[JAMES C. EDWARDS LOGO]
JAMES C. EDWARDS
EQUITY MASTERS FUND
PROSPECTUS
DECEMBER 7, 1999
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JAMES C. EDWARDS EQUITY MASTERS FUND
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
The James C. Edwards Equity Masters Fund is a no-load mutual fund that
principally invests in equity securities. The Fund seeks to attain long-term
growth of capital.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION DOES NOT
APPROVE OR DISAPPROVE OF THESE SHARES OR DETERMINE IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 7, 1999
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TABLE OF CONTENTS
An Overview of the Fund..................................................... 3
Performance................................................................. 4
Fees and Expenses........................................................... 4
Investment Objective and Principal Investment Strategies.................... 5
Principal Risks of Investing in the Fund.................................... 5
Investment Advisor.......................................................... 6
Shareholder Information..................................................... 7
Pricing of Fund Shares...................................................... 10
Dividends and Distributions................................................. 10
Tax Consequences............................................................ 10
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AN OVERVIEW OF THE FUND
THE FUND'S INVESTMENT GOAL
The Fund seeks to attain long-term growth of capital.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in the common stocks of domestic companies of any
size that offer the possibility of capital growth. In selecting investments, the
Advisor focuses on companies with strong fundamentals, such as: a consistent
operating record, financial strength and solid growth prospects.
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 in response to an unforeseen event
* Interest rates go up which can result in lower equity valuations
* Stocks in the Fund's portfolio may not increase their earnings at the
rate anticipated
* Growth stocks fall out of favor with the investment community
* Securities of small and medium sized companies may involve greater
risk than investing in larger companies
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 equity investment to diversify their investment
portfolio
* Are willing to accept higher short-term risk along with the higher
potential for long-term growth of capital
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
Because the Fund has been in operation for less than a full calendar year,
its total return bar chart and performance table have not been included.
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 charge (load) imposed on purchases........................ None
Maximum deferred sales charge (load).................................... None
ANNUAL FUND OPERATING EXPENSES*
(expenses that are deducted from Fund assets)
Management Fees......................................................... 0.75%
Distribution and Service (12b-1) Fees................................... None
Other Expenses.......................................................... 1.75%
-----
Total Annual Fund Operating Expenses.................................... 2.50%
Fee Reduction and/or Expense Reimbursement.............................. (1.00%)
-----
Net Expenses............................................................ 1.50%
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* Other Expenses are estimated for the first fiscal year of the Fund. The
Advisor has contractually agreed to reduce its fees and/or pay expenses of
the Fund for an indefinite period to ensure that Total Fund Operating
Expenses will not exceed the net expense amount shown. The Advisor may be
reimbursed for any waiver of its fees or expenses paid on behalf of the Fund
if the Fund's expenses are less than the limit agreed to by the Fund. The
Trustees may terminate this expense reimbursement arrangement at any time.
EXAMPLE
This Example is intended to help you compare the costs 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........................ $153
Three Years..................... $474
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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The goal of the Fund is to seek long-term growth of capital.
The Fund emphasizes the purchase of equity securities, including common
stocks, preferred stocks, warrants and other equity securities that, in the
Advisor's opinion, offer the possibility of capital growth. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in such
securities. 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. Although the Fund may invest in various equity securities, it is
anticipated that the Fund will primarily invest in common stocks.
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. Investors' 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. The level and trend of inflation and
interest rates, as well as global influences on domestic markets, are also taken
into consideration.
The Advisor will sell a security from the Fund's portfolio when the
company's environment changes adversely impacting its longer-term growth
prospects or when the Advisor anticipates a slowing of growth due to a
fundamental change from its original research opinion of the company.
The Fund anticipates that it will have a low rate of portfolio turnover.
This means that the Fund has the potential to be a tax efficient investment.
This should result in the realization and the distribution to shareholders of
lower capital gains, which would be considered tax efficient. This anticipated
lack of frequent trading also leads to lower transaction costs, which could help
to improve 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 that may adversely affect the Fund's net asset value or
total return are summarized above in "An Overview of the Fund." These risks are
discussed in more detail below.
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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 selection 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. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than it
was worth at an earlier time. Market risk may affect a single issuer, industry,
sector of the economy or the market as a whole.
SMALL AND MEDIUM COMPANY RISK. Investing in securities of small and medium
sized companies may involve greater volatility than investing in larger and more
established companies because they can be subject to more abrupt or erratic
share price changes than larger, more established companies. Small companies may
have limited product lines, markets or financial resources and their management
may be dependent on a limited number of key individuals. Securities of these
companies may have limited market liquidity and their prices may be more
volatile.
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. The Board of Trustees has adopted a Year 2000 Project Plan that
the Board believes is reasonably designed to address the Year 2000 Problem with
respect to the computer systems of the Advisor's and the Fund's service
providers. Although the Advisor's and the Fund's service providers have assured
the Fund that they are moving towards Year 2000 compliant computer systems, that
is not a guarantee that the Fund will not experience any adverse effects.
INVESTMENT ADVISOR
James C. Edwards & Co., Inc. is the investment advisor to the Fund. The
Advisor's address is 570 Lexington Avenue, New York, NY 10022. The Advisor and
its predecessor firm have provided investment advisory services to individual
and institutional accounts since 1931. The Advisor presently has assets under
management in excess of $981 million. The Advisor provides the Fund with advice
on buying and selling securities. 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 at the annual
rate of 0.75%.
PORTFOLIO MANAGERS
Messrs. Jeremiah M. Bogert, David B. MacNeil, Gordon L. Bowyer and Bart A.
Johnston are responsible for the management of the Fund's portfolio. 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.
FUND EXPENSES
The Fund is responsible for its own operating expenses. The Advisor has
contractually 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 1.50% of the Fund's average daily net assets.
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Any reduction in advisory fees or payment of expenses made by the Advisor may be
reimbursed by the Fund in subsequent fiscal years if the Advisor so requests.
This reimbursement may be requested 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. (At startup, the Fund is permitted to look
at longer periods of four and five 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.
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
You may open a Fund account with $5,000 and add to your account at any time
with $1,000 or more. You may open a retirement plan account with $2,000 and add
to your account at any time with $1,000 or more. After you have opened a Fund
account, you also may make automatic subsequent monthly investments of $100 or
more through the Automatic Investment Plan. The Fund may waive minimum
investment requirements from time to time.
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.
Due to investment considerations, the Fund may close to new investors
periodically at certain asset levels. If the Fund closes to new investors, the
Trustees may determine to reopen the Fund at some point based on market
conditions and other factors.
BY CHECK
If you are making your first investment in the Fund, simply complete the
Application Form included with this Prospectus and mail it with a check (made
payable to "James C. Edwards Equity Masters Fund") to:
James C. Edwards Equity Masters 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.
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 "James C. Edwards
Equity Masters Fund" to the Fund in the envelope provided with your statement or
to the address noted above. You should write your account number on the check.
BY WIRE
If you are making your first 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
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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
James C. Edwards Equity Masters Fund
DDA #489022855
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.
THROUGH BROKERS
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.
RETIREMENT PLANS
The Fund offers Individual Retirement Account ("IRA" and "Roth IRA") plans.
You may obtain information about opening an IRA 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:
James C. Edwards Equity Masters Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
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To protect the Fund and its shareholders, a signature guarantee is required
for all written redemption requests over $5,000. 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
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 acting on instructions 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 first 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 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 $2,500 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 $2,500 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
$2,500 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
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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.
SYSTEMATIC WITHDRAWAL PROGRAM
As another convenience, you may redeem your Fund shares through the
Systematic Withdrawal Program. If you elect this method of redemption, the Fund
will send you a check in a minimum amount of $100. You may choose to receive a
check each month or calendar quarter. Your Fund account must have a value of at
least $10,000 in order to participate in this Program. This Program may be
terminated at any time by the Fund. You may also elect to terminate your
participation in this Program at any time by writing to the Transfer Agent.
A withdrawal under the 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 your account, the account
ultimately may be depleted.
PRICING OF FUND SHARES
The price of the Fund's shares is based on the Fund's net asset value. This
is calculated 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.
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 the Fund's year-end. In December, the Fund may
make another distribution of any additional undistributed capital gains earned
during the 12-month period ended October 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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JAMES C. EDWARDS EQUITY MASTERS FUND
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
(THE "TRUST")
www.jcedwards.com
For investors who want more information about the Fund, the following documents
are available free upon request:
SEMI-ANNUAL REPORT: Additional information about the Fund's investments is
available in the Fund's semi-annual report to shareholders.
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 the Commission at 1-202-942-8090. Reports and other information about
the Fund are available:
* Free of charge from the Commission's EDGAR Database on the Commission's
Internet website at http://www.sec.gov, or
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102, or
* For a fee, by electronic request at the following e-mail address:
[email protected].
(The Trust's SEC Investment Company Act
file number is 811-05037)
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INVESTMENT ADVISOR
James C. Edwards & Co., Inc.
570 Lexington Ave., 29th Floor
New York, New York 10022
(212) 319-8490
www.jcedwards.com
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Rd., Suite 261-E
Phoenix, Arizona 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, New York 11788-0132
(800) 282-2340
AUDITORS
Tait, Weller & Baker
8 Penn Center Plaza
Philadelphia, Pennsylvania 19103
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 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 FUNDS 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
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
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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 FUNDS 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%
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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
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
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other factors. In those instances where it is reasonably determined that more
than one broker-dealer can offer the most favorable price and execution
available, consideration may be given to those broker-dealers which furnish or
supply research and statistical information to the 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
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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
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.
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The Fund intends to pay cash (U.S. dollars) for all shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Fund may make payment
partly in securities with a current market value equal to the redemption price.
Although the Fund does not anticipate that it will make any part of a redemption
payment in securities, if such payment were made, an investor may incur
brokerage costs in converting such securities to cash. The Fund has elected to
be governed by the provisions of Rule 18f-1 under the 1940 Act, which contains a
formula for determining the minimum redemption amounts that must be paid in
cash.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
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
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NASDAQ are valued at the last bid price. If no bid is quoted on such day, the
security is valued by such method as the Board of Trustees of the Trust shall
determine in good faith to reflect the security's fair value. All other assets
of the 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.
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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.
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
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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
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.
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