<PAGE>
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.
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: Fund shares may be purchased
from:
Sena Weller Rohs Williams, Inc. Matrix Growth Fund
300 Main Street Matrix Emerging Growth Fund
Cincinnati, OH 45202 American Data Services
(513) 621-2875 or 24 West Carver Street
(800) 877-3344 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, 1997, 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.
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, 1997
TABLE OF CONTENTS
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 12
How the Funds' Per Share Value Is Determined 13
Dividends, Distributions and Taxes 14
General Information 14
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)
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%
Annual Fund Operating Expenses (for each Fund) (As a percentage of average
net assets)
Emerging
Growth Growth
Fund Fund
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%*
*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,
1997 and for the Emerging Growth Fund to no more than 2.00% of average net
assets annually. During the fiscal year ended December 31, 1996, operating
expenses before the Adviser's limitation amounted to 1.99% for the Growth Fund
and 3.13% 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.
One year Three years Five years Ten years
Growth Fund $18 $55 $ 95 $206
Emerging Growth Fund $20 $63 $108 $233
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."
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 ($500
and $100, respectively, for retirement plans). The Funds have adopted a plan of
distribution under which each Fund will pay the Adviser as Distribution
Coordinator a fee at an annual rate of up to 0.25% of the Funds' 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. A Fund's shares may be redeemed
without a charge at net asset value per share.
Financial Highlights
For a share outstanding throughout each period.
The following information for the year ended December 31, 1996 has been
audited by Joseph DeCosimo & Company, independent accountants, whose unqualified
report covering that period is incorporated by reference herein and appears in
the Funds' 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 their annual
report to shareholders, which may be obtained without charge by writing or
calling the address or telephone of the Adviser on the cover page of this
Prospectus.
<TABLE>
Matrix Growth Fund Year Ended December 31,
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $14.96 $13.45 $14.51 $14.05 $14.01 $11.03 $11.76 $9.67 $9.96 $10.00
Net investment (loss) income (.01) .10 .05 .06 .09 .15 .18 .33 .08 .03
Net realized and unrealized gain
(loss)on investments 2.69 3.06 (.75) 1.25 .60 3.62 (.71) 3.16 (.28) .05
Total from investment
operations 2.68 3.16 (.70) 1.31 .69 3.77 (.53) 3.49 (.20) .08
Dividends from net investment
income -0- (.10) (.05) (.06) (.09) (.14) (.20) (.29) (.08) (.11)
Distributions from net capital
gains (2.55) (1.55) (.31) (.79) (.56) (.65) .00 (1.11) -0- -0-
Returns of capital -0- -0- -0- -0- -0- -0- -0- -0- (.01) (.01)
Total distributions (2.55) (1.65) (.36) (.85) (.65) .79 .20 (1.40) (.09) (.12)
Net asset value, end of year $15.09 $14.96 $13.45 $14.51 $14.05 $14.01 $11.03 $11.76 $9.67 $ 9.96
Total return 17.93% 23.52% (4.82)% 9.32% 4.92% 34.21% (4.50)% 36.27% (2.00)% .70%
Ratios/supplemental data:
Net assets, end of year
(millions) $12.10 $12.30 $15.50 $19.06 $18.95 $17.44 $11.41 $9.12 $3.59 $4.35
Ratio of expenses to
average net assets:* 1.75% 1.76% 1.84% 1.67% 1.50% 1.50% 1.50% 1.50% 1.49% 1.49%
Ratio of net investment
(loss) income to
average net assets: (0.08)% 0.47% 0.29% 0.40% 0.69% 1.17% 1.59% 2.99% 0.78% 0.27%
Portfolio turnover rate 0% 27% 25% 30% 51% 70% 79% 130% 132% 157%
Average commission rate
paid per share+ $.0665 - - - - - - - - -
</TABLE>
*The ratios of expenses to average net assets would have increased and net
income to average net assets would have decreased by 0.24%, 0.01%, 0.18%, 0.25%,
0.39%, 1.01%, 2.37%, and 1.72% in 1996, 1995, 1992, 1991, 1990, 1989, 1988, and
1987 had the Adviser not waived expenses.
+For fiscal years beginning on or after September 1, 1995, a fund is required to
disclose its average commission rate per share for security trades on which
commissions are charged. This amount may vary from period to period and fund to
fund depending on the mix of trades executed in various markets where trading
practices and commission rate structures may differ.
<TABLE>
Matrix Emerging Growth Fund
<CAPTION>
Year Year April 4, 1995*
ended through
December 31, 1996 December 31,1995
<S> <C> <C>
Net asset value, beginning of period $12.98 $10.00
Income from investment
operations:
Net investment loss (.18) (.03)
Net realized and unrealized gain on investments 1.54 3.01
Total from investment operations 1.36 2.98
Less distributions:
From net capital gains (.10) -0-
Net asset value, end of period $14.24 $12.98
Total return 10.47% 42.09%+
Ratios/supplemental data:
Net assets, end of period (millions) $ 5.7 $ 4.3
Ratio of expenses to average net assets:
Before expense reimbursement 3.13% 3.43%+
After expense reimbursement 2.00% 2.00%+
Ratio of net investment loss to average net assets:
Before expense reimbursement (2.53)% (1.87)%+
After expense reimbursement (1.40)% (0.43)%+
Portfolio turnover rate 29.54% 9.95%
Average commission rate paid per share++ $.0992 -
</TABLE>
*Commencement of operations.
+Annualized.
++For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on which
commissions are charged. This amount may vary from period to period and fund to
fund depending on the mix of trades executed in various markets where trading
practices and commission rate structures may differ.
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 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
Growth Fund's investment objective will be achieved, and achievement of the
objective will be particularly difficult during periods when the prices 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 Funds' goals of capital
appreciation can best be achieved by investments in carefully selected companies
with investments most often planned to be long-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 Funds' expense accruals. For its services,
the Administrator receives a fee from each Fund at the following annual rate:
Average net assets of each Fund 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
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%
and the Emerging Growth Fund's operating expenses to 2.00% of each Fund's
average net assets annually. This undertaking may be modified or withdrawn by
the Adviser upon notice to a Fund's shareholders. 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 law. 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 law. 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 limit, 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 limit 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 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 for
payment by a Fund 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. Initial and subsequent minimum investments for retirement
plans are $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 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. Investors should 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 New York Stock Exchange ("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 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 a 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, a 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.
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 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 retirement plans is
$500 and $100 for subsequent investments. 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 between 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 9:00AM and 4:00PM (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 Funds' custodian. Any
exchange is conditioned upon the shares of the Star Treasury Fund being
qualified for sale in an investor's state of residence. Prior to making such an
exchange, investors must obtain and carefully read the current 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.
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 its shareholders, the Fund will
not be subject to any federal income tax or excise taxes based on its 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 are taxable as long-term capital gains regardless of
the length of time the Fund shares 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.
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 Funds' 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 Funds income. Investors should note that the investment results of the Funds
will fluctuate over time, and any presentation of the Funds' 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.
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
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, PA 19102
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
<PAGE>
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, 1997, as may be
amended from time to time, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of Additional
Information is available without charge upon written request to the Fund at the
address or telephone number given above.
TABLE OF CONTENTS
Expense Table 2
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
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, 1997
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 may be redeemed without a charge 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.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Investment Advisory Fee 1.25%
Fee to Administrator *0.20%
12b-1 Fee 0.25%
Other expenses (after waiver) **0.80%
Total Fund Operating Expenses (after waiver)* **2.50%
*The Administrator'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 2.50% annually of average net assets under $30 million.
During the fiscal year ended December 31, 1996, operating expenses before the
Adviser's limitation amounted to 5.89%.
Example 1 year 3 years 5 years 10 years
$25 $78 $133 $284
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.
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 periods indicated
below is incorporated by reference herein and appears in the Fund's 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 cover page of this Prospectus.
<TABLE>
Year July 28, 1995*
ended through
December 31, 1996 December 31, 1995
<CAPTION>
<S> <C> <C>
Net asset value, beginning of period $11.59 $10.00
Income from investment operations:
Net investment (loss) income (.21) .01
Net realized and unrealized gain on investments .83 1.59
Total from investment operations .62 1.60
Less distributions:
Dividends from net investment income -0- (.01)
Distributions from net capital gains (.04) -0-
Total distributions (.04) (.01)
Net asset value, end of period $12.17 $11.59
Total return 5.37% 15.93%++
Ratios/supplemental data:
Net assets, end of period (millions) $ 2.1 $ 2.1
Ratio of expenses to average net assets:
Before expense reimbursement 5.89% 8.13%+
After expense reimbursement 2.50% 2.50%+
Ratio of net investment (loss) income
to average net assets:
Before expense reimbursement (5.10)% (5.31)%+
After expense reimbursement (1.72)% 0.32%+
Portfolio turnover rate 192.68% 50.75%
Average commission rate paid per share+++ $.0373 -
</TABLE>
*Commencement of operations.
+Annualized.
++Not Annualized.
+++For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on which
commissions are charged. This amount may vary from period to period and fund to
fund depending on the mix of trades executed in various markets where trading
practices and commission rate structures may differ.
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.
Although the Fund is diversified, it will tend to hold stocks of fewer
individual companies than many other diversified funds. Therefore the value of
the Fund's investments could be more affected by any single adverse occurrence
and its share price could thus be more volatile.
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 normally
expected to exceed 150%. During the fiscal year ended December 31, 1996, higher
than anticipated portfolio turnover was due to the Advisor's purchases of a
number of securities it believed to be underpriced as a result of increased
stock market volatility during the year. Higher portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs for
the Fund and may increase realized capital gains that are taxable to
shareholders when distributed. 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
and in the future, the Fund may experience similar higher portfolio turnover
based on the Adviser's assessment of market conditions.
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 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 15% 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 15%
of its net assets in illiquid securities, including (i) securities for which
there is no readily available market; (ii) securities the disposition of which
would be subject to legal restrictions (so-called "restricted securities"); and
(iii) repurchase agreements having more than seven days to maturity. A
considerable period of time may elapse between the Fund's decision to dispose of
such securities and the time when the Fund is able to dispose of them, during
which time the value of the securities could decline. 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 short. 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 dollar amount of short sales at any one time (not including short sales
against-the-box) may not exceed 25% of the net assets of the Fund.
The Fund also must deposit in a segregated account an amount of liquid
assets 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.
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.
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. 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.
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:
Average net assets of the Fund 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
The Fund is responsible for its own operating expenses. The Advisor has
undertaken currently to limit the Fund's operating expenses to 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. 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.
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 New York Stock Exchange ("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 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 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 followed,
neither the Fund nor its agents will 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 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
Advisor as Distribution Coordinator 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 Distribution
Coordinator 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 Distribution Coordinator each
year only to the extent of such costs and expenses of the Advisor 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 Distribution Coordinator
under the Plan reimburse the Distribution Coordinator for payments it makes to
selected dealers and administrators which have entered into Service Agreements
with the Distributor 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 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 Advisor
may reasonably request.
SERVICES AVAILABLE TO THE FUND'S SHAREHOLDERS
Retirement Plans. The minimums for initial investment for retirement plans
is $1,000 and $100 for subsequent investments. 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.
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 Money Market Fund, Inc. ("RNC Fund"), a
money market fund not affiliated with the Fund or the Advisor, if such shares
are offered in the shareholder's state of residence. Prior to making such
exchange, a shareholder 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.
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 its shareholders, the Fund
will not be subject to any federal income tax or excise taxes based on its 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 are taxable as long-term
capital gains regardless of the length of time the Fund shares 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 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.
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
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
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 "Funds"). A copy of the prospectus of the Funds dated
May 1, 1997 is available by calling the numbers listed above or (212) 633-9700.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
The Trust.......................................................................................................B-2
Investment Objective and Policies...............................................................................B-2
Investment Restrictions.........................................................................................B-4
Distributions and Tax Information...............................................................................B-6
Trustees and Executive Officers.................................................................................B-8
The Funds' Investment Advisor..................................................................................B-10
The Funds' Administrator.......................................................................................B-10
The Funds' Distributor.........................................................................................B-11
Execution of Portfolio Transactions............................................................................B-12
Additional Purchase and Redemption Information.................................................................B-13
Determination of Share Price...................................................................................B-14
Performance Information........................................................................................B-15
General Information............................................................................................B-16
Financial Statements...........................................................................................B-17
</TABLE>
Matrix SAI B-1
<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 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 the Funds'
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 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 the
Funds subject to a repurchase agreement as being owned by the Funds or as being
collateral for a loan by the Funds 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 Funds 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 Funds have not perfected a security interest in the U.S. Government
security, the Funds may be required to return
Matrix SAI B-2
<PAGE>
the security to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, the Funds 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 Funds, 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, the
Funds 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 Funds plus accrued interest, and the
Funds 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 Funds 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
Funds 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
between purchase and settlement, no payment is made by the Funds to the issuer
and no interest accrues to the Funds. To the extent that assets of the Funds are
held in cash pending the settlement of a purchase of securities, the Funds 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 the Funds make the
commitment to purchase a security on a when-issued basis, they 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 their net asset value or
income will be adversely affected by their purchase of securities on a
when-issued basis. The Funds will establish a segregated account with their
Custodian in which they will maintain liquid assets equal in value to
commitments for when-issued securities. Such segregated assets either will
mature or, if necessary, be sold on or before the settlement date.
Matrix SAI B-3
<PAGE>
Options Transactions
As indicated in the Prospectus, the Adviser may at time purchase index
put options with respect to the Matrix Growth Funds' portfolio, principally to
protect against declines in the value of the common stocks held in the Funds'
portfolio or to attempt to retain unrealized gains in the value of the
securities held.
When the Funds purchase a put, they pay 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 Funds' 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 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 Funds' 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
Matrix SAI B-4
<PAGE>
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 Funds 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 Funds 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 Funds 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. Invest in securities of other investment companies which would
result in the Funds owning more than 3% of the outstanding voting securities of
any one such investment company, the Funds owning securities of another
investment company having an aggregate value in excess of 5% of the value of the
Funds' total assets, or the Funds owning securities of investment companies in
the aggregate which would exceed 10% of the value of the Funds' total assets.
10. 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.
Matrix SAI B-5
<PAGE>
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. The Funds intend to continue 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"), provided it complies with all
applicable requirements regarding the source of its income, diversification of
their assets and timing of distributions. The Funds' policy is to distribute to
its shareholders all of their 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 Funds will not be
subject to any federal income or excise taxes. To comply with the requirements,
the Funds must also distribute (or be deemed to have distributed) by December 31
of each calendar year (i) at least 98% of their ordinary income for such year,
(ii) at least 98% of the excess of their realized capital gains over their
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 Funds 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 Funds.
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 Funds designate the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
Matrix SAI B-6
<PAGE>
however, exceed the aggregate amount of qualifying dividends received by the
Funds for their taxable year. In view of the Funds' investment policy, it is
expected that dividends from domestic corporations will be part of the Funds'
gross income and that, accordingly, part of the distributions by the Funds may
be eligible for the dividends-received deduction for corporate shareholders.
However, the portion of the Funds' gross income attributable to qualifying
dividends is largely dependent on that Funds' 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 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 Funds are purchased (through reinvestment of
distributions or otherwise) within 30 days before or after the redemption or
exchange.
Under the Code, the Funds 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 Funds
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
Matrix SAI B-7
<PAGE>
in additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Funds 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 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 regulated investment companies for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state and local income taxes, and the
tax treatment thereof may differ from the federal income tax treatment.
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.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by
the initial shareholders of the Trust, are responsible for the overall
management of the Trust, including general supervision and review of the
investment activities of the 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.
Steven J. Paggioli,* 47 President and Trustee
479 West 22nd Street, New York, New York 10011. Executive Vice President, The
Wadsworth Group (consultants) since 1986; Executive Vice President of Investment
Company Administration Corporation ("ICAC") (mutual fund administrator and the
Trust's administrator),and Vice President of First Fund Distributors, Inc.
("FFD") (a registered broker-dealer) since 1990.
Matrix SAI B-8
<PAGE>
Dorothy A. Berry, 52 Trustee
40 Maple Lane, Copake, NY 12516. 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
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel, 57 Trustee
2 Crown Lane, Savannah, GA 31411. Private Investor. Formerly Managing Director,
Premier Solutions, Ltd. Formerly President and Founder, National Investor Data
Services, Inc. (investment related computer software).
Rowley W.P. Redington, 51 Trustee
1191 Valley Road, Clifton, New Jersey 07103. President; Intertech (consumer
electronics and computer service and marketing); formerly Vice President, PRS of
New Jersey, Inc. (management consulting), and Chief Executive Officer, Rowley
Associates (consultants).
Eric M. Banhazl*, 39 Treasurer
2025 E. Financial Way, Suite 101, Glendora, California 91741. Senior Vice
President, The Wadsworth Group, Senior Vice President of ICAC and Vice President
of FFD since 1990.
Robin Berger*, 40 Secretary
479 West 22nd St., New York, New York 10011. Vice President, The Wadsworth Group
since June, 1993; formerly Regulatory and Compliance Coordinator, Equitable
Capital Management, Inc. (1991- 93).
Robert H. Wadsworth*, 57 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018. President of The
Wadsworth Group since 1982, President of ICAC and FFD since 1990.
*Indicates an "interested person" of the Trust as defined in the 1940 Act.
Matrix SAI B-9
<PAGE>
Set forth below is the rate of 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 receive an annual
retainer of $7,500 and a fee of $2,500 for each regularly scheduled meeting.
These trustees also receive a fee of $1000 for any special meeting attended. The
Chairman of the Board of Trustees receives an additional annual retainer of
$4,500. 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.
Name of Trustee Total Annual Compensation
Dorothy A. Berry $22,000
Wallace L. Cook $17,500
Carl A. Froebel $17,500
Rowley W.P. Redington $17,500
During the fiscal year ended December 31, 1996, trustees fees and expenses of
$2,451 were allocated to the Matrix Growth Fund and $3,020 to the Matrix
Emerging Growth Fund.
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.
During the Matrix Emerging Growth Fund's fiscal year ended December 31,
1996 and initial fiscal period ended December 31, 1995, the Advisor waived
advisory fees and reimbursed expenses totalling $59,007 and $32,234,
respectively, in accordance with its voluntary undertaking to limit the Fund's
expenses to 2.00% annually. During the fiscal years ended December 31, 1996 and
December 31, 1995, the Matrix Growth Fund incurred advisory fees of $109,054 and
$141,358; the Advisor reimbursed expenses of $31,096 and $1,060, respectively,
in accordance with its voluntary undertaking to limit the Fund's expenses to
1.75% annually.
The Investment Advisory Agreement continues in effect for successive
annual periods so long as such continuation is approved at least annually by the
vote of (1) the Board of Trustees of the Trust (or a majority of the outstanding
shares of the Funds 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.
Matrix SAI B-10
<PAGE>
THE FUNDS' ADMINISTRATOR
The Funds have an Administration Agreement with Investment Company
Administration Corporation (the "Administrator"), a corporation owned and
controlled by Messrs. Banhazl, Paggioli and Wadsworth with offices at 4455 E.
Camelback Rd., Ste. 261-E, Phoenix, AZ 85018. The Administration Agreement
provides that the Administrator will prepare and coordinate reports and other
materials supplied to the Trustees; prepare and/or supervise the preparation and
filing of all securities filings, periodic financial reports, prospectuses,
statements of additional information, marketing materials, tax returns,
shareholder reports and other regulatory reports or filings required of the
Funds; prepare all required filings necessary to maintain the Funds'
qualification and/or registration to sell shares in all states where the Funds
currently do, 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 Funds' servicing agents (i.e.,
transfer agent, custodian, fund accountants, etc.); review and adjust as
necessary the Funds' daily expense accruals; and perform such additional
services as may be agreed upon by the Funds 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$15million $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
For the fiscal year ended December 31, 1996, the Administrator received
fees of $30,082 from the Matrix Emerging Growth Fund and $30,331 from the Matrix
Growth Fund. 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'
administrator, received fees of $22,356 from the Matrix Emerging Growth Fund and
$36,750 from the Matrix Growth Fund.
THE FUND' 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 Funds 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
Matrix SAI B-11
<PAGE>
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
Pursuant to the Investment Advisory Agreement, the Manager determines
which securities are to be purchased and sold by the Funds and which
broker-dealers will be used to execute the Funds' portfolio transactions.
Purchases and sales of securities in the over-the-counter market will be
executed directly with a "market-maker" unless, in the opinion of the Manager, 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 Funds 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 broker, dealer or underwriter are comparable, the
order may be allocated to a broker, dealer or underwriter that has provided
research or other services as discussed below.
In placing portfolio transactions, the Manager 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 most favorable price
and execution available, consideration may be given to those broker-dealers
which furnish or supply research and statistical information to the Manager that
it may lawfully and appropriately use in its investment advisory capacities, as
well as provide other services in addition to execution services. The Manager
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. Portfolio
transactions may be placed with broker-dealers who sell shares of the Funds
subject to rules adopted by the National Association of Securities Dealers, Inc.
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, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Funds or to the
Manager, even if the specific services are not directly useful to the Funds and
may be useful to the Manager in advising other clients. In negotiating
commissions with a broker or
Matrix SAI B-12
<PAGE>
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 Manager to be
reasonable in relation to the value of the brokerage and/or research services
provided by such broker-dealer. The standard of reasonableness is to be measured
in light of the Manager'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 Manager.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Funds and one or more of such client accounts. In such
event, the position of the Funds and such client account(s) 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 seeks to acquire the same security as the Funds at the same time, the
Funds 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 Funds 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 simultaneously purchases or sells
the same security that the Funds are purchasing or selling, each day's
transactions in such security will be allocated between the Funds and all such
client accounts in a manner deemed equitable by the Manager, 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.
The Funds do not effect securities transactions through brokers solely
for selling shares of the Funds, although the Funds may consider the sale of
shares as a factor in allocating brokerage. However, as stated above,
broker-dealers who execute brokerage transactions may effect purchases of shares
of the Funds for their customers.
The Funds do not generally use the Distributor to execute their
portfolio transactions. However, during the fiscal year ended December 31, 1996,
brokerage commissions received by the Distributor from the Matrix Emerging
Growth Fund and Matrix Growth Fund totaled $502 and $20, respectively. For the
fiscal year ended December 31, 1996, aggregate brokerage commissions paid by the
Matrix Emerging Growth Fund and the Matrix Growth Fund were $3,261 and $5,060,
respectively. 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.
Matrix SAI B-13
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Funds' shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Manager 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 Funds 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 Funds 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 it has not yet received confirmation of
good payment; in this circumstance, the Funds may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Funds.
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.
Check-A-Matic
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 Funds 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.
Matrix SAI B-14
<PAGE>
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 the close of public
trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time) on
each day that the 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 its 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, 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 Funds 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 Funds 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 Funds may state their 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 Funds'
average annual compounded rate of return over the most recent four calendar
quarters and the period from the Funds' inception of operations. The Funds may
also advertise aggregate and average total return information over different
periods of time.
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.
Matrix SAI B-15
<PAGE>
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.
The Funds' 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.
The Matrix Emerging Growth Fund's average annual total return for the
twelve months ending March 31, 1997, and for the period from inception on April
4, 1995 through March 31, 1997 were -8.00% and 13.14%, respectively. The Matrix
Growth Fund's average annual total returns for the one-year, five-year and
ten-year periods ending March 31, 1997 were 4.98%, 10.05% and 8.87%,
respectively.
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 Funds' transfer
and shareholder service agent. The Custodian does not participate in decisions
relating to the purchase and sale of securities by the Funds.
Tait, Weller & Baker, 121 South Broad Street, Philadelphia, PA 19107,
are the independent auditors for the Funds.
Heller, Ehrman, White & McAuliffe, 333 Bush Street, San Francisco,
California 94104, are legal counsel to the Funds.
Matrix SAI B-16
<PAGE>
As of April 21, 1997, Saxon & Co., FBO RIW B 1981 Trust, Philadelphia,
PA 19182, owned of record 6.75% of the outstanding shares of the Matrix Growth
Fund.
As of April 21, 1997, Saxon & Co., A/C 70-70-090-9804067, Philadelphia,
PA 19182 owned of record the following percentages of the outstanding shares of
the Matrix Emerging Growth Fund: Rep #4 Acct., 44.34%; Rep #5 Acct., 7.32%; Rep.
# 13 Acct., 6.82%; Rep. #14 Acct., 5.81%.
The Trustees and Officers of the Trust as a group own less than 1% of
each of the Funds outstanding shares.
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 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 the Funds themselves are unable to meet their
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, 1996 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.
Matrix SAI B-17
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
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, 1997
is available by calling the number above or (212) 633- 9700.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
The Trust.......................................................................................................B-2
Investment Objective and Policies...............................................................................B-2
Investment Restrictions.........................................................................................B-7
Distributions and Tax Information...............................................................................B-9
Trustees and Executive Officers................................................................................B-11
The Fund's Investment Advisor..................................................................................B-13
The Fund's Administrator.......................................................................................B-14
The Fund's Distributor.........................................................................................B-14
Execution of Portfolio Transactions............................................................................B-15
Additional Purchase and Redemption Information.................................................................B-16
Determination of Share Price...................................................................................B-17
Performance Information........................................................................................B-18
General Information............................................................................................B-19
Financial Statements...........................................................................................B-20
</TABLE>
Insightful SAI B-1
<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 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 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
Insightful SAI B-2
<PAGE>
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 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 liquid assets equal in value to commitments for when-issued securities.
Such segregated assets either will mature or, if necessary, be sold on or before
the settlement date.
Insightful SAI B-3
<PAGE>
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 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
Insightful SAI B-4
<PAGE>
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).
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.
Insightful SAI B-5
<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 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
Insightful SAI B-6
<PAGE>
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 assets.
Whenever the Fund engages in short sales, its custodian segregates an
amount of liquid assets equal to the difference between (a) the market value of
the securities sold short at the time they were sold short and (b) any amount
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 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.
Insightful SAI B-7
<PAGE>
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 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. 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.
10. 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.
Insightful SAI B-8
<PAGE>
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 intends to continue to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, 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,
Insightful SAI B-9
<PAGE>
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 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
Insightful SAI B-10
<PAGE>
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.
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.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by
the initial shareholders of the Trust, are responsible for the overall
management of the Trust, including general supervision and review of the
investment activities of the Fund. The Trustees, in turn, elect the officers of
the Trust, who are responsible for administering the day-to-day operations of
the Trust and its separate series. The current Trustees and officers and their
affiliations and principal occupations for the past five years are set forth
below.
Steven J. Paggioli,* 47 President and Trustee
479 West 22nd Street, New York, New York 10011. Executive Vice President, The
Wadsworth Group (consultants) since 1986; Executive Vice President of Investment
Company Administration Corporation ("ICAC") (mutual fund administrator and the
Trust's administrator),and Vice President of First Fund Distributors, Inc.
("FFD") (a registered broker-dealer) since 1990.
Insightful SAI B-11
<PAGE>
Dorothy A. Berry, 52 Trustee
40 Maple Lane, Copake, NY 12516. 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
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel, 57 Trustee
2 Crown Lane, Savannah, GA 31411. Private Investor. Formerly Managing Director,
Premier Solutions, Ltd. Formerly President and Founder, National Investor Data
Services, Inc. (investment related computer software).
Rowley W.P. Redington, 51 Trustee
1191 Valley Road, Clifton, New Jersey 07103. President; Intertech (consumer
electronics and computer service and marketing); formerly Vice President, PRS of
New Jersey, Inc. (management consulting), and Chief Executive Officer, Rowley
Associates (consultants).
Eric M. Banhazl*, 39 Treasurer
2025 E. Financial Way, Suite 101, Glendora, California 91741. Senior Vice
President, The Wadsworth Group, Senior Vice President of ICAC and Vice President
of FFD since 1990.
Robin Berger*, 40 Secretary
479 West 22nd St., New York, New York 10011. Vice President, The Wadsworth Group
since June, 1993; formerly Regulatory and Compliance Coordinator, Equitable
Capital Management, Inc. (1991- 93).
Robert H. Wadsworth*, 57 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018. President of The
Wadsworth Group since 1982, President of ICAC and FFD since 1990.
*Indicates an "interested person" of the Trust as defined in the 1940 Act.
Insightful SAI B-12
<PAGE>
Set forth below is the rate of 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 receive an annual
retainer of $7,500 and a fee of $2,500 for each regularly scheduled meeting.
These trustees also receive a fee of $1000 for any special meeting attended. The
Chairman of the Board of Trustees receives an additional annual retainer of
$4,500. Disinterested trustees are also reimbursed for expenses in connection
with each Board meeting attended. No other compensation or retirement benefits
were received by any Trustee or officer from the Fund or any other portfolios of
the Trust.
Name of Trustee Total Annual Compensation
Dorothy A. Berry $22,000
Wallace L. Cook $17,500
Carl A. Froebel $17,500
Rowley W.P. Redington $17,500
For the fiscal year ended December 31, 1996, trustees fees and expenses of
$2,758 were allocated to the Fund.
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.
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 fiscal year ended December 31, 1996 and the fiscal period ended
December 31, 1995, the Adviser waived all of its advisory fees ($26,451 and
$7,268, respectively) and in addition voluntarily reimbursed $45,196 and
$25,509, respectively, of the Fund's operating expenses.
The Investment Advisory Agreement continues in effect for successive
annual periods so long as such continuation is approved at least annually by the
vote of (1) the Board of Trustees of the Trust (or a majority of the outstanding
shares of the Fund to which the agreement applies), and (2) a majority of the
Trustees who are not interested persons of any party to the Agreement, in each
case cast in person at a meeting called for the purpose of voting on such
approval. Any such agreement may be terminated at any time, without penalty, by
either party to the agreement upon sixty days' written notice and is
automatically terminated in the event of its "assignment," as defined in the
1940 Act.
Insightful SAI B-13
<PAGE>
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration Corporation (the "Administrator"), a corporation owned and
controlled by Messrs. Banhazl, Paggioli and Wadsworth with offices at 4455 E.
Camelback Rd., Ste. 261-E, Phoenix, AZ 85018. The Administration Agreement
provides that the Administrator will prepare and coordinate reports and other
materials supplied to the Trustees; prepare and/or supervise the preparation and
filing of all securities filings, periodic financial reports, prospectuses,
statements of additional information, marketing materials, tax returns,
shareholder reports and other regulatory reports or filings required of the
Fund; prepare all required 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 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
For the fiscal year ended December 31, 1996, the Administrator received fees of
$30,040. 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 administrator,
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
Insightful SAI B-14
<PAGE>
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. For the fiscal year ending December 31, 1996
and during the initial fiscal period from July 28, 1995 through December 31,
1995, the Fund incurred distribution expenses in the amounts of $5,290 and
$1,444, respectively.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Advisor determines
which securities are to be purchased and sold by the Fund and which
broker-dealers will be used to execute the Fund's portfolio transactions.
Purchases and sales of securities in the over-the-counter market will be
executed directly with a "market-maker" unless, in the 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 broker, dealer or underwriter are comparable, the
order may be allocated to a broker, 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 most favorable price
and execution available, consideration may be given to those broker-dealers
which furnish or supply research and statistical information to the Advisor that
it may lawfully and appropriately use in its investment advisory capacities, as
well as provide other services in addition to execution services. The Advisor
considers such information, which is in addition to and not in lieu of the
services required to be performed by it under its Agreement with the Fund, to be
useful in varying degrees, but of indeterminable value. Portfolio transactions
may be placed with broker-dealers who sell shares of the Fund subject to rules
adopted by the National Association of Securities Dealers, Inc.
Insightful SAI B-15
<PAGE>
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available, in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds 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. In such
event, the position of the Fund and such client account(s) 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 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 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 in a manner deemed equitable by the Advisor, taking into account
the respective sizes of the accounts and the amount being purchased or sold. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as the Fund is concerned. In other
cases, however, it is believed that the ability of the Fund to participate in
volume transactions may produce better executions for the Fund.
The Fund does not use the Distributor to execute its portfolio
transactions. For the fiscal year ending December 31, 1996 and during the Fund's
initial fiscal period from July 28, 1995 through December 31, 1995, brokerage
commissions paid by the Fund totaled $35,669 and $6,370, respectively.
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 Manager 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.
Insightful SAI B-16
<PAGE>
Payments to shareholders for shares of the Fund redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which it has not yet received confirmation of
good payment; in this circumstance, the Fund may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Fund may
make payment partly in securities with a current market value equal to the
redemption price. Although the Fund does not anticipate that it will make any
part of a redemption payment in securities, if such payment were made, an
investor may incur brokerage costs in converting such securities to cash. The
Fund has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash.
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.
Check-A-Matic
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 the close of public
trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time) on
each day that the 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
Insightful SAI B-17
<PAGE>
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 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 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.
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
Insightful SAI B-18
<PAGE>
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.
The Fund's average annual total returns for the twelve months ending
March 31, 1997 and for the period since inception on July 28, 1995 through March
31, 1997 were 5.06% and 9.50%, respectively.
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 21, 1997, Lee Investment Corporation, Tiburon, CA 94920
owned 6.49% of the Fund's outstanding voting securities.
The Trustees and Officers of the Trust as a group own less than 1% 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.
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,
Insightful SAI B-19
<PAGE>
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.
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for the fiscal year
ended December 31, 1996 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.
Insightful SAI B-20
