[HARRIS BRETALL SULLIVAN & SMITH L.L.C. LOGO]
HARRIS BRETALL SULLIVAN & SMITH
GROWTH EQUITY FUND
PROSPECTUS
JULY 30, 1999
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
The Harris Bretall Sullivan & Smith Growth Equity Fund is a growth stock
mutual fund. The Fund seeks growth of capital.
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. IT IS A CRIMINAL OFFENSE FOR ANYONE TO
INFORM YOU OTHERWISE.
THE DATE OF THIS PROSPECTUS IS JULY 30, 1999
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TABLE OF CONTENTS
An Overview of the Fund.................................................... 3
Performance................................................................ 4
Fees and Expenses.......................................................... 5
Investment Objective and Principal Investment Strategies................... 6
Principal Risks of Investing in the Fund................................... 7
Investment Advisor......................................................... 7
Shareholder Information.................................................... 9
Pricing of Fund Shares..................................................... 12
Dividends and Distributions................................................ 12
Tax Consequences........................................................... 13
Rule 12b-1 Fees............................................................ 13
Financial Highlights....................................................... 14
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AN OVERVIEW OF THE FUND
THE FUND'S INVESTMENT GOAL
The Fund seeks growth of capital.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund primarily invests in common stocks of domestic companies with a minimum
market capitalization of $1 billion that have capital growth potential. In
selecting investments, the Advisor focuses on successful companies with:
* consistently superior growth in revenues and earnings
* strong product lines
* proven management ability demonstrated over a variety of business cycles
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 investors
* Stocks in the Fund's portfolio may not increase their earnings at the rate
anticipated
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 along with higher potential
for long-term growth of capital
WHO MAY WANT TO INVEST IN THE FUND
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 broad-based market indices that include stocks of companies
similar to those considered for purchase by the Fund. This past performance will
not necessarily continue in the future.
CALENDAR YEAR TOTAL RETURNS*
1997 1998
---- ----
31.33% 32.73%
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* The Fund's year-to-date return as of 6/30/99 was 16.02%.
During the period shown in the bar chart, the Fund's highest quarterly return
was 31.79% for the quarter ended December 31, 1998 and the lowest quarterly
return was -13.76% for the quarter ended September 30, 1998.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
Since Inception
1 Year (5/1/96)
------ ---------------
Harris Bretall Sullivan & Smith
Growth Equity Fund 32.73% 26.64%
S&P 500 Index* 28.58% 28.91%
Russell 1000 Growth Index** 38.71% 30.99%
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* The S&P 500 Index is an unmanaged index generally representative of the
market for the stocks of large-sized U.S. companies.
** The Russell 1000 Growth Index measures the performance of those Russell
1,000 securities with higher price-to-book ratios and higher forecasted
growth values.
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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.................................. 0.25%
Other Expenses......................................................... 0.95%
----
Total Annual Fund Operating Expenses................................... 1.95%
Fee Reduction and/or Expense Reimbursement............................. (0.66%)
----
Net Expenses........................................................... 1.29%
----
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* 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 reserves
the right to 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......................... $ 131
Three Years...................... $ 409
Five Years....................... $ 709
Ten Years........................ $ 1,556
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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The goal of the Fund is to seek growth of capital.
The Fund emphasizes the purchase of common stocks of domestic companies.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in common stocks with capital growth potential.
The Advisor's investment process is based on the establishment of an
economic framework to use when reviewing individual companies. The process
begins with a review of various overall investment factors, such as:
* the state of the economy
* inflation
* earnings and interest rate trends and momentum
* valuation/volatility of stocks and bonds
* Federal Reserve policy
* the international and political environments
* supply and demand
The Advisor then develops a universe of high quality growth stocks by
screening companies for fundamental characteristics. The screening process
encompasses four broad areas:
* revenue growth
* financial strength
* market leadership
* quality of management
This screening process yields a stock universe of approximately 300
successful companies with attractive fundamental characteristics and a minimum
market capitalization of $1 billion. Companies within the universe are then
ranked for selection from three analytical vantage points:
* First, companies are ranked based on their intrinsic present value
using the Advisor's proprietary earnings and growth rate outlook.
* Second, recent quarterly earnings experience is evaluated.
* Finally, companies are ranked based on the relative price performance
of their stocks against all the stocks in the universe and the general
market.
Once an overall ranking based on these factors is determined, stocks are
selected for purchase from the upper range of the stock universe.
In general, the Advisor will consider selling securities in the Fund's
portfolio if they become fundamentally overvalued in comparison to other
companies in the Advisor's stock universe due to rapid appreciation or if they
are experiencing changes in their long-term fundamentals (i.e., growth rates
deteriorate or future earnings fall short of expectations).
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.
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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 summarized above in "Principal risks
of investing in the Fund." These risks are discussed in more detail below.
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.
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.
INVESTMENT ADVISOR
Harris Bretall Sullivan & Smith L.L.C. is the investment advisor to the
Fund. The Advisor's address is One Sansome Street, Suite 3300, San Francisco CA
94014. The Advisor was founded in 1971 and is a majority-owned affiliate of
Value Asset Management, Inc. ("VAM"). VAM is a Connecticut-based holding company
owned by Banc Boston Ventures, Inc., which is a subsidiary of Bank Boston, S.A.
VAM invests in privately-owned asset management firms.
The Advisor provides investment advisory and sub-advisory services to
individual and institutional investors and investment companies with assets
under management of approximately $4 billion. 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. For the fiscal
year ended March 31, 1999, the Advisor received advisory fees of .09% of the
Fund's average net assets, net of waiver.
PORTFOLIO MANAGERS
Mr. John J. Sullivan, Executive Vice President and Partner of the Advisor,
and Mr. Gordon J. Ceresino, Executive Vice President and Partner of the Advisor,
are responsible for the management of the Fund's portfolio. Each has held his
current position with the Advisor for over five years.
ADVISOR'S HISTORICAL PERFORMANCE DATA
Set forth in the table below are certain composite performance data
provided by the Advisor relating to its individually managed equity accounts.
These accounts have substantially the same investment objective as the
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Fund and were managed using substantially similar investment strategies and
techniques as those contemplated for use by the Fund. The Portfolio Managers for
these accounts also manage the Fund. The results presented are not intended to
predict or suggest the return to be experienced by the Fund or the return an
investor might achieve by investing in the Fund. Results may differ because of,
among other things, differences in brokerage commissions paid, account expenses,
including investment advisory fees (which expenses and fees may be higher for
the Fund than for the accounts), the size of positions taken in relation to
account size, diversification of securities, timing of purchases and sales,
timing of cash additions and withdrawals, the private character of the composite
accounts compared with the public character of the Fund, and the tax-exempt
status of some of the account holders compared with shareholders in the Fund.
Investors should be aware that the use of different methods of determining
performance could result in different performance results. Investors should not
rely on the following performance data as an indication of future performance of
the Advisor or of the Fund.
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED JUNE 30, 1999)
One Year Five Years Ten Years
-------- ---------- ---------
Advisor Growth Equity Accounts 34.62% 28.93% 19.73%
S&P 500 Index* 22.77% 27.87% 18.78%
Russell 1000 Growth Index** 27.27% 29.65% 19.80%
- ----------
* The S&P 500 Index is an unmanaged index generally representative of the
market for the stocks of large-sized U.S. companies.
** The Russell 1000 Growth Index measures the performance of those Russell
1,000 securities with higher price-to-book ratios and higher forecasted
growth values.
1. Results account for both income and capital appreciation or depreciation.
Returns are time-weighted and reduced for all fees and expenses.
2. Investors should note that the Fund will compute and disclose its average
annual compounded rate of return using the standard formula set forth in SEC
rules, which differs in certain respects from returns calculated under the
method noted above. Unlike the performance presentation standards that link
quarterly rates of return, the SEC total return calculation methods calls for
computation and disclosure of an average annual compounded rate of return for
one, five and ten year periods or shorter periods from inception. The
calculation provides a rate of return that equates a hypothetical initial
investment of $1,000 to an ending redeemable value.
3. The Growth Equity Account Composite shown includes all accounts managed by
the Advisor that meet the criteria for inclusion in the composite for each
period presented.
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 1.29% of the Fund's average daily net assets.
Any reduction in advisory fees or payment of expenses made by the Advisor are
subject to reimbursement by the Fund if requested by the Advisor in subsequent
fiscal years. This reimbursements may be requested by the Advisor if the
aggregate
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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.
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
You may open a Fund account with $10,000 and add to your account at any
time with $100 or more. After you have opened a Fund account, you also may make
automatic subsequent monthly investments with $100 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 "Harris Bretall Sullivan & Smith Growth Equity Fund") to:
Harris Bretall Sullivan & Smith Growth Equity 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, use the stub 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 "Harris Bretall
Sullivan & Smith Growth Equity 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
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:
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Firstar Bank, N.A. Cinti/Trust
ABA Routing #0420-0001-3
Harris Bretall Sullivan & Smith Growth Equity Fund
DDA #485773071
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 by telephone. 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 Fund 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.
BY PAYMENT IN KIND
In addition to cash purchases, 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 $100. If you wish to enroll in this Plan,
complete the appropriate section in 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 either directly to the Fund or through your investment
representative.
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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 in the account registration. You should send
your redemption request to:
Harris Bretall Sullivan & Smith Growth Equity Fund
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
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 between the hours of 9:00 a.m. and 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 in 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
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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 $5,000 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 $5,000 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
$5,000 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.
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 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.
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.
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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 for 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.
RULE 12b-1 FEES
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. This rule allows the Fund to pay distribution
fees for the sale and distribution of its shares and for services provided to
its shareholders. The annual distribution and service fee is 0.25% of the Fund's
average daily net assets which is payable to the Advisor, as Distribution
Coordinator. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment in Fund
shares and may cost you more than paying other types of sales charges.
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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 accountants. 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
Year Ended March 31, May 1, 1996*
-------------------- through
1999 1998 March 31, 1997
---- ---- --------------
Net asset value, beginning of period.......... $16.20 $11.03 $10.00
------ ------ ------
Income from investment operations:
Net investment loss......................... (0.08) (0.02) 0.00
Net realized and unrealized gain
on investments............................ 4.77 5.20 1.04
------ ------ ------
Total from investment operations.............. 4.69 5.18 1.04
------ ------ ------
Less distributions:
From net investment income.............. 0.00 0.00 (0.01)
From net capital gains.................. (0.65) (0.01) 0.00
------ ------ ------
Total distributions........................... (0.65) (0.01) (0.01)
------ ------ ------
Net asset value, end of period................ $20.24 $16.20 $11.03
====== ====== ======
Total return.................................. 29.88% 47.02% 10.36%
Ratios/supplemental data:
Net assets, end of period (millions).......... $ 17.1 $ 12.0 $ 3.5
Ratio of expenses to average net assets:
Before expense reimbursement and waiver..... 1.95% 2.39% 4.97%+
After expense reimbursement and waiver...... 1.29% 1.29% 1.28%+
Ratio of net investment loss to average
net assets:
Before expense reimbursement and waiver..... (1.19)% (1.42)% (3.69)%+
After expense reimbursement and waiver...... (0.53)% (0.31)% 0.00%+
Portfolio turnover rate....................... 52.77% 40.96% 14.62%
* Commencement of operations.
+ Annualized.
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HARRIS BRETALL SULLIVAN &
SMITH GROWTH EQUITY FUND,
A SERIES OF PROFESSIONALLY MANAGED
PORTFOLIOS (THE "TRUST")
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 811-5037)
<PAGE>
ADVISOR
Harris Bretall Sullivan & Smith L.L.C.
One Sansome Street, Suite 3300
San Francisco, CA 94104
(415) 765-8300
Account Inquiries (800) 282-2340
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 282-2340
INDEPENDENT AUDITORS
Ernst & Young LLP
725 South Figueroa Street
Los Angeles, CA 90017
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 30, 1999
HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND,
A SERIES OF
PROFESSIONALLY MANAGED PORTFOLIOS
ONE SANSOME STREET, SUITE 3300
SAN FRANCISCO, CA 94103
(800) 282-2340
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Prospectus dated July 30, 1999, as may be
revised, of the Harris Bretall Sullivan & Smith Growth Equity Fund (the "Fund"),
a series of Professionally Managed Portfolios (the "Trust"). Harris Bretall
Sullivan & Smith Growth Equity Fund (the "Advisor") is the advisor to the Fund.
A copy of the Fund's Prospectus is available by calling the number listed above.
TABLE OF CONTENTS
The Trust ................................................................ B-2
Investment Objective and Policies ........................................ B-2
Investment Restrictions .................................................. B-7
Distributions and Tax Information ........................................ B-8
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
Portfolio Turnover ....................................................... B-16
Additional Purchase and Redemption Information ........................... B-16
Determination of Share Price ............................................. B-19
Performance Information .................................................. B-19
General Information ...................................................... B-20
Financial Statements ..................................................... B-22
Appendix ................................................................. B-22
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 may
consist of various series which represent separate investment portfolios. This
SAI relates only to the Fund.
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.
INVESTMENT OBJECTIVE AND POLICIES
The Harris Bretall Sullivan & Smith Growth Equity Fund is a mutual fund
with the investment objective of seeking growth of capital. The Fund is
diversified, which under applicable federal law means that as to 75% of its
total assets, no more than 5% may be invested in the securities of a single
issuer and that it may hold no more than 10% of the voting securities of a
single issuer. 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.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, which are securities
generally offering fixed interest or dividend yields which may be converted
either at a stated price or stated rate for common or preferred stock. Although
to a less extent that with fixed-income securities generally, the market value
for convertible securities tends to decline as interest rates increase, and
increase as interest rates decline. Because of the conversion feature, the
market value of convertible securities also tends to vary with fluctuations in
the market value of the underlying common or preferred stock.
PREFERRED STOCK
A preferred stock is a blend of the characteristics of a bond and common
stock. It can offer the higher yield of a bond and has priority over common
stock in equity ownership, but does not have the seniority of a bond and, unlike
common stock, its participation in the issuer's growth may be limited. Preferred
stock has preference over common stock in the receipt of dividends and in any
residual assets after payment to creditors should the issuer be dissolved.
Although the dividend is set at a fixed annual rate, in some circumstances it
can be changed or omitted by the issuer.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. 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
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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 its 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. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
the Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, the Advisor seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the other party, in this case
the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security. However, the Fund
will always receive as collateral for any repurchase agreement to which it is a
party securities acceptable to it, the market value of which is equal to at
least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
WHEN-ISSUED SECURITIES
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
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for them take place at a later date. Normally, the settlement date occurs within
one month of the purchase; during the period between purchase and settlement, no
payment is made by the Fund to the issuer and no interest accrues to the Fund.
To the extent that assets of the Fund are held in cash pending the settlement of
a purchase of securities, the Fund would earn no income; however, it is the
Fund's intention to be fully invested to the extent practicable and subject to
the policies stated above. While when-issued securities may be sold prior to the
settlement date, the Fund intends to purchase them with the purpose of actually
acquiring them unless a sale appears desirable for investment reasons. At the
time the Fund makes the commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the value of the security in
determining its net asset value. The market value of the when-issued securities
may be more or less than the purchase price. The Fund does not believe that its
net asset value or income will be adversely affected by its purchase of
securities on a when-issued basis. The Fund's Custodian will segregate liquid
assets equal in value to commitments for when-issued securities. Such segregated
assets either will mature or, if necessary, be sold on or before the settlement
date.
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 sell 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 sell them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
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 reflect the actual 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
B-4
<PAGE>
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 despite
their legal or contractual restrictions on resale. 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:
U. S. GOVERNMENT SECURITIES. U.S. Government securities in which the Fund
may invest include direct obligations issued by the U.S. Treasury, such as
Treasury bills, certificates of indebtedness, notes and bonds. U.S. Government
agencies and instrumentalities that issue or guarantee securities include, but
are not limited to, the Federal Housing Administration, Federal National
Mortgage Association, Federal Home Loan Banks, Government National Mortgage
Association, International Bank for Reconstruction and Development and Student
Loan Marketing Association.
All Treasury securities are backed by the full faith and credit of the
United States. Obligations of U.S. Government agencies and instrumentalities may
or may not be supported by the full faith and credit of the United States. Some,
such as the Federal Home Loan Banks, are backed by the right of the agency or
instrumentality to borrow from the Treasury. Others, such as securities issued
by the Federal National Mortgage Association, are supported only by the credit
of the instrumentality and not by the Treasury. If the securities are not backed
by the full faith and credit of the United States, the owner of the securities
must look principally to the agency issuing the obligation for repayment and may
not be able to assert a claim against United States in the event that the agency
or instrumentality does not meet its commitment.
Among the U.S. Government securities that may be purchased by the Fund are
"mortgage-backed securities" of the Government National Mortgage Association
("Ginnie Mae"), the Federal Home Loan Mortgage Association ("Freddie Mac") and
the Federal National Mortgage Association ("Fannie Mae"). These mortgage-backed
securities include "pass-through" securities and "participation certificates,"
both of which represent pools of mortgages that are assembled, with interests
sold in the pool. Payments of principal (including prepayments) and interest by
individual mortgagors are "passed through" to the holders of interests in the
pool; thus each payment to holders may contain varying amounts of principal and
interest. Prepayments of the mortgages underlying these securities may result in
the Fund's inability to reinvest the principal at comparable yields.
Mortgage-backed securities also include "collateralized mortgage obligations,"
which are similar to conventional bonds in that they have fixed maturities and
interest rates and are secured by groups of individual mortgages. Timely payment
of principal and interest on Ginnie Mae pass-throughs is guaranteed by the full
faith and credit of the United States. Freddie Mac and Fannie Mae are both
instrumentalities of the U.S. Government, but their obligations are not backed
by the full faith and credit of the United States.
Collateralized mortgage obligations ("CMO's") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
B-5
<PAGE>
in most cases, semi-annually. CMO's may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMO's are structured
into multiple classes, with each class bearing a different stated maturity.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
Other mortgage-related securities include those that directly or indirectly
represent a participation in or are secured by and payable from mortgage loans
on real property, such as CMO residuals or stripped mortgage-backed securities,
and may be structured in classes with rights to receive varying proportions of
principal and interest.
In certain mortgage-backed securities, all interest payments go to one
class of holders -- "interest only" or "IO" -- and all of the principal goes to
a second class of holders -- "principal only" or "PO". The yield to maturity on
an IO class is extremely sensitive to the rate of principal prepayments on the
related underlying mortgage assets, and a rapid rate of principal payments will
have a material adverse effect on yield to maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities, even when
the securities are rated AA or the equivalent. Conversely, if the underlying
mortgage assets experience less than anticipated prepayments of principal, the
yield on a PO class would be materially adversely affected. As interest rates
rise and fall, the value of IO's tends to move in the same direction as interest
rates. The value of the other mortgage-related securities described herein, like
other debt instruments, will tend to move in the opposite direction from
interest rates. In general, the Fund treats IO's and PO's as subject to the
restriction on investments in illiquid instruments except that IO's and PO's
issued by the U.S. Government, its agencies and instrumentalities and backed by
fixed-rate mortgages may be excluded from this limit if, in the judgment of the
Advisor and subject to the oversight of the Trustees such IO's and PO's are
readily marketable.
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund
may hold 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 buying certificates of deposit and bankers' acceptances, the
Fund also 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.
B-6
<PAGE>
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. 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.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by the
Fund and (unless otherwise noted) are fundamental and cannot be changed without
the affirmative vote of a majority of the Fund's outstanding voting securities
as defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt securities
in accordance with its investment objectives and policies and (b) to the extent
the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except as stated in the Prospectus and this SAI. Any
such borrowing will be made only if immediately thereafter there is an asset
coverage of at least 300% of all borrowing.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowing.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase or sell real estate, commodities or commodity contracts
(however the Fund reserves the right in the future to engage in futures
contracts and options on futures contracts upon authorization by the Board of
Trustees and notification to shareholders).
5. Invest 25% or more of the market value of its assets in the securities
of companies engaged in any one industry. (Does not apply to investment in the
securities of the U.S. Government, its agencies or instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowing, mortgages or pledges, or (b) entering into options, futures
or repurchase transactions.
B-7
<PAGE>
7. Invest in any issuer for purposes of exercising control or management.
The Fund observes the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. The Fund may not:
8. Invest in securities of other investment companies which would result in
the Fund owning more than 3% of the outstanding voting securities of any one
such investment company, the Fund owning securities of another investment
company having an aggregate value in excess of 5% of the value of the Fund's
total assets, or the Fund owning securities of investment companies which in the
aggregate would exceed 10% of the value of the Fund's total assets.
9. Invest, in the aggregate, more than 15% of its net assets in securities
with legal or contractual restrictions on resale, securities which are not
readily marketable and repurchase agreements with more than seven days to
maturity.
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 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 and elect to be treated 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 its shareholders all of its
investment company taxable income and any net realized capital gains for each
fiscal year in a manner that complies with the distribution requirements of the
B-8
<PAGE>
Code, so that the Fund will not be subject to any federal income or excise
taxes. To comply with the requirements, the Fund must also distribute (or be
deemed to have distributed) by December 31 of each calendar year (i) at least
98% of its ordinary income for such year, (ii) at least 98% of the excess of its
realized capital gains over its realized capital losses for the 12-month period
ending on October 31 during such year and (iii) any amounts from the prior
calendar year that were not distributed and on which the Fund paid no federal
income tax.
The Fund's ordinary income generally 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 designate the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Fund for
their taxable year. In view of the Fund's investment policy, it is expected that
dividends from domestic corporations will be part of the Fund's gross income and
that, accordingly, part of the distributions by the Fund may be eligible for the
dividends-received deduction for corporate shareholders. However, the portion of
the Fund's gross income attributable to qualifying dividends is largely
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.
Any long-term capital gain distributions are taxable to shareholders as
long-term capital gains regardless of the length of time shares have been held.
Capital gains distributions are not eligible for the dividends-received
deduction referred to in the previous paragraph. Distributions of any ordinary
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders who choose 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 of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gains during such
six-month period.
Under the Code, the Fund will be required to report to the Internal Revenue
Service ("IRS") all distributions of ordinary 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
B-9
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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 reserve the right
to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
The Fund will not be subject to corporate income tax in the Commonwealth of
Massachusetts as long as its qualifies as regulated investment companies for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state and local income taxes, and the
tax treatment thereof may differ from the federal income tax treatment.
The 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.
In addition, the foregoing discussion of tax law is based on existing
provisions of the Code, existing and proposed regulations thereunder, and
current administrative rulings and court decisions, all of which are subject to
change. Any such charges could affect the validity of this discussion. The
discussion also represents only a general summary of tax law and practice
currently applicable to the Fund and certain shareholders therein, and, as such,
is subject to change. In particular, the consequences of an investment in shares
of the Fund under the laws of any state, local or foreign taxing jurisdictions
are not discussed herein. Each prospective investor should consult his or her
own tax advisor to determine the application of the tax law and practice in his
or her own particular circumstances.
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.
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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, 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).
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. (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.
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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.
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 fiscal year ended March 31, 1999, trustees' fees and expenses in
the amount of $4,205 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
As stated in the Prospectus, investment advisory services are provided to
the Fund by Harris Bretall Sullivan & Smith, L.L.C., the Advisor, pursuant to an
Investment Advisory Agreement. (the "Advisory Agreement"). As compensation, the
Fund pays the Advisor a monthly management fee (accrued daily) based upon the
average daily net assets of the Fund at the annual rate of 0.75%.
The 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, and (2) a majority of the Trustees who are not interested persons of any
party to the Advisory Agreement, in each case cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement may be
terminated at any time, without penalty, by either party to the Advisory
Agreement upon sixty days' written notice and is automatically terminated in the
event of its "assignment," as defined in the 1940 Act.
For the fiscal year ended March 31, 1999, the Advisor received $11,593 in
advisory fees and waived an additional $85,948 in advisory fees. For the fiscal
year ended March 31, 1998, the Advisor waived its fees of $54,487 and reimbursed
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the Fund an additional $27, 348. For the fiscal period ended March 31, 1997, the
Advisor waived its fees of $15,020 and reimbursed the Fund an additional
$74,252.
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), a corporation owned and controlled by
Messrs. Banhazl, Paggioli and Wadsworth with offices at 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 notice filings necessary to maintain the Fund's ability to sell shares
in all states where the Fund currently does, or intends to do business;
coordinate the preparation, printing and mailing of all materials (e.g., annual
reports) required to be sent to shareholders; coordinate the preparation and
payment of Fund related expenses; monitor and oversee the activities of the
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 at the
following annual rate, with a minimum fee of $30,000:
Average Net Assets Fee Rate
- ------------------ --------
Under $25 million 0.12%
$25 to $50 million 0.07%
$50 to $100 million 0.05%
Over $100 million 0.03%
For the fiscal years ended March 31, 1999 and 1998 and the fiscal period
ended March 31, 1997, the Administrator received fees of $30,000, $30,000 and
$28,351, respectively.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), a corporation owned by
Messrs. Banhazl, 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
from year to year if approved at least annually by (i) the Board of Trustees or
the vote of a majority of the outstanding shares of the Fund (as defined in the
1940 Act) and (ii) a majority of the Trustees who are not interested persons of
any such party, in each case cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreement may be terminated without
penalty by the parties thereto upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
The Fund has adopted a Distribution Plan in accordance with Rule 12b-1
under the 1940 Act. The Plan provides that the Fund will pay a fee to the
Advisor, as Distribution Coordinator, at an annual rate of up to 0.25% of the
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average daily net assets of the Fund. The fee is paid to the Distributor as
reimbursement for or in anticipation of, expenses incurred for distribution
related activities. Expenses permitted to be paid by the Fund under its Plan
include: preparation, printing and mailing of prospectuses, shareholder reports
such as semi-annual and annual reports, performance reports and newsletters,
sales literature and other promotional material to prospective investors, direct
mail solicitation, advertising, public relations, compensation of sales
personnel, advisor or other third parties for their assistance with respect to
the distribution of the Fund's shares, payments to financial intermediaries for
shareholder support, administrative and accounting services with respect to the
shareholders of the Fund, and such other expenses as may be approved from time
to time by the Board of Trustees.
The Plan allows excess distribution expenses to be carried forward by the
Advisor, as Distribution Coordinator, and resubmitted in a subsequent fiscal
year provided that (i) distribution expenses cannot be carried forward for more
than three years following initial submission (ii) the Board of Trustees has
made a determination at the time of initial submission that the distribution
expenses are appropriate to be carried forward; and (iii) the Board of Trustees
makes a further determination, at the time any distribution expenses which have
been carried forward are resubmitted for payment, to the effect that payment at
the time is appropriate, consistent with the objectives of the Plan and in the
current best interests of shareholders.
During the fiscal year ended March 31, 1999, the Fund paid fees of $32,514
to the Distributor, of which $1,528 was for compensation to sales personnel,
$27,734 was for compensation to broker-dealers, $1,203 was for expenses related
to advertising and marketing material and $2,048 was for printing, postage and
office expenses.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the 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
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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.
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.
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However, as stated above, broker-dealers who execute brokerage transactions
may effect purchase of shares of the Fund for their customers.
During the fiscal years ended March 31, 1999 and 1998 and the fiscal period
ended March 31, 1997, the Fund paid $15,181, $7,583 and $4,429, respectively, in
brokerage commissions with respect to Fund portfolio transactions. Of the total
commissions paid by the Fund during the fiscal year ended March 31, 1999,
$12,844 was paid to firms for research, statistical or other services provided
to the Advisor.
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 "Portfolio Transactions
and Brokerage." The Fund's portfolio turnover rate for the fiscal years ended
March 31, 1999 and 1998 was 52.77% and 40.96%, 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
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"), normally 4:00 p.m., Eastern time. 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.
The NYSE annually announces the days on which it will not be open for
trading. The most recent announcement indicates that it will not be open on the
following days: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the NYSE may close on days not included in that
announcement.
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<PAGE>
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 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 group or periodic plans.
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.
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.
DELIVERY OF REDEMPTION PROCEEDS
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 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. Under
unusual circumstances, the Fund may suspend redemptions, or postpone payment for
more than seven days, but only as authorized by SEC rules.
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.
TELEPHONE REDEMPTIONS
Shareholders must have selected telephone transactions privileges on the
Account Application when opening a Fund account. Upon receipt of any
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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 or redeeming shares of the Fund and
depositing and withdrawing monies from the bank account specified in the Bank
Account Registration section of 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 and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent instructions. If these procedures
are followed, 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 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.
AUTOMATIC INVESTMENT PLAN
As discussed in the Prospectus, the Fund provides an Automatic 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
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.
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<PAGE>
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of public
trading on the NYSE (normally 4:00 p.m., Eastern time) on each day that the NYSE
is open for trading. The Fund does not expect to determine the net asset value
of its 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 the Fund's 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 current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Trustees of the
Trust shall determine in good faith to reflect the security's fair value. All
other assets of the 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 for the most recent one, five and ten year periods, or
shorter periods from inception, through the most recent calendar quarter. 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
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.
Average annual total return for the Fund for the periods ending March 31,
1999 are as follows:
One Year 29.88%
Life of Fund* 29.14%
- ----------
* The Fund commenced operations on May 1, 1996.
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, located at 425 Walnut St.,
Cincinnati, Ohio 45201 acts as Custodian of the securities and other assets of
the Fund. American Data Services, P.O. Box 5536, Hauppauge, NY 11788-0132 acts
as the Fund's transfer and shareholder service agent. The Custodian and Transfer
Agent do not participate in decisions relating to the purchase and sale of
securities by the Fund.
Ernst & Young LLP, 725 South Figueroa Street, Los Angeles, CA 90017, 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.
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The following persons are beneficial owners of more than 5% of the Fund's
outstanding voting securities as of July 17, 1999:
Charles Schwab & Co., Inc.
Special Custody Account FBO Customers
101 Montgomery Street
San Francisco, CA 94101 - 30.36%
Paine Webber
FBO John James Sullivan and
Joan Carolyn Sullivan, Trustees
220 Family Farm Drive
Woodside, CA 94062 - 10. 58%
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
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.
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FINANCIAL STATEMENTS
The annual report to shareholder for the Fund for the fiscal year ended
March 31, 1999 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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