SECURITIES ACT FILE NO. 33-12213
INVESTMENT COMPANY ACT FILE NO. 811-5037
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 39 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 40 [X]
(Check appropriate box or boxes)
PROFESSIONALLY MANAGED PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
479 West 22nd Street
New York, NY 10011
Registrant's Telephone Number, including Area Code:
(212) 633-9700
Steven J. Paggioli
Professionally Managed Portfolios
479 West 22nd Street
New York, NY 10011
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker
345 California Street
San Francisco, CA 94104
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It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Title of Securities Being Reagistered:
Shares of Beneficial Interest, No Par Value
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
Part A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Expense
Table
Item 3. Financial Highlights................. Financial
Highlights
Item 4. General Description of Registrant.... Objective and
Investment
Approach of the
Fund
Item 5. Management of the Fund............... Management
of the Fund
Item 5A Management's Discussion of Fund See Annual
Performance Reports to
Shareholders
Item 6. Capital Stock and Other Securities. . . Distributions
and Taxes;
How the
Fund's Per
Share Value
is Determined
Item 7. Purchase of Securities Being Offered . . How to Invest
in the Fund;
How the
Fund's Per
Share Value
is Determined
Item 8. Redemption or Repurchase. . . . . . . . How to Redeem
an Investment
in the Fund
Item 9. Pending Legal Proceedings . . . . . . . N/A
Part B
Item 10. Cover Page ............................. Cover Page
Item 11. Table of Contents....................... Table of
Contents
Item 12. General Information and History . . . . The Trust;
General
Information
Item 13 Investment Objectives and Policies .... Investment
Objective and
Policies;
Investment
Restrictions
Item 14. Management of the Fund................... Trustees and
Executive Officers
Item 15. Control Persons and Principal Holders
of Securities............................ General Information
Item 16. Investment Advisory and Other Services.... The Fund's Investment
Advisor; the Fund's
Administrator; General
Information
Item 17. Brokerage Allocation...................... Execution of
Portfolio
Transactions
Item 18. Capital Stock and Other Securities........ General
Information
Item 19. Purchase, Redemption and Pricing of
Shares Being Offered.............. Additional
Purchase &
Redemption
Information
Item 20. Tax Status.............................. Distributions
& Tax Infor-
mation
Item 21. Underwriters............................ The Fund's
Distributor
Item 22. Performance Information.................. Performance
Information
Item 23. Financial Statements.................... N/A
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement
<PAGE>
PRELIMINARY PROSPECTUS DATED OCTOBER __, 1997
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. Information
contained herein is subject to completion or amendment. These securities may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such jurisdiction.
PACIFIC GEMINI PARTNERS, L.L.C.
PGP Korea Growth Fund
PGP Asia Growth Fund
633 W. Fifth Street, Suite 3600
Los Angeles, CA 90071
The PGP Korea Growth Fund & PGP Asia Growth Fund (the "Funds") are mutual funds
with the investment objective of seeking long-term growth of capital. The Funds
seek to achieve their objective by investing their assets in the securities of
Korean issuers (Korea Growth Fund) and Asian issuers (Asia Growth Fund). Under
normal circumstances, at least 65% of their assets will be invested in equity
securities of Korean/Asian issuers respectively. To the extent permitted by laws
and regulations of Korean and Asian nations, the Funds may also invest in debt
securities and other types of investments if Pacific Gemini Partners, L.L.C.
("Pacific Gemini" or the "Advisor") believes they would help achieve the Funds'
objectives.
There can be no assurance that the Funds will achieve their investment
objective. Each Fund is an investment company designed for long-term investors
and not as a trading vehicle. The Funds do not present a complete investment
program nor are they suitable for all investors. An investment in each of the
Funds are subject to special risk factors, related primarily to the Funds'
investment in Korean and Asian issuers and in other emerging markets, with
greater risks than are present in the more developed economy and market of the
U.S. and in funds that invest in more geographically
diverse emerging markets. Such factors should be reviewed carefully
by potential investors.
This Prospectus sets forth basic information about the Funds that prospective
investors should know before investing. It should be read and retained for
future reference. A Statement of Additional Information dated January , 1998 as
may be amended from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available without charge upon written request to each
Fund at the address given above.
TABLE OF CONTENTS
Expense Table....................................................
Philosophy, Objective and Investment Approach of the Funds.......
Risk Factors.....................................................
Management and Administration......................................
Distribution Plan................................................
How to Invest in the Funds.......................................
How to Redeem an Investment in the Funds.........................
Services Available to the Funds' Shareholders....................
How the Funds' Per Share Value is Determined.....................
Distributions and Taxes..........................................
General Information..............................................
Appendix: Korean Risk Factors.....................................
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 January , 1998
<PAGE>
EXPENSE TABLE
Expenses are one of several factors to consider when investing in the Funds. 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 Funds. Actual expenses may be more or less than those shown. Shares will be
redeemed at net asset value per share.
Shareholder Transaction Expenses
Korea Asia
Growth Growth
Fund Fund
Maximum Sales Load Imposed on Purchases 2.00% 2.00%
Maximum Sales Load Imposed on
Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fees None None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Advisory Fees 1.25% 1.25%
12b-1 Expenses 0.50% 0.50%
Other Expenses(after waiver) 1.00%* 1.00%*
Total Fund Operating Expenses 2.75%* 2.75%*
*The Advisor has undertaken to reduce its fees or make payments of fund expenses
to assure that each Fund's ratio of operating expenses to average net assets
will not exceed 2.50% of average net assets annually. Without the Advisor's
undertaking, it is estimated that "Other Expenses" in the above table would be
1.50% and "Total Operating Expenses" would be 3.25%. If the Advisor does waive
fees or pay Funds' expenses, the Funds may reimburse the Advisor in future
years. See "Management of the Funds." Each Fund has adopted a Distribution Plan
under which it may pay the Advisor a fee at an annual rate of up to 0.50% of the
Funds' net assets for distribution expenses and services. Over an extended
period of time, a long-term shareholder may pay more, directly and indirectly,
in sales charges and such fees than the maximum sales charge permitted under the
rules of the National Association of Securities Dealers, Inc. ("NASD"). This is
recognized and permitted by the NASD.
Example
1 year 3 years
This table illustrates the net transaction
and operating expenses that would be incurred
for an investment in each Fund over different $28 $85
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 a Fund's actual return may be higher or lower. See "Management of the
Funds."
Each Fund is a non-diversified series of Professionally Managed Portfolios (the
"Trust"), an open-end management investment company offering redeemable shares
of beneficial interest. Shares of the Funds may be purchased at their net asset
value per share. The minimum initial investment in each Fund is US $10,000 with
subsequent investments of US $100 or more. Shares will be redeemed at net asset
value per share.
Philosophy, Objective, and Investment Approach of the Funds
PGP Korea Growth Fund & PGP Asia Growth Fund (collectively, the
"Funds", separately, "Korea Growth Fund" and "Asia Growth Fund",
respectively)
Philosophy
At Pacific Gemini Partners, L.L.C., ("Pacific Gemini" or the "Advisor") we
believe that investing in emerging markets, given their unique risks, requires a
thorough understanding of the economic and political factors specific to the
region and each country. As experts on Korea and Asia, our ability to seek out
superior investment returns is based upon a combination of two factors. First,
we believe that the investment process must start through the use of objective,
measurable data used in a systematic way. Combined with this quantitative
approach is our "insider's" knowledge of the markets, itself a combination of
our personnel's long experience in the region and our strategic tie with
Ssanyong Investment and Securities Co. (see Investment Approach). This is
essential for the evaluation of subjective, qualitative factors. Through this
differentiated and focused approach, we seek to unlock exceptional investment
values supported by excellent growth prospects at advantageous prices due to the
pricing inefficiency of securities in these markets.
Objective
The Funds' objectives are to seek long-term capital appreciation by investing
primarily in equity securities of Korean companies in the Korea Growth Fund and
Asian companies in the Asia Growth Fund. The objective is a fundamental policy
of the Funds and may not be changed without shareholder approval. There is no
assurance that the Funds' objectives will be achieved. The Morgan Stanley
Capital Asia Pacific ex-Japan Index is used as the benchmark for choosing the
countries in which the Asia Fund will invest. This includes the following
countries: Australia, China, Hong Kong, India, Indonesia, Korea, Malaysia, New
Zealand, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan and Thailand.
However, investments may be made in other markets in the Asia Pacific region
which are not included in the index.
Investment Approach
With respect to the Asian Growth Fund, Pacific Gemini's research team
applies three levels of evaluation in selecting investments. First the team
applies active country asset
allocation analysis. This includes an examination of macro-economic data, such
as GDP growth and inflation, in anticipation of trends and in light of past
performance. What emerges from this model are the countries which we believe to
present the greatest opportunity. Particular "drivers" of individual markets are
also studied such as, in Hong Kong, the state of the property market. To this is
added a qualitative assessment, which includes a review of the political
situation and any localized country themes that may affect timings of an
investment. In addition, the team undertakes sectoral or industry evaluations.
The starting point is the economic data used at the country level but also
includes specific analysis of industries prospects and industrial themes across
the Asia-Pacific region. Thirdly, the team conducts analysis at the individual
stock level. Earnings and balance sheet data are examined so as to evaluate both
growth (earnings growth and margin expansion, for example) and value (price to
earnings, price to book) criteria. In addition, the team conducts qualitative
research such as an asessment of the company management and the possibility of
Government interference. This screening of countries and stocks provides a
disciplined background against which undervalued situations can be found and
fully valued countries and stock can be sold.
In order to facilitate risk control, the Advisor will invest in a minimum
of four countries in the Asia-Pacific region at any one time. In deciding the
allocation of these investments, a company is considered to be located in the
country in which it is domiciled, in which it is primarily traded and from which
it derives the largest part of its revenues.
In the Korean market, Pacific Gemini takes a similar approach. The
macro-economic picture is first studied to gain an overall picture of where the
economy is heading and at what stage of the
economic cycle it has reached. From this and from cross-referencing the rest of
Asia, sectoral research is carried out. The team evaluates individual stocks
within the favored industries through a comprehensive analysis of company
fundamentals as well as growth prospects. Moreover, by utilizing its strategic
tie with Ssangyong Investment & Securities Co., Ltd., a leading securities firm
in Korea and the Advisor's co-owner, the Advisor believes that continuous access
to locally available company information is provided and the ability to explore
regulatory issues concerning a specific company is enhanced. Finally, through
real-time coverage of the Korean market, the team executes a buy/sell
transaction when intra-day timing conditions are optimal.
Although the Advisor intends to invest primarily in equity securities, it
may invest up to 35% of each Fund's assets in Korean and Asian fixed income
securities. Due to limited liquidity and relatively high transaction costs, the
Funds will invest in Korea and Asian fixed income securities as permitted by
applicable regulations in such countries primarily as a hedging vehicle against
preceived negative stock market trends. Accordingly, the focus for such
investments will be analysis of credit risks and yield, rather than an attempt
to anticipate interest rate movements. As such fixed income markets develop
further, however, the Advisor may consider more active investment in fixed
income securities of issuers located in Korea and other Asian countries.
Investment Criteria
Pacific Gemini focuses on the following investment criteria in Korea and Asia:
1) Financial criteria (earnings, pre and after-tax, debt/equity
ratio, cash flow and book value multiples, etc.)
2) Growth prospects (technology, future competitiveness, market
share, etc.)
3) Turn-around situations (cyclicality, restructuring, niche-market, etc.)
4) Quality of management (shareholder value-driven, visionary,
cost-conscious, etc.)
Other Investment Practices
Investment Companies
Consistent with the provisions of the Investment Company Act of 1940 (the "1940
Act"), the Funds may invest in the securities of other investment companies that
invest in Korean/Asian securities. Absent special relief from the Securities and
Exchange Commission (the "SEC"), each Fund may invest up to 10% of its assets in
the aggregate in shares of other investment companies and up to 5% of its assets
in any one investment company, as long as that investment does not represent
more than 3% of the voting stock of the other investment company. As a
shareholder in any investment company, each Fund will bear its ratable share of
such company's expenses, including its advisory and administration fees.
Short-term Investments
At times, the Funds may invest in short-term cash-equivalent securities either
for temporary or, defensive purposes when the market is 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,
banker's acceptances and commercial paper. High quality means that the
obligations have been rated at least A-1 by Standard & Poor's Corporation
("S&P") or Prime-1 by Moody's Investor's Service, Inc. (Moody's), that the
issuer has an outstanding issue of debt securities rated at least AA by S&P or
Aa by Moody's, or are of comparable quality in the opinion of the Advisor.
Repurchase Agreements
The Funds may enter into repurchase agreements in order to earn additional
income on available cash, or as a defensive investment in which the purchaser
(i.e., the Funds) 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 Funds engage 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 Funds could experience both delays in liquidating the underlying
security and losses in value. However, the Funds intend 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 with the most creditworthy
registered securities dealers with all such transactions governed by 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
Funds engage in repurchase transactions.
When-Issued Securities
The Funds may purchase securities on a when-issued basis, for payment and
delivery at a later date, generally from 15 to 45 days after the transaction.
The price and yield are generally fixed on the date of commitment to purchase,
and the value of the security is thereafter reflected in the Funds' net asset
value. During the period between purchase and settlement, no payment is made by
the Funds and no interest accrues to the Funds. There is a risk in these
transactions that the value of the securities at settlement may be more or less
than the agreed-upon price, or that the party with which a Fund enters into such
transaction may not perform its commitment. When a 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 for each Fund is anticipated to be
approximately 50-75%. In general, the Advisor will not consider the rate of
portfolio turnover to be a limiting factor in determining when or whether to
purchase or sell securities in order to achieve the Funds' objectives.
RISK FACTORS
Non-Diversification. Each Fund is a non-diversified investment company
portfolio, which means that the Fund is required to comply only with the
diversification requirements of the Internal Revenue Code (the "Code') (and in
the case of the Korea Growth Fund, certain Korean regulatory requirements set
forth below) so that each Fund will not be subject to U.S. taxes on its net
investment income. These provisions, among others, require that at the end of
each calendar quarter, (1) not more than 25% of the value of a Fund's total
assets can be invested in the securities of a single issuer, and (2) with
respect to 50% of the value of a Fund's total assets, no more than 5% of the
value of its total assets can be invested in the securities of a single issuer
and a Fund may not own more than 10% of the outstanding voting securities of a
single issuer. Since each Fund, as a non-diversified investment company
portfolio, could invest in a smaller number of individual issuers than a
diversified investment company, the value of a Fund's investments could be more
affected by any single adverse occurrence than would the value of the
investments of a diversified investment company.
Risk Factors: the Korean Markets. The Korea Growth Fund's portfolio will be
subject to economic, political and regulatory developments in Korea. In addition
to the diversification requirements under the Code noted above, diversification
requirements to which the Korea Growth Fund is subject are contained (a) in
rules of the Securities and Exchange Commission of Korea (the "KSEC.") under
which that Fund currently may not hold more than 4% of certain equity securities
of any Korean issuer acquired upon exercise of certain conversion rights,
commonly referred to as "Converted Shares" and more than 4% of any equity
securities of Korean issuers acquired through reinvestment of the proceeds of
any sale of Converted Shares which result in the Fund acquiring "Reinvested
Shares," and may not acquire Government and corporate bonds (excluding
convertible bonds, bonds with warrants and other debt securities issued by
Korean companies in non-Korean markets in currencies other than the Won).
While the relatively greater investment in securities of particular companies
permitted to the Korea Growth Fund as a non-diversified company is expected to
increase risk, and could result in greater fluctuation in the Fund's net asset
value than for a diversified company, it also reflects the composition of the
Korean securities market, in that securities of relatively few companies account
for a greater share of the total capitalization of such market and trading in
those securities represents a greater share of the total trading market than is
the case in the United States.
A Fund's investment in Korean issuers involves certain risk factors not
typically associated with investing in most U.S. issuers. The securities market
is substantially smaller, less developed, less liquid and more volatile than the
major securities markets in the United States. Disclosure and regulatory
standards are in many respects less stringent that U.S. standards. Furthermore,
there is a lower level of monitoring and regulation of the markets and the
activities of investors in such markets, and enforcement of existing regulations
has been extremely limited.
The limited size of the Korean securities market and limited trading volume in
issues compared to volume of trading in U.S. securities could cause prices to be
erratic for reasons apart from factors that affect the quality of the
securities. For example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of portfolio securities, especially in these
markets.
Further, there is a risk that an emergency situation may arise in the Korean
market as a result of which prices for portfolio securities in such markets may
not be readily available. Section 22(e) of the Investment Company Act of 1940
(the "1940 Act") permits registered investment companies such as the Funds to
suspend redemption of its shares for any period during which an emergency, as
determined by the SEC exists. Accordingly, if the Funds believe that appropriate
circumstances exist, it will promptly apply to the SEC for a determination that
an emergency, within the meaning of Section 22(e) of the 1940 Act, is present.
During the period commencing from the Fund's identification of such conditions
until the date of SEC action, the Fund's portfolio securities in the affected
markets will be valued at fair value in good faith by or under the direction of
the Board of Trustees.
Neither Fund may invest or hold more than 15% of its net assets in illiquid
securities. Each Fund will treat any Korean securities that are subject to
restrictions on repatriation for more than seven days as illiquid securities for
purposes of this limitation. The Funds will also treat as illiquid for this
purpose repurchase agreements with maturities in excess of seven days,
securities subject to conversion and transfer restrictions, securities in which
a Fund cannot receive the approximate amount at which it values such securities
within seven days, securities of Korean companies that are not publicly traded
and over-the-counter options and their underlying securities.
Restricted securities issued pursuant to Rule 144A under the Securities Act of
1933 that have a readily available market are not deemed illiquid for purposes
of this limitation. Investing in Rule 144A securities could result in increasing
the level of a Fund's illiquidity if qualified institutional buyers become, for
a time, uninterested in purchasing these securities. The Adviser will monitor
the liquidity of such securities subject to review by the Board of Trustees.
Because the Funds invest in securities denominated in Korean Won, changes in the
value of the Korean Won against the U.S. dollar will result in corresponding
changes in the U.S. dollar value of a Fund's assets denominated in Korean Won.
Such changes also will affect that Fund's income.
The economy of Korea may differ favorably or unfavorably from the U.S. economy
in such respects as the rate of growth of domestic product, the rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Companies in Korea are subject to accounting, auditing, and
financial standards and requirements that differ from those applicable to U.S.
companies. There is substantially less publicly available information about
Korean companies and the Korean government that there is about U.S. companies
and the U.S. Government. See "Appendix--Korean Risk Factors."
Risk Factors: The Korean and Asian Markets
Since foreign securities are normally denominated and traded in foreign
currencies, the value of fund assets may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar. There may be
less information publicly available about a foreign issuer than about a U.S.
issuer, and foreign issuers may not be subject to accounting standards
comparable to those in the United States.
The securities of some foreign companies are less liquid and at times more
volatile than securities of comparable U.S. companies. Foreign brokerage
commissions and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve certain risks
(such as delay in payment or delivery of securities or in the recovery of fund
assets held abroad) and expenses not present in the settlement of domestic
investments.
In addition, there may be a possibility of nationalization or expropriation of
assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability and diplomatic developments that could affect
the value of investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be
limited. The laws of some foreign countries may limit investments in securities
of certain issuers located in those foreign countries. Special tax
considerations apply to foreign securities.
Prior Government approval for foreign investments may be required under certain
circumstances in some foreign countries, and the extent of foreign investment in
foreign companies may be subject to limitation. Foreign ownership limitations
also may be imposed by the charters of individual companies to prevent, among
other concerns, violation of foreign investment limitations. Repatriation of
investment income, capital and the proceeds of sales by foreign investors may
require government registration and approval in some foreign countries. A Fund
could be adversely affected by delays in or a refusal to grant any required
governmental approval for such repatriation.
The risks described above are typically greater in less developed nations,
sometimes referred to as "emerging markets." For instance, political and
economic structures in these countries may be in their infancy and developing
rapidly, causing instability. High rates of inflation may adversely affect the
economies and securities markets of such countries. In addition, the small size,
limited trading volume and relative inexperience of the securities markets in
these countries may make investments in such countries less liquid and more
volatile than investments in more developed countries. Investments in emerging
markets are regarded as speculative, and in non-geographically diverse emerging
markets as especially speculative.
The Funds have adopted certain investment restrictions, which are described
fully in the Statement of Additional Information. Like the Funds' investment
objectives, certain of these restrictions are fundamental and may be changed
only by a majority vote of a Fund's outstanding shares.
MANAGEMENT AND ADMINISTRATION
Investment Advisor
Pacific Gemini Partners, L.L.C. (the "Advisor" or "Pacific Gemini") has been
appointed to act as investment advisor to the Funds pursuant to the Investment
Advisory Agreement. The Investment Advisor, on a fully discretionary and
on-going basis, will be responsible for the investment management of the Funds'
portfolio.
Overview
Pacific Gemini is a financial services firm specializing in global asset
management services. The firm was founded in 1995 as a joint venture between
Ssangyong Investment & Securities Co., Ltd. ("SISC") and White Tiger Capital,
Inc.("WTC") As of July 1, 1997, Pacific Gemini managed over US$90 million in
assets.
Ssangyong Investment & Securities Co., Ltd. is one of the leading securities
firms in Korea with over US$1.8 billion in assets and is a major international
broker of Korean equity transactions.
White Tiger Capital, Inc. is a collection of investment management professionals
that comprise the team at Pacific Gemini Partners. Over 90% of the common stock
of White Tiger Capital, Inc. is owned by Pacific Gemini employees.
Management of the Funds
The Fund's investments are to be managed by the portfolio management team at
Pacific Gemini. In its role as investment adviser, Pacific Gemini is responsible
for the continuing management of the affairs of the Funds, including the
investment of the assets of the Funds on a discretionary basis. Information
gathered during the initial investment screening process will serve as the basis
for closely tracking the performance of each security. The Funds' Advisor will
continuously gather additional information and perform fundamental sector and
individual company analysis to support its monitoring efforts. Pacific Gemini
became a registered investment advisor with the United States Securities and
Exchange Commission in August of 1995. Pacific Gemini has not previously managed
a registered investment company.
Pacific Gemini Team
Stewart M. Kim, Managing Partner
Mr. Kim is responsible for the overall strategy and management of Pacific Gemini
with a day-to-day focus on administration, marketing and the evaluation of
acquisition opportunities. He is also the head of the Company's Investment
Policy Committee. Mr. Kim spent six years in the Mergers & Acquisitions
Department at Merrill Lynch & Co. before establishing White Tiger Capital, Inc.
and Pacific Gemini Partners, L.L.C. in 1995. While at Merrill Lynch, Mr. Kim
worked on a variety of high yield financings, restructurings, divestitures and
acquisitions. As a Vice President in the 72-employee Mergers & Acquisitions
Group, Mr. Kim had formal management responsibility for project assignments,
performance reviews, and recruiting. Prior to joining Merrill Lynch, Mr. Kim
graduated from Dartmouth College and received his MBA from the Wharton School.
Hugh W.E. Ferrand, Portfolio Manager
Mr. Ferrand is the Senior Portfolio Manager at Pacific Gemini and oversees the
investment management policies and procedures at the firm. He also manages the
investment team consisting of the Korea portfolio manager and research analysts
and sits on the Investment Policy Committee. Before joining Pacific Gemini, Mr.
Ferrand was a senior manager on the international portfolio team at Blairlogie
Capital Management from June 1993 to June 1996. His primary country
responsibilities were Hong Kong, Taiwan, China, Australia, New Zealand, India,
Pakistan, and Sri Lanka. Mr. Ferrand had secondary oversight for Singapore,
Malaysia, Thailand, Indonesia, Philippines and all of Latin America. Mr. Ferrand
attended and graduated from Oxford University in 1981.
Young Kim, Vice President/Portfolio Manager
Mr. Kim manages the daily activities of Pacific Gemini's Korean portfolios of
$90 million. He is also a member of the Company's Investment Policy Committee.
Prior to coming to Pacific Gemini's Los Angeles office, Mr. Kim assumed various
responsibilities at Ssangyong Investment & Securities Co. Starting his career as
an electronics analyst in Ssangyong's Research Department, he has forecasted
corporate earnings and analyzed industry performance since 1987. While at
Ssangyong, Mr. Kim also worked in Corporate Finance, leading the marketing teams
on two major equity-linked financings for Sunkyong Industries and Jinro Group in
1992 and 1991 respectively. Before joining Ssangyong, he worked at Samsung
Aerospace Industries on its new business project team. Mr. Kim attended Seoul
National University for his BA in economics, and received his MBA from Yonsei
University.
Sokho Jung, Associate
Mr. Jung is primarily responsible for extensive company research and portfolio
analysis. He is also responsible for compliance issues involving Pacific
Gemini's off-shore funds as well as the US mutual funds. Mr. Jung previously
worked at Bankers Trust International PLC in Seoul, structuring financing
vehicles for domestic institutions and orchestrating catapulation of foreign
capital investment funds into Korea. He attended the Seoul National University
for his BA in economics, and the Stern School of New York University for his
MBA.
Michelle S. Lee, Associate
Ms. Lee is involved in company research and data analysis for Pacific Gemini's
portfolios. She also administers and tracks Pacific Gemini's funds. Ms. Lee on a
daily basis communicates with the funds' custodians and administrators in order
to control cash movements and to resolve any trade settlement related issues.
She graduated from the University of California at Berkeley with a BA in
Sociology.
Martin S.C. Lee, Analyst
Mr. Lee performs industry research and stock valuation analysis, and executes
trades with a variety of Korean equity brokers. In conjunction with the
Investment Policy Committee, he oversees Pacific Gemini's approach for
investments in the U.S. securities market. Mr. Lee received his BA in economics
from the University of Chicago.
Pacific Gemini provides the Funds with advice on buying and selling securities,
manages the investments of the Funds, furnishes the Funds with office space and
certain administrative services, and provides most of the personnel needed by
the Funds. As compensation, each Fund pays the Adviser a monthly management fee
(accrued daily) based upon the average daily net assets of that Fund at the rate
of 0.75% annually. Investment Company Administration Corporation (the
"Administrator") acts as the Funds' Administrator under an Administration
Agreement. Under that agreement, the Administrator prepares various federal and
state regulatory filings, reports and returns for the Funds, prepares reports
and materials to be supplied to the trustees, monitors the activities of the
Funds' custodian, transfer agent and accountants, and coordinates the
preparation and payment of Fund expenses and reviews the Funds' expense
accruals. For its services, the Administrator receives a monthly fee from the
Funds at the following annual rate:
Fee rate (% of
Average net assets of the Funds Average net assets)
Less than $15 million $30,000
$15 to $50 million 0.20%
$50 to $100 million 0.15%
$100 million to $150 million 0.10%
More than $150 million 0.05%
Each Fund is responsible for its own operating expenses. The Advisor has agreed
to limit each Fund's operating expenses to assure that each Fund's ratio of
operating expenses to average net assets will not exceed 2.50%. The Advisor also
may waive fees or reimburse additional amounts to a 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 are
subject to reimbursement by the Fund provided the fund is able to do so and
remain in compliance with any expense limitations then in effect.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Funds' 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 Adviser may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Adviser may also
consider the sale of Fund shares as a factor in selecting broker-dealers for a
Fund's portfolio transactions.
DISTRIBUTION PLAN
Each Fund has adopted a distribution plan pursuant to Rule 12b-1. The Plan
provides that each Fund may pay for distribution and related expenses of up to
an annual rate of 0.50% of the Fund's average net assets to the Advisor as
distribution coordinator. Expenses permitted to be paid by the Funds under the
Plan include: preparation, printing and mailing of prospectuses; shareholder
reports such as semiannual and annual reports, performance reports and
newsletters; sales literature and other promotional material to prospective
investors; direct mail solicitation; advertising; public relations; compensation
of sales personnel, advisors or other third parties for their assistance with
respect to the distribution of the Funds' shares; payments to financial
intermediaries for shareholder support; administrative and accounting services
with respect to Fund shareholders; 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 FUNDS
The minimum initial investment in each Fund is US$10,000. Subsequent investments
must be at least $100. First Fund Distributors, Inc. (the "Distributor"), acts
as Distributor of the Funds' 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 each Fund are offered continuously for purchase at the public offering
price which is equal to the net asset value per share next determined after a
purchase order is received plus a sales charge of 2% of the offering price
(2.04% of the net asset value). 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.
Purchase Order Placed with Investment Dealers
Dealers who have a sales agreement with the Distributor may place orders for
shares of the Funds on behalf of clients at the offering price next determined
after receipt of the client's order by calling the Transfer Agent at (800)
385-7003. Shares are also available for purchase by financial intermediaries
through brokers or dealers which have service or sales agreements with the Funds
or the Distributor. The Distributor or its affiliates, at their expense may
provide additional compensation to dealers in connection with sales of shares of
the Funds. If the order is placed with the dealer by 4:00 p.m. New York City
time and forwarded promptly to the Transfer Agent or other service agent, it
will be confirmed at the applicable offering price on that date. The dealer is
responsible for placing orders promptly with the Transfer Agent and for
forwarding payment promptly.
Investors may purchase shares of the Funds by check or wire:
Purchases Sent To The Transfer Agent
By Check: For initial investments, an investor should complete the Funds'
Account Application (included with this Prospectus). The completed application,
together with a check payable to "PGP Korea Growth Fund," or "PGP Asia Growth
Fund" and should be mailed to the Funds at 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 "PGP Korea Growth Fund," or "PGP
Asia Growth Fund" and mailed to the Fund in the envelope provided at the address
indicated above. The investor's account number should be written on the check.
By Wire: For initial investments, before wiring funds, an investor should call
(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 Funds prior to each wire purchase. Wires sent without
notifying the Funds will result in a delay of The effective date of your
purchase. The Funds' Transfer Agent will request the investor's name, address,
taxpayer identification number, amount being wired and wiring bank. The investor
should then instruct the wiring bank to transfer funds by wire to : Star Bank,
N.A. Cinti/Trust, ABA #0420-0004-3, for credit to PGP Korea Growth Fund , DDA
#__________________or PGP Asia Growth Fund, DDA #______________ 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
a 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 Funds 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.
Purchase at Net Asset Value. Shares of the Funds may be purchased at net asset
value by officers, trustees, directors and full time employees of the Trust, the
Advisor, the Administrator, the Distributor and affiliates of such companies, by
their family members, by persons and their family members who are direct
investment advisory clients of the Advisor, registered representatives and
employees of firms which have sales agreements with the Distributor, investment
advisors, financial planners or other intermediaries who placed trades for their
own accounts or the accounts of their clients and who charge a management,
consulting or other fee for their clients and who charge a management,
consulting or other fee for their services, clients of such investment advisors,
financial planners or other intermediaries who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisor, financial planner or other intermediaries on the books and records of
the broker or agent, retirement and deferred compensation plans and trusts used
to fund such plans, including, but not limited to, those defined in Section
401(a), 403(b) or 457 of the Internal Revenue Code and "rabbi trusts" and by
such other persons who are determined to have acquired shares under
circumstances not involving any sales expense to the Funds or Distributor.
Investors may be charged a fee if they effect transactions in fund shares
through a broker or agent.
General. Investors will not be permitted to redeem any shares of a Fund
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 Funds 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 Funds are not required to issue share certificates. All shares are normally
held in non-certificated form registered on the books of the Funds and the
Funds' Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUNDS
A shareholder has the right to have a 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
Funds' Transfer Agent in order to constitute a valid tender for redemption.
Requests for redemption of fund shares should be mailed to the Funds at P.O. Box
5536, Hauppauge, NY 11788-0132. To protect the Funds and their 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 Funds' Account Application may redeem shares on any business day
the NYSE is open by calling the Funds' 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 Funds
and the 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 Funds 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 procedures are followed, neither the Funds nor their 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 Funds 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 Funds 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
Funds will not mail redemption proceeds until they have 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 Funds reserve 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 a 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 Funds offer 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 Funds offer a
preauthorized check service under which a check is automatically drawn on the
shareholder's personal checking account each month for a predetermined amount
(but not less than $100), as if the shareholder had written it himself. Upon
receipt of the withdrawn funds, a 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 Funds offer 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 in a Fund must have 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 Funds 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 New York Stock Exchange currently 4:00 p.m. Eastern time)
on each day that Exchange is open for trading. Net asset value per share is
calculated by dividing the value of the Fund's total assets, less its
liabilities, by the number of Fund shares outstanding.
Portfolio securities are valued using current market values, if available.
Securities for which market quotations are not readily available are valued at
fair values as determined in good faith by or under the supervision of the
Trust's officers in accordance with methods which are specifically authorized by
the Board of Trustees. Short-term obligations with remaining maturities of 60
days or less are valued at amortized cost as reflecting fair value.
Because both Funds' portfolio securities are listed primarily on the Korean and
other Asian Stock Exchanges, which trade on days when the NYSE may be closed
(such as a Saturday), the net asset values of the Funds may be significantly
affected by such trading on days when shareholders have no access to the Funds.
With respect to Korean securities, currently the Korean government imposes
significant restrictions and controls on foreign investors. As a result, the
Funds may be limited in their investments or precluded from investing in certain
Korean companies. This limitation may adversely affect the performance of the
Funds. Under Korean Stock Exchange ("KSE") regulations, total foreign investment
is limited to 23% of each class of a company's shares listed on the KSE and a
single foreign investor may only purchase up to 6% of such shares. The 6% and
23% limitations are reduced to 1% and 18%, respectively, for certain
government-designated public corporations with shares listed on the KSE. As a
result of these limitations, many of the securities trade among non-Korean
residents at a premium over the market price. Foreign investors may effect
transactions with other foreign investors off the KSE in the shares of companies
that have reached the maximum aggregate foreign ownership limit through a
securities company in Korea. These transactions typically occur at a premium
over prices on the KSE. There can be no assurance that the Funds, when they
purchase shares at a premium, will be able to realize such premium on the sale
of shares, or that such premium will not be adversely affected by changes in
regulations or otherwise.
Current restrictions which govern the Korean stock market provide that on any
given trading day, a security's price is permitted to move a maximum of 6% from
the previous day's closing price.
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 each Fund's fiscal year (August 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 a 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 a Fund has the effect of reducing the net
asset value per share on the reinvestment date by the amount of the dividend or
distribution. Investors should note that a dividend or distribution paid on
shares purchased shortly before such dividend or distribution was declared will
be subject to income taxes as discussed below even though the dividend or
distribution represents, in substance, a partial return of capital to the
shareholder. Taxes. Each Fund intends to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As long as each fund continues to so qualify, and
as long as each 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 Funds 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. 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 Funds' 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 Funds.
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 classify shares and issue other series,
the assets and liabilities of which will be separate and distinct from any other
series. Shareholder Rights. Shares issued by the Funds have no preemptive,
conversion, or subscription rights. Shareholders have equal and exclusive rights
as to dividends and distributions as declared by the Funds and to the net assets
of the Fund upon liquidation or dissolution. Each Fund, as a separate series of
the Trust, votes separately on matters affecting only that Fund (e.g., approval
of the Management and Advisory Agreements); all series of the Trust vote as a
single class on matters affecting all series jointly or the Trust as a whole
(e.g., election or removal 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, a 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. A Fund may
also advertise aggregate and average total return information over different
periods of time. A 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, and any applicable sales
charges. Investors should note that the investment results of each Fund will
fluctuate over time, and any presentation of a Fund's total return for any prior
period should not be considered as a representation of what an investor's total
return may be in any future period. Custodian and Transfer Agent; Shareholder
Inquiries. Star Bank, N.A., 425 Walnut St., Cincinnati, OH 45202, serves as
custodian of the Funds' assets. American Data Services, Inc., P. O. Box 5536,
Hauppauge, NY 11788-0132 is the Funds' Transfer and Dividend Disbursing Agent.
Shareholder inquiries should be directed to the Transfer Agent at (800)
385-7003.
APPENDIX: KOREAN RISK FACTORS
Investing in securities of Korean companies and of the government (the
"Government") of the Republic of Korea (the "Republic" or "Korea") involves
certain risks not typically associated with investing in securities of United
States companies or the United States Government, in addition to those discussed
under "Prospectus Summary" and "Investment Objective, Policies and Risks."
Investment and Repatriation Restrictions.
Under Korean Stock Exchange regulations, total foreign investment is limited to
23% of each class of a company's shares listed on the Korean Stock Exchange
("KSE") and a single foreign investor may purchase only up to 6% of such shares.
These limitations are reduced to 1% and 18%, respectively, for certain
government-listed designated public corporations with shares listed on the KSE.
Transfer of funds from Korea to foreign countries and repatriation of foreign
capital invested in Korea are subject to certain regulatory approvals pursuant
to foreign exchange control laws and regulations. Generally, as long as the
original investment was approved or allowed under the applicable laws and
regulations of Korea, the conversion and remittance of cash or cash equivalents
into U.S. dollars in relation to such investment will be freely allowed upon
receipt of the appropriate payment approvals from the Bank of Korea or a
designated Class A foreign exchange bank depending on the type of transaction.
Currency Fluctuations. The Korea Fund's assets will be invested primarily in
Korean securities, the market value of which is determined in Won, and
substantially all of its income will be received or realized in Korean Won. The
Fund will be required, however, to compute its net asset value and income, and
to distribute its income, in U.S. dollars. As a result, the Fund's net asset
value and its distribution amounts will be subject to foreign exchange rate
fluctuations relative to the Won.
The Korean Won was devalued against the U.S. dollar in the early 1980's to reach
approximately Won 890 to the US dollar by the end of 1985. The Korean Won
appreciated against the US dollar from 1986 to approximately 665 Won per US
dollar by May 1989. Since then the Korean Won has slowly lost value against the
US dollar and the exchange rate stood at approximately _____ Won per US dollar
as of the date of this Prospectus.
The Fund expects to incur certain transaction costs in connection with its
conversions between currencies and, in light of the history of the fluctuating
currency values of the Korean Won relative to the dollar, it is impossible to
predict what effect currency conversion costs may have on the operations of this
Fund.
Potential Market Volatility. The Korean securities market is still relatively
small in comparison to the Japanese, United States and other major securities
markets. Because of its small size and low trading volume, the Korean securities
market is subject to greater price volatility and less liquidity than is usual
in the Japanese, United States or major European securities markets. Because of
these liquidity limitations and the Fund's investment policies, it may be more
difficult for the Fund to purchase and sell portfolio positions than would be
the case in the United States. Accordingly, in periods of rising market prices,
the Fund may be unable to participate fully in such price increases to the
extent that it is unable to acquire desired portfolio positions quickly;
conversely, the Fund's inability to dispose fully and promptly of positions in
declining markets will cause its net asset value to decline as the value of
unsold positions is determined by references to lower prices.
Political and Economic Factors. The partition of Korea following World War II
has created a political risk to the Republic. The Demilitarized Zone at the
boundary between the Republic and North Korea established after the Korean War
of 1950-53 is supervised by United Nations forces. The United States maintains a
significant military force in the Republic. The situation remains a source of
tension, although negotiations to resolve the political division of the Korean
peninsula have been carried on intermittently for several years, and in recent
years there have been several meetings between representatives of the Republic
and of North Korea on political, economic and humanitarian issues.
The domestic political situation in Korea has been relatively stable since Kim
Young Sam, who had been for many years a leader of an opposition party, was
elected as president of Korea in December 1992. During the last quarter of 1995,
the Kim administration initiated a campaign to prosecute illegal slush fund
contributors. Contributions were made to major political figures, including two
former Presidents, mostly by heads of Korean corporations. Such reform caused
uncertainty in the Korean securities market and had a significant adverse impact
on security prices. Nonetheless, many observers believe that benefits will be
realized from these reforms in the long term. Such activities are expected to
provide increased political stability and reduce corruption.
<PAGE>
Advisor
Pacific Gemini Partners, L.L.C.
633 West Fifth St., Suite 3600
Los Angeles, CA 90071
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut St.
Cincinnati, Ohio 45202
Transfer and Dividend Disbursing Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 385-7003
Auditors
Ernst & Young
515 South Flower St.
Los Angeles, CA 90071
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California St.
San Francisco, CA 94104
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
January , 1998
PGP KOREA EQUITY GROWTH FUND
PGP ASIA GROWTH FUND
series of
PROFESSIONALLY MANAGED PORTFOLIOS
633 W. Fifth Street, Suite 3600
Los Angeles, CA 90071
(213) 624-3355
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the prospectus of the PGP Korea Growth Fund and the PGP
Asia Growth Fund (a "Fund" or the "Funds"). A copy of the prospectus of the Fund
dated January , 1998 is available by calling the number listed above or (626)
852-1033.
TABLE OF CONTENTS
Cross-reference to
page in prospectus Page
Investment Objective and Policies 2
Investment Restrictions 6
Distributions and Tax Information 11
Management 7
The Fund's Investment Advisor 7
The Fund's Administrator 7
The Fund's Distributor 8
Execution of Portfolio Transactions 7
Additional Purchase and Redemption Information 8
Determination of Share Price 11
Performance Information 12
General Information 12
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 PGP Korea Equity Growth
Fund and PGP Asia Growth Fund series (the 'Funds"). Pacific Gemini Partners LLC
(the 'Advisor') is the Fund's investment advisor.
INVESTMENT OBJECTIVE AND POLICIES
The Funds are mutual funds with the investment objective of seeking long-term
growth of capital. The following discussion supplements the discussion of the
Funds' investment objectives and policies as set forth in the Prospectus. There
can be no assurance the objectives of the Funds will be attained.
Depositary Receipts
The Funds may invest securities of foreign issuers in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ('EDRs'), Global
Depositary Receipts ("GDRs") or other securities convertible into securities of
Korean and other Asian issuers. These securities may not necessarily be
denominated in the same currency as the securities for which they may be
exchanged. The Fund may also hold American Depository Shares ("ADSs") which are
similar to ADRS. ADRs and ADSs are typically issued by an American bank or trust
company and evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as Continental Depository
Receipts ("CDRs"), are receipts issued in Europe typically by foreign banks and
trust companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets. For purposes of the Funds' investment policies, the Funds'
investments in ADRs, ADSs, EDRs, GDRs and CDRs will be deemed to be investments
in the equity securities representing securities of foreign issuers into which
they may be converted.
Repurchase Agreements
The Funds 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 a 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 Funds will generally
enter into repurchase agreements of short durations, from overnight to one week,
although the underlying securities generally have longer maturities. The Funds
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 either 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 a 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 a 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, a 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, a 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
Funds, the Advisor seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, a 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 a Fund might be unsuccessful in
seeking to impose on the seller a contractual obligation to deliver additional
securities.
When-Issued Securities
The Funds 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 a Fund to the issuer and
no interest accrues to the Fund. To the extent that assets of a Fund are held in
cash pending the settlement of a purchase of securities, the Fund would earn no
income; however, it is the Funds' 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 Funds intend to
purchase such securities with the purpose of actually acquiring them unless a
sale appears desirable for investment reasons. At the time a 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 Funds do not believe that net asset value or income will
be adversely affected by the purchase of securities on a when-issued basis. The
Funds will segregate liquid assets with the Custodian in which they will
maintain cash and marketable securities equal in value to commitments for
when-issued securities.
Forward Currency Contracts and Options on Currency
A forward currency contract ("Forward Contract" or 'Contract") is an obligation
to purchase or sell a currency against another currency at a future date and
price as agreed upon by the parties. The Funds may either accept or make
delivery of the currency at the maturity of the Forward Contract or, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. The Funds will utilize Forward Contracts only on a covered
basis, which means that the Funds will segregate liquid assets in an amount not
less than the contract price at all times while the contract is outstanding. The
Funds will engage in forward currency transactions in anticipation of, or to
protect against, fluctuations in exchange rates. The Funds may enter into
Forward Contracts either with respect to specific transactions or with respect
to the Funds' portfolio positions. For example, when a Fund anticipates making a
purchase or sale of a security, it may enter into a Forward Contract to set the
rate (either relative to the U.S. dollar, the Korean Won or another currency) at
which a currency exchange transaction related to the purchase or sale will be
made. Further, when the Advisor believes that the Won or other currency may
decline compared to the U.S. dollar or another currency, a Fund may enter into a
Forward Contract to sell the Won or other currency the Advisor expects to
decline in an amount approximating the value of some or all of the Fund's
portfolio securities denominated in that currency.
Forward Contracts are transferable in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. The Funds will enter into such Forward
Contracts with major U.S. or foreign banks and securities or currency dealers in
accordance with guidelines approved by the Trust's Board of Trustees.
The Funds may enter into Forward Contracts either with respect to specific
transactions or with respect to the Funds' portfolio positions. The precise
matching of the Forward Contract amounts and the value of specific securities
will not generally be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the Forward Contract is entered into and
the date it matures. Accordingly, it may be necessary for a Fund to purchase
additional foreign currency on the spot (i.e., cash) market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency the
Fund is obligated to deliver. The projection of short-term currency market
movements is extreme difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be accurately predicted, which may cause
a Fund to sustain losses on these Contracts and transaction costs.
At or before the maturity of a Forward Contract requiring a Fund to sell a
currency, a Fund may either sell a portfolio security and use the sale proceeds
to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency which it is obligated to deliver. Similarly, a Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second Contract entitling it to sell the same amount of the same
currency on the maturity date of the first Contract. A Fund would realize a gain
or loss as a result of entering into such an offsetting Forward Contract under
either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution of the first Contract and the
offsetting Contract.
The cost to a Fund of engaging in Forward Contracts varies with factors such as
the currencies involved, the length of the contract period and the market
conditions then prevailing. Because Forward Contracts are usually entered into
on a principal basis, no fees or commissions are involved. The use of Forward
Contracts does not eliminate fluctuations in the prices of the underlying
securities a Fund owns or intends to acquire, but it does establish a rate of
exchange in advance. In addition, although Forward Contracts limit the risk of
loss due to a decline in the value of the hedge currencies, at the same time
they limit any potential gain that might result should the value of the
currencies increase.
While Forward Contracts are not presently regulated by the U.S. Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority
to regulate Forward Contracts. In that event, the Funds' ability to utilize
Forward Contracts in the manner set forth above may be restricted.
RISK FACTORS
Political and Economic Risks. Investing in securities of Korean and other Asian
emerging markets issuers may entail additional risks due to the potential of
political and economic instability and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation, the Funds could lose their
entire investment in any such country. See 'Appendix A - The Korean Securities
Market."
Illiquid Securities. A Fund may invest no more than 15% of its total assets in
illiquid securities. Securities may be considered illiquid if, among other
things, the Fund cannot reasonably expect to receive approximately the amount at
which the Fund values such securities within seven days. See "Investment
Limitations' and "Additional Risk Factors" in the Prospectus. The sale of
illiquid securities, if they can be sold at all, generally will require more
time and result in higher brokerage charges or dealer discounts and other
selling expense than would the sale of liquid securities such as securities
eligible for trading on U.S. securities exchanges or in the over-the-counter
markets. Moreover, restricted securities, which may be illiquid for purposes of
this limitation, often sell, if at all, at a price lower than similar securities
that are not subject to restrictions on resale.
With respect to liquidity determinations generally, the Board of Trustees has
the ultimate responsibility for determining whether specific Securities are
liquid or illiquid. The Board has delegated the function of making day-to-day
determinations of liquidity to the Advisor. Factors encompassed in the
evaluation of liquidity, include, but are not limited to: (i) the frequency of
trading in the security; (ii) the number of dealers that make quotes for the
security; (iii) the number of dealers that have undertaken to make a market in
the security; (iv) the number of other potential purchasers; and (v) the nature
of the security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). The Advisor
will monitor the liquidity of securities in the Funds' portfolios and report
periodically on such decisions to the Board of Trustees, consistent with the
guidelines established for making liquidity determinations.
Illiquid securities are more difficult to value accurately due to, among other
things, the fact that such securities often trade infrequently or only in
smaller amounts. In addition, certain major events affecting Korean or other
markets of emerging Asian countries may cause all or a high proportion of a
Fund's holdings to become illiquid. Such circumstances may make it impossible to
determine net asset value per share which, in turn, would cause a Fund to
suspend sales and redemptions of its shares until net asset value could be
determined. In such a case, the Funds would apply to the SEC for a determination
that an emergency, within the meaning of Section 22(e) of the 1940 Act, is
present.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by each
Fund and (unless otherwise noted) are fundamental and cannot be changed without
the affirmative vote of a majority of the Fund's outstanding voting securities
as defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt securities in
accordance with its investment objectives and policies, (b) through the lending
of its portfolio securities as described above and in its Prospectus, or (c) to
the extent the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except temporarily for extraordinary or emergency purposes
from a bank and then not in excess of 10% of its total assets (at the lower of
cost or fair market value; any such borrowing will be made only if immediately
thereafter there is an asset coverage of at least 300% of all borrowings and no
additional investments may be made while any borrowings are in excess of 5% of
total assets.
(b) Mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and several
basis in any securities trading account, or underwrite securities, except that
this restriction does not preclude a 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, or commodities or commodity contracts,
except that a Fund may purchase or sell currencies (including forward currency
exchange contracts), futures contracts and related options generally as
described in the Prospectus and this Statement of Additional Information.
5. Invest more than 25% of the market value of its assets in the
securities of companies engaged in any one industry, except that this
restriction does not apply to investment in the securities of the U.S.
Government, its agencies or instrumentalities.
6. Issue senior securities, as defined in the 1940 Act except that this
restriction shall not be deemed to prohibit a Fund from (a) making any permitted
borrowings, mortgages or pledges, or (b) entering into repurchase transactions.
7. Invest in any issuer for purposes of exercising control or
management.
Each Fund observes the following policies, which are not deemed fundamental and
which may be changed without shareholder vote. The Funds 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 total assets in securities
with legal or contractual restrictions on resale, securities which are not
readily marketable and repurchase agreements with more than seven days to
maturity. If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except
with respect to borrowing and illiquid securities, or as otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits from the
sale of securities are generally made annually, as described in the Prospectus,
after the conclusion of the Funds' fiscal year (December 31). Also, the Fund
expects to distribute any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the one-year
period ended October 31 of each year will also be distributed by December 31 of
each year.
Each distribution by the Funds is accompanied by a brief explanation of the form
and character of the distribution. In January of each year the Funds will issue
to each shareholder a statement of the federal income tax status of all
distributions made during the preceding calendar year.
Tax Information
Each series of the Trust is treated as a separate entity for federal income tax
purposes. Each Fund expects to qualify to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended,
(the "Code") provided that it complies with all applicable requirements
regarding the source of its income, diversification of its assets and timing of
distributions. The Funds' policy is to distribute to their shareholders all of
their 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 Funds will not be subject to any federal
income tax or excise taxes based on net income. To avoid the excise tax, 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 one-year 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 excise tax.
Net investment income consists of interest and dividend income, less expenses.
Net realized capital gains for a fiscal period are computed by taking into
account any capital loss carry forward of a Fund.
The Funds may write, purchase or sell certain option, futures and foreign
currency contracts. Such transactions are subject to special tax rules that may
affect the amount, timing and character of distributions to shareholders. Unless
a Fund is eligible to make and makes a special election, such contracts that are
"Section 1256 contracts" will be "marked-to-market" for Federal income tax
purposes at the end of each taxable year (i.e., each contract will be treated as
sold for its fair market value on the last day of the taxable year). In general,
unless the special election referred to in the previous sentence is made, gain
or loss from transactions in such contracts will be 60% long term and 40%
short-term capital gain or loss. Section 1092 of the Code, which applies to
certain "straddles", may affect the taxation of a Fund's transactions in option,
futures, and foreign currency contracts. Under Section 1092 of the Code, a Fund
may be required to postpone recognition for tax purposes of losses incurred in
certain closing transactions.
Section 988 of the Code contains special tax rules applicable to certain foreign
currency transactions that may affect the amount, timing and character of
income, gain or loss recognized by the Funds. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency denominated debt
instruments, foreign currency forward contracts, foreign currency denominated
payables and receivables, and foreing currency options and futures contracts
(other than options, futures and foreign currency contracts governed by Section
1256 of the Code and for which no election is made) is treated as ordinary
income or loss.
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 a Fund
for its taxable year. In view of the Funds' investment policies, it is unlikely
that any dividends from domestic corporations will be part of the Funds' gross
income and, accordingly,
it is unlikely that any part of the distributions by the Funds may be eligible
for the dividends-received deduction for corporate shareholders. The deduction,
if any, may be reduced or eliminated if Fund shares held by a corporate investor
are treated as debt-financed or are held for fewer 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 with respect to such shares 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 sha1l 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 Fund are purchased (through
reinvestment of distributions or otherwise) within 30 days before or after the
redemption or exchange.
Under the Code, the Funds will be required to report to the Internal Revenue
Service all distributions of taxable income and capital gains as well as gross
proceeds from the redemption or exchange of Fund shares, except in the case of
exempt shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at the rate of 31 percent in the case of
non-exempt shareholders who fail to furnish the Funds with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. If the backup 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 Funds reserve
the right to refuse to open an account for any person failing to certify the
person's taxpayer identification number.
The Fund will not be subject to tax in the Commonwealth of Massachusetts as long
as it qualifies as a regulated investment company for federal income tax
purposes. Distributions and the transactions referred to in the preceding
paragraphs may be subject to state and local income taxes, and the tax treatment
thereof may differ from the federal income tax treatment.
The Fund will be subject to Korean income taxes, including certain withholding
taxes. So long as more than 50% in value of the Fund's total assets at the close
of any taxable year in which it is a regulated investment company consists of
stocks or securities of non-U.S. corporations, the Fund may elect to treat any
such foreign income, taxes paid by it during such year as paid by its
shareholders. The Funds expect to qualify for this election annually. The Funds
will notify shareholders in writing each year if it makes the election and of
the amount of foreign income taxes, if any, to be treated as paid by the
shareholders and the amount to be treated by them as income from non-U.S.
sources. If the Funds make the election, shareholders will be required to
include in income their proportionate shares of the amount of foreign income
taxes paid by the Funds and will be entitled to claim either a credit (subject
to the limitations discussed below) or, if they itemize their deductions, a
deduction for their shares of the foreign income taxes in computing their U.S.
Federal income tax liability. (No deduction will be permitted in computing the
alternative minimum tax imposed on corporations and individuals.) Shareholders
that are exempt from tax under Section 501(a) of the Code, such as pension,
plans, generally will derive no benefit from the Funds' election. However, such
shareholders should not be disadvantaged because the amount of additional income
they are deemed to receive generally will not be subject to U.S. Federal income
tax.
Generally, a credit for foreign taxes may not exceed the shareholder's U.S.
federal income tax (determined without reward to the availability of the credit)
attributable to his or her total foreign source taxable income. For this
purpose, the portion of distributions paid by the Funds from foreign source
income, will be treated as foreign source income. The Funds' gains from the sale
of securities will generally be treated as derived from U.S. sources, and
certain currency fluctuation gains and losses, including fluctuation gains from
foreign currency denominated debt securities, receivables and payables will be
treated as derived from U.S. sources. The limitation on the foreign tax credit
is applied separately to foreign source "passive income", such as the portion of
dividends received from a Fund which qualifies as foreign source income. In
addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate shares of foreign income taxes paid by the Funds.
The foregoing is only a general description of the treatment of foreign income
taxes under the U.S. federal income tax laws. Because the availability of a
credit or deduction depends on the particular circumstances of each shareholder,
shareholders are advised to consult their own tax advisers.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Funds, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
Passive Foreign Investment Companies
The Funds may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Funds will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain from disposition of that stock (collectively
"PFIC income"), plus interest thereon, even if the Funds distribute the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Funds' investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. If a Fund invests in a PFIC and elects to treat the PFIC as
a "qualified electing fund" ("QEF") then in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain,
even if they are not distributed to the Fund; those amounts would be subject to
the distribution requirements described above. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
Korean Taxes
As stated above, under current Korean law, payments to nonresidents of
Korea (such as the Fund) by Korean corporations in respect of income are subject
to Korean withholding tax and capital gains derived by nonresidents of Korea
(such as the Fund) with respect to stock and securities of Korean corporations
are subject to Korean withholding tax, unless exempted by relevant laws or tax
treaties.
The applicable withholding tax rate under the United States-Korea income tax
treaty, as presently in effect, generally is 15%, plus a resident tax of 7.5% of
such amount, or a total of 16.125%, on dividends paid to the Fund by Korean
issuers, and generally 12% (plus a resident tax of 7.5% of such amount, or a
total of 12.9%) on interest paid to the Fund by Korean issuers. Under the
'United States-Korea income tax treaty, as presently in effect, no withholding
tax will be applicable to capital gains realized by the Fund. This tax treatment
could change in the event of changes in Korean or United States tax laws or
changes, in the terms of, or the Korean Ministry of Finance and Economy's
interpretation of, the United States-Korea income tax treaty.
Notwithstanding the foregoing, the Tax Exemption and Reduction Control Law (the
"TERCL") exempts interest on bonds denominated in a non-Korean currency. The
residents tax referred to above is therefore eliminated with respect to such
investments.
Under present Korean law, the Korean Inheritance and Gift Tax will not apply to
any testate, intestate or inter vivos transfer of shares of the Fund to the
extent the deceased or the donee, as the case may be, is not domiciled in Korea;
Korean stamp duty will not apply to transfers of Fund shares unless any document
for such transfer is executed in Korea, nor to the Fund's portfolio securities
transactions; but the Korean Securities Transaction Tax will apply to the sale
of securities made through the Korean Stock Exchange by the Fund.
The foregoing discussion and the related discussion in the prospectus have been
prepared by Fund management, and do not purport to be a complete description of
all tax implications of an investment in the Fund. Shareholders should conslut
with their own tax advisors for more information about Federal, state, local or
foreign taxes. Paul, Hastings, Janofsky & Walker LLP has expressed no opinion in
respect thereof. .
MANAGEMENT
TRUSTEES
The Trustees of the Trust, who were elected for an indefinite term by the
initial shareholders of the Trust, are responsible for the overall management of
the Trust, including general supervision and review of the investment activities
of the Fund. The Trustees, in turn, elect the officers of the Trust, who are
responsible for administering the day-to-day operations of the Trust and its
separate series. The current Trustees and officers and their affiliations and
principal occupations for the past five years are set forth below.
Steven J. Paggioli,* 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
14 Five Roses East, Ancram, NY 12517. President, Talon Industries (venture
capital and business consulting); formerly Chief Operating Officer, Integrated
Asset Management (investment advisor and manager) and formerly President, Value
Line, Inc., (investment advisory and financial publishing firm).
Wallace L. Cook, 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
202 North Mountain Avenue, Montclair, New Jersey 07042. 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*, 40 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 total compensation received by the following Trustees
from 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.
It is estimated that each Fund's portion of allocated trustees' fees and
expenses will not exceed $2,000 for the Funds' initial fiscal period.
Name of Trustee Total Compensation
--------------- ------------------
Dorothy A. Berry $22,000
Wallace L. Cook $17,500
Carl A. Froebel $17,500
Rowley W.P. Redington $17,500
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided to the
Funds by the Advisor, pursuant to an Investment Advisory Agreement.
The Investment Advisory Agreement continues in effect after its intial two year
term from year to year so long as such continuation is approved at least
annually by (1) the Board of Trustees of the Trust or the vote of a majority of
the outstanding shares of a Fund, and (2) a majority of the Trustees who are not
interested persons of any party to the Agreement, in each case cast in person at
a meeting called for the purpose of voting on such approval. The Agreement may
be terminated at any time, without penalty, by either the Funds or the Advisor
upon sixty days' written notice and is automatically terminated in the event of
its assignment as defined in the 1940 Act.
The Advisor has agreed to reduce fees payable to it or reimburse the Funds'
operating expenses to the extent necessary to limit each Fund"s ratio of
operating expenses to average net assets to no more than 2.50% annually. Any
such reduction of fees or payment of expenses may be subject to reimbursement by
the Funds provided that they are able to do so and remain in compliance with
applicable limitations.
THE FUND'S ADMINISTRATOR
The Funds have entered into an Administration Agreement with Investment Company
Administration Corporation (the "Administrator"), a corporation owned in part
and controlled by Messrs. Banhazl, Paggioli and Wadsworth. 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, tax returns, shareholder
reports and other regulatory reports or filings required of the Funds; prepare
all required notice filings necessary to maintain the Funds' ability 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
Funds' servicing agents (i.e., transfer agent, custodian, fund accountants,
etc.); review and adjust as necessary the Funds' daily expense accruals; and
perform such additional services as may be agreed upon by the Funds and the
Administrator. For its services, the Administrator receives a monthly fee from
each Fund at the following annual rate:
Average net assets Fee or Fee rate
- ---------------------- ------------------
under $15 million $30,000
$15 million to $50 million 0.20% of average net assets
$50 million to $100 million 0.15% of average net assets
$100 million to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
THE FUNDS' DISTRIBUTOR
First Fund Distributors, Inc. (the 'Distributor"), an affiliate of the
Administrator, acts as the Funds' principal underwriter in a continuous public
offering of the Funds' shares. The Distribution Agreement between the Funds and
the Distributor continues in effect from year to year if approved at least
annually by (i) the Board of Trustees or the vote of a majority of the
outstanding shares of the Fund (as defined in the 1940 Act) and (ii) a majority
of the Trustees who are not interested persons of any such party, in each case
cast in person at a meeting called for the purpose of voting on such approval.
The Distribution Agreement may be terminated without penalty by the parties
thereto upon sixty days, written notice, and is automatically terminated in the
event of its assignment as defined in the 1940 Act.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Advisor determines
which securities are to be purchased and sold by the Funds and which
broker-dealers are eligible to
execute the Funds' portfolio transactions. Purchases and sales of securities in
the over-the-counter market will generally be executed directly with a
'market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Funds 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 Funds will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter that has provided research or other services as discussed
below.
In placing portfolio transactions, the Advisor will use its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
than one broker-dealer can offer the services needed to obtain the most
favorable price and execution available, consideration may be given to those
broker-dealers which furnish or supply research and statistical information to
the Advisor that it may lawfully and appropriately use in its investment
advisory capacities, as well as provide other services in addition to execution
services. The Advisor considers such information, which is in addition to and
not in lieu of the services required to be performed by it under its Agreement
with the Funds, to be useful in varying degrees, but of indeterminable value.
Portfolio transactions may be placed with broker-dealers who sell shares of the
Funds subject to rules adopted by the National Association of Securities
Dealers, Inc.
While it is the Funds' 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 Funds, weight may also be given to the ability of a
broker-dealer to furnish brokerage and research services to the Funds or to the
Advisor, even if the specific services were not imputed just to the Funds and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Funds 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 Advisor 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 Advisor's overall responsibilities to the
Funds.
Investment decisions for the Funds are made independently from those of other
client accounts or mutual funds managed or advised by the Advisor. Nevertheless,
it is possible that at times identical securities will be acceptable for both
the Funds and one or more of such client accounts or other Funds. In such event,
the position of the Funds and such client account(s) or other Funds in the same
issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts or other Funds seeks to acquire the same security as the
Funds at the same time, the Funds may not be able to acquire as large a portion
of such security as is desired, or may have to pay a higher price or obtain a
lower yield for such security. Similarly, the Funds may not be able to obtain as
high a price for, or as large an execution of, an order to sell any particular
security at the same time. If one or more of such client accounts or other Funds
simultaneously purchases or sells the same security that a Fund is purchasing or
selling, each day's transactions in such security will be allocated between the
Fund and all such client accounts or other Funds in a manner deemed equitable by
the Advisor, taking into account the respective sizes of the accounts and the
amount being purchased or sold. It is recognized that in some cases this system
could have a detrimental effect on the price or value of the security insofar as
the Funds are concerned. In other cases, however, it is believed that the
ability of the Fund to participate in volume transactions may produce better
executions for the Funds.
The Funds contemplate purchasing most Korean equity securities through the Korea
Stock Exchange or in the over-the-counter markets to the extent the securities
available in the over-the-counter markets are consistent with the investment
policies of the Funds. There generally is less government supervision and
regulation of the Korea Stock Exchange and brokers than in the United States.
Security settlements of Korean securities may in some instances be subject to
delays and related administrative uncertainties.
The Funds do not effect securities transactions through brokers in accordance
with any formula, nor do they effect securities transactions through such
brokers solely for selling shares of the Funds, although the Funds may consider
the sale of shares as a factor in allocating brokerage. However, as stated
above, broker-dealers who execute brokerage transactions may effect purchase of
shares of the Fund for their customers.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (i) to suspend the continued
offering of the Funds' shares, (ii) to reject purchase orders in whole or in
part when in the judgment of the Advisor or the Distributor such rejection is in
the best interest of the Funds, 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 Funds'
shares.
Payments to shareholders for shares of a Fund redeemed directly from the Fund
will be made as promptly as possible but no later than seven days after receipt
by the Funds' Transfer Agent of the written request in proper form, with the
appropriate documentation as stated in the Prospectus, except that the Funds 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 Funds' shareholders. At various times, the Funds may be
requested to redeem shares for which they have not yet received confirmation of
good payment; in this circumstance, the Funds may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Funds.
The Funds intend to pay cash (U.S. dollars) for all shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Funds may make
payment partly in securities with a current market value equal to the redemption
price. Although the Funds do not anticipate that they will make any part of a
redemption payment in securities, if such payment were made, an investor may
incur brokerage costs in converting such securities to cash. The Funds have
elected to be governed by the provisions of Rule 18f-1 under the 1940Act, 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 Funds' portfolio
securities at the time of redemption or repurchase.
As discussed in the Prospectus, the Funds provide 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 Funds. The market value of the Funds' 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 Funds will be determined once daily as of 4:00 p.m., New York City time, on
each day the New York Stock Exchange (the "NYSE") is open for trading. It is
expected that the Exchange will be closed on Saturdays and Sundays and on New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. The Funds do
not expect to determine the net asset value of their shares on any day when the
Exchange is not open for trading even if there is sufficient trading in their
portfolio securities on such days to materially affect the net asset value per
share.
In valuing the Funds' assets for calculating net asset value, readily marketable
portfolio securities listed on The Korean Stock Exchange, a national securities
exchange or NASDAQ are valued at the last sale price on the business day as of
which such value is being determined. If there has been no sale on such exchange
or on NASDAQ on such day, the security is valued at the closing bid price on
such day. Readily marketable securities traded only in an over-the-counter
market and not on NASDAQ are valued at the current or last bid price. If no bid
is quoted on such day, the security is valued by such method as the Board of
Trustees of the Trust shall determine in good faith to reflect the security's
fair value. All other assets of the Funds 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 Funds 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.
Although the Funds value their assets daily in terms of U.S. dollars, the Funds
do not intend to convert its holdings of Korean Won or other currencies into
U.S. dollars on a daily basis. The Funds will do so from to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the N spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a currency to a
Fund at one rate, while offering a lesser rate of exchange should a Fund desire
to sell that currency to the dealer.
Any assets or liabilities initially expressed in terms of Korean Won or other
foreign currencies are translated into U.S. dollars at the official exchange
rate or, alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board of Trustees in good faith will establish a conversion rate for such
currency.
Securities trading in Korea or other Asian markets may not take place on all
days on which the NYSE is open, or trading may take place on days on which the
NYSE is not open and therefore the Funds' net asset value is not calculated. The
calculation of the Funds' net asset value, therefore, may not take place
contemporaneously with the determination of the prices of securities held by the
Funds. Events affecting the values of portfolio securities that occur between
the time their prices are determined and the close of the NYSE will not be
reflected in the Funds' net asset value unless the Advisor, under the
supervision of the Board of Trustees, determines that the particular event would
materially affect net asset value. As a result, the Funds' net asset value may
be significantly affected by such trading on days when a shareholder has no
access to the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds may state their 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 a Fund's
average annual compounded rate of return over the most recent year and the
period from the Fund's inception of operations. A Fund may also advertise
aggregate and average total return information over different periods of time. A
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: = a hypothetical initial purchase order of $1,000
from which the maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
The Funds' total return may be compared to relevant domestic and foreign
indices, including those published by Lipper Analytical Services, Inc. From time
to time, evaluations of the Funds' 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 Funds will fluctuate
over time, and any presentation of the Funds' total return for any period should
not be considered as a representation of what an investment may earn or what an
investor's total return may be in any future period.
GENERAL INFORMATION
Investors in the Funds will be informed of the Funds' progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually.
Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202 acts as Custodian of
the securities and other assets of the Fund. American Data Services, P.O. Box
5536, Hauppauge, NY 11788-0132 acts as the Fund's transfer and shareholder
service agent. The shareholders of a Massachusetts business trust could, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Agreement and Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Trust. The Agreement and Declaration of Trust also provides for indemnification
and reimbursement of expenses out of the Funds' 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 Funds or Trust and satisfy any judgment thereon. All-such rights are limited
to the assets of the Funds. 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 Funds are themselves unable to meet their
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 Funds and this Statement of Additional Information
omit certain of the information contained in the Registration Statement filed
with the SEC. Copies of such information may be obtained from the SEC upon
payment of the prescribed fee.
APPENDIX A
RISK FACTORS: KOREAN AND ASIAN EMERGING MARKETS
Investing in securities of Korean companies and of the government (the
"Government") of the Republic of Korea (the "Republic" or "Korea") and of
certain of the emerging markets and governments of other Asian countries
involves certain risks not typically associated with investing in securities of
United States companies or the United States government, in addition to those
discussed under "Prospectus Summary' and "Investment Objective, Policies and
Risks.'
INVESTMENT AND REPATRIATION RESTRICTIONS: KOREA. Until recently,
Korean Security regulations limited the percentage of any class of equity shares
of an issuer that may be held by a particular foreign investor to 3% and to 12%
by all foreign investors as a group. Currently, the limit on direct foreign
investment is up to 15% of any class of equity shares outstanding. The Ministry
of Finance will consider removing the ceiling on direct foreign investment in
the future.
Transfer of funds from Korea to foreign countries and repatriation of foreign
capital invested in Korea are subject to certain regulatory approvals pursuant
to foreign exchange control laws and regulations. Generally, as long as the
original investment was approved or allowed under the applicable laws and
regulations of Korea, the conversion and remittance of cash or cash equivalents
into U.S. dollars in relation to such investment will be freely allowed upon
receipt of the appropriate payment approvals from the Bank of Korea or a
designated Class A foreign exchange bank such as the Bank of Seoul, the Korean
sub-custodian for the Fund's assets, depending on the type of transaction.
CURRENCY FLUCTUATIONS. The Korea Growth Fund's assets will be invested
primarily in Korean securities, the market value of which is determined in Won,
and substantially all of its income will be received or realized in the Korean
Won. The Fund will be required, however, to compute its net asset value and
income, and to distribute its income, in U.S. dollars. As a result, the Fund's
net asset value and its distribution amounts will be subject to foreign exchange
rate fluctuations.
The Korean Won was devalued against the US dollar in the early 1980's to reach
approximately Won 890 to the US dollar by the end of 1985. The Korean Won
appreciated against the US dollar from 1986 to approximately 665 Won per US
dollar by May 1989. Since then the Korean Won has slowly lost value against the
US dollar and the exchange rate stood at approximately Won 770 US dollar at the
end of 1995..
The Funds expect to incur certain transaction costs in connection with
conversions between currencies and, in light of the history of fluctuating
currency values of the Korean Won relative to the dollar, it is impossible to
predict what effect currency conversion costs may have on the operations of the
Funds.
POTENTIAL MARKET VOLATILITY: KOREAN AND ASIAN EMERGING
MARKETS. The Korean securities market and other Asian emerging markets are still
relatively small in comparison to the Japanese, United States and major European
securities markets. Because of this small size and low volume, these markets are
subject to greater price volatility and lesser liquidity than is usual in the
Japanese, United States or major European securities markets. Because of these
liquidity limitations and the Funds' investment policies, it may be more
difficult for the Funds to purchase and sell portfolio positions than would be
the case in the United States. Accordingly, in periods of rising market prices,
the Funds may be unable to participate fully in such price increases to the
extent that they are unable to acquire desired portfolio positions quickly;
conversely, the Funds' inability to dispose fully and promptly of positions in
declining markets will cause net asset value to decline as the value of unsold
positions is determined by references to lower prices.
POLITICAL AND ECONOMIC FACTORS: KOREA. The partition of Korea following World
War II has created a political risk to the Republic. The demilitarized zone at
the boundary between the Republic and North Korea established after the Korean
War of 1950-1953 is supervised by United Nations forces. The United States
maintains a significant military force in the Republic. The situation remains a
source of tension, although negotiations to resolve the political division of
the Korean peninsula have been carried on intermittently for several years, and
in recent years there have been several meetings between representatives of the
Republic and of North Korea on political, economic and humanitarian issues.
The domestic political situation in Korea has been relatively stable since Kim,
Young Sam, who had been for many years a leader of an opposition party, was
elected as president of Korea in December 1992. During last quarter of 1995, the
Kim administration initiated a campaign to prosecute illegal slush fund
contributors. Contributions were made to major political figures, including two
former Presidents, mostly Korean corporations. Such reform caused uncertainty in
the Korean securities market and had a significant adverse impact on the
security prices. Nonetheless, management believes that the Funds will benefit
from these reforms. Such activities are believed to provide political stability
and reduce corruption.
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
FORM N-1A
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements for the fiscal year ended June 30, 1997:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended June 30, 1997 (Boston Managed Growth Fund,
Leonetti Balanced Fund and U.S. Global Leaders Growth Fund Series).
Financial Statements: Financial Statements for the fiscal year ended
March 31, 1997: Incorporated by reference from the annual reports to
shareholders for the fiscal year ended March 31, 1997) (Avondale Total
Return, Harris Bretall Sullivan & Smith Growth Equity, Hodges,
Osterweis, Perkins Opportunity and Women's Equity Mutual Fund Series).
Financial Statements for the fiscal year ended April 30, 1997:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended April 30, 1997 (Pzena Focused Value Fund and
Titan Financial Services Fund series).
Financial Statements for the fiscal year ended August 31, 1996:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended August 31, 1996 (Academy Value, Lighthouse
Growth and Trent Equity Fund Series).
Financial Statements for the fiscal yer ended December 31, 1996;
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended December 31, 1996 (Matrix Growth Fund Series,
Matrix Emerging Growth Fund Series)
(b) Exhibits:
(1) Agreement and Declaration of Trust-2
(2) By-Laws--2
(3) Voting Trust Agreement -- Not applicable
(4) Specimen Share Certificate-3
(5) Form of Investment Advisory Agreement-1
(6) Form of Distribution Agreement-1
(7) Benefit Plan -- Not applicable
(8) Form of Custodian and Transfer Agent
Agreements-6
(9) Form of Administration Agreement--7
(10) Consent and Opinion of Counsel as to legality of
shares-3
(11) Consent of Accountants
(12) All Financial Statements omitted from Item 23 --
Not applicable
(13) Letter of Understanding relating to initial
capital-3
(14) Model Retirement Plan Documents - Not applicable
(15) Form of Plan pursuant to Rule 12b-1 -1
(16) Schedule for Computation of Performance
Quotations-5
1 Incorporated by reference from Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, filed on January 16, 1996.
2 Incorporated by reference from Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A, filed on December 29, 1995.
3 Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on April 13, 1987.
4 Incorporated by reference to Post-effective Amendment No. 5 to the
Registration Statement on Form N-1A, filed on May 2, 1991.
5 Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on June 17, 1992.
6 To be filed by amendment.
7 Incorporated by reference from Post-Effective Amendment No. 35 to the
Registration Statement on Form N-1A, filed on April 24, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant.
As of the date of this Amendment to the Registration Statement, there
are no persons controlled or under common control with the Registrant.
Item 26. Number of Holders of Securities.
Number of Record
Holders as of
Title of Class October 9, 1997
Shares of Beneficial Interest, no par value:
Academy Value Fund 166
Avondale Total Return Fund 147
Boston Managed Growth Fund 193
Hodges Fund 1,035
Osterweis Fund 126
Perkins Opportunity Fund 7,260
ProConscience Womens Equity Fund 508
Trent Equity Fund 123
Matrix Growth Fund 398
Matrix Emerging Growth Fund 61
Leonetti Balanced Fund 304
Lighthouse Growth Fund 381
U.S.Global Leaders Growth Fund 111
Harris, Bretall, Sullivan & Smith
Growth Equity Fund 70
Pzena Focused Value Fund 168
Titan Financial Services Fund 537
Item 27. Indemnification
The information on insurance and indemnification is incorporated by
reference to Pre-Effective Amendment No. 1 and Post-Effective Amendment No. 1 to
the Registrant's Registration Statement.
In addition, insurance coverage for the officers and trustees of the
Registrant also is provided under a Directors and Officers/Errors and Omissions
Liability insurance policy issued by ICI Mutual Insurance Company with a
$1,000,000 limit of liability.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
With respect to Investment Advisors, the response to this item is
incorporated by reference to their Form ADVs as amended:
Herbert R. Smith & Co, Inc. File No. 801-7098
Hodges Capital Management, Inc. File No. 801-35811
Perkins Capital Management, Inc. File No. 801-22888
Osterweis Capital Management File No. 801-18395
Pro-Conscience Funds, Inc. File No. 801-43868
Trent Capital Management, Inc. File No. 801-34570
Academy Capital Management File No. 801-27836
Sena, Weller, Rohs, Williams File No. 801-5326
Leonetti & Associates, Inc. File No. 801-36381
Lighthouse Capital Management File No. 801-32168
Yeager, Wood & Marshall, Inc. File No. 801-4995
Harris Bretall Sullivan & Smith File No. 801-7369
Pzena Investment Management LLC File No. 801-50838
Titan Investment Advisers, LLC File No. 801-51306
Pacific Gemini Partners LLC File No. 801-50007
With respect to United States Trust Company of Boston, the response to this
item is incorporated by reference to the responses to Item 5 of Part A and Item
16 of Part B ("Management")of Post-Effective Amendment No. 20 to the
Registration Statement.
Item 29. Principal Underwriters.
(a) First Fund Distributors, Inc. (the "Distributor") is the principal
underwriter all series of the Registrant except for the Hodges Fund, the Matrix
Growth Fund and the Matrix Emerging Growth Fund. The Distributor acts as
principal underwriter for the following other investment companies:
Advisors Series Trust
Guinness Flight Investment Funds, Inc.
Fremont Mutual Funds, Inc.
Fleming Funds, Inc.
The Purisima Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
UBS Private Investor Funds
First Dallas Securities, Inc., 2311 Cedar Springs Rd., Ste. 100, Dallas, TX
75201, an affiliate of Hodges Capital Management, acts as Distributor of the
Hodges Fund. The President and Chief Financial Officer of First Dallas
Securities, Inc. is Don W. Hodges. First Dallas does not act as principal
underwriter for any other investment companies. Reynolds, DeWitt Securities Co.,
an affiliate of Sena Weller Rohs Williams, 300 Main St., Cincinnati, OH 45202,
acts as Distributor for the Matrix Growth Fund and Matrix Emerging Growth Fund.
(b) The officers of First Fund Distributors, Inc. are:
Robert H. Wadsworth President & Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Secretary
Each officer's business address is 4455 E. Camelback Rd., Ste. 261-E,
Phoenix, AZ 85018. Mr. Paggioli serves as President and a Trustee of the
Registrant. Mr. Wadsworth serves as Vice President of the Registrant. Mr.
Banhazl serves as Treasurer of the Registrant.
c. Incorporated by reference from the Statement of Additional
Information filed herewith as Part B.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession the Registrant's
custodian and transfer agent, except those records relating to portfolio
transactions and the basic organizational and Trust documents of the Registrant
(see Subsections (2) (iii). (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which, with respect to portfolio transactions are kept by each Fund's
Advisor at its address set forth in the prospectus and statement of additional
information and with respect to trust documents by its administrator at 479 West
22nd Street, New York, NY 10011 and 2025 E. Financial Way, Ste. 101, Glendora,
CA 91741.
Item 31. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 32. Undertakings
The registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of each Fund's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York in the State of New York on
October 24, 1997.
PROFESSIONALLY MANAGED PORTFOLIOS
By /S/ Steven J. Paggioli
Steven J. Paggioli
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
/S/ Steven J. Paggioli Trustee October 24, 1997
Steven J. Paggioli
/S/ Eric M. Banhazl Principal October 24, 1997
Eric M. Banhazl Financial
Officer
Dorothy A. Berry Trustee October 24, 1997
*Dorothy A. Berry
Wallace L. Cook Trustee October 24, 1997
*Wallace L. Cook
Carl A. Froebel Trustee October 24, 1997
*Carl A. Froebel
Rowley W. P. Redington Trustee October 24, 1997
*Rowley W. P. Redington
* By /S/ Steven J. Paggioli
Steven J. Paggioli, Attorney-in-Fact under powers of
attorney as filed with Post-Effective Amendment No. 20 to the
Registration Statement filed on May 17, 1995
