[JCE LOGO]
JAMES C. EDWARDS
EQUITY MASTERS FUND
PROSPECTUS
APRIL 1, 1999
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JAMES C. EDWARDS EQUITY MASTERS FUND
570 LEXINGTON AVE., 29TH FLOOR
NEW YORK, NY 10022
HOME PAGE: WWW.JCEDWARDS.COM
The JAMES C. EDWARDS EQUITY MASTERS FUND (the "Fund") is a mutual fund with the
investment objective of seeking long-term growth of capital. James C. Edwards &
Co, Inc. (the "Advisor" or "James C. Edwards") serves as investment advisor to
the Fund.
This Prospectus sets forth basic information about the Fund that prospective
investors should know before investing. It should be read and retained for
future reference. A Statement of Additional Information ("SAI") dated April 1,
1999, as may be amended from time to time, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated herein by reference. The SAI
is available without charge upon written request to the Fund at the address
given above. The SEC maintains an internet site (http://www.sec.gov) that
contains the SAI, other material incorporated by reference and other information
about companies that file electronically with the SEC.
TABLE OF CONTENTS
Expense Table....................................................... 2
Investment Objective and Risks...................................... 3
Investment Approach................................................. 3
Management of the Fund.............................................. 4
How to Invest in the Fund........................................... 5
How to Redeem an Investment in the Fund............................. 7
Services Available to the Fund's Shareholders....................... 8
How the Fund's Per Share Value is Determined........................ 9
Distributions and Taxes............................................. 9
General Information................................................. 9
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 APRIL 1, 1999
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EXPENSE TABLE
Expenses are one of several factors to consider when investing in a fund. The
purpose of the following fee table is to provide an understanding of the various
costs and expenses which may be borne directly or indirectly by an investment in
the Fund. Actual expenses may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases......................... None
Maximum Sales Load Imposed on Reinvested Dividends.............. None
Deferred Sales Load............................................. None
Redemption Fees................................................. None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Investment Advisory Fees........................................ 0.75%
12b-1 Fees...................................................... 0.00%
Other Expenses (after reduction)................................ 0.75%
Total Operating Expenses (after reduction)...................... 1.50%
The Advisor has agreed to reduce its fees or reimburse the Fund for expenses to
insure that the expenses for the Fund will not exceed 1.50% of average daily net
assets annually. In the absence of the Advisor's undertaking, it is estimated
that "Other Expenses" would be 1.75% and "Total Fund Operating Expenses" would
be 2.50%. If the Advisor does waive any of its fees or pay Fund expenses, the
Fund may reimburse the Advisor in future years.
EXAMPLE
This table illustrates the net transaction and operating expenses that would be
incurred by an investment in the Fund over different time periods--assuming a
$1,000 investment, a 5% annual return, and redemption at the end of each time
period.
1 YEAR 3 YEARS
$15 $47
The Example shown above should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown. In
addition, federal regulations require the Example to assume a 5% annual return,
but the Fund's actual return may be higher or lower. See "Management of the
Fund."
The JAMES C. EDWARDS EQUITY MASTERS FUND is a diversified mutual fund that is
one of a series of Professionally Managed Portfolios (the "Trust"), an open-end
registered management investment company offering redeemable shares of
beneficial interest. Shares may be purchased and will be redeemed at their net
asset value per share. The minimum initial investment is $5,000, with subsequent
minimum investments of $1,000 or more ($2,000 and $100, respectively, for
retirement plans).
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INVESTMENT OBJECTIVE AND RISKS
The investment objective of the Fund is long-term growth of capital. The Fund
seeks to achieve its objective by investing, under normal market conditions, at
least 65% of its total assets in equity securities, including common stocks,
preferred stocks, warrants and other equity securities that, in the Advisor's
opinion, offer the possibility of capital growth. Except in unusual market
circumstances, the Fund's goal is to be fully invested, with approximately 95%
of its total assets held in equity securities.
There is no guarantee that the Fund will achieve its objective. Investments in
common stocks in general are subject to market risks that may cause their prices
to fluctuate over time, and the value of an investment in the Fund will vary as
the market value of its investment portfolio changes. Investments in the Fund
may be more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.
The Fund is diversified, which under applicable federal law means that as to 75%
of its total assets, no more than 5% may be invested in the securities of a
single issuer nor may it hold more than 10% of the voting securities of a single
issuer.
INVESTMENT APPROACH
The Advisor intends to invest in companies with strong fundamentals: a
consistent operating record, financial strength and solid growth prospects. The
Advisor considers the quality of the company's management, uniqueness of its
products or services, industry reputation and proven ability to gain market
penetration. In evaluating companies for purchase, the Advisor considers the
following characteristics to be attractive:
* High return on equity and assets
* Relatively low debt and high free cash flow
* Stable to rising profit margins with positive unit growth--not solely
reliant upon price increases to sustain earnings growth
* Management ownership of stock and shareholder orientation
* A focused and coherent business model
The Advisor must have a belief in the company's ability to sustain a solid
record of earnings growth. In the Advisor's experience, once a company has
earned a reputation as a quality growth stock, it takes a major change in its
environment or competitive position to change the market's opinion of the
company.
Investor's perceptions of growth stocks are often reflected in price/earnings
ratios. The Advisor looks at these company valuations and compares them with
expected earnings growth rates to determine their relative attractiveness for
purchase. Investment decisions are also weighed in the broader context of the
level and trend of inflation and interest rates, as well as global influences on
domestic markets.
FUND CLOSING. The Fund may close to new investors periodically at certain asset
levels. Limiting the Fund's size will allow the Advisor to maintain its focus on
selected securities.
SHORT-TERM INVESTMENTS. During those times when stocks cannot be found that meet
the Fund's investment criteria, for temporary defensive purposes or pending
longer-term investment opportunities, the Fund may invest any amount of its
assets in short-term money market instruments, including securities issued by
the U.S. Government, its
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agencies and instrumentalities or such other instruments rated in the top two
grades by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group or,
if unrated, instruments deemed to be of comparable quality by the Advisor.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, in which
the Fund buys securities and the seller agrees to repurchase them from the Fund
at a mutually agreed upon time and price. The period of maturity is normally
overnight or a few days. The resale price is higher than the purchase price,
reflecting the Fund's rate of return. Any repurchase agreement transaction in
which the Fund engages will require full collateralization of the seller's
obligation during the entire time of the repurchase agreement. In the event of a
bankruptcy or other default of the seller, the Fund could experience both delays
in liquidating the underlying security and losses in value. The Fund only enters
into repurchase agreements with institutions which meet certain creditworthiness
and other criteria.
FOREIGN SECURITIES. The Fund may hold up to 20% of its assets in U.S. dollar
denominated securities of foreign companies. These securities will be
predominantly represented by ADRs (American Depositary Receipts) or New York
Stock Exchange listed foreign companies.
There are various potential risks associated with investing in foreign
companies. These include:
* Less publicly available information
* Different auditing requirements that may not be comparable to those in
the U.S.
* Potential negative effect on foreign stock values from changes in
exchange rates
* Effect of foreign government actions or restrictions, such as new or
different taxes, exchange controls or government taking of corporate
property
PORTFOLIO TURNOVER. The Advisor's goal is that the Fund will have a low
turnover, which shouldn't normally exceed an annual rate of 30%. Although there
can be no guarantees, the Advisor takes this approach in order to potentially
help the Fund's returns by limiting tax expenses and keeping trading costs down.
YEAR 2000. Like other mutual funds, financial and business organizations around
the world, the Fund could be adversely affected if its computer systems and most
of its service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Issue." This situation may negatively affect the companies in
which the Fund invests and by extension the value of the Fund's shares. Steps
are being taken that are reasonably designed to address the Year 2000 Issue with
respect to the computer systems used and to obtain satisfactory assurances that
comparable steps are being taken by each of the Fund's other major service
providers. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund.
The Fund has adopted certain investment restrictions, which are described fully
in the SAI. Like the Fund's investment objective, certain of these restrictions
are fundamental and may be changed only by a majority vote of the Fund's
outstanding shares.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. James C. Edwards & Co., Inc.
and its predecessor firm have been providing investment advisory services since
1931 and currently manage individual and institutional accounts with a value in
excess of $850 million. Messrs. Jeremiah M. Bogert, David B. MacNeil, Gordon L.
Bowyer and Bart A. Johnston will direct the investments of the
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Fund. Each, other than Mr. Johnston, has been associated with the Advisor for
more than the past five years. Prior to joining the Advisor in 1997, Mr.
Johnston was Director of Institutional Investment Management at Met Investment
Services from 1993 to 1997.
Under an Investment Advisory Agreement, James C. Edwards & Co., Inc. provides
the Fund with advice on buying and selling securities, manages the investments
of the Fund, furnishes the Fund with office space and certain administrative
services, and provides most of the personnel needed by the Fund. As
compensation, the Fund pays the Advisor a monthly management fee (accrued daily)
based upon the average daily net assets of the Fund at the annual rate of 0.75%.
Under an Administration Agreement, Investment Company Administration, LLC (the
"Administrator") prepares various federal and state regulatory filings, reports
and returns for the Fund, prepares reports and materials to be supplied to the
Trustees, monitors the activities of the Fund's custodian, transfer agent and
accountants, and coordinates the preparation and payment of Fund expenses and
reviews the Fund's expense accruals. For its services, the Administrator
receives a monthly fee (accrued daily)from the Fund at the following annual
rates:
Assets Fee or Fee Rate
------ ---------------
Less than $15 million $30,000 of average daily net assets
$15,000,000 to $50,000,000 0.20% of average daily net assets
$50,000,000 to $100,000,000 0.15% of average daily net assets
$100,000,000 to $200,000,00 0.10% of average daily net assets
$200,000,000 and above 0.05% of average daily net assets
The Fund is responsible for its own operating expenses. The Advisor has agreed
to reduce its fees or reimburse the Fund for its annual operating expenses which
exceed 1.50%. The Advisor also may reimburse additional amounts to the Fund at
any time in order to reduce the Fund's expenses. Reductions made by the Advisor
in its fees or payments or reimbursements of expenses which are the Fund's
obligation are subject to reimbursement by the Fund within the following three
to five year period, provided the Fund is able to do so and remain in compliance
with any applicable expense limitations then in effect.
James C. Edwards & Co., Inc. considers a number of factors in determining which
brokers or dealers to use for the Fund's portfolio transactions. While these are
more fully discussed in the SAI, the factors include, but are not limited to,
the reasonableness of commissions, quality of services and execution, and the
availability of research which the Advisor may lawfully and appropriately use in
its investment management and advisory capacities. Provided the Fund receives
prompt execution at competitive prices, the Advisor may also consider the sale
of Fund shares as a factor in selecting broker-dealers for the Fund's portfolio
transactions.
HOW TO INVEST IN THE FUND
For a Prospectus, you may contact the Transfer Agent at (800) 282-2340, or
request one at the Advisor's web page, WWW.JCEDWARDS.COM.
The minimum initial investment is $5,000. Subsequent investments must be at
least $1,000. Investments in retirement plans may be for minimums of $2,000 and
$100, respectively. First Fund Distributors, Inc. (the "Distributor"), acts as
Distributor of the Fund's shares. The Distributor may, at its discretion, waive
the minimum investment requirements
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for purchases in conjunction with certain group or periodic plans. Shares of the
Fund are offered continuously for purchase at the net asset value next
determined after a purchase order is received (see page 9).
PURCHASES SENT TO THE TRANSFER AGENT
Investors may purchase shares by sending a completed Application Form directly
to the Transfer Agent, with payment made either by check or by wire.
BY CHECK: For initial investments, an investor should complete the Fund's
Account Application (included with this Prospectus). The completed Application,
together with a check payable to "James C. Edwards Equity Masters Fund," should
be mailed to the Fund at P.O. Box 640856, Cincinnati, OH 45264-0856. For
investments sent by overnight mail, please contact the Transfer Agent at (800)
282-2340 for instructions.
For subsequent investments, a stub is attached to the confirmation statement
sent to shareholders after each transaction. The stub should be detached from
the confirmation and, together with a check payable to "James C. Edwards Equity
Masters Fund," mailed to the Transfer Agent in the envelope provided at the
address indicated above. The investor's account number should be written on the
check.
BY WIRE: For initial investments, before wiring funds, an investor should call
the Transfer Agent at (800) 282-2340 between the hours of 9:00 a.m. and 4:00
p.m. Eastern time, on a day when the New York Stock Exchange ("NYSE") is open
for trading in order to receive an account number. The Transfer Agent will
request the investor's name, address, tax identification number, amount being
wired and wiring bank. The investor should then instruct the wiring bank to
transfer funds by wire to:
Firstar Bank N.A. Cinti/Trust,
ABA Routing Number 0420-0001-3,
DDA #489022855, for credit to
James C. Edwards Equity Masters Fund
[investor name and account number]
The investor should also insure that the wiring bank includes the name of the
Fund and the account number with the wire. If funds are received by the Transfer
Agent prior to the time that the Fund's net asset value is calculated, the funds
will be invested on that day; otherwise they will be invested on the next
business day. Finally, the investor should write the account number provided by
the Transfer Agent on the Application Form and complete and mail the Form
promptly to the Transfer Agent.
For all wire investments, the investor must call the Transfer Agent at (800)
282-2340 when the wire is sent. Failure to do so may cause the purchase not to
be credited. Investors may obtain further information from the Transfer Agent
about remitting funds in this manner and from their own banks about any fees
that may be imposed.
GENERAL. Payment of proceeds from the redemption of shares purchased with an
initial investment made by wire may be delayed until one business day after the
completed Account Application is received by the Fund. All investments must be
made in U.S. dollars and, to avoid fees and delays, checks should be drawn only
on U.S. banks and should not be made by third party check. A charge may be
imposed if any check used for investment does not clear. The Fund and the
Distributor reserve the right to reject any purchase order in whole or in part.
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If an order, together with payment in proper form, is received by the Transfer
Agent by the close of trading on the NYSE (normally 4:00 p.m., Eastern time),
Fund shares will be purchased at the net asset value next determined as of the
close of trading on that day. Otherwise, Fund shares will be purchased at the
net asset value determined as of the close of trading on the NYSE on the next
business day.
Federal tax regulations require that investors provide a certified Taxpayer
Identification Number and certain other certifications upon opening or reopening
an account in order to avoid backup withholding of taxes at the rate of 31% on
taxable distributions and proceeds of redemptions. See the Fund's Account
Application for further information concerning this requirement.
The Fund does not issue share certificates. All shares are held in
non-certificated form registered on the books of the Fund and the Fund's
Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUND
Shareholders have the right to have the Fund redeem all or any portion of their
outstanding shares on each day the NYSE is open for trading. The redemption
price is the net asset value per share next determined after the receipt of a
valid tender for redemption.
DIRECT REDEMPTION. A written request for redemption must be received by the
Transfer Agent in order to constitute a valid tender for redemption. Redemption
requests should (a) state the number of shares to be redeemed, (b) identify the
shareholder's account number and (c) be signed by each registered owner exactly
as recorded on the account registration. To protect the Fund and its
shareholders, a signature guarantee is required for certain transactions,
including redemptions of amounts over $5,000. 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 a signature
must be a member of a clearing corporation or maintain net capital of at least
$100,000. Credit unions must be authorized to issue signature guarantees.
Signature guarantees will be accepted from any eligible guarantor institution
which participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
TELEPHONE REDEMPTION. Shareholders who complete the Redemption by Telephone
portion of the Fund's Account Application may redeem shares on any business day
the NYSE is open by calling the Fund's Transfer Agent at (800) 282-2340 before
4:00 p.m. Eastern time. Redemption proceeds will be mailed or wired at the
shareholder's direction the next business day to the predesignated account. The
minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds).
By establishing telephone redemption privileges, a shareholder authorizes the
Fund and 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 transfer the proceeds to the bank account designated in the Authorization.
The Fund and the Transfer Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
such instructions. If these normal identification procedures are followed,
neither the Fund nor the Transfer Agent will be liable for any loss, liability,
or cost which results from acting upon instructions of a person believed to be a
shareholder with respect to the telephone redemption privilege. The Fund may
change, modify, or terminate these privileges at any time upon at least 60 days'
notice to shareholders.
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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 redemptions during
periods of abnormal market activity.
OTHER REDEMPTION INFORMATION. Payment of the 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
guarantees in cases where telephone redemption privileges are not being
utilized. The Fund may suspend the right of redemption under certain
extraordinary circumstances in accordance with the Rules of the SEC. In the case
of shares purchased by check and redeemed shortly after purchase, the Fund will
not mail redemption proceeds until 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 Fund
reserves the right to redeem the 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 $2,500. If the Fund determines to make such an involuntary redemption, the
shareholder will first be notified that the value of the account is less than
$2,500 and will be allowed 30 days to make an additional investment to bring the
value of the account to at least $2,500 before the Fund takes any action.
SERVICES AVAILABLE TO THE FUND'S SHAREHOLDERS
RETIREMENT PLANS. The minimum initial investment for such plans is $2,000, with
minimum subsequent investments of $100. The Fund offers prototype Individual
Retirement Account ("IRA" and "Roth IRA") plans and information is available
from the Distributor or from securities dealers with respect to other retirement
plans offered.
Investors should consult a tax adviser before establishing any retirement plan.
AUTOMATIC CHECK INVESTMENT PLAN. For the convenience of shareholders, the Fund
offers a preauthorized check service under which a check is automatically drawn
on the shareholder's personal checking account each month for a predetermined
amount (but not less than $100), as if the shareholder had written it directly.
Upon receipt of the withdrawn funds, the Fund automatically invests the money in
additional shares at the current net asset value. Applications for this service
are available from the Distributor. There is no charge by the Fund for this
service. The Fund 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 withdrawal.
SYSTEMATIC WITHDRAWAL PROGRAM. As another convenience, the Fund offers a
Systematic Withdrawal Program whereby shareholders may request that a check
drawn in a predetermined amount be sent to them each month or calendar quarter.
A shareholder's account must have Fund shares with a value of at least $5,000 in
order to start a Systematic Withdrawal Program, and the minimum amount that may
be withdrawn each month or quarter under the Systematic Withdrawal Program is
$100. This Program may be terminated or modified by a shareholder or the Fund at
any time without charge or penalty.
A withdrawal under the Systematic Withdrawal Program involves a redemption of
shares, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceeds the dividends credited to the
shareholder's account, the account ultimately may be depleted.
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HOW THE FUND'S PER SHARE VALUE IS DETERMINED
The net asset value of a Fund share is determined once daily as of the close of
public trading on the NYSE (normally 4:00 p.m. Eastern time) on each day the
NYSE is open for trading. Net asset value per share is calculated by dividing
the value of the Fund's total assets, less its liabilities, by the number of
Fund shares outstanding.
Portfolio securities are valued using current market values, if available.
Securities for which market quotations are not readily available are valued at
fair value 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 sixty
days or less are valued at amortized cost as reflecting fair value.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends from net investment income are expected
to be paid in December. Capital gain distributions are also normally made in
December, but the Fund may make an additional payment of dividends or
distributions if it is necessary at another time during the year.
Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the net asset
value per share on the reinvestment date unless the shareholder has previously
requested in writing to the Transfer Agent that payment be made in cash.
Any dividend or distribution paid by the Fund has the effect of reducing the net
asset value per share on the reinvestment date by the amount of the dividend or
distribution. Investors should note that a dividend or distribution paid on
shares purchased shortly before such dividend or distribution was declared will
be subject to income taxes as discussed below even though the dividend or
distribution represents, in substance, a partial return of capital to the
shareholder.
TAXES. The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code. As long as
the Fund continues to qualify, and as long as the Fund distributes all of its
net investment income each year to shareholders, the Fund will not be subject to
any federal income or excise taxes. The distributions made by the Fund will be
taxable to shareholders whether received in shares (through dividend
reinvestment) or in cash. Distributions derived from net investment income,
including net short-term capital gains, are taxable to shareholders as ordinary
income. A portion of these distributions may qualify for the intercorporate
dividends- received deduction. Distributions designated as capital gains
dividends are taxable as long-term capital gains regardless of the length of
time shares of the Fund have been held. Although distributions are generally
taxable when received, certain distributions made in January are taxable as if
received the prior December. Shareholders will be informed annually of the
amount and nature of the Fund's distributions. Additional information about
taxes is set forth in the SAI. Shareholders should consult their own advisors
concerning federal, state and local taxation of distributions from the Fund.
GENERAL INFORMATION
THE TRUST. The Trust was organized as a Massachusetts business trust on February
17, 1987. The Agreement and Declaration of Trust permits the Board of Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest, without par value, which may be issued in any number of series. The
Board of Trustees may from time to time issue other series, the assets and
liabilities of which will be separate and distinct from any other series. The
fiscal year of the Fund ends on March 31.
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SHAREHOLDER RIGHTS. Shares issued by the Fund have no preemptive, conversion, or
subscription rights. Shareholders have equal and exclusive rights as to
dividends and distributions as declared by the Fund and to the net assets of the
Fund upon liquidation or dissolution. The Fund, as a separate series of the
Trust, votes separately on matters affecting only an individual series (e.g.,
approval of the Investment Advisory Agreement); all series of the Trust vote as
a single class on matters affecting all series jointly or the Trust as a whole
(E.G., election or removal of Trustees). Voting rights are not cumulative, so
that the holders of more than 50% of the shares voting in any election of
Trustees can, if they so choose, elect all of the Trustees. While the Trust is
not required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Trustees in their discretion, or upon demand by
the holders of 10% or more of the outstanding shares of the Trust for the
purpose of electing or removing Trustees.
PERFORMANCE INFORMATION. From time to time, the Fund may publish its total
return in advertisements and communications to investors. Total return
information will include the Fund's average annual compounded rate of return
over the most recent year and over the period from the Fund's inception of
operations. The Fund may also advertise aggregate and average total return
information over different periods of time. The Fund's total return will be
based upon the value of the shares acquired through a hypothetical $1,000
investment at the beginning of the specified period and the net asset value of
such shares at the end of the period, assuming reinvestment of all
distributions. Total return figures will reflect all recurring charges against
Fund income. Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period.
SHAREHOLDER INQUIRIES. Shareholder inquiries should be directed to the Transfer
Agent at (800) 282-2340.
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INVESTMENT ADVISOR
James C. Edwards & Co., Inc.
570 Lexington Ave., 29th floor
New York, NY 10022
(212) 319-8490
WWW.JCEDWARDS.COM
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261-E
Phoenix, AZ 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut St.
Cincinnati, OH 45202
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services, Inc.
150 Motor Parkway
Hauppauge, NY 11788
(800) 282-2340
AUDITORS
Tait, Weller & Baker
8 Penn Center Plaza
Philadelphia, PA 19103
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104
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STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1999
JAMES C. EDWARDS EQUITY MASTERS FUND
A SERIES OF
PROFESSIONALLY MANAGED PORTFOLIOS
570 LEXINGTON AVE., 29TH FLOOR
NEW YORK, NY 10022
(800) 282-2340
This Statement of Additional Information ("SAI") is not a prospectus
and it should be read in conjunction with the Prospectus of the James C. Edwards
Equity Masters Fund (the "Fund"). A copy of the Prospectus of the Fund dated
April 1, 1999 is available by calling the number listed above.
TABLE OF CONTENTS
The Trust ............................................................. B-2
Investment Objective and Policies ..................................... B-2
Investment Restrictions ............................................... B-6
Distributions and Tax Information ..................................... B-7
Trustees and Executive Officers ....................................... B-10
The Fund's Investment Advisor ......................................... B-12
The Fund's Administrator .............................................. B-13
The Fund's Distributor ................................................ B-13
Execution of Portfolio Transactions ................................... B-14
Additional Purchase and Redemption Information ........................ B-16
Determination of Share Price .......................................... B-17
Performance Information ............................................... B-18
General Information ................................................... B-19
Financial Statements .................................................. B-20
B-1
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THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust. The Trust
consists of various series which represent separate investment portfolios. This
SAI relates only to the Fund. James C. Edwards & Co. Inc., ("the Advisor") is
the Fund's investment advisor.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies as set forth in the Prospectus. There can be no guarantee
that the objective of the Fund will be attained.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements in
connection with its short-term cash investments. Under such agreements, the
seller of the security agrees to repurchase it at a mutually agreed upon time
and price. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the U.S. Government security itself. Such
repurchase agreements will be made only with banks with assets of $500 million
or more that are insured by the Federal Deposit Insurance Corporation or with
Government securities dealers recognized by the Federal Reserve Board and
registered as broker-dealers with the Securities and Exchange Commission ("SEC")
or exempt from such registration. The Fund will generally enter into repurchase
agreements of short durations, from overnight to one week, although the
underlying securities generally have longer maturities. The Fund may not enter
into a repurchase agreement with more than seven days to maturity if, as a
result, more than 15% of the value of the Fund's net assets would be invested in
illiquid securities including such repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. In the event of a
default on the part of the seller, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or a
decline in price of the U.S. Government security. 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. There
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is also the risk that the seller may fail to repurchase the security. However,
the Fund will always receive as collateral for any repurchase agreement to which
it is a party securities acceptable to it, the market value of which is equal to
at least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund may be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
ILLIQUID AND RESTRICTED SECURITIES. The Fund may not invest more than 15% of its
net assets in illiquid securities, including (I) securities for which there is
no readily available market; (ii) securities the disposition of which would be
subject to legal restrictions (so-called "restricted securities"); and (iii)
repurchase agreements having more than seven days to maturity. A considerable
period of time may elapse between the Fund's decision to dispose of such
securities and the time when the Fund is able to dispose of them, during which
time the value of the securities could decline. Securities which meet the
requirements of Securities Act Rule 144A are restricted, but may be determined
to be liquid by the Trustees based on such factors as trading activity and
availability of reliable price information for such securities.
WARRANTS. The Fund may invest up to 5% of its assets in warrants. A warrant
gives the holder a right to purchase at any time during a specified period a
predetermined number of shares of common stock at a fixed price. Warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospectus of
reaching a level at which the warrant can be prudently exercised.
WHEN-ISSUED SECURITIES.The Fund may from time to time purchase securities on a
"when-issued" basis. The price of such securities, which may be expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase; during
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the period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund. To the extent that assets of the
Fund are held in cash pending the settlement of a purchase of securities, the
Fund would earn no income; however, it is the Fund's intention to be fully
invested to the extent practicable and subject to the policies stated above.
While when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time 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 Fund does not believe that its net asset value or income
will be adversely affected by the purchase of securities on a when-issued basis.
The Fund will designate liquid securities equal in value to commitments for
when-issued securities. Such assets either will mature or, if necessary, be sold
on or before the settlement date.
FOREIGN INVESTMENTS. The Fund may invest in foreign securities. Foreign
investments can involve significant risks in addition to the risks inherent in
U.S. investments. The value of securities denominated in or indexed to foreign
currencies, and of dividends and interest from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Several European countries have adopted a single uniform currency known
as the "euro." The euro conversion could have potentially adverse effects on the
Fund's ability to value their portfolio holdings in foreign securities and could
increase the costs associated with the Fund's operations. Foreign securities
markets generally have less trading volume and less liquidity than U.S. markets,
and prices on some foreign markets can be highly volatile. Many foreign
countries lack uniform accounting and disclosure standards comparable to those
applicable to U.S. companies, and it may be more difficult to obtain reliable
information regarding an issuer's financial condition and operations. In
addition, the costs of foreign investing, including withholding taxes, brokerage
commissions, and custodial costs, generally are higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may invoke increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It also may be difficult to enforce legal rights
in foreign countries.
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Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that he Advisor will be able to
anticipate or counter these potential events and their impact on the Fund's
share price.
The Fund may make use of American Depository Receipts and European Depository
Receipts ("ADRs" and "EDRs"). These are certificates evidencing ownership of
shares of a foreign-based issuer held in trust by a bank or similar financial
institution. Designed for use in U.S. and European securities markets,
respectively, ADRs and EDRs are alternatives to the purchase of the underlying
securities in their national market and currencies.
LENDING PORTFOLIO SECURITIES. Although it has no present intention of doing so
during the coming year, the Fund may lend up to 33-1/3% of the total value of
its portfolio securities to broker-dealers or institutional investors that the
Advisor deems qualified, but only when the borrower maintains with the Fund's
custodian collateral either in cash or money market instruments in an amount at
least equal to the market value of the securities loaned, plus accrued interest
and dividends, determined on a daily basis and adjusted accordingly. In
determining whether to lend securities to a particular broker-dealer or
institutional investor, the Advisor will consider, and during the period of the
loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to terminate
any loans at any time. The Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or money market instruments held as collateral to the
borrower or placing broker. The Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. The Fund will retain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when retaining such rights is considered to be in the Fund's
interest.
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INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by the Fund
and (unless otherwise noted) are fundamental and cannot be changed without the
affirmative vote of a majority of the Fund's outstanding voting securities as
defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b)
through the lending of its portfolio securities as described above, or (c) to
the extent the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except from banks etc. Any such borrowing will be
made only if immediately thereafter there is an asset coverage of at least 300%
of all borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase real estate, commodities or commodity contracts (As a
matter of operating policy, the Board of Trustees may authorize the Fund in the
future to engage in certain activities regarding futures contracts for bona fide
hedging purposes; any such authorization will be accompanied by appropriate
notification to shareholders).
5. Invest 25% or more of the market value of its assets in the
securities of companies engaged in any one industry. (Does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures or repurchase transactions.
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7. With respect to 75% of its total assets, invest more than 5% of its
total assets in securities of a single issuer or hold more than 10% of the
voting securities of such issuer, except that this restriction does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.
The Fund observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The Fund may not:
8. Invest in any issuer for purposes of exercising control or
management
9. Invest in securities of other investment companies except as
permitted under the Investment Company Act of 1940.
10. Invest, in the aggregate, more than 15% of its net assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
If a percentage restriction set forth in the prospectus or in this SAI 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 or the purchase
of restricted or illiquid securities.
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.
Also, the Fund expect to distribute any undistributed net investment income on
or about December 31 of each year. Any net capital gains realized through the
period ended October 31 of each year will also be distributed by December 31 of
each year.
Each distribution by the Fund is accompanied by a brief explanation of the form
and character of the distribution. In January of each year the Fund will issue
to each shareholder a statement of the federal income tax status of all
distributions.
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TAX INFORMATION
Each series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code"),
provided it complies with all applicable requirements regarding the source of
its income, diversification of its assets and timing of distributions. The
Fund's policy is to distribute to shareholders all of its investment company
taxable income and any net realized long-term capital gains for each fiscal year
in a manner that complies with the distribution requirements of the Code, so
that the Fund will not be subject to any federal income or excise taxes. To
comply with the requirements, the Fund must also distribute (or be deemed to
have distributed) by December 31 of each calendar year (I) at least 98% of
ordinary income for such year, (ii) at least 98% of the excess of realized
capital gains over realized capital losses for the 12-month period ending on
October 31 during such year and (iii) any amounts from the prior calendar year
that were not distributed and on which the Fund paid no federal income tax.
Net investment income consists of interest and dividend income, less expenses.
Net realized capital gains for a fiscal period are computed by taking into
account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment policies, it is
expected that dividends from domestic corporations may be part of the Fund's
gross income and that, accordingly, part of the distributions by the Fund may be
eligible for the dividends-received deduction for corporate shareholders.
However, the portion of the Fund's gross income attributable to qualifying
dividends is largely dependent on the Fund's investment activities for a
particular year and therefore cannot be predicted with any certainty. The
deduction may be reduced or eliminated if the Fund shares held by a corporate
investor are treated as debt-financed or are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net short-term
capital losses are taxable to shareholders as long-term capital gains,
regardless of the length of time they have held their shares. Capital gains
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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. In determining gain or loss from an exchange of Fund shares for
shares of another mutual fund, the sales charge incurred in purchasing the
shares that are surrendered will be excluded from their tax basis to the extent
that a sales charge that would otherwise be imposed in the purchase of the
shares received in the exchange is reduced. Any portion of a sales charge
excluded from the basis of the shares surrendered will be added to the basis of
the shares received. Any loss realized upon a redemption or exchange may be
disallowed under certain wash sale rules to the extent shares of the same Fund
are purchased (through reinvestment of distributions or otherwise) within 30
days before or after the redemption or exchange.
Under the Code, the Fund will be required to report to the Internal Revenue
Service all distributions of taxable income and capital gains as well as gross
proceeds from the redemption or exchange of Fund shares, except in the case of
exempt shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at the rate of 31 percent in the case of
non-exempt shareholders who fail to furnish the Fund with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. If the withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Fund with their
taxpayer identification numbers or certify their exempt status in order to avoid
possible erroneous application of backup withholding. The Fund reserves the
right to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
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The Fund will not be subject to tax in the Commonwealth of Massachusetts as long
as it qualifies as a regulated investment company for federal income tax
purposes. Distributions and the transactions referred to in the preceding
paragraphs may be subject to state and local income taxes, and the tax treatment
thereof may differ from the federal income tax treatment. Moreover, the above
discussion is not intended to be a complete discussion of all applicable federal
tax consequences of an investment in the Fund. Shareholders are advised to
consult with their own tax advisers concerning the application of federal, state
and local taxes to an investment in the Fund.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
This discussion and the related discussion in the Prospectus have been prepared
by Fund management, and counsel to the Fund has expressed no opinion in respect
thereof.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by the
initial shareholders of the Trust, are responsible for the overall management of
the Trust, including general supervision and review of the investment activities
of the Fund. The Trustees, in turn, elect the officers of the Trust, who are
responsible for administering the day-to-day operations of the Trust and its
separate series. The current Trustees and officers, their affiliations, dates of
birth and principal occupations for the past five years are set forth below.
Steven J. Paggioli,* 04/03/50 President and Trustee
915 Broadway, New York, New York 10010. Executive Vice President, The Wadsworth
Group (consultants) since 1986; Executive Vice President of Investment Company
Administration, LLC ("ICA")(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.
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Dorothy A. Berry, 08/12/43 Chairman and Trustee
14 Five Roses East, Ancram, NY 12502. President, Talon Industries (venture
capital and business consulting); formerly Chief Operating Officer, Integrated
Asset Management (investment advisor and manager) and formerly President, Value
Line, Inc., (investment advisory and financial publishing firm).
Wallace L. Cook 09/10/39 Trustee
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel 05/23 /38 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 06/01/44 Trustee
1191 Valley Road, Clifton, New Jersey 07103. President; Intertech (consumer
electronics and computer service and marketing); formerly Vice President, PRS of
New Jersey, Inc. (management consulting), and Chief Executive Officer, Rowley
Associates (consultants).
Robert M. Slotky* 6/17/47 Treasurer
2020 E. Financial Way, Suite 100, Glendora, California 91741. Senior Vice
President, ICA since May 1997; former instructor of accounting at California
State University-Northridge (1997); Chief Financial Officer, Wanger Asset
Management L.P. and Treasurer of Acorn Investment Trust (1992-1996).
Robin Berger* 11/17/56 Secretary
479 West 22nd St., New York, New York 10011. Vice President, The Wadsworth Group
Robert H. Wadsworth* 01/25/40 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018. President of The
Wadsworth Group since 1982, President of ICA and FFD since 1990.
*Indicates an "interested person" of the Trust as defined in the 1940 Act.
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Set forth below is the rate of compensation received by the following Trustees
from all other portfolios of the Trust. This total amount is allocated among the
portfolios. Disinterested Trustees receive an annual retainer of $10,000 and a
fee of $2,500 for each regularly scheduled meeting. These Trustees also receive
a fee of $1,000 for any special meeting attended. The Chairman of the Board of
Trustees receives an additional annual retainer of $5,000. 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.
Name of Trustee Total Annual Compensation
- --------------- -------------------------
Dorothy A. Berry $25,000
Wallace L. Cook $20,000
Carl A. Froebel $20,000
Rowley W.P. Redington $20,000
It is estimated that during the first fiscal year of the Fund, Trustees fees and
expenses to be allocated to it should not exceed $3,000. As of the date of this
SAI, the Trustees and officers of the Trust as a group did not own more than 1%
of the outstanding shares of the Fund.
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided to the
Fund by James C. Edwards & Co., Inc., the Advisor, pursuant to an Investment
Advisory Agreement. The use of the name "James C. Edwards" by the Fund is
pursuant to a license granted by the Advisor, and in the event the Investment
Advisory Agreement with the Fund is terminated, the Advisor has reserved the
right to require the Fund to remove any references to the name "James C.
Edwards," or other name derived from The Advisor.
After its initial two year term, the Investment Advisory Agreement continues in
effect for successive annual periods so long as such continuation is approved at
least annually by the vote of (1) the Board of Trustees of the Trust (or a
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majority of the outstanding shares of the Fund to which the agreement applies),
and (2) a majority of the Trustees who are not interested persons of any party
to the Agreement, in each case cast in person at a meeting called for the
purpose of voting on such approval. Any such agreement may be terminated at any
time, without penalty, by either party to the agreement upon sixty days' written
notice and is automatically terminated in the event of its "assignment," as
defined in the 1940 Act.
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company Administration,
LLC (the "Administrator"), a corporation owned and controlled by Messrs.
Banhazl, Paggioli and Wadsworth with offices at 2020 East Financial Way, Ste.
100, Glendora, CA 91741 and 4455 E. Camelback Rd., Ste. 261-E, Phoenix, AZ
85018. The Administration Agreement provides that the Administrator will prepare
and coordinate reports and other materials supplied to the Trustees; prepare
and/or supervise the preparation and filing of all securities filings, periodic
financial reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required filings necessary to maintain
the Fund's ability to sell shares in all states where each Fund currently does,
or intends to do business; coordinate the preparation, printing and mailing of
all materials (e.g., annual reports) required to be sent to shareholders;
coordinate the preparation and payment of Fund related expenses; monitor and
oversee the activities of the Fund's servicing agents (i.e., transfer agent,
custodian, fund accountants, etc.); review and adjust as necessary the Fund's
daily expense accruals; and perform such additional services as may be agreed
upon by the Fund and the Administrator.
For its services, the Administrator receives a monthly fee from the Fund at the
following annual rate:
Less than $15,000,000 $30,000
$15 million to $50 million 0.20%
$50 million to $100 million 0.15%
$100 million to $150 million 0.10%
Over $150 million 0.05%
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc., (the "Distributor"), a corporation owned by Mr.
Banhazl, Mr. Paggioli and Mr. Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. After its
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initial two year term, the Distribution Agreement between the Fund and the
Distributor continues in effect for periods not exceeding one year if approved
at least annually by (I) the Board of Trustees or the vote of a majority of the
outstanding shares of the Fund (as defined in the 1940 Act) and (ii) a majority
of the Trustees who are not interested persons of any such party, in each case
cast in person at a meeting called for the purpose of voting on such approval.
The 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 Fund and which broker-dealers
will be used to execute the Fund's portfolio transactions. Purchases and sales
of securities in the over-the-counter market will be executed directly with a
"market-maker" unless, in the Advisor's opinion, a better price and execution
can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made directly from
issuers or from underwriters. Where possible, purchase and sale transactions
will be effected through dealers (including banks) which specialize in the types
of securities which the Fund will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one broker, dealer or underwriter are comparable, the order may be
allocated to a broker, dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the 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 most favorable price and execution
available, consideration may be given to those broker-dealers which furnish or
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supply research and statistical information to the Advisor that it may lawfully
and appropriately use in its investment advisory capacities, as well as provide
other services in addition to execution services. The Advisor considers such
information, which is in addition to and not in lieu of the services required to
be performed by it under its Agreement with the Fund, to be useful in varying
degrees, but of indeterminable value. Portfolio transactions may be placed with
broker-dealers who sell shares of the Fund subject to rules adopted by the
National Association of Securities Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most favorable
price and execution available, in selecting a broker-dealer to execute portfolio
transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund 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
Advisor 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 Fund.
Investment decisions for the Fund 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 Fund and one or more of such client accounts. In such event, the position of
the Fund and such client account(s) in the same issuer may vary and the length
of time that each may choose to hold its investment in the same issuer may
likewise vary. However, to the extent any of these client accounts seeks to
acquire the same security as the Fund at the same time, the Fund may not be able
to acquire as large a portion of such security as it desires, or it may have to
pay a higher price or obtain a lower yield for such security. Similarly, the
Fund may not be able to obtain as high a price for, or as large an execution of,
an order to sell any particular security at the same time. If one or more of
such client accounts simultaneously purchases or sells the same security that
the Fund is purchasing or selling, each day's transactions in such security will
be allocated between the Fund and all such client accounts in a manner deemed
equitable by the Advisor, taking into account the respective sizes of the
accounts and the amount being purchased or sold. It is recognized that in some
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cases this system could have a detrimental effect on the price or value of the
security insofar as the Fund is concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions may
produce better executions for the Fund.
The Fund does not effect securities transactions through brokers solely for
selling shares of the Fund, although the Fund may consider the sale of shares as
a factor in allocating brokerage. However, as stated above, broker-dealers who
execute brokerage transactions may effect purchases of shares of the Fund for
their customers.
The Fund does not use the Distributor to execute portfolio transactions.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (I) to suspend the continued
offering of the Fund's shares, (ii) to reject purchase orders in whole or in
part when in the judgment of the Advisor or the Distributor such rejection is in
the best interest of the Fund, and (iii) to reduce or waive the minimum for
initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
Payments to shareholders for shares of the Fund redeemed directly from the Fund
will be made as promptly as possible but no later than seven days after receipt
by the Fund's Transfer Agent of the written request in proper form, with the
appropriate documentation as stated in the Prospectus, except that the Fund may
suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which they have not yet received confirmation of
good payment; in this circumstance, the Fund may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Fund may make payment
partly in securities with a current market value equal to the redemption price.
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Although the Fund does not anticipate that it will make any part of a redemption
payment in securities, if such payment were made, an investor may incur
brokerage costs in converting such securities to cash. The Fund has elected to
be governed by the provisions of Rule 18f-1 under the 1940 Act, which contains a
formula for determining the minimum redemption amounts that must be paid in
cash.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
AUTOMATIC CHECK INVESTMENT
As discussed in the Prospectus, the Fund provides an Automatic Check Investment
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 Automatic Check
Investment Plan are paid by the Fund. The market value of the Fund's shares is
subject to fluctuation, so before undertaking any plan for systematic
investment, the investor should keep in mind that this plan does not assure a
profit nor protect against depreciation in declining markets.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value of shares of the Fund will be
determined once daily as of the close of public trading on the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on each day that the Exchange is open
for trading. It is expected that the Exchange will be closed on Saturdays and
Sundays and on New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas. The Fund does not expect to determine the net asset value of shares
on any day when the Exchange is not open for trading even if there is sufficient
trading in its portfolio securities on such days to materially affect the net
asset value per share.
In valuing the Fund's assets for calculating net asset value, readily marketable
portfolio securities listed on a national securities exchange or on NASDAQ are
valued at the last sale price on the business day as of which such value is
being determined. If there has been no sale on such exchange or on NASDAQ on
such day, the security is valued at the closing bid price on such day. Readily
marketable securities traded only in the over-the-counter market and not on
NASDAQ are valued at the last bid price. If no bid is quoted on such day, the
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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 Fund are valued in such manner as the Board of Trustees in good faith
deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statements of total return
will be accompanied by information on the Fund's average annual compounded rate
of return over the most recent four calendar quarters and the period from the
Fund's inception of operations. The Fund may also advertise aggregate and
average total return information over different periods of time.
The Fund's total return may be compared to relevant indices, including Standard
& Poor's 500 Composite Stock Index and indices published by Lipper Analytical
Services, Inc. From time to time, evaluations of the Fund's performance by
independent sources may also be used in advertisements and in information
furnished to present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's total return for any period should
not be considered as a representation of what an investment may earn or what an
investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by reference
to a hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period, according to the following formula:
P(1+T)n= ERV
Where:
P = a hypothetical initial purchase order of $1,000 from which the
maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at the end
of the period
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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.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually.
Firstar Institutional Custody Services, 425 Walnut Street, Cincinnati, OH 45202
acts as Custodian of the securities and other assets of the Fund. American Data
Services, Inc., P. O. Box 5536, Hauppauge, NY 11788-0132, acts as the Fund's
transfer and shareholder service agent. The Custodian and Transfer Agent do not
participate in decisions relating to the purchase and sale of securities by the
Fund.
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103, are the
independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th Floor, San
Francisco, California 94104, are legal counsel to the Fund.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Agreement and Declaration of Trust further
provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
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possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
The Trust is registered with the SEC as a management investment company. Such a
registration does not involve supervision of the management or policies of the
Fund. The Prospectus of the Fund and this SAI omit certain of the information
contained in the Registration Statement filed with the SEC. Copies of such
information may be obtained from the SEC upon payment of the prescribed fee.
FINANCIAL STATEMENTS
The annual report to shareholders of the Fund for its first fiscal year will be
a separate document supplied with this SAI and the financial statements,
accompanying notes and report of independent accountants appearing therein will
be incorporated by reference in future SAIs.
