SECURITIES ACT FILE NO. 33-12213
INVESTMENT COMPANY ACT FILE NO. 811-5037
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 72 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 73 [X]
(Check appropriate box or boxes)
PROFESSIONALLY MANAGED PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
915 Broadway
New York, NY 10010
(Address of Principal Executive Offices, including Zip Code)
(212) 633-9700
(Registrant's Telephone Number, including Area Code)
Steven J. Paggioli
Professionally Managed Portfolios
915 Broadway
New York, NY 10010
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104
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It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
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PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 14, 1999
DUNCAN-HURST TECHNOLOGY FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
Duncan-Hurst Technology Fund is a growth stock mutual fund that invests
primarily in technology stocks. The Fund seeks to provide investors with
long-term growth of capital. This Prospectus contains information about the
Class R shares of the Fund
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 ________, 1999
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
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TABLE OF CONTENTS
An Overview of the Fund .................................................
Fees and Expenses .......................................................
Investment Objective and Principal Investment Strategies ................
Principal Risks of Investing in the Fund ................................
Investment Adviser ......................................................
Shareholder Information .................................................
Pricing of Fund Shares ..................................................
Dividends and Distributions .............................................
Tax Consequences ........................................................
12b-1 Fees ..............................................................
General Information .....................................................
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AN OVERVIEW OF THE FUND
THE FUND'S INVESTMENT GOAL
The Fund seeks long-term growth of capital.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund will primarily invest in a diversified portfolio of common stocks of.
companies of any size market capitalization. The Fund will primarily invest in
companies that the Adviser believes will benefit from advances or improvements
in technology. In selecting investments, the Adviser will invest in companies
whose earnings are expected to grow at an above-average growth over an extended
period of time. The Fund may invest in the securities of foreign companies.
PRINCIPAL RISKS OF INVESTING IN THE FUND
There is the risk that you could lose money on your investment in the Fund. For
example, the following risks could affect the value of your investment:
* The stock market goes down
* Interest rates rise which can result in a decline in the equity market *
Growth stocks fall out of favor with the stock market
* As a mutual fund that primarily invests in the technology industry, the
Fund's share price may be more volatile than the share price of a fund
investing in a broader range of securities
* Securities of smaller companies involve greater risk than investing in
larger companies
* Adverse developments occur in foreign markets. Foreign investments involve
greater risk.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Want to add an investment in technology securities to diversify their
investment portfolio
* Are willing to accept the risks involved in investing in technology stocks
The Fund may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short-term goal
* Do not want to focus on any one industry
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Class R 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 ........................................................ 1.00%
Distribution and Service (12b-1) Fees .................................. 0.25%
Other Expenses ......................................................... 2.50%
Total Annual Fund Operating Expenses ................................... 3.75%
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Fee Reduction and/or Expense Reimbursement (2.27)%
Net Expenses ........................................................... 1.48%
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* Other Expenses are estimated for the first fiscal year of the Fund. The
Adviser has contractually agreed to reduce its fees and/or pay expenses of the
Fund for an indefinite period to insure that Total Fund Operating Expenses will
not exceed the net expense amounts shown. The Adviser 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 cost of investing in Class R
shares of 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: $
Three Years: $
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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment goal is long-term growth of capital.
The Fund will invest in a diversified portfolio of common stocks of companies of
any size, from larger, well-established companies to smaller, emerging growth
companies. Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities of companies that the Adviser believes
will benefit from advances or improvements in technology.
The Fund may invest up to 25% of its net assets in securities of foreign issuers
that are not publicly traded in the United States. The Fund may also invest in
American Depositary Receipts ("ADRs") and foreign securities traded on a
national securities market.
The Adviser's investment process identifies companies with accelerating earnings
growth and positive company fundamentals. While economic forecasting and
industry sector analysis play a part in the research effort, the Adviser's stock
selection process begins with individual company analysis. This is often
referred to as a bottom-up approach to investing. From a group of companies that
meet the Advisor's standards, the Adviser selects the securities of those
companies whose earnings are expected to grow at an above-average rate. In
making this determination, the Adviser considers certain characteristics of a
particular company. Among other factors, these include new product development,
management change and competitive market dynamics.
PORTFOLIO TURNOVER
The Fund generally intends to purchase securities for long-term investment
rather than short-term gains. The Fund may engage in frequent trading of
securities. The Portfolio Manager may sell a stock when the company's earnings
are expected to grow at a below-average rate or there has been a change in
company fundamentals. Short-term transactions may result from liquidity needs or
by reason of economic or other developments not foreseen at the time of the
investment decision. The Portfolio Manager will make purchase and sell decisions
when it is believed to be appropriate.
The Fund anticipates that its portfolio turnover rate will typically exceed
150%. A high portfolio turnover rate (100% or more) has the potential to result
in the realization and distribution to shareholders of higher capital gains.
This may mean that you would be likely to have a higher tax liability. A high
portfolio turnover rate also leads to higher transaction costs, which could
negatively affect the Fund's performance.
Under normal market conditions, the Fund will stay fully invested in stocks.
However, under very unusual circumstances, 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.
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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 below 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.
TECHNOLOGY INDUSTRY RISK. Although the Fund does not concentrate its investment
in specific industries, it may invest in companies related in such a way that
they react similarly to certain market pressures. For example, competition among
technology companies may result increasingly aggressive pricing of their
products and services, which may affect the profitability of companies in the
Fund's portfolio. In addition, because of the rapid pace of technological
development, products or services developed by companies in the Fund's portfolio
may become rapidly obsolete or have relatively short product cycles. As a result
the Fund's returns may be considerable more volatile than the returns of a fund
that does not invest in similarly related companies.
SMALL COMPANY RISK. The risk of investing in securities of small-sized companies
may involve greater risk than investing in larger companies because they can be
subject to more abrupt or erratic share price changes. Small companies may have
limited markets or financial resources and their management may be dependent on
a limited number of key individuals. Securities of these companies may have
limited market liquidity.
FOREIGN SECURITIES RISK. The risk of investing in the securities of foreign
companies is greater than the risk of investing in domestic companies. Some of
these risks include: (1) unfavorable changes in currency exchange rates; (2)
economic and political instability; (3) less publicly available information; (4)
less strict auditing and financial reporting requirements; (5) less governmental
supervision and regulation of securities markets; (6) higher transaction costs;
(7) potential adverse effects of the euro conversion; and (8) greater
possibility of not being able to sell securities on a timely basis.
YEAR 2000 RISK. The risk that the Fund could be adversely affected if the
computer systems used by the Adviser 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
impact the companies in which the Fund invests and by extension the value of the
Fund's shares. Although the Fund's service providers are taking steps to address
this issue, there may still be some risk of adverse effects.
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INVESTMENT ADVISER
Duncan-Hurst Capital Management Inc., founded in 1990, is the investment adviser
to the Fund. The investment adviser's address is 4365 Executive Drive, Suite
1520, San Diego, CA 92121. The investment adviser currently manages assets of
approximately $3.0 billion for institutional and individual investors and other
mutual funds. The investment adviser will provide advice on buying and selling
securities. The investment adviser will also furnish the Fund with office space
and certain administrative services and provide most of the personnel needed by
the Fund. For its services, the Fund will pay the investment adviser a monthly
management fee based upon its average daily net assets at the annual rate of
1.00%.
PORTFOLIO MANAGER
William H. "Beau" Duncan, Jr., Chairman, Chief Executive Officer and Chief
Investment Officer of the Adviser, will be responsible for the day-to-day
management of the Fund's portfolio. Mr. Duncan has managed the small-cap and
medium-cap growth equity portfolios of the Adviser's private accounts since
starting the firm in 1900. Mr. Duncan has over twenty years of investment
experience.
FUND EXPENSES
The Fund is responsible for its own operating expenses. The Adviser 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 the limits set forth in the Fee Table. Any
reduction in advisory fees or payment of expenses made by the Adviser are
subject to reimbursement by the Fund if requested by the Adviser in subsequent
fiscal years. This reimbursement may be requested by the Adviser if the
aggregate amount actually paid by the Fund toward operating expenses for such
fiscal year (taking into account the reimbursements) does not exceed the
applicable limitation on Fund expenses. The Adviser is permitted to be
reimbursed for fee reductions and/or expense payments made in the prior three
fiscal years. (After startup, the Fund is permitted to look for longer periods
of four and five years.) Any such reimbursement will be reviewed by the
Trustees. The Fund must pay its current ordinary operating expenses before the
Adviser is entitled to any reimbursement of fees and/or expenses.
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SHAREHOLDER INFORMATION
HOW TO BUY SHARES
There are several ways to purchase shares of the Fund. An Application Form,
which accompanies this Prospectus, is used if you send money directly to the
Fund by mail or by wire. YOU MUST MAKE SURE TO SPECIFY THAT YOU ARE PURCHASING
CLASS R SHARES WHEN YOU PLACE YOUR PURCHASE ORDER. If you have questions about
how to invest, or about how to complete the Application Form, please call an
account representative at (800) 558-9105. To open a retirement plan account,
call (800) 558-9105 for instructions. After your account is open, you may add to
it at any time. The Fund reserves the right to reject any purchase order. This
Prospectus describes only the Fund's Class R shares. The Fund offers other
classes of shares to eligible investors.
You may open a Fund account with $2,500 and add to your account at any time with
$100 or more . Automatic investment plans allow you to open a Fund account with
$100 or more. You may open a retirement plan account with $2,000 and add to your
account with $100 or more. The minimum investment requirements may be waived
from time to time by the Fund.
BY ONLINE ACCESS
For further information on how you can buy Fund shares through the Internet,
call the Fund at (800) 558-9105.
BY MAIL
You may make an investment in the Fund by mail. All purchases by check should be
in U.S. dollars. Third party checks and cash will not be accepted. If you wish
to invest by mail, simply complete the Application Form and mail it with a check
(made payable to "Duncan-Hurst Technology Fund") to:
Duncan-Hurst Technology
c/o National Financial Data Services
P.O. Box 419284
Kansas City, MO 64141-6284
BY OVERNIGHT DELIVERY
If you wish to send your Application Form and check via an overnight delivery
service (such as FedEx), delivery cannot be made to a post office box. In that
case, you should use the following address:
Duncan-Hurst Technology Fund
c/o National Financial Data Services
330 West 9th Street
Kansas City, MO 64105
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BY WIRE
You may wire money to the Fund. Before sending a wire you must fax your
completed application to (816) 843-8835. You should then call (800) 558-9105
between 9:00 a.m. and 5:00 p.m., Eastern time, on a day when the NYSE is open
for trading, in order to receive an account number. IT IS IMPORTANT TO CALL AND
RECEIVE THIS ACCOUNT NUMBER, BECAUSE IF YOU WIRE IS SENT WITHOUT IT OR WITHOUT
THE NAME OF THE FUND, THERE MAY BE A DELAY IN INVESTING THE MONEY YOU WIRE. You
may instruct your bank to wire money to:
Investors Fiduciary Trust Company
Kansas City, MO
ABA Routing Number: 101003621
for credit to Duncan-Hurst Technology Fund
DDA #_______________
for further credit to [your name and account number]
The original, completed application must also be sent to Duncan-Hurst Funds c/o
National Financial Data Services, P.O. Box 419284, Kansas City, MO 64105. Your
bank may charge you a fee for sending a wire to the Fund.
AUTOMATIC INVESTMENT PLAN
You may make regular investments through automatic periodic deductions from your
bank checking or savings account. If you wish to invest on a periodic basis,
when opening your Fund account complete the Automatic Investment Plan section of
the Application Form and mail it to the Fund at the address listed above.
Current shareholders may choose at any time to enroll in the Automatic
Investment Plan. Call (800) 558-9105 for instructions.
THROUGH FINANCIAL SERVICE AGENTS
If you are investing through a Financial Service Agent, please refer to their
program materials for any additional special provisions or conditions that may
be different from those described in this Prospectus. Financial Service Agents
have the responsibility of transmitting purchase orders and funds, and of
crediting their customers' accounts following redemptions, in a timely manner in
accordance with their customer agreements and this Prospectus.
If you place an order for Fund shares through a Financial Service Agent, in
accordance with such Financial Service Agent's procedures and such Financial
Service Agent then transmits your order to the Transfer Agent before the closing
of trading on the New York Stock Exchange ("NYSE") on that day, then your
purchase will be processed at the net asset value calculated at the close of
trading on the NYSE on that day. The Financial Service Agent must promise to
send to the Transfer Agent immediately available funds in the amount of the
purchase price in accordance with the Transfer Agent's procedures. If payment is
not received within the time specified, the Transfer Agent may rescind the
transaction and the Financial Service Agent will be held liable for any
resulting fees or losses. The Financial Service Agent holds your shares in an
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omnibus account in its name, and maintains your individual ownership records.
The Fund may pay the Financial Service Agent for maintaining these records as
well as providing other shareholder services. The Financial Service Agent may
charge you a fee for handling your order.
HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the Duncan-Hurst Large Cap Growth-20
Fund, the Duncan-Hurst Aggressive Growth Fund or the Duncan-Hurst International
Growth Fund on any day the Fund is open for business. EXCHANGES MAY ONLY BE MADE
BETWEEN FUNDS OF THE SAME CLASS.
Excessive exchanges can disrupt management of the Fund and raise their expenses.
The Fund has established a policy which limits excessive exchanges. You are
permitted to make four exchanges during any one twelve-month period. The Fund
reserves the right to reject any exchange order. The Fund may modify the
exchange privilege by giving 60 days' written notice to its shareholders.
BY ONLINE ACCESS
For further information on how you can exchange Fund shares through the
Internet, call the Fund at (800) 558-9105.
BY MAIL
You may exchange your shares by simply sending a written request to the Fund's
Transfer Agent. You should give your account number and the number of shares or
dollar amount to be exchanged. The letter should be signed by all of the
shareholders whose names appear in the account registration. You should send
your exchange request to:
Duncan-Hurst Technology Fund
c/o National Financial Data Services
P.O. Box 419284
Kansas City, MO 64141-6284
BY TELEPHONE
If your account has telephone privileges, you may also exchange Fund shares by
calling the Transfer Agent at (800) 558-9105 between the hours of 9:00 a.m. and
4:00 p.m., Eastern time. If you are exchanging shares by telephone, you will be
subject to certain identification procedures which are listed below under "How
to Sell Shares."
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Fund is open for business
either directly to the Fund or through your investment representative.
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BY ONLINE ACCESS
For further information on how you can sell your Fund shares through the
Internet, call the Fund at (800) 558-9105.
BY MAIL
You may redeem your shares by simply sending a written request to the Fund. You
should give your account number and state whether you want all or some of your
shares redeemed. The letter should be signed by all of the shareholders whose
names appear on the account registration. You should send your redemption
request to:
Duncan-Hurst Technology Fund
c/o National Financial Data Services
P.O. Box 419284
Kansas City, MO 64141-6284
BY TELEPHONE
If you complete the Redemption by Telephone portion of the Fund's Application
Form, you may redeem some or all of your shares by calling the Fund at (800)
558-9105 before the close of trading on the NYSE. This is normally 4:00 p.m.,
Eastern time. Redemption proceeds will be mailed on the next business day to the
address that appears on the Transfer Agent's records. If you request, redemption
proceeds will be wired on the next business day to the bank account you
designated on the Application Form. The minimum amount that may be wired is
$1,000. If you sell shares worth more than $25,000, the proceeds will be wired
to your bank account. 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. You may not use the telephone redemption for retirement accounts.
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 Application Form. Such persons may request that the
shares in your account be either exchanged or redeemed. Redemption proceeds will
be transferred to the bank account you have designated on your Application Form.
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 or exchange
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.
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You may request telephone redemption privileges after your account is opened by
calling (800) 558- 9105 for instructions.
You may have difficulties in making a telephone redemption or exchange during
periods of abnormal market activity. If this occurs, you may make your
redemption or exchange request in writing.
AUTOMATIC WITHDRAWAL PLAN
You may also make regular withdrawals on an automatic basis. Call (800) 558-9105
for instructions.
GENERAL
To protect the Fund and its shareholders, a signature guarantee is required for
all written redemption requests over $100,000. Signature(s) on the redemption
request must be guaranteed by an "eligible guarantor institution." These include
banks, broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
If you did not purchase your shares with a certified check, the Fund may delay
payment of your redemption proceeds for up to 15 days from purchase or until
your check has cleared, whichever occurs first. Additionally, you may not redeem
shares by telephone until 15 calendar days after the purchase date of the
shares. If you purchased your shares through the Automated Clearing House (ACH),
the Fund may delay payment of your redemption proceeds for up to 15 days from
purchase or until your payment clears, whichever occurs first.
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
PRICING OF FUND SHARES
The price of the Fund's shares is based on its 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).
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DIVIDENDS AND DISTRIBUTIONS
The Fund will make distributions of dividends and capital gains, if any,
annually, usually after the end of its fiscal year. Because of its investment
strategies, the Fund expects that its distributions will primarily consist of
capital gains.
You can choose from three distribution options: (1) reinvest all distributions
in additional Fund shares; (2) receive distributions from net investment income
in cash or by ACH to a pre-established bank account while reinvesting capital
gains distributions in additional Fund shares; or (3) receive all distributions
in cash or by ACH. Call (800) 558-9105 for wire instructions. If you wish to
change your distribution option, write to National Financial Data Services
before payment of the distribution. If you do not select an option when you open
your account, all distributions will be reinvested in Fund shares. You will
receive a statement confirming reinvestment of distributions in additional Fund
shares promptly following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a specified
period, the Transfer Agent will notify you that you have the option of
requesting another check or reinvesting the distribution in the Fund. If the
Transfer Agent does not receive your election, the distribution will be
reinvested in the Fund.
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 exchange or 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
exchange or 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 under Rule 12b-1 that allows the Fund
to pay distribution fees for the sale and distribution of its Class R shares and
for services provided to its shareholders. The distribution and service fee is
0.25% of the Fund's average daily net assets which is payable to the Adviser, 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 Class R shares of the Fund and may cost you more than paying other
types of sales charges.
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DUNCAN-HURST TECHNOLOGY FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS (THE "TRUST")
For investors who want more information about the Fund, the following document
is available free upon request:
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 the SAI, request other information and discuss your
questions about the Fund by contacting the Fund at:
National Financial Data Services
P.O. Box 419284
Kansas City, MO 64141-6284
Telephone: 1-800-558-9105
You can review and copy information including the Fund's 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 no. is 811-5037)
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 14 1999
DUNCAN-HURST TECHNOLOGY FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
Duncan-Hurst Technology Fund is a growth stock mutual fund that invests
primarily in technology stocks. The Fund seeks to provide investors with
long-term growth of capital. This Prospectus contains information about the
Class I shares of the Fund
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 ________, 1999
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
TABLE OF CONTENTS
An Overview of the Fund ..............................................
Fees and Expenses ....................................................
Investment Objective and Principal Investment Strategies .............
Principal Risks of Investing in the Fund .............................
Investment Adviser ...................................................
Shareholder Information ..............................................
Pricing of Fund Shares ...............................................
Dividends and Distributions ..........................................
Tax Consequences .....................................................
General Information ..................................................
2
<PAGE>
AN OVERVIEW OF THE FUND
THE FUND'S INVESTMENT GOAL
The Fund seeks long-term growth of capital.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund will primarily invest in a diversified portfolio of common stocks of.
companies of any size market capitalization. The Fund will primarily invest in
companies that the Adviser believes will benefit from advances or improvements
in technology. In selecting investments, the Adviser will invest in companies
whose earnings are expected to grow at an above-average growth over an extended
period of time. The Fund may invest in the securities of foreign companies.
PRINCIPAL RISKS OF INVESTING IN THE FUND
There is the risk that you could lose money on your investment in the Fund. For
example, the following risks could affect the value of your investment:
* The stock market goes down
* Interest rates rise which can result in a decline in the equity market
* Growth stocks fall out of favor with the stock market
* As a mutual fund that primarily invests in the technology industry, the
Fund's share price may be more volatile than the share price of a fund
investing in a broader range of securities
* Securities of smaller companies involve greater risk than investing in
larger companies
* Adverse developments occur in foreign markets. Foreign investments involve
greater risk.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Want to add an investment in technology securities to diversify their
investment portfolio
* Are willing to accept the risks involved in investing in technology stocks
The Fund may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short-term goal
* Do not want to focus on any one industry
3
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Class I 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 ...................................................... 1.00%
Other Expenses ....................................................... 2.50%
Total Annual Fund Operating Expenses ................................. 3.75%
-----
Fee Reduction and/or Expense Reimbursement ........................... (2.52)%
Net Expenses ......................................................... 1.23%
=====
* Other Expenses are estimated for the first fiscal year of the Fund. The
Adviser has contractually agreed to reduce its fees and/or pay expenses of the
Fund for an indefinite period to insure that Total Fund Operating Expenses will
not exceed the net expense amounts shown. The Adviser 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 cost of investing in Class I
shares of 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: $
Three Years: $
4
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment goal is long-term growth of capital.
The Fund will invest in a diversified portfolio of common stocks of companies of
any size, from larger, well-established companies to smaller, emerging growth
companies. Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities of companies that the Adviser believes
will benefit from advances or improvements in technology.
The Fund may invest up to 25% of its net assets in securities of foreign issuers
that are not publicly traded in the United States. The Fund may also invest in
American Depositary Receipts ("ADRs") and foreign securities traded on a
national securities market.
The Adviser's investment process identifies companies with accelerating earnings
growth and positive company fundamentals. While economic forecasting and
industry sector analysis play a part in the research effort, the Adviser's stock
selection process begins with individual company analysis. This is often
referred to as a bottom-up approach to investing. From a group of companies that
meet the Advisor's standards, the Adviser selects the securities of those
companies whose earnings are expected to grow at an above-average rate. In
making this determination, the Adviser considers certain characteristics of a
particular company. Among other factors, these include new product development,
management change and competitive market dynamics.
PORTFOLIO TURNOVER
The Fund generally intends to purchase securities for long-term investment
rather than short-term gains. The Fund may engage in frequent trading of
securities. The Portfolio Manager may sell a stock when the company's earnings
are expected to grow at a below-average rate or there has been a change in
company fundamentals. Short-term transactions may result from liquidity needs or
by reason of economic or other developments not foreseen at the time of the
investment decision. The Portfolio Manager will make purchase and sell decisions
when it is believed to be appropriate.
The Fund anticipates that its portfolio turnover rate will typically exceed
150%. A high portfolio turnover rate (100% or more) has the potential to result
in the realization and distribution to shareholders of higher capital gains.
This may mean that you would be likely to have a higher tax liability. A high
portfolio turnover rate also leads to higher transaction costs, which could
negatively affect the Fund's performance.
Under normal market conditions, the Fund will stay fully invested in stocks.
However, under very unusual circumstances, 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.
5
<PAGE>
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 below 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.
TECHNOLOGY INDUSTRY RISK. Although the Fund does not concentrate its investment
in specific industries, it may invest in companies related in such a way that
they react similarly to certain market pressures. For example, competition among
technology companies may result increasingly aggressive pricing of their
products and services, which may affect the profitability of companies in the
Fund's portfolio. In addition, because of the rapid pace of technological
development, products or services developed by companies in the Fund's portfolio
may become rapidly obsolete or have relatively short product cycles. As a result
the Fund's returns may be considerable more volatile than the returns of a fund
that does not invest in similarly related companies.
SMALL COMPANY RISK. The risk of investing in securities of small-sized companies
may involve greater risk than investing in larger companies because they can be
subject to more abrupt or erratic share price changes. Small companies may have
limited markets or financial resources and their management may be dependent on
a limited number of key individuals. Securities of these companies may have
limited market liquidity.
FOREIGN SECURITIES RISK. The risk of investing in the securities of foreign
companies is greater than the risk of investing in domestic companies. Some of
these risks include: (1) unfavorable changes in currency exchange rates; (2)
economic and political instability; (3) less publicly available information; (4)
less strict auditing and financial reporting requirements; (5) less governmental
supervision and regulation of securities markets; (6) higher transaction costs;
(7) potential adverse effects of the euro conversion; and (8) greater
possibility of not being able to sell securities on a timely basis.
YEAR 2000 RISK. The risk that the Fund could be adversely affected if the
computer systems used by the Adviser 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
impact 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.
6
<PAGE>
INVESTMENT ADVISER
Duncan-Hurst Capital Management Inc., founded in 1990, is the investment adviser
to the Fund. The investment adviser's address is 4365 Executive Drive, Suite
1520, San Diego, CA 92121. The investment adviser currently manages assets of
approximately $3.0 billion for institutional and individual investors and other
mutual funds. The investment adviser will provide advice on buying and selling
securities. The investment adviser will also furnish the Fund with office space
and certain administrative services and provide most of the personnel needed by
the Fund. For its services, the Fund will pay the investment adviser a monthly
management fee based upon its average daily net assets at the annual rate of
1.00%.
PORTFOLIO MANAGER
William H. "Beau" Duncan, Jr., Chairman, Chief Executive Officer and Chief
Investment Officer of the Adviser, will be responsible for the day-to-day
management of the Fund's portfolio. Mr. Duncan has managed the small-cap and
medium-cap growth equity portfolios of the Adviser's private accounts since
starting the firm in 1900. Mr. Duncan has over twenty years of investment
experience.
FUND EXPENSES
The Fund is responsible for its own operating expenses. The Adviser 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 the limits set forth in the Fee Table. Any
reduction in advisory fees or payment of expenses made by the Adviser are
subject to reimbursement by the Fund if requested by the Adviser in subsequent
fiscal years. This reimbursement may be requested by the Adviser if the
aggregate amount actually paid by the Fund toward operating expenses for such
fiscal year (taking into account the reimbursements) does not exceed the
applicable limitation on Fund expenses. The Adviser is permitted to be
reimbursed for fee reductions and/or expense payments made in the prior three
fiscal years. (After startup, the Fund is permitted to look for longer periods
of four and five years.) Any such reimbursement will be reviewed by the
Trustees. The Fund must pay its current ordinary operating expenses before the
Adviser is entitled to any reimbursement of fees and/or expenses.
7
<PAGE>
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
There are several ways to purchase shares of the Fund. An Application Form,
which accompanies this Prospectus, is used if you send money directly to the
Fund by mail or by wire. YOU MUST MAKE SURE TO SPECIFY THAT YOU ARE PURCHASING
CLASS I SHARES WHEN YOU PLACE YOUR PURCHASE ORDER. If you have questions about
how to invest, or about how to complete the Application Form, please call an
account representative at (800) 558-9105. To open a retirement plan account,
call (800) 558-9105 for instructions. After your account is open, you may add to
it at any time. The Fund reserves the right to reject any purchase order. This
Prospectus describes only the Fund's Class I shares. The Fund offers other
classes of shares to eligible investors.
Class I shares are offered primarily for direct investment by investors such as
pension and profit-sharing plans, employee benefit trusts, endowments,
foundations and corporations. You may open a Fund account with $1 million and
add to your account at any time with $100,000 or more. The minimum investment
requirements may be waived from time to time by the Fund.
BY ONLINE ACCESS
For further information on how you can buy Fund shares through the Internet,
call the Fund at (800) 558-9105.
BY MAIL
You may make an investment in the Fund by mail. All purchases by check should be
in U.S. dollars. Third party checks and cash will not be accepted. If you wish
to invest by mail, simply complete the Application Form and mail it with a check
(made payable to "Duncan-Hurst Technology Fund") to:
Duncan-Hurst Technology
c/o National Financial Data Services
P.O. Box 419284
Kansas City, MO 64141-6284
BY OVERNIGHT DELIVERY
If you wish to send your Application Form and check via an overnight delivery
service (such as FedEx), delivery cannot be made to a post office box. In that
case, you should use the following address:
Duncan-Hurst Technology Fund
c/o National Financial Data Services
330 West 9th Street
Kansas City, MO 64105
8
<PAGE>
BY WIRE
You may wire money to the Fund. Before sending a wire you must fax your
completed application to (816) 843-8835. You should then call (800) 558-9105
between 9:00 a.m. and 5:00 p.m., Eastern time, on a day when the NYSE is open
for trading, in order to receive an account number. IT IS IMPORTANT TO CALL AND
RECEIVE THIS ACCOUNT NUMBER, BECAUSE IF YOU WIRE IS SENT WITHOUT IT OR WITHOUT
THE NAME OF THE FUND, THERE MAY BE A DELAY IN INVESTING THE MONEY YOU WIRE. You
may instruct your bank to wire money to:
Investors Fiduciary Trust Company
Kansas City, MO
ABA Routing Number: 101003621
for credit to Duncan-Hurst Technology Fund
DDA #_______________
for further credit to [your name and account number]
The original, completed application must also be sent to Duncan-Hurst Funds c/o
National Financial Data Services, P.O. Box 419284, Kansas City, MO 64105. Your
bank may charge you a fee for sending a wire to the Fund.
THROUGH FINANCIAL SERVICE AGENTS
If you are investing through a Financial Service Agent, please refer to their
program materials for any additional special provisions or conditions that may
be different from those described in this Prospectus. Financial Service Agents
have the responsibility of transmitting purchase orders and funds, and of
crediting their customers' accounts following redemptions, in a timely manner in
accordance with their customer agreements and this Prospectus.
If you place an order for Fund shares through a Financial Service Agent, in
accordance with such Financial Service Agent's procedures and such Financial
Service Agent then transmits your order to the Transfer Agent before the closing
of trading on the New York Stock Exchange ("NYSE") on that day, then your
purchase will be processed at the net asset value calculated at the close of
trading on the NYSE on that day. The Financial Service Agent must promise to
send to the Transfer Agent immediately available funds in the amount of the
purchase price in accordance with the Transfer Agent's procedures. If payment is
not received within the time specified, the Transfer Agent may rescind the
transaction and the Financial Service Agent will be held liable for any
resulting fees or losses. The Financial Service Agent holds your shares in an
omnibus account in its name, and maintains your individual ownership records.
The Adviser may pay the Financial Service Agent for maintaining these records as
well as providing other shareholder services. The Financial Service Agent may
charge you a fee for handling your order.
9
<PAGE>
HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the Duncan-Hurst Large Cap Growth-20
Fund, the Duncan-Hurst Aggressive Growth Fund or the Duncan-Hurst International
Growth Fund on any day the Fund is open for business. EXCHANGES MAY ONLY BE MADE
BETWEEN FUNDS OF THE SAME CLASS.
Excessive exchanges can disrupt management of the Fund and raise their expenses.
The Fund has established a policy which limits excessive exchanges. You are
permitted to make four exchanges during any one twelve-month period. The Fund
reserves the right to reject any exchange order. The Fund may modify the
exchange privilege by giving 60 days' written notice to its shareholders.
BY ONLINE ACCESS
For further information on how you can exchange Fund shares through the
Internet, call the Fund at (800) 558-9105.
BY MAIL
You may exchange your shares by simply sending a written request to the Fund's
Transfer Agent. You should give your account number and the number of shares or
dollar amount to be exchanged. The letter should be signed by all of the
shareholders whose names appear in the account registration. You should send
your exchange request to:
Duncan-Hurst Technology Fund
c/o National Financial Data Services
P.O. Box 419284
Kansas City, MO 64141-6284
BY TELEPHONE
If your account has telephone privileges, you may also exchange Fund shares by
calling the Transfer Agent at (800) 558-9105 between the hours of 9:00 a.m. and
4:00 p.m., Eastern time. If you are exchanging shares by telephone, you will be
subject to certain identification procedures which are listed below under "How
to Sell Shares."
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Fund is open for business
either directly to the Fund or through your investment representative.
BY ONLINE ACCESS
For further information on how you can sell your Fund shares through the
Internet, call the Fund at (800) 558-9105.
10
<PAGE>
BY MAIL
You may redeem your shares by simply sending a written request to the Fund. You
should give your account number and state whether you want all or some of your
shares redeemed. The letter should be signed by all of the shareholders whose
names appear on the account registration. You should send your redemption
request to:
Duncan-Hurst Technology Fund
c/o National Financial Data Services
P.O. Box 419284
Kansas City, MO 64141-6284
BY TELEPHONE
If you complete the Redemption by Telephone portion of the Fund's Application
Form, you may redeem some or all of your shares by calling the Fund at (800)
558-9105 before the close of trading on the NYSE. This is normally 4:00 p.m.,
Eastern time. Redemption proceeds will be mailed on the next business day to the
address that appears on the Transfer Agent's records. If you request, redemption
proceeds will be wired on the next business day to the bank account you
designated on the Application Form. The minimum amount that may be wired is
$1,000. If you sell shares worth more than $25,000, the proceeds will be wired
to your bank account. 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. You may not use the telephone redemption for retirement accounts.
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 Application Form. Such persons may request that the
shares in your account be either exchanged or redeemed. Redemption proceeds will
be transferred to the bank account you have designated on your Application Form.
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 or exchange
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 (800) 558- 9105 for instructions.
You may have difficulties in making a telephone redemption or exchange during
periods of abnormal market activity. If this occurs, you may make your
redemption or exchange request in writing.
11
<PAGE>
AUTOMATIC WITHDRAWAL PLAN
You may also make regular withdrawals on an automatic basis. Call (800) 558-9105
for instructions.
GENERAL
To protect the Fund and its shareholders, a signature guarantee is required for
all written redemption requests over $100,000. Signature(s) on the redemption
request must be guaranteed by an "eligible guarantor institution." These include
banks, broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
If you did not purchase your shares with a certified check, the Fund may delay
payment of your redemption proceeds for up to 15 days from purchase or until
your check has cleared, whichever occurs first. Additionally, you may not redeem
shares by telephone until 15 calendar days after the purchase date of the
shares. If you purchased your shares through the Automated Clearing House (ACH),
the Fund may delay payment of your redemption proceeds for up to 15 days from
purchase or until your payment clears, whichever occurs first.
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
PRICING OF FUND SHARES
The price of the Fund's shares is based on its 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,
annually, usually after the end of its fiscal year. Because of its investment
strategies, the Fund expects that its distributions will primarily consist of
capital gains.
12
<PAGE>
You can choose from three distribution options: (1) reinvest all distributions
in additional Fund shares; (2) receive distributions from net investment income
in cash or by ACH to a pre-established bank account while reinvesting capital
gains distributions in additional Fund shares; or (3) receive all distributions
in cash or by ACH. Call (800) 558-9105 for wire instructions. If you wish to
change your distribution option, write to National Financial Data Services
before payment of the distribution. If you do not select an option when you open
your account, all distributions will be reinvested in Fund shares. You will
receive a statement confirming reinvestment of distributions in additional Fund
shares promptly following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a specified
period, the Transfer Agent will notify you that you have the option of
requesting another check or reinvesting the distribution in the Fund. If the
Transfer Agent does not receive your election, the distribution will be
reinvested in the Fund.
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 exchange or 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
exchange or sell, you may have a gain or a loss on the transaction. You are
responsible for any tax liabilities generated by your transaction.
13
<PAGE>
DUNCAN-HURST TECHNOLOGY FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS (THE "TRUST")
For investors who want more information about the Fund, the following document
is available free upon request:
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 the SAI, request other information and discuss your
questions about the Fund by contacting the Fund at:
National Financial Data Services
P.O. Box 419284
Kansas City, MO 64141-6284
Telephone: 1-800-558-9105
You can review and copy information including the Fund's 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 no. is 811-5037)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO COMPLETION,
DATED JULY 14, 1999
STATEMENT OF ADDITIONAL INFORMATION
_______________, 1999
DUNCAN-HURST TECHNOLOGY FUND
A SERIES OF
PROFESSIONALLY MANAGED PORTFOLIOS
4365 EXECUTIVE DRIVE
SUITE 1520
SAN DIEGO, CA 92121
(800) 558-9105
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Prospectus dated ________, 1999, as may
be revised, of the Duncan-Hurst Technology Fund (the "Fund"), a series of
Professionally Managed Portfolios (the "Trust"). Duncan- Hurst Capital
Management Inc. (the "Advisor") is the investment adviser to the Fund. A copy of
the Fund's Prospectus is available by calling the number listed above.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
B-1
<PAGE>
TABLE OF CONTENTS
The Trust ................................................................ B-3
Investment Objective and Policies ........................................ B-3
Investment Restrictions .................................................. B-18
Distributions and Tax Information ........................................ B-19
Trustees and Executive Officers .......................................... B-22
The Fund's Investment Adviser ............................................ B-24
The Fund's Administrator ................................................. B-24
The Fund's Distributor ................................................... B-25
Execution of Portfolio Transactions ...................................... B-25
Additional Purchase and Redemption Information ........................... B-27
Determination of Share Price ............................................. B-30
Performance Information .................................................. B-31
General Information ...................................................... B-32
Financial Statements ..................................................... B-33
Appendix ................................................................. B-34
B-2
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust. The Trust
consists of various series which represent separate investment portfolios. This
SAI relates only to the Fund. Duncan-Hurst Capital Management Inc. ("the
Adviser") is the Fund's investment adviser.
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 Fund's Prospectus and this SAI omit certain 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 Fund has the investment objective of seeking long-term growth of
capital. The Fund is diversified, which under applicable federal law means that
as to 75% of its total assets, not 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 information supplements the
discussion of the Fund's investment objective and policies as set forth in its
Prospectus. There can be no guarantee that the Fund's objective will be
attained.
GLOSSARY OF PERMITTED INVESTMENTS
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 by dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
SMALL AND MEDIUM COMPANIES. The securities of small and medium-sized
companies often trade less frequently and in more limited volume, and may be
subject to more abrupt or erratic price movements, than securities of larger,
more established companies. Such companies may have limited product lines,
markets or financial resources, or may depend on a limited management group.
These risks are more pronounced in the securities of small-sized companies than
they are in the securities of medium-sized companies.
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in convertible
securities and warrants. A convertible security is a fixed-income security (a
debt instrument or a preferred stock) which may be converted at a stated price
within a specified period of time into a certain quantity of the common stock of
the same or a different issuer. Convertible securities are senior to common
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stocks in an issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
INVESTMENT COMPANIES. The Fund may under certain circumstances invest a
portion of its assets in other investment companies, including money market
funds. In addition to the Fund's advisory fee, an investment in an underlying
mutual fund will involve payment by the Fund of its pro rata share of advisory
and administrative fees charged by such fund.
FOREIGN INVESTMENTS AND CURRENCIES. The Fund may invest in up to 25% of its
net assets in securities of foreign issuers that are not publicly traded in the
United States. The Fund may also invest in American Depositary Receipts (ADRs")
and foreign securities traded on a national securities market, purchase and sell
foreign currency on a spot basis and enter into forward currency contracts (see
"Forward Currency Contracts," below).
AMERICAN DEPOSITARY RECEIPTS. The Fund may invest its assets in securities
of foreign issuers in the form of ADRs, which are receipts for the shares of a
foreign-based corporation. The Fund treats ADRs as interests in the underlying
securities for purposes of its investment policies. A purchaser of an
unsponsored ADR may not have unlimited voting rights and may not receive as much
information about the issuer of the underlying securities as with a sponsored
ADR.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
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of goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. The Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of the Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
EURO CONVERSION. Several European countries adopted a single uniform
currency known as the "euro," effective January 1, 1999. The euro conversion,
that will take place over a several-year period, could have potential adverse
effects on the Fund's ability to value its portfolio holdings in foreign
securities, and could increase the costs associated with the Fund's operations.
The Fund and the Adviser are working with providers of services to the Fund in
the areas of clearance and settlement of trade in an effect to avoid any
material impact on the Fund due to the euro conversion; there can be no
assurance, however, that the steps taken will be sufficient to avoid any adverse
impact on the Fund.
MARKET CHARACTERISTICS. The Adviser expects that many foreign securities in
which the Fund invests will be purchased in over-the-counter markets or on
exchanges located in the countries in which the principal offices of the issuers
of the various securities are located, if that is the best available market.
Foreign exchanges and markets may be more volatile than those in the United
States. While growing in volume, they usually have substantially less volume
than U.S. markets, and the Fund's foreign securities may be less liquid and more
volatile than U.S. securities. Moreover, settlement practices for transactions
in foreign markets may differ from those in United States markets, and may
include delays beyond periods customary in the United States. Foreign security
trading practices, including those involving securities settlement where Fund
assets may be released prior to receipt of payment or securities, may expose the
Fund to increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest and dividends payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to Fund shareholders.
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COSTS. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
EMERGING MARKETS. Some of the securities in which the Fund may invest may
be located in developing or emerging markets, which entail additional risks,
including less social, political and economic stability; smaller securities
markets and lower trading volume, which may result in less liquidity and greater
price volatility; national policies that may restrict the Fund's investment
opportunities, including restrictions on investments in issuers or industries,
or expropriation or confiscation of assets or property; and less developed legal
structures governing private or foreign investment.
OPTIONS AND FUTURES STRATEGIES. The Fund may purchase put and call options
and engage in the writing of covered call options and secured put options, and
employ a variety of other investment techniques. Specifically, the Fund may
engage in the purchase and sale of stock index future contracts and options on
such futures, all as described more fully below. Such investment policies and
techniques may involve a greater degree of risk than those inherent in more
conservative investment approaches.
The Fund will engage in such transactions only to hedge existing positions
and not for the purposes of speculation or leverage. The Fund will not engage in
such options or futures transactions unless it receives any necessary regulatory
approvals permitting it to engage in such transactions.
OPTIONS ON SECURITIES. To hedge against adverse market shifts, the Fund may
purchase put and call options on securities held in its portfolio. In addition,
the Fund may seek to increase its income in an amount designed to meet operating
expenses or may hedge a portion of its portfolio investments through writing
(that is, selling) "covered" put and call options. A put option provides its
purchaser with the right to compel the writer of the option to purchase from the
option holder an underlying security at a specified price at any time during or
at the end of the option period. In contrast, a call option gives the purchaser
the right to buy the underlying security covered by the option from the writer
of the option at the stated exercise price. A covered call option contemplates
that, for so long as the Fund is obligated as the writer of the option, it will
own (1) the underlying securities subject to the option or (2) securities
convertible into, or exchangeable without the payment of any consideration for,
the securities subject to the option. The value of the underlying securities on
which covered call options will be written at any one time by the Fund will not
exceed 25% of the Fund's total assets. The Fund will be considered "covered"
with respect to a put option it writes if, so long as it is obligated as the
writer of a put option, it segregates liquid assets that are acceptable to the
appropriate regulatory authority.
The Fund may purchase options on securities that are listed on securities
exchanges or that are traded over-the-counter ("OTC"). As the holder of a put
option, the Fund has the right to sell the securities underlying the option and
as the holder of a call option, the Fund has the right to purchase the
securities underlying the option, in each case at the option's exercise price at
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any time prior to, or on, the option's expiration date. The Fund may choose to
exercise the options it holds, permit them to expire or terminate them prior to
their expiration by entering into closing sale transactions. In entering into a
closing sale transaction, the Fund would sell an option of the same series as
the one it has purchased.
The Fund receives a premium when it writes call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, The Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. The Fund receives a premium when
it writes put options, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed out at a
profit. By writing a put, the Fund limits its opportunity to profit from an
increase in the market value of the underlying security above the exercise price
of the option for as long as the Fund's obligation as writer of the option
continues. Thus, in some periods, the Fund will receive less total return and in
other periods greater total return from its hedged positions than it would have
received from its underlying securities if unhedged.
In purchasing a put option, the Fund seeks to benefit from a decline in the
market price of the underlying security, whereas in purchasing a call option,
the Fund seeks to benefit from an increase in the market price of the underlying
security. If an option purchased is not sold or exercised when it has remaining
value, or if the market price of the underlying security remains equal to or
greater than the exercise price, in the case of a put, or remains equal to or
below the exercise price, in the case of a call, during the life of the option,
the Fund will lose its investment in the option. For the purchase of an option
to be profitable, the market price of the underlying security must decline
sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the
premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
OTC OPTIONS. OTC options differ from exchange-traded options in several
respects. They are transacted directly with dealers and not with a clearing
corporation, and there is a risk of non-performance by the dealer. However, the
premium is paid in advance by the dealer. OTC options are available for a
greater variety of securities and foreign currencies, and in a wider range of
expiration dates and exercise prices than exchange-traded options. Since there
is no exchange, pricing is normally done by reference to information from a
market maker, which information is carefully monitored or caused to be monitored
by the Adviser and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily
only by entering into a closing transaction. In the case of OTC options, there
can be no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, the Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
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entering into a closing sale transaction with the dealer that issued it.
Similarly, when the Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which it originally wrote the option. If a
covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security or foreign currency until the option expires or the
option is exercised. Therefore, the writer of a covered OTC call option may not
be able to sell an underlying security even though it might otherwise be
advantageous to do so. Likewise, the writer of a covered OTC put option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of an OTC
put or call option might also find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The Fund may purchase and write OTC put and call options in negotiated
transactions. The staff of the Securities and Exchange Commission has previously
taken the position that the value of purchased OTC options and the assets used
as "cover" for written OTC options are illiquid securities and, as such, are to
be included in the calculation of the Fund's 15% limitation on illiquid
securities. The Fund will attempt to enter into contracts with certain dealers
with which it writes OTC options. Each such contract will provide that the Fund
has the absolute right to repurchase the options it writes at any time at a
repurchase price which represents the fair market value, as determined in good
faith through negotiation between the parties, but which in no event will exceed
a price determined pursuant to a formula contained in the contract. Although the
specific details of such formula may vary among contracts, the formula will
generally be based upon a multiple of the premium received by the Fund for
writing the option, plus the amount, if any, of the option's intrinsic value.
The formula will also include a factor to account for the difference between the
price of the security and the strike price of the option. If such a contract is
entered into, the Fund will count as illiquid only the initial formula price
minus the option's intrinsic value.
The Fund will enter into such contracts only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York. Moreover,
such primary dealers will be subject to the same standards as are imposed upon
dealers with which the Fund enters into repurchase agreements.
STOCK INDEX OPTIONS. In seeking to hedge all or a portion of its
investment, the Fund may purchase and write put and call options on stock
indices listed on securities exchanges, which indices include securities held in
the Fund's portfolio.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the securities included in the index. Options on
stock indices are generally similar to options on specific securities. Unlike
options on specific securities, however, options on stock indices do not involve
the delivery of an underlying security; the option in the case of an option on a
stock index represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value of the
underlying stock index on the exercise date.
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When the Fund writes an option on a securities index, it will segregate
liquid assets in an amount equal to the market value of the option, and will
maintain while the option is open.
Stock index options are subject to position and exercise limits and other
regulations imposed by the exchange on which they are traded. If the Fund writes
a stock index option, it may terminate its obligation by effecting a closing
purchase transaction, which is accomplished by purchasing an option of the same
series as the option previously written. The ability of the Fund to engage in
closing purchase transactions with respect to stock index options depends on the
existence of a liquid secondary market. Although the Fund generally purchases or
writes stock index options only if a liquid secondary market for the options
purchased or sold appears to exist, no such secondary market may exist, or the
market may cease to exist at some future date, for some options. No assurance
can be given that a closing purchase transaction can be effected when the Fund
desires to engage in such a transaction.
RISKS RELATING TO PURCHASE AND SALE OF OPTIONS ON STOCK INDICES. Purchase
and sale of options on stock indices by the Fund are subject to certain risks
that are not present with options on securities. Because the effectiveness of
purchasing or writing stock index options as a hedging technique depends upon
the extent to which price movements in the Fund's portfolio correlate with price
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss on the purchase or writing of an
option on a stock index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Fund of options on stock indices will be
subject to the ability of the Adviser to correctly predict movements in the
direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks. In the event the Adviser is unsuccessful in predicting the
movements of an index, the Fund could be in a worse position than had no hedge
been attempted.
Stock index prices may be distorted if trading of certain stocks included
in the index is interrupted. Trading in stock index options also may be
interrupted in certain circumstances, such as if trading were halted in a
substantial number of stocks included in the index. If this occurred, the Fund
would not be able to close out options which it had purchased or written and, if
restrictions on exercise were imposed, might be unable to exercise an option it
holds, which could result in substantial losses to the Fund. However, it will be
the Fund's policy to purchase or write options only on indices which include a
sufficient number of stocks so that the likelihood of a trading halt in the
index is minimized.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may purchase
and sell stock index futures contracts. The purpose of the acquisition or sale
of a futures contract by the Fund is to hedge against fluctuations in the value
of its portfolio without actually buying or selling securities. The futures
contracts in which the Fund may invest have been developed by and are traded on
national commodity exchanges. Stock index futures contracts may be based upon
broad-based stock indices such as the S&P 500 or upon narrow-based stock
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indices. A buyer entering into a stock index futures contract will, on a
specified future date, pay or receive a final cash payment equal to the
difference between the actual value of the stock index on the last day of the
contract and the value of the stock index established by the contract. The Fund
may assume both "long" and "short" positions with respect to futures contracts.
A long position involves entering into a futures contract to buy a commodity,
whereas a short position involves entering into a futures contract to sell a
commodity.
The purpose of trading futures contracts is to protect the Fund from
fluctuations in the value of its investment securities without necessarily
buying or selling the securities. Because the value of the Fund's investment
securities will exceed the value of the futures contracts sold by the Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets. No consideration
is paid or received by the Fund upon trading a futures contract. Instead, upon
entering into a futures contract, the Fund is required to deposit an amount of
cash or U.S. Government securities generally equal to 10% or less of the
contract value. This amount is known as "initial margin" and is in the nature of
a performance bond or good faith deposit on the contract that is returned to the
Fund upon termination of the futures contract, assuming that all contractual
obligations have been satisfied; the broker will have access to amounts in the
margin account if the Fund fails to meet its contractual obligations. Subsequent
payments, known as "variation margin," to and from the broker, will be made
daily as the price of the currency or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, the Fund may elect to close a position by
taking an opposite position, which will operate to terminate the Fund's existing
position in the contract.
Each short position in a futures or options contract entered into by the
Fund is secured by the Fund's ownership of underlying securities. The Fund does
not use leverage when it enters into long futures or options contracts; the Fund
segregates, with respect to each of its long positions, liquid assets having a
value equal to the underlying commodity value of the contract.
The Fund may trade stock index futures contracts to the extent permitted
under rules and interpretations adopted by the Commodity Futures Trading
Commission (the "CFTC"). U.S. futures contracts have been designed by exchanges
that have been designated as "contract markets" by the CFTC, and must be
executed through a futures commission merchant, or brokerage firm, that is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.
The Fund intends to comply with CFTC regulations and avoid "commodity pool
operator" or "commodity trading advisor" status. These regulations require that
the Fund use futures and options positions (a) for "bona fide hedging purposes"
(as defined in the regulations) or (b) for other purposes so long as aggregate
initial margins and premiums required in connection with non-hedging positions
do not exceed 5% of the liquidation value of the Fund's portfolio. The Fund
currently does not intend to engage in transactions in futures contracts or
options thereon for speculation, but will engage in such transactions only for
bona fide hedging purposes.
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RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. There are several risks in using stock index futures contracts as
hedging devices. First, all participants in the futures market are subject to
initial margin and variation margin requirements. Rather than making additional
variation margin payments, investors may close the contracts through offsetting
transactions which could distort the normal relationship between the index or
security and the futures market. Second, the margin requirements in the futures
market are lower than margin requirements in the securities market, and as a
result the futures market may attract more speculators than does the securities
market. Increased participation by speculators in the futures market may also
cause temporary price distortions. Because of possible price distortion in the
futures market and because of imperfect correlation between movements in stock
indices or securities and movements in the prices of futures contracts, even a
correct forecast of general market trends may not result in a successful hedging
transaction over a very short period.
Another risk arises because of imperfect correlation between movements in
the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to stock index futures contracts, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the securities included in the applicable stock index. It is
possible that the Fund might sell stock index futures contracts to hedge its
portfolio against a decline in the market, only to have the market advance and
the value of securities held in the Fund's portfolio decline. If this occurred,
the Fund would lose money on the contracts and also experience a decline in the
value of its portfolio securities. While this could occur, the Adviser believes
that over time the value of the Fund's portfolio will tend to move in the same
direction as the market indices and will attempt to reduce this risk, to the
extent possible, by entering into futures contracts on indices whose movements
they believe will have a significant correlation with movements in the value of
the Fund's portfolio securities sought to be hedged.
Successful use of futures contracts by the Fund is subject to the ability
of the Adviser to predict correctly movements in the direction of the market. If
the Fund has hedged against the possibility of a decline in the value of the
stocks held in its portfolio and stock prices increase instead, the Fund would
lose part or all of the benefit of the increased value of its security which it
has hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices which reflect
the rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
LIQUIDITY OF FUTURES CONTRACTS. The Fund may elect to close some or all of
its contracts prior to expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position held by the Fund. The Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to the Fund, and the
Fund realizes a loss or a gain. Positions in futures contracts may be closed
only on an exchange or board of trade providing a secondary market for such
futures contracts. Although the Fund intends to enter into futures contracts
only on exchanges or boards of trade where there appears to be an active
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secondary market, there is no assurance that a liquid secondary market will
exist for any particular contract at any particular time.
In addition, most domestic futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
RISKS AND SPECIAL CONSIDERATIONS OF OPTIONS ON FUTURES CONTRACTS. The use
of options on stock index futures contracts also involves additional risk.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transactions costs). The writing of a call option on a futures contract
generates a premium which may partially offset a decline in the value of the
Fund's portfolio assets. By writing a call option, the Fund becomes obligated to
sell a futures contract, which may have a value higher than the exercise price.
Conversely, the writing of a put option on a futures contract generates a
premium, but the Fund becomes obligated to purchase a futures contract, which
may have a value lower than the exercise price. Thus, the loss incurred by the
Fund in writing options on futures contracts may exceed the amount of the
premium received.
The effective use of options strategies is dependent, among other things,
on the Fund's ability to terminate options positions at a time when the Adviser
deems it desirable to do so. Although the Fund will enter into an option
position only if the Adviser believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
The Fund's purchase or sale of put or call options on futures contracts
will be based upon predictions as to anticipated market trends by the Adviser,
which could prove to be inaccurate. Even if the expectations of the Adviser are
correct, there may be an imperfect correlation between the change in the value
of the options and of the Fund's portfolio securities.
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Investments in futures contracts and related options by their nature tend
to be more short-term than other equity investments made by the Fund. The Fund's
ability to make such investments, therefore, may result in an increase in the
Fund's portfolio activity and thereby may result in the payment of additional
transaction costs.
SWAP CONTRACTS
TYPES OF SWAPS. Swaps are a specific type of OTC derivative involving
privately negotiated agreements with a trading counterparty. The Fund may use
the following (i) Long equity swap contracts: where the Fund pays a fixed rate
plus the negative performance, if any, and receives the positive performance, if
any, of an index or basket of securities; (ii) Short equity swap contacts: where
the Fund receives a fixed rate plus the negative performanc3e, if any, and pays
the positive performance of an index or basket of securities; and (iii)
Contracts for differences: equity swaps that contain both a long and short
equity component.
USES. The Fund may use swaps for (i) traditional hedging purposes - short
equity swap contracts used to hedge against an equity risk already present in
the Fund; (ii) anticipatory purchase hedging purposes - where the Fund
anticipates significant cash purchase transactions and enters into long equity
swap contracts to obtain market exposure until such a time where direct
investment becomes possible or can be made efficiently; (iii) anticipatory
redemption hedging purposes where the Fund expects significant demand for
redemptions and enters into short equity swap contracts to allow it to dispose
of securities in a more orderly fashion (iv) direct investment - where the Fund
purchases (particularly long equity swap contracts) in place of investing
directly in securities; (v) risk management - where the Fund uses equity swap
contracts to adjust the weight of the Fund to a level the Advisor feels is the
optimal exposure to individual markets, sectors and equities.
LIMITATIONS ON USE. There is generally no limit on the use of swaps except
to the extent such swaps are subject to the liquidity requirements of the Fund.
RISKS RELATED TO SWAPS. Swaps may relate to stocks, bonds, interest rates,
currencies or currency exchange rates, and related indices. The Fund can use
swaps for many purposes, including hedging and investment gain. The Fund may
also use swaps as a way to efficiently adjust its exposure to various
securities, markets, and currencies without having to actually sell current
assets and purchase different ones. The use of swaps involves risks different
from, or greater than the risks associated with investing directly in securities
and other more traditional investments.
Swaps are subject to a number of risks described elsewhere in this section,
including management risk, liquidity risk and the credit risk of the
counterparty to the swaps contract. Since their value is calculated and derived
from the value of other assets instruments or references, there is greater risk
that the swap contract will be improperly valued. Valuation, although based on
current market pricing data, is typically done by the counterparty to the swap
contract. Swaps also involve the risk that changes in the value of the swaps may
not correlate perfectly with relevant assets, rates or indices they are designed
to hedge or to closely track. Also suitable swaps transactions may not be
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available in all circumstances and there can be no assurance that the Fund will
engage in these transactions to reduce exposure to other risks when that would
be beneficial.
CREDIT AND COUNTERPARTY RISK. If the counterparty to the swap contract does
not make timely principal interest or settle payments when due, or otherwise
fulfill its obligations, the Fund could lose money on its investment.
LIQUIDITY RISK. Liquidity risk exists when particular investments are
difficult to purchase to sell due to a limited market or to legal restrictions,
such that the Fund may be prevented from selling particular securities at the
price at which the Fund values them. The Fund is subject to liquidity risk,
particularly with respect to the use of swaps.
MANAGEMENT RISK. As noted above, the Advisor may also fail to use swaps
effectively. For example, the Advisor may choose to hedge or not to hedge at
inopportune times. This will adversely affect the Fund's performance.
FORWARD CURRENCY CONTRACTS. The Fund may enter into forward currency
contracts in anticipation of changes in currency exchange rates. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. For
example, a Fund might purchase a particular currency or enter into a forward
currency contract to preserve the U.S. dollar price of securities it intends to
or has contracted to purchase. Alternatively, it might sell a particular
currency on either a spot or forward basis to hedge against an anticipated
decline in the dollar value of securities it intends to or has contracted to
sell. Although this strategy could minimize the risk of loss due to a decline in
the value of the hedged currency, it could also limit any potential gain from an
increase in the value of the currency.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
respect to its portfolio securities. Pursuant to such agreements, the Fund
acquires securities from financial institutions such as banks and broker-dealers
as are deemed to be creditworthy by the Adviser, subject to the seller's
agreement to repurchase and the Fund's agreement to resell such securities at a
mutually agreed upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the underlying
portfolio security). Securities subject to repurchase agreements will be held by
the Custodian or in the Federal Reserve/Treasury Book-Entry System or an
equivalent foreign system. The seller under a repurchase agreement will be
required to maintain the value of the underlying securities at not less than
102% of the repurchase price under the agreement. If the seller defaults on its
repurchase obligation, the Fund will suffer a loss to the extent that the
proceeds from a sale of the underlying securities are less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause the Fund's rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans under the Investment
Company Act (the "1940 Act").
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BORROWING. The Fund is authorized to borrow money from time to time for
temporary, extraordinary or emergency purposes or for clearance of transactions
in amounts not to exceed 33- 1/3% of the value of its total assets at the time
of such borrowings. The use of borrowing by the Fund involves special risk
considerations that may not be associated with other funds having similar
objectives and policies. Since substantially all of the Fund's assets fluctuate
in value, while the interest obligation resulting from a borrowing will be fixed
by the terms of the Fund's agreement with its lender, the net asset value per
share of the Fund will tend to increase more when its portfolio securities
increase in value and to decrease more when its portfolio assets decrease in
value than would otherwise be the case if the Fund did not borrow funds. In
addition, interest costs on borrowings may fluctuate with changing market rates
of interest and may partially offset or exceed the return earned on borrowed
funds. Under adverse market conditions, the Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities in
an amount not exceeding 33-1/3% of its total assets to financial institutions
such as banks and brokers if the loan is collateralized in accordance with
applicable regulations. Under the present regulatory requirements which govern
loans of portfolio securities, the loan collateral must, on each business day,
at least equal the value of the loaned securities and must consist of cash,
letters of credit of domestic banks or domestic branches of foreign banks, or
securities of the U.S. Government or its agencies. To be acceptable as
collateral, letters of credit must be irrevocable and obligate a bank to pay
amounts demanded by the Fund if the demand meets the terms of the letter. Such
terms and the issuing bank would have to be satisfactory to the Fund. Any loan
might be secured by any one or more of the three types of collateral. The terms
of the Fund's loans must permit the Fund to reacquire loaned securities on three
days' notice or in time to vote on any serious matter and must meet certain
tests under the Internal Revenue Code (the "Code").
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 Adviser will
monitor the amount of illiquid securities in the Fund's portfolio, under the
supervision of the Trust's Board of Trustees, to ensure compliance with the
Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
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<PAGE>
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
the Trust's Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. However, these may become illiquid if institutions become for a time
disinterested in buying these securities. In all other cases, however,
securities subject to restrictions on resale will be deemed illiquid.
WHEN-ISSUED SECURITIES. The Fund may from time to time purchase securities
on a "when-issued" basis. The price of such securities, which may be expressed
in yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase; during
the period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund. To the extent that assets of the
Fund are held in cash pending the settlement of a purchase of securities, the
Fund would earn no income; however, it is the Fund's intention to be fully
invested to the extent practicable and subject to the policies stated above.
While when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time 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 will segregate liquid securities equal in value to
commitments for when-issued securities.
SHORT SALES. The Fund is authorized to make short sales of securities. In a
short sale, the Fund sells a security which it does not own, in anticipation of
a decline in the market value of the security. To complete the sale, the Fund
must borrow the security (generally from the broker through which the short sale
is made) in order to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The Fund is said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Fund has
a short position can range from as little as one day to more than a year. Until
the security is replaced, the proceeds of the short sale are retained by the
broker, and the Fund is required to pay to the broker a negotiated portion of
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<PAGE>
any dividends or interest which accrue during the period of the loan. To meet
current margin requirements, the Fund is also required to deposit with the
broker additional cash or securities so that the total deposit with the broker
is maintained daily at 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Short sales by the Fund create opportunities to increase the Fund's return
but, at the same time, involve specific risk considerations and may be
considered a speculative technique. Since the Fund in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on the date of the short sale, the Fund's
net asset value per share will tend to increase more when the securities it has
sold short decrease in value, and to decrease more when the securities it has
sold short increase in value, than would otherwise be the case if it had not
engaged in such short sales. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium, dividends or
interest the Fund may be required to pay in connection with the short sale.
Furthermore, under adverse market conditions the Fund might have difficulty
purchasing securities to meet its short sale delivery obligations, and might
have to sell portfolio securities to raise the capital necessary to meet its
short sale obligations at a time when fundamental investment considerations
would not favor such sales.
SHORT-TERM INVESTMENTS. The Fund may invest in any of the following
securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund
may acquire certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar- denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under its investment objective and policies stated above
and in its prospectus, the Fund may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Issues of commercial paper
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<PAGE>
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 Adviser 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 objective and policies, (b) through the
lending of its portfolio securities as described above, or (c) to the extent the
entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except from banks. Any such borrowing will be made
only if immediately thereafter there is an asset coverage of at least 300% of
all borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowings.
3. Purchase securities on margin, participate in a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase real estate, commodities or commodity contracts (As a matter of
operating policy, the Board of Trustees may authorize the Fund in the future to
engage in certain activities regarding futures contracts for bona fide hedging
purposes; any such authorization will be accompanied by appropriate notification
to shareholders).
5. Invest 25% or more of the market value of its total assets in the
securities of companies engaged in any one industry. (Does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures or repurchase transactions.
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<PAGE>
7. With respect to 75% of its total assets, invest more than 5% of its
total assets in securities of a single issuer or hold more than 10% of the
voting securities of such issuer. (Does not apply to investment in the
securities of the U.S. Government, its agencies or instrumentalities.)
The Fund observes the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. The Fund may not:
8. Invest in any issuer for purposes of exercising control or management
9. Invest in securities of other investment companies except as permitted
under the Investment Company Act of 1940.
10. Invest, in the aggregate, more than 15% of its net assets in securities
with legal or contractual restrictions on resale, securities which are not
readily marketable and repurchase agreements with more than seven days to
maturity.
11. With respect to fundamental investment restriction 2(a) above, the Fund
will not purchase portfolio securities while outstanding borrowings exceed 5% of
its assets.
If a percentage restriction set forth in the prospectus or in this SAI is
adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except with respect to borrowing or the purchase
of restricted or illiquid securities.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually, as described in the
Prospectus. 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 qualify and elect to be treated as a regulated
investment company under Subchapter M of the Code, provided it complies with all
applicable requirements regarding the source of its income, diversification of
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<PAGE>
its assets and timing of distributions. The Fund's policy is to distribute to
shareholders all of its investment company taxable income and any net realized
long-term capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes. To comply with the requirements, the Fund
must also distribute (or be deemed to have distributed) by December 31 of each
calendar year (I) at least 98% of ordinary income for such year, (ii) at least
98% of the excess of realized capital gains over realized capital losses for the
12-month period ending on October 31 during such year and (iii) any amounts from
the prior calendar year that were not distributed and on which the Fund paid no
federal income tax.
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment policies, it is
expected that dividends from domestic corporations may be part of the Fund's
gross income and that, accordingly, part of the distributions by the Fund may be
eligible for the dividends-received deduction for corporate shareholders.
However, the portion of the Fund's gross income attributable to qualifying
dividends is largely dependent on the Fund's investment activities for a
particular year and therefore cannot be predicted with any certainty. The
deduction may be reduced or eliminated if Fund shares held by a corporate
investor are treated as debt-financed or are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
A redemption or exchange of Fund shares may result in recognition of a
taxable gain or loss. In determining gain or loss from an exchange of Fund
shares for shares of another mutual fund, the sales charge incurred in
purchasing the shares that are surrendered will be excluded from their tax basis
to the extent that a sales charge that would otherwise be imposed in the
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<PAGE>
purchase of the shares received in the exchange is reduced. Any portion of a
sales charge excluded from the basis of the shares surrendered will be added to
the basis of the shares received. Any loss realized upon a redemption or
exchange may be disallowed under certain wash sale rules to the extent shares of
the same Fund are purchased (through reinvestment of distributions or otherwise)
within 30 days before or after the redemption or exchange.
Under the Code, the Fund will be required to report to the Internal Revenue
Service all distributions of taxable income and capital gains as well as gross
proceeds from the redemption or exchange of Fund shares, except in the case of
exempt shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at the rate of 31 percent in the case of
non-exempt shareholders who fail to furnish the Fund with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. If the withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Fund with their
taxpayer identification numbers or certify their exempt status in order to avoid
possible erroneous application of backup withholding. The Fund reserves the
right to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
The use of hedging strategies, such as entering into forward contracts,
involves complex rules that will determine the character and timing of
recognition of the income received in connection therewith by the Fund. Income
from foreign currencies (except certain gains therefrom that may be excluded by
future regulations) and income from transactions in forward contracts derived by
the Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
Any security or other position entered into or held by the Fund that
substantially diminishes the Fund's risk of loss from any other position held by
the Fund may constitute a "straddle" for federal income tax purposes. In
general, straddles are subject to certain rules that may affect the amount,
character and timing of the Fund's gains and losses with respect to straddle
positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.
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<PAGE>
Certain forward contracts that are subject to Section 1256 of the Code
("Section 1256 Contracts") and that are held by the Fund at the end of its
taxable year generally will be required to be "marked to market" for federal
income tax purposes, that is, deemed to have been sold at market value. Sixty
percent of any net gain or loss recognized on these deemed sales and 60% of any
net gain or loss realized from any actual sales of Section 1256 Contracts will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions that may affect the amount, timing and character
of income, gain or loss recognized by the Fund. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency forward
contracts is treated as ordinary income or loss. Some part of the Fund's gain or
loss on the sale or other disposition of shares of a foreign corporation may,
because of changes in foreign currency exchange rates, be treated as ordinary
income or loss under Section 988 of the Code rather than as capital gain or
loss.
The Fund will not be subject to tax in the Commonwealth of Massachusetts as
long as it qualifies as a regulated investment company for federal income tax
purposes. Distributions and the transactions referred to in the preceding
paragraphs may be subject to state and local income taxes, and the tax treatment
thereof may differ from the federal income tax treatment. Moreover, the above
discussion is not intended to be a complete discussion of all applicable federal
tax consequences of an investment in the Fund. Shareholders are advised to
consult with their own tax advisers concerning the application of federal, state
and local taxes to an investment in the Fund.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
This discussion and the related discussion in the Prospectus have been
prepared by the Fund's management, and counsel to the Fund has expressed no
opinion in respect thereof.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by the
initial shareholders of the Trust, are responsible for the overall management of
the Trust, including general supervision and review of the investment activities
of the Fund. The Trustees, in turn, elect the officers of the Trust, who are
responsible for administering the day-to-day operations of the Trust and its
separate series. The current Trustees and officers, their affiliations, dates of
birth and principal occupations for the past five years are set forth below.
Unless noted otherwise, each person has held the position listed for a minimum
of five years.
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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 L.L.C. ("ICA") (mutual fund administrator and the Trust's
administrator),and Vice President of First Fund Distributors, Inc. ("FFD") (a
registered broker-dealer and the Fund's Distributor).
Dorothy A. Berry, 08/12/43 Chairman and Trustee
14 Five Roses East, Ancram, NY 12502. President, Talon Industries (venture
capital and business consulting); formerly Chief Operating Officer, Integrated
Asset Management (investment adviser and manager) and formerly President, Value
Line, Inc., (investment advisory and financial publishing firm).
Wallace L. Cook 09/10/39 Trustee
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel 05/23 /38 Trustee
2 Crown Cove Lane, Savannah, GA 31411. Private Investor. Formerly Managing
Director, Premier Solutions, Ltd. 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 other portfolios of the Trust. This total amount is allocated
among the portfolios. Disinterested Trustees receive an annual retainer of
$10,000 and a fee of $2,500 for each regularly scheduled meeting. These Trustees
also receive a fee of $1,000 for any special meeting attended. The Chairman of
the Board of Trustees receives an additional annual retainer of $5,000.
Disinterested trustees are also reimbursed for expenses in connection with each
Board meeting attended. No other compensation or retirement benefits were
received by any Trustee or officer from the portfolios of the Trust.
Name of Trustee Total Annual Compensation
- --------------- -------------------------
Dorothy A. Berry $25,000
Wallace L. Cook $20,000
Carl A. Froebel $20,000
Rowley W.P. Redington $20,000
It is estimated that during the Fund's first fiscal year, Trustees fees and
expenses to be allocated to the Fund should not exceed $3,000.
THE FUND'S INVESTMENT ADVISER
As stated in the Prospectus, investment advisory services are provided to
the Fund by Duncan- Hurst Capital Management Inc., the Adviser, pursuant to an
Investment Advisory Agreement. After its initial two year term, the Investment
Advisory Agreement continues in effect for successive annual periods so long as
such continuation is approved at least annually by the vote of (1) the Board of
Trustees of the Trust (or a majority of the outstanding shares of the Fund to
which the agreement applies), and (2) a majority of the Trustees who are not
interested persons of any party to the Agreement, in each case cast in person at
a meeting called for the purpose of voting on such approval. Any such agreement
may be terminated at any time, without penalty, by either party to the agreement
upon sixty days' written notice and is automatically terminated in the event of
its "assignment," as defined in the 1940 Act.
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), a corporation owned and controlled by
Messrs. Banhazl, Paggioli and Wadsworth with offices at 2020 East Financial Way,
Ste. 100, Glendora, CA 91741 and 4455 E. Camelback Rd., Ste. 261-E, Phoenix, AZ
85018. The Administration Agreement provides that the Administrator will prepare
and coordinate reports and other materials supplied to the Trustees; prepare
and/or supervise the preparation and filing of all securities filings, periodic
financial reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required filings necessary to maintain
the Fund's ability to sell shares in all states where it currently does, or
intends to do business; coordinate the preparation, printing and mailing of all
materials (e.g., annual reports) required to be sent to shareholders; coordinate
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the preparation and payment of Fund related expenses; monitor and oversee the
activities of the Fund's servicing agents (i.e., transfer agent, custodian, fund
accountants, etc.); review and adjust as necessary the Fund's daily expense
accruals; and perform such additional services as may be agreed upon by the Fund
and the Administrator.
For its services, the Administrator receives a monthly fee from the Fund at
the following annual rate:
Less than $22.5 million $45,000
$22.5 million to $50 million 0.20%
$50 million to $100 million 0.15%
$100 million to $150 million 0.10%
Over $150 million 0.05%
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc., (the "Distributor"), a corporation owned by
Mr. Banhazl, Mr. Paggioli and Mr. Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. After its
initial two year term, the Distribution Agreement between the Fund and the
Distributor continues in effect for periods not exceeding one year if approved
at least annually by (I) the Board of Trustees or the vote of a majority of the
outstanding shares of the Fund (as defined in the 1940 Act) and (ii) a majority
of the Trustees who are not interested persons of any such party, in each case
cast in person at a meeting called for the purpose of voting on such approval.
The Distribution Agreement may be terminated without penalty by the parties
thereto upon sixty days' written notice, and is automatically terminated in the
event of its assignment as defined in the 1940 Act.
The Fund has adopted a Distribution Plan in accordance with Rule 12b-1 (the
"Plan") under the 1940 Act that permits the Fund to pay distribution fees for
the sale and distribution of its Class R shares. The Plan provides that the Fund
will pay a fee to the Adviser as Distribution Coordinator at an annual rate of
up to 0.25% of the average daily net assets of the Fund's Class R shares. The
fee is paid to the Adviser as reimbursement for, or in anticipation of, expenses
incurred for distribution related activity.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser determines which
securities are to be purchased and sold by the Fund and which brokers and
dealers will be used to execute the Fund's portfolio transactions. Purchases and
sales of securities in the over-the-counter market will be executed directly
with a "market-maker" unless, in the Adviser's opinion, a better price and
execution can otherwise be obtained by using a broker for the transaction.
B-25
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Where possible, transactions are effected with dealers (including banks)
that specialize in the types of securities the Fund will hold, unless better
executions are available elsewhere. Transactions with market-makers include a
"spread" between the market-maker's bid and asked prices and may also include a
markup from the asked price (in the case of a purchase) or markdown from the bid
price (in the case of a sale). Transactions with other dealers may also include
such a markup or markups. The Fund may also buy securities directly from issuers
or from underwriters in public offerings. Purchases from underwriters include a
"spread" between the public offering price and the discounted price paid by the
underwriter to the issuer.
In placing portfolio transactions, the Adviser uses its best efforts to
choose a broker or dealer that will provide the most favorable price and
execution available (known as "best execution"). In assessing a broker's or
dealer's ability to provide such price and execution, the Adviser will consider
a broad range of factors, including the difficulty of executing the particular
transaction, the dealer's risk in positioning a block of securities, the
clearance, settlement, and other operational capabilities of the broker or
dealer generally and in connection with securities of the type involved, the
broker's or dealer's ability and willingness to commit its capital to facilitate
transactions (by participating for its own account); the broker's or dealer's
reliability, integrity and financial stability; and the importance of speed or
confidentiality in the particular transaction.
Where the Adviser determines that more than one broker can provide best
execution, the Adviser may also consider whether one or more of such brokers has
provided or is willing to provide "research," services or products to the
Adviser, even if the commissions the Fund will pay are higher than the lowest
commission available. This is known as paying for those services or products
with "soft dollars." Because "research" services or products may benefit the
Adviser, the Adviser may be considered to have a conflict of interest in
allocating brokerage business, including an incentive to cause the Fund to
effect more transactions than they might otherwise do. A federal statute
protects investment advisers from liability for such conflicts of interest as
long as, among other things, the adviser determines in good faith that the
commissions paid are reasonable in light of the value of both the brokerage
services and the research acquired. For these purposes, "research" includes all
services or products the Adviser uses to lawfully and appropriately assist it in
discharging its investment advisory duties. Examples of the types of research
services and products the Adviser may acquire include economic surveys, data and
analyses; financial publications; recommendations or other information about
particular companies and industries (through research reports and otherwise);
financial database software and services, analytical software and computer
hardware used in investment analysis and decisionmaking. The Adviser may use
soft dollars from the Fund's securities transactions to acquire research
services or products that are not directly useful to the Fund and that may be
useful to the Adviser in advising other clients.
In selecting brokers and dealers the Adviser may also consider whether a
broker or dealer has paid or is willing to pay expenses that the Fund would
otherwise bear in recognition of transaction business. This use of the Fund's
soft dollars does not generally involve a conflict of interest on the Adviser's
part, except to the extent it reduces Fund expenses that the Adviser might
otherwise be obligated to consider it appropriate to defray out of its own
resources.
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<PAGE>
The Adviser may consider the extent to which a broker or dealer has sold
Fund shares in determining whether to use that broker or dealer for portfolio
transactions. The Fund does not use the Distributor to execute portfolio
transactions.
The Adviser manages accounts with substantially the same objective as the
Fund and other accounts with objectives that are similar in some respects to
those of the Fund, including other mutual funds. As a result, purchases and
sales of the same security are often acceptable and desirable for the Fund and
for other accounts the Adviser manages at the same time. The Adviser attempts to
allocate transaction and investment opportunities among the Fund and its clients
on an equitable basis, considering each account's objectives, programs,
limitations and capital available for investment. However, transactions for such
other accounts could differ in substance, timing and amount from transactions
for the Fund. To the extent the Fund and other accounts seek to acquire the same
security simultaneously, the Fund may not be able to acquire as large a portion
of the security as it desires, or it may have to pay a higher price for the
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 a security at the same time sales are
being made for other of the Adviser's clients. When the Fund and one or more of
such accounts seek to buy or sell the same security simultaneously, each day's
transactions in the security will be allocated among the Fund and the other
accounts in a manner the Adviser deems equitable, generally based on order size,
each participating account will receive the average price and will bear a
proportionate share of all transactions costs, based on the size of that
account's order. This could have a detrimental effect on the price or value the
Fund receives in transactions. However, it is believed that over time the Fund's
ability to participate in volume transactions and a systematic approach to
allocating transaction opportunities is equitable and results in better overall
executions for the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
You may purchase shares of the Fund from selected securities brokers,
dealers or financial intermediaries. Investors should contact these agents
directly for appropriate instructions, as well as information pertaining to
accounts and any service or transaction fees that may be charged by those
agents. Purchase orders through securities brokers, dealers and other financial
intermediaries are effected at the next-determined net asset value after receipt
of the order by such agent before the Fund's daily cutoff time. Orders received
after that time will be purchased at the next-determined net asset value.
B-27
<PAGE>
BUYING SHARES BY PAYMENT IN KIND
In certain situations, Fund shares may be purchased by tendering payment in
kind in the form of shares of stock, bonds or other securities. Any securities
used to buy Fund shares must be readily marketable, their acquisition consistent
with the Fund's objective and otherwise acceptable to the Adviser. For further
information, call the Fund at (800) 558-9105.
The public offering price of Fund shares is the net asset value. The Fund
receives the net asset value. Shares are purchased at the public offering price
next determined after the Transfer Agent receives your order in proper form as
discussed in the Fund's Prospectus. In most cases, in order to receive that
day's public offering price, the Transfer Agent must receive your order in
proper form before the close of regular trading on the New York Stock Exchange
("NYSE"). If you buy shares through your investment representative, the
representative must receive your order before the close of regular trading on
the NYSE to receive that day's public offering price. Orders are in proper form
only after funds are converted to U.S. funds.
If you are considering redeeming, exchanging or transferring shares to
another person shortly after purchase, you should pay for those shares with a
certified check to avoid any delay in redemption, exchange or transfer.
Otherwise the Fund may delay payment until the purchase price of those shares
has been collected or, if you redeem or exchange 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 Adviser or the Distributor such rejection
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts, for
employees of the Adviser or under circumstances where certain economies can be
achieved in sales of the Fund's shares.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative. The Fund
will forward redemption proceeds or redeem shares for which it has collected
payment of the purchase price.
Payments to shareholders for Fund shares redeemed directly from the Fund
will be made as promptly as possible but no later than seven days after receipt
by the Fund's Transfer Agent of the written request with complete information
and meeting all the requirements discussed in the Fund's Prospectus, except that
the Fund may suspend the right of redemption or postpone the date of payment
during any period when (a) trading on the NYSE is restricted as determined by
the SEC or the NYSE is closed for other than weekends and holidays; (b) an
emergency exists as determined by the SEC making disposal of portfolio
securities or valuation of net assets of the Fund not reasonably practicable; or
B-28
<PAGE>
(c) for such other period as the SEC may permit for the protection of the Fund's
shareholders. At various times, the Fund may be requested to redeem shares for
which it has not yet received confirmation of good payment. In this
circumstance, the Fund may delay the redemption until payment for the purchase
of such shares has been collected and confirmed to the Fund.
SELLING SHARES DIRECTLY TO THE FUND
Send a signed letter of instruction to the Transfer Agent. The price you
will receive is the next net asset value calculated after your order is received
by the Transfer Agent with complete information and meeting all the requirements
discussed in the Fund's Prospectus. In order to receive that day's net asset
value, the Transfer Agent must receive your request before the close of regular
trading on the NYSE.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close
of regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services. If you
sell shares having a net asset value of $100,000 a signature guarantee is
required.
If you want your redemption proceeds sent to an address other than your
address as it appears on the Transfer Agent's records, a signature guarantee is
required. The Fund may require additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Transfer Agent for details.
Signature guarantees may be obtained from a bank, broker-dealer, credit
union (if authorized under state law), securities exchange or association,
clearing agency or savings institution. A notary public cannot provide a
signature guarantee.
DELIVERY OF PROCEEDS
The Fund generally sends you payment for your shares the business day after
your request is received in proper form, assuming the Fund has collected payment
of the purchase price of your shares. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, but only as
authorized by SEC rules, as stated above under "How to Sell Shares."
TELEPHONE REDEMPTIONS
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
B-29
<PAGE>
chosen by the shareholder or joint shareholders in his or their latest Account
Application or other written request for services, including purchasing,
exchanging or redeeming shares of the Fund and depositing and withdrawing monies
from the bank account specified in the shareholder's latest Account Application
or as otherwise properly specified to the Fund in writing.
The Transfer Agent will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails to
employ reasonable procedures, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. An investor agrees, however, that to
the extent permitted by applicable law, neither the Fund nor its agents will be
liable for any loss, liability, cost or expense arising out of any redemption
request, including any fraudulent or unauthorized request. For information,
consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
REDEMPTIONS-IN-KIND
Subject to compliance with applicable regulations, the Fund has reserved
the right to pay the redemption price of its shares, either totally or
partially, by a distribution in kind of readily marketable 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. The Trust has filed an election under 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 value of shares on redemption or repurchase may be more or less than
the investor's cost, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value of shares of the Fund will
be determined once daily as of the close of public trading on the NYSE (normally
4:00 p.m. Eastern time) on each day that the NYSE is open for trading. It is
expected that the NYSE will be closed on Saturdays and Sundays and on New Year's
Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas. The Fund does not
expect to determine the net asset value of shares on any day when the NYSE is
not open for trading even if there is sufficient trading in its portfolio
securities on such days to materially affect the net asset value per share.
B-30
<PAGE>
However, the net asset value of Fund shares may be determined on days the NYSE
is closed or at times other than 4:00 p.m. if the Board of Trustees decides it
is necessary.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the last 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.
Trading in foreign securities markets is normally completed well before the
close of the NYSE. In addition, foreign securities trading may not take place on
all days on which the NYSE is open for trading, and may occur in certain foreign
markets on days on which the Fund's net asset value is not calculated. Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of the NYSE will not be reflected in the
calculation of net asset value unless the Board of Trustees deems that the
particular event would affect net asset value, in which case an adjustment will
be made. Assets or liabilities expressed in foreign currencies are translated,
in determining net asset value, into U.S. dollars based on the spot exchange
rates at 1:00 p.m., Eastern time, or at such other rates as the Adviser may
determine to be appropriate.
The net asset value per share of Class R and Class I shares of the Fund are
calculated separately. The net asset value of each class 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. The net asset value of Class R shares and Class I
shares will differ because they have different expenses.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Fund's average annual
compounded rate of return over the most recent four calendar quarters and the
period from the Fund's inception of operations. The Fund may also advertise
aggregate and average total return information over different periods of time.
The Fund's total return may be compared to relevant indices, including
Morgan Stanley Capital International (MSCI) EAFE (Europe, Australia, Far East)
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
B-31
<PAGE>
used in advertisements and in information furnished to present or prospective
investors in the Fund.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which the
maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
UMB Bank, N.A. acts as Custodian of the securities and other assets of the
Fund. National Financial Data Services, P.O. Box 419284, Kansas City, MO
64141-6284, 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.
_______________________________, are the independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th Floor,
San Francisco, California 94104, are legal counsel to the Fund.
The 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 limited number of full and fractional shares of beneficial interest,
without par value, which may be issued in any number of series. The Board of
B-32
<PAGE>
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.
FINANCIAL STATEMENTS
The Fund's annual reports to shareholders for its first fiscal year will be
a separate document supplied with this SAI and the financial statements,
accompanying notes and report of independent accountants appearing therein will
be incorporated by reference in future SAIs.
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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".
B-34
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
PART C
ITEM 23. EXHIBITS.
(1) Agreement and Declaration of Trust (1)
(2) By-Laws (1)
(3) Specimen stock certificate (6)
(4)(a) Investment Advisory Agreement-Duncan-Hurst Large Cap
Growth-20 Fund and Duncan-Hurst Aggressive Growth Fund (8)
(b) Form of Investment Advisory Agreement-Duncan-Hurst
International Growth Fund and Duncan-Hurst Technology Fund
(5) Form of Distribution Agreement
(6) Not applicable
(7) Form of Custodian Agreement with Star Bank, NA (5)
(8) (1) Form of Administration Agreement with Investment Company
Administration, LLC (3)
(2) (a) Fund Accounting Service Agreement with
American Data Services (5)
(2) (b) Transfer Agency and Service Agreement with
American Data Services (5)
(3) Transfer Agency and Fund Accounting Agreement with
Countrywide Fund Services (4)
(4) Transfer Agency Agreement with Provident Financial
Processing Corporation (9)
(9) Form of Opinion and Consent of Counsel
(10) Not applicable
(11) Not applicable (12) No undertaking in effect (13) Form of
Rule 12b-1 Plan (14) Not applicable
(15) Rule 18f-3 Plan (7)
1 Incorporated by reference from Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A, filed on December 29, 1995.
2 Incorporated by reference from Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, filed on January 16, 1996.
3 Incorporated by reference from Post-Effective Amendment No. 35 to the
Registration Statement on Form N-1A, filed on April 24, 1997.
4 Incorporated by reference from Post-Effective Amendment No. 43 to the
Registration Statement on Form N-1A, filed on February 5, 1998.
5 Incorporated by reference from Post-Effective Amendment No. 48 to the
Registration Statement on Form N-1A, filed on June 15, 1998.
6 Incorporated by reference from Post-Effective Amendment No. 52 to the
Registration Statement on Form N-1A, filed on October 29, 1998.
7 Incorporated by reference from Post-Effective Amendment No. 59 to the
Registration Statement on Form N-1A, filed on March 31, 1999.
8 Incorporated by reference from Post-Effective Amendment No. 61 to the
Registration Statement on Form N-1A, filed on April 15, 1999.
9 To be filed by amendment.
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
As of the date of this Amendment to the Registration Statement, there are
no persons controlled or under common control with the Registrant.
ITEM 25. INDEMNIFICATION
The information on insurance and indemnification is incorporated by
reference to Pre-Effective Amendment No. 1 and Post-Effective Amendment No. 1 to
the Registrant's Registration Statement.
In addition, insurance coverage for the officers and trustees of the
Registrant also is provided under a Directors and Officers/Errors and Omissions
Liability insurance policy issued by ICI Mutual Insurance Company with a
$1,000,000 limit of liability.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
With respect to investment advisors, the response to this item is
incorporated by reference to their Form ADVs, as amended:
Herbert R. Smith & Co, Inc. File No. 801-7098
Hodges Capital Management, Inc. File No. 801-35811
Perkins Capital Management, Inc. File No. 801-22888
Osterweis Capital Management File No. 801-18395
Pro-Conscience Funds, Inc. File No. 801-43868
Trent Capital Management, Inc. File No. 801-34570
Academy Capital Management File No. 801-27836
Sena, Weller, Rohs, Williams File No. 801-5326
Leonetti & Associates, Inc. File No. 801-36381
Lighthouse Capital Management File No. 801-32168
Yeager, Wood & Marshall, Inc. File No. 801-4995
Harris Bretall Sullivan & Smith File No. 801-7369
Pzena Investment Management LLC File No. 801-50838
Titan Investment Advisers, LLC File No. 801-51306
Pacific Gemini Partners LLC File No. 801-50007
James C. Edwards & Co., Inc. File No. 801-13986
Duncan-Hurst Capital
Management, Inc. File No. 801-36309
Progressive Investment
Management Corporation File No. 801-32066
With respect to United States Trust Company of Boston, the response to this
item is incorporated by reference to the responses to Item 5 of Part A and Item
16 of Part B ("Management") of Post-Effective Amendment No. 20 to the
Registration Statement.
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) First Fund Distributors, Inc. (the "Distributor") is the principal
underwriter all series of the Registrant except for the Hodges Fund, the Matrix
Growth Fund and the Matrix Emerging Growth Fund. The Distributor acts as
principal underwriter for the following other investment companies:
Advisors Series Trust
Brandes Investment Trust
Fleming Mutual Fund Group
Fremont Mutual Funds
Guinness Flight Investment Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Purisima Funds
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group
UBS Private Investor Funds
First Dallas Securities, Inc., 2311 Cedar Springs Rd., Ste. 100, Dallas, TX
75201, an affiliate of Hodges Capital Management, acts as Distributor of the
Hodges Fund. The President and Chief Financial Officer of First Dallas
Securities, Inc. is Don W. Hodges. First Dallas does not act as principal
underwriter for any other investment companies. Reynolds, DeWitt Securities Co.,
an affiliate of Sena Weller Rohs Williams, 300 Main St., Cincinnati, OH 45202,
acts as Distributor for the Matrix Growth Fund and Matrix Emerging Growth Fund.
(b) The officers of First Fund Distributors, Inc. are:
Robert H. Wadsworth President & Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Secretary
Each officer's business address is 4455 E. Camelback Rd., Ste. 261-E,
Phoenix, AZ 85018. Mr. Paggioli serves as President and a Trustee of the
Registrant. Mr. Wadsworth serves as Vice President of the Registrant. Mr. Robert
M. Slotky serves as Treasurer of the Registrant.
c. Incorporated by reference from the Statement of Additional Information
filed herewith as Part B.
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession the Registrant's
custodian and transfer agent, except those records relating to portfolio
transactions and the basic organizational and Trust documents of the Registrant
(see Subsections (2) (iii). (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which, with respect to portfolio transactions are kept by each Fund's
Advisor at its address set forth in the prospectus and statement of additional
information and with respect to trust documents by its administrator at 479 West
22nd Street, New York, NY 10011 and 2020 E. Financial Way, Ste. 100, Glendora,
CA 91741.
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Parts A
and B.
ITEM 30. UNDERTAKINGS
The registrant undertakes:
(a) To furnish each person to whom a Prospectus is delivered a copy of
Registrant's latest annual report to shareholders, upon request and
without charge.
(b) If requested to do so by the holders of at least 10% of the Trust's
outstanding shares, to call a meeting of shareholders for the purposes
of voting upon the question of removal of a director and assist in
communications with other shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York in the State of New York on July 13,
1999.
PROFESSIONALLY MANAGED PORTFOLIOS
By /s/ Steven J. Paggioli
--------------------------------
Steven J. Paggioli
President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
/s/ Steven J. Paggioli Trustee July 13, 1999
- --------------------------
Steven J. Paggioli
/s/ Robert M. Slotky Principal July 13, 1999
- -------------------------- Financial
Robert M. Slotky Officer
Dorothy A. Berry Trustee July 13, 1999
- --------------------------
*Dorothy A. Berry
Wallace L. Cook Trustee July 13, 1999
- --------------------------
*Wallace L. Cook
Carl A. Froebel Trustee July 13, 1999
- --------------------------
*Carl A. Froebel
Rowley W. P. Redington Trustee July 13, 1999
- --------------------------
*Rowley W. P. Redington
* By /S/ Steven J. Paggioli
- ----------------------------
Steven J. Paggioli, Attorney-in-Fact under powers of
attorney as filed with Post-Effective Amendment No. 20 to the
Registration Statement filed on May 17, 1995
<PAGE>
EXHIBITS
Exhibit No. Description
- ----------- -----------
99.B4.B Form of Advisory Agreement
99.B5 Form of Distribution Agreement
99.B9 Form of opinion and consent of counsel
99.B13 Form of 12b-1 Plan
PROFESSIONALLY MANAGED PORTFOLIOS
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the ____ day of _____,
1999, by and between PROFESSIONALLY MANAGED PORTFOLIOS, a Massachusetts business
trust (hereinafter called the "Trust"), on behalf of each series of the Trust
listed on Appendix A to this Agreement (each, called the "Fund") and
Duncan-Hurst Capital Management, Inc. a California corporation (hereinafter
called the "Advisor").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company, registered
as such under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, the Fund is a series of the Trust having separate assets and
liabilities; and
WHEREAS, the Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged in the business of
supplying investment advice as an independent contractor; and
WHEREAS, the Trust desires to retain the Advisor to render advice and
services to the Fund pursuant to the terms and provisions of this Agreement, and
the Advisor desires to furnish said advice and services;
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties to this Agreement, intending to be legally
bound hereby, mutually agree as follows:
1. APPOINTMENT OF ADVISOR. The Trust hereby employs the Advisor and the
Advisor hereby accepts such employment, to render investment advice and related
services with respect to the assets of the Fund for the period and on the terms
set forth in this Agreement, subject to the supervision and direction of the
Trust's Board of Trustees.
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2. DUTIES OF ADVISOR.
(a) GENERAL DUTIES. The Advisor shall act as investment adviser to the
Fund and shall supervise investments of the Fund on behalf of the Fund in
accordance with the investment objectives, policies and restrictions of the Fund
as set forth in the Fund's and Trust's governing documents, including, without
limitation, the Trust's Agreement and Declaration of Trust and By-Laws; the
Fund's prospectus, statement of additional information and undertakings; and
such other limitations, policies and procedures as the Trustees may impose from
time to time in writing to the Advisor. In providing such services, the Advisor
shall at all times adhere to the provisions and restrictions contained in the
federal securities laws, applicable state securities laws, the Internal Revenue
Code, the Uniform Commercial Code and other applicable law.
Without limiting the generality of the foregoing, the Advisor shall:
(i) furnish the Fund with advice and recommendations with respect to the
investment of the Fund's assets and the purchase and sale of portfolio
securities for the Fund, including the taking of such steps as may be necessary
to implement such advice and recommendations (I.E., placing the orders); (ii)
manage and oversee the investments of the Fund, subject to the ultimate
supervision and direction of the Trust's Board of Trustees; (iii) vote proxies
for the Fund, file ownership reports under Section 13 of the Securities Exchange
Act of 1934 for the Fund, and take other actions on behalf of the Fund; (iv)
maintain the books and records required to be maintained by the Fund except to
the extent arrangements have been made for such books and records to be
maintained by the administrator or another agent of the Fund; (v) furnish
reports, statements and other data on securities, economic conditions and other
matters related to the investment of the Fund's assets which the Fund's
administrator or distributor or the officers of the Trust may reasonably
request; and (vi) render to the Trust's Board of Trustees such periodic and
special reports with respect to the Fund's investment activities as the Board
may reasonably request, including at least one in-person appearance annually
before the Board of Trustees.
(b) BROKERAGE. The Advisor shall be responsible for decisions to buy
and sell securities for the Fund, for broker-dealer selection, and for
negotiation of brokerage commission rates, provided that the Advisor shall not
direct orders to an affiliated person of the Advisor without general prior
authorization to use such affiliated broker or dealer for the Trust's Board of
Trustees. The Advisor's primary consideration in effecting a securities
transaction will be execution at the most favorable price. In selecting a
broker-dealer to execute each particular transaction, the Advisor may
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take into consideration all relevant factors, including but not limited to the
following: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; the dealer's risk in positioning a block of securities, the
clearance, settlement, and other operational capabilities of the broker or
dealer generally and in connection with securities of the type involved, the
broker's or dealer's ability and willingness to commit its capital to facilitate
transactions (by participating for its own account) the importance of speed or
confidentiality in the particular transaction; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. The price to the Fund in any transaction may be less favorable
than that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees of the Trust may
determine, the Advisor shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of its
having caused the Fund to pay a broker or dealer that provides (directly or
indirectly) brokerage or research services to the Advisor an amount of
commission for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities with respect to
the Advisor's clients generally. The Advisor is further authorized to allocate
the orders placed by it on behalf of the Fund to such brokers or dealers who
also provide research or statistical material, or other services, to the Trust,
the Advisor, or any affiliate of either. Such allocation shall be in such
amounts and proportions as the Advisor shall determine, and the Advisor shall
report on such allocations regularly to the Trust, indicating the broker-dealers
to whom such allocations have been made and the basis therefor. The Advisor is
also authorized to consider sales of shares as a factor in the selection of
brokers or dealers to execute portfolio transactions, subject to the
requirements of best execution, I.E., that such brokers or dealers are able to
execute the order promptly and at the best obtainable securities price.
On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of the Fund as well as of other clients, the Advisor,
to the extent permitted by applicable laws and regulations, may aggregate the
securities to be so purchased or sold in order to obtain the most favorable
3
<PAGE>
price or lower brokerage commissions and the most efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
3. REPRESENTATIONS OF THE ADVISOR.
(a) The Advisor shall use its best judgment and efforts in rendering
the advice and services to the Fund as contemplated by this Agreement.
(b) The Advisor shall maintain all licenses and registrations necessary
to perform its duties hereunder in good order.
(c) The Advisor shall conduct its operations at all times in
conformance with the Investment Advisers Act of 1940 ("Investment Advisors
Act"), the Investment Company Act of 1940, and any other applicable state and/or
self-regulatory organization regulations.
(d) The Advisor shall maintain errors and omissions insurance in an
amount at least equal to that disclosed to the Board of Trustees in connection
with their approval of this Agreement.
4. INDEPENDENT CONTRACTOR. The Advisor shall, for all purposes herein, be
deemed to be an independent contractor, and shall, unless otherwise expressly
provided and authorized to do so, have no authority to act for or represent the
Trust or the Fund in any way, or in any way be deemed an agent for the Trust or
for the Fund. It is expressly understood and agreed that the services to be
rendered by the Advisor to the Fund under the provisions of this Agreement are
not to be deemed exclusive, and the Advisor shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
5. ADVISOR'S PERSONNEL. The Advisor shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Advisor shall be
deemed to include persons employed or retained by the Advisor to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Advisor or the Trust's Board of Trustees may desire and reasonably request.
4
<PAGE>
6. EXPENSES.
(a) With respect to the operation of the Fund, the Advisor shall be
responsible for (i) providing the personnel, office space and equipment
reasonably necessary for its services hereunder, (ii) the expenses of printing
and distributing extra copies of the Fund's prospectus, statement of additional
information, and sales and advertising materials (but not the legal, auditing or
accounting fees attendant thereto) to prospective investors (but not to existing
shareholders), and (iii) the costs of any special Board of Trustees meetings or
shareholder meetings convened for the primary benefit of the Advisor. If the
Advisor has agreed to limit the operating expenses of the Fund, the Advisor
shall also be responsible on a monthly basis for any operating expenses that
exceed the agreed upon expense limit.
(b) The Fund is responsible for and has assumed the obligation for
payment of all of its expenses, other than as stated in Subparagraph 6(a) above,
including but not limited to: fees and expenses incurred in connection with the
issuance, registration and transfer of its shares; brokerage and commission
expenses; all expenses of transfer, receipt, safekeeping, servicing and
accounting for the cash, securities and other property of the Trust for the
benefit of the Fund including all fees and expenses of its custodian,
shareholder services agent and accounting services agent; interest charges on
any borrowings; costs and expenses of pricing and calculating its daily net
asset value and of maintaining its books of account required under the
Investment Company Act; taxes, if any; a pro rata portion of expenditures in
connection with meetings of the Fund's shareholders and the Trust's Board of
Trustees that are properly payable by the Fund; salaries and expenses of
officers and fees and expenses of members of the Trust's Board of Trustees or
members of any advisory board or committee who are not members of, affiliated
with or interested persons of the Advisor; insurance premiums on property or
personnel of the Fund which inure to its benefit, including liability and
fidelity bond insurance; the cost of preparing and printing reports, proxy
statements, prospectuses and statements of additional information of the Fund or
other communications for distribution to existing shareholders; legal, auditing
and accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
5
<PAGE>
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
herein otherwise prescribed.
(c) The Advisor may voluntarily absorb certain Fund expenses or waive
the Advisor's own advisory fee.
(d) To the extent the Advisor incurs any costs by assuming expenses
which are an obligation of the Fund as set forth herein, the Fund shall promptly
reimburse the Advisor for such costs and expenses, except to the extent the
Advisor has otherwise agreed to bear such expenses. To the extent the services
for which the Fund is obligated to pay are performed by the Advisor, the Advisor
shall be entitled to recover from the Fund to the extent of the Advisor's actual
costs for providing such services. In determining the Advisor's actual costs,
the Advisor may take into account an allocated portion of the salaries and
overhead of personnel performing such services.
7. INVESTMENT ADVISORY AND MANAGEMENT FEE.
(a) The Fund shall pay to the Advisor, and the Advisor agrees to
accept, as full compensation for all investment management and advisory services
furnished or provided to the Fund pursuant to this Agreement, an annual
management fee equal to the amount specified in Appendix A to this Agreement,
computed on the value of the net assets of the Fund as of the close of business
each day.
(b) The management fee shall be accrued daily by the Fund and paid to
the Advisor on the first business day of the succeeding month.
(c) The initial fee under this Agreement shall be payable on the first
business day of the first month following the effective date of this Agreement
and shall be prorated as set forth below. If this Agreement is terminated prior
to the end of any month, the fee to the Advisor shall be prorated for the
portion of any month in which this Agreement is in effect which is not a
complete month according to the proportion which the number of calendar days in
the month during which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within ten (10) days after the
date of termination.
(d) The fee payable to the Advisor under this Agreement will be reduced
to the extent of any receivable owed by the Advisor to the Fund and as required
under any expense limitation applicable to the Fund.
6
<PAGE>
(e) The Advisor voluntarily may reduce any portion of the compensation
or reimbursement of expenses due to it pursuant to this Agreement and may agree
to make payments to limit the expenses which are the responsibility of the Fund
under this Agreement. Any such reduction or payment shall be applicable only to
such specific reduction or payment and shall not constitute an agreement to
reduce any future compensation or reimbursement due to the Advisor hereunder or
to continue future payments. Any such reduction will be agreed to prior to
accrual of the related expense or fee and will be estimated daily and reconciled
and paid on a monthly basis.
(f) Any such reductions made by the Advisor in its fees or payment of
expenses which are the Fund's obligation are subject to reimbursement by the
Fund to the Advisor, if so requested by the Advisor, in subsequent fiscal years
if the aggregate amount actually paid by the Fund toward the 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 only for fee reductions and expense payments made in the previous
three fiscal years, but is permitted to look back five years and four years,
respectively, during the initial six years and seventh year of the Fund's
operations. Any such reimbursement is also contingent upon Board of Trustees
review and approval at time the reimbursement is made. Such reimbursement may
not be paid prior to the Fund's payment of current ordinary operating expenses.
(g) The Advisor may agree not to require payment of any portion of the
compensation or reimbursement of expenses otherwise due to it pursuant to this
Agreement. Any such agreement shall be applicable only with respect to the
specific items covered thereby and shall not constitute an agreement not to
require payment of any future compensation or reimbursement due to the Advisor
hereunder.
8. NO SHORTING; NO BORROWING. The Advisor agrees that neither it nor any of
its officers or employees shall take any short position in the shares of the
Fund. This prohibition shall not prevent the purchase of such shares by any of
the officers or employees of the Advisor or any trust, pension, profit-sharing
or other benefit plan for such persons or affiliates thereof, at a price not
less than the net asset value thereof at the time of purchase, as allowed
pursuant to rules promulgated under the Investment Company Act. The Advisor
agrees that neither it nor any of its officers or employees shall borrow from
the Fund or pledge or use the Fund's assets in connection with any borrowing not
directly for the Fund's benefit. For this purpose, failure to pay any amount due
and payable to the Fund for a period of more than thirty (30) days shall
constitute a borrowing.
7
<PAGE>
9. CONFLICTS WITH TRUST'S GOVERNING DOCUMENTS AND APPLICABLE LAWS. Nothing
herein contained shall be deemed to require the Trust or the Fund to take any
action contrary to the Trust's Agreement and Declaration of Trust, By-Laws, or
any applicable statute or regulation, or to relieve or deprive the Board of
Trustees of the Trust of its responsibility for and control of the conduct of
the affairs of the Trust and Fund. In this connection, the Advisor acknowledges
that the Trustees retain ultimate plenary authority over the Fund and may take
any and all actions necessary and reasonable to protect the interests of
shareholders.
10. REPORTS AND ACCESS. The Advisor agrees to supply such information to
the Fund's administrator and to permit such compliance inspections by the Fund's
administrator as shall be reasonably necessary to permit the administrator to
satisfy its obligations and respond to the reasonable requests of the Trustees.
11. ADVISOR'S LIABILITIES AND INDEMNIFICATION.
(a) The Advisor shall have responsibility for the accuracy and
completeness (and liability for the lack thereof) of the statements in the
Fund's offering materials (including the prospectus, the statement of additional
information, advertising and sales materials), except for information supplied
by the administrator or the Trust or another third party for inclusion therein.
(b) In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the obligations or duties hereunder on the part of the
Advisor, the Advisor shall not be subject to liability to the Trust or the Fund
or to any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security by the Fund.
(c) Each party to this Agreement shall indemnify and hold harmless the
other party and the shareholders, directors, officers and employees of the other
party (any such person, an "Indemnified Party") against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating and
defending any alleged loss, liability, claim, damage or expenses and reasonable
counsel fees incurred in connection therewith) arising out of the Indemnified
Party's performance or non-performance of any duties under this Agreement
provided, however, that nothing herein shall be deemed to protect any
Indemnified Party against any liability to which such Indemnified Party would
otherwise be subject by reason of willful misfeasance, bad faith or negligence
8
<PAGE>
in the performance of duties hereunder or by reason of reckless disregard of
obligations and duties under this Agreement.
(e) No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or officer of the Advisor, from liability in
violation of Sections 17(h) and (i) of the Investment Company Act.
12. NON-EXCLUSIVITY; TRADING FOR ADVISOR'S OWN ACCOUNT. The Trust's
employment of the Advisor is not an exclusive arrangement. The Trust may from
time to time employ other individuals or entities to furnish it with the
services provided for herein. Likewise, the Advisor may act as investment
adviser for any other person, and shall not in any way be limited or restricted
from buying, selling or trading any securities for its or their own accounts or
the accounts of others for whom it or they may be acting, provided, however,
that the Advisor expressly represents that it will undertake no activities which
could materially adversely affect the performance of its obligations to the Fund
under this Agreement; and provided further that the Advisor will adhere to a
code of ethics governing employee trading and trading for proprietary accounts
that conforms to the requirements of the Investment Company Act and the
Investment Advisers Act of 1940 and has been approved by the Trust's Board of
Trustees.
13. TERM.
(a) This Agreement shall become effective at the time the Fund
commences operations pursuant to an effective amendment to the Trust's
Registration Statement under the Securities Act of 1933 and shall remain in
effect for a period of two (2) years, unless sooner terminated as hereinafter
provided. This Agreement shall continue in effect thereafter for additional
periods not exceeding one (l) year so long as such continuation is approved for
the Fund at least annually by (i) the Board of Trustees of the Trust or by the
vote of a majority of the outstanding voting securities of the Fund and (ii) the
vote of a majority of the Trustees of the Trust who are not parties to this
Agreement nor interested persons thereof, cast in person at a meeting called for
the purpose of voting on such approval. The terms "majority of the outstanding
voting securities" and "interested persons" shall have the meanings as set forth
in the Investment Company Act.
(b) The Fund may use the name "Duncan-Hurst" or any name derived from
or using that name only for so long as this Agreement or any extension, renewal
or amendment hereof remains in effect. Within sixty (60) days from such time as
this Agreement shall no longer be in effect, the Fund shall cease to use such a
name or any other name connected with the Advisor.
9
<PAGE>
14. TERMINATION; NO ASSIGNMENT.
(a) This Agreement may be terminated by the Trust on behalf of the Fund
at any time without payment of any penalty, by the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the Fund,
upon sixty (60) days' written notice to the Advisor, and by the Advisor upon
sixty (60) days' written notice to the Fund. In the event of a termination, the
Advisor shall cooperate in the orderly transfer of Fund affairs and, at the
request of the Board of Trustees, transfer any and all books and records of the
Fund maintained by the Advisor on behalf of the Fund.
(b) This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the Investment Company Act.
15. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute or rule, or shall be otherwise rendered
invalid, the remainder of this Agreement shall not be affected thereby.
16. NOTICE OF DECLARATION OF TRUST. The Advisor agrees that the Trust's
obligations under this Agreement shall be limited to the Fund and to its assets,
and that the Advisor shall not seek satisfaction of any such obligation from the
shareholders of the Fund nor from any trustee, officer, employee or agent of the
Trust or the Fund.
17. CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
18. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Massachusetts without giving effect to
the conflict of laws principles thereof; provided that nothing herein shall be
construed to preempt, or to be inconsistent with, any federal law, regulation or
rule, including the Investment Company Act and the Investment Advisors Act of
1940 and any rules and regulations promulgated thereunder.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all on the day and year first
above written.
PROFESSIONALLY MANAGED DUNCAN-HURST
PORTFOLIOS on behalf of CAPITAL MANAGEMENT, INC.
each Fund listed on Appendix A
to this Agreement
By: By:
---------------------------------- ------------------------------
William H. Duncan, Chairman
11
<PAGE>
APPENDIX A
Investment Advisory Fee Rates
Duncan-Hurst International Growth Fund
Class R: 1.25% of average daily net assets annually
Class I: 1.25% of average daily net assets annually
Duncan-Hurst Technology Fund
Class R: 1.00% of average daily net assets annually
Class I: 1.00% of average daily net assets annually
PROFESSIONALLY MANAGED PORTFOLIOS
DISTRIBUTION AGREEMENT
This Agreement, made as of the __ day of ____, 1999 by and between
PROFESSIONALLY MANAGED PORTFOLIOS, a Massachusetts business trust (the "Trust")
and FIRST FUND DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
l940 (the "1940 Act"), and it is in the interest of the Trust to offer it series
of shares identified on Appendix to this Agreement (a "Fund" or the "Funds") for
sale continuously; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of l934 (the "1934 Act") and is a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD");
and
WHEREAS, the Trust and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the shares of beneficial
interest of the Funds (the "Shares"), to commence after the effectiveness of
amendment to the registration statement filed pursuant to the Securities Act of
1933 (the "1933 Act") and the 1940 Act relating to the Funds.
NOW, THEREFORE, the parties agree as follows:
l. APPOINTMENT OF DISTRIBUTOR. The Trust hereby appoints the Distributor as
its exclusive agent to sell and to arrange for the sale of the Shares, on the
terms and for the period set forth in this Agreement, and the Distributor hereby
accepts such appointment and agrees to act hereunder directly and/or through the
Trust's transfer agent in the manner set forth in the Prospectuses (as defined
below). It is understood and agreed that the services of the Distributor
hereunder are not exclusive, and the Distributor may act as principal
underwriter for the shares of any other registered investment company.
2. SERVICES AND DUTIES OF THE DISTRIBUTOR
(a) The Distributor agrees to sell the Shares, as agent for the Trust,
from time to time during the term of this Agreement upon the terms described in
the Funds' Prospectuses. As used in this Agreement, the term "Prospectus" shall
mean the prospectus and statement of additional information of the Funds
included as part of the Trust's Registration Statement, as such prospectus and
statement of additional information may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the Registration
Statement most recently filed from time to time by the Trust with the Securities
and Exchange Commission and effective under the 1933 Act and the 1940 Act, as
such Registration Statement is amended by any amendments thereto at the time in
effect. The Distributor shall not be obligated to sell any certain number of
Shares.
<PAGE>
(b) Upon commencement of the Funds' operations, the Distributor will
hold itself available to receive orders, satisfactory to the Distributor, for
the purchase of the Shares and will accept such orders and will transmit such
orders and funds received by it in payment for such Shares as are so accepted to
the Trust's transfer agent or custodian, as appropriate, as promptly as
practicable. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Prospectuses. The Distributor shall not make any short
sales of Shares.
(c) The offering price of the Shares shall be the net asset value per
share of the Shares (as defined in the Declaration of Trust), plus the sales
charge, if any, (determined as set forth in the prospectuses). The Trust shall
furnish the Distributor, with all possible promptness, an advice of each
computation of net asset value and offering price.
3. DUTIES OF THE TRUST.
(a) MAINTENANCE OF FEDERAL REGISTRATION. The Trust shall, at its
expense, take, from time to time, all necessary action and such steps, including
payment of the related filing fees, as may be necessary to register and maintain
registration of a sufficient number of Shares under the 1933 Act. The Trust
agrees to file from time to time such amendments, reports and other documents as
may be necessary in order that there may be no untrue statement of a material
fact in a registration statement or prospectus, or necessary in order that there
may be no omission to state a material fact in the registration statement or
prospectus which omission would make the statements therein misleading.
(b) MAINTENANCE OF "BLUE SKY" QUALIFICATIONS. The Trust shall, at its
expense, use its best efforts to qualify and maintain the qualification of an
appropriate number of Shares for sale under the securities laws of such states
as the Distributor and the Trust may approve, and, if necessary or appropriate
in connection therewith, to qualify and maintain the qualification of the Trust
as a broker or dealer in such states; provided that the Trust shall not be
required to amend its Declaration of Trust or By-Laws to comply with the laws of
any state, to maintain an office in any state, to change the terms of the
offering of the Shares in any state, to change the terms of the offering of the
Shares in any state from the terms set forth in its Prospectus, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering and sale of
the Shares. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Trust in
connection with such qualifications.
(c) COPIES OF REPORTS AND PROSPECTUSES. The Trust shall, at its
expense, keep the Distributor fully informed with regard to its affairs and in
connection therewith shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, including such
reasonable number of copies of its Prospectus and annual and interim reports as
the Distributor may request and shall cooperate fully in the efforts of the
Distributor to sell and arrange for the sale of the Shares and in the
performance of the Distributor under this Agreement.
<PAGE>
4. CONFORMITY WITH APPLICABLE LAW AND RULES. The Distributor agrees that in
selling Shares hereunder it shall conform in all respects with the laws of the
United States and of any state in which Shares may be offered, and with
applicable rules and regulations of the NASD.
5. INDEPENDENT CONTRACTOR. In performing its duties hereunder, the
Distributor shall be an independent contractor and neither the Distributor, nor
any of its officers, directors, employees, or representatives is or shall be an
employee of the Trust in the performance of the Distributor's duties hereunder.
The Distributor shall be responsible for its own conduct and the employment,
control, and conduct of its agents and employees and for injury to such agents
or employees or to others through its agents or employees. The Distributor
assumes full responsibility for its agents and employees under applicable
statutes and agrees to pay all employee taxes thereunder.
6. INDEMNIFICATION.
(a) INDEMNIFICATION OF TRUST. The Distributor agrees to indemnify and
hold harmless the Trust and each of its present or former trustees, officers,
employees, representatives and each person, if any, who controls or previously
controlled the Trust within the meaning of Section l5 of the 1933 Act against
any and all losses, liabilities, damages, claims or expenses (including the
reasonable costs of investigating or defending any alleged loss, liability,
damage, claims or expense and reasonable legal counsel fees incurred in
connection therewith) to which the Trust or any such person may become subject
under the 1933 Act, under any other statute, at common law, or otherwise,
arising out of the acquisition of any Shares by any person which (I) may be
based upon any wrongful act by the Distributor or any of the Distributor's
directors, officers, employees or representatives, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact contained in a
registration statement, prospectus, shareholder report or other information
covering Shares filed or made public by the Trust or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to the Trust by the Distributor. In no case (I) is the
Distributor's indemnity in favor of the Trust, or any person indemnified to be
deemed to protect the Trust or such indemnified person against any liability to
which the Trust or such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties or
by reason of his reckless disregard of his obligations and duties under this
Agreement or (ii) is the Distributor to be liable under its indemnity agreement
contained in this Paragraph with respect to any claim made against the Trust or
any person indemnified unless the Trust or such person, as the case may be,
shall have notified the Distributor in writing of the claim within a reasonable
time after the summons or other first written notification giving information of
the nature of the claim shall have been served upon the Trust or upon such
person (or after the Trust or such person shall have received notice to such
service on any designated agent). However, failure to notify the Distributor of
any such claim shall not relieve the Distributor from any liability which the
Distributor may have to the Trust or any person against whom such action is
brought otherwise than on account of the Distributor's indemnity agreement
contained in this Paragraph.
<PAGE>
The Distributor shall be entitled to participate, at its own expense,
in the defense, or, if the Distributor so elects, to assume the defense of any
suit brought to enforce any such claim, but, if the Distributor elects to assume
the defense, such defense shall be conducted by legal counsel chosen by the
Distributor and satisfactory to the Trust, to the persons indemnified defendant
or defendants, in the suit. In the event that the Distributor elects to assume
the defense of any such suit and retain such legal counsel, the Trust, the
persons indemnified defendant or defendants in the suit, shall bear the fees and
expenses of any additional legal counsel retained by them. If the Distributor
does not elect to assume the defense of any such suit, the Distributor will
reimburse the Trust and the persons indemnified defendant or defendants in such
suit for the reasonable fees and expenses of any legal counsel retained by them.
The Distributor agrees to promptly notify the Trust of the commencement of any
litigation of proceedings against it or any of its officers, employees or
representatives in connection with the issue or sale of any Shares.
(b) INDEMNIFICATION OF THE DISTRIBUTOR. The Trust agrees to indemnify
and hold harmless the Distributor and each of its present or former directors,
officers, employees, representatives and each person, if any, who controls or
previously controlled the Distributor within the meaning of Section l5 of the
1933 Act against any and all losses, liabilities, damages, claims or expenses
(including the reasonable costs of investigating or defending any alleged loss,
liability, damage, claim or expense and reasonable legal counsel fees incurred
in connection therewith) to which the Distributor or any such person may become
subject under the 1933 Act, under any other statute, at common law, or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by the Trust or any of the Trust's trustees,
officers, employees or representatives, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement, prospectus, shareholder report or other information
covering Shares filed or made public by the Trust or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading unless such statement or omission was made in reliance
upon information furnished to the Trust by the Distributor. In no case (i) is
the Trust's indemnity in favor of the Distributor, or any person indemnified to
be deemed to protect the Distributor or such indemnified person against any
liability to which the Distributor or such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of his duties or by reason of his reckless disregard of his obligations and
duties under this Agreement, or (ii) is the Trust to be liable under its
indemnity agreement contained in this Paragraph with respect to any claim made
against Distributor, or person indemnified unless the Distributor, or such
person, as the case may be, shall have notified the Trust in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or upon such person (or after the Distributor or
such person shall have received notice of such service on any designated agent).
However, failure to notify the Trust of any such claim shall not relieve the
Trust from any liability which the Trust may have to the Distributor or any
person against whom such action is brought otherwise than on account of the
Trust's indemnity agreement contained in this Paragraph.
The Trust shall be entitled to participate, at its own expense, in the
defense, or, if the Trust so elects, to assume the defense of any suit brought
to enforce any such claim, but if the Trust elects to assume the defense, such
defense shall be conducted by legal counsel chosen by the Trust and satisfactory
<PAGE>
to the Distributor, to the persons indemnified defendant or defendants, in the
suit. In the event that the Trust elects to assume the defense of any such suit
and retain such legal counsel, the Distributor, the persons indemnified
defendant or defendants in the suit, shall bear the fees and expenses of any
additional legal counsel retained by them. If the Trust does not elect to assume
the defense of any such suit, the Trust will reimburse the Distributor and the
persons indemnified defendant or defendants in such suit for the reasonable fees
and expenses of any legal counsel retained by them. The Trust agrees to promptly
notify the Distributor of the commencement of any litigation or proceedings
against it or any of its trustees, officers, employees or representatives in
connection with the issue or sale of any Shares.
7. AUTHORIZED REPRESENTATIONS. The Distributor is not authorized by the
Trust to give on behalf of the Trust any information or to make any
representations in connection with the sale of Shares other than the information
and representations contained in a registration statement or prospectus filed
with the Securities and Exchange Commission ("SEC") under the 1933 Act and/or
the 1940 Act, covering Shares, as such registration statement and prospectus may
be amended or supplemented from time to time, or contained in shareholder
reports or other material that may be prepared by or on behalf of the Trust for
the Distributor's use. This shall not be construed to prevent the Distributor
from preparing and distributing tombstone ads and sales literature or other
material as it may deem appropriate. No person other than the Distributor is
authorized to act as principal underwriter (as such term is defined in the 1940
Act) for the Fund.
8. TERM OF AGREEMENT. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect for a period of two years from the date first
above written. Thereafter, this Agreement shall continue in effect from year to
year, subject to the termination provisions and all other terms and conditions
thereof, so long as such continuation shall be specifically approved at least
annually by the Board of Trustees or by vote of a majority of the outstanding
voting securities of the Fund and, concurrently with such approval by the Board
of Trustees or prior to such approval by the holders of the outstanding voting
securities of the Fund, as the case may be, by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
trustees of the Trust who are not parties to this Agreement or interested
persons of any such party. The Distributor shall furnish to the Trust, promptly
upon its request, such information as may reasonably be necessary to evaluate
the terms of this Agreement or any extension, renewal or amendment hereof.
9. AMENDMENT OR ASSIGNMENT OF AGREEMENT. This Agreement may not be amended
or assigned except as permitted by the 1940 Act, and this Agreement shall
automatically and immediately terminate in the event of its assignment.
<PAGE>
10. TERMINATION OF AGREEMENT. This Agreement may be terminated by either
party hereto, without the payment of any penalty, on not more than upon 60 days'
nor less than 30 days' prior notice in writing to the other party; provided,
that in the case of termination by the Trust such action shall have been
authorized by resolution of a majority of the trustees of the Trust who are not
parties to this Agreement or interested persons of any such party, or by vote of
a majority of the outstanding voting securities of the Funds.
11. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Nothing herein contained shall be deemed to require the Trust to take any
action contrary to its Declaration of Trust or By-Laws, or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the Trust of
responsibility for and control of the conduct of the affairs of the Trust.
12. DEFINITION OF TERMS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretation thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations or orders of the Securities and Exchange Commission
validly issued pursuant to the 1940 Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated person," as used in Paragraphs 8, 9 and 10 hereof,
shall have the meanings assigned to them by Section 2(a) of the 1940 Act. In
addition, where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
13. COMPLIANCE WITH SECURITIES LAWS. The Trust represents that it is
registered as an open-end management investment company under the 1940 Act, and
agrees that it will comply with all the provisions of the 1940 Act and of the
rules and regulations thereunder. The Trust and the Distributor each agree to
comply with all of the applicable terms and provisions of the 1940 Act, the 1933
Act and, subject to the provisions of Section 4(d), all applicable "Blue Sky"
laws. The Distributor agrees to comply with all of the applicable terms and
provisions of the Securities Exchange Act of 1934.
14. NOTICES. Any notice required to be given pursuant to this Agreement
shall be deemed duly given if delivered or mailed by registered mail, postage
prepaid, to the Distributor and to the Funds on behalf of the Trust at
_______________________________.
<PAGE>
15. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of __________.
16. NO SHAREHOLDER LIABILITY. The Distributor understands that the
obligations of this Agreement are not binding upon any shareholder of the Trust
personally, but bind only the Trust's property; the Distributor represents that
it has notice of the provisions of the Declaration of Trust disclaiming
shareholder liability for acts or obligations of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives and their respective corporate
seals to be hereunto affixed, as of the day and year first above written.
FIRST FUND DISTRIBUTORS, INC.
By:
-------------------------------------
Attest:
- ----------------------------------
PROFESSIONALLY MANAGED PORTFOLIOS
By:
-------------------------------------
Attest:
- ----------------------------------
<PAGE>
APPENDIX A
Duncan-Hurst Large Cap Growth-20 Fund
Duncan-Hurst Aggressive Growth Fund
Duncan-Hurst International Growth Fund
Duncan-Hurst Technology Fund
________________________, 1999
FORM OF OPINION LETTER
VIA EDGAR
Law Offices of Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
Telephone (415) 835-1600
Facsimile (415) 217-5333
Internet www.phjw.com
_____________, 1999
(415) 835-1600 27346.93933
27346.94134
PROFESSIONALLY MANAGED PORTFOLIOS
915 Broadway
New York, NY 10010
Re: Duncan-Hurst Technology Fund
Ladies and Gentlemen:
We have acted as counsel to Professionally Managed Portfolios, a Massachusetts
business trust (the "Trust"), in connection with Post-Effective Amendments to
the Trust's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on July __, 1999 (the "Post-Effective Amendments"), and
relating to the issuance by the Trust of an indefinite number of no par value
shares of beneficial interest (the "Shares") by a series of the Trust: the
Duncan-Hurst Technology Fund (the "Fund").
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of all natural persons, and the conformity
to the originals of all records, documents, and instruments submitted to us as
copies. We have based our opinion on the following:
(a) the Trust's Agreement and Declaration of Trust dated February 17, 1987
(filed with the Massachusetts Secretary of State on February 24,
1987), as amended on May 20, 1988 (filed on September 16, 1988), and
April 12, 1991 (filed on May 31, 1991) (as so amended, the
"Declaration of Trust"), as certified to us by an officer of the Trust
as being true and complete and in effect on the date hereof;
1
<PAGE>
(b) the Bylaws of the Trust certified to us by an officer of the Trust as
being true and complete and in effect on the date hereof;
(c) resolutions of the Trustees of the Trust adopted at the __________,
1999, meeting of the Trust, authorizing the establishment of the Fund
and the issuance of the Shares;
(d) the Post-Effective Amendment; and
(e) a certificate of an officer of the Trust as to certain factual matters
relevant to this opinion.
Our opinion below is limited to the federal law of the United States of America
and the business trust law of the State of Massachusetts. We are not licensed to
practice law in the State of Massachusetts, and we have based our opinion below
solely on our review of Chapter 182 of the General Laws of the Commonwealth of
Massachusetts and the case law interpreting such Chapter as reported
Massachusetts Corporation Law & Practice (.in Annotated Laws of Massachusetts
(Aspen Law & Business, supp. 1998) as updated on Lexis on March 17, 1999. We
have not undertaken a review of other Massachusetts law or of any administrative
or court decisions in connection with rendering this opinion. We disclaim any
opinion as to any law other than that of the United States of America and the
business trust law of the State of Massachusetts as described above, and we
disclaim any opinion as to any statute, rule, regulation, ordinance, order or
other promulgation of any regional or local governmental authority.
We note that, pursuant to certain decisions of the Supreme Judicial Court of the
Commonwealth of Massachusetts, shareholders of a Massachusetts business trust
may, in certain circumstances, be assessed or held personally liable as partners
for the obligations or liabilities of the Trust. However, we also note that
Article VIII, Section 1 of the Declaration of Trust provides that all persons
extending credit to, contracting with or having any claim against the Trust or
the Portfolios shall look only to the assets of the Trust or the Portfolios for
payment thereof and that the shareholders shall not be personally liable
therefor, and further provides that every note, bond, contract, instrument,
certificate or undertaking made or issued on behalf of the Trust or the
Portfolios may include a notice that such instrument was executed on behalf of
the Trust or the Portfolios and that the obligations of such instruments are not
binding upon any of the shareholders of the Trust or the Portfolios
individually, but are binding only on the assets and property of the Trust.
Based on the foregoing and our examination of such questions of law as we have
deemed necessary and appropriate for the purpose of this opinion, and assuming
that (i) all of the Shares will be issued and sold for cash at the per-share
public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Post-Effective Amendment
and in accordance with the Declaration of Trust, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
2
<PAGE>
securities laws will be complied with, it is our opinion that, when issued and
sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Post-Effective Amendment
and is solely for your benefit. This opinion may not be relied upon by you for
any other purpose or relied upon by any other person, firm, corporation or other
entity for any purpose, without our prior written consent. We disclaim any
obligation to advise you of any developments in areas covered by this opinion
that occur after the date of this opinion.
We hereby consent to (i) the reference to our firm as Legal Counsel in the
Prospectus included in the Post-Effective Amendment, and (ii) the filing of this
opinion as an exhibit to the Post-Effective Amendment.
Sincerely yours,
Paul, Hastings, Janofsky & Walker LLP
PROFESSIONALLY MANAGED PORTFOLIOS
SHARE MARKETING PLAN
(Rule 12b-1 Plan)
(Fixed Compensation Plan)
This Share Marketing Plan (the "Plan") is adopted in accordance with Rule
12b-1 (the "Rule") under the Investment Company Act of 1940, as amended (the
"Act"), by Professionally Managed Portfolios, a Massachusetts Business Trust
(the "Trust") with respect to each of the Class R series of shares designated
the Duncan-Hurst Large Cap Growth-20 Fund, the Duncan-Hurst Aggressive Growth
Fund, the Duncan-Hurst International Growth Fund and the Duncan-Hurst Technology
Fund (a "Fund" or the "Funds"). The Plan has been approved by a majority of the
Trust's Board of Trustees, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan (the "independent Trustees"), cast in
person at a meeting called for the purpose of voting on the Plan.
In reviewing the Plan, the Board of Trustees considered the proposed range
and nature of payments and terms of the Investment Advisory Agreement between
the Trust on behalf of the Fund and Duncan-Hurst Capital Management, Inc., (the
"Advisor") and the nature and amount of other payments, fees and commissions
that may be paid to the Advisor, its affiliates and other agents of the Trust.
The Board of Trustees, including the independent Trustees, concluded that the
proposed overall compensation of the Advisor and its affiliates was fair and not
excessive.
In its considerations, the Board of Trustees also recognized that
uncertainty may exist from time to time with respect to whether payments to be
made by the Funds to the Advisor, as the Distributor and "distribution
coordinator," or other firms under agreements with respect to the Fund may be
deemed to constitute impermissible distribution expenses. As a general rule, an
investment company may not finance any activity primarily intended to result in
the sale of its shares, except pursuant to the Rule. Accordingly, the Board of
Trustees determined that the Plan also should provide that payments by the Trust
and expenditures made by others out of monies received from the Trust which are
later deemed to be for the financing of any activity primarily intended to
result in the sale of Fund shares shall be deemed to have been made pursuant to
the Plan.
The approval of the Board of Trustees included a determination that in the
exercise of the Trustees' reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Trust, the Funds to which the Plan applies and their shareholders.
1
<PAGE>
The provisions of the Plan are:
1. ANNUAL FEE. Each Fund will pay to Advisor, as the Fund's distribution
coordinator, an annual fee for the Advisor's services in connection with the
promotion and distribution of the Fund's shares and related shareholder
servicing. The annual fee paid to the Advisor under the Plan will be calculated
daily and paid monthly by the Fund on the first day of each month based on the
average daily net assets of the Class R series of shares of the Fund, as
follows: an annual rate of up to 0.25%. This fee is not tied exclusively to
actual distribution and service expenses, and the fee may exceed the expenses
actually incurred.
2. SERVICES COVERED BY THE PLAN. The fee paid under Section 1 of the Plan
is intended to compensate the Advisor for performing the following kinds of
services: services primarily intended to result in the sale of the Funds' shares
("distribution services"), including, but not limited to: (a) making payments,
including incentive compensation, to agents for and consultants to Advisor, any
affiliate of the Advisor or the Trust, including pension administration firms
that provide distribution and shareholder related services and broker-dealers
that engage in the distribution of the Funds' shares; (b) making payments to
persons who provide support services in connection with the distribution of a
Fund's shares and servicing of the Funds' shareholders, including, but not
limited to, personnel of Advisor, office space and equipment, telephone
facilities, answering routine inquiries regarding a Fund, processing shareholder
transactions and providing any other shareholder services not otherwise provided
by the Trust's transfer agent or other servicing arrangements; (c) making
payments pursuant to the form of Distribution Agreement attached hereto as an
exhibit; (d) formulating and implementing marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (e) printing and
distributing prospectuses, statements of additional information and reports of
the Funds to prospective shareholders of the Funds; (f) preparing, printing and
distributing sales literature pertaining to the Funds; and (g) obtaining
whatever information, analysis and reports with respect to marketing and
promotional activities that the Trust may, from time to time, deem advisable.
Such services and activities shall be deemed to be covered by this Plan whether
performed directly by the Advisor or by a third party.
3. WRITTEN REPORTS. The Advisor shall furnish to the Board of Trustees of
the Trust, for its review, on a quarterly basis, a written report of the monies
paid to it under the Plan with respect to the Funds, and shall furnish the Board
of Trustees of the Trust with such other information as the Board of Trustees
may reasonably request in connection with the payments made under the Plan in
order to enable the Board of Trustees to make an informed determination of
whether the Plan should be continued as to a Fund.
4. TERMINATION. The Plan may be terminated as to a Fund at any time,
without penalty, by vote of a majority of the outstanding voting securities of
the Fund, and any Distribution Agreement under the Plan may be likewise
terminated on not more than sixty (60) days' written notice. Once terminated, no
further payments shall be made under the Plan notwithstanding the existence of
any unreimbursed current or carried forward Distribution Expenses.
5. AMENDMENTS. The Plan and any Distribution Agreement may not be amended
to increase materially the amount to be spent for distribution and servicing of
a Fund's shares pursuant to Section 1 hereof without approval by a majority of
the outstanding voting securities of the Fund. All material amendments to the
Plan and any Distribution Agreement entered into with third parties shall be
2
<PAGE>
approved by the independent Trustees cast in person at a meeting called for the
purpose of voting on any such amendment. The Advisor may assign its
responsibilities and liabilities under the Plan to another party who agrees to
act as "distribution coordinator" for the Trust with the consent of a majority
of the independent Trustees.
6. SELECTION OF INDEPENDENT TRUSTEES. So long as the Plan is in effect, the
selection and nomination of the Trust's independent Trustees shall be committed
to the discretion of such independent Board of Trustees.
7. EFFECTIVE DATE OF PLAN. The Plan shall take effect at such time as it
has received requisite Trustee approval and, unless sooner terminated, shall
continue in effect for a period of more than one year from the date of its
execution only so long as such continuance is specifically approved at least
annually by the Board of Trustees of the Trust, including the independent
Trustees, cast in person at a meeting called for the purpose of voting on such
continuance.
8. PRESERVATION OF MATERIALS. The Trust will preserve copies of the Plan,
any agreements relating to the Plan and any report made pursuant to Section 5
above, for a period of not less than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement or report.
9. MEANINGS OF CERTAIN TERMS. As used in the Plan, the terms "interested
person" and "majority of the outstanding voting securities" will be deemed to
have the same meaning that those terms have under the Act and the rules and
regulations under the Act, subject to any exemption that may be granted to the
Trust under the Act by the Securities and Exchange Commission.
3
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
----------
EXHIBIT A TO SHARE MARKETING PLAN
The following Series of Professionally Managed Portfolios have adopted the
Share Marketing Plan with respect to their Class R shares:
Duncan-Hurst Large Cap Growth-20 Fund March 31, 1999
Duncan-Hurst Aggressive Growth Fund March 31, 1999
Duncan-Hurst International Growth Fund June 29, 1999
Duncan-Hurst Technology Fund , 1999
<PAGE>
Share Marketing Agreement
EXHIBIT ONLY
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
Ladies and Gentlemen:
This Share Marketing Agreement has been adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Company Act"), by
Professionally Managed Portfolios, a Massachusetts business Trust (the "Trust"),
on behalf of various series of the Trust (each series, a "Fund" or,
collectively, "Funds"), as governed by the terms of a Share Marketing Plan (Rule
12b-1 Plan) (the "Plan").
The Plan has been approved by a majority of the Trustees who are not
interested persons of the Trust or the Funds and who have no direct or indirect
financial interest in the operation of the Plan (the "independent Trustees"),
cast in person at a meeting called for the purpose of voting on such Plan. Such
approval included a determination that in the exercise of the reasonable
business judgment of the Board of Trustees and in light of the Trustees'
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Funds and shareholders.
1. To the extent you provide eligible shareholder services of the type
identified in the Plan to the Fund identified in the attached Schedule (the
"Schedule"), we shall pay you a monthly fee based on the average net asset value
of Fund shares during any month which are attributable to customers of your
firm, at the rate set forth on the Schedule.
2. In no event may the aggregate annual fee paid to you pursuant to the
Schedule exceed 0.25 percent of the value of the net assets of the Fund held in
your customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as the Fund uses to compute its net
assets as set forth in its then effective Prospectus), without approval by a
majority of the outstanding shares of the Fund.
<PAGE>
3. You shall furnish us and the Trust with such information as shall
reasonably be requested by the Trust's Board of Trustees with respect to the
services performed by you and the fees paid to you pursuant to the Schedule.
4. We shall furnish to the Board of Trustees of the Trust, for its review,
on a quarterly basis, a written report of the amounts expended under the Plan by
us with respect to the Fund and the purposes for which such expenditures were
made.
5. You agree to make shares of the Fund available only (a) to your
customers or entities that you service at the net asset value per share next
determined after receipt of the relevant purchase instruction or (b) to each
such Fund itself at the redemption price for shares, as described in the Fund's
then-effective Prospectus.
6. No person is authorized to make any representations concerning the Fund
or shares of the Fund except those contained in the Fund's then-effective
Prospectus or Statement of Additional Information and any such information as
may be released by the Fund as information supplemental to such Prospectus or
Statement of Additional Information.
7. Additional copies of each such Prospectus or Statement of Additional
Information and any printed information issued as supplemental to each such
Prospectus or Statement of Additional Information will be supplied by the Fund
to you in reasonable quantities upon request.
8. In no transaction shall you have any authority whatever to act as agent
of the Fund and nothing in this Agreement shall constitute you or the Fund the
agent of the other. You are not authorized to act as an underwriter of shares of
the Fund or as a dealer in shares of the Fund.
9. All communications to the Fund shall be sent to: Duncan-Hurst Capital
Management, Inc., 4365 Executive Drive, Ste. 1520, San Diego, CA 92121 . Any
notice to you shall be duly given if mailed or telegraphed to you at your
address as indicated in this Agreement.
10. This Agreement may be terminated by us or by you, by the vote of a
majority of the Trustees of the Trust who are independent Trustees, or by a vote
of a majority of the outstanding shares of the Fund, on sixty (60) days' written
notice, all without payment of any penalty. It shall also be terminated
automatically by any act that terminates the Plan.
11. The provisions of the Plan between the Trust and us, insofar as they
relate to you, are incorporated herein by reference.
<PAGE>
This Agreement shall take effect on the date indicated below, and the terms
and provisions thereof are hereby accepted and agreed to by us as evidenced by
our execution hereof.
DUNCAN-HURST CAPITAL MANAGEMENT, INC.
Advisor and Distribution Coordinator
By:
---------------------------------
Authorized Officer
Dated:
------------------------------
Agreed and Accepted:
- -----------------------------------
(Name)
By:
-------------------------------
(Authorized Officer)
<PAGE>
SCHEDULE TO SHARE MARKETING AGREEMENT
BETWEEN _____________________.
AND
DUNCAN-HURST CAPITAL MANAGEMENT, INC.
as distribution coordinator
Pursuant to the provisions of the Share Marketing Agreement between the
above parties with respect to Duncan-Hurst Capital Management, Inc. as
Distribution Coordinator, shall pay a monthly fee to the above-named party based
on the average net asset value of shares of the Fund during the previous
calendar month the sales of which are attributable to the above-named party, as
follows:
FUND FEE
---- ---
Class R Shares
Duncan-Hurst Large Cap Growth-20 Fund 0.25%
Duncan-Hurst Aggressive Growth Fund 0.25%
Duncan-Hurst International Growth Fund 0.25%
Duncan-Hurst Technology Fund 0.25%
