As filed with the Securities and Exchange Commission on August 3, 2001
File No: 333-63958
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
CNI CHARTER FUNDS
(Exact Name of Registrant as Specified in Charter)
(800) 708-8881
(Registrant's Telephone Number, Including Area Code)
400 North Roxbury Drive
Beverly Hills, California 90210
(Address of Principal Executive Offices)
William J. Souza, Esq.
400 North Roxbury Drive
Beverly Hills, California 90210
(Name and Address of Agent for Service)
Copy to:
Mitchell E. Nichter, Esq.
Thao H. Ngo, Esq.
345 California Street
San Francisco, California 94104
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
No filing fee is required under the Securities Act of 1933, as amended, because
an indefinite number of shares of beneficial interest, with a par value of $0.01
per share, has previously been registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
CROSS REFERENCE SHEET
Form N-14 Part A, Item Location in Prospectus/Proxy Statement
- ---------------------- --------------------------------------
1 Front Cover; Cross Reference
2 Table of Contents
3 I. Introduction - "The Proposal;"
II. The Proposal - "Description of
the Proposed Reorganization;" II.
The Proposal - "Comparison of the
Funds"
4 I. Introduction - "The Proposal;"
II. The Proposal - "Description of
the Proposed Reorganization"
5, 6 I. Introduction - "The Proposal;"
II. The Proposal - "Comparison of
the Funds;" II. The Proposal -
"Further Information About the RCB
Fund and the New Fund"
7 II. The Proposal - "Shares and
Voting;" II. The Proposal - "Vote
Required"
8 Not Applicable
9 Not Applicable
Form N-14 Part B, Item Location in Statement of Additional Information
- ---------------------- -----------------------------------------------
10 Cover Page
11 Table of Contents
12 Incorporation of Documents by
Reference to the Statement of
Additional Information of the New
Fund, dated August 2, 2001
13 Not Applicable
14 Incorporation of Documents by
Reference to the Combined Statement
of Additional Information of the RCB
Fund, dated October 27, 2000 and to
the Statement of Additional
Information of the New Fund, dated
August 2, 2001
Form N-14 Part C
- ----------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of Form N-14.
THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE:
From Post-Effective Amendment No. 18 to the Registrant's Registration Statement
on Form N-1A, as filed with the Commission on August 3, 2001 (SEC File No.
811-7923):
Prospectus for Class R shares of the RCB Small Cap Value Fund, dated
August 2, 2001.
Statement of Additional Information for the RCB Small Cap Fund, dated
August 2, 2001.
From Post-Effective Amendment No. 106 to the Registration Statement on Form N-1A
of Professionally Managed Portfolios, as filed with the Commission on October
24, 2001 (SEC File No. 811-5037):
Combined Prospectus for RCB Small Cap Fund (with another series of
Professionally Managed Portfolios), dated October 27, 2000.
Combined Statement of Additional Information for RCB Small Cap Fund
(with another series of Professionally Managed Portfolios), dated
October 27, 2000.
As previously sent to shareholders of the RCB Small Cap Fund and filed with the
Commission pursuant to Rule 30b2-1 under the Investment Company Act of 1940, as
amended:
Annual Report for the RCB Small Cap Fund for the fiscal year ended June
30, 2000.
Semi-annual Report for the RCB Small Cap Fund for the period ended
December 31, 2000.
-----------------------------------------
PART A
------
COMBINED PROXY STATEMENT AND PROSPECTUS
FOR THE REORGANIZATION OF
RCB SMALL CAP FUND
INTO
RCB SMALL CAP VALUE FUND
-----------------------------------------
Professionally Managed Portfolios
Reed Conner & Birdwell, LLC
11111 Santa Monica Blvd., Suite 1700
Los Angeles, California 90025
(800) 282-2340
August 3, 2001
Dear Shareholder of RCB Small Cap Fund:
We are seeking your approval to reorganize the RCB Small Cap Fund
(the "RCB Fund"), a series of Professionally Managed Portfolios ("PMP" or the
"Trust"), into the RCB Small Cap Value Fund (the "New Fund"), a newly created
series of the CNI Charter Funds ("CNI Funds"). The New Fund will continue to be
managed by Reed Conner & Birdwell, LLC ("RCB") as portfolio manager, under a
sub-advisory agreement with City National Asset Management, Inc., a wholly-owned
subsidiary of City National Bank ("CNB"). We believe that the RCB Fund would
benefit from becoming part of CNI Funds, a larger fund complex with an aggregate
asset value of approximately $4 billion. Specifically, we believe that we can
increase the managerial efficiencies of the New Fund by leveraging the resources
and expertise of CNB and its affiliates.
City National Bank and RCB have agreed to pay all expenses of the
reorganization so shareholders will not bear those costs.
The Board of Trustees of PMP has approved the transaction and
believes that the proposed reorganization is in the best interests of the RCB
Fund and its shareholders and recommends that you vote in favor of the proposal.
Please read the enclosed proxy materials and consider the
information provided. We encourage you to complete and mail your proxy card
promptly. Since the Special Meeting of Shareholders is less than 6 weeks away,
we urge you to give the enclosed material your prompt attention.
Your vote is important to us. Thank you for taking the time to
consider this proposal.
Sincerely,
PROFESSIONALLY MANAGED PORTFOLIOS
1
RCB SMALL CAP FUND
PROFESSIONALLY MANAGED PORTFOLIOS
11111 Santa Monica Blvd., Suite 1700
Los Angeles, California 90025
(800) 282-2340
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
RCB SMALL CAP FUND
TO BE HELD SEPTEMBER 14, 2001
To the Shareholders of the RCB Small Cap Fund:
Notice is hereby given that a Special Meeting of Shareholders
(the "Shareholder Meeting") of the RCB Small Cap Fund (the "RCB Fund"), a series
of Professionally Managed Portfolios ("PMP"), will be held at RCB Fund's
offices, 11111 Santa Monica Blvd., Suite 1700, Los Angeles, California 90025 on
September 14, 2001, at 10:00 a.m., Pacific Standard Time. At the Shareholder
Meeting, we will ask you to vote on:
1. A proposal to approve an Agreement and Plan of
Reorganization (the "Reorganization Agreement") between CNI Charter Funds ("CNI
Funds") and PMP providing for the transfer of the assets and stated liabilities
of the RCB Fund, a series of PMP, in exchange for the Class R shares of the RCB
Small Cap Value Fund, (the "New Fund"), a newly created series of CNI Funds.
2. Any other business that properly comes before the
Shareholder Meeting.
The proposed transaction is described in the attached Combined
Proxy Statement and Prospectus. A copy of the Reorganization Agreement is
appended as Exhibit A thereto.
Only shareholders of record at the close of business on July 27,
2001 (the Record Date), will be entitled to receive this notice and to vote at
the Shareholder Meeting or any adjournment thereof.
By Order of the Board of Trustees,
Steven J. Paggioli
President and Trustee
Your vote is important regardless of how many
shares you owned on the record date.
-------------------
Shareholders are requested to mark, date, sign and return promptly in the
enclosed envelope the accompanying proxy card, which is being solicited by the
Board of Trustees of PMP. This is important to ensure a quorum at the
Shareholder Meeting. Shareholders may also have their votes recorded by
facsimile or telephone or through the Internet. Please call Ms. Daryl Weber at
(800) 282-2340 for more information. Proxies may be revoked at any time before
they are exercised by submitting to PMP a written notice of revocation or a
subsequently executed proxy or by attending the Shareholder Meeting and voting
in person. However, attendance at the Shareholder Meeting will not by itself
serve to revoke a proxy.
2
COMBINED PROXY STATEMENT
FOR
RCB SMALL CAP FUND
PROFESSIONALLY MANAGED PORTFOLIOS
11111 Santa Monica Blvd., Suite 1700
Los Angeles, California 90025
(800) 282-2340
AND
PROSPECTUS
FOR
RCB SMALL CAP VALUE FUND
CNI CHARTER FUNDS
City National Center
400 North Roxbury Drive
Beverly Hills, California 90210
Dated: August 3, 2001
What is this document and why did we send it to you?
The Board of Trustees of Professionally Managed Portfolios ("PMP"
or the "Trust") approved a plan to reorganize the RCB Small Cap Fund (the "RCB
Fund"), a series of PMP, into the newly created RCB Small Cap Value Fund (the
"New Fund"), a series of CNI Charter Funds ("CNI Funds") (that transaction is
referred to as the "Reorganization"). Shareholder approval is needed to proceed
with the Reorganization. The special shareholder meeting will be held on
September 14, 2001 (the "Shareholder Meeting"). We are sending this document to
you for your use in deciding whether to approve the Reorganization at the
Shareholder Meeting.
This document includes a Notice of Special Meeting of
Shareholders, a Proxy Statement and a form of Proxy.
As a technical matter, the Reorganization will have three steps:
o the transfer of the assets and stated liabilities of the RCB
Fund to the New Fund in exchange for Class R shares of the
New Fund (the "New Fund Shares") of equivalent value to the
net assets transferred;
o the pro rata distribution of those New Fund Shares to
shareholders of record of the RCB Fund as of the effective
date of the Reorganization (the "Effective Date") in full
redemption of those shareholders' shares in the RCB Fund; and
o the immediate liquidation and termination of the RCB Fund.
As a result of the Reorganization, each shareholder of the RCB
Fund would instead hold New Fund Shares having the same total value as the
shares of the RCB Fund held immediately before the
3
Reorganization. Lawyers for the RCB Fund and the New Fund are expected to issue
a legal opinion to PMP that the Reorganization should be treated as a tax-free
reorganization that should not cause the RCB Fund's shareholders to recognize a
gain or loss for federal income tax purposes.
This Combined Proxy Statement and Prospectus sets forth the basic
information that you should know before voting on the proposal. You should read
it and keep it for future reference.
What other important documents should I know about?
The RCB Fund currently is a series of PMP, an open-end management
investment company. The following documents are on file with the Securities and
Exchange Commission (the "SEC") and are deemed to be legally part of this
document:
o Prospectus for the RCB Fund dated October 27, 2000; and
o Statement of Additional Information relating to the RCB Fund
also dated October 27, 2000.
Those documents are available without charge by writing to the
RCB Fund at 11111 Santa Monica Blvd., Suite 1700, Los Angeles, California 90025,
or by calling (800) 282-2340.
The registration statement for the New Fund (which includes the
Prospectus and the Statement of Additional Information for the New Fund, dated
August 2, 2001) was initially filed with the SEC on June 4, 2001, and later
updated on August 2, 2001. The New Fund will commence operations on or about
October 31, 2001. The Prospectus and the Statement of Additional Information for
the New Fund, dated August 2, 2001, are incorporated herein and are deemed to be
legally part of this document. The Prospectus and the Statement of Additional
Information for the New Fund are available without charge by calling (888)
889-0799.
The Annual Report to Shareholders of the RCB Fund for the fiscal
year ended June 30, 2000, containing audited financial statements of the RCB
Fund, has been previously mailed to shareholders. If you do not have a copy,
additional copies of that Annual Report are available without charge by writing
or calling the RCB Fund at its address and telephone number listed above. The
Annual Report to Shareholders of the RCB Fund for the fiscal year ended June 30,
2001, containing audited financial statements of the RCB Fund, will be sent to
shareholders when available. The New Fund is a new series of CNI Funds and has
not yet commenced operations. Therefore, no Annual Report to Shareholders is
available for the New Fund.
All of these documents are available through the SEC's web site
at www.sec.gov. (Information about the RCB Fund can be found under
Professionally Managed Portfolios and information about the New Fund can be
found under CNI Charter Funds.)
It is expected that this Proxy Statement will be mailed to
shareholders on or about August 13, 2001.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The shares of the New Fund offered hereby are not deposits or obligations of, or
guaranteed or endorsed by, any bank, including City National Bank or any of its
subsidiaries or affiliates. Such shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investments in shares of mutual funds involve risks including the possible loss
of principal.
4
Table of Contents
-----------------
Page
----
I. INTRODUCTION........................................................................5
A. GENERAL......................................................................5
B. THE PROPOSAL.................................................................5
C. SHARES AND VOTING............................................................7
II. THE PROPOSAL........................................................................8
A. DESCRIPTION OF THE PROPOSED REORGANIZATION...................................8
1. The Reorganization....................................................8
2. Effect of the Reorganization..........................................9
3. Federal Income Tax Consequences.......................................9
4. Description of the New Fund Shares...................................10
5. Capitalization.......................................................10
B. COMPARISON OF THE FUNDS.....................................................10
1. Objective, Strategy, Risks and Policies..............................10
a. Objective.....................................................10
b. Strategy......................................................11
c. Risks.........................................................11
d. Policies and Investment Restrictions..........................12
2. Comparison of Fees and Expenses......................................13
3. Comparative Performance Information..................................14
4. Advisory Fees and Other Expenses.....................................15
5. Sales Charge.........................................................16
6. Investment Manager...................................................16
a. RCB Fund......................................................16
b. New Fund......................................................16
7. Distribution and Shareholder Services................................17
a. Distribution..................................................17
b. Shareholder Services..........................................17
8. Other Service Providers..............................................18
a. Administrator.................................................18
EXHIBIT A - AGREEMENT AND PLAN OF REORGANIZATION
- ---------
PROXY CARD
-i-
Table of Contents
-----------------
(continued)
Page
----
b. Dividend Disbursing Agent and Transfer Agent..................19
c. Custodian.....................................................19
9. Investments, Redemptions and Exchanges...............................19
10. Pricing of Fund Shares...............................................20
11. Income Dividends, Capital Gains Distributions and Taxes..............20
12. Portfolio Transactions and Brokerage Commissions.....................20
13. Shareholders' Rights.................................................21
14. Tax Consequences.....................................................21
C. RECOMMENDATION OF THE BOARD OF TRUSTEES.....................................21
1. The Legal Framework..................................................22
2. Considerations by the Board of Trustees..............................22
D. DISSENTERS' RIGHTS OF APPRAISAL.............................................23
E. FURTHER INFORMATION ABOUT THE RCB FUND AND THE NEW FUND.....................23
F. VOTE REQUIRED...............................................................24
G. FINANCIAL HIGHLIGHTS........................................................24
III. MISCELLANEOUS ISSUES...............................................................25
A. OTHER BUSINESS..............................................................25
B. NEXT MEETING OF SHAREHOLDERS................................................25
C. LEGAL MATTERS...............................................................25
D. EXPERTS.....................................................................25
-ii-
I. INTRODUCTION
A. GENERAL
The Board of Trustees (the "Board of Trustees" or the "Board") of
the Trust called this Shareholder Meeting to allow shareholders to consider and
vote on the proposed Reorganization of the RCB Fund. The Board of Trustees,
including a majority of the independent trustees, meaning those trustees who are
not "interested" persons under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), approved the Reorganization at a meeting held on
June 20, 2001, subject to the approval of the RCB Fund's shareholders.
B. THE PROPOSAL
At the Shareholder Meeting, the shareholders of the RCB Fund will
be asked to approve the proposed Reorganization of the RCB Fund into the New
Fund. The Reorganization will include the transfer of all of the assets and
stated liabilities of the RCB Fund to the New Fund. All remaining RCB Fund
shareholders will receive New Fund Shares in exchange. The RCB Fund will then be
terminated and liquidated.
The net asset value per share of the New Fund and the number of
shares owned by each New Fund shareholder immediately after the Reorganization
will be identical to the net asset value per share of the RCB Fund and identical
to the number of shares owned by each RCB Fund shareholder immediately before
the Reorganization.
Reed, Conner & Birdwell, LLC ("RCB") currently serves as the
investment adviser to the RCB Fund. After the Reorganization, RCB will continue
to serve as portfolio manager of the New Fund pursuant to a sub-advisory
agreement with City National Asset Management, Inc. ("CNAM"). The New Fund will
have a substantially similar investment objective, strategies and policies to
those of the RCB Fund. Specifically, the New Fund intends to seek capital
appreciation by investing in smaller U.S. corporations which are considered
undervalued, while the RCB Fund currently seeks capital appreciation through
investment in small capitalization companies. However, the New Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
equity securities of smaller U.S. corporations with a market capitalization of
$2.5 billion or less at time of purchase (compared to $1.5 billion or less for
the RCB Fund). Furthermore, the New Fund, under normal circumstances, will
invest at least 80% (compared to 65% for the RCB Fund) of its net assets in such
smaller capitalization securities in order to comply with a recently-enacted SEC
rule which requires a fund with a name that suggests that it focuses on a
particular type of investments, to invest at least 80% of its net assets in that
type of investment. Investments in the New Fund will be subject to substantially
similar risks as those of the RCB Fund (see Section II.B.1. below).
The purchase and redemption procedures of the New Fund will be
substantially similar to those of the RCB Fund. The only difference is that upon
the completion of the Reorganization, CNI Funds' current transfer agent, SEI
Investments Fund Management, will provide, or arrange for others to provide,
transfer agency services to the Class R shares of the New Fund. Accordingly, the
address and telephone number to which shareholders of the New Fund would direct
purchase and redemption requests will be different.
The New Fund will have a fiscal year end of September 30,
compared to that of June 30 for the RCB Fund.
The following table shows the comparative fees and expenses you
may pay if you buy and hold shares of the RCB Fund as compared to Class R shares
of the New Fund. The RCB Fund
5
imposes a front-end sales load but does not charge shareholders for reinvesting
dividends. Like the RCB Fund, the New Fund imposes a front-end sales load on
purchases of its Class R shares, but does not charge shareholders for
reinvesting dividends. Class R shares of the New Fund currently may not be
exchanged for Class R shares of another series of CNI Funds because currently
only the New Fund may issue Class R shares.
Fees and Expenses of Each Fund
New Fund
Class R Shares
RCB Fund (pro forma)
-------- -----------
Shareholder Fees (fees paid directly
from your investment) Redemption Fee
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering price) 3.50% 3.50%
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets)
Management Fee* 0.85% 0.85%
Distribution/Service
(12b-1) Fee 0.25% 0.25%
Shareholder Services Fee 0.00% 0.25%
Other Fund Expenses** 2.39% 0.26%
Total Annual Fund Operating Expenses** 3.49% 1.61%
Fee Reduction and/or Expense
Reimbursement (2.00%) (0.12%)
Net Expenses 1.49% 1.49%
======= =======
* The "Management Fee" is an annual fee, payable monthly out of the each Fund's
net assets.
** Other Fund Expenses for the New Fund, and thus the New Fund's Total Annual
Fund Operating Expenses, are estimates and may be higher or lower than shown
above. Like RCB for the RCB Fund, CNAM has voluntarily agreed to limit its
fees or reimburse the New Fund for expenses to the extent necessary to keep
the New Fund's Total Annual Fund Operating Expenses for the current fiscal
year at or below 1.49%. Any fee reductions or reimbursements may be repaid
to CNAM within 3 years after they occur if such repayments can be achieved
within the New Fund's then current expense limit, if any, for that year and
if certain other conditions are satisfied.
Example of Fund Expenses: This example is intended to help you compare the cost
of investing in the Class R shares of the New Fund with the cost of investing in
other mutual funds. The table below shows what you would pay in expenses over
time, whether or not you sold your shares at the end of each period. It assumes
a $10,000 initial investment, 5% total return each year and the changes
specified above. This example is for comparison purposes only. It does not
necessarily represent the New Fund's actual expenses or returns.
6
Fund 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
RCB Fund $473 $733 $1,012 $1,808
- -------------------------------------------------------------------------------
New Fund (pro forma) $473 $733 $1,012 $1,808
RCB and the Board of Trustees believe that the proposed
Reorganization is in the best interests of the RCB Fund and its shareholders,
and that the interests of existing shareholders of the RCB Fund will not be
diluted as a result of the proposed Reorganization. (See Section II.C below.)
City National Bank and RCB will pay the costs of the
Reorganization, the Shareholder Meeting and solicitation of proxies, including
the cost of copying, printing and mailing proxy materials. In addition to
solicitations by mail, RCB and the Board also may solicit proxies, without
special compensation, by telephone, facsimile or otherwise.
C. SHARES AND VOTING
PMP is a Massachusetts business trust and is registered with the
SEC as an open-end management investment company. The Trust currently has 23
operating series, or funds, including the RCB Fund. Each series has its own
identity, investment objective and policies and operates independently for
purposes of investments, dividends, other distributions and redemptions. The
Trust is not a fund family like CNI Funds but instead is a vehicle for
unaffiliated, generally stand-alone mutual funds.
The RCB Fund has only one class of shares, with one fee and
expense structure. The RCB Fund's shareholders will receive New Fund Shares in
exchange for their RCB Fund shares if the Reorganization is approved and
completed.
Each whole or fractional share of the RCB Fund is entitled to one
vote or corresponding fraction at the Shareholder Meeting. At the close of
business on July 27, 2001, the record date for the determination of shareholders
entitled to vote at the Shareholder Meeting (the "Record Date"), there were
470,892.646 shares outstanding held by 89 record holders (including omnibus
accounts representing multiple underlying beneficial owners such as those in the
names of brokers).
All shares represented by each properly signed proxy received
before the Special Meeting will be voted at the Shareholder Meeting. If a
shareholder specifies how the proxy is to be voted on any business properly to
come before the Shareholder Meeting, it will be voted in accordance with
instruction given. If no choice is indicated on the proxy, it will be voted FOR
approval of the Reorganization, as more fully described in this Proxy Statement.
A proxy may be revoked by a shareholder at any time before its use by written
notice to the RCB Fund, by submission of a later-dated proxy or by voting in
person at the Shareholder Meeting. If any other matters come before the
Shareholder Meeting, proxies will be voted by the persons named as proxies in
accordance with their best judgment.
The holders of 40% of the outstanding shares entitled to vote
present in person or by proxy will constitute a quorum. When a quorum is
present, approval of the proposal will require the affirmative vote of a
"majority of the outstanding voting securities" of the RCB Fund. The term
"majority of the outstanding voting securities" of the RCB Fund, as defined in
the Investment Company Act, means: the affirmative vote of the lesser of (i) 67%
of the voting securities of the RCB Fund present at the Special Meeting if more
than 50% of the outstanding shares of the RCB Fund are present in person or by
proxy or (ii) more than 50% of the outstanding shares of the RCB Fund.
The Shareholder Meeting may be adjourned from time to time by a
majority of the votes properly cast upon the question of adjourning the
Shareholder Meeting to another date and time, whether
7
or not a quorum is present, and the Shareholder Meeting may be held as adjourned
without further notice. The persons named in the proxy will vote in favor of
such adjournment those shares which they are entitled to vote if such
adjournment is necessary to obtain a quorum or to obtain a favorable vote on any
proposal.
Proxies must be voted by mail or facsimile transmission or by
Internet or by telephone.
All proxies voted, including abstentions and broker non-votes
(where the underlying holder has not voted and the broker does not have
discretionary authority to vote the shares), will be counted toward establishing
a quorum. Approval of the Reorganization will occur only if a sufficient number
of votes are cast FOR that proposal. Abstentions do not constitute a vote "for"
and effectively result in a vote "against." Broker non-votes do not represent
vote "for" or "against" and are disregarded in determining whether the proposal
has received enough votes.
As of the July 27, 2001, the RCB Fund's shareholders of record
and (to the Trust's knowledge) beneficial owners who owned more than five
percent of the RCB Fund's shares were as follows:
Shareholder Percentage of the Fund's
Outstanding Shares
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette Securities Corp Mutual Fund Dept., Jersey City, NJ
07303 - 7.18%
Reed, Conner & Birdwell Money Purchase Plan, Los Angeles, CA 90025 - 9.78%
The Winner Living Trust, Manhattan Beach, CA 90266 - 9.87%
Timothy J. Rohner, Carlsbad, CA 92009 - 11.64%
John P. Smith Ira, Yonkers, NY 10710 - 9.12%
Robert Saffer, Brooklyn, NY 11215 - 7.57%
The officers and Trustees of the Trust, as a group, owned of
record and beneficially less than one percent of the outstanding voting
securities of the RCB Fund as of the Record Date. The officers, directors and
employees of RCB, as a group, owned of record and beneficially (directly or
indirectly through a retirement plan) less than 1% of the outstanding voting
securities of the RCB Fund.
II. THE PROPOSAL
A. DESCRIPTION OF THE PROPOSED REORGANIZATION
1. The Reorganization
------------------
If the Reorganization is approved, the New Fund will acquire or
assume all of the assets and stated liabilities of the RCB Fund on the Effective
Date. At that time, the New Fund will issue to the RCB Fund the same number of
Class R shares as the shareholders of the RCB Fund held of record on the day
before the Effective Date.
At the same time as that asset transfer, the RCB Fund will
distribute the New Fund Shares it receives pro rata to each remaining
shareholder of the RCB Fund, distributing the same number of shares as the
outstanding shares of the RCB Fund held of record by that shareholder on the day
before the Effective Date.
This distribution of the New Fund Shares to the RCB Fund's
shareholders will be accomplished by the establishment of accounts on the New
Fund's share records in the names of those shareholders, representing the
respective pro rata number of New Fund Shares deliverable to them. Fractional
shares will be carried to the third decimal place. Certificates evidencing the
New Fund Shares will not be issued to the RCB Fund's shareholders.
8
Promptly following the RCB Fund's pro rata liquidating
distribution of the New Fund Shares to the RCB Fund shareholders, the RCB Fund
will liquidate and terminate.
Completion of the Reorganization is subject to approval by the
shareholders of the RCB Fund, and to certain other customary conditions. The
Reorganization may be abandoned at any time before the Effective Date by a
majority of the Board of Trustees or by the CNI Funds.
City National Bank and RCB will pay all costs and expenses of the
Reorganization, including those associated with the Shareholder Meeting, the
copying, printing and distribution of this Combined Proxy Statement and
Prospectus, and the solicitation of proxies for the Shareholder Meeting.
The above is a summary of the Reorganization. The summary is not
a complete description of the terms of the Reorganization, which are set forth
in the Agreement and Plan of Reorganization attached as Exhibit A to this
document.
2. Effect of the Reorganization
----------------------------
If the Reorganization is approved by the RCB Fund's shareholders
and completed, shareholders of the RCB Fund as of the Effective Date will become
shareholders of the New Fund holding Class R shares. The total net asset value
of the New Fund Shares held by each shareholder of the RCB Fund immediately
after completion of the Reorganization will be equivalent to the total net asset
value of the RCB Fund Shares held by that same shareholder immediately before
completion of the Reorganization.
After the Reorganization, the investment manager for the New Fund
will be CNAM, with RCB serving in the capacity of portfolio manager and
sub-advisor pursuant to a sub-advisory agreement with CNAM. Additionally, there
will be the following changes in service providers to the New Fund: (i) SEI
Investments Mutual Fund Services will replace Investment Company Administration
LLC as the administrator, (ii) SEI Investment Distribution Co. will replace
First Fund Distributors, Inc. as the distributor, (iii) SEI Investments Fund
Management will replace American Data Services, Inc. as the Class R share
transfer agent, and (iv) First Union National Bank will replace Firstar
Institutional Custody Services as the custodian.
In connection with the Reorganization, the RCB Fund will make a
special one-time distribution to shareholders of the RCB Fund's undistributed
net realized capital gains, if any, and ordinary income. This distribution will
result in less income and less realized capital gain, if any, being distributed
at year end. If the RCB Fund experiences net capital losses between the closing
date of the Reorganization and October 31, 2001, this distribution will have the
practical effect of accelerating the distribution of capital gains to
shareholders.
3. Federal Income Tax Consequences
-------------------------------
As a condition to the closing of the Reorganization, the RCB Fund
and the New Fund must receive a favorable opinion from Paul, Hastings, Janofsky
& Walker LLP, counsel to the New Fund (which they expect to receive),
substantially to the effect that, for federal income tax purposes: (a) the
transfer by the RCB Fund of substantially all of its assets to the New Fund
solely in exchange for the Class R shares of the New Fund, as described above,
is a reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"); (b) no gain or loss is recognized by the
RCB Fund upon the transfer of substantially all of its assets to the New Fund in
exchange solely for Class R shares of the New Fund; (c) no gain or loss is
recognized by the New Fund on receipt of the RCB Fund assets in exchange for the
Class R shares of the New Fund; (d) the tax basis of the assets of the RCB Fund
in the hands of the New Fund is, in each instance, the same as the tax basis of
those assets in the
9
hands of the RCB Fund immediately prior to the Reorganization; (e) the holding
period of the RCB Fund's assets in the hands of the New Fund includes the period
during which the assets were held by the RCB Fund; (f) no gain or loss is
recognized to the shareholders of the RCB Fund upon the receipt of the Class R
shares of the New Fund solely in exchange for the RCB Fund's shares; (g) the tax
basis of the Class R shares of the New Fund received by the RCB Fund
shareholders is, in each instance, the same as the tax basis of the RCB Fund
shares surrendered in exchange therefor; and (h) the holding period of the Class
R shares of the New Fund received by the RCB Fund shareholders includes the
holding period during which shares of the RCB Fund surrendered and exchanged
therefor were held by such shareholders. PMP does not intend to seek a private
letter ruling from the Internal Revenue Service with respect to the tax effects
of the Reorganization.
4. Description of the New Fund Shares
----------------------------------
Each New Fund Share issued to RCB Fund shareholders pursuant to
the Reorganization will be duly authorized, validly issued, fully paid and
nonassessable when issued, will be transferable without restriction and will
have no preemptive or conversion rights. Each New Fund Share will represent an
equal interest in the assets of the New Fund. The New Fund Shares will be sold
and redeemed based upon the net asset value of such shares next determined after
receipt of the purchase or redemption request, as described in the New Fund's
Prospectus.
5. Capitalization
--------------
The capitalization of the RCB Fund and the New Fund as of July
31, 2001 and their pro forma combined capitalization as of that date after
giving effect to the proposed Reorganization are as follows:
(Unaudited) (Unaudited)
New Fund RCB Fund
------------------ ------------------
Aggregate net assets $0** $8,808,492.74
Shares outstanding* 0** 470,892.646
Net asset value per share $0** $18.71
* Each Fund is authorized to issue an indefinite number of shares. Additionally,
CNI Funds will offer multiple classes of shares of the New Fund, including the
Class R shares issued in the Reorganization.
** The New Fund is a new series of CNI. It has not yet commenced operations and
currently has no assets and no shares outstanding.
B. COMPARISON OF THE FUNDS
1. Objective, Strategy, Risks and Policies
---------------------------------------
The New Fund will have a substantially similar investment
objective and substantially similar strategies and policies to those of the RCB
Fund.
a. Objective
The New Fund's investment objective is to seek capital
appreciation through investment in smaller U.S. corporations which are
considered undervalued. This is substantially similar to the
10
investment objective of the RCB Fund, which seeks capital appreciation through
investment in small capitalization companies.
b. Strategy
The New Fund seeks to achieve its investment objective by
investing in a diversified portfolio of equity securities of smaller U.S.
corporations with a market capitalization of $2.5 billion or less at time of
purchase (compared to $1.5 billion or less for the RCB Fund). Furthermore, the
New Fund, under normal circumstances, will invest at least 80% (compared to 65%
for the RCB Fund) of its net assets in such smaller capitalization securities in
order to comply with a recently-enacted SEC rule which requires a fund with a
name that suggests that it focuses on a particular type of investments to invest
at least 80% of its assets in that type of investment. In selecting investments
for the New Fund, RCB will employ substantially the same principal strategy that
RCB currently uses for the RCB Fund. Specifically, the investment philosophy of
RCB with respect to the New Fund involves a value-oriented focus on preservation
of capital over the long term and a "bottom-up" approach, analyzing companies on
their individual characteristics, prospects and financial conditions. RCB will
determine the universe of potential companies for investment through their
systematic screening of companies for attractive valuation characteristics and
the prospects of fundamental changes, as well as information RCB derives from a
variety of sources, including, but not limited to, regional brokerage research,
trade publications and industry conferences. RCB evaluates companies within this
universe for fundamental characteristics such as: (i) return on capital trends,
(ii) cash flow and/or earnings growth, (iii) free cash flow, (iv) balance sheet
integrity and (v) intrinsic value analysis.
c. Risks
(i) Market Risks.
By investing in stocks, both the RCB Fund and the New Fund may
expose shareholders to risks that could cause them to lose money, particularly a
sudden decline in a holding's share price or an overall decline in the stock
market. As with any stock fund, the value of a shareholder's investment in
either the RCB Fund or the New Fund will fluctuate on a day-to-day and a
cyclical basis with movements in the stock market, as well as in response to the
activities of individual companies. In addition, individual companies may report
poor results or be negatively affected by industry and/or economic trends and
developments. Each of the RCB Fund and the New Fund is also subject to the risk
that its principal market segment, small capitalization value stocks, may
underperform other equity market segments or the market as a whole.
(ii) Smaller Capitalized Companies.
Like the RCB Fund, the New Fund will invest in smaller
capitalized companies, which generally may have greater earnings and sales
growth potential than larger capitalized companies. Furthermore, like the RCB
Fund, the level of risk will be increased to the extent that the New Fund has
significant exposure to smaller capitalized or unseasoned companies (those with
less than a three-year operating history). Investments in smaller capitalized
companies may involve greater risks, such as limited product lines, markets and
financial or managerial resources. In addition, the securities of smaller
capitalized companies may have few market makers, wider spreads between their
quoted bid and asked prices, and lower trading volume, resulting in greater
price volatility and less liquidity than the securities of larger capitalized
companies. In addition, like the RCB Fund, the New Fund may hold a significant
percentage of a company's outstanding shares, which means that the New Fund may
have to sell such investments at discounts from quoted prices.
11
(iii) Focus.
Like the RCB Fund, the New Fund may hold a relatively small
number of securities positions, each representing a relatively large portion of
the New Fund's capital. Losses incurred in such positions could have a material
adverse effect on the New Fund's overall financial condition. The New Fund's
performance may also differ materially from the relevant benchmarks, which hold
many more stocks than the New Fund and may be concentrated in different sectors
or industries than the New Fund.
d. Policies and Investment Restrictions
(i) Fundamental Investment Restrictions.
The following fundamental investment restrictions of the New Fund
are substantially similar to those of the RCB Fund and cannot be changed without
the affirmative vote of a majority of the respective Fund's outstanding voting
securities as defined in the Investment Company Act. Each Fund may not:
1. With respect to 75% of its assets, (i) purchase the securities of
any issuer (except securities issued or guaranteed by the United States
Government, its agencies or instrumentalities) if, as a result, more than 5% of
its total assets would be invested in the securities of such issuer; or (ii)
acquire more than 10% of the outstanding voting securities of any one issuer.
2. Purchase any securities which would cause 25% or more of the
total assets of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities.
3. Borrow money except as stated in the prospectus and the SAI. Any
such borrowing will be made only if immediately thereafter there is an asset
coverage of at least 300% of all borrowings. The Fund also may not pledge,
mortgage or hypothecate assets except to secure borrowings permitted by the
Fund's fundamental limitation on borrowing.
4. Make loans except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii) enter
into repurchase agreements; and (iii) lend its securities.
5. Purchase or sell real estate, physical commodities, or
commodities 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.
6. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC 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.
7. Purchase securities on margin, participate on a joint or joint
and several basis in any securities trading account, or underwrite securities.
The foregoing shall not preclude the Fund from obtaining such short-term credit
as may be necessary for clearance of purchases and sales of its portfolio
securities.
The foregoing percentages (other than the limitation on borrowing)
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency
12
occurs immediately after or as a result of a purchase of such security. These
investment limitations are fundamental policies of each Fund and may not be
changed without shareholder approval.
(ii) Non-fundamental Investment Restrictions.
The following non-fundamental investment restrictions of the New
Fund are substantially similar to those of the RCB Fund and can be changed
without the affirmative vote of a majority of the respective Fund's outstanding
voting securities as defined in the Investment Company Act. Each Fund may not:
1. Invest in companies for the purpose of exercising control.
2. Invest its assets in securities of any investment company, except
as permitted by the Investment Company Act or an order of exemption therefrom.
3. Purchase or hold securities that are illiquid, or are otherwise
not readily marketable, i.e., securities that cannot be disposed of for their
approximate carrying value in seven days or less (which term includes repurchase
agreements and time deposits maturing in more than seven days) if, in the
aggregate, more than 15% of its net assets would be invested in illiquid
securities.
4. With respect to fundamental investment restriction d.(i)3 above,
each Fund will not purchase portfolio securities while outstanding borrowings
exceed 5% of its assets.
Each of the foregoing percentage limitations apply at the time of
purchase. If, subsequent to a Fund's purchase of an illiquid security, more than
15% of that Fund's net assets are invested in illiquid securities because of
changes in valuations, that Fund will, within a reasonable time, dispose of a
portion of such holding so that the above set-forth limit will not be exceeded.
These limitations are non-fundamental policies of each Fund and may be changed
by the Board without a vote of shareholders.
2. Comparison of Fees and Expenses
-------------------------------
The RCB Fund imposes a front-end sales load but does not
charge shareholders for reinvesting dividends. Like the RCB Fund, the New Fund
imposes a front-end sales load on purchases of its Class R shares, but does not
charge shareholders for reinvesting dividends. Class R shares of the New Fund
currently may not be exchanged for Class R shares of another series of CNI Funds
because currently only the New Fund may issue Class R shares. (See Section I.B.
above).
3. Comparative Performance Information
-----------------------------------
The following performance information indicates some of the
risks of investing in the RCB Fund. The bar chart shows the RCB Fund's total
returns for the last two calendar years. The bar chart does not reflect sales
charges, which would lower the performance returns shown. The table below the
bar chart shows the RCB Fund's performance returns for the periods indicated
compared with those of broad-based market indices. Unlike the bar chart, the
performance returns shown in the table assume that the maximum sales charge was
paid. No performance is shown for the New Fund because it has not yet commenced
operations. Of course, past performance is no guarantee of future results.
13
17.65
____
| |
| | 12.87
| | ____
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|-----------------------|-----------------------|
1999 2000
1 Year Ended From Inception (9/30/98) to
December 31, 2000 December 31, 2000
- --------------------------------------------------------------------------------
RCB Fund 12.87% 26.40%
- --------------------------------------------------------------------------------
S&P 500 Index* -9.10% 13.66%
- --------------------------------------------------------------------------------
Russell 2000 Index** 3.0% 14.92%
- --------------------------------------------------------------------------------
Russell 2000 Value Index** 22.83% 13.10%
* The S&P 500 Index is a capitalization-weighted index of all the stocks in the
Standard & Poor's 500. The index is rebalanced semi-annually on January 1 and
July 1.
** The Russell 2000 Index is an unmanaged index which measures the performance
of the 2,000 smallest of the 3,000 largest U.S. companies based on total
market capitalization. The Russell 2000 Value Index is a
capitalization-weighted index of all the stocks in the Russell 2000 Index
that have low price-to-book ratios. The index is rebalanced semi-annually on
January 1 and July 1. The index is designed so that approximately 50% of the
Russell 2000 market capitalization is in the Value Index.
4. Advisory Fees and Other Expenses
--------------------------------
RCB currently serves as the investment adviser to the RCB Fund.
After the Reorganization, CNAM will serve as the investment manager to the New
Fund and RCB will serve as the portfolio manager and sub-advisor pursuant to a
sub-advisory agreement with CNAM. However, the contractual advisory fee rate for
the New Fund will not differ from that of the RCB Fund, which rate is currently
0.85% of the average daily net assets of the RCB Fund. For the fiscal year ended
June 30, 2000, the RCB Fund accrued advisory fees owed to RCB of $33,384, all of
which were waived by RCB. For the same period, RCB reimbursed the RCB Fund an
additional $45,525 in expenses. CNAM or RCB may seek recovery of these waived
advisory fees and certain reimbursed operating expenses from the Class R shares
of the New Fund after the Reorganization occurs, provided that recovery is
effected within three years after the original waiver or reimbursement and the
recovery can be achieved within the applicable expense limit, if any, and if
certain other conditions are satisfied.
Like the RCB Fund, the total annual expense limitation of the New
Fund will be 1.49%. RCB has agreed to the expense limitation (excluding interest
and taxes) pursuant to a contract with PMP with respect to the RCB Fund. Upon
the completion of the Reorganization, CNAM will enter into a similar arrangement
with CNI Funds with respect to the Class R shares of the New Fund for purposes
of limiting the total annual expenses limitation of the Class R shares to 1.49%
for current fiscal year. This means that shareholders of the RCB Fund should not
face increased expenses as a result of the Reorganization. Under the respective
arrangements, the RCB Fund and the New Fund are required to reimburse RCB and
CNAM, respectively, for any reductions in RCB's and CNAM's respective fees or
their payment of expenses only during the three years following those reductions
or payments and only if
14
such reimbursement can be achieved within the foregoing expense limits, if any,
and if certain other conditions are satisfied.
5. Sales Charge
------------
Shares of the RCB Fund and the Class R shares of the New Fund are
sold subject to a front-end sales charge. The sales charge declines with the
size of a shareholder's purchase, as shown below:
As a Percentage of As a Percentage
Your Investment Offering Price of Investment
- --------------- -------------- -------------
Less than $50,000 3.50% 3.25%
$50,000 but less than $100,000 3.00% 3.09%
$100,000 but less than $200,000 2.50% 2.56%
$200,000 but less than $300,000 2.00% 2.04%
$300,000 but less than $500,000 1.00% 1.01%
$500,000 or more None None
6. Investment Manager
------------------
a. RCB Fund
RCB is currently the investment manager for the RCB Fund. RCB is
a wholly owned subsidiary of City National Corporation ("CNC"), a New York Stock
Exchange listed company. RCB's address is 11111 Santa Monica Blvd., Suite 1700,
Los Angeles, California 90025. As of June 30, 2001, RCB managed assets of
approximately $1.2 billion for individual and institutional investors. RCB and
its predecessor have been engaged in the investment advisory business for over
forty years.
Mr. Jeffrey Bronchick, Executive Vice President, Principal and
Chief Investment Officer of RCB, and Mr. Thomas D. Kerr, Vice President,
Portfolio Management and Research of RCB, are principally responsible for the
management of the RCB Fund. They have been associated with RCB or its
predecessor since 1989 and 1994, respectively. Mr. Bronchick and Mr. Kerr will
be principally responsible for the portfolio management of the New Fund.
b. New Fund
Upon the completion of the Reorganization, RCB will serve as the
portfolio manager to the New Fund pursuant to a sub-advisory agreement with
CNAM. CNAM's address is City National Center, 400 North Roxbury Drive, Beverly
Hills, California 90210.
CNAM is a wholly-owned subsidiary of CNB, a federally chartered
commercial bank founded in the early 1950's with over $7.2 billion in assets as
of June 30, 2001. CNB is itself a wholly-owned subsidiary of CNC. CNB has
provided trust and fiduciary services, including investment management services,
to individuals and businesses for over 30 years. CNB currently provides
investment management services to individuals, pension and profit sharing plans,
endowments and foundations. As of June 30, 2001, CNB and its affiliates had
approximately $18.5 billion in assets under administration, which includes $7.2
billion in assets under management.
15
7. Distribution and Shareholder Services
-------------------------------------
a. Distribution
First Fund Distributors, Inc. (the "RCB Distributor") and PMP are
parties to a distribution agreement (the "RCB Distribution Agreement"). The RCB
Distributor has its principal business offices at 4455 E. Camelback Road, Suite
261-E, Phoenix, Arizona 85018. PMP has adopted a distribution plan (the "RCB
Plan") with respect to the RCB Fund. The RCB Plan has been adopted pursuant to
Rule 12b-1 under the Investment Company Act. The RCB Distribution Agreement and
the RCB Plan provide that PMP will pay RCB, as the RCB Distribution Coordinator,
a fee calculated daily and paid monthly at an annual rate of up to 0.25% of the
average daily net assets of the RCB Fund. RCB can use these fees only to
reimburse itself for eligible expense, such as to compensate broker/dealers and
service providers (including RCB and its affiliates) that provide distribution
services to holders of these shares or their customers who beneficially own
these shares. The RCB Fund paid $9,819 in distribution fees for the fiscal year
ended June 30, 2000.
Upon completion of the Reorganization, CNI Funds' current
distributor, SEI Investments Distribution Co. (the "CNI Distributor"), will
serve as the distributor to the New Fund pursuant to an existing distribution
agreement between CNI Funds and the CNI Distributor (the "CNI Distribution
Agreement"). The CNI Distributor is located at One Freedom Valley Drive, Oaks,
Pennsylvania 19456. CNI Funds will also adopt a distribution plan with respect
to the Class R shares of the New Fund (the "CNI Plan"). The CNI Distribution
Agreement and the CNI Plan provide that CNI Funds will pay the CNI Distributor a
fee calculated daily and paid monthly at an annual rate of 0.25% of the average
daily net assets of the New Fund. The CNI Distributor can use these fees to
compensate broker/dealers and service providers (including CNB and its
affiliates) that provide distribution services to holders of these shares or
their customers who beneficially own these shares. Unlike that of the RCB Fund,
the distribution fee payable by the Class R shares of the New Fund for any given
period is not limited to the actual distribution expenses incurred respecting
those shares, and the distribution fee may be greater or less than the
distribution expenses actually incurred. Since the New Fund has not commenced
operations, it has not yet paid any distribution fees.
b. Shareholder Services
Unlike the RCB Fund, CNB intends to include the Class R shares of
the New Fund in its existing Shareholder Services Agreement with CNI Funds upon
completion of the Reorganization. Pursuant to that Shareholder Services
Agreement, CNB will provide, or will arrange for others to provide, certain
specified shareholder services to the Class R shares of the New Fund. As
compensation for the provision of such services, the New Fund will pay CNB a fee
of 0.25% of the New Fund's average daily net assets attributable to its Class R
shares on an annual basis, payable monthly. CNB may pay certain banks, trust
companies, broker-dealers, and other institutions (each a "Participating
Organization") out of the fees CNB receives from the New Fund under the
Shareholder Services Agreement to the extent that the Participating Organization
performs shareholder servicing functions for the New Fund with respect to shares
of the New Fund owned from time to time by customers of the Participating
Organization. In certain cases, CNB may also pay a fee, out of its own resources
and not out of the service fee payable under the Shareholder Services Agreement,
to a Participating Organization for providing other administrative services to
its customers who invest in the New Fund.
Pursuant to the Shareholder Services Agreement, CNB will provide
or arrange with a Participating Organization for the provision of the following
shareholder services: responding to shareholder inquiries; processing purchases
and redemptions of the New Fund's Class R shares, including reinvestment of
dividends; assisting shareholders in changing dividend options, account
designations, and addresses; transmitting proxy statements, annual reports,
prospectuses, and other correspondence from the
16
New Fund to shareholders (including, upon request, copies, but not originals, of
regular correspondence, confirmations, or regular statements of account) where
such shareholders hold Class R shares of the New Fund registered in the name of
CNB, a Participating Organization, or their nominees; and providing such other
information and assistance to shareholders as may be reasonably requested by
such shareholders.
8. Other Service Providers
-----------------------
a. Administrator
PMP, on behalf of the RCB Fund, entered into an Administrative
Services Agreement (the "RCB Administrative Services Agreement") with Investment
Company Administration LLC (the "RCB Administrator"). The RCB Administrator has
its principal business offices at 4455 E. Camelback Road, Suite 261-E, Phoenix,
Arizona 85018. For its services, the RCB Administrator receives a monthly fee
(the "RCB Administrative Services Fee") from the RCB Fund at the following
annual rate:
Average Net Assets Fee or Fee Rate
Less than $15,000,000 $30,000
$15 million to $50 million 0.20%
$50 million to $100 million 0.15%
$100 million to $150 million 0.10%
Over $150 million 0.05%
The RCB Administrative Services Fee payable to the RCB
Administrator by the RCB Fund under the RCB Administrative Services Agreement is
the only fee or expense payable by the RCB Fund for the following ordinary
services: all administrative services, monitor and oversee the activities of the
RCB Custodian and RCB Transfer Agent named below, and all other ordinary
services and operating expenses (other than brokerage commissions, dealer
mark-ups, taxes, interest and extraordinary items). The RCB Administrator may
potentially earn greater profits under the Administrative Services Agreement if
assets of the RCB Fund grow sufficiently large to reduce actual operating
expenses to less than the RCB Administrative Services Fee.
Upon completion of the Reorganization, CNI Funds' current
administrator, SEI Investments Mutual Fund Services (the "CNI Administrator"),
will serve as the administrator to the New Fund pursuant to an existing
administrative services agreement between CNI Funds and the CNI Administrator
(the "CNI Administrative Services Agreement"). The CNI Administrator is located
at One Freedom Valley Drive, Oaks, Pennsylvania 19456. For its services, the CNI
Administrator is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of 0.15% of the average daily net assets of the CNI Funds
(including, after the reorganization, the New Fund) (the "CNI Administrative
Services Fee"). The CNI Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total operating expenses of the
New Fund's shares. Any such waiver is voluntary and may be terminated at any
time in the CNI Administrator's sole discretion. Pursuant to a separate
agreement with the CNI Administrator, CNB will perform certain
sub-administration services on behalf of the New Fund, for which it receives a
fee paid by the CNI Administrator out of its administration fee at the annual
rate of 0.075% of the average daily assets of the New Fund.
b. Dividend Disbursing Agent and Transfer Agent
American Data Services, Inc. ("RCB Transfer Agent"), P.O. Box
5536, Hauppauge, New York 11788-0132, serves as the RCB Fund's dividend
disbursing agent and the transfer agent pursuant to a Transfer Agency and
Service Agreement. For its services, the RCB Transfer Agent is entitled to a fee
equal to the greater of (i) a minimum maintenance charge per fund/class of
$9,600 per year or (ii) charges
17
based upon the total of all open/closed accounts per fund/class at an annual
rate of $8 per account. Upon completion of the Reorganization, CNI Funds'
current transfer agent, SEI Investments Fund Management (the "CNI Transfer
Agent"), will serve as the transfer agent to the Class R shares of the New Fund
pursuant to an existing transfer agency agreement between CNI Funds and the CNI
Transfer Agent. The CNI Transfer Agent is located at 530 East Swedesford Road,
Wayne, Pennsylvania 19087. For its services, the CNI Transfer Agent is entitled
to a fee of $12,500 per year plus certain outofpocket expenses.
c. Custodian
Firstar Institutional Custody Services, 425 Walnut Street,
Cincinnati, Ohio 45202, acts as custodian of the RCB Fund's assets (the "RCB
Custodian"). The RCB Custodian's responsibilities include holding and
administering the Fund's cash and securities, handling the receipt and delivery
of securities, furnishing a statement of all transactions and entries for the
account of the RCB Fund, and furnishing the RCB Fund with such other reports
covering securities held by it or under its control as may be agreed upon from
time to time. For its services, the RCB Custodian is entitled to a fee of 0.03%
of PMP's first $20 million of net assets, plus 0.02% of the next $20 million of
net assets and 0.015% of the remaining net assets. Upon completion of the
Reorganization, CNI Funds' current custodian, First Union National Bank (the
"CNI Custodian"), will serve as the custodian to the New Fund pursuant to an
existing custodian agreement between CNI Funds and the CNI Custodian. For its
services, the CNI Custodian is entitled to a fee of 0.01% of the CNI Funds'
first $2.5 billion of net assets, 0.0075% of the next $2.5 billion of net
assets, 0.005% of the next $5 billion of net assets and 0.004% of the remaining
net assets.
9. Investments, Redemptions and Exchanges
--------------------------------------
The RCB Fund and the New Fund generally require a minimum initial
investment of $25,000 ($1,000 for retirement plans) and subsequent investments
of $1,000 or more. Both offer an automatic investment plan under which selected
amounts are electronically withdrawn from shareholders' accounts with banks and
are applied to purchase shares of the applicable Fund.
The purchase and redemption procedures of the New Fund's Class R
shares will be substantially similar to those of the RCB Fund. The only
difference is that upon the completion of the Reorganization, the CNI Transfer
Agent will serve as the New Fund's transfer agent, as described above.
Accordingly, the address and telephone number to which shareholders of the New
Fund would direct purchase and redemption requests will be different.
Shareholders in the RCB Fund may not exchange their shares for
shares of other mutual funds offered by PMP. Similarly, Class R shareholders in
the New Fund (after the Reorganization) would not be able exchange their shares
for shares of any series of the CNI Funds until such time, if ever, that such
other series offer Class R shares.
10. Pricing of Fund Shares
----------------------
The net asset value ("NAV") for one share of either the RCB Fund
or the New Fund is the value of that share's portion of the net assets (i.e.,
assets less liabilities) of the relevant fund. Each Fund's NAV is calculated by
dividing the total net value of that Fund's assets by the number of outstanding
shares for that Fund. The value of each Fund's investments is based on its
market value, usually the last price reported for each security before the close
of the market that day. A market price may not be available for securities that
trade infrequently. Occasionally, an event that affects a security's value may
occur after the market closes. If market prices are unavailable or considered to
be unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees of the relevant Fund. As noted above, CNI
Funds offers multiple classes of shares of the New Fund; accordingly, each share
class will have a different NAV.
18
11. Income Dividends, Capital Gains Distributions and Taxes
-------------------------------------------------------
The RCB Fund currently makes distributions of dividends and
capital gains, if any, at least annually, typically after the RCB Fund's fiscal
year end. The RCB Fund may make another distribution of any additional
undistributed capital gains earned during the 12-month period ended October 31
on or about December 31.
The New Fund will declare and distribute investment income
annually as a dividend to shareholders. The New Fund will make distributions of
capital gains, if any, at least annually. If a shareholder owns New Fund shares
on the New Fund's record date, that shareholder will be entitled to receive the
distribution. Following the New Fund's fiscal year end, the New Fund may make
additional distributions to avoid the imposition of a tax. The New Fund will
have a fiscal year end of September 30, compared to that of June 30 for the RCB
Fund.
Both the RCB Fund and the New Fund will automatically reinvest a
shareholder's dividends and capital gain distributions in additional full or
fractional shares, unless that shareholder instructs the respective Funds prior
to the date of the dividend or distribution of that shareholder's election to
receive payment in cash.
The New Fund intends to qualify as a separate "regulated
investment company" under Subchapter M of the Code for federal income tax
purposes and to meet all other requirements that are necessary for it (but not
its shareholders) to pay no federal taxes on income and capital gains paid to
shareholders in the form of dividends. In order to accomplish this goal, the New
Fund must, among other things, distribute substantially all of its ordinary
income and net capital gains on a current basis and maintain a portfolio of
investments which satisfies certain diversification criteria.
12. Portfolio Transactions and Brokerage Commissions
------------------------------------------------
After the closing of the Reorganization, RCB will continue to be
responsible for decisions to buy and sell securities, broker-dealer selection,
and negotiation of commission rates through its new capacity as the portfolio
manager and sub-advisor of the New Fund. In placing orders for the RCB Fund's
(and after the closing of the Reorganization, the New Fund's) portfolio
transactions, RCB will use its reasonable efforts to seek to execute portfolio
transactions in a manner which, under the circumstances, results in total costs
or proceeds being the most favorable to the New Fund. In assessing the best
overall terms available for any transaction, RCB considers all factors it deems
relevant, including the size of the order, the difficulty of execution, the
operational facilities of the broker-dealer involved, the broker-dealer's risk
in positioning a block of securities, and other factors. In those instances
where it is reasonably determined that more than one broker-dealer can offer the
services needed to obtain the most favorable price and execution available,
consideration may be given to those broker-dealers that furnish or supply
trading services, research products and statistical information to RCB that RCB
may lawfully and appropriately use in its investment advisory capacities, as
well as provide other services in addition to execution services. RCB is not
required to obtain the lowest commission or the best net price for the New Fund
on any particular transaction and is not required to execute any order in a
fashion either preferential to the New Fund relative to other accounts RCB
manages or otherwise materially adverse to any other accounts.
13. Shareholders' Rights
--------------------
PMP is a Massachusetts business trust. Because the RCB Fund is a
series of PMP, its operations are governed by PMP's Agreement and Declaration of
Trust and By-laws and applicable Massachusetts law. CNI Funds is a Delaware
business trust. Because the New Fund is a series of CNI Funds, its operations
are governed by CNI's Agreement and Declaration of Trust and By-laws and
19
applicable Delaware law. Also, the composition of the Board of Trustees of CNI
Funds is different from that of PMP, both in terms of membership and size. See
the respective Statements of Additional Information of the RCB Fund and the New
Fund for more information on their respective Boards of Trustees.
The RCB Fund and the New Fund normally will not hold meetings of
shareholders except as required under the Investment Company Act and
Massachusetts law (in the case of the RCB Fund) or Delaware law (in the case of
the New Fund). Shareholders of each of the RCB Fund and the New Fund have no
preemptive or subscription rights. The shares of each of the RCB Fund and the
New Fund have non-cumulative voting rights, with each shareholder of that Fund
entitled to one vote for each full share of that Fund (and a fractional vote for
each fractional share) held in the shareholder's name on the books of that Fund
as of the record date for the action in question. On any matter submitted to a
vote of shareholders, shares of each of the RCB Fund and the New Fund will be
voted by that Fund's shareholders individually when the matter affects the
specific interest of that Fund only, such as approval of that Fund's investment
management arrangements. The shares of PMP and the CNI Funds will be voted in
the aggregate on other matters, such as the election of trustees and
ratification of the Boards' selection of the Funds' independent accountants. If
a matter affects only the interests of a specific class of the New Fund's
shares, such as approval of a Rule 12b-1 distribution plan for that class, then
only shares of that class may be voted on the matter.
14. Tax Consequences
----------------
Both the RCB Fund and the New Fund intend to make distributions
of dividends and capital gains. Dividends are taxable to a shareholder as
ordinary income. The rate a shareholder pays on capital gain distributions will
depend on how long either the RCB Fund or the New Fund held the securities that
generated the gains, not how long a shareholder owned the respective Fund
shares. A shareholder will be taxed in the same manner whether or not that
shareholder receive the dividends and capital gain distributions in cash or
reinvest them in additional shares of the respective Funds.
C. RECOMMENDATION OF THE BOARD OF TRUSTEES
In response to the circumstances described above, the Board of
Trustees of PMP, after due consideration, has unanimously approved the proposed
Reorganization, subject to approval by RCB Fund shareholders. The Trustees,
after reviewing the terms of the proposed Reorganization, concluded that the
proposed Reorganization is in the best interests of the shareholders of the RCB
Fund. The Board of Trustees also unanimously recommends that shareholders vote
for the adoption of the proposal.
1. The Legal Framework
-------------------
The proposed Reorganization, if approved by the RCB Fund's
shareholders, will close as soon as practicable, subject to the satisfaction of
certain conditions thereto. The Investment Management Agreement between the New
Fund and CNAM will remain in effect for an initial term of up to two years and
will continue in effect thereafter for successive periods if, and so long as,
such continuance is specifically approved annually by (a) the Board of Trustees
of CNI Funds or (b) a majority vote of the New Fund's shareholders, provided
that in either event, the continuance is also approved by a majority of the
Board of Trustees of CNI Funds who are not interested persons (the "independent
Trustees") by a vote cast in person at a meeting called for the purpose of
voting on such approval.
2. Considerations by the Board of Trustees
---------------------------------------
The transactions contemplated by the Reorganization were
presented to the Board of Trustees of PMP for consideration at its June 20, 2001
meeting of the Board of Trustees. The Board of Trustees, including a majority of
the independent Trustees, voted to approve the proposed Reorganization.
20
The Board of Trustees concluded unanimously that the Proposal set forth in this
Combined Proxy Statement and Prospectus is in the best interests of the RCB Fund
and its shareholders and would not result in the dilution of such shareholders'
interests.
In determining whether to recommend approval of the
Reorganization to shareholders of the RCB Fund, the Board of Trustees (including
the independent Trustees), made an inquiry into a number of matters and
considered the following factors, among others:
(i) the compatibility of investment objectives, policies and
restrictions of the RCB Fund and the New Fund,
(ii) the capabilities of CNAM, RCB, CNB and other service
providers to the New Fund,
(iii) the nature of the RCB Fund's existing shareholder base,
(iv) expense ratios and available information regarding the
fees and expenses of the RCB Fund and the New Fund,
(v) portfolio transaction policies of the RCB Fund and the New
Fund,
(vi) the terms and conditions of the Reorganization and whether
the Reorganization would result in dilution of shareholder
interests,
(vii) costs incurred by the RCB Fund and New Fund as a result of
the Reorganization,
(viii) tax consequences of the Reorganization, and
(ix) possible alternatives to the Reorganization.
In reaching the decision to approve the Reorganization and to
recommend that the shareholders of the RCB Fund vote to approve the
Reorganization, the Board of Trustees, including the independent Trustees,
unanimously concluded that the participation of the RCB Fund in the
Reorganization is in the best interests of the RCB Fund's shareholders and would
not result in the dilution of such shareholders' interests. Their conclusion was
based on a number of factors, including the following:
(i) The investment objective, policies and restrictions of the
RCB Fund and the New Fund will be substantially the same;
(ii) RCB will continue to be responsible for providing
day-to-day investment management services to the New Fund
following consummation of the Reorganization, which the
Trustees believe to be important to the RCB Fund's
existing shareholder base; and
(iii) CNAM has agreed to waive fees payable to it and/or
reimburse the New Fund for expenses in excess of fixed
expense caps, and to maintain (at least initially) the
total annual operating expenses of the New Fund at or
equal to that of the current operating expense level of
the RCB Fund, even though CNAM may in the future modify or
eliminate such waivers and reimbursements.
21
D. DISSENTERS' RIGHTS OF APPRAISAL
Shareholders of the RCB Fund who object to the proposed
Reorganization will not be entitled to any "dissenters' rights" under
Massachusetts law. However, those shareholders have the right at any time up to
when the Reorganization occurs to redeem shares of the RCB Fund at net asset
value. After the Reorganization, shareholders of the RCB Fund will hold shares
of the New Fund, which may also be redeemed at net asset value in accordance
with the procedures substantially similar to those described in the RCB Fund's
Prospectus dated October 27, 2000, subject to applicable redemption procedures.
E. FURTHER INFORMATION ABOUT THE RCB FUND AND THE NEW FUND
Further information about the RCB Fund is contained in the
following documents:
o RCB Fund Prospectus dated October 27, 2000.
o RCB Fund Statement of Additional Information also dated
October 27, 2000.
o Documents that relate to the RCB Fund are available,
without charge, by writing to the RCB Fund, 11111 Santa
Monica Blvd., Suite 1700, Santa Monica, California 90025.
The Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and the Investment Company Act, and it files
reports, proxy materials and other information with the SEC. These reports,
proxy materials and other information can be inspected and copied at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of these materials can be obtained at prescribed rates from the
Public Reference Branch, Office of Consumer Affairs and Information Services, of
the SEC, Washington, D.C. 20549.
The New Fund is not now an operating mutual fund, but it does
have a prospectus that has been declared effective by the SEC. Shareholders may
obtain a prospectus and Statement of Additional Information relating to the New
Fund without charge by calling (888) 889-0799.
All of these documents are available through the SEC's web site
at www.sec.gov. (Information about the RCB Fund can be found under
Professionally Managed Portfolios and information about the New Fund can be
found under CNI Charter Funds.)
It is expected that this Proxy Statement will be mailed to
shareholders on or about August 13, 2001.
F. VOTE REQUIRED
Approval of the proposed Reorganization requires the affirmative
vote of the holders of a "majority of the outstanding voting securities" of the
RCB Fund within the meaning of the Investment Company Act. If the shareholders
of the RCB Fund do not approve the proposed Reorganization, or if the
Reorganization is not consummated for any other reason, then the Board of
Trustees will take any further action as it deems to be in the best interest of
the RCB Fund and its shareholders, including liquidation, subject to approval by
the shareholders of the RCB Fund if required by applicable law.
G. FINANCIAL HIGHLIGHTS
The following table shows the RCB Fund's financial performance
during the past five years. Certain information reflects financial results for a
single Fund share. "Total Return" shows how
22
much a shareholder investment in the RCB Fund would have increased or decreased
during each period, assuming that shareholder had reinvested all dividends and
distributions. This information has been audited by Tait, Weller & Baker. Their
report and the RCB Fund's financial statements are included in the RCB Fund's
Annual Report, which are available without charge by writing to the RCB Fund at
11111 Santa Monica Blvd., Suite 1700, Los Angeles, California 90025, or by
calling (800) 282-2340.
RCB Small Cap Fund
For a capital share outstanding throughout each period
Year Ended September 30, 1998*
June 30, through
2000 June 30, 1999
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.93 $10.00
Income from investment operations:
Net realized loss (0.06) (0.02)
Net realized and unrealized gain on investments 0.52 5.95
Total from investment operations 0.46 5.93
Less distributions:
From net realized gain (0.59) -
Net asset value, end of period $15.80 $15.93
====== ======
Total Return 3.28% 59.30%++
Ratios/supplemental data:
Net assets, end of period (millions) $5.2 $3.2
Ratio of expenses to average net assets:
Before fees waived and expenses absorbed 3.49% 7.76%+
After fees waived and expenses absorbed 1.49% 1.49%+
Ratio of net investment loss to average net assets:
Before fees waived and expenses absorbed (2.50%) (6.60%)+
After fees waived and expenses absorbed (0.50%) (0.33%)+
Portfolio turnover rate 59.76% 35.70%++
* Commencement of operations.
+ Annualized.
++ Not annualized.
The New Fund is a new series of CNI Funds and has not yet
commenced operations. Accordingly, there are no financial highlights with
respect to the New Fund. The New Fund will have a fiscal year end of September
30, compared to that of June 30 for the RCB Fund.
III. MISCELLANEOUS ISSUES
A. OTHER BUSINESS
The Board of Trustees knows of no other business to be brought
before the Shareholder Meeting. If any other matters come before the Shareholder
Meeting, it is the Board's intention that
23
proxies that do not contain specific restrictions to the contrary will be voted
on those matters in accordance with the judgment of the persons named in the
enclosed form of proxy.
B. NEXT MEETING OF SHAREHOLDERS
The Trust is not required and does not intend to hold annual or
other periodic meetings of shareholders except as required by the Investment
Company Act. If the Reorganization is not completed, the next meeting of the
shareholders of the RCB Fund will be held at such time as the Board of Trustees
may determine or at such time as may be legally required. Any shareholder
proposal intended to be presented at such meeting must be received by the Trust
at its office at a reasonable time before the meeting, as determined by the
Board of Trustees, to be included in the Trust's proxy statement and form of
proxy relating to that meeting, and must satisfy all other legal requirements.
C. LEGAL MATTERS
Certain legal matters as to the tax-free character of the
Reorganization and the valid issuance of the New Fund Shares will be passed upon
for CNI Funds by Paul, Hastings, Janofsky & Walker LLP.
D. EXPERTS
The financial statements of the RCB Fund for the year ended June
30, 2000, contained in the Trust's 2000 Annual Report to Shareholders, have been
audited by Tait, Weller & Baker, independent accountants, as stated in their
report dated August 4, 2000, which is incorporated herein by reference, and has
been so incorporated in reliance upon the report of such firm given their
authority as experts in accounting and auditing.
Please complete, date and sign the enclosed proxy and return
it promptly in the enclosed envelope.
24
EXHIBIT A
---------
AGREEMENT AND PLAN OF REORGANIZATION
-i-
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is
made as of this _____ day of _____, 2001, by and between Professionally Managed
Portfolios, a Massachusetts business trust ("PMP"), on behalf of its RCB Small
Cap Fund (the "Old Fund"), and CNI Charter Funds, a Delaware business trust
("CNI Funds"), on behalf of its RCB Small Cap Value Fund (the "New Fund").
WHEREAS, the parties wish to enter into a plan of reorganization
(the "Plan") which will consist, among other things, of the transfer of assets
of the Old Fund to the New Fund in exchange for Class R shares of beneficial
interest of the New Fund (the "New Shares");
WHEREAS, the Board of Trustees of PMP, including a majority of
the Trustees who are not "interested persons" of PMP, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), has determined that
the Plan is in the best interests of the shareholders of Old Fund, and that
their interests would not be diluted as a result of the transactions
contemplated thereby; and
WHEREAS, the Board of Trustees of CNI Funds, including a majority
of the Trustees who are not "interested persons" of CNI Funds, as defined in the
1940 Act, has determined that the Plan is in the best interests of the sole
shareholder of the New Fund, a newly created series of CNI Funds formed for the
specific purpose of entering into the Plan, and that the interests of the sole
shareholder of the New Fund would not be diluted as a result of the transactions
contemplated thereby.
NOW THEREFORE, in consideration of the agreements contained in
this Agreement, the parties agree as follows:
Article 1
Transfer of Assets and Stated Liabilities
1.1 Transfer of Assets and Stated Liabilities. Subject to the terms
and conditions set forth herein, on the Closing Date (as hereafter defined), the
Old Fund shall transfer all of its assets to the New Fund. In exchange therefor,
the New Fund shall assume all of the Stated Liabilities (as defined below) of
the Old Fund and deliver to the Old Fund the number of the New Shares which is
equal to (i) the aggregate net asset value of the Old Fund at the close of
business on the date preceding the Closing Date, divided by (ii) the net asset
value per share of the New Fund outstanding as of the close of business on such
day. The Old Fund will endeavor to discharge all of its known liabilities and
obligations prior to the Closing Date. The New Fund will assume all liabilities
and obligations reflected on the unaudited statement of assets and liabilities
of the Old Fund required by Section 2.7 below ("Stated Liabilities"). The New
Fund shall assume only the Stated Liabilities of the Old Fund, and no other
liabilities or obligations, whether absolute or contingent, known or unknown,
accrued or unaccrued, shall be assumed by the New Fund.
1.2 Liquidation of the Old Fund. Subject to the terms and conditions
set forth herein, on the Closing Date, the Old Fund shall liquidate and shall
distribute pro rata to its shareholders of record, determined as of the close of
business on the day preceding the Closing Date, the New Shares received by it
pursuant to Section 1.1.
1.3 No Issuance of Share Certificates. The liquidation and
distribution of the Old Fund provided for herein shall be accomplished by
opening accounts on the books of the New Fund in the names of the shareholders
of the Old Fund and transferring to these accounts the New Shares, credited to
the account of the Old Fund, on the books of the New Fund. No certificates
evidencing the New Shares shall be issued.
1.4 Time and Date of Computation. The number of the New Shares to be
issued by the New Fund to the Old Fund shall be computed as of 4:00 p.m.
(Eastern time) on the business day (the "Valuation Date") immediately preceding
the Closing Date in accordance with the regular practices of the Old Fund and
PMP.
1.5 Closing Time and Place. The Closing Date shall be __________,
2001, or such later date on which all of the conditions set forth in Article 2
have been fulfilled or otherwise waived by the parties hereto, but in any event
not later than __________, 2001, or such later date as the parties may mutually
agree. All acts taking place on the Closing Date shall be deemed to be taking
place simultaneously as of the commencement of business on the Closing Date,
unless otherwise provided. The closing of the reorganization (the
"Reorganization") contemplated by the Plan (the "Closing") shall be held at
10:00 a.m. (Pacific time) at the offices of CNI Funds, 400 North Roxbury Drive,
Beverly Hills, California, or such other time and/or place as the parties may
mutually agree.
1.6 Delay of Valuation. If on the Valuation Date (a) the primary
trading market for portfolio securities of either party is closed to trading or
trading thereon is restricted, or (b) trading or the reporting of trading is
disrupted so that an accurate appraisal of the value of the net assets of either
party and an accurate calculation of the number of shares held by each
shareholder is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
1.7 Termination of Old Fund. As promptly as practicable after the
Closing, the legal existence of the Old Fund as a series of PMP shall be
terminated.
Article 2
Conditions Precedent to the Effectiveness of the Reorganization
The respective obligation of each party to effect the
Reorganization is subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
2.1 Shareholder Approval. On or prior to the Closing Date, the
shareholders of the Old Fund shall have approved the transactions contemplated
by this Agreement in accordance with the provisions of Massachusetts law and the
1940 Act.
-2-
2.2 No Injunctions or Restraints. On the Closing Date, no action,
suit or other proceeding shall be pending before any court or government agency
which seeks to restrain or prohibit or obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby.
2.3 Consents. All consents of the other party and all other consents,
orders and permits of federal, state and local regulatory authorities deemed
necessary by PMP or CNI Funds to permit consummation, in all material respects,
of the transactions contemplated herein shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of either party.
2.4 Effective Registration Statement. The Form N-1A Registration
Statement of CNI Funds with respect to the New Fund (the "Form N-1A") and the
Form N-14 Registration Statement Combined Proxy Statement and Prospectus of CNI
Funds with respect to the Reorganization (the "Form N-14") shall have become
effective with the Securities and Exchange Commission (the "SEC") and shall
continue to be effective on the Closing Date and no stop orders suspending the
effectiveness thereof shall have been issued by the SEC and, to the best
knowledge of the parties hereto, no investigation or proceeding for that purpose
shall have been instituted or be pending, threatened or contemplated.
2.5 Tax Opinion. The parties shall have received an opinion of Paul,
Hastings, Janofsky & Walker LLP substantially to the effect that for federal
income tax purposes:
(a) The transfer of the Old Fund assets to the New Fund in exchange for
the New Shares and the assumption by the New Fund of the Stated
Liabilities, and the distribution of the New Shares to the
shareholders of the Old Fund in liquidation of the Old Fund will
constitute a "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code");
(b) No gain or loss will be recognized by the New Fund upon the receipt of
the assets of the Old Fund solely in exchange for the New Shares;
(c) No gain or loss will be recognized by the Old Fund upon the transfer
of its assets to the New Fund in exchange for the New Shares;
(d) No gain or loss will be recognized by any shareholder of the Old Fund
upon exchange of the Old Fund shares held by such shareholder
immediately prior to the Reorganization for the New Shares;
(e) The tax basis of the assets of the Old Fund acquired by the New Fund
will be the same as the tax basis of such assets to the Old Fund
immediately prior to the Reorganization;
-3-
(f) The tax basis of the New Shares received by each shareholder of the
Old Fund pursuant to the Reorganization will be the same as the tax
basis of the Old Fund shares held by such shareholder immediately
prior to the Reorganization;
(g) The holding period of the assets of the Old Fund acquired by the New
Fund will include the period during which those assets were held by
the Old Fund; and
(h) The holding period of the New Shares to be received by each
shareholder of the Old Fund will include the period during which the
Old Fund shares exchanged therefor were held by such shareholder.
2.6 Covenants, Representations and Warranties. Each party shall have
performed all of its covenants set forth in Article 4, and its representations
and warranties set forth in Article 3 shall be true and correct in all material
respects on and as of the Closing Date as if made on such date, and each of the
President of CNI Funds and the President of PMP shall have executed a
certificate to such effect.
2.7 Statement of Assets and Liabilities. The Old Fund shall have
delivered to CNI Funds on the Closing Date a statement of the Old Fund's assets
and liabilities as of the Valuation Date, prepared in accordance with generally
accepted accounting principles consistently applied, together with a certificate
of PMP's Treasurer or Assistant Treasurer as to its portfolio securities and the
federal income tax basis and holding period as of the Closing Date.
Article 3
Representations and Warranties
The parties represent and warrant as follows:
3.1 Structure and Standing. Each party hereto represents and warrants
that it is duly organized as a series of a business trust, validly existing and
in good standing under the laws of the jurisdiction in which it is organized,
and has the power to own all of its properties and assets and conduct its
business as described in its Form N-1A registration statement.
3.2 Power. Each party hereto represents and warrants that it has full
power and authority to enter into and perform its obligations under this
Agreement; the execution, delivery and performance of this Agreement has been
duly authorized by all necessary action of its Board of Trustees; this Agreement
does not violate, and its performance will not result in violation of, any
provision of its Declaration of Trust, or any agreement, instrument or other
undertaking to which it is a party or by which it is bound; and this Agreement
constitutes its valid and binding contract enforceable in accordance with its
terms, subject to the effects of bankruptcy, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
-4-
3.3 Litigation. Each party represents and warrants that no litigation
or administrative proceeding or investigation of or before any court or
governmental body is currently pending against it and, to the best of its
knowledge, none is threatened against it or any of its properties or assets,
which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business; it knows of no facts which
might form the basis for the institution of such proceedings; and it is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
3.4 Fund Assets. The Old Fund represents and warrants that on the
Closing Date the assets received by the New Fund from the Old Fund will be
delivered to the New Fund, as provided in Section 1.1, free and clear of all
liens, pledges, security interests, charges or other encumbrances of any nature
whatsoever created by the Old Fund and without any restriction upon the transfer
thereof, except for the Stated Liabilities assumed as provided in Section 1.1.
3.5 The New Shares. The New Fund represents and warrants that on the
Closing Date (a) the New Shares to be delivered to the Old Fund as contemplated
in this Agreement will be duly authorized, validly issued, fully paid and
nonassessable; (b) no shareholder of the New Fund or any other series of CNI
Funds has any preemptive right to subscription or purchase in respect thereof;
(c) the Old Fund will acquire the New Shares free and clear of all liens,
pledges, security interests, charges or other encumbrances of any nature
whatsoever created by CNI Funds and without any restriction on the transfer
thereof; and (d) the New Shares will be duly qualified for offering to the
public in all of the states of the United States in which such qualification is
required or an exemption from such requirement shall have been obtained.
3.6 Tax Status and Filings. Each party represents and warrants that
it has satisfied the requirements of Subchapter M of the Code for treatment as a
regulated investment company and has elected to be treated as such; it has filed
or furnished all federal, state, and other tax returns and reports required by
law to have been filed or furnished, and it has paid or made provision for
payment of, so far as due, all federal, state and other taxes, interest and
penalties; that no such return is currently being audited; and that no
assessment has been asserted with respect to any such returns or reports.
3.7 Accuracy of Information. Each party represents and warrants that
all information furnished by it to the other party for use in any documents
which may be necessary in connection with the transactions contemplated by this
Agreement will be accurate and complete in all material respects and will comply
in all material respects with federal securities and other laws and regulations
applicable thereto.
3.8 Acquisition of the Shares. The Old Fund represents and warrants
that the New Shares to be acquired pursuant to this Agreement are not being
acquired for the purpose of making any distribution thereof, except in
accordance with the terms of this Agreement.
-5-
3.9 CNI Funds. CNI Funds represents and warrants that, as of the
Closing Date, the New Fund will have only nominal assets and outstanding shares,
solely for the purpose of voting on matters related to the Reorganization.
3.10 Old Fund Financial Statements. The Old Fund represents and
warrants that its Statement of Assets and Liabilities as of __________, 2001
provided to CNI Funds and the Statement of Assets and Liabilities required by
Section 2.7 above have been or shall be prepared in accordance with generally
accepted accounting principles consistently applied, and each fairly reflects
the Old Fund's financial condition as of its respective date, and there are no
known contingent liabilities of the Old Fund as of such date not disclosed
therein.
3.11 No Adverse Changes in Old Fund. The Old Fund represents and
warrants that since __________, 2001, there has not been any material adverse
change in its financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business except as otherwise
disclosed in writing to and accepted by CNI Funds (for the purposes of this
paragraph, a decline in net asset value per share of a party shall not
constitute such a material adverse change).
3.12 Proxy Statement. Each party represents and warrants that the Form
N-14 to be used in connection with the transaction contemplated hereby (only
insofar as it relates to such party) will, on its effective date and on the
Closing Date, not contain any untrue statement of material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading.
3.13 Compliance. Each of the Old Fund and the New Fund represents and
warrants that it is now, and it shall be on and as of the Closing Date, in
compliance in all material respects with all applicable requirements of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the Investment Company Act of 1940, as amended, the Code and all
applicable state rules and regulations.
Article 4
Covenants
4.1 Conduct of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Closing Date, each party shall operate its business in the ordinary
course except as contemplated by this Agreement.
4.2 Shareholders Meeting. The Old Fund shall call a special meeting
of its shareholders as soon as possible for the purpose of considering the
Reorganization.
4.3 Preparation of Combined Prospectus and Proxy Statement. As soon
as reasonably practicable after the execution of this Agreement, CNI Funds shall
prepare and file with the SEC, in form and substance satisfactory to both
parties, the Form N-14 with respect to the Reorganization and shall use its best
efforts to provide that the combined prospectus and proxy statement contained
therein can be distributed to the
-6-
shareholders of the Old Fund as promptly thereafter as practicable. As soon as
reasonably practicable, the parties shall also prepare and file any other
related filings required under applicable state securities laws.
4.4 Fees and Expenses. Whether or not this Agreement is consummated,
each of the Old Fund and the New Fund shall bear its respective costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby. The expenses payable by the Old Fund hereunder shall
include (i) fees and expenses of its counsel and independent auditors incurred
in connection with the Reorganization; (ii) expenses associated with printing
and mailing the N-14 and soliciting proxies in connection with the meeting of
shareholders of the Old Fund referred to in Section 2.1 above; (iii) all fees
and expenses related to the liquidation of the Old Fund; (iv) fees and expenses
of the Old Fund's custodian and transfer agent incurred in connection with the
Reorganization; and (v) any special pricing fees associated with the valuation
of the Old Fund's portfolio on the Valuation Date. City National Asset
Management, Inc. ("CNAM"), the investment manager to the New Fund, and Reed,
Conner & Birdwell, LLC ("RCB"), the investment adviser to the Old Fund and the
sub-adviser and portfolio manager to the New Fund, have agreed to reimburse the
Old Fund for the expenses listed in items (i) through (v), inclusive, above. The
expenses payable by the New Fund hereunder shall include (i) fees and expenses
of its counsel and independent auditors incurred in connection with the
Reorganization; (ii) expenses associated with preparing this Agreement and
preparing and filing the N-14; (iii) expenses associated with preparing and
filing one or more post-effective amendments to CNI Funds' Form N-1A
registration statement respecting the New Fund; (iv) registration or
qualification fees and expenses of preparing and filing such forms, if any, as
are necessary under applicable state securities laws to qualify the New Fund's
shares to be issued in connection with the Reorganization; and (v) any fees and
expenses of the New Fund's custodian and transfer agent incurred in connection
with the Reorganization. CNB and RCB have agreed to reimburse the New Fund for
the expenses listed in items (i), (ii), (iv) and (v) above.
4.5 Provision of Documents. Each party agrees that it will, from time
to time as and when reasonably requested by the other party, provide or cause to
be provided to the other party such information, execute and deliver or cause to
be executed and delivered to the other party such documents, and take or cause
to be taken such further action, as the other party may deem necessary in order
to carry out the intent of this Agreement.
4.6 Indemnification.
(a) CNI Funds and the New Fund each agrees to indemnify PMP, the Old
Fund, its trustees and officers (in their capacity as trustees or
officers), and agents from all liabilities that may arise in
connection with, or as a result of, a breach of a representation
or warranty made by CNI Funds or the New Fund under this
Agreement. No party shall be entitled to indemnification under
this Agreement unless written notice of the events or
circumstances giving rise to such claim for indemnification has
been provided to the indemnifying party or parties no later than
two (2) years
-7-
after the Closing Date. Notwithstanding the above, any such
indemnification for acts occurring after the Closing Date shall
be for a period of not later than one (1) year after the Closing
Date.
(b) PMP and the Old Fund each agrees to indemnify CNI Funds, the New
Fund, its trustees and officers (in their capacity as trustees or
officers), and agents from all liabilities that may arise in
connection with, or as a result of, a breach of a representation
or warranty made by PMP or the Old Fund under this Agreement. No
party shall be entitled to indemnification under this Agreement
unless written notice of the events or circumstances giving rise
to such claim for indemnification has been provided to the
indemnifying party or parties no later than two (2) years after
the Closing Date. Notwithstanding the above, any such
indemnification for acts occurring after the Closing Date shall
be for a period of not later than one (1) year after the Closing
Date.
Article 5
Termination, Amendment and Waiver
5.1 Termination. This Agreement may be terminated by resolution of
the Board of Trustees of PMP or the Board of Trustees of CNI Funds at any time
prior to the Closing Date, if
(a) either party shall have breached any material provision of this
Agreement; or
(b) circumstances develop that, in the opinion of such Board, make
proceeding with the Plan inadvisable; or
(c) any governmental body shall have issued an order, decree or
ruling having the effect of permanently enjoining, restraining or
otherwise prohibiting the consummation of this Agreement.
5.2 Effect of Termination. In the event of any termination pursuant
to Section 5.1 (b) or (c), there shall be no liability for damage on the part of
either party to the other party respecting such termination.
5.3 Amendment. This Agreement contains the entire agreement of the
parties with respect to the Reorganization and may be amended prior to the
Closing Date by the parties in writing at any time; provided, however, that
there shall not be any amendment that by law requires approval by the
shareholders of a party without such approval first having been obtained.
5.4 Waiver. At any time prior to the Closing Date, any of the terms
or conditions of this Agreement may be waived by the Board of Trustees of PMP or
the Board of Trustees of CNI Funds, if, in its judgment after consultation with
legal counsel, such action or waiver will not have a material adverse effect on
the benefits intended
-8-
under this Agreement to the shareholders of the Old Fund, or of the New Fund, as
the case may be.
Article 6
General Provisions
6.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of Delaware applicable to contracts
made and to be performed in such state.
6.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns, but
no assignment or transfer hereof or of any rights or obligations hereunder shall
be made by either party without the written consent of the other party. Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give any person other than the parties hereto and their respective successors
and assigns any rights or remedies under or by reason of this Agreement.
6.3 Recourse. All persons dealing with the Old Fund or the New Fund
(each a "Fund" and together, the "Funds") must look solely to the property of
such Fund for the enforcement of any claims against such Fund, as neither the
trustees, directors, officers, agents nor shareholders of the Funds assume any
personal liability for obligations entered into on behalf of any of the Funds.
6.4 Notices. Any notice, report, statement or demand required or
permitted by any provisions of this Agreement shall be in writing and shall be
given by prepaid telegraph, telecopy or certified mail addressed to PMP at
__________, Attention: President, or CNI Funds at 400 North Roxbury Drive,
Beverly Hills, California 90210, Attention: President.
6.5 Survival. Except as specifically set forth in Section 4.6 above,
the representations, warranties and covenants contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall survive
the consummation of the transactions contemplated herein.
-9-
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed and attested on its behalf by its duly authorized representatives as of
the date first above written.
PROFESSIONALLY MANAGED PORTFOLIOS, on behalf of
its RCB Small Cap Fund
By: _______________________________
CNI CHARTER FUNDS, on behalf of
its RCB Small Cap Value Fund
By: ________________________________
-10-
PROXY CARD
Professionally Managed Portfolios - RCB Small Cap Fund
Special Meeting of Shareholders
September 14, 2001
The undersigned hereby appoints each of _______________ and ______________, as
proxy, with the power to appoint his (or her) substitute, and hereby authorizes
him (or her) to represent and to vote, as designated below, all shares of the
RCB Small Cap Fund (the "Fund"), a series of the Professionally Managed
Portfolios (the "Trust"), held of record by the undersigned on July 27, 2001 or
any adjournment thereof.
You are encouraged to specify your choices by marking the appropriate boxes
BELOW. If you do not mark any boxes, your Proxy will be voted in accordance with
the Board of Trustees' recommendations. Please sign, date and return this card.
The Board of Trustees recommends a vote FOR the proposals.
Please mark your votes as in this example. |X|
- -------------------------------------------------------------------------------------------
Proposal For Against Abstain
- -------------------------------------------------------------------------------------------
1. Proposal to approve an Agreement and Plan of |_| |_| |_|
Reorganization between CNI Charter Funds ("CNI Funds")
and Professionally Managed Portfolios ("PMP") providing
for the transfer of the assets and stated liabilities of
the RCB Small Cap Fund, a series of PMP, in exchange for
the Class R shares of the RCB Small Cap Value Fund, a
newly created series of CNI Funds, all as described in
the accompanying Proxy Statement.
- -------------------------------------------------------------------------------------------
2. To transact such other business as may properly come |_| |_| |_|
before the Special Meeting, or any adjournment thereof.
- -------------------------------------------------------------------------------------------
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR Proposal 1. By signing and dating the lower portion of this Proxy Card, you
authorize the proxies to vote the Proposal as marked, or if not marked to vote
FOR the Proposal, and to take their discretion to vote any other matter as may
properly come before the Special Meeting. If you do not intend to personally
attend the Special Meeting, please complete and mail this Proxy Card at one in
the enclosed envelope.
- --------------------------------------------------------------------------------
____________________________________ ____________________________________
Signature Date Signature Date
- --------------------------------------------------------------------------------
NOTE: Please sign your name exactly as your shareholder name or names appear on
the account. This will authorize the voting of your shares as indicated. Where
shares are registered with joint owners, all joint owners should sign. Persons
signing as executors, administrators, trustees, etc. should so indicate.
- --------------------------------------------------------------------------------
-i-
-----------------------------------------
PART B
------
STATEMENT OF ADDITIONAL INFORMATION
FOR THE REORGANIZATION OF
RCB SMALL CAP FUND
INTO
RCB SMALL CAP VALUE FUND
-----------------------------------------
CNI CHARTER FUNDS
RCB SMALL CAP VALUE FUND
------------------------------
400 North Roxbury Drive
Beverly Hills, California 90210
(800) 708-8881
-----------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 3, 2001
FOR REGISTRATION STATEMENT ON FORM N-14
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Combined Proxy Statement and
Prospectus dated August 3, 2001, which has been filed by CNI Charter Funds (the
"CNI Funds") in connection with a Special Meeting of Shareholders of the RCB
Small Cap Fund (the "RCB Fund"), a series of Professionally Managed Portfolios
("PMP"), that has been called to vote on an Agreement and Plan of Reorganization
(and the transactions contemplated thereby). Copies of the Combined Proxy
Statement and Prospectus may be obtained at no charge by writing to CNI Funds at
the address indicated above or by calling toll-free (800) 708-8881.
Unless otherwise indicated, capitalized terms used herein and
not otherwise defined have the same meanings as are given to them in the
Combined Proxy Statement and Prospectus.
Further information about CNI Funds, the RCB Fund, PMP and the
RCB Small Cap Value Fund (the "New Fund"), a newly created series of CNI Funds,
is contained in the RCB Fund's Prospectus dated October 27, 2000, the New Fund's
Prospectus dated August 2, 2001, the Annual Report for the RCB Fund for the
fiscal year ended June 30, 2000 and the Semi-annual Report for the RCB Fund for
the period ended December 31, 2000. The Annual Report to Shareholders of the RCB
Fund for the period ended June 30, 2001, containing audited financial statements
of the RCB Fund, will be sent to shareholders when available. The RCB Fund's
Combined Statement of Additional Information, dated October 27, 2000, and the
New Fund's Statement of Additional Information dated August 2, 2001 are
incorporated by reference in this Statement of Additional Information and are
available without charge by calling PMP at (800) 282-2340 and CNI Funds at (800)
708-8881, respectively.
TABLE OF CONTENTS
Page
----
General Information...................................................... B-3
B-2
GENERAL INFORMATION
The shareholders of the RCB Small Cap Fund (the "RCB Fund")
are being asked to approve a form of Agreement and Plan of Reorganization (the
"Plan") regarding the reorganization of the RCB Fund into the RCB Small Cap
Value Fund (the "New Fund"), a newly created series of CNI Charter Funds (that
transaction is referred to as the "Reorganization"), and the transactions
contemplated thereby. The Plan contemplates the transfer of all of the assets
and liabilities of the RCB Fund as of the effective date of the Reorganization
to the New Fund (the "Effective Date"), and the assumption by the New Fund of
the stated liabilities of the RCB Fund, in exchange for Class R shares of the
New Fund. Promptly after the Effective Date, the RCB Fund will distribute to its
shareholders of record as of the close of business on the Effective Date the
Class R shares of the New Fund received. The Class R shares of the New Fund that
will be issued for distribution to the RCB Fund's shareholders will have an
aggregate net asset value equal to the aggregate net asset value of the shares
of the RCB Fund held as of the closing of the reorganization (the "Closing
Date"). PMP will then take all necessary steps to terminate the qualification,
registration and classification of the RCB Fund. All issued and outstanding
shares of the RCB Fund will be canceled on the RCB Fund's books. Shares of the
New Fund will be represented only by book entries; no share certificates will be
issued.
A Special Meeting of the RCB Fund's shareholders to consider
the Reorganization will be held at the offices of PMP, 11111 Santa Monica Blvd,
Suite 1700, Los Angeles, California 90025 on September 14, 2001 at 10:00 a.m.,
Pacific Standard Time.
For further information about the transaction, see the
Combined Proxy Statement and Prospectus. For further information about PMP and
the RCB Fund, see the RCB Fund's Combined Statement of Additional Information,
dated October 27, 2000, which is available without charge by calling PMP at
(800) 282-2340. For further information about CNI Funds and the New Fund, see
the New Fund's Statement of Additional Information dated August 2, 2001, which
is available without charge by call CNI Funds at (800) 708-8881.
B-3
-----------------------------------------
PART C
------
CNI CHARTER FUNDS
OTHER INFORMATION
-----------------------------------------
CNI CHARTER FUNDS
-------------------------------
FORM N-14
-------------------------------
PART C
-------------------------------
ITEM 15. INDEMNIFICATION
---------------
Please see Article VI of the Registrant's By-Laws, previously filed as
an Exhibit. Pursuant to Rule 484 under the Securities Act of 1933, as amended,
the Registrant furnishes the following undertaking:
"Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, 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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities 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 Act and will
be governed by the final adjudication of such issue."
Notwithstanding the provisions contained in the Registrant's By-Laws,
in the absence of authorization by the appropriate court on the merits pursuant
to Sections 4 and 5 of Article VI of said By-Laws, any indemnification under
said Article shall be made by Registrant only if authorized in the manner
provided in either subsection (a) or (b) of Section 6 of said Article VI.
ITEM 16. EXHIBITS
--------
(1) Agreement and Declaration of Trust.
(a) Form of Agreement and Declaration of Trust. (A)
(b) Form of Amendment to the Agreement and Declaration of Trust. (B)
(c) Certificate of Amendment to the Certificate of Trust. (B)
(2) By-Laws.
(a) By-Laws dated October 25, 1996. (A)
(b) Amendment to the By-Laws of the Trust. (B)
(3) Voting Trust Agreement - Not applicable.
(4) Form of Agreement and Plan of Reorganization is included in Part A.
(5) Instruments Defining Rights of Security Holder - Not applicable.
(6) Form of Investment Management Agreement. (B)
(a) Schedule to Investment Management Agreement. (E)
(7) Form of Distribution Agreement. (B)
(8) Bonus of Profit Sharing Contracts - Not applicable.
(9) Form of Custody Agreement. (B)
(10) Form of Shareholder Services Agreement. (B)
C-2
(11) Consent and Opinion of Counsel as to legality of shares - File herewith.
(12) Form of Consent and Opinion of Counsel as to Reorganization Tax Matters - File herewith.
(13) Other Material Contracts
(a) Form of Administrative Services Agreement. (B)
(i) Schedule to Administrative Services Agreement. (E)
(b) Form of Transfer Agent Agreement. (B)
(i) Schedule to Transfer Agent Agreement. (E)
(c) Form of Shareholder Services Agreement. (E)
(d) Shareholder Services Agreement. (F)
(e) Sub-Administration Agreement. (F)
(14) Other Opinions - Not applicable.
(15) All financial statements omitted pursuant to Item 14(a)(1) - Not applicable.
(16) Powers of Attorney. (D)
(17) Additional Exhibits - Not applicable.
------------------------------------
(A) Previously filed as an exhibit to Registrant's Registration Statement on
Form N1-A (333-16093) on November 14, 1996.
(B) Previously filed as an exhibit to Registrant's Post-Effective Amendment No.
8 (333-16093) on May 3, 1999.
(C) Previously filed as an exhibit to Registrant's Post-Effective Amendment No.
13 (333-16093) on February 28, 2000.
(D) Previously filed as an exhibit to Registrant's Post-Effective Amendment No.
14 (333-16093) on June 12, 2000.
(E) Previously filed as an exhibit to Registrant's Post-Effective Amendment No.
15 (333-16093) on August 25, 2000.
(F) Previously filed as an exhibit to Registrant's Post-Effective Amendment No.
16 (333-16093) on January 28, 2001.
ITEM 17. UNDERTAKINGS
------------
(1) Registrant agrees that prior to any public reoffering
of the securities registered through the use of a
prospectus which is part of this Registration
Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of
the Securities Act, the reoffering prospectus will
contain the information called for by the applicable
registration form for the reofferings by persons who
may be deemed underwriters, in addition to the
information called for by the other items of the
applicable form.
(2) Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an
amendment to the Registration Statement and will not
be used until the amendment is effective, and that,
in determining any liability under the Securities
Act, each post-effective amendment shall be deemed to
be a new registration statement for the securities
offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona
fide offering of them.
C-3
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of Beverly Hills and
State of California, on the 2nd day of August, 2001.
CNI CHARTER FUNDS
/s/ Vernon C. Kozlen*
---------------------
Vernon C. Kozlen
President, Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Vernon C. Kozlen* President & August 2, 2001
- --------------------- Chief Executive Officer
Vernon C. Kozlen
/s/ Jeffrey Fries* Controller & August 2, 2001
- ------------------ Chief Operating Officer
Jeffrey Fries
/s/ Irwin G. Barnet* Trustee August 2, 2001
- --------------------
Irwin G. Barnet
/s/ Maria D. Hummer* Trustee August 2, 2001
- --------------------
Maria D. Hummer
/s/ James R. Wolford* Trustee August 2, 2001
- ---------------------
James R. Wolford
/s/ William R. Sweet* Trustee August 2, 2001
- ---------------------
William R. Sweet
/s/ Victor Meschures* Trustee August 2, 2001
- ---------------------
Victor Meschures
* By: /s/ Mitchell E. Nichter
-----------------------
Mitchell E. Nichter, Attorney-in-Fact
pursuant to Powers of Attorney
C-4
SEC File No. 333-63958
CNI CHARTER FUNDS
FORM N-14
EXHIBIT INDEX
Number Exhibit
- ------ -------
11 Consent and Opinion of Counsel as to legality of shares
12 Form of Consent and Opinion of Counsel as to Reorganization Tax
Matters
99.1 Prospectus for the RCB Small Cap Value Fund dated August 2, 2001
99.2 Statement of Additional Information for the RCB Small Cap Value
Fund dated August 2, 2001
C-5
EXHIBIT 11
Consent and Opinion of Counsel as to Legality of Shares -
Paul, Hastings, Janofsky & Walker LLP
C-6
VIA EDGAR
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
August 2, 2001
CNI Charter Funds
400 North Roxbury Drive
Beverly Hills, CA 90210
Ladies and Gentlemen:
We have acted as counsel to CNI Charter Funds, a Delaware
business trust (the "Trust"), in connection with Post-Effective Amendment No. 18
to the Trust's Registration Statement filed on Form N-1A with the Securities and
Exchange Commission (the "Post-Effective Amendment") and relating to the
issuance by the Trust of an indefinite number of $0.01 par value shares of
beneficial interest (the "Shares") of the RCB Small Cap Value Fund series of the
Trust (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 natural persons and the
conformity to the originals of all records, documents and instruments submitted
to us as copies. We have based our opinion upon our review of the following
records, documents and instruments:
(a) the Agreement and Declaration of Trust of the Trust dated
October 25, 1996 (the "Trust Instrument"), certified to us
by an officer of the Trust as being true and complete and
in effect on the date hereof;
(b) the Trust's Certificate of Trust as filed with the
Delaware Secretary of State on October 30, 1996, certified
to us by an officer of the Trust as being true and
complete and in effect on the date hereof;
(c) 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;
(d) the Post-Effective Amendment;
CNI Charter Funds
August 2, 2001
Page 2
(e) resolutions relating to the designation of the Fund as a
series of the Trust and the issuance of the Shares adopted
by the Board of Trustees of the Trust at a meeting of the
Board held on August 2, 2001, certified by an officer of
the Trust as being in full force and effect without
amendment or modification; and
(f) a certificate of an officer of the Trust concerning
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 Delaware. We are
not licensed to practice law in the State of Delaware, and we have based our
opinion below solely on our review of Chapter 38 of Title 12 of the Delaware
Code and the case law interpreting such Chapter as reported in the Delaware Code
Annotated (as updated on August 2, 2001). We have not undertaken a review of
other Delaware law or court decisions or of any administrative 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 Delaware 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.
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 Fund's Prospectuses respecting the Shares included in the
Post-Effective Amendment and in accordance with the Trust Instrument, (ii) all
consideration for the Shares will be actually received by the Trust, and (iii)
all applicable securities laws will be complied with, then 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 solely in connection with the
Post-Effective Amendment and is solely for your benefit. We hereby consent to
the use of this opinion in connection with the Post-Effective Amendment. 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.
Sincerely yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
EXHIBIT 12
Form of Consent and Opinion as to Reorganization Tax Matters -
Paul, Hastings, Janofsky & Walker LLP
C-7
(213) 683-6000
August __, 2001
CNI Charter Funds
[address]
Professionally Managed Portfolios
[address]
Re: Reorganization of RCB Small Cap Fund and RCB Small Cap Value Fund
Ladies and Gentlemen:
You have requested our opinion with respect to certain Federal income tax
matters in connection with the reorganization by and between the RCB Small Cap
Value Fund (the "New Fund"), a series fund of CNI Charter Funds, a Delaware
business trust ("CNI Funds"), and RCB Small Cap Fund (the "Old Fund"), a series
fund of Professionally Managed Portfolios, a Massachusetts business trust
("PMP"). This opinion is rendered in connection with the transaction described
in the Agreement and Plan of Reorganization dated as of June ___, 2001 (the
"Reorganization Agreement"), by CNI Funds for itself and on behalf of the New
Fund and by PMP for itself and on behalf of the Old Fund, and adopts the
applicable defined terms therein.
This letter and the opinion expressed herein are for delivery to CNI Funds and
PMP and may be relied upon only by CNI Funds and PMP and their shareholders.
This opinion also may be disclosed by CNI Funds or PMP or any of their
shareholders in connection with an audit or other administrative proceeding
before the Internal Revenue Service (the "Service") affecting CNI Funds or PMP
or any of their shareholders or in connection with any judicial proceeding
relating to the Federal, state or local tax liability of CNI Funds or PMP or any
of their shareholders.
For purposes of this opinion we have assumed the truth and accuracy of the
following facts:
CNI Funds was duly created pursuant to its Declaration of Trust for the purpose
of acting as a management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and is validly existing under the laws of
Delaware. CNI Funds is registered as an investment company classified as a
diversified, open-end management company, under the 1940 Act.
PMP was duly created pursuant to its Declaration of Trust for the purpose of
acting as a management investment company under the 1940 Act, and is validly
existing under the laws of Massachusetts. PMP is registered as an investment
company classified as a diversified, open-end management company, under the 1940
Act.
CNI Charter Funds
Professionally Managed Portfolios
August __, 2001
Page 2
The New Fund was duly created pursuant to a resolution of the Board of Trustees
of CNI Funds, and is validly existing under the laws of Delaware as a series
fund of CNI Funds. The New Fund has an authorized capital of an indefinite
number of shares and each outstanding share of the New Fund is fully
transferable and has full voting rights.
The Old Fund was duly created pursuant to a resolution of the Board of Trustees
of PMP, and is validly existing under the laws of Massachusetts as a series fund
of PMP. The Old Fund has an authorized capital of an indefinite shares and each
outstanding share of the Old Fund is fully transferable and has full voting
rights.
For what has been represented as valid business purposes, the following
transaction (the "Transaction") will take place in accordance with the laws of
the State of Delaware and pursuant to the Reorganization Agreement:
(a) On the date of the closing (the "Closing Date"), Old Fund will
transfer substantially all of its assets to the New Fund. Solely in exchange
therefor, the New Fund will assume all of the stated liabilities of the Old Fund
and deliver to the Old Fund a number of voting shares of the New Fund which
represents 50% or more of the aggregate voting shares of the New Fund.
(b) The Old Fund will then liquidate and distribute all of the shares of
the New Fund to the shareholders of the Old Fund in proportion to their
respective interests in the Old Fund in exchange for their shares in the Old
Fund.
(c) The Old Fund will then wind up and dissolve as soon as practicable
thereafter and its legal existence as a series fund of PMP shall be terminated.
In rendering the opinion set forth below, we have examined and relied upon the
following, assuming the truth and accuracy of any statements contained therein:
(1) The Reorganization Agreement; and
(2) Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion referred to in this
letter.
For purposes of rendering the opinion set forth below, we have in addition
relied upon the following representations by the New Fund and the Old Fund, as
applicable:
(A) The fair market value of the shares of the New Fund received by each
shareholder of the Old Fund will be approximately equal to the fair market value
of the shares of the Old Fund surrendered in the exchange.
CNI Charter Funds
Professionally Managed Portfolios
August __, 2001
Page 3
(B) There is no plan or intention by the New Fund or any person related
to the New Fund, as defined in section 1.368-1(e)(3) of the Treasury
Regulations, to acquire or redeem any of the stock of the New Fund issued in the
Transaction either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of the New Fund's business as an open-end investment company, as required by
section 22(e) of the 1940 Act. For this purpose, section 1.368-1(e)(3) of the
Treasury Regulations generally provides that two corporations are related if
they are members of the same affiliated group (i.e., one or more chains of
corporations connected through stock ownership with a common parent corporation
where: (i) stock with at least 80% of the total voting power and value of each
corporation in the chain is owned directly by one or more of the other
corporations in the chain; and (ii) the common parent owns directly stock with
at least 80% of the voting power and value of at least one of the corporations
in the chain for consolidated return purposes ("Affiliated Group Relationship")
or if one corporation owns stock possessing at least 50% or more of the voting
power or value of the other corporation (the "Parent-Subsidiary Relationship")).
(C) During the five-year period ending on the date of the Transaction,
neither the Old Fund nor any person related to the Old Fund by having a
Parent-Subsidiary Relationship will have directly or through any transaction,
agreement, or arrangement with any other person, (i) acquired stock of the Old
Fund with consideration other than shares of the New Fund or the Old Fund
(except for shares of the Old Fund acquired from dissenters in the transaction),
or (ii) redeemed or made distributions with respect to the Old Fund shares,
except for redemptions in the ordinary course of the Old Fund's business as an
open-end investment company as required by section 22(e) of the 1940 Act and
distributions necessary to qualify for the special tax treatment afforded
regulated investment companies under Section 852 of the Internal Revenue Code of
1986, as amended (the "Code"), and made in the ordinary course of the Old Fund's
business as a qualified regulated investment company.
(D) Prior to or in the Transaction, neither the New Fund nor any person
related to the New Fund (i.e., having either an Affiliated Group Relationship or
a Parent-Subsidiary Relationship with the New Fund) will have owned stock of the
Old Fund.
(E) The aggregate value of the acquisitions, redemptions, and
distributions discussed in paragraphs (B) and (C) above will not exceed 50% of
the value (without giving effect to the acquisitions, redemptions, and
distributions) of the proprietary interest in the Old Fund on the effective date
of the Transaction.
(F) The New Fund will acquire at least 90% of the fair market value of
the net assets and at least 70% of the fair market value of the gross assets
held by the Old Fund immediately prior to the Transaction. For purposes of this
representation, amounts used by the Old Fund to pay its reorganization expenses,
amounts paid by the Old Fund to shareholders who receive cash or other property
(including, any payments to dissenters), and all redemptions and distributions
(except for distributions and redemptions occurring in the ordinary course of
the Old Fund's business as an investment company) made by the Old Fund
immediately preceding the transfer have been included as assets of the Old Fund
held immediately prior to the Transaction.
CNI Charter Funds
Professionally Managed Portfolios
August __, 2001
Page 4
(G) After the Transaction, the shareholders of the Old Fund will be in
control of the New Fund within the meaning of Code Section 368(a)(2)(H), which
provides that control means the ownership of shares possessing at least 50% of
the total combined voting power of all classes of shares entitled to vote, or at
least 50% of the total value of all classes of shares.
(H) The New Fund has no plan or intention to sell or otherwise dispose
of any of the assets of the Old Fund acquired in the Transaction, except for
dispositions made in the ordinary course of its business as an investment
company. If the New Fund does sell any of the assets of the Old Fund acquired in
the Transaction, the New Fund will use the proceeds from such sale in accordance
with the New Fund's investment objectives.
(I) The New Fund has no plan or intention to reacquire any of its shares
issued in the Transaction, except for acquisitions made in the ordinary course
of its business as a series of an investment company pursuant to the provisions
of section 22(e) of the 1940 Act.
(J) In pursuance of the plan of reorganization, the Old Fund will
distribute as soon as practicable the shares of the New Fund it receives in the
Transaction.
(K) The liabilities of the Old Fund assumed by the New Fund plus the
liabilities to which the assets are subject were incurred by the Old Fund in the
ordinary course of its business and are associated with the assets transferred.
(L) The fair market value of the assets of the Old Fund transferred to
the New Fund will equal or exceed the sum of the liabilities assumed by the New
Fund, plus the amount of liabilities, if any, to which the transferred assets
are subject.
(M) The total adjusted bases of the assets of the Old Fund transferred
to the New Fund will equal or exceed the sum of the liabilities to be assumed by
the New Fund, plus the amount of liabilities, if any, to which the transferred
assets are subject.
(N) Following the Transaction, the New Fund will continue the historic
business of the Old Fund or use a significant portion of the Old Fund's historic
business assets in a business.
(O) At the time of the Transaction, the New Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the New Fund that, if
exercised or converted, would affect the Old Fund's shareholders' acquisition or
retention of control of the New Fund, as defined in Section 368(a)(2)(H) of the
Code, which provides that control means the ownership of shares possessing at
least 50 % of the total combined voting power of all classes of shares entitled
to vote, or at least 50 % of the total value of all classes of shares.
(P) There is no intercorporate indebtedness existing between the Old
Fund and the New Fund that was issued, acquired, or will be settled at a
discount.
CNI Charter Funds
Professionally Managed Portfolios
August __, 2001
Page 5
(Q) The Old Fund is not under the jurisdiction of a court in a case
under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a Federal or state court.
(R) The investment advisor to the Old Fund will pay or assume only those
expenses of the Old Fund and the Old Fund's shareholders that are solely and
directly related to the Transaction in accordance with the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187 (such as legal and
accounting expenses, appraisal fees, administrative costs, security underwriting
and registration fees and expenses, and transfer agents' fees and expenses).
Otherwise, the New Fund, the Old Fund, and the shareholders of the Old Fund will
pay their respective expenses, if any, incurred in connection with the
Transaction.
(S) The Old Fund and the New Fund each meets the requirements of a
regulated investment company set forth in Code Section 368(a)(2)(F).
(T) The Old Fund and the New Fund has each elected to be taxed as a
"regulated investment company" under Code Section 851 and, for all of the
taxable periods (including the last short taxable period ending on the date of
the Transaction for the Old Fund), has qualified for the special tax treatment
afforded regulated investment companies under the Code, and after the
Transaction, the New Fund intends to continue to so qualify.
(U) There is no plan or intention by the shareholders of the Old Fund
who own 5% or more of the Old Fund stock, and to the best knowledge of the
management of the Old Fund, to sell, exchange, or otherwise dispose of a number
of shares of the New Fund received in the Transaction that would reduce the Old
Fund shareholders' ownership of the New Fund stock to a number of shares having
a value, as of the date of the Transaction, of less than 50% of the value of all
the formerly outstanding stock of the Old Fund as of the same date. For purposes
of this assumption, shares of the Old Fund exchanged for cash or other property
or surrendered by dissenters will be treated as outstanding stock of the Old
Fund on the date of the Transaction. Additionally, shares of the Old Fund and
shares of the New Fund held by the Old Fund shareholders and otherwise sold,
redeemed or disposed of prior to or subsequent to the Transaction will be
treated as outstanding stock of the Old Fund on the date of the Transaction.
(V) If any cash is being transferred to the shareholders of the Old Fund
in lieu of fractional shares of the New Fund, such cash does not represent
separately bargained for consideration in the Transaction.
(W) Following the Transaction, the Old Fund, the New Fund and the
shareholders of the Old Fund will comply with the information reporting, record
retention and return filing requirements set forth in Treasury Regulations
Section 1.368-3.
Our opinion set forth in this letter is based upon the Code, regulations of the
Treasury Department, published administrative announcements and rulings of the
Service and court decisions, all as of the date of this letter. Based on the
foregoing facts and representations, and provided that the Transaction will take
place in accordance with the terms of the Reorganization Agreement, and further
provided that the Old
CNI Charter Funds
Professionally Managed Portfolios
August __, 2001
Page 6
Fund distributes the shares of the New Fund received in the Transaction as soon
as practicable, we are of the opinion that:
(a) The transfer of substantially all of the Old Fund's assets to the
New Fund in exchange for shares of the New Fund ("Shares") and the assumption of
the Old Fund's stated liabilities, and the distribution of the Shares to the Old
Fund shareholders in liquidation of the Old Fund, will constitute a
"reorganization" (the "Reorganization") within the meaning of Code Section
368(a);
(b) No gain or loss will be recognized by the New Fund upon the receipt
of the assets of the Old Fund solely in exchange for Shares and the assumption
by the New Fund of the Old Fund's stated liabilities;
(c) No gain or loss will be recognized by the Old Fund upon the transfer
of its assets to the New Fund in exchange for Shares and the assumption by the
New Fund of the Old Fund's stated liabilities;
(d) No gain or loss will be recognized by the Old Fund's shareholders
upon the exchange of their shares of the Old Fund for Shares;
(e) The tax basis of Shares received by each Old Fund shareholder
pursuant to the Reorganization will be the same as the tax basis of the Old Fund
shares held by that shareholder immediately before the Reorganization;
(f) The tax bases of the assets of the Old Fund acquired by the New Fund
will be the same as the tax bases of such assets to the Old Fund immediately
prior to the Reorganization;
(g) The holding period of Shares to be received by each Old Fund
shareholder will include the period during which the Old Fund shares exchanged
therefor were held by such shareholder; and
(h) The holding period of the assets of the Old Fund acquired by the New
Fund will include the period during which those assets were held by the Old
Fund.
The opinion set forth above represents our conclusions as to the application of
Federal income tax law existing as of the date of this letter to the Transaction
described above, and we can give no assurance that legislative enactments,
administrative changes or court decisions may not be forthcoming which would
require modifications or revocations of our opinion expressed herein. Moreover,
there can be no assurance that positions contrary to our opinion will not be
taken by the Service, or that a court considering the issues would not hold
contrary to such opinion. Further, the opinion set forth above represents our
conclusions based upon the documents and facts referred to above. Any material
amendments to such documents or changes in any significant facts would affect
the opinion referred to herein. Although we have made such inquiries and
performed such investigation as we have deemed necessary to fulfill our
professional responsibilities, we have not undertaken an independent
investigation of the facts referred to in this letter.
CNI Charter Funds
Professionally Managed Portfolios
August __, 2001
Page 7
We express no opinion as to any Federal income tax issue or other matter except
those set forth above.
Very truly yours,
PAUL, HASTINGS, JANOFSKY & WALKER LLP
EXHIBIT 99.1
Prospectus for the RCB Small Cap Value Fund
C-8
[LOGO] CNI
CHARTER FUNDS (SM)
RCB SMALL CAP VALUE FUND
CLASS R
PROSPECTUS
DATED AUGUST 2, 2001
INVESTMENT ADVISOR:
REED, CONNER & BIRDWELL, LLC
The Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the
accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
------------------------------------------------------------------
Mutual fund shares are not insured or guaranteed by the U.S.
Government, the Federal Deposit Insurance Corporation or any other
governmental agency. Mutual fund shares are not bank deposits, nor
are they obligations of, or issued, endorsed or guaranteed by City
National Bank. Investing in mutual funds involves risks, including
possible loss of principal.
TABLE OF CONTENTS
Summary.........................................................1
Management of the Fund..........................................6
Additional Investment Strategies and Related Risks..............8
How to Buy and Sell Shares......................................9
Dividends and Taxes............................................17
Financial Highlights...........................................19
Important Terms to Know........................................20
For More Information...................................back cover
More detailed information on all subjects covered in this
simplified prospectus is contained within the Statement of
Additional Information ("SAI"). Investors seeking more in-depth
explanations of the fund described here should request the SAI
and review it before purchasing shares.
This Prospectus offers Class R shares of the RCB Small Cap Value Fund (the
"Fund"). Class R shares are intended for individual investors, partnerships,
corporations, and other accounts that have diversified investment needs, and
purchase shares of the Fund through their broker. The Fund offers other classes
of shares which are subject to the same management fee and other expenses but
may be subject to different distribution fees, shareholder servicing fees and/or
sales loads.
SUMMARY
Our Goal
The Fund seeks capital appreciation through investment in smaller U.S.
corporations which are considered undervalued. The goal of the Fund can
only be changed with shareholder approval.
Principal Strategy
We invest in a diversified portfolio of equity securities of smaller
U.S. corporations, generally with a market capitalization of $2.5
billion or less at the time of purchase. Under normal circumstances, at
least 80% of the Fund's net assets consists of these securities. The
overall investment philosophy of the Fund involves a value-oriented
focus on preservation of capital over the long term and a "bottom-up"
approach, analyzing companies on their individual characteristics,
prospects and financial conditions. We determine the universe of
potential companies for investment through a systematic screening of
companies for attractive valuation characteristics and the prospects of
fundamental changes, as well as information we derive from a variety of
sources, including, but not limited to, regional brokerage research,
trade publications and industry conferences. We evaluate companies
within this universe for fundamental characteristics such as:
o Return on capital trends
o Cash flow and/or earnings growth
o Free cash flow
o Balance sheet integrity
o Intrinsic value analysis
Our research effort also includes an investigation of the strength of
companies' business franchises and managements' commitment to
shareholders through direct contacts and company visits. Factors that
may cause the sale of the Fund's portfolio holdings include management
disappointment or changes in the course of business, changes in a
company's fundamentals, or our assessment that a particular company's
stock is extremely overvalued. A 15% or greater decline in a company's
stock price would result in an intensive re-evaluation of the holding
and a possible sale.
The Fund anticipates that it will have a low rate of portfolio turnover.
This means that the Fund has the potential to be a tax-efficient
investment. This should result in the realization and the distribution
to shareholders of lower capital gains, which would be considered
tax-efficient. This anticipated lack of frequent trading should also
lead to lower transaction costs, which could help to improve
performance.
1
Principal Risks of Investing in the Fund
Market Risk - As with any mutual fund, there are risks to investing. We
cannot guarantee that we will meet our investment goal. By investing in
stocks, the Fund will expose you to risks that could cause you to lose
money, such as a sudden decline in a holding's share price or an overall
decline in the stock market. As with any stock fund, the value of your
investment in the Fund will fluctuate on a day-to-day and a cyclical
basis with movements in the stock market, as well as in response to the
activities of individual companies. In addition, individual companies
may report poor results or be negatively affected by industry and/or
economic trends and developments. The Fund is also subject to the risk
that its principal market segment, small capitalization value stocks,
may underperform other equity market segments or the market as a whole.
Smaller Capitalized Companies - The Fund primarily invests in smaller
capitalized companies. The investment manager believes that smaller
capitalized companies generally have greater earnings and sales growth
potential than larger capitalized companies. The level of risk will be
increased to the extent that the Fund has significant exposure to
smaller capitalized or unseasoned companies (those with less than a
three-year operating history). Investments in smaller capitalized
companies may involve greater risks, such as limited product lines,
markets and financial or managerial resources. In addition, the
securities of smaller capitalized companies may have few market makers,
wider spreads between their quoted bid and asked prices, and lower
trading volume, resulting in greater price volatility and less liquidity
than the securities of larger capitalized companies. In addition, the
Fund may hold a significant percentage of a company's outstanding
shares, which means that the Fund may have to sell such investments at
discounts from quoted prices.
Focus. The Fund intends to hold a relatively small number of securities
positions, each representing a relatively large portion of the Fund's
capital. Losses incurred in such positions could have a material adverse
effect on the Fund's overall financial condition. The Fund's performance
may also differ materially from the relevant benchmarks, which hold many
more stocks than the Fund and may be focused on different sectors or
industries than the Fund.
2
Past Performance
The bar chart and the performance table below illustrate some of the
risks and volatility of an investment in the Class R shares of the Fund
for the indicated periods. The Fund intends to commence operations on
October 1, 2001, after the reorganization of the RCB Small Cap Fund (the
"Predecessor Fund") into the Class R shares of the Fund. The returns for
the Class R shares of the Fund reflect the performance of the
Predecessor Fund prior to the reorganization. Of course, this past
performance does not necessarily indicate how the Fund will perform in
the future.
This bar chart shows the performance of the Fund's Class R shares based
on a calendar year.
[Bar Chart Showing
Fund 12.87% 18.07%
2000 1999]
Best Quarter - 21.60% (Q2 1999)
Worst Quarter - -5.08% (Q3 1999)
This table shows the average annual total returns of the Class R shares
for the periods ending December 31, 2000.
One Year Since Inception (9/30/1998)
Fund 12.87% 26.40%
S&P 500 Index -9.07% 13.68%
Russell 2000 Index -3.02% 14.92%
Russell 2000 Value Index 22.83% 13.11%
For the period from January 1, 2001 through June 30, 2001, the Fund
returned 20.63%.
3
Fees and Expenses of the Fund
This table describes the fees and expenses 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 3.50%
(as a percentage of offering price)
Maximum deferred sales charge (load) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets)
Management Fee* 0.85%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.26%
Total Other Expenses 0.51%
------------------------------------------------------------------------
Total Annual Fund Operating Expenses** 1.61%
*The "Management Fee" is an annual fee, payable monthly out of the
Fund's net assets.
** Other Fund Expenses for the Fund, and thus the Fund's Total Annual
Fund Operating Expenses, are estimates and may be higher or lower than
shown above. The investment manager has voluntarily agreed to limit its
fees or reimburse the Fund for expenses to the extent necessary to keep
Class R Total Annual Fund Operating Expenses for the current fiscal year
at or below 1.49%. Any fee reductions or reimbursements may be repaid to
the investment manager within 3 years after they occur if such
repayments can be achieved within the Fund's then current expense limit,
if any, for that year and if certain other conditions are satisfied.
4
Example
The Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. It assumes that
you invest $10,000 in Class R shares of 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. The
Example should not be considered a representation of past or future
expenses or performance. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$508 $840 $1,195 $2,194
5
MANAGEMENT OF THE FUND
Investment Advisor
Reed, Conner & Birdwell, LLC (the "Investment Advisor"), a wholly owned
subsidiary of City National Corporation, currently serves as the Fund's
sub-advisor, providing investment advisory and portfolio management
services pursuant to a sub-advisory agreement with City National Asset
Management, Inc. ("CNAM"), the Fund's investment manager. The Investment
Advisor's address is 11111 Santa Monica Blvd., Ste. 1700, Los Angeles,
California 90025. As of June 30, 2001, the Investment Advisor managed
assets of approximately $1.2 billion for individual and institutional
investors. The Investment Advisor and its predecessor have been engaged
in the investment advisory business for over forty years.
Mr. Jeffrey Bronchick, Executive Vice President, Principal and Chief
Investment Officer of the Investment Advisor, and Mr. Thomas D. Kerr,
Vice President, Portfolio Management and Research of the Investment
Advisor, are principally responsible for the management of the Fund.
They have been associated with the Investment Advisor or its predecessor
since 1989 and 1994, respectively.
Investment Manager
As investment manager, CNAM provides the Fund with investment management
services. CNAM's address is City National Center, 400 North Roxbury
Drive, Beverly Hills, California 90210.
CNAM is a wholly-owned subsidiary of City National Bank ("CNB"), a
federally chartered commercial bank founded in the early 1950's with
approximately $9.1 billion in assets as of June 30, 2001. CNB is itself
a wholly-owned subsidiary of City National Corporation, a New York Stock
Exchange listed company. CNB has provided trust and fiduciary services,
including investment management services, to individuals and businesses
for over 30 years. CNB currently provides investment management services
to individuals, pension and profit sharing plans, endowments and
foundations. As of June 30, 2001, CNB and its affiliates had
approximately $18.5 billion in assets under administration, which
includes $7.2 billion in assets under management.
CNAM receives for its investment management services a fee at the annual
rate of 0.85% of the average daily net assets of the Fund, all of which
CNAM pays to the Investment Advisor.
Administrator
SEI Investments Mutual Fund Services (the "Administrator") serves as
administrator and fund accountant to the Fund. The Administrator is
located at One Freedom Valley Drive, Oaks, Pennsylvania 19456. Pursuant
to a separate agreement with the Administrator, CNB performs certain
sub-administration services on behalf of the Fund, for which it receives
a fee paid by the Administrator at the annual rate of up to 0.075% of
the average daily net assets of the Fund.
6
Distributor
SEI Investments Distribution Co. (the "Distributor") serves as the
Fund's distributor pursuant to a distribution agreement with the Fund.
The Distributor is located at One Freedom Valley Drive, Oaks,
Pennsylvania 19456 and can be reached at 1-888-889-0799.
Distribution of Fund Shares
The Fund has adopted a plan (the "Plan") for its Class R shares under
Rule 12b-1 of the Investment Company Act. The Plan allows the Fund to
pay to the Distributor distribution fees of 0.25% of the average daily
net assets of the Class R shares for the sale and distribution of the
Class R shares. The Distributor may pay some or all of such distribution
fees to broker-dealers and other financial intermediaries (including CNB
and its affiliates) as compensation for providing distribution-related
services. Because the distribution fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of
sales charges.
The Distributor may, from time to time in its sole discretion, institute
one or more promotional incentive programs for dealers, which will be
paid for by the Distributor from any distribution fees it receives or
from any other source available to it. Under any such program, the
Distributor may provide cash or non-cash compensation as recognition for
past sales or encouragement for future sales that may include the
following: merchandise, travel expenses, prizes, meals, and lodgings,
and gifts that do not exceed $100 per year, per individual.
Shareholder Servicing Fees
The Fund has adopted a shareholder services agreement that allows the
Fund to pay fees to broker-dealers and other financial intermediaries
(including the CNB and its affiliates) for services provided to Class R
shareholders. Because these fees are paid out of the Fund's assets
continuously, over time these fees will also increase the cost of your
investment. Fees under the shareholder services agreement, as a
percentage of average daily net assets, are 0.25% for Class R shares of
the Fund, a portion or all of which may be received by CNB or its
affiliates.
7
ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS
The following risks of the Fund referred to below are related to
investment strategies that are material but not fundamental strategies
of the Fund. These risks are in addition to the principal risks of the
Fund discussed above. See the fundamental risks described with respect
to the Fund under the section entitled "Summary."
Foreign Securities - The Fund may invest up to 35% of its assets in
foreign securities. Foreign investments may be subject to risks that are
not typically associated with investing in domestic companies. For
example, such investments may be adversely affected by changes in
currency rates and exchange control regulations, future political and
economic developments and the possibility of seizure or nationalization
of companies, or the imposition of withholding taxes on income. Foreign
stock markets tend to be more volatile than the U.S. market due to
economic and political instability and regulatory conditions in some
countries. These foreign securities may be denominated in foreign
currencies, whose value may decline against the U.S. dollar.
Defensive Investments - The strategies described in this prospectus are
those the Fund uses under normal circumstances. At the discretion of the
Fund's portfolio manager, we may invest up to 100% of the Fund's assets
in cash or cash equivalents for temporary defensive purposes. The Fund
is not required or expected to take such a defensive posture. But if
used, such a stance may help the Fund minimize or avoid losses during
adverse market, economic or political conditions. During such a period,
the Fund may not achieve its investment objective. For example, should
the market advance during this period, the Fund may not participate as
much as it would have if it had been more fully invested.
Portfolio Turnover - We will sell a security when we believe it is
appropriate to do so, regardless of how long the Fund has owned that
security. Buying and selling securities generally involves some expense
to the Fund, such as commissions paid to brokers and other transaction
costs. By selling a security, the Fund may realize taxable capital gains
that it will subsequently distribute to shareholders. Generally
speaking, the higher the Fund's annual portfolio turnover, the greater
its brokerage costs and the greater the likelihood that it will realize
taxable capital gains. Increased brokerage costs may adversely affect
the Fund's performance. Also, unless you are a tax-exempt investor or
you purchase shares through a tax-deferred account, the distribution of
capital gains may affect your after-tax return. Annual portfolio
turnover of 100% or more is considered high.
8
HOW TO BUY AND SELL SHARES
Here are the details you should know about how to purchase and sell
(sometimes called "redeem") shares:
How to Buy Shares
By Telephone - To open an account by telephone, call 1 (888) 889-0799 to
obtain instructions and a fax number to which you should send your
completed account application. We will establish your account and
contact you with your new account number. After you have obtained an
account number, you may instruct your bank to wire the amount of your
investment to (your bank may charge a fee to wire money):
Bankers Trust Company
New York, New York
ABA # 021001033
for credit to: Forum Shareholder Services, LLC Acct #01-465-547
Re: RCB Small Cap Value Fund
[Your name]
[Your account number]
By Mail - To open an account by mail, please send to us your completed
account application, together with a check made payable to:
CNI Charter Funds
P.O. Box 446
Portland, ME 04112
Or, for overnight mailings:
CNI Charter Funds
2 Portland Square
Portland, ME 04101
Your check must be in U.S. dollars and drawn on a bank located in the
United States. We do not accept third-party checks, credit card checks,
or cash.
Through Your Authorized Institution - You may also purchase shares of
the Fund through approved broker-dealers or other financial institutions
(each an "Authorized Institution"). Your Authorized Institution may
charge a fee for its services, in addition to the fees charged by the
Fund. Consult a representative of your Authorized Institution for
further information. The Fund may reject any purchase order if it is
determined that accepting the order would not be in the best interest of
the Fund or its shareholders.
How to Sell Shares
By Mail - To redeem shares by mail, prepare a written request including:
o Your name(s) and signature(s)
9
o The name of the Fund (the RCB Small Cap Value Fund) and your
account number
o The dollar amount or number of shares you want to redeem
o How and where to send your proceeds
o A signature guarantee, if required (see "Signature Guarantee
Requirements" below)
o Any other required documentation, such as corporate resolutions
or trust documents
Mail your request and documentation to us (see "How to Buy Shares - By
Mail" above).
By Wire - You may only request payment of your redemption proceeds by
wire if you have previously elected wire redemption privileges on your
account application or a separate form. Wire requests are only available
if your redemption is for $5,000 or more.
To request a wire redemption, mail us your request (see "How to Buy
Shares - By Mail" above) or call us with your request (see "By
Telephone" below). If you wish to make your wire request by telephone,
however, you must have previously elected telephone redemption
privileges on your account application or a separate form. Telephone
redemptions are not available for IRA accounts.
By Telephone - You may only request payment of your redemption proceeds
by telephone if you have previously elected telephone redemption
privileges on your account application or a separate form. Telephone
redemptions are not available for IRA accounts.
To redeem shares by telephone, call us with your request at 1 (888)
889-0799. You will need to provide your account number and the exact
name(s) in which the account is registered. We may also require a
password or additional forms of identification.
Your proceeds will be mailed to you or wired to you (if you have elected
wire redemption privileges -- see "By Wire" above).
Telephone redemptions are easy and convenient, but this account option
involves a risk of loss from unauthorized or fraudulent transactions. We
will take reasonable precautions to protect your account from fraud. You
should do the same by keeping your account information private and by
reviewing immediately any account statement and transaction
confirmations that you receive. The Fund will not be responsible for any
losses due to telephone fraud, so long as we have taken reasonable steps
to verify the caller's identity.
Redemptions Through Authorized Institutions - If you hold shares through
an Authorized Institution, you must redeem your shares through that
Authorized Institution. Contact your Authorized Institution and follow
its procedures, including deadlines for receipt by the Authorized
Institution of your share redemption instructions. Your Authorized
Institution may charge a fee for its services, in addition to the fees
charged by the Fund.
Systematic Withdrawal Plan - If you own shares of the Fund with an
aggregate value of at least $10,000, you may make regular withdrawals
from your account once a month or once a quarter on a specified date.
You also have the option of receiving your withdrawals by check or by
automatic deposit into your bank account. Systematic withdrawals must be
for at least $100.
10
To set up periodic withdrawals, complete the "Systematic Withdrawal
Plan" section on your account application and mail it to us with a
voided check, if applicable, for the account into which you would like
the withdrawal proceeds deposited. These payments are sent from your
account to a designated bank account by Automatic Clearing House ("ACH")
payment. To redeem your shares using ACH payments, call us at 1 (888)
889-0799.
Miscellaneous - Normally, the Fund will make payment on your redemption
request as promptly as possible after receiving your request, but not
later than seven days after the receipt of your request.
We generally pay sale (redemption) proceeds in cash. However, under
conditions where cash redemptions are detrimental to the Fund and its
shareholders, we reserve the right to make redemptions in readily
marketable securities rather than cash. It is highly unlikely that your
shares would ever be redeemed in kind, but if they were, you would
probably have to pay transaction costs to sell the securities
distributed to you, as well as taxes on any capital gains from the sale
as with any redemption.
The Fund may suspend your right to redeem your shares if the New York
Stock Exchange (the "NYSE") or the Federal Reserve restricts trading,
the SEC declares an emergency or for other reasons, as permitted by
federal securities laws. Please see the SAI for a more detailed
discussion.
How to Exchange Shares
Currently, Class R shares are not exchangeable for any other class of
shares in the Fund or for shares in any of the other CNI Charter Funds.
General Information
How and when we calculate the Fund's net asset value ("NAV") determines
the price at which you will buy or sell shares. We calculate the NAV of
the Fund after the close of trading on the NYSE every day the NYSE is
open. Shares may be purchased or sold on any day that the NYSE is open
for business. Shares, however, cannot be purchased or sold by Federal
Reserve wire on days when either the NYSE or Federal Reserve is closed.
The NYSE usually closes at 4:00 p.m. Eastern time on weekdays, except
for holidays.
If we receive your purchase or redemption order from your Authorized
Institution before close of trading on the NYSE, we will price your
order at that day's NAV. If we receive your order after close of trading
on the NYSE, we will price your order at the next day's NAV. In some
cases, however, you may have to transmit your request to your Authorized
Institution by an earlier time in order for your request to be effective
that day. This allows your Authorized Institution time to process your
request and transmit it to the Fund before close of trading on the NYSE.
How We Calculate NAV
NAV for one share of the Fund is the value of that share's portion of
the net assets (i.e., assets less liabilities) of the Fund. We calculate
the Fund's NAV by dividing the total net value of its assets by the
number of outstanding shares. We base the value of the Fund's
11
investments on its market value, usually the last price reported for
each security before the close of the market that day. A market price
may not be available for securities that trade infrequently.
Occasionally, an event that affects a security's value may occur after
the market closes. If market prices are unavailable or considered to be
unreliable, fair value prices may be determined in good faith using
methods approved by the Board of Trustees. Different classes of the Fund
have different NAVs. More details about how we calculate the NAV for the
Fund are in the SAI.
Purchase and Account Balance Minimums
You may open an account with a $25,000 investment in the Fund, and
thereafter may make additional investments of $1,000 or more at any
time. You may open a retirement plan account (e.g., an IRA) with a
$1,000 investment, and may thereafter make additional investments of
$100 or more at any time.
Automatic Investment Plan
If you have a checking or savings account with a bank, thrift or savings
and loan, you may establish an Automatic Investment Plan. You may then
begin regularly scheduled investments of at least $100 per month through
automatic deductions from your checking or savings account. To
participate in the Automatic Investment Plan, complete the appropriate
section on your account application form.
Sales Charges
Class R shares of the Fund are sold subject to a front-end sales charge.
The offering price of Class R shares of the Fund is the NAV next
calculated after the Fund receives your request, plus the front-end
sales charge. The sales charge declines with the size of your purchase,
as shown below:
As a As a Percentage
Percentage of of Your
Your Investment Offering Price Investment
--------------- -------------- ----------
Less than $50,000 3.50% 3.25%
$50,000 but less than $100,000 3.00% 3.09%
$100,000 but less than $200,000 2.50% 2.56%
$200,000 but less than $300,000 2.00% 2.04%
$300,000 but less than $500,000 1.00% 1.01%
$500,000 or more None None
Reduced Sales Charges
Rights of Accumulation - In calculating the appropriate sales charge
rate, you may add the value of the Class R Shares you already own to the
amount that you are currently purchasing. The Fund will combine the
value of your current purchases with the current value of any Class R
Shares you purchased previously for (1) your account, (2) your spouse's
account, (3) a joint account with your spouse, or (4) your minor
children's trust or custodial accounts. A fiduciary purchasing shares
for the same fiduciary account, trust or estate may also use this right
of accumulation. The Fund will only consider the value of Class R Shares
purchased previously that were sold subject to a sales charge. As a
12
result, Class R shares purchased with dividends or distributions will
not be included in the calculation. To be entitled to a reduced sales
charge based on shares already owned, you must ask us for the reduction
at the time of purchase. You must provide the Fund with your account
number(s) and, if applicable, the account numbers for your spouse and/or
children (and provide the children's' ages). The Fund may amend or
terminate this right of accumulation at any time.
Letter of Intent - You may purchase Class R shares at the sales charge
rate applicable to the total amount of the purchases you intend to make
over a 13-month period. In other words, a Letter of Intent allows you to
purchase Class R shares of a Fund over a 13-month period and receive the
same sales charge as if you had purchased all the shares at the same
time. The Fund will only consider the value of Class R shares sold
subject to a sales charge. To be entitled to a reduced sales charge
based on shares you intend to purchase over the 13-month period, you
must send the Fund a Letter of Intent. In calculating the total amount
of purchases, you may include in your letter purchases made up to 90
days before the date of the Letter. The 13-month period begins on the
date of the first purchase, including those purchases made in the 90-day
period before the date of the Letter. Please note that the purchase
price of these prior purchases will not be adjusted.
You are not legally bound by the terms of your Letter of Intent to
purchase the amount of your shares stated in the Letter. The Letter
does, however, authorize the Fund to hold in escrow 5% of the total
amount you intend to purchase. If you do not complete the total intended
purchase at the end of the 13-month period, the Fund will redeem the
necessary portion of the escrowed shares to make up the difference
between the reduced rate sales charge (based on the amount you intended
to purchase) and the sales charge that would normally apply (based on
the actual amount you purchased).
Combined Purchase/Quantity Discount Privilege - When calculating the
appropriate sales charge rate, the Fund will combine same day purchases
of Class R shares (that are subject to a sales charge) made by you, your
spouse and your minor children (under age 21). This combination also
applies to Class R shares you purchase with a Letter of Intent.
Waivers of Sales Charges
Affiliates - The front end sales charge will be waived on Class R shares
bought by: (1) officers, trustees, directors and full time employees of
CNI Charter Funds, the Investment Advisor, CNAM, the distributor to the
Fund, affiliates of such companies, and by their family members; (2)
institutions, their employees and individuals who are direct investment
advisory clients of the Investment Advisor or CNAM and their family
members; (3) registered representatives and employees of firms which
have sales agreements with the distributor to the Fund; (4) investment
advisors, financial planners or other intermediaries who place trades
for their own accounts or for the accounts of their clients and who
charge a management, consulting or other fee for their services; (5)
clients of such investment advisors, financial planners or other
intermediaries who place trades for their own accounts if the accounts
are linked to the master account of such investment advisor, financial
planner or other intermediaries on the books and records of the broker
or agent; (6) retirement and deferred compensation plans and trusts used
to fund such plans, including, but not limited to, those defined in
Section 401(a), 403(b) or 457 of the Internal Revenue Code and "rabbi
trusts"; (7) foundations, endowments and
13
other organizations exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code; (8) paid subscribers to electronic or other
financial media services which have an association with the Investment
Advisor or CNAM, their principals and officers; and (9) investors who
purchase shares with redemption proceeds of another mutual fund within
60 days of such redemption, provided that the investors paid a sales
charge on the original shares redeemed. When making a purchase at NAV
pursuant to this provision, the investor should forward to us either (1)
the redemption check representing the proceeds of the shares redeemed,
endorsed to the order of the Fund, or (2) a copy of the confirmation
from the other fund showing the redemption transaction.
Investors who qualify for such purchases should clearly identify the
services to which they subscribe and their subscriber number in the
"Reduced Sales Charges" section of the Fund's Account Application.
Existing shareholders of the Fund who qualify for this privilege should
call the Fund at 1 (888) 889-0799 for instructions on how to make
subsequent purchases of Class R shares at net asset value.
Investors who qualify to buy Class R shares at net asset value may be
charged a fee by their broker or dealer or if they effect transactions
in the Fund's shares through a broker or agent.
Reinvestment - If you redeem your Class R shares, you may reinvest into
Class R shares all or any part of the proceeds of your redemption within
90 days from the date of your redemption without being subject to a
sales charge. To take advantage of this option, you must inform us of
your intent within 90 days of the date of your redemption.
General Information About Sales Charges
Your securities dealer is paid a commission when you buy your shares and
is paid a distribution fee as long as you hold your shares. Your
securities dealer or servicing agent may receive different levels of
compensation depending on which class of shares you buy.
From time to time, some financial institutions, including brokerage
firms affiliated with the Investment Advisor or CNAM, may be reallowed
up to the entire sales charge. Firms that receive a reallowance of the
entire sales charge may be considered underwriters for the purpose of
federal securities laws.
Signature Guarantee Requirements
To protect you and the Fund against fraud, signatures on certain
requests must have a "signature guarantee." A signature guarantee
verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary
public. For requests made in writing, a signature guarantee is required
for any of the following:
o Your redemption request is for $50,000 or more
o Changes to a shareholder's record name
o Redemption from an account for which the address or
account registration has changed within the last 30 days
o Sending proceeds to any person, address, brokerage firm
or bank account not on record
14
o Sending proceeds to an account with a different
registration (name or ownership) from yours
o Changes to telephone or wire redemption privileges and
adding or changing bank instructions
Lost Accounts
We will consider your account lost if correspondence to your address of
record is returned as undeliverable, unless we determine your new
address. When an account is lost, all distributions on the account will
be reinvested in additional Class R shares of the Fund. In addition, the
amount of any outstanding (unpaid for six months or more) checks for
distributions that have been returned to us will be reinvested and the
checks will be canceled.
15
DIVIDENDS AND TAXES
Dividends
We will declare and distribute investment income, if any, annually as a
dividend to shareholders. The Fund makes distributions of capital gains,
if any, at least annually. If you own Fund shares on the Fund's record
date, you will be entitled to receive the distribution. Following its
fiscal year end (September 30), the Fund may make additional
distributions to avoid the imposition of a tax.
We will automatically reinvest your dividends and capital gain
distributions in additional full or fractional shares, unless you
instruct your Authorized Institution in writing prior to the date of the
dividend or distribution of your election to receive payment in cash.
Your election will be effective for all dividends and distributions paid
after your Authorized Institution receives your written notice. To
cancel your election, please send your Authorized Institution written
notice. Proceeds from dividends or distributions will normally be wired
to your Authorized Institution on the business day after dividends or
distributions are credited to your account.
Taxes
Please consult your tax advisor regarding your specific questions about
federal, state and local income taxes. Below, we have summarized some
important tax issues that affect the Fund and its shareholders. This
summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its net investment income
and capital gains, if any. The dividends and distributions you receive
may be subject to federal, state and local taxation, unless you invest
solely through a tax-advantaged account such as an IRA or a 401(k) plan.
Distributions you receive from the Fund may be taxable whether or not
you reinvest them in the Fund. Income distributions are generally
taxable at ordinary income tax rates. Capital gains distributions are
generally taxable at the rates applicable to capital gains. Each sale of
Fund shares is a taxable event.
Capital gains may be taxable at different rates depending upon the
length of time the Fund holds its assets. We will inform you about the
character of any dividends and capital gains upon payment. After the
close of each calendar year, we will advise you of the tax status of
distributions. Any redemption of the Fund's shares will be treated as a
sale, and any gain on the transaction may be taxable.
You must provide your Authorized Institution with your social security
or tax identification number on your account application form and
specify whether or not you are subject to backup withholding. Otherwise,
you may be subject to backup withholding at a rate of 31%.
If you plan to purchase shares of the Fund, check if it is planning to
make a distribution in the near future. If you do not check, and you buy
shares of the Fund just before a
16
distribution, you will pay full price for the shares but receive a
portion of your purchase price back as a taxable distribution. This is
called "buying a dividend." Unless you hold the Fund in a tax-deferred
account, you will have to include the distribution in your gross income
for tax purposes, even though you may have not participated in the
Fund's appreciation.
More information about taxes is in the SAI.
17
Financial Highlights
The following financial highlights tables are intended to help you
understand the Fund's financial performance. The Fund intends to
commence operations on October 1, 2001, upon the reorganization of the
Predecessor Fund into the Fund. Financial highlights are presented below
for the Predecessor Fund. Information for the periods ending June 30,
2000 and June 30, 1999 has been audited by independent auditors whose
report is not included here. Information presented in the financial
highlights tables is for a share of the Predecessor Fund outstanding
throughout each period. The total return figures in the tables represent
the rate an investor would have earned (or lost) on an investment in the
Predecessor Fund (assuming reinvestment of all dividends and
distributions).
Period ended Period ended
June 30, 2000 June 30, 1999(1)
Net Asset Value Beginning of Period $15.93 $10.00
Net Investment Income/(Loss) (0.06) (0.02)
Net Realized and Unrealized 0.52 5.95
Gains/(Losses) on Securities
Distributions from Net Investment Income (0.59) --
Net Asset Value End of Period $15.80 $15.93
Total Return 3.28% 59.30%
Net Assets End of Period (000's) $5,200 $3,200
Ratio of Expenses to Average Net Assets(2) 1.49% 1.49%
Ratio of Expenses to Average Net Assets 3.49% 7.76%
(Excluding Waivers)(2)
Ratio of Net Income to Average Net Assets(2) (0.50%) (0.33%)
Ratio of Expenses to Average Net Assets (2.50%) (6.60%)
(Excluding Waivers)(2)
Portfolio Turnover Rate 59.76% 35.70%
- --------
1 The Predecessor Fund commenced operations on September 30, 1998.
2 Annualized.
18
Important Terms to Know
The S&P 500 Index is a capitalization-weighted index of all the stocks
in the Standard & Poor's 500. The index is rebalanced semi-annually on
January 1 and July 1.
The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, which measures the performance of
the 3,000 largest U.S. companies based on total market capitalization.
The Russell 2000 Value Index is a capitalization-weighted index of all
the stocks in the Russell 2000 Index that have a low price to book
ratio. The index is rebalanced semi-annually on January 1 and July 1.
The index is designed so that approximately 50% of the Russell 2000
market capitalization is in the Value Index.
19
[LOGO] CNI CHARTER
-----------
FUNDS (SM)
RCB SMALL CAP VALUE FUND
CLASS R
PROSPECTUS
DATED AUGUST 2, 2001
For More Information
CNI Charter Funds
Additional information is available free of charge in the Statement of
Additional Information ("SAI"). The SAI is incorporated by reference (legally
considered part of this document). Once it becomes available, in the Fund's
Annual Report you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its
preceding fiscal year. Once they become available, additional information about
the Fund's investments will be available in the Fund's Annual and Semi-Annual
Reports to shareholders. To receive a free copy of this Prospectus, the SAI, or
the Annual or Semi-Annual Reports (when available), please contact:
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Information about the Fund may be reviewed and copied:
o at the SEC's Public Reference Room in Washington, D.C. at
1-800-SEC-0330;
o on the EDGAR database at the SEC's Internet site at www.sec.gov; or
o by written request (including duplication fee) to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009, or by electronic
request at www.publicinfo@sec.gov.
If you have questions about the Fund, please call 1-888-889-0799.
The Fund's Investment Company Act file
number: 811-07923.
CNI-F-000-00
EXHIBIT 99.2
Statement of Additional Information for the RCB Small Cap Value Fund
C-9
STATEMENT OF ADDITIONAL INFORMATION
CNI CHARTER FUNDS
400 North Roxbury Drive, Beverly Hills, California 90210
RCB SMALL CAP VALUE FUND
Institutional Class, Class A and Class R Shares
August 2, 2001
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the Prospectuses for the RCB Small Cap Value Fund
(the "Fund") dated August 2, 2001, which may be amended from time to time. The
Fund is a diversified investment portfolio of the CNI Charter Funds (the
"Trust"), an open-end, management investment company.
To obtain a free copy of the above-referenced prospectuses, call 1-888-889-0799.
Mutual fund shares are not insured or guaranteed by the U.S. Government, the
Federal Deposit Insurance Corporation or any other governmental agency. Mutual
fund shares are not bank deposits, nor are they obligations of, or issued,
endorsed or guaranteed by City National Bank ("CNB"). Investing in mutual funds
and other securities involves risks, including possible loss of principal.
Page
----
PREDECESSOR FUND....................................................1
INVESTMENT TECHNIQUES...............................................1
INVESTMENT RESTRICTIONS.............................................6
RISK CONSIDERATIONS.................................................7
MANAGEMENT OF THE TRUST............................................10
PORTFOLIO TRANSACTIONS ............................................18
DISTRIBUTIONS AND TAXES............................................19
SHARE PRICE CALCULATION............................................23
DISTRIBUTION PLAN..................................................25
DEALER COMMISSIONS.................................................26
SHAREHOLDER SERVICES AGREEMENT.....................................26
PRINCIPAL HOLDERS OF SECURITIES....................................27
EXPENSES...........................................................28
GENERAL INFORMATION................................................28
PERFORMANCE INFORMATION............................................29
PURCHASE AND REDEMPTION OF SHARES..................................30
OTHER INFORMATION..................................................31
CODE OF ETHICS.....................................................31
FINANCIAL STATEMENTS...............................................32
-i-
PREDECESSOR FUND
The Fund intends to commence operations on or about October 1, 2001, the date of
its acquisition of the assets and liabilities of a series of Professionally
Managed Portfolios, a registered investment company (the "Predecessor Fund"),
for which Reed, Conner & Birdwell, LLC ("RCB" or the "Investment Advisor")
serves as investment adviser, and which has the same investment objective,
policies and strategies as the Fund. However, as compared with the Fund, the
Predecessor Fund has different service providers, a different board of trustees
and a different fee structure. In addition, the fiscal year end of the
Predecessor Fund is June 30 while the Fund's fiscal year ends September 30. As
of the date of the acquisition, all shares of the issued and outstanding shares
of the Predecessor Fund will be converted into Class R shares of the Fund.
INVESTMENT TECHNIQUES
The prospectuses of the Fund show the principal strategies and risks of
investing in the Fund. This Statement of Additional Information shows additional
strategies and risks of the Fund that an investor should also consider.
Equity Securities - The Fund will purchase equity securities. Equity securities
include common stock, preferred stock, warrants or rights to subscribe to common
stock and, in general, any security that is convertible into or exchangeable for
common stock.
Equity securities represent ownership interests in a company or corporation, and
include common stock, preferred stock, and warrants and other rights to acquire
such instruments. Investments in equity securities in general are subject to
market risks that may cause their prices to fluctuate over time. The value of
convertible equity securities is also affected by prevailing interest rates, the
credit quality of the issuer and any call provisions. Fluctuations in the value
of equity securities in which the Fund invests will cause the net asset value of
the Fund to fluctuate.
Investments in small or middle capitalization companies involve greater risk
than is customarily associated with larger, more established companies due to
the greater business risks of small size, limited markets and financial
resources, narrow product lines and the frequent lack of depth of management.
The securities of small or medium-sized companies are often traded
over-the-counter, and may not be traded in volumes typical of securities traded
on a national securities exchange. Consequently, the securities of smaller
companies may have limited market stability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general.
Preferred stock is a blend of the characteristics of a bond and common stock. It
can offer the higher yield of a bond and has priority over common stock in
equity ownership, but does not have the seniority of a bond and, unlike common
stock, its participation in the issuer's growth may be limited. Preferred stock
has preference over common stock in the receipt of dividends and in any residual
assets after payment to creditors should the issuer be dissolved. Although the
dividend is set at a fixed annual rate, in some circumstances it can be changed
or omitted by the issuer.
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
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
1
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 a Fund's entire
investment therein).
Options on Securities, Securities Indices and Currencies. The Fund may purchase
put and call options on securities in which it has invested, on foreign
currencies represented in its portfolio and on any securities index based in
whole or in part on securities in which the Fund may invest. The Fund also may
enter into closing sales transactions in order to realize gains or minimize
losses on options they have purchased.
The Fund normally will purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest or a positive
change in the currency in which such securities are denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified securities or a specified amount of a foreign currency at a
specified price during the option period.
The Fund may purchase and sell options traded on U.S. and foreign exchanges.
Although the Fund will generally purchase only those options for which there
appears to be an active secondary market, there can be no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. For some options, no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions in
particular options, with the result that the Fund would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the purchase or sale of the underlying securities.
Secondary markets on an exchange may not exist or may not be liquid for a
variety of reasons including: (1) insufficient trading interest in certain
options; (2) restrictions on opening transactions or closing transactions
imposed by an exchange; (3) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (4) unusual
or unforeseen circumstances which interrupt normal operations on an exchange;
(5) inadequate facilities of an exchange or the Options Clearing Corporation to
handle current trading volume at all times; or (6) discontinuance in the future
by one or more exchanges for economic or other reasons, of trading of options
(or of a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Fund may write (i.e., sell) covered put and call options on securities,
securities indices and currencies in which it may invest. A covered call option
involves the Fund's giving another party, in return for a premium, the right to
buy specified securities owned by the Fund at a
2
specified future date and price set at the time of the contract. A covered call
option serves as a partial hedge against a price decline of the underlying
security. However, by writing a covered call option, the Fund gives up the
opportunity, while the option is in effect, to realize gain from any price
increase (above the option exercise price) in the underlying security. In
addition, the Fund's ability to sell the underlying security is limited while
the option is in effect unless the Fund effects a closing purchase transaction.
The Fund also may write covered put options that give the holder of the option
the right to sell the underlying security to the Fund at the stated exercise
price. The Fund will receive a premium for writing a put option but will be
obligated for as long as the option is outstanding to purchase the underlying
security at a price that may be higher than the market value of that security at
the time of exercise. In order to "cover" put options it has written, the Fund
will cause its custodian to segregate cash, cash equivalents, U.S. Government
securities or other liquid equity or debt securities with at least the value of
the exercise price of the put options. The Fund does not intend to write put
options if the aggregate value of the obligations underlying the put options
exceeds 25% of the Fund's total assets.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and result in the institution by an
exchange of special procedures that may interfere with the timely execution of
the Fund's orders.
Depositary Receipts. The Fund may invest in the securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs"), and other similar global
instruments available in emerging markets, or other securities convertible into
securities of eligible issuers. These securities may not necessarily be
denominated in the same currency as the securities for which they may be
exchanged. Generally, ADRs in registered form are designed for use in U.S.
securities markets, and EDRs and other similar global instruments in bearer form
are designed for use in European securities markets. For purposes of the Fund's
investment policies, the Fund's investments in ADRs, EDRs and similar
instruments will be deemed to be investments in the equity securities
representing the securities of foreign issuers into which they may be converted.
Foreign Securities. The Fund may invest up to 35% of its assets in foreign
securities. Investments in securities of foreign issuers or securities
principally traded overseas may involve certain special risks due to foreign
economic, political, and legal developments, including expropriation of assets
or nationalization, imposition of withholding taxes on dividend or interest
payments, and possible difficulty in obtaining and enforcing judgments against
foreign entities. Furthermore, issuers of foreign securities are subject to
different, often less comprehensive, accounting, reporting, and disclosure
requirements than domestic issuers. The securities of some foreign companies and
foreign securities markets are less liquid and at times more volatile than
securities of comparable U.S. companies and U.S. securities markets. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. There are also special tax considerations which apply to
securities of foreign issuers and securities principally traded overseas.
When-Issued Securities. The Fund may invest in when-issued securities. These
securities involve the purchase of debt obligations on a when-issued basis, in
which case delivery and payment normally take place within 45 days after the
date of commitment to purchase. These securities are subject to market
fluctuation due to changes in market interest rates, and it is possible that the
market value at the time of settlement could be higher or lower than the
purchase
3
price if the general level of interest rates has changed. Delivery of and
payment for these securities may occur a month or more after the date of the
purchase commitment. The Fund will maintain with the custodian a separate
account with liquid securities or cash in an amount at least equal to these
commitments. The interest rate realized on these securities is fixed as of the
purchase date, and no interest accrues to the Fund before settlement. Although
the Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities for their portfolios,
the Fund may dispose of a when-issued security or forward commitment prior to
settlement if the Investment Advisor deems it appropriate to do so.
The Fund will only make commitments to purchase obligations on a when-issued
basis with the intention of actually acquiring the securities, but may sell them
before the settlement date. The when-issued securities are subject to market
fluctuation, and no interest accrues to the purchaser during this period. The
payment obligation and the interest rate that will be received on the securities
are each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
Illiquid Securities. 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, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Restricted securities are
securities that may not be sold freely to the public absent registration under
the 1933 Act, or an exemption from registration. Section 4(2) commercial paper
is issued in reliance on an exemption from registration under Section 4(2) of
the 1933 Act, and is generally sold to institutional investors who purchase for
investment. Any resale of such commercial paper must be in an exempt
transaction, usually to an institutional investor through the issuer or
investment dealers who make a market on such commercial paper.
Rule 144A under the 1933 Act establishes a safe harbor from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities sold
pursuant to Rule 144A in many cases provide both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets might include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc. An insufficient number of qualified buyers
interested in purchasing Rule 144A eligible restricted securities, however,
could adversely affect the marketability of such portfolio securities and result
in the Fund's inability to dispose of such securities promptly or at favorable
prices.
The Board has delegated the function of making day-to-day determination of
liquidity to the Fund's Investment Advisor pursuant to guidelines approved by
the Board. The Investment Advisor will take into account a number of factors in
reaching liquidity decisions, including, but not limited to: (1) the frequency
of trades for the security, (2) the number of dealers willing and ready to
purchase and sell the security, (3) whether any dealers have agreed to make a
market in the security, (4) the number of other potential purchasers for the
security, and (5) the nature of the securities and the nature of the marketplace
trades. To the extent that the Investment Advisor, pursuant to the guidelines
approved by the Board, determines a Rule 144A eligible security to be liquid,
such a security would not be subject to the Fund's percentage limit on illiquid
securities investment.
4
Commercial Paper. The Fund may invest in commercial paper and other securities
that are issued in reliance on the so-called "private placement" exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
(the "1933 Act")("Section 4(2) paper"). Federal securities laws restrict the
disposition of Section 4(2) paper. Section 4(2) paper generally is sold to
institutional investors who agree that they are purchasing the paper for
investment and not for public distribution. Any resale of Section 4(2) paper by
the purchaser must be in an exempt transaction and may be accomplished in
accordance with Rule 144A under the 1933 Act. Section 4(2) paper normally may be
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. Because it is not possible to predict with assurance
exactly how this market for Section 4(2) paper sold and offered under Rule 144A
will continue to develop, the Investment Advisor, pursuant to guidelines
approved by the Board, will monitor the Fund's investments in these securities,
focusing on such important factors as, among others, valuation, liquidity, and
availability of information. Commercial paper and short-term notes will consist
of issues rated at the time of purchase "A-2" or higher by Standard & Poor's
Ratings Group, "Prime-1" or "Prime-2" by Moody's Investors Service, Inc., or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by the Advisor to be of comparable quality.
These rating symbols are described in the Appendix.
Highly Liquid Investments. The Fund will invest in cash and cash equivalents.
The Fund may invest in bank notes, which are unsecured promissory notes
representing debt obligations that are issued by banks in large denominations.
The Fund may invest in Bankers' acceptances. Bankers' acceptances are bills of
exchange or time drafts drawn on and accepted by a commercial bank. Bankers'
acceptances are issued by corporations to finance the shipment and storage of
goods. Maturities are generally six months or less. The Fund may invest in
certificates of deposit. Certificates of deposit are interest-bearing
instruments with specific maturities. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid. The Fund also may
make interest-bearing time or other interest-bearing deposits in commercial or
savings banks. Time deposits are non-negotiable deposits maintained at a banking
institution for a specified period of time at a specified interest rate.
Investment Company Shares. The Fund may invest in shares of other investment
companies, to the extent permitted by applicable law and subject to certain
restrictions set forth in this SAI. These investment companies typically incur
fees that are separate from those fees incurred directly by the Fund. The Fund's
purchase of such investment company securities results in the layering of
expenses, such that shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including advisory fees, in
addition to paying Fund expenses. Under applicable regulations, the Fund is
prohibited from acquiring the securities of another investment company if, as a
result of such acquisition: (1) the Fund owns more than 3% of the total voting
stock of another company; (2) securities issued by any one investment company
represent more than 5% of the Fund's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Fund.
Repurchase Agreements. The Fund may engage in repurchase agreements. Repurchase
agreements are agreements under which securities are acquired from a securities
dealer or bank subject to resale on an agreed upon date and at an agreed upon
price which includes principal and interest. The Fund or its agents will have
actual or constructive possession of the securities held as collateral for the
repurchase agreement. The Fund bears a risk of loss in the event the other
5
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral securities, or if the Fund
realizes a loss on the sale of the collateral securities. The Investment Advisor
will enter into repurchase agreements on behalf of the Fund only with financial
institutions deemed to present minimal risk of bankruptcy during the term of the
agreement based on guidelines established and periodically reviewed by the Board
of Trustees. These guidelines currently permit the Fund to enter into repurchase
agreements with any bank the Investment Advisor may recommend if it determines
such bank to be creditworthy. Repurchase agreements are considered to be loans
collateralized by the underlying security. Repurchase agreements entered into by
the Fund will provide that the underlying security at all times shall have a
value at least equal to 102% of the price stated in the agreement. This
underlying security will be marked to market daily. The Investment Advisor will
monitor compliance with this requirement. Under all repurchase agreements
entered into by the Fund, the Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent the proceeds of the
sale are less than the resale price. In addition, even though the Bankruptcy
Code provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, the Fund may incur delays and
costs in selling the security and may suffer a loss of principal and interest if
the Fund is treated as an unsecured creditor. Repurchase agreements, in some
circumstances, may not be tax exempt.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The Fund may not:
1. With respect to 75% of its assets, (i) purchase the securities of any
issuer (except securities issued or guaranteed by the United States Government,
its agencies or instrumentalities) if, as a result, more than 5% of its total
assets would be invested in the securities of such issuer; or (ii) acquire more
than 10% of the outstanding voting securities of any one issuer.
2. Purchase any securities which would cause 25% or more of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities.
3. Borrow money except as stated in the prospectus and this SAI. Any such
borrowing will be made only if immediately thereafter there is an asset coverage
of at least 300% of all borrowings. The Fund also may not pledge, mortgage or
hypothecate assets except to secure borrowings permitted by the Fund's
fundamental limitation on borrowing.
4. Make loans except that the Fund may (i) purchase or hold debt instruments
in accordance with its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) lend its securities.
5. Purchase or sell real estate, physical commodities, or commodities
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.
6
6. Issue senior securities (as defined in the 1940 Act) except as permitted by
rule, regulation or order of the Securities and Exchange Commission (the "SEC")
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.
7. Purchase securities on margin, participate on a joint or joint and several
basis in any securities trading account, or underwrite securities. The foregoing
shall not preclude the Fund from obtaining such short-term credit as may be
necessary for clearance of purchases and sales of its portfolio securities.
The foregoing percentages (other than the limitation on borrowing) will apply at
the time of the purchase of a security and shall not be considered violated
unless an excess or deficiency occurs immediately after or as a result of a
purchase of such security. These investment limitations are fundamental policies
of the Trust and may not be changed without shareholder approval.
NON-FUNDAMENTAL POLICIES
The Fund may not:
1. Invest in companies for the purpose of exercising control.
2. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or an order of exemption therefrom.
3. Purchase or hold securities that are illiquid, or are otherwise not readily
marketable, i.e., securities that cannot be disposed of for their approximate
carrying value in seven days or less (which term includes repurchase agreements
and time deposits maturing in more than seven days) if, in the aggregate, more
than 15% of its net assets would be invested in illiquid securities.
4. With respect to fundamental investment restriction 3 above, the Fund will
not purchase portfolio securities while outstanding borrowings exceed 5% of its
assets.
Each of the foregoing percentage limitations apply at the time of purchase. If,
subsequent to the Fund's purchase of an illiquid security, more than 15% of the
Fund's net assets are invested in illiquid securities because of changes in
valuations, the Fund will, within a reasonable time, dispose of a portion of
such holding so that the above set-forth limit will not be exceeded. These
limitations are non-fundamental and may be changed by the Board without a vote
of shareholders.
RISK CONSIDERATIONS
The prospectuses of the Fund show the principal strategy and risks of investing
in the Fund. This Statement of Additional Information shows additional
strategies and risks of the Fund that an investor should also consider.
FOREIGN SECURITIES
The Fund may purchase securities issued by governments of foreign countries and
companies domiciled in, or deriving a significant portion of their revenue or
income from, foreign countries. Accordingly, shareholders should consider
carefully the substantial additional risks involved in investing in these
securities. Foreign investments involve the possibility of taxation of income
7
earned in foreign nations (including, for example, withholding taxes on interest
and dividends) or other taxes imposed with respect to investments in foreign
nations; foreign exchange controls (which may include suspension of the ability
to transfer currency from a given country and repatriation of investments);
default in foreign government securities, and political or social instability or
diplomatic developments that could adversely affect investments. In addition,
there is often less publicly available information about foreign issuers than
those in the United States. Further, the Fund may encounter difficulties in
pursuing legal remedies or in obtaining judgments in foreign courts.
Brokerage commissions, fees for custodial services and other costs relating to
investments by the Fund in other countries are generally greater than in the
United States. Foreign markets have different clearance and settlement
procedures from those in the United States, and certain markets have experienced
times when settlements did not keep pace with the volume of securities
transactions, which resulted in settlement difficulty. The inability of the Fund
to make intended security purchases due to settlement difficulties could cause
it to miss attractive investment opportunities. Any delay in selling a portfolio
security due to settlement problems could result in loss to the Fund if the
value of the portfolio security declined, or result in claims against the Fund
if it had entered into a contract to sell the security. The securities markets
of many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
Because certain securities may be denominated in foreign currencies, the value
of which will be affected by changes in currency exchange rates and exchange
control regulations, and costs will be incurred in connection with conversions
between currencies. A change in the value of a foreign currency against the U.S.
dollar will result in a corresponding change in the U.S. dollar value of the
Fund's securities denominated in the currency. Such changes also affect the
Fund's income and distributions to shareholders. The Fund may be affected either
favorably or unfavorably by changes in the relative rates of exchange among the
currencies of different nations, and the Fund may therefore engage in foreign
currency hedging strategies. Such strategies, however, involve certain
transaction costs and investment risks, including dependence upon the Investment
Advisor's ability to predict movements in exchange rates.
Some countries in which the Fund may invest may also have fixed or managed
currencies that are not freely convertible at market rates into the U.S. dollar.
Certain currencies may not be internationally traded. A number of these
currencies have experienced steady devaluation relative to the U.S. dollar, and
such devaluations in the currencies may have a detrimental impact on the Fund.
Many countries in which the Fund may invest have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuation in inflation rates may have negative effects on certain
economies and securities markets. Moreover, the economies of some countries may
differ favorably or unfavorably from the U.S. economy in such respects as the
rate of growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments. Certain
countries also limit the amount of foreign capital that can be invested in their
markets and local companies, creating a "foreign premium" on capital investments
available to foreign investors such as the Fund. The Fund may pay a "foreign
premium" to establish an investment position which it cannot later recoup
because of changes in that country's foreign investment laws.
EXCHANGE RATES AND POLICIES
The Fund may endeavor to buy and sell foreign currencies on favorable terms.
Some price spreads on currency exchange (to cover service charges) may be
incurred, particularly when the
8
Fund changes investments from one country to another or when proceeds from the
sale of shares in U.S. dollars are used for the purchase of securities in
foreign countries. Also, some countries may adopt policies which would prevent
the Fund from repatriating invested capital and dividends, withhold portions of
interest and dividends at the source, or impose other taxes, with respect to the
Fund's investments in securities of issuers of that country. There also is the
possibility of expropriation, nationalization, confiscatory or other taxation,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability, or diplomatic developments that
could adversely affect investments in securities of issuers in those nations.
The Fund may be affected either favorably or unfavorably by fluctuations in the
relative rates of exchange between the currencies of different nations, exchange
control regulations and indigenous economic and political developments.
The Investment Advisor considers at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions that would
affect the liquidity of the Fund's assets maintained with custodians in foreign
countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Investment Advisor also
considers the degree of risk attendant to holding portfolio securities in
domestic and foreign securities depositories.
DEBT
The market value of debt securities that are interest rate sensitive is
inversely related to changes in interest rates. That is, an interest rate
decline produces an increase in a security's market value and an interest rate
increase produces a decrease in value. The longer the remaining maturity of a
security, the greater the effect of interest rate changes. Changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of its creditworthiness also affect the market value of that
issuer's debt securities. Investors also should recognize that, in periods of
declining interest rates, the Fund's returns will tend to be somewhat higher
than prevailing market rates, and in periods of rising interest rates, the
Fund's returns will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to the Fund from the continuous sale of its
shares will likely be invested in portfolio instruments producing lower yields
than the balance of the portfolios, thereby reducing the Fund's current returns.
In periods of rising interest rates, the opposite can be expected to occur.
The value of commercial paper and other securities in the Fund's portfolios may
be adversely affected by the inability of the issuers (or related supporting
institutions) to make principal or interest payments on the obligations in a
timely manner.
The Fund's performance also may be affected by changes in market or economic
conditions and other circumstances affecting the financial services industry.
Government regulation of banks, savings and loan associations, and finance
companies may limit both the amounts and types of loans and other financial
commitments these entities can make and the interest rates and fees they can
charge. The profitability of the financial services industry, which is largely
dependent on the availability and, cost of capital funds, has fluctuated in
response to volatility in interest rate levels. In addition, the financial
services industry is subject to risks resulting from general economic conditions
and the potential exposure to credit losses.
9
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their principal occupations during the
past five years, and their affiliations, if any, with City National Asset
Management, Inc. ("CNAM" or the "Investment Manager"), the investment manager to
the Fund, set forth below. The persons listed below may have held other
positions with their employers named below during the relevant period. Certain
officers of the Trust also serve as officers to one or more mutual funds for
which SEI Investments or its affiliates act as investment manager, administrator
or distributor.
Name Age Position Principal Occupation for the
with the Past Five Years
Trust
- ------------------------------------------------------------------------------------------
Irwin G. Barnet, Esq.# 62 Trustee An attorney and a principal
Crosby, Heafey, Roach & May, P.C. (September, 2000-Present); an
1901 Avenue of the Stars, Suite 700 attorney and principal of
Los Angeles, California 90067 Sanders, Barnet, Goldman,
Simons & Mosk, a law
firm prior to
September, 2000.
Maria D. Hummer, Esq.* 56 Trustee An attorney with Manatt,
Manatt, Phelps & Phillips, LLP Phelps & Phillips and Chair of
11355 West Olympic Boulevard the Land Use Section of that
Los Angeles, California 90064 law firm.
Victor Meschures, CPA 62 Trustee A Certified Public Accountant
Meschures, Campeas, Thompson, with Meschures, Campeas,
Snyder and Pariser, LLP Thompson, Snyder and Pariser,
760 North La Cienega Boulevard LLP, an accounting firm.
Los Angeles, California 90069
William R. Sweet 63 Trustee Retired; Executive Vice
81 Tiburon Road President, Union Bank of
Tiburon, California 94920 California (1985-1996).
James R. Wolford 46 Trustee Senior Vice President and
Forecast Commercial Real Estate Chief Operating Officer
Service, Inc. (2000-Present); Senior Vice
3602 Inland Empire Blvd. President and Chief Financial
Suite A-105 Officer, Bixby Ranch Company,
Ontario, CA 91764 a real estate company
(1994-2000).
10
Name Age Position Principal Occupation for the
with the Past Five Years
Trust
- ------------------------------------------------------------------------------------------
Vernon C. Kozlen 56 President Chairman, CNAM (2001-Present);
City National Bank and Chief Executive Vice President and
400 N. Roxbury Drive Executive Division Manager of CNB
Beverly Hills, CA 90210 Officer (1996-Present); First
Interstate Bank, Executive
Vice President of Trust and
Private Client Services
(1985-1996).
Jeffrey Fries 39 Controller Director, Fund Accounting and
SEI Investments and Chief Administration, of the
One Freedom Valley Drive Operating Administrator (1997-Present),
Oaks, Pennsylvania 19456 Officer Vice President, Smith Barney
Corporate Trust Company
(1991-1997)
Lydia A. Gavalis, Esq. 34 Vice Vice President and Assistant
SEI Investments President Secretary of the Administrator
One Freedom Valley Drive and and the Distributor
Oaks, Pennsylvania 19456 Assistant (1998-Present); Assistant
Secretary General Counsel and Director
of Arbitration, Philadelphia
Stock Exchange (1989-1998).
Richard A. Weiss 40 Vice President, CNAM
City National Bank President (2001-Present); Senior Vice
400 N. Roxbury Drive and President and Chief Investment
Beverly Hills, CA 90210 Assistant Officer of the CNB
Secretary (1999-Present); Sanwa Bank
California, Executive Vice
President and Chief Investment
Officer (1994-1999).
Timothy D. Barto 32 Vice Vice President and Assistant
SEI Investments President Secretary of the Administrator
One Freedom Valley Drive and (1999-Present), Associate,
Oaks, Pennsylvania 19456 Assistant Dechert, Price & Rhoads
Secretary (1997-1999), Associate,
Richter, Miller & Finn
(1994-1997).
William E. Zitelli, Jr. 32 Vice Vice President and Assistant
SEI Investments President Secretary of the Administrator
One Freedom Valley Drive and and Distributor
Oaks, Pennsylvania 19456 Secretary (2000-Present); Vice
President, Merrill Lynch &
Co., Asset Management Group
(1998-2000); Associate, Pepper
Hamilton LLP (1997-1998);
Associate, Reboul, MacMurray,
Hewitt, Maynard & Kristol
(1994-1997)
11
Name Age Position Principal Occupation for the
with the Past Five Years
Trust
- ------------------------------------------------------------------------------------------
Christine M. McCullough 40 Vice Vice President and Assistant
SEI Investments President Secretary of the Administrator
One Freedom Valley Drive and and the Distributor
Oaks, Pennsylvania 19456 Assistant (1995-Present).
Secretary
Sherry Kajdan Vetterlein 38 Vice Vice President and Assistant
SEI Investments President Secretary of the Administrator
One Freedom Valley Drive and and Distributor (January
Oaks, PA 19456 Assistant 2001-Present);
Secretary Shareholder/Partner, Buchanan
Ingersoll Professional
Corporation (1992-2000).
Rodney J. Olea 35 Vice Senior Vice President, CNAM
City National Bank President (2001-Present); Senior Vice
400 N. Roxbury Drive and President and Director of
Beverly Hills, CA 90210 Assistant Fixed Income of CNB
Secretary (1994-Present).
Todd Cipperman 34 Vice Senior Vice President, General
SEI Investments President Counsel and Assistant
One Freedom Valley Drive and Secretary of the Administrator
Oaks, Pennsylvania 19456 Assistant and the Distributor
Secretary (2000-Present), Vice
President and
Assistant Secretary of
the Administrator and
Distributor
(1995-2000);
Associate, Dewey
Ballantine
(1994-1995).
# This Trustee's firm provided limited tax-related legal services to a trust of
which CNB is trustee. The compensation for these services did not exceed $5,000.
* This Trustee is considered an interested person of the Trust as defined in
Section 2(a)(19) of the 1940 Act.
12
The following table sets forth Trustee compensation for the fiscal period from
November 1, 1999 through September 30, 2000.
- ----------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation Total Compensation From
From Registrant during Registrant and Fund
fiscal period ended Complex Paid to Trustees
Sept. 30, 2000* during fiscal period
ended Sept. 30, 2000*
- -----------------------------------------------------------------------------------
Irwin G. Barnet
Trustee $7,750 $7,750
Maria D. Hummer **
Trustee $0 $0
Victor Meschures
Trustee $7,750 $7,750
William R. Sweet
Trustee $7,750 $7,750
James R. Wolford
Trustee $7,750 $7,750
- ----------
* For the fiscal year ending September 30, 2001, aggregate compensation from the
Trust and total compensation from Fund and Fund Complex paid to Trustees is
expected to be $15,000.
** This Trustee is considered an interested person of the Trust and her
Compensation is paid by City National Bank and not by the Trust.
For the fiscal year ended June 30, 2000, trustees fees and expenses in the
amount of $3,695 were paid by the Predecessor Fund to each trustee of
Professionally Managed Portfolios.
INVESTMENT MANAGER
The Trust and the predecessor to CNAM entered into an Investment Management
Agreement (the "Management Agreement") dated as of April 1, 1999 regarding the
Trust. The Management Agreement was effective as to the Fund subsequent to that
date. On May 10, 2001, the Board of Trustees of the Trust approved CNAM as the
new investment manager to the Funds. This change became effective May 10, 2001.
The Management Agreement between CNB and the CNI Charter Funds, and the
obligations contained in the Management Agreement, have been assumed by CNAM.
CNAM employs the same investment personnel that managed the Funds under CNB and
the management and control of CNAM, as well as the services provided, remain the
same. The Investment Manager provides a continuous investment program of general
investment and economic advice regarding the Fund's investment strategies,
manages the Fund's investment portfolio and provides other services necessary to
the operation of the Fund and the Trust. CNB, founded in the early 1950s, is a
federally chartered commercial bank with approximately $18.5 billion in assets
as of June 30, 2001. CNB is a wholly-owned subsidiary of City National
Corporation ("CNC"), a New York Stock Exchange listed company.
13
The fees payable under the Management Agreement, and any fee waiver or expense
reimbursement arrangements, with respect to the Fund are described in the Fund's
prospectuses.
The Management Agreement provides that the Investment Manager shall not be
liable for any error of judgement or mistake of law or for any loss suffered by
the Trust in connection with the matters to which the Management Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Manager in the performance of its
duties or from reckless disregard of its duties and obligations thereunder.
The Investment Management Agreement with respect to the Fund will be in effect
for a two-year term (the "Initial Term") from its effective date, and thereafter
will continue in effect for one-year terms subject to annual approval (1) by the
vote of a majority of the Trustees or by the vote of a majority of the
outstanding voting securities of the Fund and (2) by the vote of a majority of
the Trustees who are not parties to the Management Agreement or an "interested
person" (as that term is defined in the Investment Company Act) of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Management Agreement may be terminated at any time upon 60 days'
notice by either party or by a majority vote of the outstanding shares of the
Fund, and shall terminate automatically upon its "assignment" (as such term is
defined in the Investment Company Act).
The Investment Manager provides the Fund with investment management services,
including the selection, appointment, and supervision of any sub-advisor to the
Fund.
The Investment Manager is obligated under the Management Agreement to pay the
excess of the Fund's operating expenses as disclosed in the applicable
Prospectus. The Investment Manager will not be required to bear expenses of any
Fund to an extent which would result in the Fund's inability to qualify as a
regulated investment company under provisions of the Internal Revenue Code. The
term "expenses" is defined in such laws or regulations, and generally excludes
brokerage commissions, distribution expenses, taxes, interest and extraordinary
expenses.
Any reductions made by the Investment Manager in its fees or reimbursement to
the Fund by the Investment Manager are subject to reimbursement by the Fund
within the following three years provided the Fund is able to effect such
reimbursement and remain in compliance with the foregoing expense limitations.
The Investment Manager generally intends to seek reimbursement for the oldest
reductions and waivers before payment by the Fund for fees and expenses for the
current year.
The Management Agreement was approved with respect to the Fund by the Board at a
duly called in-person meeting. In considering the Management Agreement, the
Trustees specifically considered the provision that permits the Investment
Manager to seek reimbursement of any reduction made to its management fee within
the three-year period. The Investment Manager's ability to request reimbursement
is subject to various conditions. First, any reimbursement is subject to the
Fund's ability to effect such reimbursement and remain in compliance with
applicable expense limitations in place at that time. Second, the Investment
Manager must specifically request the reimbursement from the Board. Third, the
Board must approve such reimbursement as appropriate and not inconsistent with
the best interests of the Fund and the shareholders at the time such
reimbursement is requested. Because of these substantial contingencies, the
potential reimbursements will be accounted for as contingent liabilities that
are not recordable on the balance sheet of the Fund until collection is
probable; but the full amount of the potential liability will appear in a
footnote to the Fund's financial statements. At such time as it appears probable
that the Fund is able to effect such reimbursement, that the Investment
14
Manager intends to seek such reimbursement and that the Board of Trustees has or
is likely to approve the payment of such reimbursement, the amount of the
reimbursement will be accrued as an expense of the Fund for that current period.
Under a similar arrangement with the Predecessor Fund, RCB has paid certain
excess operating expenses of the Predecessor Fund. The right to seek
reimbursement of such excess operating expenses will be carried over to the
Class R shares of the Fund.
The Investment Manager also may act as an investment adviser or administrator to
other persons, entities, and corporations, including other investment companies.
Please refer to the table above, which indicates officers and trustees who are
affiliated persons of the Trusts and who are also affiliated persons of the
Investment Manager.
The use of the name "CNI Charter" by the Trust is pursuant to the consent of the
Investment Manager, which may be withdrawn if the Investment Manager ceases to
be the investment manager of the Fund.
The Investment Manager's investment management fees are allocated among the
classes of the Fund according to the relative net asset values of the classes.
For the fiscal year ended June 30, 2000, the Predecessor Fund accrued advisory
fees owed to RCB of $33,384, all of which were waived by RCB. For the same
period, RCB reimbursed the Predecessor Fund an additional $45,525 in expenses.
For the period of September 30, 1998 through June 30, 1999, the Predecessor Fund
accrued advisory fees owed to RCB of $9,180, all of which were waived by RCB.
For the same period, RCB reimbursed the Predecessor Fund an additional $59,145
in expenses.
INVESTMENT ADVISOR
Reed, Conner & Birdwell, LLC (the "Investment Advisor" or "RCB"), has entered
into a sub-advisory agreement (the "Investment Advisory Agreement") with the
Investment Manager. Pursuant to this Investment Advisory Agreement, RCB serves
as discretionary investment adviser to the Fund. The Investment Advisory
Agreement provides that the Investment Advisor shall not be protected against
any liability to the Trust or its shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from the reckless disregard of its obligations or duties thereunder.
The continuance of the Investment Advisory Agreement with respect to the Fund
after its initial two year term must be specifically approved at least annually
(1) by the vote of a majority of the outstanding shares of the Fund or by the
Trustees, and (2) by the vote of a majority of the Trustees who are not parties
to the Investment Advisory Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreement will terminate automatically in the
event of its assignment or in the event that the Trust or the Fund terminates,
and is terminable at any time without penalty by the Trustees of the Trust or,
with respect to the Fund, by a majority of the outstanding shares of the Fund,
on not less than 60 days' written notice to the Investment Advisor, or by the
Investment Advisor on not less than 60 days' written notice to the Trust.
The Investment Advisor is entitled to a fee for its investment advisory services
to be paid by CNAM, which is accrued daily and paid monthly at the annual rate
of 0.85% of the average daily net assets of the Fund.
15
RCB is a wholly owned subsidiary of CNB's parent, City National Corporation. RCB
and its predecessor have been engaged in the investment advisory business for
over forty years. As of June 30, 2001, RCB had assets under management of
approximately $1.2 billion. The principal business address of RCB is 11111 Santa
Monica Blvd., Ste. 1700, Los Angeles, California 90025.
The use of the name "RCB" by the Trust is pursuant to the consent of the
Investment Advisor, which may be withdrawn if the Investment Advisor ceases to
be the Investment Advisor of the Fund.
ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). Under
the Administration Agreement, the Administrator provides the Trust with
administrative services, fund accounting, regulatory reporting, necessary office
space, equipment, personnel, compensation and facilities.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of three years
after the effective date of the agreement and shall continue in effect for
successive renewal terms of two (2) years each, unless terminated by mutual
agreement, by either party on not less than 60 days' prior written notice to the
other party, upon the liquidation of the Fund, upon the liquidation of the
Administrator, or upon 45 days written notice following an uncured material
breach.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.25% of the average daily net assets of the Fund.
The Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's shares. Any such
waiver is voluntary and may be terminated at any time in the Administrator's
sole discretion.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds including, but without
limitation: The Advisors' Inner Circle Fund, Alpha Select Funds, Amerindo Funds
Inc., The Arbor Fund, ARK Funds, Armada Funds, The Armada Advantage Fund, Bishop
Street Funds, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., First Omaha Funds,
Inc., Friends Ivory Funds, HighMark Funds, Huntington Funds, Huntington VA
Funds, Johnson Family Funds, Inc., The MDL Funds, The Nevis Funds, Oak
Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, Pitcairn Funds, SEI Asset Allocation Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI
Classic Variable Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. and UAM
Funds, Inc. II.
16
Pursuant to a sub-administration agreement between the Administrator and CNB,
CNB will perform services which may include clerical, bookkeeping, accounting,
stenographic and administrative services, for which it will receive a fee, paid
by the Administrator, at the annual rate of up to 0.075% of the Fund's average
daily net assets.
For the fiscal year ended June 30, 2000 and the period September 30, 1998
through June 30, 1999, the administrator to the Predecessor Fund received fees
from the Predecessor Fund of $30,000 and $22,356, respectively.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") with respect to shares of the Fund. The Distribution
Agreement shall remain in effect for a period of two years after the effective
date of the Distribution Agreement and is renewable annually. The Distribution
Agreement may be terminated by the Distributor, by a majority vote of the
Trustees who are not interested persons and have no financial interest in the
Distribution Agreement or by a majority vote of the outstanding securities of
the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor. The Distributor receives distribution fees
pursuant to the Distribution Plan of the Trust discussed below, and expects to
reallow substantially all of the fees to broker-dealers and service providers,
including the Investment Manager and its affiliates, that provide
distribution-related services. The Distributor receives distribution fees
pursuant to the Distribution Plan on behalf of Class A and Class R shares of the
Fund and expects to reallow substantially all of the fees to broker-dealers and
service providers, including CNB and its affiliates, that provide
distribution-related services.
TRANSFER AGENT
Pursuant to a Transfer Agency Agreement, SEI Investments Fund Management,
located at 530 East Swedesford Road, Wayne, Pennsylvania 19087 (the "Transfer
Agent"), serves as transfer agent for the Fund.
CUSTODIAN
Pursuant to a Custodian Agreement, First Union National Bank, located at 530
Walnut Street, Philadelphia, PA 19101, serves as the Custodian (the "Custodian")
of the Fund's assets.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
The Trust's independent auditors, KPMG LLP, audit and report on the annual
financial statements of the Fund and review the Fund's federal income tax
returns. KPMG LLP may also perform other professional accounting, auditing, tax,
and advisory services when engaged to do so by the Trust. Shareholders will be
sent audited annual and unaudited semi-annual financial statements of the Fund,
when available. The address of KPMG LLP is 355 South Grand Avenue, Los Angeles,
California 90071.
LEGAL COUNSEL
The validity of the shares of beneficial interest offered hereby will be passed
upon by Paul, Hastings, Janofsky & Walker LLP, 345 California Street, Suite
2900, San Francisco, California 94104.
17
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to: pursue the objectives of
the Fund; invest money obtained from the sale of the Fund's shares; reinvest
proceeds from maturing, or the sale of portfolio securities; and meet
redemptions of the Fund's shares. Portfolio transactions may increase or
decrease the return of the Fund depending upon management's ability correctly to
time and execute them.
Pursuant to the Investment Advisory Agreement, the Investment Advisor determines
which securities are to be purchased and sold by the Fund and selects the
broker-dealers to execute the Fund's portfolio transactions. Purchases and sales
of securities in the over-the-counter market will generally be executed directly
with a "market-maker" unless, in the opinion of the Investment Advisor, a better
price and execution can otherwise be obtained by using a broker for the
transaction.
Purchases of portfolio securities for the Fund also may be made directly from
issuers or from underwriters. Where possible, purchase and sale transactions
will be effected through dealers (including banks) which specialize in the types
of securities which the Fund will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own accounts. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter that has provided research or other services as discussed
below.
In placing portfolio transactions, the Investment Advisor will use reasonable
efforts to choose broker-dealers capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers that furnish or supply trading services, research
products and statistical information to the Investment Advisor that the
Investment Advisor may lawfully and appropriately use in its investment advisory
capacities, as well as provide other services in addition to execution services.
The Investment Advisor considers such services, products and information, which
are in addition to and not in lieu of the services required to be performed by
it under its Investment Advisory Agreement with the Fund, to be useful in
varying degrees, but not necessarily capable of definite valuation.
The Investment Advisor may select a broker-dealer that furnishes such services,
products and information even if the specific services are not directly useful
to the Fund and may be useful to the Investment Advisor in advising other
clients. In negotiating commissions with a broker or evaluating the spread to be
paid to a dealer, the Fund may therefore pay a higher commission or spread than
would be the case if no weight were given to the furnishing of these
supplemental services, provided that the amount of such commission or spread has
been determined in good faith by the Investment Advisor to be reasonable in
relation to the value of the brokerage and/or research services provided by such
broker-dealer. The standard of reasonableness is to be measured in light of the
Investment Advisor's overall responsibilities to the Fund. Products, services
and informational items may be provided directly to the Investment Advisor by
the broker or may be provided by third parties but paid for directly or
indirectly by the broker.
18
In some cases, brokers will pay for all of or a portion of products that can be
or are used for both trading and research and administrative (i.e.,
non-trading/non-research) purposes. Typical of these types of products and
services are computer hardware systems, computer software, employee education,
communication equipment, special communication lines, news services and other
products and services which provide appropriate assistance to the Advisor in the
performance of its investment decision-making, but could also be used for
administrative purposes. In these cases, the Investment Advisor allocates the
research portion payable by the broker based on usage. For instance, the
Investment Advisor believes that its computer systems and software serve an
important research and account management function; however, its computer system
is also used for administrative purposes. On an ongoing basis, the Investment
Advisor allocates the administrative portion of the expenses to be paid directly
the Investment Advisor and the research portion to be paid by brokers who
execute security transaction for the Investment Advisor. Since this allocation
of cost between research and non-research functions is determined solely by the
Investment Advisor, a conflict of interest may exist in its calculation.
Investment decisions for the Fund are made independently from those of other
client accounts or mutual funds managed or advised by the Investment Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts or mutual
funds. In such event, the position of the Fund and such client account(s) or
mutual funds in the same issuer may vary and the length of time that each may
choose to hold its investment in the same issuer may likewise vary. However, to
the extent any of these client accounts or mutual funds seeks to acquire the
same security as the Fund at the same time, the Fund may not be able to acquire
as large a portion of such security as it desires, or it may have to pay a
higher price or obtain a lower yield for such security. Similarly, the Fund may
not be able to obtain as high a price for, or as large an execution of, an order
to sell any particular security at the same time. If one or more of such client
accounts or mutual funds simultaneously purchases or sells the same security
that the Fund is purchasing or selling, each day's transactions in such security
will be allocated between the Fund and all such client accounts or mutual funds
in a manner deemed equitable by the Investment Advisor, taking into account the
respective sizes of the accounts and the amount being purchased or sold. It is
recognized that in some cases this system could have a detrimental effect on the
price or value of the security insofar as the Fund is concerned. In other cases,
however, it is believed that the ability of the Fund to participate in volume
transactions may produce better executions for the Fund.
The Fund does not effect securities transactions through brokers solely for
selling shares of the Fund, although the Fund may consider the sale of shares as
a factor in allocating brokerage. However, broker-dealers who execute brokerage
transactions may effect purchase of shares of the Fund for their customers. The
Fund does not use the Distributor to execute its portfolio transactions.
For the fiscal year ended June 30, 2000 and the period September 30, 1998
through June 30, 1999, the Predecessor Fund paid $13,062 and $9,365,
respectively, in brokerage commissions, none of which was paid to affiliated
brokers.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund receives income in the form of dividends and interest earned on its
investments in securities. This income, less the expenses incurred in its
operations, is the Fund's net investment
19
income, substantially all of which will be declared as dividends and paid to the
Fund's shareholders.
The amount of ordinary income dividend payments by the Fund is dependent upon
the amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed or minimum rate of return on
an investment in its shares.
The Fund also may derive capital gains or losses in connection with sales or
other dispositions of its portfolio securities. Any net gain the Fund may
realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held for the period required for
long-term capital gain or loss recognition or otherwise producing long-term
capital gains and losses, the Fund will have a net long-term capital gain. After
deduction of the amount of any net short-term capital loss, the balance (to the
extent not offset by any capital losses carried over from the eight previous
taxable years) will be distributed and treated as long-term capital gains in the
hands of the shareholders regardless of the length of time the Fund's shares may
have been held by the shareholders.
The maximum long-term federal capital gains rate for individuals is 20% with
respect to capital assets held for more than 12 months, and 18% with respect to
capital assets acquired after December 31, 2000 and held for more than 5 years.
The maximum capital gains rate for corporate shareholders is the same as the
maximum tax rate for ordinary income.
Any dividend or distribution per share paid by the Fund reduces the Fund's net
asset value per share on the date paid by the amount of the dividend or
distribution per share. Accordingly, a dividend or distribution paid shortly
after a purchase of shares by a shareholder would represent, in substance, a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes.
Dividends and other distributions will be reinvested in additional shares of the
applicable Fund unless the shareholder has otherwise indicated. Investors have
the right to change their elections with respect to the reinvestment of
dividends and distributions by notifying the Transfer Agent in writing, but any
such change will be effective only as to dividends and other distributions for
which the record date is seven or more business days after the Transfer Agent
has received the written request.
FEDERAL INCOME TAXES
It is the policy of the Fund to qualify for taxation, and to elect to be taxed,
as a "regulated investment company" by meeting the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). In order to so
qualify, the Fund will distribute each year substantially all of its investment
company taxable income (if any) and its net exempt-interest income (if any), and
will seek to distribute each year substantially all of its net capital gains (if
any) and meet certain other requirements. Such qualification relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed. By following this policy, the Fund expects to eliminate or reduce
to a nominal amount the federal income tax to which it is subject.
20
In order to qualify as a regulated investment company, the Fund must, among
other things, annually (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies, and
(2) diversify its holdings so that at the end of each quarter of its taxable
years (i) at least 50% of the market value of the Fund's total assets is
represented by cash or cash items (including receivables), U.S. Government
securities, securities of other regulated investment companies and other
securities limited, in respect of any one issuer, to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of the Fund's
total assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies) or
of two or more issuers that the Fund controls, within the meaning of the Code,
and that are engaged in the same, similar or related trades or businesses. If
the Fund qualifies as a regulated investment company, it will not be subject to
federal income tax on the part of its net investment income and net realized
capital gains, if any, which it distributes to shareholders, provided that the
Fund meets certain minimum distribution requirements. To comply with these
requirements, the Fund must distribute annually at least (1) 90% of "investment
company taxable income" (as that term is defined in the Code), and (2) 90% of
the excess of (i) tax exempt interest income over (ii) certain deductions
attributable to that income (with certain exceptions), for its taxable years.
The Fund intends to make sufficient distributions to shareholders to meet these
requirements.
If the Fund fails to distribute in a calendar year (regardless of whether it has
a non-calendar taxable year) at least 98 percent of its (1) ordinary income for
such year; and (2) capital gain net income for the one-year period ending on
October 31 of that calendar year (or later if the Fund is permitted to elect and
so elects), plus any undistributed ordinary income or capital gain from the
prior year, the Fund will be subject to a nondeductible 4% excise tax on the
undistributed amounts. The Fund intends generally to make distributions
sufficient to avoid imposition of this excise tax.
Any distributions declared by the Fund in October, November, or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year declared. The Fund may adjust its schedule for the
reinvestment of distributions for the month of December to assist in complying
with the reporting and minimum distribution requirements of the Code.
Any distributions by the Fund of long-term capital gain will be taxable to a
shareholder as long-term capital gain, regardless of how long a shareholder has
held Fund shares.
The Fund may engage in investment techniques that may alter the timing and
character of the Fund's income. The Fund may be restricted in its use of these
techniques by rules relating to qualifying as a regulated investment company.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder (1) who fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) who provides an incorrect taxpayer identification number; (3) who
is subject to withholding for failure to properly report to the Internal Revenue
Service (the "IRS") all payments of interest or dividends; or (4) who fails to
provide a certified statement that he or she is not subject to "backup
withholding." This "backup
21
withholding" is not an additional tax and any amounts withheld may be credited
against the shareholder's ultimate U.S. tax liability.
Distributions of net investment income and net realized capital gains by the
Fund will be taxable to shareholders whether made in cash or reinvested in
shares. In determining amounts of net realized capital gains to be distributed,
any capital loss carryovers from the eight prior taxable years will be applied
against capital gains. Shareholders receiving 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 of the Fund on the
reinvestment date. Fund distributions also will be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
The Fund may receive dividend distributions from U.S. corporations. To the
extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
The Fund may from time to time use "equalization accounting" in determining the
portion of its net investment income and/or capital gains that has been
distributed. If the Fund elects to use equalization accounting, it will allocate
a portion of its net investment income and/or realized capital gains to
redemptions of Fund shares which will reduce the amount of such income and
capital gains that the Fund is required to distribute under the distribution
requirements of the Code. The IRS has not published clear guidance concerning
the methods to be used in allocating investment income and capital gains to the
redemption of shares. In the event the IRS determines that the Fund is using an
improper method of allocation and that it has under-distributed its net
investment income and/or capital gains for any taxable year, the Fund may be
liable for additional federal income tax, interest and penalties. This
additional tax, interest and penalties could be substantial. In addition,
shareholders of the Fund at the time of such determination may receive an
additional distribution of net investment income and/or capital gains.
If a shareholder sells his or her shares of the Fund within 6 months after the
shares have been purchased by the shareholder, and to the extent the shareholder
realizes a loss on the sale of the shares, the shareholder will not be able to
recognize such a loss to the extent that tax-exempt interest dividends have been
paid with respect to the shares. If a shareholder sells shares of his or her
Fund within 6 months after the shares have been purchased by the shareholder,
any losses realized by the shareholder on such a sale will be treated as
long-term capital losses to the extent that the shareholder has received a
long-term capital gain dividend distribution with respect to its shares of the
Fund.
If more than 50% in value of the total assets of the Fund at the end of its
fiscal year is invested in stock or other securities of foreign corporations,
the Fund may elect to pass through to its shareholders the pro rata share of all
foreign income taxes paid by the Fund. If this election is made, shareholders
will be (i) required to include in their gross income their pro rata shares of
any foreign income taxes paid by the Fund, and (ii) entitled either to deduct
their shares of such foreign taxes in computing their taxable income or to claim
a credit for such taxes against their U.S. income tax, subject to certain
limitations under the Code, including certain holding period requirements. In
this case, shareholders will be informed in writing by the Fund at the end of
each calendar year regarding the availability of any credits on and the amount
of foreign source income (including or excluding foreign income taxes paid by
the Fund) to be included in their income tax returns. If 50% or less in value of
the Fund's total assets at the end of its fiscal year
22
are invested in stock or other securities of foreign corporations, the Fund will
not be entitled under the Code to pass through to its shareholders their pro
rata shares of the foreign income taxes paid by the Fund. In this case, these
taxes will be taken as a deduction by the Fund.
The Fund may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations. The Fund may invest
up to 10% of its total assets in the stock of foreign investment companies. Such
companies are likely to be treated as "passive foreign investment companies"
("PFICs") under the Code. Certain other foreign corporations, not operated as
investment companies, may nevertheless satisfy the PFIC definition. A portion of
the income and gains that the Fund derives from PFIC stock may be subject to a
non-deductible federal income tax at the Fund level. In some cases, the Fund may
be able to avoid this tax by electing to be taxed currently on its share of the
PFIC's income, whether or not such income is actually distributed by the PFIC.
The Fund will endeavor to limit its exposure to the PFIC tax by investing in
PFICs only where the election to be taxed currently will be made. Because it is
not always possible to identify a foreign issuer as a PFIC in advance of making
the investment, the Fund may incur the PFIC tax in some instances.
The foregoing discussion relates only to federal income tax law as applicable to
U.S. citizens or residents. Foreign shareholders (i.e., nonresident alien
individuals and foreign corporations, partnerships, trusts and estates)
generally are subject to U.S. withholding tax at the rate of 30% (or a lower tax
treaty rate) on distributions derived from net investment income and short-term
capital gains. Distributions to foreign shareholders of long-term capital gains
and any gains from the sale or disposition of shares of the Fund generally are
not subject to U.S. taxation, unless the recipient is an individual who meets
the Code's definition of "resident alien." Different tax consequences may result
if the foreign shareholder is engaged in a trade or business within the U.S. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
Distributions by the Fund may also be subject to state, local and foreign taxes,
and their treatment under applicable tax laws may differ from the U.S. federal
income tax treatment.
The information above is only a summary of some of the tax considerations
generally affecting the Fund and its shareholders. No attempt has been made to
discuss individual tax consequences and this discussion should not be construed
as applicable to all shareholders' tax situations. Investors should consult
their own tax advisors to determine the suitability of the Fund and the
applicability of any state, local, or foreign taxation. Paul, Hastings, Janofsky
& Walker LLP has expressed no opinion in respect thereof. Foreign shareholders
should consider, in particular, the possible application of U.S. withholding
taxes on certain taxable distributions from the Fund at rates up to 30% (subject
to reduction under certain income tax treaties).
SHARE PRICE CALCULATION
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets,
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
In general, securities for which market quotations are readily available are
valued at current market value, and all other securities are valued at fair
value as determined in good faith by the Board of Trustees.
23
Securities listed on a securities exchange or an automated quotation system for
which quotations are readily available, including securities traded over the
counter, are valued at the last quoted sale price on the principal exchange on
which they are traded on the valuation date. If there is no such reported sale
on the valuation date, securities are valued at the most recent quoted bid
price.
Prices for securities traded on a securities exchange are provided daily by
recognized independent pricing agents. The reliability of the valuations
provided by the independent, third-party pricing agents are reviewed daily by
the Administrator.
These third-party pricing agents may employ methodologies, primarily regarding
debt securities, that utilize actual market transactions, broker-dealer supplied
valuations or other electronic data processing techniques. These techniques
generally consider such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific securities in arriving
at valuations. Debt obligations with remaining maturities of sixty days or less
may be valued at their amortized cost that approximates fair market value.
If a security price cannot be obtained from an independent, third-party pricing
agent, the Administrator obtains a bid price from an independent broker who
makes a market in the security. The Investment Advisor supplies the
Administrator with the appropriate broker contact, and to ensure independence
the Administrator obtains the quote directly from the broker each day.
Foreign securities owned in the Trust are valued at the closing prices (as
determined prior to the Fund's determination of NAV) on the principal exchange
on which they trade. The prices for foreign securities are reported in local
currency and converted to U.S. dollars using currency exchange rates. Exchange
rates are provided daily by recognized independent pricing agents.
Financial futures are valued at the settlement price established each day by the
board of exchange on which they are traded. Foreign currency forward contracts
are valued at the current day's interpolated foreign exchange rate, as
calculated using the current day's exchange rate, and the thirty, sixty, ninety
and one-hundred eighty day forward rates.
Valuation corrections are required where variations in NAV are the result of
mathematical mistakes, the misapplication of accounting principles, misjudgments
in the use of fact, and failure to reflect market information that was known or
should have been known. Valuation corrections require prospective actions, and
may require retroactive actions if the NAV variation is material. Valuation
corrections that require retroactive action will be reported to the Board of
Trustees.
The Administrator has primary operational responsibility for the operation of
the valuation process. The Administrator uses several systems to monitor the
pricing data supplied by various sources. These reports are reviewed daily. Any
identified discrepancies are researched and resolved in accordance with these
procedures. All discrepancies identified by the price flagging systems, and the
resolution and verification steps taken by the Administrator, are documented and
retained as part of the Trust's daily records.
To ensure that the independent broker continues to supply a reliable valuation,
at least once per week the Administrator provides the broker supplied value to
the Investment Advisor for review and approval. In addition, the Investment
Advisor will consult with the Administrator in the event of a pricing problem,
participate on the Fair Value Committee of the Board of Trustees, and shall
notify the Administrator in the event it discovers a pricing discrepancy. Under
no circumstances may the Investment Advisor determine the value of a portfolio
security outside of the established pricing framework.
24
If the value for a security cannot be determined pursuant to these procedures,
the Trust's Fair Value Committee will determine the security's value using Fair
Value Procedures established by the Board of Trustees.
DISTRIBUTION PLAN
The Trust has adopted a Distribution Plan (the "Plan") for the Class A and Class
R shares of the Fund in accordance with Rule 12b-1 under the 1940 Act, which
regulates circumstances under which an investment company may directly or
indirectly bear expenses relating to the distribution of its shares. In this
regard, the Board has determined that the Plan is in the best interests of the
shareholders. Continuance of the Plan must be approved annually by a majority of
the Trustees and by a majority of the Trustees who are not "interested persons"
of the Trust as that term is defined in the 1940 Act, and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related thereto ("Qualified Trustees"). The Plan may not be amended to increase
materially the amount that may be spent thereunder without approval by a
majority of the outstanding shares of the Fund or class affected. All material
amendments to the Plan will require approval by a majority of the Trustees and
of the Qualified Trustees.
The Plan adopted for the Class A and Class R shares provides that the Trust will
pay the Distributor a fee of 0.25% of the average daily net assets of the Fund's
Class A and Class R shares that the Distributor will use to compensate
broker-dealers and service providers, including CNB and its affiliates and
affiliates of the Distributor, that provide distribution-related services to the
Class A and the Class R shareholders or to their customers who beneficially own
the Class A or the Class R shares. The distribution fee for any given period is
not limited to the actual distribution expenses incurred, and the distribution
fee may exceed the distribution expenses actually incurred.
Payments may be made under the Plan for distribution services, including
reviewing of purchase and redemption orders, assisting in processing purchase,
exchange and redemption requests from customers, providing certain shareholder
communications requested by the Distributor, forwarding sales literature and
advertisements provided by the Distributor, and arranging for bank wires.
CNB and/or its affiliates may receive distribution fees from the Distributor in
return for providing certain distribution related services respecting Class A
and Class R shares of the Fund. The Investment Manager and Investment Advisor
also benefit from the distribution plan because of increased management fees
resulting from any increase in the net assets of the Fund due to distribution
efforts pursuant to the distribution plan. Except as described above, no
interested person of the Trust or any Trustee who is not an interested person of
the Trust has or had a direct or indirect financial interest in the operation of
the distribution plan or related agreements.
The Plan provides that the distribution fees paid by a particular class of the
Fund may only be used to pay for the distribution expenses of that class.
Distribution fees are accrued daily and paid monthly, and are charged as
expenses as accrued. Shares are not obligated under the Plan to pay any
distribution expense in excess of the distribution fee. Thus, if the Plan is
terminated or otherwise not continued, no amounts (other than current amounts
accrued but not yet paid) would be owed by the class to the Distributor.
The Board, when approving the establishment of the Plan, determined that there
are various anticipated benefits to the Class A and Class R shares of the Fund
from such establishment,
25
including the likelihood that the Plan will stimulate sales of shares and assist
in increasing the asset base of such shares in the face of competition from a
variety of financial products and the potential advantage to the holder of such
shares of prompt and significant growth of the asset base of the Trust,
including greater liquidity, more investment flexibility and achievement of
greater economies of scale. The Plan (and any distribution agreement between the
Fund, the Distributor, CNB and/or its affiliates and a selling agent with
respect to such shares) may be terminated without penalty upon at least 60-days'
notice by the Distributor or CNB, or by the Trust by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding shares (as
defined in the Investment Company Act) of the class to which the Plan applies.
All distribution fees paid by the Fund under the Plan will be paid in accordance
with Rule 2830 of the NASD Regulation, Inc. Rules of Conduct, as such Rule may
change from time to time. Pursuant to the Plan, the Trustees will review at
least quarterly a written report of the distribution fees incurred by the Fund.
In addition, as long as the Plan remains in effect, the selection and nomination
of Trustees who are not interested persons (as defined in the Investment Company
Act) of the Trust shall be made by the Independent Trustees.
For the fiscal year ended June 30, 2000, the Predecessor Fund paid $9,819 under
its distribution plan, of which $3,220 was paid for reimbursement of advertising
and marketing expenses, $2,651 was for reimbursement of printing, postage and
office expenses, $2,632 was paid out as selling compensation to dealers, and
$1,316 was for reimbursement of travel and entertainment expenses.
DEALER COMMISSIONS
The Distributor receives a sales charge on purchases of Class R shares of the
Fund, some or all of which is reallowed to retail dealers, as follows:
-----------------------------------------------------------
Your investment Dealer Commission as
--------------- a % of offering price
---------------------
-----------------------------------------------------------
Less than $50,000 3.25%
-----------------------------------------------------------
$50,000 but less than $100,000 2.75%
-----------------------------------------------------------
$100,000 but less than $200,000 2.25%
-----------------------------------------------------------
$200,000 but less than $300,000 1.75%
-----------------------------------------------------------
$300,000 but less than $400,000 1.25%
-----------------------------------------------------------
$400,000 but less than $500,000 0.27%
-----------------------------------------------------------
$500,000 or more None
-----------------------------------------------------------
SHAREHOLDER SERVICES AGREEMENT
CNB has entered into a Shareholder Services Agreement with the Trust. Pursuant
to the Shareholder Services Agreement, CNB will provide, or will arrange for
others to provide, certain specified shareholder services to shareholders of the
Fund. As compensation for the provision of such services, the Fund will pay CNB
a fee of 0.25% of the Fund's average daily net assets on an
26
annual basis, payable monthly. CNB may pay certain banks, trust companies,
broker-dealers, and other institutions, including affiliates of CNB (each a
"Participating Organization") out of the fees CNB receives from the Fund under
the Shareholder Services Agreement to the extent that the Participating
Organization performs shareholder servicing functions for the Fund with respect
to shares of the Fund owned from time to time by customers of the Participating
Organization. In certain cases, CNB may also pay a fee, out of its own resources
and not out of the service fee payable under the Shareholder Services Agreement,
to a Participating Organization for providing other administrative services to
its customers who invest in the Fund.
Pursuant to the Shareholder Services Agreement, CNB will provide or arrange with
a Participating Organization for the provision of the following shareholder
services: responding to shareholder inquiries; processing purchases and
redemptions of the Fund's shares, including reinvestment of dividends; assisting
shareholders in changing dividend options, account designations, and addresses;
transmitting proxy statements, annual reports, prospectuses, and other
correspondence from the Fund to shareholders (including, upon request, copies,
but not originals, of regular correspondence, confirmations, or regular
statements of account) where such shareholders hold shares of the Fund
registered in the name of CNB, a Participating Organization, or their nominees;
and providing such other information and assistance to shareholders as may be
reasonably requested by such shareholders.
CNB may also enter into agreements with Participating Organizations that process
substantial volumes of purchases and redemptions of shares of the Fund for its
customers. Under these arrangements, the Transfer Agent will ordinarily maintain
an omnibus account for a Participating Organization and the Participating
Organization will maintain sub-accounts for its customers for whom it processes
purchases and redemptions of shares. A Participating Organization may charge its
customers a fee, as agreed upon by the Participating Organization and the
customer, for the services it provides. Customers of participating Organizations
should read the Fund's Prospectus in conjunction with the service agreement and
other literature describing the services and related fees provided by the
Participating Organization to its customers prior to any purchase of shares.
PRINCIPAL HOLDERS OF SECURITIES
As of July 27, 2001, the following shareholders held of record the following
numbers of shares of the following classes of the Predecessor Fund. An asterisk
(*) denotes an account affiliated with the Predecessor Fund's investment
advisor, officers or trustees:
[Donaldson, Lufkin & Jenrette Securities Corp Mutual Fund Dept., Jersey City, NJ
07303 - 7.18%
Reed, Conner & Birdwell Money Purchase Plan*, Los Angeles, CA 90025 - 9.78%
The Winner Living Trust*, Manhattan Beach, CA 90266 - 9.87%
Timothy J. Rohner, Carlsbad, CA 92009 - 11.64%
John P. Smith Ira, Yonkers, NY 10710 - 9.12%
Robert Saffer, Brooklyn, NY 11215 - 7.57%
27
The officers and Trustees of the Trust, as a group, owned of record and
beneficially less than one percent of the outstanding voting securities of the
RCB Fund as of the Record Date. The officers, directors and employees of RCB, as
a group, owned of record and beneficially (directly or indirectly through a
retirement plan) less than one percent of the outstanding voting securities of
the RCB Fund.
EXPENSES
The Trust pays the expenses of its operations, including: the fees and expenses
of independent auditors, counsel and the custodian; the cost of reports and
notices to shareholders; the cost of calculating net asset value; registration
fees; the fees and expenses of qualifying the Trust and its shares for
distribution under federal and state securities laws; and membership dues in the
Investment Company Institute and, or other industry association membership dues.
In its role as investment manager, CNAM has agreed to limit its investment
management fees or reimburse the expenses of the various classes of the Fund as
described in the Fund's prospectuses.
GENERAL INFORMATION
The Trust was organized as a business trust under the laws of Delaware on
October 28, 1996 and may issue an unlimited number of shares of beneficial
interest or classes of shares in one or more separate series. The Trust is an
open-end management investment company registered under the 1940 Act. The Trust
currently offers shares of beneficial interest, $0.01 par value per share, in
various series. Each series offers two classes of shares (Class A and
Institutional Class), other than (a) the Prime Money Market Fund, the Government
Money Market Fund and the California Tax Exempt Money Market Fund, which also
offer Class S shares, and (b) the Fund, which also offers Class R shares.
Currently, the Trust offers shares of eleven series - the Fund described in this
SAI and the Large Cap Growth Equity Fund, the Large Cap Value Equity Fund, the
Technology Growth Fund, the Corporate Bond Fund, the Government Bond Fund, the
California Tax Exempt Bond Fund, the High Yield Bond Fund, the Prime Money
Market Fund, the Government Money Market Fund and the California Tax Exempt
Money Market Fund, which have their own Prospectuses and SAIs. The Board may
authorize the issuance of shares of additional series or classes of shares of
beneficial interest if it deems it desirable.
The Trust is generally not required to hold shareholder meetings. However, as
provided in its Agreement and Declaration of Trust of the Trust (the
"Declaration") and the Bylaws of the Trust (the "Bylaws"), shareholder meetings
may be called by the Trustees for the purpose as may be prescribed by law, the
Declaration or the Bylaws, or for the purpose of taking action upon any other
matter deemed by the Trustees to be necessary or desirable including changing
fundamental policies, electing or removing Trustees, or approving or amending an
investment advisory agreement. In addition, a Trustee may be removed by
shareholders at a special meeting called upon written request of shareholders
owning in the aggregate at least 10% of the outstanding shares of the Trust.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of his
or her successor or until death, resignation, declaration of bankruptcy or
incompetence by a court of competent jurisdiction, or removal by a majority vote
of the shares entitled to vote (as described below) or of a majority of the
Trustees. In accordance with the 1940 Act (1) the Trust will hold a shareholder
meeting for the election of trustees when less than a majority of the trustees
have been elected by shareholders, and (2) if, as a result of a vacancy in the
Board, less than two-thirds of the trustees have been elected by the
shareholders, that vacancy will be filled by a vote of the shareholders.
The Declaration provides that one-third of the shares entitled to vote shall be
a quorum for the transaction of business at a shareholders' meeting, except when
a larger quorum is required by
28
applicable law, by the Bylaws or by the Declaration, and except that where any
provision of law, of the Declaration, or of the Bylaws permits or requires that
(1) holders of any series shall vote as a series, then a majority of the
aggregate number of shares of that series entitled to vote shall be necessary to
constitute a quorum for the transaction of business by that series; or (2)
holders of any class shall vote as a class, then a majority of the aggregate
number of shares of that class entitled to vote shall be necessary to constitute
a quorum for the transaction of business by that class. Any lesser number shall
be sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. The Agreement and Declaration of Trust
specifically authorizes the Board of Trustees to terminate the Trust (or any of
its investment portfolios) by notice to the shareholders without shareholder
approval.
For further information, please refer to the registration statement and exhibits
for the Trust on file with the SEC in Washington, D.C. and available upon
payment of a copying fee. The statements in the Prospectuses and this Statement
of Additional Information concerning the contents of contracts or other
documents, copies of which are filed as exhibits to the registration statement,
are qualified by reference to such contracts or documents.
PERFORMANCE INFORMATION
As noted in the Prospectus, the Fund may, from time to time, quote various
performance figures in advertisements and other communications to illustrate its
past performance. Performance figures will be calculated separately for
different classes of shares.
Average Annual Total Return. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return for the Fund 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 "average annual total return" figures are computed according to a
formula prescribed by the SEC expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning of a
1-, 5- or 10-year period at the end of each
respective period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions and complete
redemption of the hypothetical investment at
the end of the measuring period.
The Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance
29
quotation should not be considered representative of the Fund's performance for
any specified period in the future. In addition, because performance will
fluctuate, it may not provide a basis for comparing an investment in the Fund
with certain bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing the Fund's performance with that of
other investment companies should give consideration to the quality and maturity
of the respective investment companies' portfolio securities.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's yield or total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's yield or total return may be in any future period.
The Predecessor Fund's average annual total return for the period from inception
of operations (September 30, 1998) through the fiscal year of the Predecessor
Fund ended June 30, 2000 was 30.31%. The Predecessor Fund's total return for the
fiscal year ended June 30, 2000 was -0.35%.
The above return figures include the maximum sales charge with respect to the
Fund's Class R shares of 3.50%. Certain fees and expenses of the Predecessor
Fund have been reimbursed during these periods. Accordingly, return figures are
higher than they would have been had such fees and expenses not been reimbursed.
PURCHASE AND REDEMPTION OF SHARES
Purchase and redemption of shares of the Fund may be made on days when the New
York Stock Exchange is open for business. Currently, the weekdays on which the
Trust is closed for business are: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Purchases and redemptions will be made in
full and fractional shares.
The Fund will accept investments in cash only in U.S. dollars. The Trust
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase order in-kind by making payment
in readily marketable securities chosen by the Fund and valued as they are for
purposes of computing the Fund's net asset values. However, the Trust has
elected to commit itself to pay in cash all requests for redemption by any
Shareholder of record, limited in amount with respect to each Shareholder during
any 90-day period to the lesser of: (1) $250,000, or (2) one percent of the net
asset value of the Fund at the beginning of such period. If payment is made in
securities, a shareholder may incur transaction expenses in converting these
securities into cash.
To minimize administrative costs, share certificates will not be issued. Records
of share ownership are maintained by the Transfer Agent.
The Fund may be required to withhold federal income tax at a rate of 31% (backup
withholding) from dividend payments, distributions, and redemption proceeds if a
shareholder fails to furnish the Fund with his/her certified social security or
tax identification number. The shareholder also must certify that the number is
correct and that he/she is not subject to backup withholding. The certification
is included as part of the share purchase application form. If the shareholder
does not have a social security number, he/she should indicate on the purchase
form that an application to obtain the number is pending. The Fund is required
to withhold taxes if a number is not delivered within seven days.
30
The Fund may suspend the right of redemption or postpone the date of payment
during any period when (1) trading on the New York Stock Exchange ("NYSE") is
restricted as determined by the SEC or the NYSE is closed for other than
weekends and holidays; (2) an emergency exists as determined by the SEC (upon
application by the Fund pursuant to Section 22(e) of the Investment Company Act)
making disposal of portfolio securities or valuation of net assets of the Fund
not reasonably practicable; or (3) for such other period as the SEC may permit
for the protection of the Fund's shareholders.
OTHER INFORMATION
The Prospectuses of the Fund and this SAI do not contain all the information
included in the Registration Statement filed with the SEC under the Securities
Act of 1933, as amended, with respect to the securities offered by the
Prospectuses. Certain portions of the Registration Statement have been omitted
from the Prospectuses and this SAI pursuant to the rules and regulations of the
SEC. The Registration Statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C. Copies of the Registration
Statements may be obtained from the SEC upon payment of the prescribed fee.
Statements contained in the Prospectuses or in this SAI as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which the Prospectuses and
this SAI form a part, each such statement being qualified in all respects by
such reference.
CODE OF ETHICS
The Trust, CNB, CNAM and the Distributor each have adopted a code of ethics
which contains policies on personal securities transactions by "access persons."
These policies comply in all material respects with the amendments to Rule 17j-1
under the 1940 Act as set forth in the SEC's August 20, 1999 adopting release.
Each code of ethics, among other things, permits access persons to invest in
certain securities, subject to various restrictions and requirements. More
specifically, each code of ethics either prohibits its access persons from
purchasing or selling securities that may be purchased or held by the Fund or
permits such access persons to purchase or sell such securities, subject to
certain restrictions intended to ensure that the Fund is treated fairly. For
purposes of a code of ethics, an access person means (i) a director, trustee or
officer of a fund or investment adviser; (ii) any employee of a fund or
investment adviser or sub-advisor (or any company in a control relationship to a
fund or investment adviser or sub-advisor) who, in connection with his or her
regular functions or duties, makes, participates in, or obtains information
about the purchase or sale of securities by a fund, or whose functions relate to
the making of any recommendations with respect to the purchase or sales; and
(iii) any natural person in a control relationship to a fund or investment
adviser who obtains information concerning recommendations made to a fund
regarding the purchase or sale of securities. Portfolio managers and other
persons who assist in the investment process are subject to additional
restrictions. The above restrictions do not apply to purchases or sales of
certain types of securities, including mutual fund shares, certain money market
instruments and certain U.S. Government securities. To facilitate enforcement,
the codes of ethics generally require that an access person, other than
"disinterested" Fund directors or trustees, submit reports to a designated
compliance person regarding transactions involving securities which are eligible
for purchase by the Fund. The codes of ethics for the Trust, CNB, CNAM and the
Distributor are on public file with, and are available from, the SEC.
31
FINANCIAL STATEMENTS
In 2000, the Trust changed its fiscal year-end from October 31 to September 30.
Audited financial statements for the period ended June 30, 2001 for the
Predecessor Fund, as contained in the Annual Report to Shareholders of the
Predecessor Fund for the fiscal year ending June 30, 2001, are available and are
incorporated herein by reference. There are no audited financial statements
currently available for the Fund because the Fund was not yet in operation as of
the end of the Trust's previous fiscal year, September 30, 2000.
32
APPENDIX A - 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".
A-1