Securities Act File No. 33-12213
Investment Company Act File No. 811-5037
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 25
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26
(Check appropriate box or boxes)
PROFESSIONALLY MANAGED PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
479 West 22nd Street
New York, NY 10011
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 633-9700
Steven J. Paggioli
Professionally Managed Portfolios
479 West 22nd Street
New York, NY 10011
(Name and Address of Agent for Service)
Copy to: Julie Allecta, Esq.
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA, 94104
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It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b)
__ On pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
__ On pursuant to paragraph (a)(1)
XX 75 days after filing pursuant to paragraph (a)(2)
__ On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
elected to register an indefinite number of shares of beneficial interest, no
par value. The most recent notice required by Rule 24f-2 was filed on October
25, 1995.
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CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
Part A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Expense
Table
Item 3. Financial Highlights................. N/A
Item 4. General Description of Registrant.... Investment
Objective,
Policies and
Risks;
Item 5. Management of the Fund............... Management
of the Fund
Item 5A Management's Discussion of Fund See Annual
Performance Reports to
Shareholders
Item 6. Capital Stock and Other Securities. . . Distributions
and Taxes;
How the
Fund's Per
Share Value
is Determined
Item 7. Purchase of Securities Being Offered . . How to Invest
in the Fund;
How the
Fund's Per
Share Value
is Determined
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Item 8. Redemption or Repurchase. . . . . . . . How to Redeem
an Investment
in the Fund
Item 9. Pending Legal Proceedings . . . . . . . N/A
Part B
Item 10. Cover Page ............................. Cover Page
Item 11. Table of Contents....................... Table of
Contents
Item 12. General Information and History . . . . The Trust;
General
Information
Item 13 Investment Objectives and Policies .... Investment
Objective and
Policies;
Investment
Restrictions;
Item 14. Management of the Fund................... Management
Item 15. Control Persons and Principal Holders
of Securities............................ Management
Item 16. Investment Advisory and Other Services.... Management
Item 17. Brokerage Allocation...................... Execution of
Portfolio
Transactions
Item 18. Capital Stock and Other Securities........ General
Information
Item 19. Purchase, Redemption and Pricing of
Shares Being Offered.............. Additional
Purchase &
Redemption
Information
Item 20. Tax Status.............................. Distributions
& Tax Infor-
mation
Item 21. Underwriters............................ The Fund's
Distributor
Item 22. Performance Information.................. Performance
Information
Item 23. Financial Statements.................... N/A
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement
<PAGE>
PRELIMINARY PROSPECTUS DATED
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. Information
contained herein is subject to completion or amendment. These securities may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in an jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such jurisdiction.
PZENA VALUE FUND
575 Lexington Ave.
New York, NY 10022
(212) 355-1600
PZENA VALUE FUND (the "Fund") is a mutual fund with the
investment objective of seeking long-term growth of capital. The
Fund seeks its objective through investment in undervalued equity
securities. R.S. Pzena Investment Management, L.L.C. (the
"Advisor"), acts as investment advisor to the Fund.
This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. The Fund is a series of Professionally Managed
Portfolios. A Statement of Additional Information dated April , 1996 as may
be amended from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available without charge upon written request to the
Fund at the address or telephone number given above.
TABLE OF CONTENTS
Expense Table ..............................................2
Investment Objective, Policies and Risks....................3
Management of the Fund......................................8
How To Invest in the Fund...................................9
How To Redeem an Investment in the Fund....................11
Retirement Plans...........................................13
How the Fund's Per Share Value is Determined...............13
Distributions and Taxes....................................13
General Information........................................14
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April___, 1996
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The PZENA VALUE FUND (the "Fund") is a non-diversified series of Professionally
Managed Portfolios (the "Trust"), an open-end management investment company
offering redeemable shares of beneficial interest. Shares may be purchased and
redeemed without a sales or redemption charge at their net asset value. The
minimum initial investment is $1,000 with subsequent investments of $100 or
more. Because the prices of equity securities and other investments held by the
Fund fluctuate, the value of an investment in the Fund will vary as the market
value of its investment portfolio changes, and when shares are redeemed, they
may be worth more or less than their original cost.
EXPENSE TABLE
Expenses are one of several factors to consider when investing in the
Fund. The purpose of the following fee table is to provide an understanding of
all the various costs and expenses which may be borne directly or indirectly by
an investment in the Fund. No other costs or expenses will be borne by the
investors in the Fund.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases. . . . . . . . . . .None
Maximum Sales Load Imposed on Reinvested Dividends . . . . .None
Deferred Sales Load. . . . .. . ... . . . . . . . . . . . . None
Redemption Fees. . . . . . . . . . . . .. . . . . . . . . . None
Exchange Fee. . . . . . . . . . . . . . . . . . . . . . . . None
Annual Fund Operating Expenses (after waiver)
(As a percentage of average net assets)
Investment Advisory Fee 1.25%
12b-1 Fee None
Other expenses 0.50%
Total Fund Operating Expenses (after waiver) 1.75%
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"Investment Advisory Fee" in the table above represents investment
advisory fees to be paid to the Advisor. See "Management of the Fund." As of the
date of this Prospectus, the Fund has not commenced investment operations. The
amount set forth in "Other Expenses" is, therefore, based on estimated amounts
for the current fiscal year. Actual expenses may be more or less than these
shown.
The Advisor has, however, voluntarily undertaken to limit the total
operating expenses of the Fund to no more than 1.75% of average net assets
annually. Without this limitation, it is estimated that the Fund's ratio
of operating expenses to average net assets would be 3.05% This estimate
assumes that total fund operating expenses exclusive of the investment advisory
fee are $90,000 annually and that average net assets of the Fund are $5,000,000.
Example
This table illustrates the net transaction and operating expenses that would
be incurred by an investment in the Fund over different time periods, assuming a
$1,000 investment, a 5% annual return, and redemption at the end of each time
period. Amounts in the table could increase, if the Advisor's limitation of
expenses were to be terminated.
1 year 3 years
$18 $56
The Example shown above should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown. In
addition, federal regulations require the Example to assume a 5% annual return,
but the Fund's actual return may be higher or lower. See "Management of the
Fund."
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The investment objective of the Fund is long term growth of capital. This
objective is fundamental and may not be changed without the affirmative vote of
the holders of the majority of the Fund's outstanding securities. There can be
no assurance that the Fund's objective will be met.
Investment Policies
The Fund seeks to attain its objective through investment in undervalued equity
securities, and under normal circumstances at least 65% of its total assets will
be invested in accordance with its objective. The Fund invests in securities
that, in the opinion of its investment adviser, R.S. Pzena Investment
Management, L.L.C., (the "Adviser"), are undervalued in the marketplace in
relation to estimated future earnings and cash flow. These companies generally
sell at price to book value
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ratios below market average, as defined by the Standard & Poor's 500 Composite
Price Index ("S & P 500").
The Fund invests at least 80% of its assets in equity securities, which consist
of common stocks, preferred stocks and securities convertible into common
stocks. The Fund changes its portfolio securities for long-term investment
considerations and not for trading securities.
The Fund invests primarily in the equity securities of domestic companies. The
Adviser uses fundamental research and a proprietary computerized quantitative
model to identify companies that are currently undervalued in relation to
estimated future earnings and cash flow. The investment process also involves an
assessment of business risk, including the Adviser's analysis of the strength of
a company's balance sheet, the accounting practices a company follows, the
volatility of a company's earnings over time and the vulnerability of earnings
to changes in external factors, such as the general economy, the competitive
environment, governmental action and technological change.
Based on such information, the Adviser estimates normal earnings power; that is,
an estimate of ongoing earnings of a company over a full economic or business
cycle. The Adviser's quantitative approach is designed to identify companies
which are inexpensive in relation to their long-term intrinsic value and
minimize the influence of short-term market factors.
While a broad range of investments are considered, only those that, in the
Adviser's opinion, are selling at a comparatively low price as compared to
normal earnings will be purchased for the Fund. It is anticipated that the
prices of the Fund's investments will rise as a result of both earnings growth
and, to a lesser extent, rising price-earnings ratios over time.
While the Fund emphasizes U.S. investments, it can invest its assets in
securities of foreign companies which meet the same criteria applicable to
domestic investments. The Fund may invest up to 20% of its total assets in debt
obligations, including zero coupon securities and may enter into repurchase
agreements. In addition, the Fund may, in limited cases, engage in certain
investment techniques including the use of options and futures contracts. See
Additional Information About Policies and Investments for more information about
these investment techniques.
From time to time, for temporary defensive or emergency purposes, the Fund may
invest a portion of its assets in cash and cash equivalents when the Adviser
deems such a position advisable in light of economic or market conditions.
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Why Invest in the Fund?
The Fund provides investors with convenient, low-cost access to a diversified
portfolio of stocks believed to be undervalued by the Adviser. These companies
tend to have below-market price to book value ratios yet, in the opinion of the
Adviser, will reward investors with above-average appreciation over time. The
Fund is distinctive in the manner in which it combines systematic and
disciplined valuation techniques with intensive, traditional fundamental
research. In addition to identifying undervalued securities, the Adviser's
proprietary quantitative valuation model also provides the discipline required
to sell appreciated securities as their prices rise to reflect their earnings
potential. The model utilizes many sources of earnings information and
forecasts, as well as the Adviser's independent equity research effort, for
estimates of future earnings and dividend growth and quality ratings. The Fund
is appropriate for investors who understand the risks of stock market investing.
Although the Fund emphasizes securities of companies the Adviser believes are
undervalued, movements of the stock market will affect the Fund's share price.
While the Fund may invest in a broad range of industries, it is not, by itself,
a complete investment program. Nonetheless, it can serve as a core component of
an investment program that includes money market, bond and specialized equity
investments.
Additional Information About Policies and Investments
Debt Securities. Consistent with the Fund's investment of long-term capital
growth, the Fund may purchase investment grade debt securities, which are those
rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or
better by S & P or, if unrated, of equivalent quality as determined by the
Adviser. The Fund also may purchase debt securities which are rated below
investment-grade. Capital appreciation in such debt securities may arise from a
favorable change in relative interest rate levels, or in the creditworthiness of
issuers. Receipt of income from debt securities is incidental to the Fund's
objective of long-term growth of capital See "Risk Factors."
Repurchase Agreements. A repurchase agreement is a short-term investment in
which the purchaser acquires ownership of a U.S. Government security (which may
be of any maturity) and the seller agrees to repurchase the obligation at a
future time at a set price, thereby determining the yield during the purchaser's
holding period (usually not more than seven days from the date of purchase). Any
repurchase transaction in which the Fund engages as a purchaser will require
full collateralization of the seller's obligation during the entire term of the
repurchase agreement. In the event of a bankruptcy or other default of the
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seller, the Fund could experience both delays in liquidating the underlying
security and losses in value. However, the Fund intends to enter into repurchase
agreements only with the most creditworthy banks and registered securities
dealers pursuant to procedures adopted and regularly reviewed by the Trust's
Board of Trustees. The Advisor monitors the creditworthiness of the banks and
securities dealers with whom the Fund engages in repurchase transactions.
Convertible Securities. The Fund may invest in convertible securities (bonds,
notes, debentures, preferred stocks and other securities convertible into common
stocks) that may offer higher income than the common stocks into which they are
convertible. The convertible securities in which the Fund may invest include
fixed-income or zero coupon debt securities, which may be converted or exchanged
as a stated or determinable exchange ratio into underlying shares of common
stock. Prior to their conversion, convertible securities may have
characteristics similar to non-convertible debt securities. While convertible
securities generally offer lower yields than non-convertible debt securities of
similar quality, their prices may reflect changes in the value of the underlying
common stock. Convertible securities generally entail less credit risk than the
issuer's common stock.
Illiquid and Restricted Securities. The Fund may not invest more than 15% of its
net assets in illiquid securities, including (I) securities for which there is
no readily available market; (ii) securities the disposition of which would be
subject to legal restrictions (so-called "restricted securities"); and (iii)
repurchase agreements having more than seven days to maturity. A considerable
period of time may elapse between the Fund's decision to dispose of such
securities and the time when the Fund is able to dispose of them, during which
time the value of the securities could decline. Securities which meet the
requirements of Securities Act Rule 144A are restricted, but may be determined
to be liquid by the Trustees, based on an evaluation of the applicable trading
markets.
Foreign Securities. The Fund may invest up to 20% of its assets in securities of
foreign issuers, including American Depositary Receipts with respect to
securities of foreign issuers. There may be less publicly available information
about these issuers than is available about companies in the U.S. and foreign
auditing requirements may not be comparable to those in the U.S. In addition,
the value of foreign securities may be adversely affected by movements in the
exchange rates between foreign currencies and the U.S. dollar, as well as other
political and economic developments, including the possibility of expropriation,
confiscatory taxation, exchange controls or other
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foreign governmental restrictions. The Fund may invest without regard to this
20% limitation in securities of foreign issuers which are listed and traded on a
domestic national securities exchange.
Other Investment Techniques. The Fund may purchase put and call options and
engage in the writing of covered call options and secured put options on
securities, and employ a variety of other investment techniques, including the
purchase and sale of market index futures contracts, financial futures contracts
and options on such futures. These policies and techniques may involve a greater
degree of risk than those inherent in more conservative investment approaches.
The Fund will engage in futures contracts and related options only for hedging
purposes. It will not engage in such transactions for speculation or leverage.
The Fund maintains an operating policy that it may not invest in options and
futures contracts if as a result more than 5% of its assets would be at risk.
Portfolio Turnover. The annual rate of portfolio turnover is not
expected to exceed 80%. In general, the Advisor will not
consider the rate of portfolio turnover to be a limiting factor
in determining when or whether to purchase or sell securities in
order to achieve the Fund's objective.
The Fund has the right to modify the investment policies described above without
shareholder approval; however, the Fund does not presently contemplate making
any such modifications.
Risk Factors
Equity Securities. Securities in which the Fund invests, and its share price and
returns, are subject to fluctuation. Equities are subject to market risks which
cause their prices to fluctuate. In addition, there may be a substantial period
of time before equities held by the Fund realize the appreciation potential the
Adviser believes them to have.
Debt Securities. The Fund may invest up to 20% of its assets in debt securities,
including securities which are rated below investment-grade, or if unrated, are
considered by the Adviser to be equivalent to below investment-grade securities
(commonly referred to as "junk bonds").
The value of debt securities will change as interest rates fluctuate. During
periods of falling interest rates, the values of outstanding long term debt
obligations generally rise. Conversely, during periods of rising interest rates,
the value of such securities generally decline. The magnitude of these
fluctuations typically will be greater for securities with longer maturities.
Debt securities also are subject to credit risk
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relative to the ability of the issuer to make timely interest payments and repay
principal on maturity.
Bonds rated or considered below investment grade typically carry higher coupon
rates than investment grade bonds, but also are described as speculative by both
Moody's and S & P and may be subject to greater market price fluctuations, less
liquidity and greater risk of income or principal, including greater possibility
of default or bankruptcy of the issuer of such securities than more highly rated
bonds. Lower rated bonds also are more likely to be sensitive to adverse
economic or company developments.
Limited Operating History and Dependence on Certain Individual. The
fund is newly formed and has no operating history. In addition, the Investment
Adviser is a newly formed limited liability company and has not previously
served as an investment adviser to a registered investment company. Richard S.
Pzena is primarily responsible for the day-to-day management of the Fund's
portfolio. The loss of Richard S. Pzena's services (due to termination of
employment, death, disability or otherwise) could adversely affect the conduct
of the Fund's business and its prospects for the future. There can be no
assurance that a suitable replacement could be found for Richard S. Pzena.
Non-Diversification. The Fund is a non-diversified investment company
portfolio, which means that the Fund is required to comply only with the
diversification requirements of the Internal Revenue Code of 1986 (the "Code")
so that the Fund will not be subject to U.S. taxes on its net investment income.
These provisions, among others, require that at the end of each calendar
quarter, (1) not more than 25% of the value of the fund's total assets can be
invested in the securities of a single issuer, and (2) with respect to 50% of
the value of the Fund's total assets, no more than 5% of the value of its total
assets can be invested in the securities of a single issuer and the Fund may not
own more than 10% of the outstanding voting securities of a single issuer.
Compliance with the diversification requirements of the Code is a fundamental
policy of the Fund and may be changed only with the affirmative vote of the
holders of the majority of the Fund's outstanding shares.
Since the Fund, as a non-diversified investment company portfolio,
could invest in a smaller number of individual issuers than a diversified
investment company, the value of the Fund's investments could be more affected
by any single adverse occurrence than would the value of the investments of a
diversified investment company. However, it is the policy of the Fund to attempt
to reduce its overall exposure to risk from declines in individual securities by
spreading its investments
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over many different companies and a variety of industries.
The Fund has adopted certain other investment restrictions, which are
described fully in the Statement of Additional Information. Like the Fund's
investment objective, certain of these restrictions are fundamental and may be
changed only by a majority vote of the Fund's outstanding shares.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. The Advisor was founded in
1995 and is controlled by Mr. Richard S. Pzena, who is principally responsible
for the management of the Fund's portfolio. Although the Advisor has not
previously managed a registered investment company, Mr. Pzena was formerly
Director of Research for United States Equities at an investment advisory firm
with several billion in investment advisory and investment company assets under
management.
The Advisor provides the Fund with advice on buying and selling securities,
manages the investments of the Fund, furnishes the Fund with office space and
certain administrative services, and provides most of the personnel needed by
the Fund. As compensation, the Fund pays the Advisor an advisory fee (accrued
daily) based upon the average daily net assets of the Fund at the rate of 1.25%
annually. This fee is higher than that paid by most investment companies.
Southampton Investment Management Company (the "Administrator") acts as
the Fund's Administrator under a Management Agreement. Under that agreement, the
Administrator prepares various federal and state regulatory filings, reports and
returns for the Fund, prepares reports and materials to be supplied to the
trustees, monitors the activities of the Fund's custodian, transfer agent and
accountants, and coordinates the preparation and payment of Fund expenses and
reviews the Fund's expense accruals. For its services, the Administrator
receives an annual fee equal to the greater of 0.20 of 1% of the Fund's average
daily net assets or $30,000.
The Fund is responsible for its own operating expenses. The Advisor has
voluntarily undertaken to limit the Fund's operating expenses to 1.75% of the
Fund's average net assets annually. This undertaking may be modified or
withdrawn by the Advisor upon notice to shareholders. The Advisor also may
reimburse additional amounts to the Fund at any time in order to reduce the
Fund's expenses, or to the extent required by applicable securities laws. To the
extent the Advisor performs a service for which the Fund is obligated to pay,
the Fund shall reimburse the Advisor for its costs incurred in rendering such
service.
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The Advisor considers a number of factors in determining which brokers
or dealers to use for the Fund's portfolio transactions. While these are more
fully discussed in the Statement of Additional Information, the factors include,
but are not limited to, the reasonableness of commissions, quality of services
and execution, and the availability of research which the Advisor may lawfully
and appropriately use in its investment management and advisory capacities.
Provided the Fund receives prompt execution at competitive prices, the Advisor
may also consider the sale of Fund shares as a factor in selecting
broker-dealers for the Fund's portfolio transactions.
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund is $1,000.
Subsequent investments must be at least $100. First Fund
Distributors, Inc. (the "Distributor"), an affiliate of the
Administrator, acts as Distributor of the Fund's shares. The
Distributor may, at its discretion, waive the minimum investment
requirements for purchases in conjunction with certain group or
periodic plans.
Shares of the Fund are offered continuously for purchase at their net asset
value per share next determined after a purchase order is received.
Investors may purchase shares of the Fund by check or wire:
By Check: For initial investments, an investor should complete the Fund's
Account Application (included with this Prospectus). The completed application,
together with a check payable to "Pzena Value Fund," and should be mailed to:
Pzena Value Fund, P.O. Box ___, Cincinnati, OH 45264. Investments sent by
overnight delivery services should be sent to Pzena Value Fund, Star Bank N.A.,
425 Walnut St., Mutual Fund Custody Dept., M.L. 6118, Cincinnati, OH 45202
Subsequent investments should be made by check payable to "Pzena Value Fund,"
and mailed to the address indicated above in the envelope provided. The
investor's account number should be written on the check.
By Wire: For initial investments, before wiring funds, an investor should call
1-800-________ to advise that an initial investment will be made by wire and to
receive an account number. The Transfer Agent will request the investor's name
and the dollar amount to be invested and provide an order confirmation number.
The investor should then complete the Fund's Account Application (included with
this Prospectus), including the date and the order confirmation number on the
application. The completed Application should be mailed to the address shown at
the top of the Account Application. The investor's bank should transmit
immediately available funds by wire for purchase of shares, in the investor's
name to the Fund as follows:
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Star Bank, N.A. Cinti/Trust
ABA Routing Number: 0420-0001-3
for further credit to Pzena Value Fund
Account Number [Name of Shareholder]
For subsequent investments, the investor's bank should wire funds as indicated
above. It is not necessary to contact the Transfer Agent prior to making
subsequent investments by wire, but it is essential that complete information
regarding the investor's account be included in all wire instructions in order
to facilitate prompt and accurate handling of investments. Investors may obtain
further information from the Transfer Agent about remitting funds in this manner
and from their own banks about any fees that may be imposed.
General. Payment of redemption proceeds from shares that were purchased with an
initial investment made by wire may be delayed until one business day after the
completed Account Application is received by the Fund. All investments must be
made in U.S. dollars; to avoid fees and delays, checks should be drawn only on
U.S. banks and should not be made by third party check. A charge may be imposed
if any check used for investment does not clear. The Fund and the Distributor
reserve the right to reject any purchase order in whole or in part. If an order,
together with payment in proper form, is received by the Transfer Agent by the
close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time), Fund shares will be purchased at the offering price determined as of the
close of trading on that day. Otherwise, Fund shares will be purchased at the
offering price determined as of the close of trading on the New York Stock
Exchange on the next business day.
Federal tax law requires that investors provide a certified Taxpayer
Identification Number and certain other required certifications upon opening or
reopening an account in order to avoid backup withholding of taxes at the rate
of 31% on taxable distributions and proceeds of redemptions. See the Fund's
Account Application for further information concerning this requirement.
The Fund does not issue share certificates. All shares are normally held in
non-certificated form registered on the books of the Fund and the Fund's
Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUND
A shareholder has the right to have the Fund redeem all or any portion of
outstanding shares in the account at their current net
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asset value on each day the New York Stock Exchange is open for trading. The
redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption.
Direct Redemption. A written request for redemption must be received by the
Fund's Transfer Agent in order to constitute a valid tender for redemption.
Redemtion requests should be sent to Pzena Value Fund, c/o American Data
Services, 24 West Carver St., 2nd Floor, Huntington, NY 11743. To protect the
Fund and its shareholders, a signature guarantee is required for certain
transactions, including redemptions. Signature(s) on the redemption request must
be guaranteed by an "eligible guarantor institution" as defined in the federal
securities laws. These institutions include banks, broker-dealers, credit unions
and savings institutions. A broker-dealer guaranteeing signatures must be a
member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
Telephone Redemption. Shareholders who complete the Redemption by Telephone
portion of the Fund's Account Application may redeem shares on any business day
the New York Stock Exchange is open by calling the Fund at 1-800-385-7003 before
4:00 p.m. Eastern time. Redemption proceeds will be mailed or wired at the
shareholder's direction the next business day to the predesignated account. The
minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds).
By establishing telephone redemption privileges, a shareholder authorizes the
Fund and its agents to act upon the instruction of any person by telephone to
redeem from the account for which such service has been authorized and transfer
the proceeds to the bank account designated in the authorization. The Fund and
its agents will use procedures to confirm that redemption instructions received
by telephone are genuine, including recording of telephone instructions and
requiring a form of personal identification before acting on such instructions.
If these identification procedures are not followed, the Fund or its agents
could be liable for any loss, expense, or cost which results from acting upon
instructions of a person believed to be a shareholder with respect to the
telephone redemption privilege. The Fund may change, modify, or terminate these
privileges at any time upon at least 60 days' notice to shareholders.
Shareholders may request telephone redemption privileges after an account is
opened; however, the authorization form will require a separate signature
guarantee. Shareholders may experience delays
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in exercising telephone redemption privileges during periods of
abnormal market activity.
General. Payment of redemption proceeds will be made promptly, but not later
than seven days after the receipt of all documents in proper form, including a
written redemption order with appropriate signature guarantee in cases where
telephone redemption privileges are not being utilized. The Fund may suspend the
right of redemption under certain extraordinary circumstances in accordance with
applicable rules of the Securities and Exchange Commission. In the case of
shares purchased by check and redeemed shortly after purchase, the Fund will not
mail redemption proceeds until it has been notified that the check used for the
purchase has been collected, which may take up to 15 days from the purchase
date. To minimize or avoid such delay, investors may purchase shares by
certified check or federal funds wire. A redemption may result in recognition of
a gain or loss for federal income tax purposes. Investors should consult their
own tax advisor as to the effect of any redemption.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account, other than retirement plan
or Uniform Gifts/Transfers to Minors Act accounts, if at any time, due to
redemptions by the shareholder, the total value of a shareholder's account does
not equal at least $1,000. If the Fund determines to make such an involuntary
redemption, the shareholder will first be notified that the value of his account
is less than $1,000 and will be allowed 30 days to make an additional investment
to bring the value of the account to at least $1,000 before the Fund takes any
action.
RETIREMENT PLANS
The Fund offers an Individual Retirement Account plan and information is
available from the Fund and the Distributor with respect to Keogh, Section
403(b) and other retirement plans offered. Investors should consult their own
tax advisor before establishing any retirement plan.
HOW THE FUND'S PER SHARE VALUE IS DETERMINED
The net asset value of a Fund share is determined once daily as of the close of
public trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time)
on each day the New York Stock Exchange is open for trading. Net asset value per
share is calculated by dividing the value of the Fund's total assets, less its
liabilities, by the number of Fund shares outstanding.
Portfolio securities are valued using current market values, if available.
Securities for which market quotations are not readily available are valued at
fair values as determined in good faith by
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or under the supervision of the Trust's officers in accordance with methods
which are specifically authorized by the Board of Trustees. Short-term
obligations with remaining maturities of sixty days or less are valued at
amortized cost as reflecting fair value.
DISTRIBUTIONS AND TAXES
Dividends and Distributions. Any dividends from net investment income (which
includes realized short-term capital gains) are declared and paid at least
annually, typically at the end of the Fund's fiscal year (December 31). Any
undistributed long-term net capital gains realized during the 12-month period
ended each October 31, as well as any additional undistributed capital gains
realized during the Fund's fiscal year, will also be distributed to shareholders
on or about December 31 of each year.
Dividends and capital gains distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the net asset
value per share on the reinvestment date unless the shareholder has previously
requested in writing to the Transfer Agent that distributions be made in cash.
Any dividend or distribution paid by the Fund has the effect of reducing the net
asset value per share on the reinvestment date by the amount of the dividend or
distribution. Investors should note that a dividend or distribution paid on
shares purchased shortly before such dividend or distribution was declared will
be subject to income taxes as discussed below even though the dividend or
distribution represents, in substance, a partial return of capital to the
shareholder.
Taxes. The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the Fund continues to so qualify, and as long
as the Fund distributes all of its income each year to the shareholders, the
Fund will not be subject to any federal income tax or excise taxes based on net
income. Distributions made by the Fund will be taxable to shareholders whether
received in shares (through dividend reinvestment) or in cash. Distributions
derived from net investment income, including net short-term capital gains, are
taxable to shareholders as ordinary income. A portion of these distributions may
qualify for the intercorporate dividends-received deduction. Distributions
designated as capital gains distributions are taxable as long-term capital gains
regardless of the length of time shares of the Fund have been held. Although
distributions are generally taxable when received, certain distributions made in
January are taxable as if received in the prior December. Shareholders will be
informed annually of the amount and nature of the Fund's distributions.
Additional information about taxes is set forth in the Statement of Additional
Information. Shareholders should consult their own advisers concerning federal,
state and local tax consequences of investment in the Fund.
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GENERAL INFORMATION
The Trust. The Trust was organized as a Massachusetts business trust on
February 17, 1987. The Agreement and Declaration of Trust permits the Board of
Trustees to issue an unlimited number of full and fractional shares of
beneficial interest, without par value, which may be issued in any number of
series. The Board of Trustees may from time to time issue other series, the
assets and liabilities of which will be separate and distinct from any other
series. The fiscal year of the Fund ends on December 31.
Shareholder Rights. Shares issued by the Fund have no preemptive, conversion, or
subscription rights. Shareholders have equal and exclusive rights as to
dividends and distributions as declared by the Fund and to the net assets of the
Fund upon liquidation or dissolution. The Fund, as a separate series of the
Trust, votes separately on matters affecting only the Fund (e.g., approval of
the Management and Advisory Agreements); all series of the Trust vote as a
single class on matters affecting all series jointly or the Trust as a whole
(e.g., election or removal of Trustees). Voting rights are not cumulative, so
that the holders of more than 50% of the shares voting in any election of
Trustees can, if they so choose, elect all of the Trustees. While the Trust is
not required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Trustees in their discretion, or upon demand by
the holders of 10% or more of the outstanding shares of the Trust for the
purpose of electing or removing Trustees.
Performance Information. From time to time, the Fund may publish its total
return in advertisements and communications to investors. Total return
information will include the Fund's average annual compounded rate of return
over the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average total
return information over different periods of time. The Fund's total return will
be based upon the value of the shares acquired through a hypothetical $1,000
investment at the beginning of the specified period and the net asset value of
such shares at the end of the period, assuming reinvestment of all
distributions. Total return figures will reflect all recurring charges against
Fund income. Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period.
Shareholder Inquiries. Shareholder inquiries should be directed to
the Fund at the address and telephone number shown on the cover of
this prospectus.
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Advisor
R.S. Pzena Investment Management, L.L.C.
575 Lexington Ave.
New York, NY 10022
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261E
Phoenix, AZ 85018
Custodian
Star Bank
425 Walnut St.
Cincinnati, Ohio 45202
Shareholder Service and Transfer Agent
American Data Services, Inc.
24 West Carver St.
Huntington, NY 11743
(800) 385-7003
Auditors
Tait, Weller, & Baker
2 Penn Center Plaza
Philadelphia, PA 19102
Counsel to the Trust
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
Counsel to the Fund
Lane Altman & Owens
101 Federal Street
Boston, MA 02110
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PZENA VALUE FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
575 Lexington Ave.
New York, NY 10022
(800) 385-7003
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the prospectus of the Pzena Value Fund. A copy of
the prospectus dated April , 1996 is available by calling the number listed
above or (212) 633-9700.
TABLE OF CONTENTS
Page
The Trust . . . . . . . . . . . . . . . . . . . . . . . .B-2
Investment Objective and Policies . . . . . . . . . . . .B-2
Investment Restrictions . . . . . . . . . . . . . . . . B-7
Distributions and Tax Information . . . . . . . . .. . . B-10
Management . . . . . . . . . . . . . . . . . . . . . . .B-13
Execution of Portfolio Transactions . . . . . . . . . . .B-17
Additional Purchase and Redemption Information . . . . B-19
Determination of Share Price. . . . . . . . . . . . . . B-20
Performance Information . . . . . . . . . . . . . . . . B-20
General Information . . . . . . . . . . . . . . . . . . B-21
Appendix . . . . . . . . . . . . . . . . . . . . . . . B-23
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust. The
Trust consists of a number of series which represent separate investment
portfolios. This Statement of Additional Information relates only to the Pzena
Value Fund series (the "Fund").
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a mutual fund with the investment objective of long-term
capital growth. The following discussion supplements the discussion of the
Fund's investment objective and policies as set forth in the Prospectus. There
can be no assurance the objective of the Fund will be attained.
Repurchase Agreements
The Fund may enter into repurchase agreements as discussed in the
Prospectus. Under such agreements, the seller of the U.S. Government security to
the Fund agrees to repurchase it at a mutually agreed time and price. The
repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to the Fund together with the repurchase price on
repurchase. In either case, the income to the Fund is unrelated to the interest
rate on the underlying U.S. Government security itself. Such repurchase
agreements will be made only with banks with deposits of $500 million or more
that are insured by the Federal Deposit Insurance Corporation or with Government
securities dealers recognized by the Federal Reserve Board and registered as
broker-dealers with the Securities and Exchange Commission ("SEC") or exempt
from such registration. The Fund will generally enter into repurchase agreements
of short durations, from overnight to one week, although the underlying
securities generally have longer maturities. The Fund may not enter into a
repurchase agreement with more than seven days to maturity if, as a result, more
than 10% of the value of the Fund's total assets would be invested in illiquid
securities including such repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear,
however, whether a court would consider the U.S. Government security acquired by
the Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S.
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Government security before its repurchase under a repurchase agreement, the Fund
may encounter delays and incur costs before being able to sell the security.
Delays may involve loss of interest or a decline in price of the U.S. Government
security. If a court characterizes the transaction as a loan and the Fund has
not perfected a security interest in the U.S. Government security, the Fund may
be required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
investment manager seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, the
Fund will always receive as collateral for any repurchase agreement to which it
is a party securities acceptable to it, the market value of which at the time
the transaction is entered into is equal to at least 100% of the amount invested
by the Fund plus accrued interest, and the Fund will make payment against such
securities only upon physical delivery or evidence of book entry transfer to the
account of its Custodian. If the market value of the U.S. Government security
subject to the repurchase agreement becomes less than the repurchase price
(including interest), the Fund will direct the seller of the U.S. Government
security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to impose on the seller a contractual obligation to deliver additional
securities.
When-Issued Securities
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase; during the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
securities may be sold prior to the settlement date, the Fund
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<PAGE>
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The market value of the when-issued securities may be more or
less than the purchase price. The Fund does not believe that its net asset value
or income will be adversely affected by its purchase of securities on a
when-issued basis. The Fund will establish a segregated account with its
Custodian in which it will maintain cash and marketable securities equal in
value to commitments for when-issued securities. Such segregated securities
either will mature or, if necessary, be sold on or before the settlement date.
Foreign Securities
The Fund may invest up to 20% of its assets in foreign securities.
Foreign investments can involve significant risks in addition to the risks
inherent in U.S. investments. The value of securities denominated in or indexed
to foreign currencies, and of dividends and interest from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. Foreign securities markets generally have less trading volume
and less liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those applicable to U.S. companies, and it may be more
difficult to obtain reliable information regarding an issuer's financial
condition and operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions, and custodial costs, generally are
higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign securities trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It also may be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and
economic risks. Foreign investments may be affected by actions
of foreign governments adverse to the interests of U.S.
investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions
on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government
intervention. There may be a greater possibility of default by
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<PAGE>
foreign governments or foreign government-sponsored enterprises. Investments in
foreign countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
There can be no assurance that the Advisor will be able to anticipate or counter
these potential events and their impacts on the Fund's share price.
Securities of foreign issuers may be held by the Fund in the form of
American Depositary Receipts and European Depositary Receipts ("ADRs" and
"EDRs"). These are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national market and currencies.
The Fund may invest without regard to the 20% limitation in securities of
foreign issuers which are listed and traded on a domestic national securities
exchange.
Debt Securities and Ratings
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. If a security's rating is reduced while it
is held by the Fund, the Advisor will consider whether the Fund should continue
to hold the security but the Fund is not required to dispose of it. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial conditions may be better or worse
than the rating indicates.
The Fund reserves the right to invest up to 20% of its assets in debt
securities, which may include those rated lower than BBB by S & P or lower than
Baa by Moody's but rated at least B by S & P or Moody's (or, in either case, if
unrated, deemed by the Advisor to be of comparable quality). Lower-rated
securities generally offer a higher current yield than that available for higher
grade issues. However, lower-rated securities involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuations in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to make payments of interest and
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<PAGE>
principal and increase the possibility of default. In addition, the market for
lower-rated debt securities has expanded rapidly in recent years, and its growth
paralleled a long economic expansion. At times in recent years, the prices of
many lower-rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower-rated debt securities rose
dramatically, but such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather, the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur. The market for lower-rated debt
issues generally is smaller and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower-rated securities,
especially in a smaller and less actively traded market.
Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower-yielding security, resulting in a
decreased return to investors. Also, because the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by the Fund may decline proportionately
more than the Fund consisting of higher-rated securities. If the Fund
experiences unexpected net redemptions, it may be forced to sell its
higher-rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Fund and increasing the exposure of the Fund to the risks
of lower-rated securities. Investments in zero-coupon bonds may be more
speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
Options and Futures Contracts
As indicated in the Prospectus, to the extent consistent with its
investment objectives and policies, the Fund may purchase and write call and put
options on securities, securities indexes and on foreign currencies and enter
into futures contracts and use options on futures contracts, to the extent of up
to 5% of its assets.
Transactions in options on securities and on indexes involve certain risks.
For example, there are significant differences between the securities and
options markets that
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<PAGE>
could result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when and
how to use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless. If the Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, the Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased. Except
to the extent that a call option on an index written by the Fund is covered by
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; such losses may be mitigated or exacerbated by
changes in the value of the Fund's securities during the period the option was
outstanding.
Use of futures contracts and options thereon also involves certain risks.
The variable degree of correlation between price movements of futures contracts
and price movements in the related portfolio positions of the Fund creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Fund's position. Also, futures and options markets may not be
liquid in all circumstances and certain over the counter options may have no
markets. As a result, in certain markets, the Fund might not be able to close
out a transaction at all or without incurring losses. Although the use of
options and futures transactions for hedging should minimize the risk of loss
due to a decline in the value of the hedged position, at the same time they tend
to limit any potential gain which might result from an increase in the value of
such position. If losses were to result from the use of such transactions, they
could reduce net asset value and possibly income. The Fund may use these
techniques to hedge against changes in interest rates or securities prices or as
part of its overall investment strategy. The Fund will maintain segregated
accounts consisting of cash, U.S. Government securities, or other high grade
debt obligations (or, as permitted by
7
<PAGE>
applicable regulation, enter into certain offsetting positions) to cover its
obligations under options and futures contracts to avoid leveraging of the Fund.
INVESTMENT RESTRICTIONS
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b) to the
extent the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except from banks for temporary or
emergency purposes. Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least
300% of all borrowings.
(b) Mortgage, pledge or hypothecate any of its
assets except in connection with any such borrowings.
The following policies and investment restrictions have been adopted by
the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities,
except as permitted under the 1940 Act. (The Fund is not precluded from
obtaining such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities.)
2. Purchase or sell real estate, commodities or commodity contracts
(other than futures transactions for the purposes and under the conditions
described in the prospectus and in this Statement of Additional Information).
3. Invest more than 25% of the market value of its assets
in the securities of companies engaged in any one industry.
(Does not apply to investment in the securities of the U.S.
Government, its agencies or instrumentalities.)
4. Issue senior securities, as defined in the 1940 Act, except
as permitted under the 1940 Act and 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, forward or
repurchase transactions.
5. (a) With respect to 50% of the Fund's assets, purchase
the securities of any issuer if more than 5% of the total assets
of the Fund would be invested in the securities of the issuer,
other than obligations of the U.S. Government, its agencies or
instrumentalities.
8
<PAGE>
(b) With respect to the remaining 50% of the Fund's assets, purchase the
securities of any issue if more than 25% of the total assets of the Fund would
be invested in the securities of the issuer.
The Fund observes the following policies, which are not
deemed fundamental and which may be changed without shareholder
vote. The Fund may not:
6. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b) to the
extent the entry into a repurchase agreement is deemed to be a loan.
7. (a) Borrow money, except as permitted under the 1940 Act. Any such
borrowing will be made only if immediately thereafter there is an asset coverage
of at least 300% of all borrowings.
(b) Mortgage, pledge or hypothecate any of its
assets except in connection with any such borrowings.
8. Purchase any security if as a result the Fund would then hold more than
10% of any class of securities of an issuer (taking all common stock issues of
an issuer as a single class, all preferred stock issues as a single class, and
all debt issues as a single class) or more than 10% of the outstanding voting
securities of a single issuer.
9. Invest in any issuer for purposes of exercising
control or management.
10. Purchase or hold securities of any issuer, if, at the time of purchase
or thereafter, any of the Trustees or officers of the Trust or the Fund's
Advisor owns beneficially more than 1/2 of 1%, and all such Trustees or officers
holding more than 1/2 of 1% together own beneficially more than 5% of the
issuer's securities.
11. Invest in securities of other investment companies which would result in
the Fund owning more than 3% of the outstanding voting securities of any one
such investment company, the Fund owning securities of another investment
company having an aggregate value in excess of 5% of the value of the Fund's
total assets, or the Fund owning securities of investment companies in the
aggregate which would exceed 10% of the value of the Fund's total assets.
12. Invest, in the aggregate, more than 15% of its total assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
13. Buy or sell interests in oil, gas or mineral exploration or development
programs or related leases, or real estate. (Does not preclude investments in
marketable securities of issuers engaged in such activities.)
14. Purchase any security if as a result the Fund would have more than 5% of
its total assets (taken at current value) invested in securities of companies
(including predecessors) less than three years old.
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15. Invest more than 20% of its assets in securities of foreign issuers
(including American Depositary Receipts with respect to foreign issuers, but
excluding securities of foreign issuers listed and traded on a domestic national
securities exchange).
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Any dividends from net investment income (including realized short term
capital gains) are declared and paid at least annually, typically at the end of
the Fund's fiscal year (December 31). Any undistributed long-term net capital
gains realized during the 12-month period ended each October 31, as well as any
additional undistributed long-term capital gains realized during the Fund's
fiscal year, will also be distributed to shareholders on or about December 31 of
each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
The Fund is treated as a separate entity for federal income tax
purposes. The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to so qualify, the Fund must comply with all
applicable requirements regarding the source of its income, diversification of
its assets and timing of its distributions. The Fund's policy is to distribute
to its shareholders all of its investment company taxable income and any net
realized long-term capital gains for each fiscal year in a manner that complies
with the distribution requirements of the Code, so that the Fund will not be
subject to any federal income tax or excise taxes based on
10
<PAGE>
net income. The Fund will generally be subject to federal income tax on its
undistributed net investment income and capital gains. In addition, to avoid
federal excise taxes based on its net income, the Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year (i) at least
98% of its ordinary income for such year, (ii) at least 98% of the excess of its
realized capital gains over its realized capital losses for the 12-month period
ending on October 31 during such year and (iii) any amounts from the prior
calendar year that were not distributed.
Net investment income consists of interest and dividend income and
foreign currency gain, less expenses. Net realized capital gains for a fiscal
period are computed by taking into account any capital loss carryforward of the
Fund.
Distributions of net investment income and the excess of net short-term
capital gain over net long-term capital loss are taxable to shareholders as
ordinary income. In the case of corporate shareholders, a portion of the
distributions may qualify for the intercorporate dividends-received deduction to
the extent the Fund designates the amount distributed as a qualifying dividend.
The aggregate amount so designated cannot, however, exceed the aggregate amount
of qualifying dividends received by the Fund for its taxable year. In view of
the Fund's investment policy, it is expected that dividends from domestic
corporations will be part of the Fund's gross income and that, accordingly, part
of the distributions by the Fund may be eligible for the dividends-received
deduction for corporate shareholders. However, the portion of the Fund's gross
income attributable to qualifying dividends is largely dependent on the Fund's
investment activities for a particular year and therefore cannot be predicted
with any certainty. The deduction may be reduced or eliminated if Fund shares
held by a corporate investor are treated as debt-financed or are held for less
than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholders have held their shares.
Capital gains distributions are not eligible for the dividends-received
deduction referred to in the previous paragraph. Distributions of any net
investment income and net realized capital gains will be taxable as described
above, whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a
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date in such a month and paid the following January are taxable as if received
on December 31. Distributions are includable in alternative minimum taxable
income in computing a shareholder's liability for the alternative minimum tax.
The Fund may write, purchase or sell certain option, futures, and foreign
currency contracts. Such transactions are subject to special tax rules that may
affect the amount, timing and character of distributions to shareholders. Unless
the Fund is eligible to make and makes a special election, such contracts that
are "Section 1256 contracts" will be "marked-to-market" for federal income tax
purposes at the end of each taxable year, i.e., each contract will be treated as
sold for its fair market value on the last day of the taxable year. In general,
unless the special election referred to in the previous sentence is made, gain
or loss from transactions in such contracts will be 60% long-term and 40%
short-term capital gain or loss. Section 1092 of the Code, which applies to
certain "straddles", may affect the taxation of the Fund's transactions in
option, futures and foreign currency contracts. Under Section 1092 of the Code,
the Fund may be required to postpone recognition for tax purposes of losses
incurred in certain closing transactions.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions that may affect the amount, timing, and character
of income, gain or loss recognized by the Fund. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency-denominated debt
instruments, foreign currency forward contracts, foreign currency-denominated
payables and receivables and foreign currency options and futures contracts
(other than options, futures, and foreign currency contracts that are governed
by the mark-to-market and 60%-40% rules of Section 1256 of the Code and for
which no election is made) is treated as ordinary income or loss.
One of the requirements for qualification as a regulated investment
company is that less than 30% of the Fund's gross income must be derived from
gains from the sale or other disposition of securities held for less than three
months. Accordingly, the Fund may be restricted in effecting closing
transactions within three months after entering into an option contract.
A redemption of Fund shares may result in recognition of a taxable gain
or loss. Any loss realized upon a redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gains during
such six-month period. Any loss realized upon a
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redemption of Fund shares may be disallowed under certain wash sale rules to the
extent shares of the Fund are purchased (through reinvestment of distributions
or otherwise) within 30 days before or after the redemption.
Under the Code, the Fund will be required to report to the Internal
Revenue Service all distributions of taxable income and capital gains and gross
proceeds from the redemption or exchange of Fund shares, except in the case of
exempt shareholders, including most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at the rate of 31 percent in the case of
non-exempt shareholders who fail to furnish the Fund with their taxpayer
identification numbers and with required certifications regarding their status
under the Code. If the backup withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld. Corporate and
other exempt shareholders should provide the Fund with their taxpayer
identification numbers or certify their exempt status in order to avoid possible
erroneous application of backup withholding. The Fund reserves the right to
refuse to open an account for any person failing to certify the person's
taxpayer identification number.
The Fund will not be subject to tax in The Commonwealth of
Massachusetts as long as it qualifies as a regulated investment company for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state and local income taxes, and the
tax treatment thereof may differ from the federal income tax treatment.
Moreover, the above discussion is not intended to be a complete discussion of
all applicable tax consequences of an investment in the Fund. Shareholders are
advised to consult with their own tax advisers concerning the application of
federal, state and local taxes to an investment in the Fund.
The foregoing discussion of the Code relates solely to the
application of that law to U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S.
and foreign tax consequences of ownership of shares of the Fund,
including the possibility that such a shareholder may be subject
to a U.S. withholding tax at a rate of 30 percent (or at a lower
rate under an applicable income tax treaty) on amounts
constituting ordinary income.
This discussion and the related discussion in the prospectus have been
prepared by Fund management, and counsel to the Fund has expressed no opinion in
respect thereof.
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MANAGEMENT
Trustees
The Trustees of the Trust, who were elected for an indefinite term by
the initial shareholders of the Trust, are responsible for the overall
management of the Trust, including general supervision and review of the
investment activities of the Fund. The Trustees, in turn, elect the officers of
the Trust, who are responsible for administering the day-to-day operations of
the Trust and its separate series. The current Trustees and officers and their
affiliations and principal occupations for the past five years are set forth
below.
Steven J. Paggioli,* 45 President and Trustee
479 West 22nd Street, New York, New York 10011. Executive Vice
President, Robert H. Wadsworth & Associates, Inc. (consultants)
since 1986; Executive Vice President of Investment Company
Administration Corporation ("ICAC"; mutual fund administration),
President of Southampton Investment Management Company
("Southampton"; mutual fund administrator and the Fund's
Administrative Manager), and Vice President of First Fund
Distributors, Inc. ("FFD"; registered broker-dealer and the
Fund's Distributor) since 1990.
Dorothy A. Berry, 52 Trustee
Wildflower Hill, Ancram New York 12502. President, Talon Industries (venture
capital and business consulting); formerly Chief Operating Officer, Integrated
Asset Management (investment advisor and manager) and formerly President, Value
Line, Inc., (investment advisory and financial publishing firm).
Wallace L. Cook, 56 Trustee
30 Rockefeller Plaza, New York, New York 10112. Senior Vice
President, Rockefeller Trust Co. Financial Counselor,
Rockefeller & Co.
Carl A. Froebel, 57 Trustee
333 Technology Dr., Malvern, PA 19355. Managing Director,
Premier Solutions,Ltd., Formerly Founder and President, National
Investor Data Services, Inc. (investment related computer
software).
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Rowley W.P. Redington, 51 Trustee
260 Washington Street, Newark, New Jersey 07102. Vice President,
PRS of New Jersey, Inc. (management consulting); Chief Financial
Officer, Jersey Electronics, Inc. (formerly ESI, Inc.) (consumer
electronics service and marketing); formerly President, Aveco
Inc. (consumer electronic service and marketing) and formerly
Chief Executive Officer, Rowley Associates (consultants).
Eric M. Banhazl*, 38 Treasurer
2025 E. Financial Way, Suite 101, Glendora, California 91741.
Senior Vice President, Robert H. Wadsworth & Associates, Inc.,
Senior Vice President of ICAC and Vice President of FFD since
1990.
Robin Berger*, 39 Secretary
479 West 22nd St., New York, New York 10011. Vice President,
Robert H. Wadsworth & Associates, Inc. since June, 1993;
formerly Regulatory and Compliance Coordinator, Equitable
Capital Management, Inc. (1991-93), and Legal Product Manager,
Mitchell Hutchins Asset Management (1988-91).
Robert H. Wadsworth*, 56 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018.
President of Robert H. Wadsworth & Associates, Inc. since 1982,
President of ICAC and FFD and Vice President of Southampton
since 1990.
*Indicates an "interested person" of the Trust as defined in the
1940 Act.
Set forth below is the total compensation received by the following
Trustees from the Fund and all other portfolios of the Trust. This total amount
is allocated among the portfolios. Disinterested trustees are also reimbursed
for expenses in connection with each Board meeting attended. No other
compensation or retirement benefits were received by any Trustee or officer from
the Fund or any other portfolios of the Trust.
Name of Trustee Total Compensation
Dorothy A. Berry $10,000
Wallace L. Cook $10,000
Carl A. Froebel $10,000
Rowley W.P. Redington $10,000
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The Fund receives investment advisory services pursuant to agreements
with the Advisor and the Trust. Each such agreement, after its initial term,
continues in effect for successive annual periods so long as such continuation
is approved at least annually by the vote of (1) the Board of Trustees of the
Trust (or a majority of the outstanding shares of the Fund to which the
agreement applies), and (2) a majority of the Trustees who are not interested
persons of any party to the Agreement, in each case cast in person at a meeting
called for the purpose of voting on such approval. Any such agreement may be
terminated at any time, without penalty, by either party to the agreement upon
sixty days' written notice and is automatically terminated in the event of its
"assignment," as defined in the 1940 Act.
Investment Advisor
The Board of Trustees of the Trust establishes the Fund's
policies and supervises and reviews the management of the Fund.
R.S. Pzena Investment Management, L.L.C. acts as Advisor to the
Fund. The Advisor was founded in 1995 and is controlled by Mr.
Richard S. Pzena, who is principally responsible for the
management of the Fund's portfolio.
Under the Investment Advisory Agreement with the Fund, the Advisor
provides the Fund with advice on buying and selling securities, manages the
investments of the Fund, furnishes the Fund with office space and certain
administrative services, and provides most of the personnel needed by the Fund.
As compensation, the Fund pays the Advisor a monthly management fee (accrued
daily) based upon the average daily net assets of the Fund at the rate of 1.25%
annually.
The Investment Advisory Agreement continues in effect from year to year so
long as such continuation is approved at least annually by (1) the Board of
Trustees of the Trust or the vote of a majority of the outstanding shares of the
Fund, and (2) a majority of the Trustees who are not interested persons of any
party to the Agreement, in each case cast in person at a meeting called for the
purpose of voting on such approval. The Agreement may be terminated at any time,
without penalty, by either the Fund or the Advisor upon sixty days' written
notice and is automatically terminated in the event of its assignment as defined
in the 1940 Act.
Administrator
The Fund has entered into an Administrative Management
Agreement with Southampton, a corporation owned in part and
controlled by Messrs. Banhazl, Paggioli and Wadsworth. The
Agreement provides that Southampton will prepare and coordinate
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<PAGE>
reports and other materials supplied to the Trustees; prepare and/or supervise
the preparation and filing of all securities filings, periodic financial
reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required filings necessary to maintain
the Fund's qualification and/or registration to sell shares in all states where
the Fund currently does, or intends to do business; coordinate the preparation,
printing and mailing of all materials (e.g., Annual Reports) required to be sent
to shareholders; coordinate the preparation and payment of Fund related
expenses; monitor and oversee the activities of the Fund's servicing agents
(i.e., transfer agent, custodian, fund accountants, etc.); review and adjust as
necessary the Fund's daily expense accruals; and perform such additional
services as may be agreed upon by the Fund and the Manager. For its services,
Southampton receives an annual fee equal to the greater of 0.20% of the Fund's
average daily net assets or $30,000.
Distributor
First Fund Distributors, (the "Distributor") a corporation owned by
Messrs. Banhazl, Paggioli and Wadsworth, acts as the Fund's distributor and
principal underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
from year to year if approved at least annually by (I) the Board of Trustees or
the vote of a majority of the outstanding shares of the Fund (as defined in the
1940 Act) and (ii) a majority of the Trustees who are not interested persons of
any such party, in each case cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreement may be terminated without
penalty by the parties thereto upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the Fund, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Investment Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Fund and which broker-dealers are
eligible to execute the Fund's portfolio transactions, subject to the
instructions of and review by the Fund. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
"market-maker" unless, in
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<PAGE>
the opinion of the Advisor, a better price and execution can otherwise be
obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Advisor will use its reasonable
efforts to choose broker-dealers capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers which furnish or supply research and statistical
information to the Advisor that it may lawfully and appropriately use in its
investment advisory capacities, as well as provide other services in addition to
execution services. The Advisor considers such information, which is in addition
to and not in lieu of the services required to be performed by it under its
Agreement with the Fund, to be useful in varying degrees, but of indeterminable
value. The placement of portfolio transactions with broker-dealers who sell
shares of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. Provided the Trust's officers are satisfied that the
Fund is receiving the most favorable price and execution available, the Fund may
also consider the sale of its shares as a factor in the selection of
broker-dealers to execute its portfolio transactions.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available, in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight may also be given to the ability of
a broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services were not imputed just to the Fund and may
be useful to the Advisor in
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<PAGE>
advising other clients. In negotiating any 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 Fund and the
Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer, which services either produce
a direct benefit to the Fund or assist the Advisor in carrying out its
responsibilities to the Fund. The standard of reasonableness is to be measured
in light of the Advisor's overall responsibilities to the Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds ("Funds") managed or advised by the
Advisor. Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts or Funds.
In such event, the position of the Fund and such client account(s) or Funds in
the same issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts or Funds seeks to acquire the same security as the Fund at
the same time, the Fund may not be able to acquire as large a portion of such
security as it desires, or it may have to pay a higher price or obtain a lower
yield for such security. Similarly, the Fund may not be able to obtain as high a
price for, or as large an execution of, an order to sell any particular security
at the same time. If one or more of such client accounts or Funds simultaneously
purchases or sells the same security that the Fund is purchasing or selling,
each day's transactions in such security will be allocated between the Fund and
all such client accounts or Funds in a manner deemed equitable by the Advisor,
taking into account the respective sizes of the accounts and the amount being
purchased or sold. It is recognized that in some cases this system could have a
detrimental effect on the price or value of the security insofar as the Fund is
concerned. In other cases, however, it is believed that the ability of the Fund
to participate in volume transactions may produce better executions for the
Fund.
Because the Distributor is a member of the National Association of
Securities Dealers, it is sometimes entitled to obtain certain fees when the
Fund tenders portfolio securities pursuant to a tender-offer solicitation. As a
means of recapturing brokerage for the benefit of the Fund, any portfolio
securities tendered by the Fund will be tendered through the Distributor if it
is legally permissible to do so.
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<PAGE>
The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
brokers solely for selling shares of the Fund, although the Fund may consider
the sale of shares as a factor in allocating brokerage. However, as stated
above, broker-dealers who execute brokerage transactions may effect purchase of
shares of the Fund for their customers. The Fund does not use the Distributor to
execute its portfolio transactions.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (I) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Advisor or the Distributor such rejection
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
Payments to shareholders for shares of the Fund redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable; or (C) for such other period as the SEC may permit for the
protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which it has not yet received confirmation of
good payment; in this circumstance, the Fund may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Fund may
make payment partly in securities with a current market value equal to the
redemption price. Although the Fund does not anticipate that it will make any
part of a redemption payment in securities, if such payment were made, an
investor may incur brokerage costs in converting such securities to cash. The
Fund has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash.
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<PAGE>
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption or repurchase.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of 4:00 p.m., New York City
time, on each day the New York Stock Exchange is open for trading. It is
expected that the Exchange will be closed on Saturdays and Sundays and on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas. The Fund does not expect to determine the
net asset value of its shares on any day when the Exchange is not open for
trading even if there is sufficient trading in its portfolio securities on such
days to materially affect the net asset value per share.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
the National Association of Securities Dealers' National Market System (the
"NASDAQ National Market System") are valued at the last sale price on the
business day as of which such value is being determined. If there has been no
sale on such exchange or the NASDAQ National Market System on such day, the
security is valued at the closing bid price on such day. Readily marketable
securities traded only in the over-the-counter market and not on the NASDAQ
National Market System are valued at the current or last bid price. If no bid is
quoted on such day, the security is valued by such method as the Board of
Trustees of the Trust shall determine in good faith to reflect the security's
fair value. All other assets of the Fund are valued in such manner as the Board
of Trustees in good faith deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in
advertisements and investor communications. Total return may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return
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<PAGE>
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 compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial purchase order of $1,000
from which the maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical
$1,000 purchase at the end of the period
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period and gives effect to the maximum applicable sales charge.
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of the Fund's
performance by independent sources may also be used in advertisements and in
information furnished to present or prospective investors in the Funds.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
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Star Bank, 425 Walnut Street, Cincinnati, OH 45202 acts as Custodian of the
securities and other assets of the Fund. American Data Services, 24 West Carver
Street. 2nd Floor, Huntington, NY 11743 acts as the Fund's transfer agent.
Tait, Weller, & Baker, Two Penn Plaza, Philadelphia, PA 19102 are the
independent auditors for the Fund.
Heller, Ehrman, White & McAuliffe, 333 Bush Street, San Francisco,
California 94104, are legal counsel to the Trust. Lane Altman & Owens, 101
Federal Street, Boston, MA 02110 are legal counsel to the Fund.
The holders of beneficial interest of a Massachusetts business trust
could, under certain circumstances, be held personally liable as partners for
its obligations. However, the Trust's Agreement and Declaration of Trust
contains an express disclaimer of beneficial interest holder liability for acts
or obligations of the Trust. The Agreement and Declaration of Trust also
provides for indemnification and reimbursement of expenses out of the Fund's
assets for any beneficial interest holder held personally liable for obligations
of the Fund or Trust. The Agreement and Declaration of Trust provides that the
Trust shall, upon request, assume the defense of any claim made against any
beneficial interest holder for any act or obligation of the Fund or Trust and
satisfy any judgment thereon. All such rights are limited to the assets of the
Fund. The Agreement and Declaration of Trust further provides that the Trust may
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
trustees, officers, employees and agents to cover possible tort and other
liabilities. Furthermore, the activities of the Trust as an investment company
would not likely give rise to liabilities in excess of the Trust's total assets.
Thus, the risk of a beneficial interest holder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
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APPENDIX
Description of Bond Ratings*
Moody's Investors Service
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations or protective elements
may be of greater amplitude or there may be other elements present which make
long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements: their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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Standard & Poor's Corporation
AAA: Bonds rated AAA are highest grade debt obligations. This
rating indicates an extremely strong capacity to pay principal
and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B: Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Ratings may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.
25
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
FORM N-1A
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements: Financial Statements for the fiscal year
ended March 31, 1995: Incorporated by reference from the annual
reports to shareholders for the fiscal year ended March 31, 1995 and
the semi-annual period ended September 30, 1995: incorporated by
reference from the semi-annual reports to shareholders for the fiscal
period ended September 30, 1995 (Avondale Total Return, Crescent,
Hodges, Osterweis, Perkins Opportunity, and Women's Equity Mutual Fund
Series)
Financial Statements for the fiscal year ended August 31, 1995:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended August 31, 1995
(Academy Value and Trent Equity Fund Series).
(b) Exhibits:
(1) Agreement and Declaration of Trust-2
(2) By-Laws--2
(3) Voting Trust Agreement -- Not applicable
(4) Specimen Share Certificate-3
(5) Form of Investment Advisory Agreement-1
(6) Form of Distribution Agreement-1
(7) Benefit Plan -- Not applicable
(8) Form of Custodian Agreement-5
(9) Form of Administration Agreement-1
(10) Consent and Opinion of Counsel as to legality
of shares-3
(11) Consent of Accountants-2
(12) All Financial Statements omitted from Item 23 --
Not applicable
(13) Letter of Understanding relating to initial
capital-3
(14) Model Retirement Plan Documents - Not applicable
(15) Form of Plan pursuant to Rule 12b-1-1
(16) Schedule for Computation of Performance
Quotations-5
<PAGE>
1 Incorporated by reference from Post-Effective Amendment No.
24 to the Registration Statement on Form N-1A, filed on January 16, 1996.
2 Incorporated by reference from Post-Effective Amendment No.
23 to the Registration Statement on Form N-1A, filed on December 28, 1995.
3 Incorporated by reference from Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A, filed on April 13,
1987.
4 Incorporated by reference to Post-effective Amendment No. 5
to the Registration Statement on Form N-1A, filed on May 2,
1991.
5 Incorporated by reference to Post-Effective Amendment No. 7
to the Registration Statement on Form N-1A filed on June 17,
1992.
Item 25. Persons Controlled by or under Common Control with
Registrant.
As of the date of this Amendment to the Registration Statement, there
are no persons controlled or under common control with the Registrant.
Item 26. Number of Holders of Securities.
Number of Record
Holders as of
Title of Class January 2, 1996
Shares of Beneficial Interest, no par value:
Academy Value Fund 124
Avondale Total Return Fund 130
Crescent Fund 107
Hodges Fund 609
Osterweis Fund 122
Perkins Opportunity Fund 4,611
ProConscience Womens Equity Fund 456
Trent Equity Fund 218
Matrix Growth Fund 510
Matrix Emerging Growth Fund 43
Kayne, Anderson Rising Dividend Fund 93
Insightful Investor Growth Fund 120
Leonetti Balanced Fund 187
U.S.Global Leaders Growth Fund 15
Item 27. Indemnification
The information on insurance and indemnification is
incorporated by reference to Pre-Effective Amendment No. 1 and
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement.
In addition, insurance coverage for the officers and trustees of the
Registrant also is provided under a Directors and Officers/Errors and Omissions
Liability insurance policy issued by ICI Mutual Insurance Company with a
$1,000,000 limit of liability.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
With respect to Investment Advisors, the response to this item is
incorporated by reference to their Form ADVs as amended:
Herbert R. Smith & Co, Inc. File No. 801-7098
Hodges Capital Management, Inc. File No. 801-35811
Perkins Capital Management, Inc. File No. 801-22888
Crescent Research & Management File No. 801-36828
Osterweis Capital Management File No. 801-18395
Pro-Conscience Funds, Inc. File No. 801-43868
Trent Capital Management, Inc. File No. 801-34570
Academy Capital Management File No. 801-27836
Kayne, Anderson Investment Mgmnt. File No. 801-24241
Sena, Weller, Rohs, Williams File No. 801-5326
Insightful Management Company File No. 801-46565
Leonetti & Associates, Inc. File No. 801-36381
Lighthouse Capital Management File No. 801-32168
Yeager, Wood & Marshall, Inc. File No. 801-4995
Harris Bretall Sullivan & Smith File No. 801-7369
R.S. Pzena Investment Management File No. 801-50838
With respect to United States Trust Company of Boston, the response to this
item is incorporated by reference to the responses to Item 5 of Part A and Item
16 of Part B ("Management")of Post-Effective Amendment No. 20 to the
Registration Statement.
Item 29. Principal Underwriters.
(a) First Fund Distributors, Inc. (the "Distributor") is the principal
underwriter all series of the Registrant except for the Hodges Fund, the Matrix
Growth Fund, the Matrix Emerging Growth Fund and the Insightful Investor Growth
Fund. The Distributor acts as principal underwriter for the following other
investment companies:
<PAGE>
RNC Liquid Assets Fund, Inc.
Hotchkis and Wiley Funds
PIC Investment Trust
Rainier Investment Management Mutual Funds
Guinness Flight Investment Funds
Jurika & Voyles Fund Group
First Dallas Securities, Inc., 2311 Cedar Springs Rd., Ste.
100, Dallas, TX 75201, an affiliate of Hodges Capital
Management, acts as Distributor of the Hodges Fund. The
President and Chief Financial Officer of First Dallas
Securities, Inc. is Don W. Hodges. First Dallas does not act
as principal underwriter for any other investment companies.
Reynolds, DeWitt Securities Co., an affiliate of Sena Weller
Rohs Williams, 300 Main St., Cincinnati, OH 45202, acts as
Distributor for the Matrix Growth Fund and Matrix Emerging
Growth Fund. Newcomb & Company, 6 New England Executive Park,
Ste. 400, Burlington, MA 01803 acts as Distributor for the
Insightful Investor Growth Fund.
(b) The officers of First Fund Distributors, Inc. are:
Robert H. Wadsworth President & Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Secretary
Each officer's business address is 4455 E. Camelback Rd.,
Ste. 261-E, Phoenix, AZ 85018. Mr. Paggioli serves as
President and a Trustee of the Registrant. Mr. Wadsworth serves
as Vice President of the Registrant. Mr. Banhazl serves as
Treasurer of the Registrant.
c. Incorporated by reference from the Statement of
Additional Information filed herewith as Part B.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession the Registrant's
custodian and transfer agent, except those records relating to portfolio
transactions and the basic organizational and Trust documents of the Registrant
(see Subsections (2) (iii). (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which, with respect to portfolio transactions are kept by each Fund's
Advisor at its address set forth in the prospectus and statement of additional
information and with respect to trust documents by its administrator at 479 West
22nd Street, New York, NY 10011.
<PAGE>
Item 31. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 32. Undertakings
The registrant undertakes to file a post-effective amendment using financial
statements which need not be certified, within four to six months from the
effective date of this amendment, as such requirement is interpreted by the
staff in its generic comment letter dated February 25, 1994.
The registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of each Fund's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York in the State of New York on
January 26, 1996.
PROFESSIONALLY MANAGED PORTFOLIOS
By: Steven J. Paggioli
Steven J. Paggioli
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Steven J. Paggioli Trustee January 26, 1996
Steven J. Paggioli
Eric M. Banhazl Principal January 26, 1996
Eric M. Banhazl Financial
Officer
Dorothy A. Berry Trustee January 26, 1996
*Dorothy A. Berry
Wallace L. Cook Trustee January 26, 1996
*Wallace L. Cook
Carl A. Froebel Trustee January 26, 1996
*Carl A. Froebel
Rowley W. P. Redington Trustee January 26, 1996
*Rowley W. P. Redington
* By: Steven J. Paggioli
Steven J. Paggioli, Attorney-in-Fact
under powers of attorney as filed with
Post-Effective Amendment No. 20 to the
Registration Statement.
