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SECURITIES ACT FILE NO. 33-12213
INVESTMENT COMPANY ACT FILE NO. 811-5037
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post Effective Amendment No. 27 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 28 /X/
(Check appropriate box or boxes)
PROFESSIONALLY MANAGED PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
479 West 22nd Street 10011
New York, NY (Zip Code)
(Address of Principal Executive Offices)
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:
XX Immediately upon filing pursuant to paragraph (b)
--
On pursuant to paragraph (b)
--
60 days after filing pursuant to paragraph (a)(1)
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On pursuant to paragraph (a)(1)
--
75 days after filing pursuant to paragraph (a)(2)
--
On pursuant to paragraph (a)(2) of Rule 485
--
If appropriate, check the following box: / /
this post-effective amendment designates a new effective date for a
--
previously filed post-effective amendment.
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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 February
28, 1996.
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CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
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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
Performance ............................... See Annual 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
Item 8. Redemption or Repurchase .................. How to Redeem an
Investment in the Fund
Item 9. Pending Legal Proceedings ................. N/A
</TABLE>
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<TABLE>
<CAPTION>
Part B
<S> <C>
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 of 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
Information
Item 21. Underwriters .............................. The Fund's Distributor
Item 22. Performance Information ................... Performance Information
Item 23. Financial Statements ...................... N/A
</TABLE>
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> 4
INSIGHTFUL INVESTOR GROWTH FUND
175 GREAT NECK ROAD, STE. 307
GREAT NECK, NY 11021
(800) 385-7003
INSIGHTFUL INVESTOR GROWTH FUND (the "Fund") is a mutual fund with the
investment objective of seeking growth of capital. The Fund seeks to achieve its
objective by investing principally in common stocks. Insightful Management
Corporation (the "Advisor") serves 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 May 1, 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
<TABLE>
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Expense Table........................................................ 2
Financial Highlights................................................. 3
Objective and Investment Approach of the Fund........................ 4
Management of the Fund............................................... 6
How To Invest in the Fund............................................ 7
How To Redeem an Investment in the Fund.............................. 9
Services Available to the Fund's Shareholders........................ 10
How the Fund's Per Share Value Is Determined......................... 11
Distributions and Taxes.............................................. 11
General Information.................................................. 12
</TABLE>
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 MAY 1, 1996
<PAGE> 5
INSIGHTFUL INVESTOR GROWTH FUND (the "Fund") is a diversified series of
Professionally Managed Portfolios (the "Trust"), an open-end management
investment company offering redeemable shares of beneficial interest. Shares may
be purchased at their net asset value per share without a sales charge. The
minimum initial investment is $10,000 with subsequent investments of $500 or
more ($1,000 and $100, respectively, for retirement plans). The Fund has adopted
a plan of distribution under which the Fund will pay the Distributor a fee at an
annual rate of up to 0.25% of the Fund's net assets. A long-term shareholder may
pay more, directly and indirectly, in sales charges and such fees than the
maximum sales charge permitted under the rules of the National Association of
Securities Dealers. Shares will be redeemed at net asset value per share.
Although the principal of the Advisor is the editor of Invest With The
Masters, an investment newsletter, and the Advisor, in managing the Fund's
portfolio, may use investment approaches and techniques developed in connection
with the newsletter, investors should be aware that the securities held by the
Fund, the Fund's operating expenses, policies and restrictions, and its
investment results will differ from investment techniques, securities and
results that may be discussed in the newsletter. Particular securities and
investment performance discussed in the newsletter should not be regarded as
indicative of the holdings of or investment results to be obtained from an
investment in the Fund.
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 the
various costs and expenses which may be borne directly or indirectly by an
investment in the Fund. Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C>
Investment Advisory Fee...................................................... 1.25%
Fee to Administrative Manager................................................ *0.20%
12b-1 Fee.................................................................... 0.25%
Other expenses (after waiver)................................................ **0.80%
----
Total Fund Operating Expenses (after waiver)*................................ **2.50%
====
</TABLE>
*The Administrative Manager's fee is the greater of 0.20% of average daily net
assets annually or $30,000.
**The Advisor has undertaken to limit the Fund's operating expenses to an amount
which will not exceed the most restrictive state expense limitation, which is
currently 2.50% annually of average net assets under $30 million.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
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. $25 $78 $133 $284
</TABLE>
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THE EXAMPLE SHOWN ON THE PREVIOUS PAGE 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."
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period.
The following information has been audited by Tait, Weller & Baker,
independent accountants, whose unqualified report covering the period indicated
below is incorporated by reference herein and appears in the annual report to
shareholders. This information should be read in conjunction with the financial
statements and accompanying notes which are incorporated by reference from the
annual report into the Statement of Additional Information. Further information
about the Fund's performance is contained in its annual report, which may be
obtained without charge by writing or calling the address or telephone number on
the Prospectus cover page.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
July 28, 1995*
through
December 31, 1995
- -----------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period ..................................... $10.00
------
Income from investment operations:
Net investment income .............................................. .01
Net realized and unrealized gain on investments .................... 1.59
------
Total from investment operations.......................................... 1.60
------
Less distributions:
Dividends from net investment income................................ (.01)
------
Net asset value, end of period ........................................... $11.59
======
Total return ............................................................. 15.93%
Ratios/supplemental data:
Net assets, end of period (millions)...................................... $ 2.1
Ratio of expenses to average net assets:
Before expense reimbursement ....................................... 8.13%+
After expense reimbursement......................................... 2.50%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement ....................................... (5.31)%+
After expense reimbursement ........................................ 0.32%+
Portfolio turnover rate .................................................. 50.75%
</TABLE>
*Commencement of operations.
+Annualized.
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OBJECTIVE AND INVESTMENT APPROACH OF THE FUND
The investment objective of the Fund is growth of capital. The Fund pursues
its objective by investing principally in common stocks and under normal market
conditions, at least 65% of the Fund's total assets will be invested in common
stocks that the Advisor believes will produce growth of capital. The Fund also
may invest in preferred stocks, warrants, convertible debt obligations, and
other debt obligations that, in the Advisor's opinion, offer the possibility of
capital growth. There is, of course, no assurance that the Fund's objective will
be achieved. Because the price of common stocks and other securities 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. The Fund is diversified, which under
applicable federal law means that as to 75% of its total assets, no more than 5%
may be invested in the securities of a single issuer and that no more than 10%
of its total assets may be invested in the voting securities of any such issuer.
INVESTMENT APPROACH. The Advisor's approach to selecting securities with
growth potential begins with its identification and selection of a limited
number of top-performing investors and investment managers ("major investors")
with long-term track records of superior investment performance whose own
investments and recommendations, in the Advisor's judgment, present
possibilities for growth. The Advisor gains access to such information through
publications disseminated by such major investors, through research and on-line
services that track purchases and sales of such investors, and through
monitoring of publicly available information about securities transactions of
such investors, such as governmental regulatory reports.
Once the Advisor has identified a group of growth stocks from its analysis
of current holdings and recommendations of such major investors, such stocks are
further analyzed by the Advisor to determine which of them would be appropriate
for purchase by the Fund. In general, the Advisor looks for companies whose
sales and earnings have grown by at least 20% per year for the past three years,
with strong positive cash flow from operations and strong balance sheets. The
overall goal is to select those growth stocks that are viewed as likely to show
strong sales and earnings gains over the next two years and are trading at
price/earnings ratios below the overall market.
During those times when stocks cannot be found that meet the Advisor's
investment criteria, and for temporary defensive purposes or pending longer-term
investment, the Fund may invest any amount of its assets in short-term money
market instruments, including securities issued by the U.S. Government, its
agencies and instrumentalities ("U.S. Government Securities") or other such
instruments rated in the top two grades by Moody's Investors Services
("Moody's") or Standard & Poor's Corporation ("S&P") or, if unrated, instruments
deemed to be of comparable quality by the Advisor.
Sales of the Fund's portfolio securities by the Advisor may occur where the
Advisor believes, either based on its own analysis or jointly with the
assessment of one of the major investors the Advisor follows, that the stock
appears fully valued or overvalued based on its growth prospects, that the
growth prospects of a particular stock have decreased based on a fundamental
change in the company's business, or notwithstanding growth prospects, the stock
is viewed negatively by the majority of the major investors the Advisor follows.
PORTFOLIO TURNOVER. The annual rate of portfolio turnover is not expected
to exceed 100%. 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.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements in
order to earn additional income on available cash, or as a defensive investment
in periods when the Fund is primarily in short-term securities. A
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repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Fund) 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 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 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 banks with assets
of $500 million or more that are insured by the Federal Deposit Insurance
Corporation and the most creditworthy 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, and the Fund will not invest
more than 10% of its net assets in illiquid securities, including repurchase
agreements maturing in more than seven days.
ILLIQUID AND RESTRICTED SECURITIES. The Fund may not invest more than 10%
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. Restricted securities do
not include those which meet the requirements of Rule 144A under the Securities
Act of 1933, as amended, and which the Trustees of the Trust have determined to
be liquid based on the applicable trading markets.
FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets in
U.S. dollar-denominated 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
foreign governmental restrictions. The Fund may also invest without limit in
securities of foreign issuers which are listed and traded on a domestic national
securities exchange.
SHORT SALES. The Fund may engage in short sales of securities. In a short
sale, the Fund sells stock which it does not own, making delivery with
securities "borrowed" from a broker. The Fund is then obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. This price may or may not be less than the price at which the
security was sold by the Fund. Until the security is replaced, the Fund is
required to pay to the lender any dividends or interest which accrue during the
period of the loan. In order to borrow the security, the Fund may also have to
pay a premium which would increase the cost of the security sold. The proceeds
of the short sale will be retained by the broker, to the extent necessary to
meet margin requirements, until the short position is closed out.
The Fund also must deposit in a segregated account an amount of cash or
U.S. Government Securities equal to the difference between (a) the market value
of the securities sold short at the time they were sold short and (b) the value
of the collateral deposited with the broker in connection with the short sale
(not including the proceeds from the short sale). While the short position is
open, the Fund must maintain daily the segregated account at such a level that
(1) the amount deposited in it plus the amount deposited with the broker as
collateral equals the current market value of the securities sold short and (2)
the amount deposited in it plus the amount deposited with the broker as
collateral is not less than the market value of the securities at the time they
were sold short.
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The Fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased and the amount of any loss will be increased by any dividends or
interest the Fund may be required to pay in connection with the short sale.
The dollar amount of short sales at any one time (not including short sales
against-the-box) may not exceed 25% of the net equity of the Fund. The value of
securities of any one issuer in which the Fund is short may not exceed the
lesser of 2% of the value of the Fund's net assets or 2% of the securities of
any class of any issuer.
A short sale is "against-the-box" if at all times when the short position
is open, the Fund owns an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for, securities
of the same issue as the securities sold short. Such a transaction serves to
defer a gain or loss for Federal income tax purposes.
OPTIONS TRANSACTIONS. The Fund may buy call and put options on individual
securities, stock indices, index futures, and write covered call and put
options, and engage in related closing transactions. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell the
underlying security at the exercise price at any time during the option period.
Conversely, a put option gives the purchaser of the option the right to sell,
and obligates the writer to buy the underlying security at the exercise price at
any time during the option period. A covered call option sold by the Fund, which
is a call option with respect to which the Fund owns the underlying security,
exposes the Fund during the term of the option to possible loss of opportunity
to realize appreciation in the market price of the underlying security or to
possible continued holding of a security which might otherwise have been sold to
protect against depreciation in the market price of the security. A covered put
option sold by the Fund exposes the Fund during the term of the option to a
decline in the price of the underlying security. A put option sold by the Fund
is covered when, among other things, cash or liquid securities are placed in a
segregated account with the Fund's custodian to fulfill the obligation
undertaken.
To close out a position when writing covered options, the Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
security with the same exercise price and expiration date as the option which it
has previously written on the security. To close out a position as a purchaser
of an option, the Fund may make a "closing sale transaction," which involves
liquidating the Fund's position by selling the option previously purchased. The
Fund will realize a profit or loss from a closing purchase or sale transaction
depending upon the difference between the amount paid to purchase an option and
the amount received from the sale thereof.
The Fund has adopted certain 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, Insightful
Management Corporation, 175 Great Neck Road, Ste. 307, Great Neck, NY 11021, has
been in the investment advisory business since 1994. The Advisor is controlled
by Mr. Dan Bruce Levine who is responsible for management of the Fund's
portfolio. While the Advisor has not previously advised a registered investment
company, Mr. Levine is the former owner and publisher and is the editor of
Invest With The Masters, an investment newsletter which has utilized investment
strategies that the Fund may utilize.
6
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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
annual rate of 1.25%. This fee is higher than that paid by most investment
companies.
Investment Company Administration Corporation (the "Administrator") acts as
the Fund's Administrator under an Administration 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 of the Trust, 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 receive a monthly fee at the following annual rate:
<TABLE>
<CAPTION>
Average net assets of the Fund Fee or fee rate
------------------------- --------------------
<S> <C>
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 to $100 million 0.15% of average net assets
$100 to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
</TABLE>
The Fund is responsible for its own operating expenses. The Advisor has
undertaken to limit the Fund's operating expenses to an amount which will not
exceed the most restrictive state expense limitation, which is currently 2.50%
annually of average net assets under $30 million. 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. Any such
reductions made by the Advisor in its fees or payments or reimbursement of
expenses which are the Fund's obligation may be subject to reimbursement by the
Fund.
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 $10,000. Subsequent
investments must be at least $500. Investments in retirement plans may be for an
initial minimum of $1,000 and subsequent investments of at least $100. Newcomb &
Company (the "Distributor"), 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 the public
offering price next determined after a purchase order is received, which is the
net asset value per share. The public offering price is effective for orders
received by the Fund or investment dealers prior to the time of the next
determination of the Fund's net asset value, and in the case of orders placed
with dealers, transmitted promptly to the Transfer Agent. Orders received after
the time of the next determination of the Fund's net asset value will be entered
at the next calculated public offering price.
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<PAGE> 11
PURCHASES SENT TO THE TRANSFER AGENT. Investors may purchase shares by
sending an Account Application directly to the Transfer Agent, with payment made
either 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 "Insightful Investor Growth Fund," should be
sent to Insightful Investor Growth Fund, P.O. Box 856, Cincinnati, OH
45264-0856. Investments sent by overnight delivery services should be sent to
Insightful Investor Growth Fund, Star Bank, N.A., 425 Walnut St., Mutual Fund
Custody Dept., M.L. 6118, Cincinnati, OH 45202.
For subsequent investments, a stub is attached to the account statement
sent to shareholders after each transaction. The stub should be detached from
the statement and together with a check payable to "Insightful Investor Growth
Fund," mailed to the address indicated above. The investor's account number
should be written on the check.
BY WIRE. For initial investments, before wiring funds, an investor should
call the Transfer Agent at (800) 385-7003 between the hours of 9:00 AM and 4:00
PM Eastern time on a day when the NYSE is open for trading to advise that an
initial investment will be made by wire and to receive an account number. It is
necessary to notify the Fund prior to each wire purchase. Wires sent without
notifying the Fund will result in a delay of the effective date of your
purchase. 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 completed 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:
Star Bank, N.A.
ABA Routing Number: 0420-0001-3
for further credit to Insightful Investor Growth Fund
Account Number [Name of Shareholder]
For subsequent investments, the investor should first notify the Fund and
then the investor's bank should wire funds as indicated above. 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. Investors will not be permitted to redeem any shares purchased
with an initial investment made by wire until one business day after the
completed Account Application is received by the Fund. All investments must be
made in U.S. dollars and, 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., New York City 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
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<PAGE> 12
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 is not required to 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
his outstanding shares at their current net 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. 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's Transfer Agent at
(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 Transfer Agent 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 the Transfer Agent 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 normal identification procedures are not followed,
the Fund or its agents could be liable for any loss, liability 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 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 the 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
9
<PAGE> 13
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.
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 Gift 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 $10,000. 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 $10,000 and will be allowed 30 days to make an additional investment to
bring the value of his account to at least $10,000 before the Fund takes any
action.
DISTRIBUTION AGREEMENT. The Distributor is the principal underwriter and
distributor of shares of the Fund. The Distributor makes a continuous offering
of the Fund's shares and bears the costs and expenses of printing and
distributing to selected dealers and prospective investors any copies of any
prospectuses, statements of additional information and annual and interim
reports of the Fund other than to existing shareholders (after such items have
been prepared and set in type by the Fund) which are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the shares for sale
to the public. All or a part of the expenses borne by the Distributor may be
reimbursed pursuant to the Distribution and Shareholder Servicing Plan discussed
below.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN. The Fund has adopted a
Distribution and Shareholder Servicing Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan") under which the Fund pays the
Distributor an amount which is accrued daily and paid monthly, at an annual rate
of up to 0.25% of the average daily net assets of the Fund. Amounts paid under
the Plan by the Fund are paid to the Distributor to reimburse it for costs of
the services it provides and the expenses it bears in the distribution of the
Fund's shares, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to prospective investors; and preparation, printing and
distribution of sales literature and advertising materials. Such fee is paid to
the Distributor each year only to the extent of such costs and expenses of the
Distributor under the Plan actually incurred in that year, up to 0.25% of the
average daily net assets of the Fund for that year. In addition, payments to the
Distributor under the Plan reimburse the Distributor for payments it makes to
selected dealers and administrators which have entered into Service Agreements
with the Distributor of periodic fees for services provided to shareholders of
the Fund. The services provided by selected dealers pursuant to the Plan are
primarily designed to promote the sale of shares of the Fund and include the
furnishing of office space and equipment, telephone facilities, personnel and
assistance to the Company in servicing such shareholders. The service provided
by administrators pursuant to the Plan are designed to provide support services
to the Fund and include establishing and maintaining shareholders' accounts and
records, processing purchase and redemption transactions, answering routine
client inquires regarding the Fund, and providing such other services to the
Fund as the Company may reasonably request.
SERVICES AVAILABLE TO THE FUND'S SHAREHOLDERS
RETIREMENT PLANS. The minimum initial investment for such plans is $1,000,
with minimum subsequent investments of $100. The Fund offers a prototype
Individual Retirement Account ("IRA") plan and information is available from the
Distributor or from your securities dealer with respect to Keogh, Section 403(b)
and other retirement plans offered. Investors should consult a tax adviser
before establishing any retirement plan.
10
<PAGE> 14
CHECK-A-MATIC PLAN. For the convenience of shareholders, the Fund offers a
preauthorized check service under which a check is automatically drawn on the
shareholder's personal checking account each month for a predetermined amount
(but not less than $250), as if the shareholder had written it himself. Upon
receipt of the withdrawn funds, the Fund automatically invests the money in
additional shares of the Fund at the current net asset value. Applications for
this service are available from the Distributor. There is no charge by the Fund
for this service. The Distributor may terminate or modify this privilege at any
time, and shareholders may terminate their participation by notifying the
Transfer Agent in writing, sufficiently in advance of the next scheduled
withdrawal.
SYSTEMATIC WITHDRAWAL PROGRAM. As another convenience, the Fund offers a
Systematic Withdrawal Program whereby shareholders may request that a check
drawn in a predetermined amount be sent to them each month or calendar quarter.
A shareholder's account must have Fund shares with a value of at least $10,000
in order to start a Systematic Withdrawal Program, and the minimum amount that
may be withdrawn each month or quarter under the Systematic Withdrawal Program
is $100. This Program may be terminated or modified by a shareholder or the Fund
at any time without charge or penalty.
A withdrawal under the Systematic Withdrawal Program involves a redemption
of shares, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceed the dividends credited to the
shareholder's account, the account ultimately may be depleted.
EXCHANGE PRIVILEGE. Shareholders may exchange shares (in amounts of $1,000
or more) of the Fund for shares of RNC Liquid Assets Fund, Inc. ("RNC Fund"), a
money market fund not affiliated with the Fund or the Advisor, if such shares
are offered in your state of residence. Prior to making such exchange, you
should obtain and carefully read the prospectus for the RNC Fund. The exchange
privilege does not constitute an offering or recommendation on the part of the
Fund or Advisor of an investment in the RNC Fund. For further information,
contact the Transfer Agent at 1-800-385-7003.
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 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 are
declared and paid at least annually, typically at the end of the Fund's fiscal
year (December 31). Any undistributed 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 gain 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 payment be made
in cash.
11
<PAGE> 15
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 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. The 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 dividends 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 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.
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
12
<PAGE> 16
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
Transfer Agent at (800) 385-7003.
13
<PAGE> 17
ADVISOR
Insightful Management Corporation
175 Great Neck Rd., Ste. 307
Great Neck, NY 11021
DISTRIBUTOR
Newcomb & Company
Six New England Executive Park
Burlington, MA 01803
CUSTODIAN
Star Bank, N.A.
425 Walnut St.
Cincinnati, OH 45202
TRANSFER AGENT
American Data Services, Inc.
24 West Carver St.
Huntington, NY 11743
(800) 385-7003
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, PA 19102
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
INSIGHTFUL
INVESTOR
GROWTH
FUND
PROSPECTUS
MAY 1, 1996
<PAGE> 18
NEW ACCOUNT APPLICATION
INSIGHT INVESTOR
GROWTH FUND MAIL TO: Insightful Investor Growth Fund
P.O. Box 856
Cincinnati, Ohio 45264-0856
Use this form only for individual, custodial, trust, profit-sharing, pension or
other plan accounts. Do NOT use this form for IRA's (unless the IRA is a
self-directed IRA with another trustee or custodian). A special form is
available for IRA's; please call (800) 385-7003 for information or assistance.
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNT (FOR INDIVIDUAL
REGISTRATION OR ---------------------------------------------------------------------------------------------
JOINT OWNERS) First Name Middle Name or Initial Last name Social Security Number
---------------------------------------------------------------------------------------------
Joint Owner Social Security Number
Registration will be "Joint Tenants with Right of Survivorship" unless otherwise specified:
---------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
(FOR UNIFORM
[ ] TRANSFERS ---------------------------------------------------------------------------------------------
[ ] GIFTS Custodian's Name (Only One Allowed)
TO MINORS ACT
ACCOUNTS) ---------------------------------------------------------------------------------------------
Minor's Name (Only One Allowed) Minor's Social Security No.
---------------------------------------------------------------------------------------------
State of Residence
------------------------------------------------------------------------------------------------------------------
(FOR CORPORATE
TRUST OR OTHER ---------------------------------------------------------------------------------------------
FIDUCIARY Name of Corporation Trust, etc.
ACCOUNTS)
---------------------------------------------------------------------------------------------
Name and Date of Trust (Continued)
---------------------------------------------------------------------------------------------
Name(s) of Trustee(s), Beneficiary, etc. Tax ID Number
- ----------------------------------------------------------------------------------------------------------------------------------
ADDRESS FOR
MAILINGS ---------------------------------------------------------------------------------------------
Number and Street
---------------------------------------------------------------------------------------------
Apartment, Floor or Room Number Telephone No. (Include Area Code)
---------------------------------------------------------------------------------------------
City State Zip Code
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT AMOUNT [ ] By wire (Please call (800) 385-7003 for instructions)
[ ] By check, payable to "Insightful Investor Growth Fund"
$ _________ [ ] Existing account
MINIMUN INITIAL INVESTMENT [ ] Order previously placed with investment dealer
IS $10,000
</TABLE>
IMPORTANT: THIS FORM IS CONTINUED ON THE REVERSE SIDE
<PAGE> 19
- -------------------------------------------------------------------------------
DISTRIBUTIONS [ ] U.S. Citizen [ ] Other____________ (County of Residence)
-------------------------------------------------------------
Dividends and distributions will be reinvested unless a box
is checked:
[ ] Dividends in cash; capital gain distributions reinvested
[ ] Dividends and capital gain distributions in cash
- ------------------------------------------------------------------------------
SYSTEMATIC [ ] Beginning on ___________, I would like checks sent to me
WITHDRAWAL [ ] monthly or [ ] quarterly. The amount of each check should
PROGRAM be $________. I understand that payments will be made by
redeeming shares from my account and that if the rate of
redemption exceeds the rate of growth of the Fund, my
account may ultimately be depleted.
- -------------------------------------------------------------------------------
REDEMPTIONS [ ] I would like to be able to place a redemption order by
BY TELEPHONE telephone and have the proceeds mailed or wired directly to
the bank account listed below. I understand that these
procedures are offered as a convenience to me, and I agree
that if the identification procedures set forth in the
prospectus are followed, neither the Funds nor the
Transfer Agent will be liable for any loss, expense or
cost arising from one of these transactions.
_____________________________________________________________
Name of Bank Address of Bank
_____________________________________________________________
Bank's ABA Number Account Number Name(s) on Account
- -------------------------------------------------------------------------------
SIGNATURES: I represent that I am of legal age, have legal capacity to make
this purchase and have received and read a prospectus. I certify under penalty
of perjury that: (1) the social security or other tax identification number
stated above is correct and (2) I am not subject to backup withholding because
[ ] the IRS has not informed me that I am subject to backup withholding, or
[ ] the IRS has notified me that I am no longer subject to backup withholding.
(Check appropriate box. If you ARE subject to backup withholding, strike
out section 2.)
______________________________________________________________________________
Signature of Owner, Signature of Joint Owner Date
Trustee or Custodian
- ------------------------------------------------------------------------------
DEALER INFORMATION
______________________________________________________________________________
Name of Dealer Name of Representative Rep ID No.
______________________________________________________________________________
Address of Reps Branch Branch ID No.
APP.IIG 3/96
<PAGE> 20
KAYNE, ANDERSON
KAYNE, ANDERSON RISING DIVIDENDS FUND
1800 AVENUE OF THE STARS, SECOND FLOOR
LOS ANGELES, CA 90067
(310) 556-2721
KAYNE, ANDERSON RISING DIVIDENDS FUND (the "Fund") is a no-load mutual fund
whose primary investment objective is long-term capital appreciation, with
dividend income as a secondary consideration. The Fund seeks to achieve its
objective by investing principally in equity securities. Kayne, Anderson
Investment Management, L.P. (the "Advisor"), serves as investment advisor to the
Fund.
This Prospectus must be delivered to the investor prior to consummation of
sale and 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 May 1, 1996, as may be amended from
time to time, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This Statement of Additional Information is
available without charge upon written request to the Fund at the address given
above.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Table..................................................... 2
Financial Highlights.............................................. 3
The Fund's Investment Objective................................... 4
Other Investment Policies......................................... 4
Investment Restrictions........................................... 7
Management of the Fund............................................ 7
How to Buy Shares of the Fund..................................... 8
Shareholder Services and Privileges............................... 9
How to Redeem Shares of the Fund.................................. 10
Dividends, Distributions and Tax Status........................... 11
Performance Information........................................... 12
General Information............................................... 13
</TABLE>
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 MAY 1, 1996
<PAGE> 21
EXPENSE TABLE
The following fee table is provided to assist investors in understanding
the various costs and expenses which may be borne directly or indirectly by an
investment in the Fund. Annual Fund operating expense percentages shown below
are based on estimated annualized charges to the Fund during its first full year
of operation. Actual expenses may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases (as a percentage of offering price)...... None
Sales charge on reinvested dividends ...................................... None
Maximum contingent deferred sales charge (as % of redemption proceeds)..... None
Rule 12b-1 distribution fees .............................................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees ........................................................... 0.75%
Administrative fees........................................................ 0.20%
Other expenses............................................................. 0.25%
-----
Total Operating Expenses .................................................. 1.20%*
=====
</TABLE>
For more information regarding costs and expenses, see "Management of the
Fund" at page 7.
*The Advisor has undertaken to limit the Fund's expenses so that they will
not exceed the limits set by applicable state regulations. The Advisor also may
reimburse additional amounts to the Fund at any time in order to reduce the
Fund's operating expenses, or to the extent required by applicable securities
laws. To the extent that the Advisor reduces its fees, the Fund will reimburse
the Advisor when operating expenses (before reimbursement) are less than the
expense limitation. Thus, overall operating expenses in the future may not fall
below the expense limitation until the Advisor has been fully reimbursed for any
fees foregone.
<TABLE>
<CAPTION>
EXAMPLE ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Assuming a hypothetical investment
of $1,000, a 5% annual return and
redemption at the end of each time
period, an investor in the Fund would
have paid transaction and operating
expenses at the end of each year as
follows: $13 $41 $66 $145
</TABLE>
THIS EXAMPLE 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.
2
<PAGE> 22
The KAYNE, ANDERSON RISING DIVIDENDS FUND (the "Fund") is a diversified
series of Professionally Managed Portfolios (the "Trust") a registered open-end
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 $5,000 with subsequent
investments of $250 or more ($2,000 and $200, respectively, for retirement
plans).
Like all equity investments, an investment in the Fund involves certain
risks. The value of the Fund's shares will fluctuate with market conditions, and
an investor's shares, when redeemed, may be worth more or less than their
original cost.
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period.
The following information has been audited by Tait, Weller & Baker,
independent accountants, whose unqualified report covering the period indicated
below is incorporated by reference herein and appears in the annual report to
shareholders. This information should be read in conjunction with the financial
statements and accompanying notes which appear in the annual report which is
incorporated by reference in the Statement of Additional Information. Further
information about the Fund's performance is contained in its annual report,
which may be obtained without charge by writing or calling the Investment
Advisor at the address or telephone on the Prospectus cover page.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
May 1, 1995*
through
December 31,1995
- -----------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period............................. $10.65
------
Income from investment operations:
Net investment income...................................... .07
Net realized and unrealized gain on investments............ 2.13
------
Total income from investment operations.......................... 2.20
------
Less distributions:
Dividends from net investment income....................... (.07)
Distributions from net capital gains....................... (.15)
------
Total distributions.............................................. (.22)
Net asset value, end of period................................... $12.63
======
Total return..................................................... 20.65%++
Ratios/supplemental data:
Net assets, end of period (millions)............................. $ 20.6
Ratio of expenses to average net assets.......................... 1.31%+
Ratio of net investment income to average net assets............. 0.94%+
Portfolio turnover rate.......................................... 28%
</TABLE>
*Commencement of operations.
+Annualized.
3
<PAGE> 23
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation, with
dividend income as a secondary consideration. The Fund seeks to achieve its
objective by investing principally in common stocks, and in normal market
conditions, at least 80% of the value of the Fund's total assets will be
invested in common stocks. The Fund also may invest in preferred stocks,
warrants, convertible debt securities and other debt obligations that, in the
Advisor's opinion, offer the possibility of capital appreciation. Because prices
of common stocks and other securities 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. The Fund is diversified, which under applicable federal law means that as
to 75% of its total assets, no more than 5% may be invested in the securities of
a single issuer and no more than 10% of the voting securities of such issuer.
During those times when equity securities that meet the Advisor's investment
criteria cannot be found, for temporary defensive purposes or pending
longer-term investment, the Fund may invest any amount of its assets in
short-term fixed income securities or in cash or cash equivalents. For more
information regarding short-term investments, see "Other Investment Policies"
below.
INVESTMENT APPROACH. In selecting securities for the Fund's portfolio, the
Advisor utilizes a "rising dividends" philosophy. The investment discipline is
believed to be an effective approach to identify well-managed growth companies
with defensive characteristics. The Fund's goal is to invest in companies with
strong rising dividends, significant reinvestment of cash flow and low debt. To
be considered for investment, companies will generally meet certain growth and
quality criteria established by the Advisor as set forth below.
CONSISTENT DIVIDEND INCREASES. Rising dividends companies should have
increased the dividend in at least seven of the past ten years. Furthermore,
each company should have increased dividends at least 100% in the past ten years
and not cut dividends during this period. The Advisor believes that companies
with consistent and rising dividends usually have above-average earnings growth
and have shown a willingness to share that growth with stockholders.
HIGH REINVESTMENT FOR GROWTH. A dividend payout maximum is set at 65% of
current earnings. In the Advisor's view, a reinvestment rate of at least 35% of
earnings enables a company to sustain future growth primarily from internal
sources.
STRONG BALANCE SHEET. Long-term debt should not be more than 35% of total
capitalization. The Advisor believes that low debt levels indicate financial
strength to support growth in good times and to win market share in difficult
times.
Companies which substantially meet these criteria are then researched and
analyzed internally by the Advisor to determine which are the most undervalued
and which are the most overvalued. Each company's relative position in its
industry and the industry cycle also are considered in the investment decision
making process.
OTHER INVESTMENT POLICIES
SHORT-TERM INVESTMENTS. During those times when equity securities that meet
the Advisor's investment criteria cannot be found, for temporary defensive
purposes or pending longer-term investment,
4
<PAGE> 24
the Fund may invest any amount of its assets in short-term fixed income
securities or in cash or cash equivalents. These consist of high quality debt
obligations maturing in one year or less from the date of purchase, such as U.S.
Government securities, certificates of deposit, bankers' acceptances and
commercial paper. High quality means the obligations have been rated at least
A-1 by Standard & Poor's or Prime-1 by Moody's, have an outstanding issue of
debt securities rated at least A by Standard & Poor's or Moody's, or are of
comparable quality in the opinion of the Advisor.
REPURCHASE AGREEMENTS. Short-term investments also include repurchase
agreements with respect to the high-quality debt obligations listed above. A
repurchase agreement is a transaction in which the Fund purchases a security
and, at the same time, the seller (normally a commercial bank or broker-dealer)
agrees to repurchase the same security (and/or a security substituted for it
under the repurchase agreement) at an agreed-upon price and date in the future,
normally one day or a few days later. The resale price is in excess of the
purchase price in that it reflects an agreed-upon market interest rate effective
for the period of time during which the Fund holds the securities. The Fund's
risk is limited to the ability of the seller to pay the agreed-upon sum on the
delivery date. When the Fund enters into a repurchase agreement, it obtains
collateral having a value at least equal to the amount of the purchase price. In
the event of bankruptcy or the default by the seller, the Fund might be delayed
in, or prevented from, selling the collateral for the Fund's benefit. The
securities underlying a repurchase agreement will be marked to market every
business day so that their value is at least equal to the amount due from the
seller, including accrued interest. The Advisor will also consider the
credit-worthiness of any bank or broker-dealer involved in repurchase agreements
under procedures adopted by the Board of Trustees.
U.S. GOVERNMENT SECURITIES. U.S. Government securities include direct
obligations issued by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. U.S. Government agencies and
instrumentalities that issue or guarantee securities include, but are not
limited to, the Federal Home Loan Banks, the Federal National Mortgage
Association, and the Student Loan Marketing Association. Except for U.S.
Treasury securities, obligations of U.S. Government agencies and
instrumentalities may or may not be supported by the full faith and credit of
the United States. Some, such as those of the Federal Home Loan Banks, are
backed by the right of the issuer to borrow from the Treasury, others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations, while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
WHEN ISSUED SECURITIES. The Fund may purchase securities on a when-issued
or delayed-delivery basis, generally in connection with an underwriting or other
offering. When-issued and delayed-delivery transactions occur when securities
are bought with payment for and delivery of the securities scheduled to take
place at a future time, beyond normal settlement dates, generally from 15 to 45
days after the transaction. The Fund will segregate liquid assets, such as cash,
U.S. Government securities and other liquid, high quality debt securities in an
amount sufficient to meet its payment obligations with respect to these
transactions.
FOREIGN SECURITIES. The Fund may invest in foreign securities, which may
involve additional risks. The economies of foreign countries may differ
unfavorably from the United States economy with
5
<PAGE> 25
respect to certain factors such as growth of domestic product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Further, such economies may be heavily dependent on
international trade and thus may be adversely affected by trade barriers or
other political or economic measures that may be imposed or negotiated by
countries with which they trade.
The Fund may invest in American Depository Receipts ("ADRs"), which are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs, in registered form, are
designed for use in U.S. securities markets.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulations, social instability or diplomatic developments which
could adversely affect the economies of such countries or the Fund's investments
in those countries. In addition, it may be more difficult to obtain a judgment
in a court outside the United States.
Trading volume on foreign stock exchanges is substantially less than that
on U.S. exchanges. Further, securities of some foreign companies are less liquid
and more volatile than securities of comparable U.S. companies. Fixed
commissions on foreign markets are generally higher than negotiated commissions
on U.S. exchanges, although the Fund will attempt to achieve the most favorable
results on its portfolio transactions. Many foreign companies are not generally
subject to uniform accounting, auditing, and financial reporting standards,
practices and disclosure requirements comparable to those applicable to U.S.
companies. Consequently, there may be less publicly available information about
such companies than about U.S. companies. Further, there is generally less
governmental supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States.
ILLIQUID AND RESTRICTED SECURITIES. The Fund does not anticipate
investments in illiquid or restricted securities to correspond with the Fund's
investment objectives. However, the Fund reserves the right to invest up to 10%
of its net assets in illiquid securities, including (i) securities for which
there is no readily available market; (ii) securities which may be subject to
legal restrictions (so-called "restricted securities") other than Rule 144A
securities noted below; (iii) repurchase agreements having more than seven days
to maturity and (iv) fixed time deposits subject to withdrawal penalties (other
than those with a term of less than seven days). Illiquid securities do not
include those which meet the requirements of Rule 144A under the Securities Act
of 1933 and which the Trustees have determined to be liquid based on the
applicable trading markets.
SECURITIES LENDING. In order to generate additional income, the Fund may
lend its portfolio securities in an amount up to 30% of total Fund assets to
broker-dealers, major banks, or other recognized domestic institutional
borrowers of securities not affiliated with the Advisor. In order to reduce the
risk of default, the borrower at all times during the loan must maintain cash or
cash equivalent collateral or provide the Fund with an irrevocable letter of
credit equal in value to at least 100% of the value of the securities loaned.
During the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities, and the Fund may invest the cash
collateral and earn additional income, or it may receive an agreed upon amount
of interest from the borrower who has delivered equivalent collateral or a
letter of credit. Loans are subject to termination at the option of the Fund or
the borrower at any time, including when necessary to enable the Fund to be the
record owner for each dividend paid by the issuer thereof.
6
<PAGE> 26
BORROWING. The Fund may borrow money only from banks for temporary or
emergency purposes in amounts not to exceed 10% of the Fund's total assets.
Additional investments may not be made while any such outstanding borrowings are
in excess of 5% of the Fund's total assets.
PORTFOLIO TURNOVER. The annual rate of portfolio turnover is generally
expected to be less than 75%. However, 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.
INVESTMENT RESTRICTIONS
The Fund has adopted certain 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. Kayne, Anderson Investment
Management, L.P. ("Kayne, Anderson"), 1800 Avenue of the Stars, Second Floor,
Los Angeles, CA 90067 acts as the Fund's Advisor.
The advisor is a registered investment advisor organized as a California
limited partnership succeeding to the investment advisory business of Kayne,
Anderson Investment Management, Inc., (KAIM) which was founded in 1984, by
Richard Kayne and John Anderson. Kayne, Anderson is in the business of
furnishing investment advice to institutional and private clients and currently
manages approximately $2.2 billion for such clients.
Mr. Allan Rudnick is principally responsible for the management of the
Fund's portfolio. Mr. Rudnick serves as the Chief Investment Officer for KAIM.
Prior to joining KAIM, he was President of Pilgrim Asset Management and Chief
Investment Officer for the Pilgrim Group of Mutual Funds. Mr. Rudnick has over
25 years of experience in the investment industry since earning a BA from
Trinity College and an MBA from Harvard Business School.
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
equal to 0.75% per annum of the average daily net assets of the Fund.
Investment Company Administration Corporation (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. The Administrator acts under an administration
agreement and for its services receives a monthly fee at the following annual
rate:
<TABLE>
<CAPTION>
Average net assets Fee or fee rate
------------------ ---------------
<S> <C>
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 to $100 million 0.15% of average net assets
$100 to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
</TABLE>
7
<PAGE> 27
The Fund is responsible for its own operating expenses. The Advisor has
voluntarily undertaken to limit the Fund's operating expenses so that they will
not exceed applicable state expense limitations. The Advisor also may reimburse
additional amounts to the Fund at any time in order to reduce the Fund's
expenses. 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.
COMPENSATION OF OTHER PARTIES. The Advisor may at its discretion and out of
its own funds compensate third parties, such as financial planners, advisors,
brokers and financial institutions, for the sale and marketing of the Fund.
PORTFOLIO TRANSACTIONS. 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 BUY SHARES OF THE FUND
Investors may purchase shares of the Fund by check or wire. First Fund
Distributors, Inc. (the "Distributor") acts as distributor of the Fund's shares.
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 "Kayne, Anderson Rising Dividends Fund" should
be mailed to the Fund's Transfer Agent: The Provident Bank, Mutual Fund
Services, P.O. Box 14967, Cincinnati, OH 45250-0967.
For subsequent investments, a stub is attached to the account statement
sent to shareholders after each transaction. The stub should be detached from
the statement and, together with a check payable to "Kayne, Anderson Rising
Dividends Fund," mailed to the Provident Bank in the envelope provided at the
address indicated above. The investor's account number should be written on the
check.
BY WIRE: For initial investments, before wiring funds, an investor should
call the Transfer Agent at (800) 424-2295 to advise the Transfer Agent 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's
Custodian, as follows:
The Provident Bank
Attn: Mutual Fund Services
ABA Routing Number: 042-000-424
for further credit to Kayne, Anderson Rising Dividends Fund
Account Number [Name of Shareholder]
8
<PAGE> 28
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.
SHARE CERTIFICATES. You will receive a confirmation of each new transaction
in your account which will also show you the number of Fund shares you own and
the number of shares held in safekeeping by the Fund's Transfer Agent for your
account. You may rely on these confirmations in lieu of certificates as evidence
of your ownership. Shares are credited to an investor's account, and
certificates are not issued unless specifically requested in writing.
INVESTMENT MINIMUMS. The minimum initial investment in the Fund is $5,000.
For retirement plan investments and custodial accounts under the Uniform
Gifts/Transfers to Minors Act the minimum is $2,000. The minimum is reduced to
$100 for purchases through the Automatic Investment Plan or for purchases by
retirement plans through payroll deductions. The minimum for additional
investments is $250.
PURCHASING WITH SECURITIES. Shares may be purchased by tendering payment in
kind in the form of securities that are liquid, unrestricted and have a readily
determinable value, including, but not limited to, shares of common stock and
debt securities, provided the acquisition of such securities is consistent with
the Fund's investment objective and otherwise acceptable to the Advisor. A
purchase of shares by tendering marketable securities may result in gain or loss
to you for federal income tax purposes.
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.
SHAREHOLDER SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly
investments in the Fund through automatic withdrawals of specified amounts from
your bank account once an automatic investment plan is established. See the
Account Application for further details about this service or call the Transfer
Agent at (800) 424-2295.
AUTOMATIC REINVESTMENT. Dividends and capital gain distributions are
reinvested without any sales charge in additional shares unless you indicate
otherwise on the Account Application. You may elect to have dividends or capital
gain distributions paid in cash.
AUTOMATIC WITHDRAWALS. You may elect to have regular monthly or quarterly
payments in any fixed amount in excess of $100 if you have an account of $10,000
or more in the Fund. Withdrawal proceeds will normally be received prior to the
end of the month or quarter. There are no separate charges to you under the
automatic withdrawal plan. You may change the amount, frequency of withdrawals,
or terminate this plan by giving written notice to the Fund's Transfer Agent.
See the Account Application for further information. A withdrawal under the
automatic withdrawal plan involves
9
<PAGE> 29
a redemption of shares, and may result in a gain or loss for federal income tax
purposes. In addition, if the amount withdrawn exceeds the dividends credited to
the shareholder's account, the account ultimately may be depleted.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). Shares of the
Fund are available for purchase by any retirement plan, including 401(k) plans,
profit sharing plans, 403(b) and IRAs. For more information, contact your
investment dealer or the Transfer Agent at (800) 424-2295.
SHAREHOLDER REPORTS. Shareholders will receive an audited annual report and
a semi-annual report, both of which present the financial statements of the
Fund.
HOW TO REDEEM SHARES OF THE FUND
A shareholder has the right to have the Fund redeem all or any portion of
his outstanding shares at their current net asset value on each day the NYSE 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. 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 NYSE is open by calling the Fund's Transfer Agent at (800) 424-2295 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).
Telephone redemption privileges authorizes the Fund and its Transfer Agent
on behalf of the shareholder to act upon the instruction of the shareholder by
telephone to redeem shares from the account and transfer the proceeds to the
bank account designated in the authorization form. The Fund and the Transfer
Agent 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.
Neither the Fund nor the Transfer Agent will be liable for any loss, expense, or
cost arising out of any telephone redemption or exchange request, including any
fraudulent or unauthorized requests that are reasonably believed to be genuine,
provided that such procedures are followed. 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 after an account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.
10
<PAGE> 30
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 the Rules of the SEC. 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.
If a redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. If the proceeds of the
redemption exceed $50,000, are to be paid to a person other than the record
owner, are to be sent to an address other than the address on the Transfer
Agent's records, or are to be paid to a corporation, partnership, trust or
fiduciary, the signature(s) on the redemption request and on the certificates,
if any, or stock powers must be guaranteed by an "eligible guarantor
institution" as defined on page 10.
REDEMPTION OF SMALL ACCOUNTS. In order to reduce expenses, the Fund may
redeem shares in any account, other than retirement plan or Uniform
Gifts/Transfers to Minors Act accounts, if at any time, due to redemptions, the
total value of a shareholder's account falls below $1,000. Shareholders will be
given 30 days' prior written notice in which to purchase sufficient additional
shares to avoid such a redemption.
HOW THE FUND VALUES ITS SHARES. To determine the Fund's net asset value per
share, the current value of the Fund's total assets, less all liabilities, is
divided by the total number of shares outstanding, and the result is rounded to
the nearer cent. Securities and other assets for which market prices are not
readily available are valued at fair value as determined in good faith by the
Board of Trustees. Debt securities with remaining maturities of 60 days or less
are normally valued at amortized cost, unless the Board of Trustees determines
that amortized cost does not represent fair value. Cash and receivables will be
valued at their face amounts. Interest will be recorded as accrued, and
dividends will be recorded on their ex-dividend date.
The Fund will calculate its net asset value once daily as of the close of
trading on the NYSE on days that the NYSE is open for trading.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS. The Fund expects to pay income dividends
annually. Distributions of net capital gains if any, will be made at least
annually. The Board of Trustees may determine to declare dividends and make
distributions more or less frequently.
Dividends and capital gain distributions (net of any required tax
withholding) are automatically reinvested in additional shares at the net asset
value per share on the reinvestment date unless the shareholder has previously
requested in writing to the Transfer Agent that payment 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
11
<PAGE> 31
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.
TAX STATUS. The Fund intends to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Code. As long as the Fund
continues to qualify, and as long as the Fund distributes sufficient income each
year to shareholders, the Fund will not be subject to federal income tax or the
4% excise tax 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
dividends are taxable as long-term capital gains regardless of the length of
time shares of the Portfolio have been held. Although distributions are
generally taxable when received, certain distributions made in January are
taxable as if received December 31 of the preceding year. 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 tax advisers
concerning federal, state and local taxation of distributions from the Fund.
PERFORMANCE INFORMATION
TOTAL RETURN. From time to time, the Fund may publish its total return in
advertisements and communications to investors. Total return information may
include the Fund's average annual compounded rate of return over the four most
recent 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. In all cases, the Fund will adhere to the total return standards
promulgated by the SEC and more fully disclosed in the Statement of Additional
Information. 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. The investment return and principal
value of an investment in the Fund will fluctuate and an investor's proceeds
upon redeeming shares may be more or less than the original cost of the shares.
In addition to standardized returns, performance advertisements and sales
literature may also include other total return performance data
("non-standardized returns"). Non-standardized returns may be quoted for the
same or different periods as those for which standardized returns are quoted and
may consist of aggregate or average annual percentage rates of return, actual
year by year rates or any combination thereof. All data included in performance
advertisements will reflect past performance and will not necessarily be
indicative of future results.
The Fund may advertise relative rankings by mutual fund ranking services
such as Lipper Analytical Services or Morningstar, Inc. Such advertisements may
also include data from business periodicals, other industry publications and
market indices.
12
<PAGE> 32
GENERAL INFORMATION
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, or classify shares as
separate classes. The Fund also has reserved the right to invest all of its
assets in the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
limitations as the Fund. It is not presently intended that such investment will
be made. 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 at 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.
CUSTODIAN AND TRANSFER AGENT. Provident Bank is custodian of the Fund's
assets and acts as transfer and dividend disbursing agent. Shareholder inquiries
should be directed to the Transfer Agent at (800) 424-2295.
13
<PAGE> 33
ADVISOR
Kayne, Anderson Investment Management, L.P.
1800 Avenue of the Stars
Second Floor
Los Angeles, California 90067
(310) 556-2721
-
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road
Suite 261-E
Phoenix, Arizona 85018
(602) 952-1100
-
CUSTODIAN AND TRANSFER AGENT
The Provident Bank
P.O. Box 14967
Cincinnati, Ohio 45250-0967
(800) 424-2295
-
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
-
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
KAYNE, ANDERSON
PROSPECTUS DATED MAY 1, 1996
<PAGE> 34
NEW ACCOUNT APPLICATION
KAYNE, ANDERSON
MAIL TO: The Provident Bank
Mutual Fund Services
P.O. Box 14967
Cincinnati, Ohio 45250-0967
Use this form only for individual, custodial, trust, profit-sharing, pension or
other plan accounts. Do NOT use this form for IRA's (unless the IRA is a
self-directed IRA with another trustee or custodian). A special form is
available for IRA's; please call (800) 424-2295 for information or assistance.
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNT (FOR INDIVIDUAL
REGISTRATION OR ---------------------------------------------------------------------------------------------
JOINT OWNERS) First Name Middle Name or Initial Last name Social Security Number
---------------------------------------------------------------------------------------------
Joint Owner Social Security Number
Registration will be "Joint Tenants with Right of Survivorship" unless otherwise specified:
---------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
(FOR UNIFORM
[ ] TRANSFERS ---------------------------------------------------------------------------------------------
[ ] GIFTS Custodian's Name (Only One Allowed)
TO MINORS ACT
ACCOUNTS) ---------------------------------------------------------------------------------------------
Minor's Name (Only One Allowed) Minor's Social Security No.
---------------------------------------------------------------------------------------------
State of Residence
------------------------------------------------------------------------------------------------------------------
(FOR CORPORATE
TRUST OR OTHER ---------------------------------------------------------------------------------------------
FIDUCIARY Name of Corporation Trust, etc.
ACCOUNTS)
---------------------------------------------------------------------------------------------
Name and Date of Trust (Continued)
---------------------------------------------------------------------------------------------
Name(s) of Trustee(s), Beneficiary, etc. Tax ID Number
- ----------------------------------------------------------------------------------------------------------------------------------
ADDRESS FOR
MAILINGS ---------------------------------------------------------------------------------------------
Number and Street
---------------------------------------------------------------------------------------------
Apartment, Floor or Room Number Telephone No. (Include Area Code)
---------------------------------------------------------------------------------------------
City State Zip Code
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT AMOUNT [ ] By wire (Please call (800) 424-2295 for instructions)
[ ] By check, payable to "Kayne, Anderson Rising Dividends Fund"
$ _________ [ ] Existing account
[ ] Order previously placed with investment dealer
</TABLE>
IMPORTANT: THIS FORM IS CONTINUED ON THE REVERSE SIDE
<PAGE> 35
- -------------------------------------------------------------------------------
DISTRIBUTIONS [ ] U.S. Citizen [ ] Other____________ (County of Residence)
-------------------------------------------------------------
Dividends and distributions will be reinvested unless a box
is checked:
[ ] Dividends in cash; capital gain distributions reinvested
[ ] Dividends and capital gain distributions in cash
- ------------------------------------------------------------------------------
SYSTEMATIC [ ] Beginning on ___________, I would like checks sent to me
WITHDRAWAL [ ] monthly or [ ] quarterly. The amount of each check should
PROGRAM be $________. I understand that payments will be made by
redeeming shares from my account and that if the rate of
redemption exceeds the rate of growth of the Fund, my
account may ultimately be depleted.
- -------------------------------------------------------------------------------
REDEMPTIONS [ ] I would like to be able to place a redemption order by
BY TELEPHONE telephone and have the proceeds mailed or wired directly to
the bank account listed below. I understand that these
procedures are offered as a convenience to me, and I agree
that if the identification procedures set forth in the
prospectus are followed, neither the Funds nor the
Transfer Agent will be liable for any loss, expense or
cost arising from one of these transactions.
_____________________________________________________________
Name of Bank Address of Bank
_____________________________________________________________
Bank's ABA Number Account Number Name(s) on Account
- -------------------------------------------------------------------------------
SIGNATURES: I represent that I am of legal age, have legal capacity to make
this purchase and have received and read a prospectus. I certify under penalty
of perjury that: (1) the social security or other tax identification number
stated above is correct and (2) I am not subject to backup withholding because
[ ] the IRS has not informed me that I am subject to backup withholding, or
[ ] the IRS has notified me that I am no longer subject to backup withholding.
(Check appropriate box. If you ARE subject to backup withholding, strike
out section 2.)
______________________________________________________________________________
Signature of Owner, Signature of Joint Owner Date
Trustee or Custodian
- ------------------------------------------------------------------------------
DEALER INFORMATION
______________________________________________________________________________
Name of Dealer Name of Representative Rep ID No.
______________________________________________________________________________
Address of Reps Branch Branch ID No.
APP.KAF 1/95
<PAGE> 36
MATRIX GROWTH FUND
MATRIX EMERGING GROWTH FUND
MATRIX GROWTH FUND (the "Growth Fund") is a no-load mutual fund with the
investment objective of long-term growth of capital, with a secondary objective
of conserving principal. The Growth Fund invests in common stocks which the
Adviser believes present opportunity for above average growth of capital. The
Fund may engage to a limited extent in hedging transactions.
MATRIX EMERGING GROWTH FUND (the "Emerging Growth Fund") is a no-load
mutual fund with the investment objective of seeking long-term capital
appreciation. The Emerging Growth Fund invests primarily in the common stocks of
companies with long term growth potential, particularly smaller companies
considered to be in the developing or emerging growth phase.
Sena Weller Rohs Williams, Inc. (the "Adviser"), serves as investment
adviser to both of the Funds.
FOR INFORMATION CONCERNING THE FUNDS CALL:
Sena Weller Rohs Williams, Inc.
300 Main Street
Cincinnati, OH 45202
(513) 621-2875 or
(800) 877-3344
FUND SHARES MAY BE PURCHASED FROM:
Matrix Growth Fund
Matrix Emerging Growth Fund
American Data Services
24 West Carver Street
Huntington, NY 11743
(800) 385-7003
This Prospectus sets forth basic information about the Funds that
prospective investors should know before investing. It should be read and
retained for future reference. The Funds are series of Professionally Managed
Portfolios. A Statement of Additional Information dated May 1, 1996, as may be
amended from time to time, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. This Statement of Additional
Information is available without charge upon written request to the Funds at the
address or telephone number given above.
PROSPECTUS DATED MAY 1, 1996
<PAGE> 37
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Table....................................................... 3
Financial Highlights................................................ 4
Objective and Investment Approach of the Funds...................... 5
Other Investment Policies of the Funds.............................. 7
Management of the Funds............................................. 8
Distribution Plan................................................... 9
How To Invest in the Funds.......................................... 10
How To Redeem an Investment in the Funds............................ 11
Services Available to the Fund's Shareholders....................... 13
How the Funds' Per Share Value Is Determined........................ 14
Dividends, Distributions and Taxes.................................. 14
General Information................................................. 15
</TABLE>
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.
2
<PAGE> 38
EXPENSE TABLE
Expenses are one of several factors to consider when investing in a Fund.
The purpose of the following fee table is to provide an understanding of the
various costs and expenses which may be borne directly or indirectly by an
investment in a Fund. Actual expenses may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES (FOR EACH OF THE FUNDS)
<TABLE>
<S> <C>
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
12b-1 Fee...................................................... 0.25%
</TABLE>
ANNUAL FUND OPERATING EXPENSES (FOR EACH FUND)
<TABLE>
<CAPTION>
(AS A PERCENTAGE OF AVERAGE NET ASSETS) Emerging
Growth Growth
Fund Fund
---- ----
<S> <C> <C>
Investment Advisory Fee 0.90% 0.90%
12b-1 Distribution Fee 0.25% 0.25%
Other expenses (after reimbursement) 0.60%* 0.85%*
Total Fund Operating Expenses (after reimbursement) 1.75%* 2.00%*
</TABLE>
*The Adviser has undertaken to limit the operating expenses for the Growth
Fund to no more than 1.75% of average net assets annually through December 31,
1996 and for the Emerging Growth Fund to no more than 2.00% of average net
assets annually. During the fiscal year ended December 31, 1995, operating
expenses before the Adviser's limitation amounted to 1.76% for the Growth Fund
and 3.43% for the Emerging Growth Fund.
EXAMPLE
This table illustrates the net transaction and operating expenses that
would be incurred by an investment in either of the Funds over different time
periods, assuming a $1,000 investment, a 5% annual return, and redemption at the
end of each time period.
<TABLE>
<CAPTION>
One year Three years Five years Ten years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Growth Fund $18 $55 $ 95 $206
Emerging Growth Fund $20 $63 $108 $233
</TABLE>
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 FUNDS' ACTUAL RETURN MAY BE HIGHER OR LOWER. SEE "MANAGEMENT OF
THE FUNDS."
3
<PAGE> 39
The MATRIX GROWTH FUND (the "Growth Fund") and MATRIX EMERGING GROWTH FUND
(The "Emerging Growth Fund") are 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.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period.
The following information for the year ended December 31, 1995 has been
audited by Joseph DeCosimo & Company, independent accountants, whose unqualified
report covering that period is incorporated by reference herein and appears in
the annual report to shareholders. The information for periods ended prior to
December 31, 1995, was audited by other independent public accountants. This
information should be read in conjunction with the financial statements and
accompanying notes which appear in the Statement of Additional Information.
Further information about the Fund's performance is contained in its annual
report to shareholders, which may be obtained without charge by writing or
calling the address or telephone of the Adviser on the Prospectus cover page.
<TABLE>
<CAPTION>
MATRIX GROWTH FUND YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning period $ 13.45 $ 14.51 $ 14.05 $ 14.01 $ 11.03 $ 11.76
------- ------- ------- ------- ------- -------
Net investment income 0.10 0.05 0.06 0.09 0.15 0.18
Net gains or losses on securities 3.06 (0.75) 1.25 0.60 3.62 (0.71)
------- ------- ------- ------- ------- -------
Total from investment operations 3.16 (0.70) 1.31 0.69 3.77 (0.53)
------- ------- ------- ------- ------- -------
Dividends from net investment income (0.10) (0.05) (0.06) (0.09) (0.14) (0.20)
Distributions from capital gains (1.55) (0.31) (0.79) (0.56) (0.65) 0.00
Returns of capital 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- -------
Total distributions to shareholders (1.65) (0.36) (0.85) (0.65) 0.79 0.20
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 14.96 $ 13.45 $ 14.51 $ 14.05 $ 14.01 $ 11.03
======= ======= ======= ======= ======= =======
TOTAL RETURN 23.52% (4.82)% 9.32% 4.92% 34.21% -4.50%
Net assets, end of period (millions) $ 12.3 $ 15.5 $ 19.06 $ 18.95 $ 17.44 $ 11.41
Ratio of expenses to average net assets(2) 1.76% 1.84% 1.67% 1.50% 1.50% 1.50%
Ration of net income to average net assets(2) 0.47% 0.29% 0.40% 0.69% 1.17% 1.59%
Portfolio turnover rate 27% 25% 30% 51% 70% 79%
</TABLE>
<TABLE>
<CAPTION>
MATRIX GROWTH FUND YEAR ENDED DECEMBER 31,
-----------------------------------------------
1989 1988 1987 1986(1)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net asset value, beginning period $ 9.67 $ 9.96 $ 10.00 $ 10.00
------- ------- ------- -------
Net investment income 0.33 0.08 0.03 0.09
Net gains or losses on securities 3.16 (0.28) 0.05 (0.09)
------- ------- ------- -------
Total from investment operations 3.49 (0.20) 0.08 0.00
------- ------- ------- -------
Dividends from net investment income (0.29) (0.08) (0.11) 0.00
Distributions from capital gains (1.11) 0.00 0.00 0.00
Returns of capital 0.00 (0.01) (0.01) 0.00
------- ------- ------- -------
Total distributions to shareholders (1.40) (0.09) (0.12) 0.00
------- ------- ------- -------
Net asset value, end of period $ 11.76 $ 9.67 $ 9.96 $ 10.00
======= ======= ======= =======
TOTAL RETURN 36.27% -2.00% 0.70% 0.00%
Net assets, end of period (millions) $ 9.12 $ 3.59 $ 4.35 $ 3.22
Ratio of expenses to average net assets(2) 1.50% 1.49% 1.49% 1.47%(3)
Ration of net income to average net assets(2) 2.99% 0.78% 0.27% 1.33%(3)
Portfolio turnover rate 130% 132% 157% 96%(3)
</TABLE>
(1) The Gateway Growth Plus Fund (now the Matrix Growth Fund) commenced
operations on May 14, 1986. Effective December 28, 1988, Sena Weller Rohs
Williams, Inc. ("SWRW") became the sub-adviser to the Fund. The Fund
subsequently changed its name.
(2) The ratios of expenses to average net assets would have increased and net
income to average net assets would have decreased by 0.01%, 0.18%, 0.25%, 0.39%,
1.01%, 2.37%, 1.72% and 2.77% in 1995, 1992, 1991, 1990, 1989, 1988, 1987 and
1986 had the Adviser not waived expenses.
(3) Annualized.
4
<PAGE> 40
<TABLE>
<CAPTION>
MATRIX EMERGING GROWTH FUND
- -----------------------------------------------------------------------------------------
April 4, 1995*
through
December 31, 1995
- -----------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period................................ $10.00
Income from investment operations:
Net investment loss........................................... (.03)
Net realized and unrealized gain on investments............... 3.01
------
Total from investment operations.................................... 2.98
------
Less distributions:
Dividends from net investment income.......................... -0-
Distributions from net capital gains.......................... -0-
------
Total distributions................................................. -0-
------
Net asset value, end of period...................................... $12.98
======
Total return........................................................ 42.09%+
Ratios/supplemental data:
Net assets, end of period (millions)................................ $ 4.3
Ratio of expenses to average net assets:
Before expense reimbursement.................................. 3.43%+
After expense reimbursement................................... 2.00%+
Ratio of net investment loss to average net assets:
Before expense reimbursement.................................. (1.87%)+
After expense reimbursement................................... (0.43%)+
Portfolio turnover rate............................................. 9.95%
</TABLE>
*Commencement of operations.
+Annualized.
OBJECTIVE AND INVESTMENT APPROACH OF THE FUNDS
THE GROWTH FUND
The Growth Fund's primary investment objective is long-term growth of
capital with a secondary objective of conserving principal. Because of the risks
inherent in investing in marketable securities, however, there is no assurance
that these objectives will be achieved.
The Fund attempts to achieve its investment objective primarily by
investing in common stocks of companies which the Adviser believes will have
rising earnings and stable or rising share prices. Earnings growth is evaluated
relative to the earnings history of the company and price trends are also viewed
5
<PAGE> 41
relative to the long-term price behavior of the company's shares. The Fund
maintains a diversified portfolio without excessive representation in any single
industry group. The policy of the Fund is to maintain substantially all Fund
assets in common stocks.
The Adviser may at times purchase index put options in the Fund's
portfolio, principally to protect against declines in the market value of the
common stocks held in the Fund's portfolio or to attempt to retain unrealized
gains in the value of the securities held. The Fund will limit its purchases of
put options so that no more than 5% of the Fund's net assets are invested in
premiums on the purchase of put options.
RISK FACTORS. Opportunities to realize net gains vary from time to time
because of general market conditions, economic conditions, the Adviser's ability
to select appropriate investments and other factors. The purchase of put options
involves a risk of loss of all or part of the premium paid. If the price of the
underlying index does not decrease by a sufficient amount, the Fund will
experience a loss equal to the deficiency if it exercises the option, and a loss
of the entire premium if it does not exercise the option. Under unusual market
conditions, such as an interruption in trading in an index or certain stocks in
the index, the Adviser may be unable to hedge the Fund's portfolio effectively.
Restrictions imposed by regulatory agencies also may adversely affect the
hedging strategy. Accordingly, the Fund's total return will fluctuate, and there
can be no assurance that the Fund's investment objective will be realized.
THE EMERGING GROWTH FUND
The Investment objective of the Emerging Growth Fund is to seek long-term
capital appreciation. Current income will not be a consideration. However, the
Fund may at times make investments in short-term income producing securities.
Fund assets will primarily be invested in the common stocks of companies
with long-term growth potential, particularly smaller companies considered to be
in the emerging or developing growth phase. Investments will be directed toward
companies deemed capable of increasing earnings over an extended period of time
at an above average rate and which are in a sound financial position. In seeking
companies whose common stock will meet the Fund's investment objective, the
Adviser's analysis will be based on fundamental analysis of a company, its
industry or industries and appropriate macro-economic factors.
The Fund's investment portfolio will emphasize companies that operate in
various fields of science or technology, and other companies that have developed
innovative products or services that in the opinion of the Adviser have
significant earnings growth potential. Areas of particular interest would
include, but not be limited to, electronics, computers and services,
communications equipment and services, other productivity enhancing equipment,
and health care. In addition, investments may be made in such general areas as
aerospace, energy, natural resources, entertainment and other business and
consumer services believed to have growth potential. The list of industries and
companies given above is for illustration purposes and the Fund's investment
portfolio is not limited to such industries or companies.
RISK FACTORS. Shares of the Emerging Growth Fund do not represent a
complete investment program. They are designed for investors who understand and
are willing to accept the risks involved in seeking capital appreciation in
smaller, less established companies. There can be no assurance that the Emerging
6
<PAGE> 42
Growth Fund's investment objective will be achieved, and achievement of the
objective will be particularly difficult during periods when the price of
securities are generally declining.
SMALLER AND NEWER COMPANIES. Many of the companies held by the Emerging
Growth Fund may be smaller and younger than companies whose shares are traded on
the major stock exchanges, and the Fund may invest in new public offerings.
Accordingly, shares of these companies, which typically trade over the counter,
may be more volatile than those of larger exchange-listed companies. New or
improved products or methods of development may have a substantial impact on the
earnings and revenues of such companies, and any such positive and negative
developments could have a corresponding positive or negative effect on the value
of their shares. For these reasons, when the Fund holds a substantial position
in these types of companies, the net asset value of the Fund may be more
volatile. The Fund may not be appropriate for short-term investors.
OTHER INVESTMENT POLICIES OF THE FUNDS
CASH INVESTMENTS AND REPURCHASE AGREEMENTS. Cash which is held by the Funds
for the purpose of paying expenses and effecting share redemptions, or when the
Adviser determines that temporary reduction or liquidation of stock holdings is
appropriate, is invested in securities of the U.S. Government or government
agencies, bankers' acceptances, commercial paper, certificates of deposit of
U.S. branches of domestic banks or repurchase agreements. For temporary
defensive purposes, a Fund may hold up to 100% of its assets in such
instruments.
A repurchase agreement is a short-term investment in which the purchaser
(i.e., a Fund) 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 a Fund engages 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
seller, a Fund could experience both delays in liquidating the underlying
security and losses in value. However, each Fund intends to enter into
repurchase agreements only with banks with assets of $500 million or more that
are insured by the Federal Deposit Insurance Corporation and the most
creditworthy registered securities dealers pursuant to procedures adopted and
regularly reviewed by the Trust's Board of Trustees. The Adviser monitors the
creditworthiness of the banks and securities dealers with which each Fund
engages in repurchase transactions.
ILLIQUID AND RESTRICTED SECURITIES. A 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 a 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. Restricted securities do not
include those which meet the requirements of Rule 144A under the Securities Act
of 1933 and which the Trustees have determined to be liquid based on the
applicable trading markets.
PORTFOLIO TURNOVER. The Adviser believes that the Fund's goals of capital
appreciation can best be achieved by investments in carefully selected companies
with investments most often planned to be long-
7
<PAGE> 43
term in nature. Investment positions will be monitored continuously, however,
and the determination to sell will be made whenever the Adviser deems the
security held to have become incompatible with a Fund's objective, or if the
stock appears excessively valued.
It is not generally the policy of the Funds to invest for short term
trading purposes. Nonetheless, it is difficult to predict what the portfolio
turnover rate will be and the Adviser may make portfolio changes without regard
to the holding period. The Adviser expects that the annual rate of portfolio
turnover will generally not exceed 100% for both the Growth Fund and 50% for the
Emerging Growth Fund.
Each Fund has adopted certain investment restrictions, which are described
fully in the Statement of Additional Information. Like each 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 FUNDS
The Board of Trustees of the Trust establishes the Funds' policies and
supervises and reviews the management of the Funds. The Adviser, whose offices
are at 300 Main Street, Cincinnati, Ohio 45202, is a registered investment
adviser under the Investment Advisers Act of 1940, and has provided investment
supervisory services to its clients since 1968. The Adviser is controlled by Mr.
William O. DeWitt Jr., and Mr. Mercer Reynolds. The Adviser currently manages
approximately $850 million for investment companies, individuals, retirement
benefit plans, trusts, charitable organizations and corporations. Peter H.
Williams and David P. Osborn are responsible for management of the Growth Fund
portfolio. Mr. Williams, Senior Vice President of the Adviser, has managed the
Growth Fund's portfolio since December, 1988. Mr. Osborn joined the Adviser in
March, 1992 and is Vice President. He has managed the Growth Fund's portfolio
since November, 1993. From August, 1988 to March, 1992, he was employed by the
investment management and trust division of PNC Bank. Fred W. Weller and Michael
A. Coombe are responsible for management of the Emerging Growth Fund portfolio.
Mr. Weller is Senior Vice President of the Adviser, with which he has been
associated since 1968. He has managed the Adviser's Emerging Growth limited
partnerships since 1981. Mr. Coombe, Vice President, joined the Adviser in 1994.
He was previously associated with the investment management firm of Gradison &
Company.
The Adviser provides the Funds with advice on buying and selling
securities, manages the investments of the Funds, furnishes the Funds with
office space and certain administrative services, and provides most of the
personnel needed by the Funds. As compensation, each Fund pays the Adviser a
monthly management fee (accrued daily) based upon the average daily net assets
of the Fund at the annual rate of 0.9% of the first $50 million of the Fund's
average daily net assets, 0.7% of the Fund's average daily net assets in excess
of $50 million and up to $100 million and 0.6% of the Fund's average daily net
assets in excess of $100 million.
Investment Company Administration Corporation (the "Administrator") acts as
the Funds' Administrator under an Administration Agreement. Under that
agreement, the Administrator prepares various federal and state regulatory
filings, reports and returns for the Funds, prepares reports and materials to be
supplied to the trustees, monitors the activities of the Funds' custodian,
transfer agent and accountants, and coordinates the preparation and payment of
the Funds' expenses and reviews the
8
<PAGE> 44
Funds' expense accruals. For its services, the Administrator receives a fee from
each Fund at the following annual rate:
<TABLE>
<CAPTION>
Average net assets of each Fund Fee or fee rate
------------------------------- ---------------
<S> <C>
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 to $100 million 0.15% of average net assets
$100 to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
</TABLE>
The Funds are responsible for their own operating expenses. The Adviser has
voluntarily undertaken to limit the Growth Fund's operating expenses to 1.75%
through December 31, 1996 and the Emerging Growth Fund's operating expenses to
2.00% of such Fund's average net assets annually. This undertaking may be
modified or withdrawn by the Adviser upon notice to shareholders for the
Emerging Growth Fund and after December 31, 1996 for the Growth Fund. The
Adviser also may reimburse additional amounts to the Funds at any time in order
to reduce their expenses, or to the extent required by applicable securities
laws. To the extent the Adviser performs a service for which a Fund is obligated
to pay, the Fund shall reimburse the Adviser for its costs incurred in rendering
such service. Any reductions made by the Adviser in its fees or payments or
reimbursements of expenses which are a Fund's obligation are subject to
reimbursement by the Fund provided the Fund is able to effect such reimbursement
and remain in compliance with applicable expense limitations. With respect to
the Growth Fund, the Adviser may recapture any fee waiver or expense absorption
only if that Fund could make such repayment and still stay within the total
operating expense cap, if any, then established for it. For purposes of this
recapture provision with respect to the Growth Fund, the Adviser has agreed that
the expense cap will remain at 1.75% or lower through December 31, 1999. A
request for such reimbursement must be reviewed and approved by the Board of
Trustees.
The Adviser considers a number of factors in determining which brokers or
dealers to use for the Funds' 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 Adviser may lawfully and
appropriately use in its investment management and advisory capacities. Provided
a Fund receives prompt execution at competitive prices, the Adviser may also
consider the sale of Fund shares as a factor in selecting broker-dealers for the
Fund's portfolio transactions.
DISTRIBUTION PLAN
The Funds have adopted a distribution plan pursuant to Rule 12b-1. The Plan
provides that each Fund may pay distribution and related expenses of up to an
annual rate of 0.25% of the Fund's average net assets to the Adviser as
distribution coordinator. Expenses permitted to be paid by each Fund under its
Plan include: preparation, printing and mailing of prospectuses; shareholder
reports such as semi-annual and annual reports, performance reports and
newsletters; sales literature and other promotional material to prospective
investors; direct mail solicitation; advertising; public relations; compensation
of sales personnel, advisers or other third parties for their assistance with
respect to the distribution of the Fund's shares; payments to financial
intermediaries for shareholder support; administrative and accounting
9
<PAGE> 45
services with respect to the shareholders of the Fund; and such other expenses
as may be approved from time to time by the Board of Trustees.
The Rule 12b-1 Distribution Plan allows excess distribution expenses to be
carried forward by the Adviser, as distribution coordinator, and resubmitted in
a subsequent fiscal year provided that (i) distribution expenses cannot be
carried forward for more than three years following initial submission; (ii) the
Board of Trustees has made a determination at the time of initial submission
that the distribution expenses are appropriate to be carried forward; and (iii)
the Board of Trustees makes a further determination, at the time any
distribution expenses which have been carried forward are resubmitted for
payment, to the effect that payment at the time is appropriate, consistent with
the objectives of the Plan and in the current best interests of shareholders.
HOW TO INVEST IN THE FUNDS
The minimum initial investment in a Fund is $1,000. Subsequent investments
must be at least $100. Investments by retirement plans may be for minimums of
$500 and $100, respectively. Reynolds, DeWitt Securities Company, a division of
the Adviser, (the "Distributor"), 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 Funds are offered continuously for purchase at their net
asset value per share next determined after a purchase order is received. The
public offering price is effective for orders received by a Fund prior to the
time of the next determination of the Fund's net asset value. Orders received
after the time of the next determination of the applicable Fund's net asset
value will be entered at the next calculated public offering price.
INVESTORS MAY PURCHASE SHARES OF THE FUNDS 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 "Matrix Growth Fund," or "Matrix Emerging
Growth Fund," should be mailed to Matrix Growth Fund or Matrix Emerging Growth
Fund, P.O. Box 856, Cincinnati, OH 45264-0856.
For subsequent investments, a stub is attached to the account statement
sent to shareholders after each transaction. The stub should be detached from
the statement and together with a check payable to "Matrix Growth Fund," or
"Matrix Emerging Growth Fund," mailed to the Funds in the envelope provided at
the address indicated above. The investor's account number should be written on
the check. All investments sent by overnight or other courier services should be
sent to Matrix Growth Fund or Matrix Emerging Growth Fund, c/o Star Bank, N.A.,
425 Walnut Street, Mutual Fund Custody Department M.L. 6118, Cincinnati, OH
45202.
BY WIRE: Before wiring funds, an investor should call the Fund's Transfer
Agent at (800) 385-7003 to advise that an 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 Account Application
10
<PAGE> 46
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 Funds' Custodian, as follows:
Star Bank, N.A. Cinti/Trust
ABA #0420-001-3
Attn: Matrix Growth Fund OR Matrix Emerging Growth Fund
DDA #483897989 DDA #483897997
Account name (shareholder name)
Shareholder account number
For subsequent investments, the investor's bank should wire funds as
indicated above. Be sure to notify the Fund's Transfer Agent before each wire
purchase. 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. Investors will not be permitted to redeem any shares purchased
with an initial investment made by wire until one business day after the
completed Account Application is received by the Fund. All investments must be
made in U.S. dollars and, 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 Funds 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 NYSE (currently 4:00 p.m., New
York City 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 NYSE 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 Funds are not required to issue share certificates. All shares are
normally held in non-certificated form registered on the books of the Funds and
the Funds' Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUNDS
A shareholder has the right to have a Fund redeem all or any portion of his
outstanding shares at their current net asset value on each day the NYSE 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
Funds' Transfer Agent in order to constitute a valid tender for redemption.
Written redemption requests should be sent to
11
<PAGE> 47
Matrix Growth Fund or Matrix Emerging Growth Fund, American Data Services, 24
West Carver Street, Huntington, NY 11743. To protect the Funds and their
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 NYSE is open by calling the Fund's Transfer Agent at (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 Funds and their Transfer Agent 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 Funds and the Transfer Agent 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. Neither the Funds nor the Transfer Agent will be liable for
any loss, expense, or cost arising out of any telephone redemption or exchange
request, including any fraudulent or unauthorized requests that are reasonably
believed to be genuine, provided that such procedures are followed. The Funds
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 in exercising telephone redemption
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 Funds
may suspend the right of redemption under certain extraordinary circumstances in
accordance with the Rules of the Securities and Exchange Commission. In the case
of shares purchased by check and redeemed shortly after purchase, the Funds 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.
Due to the relatively high cost of maintaining smaller accounts, the Funds
reserve 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
12
<PAGE> 48
account does not equal at least $1,000. If a 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 his account to at least $1,000
before the Fund takes any action.
SERVICES AVAILABLE TO THE FUNDS' SHAREHOLDERS
RETIREMENT PLANS. The minimum initial investment for such plans is $500,
with minimum subsequent investments of $100. The Funds offer a prototype
Individual Retirement Account ("IRA") plan and information is available from the
Distributor or from your securities dealer with respect to Keogh, Section 403(b)
and other retirement plans offered. Investors should consult a tax adviser
before establishing any retirement plan.
EXCHANGE PRIVILEGE. Shareholders may exchange shares of the Growth Fund and
Emerging Growth Fund by mailing or delivering written instructions to the
Transfer Agent. Please specify the name of the applicable Fund, the number of
shares or dollar amount to be exchanged, and your name and account number. You
may also exchange shares by telephoning the Transfer Agent at (800) 385-7003
between the hours of 9:00 AM and 4:00 PM (Eastern time) on a day when the NYSE
is open for normal trading. Telephone exchanges are subject to the
identification procedures noted with respect to telephone redemptions above.
Shareholders also are permitted to exchange their shares for shares of the
Star Treasury Fund which is managed by Star Bank, the Fund's custodian.
Investors must obtain the current prospectus for the Star Treasury Fund before
exchanging for its shares, and any exchange is conditioned upon the shares of
the Star Treasury Fund being qualified for sale in their state of residence.
Prior to making such an exchange, investors should obtain and carefully read the
prospectus for the Star Treasury Fund. The exchange privilege does not
constitute an offering or recommendation on the part of the Funds or the Adviser
of an investment in the Star Treasury Fund.
AUTOMATIC INVESTMENT CHECK PLAN. For the convenience of shareholders, the
Funds offer a preauthorized check service under which a check is automatically
drawn on the shareholder's personal checking account each month for a
predetermined amount (but not less than $100), as if the shareholder had written
it himself. Upon receipt of the withdrawn funds, a Fund automatically invests
the money in additional shares of the Fund at the current offering price.
Applications for this service are available from the Distributor. There is no
charge by the Funds for this service. The Distributor may terminate or modify
this privilege at any time, and shareholders may terminate their participation
by notifying the Transfer Agent in writing, sufficiently in advance of the next
scheduled withdrawal.
SYSTEMATIC WITHDRAWAL PROGRAM. As another convenience, the Funds offer a
Systematic Withdrawal Program whereby shareholders may request that a check
drawn in a predetermined amount be sent to them each month or calendar quarter.
A shareholder's account must have Fund shares with a value of at least $10,000
in order to start a Systematic Withdrawal Program, and the minimum amount that
may be withdrawn each month or quarter under the Systematic Withdrawal Program
is $100. This Program may be terminated or modified by a shareholder or the
Funds at any time without charge or penalty.
A withdrawal under the Systematic Withdrawal Program involves a redemption
of shares, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceeds the dividends credited to the
shareholder's account, the account ultimately may be depleted.
13
<PAGE> 49
HOW THE FUNDS' PER SHARE VALUE IS DETERMINED
The net asset value of each Fund share is determined once daily as of the
close of public trading on the NYSE (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 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 60
days or less are valued at amortized cost as reflecting fair value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Any dividends from net investment income are
declared and paid annually, typically at the end of each Fund's fiscal year
(December 31). Any undistributed net capital gains realized during the 12-month
period ended each October 31, as well as any additional undistributed capital
gains realized during a Fund's fiscal year, will also be distributed to
shareholders on or about December 31 of each year.
Dividends and capital gain distributions (net of any required tax
withholding) are automatically reinvested in additional shares of a 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 payment be made in
cash.
Any dividend or distribution paid by a 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. Each 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 a Fund continues to qualify, and as long as a
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 a 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 dividends 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 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 taxation of distributions from the Funds.
14
<PAGE> 50
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 end of each Fund is December 31.
SHAREHOLDER RIGHTS. Shares issued by the Funds have no preemptive,
conversion, or subscription rights. Shareholders have equal and exclusive rights
as to dividends and distributions as declared by the Funds and to the net assets
of the Funds upon liquidation or dissolution. A Fund, as a separate series of
the Trust, votes separately on matters affecting only that 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 CALCULATION. From time to time, each 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 Funds 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
the Fund's income. Investors should note that the investment results of the
Funds 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
Transfer Agent at (800) 385-7003.
15
<PAGE> 51
ADVISER
Sena Weller Rohs Williams, Inc.
300 Main Street
Cincinnati, OH 45202
(513) 621-2875
(800) 877-3344
-
DISTRIBUTOR
Reynolds DeWitt Securities Company
a division of Sena Weller Rohs Williams, Inc.
300 Main Street
Cincinnati, OH 45202
(513) 621-2875
(800) 877-3344
-
CUSTODIAN
Star Bank
P.O. Box 1118
Cincinnati, OH 45201-1118
-
TRANSFER AGENT
American Data Services, Inc.
24 West Carver Street, 2nd Floor
Huntington, NY 11743
-
AUDITORS
Joseph DeCosimo and Company
Atrium Two - Suite 2727
221 East Fourth Street
Cincinnati, OH 45202
-
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
[GRAPHIC]
MATRIX GROWTH FUND
MATRIX EMERGING
GROWTH FUND
PROSPECTUS DATED MAY 1, 1996
16
<PAGE> 52
NEW ACCOUNT APPLICATION
MATRIX MAIL TO: Matrix Growth Fund
Matrix Emerging Growth Fund
MATRIX FAMILY OF MUTUAL FUNDS P.O. Box 856
"Offering Solutions for Today's Investor" Cincinnati, Ohio 45264-0856
Use this form only for individual, custodial, trust, profit-sharing, pension or
other plan accounts. Do NOT use this form for IRAs (unless the IRA is a
self-directed IRA with another trustee or custodian). A special form is
available for IRAs; please call (800) 385-7003 for information or assistance.
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________________________
<S> <C> <C>
ACCOUNT (FOR INDIVIDUAL ___________________________________________________________________________________________
REGISTRATION OR First Name Middle Name or Initial Last Name Social Security Number
JOINT OWNERS) ___________________________________________________________________________________________
Joint Owner Social Security Number
Registration will be "Joint Tenants with Right of Survivorship" unless otherwise specified:
___________________________________________________________________________________________
_______________________________________________________________________________________________________________
(FOR UNIFORM ___________________________________________________________________________________________
/ / TRANSFERS Custodian's Name (Only One Allowed)
/ / GIFTS ___________________________________________________________________________________________
TO MINORS ACT Minor's Name (Only One Allowed) Minor's Social Security No.
ACCOUNTS) ___________________________________________________________________________________________
State of Residence
_______________________________________________________________________________________________________________
(FOR CORPORATE ___________________________________________________________________________________________
TRUST OR OTHER Name of Corporation, Trust, etc.
FIDUCIARY ___________________________________________________________________________________________
ACCOUNTS) Name and Date of Trust (Continued)
___________________________________________________________________________________________
Name(s) of Trustee(s), Beneficiary, etc. Tax ID Number
_______________________________________________________________________________________________________________________________
ADDRESS FOR ___________________________________________________________________________________________
MAILINGS Number and Street
___________________________________________________________________________________________
Apartment, Floor or Room Number Telephone No. (Include Area Code)
___________________________________________________________________________________________
City State Zip Code
_______________________________________________________________________________________________________________________________
INVESTMENT AMOUNT / / Matrix Growth Fund
$______ / / Matrix Emerging Growth Fund
/ / By wire (Please call (800) 385-7003 for instructions)
/ / By check, payable to "Matrix Growth Fund" or "Matrix Emerging Growth Fund"
/ / Existing account
/ / Exchange from (Fund name): ________________________________________________________
/ / Other previously placed with investment dealer
___________________________________________________________________________________________
/ / Star U.S. Treasury Fund
/ / By exchange from Matrix Growth Fund
/ / By exchange from Matrix Emerging Growth Fund
</TABLE>
IMPORTANT: THIS FORM IS CONTINUED ON THE REVERSE SIDE.
<PAGE> 53
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________________________
<S> <C>
DISTRIBUTIONS / / U.S. Citizen / / Other:________________________________ (Country of Residence)
__________________________________________________________________________________________________
Dividends and distributions will be reinvested unless a box is checked:
/ / Dividends in cash; capital gain distributions reinvested
/ / Dividends and capital gain distributions in cash
_______________________________________________________________________________________________________________________________
SYSTEMATIC / / Beginning on _______________, I would like checks sent to me / / monthly or / / quarterly.
WITHDRAWAL The amount of each check should be $_______________. I understand that payments will be made by
PROGRAM redeeming shares from my account and that if the rate of redemption exceeds the rate of growth
of the Fund, my account may ultimately be depleted.
________________________________________________________________________________________________________________________________
EXCHANGES & / / I would like to be able to place exchange instructions by telephone between the Matrix
REDEMPTIONS Growth Fund, Matrix Emerging Growth Fund and the Star U.S. Treasury Fund.
BY TELEPHONE
/ / I would like to be able to place a redemption order by telephone and have the proceeds mailed
or wired directly to the bank account listed below.
I understand that these procedures are offered as a convenience to me, and I agree that if the
identification procedures set forth in the prospectus are followed, neither the Funds nor the
Transfer Agent will be liable for any loss, expense or cost arising from one of these transactions.
___________________________________________________________________________________________________
Name of Bank Address of Bank
___________________________________________________________________________________________________
Bank's ABA Number Account Number Name(s) on Account
________________________________________________________________________________________________________________________________
SIGNATURES: I represent that I am of legal age, have legal capacity to make this purchase and have received and read a prospectus.
I certify under penalty of perjury that: (1) the social security or other tax identification number stated above is correct and (2)
I am not subject to backup withholding because / / the IRS has not informed me that I am subject to backup withholding, or / /
the IRS has notified me that I am no longer subject to backup withholding. (Check appropriate box. If you ARE subject to backup
withholding, strike out section 2.)
________________________________________________________________________________________________________________________________
Signature of Owner, Trustee or Custodian Signature of Joint Owner Date
________________________________________________________________________________________________________________________________
DEALER INFORMATION
________________________________________________________________________________________________________________________________
Name of Dealer Name of Representative Rep ID No.
________________________________________________________________________________________________________________________________
Address of Reps Branch Branch ID No.
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
INSIGHTFUL INVESTOR GROWTH FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
175 Great Neck Rd., Ste. 307
Great Neck, NY 11021
(800) 385-7003
This Statement of Additional Information is not a prospectus and it
should be read in conjunction with the prospectus of the Insightful Investor
Growth Fund (the "Fund"). A copy of the prospectus of the Fund dated May 1, 1996
is available by calling the number above or (212) 633-9700.
TABLE OF CONTENTS
Page
The Trust . . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Objective and Policies . . . . . . . . . . . . B-2
Investment Restrictions . . . . . . . . . . . . . . . . . B-9
Distributions and Tax Information . . . . . . . . . . . . B-10
Management . . . . . . . . . . . . . . . . . . . . . . . B-14
The Fund's Investment Advisor . . . . . . . . . . . . . . B-16
The Fund's Administrator. . . . . . . . . . . . . . . . . B-17
The Fund's Distributor. . . . . . . . . . . . . . . . . . . B-18
Execution of Portfolio Transactions . . . . . . . . . . . B-18
Additional Purchase and Redemption Information . . . . . B-21
Determination of Share Price . . . . . . . . . . . . . . B-22
Performance Information . . . . . . . . . . . . . . . . . B-23
General Information . . . . . . . . . . . . . . . . . . . B-24
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust. The
Trust consists of various series which represent separate investment portfolios.
This Statement of Additional Information relates only to the Insightful Investor
Growth Fund series (the "Fund").
INVESTMENT OBJECTIVE AND POLICIES
The Insightful Investor Growth Fund (the "Fund") is a mutual fund with
the investment objective of seeking growth of capital. 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 security agrees to
repurchase it at a mutually agreed upon time and price. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the U.S.
Government security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration. The
Fund will generally enter into repurchase agreements of short durations, from
overnight to one week, although the underlying securities generally have longer
maturities. The Fund may not enter into a repurchase agreement with more than
seven days to maturity if, as a result, more than 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
whether a court would
B-2
<PAGE>
consider the U.S. Government security acquired by the Fund subject to a
repurchase agreement as being owned by the Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the U.S. Government
security before its repurchase under a repurchase agreement, the Fund may
encounter delays and incur costs before being able to sell the security. Delays
may involve loss of interest or a decline in price of the U.S. Government
security. If a court characterizes the transaction as a loan and the Fund has
not perfected a security interest in the U.S. Government security, the Fund may
be required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
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 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
B-3
<PAGE>
to the issuer and no interest accrues to the Fund. To the extent that assets of
the Fund are held in cash pending the settlement of a purchase of securities,
the Fund would earn no income; however, it is the Fund's intention to be fully
invested to the extent practicable and subject to the policies stated above.
While when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The market value of the when-issued securities may be more or
less than the purchase price. The Fund does not believe that its net asset value
or income will be adversely affected by its purchase of securities on a
when-issued basis. The Fund will 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 Investments
The Fund many invest in foreign securities. Foreign investments can
involve significant risks in addition to the risks inherent in U.S. investments.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, generally are higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may invoke increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It also may be difficult to
B-4
<PAGE>
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 foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that an Adviser will be able to
anticipate or counter these potential events and their impacts on the Fund's
share price.
American Depositary Receipts and European Depositary Receipts ("ADRs"
and "EDRs") 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.
Options on Securities
The Fund may engage in certain purchases and sales of options on
securities. The Fund may write (i.e., sell) call options ("calls") on equity
securities if the calls are "covered" throughout the life of the option. A call
is "covered" if the Fund owns the optioned securities. When the Fund writes a
call, it receives a premium and gives the purchaser the right to buy the
underlying security at any time during the call period at a fixed exercise price
regardless of market price changes during the call period. If the call is
exercised, the Fund will forgo any gain from an increase in the market price of
the underlying security over the exercise price.
The Fund may purchase a call on securities to effect a "closing
purchase transaction" which is the purchase of a call covering the same
underlying security and having the same exercise price and expiration date as a
call previously written by the Fund on which it wishes to terminate its
obligation. If the Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call previously
written by the Fund expires (or until the call is exercised and the Fund
delivers the underlying security).
B-5
<PAGE>
The Fund also may write and purchase put options ("puts"). When the
Fund writes a put, it receives a premium and gives the purchaser of the put the
right to sell the underlying security to the Fund at the exercise price at any
time during the option period. When the Fund purchases a put, it pays a premium
in return for the right to sell the underlying security at the exercise price at
any time during the option period. If any put is not exercised or sold, it will
become worthless on its expiration date. When the Fund writes a put, it will
maintain at all times during the option period, in a segregated account, cash or
U.S. Government securities equal in value to the exercise price of the put.
The Fund's option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, but there can be no
assurance that a liquid secondary market will exist at a given time for any
particular option.
The Fund's custodian, or a securities depository acting for it,
generally acts as escrow agent as to the securities on which the Fund as written
puts or calls, or as to other securities acceptable for such escrow so that no
margin deposit is required of the Fund. Until the underlying securities are
released from escrow, they cannot be sold by the Fund.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation has the authority to
permit other, generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the Options Clearing Corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options Clearing
Corporation may impose special exercise settlement procedures.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the options markets
close before the markets for the underlying securities, significant price and
rate movements may take place in the underlying markets that cannot be reflected
in the options markets. The purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions.
B-6
<PAGE>
Futures Contracts
The Fund has reserved the right to use futures contracts, upon notification
to shareholders, although it does not currently intend to do so.
When a Fund purchases a futures contract, it agrees to purchase a
specified underlying instrument or precious metal at a specified future date.
When a Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Fund enters into the contract. Some currently
available futures contracts are based on specific securities, such as U.S.
Treasury bonds or notes, and some are based on indices of securities or precious
metal prices, such as the Standard & Poor's 500 Composite Stock Price Index
("S&P 500") or gold. Futures can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument or precious metal. Therefore,
purchasing futures contracts will tend to increase a Fund's exposure to positive
and negative price fluctuations in the underlying instrument or precious metal,
much as if it had purchased the underlying instrument or precious metal
directly. When a Fund sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the market.
Selling futures contracts, therefore, will tend to offset both positive and
negative market price changes, much as if the underlying instrument or precious
metal had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument or precious
metal unless the contact is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a futures
broker, known as a futures commission merchant ("FCM"), when the contract is
entered into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments to settle the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. Initial end variation margin payments
do not constitute purchasing securities on margin for purposes of a Fund's
investment limitations. In the event of the bankruptcy of the FCM that holds
margin on behalf of a Fund, the Fund may be entitled to return of margin owed to
it
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only in proportion to the amount received by the FCM's other customers,
potentially resulting in losses to the Fund.
Short Sales
The Fund may seek to hedge investments or realize additional gains
through short sales. The Fund may make short sales, which are transactions in
which the Fund sells a security it does not own, in anticipation of a decline in
the market value of that security. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund than is obligated to
replace the security borrowed by purchasing it at the market price at or prior
to the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to repay the lender any dividends or interest
that accrue during the period of the loan. To borrow the security, the Fund also
may be required to pay a premium, which would increase the cost of the security
sold. The net proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is closed
out. The Fund also will incur transaction costs in effecting short sales.
The Fund will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a gain if
the security declines in price between those dates. The amount of any gain will
be decreased, and the amount of any loss increased by the amount of the premium,
dividends, interest, or expenses the Fund may be required to pay in connection
with a short sale.
No securities will be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed 25%
of the value of the Fund's net equity. The Fund similarly will limit its short
sales of the securities of any single issuer if the market value of the
securities that have been sold short by the Fund would exceed the two percent
(2%) of the value of the Fund's net equity or if such securities would
constitute more than two percent (2%) of any class of the issuer's securities.
Whenever the Fund engages in short sales, its custodian segregates an
amount of cash or U.S. Government securities or other high-grade liquid debt
securities equal to the difference between (a) the market value of the
securities sold short at the time they were sold short and (b) any cash or U.S.
Government
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securities required to be deposited with the broker in connection with the short
sale (not including the proceeds from the short sale). The segregated assets are
marked to market daily, provided that at no time will the amount deposited in it
plus the amount deposited with the broker be less than the market value of the
securities at the time they were sold short.
In addition, the Fund may make short sales "against the box," i.e. when
a security identical to one owned by the Fund is borrowed and sold short. If the
Fund enters into a short sale against the box, it is required to segregate
securities equivalent in kind and amount to the securities sold short (or
securities convertible or exchangeable into such securities) and is required to
hold such securities while the short sale is outstanding. The Fund will incur
transaction costs, in connection with opening, maintaining, and closing short
sales against the box.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b)
through the lending of its portfolio securities as described above and in its
Prospectus, or (c) 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.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. 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
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of issuers engaged in such activities.)
5. Purchase or sell commodities or commodity contracts
(except for the purchase and sale of futures contracts as
described in this Statement of Additional Information).
6. 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.)
7. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures or repurchase transactions.
8. Invest in any issuer for purposes of exercising control
or management.
The Fund observes the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. The Fund may not:
9. 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
investment manager 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.
10. 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.
11. Invest, in the aggregate, more than 10% 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.
Under applicable provisions of Texas law, any investment by the Fund in
warrants may not exceed 5% of the value of the Fund's
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net assets. Included within that amount, but not to exceed 2% of the value of
the Fund's net assets may be warrants which are not listed on the New York or
American Stock Exchange. Also, as provided for under Texas law, the Fund may not
purchase real estate limited partnership interests.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except
with respect to borrowing or investment in illiquid securities, or as otherwise
noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually, as described in the
Prospectus after the conclusion of the Fund's fiscal year (December 31). Also,
the Fund expects to distribute any undistributed net investment income on or
about December 31 of each year. Any net capital gains realized through the
period ended October 31 of each year will also be distributed by December 31 of
each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund expects to continue to qualify and be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), provided it complies with all applicable
requirements regarding the source of its income, diversification of its assets
and timing of distributions. The Fund's policy is to distribute to its
shareholders all of its investment company taxable income and any net realized
long-term capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes. To comply with the requirements, the Fund
must also distribute (or be deemed to have distributed) by December 31 of each
calendar year (i) at least 98% of its ordinary income for such year, (ii) at
least 98% of
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the excess of its realized capital gains over its realized capital losses for
the 12-month period ending on October 31 during such year and (iii) any amounts
from the prior calendar year that were not distributed and on which the Fund
paid no federal income tax.
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment 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 that Fund's investment activities for a
particular year and therefore cannot be predicted with any certainty. The
deduction may be reduced or eliminated if the Fund shares held by a corporate
investor are treated as debt-financed or are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the
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alternative minimum tax.
A redemption or exchange of Fund shares may result in recognition of a
taxable gain or loss. Any loss realized upon a redemption or exchange 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. In determining gain or loss from an
exchange of Fund shares for shares of another mutual fund, the sales charge
incurred in purchasing the shares that are surrendered will be excluded from
their tax basis to the extent that a sales charge that would otherwise be
imposed in the purchase of the shares received in the exchange is reduced. Any
portion of a sales charge excluded from the basis of the shares surrendered will
be added to the basis of the shares received. Any loss realized upon a
redemption or exchange may be disallowed under certain wash sale rules to the
extent shares of the same Fund are purchased (through reinvestment of
distributions or otherwise) within 30 days before or after the redemption or
exchange.
Under the Code, the Fund will be required to report to the Internal
Revenue Service ("IRS") all distributions of taxable income and capital gains as
well as gross proceeds from the redemption or exchange of Fund shares, except in
the case of exempt shareholders, which includes most corporations. Pursuant to
the backup withholding provisions of the Internal Revenue Code, distributions of
any taxable income and capital gains and proceeds from the redemption of Fund
shares may be subject to withholding of federal income tax at the rate of 31
percent in the case of non-exempt shareholders who fail to furnish the Fund with
their taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Fund with
their taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. The Fund reserves
the right to refuse to open an account for any person failing to provide a
certified taxpayer identification number.
The Fund 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
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subject to state and local income taxes, and the tax treatment thereof may
differ from the federal income tax treatment. Moreover, the above discussion is
not intended to be a complete discussion of all applicable federal tax
consequences of an investment in the Fund. Shareholders are advised to consult
with their own tax advisers concerning the application of federal, state and
local taxes to an investment in the Fund.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
This discussion and the related discussion in the prospectus have been
prepared by Fund management, and counsel to the Fund has expressed no opinion in
respect thereof.
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 each of the Funds. The Trustees, in turn, elect the
officers of the Trust, who are responsible for administering the day-to-day
operations of the Trust and the Funds. The current Trustees and officers and
their affiliations and principal occupations for the past five years are set
forth below.
Steven J. Paggioli,* 46 President and Trustee
479 West 22nd Street, New York, New York 10011. Executive Vice President,
Robert H. Wadsworth & Associates, Inc. (consultants); Executive Vice President
of Investment Company Administration Corporation ("ICAC");President of First
Fund Distributors, Inc. ("FFD"), (registered broker-dealer).
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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
33 Flying Point Rd., Southampton, New York 11968. Founder and
President, National Investor Data Services, Inc. (investment
related computer software).
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 91740.
Senior Vice President, Robert H. Wadsworth & Associates, Inc. since
March 1990; Senior Vice President of ICAC and Vice President of
FFD. Formerly Vice President, Huntington Advisors, Inc. (investment
advisors).
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
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4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018.
President of Robert H. Wadsworth & Associates, Inc., ICAC and FFD.
*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. During the initial fiscal period
ended December 31, 1995, trustees fees and expenses of $1,438 were allocated to
the Fund.
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
The officers of the Trust receive no compensation directly from it for
performing the duties of their offices. However, those officers and Trustees of
the Trust who are officers and/or stockholders of those companies that render
administrative services to the Trust as noted below may receive remuneration
indirectly because of fees that these companies receive from the Trust. As of
the date of this Statement of Additional Information, the Trustees and officers
of the Trust as a group did not own more than 1% of the outstanding shares of
any Fund. Trustees receive no retirement benefits from the Trust.
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided
to the Fund by Insightful Management Corporation., the Advisor, pursuant to an
Investment Advisory Agreement. The Advisor is controlled by Mr. Dan Bruce
Levine. 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'
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written notice and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
Under the Investment Advisory Agreement, the Advisor is entitled to a
monthly fee at the annual rate of 1.25% of the average daily net assets of the
Fund. During the period ended December 31, 1995, the Adviser waived all of its
advisory fees ($7,268)and in addition voluntarily reimbursed $25,509 of the
Fund's operating expenses.
The Advisor has agreed to reduce fees payable to it by the Fund to the
extent necessary to limit the Fund's aggregate annual operating expenses to the
most stringent limits prescribed by any state in which the Fund's sales are
offered for sale. Currently, the expense limit is 2.5% on the first $30 million
of net assets, 2% on the next $70 million of net assets and 1 1/2% thereafter.
The use of the name "Insightful Investor" by the Fund is pursuant to a
license granted by the Advisor, and in the event the Investment Advisory
Agreement with the Fund is terminated, the Advisor has reserved the right to
require the Fund to remove any references to that name.
THE FUND'S ADMINISTRATOR
The Fund has entered into an Administrative Agreement with Investment
Company Administration Corporation (the "Administrator"), a corporation owned in
part and controlled by Messrs. Banhazl, Paggioli and Wadsworth. The
Administration Agreement provides that the Administrator will prepare and
coordinate reports and other materials supplied to the Trustees; prepare and/or
supervise the preparation and filing of all securities filings, periodic
financial reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required filings necessary to maintain
the Fund's 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 Administrator. For its
services,
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the Administrator receives a monthly fee at the following annual
rate:
Average net assets Fee or fee rate
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 to $100 million 0.15% of average net assets
$100 to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
During the period from inception on July 28, 1995 through December 31, 1995,
Southampton Investment Management Company, Inc., a corporation owned by the same
individuals, which previously served as the Fund's administrative manager,
received fees of $15,061.
THE FUND'S DISTRIBUTOR
Newcomb & Company (the "Distributor") acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
from year to year if approved at least annually by (I) the Board of Trustees or
the vote of a majority of the outstanding shares of the Fund (as defined in the
1940 Act) and (ii) a majority of the Trustees who are not interested persons of
any such party, in each case cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreement may be terminated without
penalty by the parties thereto upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act. During the Fund's initial fiscal period from July 28, 1995 through December
31, 1995, its sales were sold at net asset value plus a sales charge. The
Distributor received commissions of $1,155 on sales of the Fund's shares during
that period.
As more fully described in the Prospectus, the Fund has adopted a
Distribution and Shareholder Service Plan pursuant to Rule 12b-1 under the 1940
Act under which the Fund pays the Distributor an amount at an annual rate of up
to 0.25% of the Fund's average daily net assets for services related to the
distribution of the Fund's shares. During the initial fiscal period from July
28, 1995 through December 31, 1995, the Fund incurred distribution expenses in
the amount of $1,444.
EXECUTION OF PORTFOLIO TRANSACTIONS
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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 Management 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 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 best
efforts to choose a broker-dealer capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and 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.
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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 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
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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 Fund's 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.
The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
such 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. During the Fund's initial fiscal period from July 28, 1995 through
December 31, 1995, brokerage commissions paid by the Fund totaled $6,370.
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
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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.
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.
As discussed in the Prospectus, the Fund provides a Check-A-Matic Plan
for the convenience of investors who wish to purchase shares of the Fund on a
regular basis. All record keeping and custodial costs of the Check-A-Matic Plan
are paid by the Fund. The market value of the Fund's shares is subject to
fluctuation, so before undertaking any plan for systematic investment, the
investor should keep in mind that this plan does not assure a profit nor protect
against depreciation in declining markets.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value 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.
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In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Trustees of the
Trust shall determine in good faith to reflect the security's fair value. All
other assets of each Fund are valued in such manner as the Board of Trustees in
good faith deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in
advertisements and investor communications. Total return may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return will be accompanied by information on the Fund's
average annual compounded rate of return over the most recent four calendar
quarters and the period from the Fund's inception of operations. The Fund may
also advertise aggregate and average total return information over different
periods of time.
The Fund's 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
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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 average annual total return from inception on July 28, 1995
through March 31, 1996 was 16.41%. Aggregate total return for that period was
10.83%.
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 a 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.
As of April 24, 1996, Lee Investment Corporation, Tiburon, CA 94928 owned
5.10% of the Fund's outstanding voting securities.
Star Bank, 425 Walnut St., Cincinnati, OH 45202 acts as Custodian of the
securities and other assets of the Fund. American Data Services, Inc., 24 West
Carver St., Huntington, NY 11743 acts as the Fund's transfer and shareholder
service agent. The Custodian does not participate in decisions relating to the
purchase and sale of securities by the Fund.
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<PAGE>
Tait, Weller & Baker, 121 South Broad Street, Philadelphia, PA 19107,
are the independent auditors for the Fund.
Heller, Ehrman, White & McAuliffe, 333 Bush Street, San Francisco,
California 94104, are legal counsel to the Fund.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Agreement and Declaration of Trust further
provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this 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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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
KAYNE, ANDERSON RISING DIVIDENDS FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
1800 Avenue of the Stars, Second Floor
Los Angeles, CA 90067
(310) 556-2721
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the prospectus of the Kayne Anderson Rising Dividends
Fund (the "Fund"). A copy of the prospectus of the Fund dated May 1, 1996 is
available by calling the numbers listed above or (212) 633-9700.
TABLE OF CONTENTS
Page
The Trust . . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Objective and Policies . . . . . . . . . . . . B-2
Investment Restrictions . . . . . . . . . . . . . . . . . B-6
Distributions and Tax Information . . . . . . . . . . . . B-11
Management . . . . . . . . . . . . . . . . . . . . . . . B-13
The Fund's Investment Advisor . . . . . . . . . . . . . . B-13
The Fund's Administrator. . . . . . . . . . . . . . . . B-14
The Fund's Distributor. . . . . . . . . . . . . . . . . . . B-15
Execution of Portfolio Transactions . . . . . . . . . . . B-15
Additional Purchase and Redemption Information . . . . . B-18
Determination of Share Price . . . . . . . . . . . . . . B-19
Performance Information . . . . . . . . . . . . . . . . . B-20
General Information . . . . . . . . . . . . . . . . . . . B-21
Financial Statements . . . . . . . . . . . . . . . . .. . B-22
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust. The
Trust consists of various series which represent separate investment portfolios.
This Statement of Additional Information relates only to the Kayne, Anderson
Rising Dividends Fund series (the "Fund").
INVESTMENT OBJECTIVE AND POLICIES
The Kayne, Anderson Rising Dividends Fund (the "Fund") is a mutual fund
with the primary investment objective of long-term capital appreciation, with
dividend income as a secondary consideration. 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 security agrees to
repurchase it at a mutually agreed upon time and price. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the U.S.
Government security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration. The
Fund will generally enter into repurchase agreements of short durations, from
overnight to one week, although the underlying securities generally have longer
maturities. The Fund may not enter into a repurchase agreement with more than
seven days to maturity if, as a result, more than 10% of the value of the Fund's
total assets would be invested in illiquid securities including such
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repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
the Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, the 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 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.
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When-Issued Securities
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase; during the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
securities may be sold prior to the settlement date, the Fund intends to
purchase such securities with the purpose of actually acquiring them unless a
sale appears desirable for investment reasons. At the time the Fund makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The market value of the when-issued securities may be more or less than
the purchase price. The Fund does not believe that its net asset value or income
will be adversely affected by its purchase of securities on a when-issued basis.
The Fund will 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.
Securities Lending
The Fund's primary objective is long term capital appreciation, with
dividend income as a secondary consideration. The Fund reserves the right to
lend its portfolio securities in order to generate additional income. Securities
may be loaned to broker-dealers, major banks or other recognized domestic
institutional borrowers of securities who are not affiliated with the Advisor or
Distributor and whose creditworthiness is acceptable to the Advisor. The
borrower must deliver to the Fund cash or cash equivalent collateral, or provide
to the Fund an irrevocable letter of credit equal in value to at least 100% of
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<PAGE>
the value of the loaned securities at all times during the loan, marked to
market daily. During the time the portfolio securities are on loan, the borrower
pays the Fund any interest paid on such securities. The Fund may invest the cash
collateral and earn additional income, or it may receive an agreed-upon amount
of interest income if the borrower has delivered equivalent collateral or a
letter of credit. The Fund may pay reasonable administrative and custodial fees
in connection with a loan and may pay a negotiated portion of the income earned
on the cash to the borrower or placing broker. Loans are subject to termination
at the option of the Fund or the borrower at any time. It is not anticipated
that more than 5% of the value of the Fund's portfolio securities will be
subject to lending.
Foreign Investments
The Fund may invest in foreign securities. Foreign investments can
involve significant risks in addition to the risks inherent in U.S. investments.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, generally are higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may invoke increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It also may be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and
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economic risks. Foreign investments may be affected by actions of foreign
governments adverse to the interests of U.S. investors, including the
possibility of expropriation or nationalization of assets, confiscatory
taxation, restrictions on U.S. investment or on the ability to repatriate assets
or convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also involve
a risk of local political, economic, or social instability, military action or
unrest, or adverse diplomatic developments. There is no assurance that an
Adviser will be able to anticipate or counter these potential events and their
impacts on the Fund's share price.
American Depositary Receipts and European Depositary Receipts ("ADRs"
and "EDRs") 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.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b)
through the lending of its portfolio securities as described above and in its
Prospectus, or (c) to the extent the entry into a repurchase agreement is deemed
to be a loan.
2. (a) Borrow money, except as stated in the Prospectus
and this Statement of Additional Information. 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.
B-6
<PAGE>
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase or sell commodities or commodity contracts (As a matter of
operating policy, the Board of Trustees may in the future authorize the Fund to
engage in certain activities regarding futures contracts for bona fide hedging
purposes; any such authorization will be accompanied by appropriate notification
to shareholders).
5. Invest 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.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into repurchase
transactions.
7. Invest in any issuer for purposes of exercising control
or management.
8. Invest in real estate, provided that this restriction does not preclude
the investment in marketable securities of issuers engaged in real estate
related activities.
The Fund observes the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. The Fund may not:
9. 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
investment manager 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.
10. Invest in securities of other investment companies
which would result in the Fund owning more than 3% of the
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<PAGE>
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.
11. Invest, in the aggregate, more than 10% 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.
12. Buy or sell interests in oil, gas or mineral exploration or development
programs or related leases, provided that this restriction does not preclude
investments in marketable securities of issuers engaged in securities;
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except
with respect to borrowing and illiquid securities, or as otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually, as described in the
Prospectus after the conclusion of the Fund's fiscal year (December 31). Also,
the Fund expects to distribute any undistributed net investment income on or
about December 31 of each year. Any net capital gains realized through the
period ended October 31 of each year will also be distributed by December 31 of
each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
B-8
<PAGE>
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), provided it complies with all applicable requirements
regarding the source of its income, diversification of its assets and timing of
distributions. The Fund's policy is to distribute to its shareholders all of its
investment company taxable income and any net realized long-term capital gains
for each fiscal year in a manner that complies with the distribution
requirements of the Code, so that the Fund will not be subject to any federal
income or excise taxes. To comply with the requirements, the Fund must also
distribute (or be deemed to have distributed) by December 31 of each calendar
year (i) at least 98% of its ordinary income for such year, (ii) at least 98% of
the excess of its realized capital gains over its realized capital losses for
the 12-month period ending on October 31 during such year and (iii) any amounts
from the prior calendar year that were not distributed and on which the Fund
paid no federal income tax.
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment 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 that Fund's investment activities for a
particular year and therefore cannot be predicted with any certainty. The
deduction may be reduced or eliminated if the Fund shares held by a corporate
investor are treated as debt-financed or are held for
B-9
<PAGE>
less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
A redemption or exchange of Fund shares may result in recognition of a
taxable gain or loss. Any loss realized upon a redemption or exchange 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. In determining gain or loss from an
exchange of Fund shares for shares of another mutual fund, the sales charge
incurred in purchasing the shares that are surrendered will be excluded from
their tax basis to the extent that a sales charge that would otherwise be
imposed in the purchase of the shares received in the exchange is reduced. Any
portion of a sales charge excluded from the basis of the shares surrendered will
be added to the basis of the shares received. Any loss realized upon a
redemption or exchange may be disallowed under certain wash sale rules to the
extent shares of the same Fund are purchased (through reinvestment of
distributions or otherwise) within 30 days before or after the redemption or
exchange.
Under the Code, the Fund will be required to report to the
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<PAGE>
Internal Revenue Service ("IRS") all distributions of taxable income and capital
gains as well as gross proceeds from the redemption or exchange of Fund shares,
except in the case of exempt shareholders, which includes most corporations.
Pursuant to the backup withholding provisions of the Internal Revenue Code,
distributions of any taxable income and capital gains and proceeds from the
redemption of Fund shares may be subject to withholding of federal income tax at
the rate of 31 percent in the case of non-exempt shareholders who fail to
furnish the Fund with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law. If the
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Corporate and other exempt shareholders should
provide the Fund with their taxpayer identification numbers or certify their
exempt status in order to avoid possible erroneous application of backup
withholding. The Fund reserves the right to refuse to open an account for any
person failing to provide a certified taxpayer identification number.
The Fund will not be subject to tax in the Commonwealth of
Massachusetts as long as it qualifies as a regulated investment company for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state and local income taxes, and the
tax treatment thereof may differ from the federal income tax treatment.
Moreover, the above discussion is not intended to be a complete discussion of
all applicable federal tax consequences of an investment in the Fund.
Shareholders are advised to consult with their own tax advisers concerning the
application of federal, state and local taxes to an investment in the Fund.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
B-11
<PAGE>
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.
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,* 46 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
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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. Managing Director, Premier
Solutions, Ltd. Formerly President and Founder, National Investor
Data Services, Inc. (investment related computer software).
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. Formerly Vice President, Huntington Advisors, Inc.
(investment advisors) 1988-90.
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.
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<PAGE>
*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. During the fiscal year ended
December 31, 1995, trustees fees and expenses of $2,006 were allocated to the
Fund.
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
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.
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided to
the Fund by Kayne Anderson Investment Management L.P., (the "Advisor"), pursuant
to an Investment Advisory Agreement. The Advisor is controlled by Mr. Richard
Kayne and Mr. John Anderson. The Advisor is a registered investment advisor
organized as a
B-14
<PAGE>
California limited partnership succeeding to the investment advisory business of
Kayne, Anderson Investment Management, Inc., which was founded in 1984 by
Richard Kayne and John Anderson. The Advisor is in the business of furnishing
investment advice to institutional and private clients and currently manages
approximately $2.2 billion for such clients.
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.
The Advisor has agreed to reduce fees payable to it by the Fund to the
extent necessary to limit the Fund's aggregate annual operating expenses to the
most stringent limits prescribed by any state in which the Fund's sales are
offered for sale. Currently, the expense limit is 2.5% on the first $30 million
of net assets, 2% on the next $70 million of net assets and 1 1/2% thereafter.
During the Fund's initial fiscal period from May 1, 1995 to December 31, 1995,
the Advisor received investment advisory fees of $90,944.
The use of the name "Kayne Anderson" by the Fund is pursuant to a
license granted by the Advisor, and in the event the Investment Advisory
Agreement with the Fund is terminated, the Advisor has reserved the right to
require the Fund to remove any references to the name "Kayne Anderson."
THE FUND'S ADMINISTRATOR
The Fund has entered into an Administrative Agreement with Investment
Company Administration Corporation (the "Administrator"), a corporation owned in
part and controlled by
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<PAGE>
Messrs. Banhazl, Paggioli and Wadsworth. The Administrative Agreement provides
that the Administrator will prepare and coordinate reports and other materials
supplied to the Trustees; prepare and/or supervise the preparation and filing of
all securities filings, periodic financial reports, prospectuses, statements of
additional information, marketing materials, tax returns, shareholder reports
and other regulatory reports or filings required of the Fund; prepare all
required filings necessary to maintain the Fund's 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 Administrator. For its services, the Administrator receives a monthly
fee at the following annual rate:
Average net assets Fee or Fee rate
under $15 million $30,000
$15 million to $50 million 0.20% of average net assets $50 million to $100
million 0.15% of average net assets $100 million to $150 million 0.10% of
average net assets Over $150 million 0.05% of average net assets
During the initial fiscal period from May 1, 1995 to December 31, 1995,
Southampton Investment Management Company, a corporation owned by the same
individuals, which previously served as the Fund's Administrative Manager,
received fees of $30,224.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), a
corporation owned by Messrs. Banhazl, Paggioli and Wadsworth, acts
as the Fund's principal underwriter in a continuous public offering
of the Fund's shares. The Distribution Agreement between the Fund
and the Distributor continues in effect from year to year if
approved at least annually by (I) the Board of Trustees or the vote
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<PAGE>
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 Management 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 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 best
efforts to choose a broker-dealer capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services
B-17
<PAGE>
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 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
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<PAGE>
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 Fund's 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.
The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
such 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.
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<PAGE>
The Fund does not use the Distributor to execute its portfolio
transactions. During the Fund's initial fiscal period from May 1, 1995 through
December 31, 1995, aggregate brokerage commissions paid by the Fund were
$21,458. Of this amount, $156.60 was paid to KA Associates, Inc., an affiliate
of the Advisor.
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
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<PAGE>
Rule 18f-1 under the 1940 Act, which contains a formula for determining the
minimum redemption amounts that must be paid in cash.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption or repurchase.
As discussed in the Prospectus, the Fund provides a Check-A-Matic Plan
for the convenience of investors who wish to purchase shares of the Fund on a
regular basis. All record keeping and custodial costs of the Check-A-Matic Plan
are paid by the Fund. The market value of the Fund's shares is subject to
fluctuation, so before undertaking any plan for systematic investment, the
investor should keep in mind that this plan does not assure a profit nor protect
against depreciation in declining markets.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value 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
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Trustees of the
Trust shall determine in good faith to reflect the security's fair value. All
other
B-21
<PAGE>
assets of each Fund are valued in such manner as the Board of Trustees in good
faith deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in
advertisements and investor communications. Total return may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return will be accompanied by information on the Fund's
average annual compounded rate of return over the most recent four calendar
quarters and the period from the Fund's inception of operations. The Fund may
also advertise aggregate and average total return information over different
periods of time.
The Fund's 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
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<PAGE>
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 average annual total return from inception on April 28, 1995
through March 31, 1996 was 30.97%. Aggregate total return for that period was
28.10%.
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 a 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.
As of April 24, 1996, the following shareholders owned 5% or more of the
Fund's outstanding voting securities:
Nations Bank Trustee FBO Big B Inc Profit Sharing 401k Retirement Plan, 715
Peachtree St., 5th floor, Atlanta, GA 30060; 11.78%.
Daniel A. Picard, Trustee/Cust., Picard Trust, UGMA, IRA accts., 101 Park
Ave., New York, NY 10178, 7.82%.
Tronstein Trust, 1800 Avenue of the Stars, Ste. 1400, Los
Angeles, CA 90067; 5.95%.
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<PAGE>
The Provident Bank, One East Fourth Street, Cincinnati, OH 45202 acts as
Custodian of the securities and other assets of the Fund and as the Fund's
transfer and shareholder service agent. The Custodian and Transfer Agent does
not participate in decisions relating to the purchase and sale of securities by
the Fund.
Tait, Weller & Baker, 121 South Broad Street, Philadelphia, PA 19107,
are the independent auditors for the Fund.
Heller, Ehrman, White & McAuliffe, 333 Bush Street, San Francisco,
California 94104, are legal counsel to the Fund.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Agreement and Declaration of Trust further
provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this 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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<PAGE>
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for the fiscal period ended
December 31, 1995 is a separate document supplied with this Statement of
Additional Information and the financial statements, accompanying notes and
report of independent accountants appearing therein are incorporated by
reference in this Statement of Additional Information.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
MATRIX GROWTH FUND
MATRIX EMERGING GROWTH FUND
series of
PROFESSIONALLY MANAGED PORTFOLIOS
300 Main St., Cincinnati, OH 45202-4123
(513) 621-2875
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the prospectus of the Matrix Growth Fund or the Matrix
Emerging Growth Fund (the "Fund" or the "Funds"). A copy of the prospectus of
the Funds dated May 1, 1996 is available by calling the numbers listed above or
(212) 633-9700.
TABLE OF CONTENTS
Page
The Trust . . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Objective and Policies . . . . . . . . . . . . B-2
Investment Restrictions . . . . . . . . . . . . . . . . . B-5
Distributions and Tax Information . . . . . . . . . . . . B-7
Management . . . . . . . . . . . . . . . . . . . . . . . B-10
The Funds' Investment Advisor . . . . . . . . . . . . . . B-12
The Funds' Administrator. . . . . . . . . . . . . . . . B-13
The Funds' Distributor. . . . . . . . . . . . . . . . . . B-14
Execution of Portfolio Transactions . . . . . . . . . . . B-14
Additional Purchase and Redemption Information . . . . . B-17
Determination of Share Price . . . . . . . . . . . . . . B-18
Performance Information . . . . . . . . . . . . . . . . . B-19
General Information . . . . . . . . . . . . . . . . . . . B-20
Financial Statements . . . . . . . . . . . . . . . . .. . B-21
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust. The
Trust consists of various series which represent separate investment portfolios.
This Statement of Additional Information relates only to the Matrix Growth Fund
and Matrix Emerging Growth Fund series (the "Fund" or "Funds").
INVESTMENT OBJECTIVE AND POLICIES
The Matrix Growth Fund is a mutual fund with the investment objective
of long-term growth of capital with a secondary objective of conserving
principal. The Matrix Emerging Growth Fund is a mutual fund with the investment
objective of seeking long-term capital appreciation. The following discussion
supplements the discussion of the Funds' investment objectives and policies as
set forth in the Prospectus. There can be no assurance the objective of either
Fund will be attained.
Repurchase Agreements
The Funds may enter into repurchase agreements as discussed in the
Prospectus. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The repurchase price may
be higher than the purchase price, the difference being income to the Funds, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Funds together with the repurchase price on repurchase. In
either case, the income to the Funds is unrelated to the interest rate on the
U.S. Government security itself. Such repurchase agreements will be made only
with banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration. The
Funds will generally enter into repurchase agreements of short durations, from
overnight to one week, although the underlying securities generally have longer
maturities. The Funds may not enter into a repurchase agreement with more than
seven days to maturity if, as a result, more than 15% of the value of each
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
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<PAGE>
the Funds to the seller of the U.S. Government security subject to the
repurchase agreement. It is not clear whether a court would consider the U.S.
Government security acquired by a Fund subject to a repurchase agreement as
being owned by the Fund or as being collateral for a loan by the Fund to the
seller. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the U.S. Government security before its repurchase
under a repurchase agreement, a Fund may encounter delays and incur costs before
being able to sell the security. Delays may involve loss of interest or a
decline in price of the U.S. Government security. If a court characterizes the
transaction as a loan and the Fund has not perfected a security interest in the
U.S. Government security, the Fund may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, the Fund would be at the risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Fund, the investment advisor seeks to minimize the
risk of loss through repurchase agreements by analyzing the creditworthiness of
the obligor, in this case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, a
Fund will always receive as collateral for any repurchase agreement to which it
is a party securities acceptable to it, the market value of which is equal to at
least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that a Fund
will be unsuccessful in seeking to impose on the seller a contractual obligation
to deliver additional securities.
When-Issued Securities
The Funds 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
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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 Funds' 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 Funds intend to
purchase such securities with the purpose of actually acquiring them unless a
sale appears desirable for investment reasons. At the time a Fund makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The market value of the when-issued securities may be more or less than
the purchase price. The Funds do not believe that net asset value or income will
be adversely affected by its purchase of securities on a when-issued basis. The
Funds 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.
Options Transactions
As indicated in the Prospectus, the Adviser may at time purchase index put
options with respect to the Matrix Growth Fund's portfolio, principally to
protect against declines in the value of the common stocks held in the Fund's
portfolio or to attempt to retain unrealized gains in the value of the
securities held.
When the Fund purchases a put, it pays a premium in return for the right to
sell the underlying security at the exercise price at any time during the option
period. If any put is not exercised or sold, it will become worthless on its
expiration date. The Fund's option positions may be closed out only on an
exchange which provides a secondary market for options of the same series, but
there can be no assurance that a liquid secondary market will exist at a given
time for any particular option.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation has the authority to
permit other, generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the Options Clearing Corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise
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prices of the affected options by setting different prices at which otherwise
ineligible securities may be delivered. As an alternative to permitting such
substitute deliveries, the Options Clearing Corporation may impose special
exercise settlement procedures.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the options markets
close before the markets for the underlying securities, significant price and
rate movements may take place in the underlying markets that cannot be reflected
in the options markets. The purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Funds 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 Funds may not:
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b)
through the lending of its portfolio securities as described above and in its
Prospectus, or (C) to the extent the entry into a repurchase agreement is deemed
to be a loan.
2. (a) Borrow money, except temporarily for extraordinary or emergency
purposes from a bank and then not in excess of 10% of its total assets (at the
lower of cost or fair market value; any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least 300% of all
borrowings and no additional investments may be made while any borrowings are in
excess of 5% of total assets.
(b) Mortgage, pledge or hypothecate any of its assets
except in connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
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4. Purchase or sell commodities or commodity contracts (As a matter of
operating policy, the Board of Trustees may in the future authorize the Fund to
engage in certain activities regarding futures contracts for bona fide hedging
purposes; any such authorization will be accompanied by appropriate notification
to shareholders).
5. Invest 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.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into repurchase
transactions.
7. Invest in any issuer for purposes of exercising control
or management.
8. Buy or sell interests in oil, gas, mineral exploration or development
programs or leases, or real estate, provided that this restriction does not
preclude the investment in marketable securities of issuers engaged in real
estate related activities.
The Funds observe the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. The Funds may not:
9. 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
investment manager 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.
10. 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.
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11. 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.
Under applicable provisions of Texas law, any investment by a Fund in
warrants may not exceed 5% of the value of the Fund's net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's net assets
may be warrants which are not listed on the New York or American Stock Exchange.
Also, as provided for under Texas law, the Funds may not purchase real estate
limited partnership interests.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except
with respect to borrowing and illiquid securities, or as otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually, as described in the
Prospectus after the conclusion of the Funds' fiscal year (December 31). Also,
the Funds expect to distribute any undistributed net investment income on or
about December 31 of each year. Any net capital gains realized through the
period ended October 31 of each year will also be distributed by December 31 of
each year.
Each distribution by the Funds is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Funds
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
Each series of the Trust is treated as a separate entity for federal
income tax purposes. Each Fund expects to continue to qualify and be treated as
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") provided it complies with all applicable
requirements regarding the source of its income, diversification of its assets
and timing of distributions. Each 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
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each fiscal year in a manner that complies with the distribution requirements of
the Code, so that the Fund will not be subject to any federal income or excise
taxes. To comply with the requirements, the Fund must also distribute (or be
deemed to have distributed) by December 31 of each calendar year (I) at least
98% of its ordinary income for such year, (ii) at least 98% of the excess of its
realized capital gains over its realized capital losses for the 12-month period
ending on October 31 during such year and (iii) any amounts from the prior
calendar year that were not distributed and on which the Fund paid no federal
income tax.
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carry forward of a Fund.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment 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 that Fund's investment activities for a
particular year and therefore cannot be predicted with any certainty. The
deduction may be reduced or eliminated if the Fund shares held by a corporate
investor are treated as debt-financed or are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains 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
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each share so received equal to the net asset value of a share on the
reinvestment date. Distributions are generally taxable when received. However,
distributions declared in October, November or December to shareholders of
record on a date in such a month and paid the following January are taxable as
if received on December 31. Distributions are includable in alternative minimum
taxable income in computing a shareholder's liability for the alternative
minimum tax.
A redemption or exchange of Fund shares may result in recognition of a
taxable gain or loss. Any loss realized upon a redemption or exchange 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. In determining gain or loss from an
exchange of Fund shares for shares of another mutual fund, the sales charge
incurred in purchasing the shares that are surrendered will be excluded from
their tax basis to the extent that a sales charge that would otherwise be
imposed in the purchase of the shares received in the exchange is reduced. Any
portion of a sales charge excluded from the basis of the shares surrendered will
be added to the basis of the shares received. Any loss realized upon a
redemption or exchange may be disallowed under certain wash sale rules to the
extent shares of the same Fund are purchased (through reinvestment of
distributions or otherwise) within 30 days before or after the redemption or
exchange.
Under the Code, the Fund will be required to report to the Internal
Revenue Service ("IRS") all distributions of taxable income and capital gains as
well as gross proceeds from the redemption or exchange of Fund shares, except in
the case of exempt shareholders, which includes most corporations. Pursuant to
the backup withholding provisions of the Internal Revenue Code, distributions of
any taxable income and capital gains and proceeds from the redemption of Fund
shares may be subject to withholding of federal income tax at the rate of 31
percent in the case of non-exempt shareholders who fail to furnish the Fund with
their taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Fund with
their taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. The Funds reserve
the right
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to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
The Funds will not be subject to tax in the Commonwealth of Massachusetts
as long as they qualify as a regulated investment company for federal income tax
purposes. Distributions and the transactions referred to in the preceding
paragraphs may be subject to state and local income taxes, and the tax treatment
thereof may differ from the federal income tax treatment. Moreover, the above
discussion is not intended to be a complete discussion of all applicable federal
tax consequences of an investment in the Funds. Shareholders are advised to
consult with their own tax advisers concerning the application of federal, state
and local taxes to an investment in the Funds.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Funds, 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 Funds has expressed no opinion
in respect thereof.
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 Funds. 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.
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Steven J. Paggioli,* 46 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), 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. Managing Director, Premier
Solutions, Ltd. Formerly President and Founder, National Investor
Data Services, Inc. (investment related computer software).
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. Formerly Vice President, Huntington Advisors, Inc.
(investment advisors) 1988-90.
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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 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 Funds 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 Funds or any other portfolios of the Trust. During the fiscal year ended
December 31, 1995, trustees fees and expenses of $5,850 were allocated to the
Matrix Growth Fund and 3,696 to the Matrix Emerging Growth Fund.
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
THE FUNDS' INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided
to the Funds by Sena, Weller, Rohs Williams., (the "Advisor"), pursuant to an
Investment Advisory Agreement. The Advisor is in the business of furnishing
investment advice to institutional and private clients and currently manages
approximately $850 million for such clients.
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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 Funds,
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 Funds or the Advisor upon sixty days' written
notice and is automatically terminated in the event of its assignment as defined
in the 1940 Act.
The Advisor has agreed to reduce fees payable to it by the Funds to the
extent necessary to limit each Fund's aggregate annual operating expenses to the
most stringent limits prescribed by any state in which the Fund's sales are
offered for sale. Currently, the expense limit is 2.5% on the first $30 million
of net assets, 2% on the next $70 million of net assets and 1 1/2% thereafter.
During the Matrix Emerging Growth Fund's initial fiscal period ended December
31, 1995 , the Advisor waived advisory fees and reimbursed expenses totalling
$32,234 in accord with its agreement to limit that Fund's expenses to 2.00% of
average net assets annually. During the fiscal year ended December 31, 1995, the
Matrix Growth Fund incurred advisory fees of $141,358 and reimbursed expenses of
$1,060. Investment advisory and management fees for the fiscal year ended
December 31, 1994 totalled $157,897.
THE FUNDS' ADMINISTRATOR
The Funds have entered into an Administrative Agreement with Investment
Company Administration Corporation (the "Administrator"), a corporation owned in
part and controlled by Messrs. Banhazl, Paggioli and Wadsworth. The
Administrative Agreement provides that the Administrator will prepare and
coordinate reports and other materials supplied to the Trustees; prepare and/or
supervise the preparation and filing of all securities filings, periodic
financial reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required filings necessary to maintain
the Fund's 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
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expense accruals; and perform such additional services as may be agreed upon by
the Fund and the Administrator. For its services, the Administrator receives a
monthly fee at the following annual rate:
Average net assets Fee or Fee rate
under $15 million $30,000
$15 million to $50 million 0.20% of average net assets $50 million to $100
million 0.15% of average net assets $100 million to $150 million 0.10% of
average net assets Over $150 million 0.05% of average net assets
During the Matrix Emerging Growth Fund's initial fiscal period from May 1, 1995
to December 31, 1995, and for the Matrix Growth Fund's fiscal year ended on that
date, Southampton Investment Management Company, Inc., a corporation owned by
the same individuals, which previously served as the Funds' Administrative
Manager, received fees of $22,356 from the Matrix Emerging Growth Fund and
$36,750 from the Matrix Growth Fund.
THE FUNDS' DISTRIBUTOR
Reynolds, DeWitt Securities Company,(the "Distributor"), an affiliate
of the Advisor, acts as the Funds' principal underwriter in a continuous public
offering of the Funds' 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 Funds (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 Management Agreement, the Advisor determines which
securities are to be purchased and sold by the Funds and which broker-dealers
are eligible to execute the Funds' portfolio transactions, subject to the
instructions of and review by the Funds. Purchases and sales
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of securities in the over-the-counter market will generally be executed directly
with a "market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Funds 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 best
efforts to choose a broker-dealer capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and 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 Funds, to be useful in varying degrees, but of indeterminable
value. The placement of portfolio transactions with broker-dealers who sell
shares of the Funds is subject to rules adopted by the National Association of
Securities Dealers, Inc. Provided the Trust's officers are satisfied that the
Funds are receiving the most favorable price and execution available, the Funds
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 Funds' 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 Funds,
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weight may also be given to the ability of a broker-dealer to furnish brokerage
and research services to the Funds or to the Advisor, even if the specific
services were not imputed just to the Fund and may be useful to the Advisor in
advising other clients. In negotiating any commissions with a broker or
evaluating the spread to be paid to a dealer, the Funds 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 Funds 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 Funds or assist the Advisor in carrying out its
responsibilities to the Funds. The standard of reasonableness is to be measured
in light of the Advisor's overall responsibilities to the Funds.
Investment decisions for the Funds are made independently from those of
other client accounts or mutual funds managed or advised by the Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Funds and one or more of such client accounts or other
Funds. In such event, the position of the Fund and such client account(s) or
other 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 other Funds seeks to acquire the same
security as the Funds at the same time, a 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 other 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 Funds and all such client accounts or other 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 Funds are concerned. In other cases, however, it is
believed that the ability of the Funds to participate in volume transactions may
produce better executions for the Funds.
Because the Funds' Distributor is a member of the National Association
of Securities Dealers, it is sometimes entitled to obtain certain fees when a
Fund tenders portfolio securities
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pursuant to a tender-offer solicitation. As a means of recapturing brokerage for
the benefit of a Fund, any portfolio securities tendered by the Funds will be
tendered through the Distributor if it is legally permissible to do so.
The Funds do not effect securities transactions through brokers in
accordance with any formula, nor do they effect securities transactions through
such brokers solely for selling shares of the Fund, although a 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 Funds for their customers.
The Funds do not use the Distributor to execute their portfolio
transactions. During the Matrix Growth Fund's initial fiscal period ended
December 31, 1995, aggregate brokerage commissions paid by the Fund were $3,539.
During the fiscal year ended December 31, 1995, the Matrix Growth Fund's
aggregate brokerage commissions were $27,494.
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 Funds, 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 Funds'
shares.
Payments to shareholders for shares of the Funds redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Funds' Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Funds
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 Funds' shareholders. At various times, the Funds may be
requested to redeem shares for which they have not yet received confirmation of
good payment; in this circumstance, a Fund may delay the redemption until
payment for the purchase of such
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shares has been collected and confirmed to the Fund.
The Funds intend to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Funds may
make payment partly in securities with a current market value equal to the
redemption price. Although the Funds do not anticipate that they 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
Funds have elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Funds'
portfolio securities at the time of redemption or repurchase.
As discussed in the Prospectus, the Funds provide a Check-A-Matic Plan
for the convenience of investors who wish to purchase shares of the Fund on a
regular basis. All record keeping and custodial costs of the Check-A-Matic Plan
are paid by the Funds. The market value of the Funds' shares is subject to
fluctuation, so before undertaking any plan for systematic investment, the
investor should keep in mind that this plan does not assure a profit nor protect
against depreciation in declining markets.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Funds 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 Funds do not expect to determine the
net asset value of their shares on any day when the Exchange is not open for
trading even if there is sufficient trading in their portfolio securities on
such days to materially affect the net asset value per share.
In valuing the Funds' assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day,
B-18
<PAGE>
the security is valued at the closing bid price on such day. Readily marketable
securities traded only in the over-the-counter market and not on NASDAQ are
valued at the current or last bid price. If no bid is quoted on such day, the
security is valued by such method as the Board of Trustees of the Trust shall
determine in good faith to reflect the security's fair value. All other assets
of each 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 each 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, a Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Fund's average annual
compounded rate of return over the most recent four calendar quarters and the
period from the Fund's inception of operations. A Fund may also advertise
aggregate and average total return information over different periods of time.
A 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,
B-19
<PAGE>
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.
The Matrix Emerging Growth Fund's average annual total return from inception
on April 4, 1995 through March 31, 1996 was 39.38%. Its aggregate total return
for that period was 39.00%. The Matrix Growth Fund's average annual total
returns for the one-year and five-year periods and from inception on May 14,
1986 through March 31, 1996 were 24.70%, 11.06% and 9.87% respectively.
The Funds' 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 a 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 Funds will
fluctuate over time, and any presentation of the Funds' 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 Funds will be informed of the Funds' progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202 acts as Custodian
of the securities and other assets of the Funds. American Data Services, 24 West
Carver St., Huntington, NY 11743 and as the Fund's transfer and shareholder
service agent. The Custodian does not participate in decisions relating to the
purchase and sale of securities by the Funds.
Joseph DeCosimo and Company PLL, Atrium Two, Suite 2727, 221 East
Fourth St., Cincinnati, OH 45202 are the independent auditors for the Funds.
Heller, Ehrman, White & McAuliffe, 333 Bush Street, San Francisco,
California 94104, are legal counsel to the Funds.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners
B-20
<PAGE>
for its obligations. However, the Trust's Agreement and Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust. The Agreement and Declaration of Trust also provides for
indemnification and reimbursement of expenses out of the Funds' assets for any
shareholder held personally liable for obligations of the Funds or Trust. The
Agreement and Declaration of Trust provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Funds or Trust and satisfy any judgment thereon. All such
rights are limited to the assets of the Funds. The Agreement and Declaration of
Trust further provides that the Trust may maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the protection
of the Trust, its shareholders, trustees, officers, employees and agents to
cover possible tort and other liabilities. Furthermore, the activities of the
Trust as an investment company would not likely give rise to liabilities in
excess of the Trust's total assets. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance exists and a 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 Funds. The Prospectus of the Funds 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.
FINANCIAL STATEMENTS
The annual report to shareholders for the Funds for the fiscal period ended
December 31, 1995 is a separate document supplied with this Statement of
Additional Information and the financial statements, accompanying notes and
report of independent accountants appearing therein are incorporated by
reference in this Statement of Additional Information.
B-21
<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).
Financial Statements for the fiscal period ended December 31, 1995;
Incorporated by Reference from the annual reports to shareholders for
the fiscal period ended December 31, 1995 (Kayne, Anderson Rising
Dividend Fund Series, Insightful Investor Growth Fund Series, Matrix
Growth Fund Series, Matrix Emerging Growth Fund Series) and semi-annual
report for the fiscal period ended December 31, 1995 (Boston Managed
Growth 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 and Transfer Agent
Agreements-6
<PAGE>
(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
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 29 ,
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.
6 To be filed by amendment.
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.
<PAGE>
Item 26. Number of Holders of Securities.
Number of Record
Holders as of
Title of Class April 24, 1996
Shares of Beneficial Interest, no par value:
Academy Value Fund 134
Avondale Total Return Fund 145
Crescent Fund 114
Hodges Fund 126
Osterweis Fund 125
Perkins Opportunity Fund 5,442
ProConscience Womens Equity Fund 473
Trent Equity Fund 185
Matrix Growth Fund 485
Matrix Emerging Growth Fund 53
Kayne, Anderson Rising Dividend Fund 122
Insightful Investor Growth Fund 127
Leonetti Balanced Fund 234
U.S.Global Leaders Growth Fund 30
Harris, Bretall, Sullivan & Smith
Growth Equity Fund 0
Pzena Focused Value Fund 0
Titan Financial Services Fund 0
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.
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
<PAGE>
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
Pzena Investment Management LLC File No. 801-50838
Titan Investment Advisers, LLC File No. 801-51306
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:
RNC Liquid Assets Fund, Inc.
Hotchkis and Wiley Funds
PIC Investment Trust
Rainier Investment Management Mutual Funds
Guinness Flight Investment Funds
<PAGE>
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.
Item 31. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
<PAGE>
Item 32. Undertakings
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> 54
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to this registration
statement pursuant to Rule 485(b) under the Securities Act of 1933 and 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 April 30, 1996.
PROFESSIONALLY MANAGED PORTFOLIOS
By /s/ Steven J. Paggioli
----------------------------
Steven J. Paggioli
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
/s/ Steven J. Paggioli Trustee April 30, 1996
- ----------------------------
Steven J. Paggioli
/s/ Eric M. Banhazl Principal April 30, 1996
- ---------------------------- Financial
Eric M. Banhazl Officer
Dorothy A. Berry Trustee April 30, 1996
- ----------------------------
*Dorothy A. Berry
Wallace L. Cook Trustee April 30, 1996
- ----------------------------
*Wallace L. Cook
Carl A. Froebel Trustee April 30, 1996
- ----------------------------
*Carl A. Froebel
Rowley W. P. Redington Trustee April 30, 1996
- ----------------------------
*Rowley W. P. Redington
*By /s/ Steven J. Paggioli
------------------------
Steven J. Paggioli, Attorney-in-Fact
under powers of attorney as filed with
Post-Effective Amendment No. 20 to the Registration
Statement filed on May 17, 1995
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<EXPENSES-NET> 14,536
<NET-INVESTMENT-INCOME> 1,891
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<NET-CHANGE-FROM-OPS> 250,508
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<GROSS-ADVISORY-FEES> (7,268)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (47,313)
<AVERAGE-NET-ASSETS> 1,168,940
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.B11.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective
Amendment No. 27 to the Registration Statement on Form N-1A of Professionally
Managed Portfolios and to the use of our reports each dated February 2, 1996 on
the financial statements and financial highlights of the Kayne, Anderson Rising
Dividends Fund and the Insightful Investor Growth Fund, each a series of
Professionally Managed Portfolios. Such financial statements and financial
highlights appear in the 1995 Annual Reports to Shareholders which are
incorporated by reference into the Statements of Additional Information.
Tait, Weller & Baker
Philadelphia, PA
April 30, 1996
<PAGE> 1
EXHIBIT 99.B11.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective
Amendment No. 27 to the Registration Statement on Form N-1A of Professionally
Managed Portfolios and to the use of our report dated February 12, 1996 on the
financial statements and financial highlights of the Matrix Growth Fund and the
Matrix Emerging Growth Fund, each a series of Professionally Managed
Portfolios. Such financial statements and financial highlights appear in the
1995 Annual Report to Shareholders which are incorporated by reference into the
Statements of Additional Information.
Joseph Decosimo & Company, PLL
Cincinnati, Ohio
April 30, 1996