US GLOBAL LEADERS
GROWTH FUND
----------
PROSPECTUS
OCTOBER 29, 1999
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AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION DOES NOT
APPROVE OR DISAPPROVE OF THESE SHARES OR DETERMINE WHETHER THE INFORMATION IN
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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U.S. GLOBAL LEADERS GROWTH FUND
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
TABLE OF CONTENTS
An Overview of the Fund 1
Performance 3
Expense Table 4
Objective and Investment Approach of the Fund 6
Principal Risks of Investing in the Fund 7
Investment Advisor 8
Shareholder Information 8
Pricing of Fund Shares 12
Dividends and Distributions 13
Tax Consequences 13
Financial Highlights 14
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AN OVERVIEW OF THE FUND
THE FUND'S INVESTMENT GOAL
The Fund seeks long-term growth of capital.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its goal through investment in sustainable growth
companies with a global reach. The Fund primarily invests in common stocks of
U.S. companies that have substantial international activities ("U.S. Global
Leaders"). The Advisor considers U.S. companies that have leading positions in
growing markets in developed countries and also derive a substantial portion of
their profits in fast-growing emerging markets as U.S. Global Leaders. The
Advisor considers U.S. Global Leaders companies typically to possess the
following sustainable growth qualities:
* Hold leading market shares of their relevant growth markets, and hence
possess the pricing flexibility that results in high profit margins and
high investment returns.
* Supply consumable products or services so that their revenue streams are
recurring rather than derived from infrequent or postponable sales of
big-ticket items.
Unlike mutual funds that are classified as "global" funds, the Fund does not
have a principal investment policy that calls for foreign investing.
The Fund is non-diversified. This means that with respect to 50% of its assets,
it may make larger investments in individual companies than a fund that is
diversified. However, with respect to the other 50% of its assets, the Fund may
only invest 5% of its assets in any individual security.
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PRINCIPAL RISKS OF INVESTING IN THE FUND
There is the risk that you could lose money on your investment in the Fund. The
following risks could affect the value of your investment:
* The stock market goes down
* Interest rates rise which can result in a decline in the equity market
* Growth stocks fall out of favor with the stock market
* Stocks in the Fund's portfolio may not increase their earnings at the rate
anticipated
* Because the Fund has the ability to take larger positions in a small number
of issuers, the Fund's share price may be more volatile than the share
price of a diversified fund.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF THE BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Want to add an investment with growth potential to diversify their
investment portfolio
* Are willing to accept higher short-term risk
The Fund may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short-term goal
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PERFORMANCE
The following performance information indicates some of the risks of
investing in the Fund. The bar chart shows how the Fund's total return has
varied from year to year. The table shows the Fund's average return over time
compared with a broad-based market index. This past performance will not
necessarily continue in the future.
CALENDAR YEAR TOTAL RETURNS*
[Bar Chart Inserted Here]
1998 - 31.98%
1997 - 40.46%
1996 - 23.14%
* The Fund's year-to-date return as of 9/30/99 was -5.10%.
During the period shown in the bar chart, the Fund's highest quarterly return
was 29.43% for the quarter ended December 31, 1998 and the lowest quarterly
return was -16.69% for the quarter ended September 30, 1998.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
Since Inception
1 Year (9/29/95)
------ ---------
U.S. Global Leaders Growth Fund 31.98% 31.44%
S&P 500 Index* 28.58% 28.00%
- ----------
* The S&P 500 Index is an unmanaged index generally representative of the market
for stocks of large sized U.S. companies.
3
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EXPENSE TABLE
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Advisory Fees 1.00%
Other Expenses 0.31%
Total Annual Fund Operating Expenses 1.31%
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EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, under the assumptions, your costs would be:
One Year $ 133
Three Years $ 415
Five Years $ 718
Ten Years $1,579
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OBJECTIVE AND INVESTMENT APPROACH
OF THE FUND
The goal of the U.S. Global Leaders Growth Fund is to seek long-term growth of
capital through its investment in sustainable growth companies with a global
reach.
The Fund invests primarily in common stocks of United States companies that have
substantial international activities. ("U.S. Global Leaders"). Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
stocks of companies the Advisor regards as U.S. Global Leaders. U.S. Global
Leaders companies typically exhibit these key sustainable growth
characteristics:
* Hold leading market shares of their relevant growth markets, and hence
possess the pricing flexibility that results in high profit margins and
high investment returns.
* Supply consumable products or services so that their revenue streams are
recurring rather than derived from infrequent or postponable sales of
big-ticket items.
The Advisor believes that companies with these characteristics should have
relatively low business risk and relatively high sustainability of earnings
growth.
The Advisor believes that leading multinational companies traded publicly in
U.S. securities markets have a number of advantages that make them attractive
investments. U.S. capital markets are large and liquid. Accounting practices are
consistent and well regulated. Currency and political risks are minimized, and
the costs associated with investing abroad are reduced.
Companies that have leading positions in growing markets in the U.S. and other
developed countries and also derive a significant portion of their profits in
fast-growing emerging markets are relatively limited in number at this time.
Because of the difficulty and expense in building broad-based distribution in
newer global markets, it appears likely that the number of such companies will
not expand rapidly. Thus, the Advisor believes that the stocks of multinational
companies that can sustain superior global earnings growth are likely to be
accorded premium relative valuations.
The Advisor's investment policy is to identify U.S. Global Leaders companies
with superior long-term earnings prospects and to continue to own them as long
as their managements are fulfilling their mission. As long as the Advisor
believes that shares of such companies continue to enjoy favorable prospects for
capital growth and that they are not overvalued in the marketplace, such shares
are ordinarily retained.
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The Fund anticipates that its portfolio turnover rate will not exceed 25%. This
means that the Fund has the potential to be a tax efficient investment. This
should result in the realization and distribution to shareholders of lower
capital gains, which would be considered tax efficient. This anticipated lack of
frequent trading can also lead to lower transaction costs, which could help to
improve the Fund's performance.
Under normal market conditions, the Fund will stay fully invested in stocks.
However, the Fund may temporarily depart from its principal investment
strategies by making short-term investments in cash equivalents in response to
adverse market, economic or political conditions. This may result in the Fund
not achieving its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risks of investing in the Fund that may adversely affect the
Fund's net asset value or total return are previously summarized in "An Overview
of the Fund." These risks are discussed in more detail below.
MANAGEMENT RISK. Management risk means that your investment in the Fund varies
with the success and failure of the Advisor's investment strategies and the
Advisor's research, analysis and determination of portfolio securities. If the
Advisor's investment strategies do not produce the expected results, your
investment could be diminished or even lost.
MARKET RISK. Market risk means that the price of common stock may move up or
down (sometimes rapidly and unpredictably) in response to general market and
economic conditions, investor perception and anticipated events, as well as the
activities of the particular issuer. Market risk may affect a single issuer,
industry, section of the economy or the market as a whole. Since the Fund
invests in equity securities of undervalued companies, its share price will
change daily in response to stock market movements.
YEAR 2000 RISK. The risk that the Fund could be adversely affected if the
computer systems used by the Advisor and other service providers do not properly
process and calculate information related to dates beginning January 1, 2000.
This is commonly known as the "Year 2000 Problem." This situation may negatively
affect the companies in which the Fund invests and by extension the value of the
Fund's shares. Although the Fund's service providers are taking steps to address
this issue, there may still be some risk of adverse effects.
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INVESTMENT ADVISOR
Yeager, Wood & Marshall Incorporated is the Fund's investment advisor. The
Advisor is located at 630 Fifth Avenue, New York, NY 10111. The Advisor has been
providing investment advisory services since 1968 and is controlled by Mr.
George M. Yeager, President. The Advisor provides investment advisory services
to individual and institutional investors with assets under management in excess
of $500 million. Mr. Yeager is responsible for the management of the Fund's
portfolio.
The Advisor supervises the Fund's investment activities and determines which
securities are purchased and sold by the Fund. The Advisor also furnishes the
Fund with office space and certain administrative services and provides most of
the personnel needed by the Fund. For its services, the Fund pays the Advisor a
monthly management fee based upon its average daily net assets. For the fiscal
year ended June 30, 1999, the Advisor received advisory fees of 1.00% of the
Fund's average net assets.
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
You may open a Fund account with $2,000 and add to your account at any time with
$1,000 or more. After you have opened your Fund account, you also may make
automatic subsequent monthly investments with $250 or more through the Automatic
Investment Plan. The minimum investment requirements may be waived from time to
time by the Fund.
You may purchase shares of the Fund by check or wire. All purchases by check
must be in U.S. dollars. Third party checks and cash will not be accepted. A
charge may be imposed if your check does not clear. The Fund is not required to
issue share certificates. The Fund reserves the right to reject any purchase in
whole or in part.
BY CHECK
If you are making an initial investment in the Fund, simply complete the
Application Form included with this Prospectus and mail it with a check (made
payable to "U.S. Global Leaders Growth Fund") to:
U.S. Global Leaders Growth Fund
P.O. Box 640856
Cincinnati, OH 45264-0856
If you wish to send your Application Form and check via an overnight delivery
service (such as FedEx), you should call the Transfer Agent at (800) 282-2340
for instructions.
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If you are making a subsequent purchase, a stub is attached to the account
statement you will receive after each transaction. Detach the stub from the
statement and mail it together with a check made payable to "U.S. Global Leaders
Growth Fund" to the Fund in the envelope provided with your statement or to the
address noted above. Your account number should be written on the check.
BY WIRE
If you are making an initial investment in the Fund, before you wire funds you
should call the Transfer Agent at (800) 282-2340 between 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 to advise them that you are making an investment by wire. The
Transfer Agent will ask for your name and the dollar amount you are investing.
You will then receive your account number and an order confirmation number. You
should then complete the Account Application included with this Prospectus.
Include the date and the order confirmation number on the Account Application
and mail the completed Account Application to the address at the top of the
Account Application. Your bank should transmit immediately available funds by
wire in your name to:
Firstar Bank, N.A. Cinti/Trust
ABA Routing #0420-0001-3
U.S. Global Leaders Growth Fund
DDA #483898029
Account name (shareholder name)
Shareholder account number
If you are making a subsequent purchase, your bank should wire funds as
indicated above. Before each wire purchase, you should be sure to notify the
Transfer Agent. IT IS ESSENTIAL THAT YOUR BANK INCLUDE COMPLETE INFORMATION
ABOUT YOUR ACCOUNT IN ALL WIRE INSTRUCTIONS. If you have questions about how to
invest by wire, you may call the Transfer Agent. Your bank may charge you a fee
for sending a wire to the Fund.
You may buy and sell shares of the Fund through certain brokers (and their
agents) that have made arrangements with the Fund to sell its shares. When you
place your order with such a broker or its authorized agent, your order is
treated as if you had placed it directly with the Fund's Transfer Agent, and you
will pay or receive the next price calculated by the Fund. The broker (or agent)
holds your shares in an omnibus account in the broker's (or agent's) name, and
the broker (or agent) maintains your individual ownership records. The Advisor
may pay the broker (or its agent) for maintaining these records as well as
providing other shareholder services. The broker (or its agent) may charge you a
fee for handling your order. The broker (or agent) is responsible for processing
your order correctly and promptly, keeping you advised regarding the status of
your individual account, confirming your transactions and ensuring that you
receive copies of the Fund's prospectus.
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BY PAYMENT IN KIND
In certain situations, Fund shares may be purchased by tendering payment in kind
in the form of shares of stock, bonds or other securities. Any securities used
to buy Fund shares must be readily marketable, their acquisition consistent with
the Fund's objective and otherwise acceptable to the Advisor.
AUTOMATIC INVESTMENT PLAN
For your convenience, the Fund offers an Automatic Investment Plan. Under this
Plan, after your initial investment, you authorize the Fund to withdraw from
your personal checking account each month an amount that you wish to invest,
which must be at least $250. If you wish to enroll in this Plan, complete the
appropriate section of the Account Application. The Fund may terminate or modify
this privilege at any time. You may terminate your participation in the Plan at
any time by notifying the Transfer Agent in writing.
RETIREMENT PLANS
The Fund offers an Individual Retirement Account ("IRA") plan. You may obtain
information about opening an IRA account by calling (800) 282-2340. If you wish
to open a Keogh, Section 403(b) or other retirement plan, please contact your
securities dealer.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Fund and the NYSE are open
for business.
You may redeem your shares by simply sending a written request to the Transfer
Agent. You should give your account number and state whether you want all or
some of your shares redeemed. The letter should be signed by all of the
shareholders whose names appear on the account registration. You should send
your redemption request to:
U.S. Global Leaders Growth Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
To protect the Fund and its shareholders, a signature guarantee is required for
all written redemption requests. Signature(s) on the redemption request must be
guaranteed by an "eligible guarantor institution." These include banks,
broker-dealers, credit unions and savings institutions. A broker-dealer
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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.
If you complete the Redemption by Telephone portion of the Account Application,
you may redeem all or some of your shares by calling the Transfer Agent at (800)
282-2340 before the close of trading on the NYSE. This is normally 4:00 p.m.,
Eastern time. Redemption proceeds will be mailed on the next business day to the
address that appears on the Transfer Agent's records. If you request, redemption
proceeds will be wired on the next business day to the bank account you
designated on the Account Application. The minimum amount that may be wired is
$1,000. Wire charges, if any, will be deducted from your redemption proceeds.
Telephone redemptions cannot be made if you notify the Transfer Agent of a
change of address within 30 days before the redemption request. If you have a
retirement account, you may not redeem shares by telephone.
When you establish telephone privileges, you are authorizing the Fund and its
Transfer Agent to act upon the telephone instructions of the person or persons
you have designated on your Account Application. Redemption proceeds will be
transferred to the bank account you have designated on your Account Application.
Before executing an instruction received by telephone, the Fund and the Transfer
Agent will use reasonable procedures to confirm that the telephone instructions
are genuine. These procedures will include recording the telephone call and
asking the caller for a form of personal identification. If the Fund and the
Transfer Agent follow these reasonable procedures, they will not be liable for
any loss, expense, or cost arising out of any telephone redemption request that
is reasonably believed to be genuine. This includes any fraudulent or
unauthorized request. The Fund may change, modify or terminate these privileges
at any time upon at least 60 days' notice to shareholders.
You may request telephone redemption privileges after your account is opened by
calling the Transfer Agent at (800) 282-2340 for instructions. You may have
difficulties in making a telephone redemption during periods of abnormal market
activity. If this occurs, you may make your redemption request in writing.
Payment of your redemption proceeds will be made promptly, but not later than
seven days after the receipt of your written request in proper form as discussed
in this Prospectus. If you made your initial investment by wire, payment of your
redemption proceeds for those shares will not be made until one business day
after your completed Account Application is received by the Fund. If you did not
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purchase your shares with a certified check or wire, the Fund may delay payment
of your redemption proceeds for up to 15 days from date of purchase or until
your check has cleared, whichever occurs first.
The Fund may redeem the shares in your account if the value of your account is
less than $1,000 as a result of redemptions you have made. This does not apply
to retirement plan or Uniform Gifts or Transfers to Minors Act accounts. You
will be notified that the value of your account is less than $1,000 before the
Fund makes an involuntary redemption. You will then have 30 days in which to
make an additional investment to bring the value of your account to at least
$1,000 before the Fund takes any action.
The Fund has the right to pay redemption proceeds to you in whole or in part by
a distribution of securities from the Fund's portfolio. It is not expected that
the Fund would do so except in unusual circumstances. If the Fund pays your
redemption proceeds by a distribution of securities, you could incur brokerage
or other charges in converting the securities to cash.
PRICING OF FUND SHARES
The price of the Fund's shares is based on the Fund's net asset value. This is
done by dividing the Fund's assets, minus its liabilities, by the number of
shares outstanding. The Fund's assets are the market value of securities held in
its portfolio, plus any cash and other assets. The Fund's liabilities are fees
and expenses owed by the Fund. The number of Fund shares outstanding is the
amount of shares which have been issued to shareholders. The price you will pay
to buy Fund shares or the amount you will receive when you sell your Fund shares
is based on the net asset value next calculated after your order is received by
the Transfer Agent with complete information and meeting all the requirements
discussed in this Prospectus.
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The net asset value of the Fund's shares is determined as of the close of
regular trading on the NYSE. This is normally 4:00 p.m., Eastern time. Fund
shares will not be priced on days that the NYSE is closed for trading (including
certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
The Fund will make distributions of dividends and capital gains, if any, at
least annually, typically after year end. The Fund will make another
distribution of any additional undistributed capital gains earned during the
12-month period ended October 31 on or about December 31.
All distributions will be reinvested in Fund shares unless you choose one of the
following options: (1) receive dividends in cash, while reinvesting capital gain
distributions in additional Fund shares; or (2) receive all distributions in
cash. If you wish to change your distribution option, write to the Transfer
Agent in advance of the payment date of the distribution.
TAX CONSEQUENCES
The Fund intends to make distributions of dividends and capital gains. Dividends
are taxable to you as ordinary income. The rate you pay on capital gain
distributions will depend on how long the Fund held the securities that
generated the gains, not on how long you owned your Fund shares. You will be
taxed in the same manner whether you receive your dividends and capital gain
distributions in cash or reinvest them in additional Fund shares.
If you sell your Fund shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell, you
may have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
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FINANCIAL HIGHLIGHTS
This table shows the Fund's financial performance for up to the past five years.
"Total return" shows how much your investment in the Fund would have increased
or decreased during each period, assuming you had reinvested all dividends and
distributions. This information has been audited by Ernst & Young LLP,
Independent Auditors. Their report and the Fund's financial statements are
included in the Annual Report, which is available upon request.
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended June 30, Sept. 29, 1995*
------------------------------ through
1999 1998 1997 June 30, 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.35 $ 16.29 $ 12.08 $ 10.00
------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (0.13) (0.07) (0.04) 0.01
Net realized and unrealized
gain on investments 3.43 6.13 4.39 2.08
------- ------- ------- -------
Total from investment operations 3.30 6.06 4.35 2.09
------- ------- ------- -------
Less distributions:
From net investment income 0.00 0.00 0.00 (0.01)
From net realized gains 0.00 0.00 (0.14) 0.00
------- ------- ------- -------
Total distributions 0.00 0.00 (0.14) (0.01)
------- ------- ------- -------
Net asset value, end of period $ 25.65 $ 22.35 $ 16.29 $ 12.08
======= ======= ======= =======
Total return 14.77% 37.20% 36.29% 20.83%++
Ratios/supplemental data:
Net assets, end of
period (millions) $ 129.0 $ 89.4 $ 26.9 $ 9.0
Ratio of expenses to average net assets:
Before expense reimbursement 1.31% 1.43% 1.87% 2.55%+
After expense reimbursement 1.31% 1.42% 1.48% 1.48%+
Ratio of net investment loss to average
net assets:
Before expense reimbursement (0.66)% (0.67)% (0.79)% (1.08)%+
After expense reimbursement (0.66)% (0.66)% (0.39)% (0.01)%+
Portfolio turnover rate 14.27% 4.02% 21.49% 4.91%
</TABLE>
* Commencement of operations.
+ Annualized.
++ Not annualized.
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ADVISOR
Yeager, Wood & Marshall, Incorporated
630 Fifth Avenue
New York, New York 10111
(212) 765-5350
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261E
Phoenix, Arizona 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AND
DIVIDEND
DISBURSING AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
AUDITORS
Ernst & Young, L.L.P.
725 South Figeroa Street
Los Angeles, California 90017
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, California 94104
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS (THE "TRUST")
WWW.USGLOBALLEADERS.COM
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
Prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund at:
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Telephone: 1-800-282-2340
You can review and copy information including the Fund's reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. You can obtain information on the operation of the Public Reference Room by
calling 1-800-SEC-0330. You can get text-only copies:
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-6009, or
* For a fee, by calling 1-800-SEC-0330, or
* Free of charge from the Commission's Internet website at
http://www.sec.gov.
(The Trust's SEC Investment Company Act
file number is 811-05037)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 29, 1999
U.S. GLOBAL LEADERS GROWTH FUND
A SERIES OF
PROFESSIONALLY MANAGED PORTFOLIOS
630 FIFTH AVENUE
NEW YORK, NY 10111
(212) 765-5350
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Prospectus dated October 29, 1999, as may
be revised, of U.S. Global Leaders Growth Fund (the "Fund"), a series of
Professionally Managed Portfolios (the "Trust"). Yeager, Wood & Marshall
Incorporated (the "Advisor") is the investment adviser to the Fund. A copy of
the Fund's Prospectus is available by calling the number listed above or (212)
633-9700.
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-9
The Fund's Investment Advisor............................................. B-11
The Fund's Administrator.................................................. B-12
The Fund's Distributor.................................................... B-13
Execution of Portfolio Transactions....................................... B-13
Portfolio Turnover........................................................ B-15
Additional Purchase and Redemption Information............................ B-15
Determination of Share Price.............................................. B-18
Performance Information................................................... B-18
General Information....................................................... B-19
Financial Statements...................................................... B-21
APPENDIX.................................................................. B-21
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust. The Trust
consists of various series which represent separate investment portfolios. This
SAI relates only to the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The U.S. Global Leaders Growth Fund is a mutual fund with the investment
objective of seeking growth of capital. The following discussion supplements the
discussion of the Fund's investment objective and policies as set forth in the
Prospectus. There can be no assurance the objective of the Fund will be
attained.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
respect to its portfolio securities. Pursuant to such agreements, the Fund
acquires securities from financial institutions such as banks and broker-dealers
as are deemed to be creditworthy by the Advisor, subject to the seller's
agreement to repurchase and the Fund's agreement to resell such securities at a
mutually agreed upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the underlying
portfolio security). Securities subject to repurchase agreements will be held by
the Custodian or in the Federal Reserve/Treasury Book-Entry System or an
equivalent foreign system. The seller under a repurchase agreement will be
required to maintain the value of the underlying securities at not less than
102% of the repurchase price under the agreement. If the seller defaults on its
repurchase obligation, the Fund will suffer a loss to the extent that the
proceeds from a sale of the underlying securities are less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause the Fund's rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans under the Investment
Company Act (the "1940 Act").
INVESTMENT COMPANIES. The Fund may invest in shares of other invest
companies in pursuit of its investment objective. This may include investment in
money market mutual funds in connection with the Fund's management of daily cash
positions. In addition to the advisory and operational fees the Fund bears
directly in connection with its own operation, the Fund and its shareholders
will also bear the pro rata portion of each other investment company's advisory
and operational expenses.
FOREIGN INVESTMENTS
The Advisor is permitted to invest up to 25% of the Fund's net assets in
foreign companies, although the level of such investment is not expected to
exceed 15% under normal circumstances. The Advisor intends to invest only in
large capitalization, well established foreign issuers the securities of which
are traded in the U.S., and which present their financial data in accordance
with generally accepted accounting principles in the U.S. Thus, the Advisor
expects that there will be little if any risk associated with its foreign
investments.
B-2
<PAGE>
AMERICAN DEPOSITARY RECEIPTS. The Fund may invest its assets in securities
of foreign issuers in the form of ADRs, which are receipts for the shares of a
foreign-based corporation. The Fund treats ADRs as interests in the underlying
securities for purposes of its investment policies. A purchaser of an
unsponsored ADR may not have unlimited voting rights and may not receive as much
information about the issuer of the underlying securities as with a sponsored
ADR.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. The Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of the Fund's assets may also be affected by
currency restrictions and exchange control regulations enacted from time to
time.
EURO CONVERSION. Several European countries adopted a single uniform
currency known as the "euro," effective January 1, 1999. The euro conversion,
that will take place over a several-year period, could have potential adverse
effects on the Fund's ability to value its portfolio holdings in foreign
securities, and could increase the costs associated with the Fund's operations.
The Fund and the Advisor are working with providers of services to the Fund in
the areas of clearance and settlement of trade in an effect to avoid any
material impact on the Fund due to the euro conversion; there can be no
assurance, however, that the steps taken will be sufficient to avoid any adverse
impact on the Fund.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
B-3
<PAGE>
TAXES. The interest and dividends payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to Fund shareholders.
COSTS. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
EMERGING MARKETS. Some of the securities in which the Fund may invest may
be located in developing or emerging markets, which entail additional risks,
including less social, political and economic stability; smaller securities
markets and lower trading volume, which may result in less liquidity and greater
price volatility; national policies that may restrict the Fund's investment
opportunities, including restrictions on investments in issuers or industries,
or expropriation or confiscation of assets or property; and less developed legal
structures governing private or foreign investment.
BORROWING
The Fund may borrow money from banks in an aggregate amount not to exceed
one-third of the value of the Fund's total assets to meet temporary or emergency
purposes, and may pledge its assets in connection with such borrowings. The Fund
will not purchase any securities while any such borrowings exceed 5% of the
Fund's total assets.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of the value of
its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid. The Advisor will
monitor the amount of illiquid securities in the Fund's portfolio, under the
supervision of the Trust's Board of Trustees, to ensure compliance with the
Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
B-4
<PAGE>
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. These securities might be adversely affected if qualified
institutional buyers were unwilling to purchase such securities. If such
securities are subject to purchase by institutional buyers in accordance with
Rule 144A promulgated by the SEC under the Securities Act, the Trust's Board of
Trustees may determine that such securities are not illiquid securities
notwithstanding their legal or contractual restrictions on resale. However,
these may become illiquid if institutions become for a time disinterested in
buying these securities. In all other cases, however, securities subject to
restrictions on resale will be deemed illiquid.
SHORT-TERM INVESTMENTS. The Fund may invest in any of the following securities
and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund
may acquire certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under its investment objective and policies stated above
and in its prospectus, the Fund may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Issues of commercial paper
and short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher by Standard & Poor's Ratings Group, "Prime-1"
or "Prime-2" by Moody's Investors Service, Inc., or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Advisor to be of comparable quality. These rating symbols are
described in the Appendix.
B-5
<PAGE>
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 occasional purchase of debt
securities in accordance with its investment objectives and policies, (b) to the
extent the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except as stated in the Prospectus and this SAI. 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 or sell real estate, commodities or commodity contracts (the
Board of Trustees may in the future authorize the Fund 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 repurchase
transactions.
7. Invest in any issuer for purposes of exercising control or management.
The Fund observes the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. The Fund may not:
8. Invest in securities of other investment companies except as permitted
under the 1940 Act.
B-6
<PAGE>
9. Invest, in the aggregate, more than 15% of its net assets in securities
with legal or contractual restrictions on resale, securities which are not
readily marketable and repurchase agreements with more than seven days to
maturity.
10. With respect to fundamental investment restriction 2(a) above, the Fund
will not purchase portfolio securities while outstanding borrowings exceed 5% of
its assets.
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. 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 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.
TAX INFORMATION
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986 (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.
B-7
<PAGE>
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 Fund shares held by a corporate
investor are treated as debt-financed or are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
A redemption of Fund shares may result in recognition of a taxable gain or
loss. Any loss realized upon a redemption 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.
B-8
<PAGE>
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
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.
Unless noted otherwise, each person has held the position listed for a minimum
of five years.
Steven J. Paggioli,* 04/03/50 President and Trustee
915 Broadway, New York, New York 10010. Executive Vice President, The Wadsworth
Group (consultants); Executive Vice President of Investment Company
Administration L.L.C. ("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).
B-9
<PAGE>
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 adviser 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. (computer software); 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
915 Broadway, New York, New York 10010. 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; President of ICA and FFD.
* Indicates an "interested person" of the Trust as defined in the 1940 Act.
Set forth below is the rate of compensation received by the following
Trustees from all 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 from the portfolios of the Trust.
B-10
<PAGE>
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
During the Fund's fiscal year ended June 30, 1999, $12,334 of Trustees' fees and
expenses were allocated to the Fund. 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
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund.
Under the Investment Advisory Agreement with the Fund, the Advisor provides
the Fund with advice on buying and selling securities, manages the investments
of the Fund, furnishes the Fund with office space and certain administrative
services, and provides most of the personnel needed by the Fund. As
compensation, the Fund pays the Advisor a monthly investment advisory fee
(accrued daily) based upon the average daily net assets of the Fund at the rate
of 1.00% annually. The Investment Advisory Agreement continues in effect for
successive annual periods so long as such continuation is approved at least
annually by the vote of (1) the Board of Trustees of the Trust (or a majority of
the outstanding shares of the Fund to which the agreement applies), and (2) a
majority of the Trustees who are not interested persons of any party to the
Agreement, in each case cast in person at a meeting called for the purpose of
voting on such approval. Any such agreement may be terminated at any time,
without penalty, by either party to the agreement upon sixty days' written
notice and is automatically terminated in the event of its "assignment," as
defined in the 1940 Act.
The Advisor has voluntarily agreed to reduce its fees and/or pay expenses
of the Fund to ensure that the Fund's aggregate annual operating expenses
(excluding interest and tax expenses) will not exceed 1.39% of the Fund's
average daily net assets. Any reduction in advisory fees or payment of expenses
made by the Advisor may be reimbursed by the Fund if the Advisor requests in
subsequent fiscal years. This reimbursement may be requested by the Advisor if
the aggregate amount actually paid by the Fund toward operating expenses for
such fiscal year (taking into account the reimbursement) does not exceed the
applicable limitation on Fund expenses. The Advisor is permitted to be
reimbursed for fee reductions and/or expense payments made in the prior three
fiscal years. Any such reimbursement will be reviewed by the Trustees. The Fund
must pay its current ordinary operating expenses before the Advisor is entitled
to any reimbursement of fees and/or expenses.
During the fiscal year ended June 30, 1999, the Fund paid advisory fees of
$1,017,545.
B-11
<PAGE>
During the fiscal year ended June 30, 1998, the Fund incurred advisory fees
of $539,774; during this period the Advisor undertook to reduce the limit on the
Fund's total expenses from 1.48% to 1.39% annually and reimbursed the Fund
$6,910 in expenses.
During the fiscal year ended June 30, 1997, the Fund incurred advisory fees
of $148,503, and the Advisor reimbursed expenses in the amount of $59,209 in
accordance with its undertaking to limit the Fund's total expenses to no more
than 1.48% of average net assets annually.
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), a corporation partly owned and
controlled by Messrs. 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 it
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:
Average net assets Fee or fee rate
- ------------------ ---------------
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 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
During the Fund's fiscal years ended June 30, 1999, 1998 and 1997, the
Administrator received fees of $162,193, $95,452 and $27,423, respectively.
B-12
<PAGE>
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), a corporation partly
owned by Messrs. Paggioli and Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
for periods not exceeding one year if approved at least annually by (i) the
Board of Trustees or the vote of a majority of the outstanding shares of the
Fund (as defined in the 1940 Act) and (ii) a majority of the Trustees who are
not interested persons of any such party, in each case cast in person at a
meeting called for the purpose of voting on such approval. The 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 are
eligible to execute the Fund's 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 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 accounts. 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 reasonable
efforts to choose broker-dealers 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 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.
B-13
<PAGE>
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
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the 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 ("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 or Funds.
In such event, the position of the Fund and such client account(s) or 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 Funds 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 or Funds 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 or 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 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 in
accordance with any formula, nor does it 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 purchase of
shares of the Fund for their customers. The Fund does not use the Distributor to
execute its portfolio transactions.
For the fiscal year ended June 30, 1999, the Fund paid $80,491 in brokerage
commissions, of which $4,564 was paid to firms that furnished research services.
For the fiscal years ended June 30, 1998 and 1997, the Fund paid $45,143 and
$27,828, respectively, in brokerage commissions.
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PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in the Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. See "Execution of Portfolio
Transactions." For the fiscal years ended June 30, 1999 and 1998, the Fund had a
portfolio turnover rate of 14.27% and 4.02%, respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
You may purchase shares of the Fund from selected securities brokers,
dealers or financial intermediaries. Investors should contact these agents
directly for appropriate instructions, as well as information pertaining to
accounts and any service or transaction fees that may be charged by those
agents. Purchase orders through securities brokers, dealers and other financial
intermediaries are effected at the next-determined net asset value after receipt
of the order by such agent before the Fund's daily cutoff time. Orders received
after that time will be purchased at the next-determined net asset value.
The public offering price of Fund shares is the net asset value. The Fund
receives the net asset value. Shares are purchased at the public offering price
next determined after the Transfer Agent receives your order in proper form as
discussed in the Fund's Prospectus. In most cases, in order to receive that
day's public offering price, the Transfer Agent must receive your order in
proper form before the close of regular trading on the New York Stock Exchange
("NYSE"). If you buy shares through your investment representative, the
representative must receive your order before the close of regular trading on
the NYSE to receive that day's public offering price. Orders are in proper form
only after funds are converted to U.S. funds.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption, exchange or transfer. Otherwise the Fund may
delay payment until the purchase price of those shares has been collected or, if
you redeem by telephone, until 15 calendar days after the purchase date. To
eliminate the need for safekeeping, the Fund will not issue certificates for
your shares unless you request them.
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.
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<PAGE>
The Fund may also issue Fund shares in exchange for appropriate portfolio
securities. Such transactions may benefit the Fund by eliminating the
transaction costs that would otherwise be borne by the Fund in purchasing
portfolio securities in the stock markets. Under certain limited conditions, an
investor may purchase Fund shares with portfolio securities that are moved into
the Fund's portfolio on a tax-free basis for the investor. In such instance, the
unrealized gain or loss in the transferred portfolio would become unrealized
gain or loss for the Fund.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative. The Fund
will forward redemption proceeds or redeem shares for which it has collected
payment of the purchase price.
Payments to shareholders for Fund shares 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 with complete information
and meeting all the requirements discussed in the Fund's 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 NYSE is restricted as determined by
the SEC or the NYSE 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 it has not yet received confirmation of good payment. In this
circumstance, the Fund may delay the redemption until payment for the purchase
of such shares has been collected and confirmed to the Fund.
SELLING SHARES DIRECTLY TO THE FUND
Send a signed letter of instruction to the Transfer Agent. The price you
will receive is the next net asset value calculated after your order is received
by the Transfer Agent with complete information and meeting all the requirements
discussed in the Fund's Prospectus. In order to receive that day's net asset
value, the Transfer Agent must receive your request before the close of regular
trading on the NYSE.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close
of regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services.
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<PAGE>
If you want your redemption proceeds sent to an address other than your
address as it appears on the Transfer Agent's records, a signature guarantee is
required. The Fund may require additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Transfer Agent for details.
DELIVERY OF PROCEEDS
The Fund generally sends you payment for your shares the business day after
your request is received in proper form, assuming the Fund has collected payment
of the purchase price of your shares. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, but only as
authorized by SEC rules, as stated above under "How to Sell Shares."
TELEPHONE REDEMPTIONS
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest Account
Application or other written request for services, including purchasing,
exchanging or redeeming shares of the Fund and depositing and withdrawing monies
from the bank account specified in the shareholder's latest Account Application
or as otherwise properly specified to the Fund in writing.
The Transfer Agent will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails to
employ reasonable procedures, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. An investor agrees, however, that to
the extent permitted by applicable law, neither the Fund nor its agents will be
liable for any loss, liability, cost or expense arising out of any redemption
request, including any fraudulent or unauthorized request. For information,
consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
REDEMPTIONS-IN-KIND
The Trust has filed an election under SEC Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (in excess of the lesser of (i) $250,000 or (ii) 1% of the Fund's assets).
The Fund has reserved the right to pay the redemption price of its shares in
excess of the amounts specified by the rule, either totally or partially, by a
distribution in kind of portfolio securities (instead of cash). The securities
so distributed would be valued at the same amount as that assigned to them in
calculating the net asset value for the shares being sold. If a shareholder
receives a distribution in kind, the shareholder could incur brokerage or other
charges in converting the securities to cash.
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<PAGE>
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.
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 NYSE (normally
4:00 p.m. Eastern time) on each day that the NYSE is open for trading. It is
expected that the NYSE 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 NYSE 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.
However, the net asset value of Fund shares may be determined on days the NYSE
is closed or at times other than 4:00 p.m. if the Board of Trustees decides it
is necessary.
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 reported bid price. If no bid is quoted on such
day, the security is valued by such method as the Board of Trustees of the Trust
shall determine in good faith to reflect the security's fair value. All other
assets of each Fund are valued in such manner as the Board of Trustees in good
faith deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Fund's average annual
compounded rate of return over the most recent four calendar quarters and the
period from the Fund's inception of operations. The Fund may also advertise
aggregate and average total return information over different periods of time.
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<PAGE>
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of a Fund's performance
by independent sources may also be used in advertisements and in information
furnished to present or prospective investors in the Funds.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = 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
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 Fund's average annual total return since its inception on
September 29, 1995 through the fiscal year ending June 30, 1999 was 28.90%. The
Fund's total return for the fiscal year ending June 30, 1999 was 14.77%. Certain
fees and expenses of the Fund have been reimbursed from inception through June
30, 1999. Accordingly, return figures are higher than they would have been had
such fees and expenses not been reimbursed.
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. The
Custodian does not participate in decisions relating to the purchase and sale of
securities by the Fund. American Data Services, Inc., P.O. Box 5536, Hauppauge,
NY 11743 is the Fund's Transfer and Dividend Disbursing Agent.
Ernst & Young LLP, 725 South Figueroa, Los Angeles, CA 90017, are the
independent auditors for the Fund.
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<PAGE>
Paul, Hastings, Janofsky & Walker, LLP, 345 California St., 29th floor, San
Francisco, California 94104, are legal counsel to the Fund.
On September 30, 1999, the following persons owned of record and/or
beneficially more than 5% of the Fund's outstanding voting securities:
BHC Securities Inc. Trade Account, Philadelphia, PA 19103; 8.52%
Lazard Freres & Co. LLC, New York, NY 10020; 7.25%
Charles Schwab & Co., San Francisco, CA 94104; 28.41%
Trustees of Bethany College, Bethany, WV 26031; 11.35%
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.
Shares issued by the Fund have no preemptive, conversion, or subscription
rights. Shareholders have equal and exclusive rights as to dividends and
distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the 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.
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
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<PAGE>
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for its most recent fiscal
year end is a separate document supplied with this SAI and the financial
statements, accompanying notes and report of independent accountants appearing
therein are incorporated by reference in this SAI.
APPENDIX
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
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