Harris Bretall Sullivan & Smith Growth Equity Fund
Harris Bretall Sullivan & Smith L.L.C.
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 L.L.C. (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
August 1, 1997, 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 by calling or
writing the Fund at the number or address given above.
TABLE OF CONTENTS
Expense Table 2
Financial Highlights 3
Objective and Investment Approach of the Fund 4
Management of the Fund 6
Distribution Plan 7
How To Invest in the Fund 8
How To Redeem an Investment in the Fund 9
Services Available to the Fund's Shareholders 10
How the Fund's Per Share Value Is Determined 10
Distributions and Taxes 11
General Information 11
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated August 1, 1997
Revised November 25, 1997
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.
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%*
*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. In the absence of the Advisor's
undertaking, the Fund's ratio of expenses to average net assets would have been
4.97% for the initial fiscal period ended March 31, 1997.
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.
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.
FINANCIAL HIGHLIGHTS
For a capital share outstanding througout the period
The following information has been audited by Ernst & Young LLP, independent
accountants, whose unqualified report covering the fiscal period ended March 31,
1997 is incorporated by reference herein and appears in the annual report to
shareholders. This information should be read in conjunction with the financial
statements and accompanying notes thereto which appear in the annual report and
are incorporated by reference into the Statement of Additional Information.
Further information about the Fund's performance is included in its annual
report to shareholders, which may be obtained without charge by writing or
calling the address or telephone number on the Prospectus cover page.
May 1, 1996*
through
March 31, 1997
Net asset value, beginning of period $10.00 Income from investment operations:
Net investment income .00
Net realized and unrealized gain on investments 1.04
Total from investment operations 1.04
Less distributions:
From net investment income (.01)
Net asset value, end of period $11.03
Total return 10.36%0
Ratios/supplemental data:
Net assets, end of period (millions) $ 3.5
Ratio of expenses to average net assets:
Before expense reimbursement and waiver 4.97%+
After expense reimbursement and waiver 1.28%+
Ratio of net investment income (loss) to average
net assets:
Before expense reimbursement and waiver (3.69)%+
After expense reimbursement and waiver 0.00%+
Portfolio turnover rate 14.62%
Average commission rate paid per share $.0688
*Commencement of operations.
+Annualized.
0Not annualized.
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 in no more
than 10% of the voting securities of a single 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).
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 segregates
liquid assets 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 30%. 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.
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 Managers for these
accounts 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 may be 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.
Average Annual Total Returns (%)
(for periods ended September 30, 1997)
Advisor Growth
Equity Accounts
One year 30.43%
Five years 19.12%
Ten years 15.13%
1. Results account for both income and capital appreciation or depreciation
(Total Return). Returns are time-weighted and 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
method noted above. Unlike the 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 a majority-owned affiliate of Value Asset Management, Inc. ("VAM").
VAM is a Connecticut-based holding company owned by Banc Boston Ventures, Inc.,
which is a subsidiary of Bank Boston, N.A. VAM invests in privately-owned asset
management firms. The Advisor provides investment advisory and sub-advisory
services to individual and institutional investors and investment companies with
assets of approximately $2.7 billion. Mr. John J. Sullivan, Executive Vice
President and Partner, and Mr. Gordon J. Ceresino, Executive Vice President and
Partner, are responsible for management of the Fund's portfolio. Each has held
his current position with the Advisor for over five years.
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. Investment Company Administration Corporation (the
"Administrator") acts as the Fund's Administrator under an Administration
Agreement. Under that agreement, the Administrator prepares various federal and
state regulatory filings, reports and returns for the Fund, prepares reports and
materials to be supplied to the trustees, monitors the activities of the Fund's
custodian, transfer agent and accountants, and coordinates the preparation and
payment of Fund expenses and reviews the Fund's expense accruals. For its
services, the Administrator receives 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 is
undertaking to limit the Fund's ratio of operating expenses to average net
assets to 1.29% for the Fund's current fiscal year. The Advisor may reimburse
additional amounts to the Fund at any time in order to reduce the Fund's
expenses. Reductions made by the Advisor in its fees or payments or
reimbursement of expenses which are the Fund's obligation may be subject to
reimbursement by the Fund provided the Fund is able to do so and remain in
compliance with applicable expense limitations. The Advisor generally seeks
reimbursement for the oldest reductions and waivers before payment by the Fund
for fees and expenses for the current year.
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 semi-annual 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 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 be charged a
fee if they effect transactions through a broker or agent.
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 640856, Cincinnati, OH 45264-0856. For
purchases by overnight mail, please contact the Transfer Agent at (800) 385-7003
for instructions.
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.
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.
Redemption requests should be sent to Harris Bretall Sullivan & Smith Growth
Equity Fund at P. O. Box 5536, Hauppauge, NY 11788-0132. 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 followed, neither the Fund nor its agents
will be liable for any loss, liability or cost which results from acting upon
instructions of a person believed to be a shareholder with respect to the
telephone redemption privilege. The Fund may change, modify, or terminate these
privileges at any time upon at least 60 days notice to shareholders.
Shareholders may request telephone redemption after an account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.
General. Payment of redemption proceeds will be made promptly, but not
later than seven days after the receipt of all documents in proper form,
including a written redemption order with appropriate signature guarantee in
cases where telephone redemption privileges are not being utilized. The Fund may
suspend the right of redemption under certain extraordinary circumstances in
accordance with the Rules of the SEC. In the case of shares purchased by check
and redeemed shortly after purchase, the Fund will not mail redemption proceeds
until it has been notified that the check used for the purchase has been
collected, which may take up to 15 days from the purchase date. To minimize or
avoid such delay, investors may purchase shares by certified check or federal
funds wire. A redemption may result in recognition of a gain or loss for federal
income tax purposes. Due to the relatively high cost of maintaining smaller
accounts, the Fund reserves the right to redeem shares in any account, other
than retirement plan or Uniform 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 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 directly.
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
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 continue 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 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 Agreement); all series of the Trust vote as a single class on
matters affecting all series jointly or the Trust as a whole (e.g., election or
removal of Trustees). Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in any election of Trustees can, if they so
choose, elect all of the Trustees. While the Trust is not required and does not
intend to hold annual meetings of shareholders, such meetings may be called by
the Trustees in their discretion, or upon demand by the holders of 10% or more
of the outstanding shares of the Trust for the purpose of electing or removing
Trustees.
Performance Information. From time to time, the Fund may publish its total
return in advertisements and communications to investors. Total return
information will include the Fund's average annual compounded rate of return
over the most recent year 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. Star Bank, N.A., 425 Walnut St., Cincinnati, OH
45202, serves as custodian of the Fund's assets. American Data Services, Inc.,
P. O. Box 5536, Hauppauge, NY 11788-0132, is the Fund's Transfer and Dividend
Disbursing Agent. Shareholder inquiries should be directed to the Transfer Agent
at (800) 385-7003.
Advisor
Harris Bretall Sullivan & Smith L.L.C.
One Sansome Street, Suite 3300
San Francisco, CA 94104
(415) 765-8300
Account Inquiries (800) 385-7003
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut St.
Cincinnati, OH 45202
Transfer and Dividend Disbursing Agent
American Data Services, Inc.
P. O. Box 5536
Hauppauge, NY 11788-0132
(800) 385-7003
Auditors
Ernst & Young LLP
515 South Flower St.
Los Angeles, CA 90071
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California St.
San Francisco, CA 94104
Harris Bretall Sullivan & Smith
Growth Equity Fund
Prospectus
August 1, 1997
Revised
November 25, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
Revised November 25, 1997
HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
a series of Professionally Managed Portfolios
One Sansome Street, Suite 3300
San Francisco, CA 94104
(800) 685-4277
(800) 385-7003
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of the Harris Bretall Sullivan &
Smith Growth Equity Fund (the "Fund"). A copy of the prospectus of the Fund
dated August 1, 1997 as revised November 25, 1997 is available by calling either
of the numbers listed above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
The Trust.......................................................................................................B-2
Investment Objective and Policies ..............................................................................B-2
Investment Restrictions.........................................................................................B-5
Distributions and Tax Information...............................................................................B-7
Trustees and Executive Officers.................................................................................B-9
The Fund's Investment Advisor..................................................................................B-11
The Fund's Administrator.......................................................................................B-12
The Fund's Distributor.........................................................................................B-12
Execution of Portfolio Transactions............................................................................B-13
Additional Purchase and Redemption Information.................................................................B-14
Determination of Share Price...................................................................................B-15
Performance Information........................................................................................B-16
General Information............................................................................................B-17
Financial Statements...........................................................................................B-18
</TABLE>
HBSS SAI B-1
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust. The
Trust consists of various series which represent separate investment portfolios.
This Statement of Additional Information relates only to the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a mutual fund with the investment objective of seeking
growth of capital. The following discussion supplements the discussion of the
Fund's investment objective and policies as set forth in the Prospectus. There
can be no assurance the objective of the Fund will be attained.
Repurchase Agreements
The Fund may enter into repurchase agreements as discussed in the
Prospectus. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the U.S.
Government security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration. The
Fund will generally enter into repurchase agreements of short durations, from
overnight to one week, although the underlying securities generally have longer
maturities. The Fund may not enter into a repurchase agreement with more than
seven days to maturity if, as a result, more than 15% of the value of the Fund's
total assets would be invested in illiquid securities including such repurchase
agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
HBSS SAI B-2
<PAGE>
the Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, the investment advisor seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, the
Fund will always receive as collateral for any repurchase agreement to which it
is a party securities acceptable to it, the market value of which is equal to at
least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
When-Issued Securities
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase; during the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
securities may be sold prior to the settlement date, the Fund intends to
purchase such securities with the purpose of actually acquiring them unless a
sale appears desirable for investment reasons. At the time the Fund makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The market value of the when-issued securities may be more or less than
the purchase price. The Fund does not believe that its net asset value or income
will be adversely affected by its purchase of securities on a when-issued basis.
The Fund will segregate liquid assets with its Custodian equal in value to
commitments for when-issued securities. Such segregated assets either will
mature or, if necessary, be sold on or before the settlement date.
Short-Term Investments; U.S. Government and Mortgage Related Securities
As indicated in the prospectus, the Advisor expects that under normal
market conditions, the Fund will stay fully invested and cash levels typically
will not exceed 5% of total assets. However,
HBSS SAI B-3
<PAGE>
at times the Fund may invest in short-term cash equivalent securities either for
temporary, defensive purposes or when the Advisor views the market as
significantly overvalued.
These securities may include U.S. Government securities. U.S.
Government securities include direct obligations issued by the U.S. 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 National Mortgage Association
("FNMA"), Federal Home Loan Banks, Federal Financing Bank and Student Loan
Marketing Association.
All Treasury securities are backed by the full faith and credit of the
United States. 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 the Federal Home Loan Banks, are backed by the right of the agency or
instrumentality to borrow from the Treasury. Others, such as securities issued
by the FNMA, are supported only by the credit of the instrumentality and not by
the Treasury. If the securities are not backed by the full faith and credit of
the United States, the owner of the securities must look principally to the
agency issuing the obligation for repayment and may not be able to assert a
claim against the United States in the event that the agency or instrumentality
does not meet its commitment.
Short-term securities may also include mortgage pass-through
securities. Mortgage pass-through securities are securities representing
interests in pools of mortgages in which payments of both interest and principal
on the securities are generally made monthly, in effect "passing through"
monthly payments made by the individual borrowers on the residential mortgage
loans which underlie the securities (net of fees paid to the issuer or guarantor
of the securities). Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to the sale of underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose the Fund to a lower rate of return upon reinvestment of
principal. Also, if a security subject to repayment has been purchased at a
premium, in the event of prepayment the value of the premium would be lost.
As noted above, payment of principal and interest on some
mortgage-related securities (but not the market value of the securities
themselves) may be guaranteed by the full faith and credit of the U. S.
Government (in the case of securities guaranteed by the Government National
Mortgage Association ("GNMA") or by agencies or instrumentalities of the U.S.
Government (in the case of securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage pass-through securities created by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters of credit, which
may be issued by governmental entities, private insurers or the mortgage
poolers.
HBSS SAI B-4
<PAGE>
Collateralized mortgage obligations ("CMO's") are hybrid instruments
with characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, semi-annually. CMO's may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMO's are structured
into multiple classes, with each class bearing a different stated maturity.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
Other mortgage-related securities include those that directly or indirectly
represent a participation in or are secured by and payable from mortgage loans
on real property, such as CMO residuals or stripped mortgage-backed securities,
and may be structured in classes with rights to receive varying proportions of
principal and interest.
In certain mortgage-related securities, all interest payments go to one
class of holders--"interest only" or "IO"--and all of the principal goes to a
second class of holders--"principal only" or "PO". The yield to maturity on an
IO class is extremely sensitive to the rate of principal prepayments on the
related underlying mortgage assets, and a rapid rate of principal payments will
have a material adverse effect on yield to maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities, even when
the securities are rated AA or the equivalent. Conversely, if the underlying
mortgage assets experience less than anticipated prepayments of principal, the
yield on a PO class would be materially adversely affected. As interest rates
rise and fall, the value of IO's tends to move in the same direction as interest
rates. The value of the other mortgage-related securities described herein, like
other debt instruments, will tend to move in the opposite direction from
interest rates. In general, the Fund treats IO's and PO's as subject to the
restriction on investments in illiquid instruments except that IO's and PO's
issued by the U.S. Government, its agencies and instrumentalities and backed by
fixed-rate mortgages may be excluded from this limit if, in the judgment of the
Advisor and subject to the oversight of the Trustees such IO's and PO's are
readily marketable.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies and (b) to
the extent the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except as stated in the Prospectus and this
Statement of Additional Information. Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least 300% of all
borrowing.
HBSS SAI B-5
<PAGE>
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowing.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase or sell real estate, commodities or commodity contracts
(however the Fund reserves the right in the future to engage in futures
contracts and options on futures contracts upon authorization by the Board of
Trustees and notification to shareholders).
5. Invest 25% or more of the market value of its assets in the
securities of companies engaged in any one industry. (Does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowing, mortgages or pledges, or (b) entering into options, futures
or repurchase transactions.
7. Invest in any issuer for purposes of exercising control or
management.
The Fund observes the following policies, which are not deemed fundamental and
which may be changed without shareholder vote. The Fund may not:
8. Invest in securities of other investment companies which would
result in the Fund owning more than 3% of the outstanding voting securities of
any one such investment company, the Fund owning securities of another
investment company having an aggregate value in excess of 5% of the value of the
Fund's total assets, or the Fund owning securities of investment companies in
the aggregate which would exceed 10% of the value of the Fund's total assets.
9. Invest, in the aggregate, more than 15% of its net assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except
with respect to the Fund's policies on borrowing and on illiquid securities, or
as otherwise noted.
HBSS SAI B-6
<PAGE>
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Any dividends from net investment income (including 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 long term capital gains realized during the Fund's
fiscal year, will also be distributed to shareholders on or about December 31 of
each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to continue 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"), provided it complies with all
applicable requirements regarding the source of its income, diversification of
its assets and timing of distributions. The Fund's policy is to distribute to
its shareholders all of its investment company taxable income and any net
realized long-term capital gains for each fiscal year in a manner that complies
with the distribution requirements of the Code, so that the Fund will not be
subject to any federal income or excise taxes. To comply with the requirements,
the Fund must also distribute (or be deemed to have distributed) by December 31
of each calendar year (I) at least 98% of its ordinary income for such year,
(ii) at least 98% of the excess of its realized capital gains over its realized
capital losses for the 12-month period ending on October 31 during such year and
(iii) any amounts from the prior calendar year that were not distributed and on
which the Fund paid no federal income tax.
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment policy, it is
expected that dividends from domestic corporations will be part of the Fund's
gross income and that, accordingly, part of the distributions by the Fund may be
eligible for the dividends-received deduction for corporate shareholders.
However, the portion of the Fund's gross income attributable to qualifying
dividends is largely
HBSS SAI B-7
<PAGE>
dependent on that Fund's investment activities for a particular year and
therefore cannot be predicted with any certainty. The deduction may be reduced
or eliminated if the Fund shares held by a corporate investor are treated as
debt-financed or are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
A redemption or exchange of Fund shares may result in recognition of a
taxable gain or loss. Any loss realized upon a redemption or exchange of shares
within six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gains during such six-month period. In determining gain or loss from an
exchange of Fund shares for shares of another mutual fund, the sales charge
incurred in purchasing the shares that are surrendered will be excluded from
their tax basis to the extent that a sales charge that would otherwise be
imposed in the purchase of the shares received in the exchange is reduced. Any
portion of a sales charge excluded from the basis of the shares surrendered will
be added to the basis of the shares received. Any loss realized upon a
redemption or exchange may be disallowed under certain wash sale rules to the
extent shares of the same Fund are purchased (through reinvestment of
distributions or otherwise) within 30 days before or after the redemption or
exchange.
Under the Code, the Fund will be required to report to the Internal
Revenue Service ("IRS") all distributions of taxable income and capital gains as
well as gross proceeds from the redemption or exchange of Fund shares, except in
the case of exempt shareholders, which includes most corporations. Pursuant to
the backup withholding provisions of the Internal Revenue Code, distributions of
any taxable income and capital gains and proceeds from the redemption of Fund
shares may be subject to withholding of federal income tax at the rate of 31
percent in the case of non-exempt shareholders who fail to furnish the Fund with
their taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Fund with
their taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. The Fund reserves
the right to refuse to open an account for any person failing to provide a
certified taxpayer identification number.
HBSS SAI B-8
<PAGE>
The Fund will not be subject to tax in the Commonwealth of
Massachusetts as long as it qualifies as a regulated investment company for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state and local income taxes, and the
tax treatment thereof may differ from the federal income tax treatment.
Moreover, the above discussion is not intended to be a complete discussion of
all applicable federal tax consequences of an investment in the Fund.
Shareholders are advised to consult with their own tax advisers concerning the
application of federal, state and local taxes to an investment in the Fund.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
This discussion and the related discussion in the prospectus have been
prepared by Fund management, and counsel to the Fund has expressed no opinion in
respect thereof.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by
the initial shareholders of the Trust, are responsible for the overall
management of the Trust, including general supervision and review of the
investment activities of the Fund. The Trustees, in turn, elect the officers of
the Trust, who are responsible for administering the day-to-day operations of
the Trust and its separate series. The current Trustees and officers and their
affiliations and principal occupations for the past five years are set forth
below.
Steven J. Paggioli,* 47 President and Trustee
479 West 22nd Street, New York, New York 10011. Executive Vice President, The
Wadsworth Group (consultants) since 1986; Executive Vice President of Investment
Company Administration Corporation ("ICAC") (mutual fund administrator and the
Trust's administrator),and Vice President of First Fund Distributors, Inc.
("FFD") (a registered broker-dealer and the Fund's Distributor) since 1990.
Dorothy A. Berry, 54 Trustee
40 Maple Lane, Copake, NY 12516. President, Talon Industries (venture capital
and business consulting); formerly Chief Operating Officer, Integrated Asset
Management (investment advisor and manager) and formerly President, Value Line,
Inc., (investment advisory and financial publishing firm).
HBSS SAI B-9
<PAGE>
Wallace L. Cook, 57 Trustee
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel, 59 Trustee
2 Crown Cove Lane, Savannah, GA 31411. Private Investor. Formerly Managing
Director, Premier Solutions, Ltd. Formerly President and Founder, National
Investor Data Services, Inc. (investment related computer software).
Rowley W.P. Redington, 53 Trustee
1191 Valley Road, Clifton, New Jersey 07103. President; Intertech (consumer
electronics and computer service and marketing); formerly Vice President, PRS of
New Jersey, Inc. (management consulting), and Chief Executive Officer, Rowley
Associates (consultants).
Eric M. Banhazl*, 40 Treasurer
2025 E. Financial Way, Suite 101, Glendora, California 91741. Senior Vice
President, The Wadsworth Group, Senior Vice President of ICAC and Vice President
of FFD since 1990.
Robin Berger*, 41 Secretary
479 West 22nd St., New York, New York 10011. Vice President, The Wadsworth Group
since June, 1993; formerly Regulatory and Compliance Coordinator, Equitable
Capital Management, Inc. (1991- 93).
Robert H. Wadsworth*, 57 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018. President of The
Wadsworth Group since 1982, President of ICAC and FFD since 1990.
*Indicates an "interested person" of the Trust as defined in the 1940 Act.
Set forth below is the rate of compensation received by the following
Trustees from the Fund and all other portfolios of the Trust. This total amount
is allocated among the portfolios. Disinterested trustees receive an annual
retainer of $7,500 and a fee of $2,500 for each regularly scheduled meeting.
These trustees also receive a fee of $1000 for any special meeting attended. The
Chairman of the Board of Trustees receives an additional annual retainer of
$4,500. Disinterested trustees are also reimbursed for expenses in connection
with each Board meeting attended. No other compensation or retirement benefits
were received by any Trustee or officer from the Fund or any other portfolios of
the Trust.
HBSS SAI B-10
<PAGE>
Name of Trustee Total Annual Compensation
Dorothy A. Berry $22,000
Wallace L. Cook $17,500
Carl A. Froebel $17,500
Rowley W.P. Redington $17,500
During the fiscal year ended March 31, 1997, trustees' fees and
expenses in the amount of $2,791 were allocated to the Fund. As of the date of
this Statement of Additional Information, the Trustees and Officers of the Trust
as a group did not own more than 1% of the outstanding shares of the Fund.
THE FUND'S INVESTMENT ADVISOR
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. The Advisor is located at One
Sansome Street, Suite 3300, San Francisco, CA 94104. The Advisor provides
investment advisory services to individual and institutional investors with
assets of approximately $2.7 billion. Mr. John J. Sullivan, Executive Vice
President and Partner and Mr. Gordon J. Ceresino, also Executive Vice President
and Partner are responsible for management of the Fund's portfolio.
Under the Investment Advisory Agreement with the Fund, the Advisor
provides the Fund with advice on buying and selling securities, manages the
investments of the Fund, furnishes the Fund with office space and certain
administrative services, and provides most of the personnel needed by the Fund.
As compensation, the Fund pays the Advisor a monthly management fee (accrued
daily) based upon the average daily net assets of the Fund at the rate of 0.75%
annually.
The Adviser has undertaken to limit the Fund's operating expenses to an
annual level of 1.29% of the Fund's average net assets. For the fiscal period
ended March 31, 1997, the Advisor waived its fees of $15,020 and reimbursed the
Fund in the amount of $74,252.
The Investment Advisory Agreement continues in effect for successive
annual periods so long as such continuation is approved at least annually by the
vote of (1) the Board of Trustees of the Trust (or a majority of the outstanding
shares of the Fund to which the agreement applies), and (2) a majority of the
Trustees who are not interested persons of any party to the Agreement, in each
case cast in person at a meeting called for the purpose of voting on such
approval. Any such agreement may be terminated at any time, without penalty, by
either party to the agreement upon sixty days' written notice and is
automatically terminated in the event of its "assignment," as defined in the
1940 Act.
HBSS SAI B-11
<PAGE>
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration Corporation (the "Administrator"), a corporation owned and
controlled by Messrs. Banhazl, Paggioli and Wadsworth with offices at 4455 E.
Camelback Rd., Ste. 261-E, Phoenix, AZ 85018. 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
qualification and/or registration to sell shares in all states where the Fund
currently does, or intends to do business; coordinate the preparation, printing
and mailing of all materials (e.g., Annual Reports) required to be sent to
shareholders; coordinate the preparation and payment of Fund related expenses;
monitor and oversee the activities of the Fund's servicing agents (i.e.,
transfer agent, custodian, fund accountants, etc.); review and adjust as
necessary the Fund's daily expense accruals; and perform such additional
services as may be agreed upon by the Fund and the Administrator. For its
services, ICAC 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. ICAC received fees of $28,351 from the Fund for
the fiscal period ended March 31, 1997.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc., (the "Distributor"), a corporation owned
by Mr. Banhazl, Mr. Paggioli and Mr. Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
for periods not exceeding one year if approved at least annually by (i) the
Board of Trustees or the vote of a majority of the outstanding shares of the
Fund (as defined in the 1940 Act) and (ii) a majority of the Trustees who are
not interested persons of any such party, in each case cast in person at a
meeting called for the purpose of voting on such approval. The Distributing
Agreement may be terminated without penalty by the parties thereto upon sixty
days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
The Fund has adopted a Distribution Plan in accordance with Rule 12b-1
under the 1940 Act. The Plan provides that the Fund will pay a fee to the
Distributor at an annual rate of up to 0.25% of the average daily net assets of
the Fund. The fee is paid to the Distributor as reimbursement for or in
anticipation of, expenses incurred for distribution related activities. During
the year ended March 31, 1997, the Fund paid fees of $5,007 to the Distributor,
of which $4,816 was for selling compensation, and $191 related to Distributor
printing expenses.
HBSS SAI B-12
<PAGE>
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser determines
which securities are to be purchased and sold by the Fund and which
broker-dealers will be used to execute the Fund's portfolio transactions.
Purchases and sales of securities in the over-the-counter market will be
executed directly with a "market-maker" unless, in the opinion of the Adviser, a
better price and execution can otherwise be obtained by using a broker for the
transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one broker, dealer or underwriter are comparable, the
order may be allocated to a broker, dealer or underwriter that has provided
research or other services as discussed below.
In placing portfolio transactions, the Adviser will use its best
efforts to choose a broker-dealer capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the most favorable price
and execution available, consideration may be given to those broker-dealers
which furnish or supply research and statistical information to the Adviser that
it may lawfully and appropriately use in its investment advisory capacities, as
well as provide other services in addition to execution services. The Adviser
considers such information, which is in addition to and not in lieu of the
services required to be performed by it under its Agreement with the Fund, to be
useful in varying degrees, but of indeterminable value. Portfolio transactions
may be placed with broker-dealers who sell shares of the Fund subject to rules
adopted by the National Association of Securities Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available, in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Adviser, even if the specific services are not directly useful to the Fund and
may be useful to the Adviser in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Adviser to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Adviser's overall responsibilities to the
Fund.
HBSS SAI B-13
<PAGE>
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds managed or advised by the Adviser.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts. In such
event, the position of the Fund and such client account(s) in the same issuer
may vary and the length of time that each may choose to hold its investment in
the same issuer may likewise vary. However, to the extent any of these client
accounts seeks to acquire the same security as the Fund at the same time, the
Fund may not be able to acquire as large a portion of such security as it
desires, or it may have to pay a higher price or obtain a lower yield for such
security. Similarly, the Fund may not be able to obtain as high a price for, or
as large an execution of, an order to sell any particular security at the same
time. If one or more of such client accounts simultaneously purchases or sells
the same security that the Fund is purchasing or selling, each day's
transactions in such security will be allocated between the Fund and all such
client accounts in a manner deemed equitable by the Adviser, taking into account
the respective sizes of the accounts and the amount being purchased or sold. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as the Fund is concerned. In other
cases, however, it is believed that the ability of the Fund to participate in
volume transactions may produce better executions for the Fund.
The Fund does not effect securities transactions through brokers solely
for selling shares of the Fund, although the Fund may consider the sale of
shares as a factor in allocating brokerage. However, as stated above,
broker-dealers who execute brokerage transactions may effect purchases of shares
of the Fund for their customers.
The Fund does not use the Distributor to execute its portfolio
transactions. For the fiscal period ended March 31, 1997 the aggregate brokerage
commissions paid by the Fund were $4,429.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Manager or the Distributor such rejection
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
Payments to shareholders for shares of the Fund redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which
HBSS SAI B-14
<PAGE>
it has not yet received confirmation of good payment; in this circumstance, the
Fund may delay the redemption until payment for the purchase of such shares has
been collected and confirmed to the Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Fund may
make payment partly in securities with a current market value equal to the
redemption price. Although the Fund does not anticipate that it will make any
part of a redemption payment in securities, if such payment were made, an
investor may incur brokerage costs in converting such securities to cash. The
Fund has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption or repurchase.
Check-A-Matic
As discussed in the Prospectus, the Fund provides a Check-A-Matic Plan
for the convenience of investors who wish to purchase shares of the Fund on a
regular basis. All record keeping and custodial costs of the Check-A-Matic Plan
are paid by the Fund. The market value of the Fund's shares is subject to
fluctuation, so before undertaking any plan for systematic investment, the
investor should keep in mind that this plan does not assure a profit nor protect
against depreciation in declining markets.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of public
trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time) on
each day that the Exchange is open for trading. It is expected that the Exchange
will be closed on Saturdays and Sundays and on New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas. The Fund does not expect to determine the net asset value of its
shares on any day when the Exchange is not open for trading even if there is
sufficient trading in its portfolio securities on such days to materially affect
the net asset value per share.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are
HBSS SAI B-15
<PAGE>
valued at the current or last bid price. If no bid is quoted on such day, the
security is valued by such method as the Board of Trustees of the Trust shall
determine in good faith to reflect the security's fair value. All other assets
of each Fund are valued in such manner as the Board of Trustees in good faith
deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in
advertisements and investor communications. Total return may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return will be accompanied by information on the Fund's
average annual compounded rate of return over the most recent four calendar
quarters and the period from the Fund's inception of operations. The Fund may
also advertise aggregate and average total return information over different
periods of time.
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of a Fund's performance
by independent sources may also be used in advertisements and in information
furnished to present or prospective investors in the Funds.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which the
maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
HBSS SAI B-16
<PAGE>
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period and gives effect to the maximum applicable sales charge.
The Fund's total return since its inception on May 1, 1996 through the
period ending September 30, 1997 was 25.64% and for the 12-month period ending
September 30, 1997 was 34.02%.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Star Bank N.A., 425 Walnut Street, Cincinnati, OH 45202 acts as
Custodian of the securities and other assets of the Fund. The Custodian does not
participate in decisions relating to the purchase and sale of securities by the
Fund. American Data Services, Inc., P.O. Box 5536, Hauppauge, NY 11788-0132 is
the Fund's Transfer and Dividend Disbursing Agent.
Ernst & Young, 515 S. Flower St., Los Angeles, CA 90071 are the
independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker, 345 California Street, 29th Floor,
San Francisco, California 94104, are legal counsel to the Fund.
The following persons are beneficial owners of more than 5% of the
Fund's outstanding voting securities as of December 3, 1997. An asterisk (*)
denotes an account affiliated with the Fund's investment advisor, officers or
trustees:
Fidelity Investments Operations Co. as agent for certain benefit plans,
Covington, KY 41015; 40.17%
Charles Schwab & Co., Inc., account for Exclusive Benefit of Photon Research
Retirement Plan, San Francisco, CA 94104; 25.68%
Charles Schwab & Co., Inc., Special Custody Account for Exclusive Benefit of
Customers, San Francisco, CA 94104; 5.94%
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of
HBSS SAI B-17
<PAGE>
expenses out of the Fund's assets for any shareholder held personally liable for
obligations of the Fund or Trust. The Agreement and Declaration of Trust
provides that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund or Trust and
satisfy any judgment thereon. All such rights are limited to the assets of the
Fund. The Agreement and Declaration of Trust further provides that the Trust may
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
trustees, officers, employees and agents to cover possible tort and other
liabilities. Furthermore, the activities of the Trust as an investment company
would not likely give rise to liabilities in excess of the Trust's total assets.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Fund itself is unable to meet its obligations.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for the fiscal year
ended March 31, 1997 is a separate document supplied with this Statement of
Additional Information and the financial statements, accompanying notes and
report of independent accountants appearing therein are incorporated by
reference in this Statement of Additional Information.
HBSS SAI B-18
