in their investment
policies and restrictions. Shareholders are encouraged to review the current
prospectus for the Fund (dated May 1, 1996) and the preliminary prospectus for
the New Fund (Exhibit B hereto) for additional information.
Fund and New Fund Service Providers
Fund and New Fund Administration. Investment Company Administration
Corporation, 2025 East Financial Way, Suite 101, Glendora, CA 91741 (the
"Administrator") serves as the Fund's administrator under an Administration
Agreement. The Administration 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 qualifications and/or registrations to sell shares in all
states where the Fund does 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 and custodian); 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. All material administrative services are
provided by the Administrator and the Adviser provides only very limited
administrative services to the Fund. For its services to the Fund, the
Administrator receives a monthly fee at the following annual rate: 0.20% of the
first $50 million of the Fund's average daily net assets, 0.15% of the next $50
million, 0.10% of the next $50 million and 0.05% thereafter, subject to a
$30,000 minimum.
The Administrator also will act as the New Fund's administrator under a
new Administration Agreement. The new Administration Agreement will provides for
the Administrator to perform substantially the same duties as it does for the
Fund but under a different fee schedule. For its services, the Administrator
will receive an annual fee equal to 0.075% of the first $40 million of the New
Trust's average daily net assets, 0.05% of the next $40 million, 0.025% of the
next $40 million and 0.01% thereafter, subject to a $30,000 minimum.
Fund Custodian. The Provident Bank, Cincinnati, Ohio, acts as the
Fund's transfer agent and custodian. If the Reorganization occurs, the
agreements with The Provident Bank will be terminated and the new custodian and
transfer agent will assume these duties.
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New Fund Custodian. Investors Bank and Trust Company, Boston,
Massachusetts, will serve as the New Fund's transfer agent and custodian. It is
expected that the transition to the new custodian and transfer agent will be
accomplished with a minimum of disruption in services to shareholders.
New Fund Distributor. The New Fund's distributor for purposes of share
transactions will be First Fund Distributors, Inc. (the "Distributor"), a
broker-dealer affiliated with the Administrator. The Distributor currently
serves, without compensation, as the distributor for the Fund. The Distributor
will act, without compensation, as the New Fund's principal underwriter in a
continuous public offering of the New Fund's shares. The Distribution Agreement
between the New Fund and the Distributor continues in effect for periods not
exceeding one year if approved at least annually by (i) the New Trust's Trustees
or the vote of a majority of the outstanding shares of the New Fund (as defined
in the 1940 Act) and (ii) a majority of the New Trust's 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 60-days' written
notice, and is automatically terminated in the event of its assignment as
defined in the 1940 Act.
Financial Information. The New Fund is being organized as a separate
series of the New Trust and will have no assets, liabilities or operations prior
to the Reorganization. The Reorganization Plan provides for the New Fund to
issue shares in exchange for the assets and liabilities of the current Fund,
which shares will then be effectively transferred to shareholders to replace the
then-outstanding shares of the Fund. The Fund will then be liquidated.
Shareholders should review the financial data presented in the preliminary
Prospectus that accompanies this Proxy Statement.
Minimum Balances. Because of the relatively high cost of maintaining
smaller accounts, the New Fund reserves the right to make involuntary
redemptions of all shares in an account (other than retirement plan or Uniform
Gift to Minors Act accounts) at their then-current net asset value if at any
time the total investment, because of redemptions, does not have a value of at
least $2,000. The shareholder will be notified that the value of the account is
less than the required minimum and will be allowed at least 60 days to bring the
value of the account up to at least $2,000 before the redemption is processed.
Upon at least 60-days' prior written notice, the Fund may automatically redeem
an account when the aggregate value of an account falls below $800 because of
redemptions unless additional shares are purchased to increase the value of an
account to at least $1,000 before the end of the 60-day period. AFTER THE
REORGANIZATION, THE NEW FUND'S MINIMUM ACCOUNT BALANCE WILL APPLY TO ALL
SHAREHOLDERS.
If the Reorganization Plan is not approved by the shareholders of the
Fund at the Meeting, the Fund will continue to operate as a series of the Trust
and the current service providers will continue to provide services to the Fund.
Certain Comparative Information About the Proposed Investment Advisory Agreement
The Adviser has acted as investment adviser to the Fund pursuant to the
Current Advisory Agreement by and between the Trust and the Adviser dated
December 31, 1994. The Fund commenced operations on May 1, 1995.
The Proposed Advisory Agreement will be submitted for approval by a
majority vote of the Board of Trustees of the New Trust and of the "Independent
Trustees." The term "Independent Trustees" as used herein means those Trustees
who are not parties to such contract or agreement or interested persons of any
such party. If approved by the Adviser as the New Fund's initial shareholder,
the Proposed Advisory Agreement will become effective for the New Fund at the
time of the Reorganization.
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Terms of the Proposed Advisory Agreement.
General. The Proposed Advisory Agreement obligates the Adviser to: (1)
provide a program of continuous investment management for the New Fund in
accordance with the New Fund's investment objective, policies and limitations;
(2) make investment decisions for the New Fund; and (3) place orders to purchase
and sell securities for the New Fund, subject to the supervision of the New
Trust's Board of Trustees. The Proposed Advisory Agreement requires the Adviser
to pay out of its own resources the cost of providing office space and certain
limited administrative services reasonably necessary for the operation of the
New Fund other than those services provided by the Administrator. The Adviser
will pay any such expenses necessary to maintain the voluntary 1.20% operating
cap. Examples of limited administrative services provided by the Adviser include
negotiating contracts with service providers, working with legal counsel as
needed and monitoring the Administrator. See "General Information" above. The
Proposed Advisory Agreement provides that the Adviser is not responsible for
other expenses of operating the New Fund.
In performing its investment management services to the New Fund under
the Proposed Advisory Agreement, the Adviser will provide the New Fund with
ongoing investment guidance and policy direction, including oral and written
research, analysis, advice, statistical and economic data and judgments
regarding individual investments, general economic conditions and trends and
long-range investment policy. The Adviser will determine the securities,
instruments, repurchase agreements and other investments and techniques that the
New Fund will purchase, sell, enter into or use, and will provide an ongoing
evaluation of the New Fund's investments. The Adviser will determine what
portion of the New Fund's investments will be invested in securities and other
assets, and what portion, if any, should be held uninvested.
If approved by the initial shareholder of the New Fund, the Proposed
Advisory Agreement will continue for a period of not more than two years from
the later of September 30, 1996 or the date the New Fund registration statement
is declared effective by the Securities and Exchange Commission. Thereafter, it
will continue automatically for successive annual periods, provided such
continuance is specifically approved at least annually by (i) the New Trust's
Trustees or (ii) a vote of a "majority of the outstanding voting securities" of
the New Fund (as defined in the 1940 Act), provided that in either event the
continuance is also approved by a majority of the New Trust's Independent
Trustees by a vote cast in person at a meeting called for the purpose of voting
on such approval. Notwithstanding the foregoing, the Proposed Advisory Agreement
may be terminated (a) at any time without penalty by the New Fund upon the vote
of a majority of the New Trust's Trustees or by vote of the majority of the New
Fund's outstanding votes, upon 60-days' written notice to the Adviser or (b) by
the Adviser at any time without penalty, upon 60-days' written notice to the New
Fund. The Proposed Advisory Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
Fees and Expenses. As compensation for the services provided and
expenses assumed by the Adviser under the Proposed Advisory Agreement, the New
Fund will pay the Adviser at the end of each calendar month an advisory fee
equal to an annual rate of 0.75% of the New Fund's average daily net assets,
which is the same as the current advisory fee paid by the Fund. The "average
daily net assets" of the New Fund means the average of the values placed on the
New Fund's net assets as of 4:00 p.m. (Eastern time) on each day on which the
net asset value of the New Fund is determined consistent with the provisions of
the 1940 Act or, if the New Fund lawfully determines the value of its net assets
as of some other time on each business day, as of such other time.
The Adviser will not be responsible, except to the extent of the
reasonable compensation of such of the New Fund's employees as are officers or
employees of the Adviser whose services may be involved, for the following
expenses of the New Fund: fees and expenses incurred in connection with the
issuance, registration and transfer of its shares; brokerage and commission
expenses; all expenses of transfer, receipt, safekeeping, servicing and
accounting for the cash, securities and other property of the New Trust for the
benefit of the New Fund, including all fees and expenses of its custodian;
interest charges on any borrowings; costs and expenses of pricing and
calculating its daily net asset value and of maintaining its books of account
required under the 1940 Act; taxes, if any; expenditures in connection with
meetings of the New Fund's shareholders and the New Trust's Board of Trustees
that are properly payable by the New Fund; salaries and expenses of officers and
fees and expenses of members of the New Trust's Board of Trustees or members of
any advisory board or committee who are not members of, affiliated with or
interested persons of the Adviser; insurance premiums on property or
-8-
<PAGE>
personnel of the New Fund which inure to its benefit, including liability and
fidelity bond insurance; the cost of preparing and printing reports, proxy
statements, prospectuses and statements of additional information of the New
Fund or other communications for distribution to existing shareholders; legal,
auditing and accounting fees; trade association dues; fees and expenses
(including legal fees) of registering and maintaining registration of its shares
for sale under federal and applicable state and foreign securities laws; all
expenses of maintaining and servicing shareholder accounts, including all
charges for transfer, shareholder recordkeeping, dividend disbursing,
redemption, and other agents for the benefit of the New Fund, if any; all other
charges and costs of its operation plus any extraordinary and non-recurring
expenses; and all expenses which the New Trust or the New Fund agrees to bear in
any distribution agreement or in any future plan adopted with respect to the New
Fund pursuant to Rule 12b-1 under the 1940 Act.
Expense Cap. Pursuant to the Proposed Advisory Agreement, the Adviser
has voluntarily agreed to limit total operating expenses of the New Fund to an
annual rate of 1.20% of average daily net assets for the then-current fiscal
year. The Fund currently does not have an expense cap in effect (except as may
be imposed by state law at levels higher than 1.20%). The Adviser may reduce any
portion of the compensation due to it pursuant to the Proposed Advisory
Agreement and may agree to make payments to limit the expenses that are the
responsibility of the New Fund under the Proposed Advisory Agreement.
Reimbursement of Adviser. The Proposed Advisory Agreement will provide
that any fee withheld from the Adviser or any payment of a New Fund expense made
by the Adviser may be reimbursed by the New Fund to the Adviser only in the
following three fiscal years provided that the New Fund is able to effect such
reimbursement and remain in compliance with the most restrictive state
limitation or any more restrictive limitation to which the Adviser has agreed.
Any such reimbursement will require prior approval by the members of the New
Trust's Board of Trustees who are not affiliated with the Adviser at the time
any such reimbursement request is made.
Other Information Regarding the Current and Proposed Advisory
Agreements. Under the Proposed Advisory Agreement, the Adviser will be
responsible for providing substantially the same services to the New Fund that
it now provides to the Fund under the Current Advisory Agreement. The Proposed
Advisory Agreement contains the same provisions as the Current Advisory
Agreement regarding renewal.
During the fiscal year ended December 31, 1995, the Fund paid $90,944
in advisory fees to the Adviser.
Both the Current Advisory Agreement and the Proposed Advisory Agreement
provide that the Adviser will not be liable to the Trust or to the Fund, or the
New Trust or the New Fund, as the case may be, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the Adviser's
obligations or duties under the agreement. In addition, the Proposed Advisory
Agreement provides that the New Fund will indemnify the Adviser and its
partners, directors, officers and employees (each an "Indemnified Party")
against any loss, liability, claim, damage or expense, including reasonable
counsel fees, arising out of the Indemnified Party's performance or
non-performance of any duties under the Proposed Advisory Agreement. However,
this indemnification will not protect any Indemnified Party against liability
incurred by reason of willful misfeasance, bad faith or gross negligent
performance of duties under the Proposed Advisory Agreement or by reason of
reckless disregard of obligations and duties under the Proposed Advisory
Agreement.
Portfolio Transactions. Pursuant to the Current Advisory Agreement, the
Adviser selects the brokers and dealers through which the Fund executes its
portfolio transactions. The Proposed Advisory Agreement is similar to the
Current Advisory Agreement in this respect. The Adviser will select the brokers
and dealers that will execute portfolio transactions for the New Fund. The
Adviser's determinations are subject to policies established by the Board of
Trustees of the Trust and, for the New Fund, will be subject to policies
established by the Board of Trustees of the New Trust. The Adviser currently
seeks, and under the Proposed Advisory Agreement will seek, to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of execution, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Fund (and the New Fund) will
not necessarily pay the lowest spread or commission available. The Adviser seeks
to select brokers or dealers that offer the Fund (and the New
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<PAGE>
Fund) best price and execution or other services which benefit the Fund (or the
New Fund). In the case of securities traded in the over-the-counter market, the
Adviser expects normally to seek to select primary market makers.
Under both the Current Advisory Agreement and the Proposed Advisory
Agreement, the Adviser may, consistent with the interests of the Fund (or the
New Fund), select brokers on the basis of the research services they provide to
the Adviser. Such services may include analyses of the business or prospects of
a company, industry or economic sector, or statistical and pricing services.
Information so received by the Adviser will be in addition to and not in lieu of
the services required to be performed by the Adviser under the Current Advisory
Agreement or the Proposed Advisory Agreement. If, in the judgment of the
Adviser, the Fund or the New Fund or other accounts managed by the Adviser will
be benefitted by supplemental research services, the Adviser is authorized to
pay brokerage commissions to a broker furnishing such services that are in
excess of commissions that another broker may have charged for effecting the
same transaction. These research services include advice, either directly or
through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The Adviser's
expenses will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to the account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
the Fund (or the New Fund).
In accordance with the rules of the National Association of Securities
Dealers, Inc., the New Fund also may direct brokerage to broker-dealers who
facilitate sales of the New Fund's shares, subject to also obtaining best
execution as described above from such broker-dealer.
During the fiscal year ended December 31, 1995, the Fund paid a total
of $21,458 in brokerage commissions.
* * *
INFORMATION ABOUT THE ADVISER
The Adviser, a registered investment adviser, is a California limited
partnership. The Adviser's address is 1800 Avenue of the Stars, Second Floor,
Los Angeles, California 90067. The Adviser currently manages approximately $2.4
billion for individuals, retirement benefit plans, trusts, charitable
organizations, and corporations.
Mr. Allan Rudnick is principally responsible for the management of the
Funds' portfolios. Mr. Rudnick, Chief Investment Officer of the Adviser, has
managed the Fund's portfolio since its inception in 1995.
Information regarding the principal executive officers and directors of
the Adviser is set forth in the table below. The address of each principal
executive officer is 1800 Avenue of the Stars, Second Floor, Los Angeles,
California 90067.
Name Position with the Adviser
- ---- -------------------------
Richard A. Kayne Principal and President
John E. Anderson Principal
William T. Miller Chief Financial Officer
Allan M. Rudnick Principal, Chief Investment Officer
and a portfolio manager
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<PAGE>
GENERAL INFORMATION
Share Ownership
To the best of the Trust's knowledge, as of September 12, 1996 (the
record date for the Meeting), the Fund's shareholders of record and beneficial
owners who owned more than 5% of the Fund's shares were as follows:
Shareholder Shares Owned Percentage of Fund's
- ----------- ------------ --------------------
Outstanding Shares
------------------
Nations Bank Trustee FBO
Big B Inc. Profit Sharing
401K Retirement Plan
715 Peachtree St., 5th Floor
Atlanta, GA 30060 208,733 11.80%
Tronstein Trust B
Tronstein, Arletta
1800 Avenue of the Stars
Suite 1400
Los Angeles, CA 90067-4216 105,430 5.93%
As of September 12, 1996, the officers and trustees of the Trust and
the Adviser, as a group, beneficially owned less than 1% of the outstanding
shares of the Fund.
Shareholders' Proposals
As a Massachusetts business trust, the current Trust is not required to
hold annual shareholder meetings. Similarly, the New Trust is not required to
hold annual meetings. Accordingly, the New Trust does not expect to hold annual
meetings of shareholders. Shareholders who wish to present a proposal for action
at the next meeting or suggestions as to nominees for the Trust's Board of
Trustees or, following the Reorganization, the New Trust's Board of Trustees,
should submit the proposal or suggestions to the Trust (or the New Trust) to be
considered for inclusion in the proxy statement and form of proxy for such
meeting as is held. It is recommended that shareholders submit their proposals
by Certified Mail - Return Receipt Requested. In order for a shareholder's
proposal to be eligible to be considered for inclusion in a proxy statement for
such meeting, that proposal must be received by the New Trust at least 120 days
before the date of the meeting. The submission of a proposal by a shareholder
does not ensure that such proposal will be included in the proxy statement
because such proposal must also comply with certain rules and regulations
applicable to shareholders' proposals.
Other Matters
No representative of the accountants for the Fund for the current year
and for the most recently completed fiscal year is expected to be present at the
Meeting or to be available to respond to questions at the Meeting.
The Trustees do not know of any matters to be presented at the Meeting
other than those set forth in this Proxy Statement. If any other business should
come before the Meeting, the persons named in the accompanying proxy will vote
thereon in accordance with their best judgment.
By Order of the Trustees,
Robin Berger
Secretary
Professionally Managed Portfolios
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<PAGE>
EXHIBIT A
Agreement and Plan of Reorganization
------------------------------------
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated as of September 17, 1996
(the "Agreement") between PROFESSIONALLY MANAGED PORTFOLIOS, a Massachusetts
business trust (the "PMP Trust") and KAYNE ANDERSON MUTUAL FUNDS, a Delaware
business trust (the "KA Trust").
WHEREAS, the PMP Trust was organized under Massachusetts law as a
business trust under an Agreement and Declaration of Trust dated February 17,
1987. The PMP Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The PMP
Trust has authorized capital consisting of an unlimited number of shares of
beneficial interest, par value $.01 per share, of separate series of the PMP
Trust; and
WHEREAS, the KA Trust has been organized under Delaware law as a
business trust under an Agreement and Declaration of Trust dated May 24, 1996.
The KA Trust is an open-end management investment company registered under the
1940 Act. The KA Trust has authorized capital consisting of an unlimited number
of shares of beneficial interest, par value of $.01 per share, of separate
series of the KA Trust;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree to effect the conversion of the Kayne,
Anderson Rising Dividends Fund (the "Old Fund"), a series of the PMP Trust, into
the Kayne Anderson Rising Dividends Fund (the "New Fund"), a newly created shell
series of the KA Trust as follows:
1. Plan of Reorganization. At the Effective Time of the Reorganization (as
defined in Section 11), the PMP Trust shall transfer all of the assets of the
Old Fund to the KA Trust on behalf of the New Fund, and on behalf of the New
Fund the KA Trust shall acquire all such assets, and shall assume all of the Old
Fund's liabilities in exchange for delivery to the Old Fund by the KA Trust of a
number of units of beneficial interest of the New Fund (the "New Shares") (both
full and fractional) equivalent to the number of shares of beneficial interest
of the Old Fund outstanding immediately prior to the Effective Time of the
Reorganization (the "Old Shares") (the "Reorganization").
2. Assumption of Liabilities. All debts, liabilities, obligations and duties of
the Old Fund, to the extent that they exist at or after the Effective Time of
the Reorganization, shall after the Effective Time of the Reorganization be
assumed by the KA Trust on behalf of the New Fund and may be enforced against
the KA Trust to the same extent as if the same had been incurred by the KA
Trust.
3. Transfer of Assets. The assets of the Old Fund to be acquired by the KA Trust
on behalf of the New Fund and allocated thereto shall include, without
limitation, all cash, cash equivalents, securities, receivables (including
interest and dividends receivable), any claims or rights of action or rights to
register shares under applicable securities laws, any books or records of the
Old Fund and all other property owned by the Old Fund on the books of the Old
Fund at the Effective Time of the Reorganization.
<PAGE>
4. Liquidation of the Old Fund. At the Effective Time of the Reorganization, the
Old Fund will liquidate and the New Shares (both full and fractional) received
by the Old Fund will be distributed to the shareholders of record as of the
Effective Time of the Reorganization of the Old Fund in exchange for the
respective Old Shares. Each shareholder of the Old Fund will receive a number of
New Shares equal to the number of Old Shares held by that shareholder at the
Effective Time of the Reorganization. KA Trust shall establish an open account
on the share records of the New Fund in the name of each shareholder of the Old
Fund and representing the respective number of New Shares due such shareholder.
As soon as practicable after the Effective Time of the Reorganization, the PMP
Trust shall take, in accordance with Massachusetts law, all steps as shall be
necessary and proper to effect a complete termination of the Old Fund.
5. Issued Share. Before the Effective Time of the Reorganization, a single share
of the New Fund shall be issued to Kayne Anderson Investment Management, L.P.
("Kayne Anderson") the adviser-designate of the New Fund, which shall then take
certain shareholder actions as authorized by shareholders of the Old Fund
pursuant to Section 10(e) hereof. Promptly thereafter and before the Effective
Time of the Reorganization, the New Share held by Kayne Anderson shall be
redeemed and canceled by the KA Trust.
6. Representations, Warranties and Covenants of the KA Trust. The KA Trust
represents and warrants to the Old Fund and the PMP Trust as follows:
(a) Organization, Existence, etc. The KA Trust is a business trust duly
established and validly existing in conformity with the laws of
Delaware and has the power to carry on its business as it is now being
conducted.
(b) Registration as Investment Company. The KA Trust is (or will be
before the Effective Time of the Reorganization) registered under the
1940 Act as an open-end management investment company; such
registration has not been revoked or rescinded and is in full force and
effect.
(c) Shares to be Issued Upon Reorganization. The KA Trust's New Shares
to be issued in connection with the Reorganization have been duly
authorized and upon consummation of the Reorganization will be validly
issued, fully paid and nonassessable. Except for the share issued
pursuant to Section 5 above, there shall be no issued and outstanding
New Shares or any other securities issued by the New Fund before the
Effective Time of the Reorganization.
(d) Authority Relative to this Agreement. The KA Trust has the power to
enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the
KA Trust's Board of Trustees and no other proceedings by the KA Trust
are necessary to authorize its officers to effectuate this Agreement
and the transactions contemplated hereby. The KA Trust is not a party
to or obligated under any charter, by-law, indenture or contract
provision or any other commitment or obligation, or subject to any
order or decree, which would be violated by its executing and carrying
out this Agreement.
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<PAGE>
(e) Liabilities. There are no liabilities of the KA Trust, whether or
not determined or determinable, other than liabilities incurred in the
ordinary course of business or otherwise previously disclosed to the
Old Fund in writing. There are no liabilities of the KA Trust of any
kind for which the holders of the Old Shares shall become responsible
as the result of this Agreement or the consummation of the transactions
contemplated hereby or otherwise.
(f) Litigation. There are no claims, actions, suits or proceedings
pending or, to the knowledge of the KA Trust, threatened which would
adversely affect the KA Trust or its assets or business or which would
prevent or hinder consummation of the transactions contemplated hereby
or which upon such consummation would adversely affect the New Fund.
(g) Contracts. Except for this Agreement and contracts and agreements
disclosed on Schedule 6(g) hereto, under which no default exists, the
KA Trust is not a party to or subject to any material contract, debt
instrument, plan, lease, franchise, license or permit of any kind or
nature whatsoever specifically with respect to the New Fund.
(h) Taxes. As of the Effective Time of the Reorganization, all federal
and other tax returns and reports of the KA Trust required by law to
have been filed shall have been filed, and all taxes shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the KA Trust's knowledge, no such return is
currently under audit and no assessment has been asserted with respect
to any of such returns.
(i) Formation of New Fund. Before the Effective Time of the
Reorganization, the KA Trust will take all steps necessary to cause the
formation of a new series, to be called the Kayne Anderson Rising
Dividends Fund (defined herein as the New Fund). The New Fund will have
substantially the same investment objective and policies, and the same
investment adviser as the Old Fund.
(j) Proxy Statement. All information contained in the proxy statement
to be supplied to shareholders of the Old Fund in connection with the
Reorganization that relates to the KA Trust, the New Fund, Kayne
Anderson, the Investment Advisory Agreement between the KA Trust and
Kayne Anderson, the agreements between the KA Trust and other service
providers, the effects, tax and otherwise, of the Reorganization on
Fund shareholders and other matters known primarily to KA Trust or
Kayne Anderson (i) is true and correct in all material respects and
(ii) does not contain (and will not contain at the time the proxy
statement is mailed to Fund shareholders) any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
7. Representations, Warranties and Covenants of the PMP Trust. The PMP
Trust represents and warrants to the KA Trust as follows:
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<PAGE>
(a) Organization, Existence, etc. The PMP Trust is a business trust
duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts and has the power to carry on its
business as it is now being conducted.
(b) Registration as Investment Company. The PMP Trust is registered
under the 1940 Act as an open-end management investment company; such
registration has not been revoked or rescinded and is in full force and
effect. The Old Fund is a separate series of the PMP Trust
(c) Financial Statements. The financial statements of the Old Fund for
the year ended December 31, 1995 (the "1995 Old Fund Financial
Statements") were audited by independent public accountants whose
report dated February 15, 1996 expressed an unqualified opinion
thereon. The financial statements of the Old Fund for the six months
ended June 30, 1996 (the "June 1996 Old Fund Financial Statements," and
together with the 1995 Old Fund Financial Statements, the "Old Fund
Financial Statements") were prepared by management without an audit. In
management's opinion, all necessary adjustments were made to the June
1996 Old Fund Financial Statements to present fairly, in all material
respects, the financial position of the Old Fund as of June 30, 1996,
the results of its operations, the changes in its net assets and the
financial highlights for the six months ended June 30, 1996, in
conformity with generally accepted accounting principles.
(d) Authority Relative to this Agreement. The PMP Trust on behalf of
the Old Fund has the power to enter into this Agreement and to carry
out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by the PMP Trust's Board of Trustees, and,
except for approval by the shareholders of the Old Fund, no other
proceedings by the PMP Trust or the Old Fund are necessary to authorize
its officers to effectuate this Agreement and the transactions
contemplated hereby. Neither the PMP Trust nor the Old Fund is a party
to or obligated under any charter, by-law, indenture or contract
provision or any other commitment or obligation, or subject to any
order or decree, which would be violated by its executing and carrying
out this Agreement.
(e) Liabilities. Except as to matters known to Kayne Anderson but not
known or disclosed to the PMP Trust, there are no material liabilities
of the Old Fund whether or not determined or determinable, other than
liabilities disclosed or provided for in the Old Fund Financial
Statements and liabilities incurred in the ordinary course of business
after June 30, 1996.
(f) Litigation. There are no claims, actions, suits or proceedings
pending or, to the knowledge of the PMP Trust, threatened which would
adversely affect the Old Fund or its assets or business or which would
prevent or hinder consummation of the transactions contemplated hereby
or which upon such consummation would adversely affect the New Fund.
-4-
<PAGE>
(g) Contracts. Except for contracts and agreements disclosed on
Schedule 7(g) hereto, under which no default exists, the Old Fund is
not a party to or, as a series of PMP Trust or otherwise, subject to
any material contract, debt instrument, plan, lease, franchise, license
or permit of any kind or nature whatsoever.
(h) Taxes. As of the Effective Time of the Reorganization, all federal
and other tax returns and reports of the Old Fund required by law to
have been filed shall have been filed, and all taxes of the Old Fund
shall have been paid so far as due, or provision shall have been made
for the payment thereof, and to the best of the PMP Trust's knowledge,
no such return is currently under audit and no assessment has been
asserted with respect to any of such returns. The Old Fund has
qualified and elected, and continues to quality, to be treated as a
regulated investment company under the provisions of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code").
8. Conditions Precedent to Obligations of the PMP Trust.
(a) All representations and warranties of the KA Trust contained in
this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time of the
Reorganization, with the same force and effect as if made on and as of
the Effective Time of the Reorganization.
(b) The PMP Trust shall have received a certificate from an officer of
the KA Trust dated the Effective Time of the Reorganization, addressed
to and in form and substance satisfactory to the PMP Trust, to the
effect that: (i) the KA Trust is a business trust duly organized and
validly existing under the laws of the State of Delaware; (ii) the KA
Trust is an open-end management investment company registered under the
1940 Act; (iii) this Agreement and the Reorganization provided for
herein have been duly authorized and approved by all requisite action
of the KA Trust and this Agreement has been duly executed and delivered
by the KA Trust; (iv) this Agreement is a valid and binding obligation
of the KA Trust, enforceable against the KA Trust in accordance with
its terms, subject, as to enforcement, (x) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and (y) to
general principles of equity, whether such enforceability is considered
in a proceeding in equity or at law; (v) no governmental consents,
approvals, authorizations, registrations, declarations or filings are
required for the execution and delivery of this Agreement on behalf of
the KA Trust and consummation by the KA Trust of the Reorganization as
provided in this Agreement except such as have been obtained or made;
and (vi) the New Shares to be issued in the Reorganization have been
duly authorized and upon issuance thereof in accordance with this
Agreement will be validly issued, fully paid and nonassessable.
-5-
<PAGE>
9. Conditions Precedent to Obligations of the KA Trust.
(a) All representations and warranties of the PMP Trust contained in
this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time of the
Reorganization, with the same force and effect as if made on and as of
the Effective Time of the Reorganization.
(b) The KA Trust shall have received a certificate from an officer of
the PMP Trust dated the Effective Time of the Reorganization, addressed
to and in form and substance satisfactory to the KA Trust, to the
effect that (i) the PMP Trust is a business trust duly organized and
validly existing under the laws of the Commonwealth of Massachusetts;
(ii) the PMP Trust is an open-end management investment company
registered under the 1940 Act; (iii) this Agreement and the
Reorganization provided for herein have been duly authorized and
approved by all requisite action of the PMP Trust and this Agreement
has been duly executed and delivered by the PMP Trust; (iv) this
Agreement is a valid and binding obligation of the PMP Trust,
enforceable against the PMP Trust in accordance with its terms,
subject, as to enforcement, (x) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and (y) to
general principles of equity, whether such enforceability is considered
in a proceeding in equity or at law; and (v) no governmental consents,
approvals, authorizations, registrations, declarations or filings are
required for the execution and delivery of this Agreement on behalf of
the PMP Trust and consummation by the PMP Trust of the Reorganization
as provided in this Agreement except such as have been obtained or
made.
10. Further Conditions Precedent to Obligations of the PMP Trust and the KA
Trust. The obligations of the PMP Trust and the KA Trust to effectuate
this Agreement shall be subject to the satisfaction of each of the
following conditions:
(a) Such authority from the Securities and Exchange Commission (the
"SEC") and state securities commissions as may be necessary to permit
the parties to carry out the transactions contemplated by this
Agreement shall have been received.
(b) The Registration Statement of the KA Trust with respect to the New
Fund shall have been filed with the SEC and shall have become
effective, and no stop-order suspending the effectiveness of the
Registration Statement or amendment thereto shall have been issued, and
no proceeding for that purpose shall have been initiated or threatened
by the SEC (and not withdrawn or terminated).
(c) The New Shares shall have been duly qualified for offering to the
public in all states or jurisdictions of the United States where
required to permit the transfer contemplated by this Agreement to be
consummated.
-6-
<PAGE>
(d) The KA Trust and the PMP Trust shall have been advised by Heller,
Ehrman, White & McAuliffe on or before the Effective Time of the
Reorganization substantially to the effect that for federal income tax
purposes:
(1) No gain or loss will be recognized to the Old Fund upon
the transfer of its assets to the KA Trust in exchange solely
for the New Shares and the assumption by the KA Trust on
behalf of the New Fund of the Old Fund's liabilities;
(2) No gain or loss will be recognized to the New Fund on the
KA Trust's receipt of the Old Fund's assets in exchange for
the New Shares and the assumption by the New Fund of the Old
Fund's liabilities;
(3) The basis of the Old Fund's assets in the New Fund's hands
will be the same as the basis of those assets in the Old
Fund's hands immediately before the Reorganization;
(4) The New Fund's holding period for the assets transferred
to the KA Trust by the Old Fund will include the holding
period of those assets in the Old Fund's hands immediately
before the Reorganization;
(5) No gain or loss will be recognized to the Old Fund on the
distribution of the New Shares to the Old Fund shareholders in
exchange for their Old Shares;
(6) No gain or loss will be recognized to an Old Fund
shareholder as a result of the Old Fund's distribution of New
Shares to that Old Fund shareholder in exchange for the Old
Fund shareholder's Old Shares;
(7) The aggregate basis of the New Shares received by an Old
Fund shareholder will be the same as the aggregate adjusted
basis of that Old Fund shareholder's Old Shares surrendered in
exchange therefor; and
(8) The holding period of the New Shares received by an Old
Fund shareholder will include the Old Fund shareholder's
holding period for the Old Fund shareholder's Old Shares
surrendered in exchange therefor, provided that said Old
Shares were held as capital assets on the Effective Date of
the Reorganization.
(e) This Agreement and the Reorganization contemplated hereby shall
have been approved by the affirmative vote of holders of at least a
majority of the outstanding shares of the Old Fund entitled to vote at
an annual or special meeting, and Kayne Anderson shall have voted as
the sole shareholder of the New Fund to approve an Investment
Management Agreement relating to the New Fund (the "Advisory
Agreement") between the KA Trust and Kayne Anderson.
-7-
<PAGE>
(f) The Board of Trustees of the PMP Trust shall have made the
determinations required by Rule 17a-8 under the 1940 Act and taken such
other actions as may be necessary to consummate the transactions
described here.
(g) The Board of Trustees of the KA Trust shall have taken the
following actions at a meeting duly called for such purposes:
(1) approval of the Advisory Agreement with respect to the New
Fund;
(2) approval of the Underwriting/Distribution Agreement
between the KA Trust and First Fund Distributors, Inc., with
respect to the New Fund;
(3) approval of a Transfer Agency Agreement between the KA
Trust and Investors Bank & Trust Company with respect to the
New Fund;
(4) approval of the Custodian Agreement between the KA Trust
and Investors Bank & Trust Company with respect to the New
Fund;
(5) authorization of the issuance by the KA Trust, prior to
the Effective Time of the Reorganization, of one share of the
New Fund to Kayne Anderson in consideration for the current
net asset value of such share for the purpose of enabling
Kayne Anderson to vote on the matter referred to in Paragraph
(e) of this Section 10;
(6) submission of the matters referred to in Paragraph (e) of
this Section 10 to Kayne Anderson as the sole shareholder of
the New Fund; and
(7) authorization of the issuance by the KA Trust of New
Shares at the Effective Time of the Reorganization in exchange
for the assets of the Old Fund pursuant to the terms and
provisions of this Agreement.
(h) A dividend shall have been declared for the shareholders of the Old
Fund in an amount sufficient to enable the Old Fund to qualify as a
"regulated investment company" under Subchapter M of the Code, for the
Old Fund's current tax year.
At any time before the Effective Time of the Reorganization, any of the
foregoing conditions may be waived by the Boards of Trustees of the PMP Trust
and the KA Trust.
11. Effective Time of the Reorganization. The exchange of the Old Fund's assets
for New Shares of the KA Trust and the distribution by the Old Fund of the
New Shares in exchange for the New Shares shall be effective as of the close
of business on September 30, 1996 or at such other time and date as fixed by
the mutual consent of the parties (the "Effective Time of the
Reorganization").
12. Termination. This Agreement and the transactions contemplated hereby,
whether or not they have been approved by the shareholders of the Old Fund,
may be terminated and abandoned by resolution of the Board of Trustees of
the PMP Trust or the Board of Trustees
-8-
<PAGE>
of the KA Trust, at any time before the Effective Time of the Reorganization, if
circumstances should develop that, in the opinion of such Board, make proceeding
with the Agreement inadvisable.
13. Amendment. This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the parties; provided,
however, that following the Shareholders' Meeting called on behalf of the
Old Fund pursuant to Section 10(e) hereof, no such amendment may have the
effect of changing the provisions for determining the number of New Shares
to be paid to the Old Fund shareholders under this Agreement to the
detriment of the Old Fund shareholders without their further approval.
14. Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the State of California.
15. Headings, Counterparts, Assignment.
(a) The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement
(b) This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation other
than the parties hereto and their respective successors and assigns any
rights or remedies under or by reason of this Agreement.
16. Entire Agreement. This Agreement constitutes the entire agreement between
the parties as to the subject matter hereof. The representations, warranties
and covenants contained herein or in any document delivered pursuant hereto
or in connection herewith shall survive the consummation of the transactions
contemplated hereunder.
17. Further Assurances. The KA Trust and the PMP Trust shall take such further
action as may be necessary or desirable and proper to consummate the
transactions contemplated hereby.
18. Binding Nature of Agreement. As provided in the PMP Trust's Declaration of
Trust on file with the Secretary of State of the Commonwealth of
Massachusetts, this Agreement was executed by the undersigned officer of the
PMP Trust, on behalf of the PMP Trust, as officer and not individually and
the obligations of this Agreement are not binding upon the undersigned
officer individually, but are binding only upon the assets and property of
the PMP Trust.
-9-
<PAGE>
19. Covenant of the PMP Trust. The PMP Trust shall have delivered to the KA
Trust prior to noon on the first business day after the Effective Time of
the Reorganization a statement of the Old Fund's assets and liabilities as
of September 30, 1996 as reflected on the books of the Old Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
PROFESSIONALLY MANAGED PORTFOLIOS,
on behalf of KAYNE, ANDERSON RISING
DIVIDENDS FUND
By:
-------------------------------------
Title: President
KAYNE ANDERSON MUTUAL FUNDS,
on behalf of KAYNE ANDERSON RISING
DIVIDENDS FUND
By:
-------------------------------------
Title: Sole Trustee
-10-
<PAGE>
Schedule 6(g)
Investment Advisory Agreement between Kayne Anderson Mutual Funds on behalf of
the New Fund and Kayne Anderson Investment Management, L.P. (effective September
30, 1996).
Custody Agreement between Kayne Anderson Mutual Funds on behalf of the New Fund
and Investors Bank & Trust Company (effective September 30, 1996).
Fund Accounting Agreement between Kayne Anderson Mutual Funds on behalf of the
New Fund and Investment Company Administration Corporation (effective September
30, 1996).
Transfer Agency Agreement between Kayne Anderson Mutual Funds on behalf of the
New Fund and Investors Bank & Trust Company (effective September 30, 1996).
Underwriting/Distribution Agreement between Kayne Anderson Mutual Funds on
behalf of the New Fund and First Fund Distributors, Inc. (effective September
30, 1996).
-11-
<PAGE>
Schedule 7(g)
Investment Advisory Contract between the PMP Trust on behalf of the Old Fund and
Kayne Anderson Investment Management, L.P. dated December 31, 1994.
Custody Agreement between the PMP Trust on behalf of the Old Fund and The
Provident Bank dated March 9, 1992.
Shareholder Servicing, Transfer, Dividend Disbursing, and Financial Servicing
Agent Contract ("Agency Agreement") between the PMP Trust on behalf of the Old
Fund and The Provident Bank dated March 9, 1992.
Administration Agreement between the PMP Trust on behalf of the Old Fund and
Investment Company Administration Corporation dated March 8, 1996.
-12-
<PAGE>
Officer's Certificate
The undersigned officer of Professionally Managed Portfolios ("PMP") hereby
certifies as follows:
(l) PMP is a business trust duly organized and validly existing under the laws
of the Commonwealth of Massachusetts.
(2) PMP is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
(3) The Agreement and Plan of Reorganization between PMP and Kayne Anderson
Mutual Funds and the transactions contemplated thereby have been duly authorized
and approved by all requisite action of PMP and the Agreement and Plan of
Reorganization has been duly executed and delivered by PMP.
(4) The Agreement and Plan of Reorganization is a valid and binding obligation
of PMP, enforceable against PMP in accordance with its terms, subject as to
enforcement, (x) to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and (y) to general principles of equity, whether such
enforceability is considered in a proceeding in equity or at law.
(5) No government consents, approvals, authorizations, registrations,
declarations or filings are required for the execution and delivery of the
Agreement and Plan of Reorganization on behalf of PMP and the consummation by
PMP of the reorganization as provided in the Agreement and Plan of
Reorganization except such as have been obtained or made.
In witness whereof, the undersigned has hereunto set his hand this
_____ day of September, 1996.
---------------------------------
Steven J. Paggioli, President
Professionally Managed Portfolios
-13-
<PAGE>
Officer's Certificate
The undersigned officer of Kayne Anderson Mutual Funds ("KA Trust") hereby
certifies as follows:
(l) KA Trust is a business trust duly organized and validly existing under the
laws of the State of Delaware.
(2) KA Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
(3) The Agreement and Plan of Reorganization between KA Trust and Professionally
Managed Portfolios and the transactions contemplated thereby have been duly
authorized and approved by all requisite action of KA Trust and the Agreement
and Plan of Reorganization has been duly executed and delivered by KA Trust.
(4) The Agreement and Plan of Reorganization is a valid and binding obligation
of KA Trust, enforceable against KA Trust in accordance with its terms, subject
as to enforcement, (x) to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and (y) to general principles of equity, whether such
enforceability is considered in a proceeding in equity or at law.
(5) No government consents, approvals, authorizations, registrations,
declarations or filings are required for the execution and delivery of the
Agreement and Plan of Reorganization on behalf of KA Trust and the consummation
by KA Trust of the reorganization as provided in the Agreement and Plan of
Reorganization except such as have been obtained or made.
In witness whereof, the undersigned has hereunto set his hand this
_____ day of September, 1996.
---------------------------------
William T. Miller, Treasurer
Kayne Anderson Mutual Funds
-14-
<PAGE>
Certificate
The undersigned does hereby certify that he is the duly elected
Secretary of Professionally Managed Portfolios, a Massachusetts business trust
("PMP"), and the undersigned does further certify that the resolutions set forth
below were duly adopted by the Board of Trustees of PMP at the meeting of said
Board held on August 20, 1996 and such resolutions are in full force and effect
on the date hereof.
Whereas, the Board of Trustees has reviewed the proposed reorganization
whereby (1) the assets of the Kayne, Anderson Rising Dividends Fund
(the "Old Fund") would be transferred to a newly-formed series (the
"New Fund") of Kayne Anderson Mutual Funds in exchange for shares of
the New Fund and the assumption by the New Fund of liabilities of the
Old Fund and (2) Old Fund shareholders would receive New Fund shares,
on a share for share basis, in exchange for their Old Fund shares;
Resolved, that it is hereby determined that the participation of the
Old Fund and PMP in the proposed reorganization is in the best
interests of the Old Fund;
Further resolved, that it is hereby determined that the interests of
the existing shareholders of the Old Fund and PMP will not be diluted
as a result of the consummation of the proposed reorganization.
In witness whereof, the undersigned has hereunto set his hand this ___
day of September, 1996.
---------------------------------
Robin Berger, Secretary
Professionally Managed Portfolios
-15-
<PAGE>
Certificate
The undersigned does hereby certify that he is the duly elected
Secretary of Professionally Managed Portfolios, a Massachusetts business trust,
and the undersigned does further certify that attached hereto as Exhibit A is a
true, complete and correct copy of the minutes of the special meeting of
shareholders of the Kayne, Anderson Rising Dividends Fund series of
Professionally Managed Portfolios held on September __, 1996.
In witness whereof, the undersigned has hereunto set his hand this ___
day of September, 1996.
---------------------------------
Robin Berger, Secretary
Professionally Managed Portfolios
-16-
<PAGE>
EXHIBIT B
Preliminary Prospectus for the New Fund
---------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
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 STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION -- DATED SEPTEMBER 17, 1996
KAYNE ANDERSON MUTUAL FUNDS
Kayne Anderson Rising Dividends Fund
Kayne Anderson Small-Mid Cap Rising Dividends Fund
Kayne Anderson International Rising Dividends Fund
Kayne Anderson Intermediate Total Return Bond Fund
Kayne Anderson Intermediate Tax-Free Bond Fund
Kayne Anderson Mutual Funds (the "Trust") is an open-end investment company
consisting of separate diversified series, five of which are offered through
this prospectus (the "Funds"). Each Fund has its own objective, assets and
liabilities. Kayne Anderson Investment Management, L.P. ("Kayne Anderson" or the
"Adviser") serves as investment adviser to the Funds.
The Rising Dividends Fund seeks long-term capital appreciation, with dividend
income as a secondary consideration. This Fund invests primarily in equity
securities, usually common stocks, of companies of all sizes.
The Small-Mid Cap Rising Dividends Fund seeks long-term capital appreciation,
with dividend income as a secondary consideration. This Fund invests primarily
in equity securities, usually common stocks, of small and mid capitalization
domestic companies, which the Fund currently considers to be companies having
total market capitalizations of not more than $3 billion.
The International Rising Dividends Fund seeks long-term capital appreciation,
with dividend income as a secondary consideration. This Fund invests primarily
in equity securities, usually common stocks, of companies outside the U.S.
generally having total market capitalizations of $1 billion or more.
The Intermediate Total Return Bond Fund seeks current income with capital
appreciation as a secondary consideration. This Fund invests primarily in
investment grade debt securities and seeks to maintain an average maturity of
three to ten years.
The Intermediate Tax-Free Bond Fund seeks current income exempt from federal
income tax consistent with preservation of capital. This Fund invests primarily
in investment grade debt securities and may maintain an average maturity of more
than ten years.
This prospectus sets forth the basic information that prospective investors
should know before investing in a Fund. Investors should read this prospectus
carefully and retain it for future reference. A Statement of Additional
Information dated September __, 1996, as may be amended from time to time, has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus. You may obtain that Statement of Additional
Information without charge by writing to the Funds at the address noted below or
by calling (800) __________.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Kayne Anderson Mutual Funds
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
(800) ___________
Prospectus dated September __, 1996
<PAGE>
TABLE OF CONTENTS
SUMMARY OF EXPENSES AND EXAMPLE...............................................1
PROSPECTUS SUMMARY............................................................2
FINANCIAL HIGHLIGHTS..........................................................4
INVESTMENT OBJECTIVES AND POLICIES............................................5
The Rising Dividends Fund...................................................5
The Small-Mid Cap Rising Dividends Fund.....................................5
The International Rising Dividends Fund.....................................5
The Intermediate Total Return Bond Fund.....................................7
The Intermediate Tax-Free Bond Fund.........................................7
Additional Investment Considerations........................................8
RISK CONSIDERATIONS...........................................................9
PORTFOLIO SECURITIES AND
INVESTMENT TECHNIQUES........................................................11
ORGANIZATION AND MANAGEMENT..................................................17
PURCHASING SHARES............................................................19
EXCHANGE OF SHARES...........................................................22
SELLING SHARES (REDEMPTIONS).................................................22
SHAREHOLDER SERVICES.........................................................25
SHARE PRICE CALCULATION......................................................25
DIVIDENDS, DISTRIBUTIONS AND TAX
STATUS.......................................................................26
PERFORMANCE INFORMATION......................................................27
GENERAL INFORMATION..........................................................28
<PAGE>
SUMMARY OF EXPENSES
This table is designed to help you understand the costs of investing in a Fund.
These are the estimated expenses of each Fund for the first full year of
operations. Although not required to do so, the Adviser has agreed to reimburse
each Fund in the current fiscal year to the extent necessary so that its ratio
of total operating expenses to average net assets will not exceed the following
levels: Rising Dividends Fund--1.20%*; Small-Mid Cap Rising Dividends
Fund--1.30%*; International Rising Dividends Fund--1.40%*; Intermediate Total
Return Bond Fund--0.95%*; and Intermediate Tax-Free Bond Fund--0.95%*.
<TABLE>
<CAPTION>
Small-Mid International Intermediate
Rising Cap Rising Rising Total Intermediate
Dividends Dividends Dividends Return Tax-Free
Fund Fund Fund Bond Fund Bond Fund
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses*
Maximum sales charge on purchases
(as a percentage of offering price) None None None None None
Sales charge on reinvested dividends None None None None None
Redemption fee+ None None None None None
Exchange fee None None None None None
Total Annual Fund Operating
Expenses*
(as a percentage of average net
assets)
Management fees 0.75% 0.85% 0.95% 0.50% 0.50%
12b-1 expenses None None None None None
Other expenses after
expense reimbursement 0.45% 0.45% 0.45% 0.45% 0.45%
-------------------------------------------------------------------------------------------
Total operating expenses after
expense reimbursement 1.20%* 1.30%* 1.40%* 0.95%* 0.95%*
</TABLE>
*The ratios of total operating expenses to average net assets for each Fund
before the Adviser's voluntary reimbursement are estimated as follows: Rising
Dividends Fund--1.38%; Small-Mid Cap Rising Dividends Fund--2.10%; International
Rising Dividends Fund--2.45%; Intermediate Total Return Bond Fund--1.75%; and
Intermediate Tax-Free Bond Fund--1.75%. Of these total expense amounts, "other
expenses" before reimbursement are estimated as follows: Rising Dividends
Fund--0.63%; Small-Mid Cap Rising Dividends Fund--1.25%; International Rising
Dividends Fund--1.50%; Intermediate Total Return Bond Fund--1.25%; and
Intermediate Tax-Free Bond Fund--1.25%. In subsequent years, overall operating
expenses for each Fund may not fall below the applicable percentage limitation
until the Adviser has been fully reimbursed for fees foregone or expenses paid
by it under the Management Agreement. Each Fund will reimburse the Adviser in
the three following years if operating expenses (before reimbursement) are less
than the applicable percentage limitation charged to the Fund.
+ Shareholders who effect redemptions via wire transfer will be charged a $7.00
fee and may be required to pay a third-party service provider charge that will
be directly deducted from redemption proceeds.
EXAMPLE
This table illustrates the expenses that would be incurred by an investment in
each Fund over different time periods assuming a $1,000 investment, a 5% annual
return, and redemption at the end of each period. The Funds charge no redemption
fees. The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
<TABLE>
<CAPTION>
Small-Mid International
Rising Cap Rising Rising Intermediate Intermediate
Dividends Dividends Dividends Total Return Tax-Free
Fund Fund Fund Bond Fund Bond Fund
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One year................................ $12 $13 $14 $10 $10
Three years............................. $38 $41 $44 $30 $30
Five years.............................. $66 N/A N/A N/A N/A
Ten years............................... $145 N/A N/A N/A N/A
</TABLE>
The Example shown above assumes that the Adviser will limit the annual operating
expenses of each Fund to the totals shown. In addition, federal regulations
require the Example to assume a 5% annual return, but the Funds' actual returns
may be higher or lower. See "Organization and Management."
1
<PAGE>
PROSPECTUS SUMMARY
Investment Objectives and Policies
Each Fund has its own investment objective. See "Investment Objectives and
Policies" for a full discussion of the objectives of each Fund. The investment
objective of each Fund is fundamental and may not be changed without shareholder
approval.
The Investment Adviser
The Adviser is a registered investment adviser organized as a California limited
partnership. The Adviser's predecessor was founded in 1984 by Richard Kayne and
John Anderson. The Adviser is in the business of furnishing investment advice to
institutional and private clients and, together with its affiliated investment
adviser, KAIM Non-Traditional, L.P., currently manages approximately $2.3
billion for such clients.
Management Fee
For its services, the Adviser receives a fee, accrued daily and paid monthly, at
the following annual percentages of average daily net assets: Rising Dividends
Fund--0.75%; Small-Mid Cap Rising Dividends Fund--0.85%; International Rising
Dividends Fund--0.95%; Intermediate Total Return Bond Fund--0.50%; and
Intermediate Tax-Free Bond Fund--0.50%.
Minimum Purchase
The minimum initial investment in the Fund is $2,000. For retirement plan
investments and custodial accounts under the Uniform Gifts/Transfers to Minors
Act the minimum is $1,000. The minimum for additional investments is $250. The
minimum for additional investments is reduced to $100 for purchases through the
Automatic Investment Plan or for purchases by retirement plans through payroll
deductions.
Offering Price and Redemptions
Shares are offered at their net asset value without a sales charge and may be
redeemed at their net asset value on any business day. See "Purchasing Shares"
and "Selling Shares (Redemptions)."
Dividends and Distributions
The Rising Dividends, Small-Mid Cap Rising Dividends and International Rising
Dividends Funds expect to pay dividends annually. The Intermediate Total Return
Bond and Intermediate Tax-Free Bond Funds expect to pay dividends monthly.
Distributions of net capital gains, if any, will be made at least annually. The
Board of Trustees may determine to declare dividends and make distributions more
or less frequently.
Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares at the net asset value per
share on the reinvestment date unless the shareholder has previously requested
in writing to the Transfer Agent that payment be made in cash.
Any dividend or distribution paid by a 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
2
<PAGE>
though the dividend or distribution represents, in substance, a partial return
of capital to the shareholder.
Risk Considerations
Like all investments, an investment in each Fund involves certain risks. The
equity and fixed income securities held by the Funds and the value of the Funds'
shares will fluctuate with market and other economic conditions, so that
investors' shares, when redeemed, may be worth more or less than their original
cost. Investors should note that the Funds may invest in mortgage-backed
securities (including CMOs and REMICs), asset-backed securities and foreign
securities. See "Risk Considerations" for a further discussion of certain risks.
Organization
The Funds are organized as distinct series within the Trust, which is registered
as an open-end diversified management investment company. The Trust currently
consists of five separate diversified series, each of which has its own
objective, assets, liabilities and net assets.
Transfer Agent and Custodian:
Investors Bank & Trust Company
Auditors:
[ ]
--------------------
Distributor:
First Fund Distributors, Inc.
Legal Counsel:
Heller, Ehrman, White & McAuliffe
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios
The following financial information for the period May 1, 1995 through December
31, 1995 was audited by [_______________________], whose report, dated February
15, 1996, appears in the 1995 Annual Report of the Rising Dividends Fund.
Rising Dividends Funda
- --------------------------------------------------------------------------------
May 1, 1995b through
December 31, 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of period..................... $10.65
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income............................... .07
Net realized and unrealized gain on investments..... 2.13
----
Total income from investment operations............. 2.20
----
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income................ (.07)
Distributions from net realized capital gains....... (.15)
-----
Total distributions................................. (.22)
-----
- --------------------------------------------------------------------------------
Net asset value, end of period........................... $12.63
================================================================================
Total return............................................. 20.65%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of year (millions)....................... $20.60
Ratio of expenses to average net assets.................. 1.31%c
Ratio of net investment income to average net assets..... 0.94%c
Portfolio turnover rate.................................. 28%
- --------------------------------------------------------------------------------
- --------
a This financial information relates to the Rising Dividends Fund while it
was a separate series of another registered investment company.
b Commencement of operations.
c Annualized.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described below. The
investment objective of each Fund is fundamental and may not be changed without
shareholder approval. In addition, each of the Funds may make use of certain
types of investments and investment techniques that are described under the
caption "Portfolio Securities and Investment Techniques." The value of the
Funds' investments will fluctuate with market and other economic conditions.
Rising Dividends Fund
Small-Mid Cap Rising Dividends Fund
International Rising Dividends Fund
The Rising Dividends Fund seeks long-term capital appreciation, with dividend
income as a secondary consideration. This Fund invests primarily in equity
securities, usually common stocks, of companies of all sizes. Investments are
diversified by company and industry group.
Under normal circumstances, this Fund invests at least 65% of its total assets
in consistently growing, highly profitable, low debt small and mid
capitalization companies meeting its "rising dividends" criteria as described
below under "Investment Approach." The Adviser believes these companies are
generally consistent growers with records of above-average growth, strong
balance sheets and responsible, proven managements. The Adviser believes stocks
of such companies tend to keep pace in rising stock markets and generally
outperform in declining stock markets.
The Rising Dividends Fund is the successor to the Kayne, Anderson Rising
Dividends Fund that was a series of another registered investment company,
Professionally Managed Portfolios. On September __, 1996, the shareholders of
the predecessor fund approved its reorganization into this Rising Dividends
Fund, effective September __, 1996.
The Small-Mid Cap Rising Dividends Fund seeks long-term capital appreciation,
with dividend income as a secondary consideration. This Fund invests primarily
in equity securities, usually common stocks of small and mid capitalization
domestic companies. The Fund currently considers mid capitalization companies to
be those having total market capitalizations of more than $1 billion but not
more than $3 billion. The fund currently considers small capitalization
companies to be those having total market capitalizations of not more than $1
billion, including those with extremely small capitalizations, but typically
more that $50 million. Stocks of smaller companies have outperformed the S&P 500
Index from 1926 through 1995 according to Ibbotson Associates, but have
experienced greater stock market volatility and business and financial risk.
The International Rising Dividends Fund seeks long-term capital appreciation,
with dividend income as a secondary consideration. This Fund invests primarily
in equity securities, usually common stocks, of companies outside the U.S.
having total market capitalizations of $1 billion or more. Under normal
circumstances, this Fund invests at least 65% of its total assets in companies
meeting its "rising dividends" criteria. This Fund also will emphasize those
companies outside of the U.S. that the Adviser believes have global business or
operations rather than localized companies. The Fund seeks to maintain a broad
international diversification. Under normal conditions, this Fund invests in at
least three different countries outside of the U.S., but
5
<PAGE>
investments in any single country may not represent more than 40% of its total
assets. The Adviser attempts to invest in the securities of these companies when
it believes they temporarily are out of favor and selling at what it considers
to be favorable prices.
The three equity Funds' average and median market capitalizations will fluctuate
over time as a result of market valuation levels and the availability of
specific investment opportunities.
The three equity Funds' investment objective is long-term capital appreciation.
The Funds seek to achieve their objective by investing principally in common
stocks, and in normal market conditions, at least 80% of the value of each
Fund's total assets will be invested in common stocks. However, for temporary
defensive purposes, the Funds may seek to preserve capital by temporarily
investing part of their assets in short-term fixed-income securities or in cash
or cash equivalents that are rated "investment grade" at the time of purchase.
Investment grade debt securities are those rated within the four highest grades
by Standard & Poor's Corporation ("S&P") (AAA to BBB) or Moody's Investors
Services, Inc. ("Moody's") (Aaa to Baa) or Fitch Investor Services, Inc.
("Fitch") (AAA to BBB), or in unrated debt securities deemed to be of comparable
qualify by the Adviser using guidelines approved by the Board of Trustees. For a
description of the ratings, see the Appendix in the Statement of Additional
Information. The Funds also may invest in preferred stocks, warrants,
convertible debt securities and other debt obligations that, in the Adviser's
opinion, offer the possibility of capital appreciation.
Investment Approach. In selecting securities for these Funds' portfolios, the
Adviser utilizes a "rising dividends" philosophy. The Adviser believes that this
investment discipline is an effective approach to identify well-managed growth
companies with defensive characteristics. The Funds' goal is to invest in
companies with strong rising dividends, significant reinvestment of cash flow
and low debt. To be considered for investment, companies will meet certain
growth and quality criteria established by the Adviser as set forth below. These
three Funds may invest from time to time in companies which do not meet all of
the rising dividends criteria. However, the Adviser believes these companies
meet these Funds' rising dividends philosophy.
Consistent Dividend Increases. The three rising dividends Funds invest in
companies which have increased their dividend in at least seven of the past ten
years. Furthermore, each company should have increased dividends at least 100%
in the past ten years and not cut dividends during the period. The Adviser
believes that companies with consistent and rising dividends usually have
above-average earnings growth and have shown a willingness to share that growth
with stockholders.
The Small-Mid Cap Rising Dividends and International Rising Dividends Funds may
also invest in companies which have raised dividends in at least three of the
past five years at a rate that would double dividends in ten years, with no
dividend cuts during the past five years.
High Reinvestment for Growth. A dividend payout maximum for portfolio companies
is set at 65% of current earnings. In the Adviser's view, a reinvestment rate of
at least 35% of earnings enables a company to sustain future growth primarily
from internal sources.
Strong Balance Sheet. Long-term debt of portfolio companies should not be more
than 35% of total capitalization. The Adviser
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believes that low debt levels indicate financial strength to support growth in
good times and to win market share in difficult times.
Companies that substantially meet these criteria are then researched and
analyzed internally by the Adviser to determine which are the most undervalued
and which are the most overvalued. Each company's relative position in its
industry and the industry cycle also are considered in the investment
decision-making process.
The Intermediate Total Return Bond Fund
The Intermediate Total Return Bond Fund seeks current to obtain maximum total
return, primarily through current income with capital appreciation as a
secondary consideration. This Fund invests primarily in debt securities and
seeks to maintain an average maturity of 3 to 10 years under normal conditions.
At least 90% of the value of the debt securities purchased by this Fund must be
"investment grade" quality at the time of purchase. Debt securities rated in the
lowest category of investment grade debt may have speculative characteristics;
changes in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than is the case with
higher grade bonds.
The Fund invests in domestic and foreign investment-grade debt securities and,
in normal market conditions, seeks to maintain a dollar-weighted average
portfolio maturity of 3 to 10 years. Estimates of the expected time for a
security's principal to be paid may be used to calculate the Fund's average
maturity. Such estimates can be substantially shorter than a security's actual
final maturity. In periods of bond market weakness, the Fund may establish a
defensive posture to preserve capital by temporarily investing part of its
assets in investment-grade money market or short-term debt instruments.
The Intermediate Tax-Free Bond Fund
The Intermediate Tax-Free Bond Fund seeks current income exempt from federal
income tax consistent with preservation of capital. The Fund seeks to achieve
its objective by investing primarily in debt securities, the interest from which
is, in the opinion of counsel to the issuer, exempt from federal income tax
("Municipal Securities"). As a fundamental policy that may not be changed
without shareholder approval, under normal conditions, either (1) the Fund will
invest at least 80% of its total assets in Municipal Securities or (2) the
Fund's assets will be invested such that 80% of the Fund's income will be exempt
from federal personal income tax. At least 90% of the value of the debt
securities purchased by this Fund must be rated at the time of purchase within
the four highest ratings of Municipal Securities (AAA to BBB) assigned by S&P,
(Aaa to Baa) or assigned by Moody's or (AAA to BBB) assigned by Fitch; or have
S&P's short-term municipal rating of SP-2 or higher, or a municipal commercial
paper rating of A-2 or higher; or Moody's short-term municipal securities rating
of MIG-2 or higher, or VMIG-2 or higher, or a municipal commercial paper rating
of P-2 or higher; or have Fitch's short-term municipal securities rating of
FIN-2 or higher, or a municipal commercial paper rating of Fitch-2 or higher; or
if unrated by S&P, Moody's or Fitch, deemed by the Adviser to be of comparable
quality, using guidelines approved by the Board (but not to exceed 20% of the
value of debt securities purchased). Debt securities rated in the lowest
category of investment grade debt may have speculative characteristics; changes
in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than is the case with
higher grade bonds. However, there is no assurance that any municipal issuers
will make full payments of principal and interest or remain
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solvent. For a description of the ratings, see the Appendix in the Statement of
Additional Information. See also "Risk Considerations."
Under normal market conditions, the Fund seeks to maintain a dollar-weighted
average portfolio maturity of 3 to 10 years, although it may invest in
obligations of any maturity and maintain an average maturity of more than 10
years. Estimates of the expected time for a security's principal to be paid may
be used to calculate the Fund's average maturity. Such estimates can be
substantially shorter than a security's final maturity.
Municipal Securities are obligations issued by, or on behalf of, states,
territories and possessions of the U.S. and the District of Columbia, and their
political subdivisions, agencies, authorities and instrumentalities, including
industrial development bonds, as well as obligations of certain agencies and
instrumentalities of the U.S. Government. Municipal Securities are classified as
general obligation bonds, revenue bonds and notes. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable from revenue
derived from a particular facility, class of facilities or the proceeds of a
special excise or other specific revenue source but not from the issuer's
general taxing power. Private activity bonds and industrial revenue bonds, in
most cases, are revenue bonds that do not carry the pledge of the credit of the
issuing the corporate entity on whose behalf they are issued.
Part of the income from this Fund also may be exempt from state income tax
depending on the state of the shareholder's residence. Each shareholder should
consult his or her tax adviser for more information.
Additional Investment Considerations
The Adviser supports its selection of individual securities through intensive
research and pursues qualitative and quantitative disciplines to determine when
securities should be purchased and sold. In unusual circumstances, economic,
monetary and other factors may cause the Adviser to assume a temporary,
defensive position during which a portion of each Fund's assets may be invested
in cash and short-term instruments. During the period following commencement of
operations, each Fund may have its assets invested substantially in cash and
cash equivalents rather than in the equity or debt securities identified in its
investment policies. The Funds also may lend securities, and use repurchase
agreements. For more information on these investments, see "Portfolio Securities
and Investment Techniques." Because prices of common stocks and other securities
fluctuate, the value of an investment in the Funds will vary, as the market
value of their investment portfolios change, and when shares are redeemed, they
may be worth more or less than their original cost. The Funds are diversified,
which under applicable federal law means that as to 75% of each Fund's total
assets, no more than 5% may be invested in the securities of a single issuer and
no more than 10% of the voting securities of such issuer. These diversification
limitations do not apply to U.S. Government securities.
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RISK CONSIDERATIONS
Price Fluctuation. Investments in equity securities in general are subject to
market risks that may cause their prices to fluctuate over time. The value of
debt securities changes as interest rates fluctuate. The value of securities,
such as warrants or convertible debt, exercisable for or convertible into equity
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions. Fluctuations in the value of securities in
which a Fund invests will cause the net asset value of that Fund to fluctuate.
An investment in a Fund therefore may be more suitable for long-term investors
who can bear the risk of short-term principal fluctuations.
Small Companies. Smaller companies present greater opportunities for capital
appreciation, but also may involve greater risks than larger companies. Although
smaller companies can benefit from the development of new products and services,
they also may have limited product lines, markets or financial resources, and
their securities may trade less frequently and in more limited volume than the
securities of larger, more mature companies. As a result, the prices of the
securities of such smaller companies may fluctuate to a greater degree than the
prices of the securities of other issuers.
Debt Securities. Debt securities held by the Funds may be subject to several
types of investment risk. Market or interest rate risk relates to the change in
market value caused by fluctuations in prevailing interest rates, while credit
risk relates to the ability of the issuer to make timely interest payments and
to repay the principal upon maturity. Call or income risk relates to periods of
falling interest rates, and involves the possibility that securities with high
interest rates will be prepaid or "called" by the issuer prior to maturity. Such
an event would require a Fund to invest the resulting proceeds elsewhere, at
generally lower interest rates, which could cause fluctuations in a Fund's net
income. A Fund also may be exposed to event risk, which is the possibility that
corporate debt securities held by a Fund may suffer a substantial decline in
credit quality and market value due to a corporate restructuring.
The value of debt securities will normally increase in periods of falling
interest rates; conversely, the value of these instruments will normally decline
in periods of rising interest rates. Generally, the longer the remaining
maturity of a debt security, the greater the effect of interest rate changes on
its market value. In an effort to maximize income consistent with its investment
objective, the Intermediate Total Return Bond Fund and the Intermediate Tax-Free
Bond Fund may, at times, change the average maturity of their investment
portfolios. This can be done by investing a larger portion of assets in
relatively longer term obligations when periods of declining interest rates are
anticipated and, conversely, emphasizing shorter and intermediate term
maturities when a rise in interest rates is indicated. See "Portfolio Securities
and Investment Techniques."
Foreign Securities. The Rising Dividends, Small-Mid Cap Rising Dividends,
International Rising Dividends and Intermediate Total Return Bond Fund have the
right to purchase, and the International Rising Dividends Fund emphasizes,
securities in foreign countries. Accordingly, shareholders should consider
carefully the risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in domestic investments.
These Funds also may invest in American Depository Receipts ("ADRs") and
European
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Depository Receipts ("EDRs"). ADRs are receipts issued by a U.S. bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. EDRs, sometimes called Continental Depository Receipts, are issued in
Europe, typically by foreign banks and trust companies and evidence ownership of
either foreign or domestic underlying securities.
The foreign companies in which the Funds invest are industry leaders and
consistent growers, with strong managements and clean balance sheets. However,
foreign investments involve the possibility of expropriation, nationalization or
confiscatory taxation, taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments), default in foreign government securities, and
political or social instability or diplomatic developments that could adversely
affect investments. In addition, there is often less publicly available
information about foreign issuers than those in the U.S. Foreign companies are
often not subject to uniform accounting, auditing and financial reporting
standards. Further, these Funds may encounter difficulties in pursuing legal
remedies or in obtaining judgments in foreign courts.
Brokerage commissions, fees for custodial services and other costs relating to
investments by these Funds in other countries are generally greater than in the
U.S. Foreign markets have different clearance and settlement procedures from
those in the U.S., and certain markets have experienced times when settlements
did not keep pace with the volume of securities transactions and resulted in
settlement difficulty. The inability of a Fund to make intended security
purchases because of settlement difficulties could cause it to miss attractive
investment opportunities. Inability to sell a portfolio security because of
settlement problems could result in loss to a Fund if the value of the portfolio
security declined or result in claims against the Fund if it had entered into a
contract to sell the security. In certain countries, there is less government
supervision and regulation of business and industry practices, stock exchanges,
brokers, and listed companies than in the U.S. The securities markets of many of
the countries in which these Funds may invest may also be smaller, less liquid,
and subject to greater price volatility than those in the U.S.
Because the securities owned by the Rising Dividends, Small-Mid Cap Rising
Dividends, International Rising Dividends and Intermediate Total Return Bond
Funds may be denominated in foreign currencies, the value of such securities
will be affected by changes in currency exchange rates and in exchange control
regulations, and costs will be incurred in connection with conversions between
currencies. A change in the value of a foreign currency against the U.S. dollar
results in a corresponding change in the U.S. dollar value of a Fund's
securities denominated in the currency. Such changes also affect a Fund's income
and distributions to shareholders. A Fund may be affected either favorably or
unfavorably by changes in the relative rates of exchange between the currencies
of different nations, and a Fund may therefore engage inforeign currency hedging
strategies. Such strategies, however, involve certain transaction costs and
investment risks, including dependence upon the Adviser's ability to predict
movements in exchange rates.
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PORTFOLIO SECURITIES AND INVESTMENT TECHNIQUES
Debt Securities. The Funds' investments in debt securities include all types of
domestic or U.S. dollar-denominated foreign debt securities in any proportion,
including bonds, notes, convertible bonds, mortgage-backed and asset- backed
securities, including collateralized mortgage obligations and real estate
mortgage investment conduits, U.S. Government and U.S. Government agency
securities, zero coupon bonds, and short-term obligations such as commercial
paper and notes, bank deposits and other financial obligations, and longer-term
repurchase agreements.
In determining whether or not to invest in a particular debt security, the
Adviser considers factors such as the price, coupon and yield to maturity, the
credit quality of the issuer, the issuer's cash flow and related coverage
ratios, the property, if any, securing the obligation and the terms of the debt
instrument, including subordination, default, sinking fund and early redemption
provisions.
After a purchase, the rating of a debt issue may be reduced below the minimum
rating acceptable for purchase by a Fund. A subsequent downgrade does not
require the sale of the security, but the Adviser will consider such an event in
determining whether to continue to hold the obligation. The Appendix in the
Statement of Additional Information contains a description of Moody's and S&P
ratings.
Interest Rates. The market value of debt securities that are sensitive to
prevailing interest rates is inversely related to actual changes in interest
rates. That is, an interest rate decline produces an increase in a security's
market value and an interest rate increase produces a decrease in value. The
longer the remaining maturity of a security, the greater the effect of interest
rate change. Changes in the ability of an issuer to make payments of interest
and principal and in the market's perception of its creditworthiness also affect
the market value of that issuer's debt securities.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related securities
in a Fund's portfolio. Mortgage prepayments are affected by the level of
interest rates and other factors, including general economic conditions and the
underlying location and age of the mortgage. In periods of rising interest
rates, the prepayment rate tends to decrease, lengthening the average life of a
pool of mortgage-related securities. In periods of falling interest rates, the
prepayment rate tends to increase, shortening the average life of a pool.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, affecting a Fund's yield. Thus, mortgage-related securities
may have less potential for capital appreciation in periods of falling interest
rates than other fixed-income securities of comparable duration, although they
may have a comparable risk of decline in market value in periods of rising
interest rates.
Duration is one of the fundamental tools used by the Adviser in managing
interest rate risks including prepayment risks. Duration (not the same as
maturity) is a measure of how sensitive a security is to changes in interest
rates. For example, fixed-income securities with effective durations of three
years are more responsive to interest rate fluctuations than those with
effective durations of one year.
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Investing in Municipal Securities. Because the Intermediate Tax-Free Bond Fund
invests primarily in Municipal Securities, its performance may be especially
affected by factors pertaining to the economies of various states and other
factors specifically affecting the ability of issuers of Municipal Securities to
meet their obligations.
The ability of state, county or local governments to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Municipal Securities may be
affected from time to time by economic, political, geographic and demographic
conditions. In addition, constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives may limit a
government's power to raise revenues or increase taxes and thus could adversely
affect the ability to meet financial obligations. The availability of federal,
state and local aid to issuers of Municipal Securities also may affect their
ability to meet their obligations.
Payments of principal and interest on limited obligation securities will depend
on the economic condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be affected by economic,
political, and demographic conditions in a given state. Any reduction in the
actual or perceived ability of an issuer of Municipal Securities to meet its
obligations (including a reduction in the rating of its outstanding securities)
would likely affect adversely the market value and marketability of its
obligations and could affect adversely the values of Municipal Securities as
well. For example, in recent years, certain state constitutional and statutory
amendments and initiatives have restricted the ability of those states' taxing
entities to increase real property and other tax revenues. Other initiative
measures approved by voters, through limiting various other taxes, have resulted
in a substantial reduction in certain state revenues. Decreased state revenues
may result in reductions in allocations of state revenues to local governments.
It is not possible to determine the impact of these measures on the ability of
specific issuers to pay interest or repay principal. In addition, from time to
time, federal legislative proposals have threatened the tax-exempt status or use
of Municipal Securities.
U.S. Government Securities. U.S. Government securities include direct
obligations issued by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. U.S. Government agencies and
instrumentalities that issue or guarantee securities include, but are not
limited to, the Federal Home Loan Banks, the Federal National Mortgage
Association ("FNMA"), and the Student Loan Marketing Association. Except for
U.S. Treasury securities, obligations of U.S. Government agencies and
instrumentalities may or may not be supported by the full faith and credit of
the United States. Some, such as those of the Federal Home Loan Banks, are
backed by the right of the issuer to borrow from the Treasury, others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations, while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality.
Asset-Backed Securities. Asset-backed securities represent undivided fractional
interests in a trust with assets consisting of a pool of domestic loans such as
motor vehicle
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retail installment sales contracts or credit card receivables. Asset-backed
securities generally are issued by governmental, government- related and private
organizations. Asset- backed securities may be prepaid prior to maturity and
hence their actual life cannot be accurately predicted. During periods of
falling interest rates, prepayments may accelerate, which would require a Fund
to reinvest the proceeds at a lower interest rate. In addition, like other debt
securities, the value of asset- backed securities will normally decline in
periods of rising interest rates. Although generally rated AAA, it is possible
that the securities could become illiquid or experience losses if guarantors or
insurers default. See "Risk Considerations -- Debt Securities."
Mortgage-Related Securities. Mortgage- related securities are interests in a
pool of mortgage loans. Most mortgage-related securities are pass-through
securities, which means that investors receive payments consisting of a pro rata
share of both principal and interest (less servicing and other fees), as well as
unscheduled prepayments, as mortgages in the underlying mortgage pool are paid
off by the borrowers. In the case of mortgage-related securities, including real
estate mortgage investment conduits and collateralized mortgage obligations,
prepayments of principal by mortgagors or mortgage foreclosures will affect the
average life of the mortgage-related securities remaining in a Fund's portfolio.
Mortgage prepayments are affected by the level of interest rates and by factors
including general economic conditions, the underlying location and age of the
mortgage and other social and demographic conditions. In periods of rising
interest rates, the rate of prepayments tends to decrease, thereby lengthening
the average life of a pool of mortgage-related securities. Conversely, in
periods of falling interest rates, the rate of prepayments tends to increase,
thereby shortening the average life of a pool of mortgages. Thus,
mortgage-related securities may have less potential for capital appreciation in
periods of falling interest rates than other fixed-income securities of
comparable duration, although these securities may have a comparable risk of
decline in market value in periods of rising interest rates. Unscheduled
prepayments, which are made at par, will result in a loss equal to any
unamortized premium. See also "Risk Considerations -- Debt Securities."
Agency Mortgage-Related Securities. The dominant issuers or guarantors of
mortgage-related securities are the Government National Mortgage Association
("GNMA"), FNMA and the Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA
creates pass-through securities from pools of U.S. government guaranteed or
insured (Federal Housing Authority or Veterans Administration) mortgages
originated by mortgage bankers, commercial banks and savings associations. FNMA
and FHLMC issue pass-through securities from pools of conventional and federally
insured and/or guaranteed residential mortgages obtained from various entities,
including savings associations, savings banks, commercial banks, credit unions
and mortgage bankers.
The principal and interest on GNMA pass-through securities are guaranteed by
GNMA and backed by the full faith and credit of the U.S. Government. FNMA
guarantees full and timely payment of all interest and principal, while FHLMC
guarantees timely payment of interest and ultimate collection of principal of
its pass-through securities. Securities from FNMA and FHLMC are not backed by
the full faith and credit of the U.S. Government; however, they are generally
considered to present minimal credit risks. The yields
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provided by these mortgage-related securities historically have exceeded the
yields on other types of U.S. Government securities with comparable maturities
in large measure due to the risks associated with prepayment.
Adjustable rate mortgage securities ("ARMs") are a form of pass-through security
representing interests in pools of mortgage loans, the interest rates of which
are adjusted from time to time. The adjustments usually are determined in
accordance with a predetermined interest rate index and may be subject to
certain limits. The adjustment feature of ARMs tends to make their values less
sensitive to interest rate changes.
Collateralized mortgage obligations ("CMOs") are debt obligations issued by
finance subsidiaries or trusts that are secured by mortgage-backed certificates,
including, in many cases, certificates issued by government- related guarantors,
such as GNMA, FNMA and FHLMC, together with certain funds and other collateral.
Although payment of the principal of and interest on the mortgage-backed
certificates pledged to secure the CMOs may be guaranteed by a U.S. Government
agency or instrumentality, such as FHLMC, the CMOs represent obligations solely
of the CMO issuer and are not insured or guaranteed by a U.S. Government agency
or instrumentality. CMOs are sometimes referred to as "derivatives," and, as
discussed above, can be volatile under certain market conditions.
Privately Issued Mortgage-Related Securities. The Funds may invest in
mortgage-related securities offered by private issuers, including pass-through
securities for pools of conventional residential mortgage loans; mortgage
pay-through obligations and mortgage-backed bonds, which are considered to be
obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and CMOs that are collateralized by mortgage-related
securities issued by GNMA, FNMA, FHLMC or by pools of conventional mortgages.
Mortgage-related securities created by private issuers generally offer a higher
rate of interest (and greater credit and interest rate risk) than U.S.
Government and agency mortgage-related securities because they offer no direct
or indirect governmental guarantees of payments. However, many issuers or
servicers of mortgage-related securities guarantee, or provide insurance for,
timely payment of interest and principal on such securities.
The Funds may purchase some mortgage- related securities through private
placements without right to registration under the Securities Act of 1933, as
amended. See "Illiquid and Restricted Securities."
When-Issued Securities. The Funds may purchase securities on a when-issued or
delayed-delivery basis, generally in connection with an underwriting or other
offering. When- issued and delayed-delivery transactions occur when securities
are bought with payment for and delivery of the securities scheduled to take
place at a future time, beyond normal settlement dates, generally from 15 to 45
days after the transaction. Each Fund will segregate cash, U.S. Government
securities or other liquid, high quality debt securities in an amount sufficient
to meet its payment obligations with respect to these transactions.
Repurchase Agreements. The Funds may use repurchase agreements, reverse
repurchase agreements and dollar roll transactions. A repurchase agreement
involves a sale to a Fund of a security that is held by a bank, broker-dealer or
other financial institution concurrently with an agreement by that other party
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to repurchase the same security at an agreed-upon price and date. A reverse
repurchase agreement is the reverse of that transaction. Dollar roll
transactions involve a similar transaction where the agreement is to repurchase
a similar security rather than the same security originally sold. All repurchase
agreements, reverse repurchase agreements and dollar roll transactions will be
fully collateralized with cash or liquid securities. Because those transactions
depend on the performance of the other party, the Adviser will carefully assess
the creditworthiness of any bank or broker-dealer involved in these transactions
under procedures adopted by the Board of Trustees.
Possible Currency Hedging. The Funds that may invest in foreign securities do
not expect to engage actively in hedging practices. However, from time to time
when deemed appropriate by the Adviser, they may seek to protect against the
effect of adverse changes in currency exchange rates that are adverse to the
present or prospective position of a Fund by employing forward currency exchange
contracts or options (sometimes called "derivatives"). A forward currency
contract is individually negotiated and privately traded by currency traders and
their customers and creates an obligation to purchase or sell a specific
currency for an agreed-upon price at a future date.
The Funds generally enter into forward contracts only under two circumstances.
First, if a Fund enters into a contract for the purchase of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security by entering in a forward contract to buy the amount of a
foreign currency needed to settle the transaction. Second, if the Adviser
believes that the currency of a particular foreign country will substantially
rise or fall against the U.S. dollar, it may enter in a forward contract to buy
or sell the currency approximating the value of some or all of a Fund's
portfolio securities denominated in such currency. Although forward contracts
are used primarily to protect a Fund from adverse currency movements, they
involve the risk that currency movements will not be accurately anticipated.
A Fund also may purchase a put or call option on a currency in an effort to
hedge its current or prospective investments. A Fund will not enter into any
futures contracts or related options if the sum of initial margin deposits on
futures contracts, related options (including options on securities, securities
indices and currencies) and premiums paid for any such related options would
exceed 5% of the its total assets. There can be no assurance that hedging
transactions by a Fund, if employed, will be successful.
Investment Companies. Each Fund may invest up to 10% of its total assets in
shares of other investment companies. As a shareholder in another investment
company, a Fund would bear its ratable share of that investment company's
expenses, including its advisory and administration fees. In accordance with
applicable state regulatory provisions, the Adviser has agreed to waive its
management fee with respect to the portion of a Fund's assets invested in shares
of other open-end investment companies. In the case of a closed-end fund,
shareholders would bear the expenses of both a Fund and the fund in which that
Fund invests.
Illiquid and Restricted Securities. No Fund may invest more than 10% of its net
assets in illiquid securities, including (1) securities for which there is no
readily available market; (2) securities which may be subject to legal
restrictions (so-called "restricted securities") other than Rule 144A securities
noted below; (3) repurchase agreements having more than
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seven days to maturity and (4) fixed time deposits subject to withdrawal
penalties (other than those with a term of less than seven days). Restricted
securities do not include those which meet the requirements of Rule 144A under
the Securities Act of 1933, as amended, and which the Trustees have determined
to be liquid based on the applicable trading markets and the availability of
reliable price information.
These Rule 144A securities could have the effect of increasing a Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.
Fund Turnover. The Funds do not intend to engage in short-term trading. The
portfolio turnover rate for The Rising Dividends, Small- Mid Cap Rising
Dividends, International Rising Dividends and Intermediate Tax-Free Bond Funds
is generally expected to be less than 75%. The portfolio turnover rate for the
Intermediate Total Return Bond Fund is generally expected to approximate 100%.
However, the Adviser 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 a Fund's objective.
Securities Lending. Each Fund may lend its securities in an amount not exceeding
30% of its assets to financial institutions such as banks and brokers if the
loan is collateralized in accordance with applicable regulations. Under the
present regulatory requirements which govern loans of fund securities, the loan
collateral must, on each business day, at least equal the value of the loaned
securities and must consist of cash, letters of credit of domestic banks or
domestic branches of foreign banks, or securities of the U.S.
Government or its agencies.
Borrowing. Each Fund may borrow money from banks in an aggregate amount not to
exceed one-third of the value of the Fund's total assets to meet temporary or
emergency purposes, and each Fund may pledge its assets in connection with such
borrowings. A Fund will not purchase any securities while any such borrowings
exceed 5% of that Fund's total assets (including reverse repurchase agreements
and dollar roll transactions that are accounted for as borrowings).
Each Fund aggregates reverse repurchase agreements and dollar roll transactions
that are accounted for as financings with its bank borrowings for purposes of
limiting borrowings to one-third of the value of the Fund's total assets. See
the Statement of Additional Information for further information.
Leverage. Leveraging the Funds through various forms of borrowing creates an
opportunity for increased net income but, at the same time, creates special risk
considerations. For example, leveraging may exaggerate changes in the net asset
value of a Fund's shares and in the yield on a Fund's portfolio. Although the
principal of such borrowings will be fixed, a Fund's assets may change in value
during the time the borrowing is outstanding. Leveraging will create interest
expenses for a Fund that can exceed the income from the assets retained. To the
extent the income derived from securities purchased with borrowed funds exceeds
the interest a Fund will have to pay, that Fund's net income will be greater
than if leveraging were not used. Conversely, if the income from the assets
retained with borrowed funds is not sufficient to cover the cost of leveraging,
the net income of a Fund will be less than if leveraging were not used, and
therefore the amount available for distribution to shareholders as dividends
will be reduced.
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Pooled Fund. The initial shareholders of each Fund have approved a fundamental
policy authorizing each Fund, subject to authorization by the Board of Trustees,
and notwithstanding any other investment restriction, to invest all of its
assets in the securities of a single open-end investment company (a "pooled
fund"). If authorized by the Trustees, a Fund would seek to achieve its
investment objective by investing in a pooled fund which would invest in a
portfolio of securities that complies with the Fund's investment objective,
policies and restrictions. The Board currently does not intend to authorize
investing in pooled funds.
Other Investment Restrictions and Techniques. Each Fund has adopted certain
other investment restrictions and uses various other investment techniques,
which are described in the Statement of Additional Information. Like each Fund's
investment objective, certain of these restrictions are fundamental and may be
changed only by a majority vote of that Fund's outstanding shares.
ORGANIZATION AND MANAGEMENT
Organization. The Trust is registered as an open-end diversified management
investment company and was organized as a Delaware business trust on May 29,
1996. The Trust currently consists of five separate diversified series. The
Trust's Board of Trustees decides on matters of general policy for all series
and reviews the activities of the Adviser, Distributor and Administrator. The
Trust's officers conduct and supervise the daily business operations of the
Trust and each series.
The Adviser. The Adviser is a registered investment adviser organized as a
California limited partnership. The Adviser's predecessor was founded in 1984 by
Richard Kayne and John Anderson. The Adviser is in the business of furnishing
investment advice to institutional and private clients and, together with its
affiliated investment adviser, KAIM NonTraditional, L.P., currently manages
approximately $2.3 billion for such clients. The Adviser managed the predecessor
mutual fund to the Rising Dividends Fund.
Management Fee. Subject to the direction and control of the Trustees, the
Adviser formulates and implements an investment program for each Fund, including
determining which securities should be bought and sold. In addition to providing
certain administrative services, the Adviser also provides certain of the
officers of the Trust. For its services, the Adviser receives a fee, accrued
daily and paid monthly, at the following annual percentages of average daily net
assets: Rising Dividends Fund--0.75%; Small-Mid Cap Rising Dividends
Fund--0.75%; International Rising Dividends Fund--0.75%; Intermediate Total
Return Bond Fund--0.60%; and Intermediate Tax-Free Bond Fund--0.60%.
Compensation of Other Parties. The Adviser may in its discretion and out of its
own funds compensate third parties for the sale and marketing of shares of the
Funds.
Although the Funds do not have a present intention of doing so, each Fund is
authorized
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to offer classes of shares exclusively to certain financial institutions,
including broker-dealers, investment advisers, banks, trust companies and other
financial institutions acting in an agency capacity on behalf of their customer
accounts, which have entered into distribution agreements or shareholder
servicing agreements with the Fund. These classes of shares ("New Shares") would
represent equal pro rata interests in the Funds with the Funds' existing shares
("Existing Shares") and would be identical to Existing Shares in all respects,
except that New Shares will bear service fees and will enjoy certain exclusive
voting rights on matters relating to those fees.
Management of the Funds. Mr. Allan Rudnick is principally responsible for the
management of the Rising Dividends Fund and serves as Chief Investment Officer
of the Adviser. Prior to joining the Adviser in 1989, he was President of
Pilgrim Asset Management and Chief Investment Officer for the Pilgrim Group of
Mutual Funds. Mr. Rudnick has over 25 years of experience in the investment
industry since earning a BA from Trinity College and an MBA from Harvard
Business School.
Robert Schwarzkopf, CFA is Portfolio Manager for the Small-Mid Cap Rising
Dividends Fund. Prior to joining the Adviser in 1991, he was a Portfolio Manager
for the Pilgrim Group of Mutual Funds. Mr. Schwarzkopf has 14 years of
experience in the investment industry. He earned BA and MS degrees from the
University of Miami.
Jean-Baptiste Nadal, CFA is Portfolio Manager for the International Rising
Dividends Fund. Prior to joining the Adviser in 1994, he managed international
equity portfolios for BearBull, a European investment management firm. Mr. Nadal
has 11 years of experience in the investment industry along with public
accounting and audit experience. He earned his degree in Finance and Business
Administration from SUP de CO, a leading French Business School.
Mark E. Miller is Portfolio Manager for the Intermediate Total Return Bond and
Intermediate Tax-Free Bond Funds. Prior to joining the Adviser in April, 1994,
Mark was responsible for more than $1 billion in individual and institutional
fixed income portfolios with Bank of America Capital Management. Mr. Miller has
over nine years of experience in the securities business. He earned a BA from
the University of California at Los Angeles.
Expense Limitation. Each Fund is responsible for paying legal and auditing fees,
fees and expenses of its custodian, accounting services and shareholder
servicing agents, trustees' fees, the cost of communicating with shareholders
and registration fees, as well as its other operating expenses. Although not
required to do so, the Adviser has agreed to reimburse each Fund to the extent
necessary so that its annual ratio of operating expenses to average net assets
will not exceed the following levels: Rising Dividends Fund--1.20%; Small-Mid
Cap Rising Dividends Fund--1.30%; International Rising Dividends Fund--1.40%;
Intermediate Total Return Bond Fund--0.95%; and Intermediate Tax-Free Bond
Fund--0.95%. The Adviser may terminate or reduce these reductions at any time.
Any reductions made by the Adviser in its fees and any payments or reimbursement
of expenses made by the Adviser which are a Fund's obligation are subject to
reimbursement within the following three years by that Fund provided the Fund is
able to effect such reimbursement and remain in compliance with applicable
expense limitations described in this Prospectus and that may be
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imposed by regulatory authorities. The Trustees believe that the Funds in the
future may be of a sufficient size to permit the reimbursement of any such
reductions or payments. A description of any such reimbursements and the amounts
paid will be set forth in financial statements that are included in the Funds'
annual and semi-annual reports to shareholders.
Fund Transactions and Brokerage. The Adviser considers a number of factors in
determining which brokers or dealers to use for a Fund's portfolio transactions.
These factors include, but are not limited to, the reasonableness of
commissions, quality of services and execution, and the availability of research
which the Adviser may lawfully and appropriately use in its investment
management and advisory capacities. Provided a Fund receives prompt execution at
competitive prices, the Adviser also may consider the sale of Fund shares by
brokers as a factor in selecting those broker-dealers for the Fund's portfolio
transactions. For more information, please refer to the Statement of Additional
Information.
The Administrator. Investment Company Administration Corporation (the
"Administrator"), pursuant to an administration agreement with the Funds,
supervises the overall administration of the Trust and the Funds including,
among other responsibilities, the preparation and filing of all documents
required for compliance by the Trust or the Funds with applicable laws and
regulations, arranging for the maintenance of books and records of the Trust and
the Funds, and supervision of other organizations that provide services to the
Trust and the Funds. Certain officers of the Trust and the Funds may be provided
by the Administrator. The Trust has agreed to pay the Administrator an annual
fee equal to 0.075% of the first $40 million of the Trust's average daily net
assets, 0.05% of the next $40 million, 0.025% of the next 40 million, and 0.01%
thereafter, subject to a minimum annual fee of $30,000 per Fund.
The Distributor. First Fund Distributors, Inc. serves as the Distributor to the
Funds pursuant to a Distribution Agreement. The Distributor is an affiliate of
the Administrator. The Distributor receives no fee for its distribution
services.
PURCHASING SHARES
General. The Funds' shares are offered directly to the public at their
respective net asset values next determined after receipt of an order by the
Transfer Agent with complete information and meeting all the requirements
discussed in this Prospectus. There is no sales load or charge in connection
with the purchase of shares. The Funds' shares are offered for sale by the
Funds' underwriter, KA Associates, Inc. Shares purchased through a broker may be
subject to a commission payable to that broker.
The minimum initial investment in each Fund is $2,000, with subsequent
investments of $250 or more ($1,000 and $200, respectively, for retirement plans
and custodial accounts under the Uniform Gifts/Transfers to Minors Act). Each
Fund reserves the right to vary the initial
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and additional investment minimums. In addition, the Adviser may waive the
minimum initial investment requirement for any investor. The Funds reserve the
right to reject any purchase order and to suspend the offering of shares of any
Fund.
Purchase orders for shares of a Fund that are received by the Transfer Agent in
proper form by 4:00 p.m., New York time, on any day that the New York Stock
Exchange (the "NYSE") is open for trading, will be purchased at the Fund's next
determined net asset value. Orders for Fund shares received after 4:00 p.m. New
York time will be purchased at the next determined net asset value determined
the business day following receipt of the order.
At the discretion of the Funds, investors may be permitted to purchase a Fund's
shares by transferring securities to the Fund that meet the Fund's investment
objectives and policies. Securities transferred to a Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such acceptance.
Shares issued by a Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities shall become the property of the Fund
and must be delivered to the Fund by the investor upon receipt from the issuer.
Investors who are permitted to transfer such securities to a Fund in exchange
for shares of the Fund will be required to recognize a gain or loss on such
transfer and pay income tax thereon, if applicable, measured by the difference
between the fair market value of the securities and the investor's basis
therein. Securities will not be accepted in exchange for shares of a Fund
unless: (1) such securities are, at the time of the exchange, eligible to be
included in the Fund's portfolio and current market quotations are readily
available for such securities; (2) the investor represents and warrants that all
securities offered to be exchanged are not subject to any restrictions upon
their sale by the Fund under the Securities Act of 1933; and (3) the value of
any such security (except U.S. Government securities), being exchanged together
with other securities of the same issuer owned by the Fund, will not exceed 5%
of the Fund's net assets immediately after the transaction.
Each Fund may accept telephone orders from brokers, financial institutions or
service organizations which have been previously approved by that Fund. It is
the responsibility of such brokers, financial institutions or service
organizations to forward promptly purchase orders and payments to the Funds.
Shares of a Fund may be purchased through brokers, financial institutions,
service organizations, banks, and bank trust departments, each of which may
charge the investor a transaction fee or other fee for its services at the time
of purchase. Such fees would not otherwise be charged if the shares were
purchased directly from the Funds.
Shares or classes of shares of each Fund may, at some point, be available
through certain brokerage services that do not charge transaction fees to
investors. However, the Adviser, from its own resources, may pay service fees
charged by these brokers for distribution and subaccounting services with
respect to Fund shares held by such brokers. Typically these fees are based on a
percentage of the annual average value of these accounts.
Shareholders who invest through sponsored retirement plans should contact their
program administrators responsible for transmitting all orders for the purchase,
redemption or exchange of program-sponsored shares. The
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availability of each Fund and the procedures for investing depend on the
provisions of the program and whether the program sponsor has contracted with
the Fund or its transfer agent for special processing services, including
subaccounting.
HOW TO BUY SHARES OF THE FUND
Purchases by Mail. Shares of each Fund may be purchased initially by completing
the application accompanying this Prospectus and mailing it to the Transfer
Agent, together with a check payable to the respective Fund: Kayne Anderson
Mutual Funds, P.O. Box _____________,__________________________________.
Subsequent investments in an existing account in the Funds may be made at any
time by sending a check payable to the respective Fund to Kayne Anderson Mutual
Funds, P.O. Box _________, ______________________. Please enclose the stub of
the account statement and include the amount of the investment, the exact name
of the account for which the investment is to be made and the account number.
Purchases by Wire. Investors who wish to purchase shares of any of the Funds by
federal funds wire should first call the Transfer Agent at (800) __________ to
advise the Transfer Agent that an initial investment will be made by wire and to
receive an account number. Following notification to the Transfer Agent,
investors must request the originating bank to transmit immediately available
funds by wire to the Transfer Agent's affiliated bank as follows:
Kayne Anderson Mutual Funds
c/o Investors Bank & Trust Company
Attn: ____________________
ABA Routing Number ___________
For further credit to Kayne Anderson
[Name of Fund]
[Account Number]
[Name of Shareholder]
A completed application with signature(s) of the registrant(s) must be mailed to
the Transfer Agent immediately following the initial wire. Investors should be
aware that banks generally impose a wire service fee. The Funds will not be
responsible for the consequence of delays, including delays in the banking or
Federal Reserve wire systems.
Subsequent Investments. Once an account has been opened, subsequent purchases
may be made by mail, bank wire, exchange, direct deposit or automatic investing.
The minimum for subsequent investments is $250 ($200 for retirement plans and
certain custody accounts for minors) for all Funds.
When making additional investments by mail, simply return the remittance portion
of a previous confirmation with the investment in the envelope provided with
each confirmation statement. Checks should be made payable to the particular
Fund in which an investment is to be made and mailed to Kayne Anderson Mutual
Funds, P.O. Box ____, __________________________. Orders to purchase shares are
effective on the day the Transfer Agent receives the check or money order.
If an order, together with payment in proper form, is received by the Transfer
Agent or previously approved broker or financial institution by 4:00 p.m. New
York time, on any
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day that the NYSE is open for trading, Fund shares will be purchased at each
Fund's next determined net asset value. Orders for Fund shares received after
4:00 p.m. New York time will be purchased at the net asset value determined on
the business day following receipt of the order.
All cash purchases must be made in U.S. dollars and, to avoid fees and delays,
checks must be drawn only on banks located in the U.S. A charge (minimum of $20)
will be imposed if any check used for the purchase of shares is returned. The
Funds and the Transfer Agent each reserve the right to reject any purchase order
in whole or in part.
EXCHANGE OF SHARES
Shares of any of the Funds may be exchanged for shares of any other Fund,
provided such other shares may be sold legally in the state of the investor's
residence.
Shares may be exchanged by: (1) written request; or (2) telephone, if a special
authorization form has been completed and is on file with the Transfer Agent in
advance. Requests for telephone exchanges must be received by the Transfer Agent
by the close of regular trading on the NYSE (currently 4:00 p.m. New York time)
on any day that the NYSE is open for regular trading. Exchanges are subject to
the minimum initial investment requirement.
The exchange privilege is a convenient way to respond to changes in investment
goals or in market conditions. This privilege is not designed for frequent
trading in response to short-term market fluctuations. The telephone exchange
privilege may be difficult to implement during times of drastic economic or
market changes. The purchase of shares for any Fund through an exchange
transaction is accepted immediately. An exchange is treated as a redemption for
federal and state income tax purposes, which may result in taxable gain or loss,
and a new purchase, each at the net asset value of the appropriate Fund. The
Funds and the Transfer Agent reserve the right to limit, amend, impose charges
upon, terminate or otherwise modify the exchange privilege on 60-days' prior
written notice to shareholders.
SELLING SHARES (REDEMPTIONS)
Shareholders may redeem shares of any Fund without charge on any business day
that the NYSE is open for business. Redemptions will be effective at the net
asset value per share next determined after the receipt by the Transfer Agent,
broker or financial intermediary of a redemption request meeting the
requirements described below. Each Fund normally sends redemption proceeds on
the next business day, but in any event redemption proceeds are sent within
seven calendar days of receipt of a redemption request in proper form. Payment
for redemption of recently purchased shares will be delayed until the Transfer
Agent has been advised that the purchase check has been honored, up to 12
calendar days from the time of receipt by the Transfer Agent. Payment may also
be made by wire directly to any bank previously designated by the shareholder on
a shareholder account application. There is a $7 charge for redemptions made by
wire. Please note that the shareholder's bank may also
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impose a fee for wire service. There may be fees for redemptions made through
brokers, financial institutions and service organizations.
The Funds will satisfy redemption requests in cash to the fullest extent
feasible, so long as such payments would not, in the opinion of the Board of
Trustees, require a Fund to sell assets under disadvantageous conditions or to
the detriment of the remaining shareholders of the Fund.
A Fund may suspend the right of redemption or postpone the date of payment for
more than seven days during any period when (1) trading on the NYSE is
restricted or the NYSE is closed, other than customary weekend and holiday
closings; (2) the Securities and Exchange Commission (the "SEC") has by order
permitted such suspension; or (3) an emergency, as defined by rules of the SEC,
exists making disposal of portfolio investments or determination of the value of
the net assets of the Fund not reasonably practicable.
Minimum Balances. Due to the relatively high cost of maintaining smaller
accounts, each Fund reserves the right to make involuntary redemptions of all
shares in any account (other than the account of a shareholder who is a
participant in a qualified plan) for their then-current net asset value if at
any time the total investment does not have a value of at least $2,000 because
of redemptions. The shareholder will be notified that the value of the account
is less than the required minimum and will be allowed at least 60 days to bring
the value of the account up to at least $2,000 before the redemption is
processed.
Redemption by Mail. Shares may be redeemed by submitting a written request for
redemption to Kayne Anderson Mutual Funds, P.O. Box ____,
_________________________.
A written request must be in good order, which means that it must: (1) identify
the shareholder's account name; (2) state the number of shares or dollar amount
to be redeemed; and (3) be signed by each registered owner exactly as the shares
are registered.
Signature Guarantee. To prevent fraudulent redemptions, a signature guarantee
for the signature of each person in whose name the account is registered is
required on all written redemption requests over $50,000. A guarantee may be
obtained from any commercial bank, trust company, savings and loan association,
federal savings bank, broker-dealer, or member firm of a national securities
exchange or other eligible financial institution. Credit unions must be
authorized to issue signature guarantees. Broker-dealers guaranteeing signatures
must be a member of a clearing corporation or maintain net capital of at least
$100,000. Notary public endorsements will not be accepted as a substitute for a
signature guarantee. The Transfer Agent may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians and retirement plans.
Redemption by Telephone. Shareholders who have so indicated on the application,
or have subsequently arranged in writing to do so, may redeem shares by
instructing the Transfer Agent by telephone. Shareholders may redeem shares by
calling the Transfer Agent at (800) _________ between the hours of 8:30 a.m. and
5:00 p.m. (Eastern time) on a day when the NYSE is open for trading. Redemptions
by telephone must be at least $1,000.
In order to arrange for redemption by wire or telephone after an account has
been opened, or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to the Transfer Agent with a
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signature guarantee at the address listed under "Redemption by Mail," above.
Special Factors Regarding Telephone Redemptions. Neither the Funds nor any of
their service contractors will be liable for any loss or expense in acting on
telephone instructions that are reasonably believed to be genuine. In attempting
to confirm that telephone instructions are genuine, the Funds will use
procedures that are considered reasonable, including requesting a shareholder to
correctly state the Fund account number, the name in which the account is
registered, the social security number, banking institution, bank account number
and the name in which the bank account is registered. To the extent that the
Funds fail to use reasonable procedures to verify the genuineness of telephone
instructions, they and/or their service contractors may be liable for any such
instructions that prove to be fraudulent or unauthorized.
The Funds reserve the right to refuse a wire or telephone redemption if it is
believed advisable to do so. Procedures for redeeming Fund shares by wire or
telephone may be modified or terminated at any time by any of the Funds after at
least 30-days' prior written notice to shareholders.
Shares of the Funds may be redeemed through certain brokers, financial
institutions or service organizations who may charge the investor a transaction
fee or other fee for their services at the time of redemption. Such fees would
not otherwise be charged if the shares were redeemed directly from the Funds.
Redemption by Automated Clearing House ("ACH"). A shareholder may elect to have
redemption proceeds, cash distributions or systematic cash withdrawal payments
transferred to a bank, savings and loan association or credit union that is an
on-line member of the ACH system. There are no fees associated with the use of
the ACH service.
ACH redemption requests must be received by the Funds' Transfer Agent before
4:00 p.m. New York time to receive that day's closing net asset value. ACH
redemptions will be sent by the Transfer Agent on the day following the
shareholder's request. The funds from the ACH redemption will be available to
the shareholder two days after the redemption has been processed.
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SHAREHOLDER SERVICES
The following special account options are available to individual shareholders
but not to participants in employer-sponsored retirement plans. There are no
charges for the programs noted below, and an investor may change or stop these
plans at any time by written notice to the Funds.
Systematic Withdrawal Plan. The Systematic Withdrawal Program is an option that
may be utilized by an investor who wishes to withdraw funds from an account on a
regular basis. To participate in this option, an investor must either own or
purchase shares having a value of $10,000 or more. Automatic payments by check
will be mailed to the investor on either a monthly, quarterly, semi-annual or
annual basis in amounts of $100 or more. All withdrawals are processed on the
last business day of the month or, if such day is not a business day, on the
next business day and paid promptly thereafter. Please complete the appropriate
section on the New Account Application indicating the amount of the distribution
and the desired frequency.
Automatic Investing. This service allows a shareholder to make regular
investments once an account is established. A shareholder simply authorizes the
automatic withdrawal of funds from a bank account into the specified Fund. The
minimum subsequent investment pursuant to this plan is $100 per month. An
initial Fund account must be opened first with the $2,000 minimum prior to
participating in this plan.
Please complete the appropriate section on the New Account Application
indicating the amount of the automatic investment.
Retirement Plans. The Funds are available for investment by pension and profit
sharing plans, including IRAs, SEPs, Keoghs and Defined Contribution Plans
through which investors may purchase Fund shares. The Funds, however, do not
sponsor Defined Contribution Plans. For details concerning any of the retirement
plans, please call the Funds at (800) _________.
SHARE PRICE CALCULATION
Share Price. Shares of a Fund are purchased at the net asset value after an
order in proper form is received by the Transfer Agent. An order in proper form
must include all correct and complete information, documents and signatures
required to process your purchase, as well as a check or bank wire payment
properly drawn and collectable. The net asset value per share is determined as
of the close of trading of the NYSE on each day the Exchange is open for
trading. Orders received before 4:00 p.m. (Eastern time) on a day when the
Exchange is open for trading will be processed as of the close of trading on
that day. Otherwise, processing will occur on the next business day. The
Distributor reserves the right to reject any purchase order.
Net Asset Value. The net asset value of each Fund is determined as of the close
of trading (currently 4:00 p.m., New York time) on each day that the NYSE is
open for trading. The net asset value per share of each Fund is the value of the
Fund's assets, less its liabilities, divided by the number of outstanding shares
of the Fund. Each Fund values its investments on the
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basis of the market value of its securities. Portfolio securities that are
listed or admitted to trading on a U.S. exchange are valued at the last sale
price on the principal exchange on which the security is traded or, if there has
been no sale that day, at the mean between the closing bid and asked prices.
Securities admitted to trading on the NASDAQ National Market System and
securities traded only in the U.S. over-the-counter market are valued at the
last sale price or, if there has been no sale that day, at the mean between the
closing bid and asked prices. Securities and other assets for which market
prices are not readily available are valued at fair value as determined in good
faith by the Board of Trustees. Debt securities with remaining maturities of 60
days or less are normally valued at amortized cost, unless the Board of Trustees
determines that amortized cost does not represent fair value. Cash and
receivables will be valued at their face amounts. Interest will be recorded as
accrued, and dividends will be recorded on their ex-dividend date.
Share Certificates. Shares are credited to an investor's account and
certificates are not issued. This eliminates the costly problem of lost or
destroyed certificates.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
Dividends and Distributions. The Rising Dividends, Small-Mid Cap Rising
Dividends and International Rising Dividends Funds expect to pay dividends
annually. The Intermediate Total Return Bond and Intermediate Tax-Free Bond
Funds expect to pay dividends monthly. Each Fund makes distributions of its net
capital gains, if any, at least annually. The Board of Trustees may determine to
declare dividends and make distributions more or less often.
Dividends and capital gain distributions 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 payment be made in cash.
Any dividend or distribution paid by a Fund reduces its net asset value per
share on the reinvestment date by the per share 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.
Tax Status. Each 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 a Fund continues to 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 a Fund will be taxable to shareholders whether received in
shares (through dividend reinvestment) or in cash. Distributions (other than
exempt-interest dividends paid by the Tax- Free Bond Fund) derived from net
investment income, including net short-term capital gains, are taxable to
shareholders (other than tax-exempt shareholders who have not borrowed to
purchase or carry their shares) as ordinary income. A portion of these
distributions may
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qualify for the intercorporate dividends-received deduction. 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 in the prior December. Shareholders will be
informed annually of the amount and nature of the Fund's distributions. A Fund
may be required to impose backup withholding at a current rate of 31% from
income dividends and capital gain distributions and upon payment of redemption
proceeds if provisions of the Code relating to the furnishing and certification
of taxpayer identification numbers and reporting of dividends are not complied
with by a shareholder. Any such accounts without a taxpayer identification
number may be liquidated and distributed to a shareholder, net of withholding,
after the 60th day of investment.
Additional information about taxes is set forth in the Statement of Additional
Information. Shareholders should consult their own advisers concerning federal,
state and local taxation of distributions from the Funds. Heller, Ehrman White &
McAuliffe, counsel to the Trust, has expressed no opinion in respect thereof.
PERFORMANCE INFORMATION
Total Return. From time to time, each 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 four most
recent calendar quarters and over the period from the Fund's inception of
operations. Each Fund may also advertise aggregate and average total return
information over different periods of time. Each 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 the
distributions) at the maximum public offering price. Total return figures will
reflect all recurring charges against Fund income. Investors should note that
the investment results of each Fund will fluctuate over time, and any
presentation of a 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.
Yield. The Intermediate Total Return Bond and Intermediate Tax-Free Bond Funds
also may refer in their advertising and promotional materials to their yield.
The Funds' yields show the rate of income that they earn on their investments,
expressed as a percentage of the net asset value of Fund shares. The Funds
calculate yield by determining the interest income they earned from their
portfolio investments for a specified 30-day period (net of expenses), dividing
such income by the average number of the Funds' shares outstanding, and
expressing the result as an annualized percentage based on the net asset value
at the end of that 30-day period. The Tax-Free Bond Fund may advertise a tax-
equivalent yield showing what an investor would have to earn before taxes to
equal a tax-free yield. Yield accounting methods differ from the methods used
for other accounting purposes; accordingly, the Funds' yields may not equal the
dividend income actually paid to investors or the income reported in the Funds'
financial statements.
27
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In addition to standardized return, performance advertisements and sales
literature may also include other total return performance data
("non-standardized return"). Non-standardized return may be quoted for the same
or different periods as those for which standardized return is quoted and may
consist of aggregate or average annual percentage rate of return, actual
year-by-year rates or any combination thereof.
GENERAL INFORMATION
Voting Rights. Shareholders are entitled to one vote for each dollar of net
asset value per share of each series (and fractional votes for fractional dollar
amounts) and may vote in the election of Trustees and on other matters submitted
to meetings of shareholders. It is not contemplated that regular annual meetings
of shareholders will be held. Rule 18f-2 under the Investment Company Act of
1940, as amended, provides that matters submitted to shareholders be approved by
a majority of the outstanding securities of each series, unless it is clear that
the interests of each series in the matter are identical or the matter does not
affect a series. However, the rule exempts the selection of accountants and the
election of Trustees from the separate voting requirements. Upon commencement of
operations, all of the shares of the Small-Mid Cap Rising Dividends,
International Rising Dividends, Intermediate Total Return Bond and Intermediate
Tax-Free Bond Funds were owned beneficially by affiliates of the Adviser.
Shareholder Meetings. The Trustees have undertaken to the SEC that they will
promptly call a meeting for the purpose of voting on the question of removal of
any Trustee when requested to do so by not less than 10% of the dollar-weighted
total votes of the respective Fund. In addition, subject to certain conditions,
shareholders of each Fund may apply to the Fund to communicate with other
shareholders to request a shareholders' meeting to vote on the removal of a
Trustee or Trustees.
Shareholder Reports and Inquiries. Shareholders will receive annual financial
statements which are examined by the Funds' independent accounts, as well as
unaudited semi-annual financial statements. Unless otherwise requested, only one
copy of each shareholder report or other material sent to shareholders will be
sent to each household or address regardless of the number of shareholders or
accounts at that household or address. Shareholder inquiries should be addressed
to the Funds c/o Kayne Anderson Mutual Funds, 1800 Avenue of the Stars, 2nd
Floor, Los Angeles, California 90067, (800)_________.
28
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EXHIBIT C
Form of Proposed Advisory Agreement
-----------------------------------
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the 30th day
of September, 1996, by and between KAYNE ANDERSON MUTUAL FUNDS, a Delaware
business trust (hereinafter called the "Trust"), on behalf of each series of the
Trust listed in Appendix A hereto, as such may be amended from time to time
(hereinafter referred to individually as a "Fund" and collectively as the
"Funds") and KAYNE ANDERSON INVESTMENT MANAGEMENT, L.P., a California limited
partnership (hereinafter called the "Manager").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment
company, registered as such under the Investment Company Act of 1940, as amended
(the "1940 Act"); and
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and is engaged in the
business of supplying investment advice, investment management and
administrative services, as an independent contractor; and
WHEREAS, the Trust desires to retain the Manager to render
advice and services to the Funds pursuant to the terms and provisions of this
Agreement, and the Manager is interested in furnishing said advice and services;
NOW, THEREFORE, in consideration of the covenants and the
mutual promises hereinafter set forth, the parties hereto, intending to be
legally bound hereby, mutually agree as follows:
1. Appointment of Manager. The Trust hereby employs the
Manager and the Manager hereby accepts such employment, to render investment
advice and management services with respect to the assets of the Funds for the
period and on the terms set forth in this Agreement, subject to the supervision
and direction of the Trust's Board of Trustees.
2. Duties of Manager.
(a) General Duties. The Manager shall act as
investment manager to the Funds and shall supervise investments of the Funds on
behalf of the Funds in accordance with the investment objectives, programs and
restrictions of the Funds as provided in the Trust's governing documents,
including, without limitation, the Trust's Agreement and Declaration of Trust
and By-Laws, or otherwise and such other limitations as the Trustees may impose
from time to time in writing to the Manager. Without limiting the generality of
the foregoing, the Manager shall: (i) furnish the Funds with advice and
recommendations with respect to the investment of each Fund's assets and the
purchase
<PAGE>
and sale of portfolio securities for the Funds, including the taking of such
other steps as may be necessary to implement such advice and recommendations;
(ii) furnish the Funds with reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Trust's Board of
Trustees may reasonably request; (iii) manage the investments of the Funds,
subject to the ultimate supervision and direction of the Trust's Board of
Trustees; (iv) provide persons satisfactory to the Trust's Board of Trustees to
act as officers and employees of the Trust and the Funds (such officers and
employees, as well as certain trustees, may be trustees, directors, officers,
partners, or employees of the Manager or its affiliates) but not including
personnel to provide limited administrative services to the Fund not typically
provided by the Fund's adminstrator under separate agreement; and (v) render to
the Trust's Board of Trustees such periodic and special reports with respect to
each Fund's investment activities as the Board may reasonably request.
(b) Brokerage. The Manager shall place orders
for the purchase and sale of securities either directly with the issuer or with
a broker or dealer selected by the Manager. In placing each Fund's securities
trades, it is recognized that the Manager will give primary consideration to
securing the most favorable price and efficient execution, so that each Fund's
total cost or proceeds in each transaction will be the most favorable under all
the circumstances. Within the framework of this policy, the Manager may consider
the financial responsibility, research and investment information, and other
services provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Manager may be a
party.
It is also understood that it is desirable for the Funds that
the Manager have access to investment and market research and securities and
economic analyses provided by brokers and others. It is also understood that
brokers providing such services may execute brokerage transactions at a higher
cost to the Funds than might result from the allocation of brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the purchase and sale of securities for the Funds may be
made with brokers who provide such research and analysis, subject to review by
the Trust's Board of Trustees from time to time with respect to the extent and
continuation of this practice to determine whether each Fund benefits, directly
or indirectly, from such practice. It is understood by both parties that the
Manager may select broker-dealers for the execution of the Funds' portfolio
transactions who provide research and analysis as the Manager may lawfully and
appropriately use in its investment management and advisory capacities, whether
or not such research and analysis may also be useful to the Manager in
connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of one or more of
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<PAGE>
the Funds as well as of other clients, the Manager, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be so purchased
or sold in order to obtain the most favorable price or lower brokerage
commissions and the most efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the Funds and to
such other clients.
(c) Administrative Services. The Manager shall
oversee the administration of the Funds' business and affairs although the
provision of administrative services, to the extent not covered by subparagraphs
(a) or (b) above, is not the obligation of the Manager under this Agreement.
Notwithstanding any other provisions of this Agreement, the Manager shall be
entitled to reimbursement from the Funds for all or a portion of the reasonable
costs and expenses, including salary, associated with the provision by Manager
of personnel to render administrative services to the Funds.
3. Best Efforts and Judgment. The Manager shall use its best
judgment and efforts in rendering the advice and services to the Funds as
contemplated by this Agreement.
4. Independent Contractor. The Manager shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized to do so, have no authority to act for or
represent the Trust or the Funds in any way, or in any way be deemed an agent
for the Trust or for the Funds. It is expressly understood and agreed that the
services to be rendered by the Manager to the Funds under the provisions of this
Agreement are not to be deemed exclusive, and the Manager shall be free to
render similar or different services to others so long as its ability to render
the services provided for in this Agreement shall not be impaired thereby.
5. Manager's Personnel. The Manager shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with such
other persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Manager shall be
deemed to include persons employed or retained by the Manager to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Manager or the Trust's Board of Trustees may desire and reasonably request.
6. Reports by Funds to Manager. Each Fund will from time to
time furnish to the Manager detailed statements of its investments and assets,
and information as to its investment objective and needs, and will make
available to the Manager such
-3-
<PAGE>
financial reports, proxy statements, legal and other information relating to
each Fund's investments as may be in its possession or available to it, together
with such other information as the Manager may reasonably request.
7. Expenses.
(a) With respect to the operation of each Fund,
the Manager is responsible for (i) the compensation of any of the Trust's
trustees, officers, and employees who are affiliates of the Manager (but not the
compensation of employees performing services in connection with expenses which
are the Fund's responsibility under Subparagraph 7(b) below), (ii) the expenses
of printing and distributing the Funds' prospectuses, statements of additional
information, and sales and advertising materials (but not the legal, auditing or
accounting fees attendant thereto) to prospective investors (but not to existing
shareholders), and (iii) providing office space and equipment reasonably
necessary for the operation of the Funds.
(b) Each Fund is responsible for and has assumed
the obligation for payment of all of its expenses, other than as stated in
Subparagraph 7(a) above, including but not limited to: fees and expenses
incurred in connection with the issuance, registration and transfer of its
shares; brokerage and commission expenses; all expenses of transfer, receipt,
safekeeping, servicing and accounting for the cash, securities and other
property of the Trust for the benefit of the Funds including all fees and
expenses of its custodian, shareholder services agent and accounting services
agent; interest charges on any borrowings; costs and expenses of pricing and
calculating its daily net asset value and of maintaining its books of account
required under the 1940 Act; taxes, if any; expenditures in connection with
meetings of each Fund's Shareholders and Board of Trustees that are properly
payable by the Fund; salaries and expenses of officers and fees and expenses of
members of the Trust's Board of Trustees or members of any advisory board or
committee who are not members of, affiliated with or interested persons of the
Manager; insurance premiums on property or personnel of each Fund which inure to
its benefit, including liability and fidelity bond insurance; the cost of
preparing and printing reports, proxy statements, prospectuses and statements of
additional information of the Fund or other communications for distribution to
existing shareholders; legal, auditing and accounting fees; trade association
dues; fees and expenses (including legal fees) of registering and maintaining
registration of its shares for sale under federal and applicable state and
foreign securities laws; all expenses of maintaining and servicing shareholder
accounts, including all charges for transfer, shareholder recordkeeping,
dividend disbursing, redemption, and other agents for the benefit of the Funds,
if any; and all other charges and costs of its operation plus any extraordinary
and non-recurring expenses, except as herein otherwise prescribed.
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<PAGE>
(c) To the extent the Manager incurs any costs by
assuming expenses which are an obligation of a Fund as set forth herein, such
Fund shall promptly reimburse the Manager for such costs and expenses, except to
the extent the Manager has otherwise agreed to bear such expenses. To the extent
the services for which a Fund is obligated to pay are performed by the Manager,
the Manager shall be entitled to recover from such Fund to the extent of the
Manager's actual costs for providing such services.
8. Investment Advisory and Management Fee.
(a) Each Fund shall pay to the Manager, and the
Manager agrees to accept, as full compensation for all administrative and
investment management and advisory services furnished or provided to such Fund
pursuant to this Agreement, a management fee at the annual rate set forth in the
Fee Schedule attached hereto as Appendix A, as may be amended in writing from
time to time by the Trust and the Manager.
(b) The management fee shall be accrued daily by each
Fund and paid to the Manager on the first business day of the succeeding month.
(c) The initial fee under this Agreement shall be
payable on the first business day of the first month following the effective
date of this Agreement and shall be prorated as set forth below. If this
Agreement is terminated before the end of any month, the fee to the Manager
shall be prorated for the portion of any month in which this Agreement is in
effect which is not a complete month according to the proportion which the
number of calendar days in the month during which the Agreement is in effect
bears to the number of calendar days in the month, and shall be payable within
ten (10) days after the date of termination.
(d) The fees payable to the Manager under this
Agreement will be reduced to the extent required under the most stringent
expense limitation applicable to a Fund imposed by any state in which shares of
the Funds are qualified for sale. The Manager may reduce any portion of the
compensation or reimbursement of expenses due to it pursuant to this Agreement
and may agree to make payments to limit the expenses which are the
responsibility of a Fund under this Agreement. Any such reduction or payment
shall be applicable only to such specific reduction or payment and shall not
constitute an agreement to reduce any future compensation or reimbursement due
to the Manager hereunder or to continue future payments. Any such reduction will
be agreed to prior to accrual of the related expense or fee and will be
estimated daily and reconciled and paid on a monthly basis. Any fee withheld
pursuant to this paragraph from the Manager shall be reimbursed by the
appropriate Fund to the Manager in the first, second or third (or any
combination thereof) fiscal year next succeeding the fiscal year of the
withholding to the extent permitted by the applicable
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<PAGE>
state law if the aggregate expenses for the next succeeding fiscal year, second
succeeding fiscal year or third succeeding fiscal year do not exceed the
applicable state limitation or any more restrictive limitation to which the
Manager has agreed. The Manager may elect to seek reimbursement for the oldest
reductions and waivers before payment by a Fund of fees or expenses for the
current year.
(e) The Manager may agree not to require payment
of any portion of the compensation or reimbursement of expenses otherwise due to
it pursuant to this Agreement prior to the time such compensation or
reimbursement has accrued as a liability of the Fund. Any such agreement shall
be applicable only with respect to the specific items covered thereby and shall
not constitute an agreement not to require payment of any future compensation or
reimbursement due to the Manager hereunder.
9. Fund Share Activities of Manager's Officers and Employees.
The Manager agrees that neither it nor any of its officers or employees shall
take any short position in the shares of the Funds. This prohibition shall not
prevent the purchase of such shares by any of the officers or bona fide
employees of the Manager or any trust, pension, profit-sharing or other benefit
plan for such persons or affiliates thereof, at a price not less than the net
asset value thereof at the time of purchase, as allowed pursuant to rules
promulgated under the 1940 Act.
10. Conflicts with Trust's Governing Documents and Applicable
Laws. Nothing herein contained shall be deemed to require the Trust or the Funds
to take any action contrary to the Trust's Agreement and Declaration of Trust,
By-Laws, or any applicable statute or regulation, or to relieve or deprive the
Board of Trustees of the Trust of its responsibility for and control of the
conduct of the affairs of the Trust and Funds.
11. Manager's Liabilities.
(a) In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the obligations or duties
hereunder on the part of the Manager, the Manager shall not be subject to
liability to the Trust or the Funds or to any shareholder of the Funds for any
act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security by the Funds.
(b) The Funds shall indemnify and hold harmless
the Manager and the partners, members, officers and employees of the Manager and
its general partner (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage or
expenses and reasonable counsel fees incurred in connection therewith) arising
out of the Indemnified Party's performance or non-performance of any duties
under this Agreement provided, however,
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<PAGE>
that nothing herein shall be deemed to protect any Indemnified Party against any
liability to which such Indemnified Party would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
under this Agreement.
(c) No provision of this Agreement shall be
construed to protect any Trustee or officer of the Trust, or officer of the
Manager (or its general partner), from liability in violation of Sections 17(h)
and (i) of the 1940 Act.
12. Non-Exclusivity. The Trust's employment of the Manager is
not an exclusive arrangement, and the Trust may from time to time employ other
individuals or entities to furnish it with the services provided for herein. If
this Agreement is terminated with respect to any Fund, this Agreement shall
remain in full force and effect with respect to all other Funds listed on
Appendix A hereto, as the same may be amended.
13. Term. This Agreement shall become effective at the time
the Trust's initial Registration Statement under the Securities Act of 1933 with
respect to the shares of the Trust is declared effective by the Securities and
Exchange Commission and shall remain in effect for a period of two (2) years,
unless sooner terminated as hereinafter provided. This Agreement shall continue
in effect thereafter for additional periods not exceeding one (l) year so long
as such continuation is approved for each Fund at least annually by (i) the
Board of Trustees of the Trust or by the vote of a majority of the outstanding
voting securities of each Fund and (ii) the vote of a majority of the Trustees
of the Trust who are not parties to this Agreement nor interested persons
thereof, cast in person at a meeting called for the purpose of voting on such
approval.
14. Termination. This Agreement may be terminated by the Trust
on behalf of any one or more of the Funds at any time without payment of any
penalty, by the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of a Fund, upon sixty (60) days' written notice to
the Manager, and by the Manager upon sixty (60) days' written notice to a Fund.
15. Termination by Assignment. This Agreement shall terminate
automatically in the event of any transfer or assignment thereof, as defined in
the 1940 Act.
16. Transfer, Assignment. This Agreement may not be
transferred, assigned, sold or in any manner hypothecated or pledged without the
affirmative vote or written consent of the holders of a majority of the
outstanding voting securities of each Fund.
17. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute or
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<PAGE>
rule, or shall be otherwise rendered invalid, the remainder of this Agreement
shall not be affected thereby.
18. Definitions. The terms "majority of the outstanding voting
securities" and "interested persons" shall have the meanings as set forth in the
1940 Act.
19. Notice of Declaration of Trust. The Manager agrees that
the Trust's obligations under this Agreement shall be limited to the Funds and
to their assets, and that the Manager shall not seek satisfaction of any such
obligation from the shareholders of the Funds nor from any trustee, officer,
employee or agent of the Trust or the Funds.
20. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
21. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without giving
effect to the conflict of laws principles thereof; provided that nothing herein
shall be construed to preempt, or to be inconsistent with, any federal law,
regulation or rule, including the 1940 Act and the Investment Advisors Act of
1940 and any rules and regulations promulgated thereunder.
[balance of page intentionally left blank]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested by their duly authorized officers,
all on the day and year first above written.
KAYNE ANDERSON MUTUAL FUNDS KAYNE ANDERSON INVESTMENT
MANAGEMENT, L.P.
By: KAIM Traditional, LLC,
its general partner
By: _______________________ By:__________________________
Title: ____________________ Title: ______________________
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<PAGE>
Appendix A to
Investment Management
Agreement
FEE SCHEDULE
------------
Name of Fund Applicable Fee
- ------------ --------------
Kayne Anderson Rising Dividends Fund 0.75%
Kayne Anderson Small-Mid Cap
Rising Dividends Fund 0.85%
Kayne Anderson International
Rising Dividends Fund 0.95
Kayne Anderson Intermediate
Total Return Bond Fund 0.50%
Kayne Anderson Intermediate
Tax-Free Bond Fund 0.50%
This Fee Schedule is effective as of this 30th day of September, 1996.
KAYNE ANDERSON MUTUAL FUNDS KAYNE ANDERSON INVESTMENT
MANAGEMENT, L.P.
By: KAIM Traditional, LLC,
its general partner
By: _______________________ By:__________________________
Title: ____________________ Title: ______________________
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<PAGE>
PROXY
PROFESSIONALLY MANAGED PORTFOLIOS
KAYNE, ANDERSON RISING DIVIDENDS FUND
SPECIAL MEETING OF SHAREHOLDERS - SEPTEMBER 30, 1996
SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints William T. Miller and Alvin J. Portnoy,
and each of them, as proxies of the undersigned, each with the power to appoint
his substitute, for the Special Meeting of Shareholders of the Kayne, Anderson
Rising Dividends Fund (the "Fund"), a separate series of Professionally Managed
Portfolios (the "Trust") to be held on Monday, September 30, 1996 at the offices
of Kayne Anderson Investment Management, L.P., the investment adviser to the
Fund, 1800 Avenue of the Stars, 2nd Floor, Los Angeles, California 90067 at
10:00 a.m., Pacific time, or at any and all adjournments thereof (the
"Meeting"), to vote, as designated below, all shares of the Fund held by the
undersigned at the close of business on September 12, 1996. Capitalized terms
used without definition have the meanings given to them in the accompanying
Proxy Statement.
A SIGNED PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL LISTED BELOW UNLESS YOU
HAVE SPECIFIED OTHERWISE. PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY. YOU
MAY VOTE ONLY IF YOU HELD SHARES IN THE FUND AT THE CLOSE OF BUSINESS ON
SEPTEMBER 12, 1996. YOUR SIGNATURE AUTHORIZES THE PROXIES TO VOTE IN THEIR
DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING,
INCLUDING WITHOUT LIMITATION MATTERS INCIDENT TO THE CONDUCT OF THE MEETING.
1. To approve a proposed Agreement and Plan of Reorganization and the
transactions contemplated thereby, which include: (a) the transfer of
all assets of the Fund to a newly formed series also called the Kayne
Anderson Rising Dividends Fund (the "New Fund") of Kayne Anderson
Mutual Funds, a Delaware business trust (the "New Trust"), in exchange
for shares of the New Fund, and the assumption by the New Fund of
liabilities of the Fund; and (b) the distribution to Fund shareholders
of such New Fund's shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Please date and sign exactly as the name _________________________________
or names appear on your shareholder Signature
account statement. When signing as
attorney, trustee, executor, administrator, _________________________________
custodian, guardian or corporate officer, Title (If applicable)
please give full title. If shares are held
jointly, each shareholder must sign.
---------------------------------
Signature (if held jointly)
---------------------------------
Title (if applicable)
Dated: _______________, 1996
