Harris Bretall Sullivan & Smith
Growth Equity Fund
Prospectus
April 1, 1996
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
Harris Bretall Sullivan & Smith, Inc.
One Sansome Street. Suite 3300
San Francisco, CA 94104
800-385-7003
The Harris Bretall Sullivan & Smith Growth Equity Fund (the "Fund") is a
mutual fund with the investment objective of seeking growth of capital. The Fund
seeks to achieve its objective by investing primarily in equity securities
(common and preferred stocks). Harris Bretall Sullivan & Smith, Inc. (the
"Advisor") serves as investment advisor to the Fund.
This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated April
1, 1996, as may be amended from time to time, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. The Statement
of Additional Information is available without charge upon written request to
the Fund at the address given above.
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TABLE OF CONTENTS
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Expense Table............................................................................. 2
Objective and Investment Approach of the Fund............................................. 3
Management of the Fund.................................................................... 5
Distribution Plan......................................................................... 6
How To Invest in the Fund................................................................. 7
How To Redeem an Investment in the Fund................................................... 8
Services Available to the Fund's Shareholders............................................. 9
How the Fund's Per Share Value Is Determined.............................................. 9
Distributions and Taxes................................................................... 10
General Information....................................................................... 10
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 1, 1996
<PAGE>
EXPENSE TABLE
Expenses are one of several factors to consider when investing in the Fund.
The purpose of the following fee table is to provide an understanding of the
various costs and expenses which may be borne directly or indirectly by an
investment in the Fund. Actual expenses may be more or less than those shown.
The Fund has adopted a plan of distribution under which the fund will pay the
Advisor as Distribution Coordinator a fee at the annual rate of up to 0.25% of
the Fund's net assets. A long-term shareholder may pay more, directly and
indirectly, in such fees than the maximum sales charge permitted under the rules
of the National Association of Securities Dealers. Shares will be redeemed at
net asset value per share.
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Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases.......................................................... None
Maximum Sales Load Imposed on Reinvested......................................................... None
Dividends........................................................................................ None
Deferred Sales Load ............................................................................. None
Redemption Fees.................................................................................. None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Advisory Fees.................................................................................... 0.75%
12b-1 Expenses................................................................................... 0.25%
Other Expenses (after waiver).................................................................... 0.29%*
----
Total Fund Operating Expenses (after waiver)..................................................... 1.29%*
====
<FN>
*The Advisor has undertaken to reduce its fees or make payments to assure
that the Fund's ratio of operating expenses to average net assets will not
exceed 1.29% for the current fiscal year. It is estimated that other expenses
would be 0.85% and that the total annual ratio of operating expenses to average
net assets of the Fund during its initial fiscal year in the absence of this
undertaking would be 1.60%.
</FN>
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Example
This table illustrates the net transaction and operating expenses that
would be incurred for an investment in the Fund over different time periods
assuming a $1,000 investment, a 5% annual return, and redemption at the end
of each time period.
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<S> <C> <C>
1 year 3 years
$13 $41
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The Example shown above should not be considered a representation of past
or future expenses and actual expenses may be greater or less than shown. In
addition, federal regulations require the Example to assume a 5% annual return,
but the Fund's actual return may be higher or lower. See "Management of the
Fund."
The Fund is a diversified series of Professionally Managed Portfolios (the
"Trust"), an open-end management investment company offering redeemable shares
of beneficial interest. Shares of the Fund may be purchased at their net asset
value per share. The minimum initial investment is $10,000 with subsequent
investments of $1,000 or more. Shares will be redeemed at net asset value per
share.
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OBJECTIVE AND INVESTMENT APPROACH OF THE FUND; RISK FACTORS
The investment objective of the Fund is to seek growth of capital. The Fund
seeks to achieve its objective by investing primarily in equity securities, and
under normal circumstances at least 65% of the Fund's total assets will be
invested in equity securities with capital growth potential. Equity securities
in which the Fund invests include common stocks and securities having the
characteristics of common stocks, such as convertible preferred stocks,
convertible debt securities and warrants. There is, of course, no assurance that
the Fund's objective will be achieved. Because prices of securities held by the
Fund fluctuate, the value of an investment in the Fund will vary as the market
value of its investment portfolio changes, and when shares are redeemed, they
may be worth more or less than their original cost. The Fund is diversified,
which under applicable federal law means that as to 75% of its total assets, no
more than 5% may be invested in the securities of a single issuer and that no
more than 10% of its total assets may be invested in the voting securities of
such issuer.
In selecting equity securities for purchase by the Fund, the Advisor
focuses on successful companies with consistently superior growth in revenues
and earnings, strong product lines and proven management ability demonstrated
over a variety of business cycles.
The Advisor's investment process is based on the establishment of an
economic framework within which fundamental analyses and strict quantitative
disciplines are consistently implemented. The Advisor views successful companies
as those with consistently superior growth in revenues and earnings, strong
product lines and proven management ability demonstrated in a variety of
business cycles. The process begins with a review of various overall investment
factors, such as the state of the economy, inflation, earnings and interest rate
trends and momentum, valuation/volatility of stocks and bonds, Federal Reserve
policy, the international and political environments and supply and demand.
Evaluating these factors creates a common economic framework to use when
reviewing individual companies.
The Advisor then develops a universe of high quality growth stocks by
screening companies for fundamental characteristics such as revenue growth,
financial strength, market leadership and quality management. The screening
process encompasses four broad areas. Qualitative screens such as organizational
depth, success of management, stability versus cyclical characteristics, and
competitive positions are applied. Balance sheet and income statement aspects
are also screened, involving an evaluation of factors such as book value,
debt/equity ratios, current assets and their condition, capital structure, cash
flow, earnings per share growth, dividend record, return on equity.
Characteristics of the stocks are also screened by examining stock volatility,
trading characteristics, market capitalization and institutional ownership. This
screening process yields a stock universe of approximately 300 successful
companies with attractive fundamental characteristics and a minimum market
capitalization of $1 billion.
Companies within the universe are then ranked for selection from three
analytical vantage points. First, companies are ranked based on their intrinsic
present value using the Advisor's proprietary earnings and growth rate outlook.
Second, recent quarterly earnings experience is evaluated. Finally, companies
are ranked based on relative price performance of their stocks against all the
stocks in the universe and the general market. Once an overall ranking based on
these factors is determined, stocks are selected for purchase from the upper
range of the universe.
In general, securities held by the Fund become sell candidates if they
become fundamentally overvalued versus other companies in the Advisor's universe
due to rapid appreciation or suffer changes in their long-term fundamentals
(growth rates or earnings expectations).
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Short-Term Investments.
At times, the Fund may invest all or a portion of its assets in short-term
cash-equivalent securities for temporary, defensive purposes; short-term
securities also may be purchased when the Adviser views the market as
significantly overvalued. These consist of high quality debt obligations
maturing in one year or less from the date of purchase, such as securities
issued by the U.S. Government, its agencies and instrumentalities, certificates
of deposit, bankers' acceptances, mortgage related securities and commercial
paper. High quality means that the obligations have been rated at least A-1 by
Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's Investor's Service,
Inc. ("Moody's"), have an outstanding issue of debt securities rated at least AA
by S&P or Aa by Moody's, or are of comparable quality in the opinion of the
Advisor. The Advisor expects that under normal market conditions, the Fund will
stay fully invested, and cash levels typically would not exceed 5% of total
assets.
Repurchase Agreements. The Fund may enter into repurchase agreements in
order to earn additional income on available cash, or as a defensive investment
in periods when the Fund is primarily in short-term securities. A repurchase
agreement is a short-term investment in which the purchaser (i.e., the Fund)
acquires ownership of a U.S. Government security (which may be of any maturity)
and the seller agrees to repurchase the obligation at a future time at a set
price, thereby determining the yield during the purchaser's holding period
(usually not more than seven days from the date of purchase). Any repurchase
transaction in which the Fund engages will require full collateralization of the
seller's obligation during the entire term of the repurchase agreement. In the
event of a bankruptcy or other default of the seller, the Fund could experience
both delays in liquidating the underlying security and losses in value. However,
the Fund intends to enter into repurchase agreements only with banks with assets
of $500 million or more that are insured by the Federal Deposit Insurance
Corporation and the most creditworthy registered securities dealers pursuant to
procedures adopted and regularly reviewed by the Trust's Board of Trustees. The
Advisor monitors the creditworthiness of the banks and securities dealers with
whom the Fund engages in repurchase transactions.
When-Issued Securities. The Fund may purchase securities on a when-issued
basis, for payment and delivery at a later date, generally within one month. The
price and yield are generally fixed on the date of commitment to purchase, and
the value of the security is thereafter reflected in the Fund's net asset value.
During the period between purchase and settlement, no payment is made by the
Fund and no interest accrues to the Fund. At the time of settlement, the market
value of the security may be more or less than the purchase price. The Fund
limits its investments in when-issued securities to less than 5% of its total
assets. When the Fund purchases securities on a when-issued basis, it maintains
liquid assets in a segregated account with its Custodian in an amount equal to
the purchase price as long as the obligation to purchase continues.
Portfolio Turnover. The annual rate of portfolio turnover is anticipated to
be approximately 25%. In general, the Advisor will not consider the rate of
portfolio turnover to be a limiting factor in determining when or whether to
purchase or sell securities in order to achieve the Fund's objective.
Risk Factors. Securities in which the Fund invests, and its share price and
returns, are subject to fluctuation. Investments in equity securities in general
are subject to market risks that may cause their prices to fluctuate over time.
In addition, there may be a substantial time period before stocks held by the
Fund realize the appreciation potential the Advisor believes them to have. An
investment in the Fund therefore is more suitable for longer term investors who
can bear the risk of short-term fluctuation in principal and net asset value
that are inherent in investing in equity securities for a growth objective.
The Fund has adopted certain investment restrictions, which are described
fully in the Statement of Additional Information. Like the Fund's investment
objective, certain of these restrictions are fundamental and may be changed only
by a majority vote of the Fund's outstanding shares.
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Advisor Investment Returns. Set forth in the table below are certain
performance data provided by the Advisor relating to its individually managed
equity accounts. These accounts had substantially the same investment objective
as the Fund and were managed using substantially similar investment strategies
and techniques as those contemplated for use by the Fund. See "Objective and
Investment Approach of the Fund" above. The Portfolio Management for these
accounts will also manage the Fund. The results presented are not intended to
predict or suggest the return to be experienced by the Fund or the return an
investor might achieve by investing in the Fund. Results may differ because of,
among other things, differences in brokerage commissions paid, account expenses,
including investment advisory fees (which expenses and fees maybe higher for the
Fund than for the accounts), the size of positions taken in relation to account
size, diversification of securities, timing of purchases and sales, timing of
cash additions and withdrawals, the private character of the composite accounts
compared with the public character of the Fund, and the tax-exempt status of
some of the account holders compared with shareholders in the Fund. Investors
should be aware that the use of different methods of determining performance
could result in different performance results. Investors should not rely on the
following performance data as an indication of future performance of the Advisor
or the Fund.
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Average Annual Total Returns (%)
(for periods ended December 31, 1995)
Advisor Growth
Equity Accounts
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One year 30.92%
Five years 16.17%
Nine years 14.60%
</TABLE>
1. Results account for both income and capital appreciation or depreciation
(Total Return). Returns are time-weighted and calculated in compliance with the
Association of Investment Management and Research ("AIMR") performance
presentation standards, reduced for investment advisory fees.
2. Investors should note that the Fund will compute and disclose its average
annual compounded rate of return using the standard formula set forth in SEC
rules, which differs in certain respects from returns calculated under the AIMR
standards noted above. Unlike the AIMR performance presentation standards that
link quarterly rates of return, the SEC total return calculation method calls
for computation and disclosure of an average annual compounded rate of return
for one, five and ten year periods or shorter periods from inception. The
calculation provides a rate of return that equates a hypothetical initial
investment of $1,000 to an ending redeemable value. While the returns shown for
the Advisor are net of advisory fees, the SEC calculation formula requires that
returns to be shown for the Portfolios will be net of advisory fees as well as
any maximum applicable sales charges and all other Portfolio operating expenses.
See "Performance Information" at page 11.
3. The Growth Equity Account Composite shown includes all accounts managed by
the Advisor that meet the criteria for inclusion in the composite for each
period presented.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. The Advisor is located at One
Sansome Street, Suite 3300 San Francisco, CA 94104. The Advisor was founded in
1971 and is controlled by Mr. Graeme Bretall, Mr. John J. Sullivan and Mr. Henry
B.D. Smith. The Advisor provides investment advisory and sub-advisory services
to individual and institutional investors and investment companies with assets
of approximately $2.8 billion . Mr. John J. Sullivan, Executive Vice President,
Treasurer and Director of the Advisor, and Mr. Gordon J. Ceresino, Senior Vice
President and Director of the Advisor, are responsible for management of the
Fund's portfolio.
Page 5
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The Advisor provides the Fund with advice on buying and
selling securities, manages the investments of the Fund, furnishes the Fund with
office space and certain administrative services, and provides most of the
personnel needed by the Fund. As compensation, the Fund pays the Advisor a
monthly management fee (accrued daily) based upon the average daily net assets
of the Fund at the rate of 0.75% annually. Southampton Investment Management
Company (the "Administrative Manager") acts as the Fund's Administrative Manager
under a Management Agreement. Under that agreement, the Administrative Manager
prepares various federal and state regulatory filings, reports and returns for
the Fund, prepares reports and materials to be supplied to the trustees,
monitors the activities of the Fund's custodian, transfer agent and accountants,
and coordinates the preparation and payment of Fund expenses and reviews the
Fund's expense accruals. For its services, the Administrative Manager receives
an annual fee equal to 0.12% of the Fund's average daily net assets up to $25
million, 0.07% of the next $25 million of net assets, 0.05% of the next $50
million of net assets and 0.03% on assets over $100 million, with a minimum fee
of $30,000.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to limit the Fund's operating expenses to assure that the Fund's ratio of
operating expenses to average net assets will not exceed the limit imposed by
the most restrictive applicable state regulation, currently 2.50%. The Advisor
also may reimburse additional amounts to the Fund at any time in order to reduce
the Fund's expenses, or to the extent required by applicable securities laws.
The Advisor is currently undertaking to limit the Fund's ratio of operating
expenses to average net assets to 1.29% for the Fund's initial fiscal year.
Reductions made by the Adviser in its fees or payments or reimbursement of
expenses which are the Fund's obligation are subject to reimbursement by the
Fund provided the Fund is able to do so and remain in compliance with applicable
expense limitations.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors include, but
are not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Advisor may also
consider the sale of Fund shares as a factor in selecting broker-dealers for the
Fund's portfolio transactions.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan pursuant to Rule 12b-1. The Plan
provides that the Fund may pay for distribution and related expenses at an
annual rate of up to 0.25% of the Fund's average net assets to the Advisor as
distribution coordinator. Expenses permitted to be paid by the Fund under its
Plan include: preparation, printing and mailing of prospectuses; shareholder
reports such as semiannual and annual reports, performance reports and
newsletters; sales literature and other promotional material to prospective
investors; direct mail solicitation; advertising; public relations; compensation
of sales personnel, advisors or other third parties for their assistance with
respect to the distribution of the Fund's shares; payments to financial
intermediaries for shareholder support; administrative and accounting services
with respect to the shareholders of the Fund; and such other expenses as may be
approved from time to time by the Board of Trustees.
The Rule 12b-1 Distribution Plan allows excess distribution expenses to be
carried forward by the Advisor, as Distribution Coordinator, and resubmitted in
a subsequent fiscal year provided that (i) distribution expenses cannot be
carried forward for more than three years following initial submission; (ii) the
Board of Trustees has made a determination at the time of initial submission
that the distribution expenses are appropriate to be carried forward; and (iii)
the Board of Trustees makes a further determination, at the time any
distribution
expenses which have
Page 6
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been carried forward are resubmitted for payment, to the effect that payment at
the time is appropriate, consistent with the objectives of the Plan and in the
current best interests of shareholders.
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund is $10,000. Subsequent
investments must be at least $1,000. First Fund Distributors, Inc. (the
"Distributor"), acts as Distributor of the Fund's shares. The Distributor may,
at its discretion, waive the minimum investment requirements for purchases in
conjunction with certain group or periodic plans. In addition to cash purchases,
shares may be purchased by tendering payment in kind in the form of shares of
stock, bonds or other securities, provided that any such tendered security is
readily marketable, its acquisition is consistent with the Fund's objective and
it is otherwise acceptable to the Advisor.
Shares of the Fund are offered continuously for purchase at their net asset
value per share next determined after a purchase order is received. The public
offering price is effective for orders received by the Fund prior to the time of
the next determination of the Fund's net asset value. Orders received after the
time of the next determination of the applicable Fund's net asset value will be
entered at the next calculated public offering price.
Investors may purchase shares of the Fund by check or wire:
By Check: For initial investments, an investor should complete the Fund's
Account Application (included with this Prospectus). The completed application,
together with a check payable to "Harris Bretall Sullivan & Smith Growth Equity
Fund," should be mailed to the Fund's Transfer Agent: Harris Bretall Sullivan &
Smith Growth Equity Fund, P.O. Box 856, Cincinnati, OH 45264-0856.
A stub is attached to the account statement sent to shareholders after each
transaction. For subsequent investments the stub should be detached from the
statement and, together with a check payable to "Harris Bretall Sullivan & Smith
Growth Equity Fund," mailed to the Fund in the envelope provided at the address
indicated above.
The investor's account number should be written on the check.
By Wire: For initial investments, before wiring funds, an investor should
call the Fund at (800) 385-7003 between the hours of 9:00 a.m. and 4:00 p.m.
Eastern time, on a day when the NYSE is open for trading in order to receive an
account number. It is necessary to notify the Fund prior to each wire purchase.
Wires sent without notifying the Fund will result in a delay of the effective
date of your purchase. The Transfer Agent will request the investor's name,
address, taxpayer identification number, amount being wired and wiring bank. The
investor should then instruct the wiring bank to transfer funds by wire to: Star
Bank, N.A. Cinti/Trust ABA #0420-0001-3, for credit to Harris Bretall Sullivan &
Smith Growth Equity Fund, DDA #485773071, for further credit to [investor's name
and account number]. The investor should also ensure that the wiring bank
includes the name of the Fund and the account number with the wire. If the funds
are received by the Transfer Agent prior to the time that the Fund's net asset
value is calculated, the funds will be invested on that day; otherwise they will
be invested on the next business day. Finally, the investor should write the
account number provided by the Transfer Agent on the Application Form and mail
the Form promptly to the Transfer Agent.
For subsequent investments, the investor should first notify the Fund and
then the investor's bank should wire funds as indicated above. It is essential
that complete information regarding the investor's account be included in all
wire instructions in order to facilitate prompt and accurate handling of
investments. Investors may obtain further information from the Transfer Agent
about remitting funds in this manner and from their own banks about any fees
that may be imposed.
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General. Investors will not be permitted to redeem
any shares purchased with an initial investment made by wire until one business
day after the completed Account Application is received by the Fund. All
investments must be made in U.S. dollars and, to avoid fees and delays, checks
should be drawn only on U.S. banks and should not be made by third party check.
A charge may be imposed if any check used for investment does not clear. The
Fund and the Distributor reserve the right to reject any purchase order in whole
or in part. If an order, together with payment in proper form, is received by
the Transfer Agent by the close of trading on the NYSE (currently 4:00 p.m., New
York City time), Fund shares will be purchased at the offering price determined
as of the close of trading on that day. Otherwise, Fund shares will be purchased
at the offering price determined as of the close of trading on the NYSE on the
next business day. Federal tax law requires that investors provide a certified
taxpayer identification number and certain other required certifications upon
opening or reopening an account in order to avoid backup withholding of taxes at
the rate of 31% on taxable distributions and proceeds of redemptions. See the
Fund's Account Application for further information concerning this requirement.
The Fund is not required to issue share certificates. All shares are
normally held in non-certificated form registered on the books of the Fund and
the Fund's Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUND
A shareholder has the right to have the Fund redeem all or any portion of
his outstanding shares at their current net asset value on each day the NYSE is
open for trading. The redemption price is the net asset value per share next
determined after the shares are validly tendered for redemption. Direct
Redemption. A written request for redemption must be received by the Fund's
Transfer Agent in order to constitute a valid tender for redemption. To protect
the Fund and its shareholders, a signature guarantee is required for certain
transactions, including redemptions. Signature(s) on the redemption request must
be guaranteed by an "eligible guarantor institution" as defined in the federal
securities laws. These institutions include banks, broker-dealers, credit unions
and savings institutions. A broker-dealer guaranteeing signatures must be a
member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
Telephone Redemption. Shareholders who complete the Redemption by Telephone
portion of the Fund's Account Application may redeem shares on any business day
the NYSE is open by calling the Fund's Transfer Agent at (800) 385-7003 between
the hours of 9:00 a.m. and 4:00 p.m. Eastern time. Redemption proceeds will be
mailed to the address of record or wired at the shareholder's direction the next
business day to the predesignated account. The minimum amount that may be wired
is $1,000 (wire charges, if any, will be deducted from redemption proceeds). By
establishing telephone redemption privileges, a shareholder authorizes the Fund
and its Transfer Agent to act upon the instruction of any person by telephone to
redeem from the account for which such service has been authorized and send the
proceeds to the address of record on the account or transfer the proceeds to the
bank account designated in the Authorization. The Fund and the Transfer Agent
will use procedures to confirm that redemption instructions received by
telephone are genuine, including recording of telephone instructions and
requiring a form of personal identification before acting on such instructions.
If these identification procedures are not followed, the Fund or its agents
could be liable for any loss, liability or cost which results from acting upon
instructions of a person believed to be a shareholder with respect to the
telephone redemption privilege. The Fund may change, modify, or terminate these
privileges at any time upon at least 60 days notice to shareholders.
Shareholders may request telephone redemption after an account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.
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General. Payment of redemption proceeds will be made promptly, but not
later than seven days after the receipt of all documents in proper form,
including a written redemption order with appropriate signature guarantee in
cases where telephone redemption privileges are not being utilized. The Fund may
suspend the right of redemption under certain extraordinary circumstances in
accordance with the Rules of the SEC. In the case of shares purchased by check
and redeemed shortly after purchase, the Fund will not mail redemption proceeds
until it has been notified that the check used for the purchase has been
collected, which may take up to 15 days from the purchase date. To minimize or
avoid such delay, investors may purchase shares by certified check or federal
funds wire. A redemption may result in recognition of a gain or loss for federal
income tax purposes. Due to the relatively high cost of maintaining smaller
accounts, the Fund reserves the right to redeem shares in any account, other
than retirement plan or Uniform Gift to Minors Act accounts, if at any time, due
to redemptions by the shareholder, the total value of a shareholder's account
does not equal at least $5,000. If the Fund determines to make such an
involuntary redemption, the shareholder will first be notified that the value of
his account is less than $5,000 and will be allowed 30 days to make an
additional investment to bring the value of his account to at least $5,000
before the Fund takes any action.
SERVICES AVAILABLE TO THE FUND'S SHAREHOLDERS
Retirement Plans. The Fund offers a prototype Individual Retirement Account
("IRA") plan and information is available from the Distributor or from your
securities dealer with respect to Keogh, Section 403(b) and other retirement
plans offered. Investors should consult a tax adviser before establishing any
retirement plan.
Automatic Investment Plan. For the convenience of shareholders, the Fund
offers a preauthorized check service under which a check is automatically drawn
on the shareholder's personal checking account each month for a predetermined
amount (but not less than $100), as if the shareholder had written it himself.
Upon receipt of the withdrawn funds, the Fund automatically invests the money in
additional shares of the Fund at the current offering price. Applications for
this service are available from the Distributor. There is no charge by the Fund
for this service. The Distributor may terminate or modify this privilege at any
time, and shareholders may terminate their participation by notifying the
Transfer Agent in writing, sufficiently in advance of the next scheduled
withdrawal.
Automatic Withdrawals. As another convenience, the Fund offers a Systematic
Withdrawal Program whereby shareholders may request that a check drawn in a
predetermined amount be sent to them each month or calendar quarter. A
shareholder's account must have Fund shares with a value of at least $10,000 in
order to start a Systematic Withdrawal Program, and the minimum amount that may
be withdrawn each month or quarter under the Systematic Withdrawal Program is
$100. This Program may be terminated or modified by a shareholder or the Fund at
any time without charge or penalty.
A withdrawal under the Systematic Withdrawal Program is treated as a
redemption of shares, and may result in a gain or loss for federal income tax
purposes. In addition, if the amounts withdrawn exceed the dividends credited to
the shareholder's account, the account ultimately may be depleted.
HOW THE FUND'S PER SHARE VALUE IS DETERMINED
The net asset value of a Fund share is determined once daily as of the
close of public trading on the NYSE (currently 4:00 p.m. Eastern time) on each
day the NYSE is open for trading. Net asset value per share is calculated by
dividing the value of the Fund's total assets, less its liabilities, by the
number of Fund shares outstanding.
Portfolio securities are valued using current market values, if available.
Securities for which market quotations are not readily available are valued at
fair values as determined in good faith by or under the supervision of the
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Trust's officers in accordance with methods which are specifically
authorized by the Board of Trustees. Short-term obligations with remaining
maturities of 60 days or less are valued at amortized cost as reflecting fair
value.
DISTRIBUTIONS AND TAXES
Dividends and Distributions. Any dividends from net investment income
(which includes realized short term capital gains) are declared and paid at
least annually, typically at the end of the Fund's fiscal year (March 31). Any
undistributed long term net capital gains realized during the 12-month period
ended each October 31, as well as any additional undistributed capital gains
realized during the Fund's fiscal year, will also be distributed to shareholders
on or about December 31 of each year.
Dividends and capital gain distributions (net of any required tax
withholding) are automatically reinvested in additional shares of the Fund at
the net asset value per share on the reinvestment date unless the shareholder
has previously requested in writing to the Transfer Agent that distributions be
made in cash. Any dividend or distribution paid by the Fund has the effect of
reducing the net asset value per share on the reinvestment date by the amount of
the dividend or distribution. Investors should note that a dividend or
distribution paid on shares purchased shortly before such dividend or
distribution was declared will be subject to income taxes as discussed below
even though the dividend or distribution represents, in substance, a partial
return of capital to the shareholder.
Taxes. The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the fund continues to so qualify, and as long
as the Fund distributes all of its income each year to the shareholders, the
Fund will not be subject to any federal income tax or excise taxes based on net
income. Distributions made by the Fund will be taxable to shareholders whether
received in shares (through dividend reinvestment) or in cash. Distributions
derived from net investment income, including net short-term capital gains, are
taxable to shareholders as ordinary income. A portion of these distributions may
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 the prior December. Shareholders will be
informed annually of the amount and nature of the Fund's distributions.
Additional information about taxes is set forth in the Statement of Additional
Information. Shareholders should consult their own advisers concerning federal,
state and local tax consequences of investing in from the Fund.
GENERAL INFORMATION
The Trust. The Trust was organized as a Massachusetts business trust on
February 17, 1987. The Agreement and Declaration of Trust permits the Board of
Trustees to issue an unlimited number of full and fractional shares of
beneficial interest, without par value, which may be issued in any number of
series. The Board of Trustees may from time to time issue other series, the
assets and liabilities of which will be separate and distinct from any other
series.
Shareholder Rights. Shares issued by the Fund have no preemptive,
conversion, or subscription rights. Shareholders have equal and exclusive rights
as to dividends and distributions as declared by the Fund and to the net assets
of the Fund upon liquidation or dissolution. The Fund, as a separate series of
the Trust, votes separately on matters affecting only the Fund (e.g., approval
of the Management and Advisory Agreements); all series of the Trust vote as a
single class on matters affecting all series jointly or the Trust as a whole
(e.g., election or removal
Page 10
<PAGE>
of Trustees). Voting rights are not
cumulative, so that the holders of more than 50% of the shares voting in any
election of Trustees can, if they so choose, elect all of the Trustees. While
the Trust is not required and does not intend to hold annual meetings of
shareholders, such meetings may be called by the Trustees in their discretion,
or upon demand by the holders of 10% or more of the outstanding shares of the
Trust for the purpose of electing or removing Trustees.
Performance Information. From time to time, the Fund may publish its total
return in advertisements and communications to investors. Total return
information will include the Fund's average annual compounded rate of return
over the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average total
return information over different periods of time. The Fund's total return will
be based upon the value of the shares acquired through a hypothetical $1,000
investment at the beginning of the specified period and the net asset value of
such shares at the end of the period, assuming reinvestment of all
distributions. Total return figures will reflect all recurring charges against
Fund income. Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period. Custodian and Transfer Agent;
Shareholder Inquiries. Star Bank, N.A., 425 Walnut St., Cincinnati, OH 45202,
serves as custodian of the Fund's assets. American Data Services, Inc., 24 West
Carver St., Huntington, NY 11743 is the Fund's Transfer and Dividend Disbursing
Agent. Shareholder inquiries should be directed to the Transfer Agent at (800)
385-7003.
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<PAGE>
Advisor
Harris Bretall Sullivan & Smith, Inc.
One Sansome Street, Suite 3300
San Francisco, CA 94104
(415) 765-8300
Account Inquiries (800) 385-7003
o
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Suite 261E
Phoenix, AZ 85018
o
Custodian
Star Bank, N.A.
425 Walnut St.
Cincinnati, OH 45202
o
Transfer and Dividend Disbursing Agent
American Data Services, Inc.
24 West Carver St.
Huntington, NY 11743
(800) 385-7003
o
Auditors
Ernst & Young
515 South Flower St.
Los Angeles, CA 90071
o
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
