SECURITIES ACT FILE NO. 33-12213
INVESTMENT COMPANY ACT FILE NO. 811-5037
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. |_|
Post Effective Amendment No. 37 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 38 |X|
(Check appropriate box or boxes)
PROFESSIONALLY MANAGED PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
479 West 22nd Street
New York, NY 10011
Registrant's Telephone Number, including Area Code:
(212) 633-9700
Steven J. Paggioli
Professionally Managed Portfolios
479 West 22nd Street
New York, NY 10011
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker
345 California Street
San Francisco, CA 94104
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|_| Immediately upon filing pursuant to paragraph (b)
|X| On August 22, 1997 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| On pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has elected to register an indefinite number of shares of beneficial interest,
no par value. The most current notice required by Rule 24f-2 was filed on
June 25, 1997.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
Part A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Expense
Table
Item 3. Financial Highlights................. Financial
Highlights
Item 4. General Description of Registrant.... Objective and
Investment
Approach of the
Fund
Item 5. Management of the Fund............... Management
of the Fund
Item 5A Management's Discussion of Fund See Annual
Performance Reports to
Shareholders
Item 6. Capital Stock and Other Securities. . . Distributions
and Taxes;
How the
Fund's Per
Share Value
is Determined
Item 7. Purchase of Securities Being Offered . . How to Invest
in the Fund;
How the
Fund's Per
Share Value
is Determined
Item 8. Redemption or Repurchase. . . . . . . . How to Redeem
an Investment
in the Fund
Item 9. Pending Legal Proceedings . . . . . . . N/A
Part B
Item 10. Cover Page ............................. Cover Page
Item 11. Table of Contents....................... Table of
Contents
Item 12. General Information and History . . . . The Trust;
General
Information
Item 13 Investment Objectives and Policies .... Investment
Objective and
Policies;
Investment
Restrictions
Item 14. Management of the Fund................... Trustees and
Executive Officers
Item 15. Control Persons and Principal Holders
of Securities............................ General Information
Item 16. Investment Advisory and Other Services.... The Fund's Investment
Advisor; the Fund's
Administrator; General
Information
Item 17. Brokerage Allocation...................... Execution of
Portfolio
Transactions
Item 18. Capital Stock and Other Securities........ General
Information
Item 19. Purchase, Redemption and Pricing of
Shares Being Offered.............. Additional
Purchase &
Redemption
Information
Item 20. Tax Status.............................. Distributions
& Tax Infor-
mation
Item 21. Underwriters............................ The Fund's
Distributor
Item 22. Performance Information.................. Performance
Information
Item 23. Financial Statements.................... N/A
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement
<PAGE>
PZENA FOCUSED VALUE FUND
830 Third Avenue
14th Floor
New York, NY 10022
(212) 355-1600
PZENA FOCUSED VALUE FUND (the "Fund") is a mutual fund with the investment
objective of seeking long-term growth of capital. The Fund seeks its objective
through investment in undervalued equity securities. Pzena Investment
Management, LLC (the "Adviser"), acts as investment adviser 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 August 31, 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
Investment Objective, Policies and Risks 4
Management of the Fund 7
How To Invest in the Fund 8
How To Redeem an Investment in the Fund 9
Retirement Plans 10
How the Fund's Per Share Value is Determined 10
Distributions and Taxes 11
General Information 11
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE 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 August 31, 1997
EXPENSE TABLE
Expenses are one of several factors to consider when investing in the Fund.
The purpose of the following fee table is to provide an understanding of all the
various costs and expenses which may be borne directly or indirectly by an
investment in the Fund. No other costs or expenses will be borne by the
investors in the Fund.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses (after waiver)
(As a percentage of average net assets)
Investment Advisory Fee 1.25%
12b-1 Fee None
Other expenses (after waiver) 0.50%
Total Fund Operating Expenses (after waiver) 1.75%
The Adviser has voluntarily undertaken to limit the total operating
expenses of the Fund to no more than 1.75% of average net assets annually.
Without this limitation, the Fund's ratio of operating expenses to average net
assets for the initial fiscal period ended April 30, 1997 would have been 5.82%.
Example Operating Expenses
1 year 3 years 5 years 10 years
$18 $55 $95 $206
This table illustrates the net transaction and operating expenses that
would be incurred by an investment in the Fund over different time periods,
assuming a $1,000 investment, a 5% annual return, and redemption at the end of
each time period. Amounts in the table could increase, if the Adviser's
limitation of expenses were to be terminated.
The Example shown above should not be considered a representation of past
or future expenses and actual expenses may be greater or less than those shown.
In addition, federal regulations require the Example to assume a 5% annual
return, but the Fund's actual return may be higher or lower. See "Management of
the Fund."
The PZENA FOCUSED VALUE FUND (the "Fund") is a non-diversified series of
Professionally Managed Portfolios (the "Trust"), an open-end management
investment company offering redeemable shares of beneficial interest. Shares may
be purchased and redeemed without a sales or redemption charge at their net
asset value. The minimum initial investment is $5,000 ($2,000 for retirement
plan accounts) with subsequent investments of $1,000 or more. Because the prices
of equity securities and other investments held by the Fund fluctuate, the value
of an investment in the Fund will vary as the market value of its investment
portfolio changes, and when shares are redeemed, they may be worth more or less
than their original cost.
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
The following information has been audited by Tait, Weller & Baker,
independent accountants, whose unqualified report covering the period ended
April 30, 1997 is incorporated by reference herein and appears in the annual
report to shareholders. This information should be read in conjunction with the
financial statements and accompanying notes which appear in the annual report
and are incorporated by reference 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 Adviser
at the number on the Prospectus cover page.
June 24, 1996*
through
April 30, 1997
Net asset value, beginning of period $10.00
Income from investment operations:
Net realized and unrealized gain on investments 1.59
Total from investment operations 1.59
Less distributions:
From net investment income (0.01)
From net capital gains (0.02)
Total distributions (0.03)
Net asset value, end of period $11.56
Total return 15.88%0
Ratios/supplemental data:
Net assets, end of period (millions) $ 3.9
Ratio of expenses to average net assets:
Before expense reimbursement 5.82%+
After expense reimbursement 1.75%+
Ratio of net investment loss to average net assets:
Before expense reimbursement (4.16)%+
After expense reimbursement (0.09)%+
Portfolio turnover rate 22.06%
Average commission rate paid per share $.0598
*Commencement of operations.
+Annualized.
0Not annualized.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The investment objective of the Fund is long term growth of capital. This
objective is fundamental and may not be changed without the affirmative vote of
the holders of the majority of the Fund's outstanding securities. There can be
no assurance that the Fund's objective will be met.
Investment Policies
The Fund seeks to attain its objective through investment in undervalued
equity securities. The Fund invests in securities that, in the opinion of its
investment adviser, Pzena Investment Management, LLC, (the "Adviser"), are
undervalued in the marketplace in relation to estimated future earnings and cash
flow. These companies generally sell at price to book value ratios below market
average, as defined by the Standard & Poor's 500 Composite Price Index ("S&P
500").
The Fund invests at least 80% of its assets in equity securities, which
consist of common stocks, preferred stocks and securities convertible into
common stocks. The Fund changes its portfolio securities for long-term
investment considerations and not for trading considerations.
The Fund invests primarily in the equity securities of domestic companies.
The Adviser uses fundamental research and a proprietary computerized
quantitative model to identify companies that are currently undervalued in
relation to estimated future earnings and cash flow. The investment process also
involves an assessment of business risk, including the Adviser's analysis of the
strength of a company's balance sheet, the accounting practices a company
follows, the volatility of a company's earnings over time and the vulnerability
of earnings to changes in external factors, such as the general economy, the
competitive environment, governmental action and technological change.
Based on such information, the Adviser estimates normal earnings power;
that is, an estimate of ongoing earnings of a company over a full economic or
business cycle. The Adviser's quantitative approach is designed to identify
companies which are inexpensive in relation to their long-term intrinsic value
and minimize the influence of short-term market factors.
While a broad range of investments are considered, only those that, in the
Adviser's opinion, are selling at a comparatively low price as compared to
normal earnings will be purchased for the Fund. It is anticipated that the
prices of the Fund's investments will rise as a result of both earnings growth
and, to a lesser extent, rising price-earnings ratios over time.
While the Fund emphasizes U.S. investments, it can invest its assets in
securities of foreign companies which meet the same criteria applicable to
domestic investments. The Fund may invest up to 20% of its total assets in debt
obligations, including zero coupon securities, and may enter into repurchase
agreements. In addition, the Fund may, in limited cases, engage in certain
investment techniques including the use of options and futures contracts. See
"Additional Information About Policies and Investments" for more information
about these investment techniques.
From time to time, for temporary defensive or emergency purposes, the Fund
may invest a portion of its assets in cash and cash equivalents when the Adviser
deems such a position advisable in light of economic or market conditions.
Why Invest in the Fund?
The Fund provides investors with convenient, low-cost access to a portfolio
of stocks believed to be undervalued by the Adviser. These companies tend to
have below-market price to book value ratios yet, in the opinion of the Adviser,
will reward investors with above-average appreciation over time. The Fund is
distinctive in the manner in which it combines systematic and disciplined
valuation techniques with intensive, traditional fundamental research. In
addition to identifying undervalued securities, the Adviser's proprietary
quantitative valuation model also provides the discipline required to sell
appreciated securities as their prices rise to reflect their earnings potential.
The model utilizes many sources of earnings information and forecasts, as well
as the Adviser's independent equity research effort, for estimates of future
earnings and dividend growth and quality ratings. The Fund is appropriate for
investors who understand the risks of stock market investing. Although the Fund
emphasizes securities of companies the Adviser believes are undervalued,
movements of the stock market will affect the Fund's share price.
While the Fund may invest in a broad range of industries, it is not, by
itself, a complete investment program. Nonetheless, it can serve as a core
component of an investment program that includes money market, bond and
specialized equity investments.
Additional Information About Policies and Investments
Debt Securities. Consistent with the Fund's investment of long-term capital
growth, the Fund may purchase investment grade debt securities, which are those
rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or
better by S&P or, if unrated, of equivalent quality as determined by the
Adviser. Securities rated BBB or BAA are considered investment grade, but may
have speculative characteristics. The Fund also may purchase debt securities
which are rated below investment-grade. See "Risk Factors" at page 6. Capital
appreciation in such debt securities may arise from a favorable change in
relative interest rate levels, or in the creditworthiness of issuers. Receipt of
income from debt securities is incidental to the Fund's objective of long-term
growth of capital. See "Risk Factors."
Repurchase Agreements. A repurchase agreement is a short-term investment in
which the purchaser acquires ownership of a U.S. Government security (which may
be of any maturity) and the seller agrees to repurchase the obligation at a
future time at a set price, thereby determining the yield during the purchaser's
holding period (usually not more than seven days from the date of purchase). Any
repurchase transaction in which the Fund engages as a purchaser will require
full collateralization of the seller's obligation during the entire term of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller, the Fund could experience both delays in liquidating the underlying
security and losses in value. However, the Fund intends to enter into repurchase
agreements only with the most creditworthy banks and registered securities
dealers pursuant to procedures adopted and regularly reviewed by the Trust's
Board of Trustees. The Adviser monitors the creditworthiness of the banks and
securities dealers with whom the Fund engages in repurchase transactions.
Convertible Securities. The Fund may invest in convertible securities
(bonds, notes, debentures, preferred stocks and other securities convertible
into common stocks) that may offer higher income than the common stocks into
which they are convertible. The convertible securities in which the Fund may
invest include fixed-income or zero coupon debt securities, which may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Prior to their conversion, convertible
securities may have characteristics similar to non-convertible debt securities.
While convertible securities generally offer lower yields than non-convertible
debt securities of similar quality, their prices may reflect changes in the
value of the underlying common stock. Convertible securities generally entail
less credit risk than the issuer's common stock.
Illiquid and Restricted Securities. The Fund may not invest more than 15%
of its net assets in illiquid securities, including (i) securities for which
there is no readily available market; (ii) securities the disposition of which
would be subject to legal restrictions (so-called "restricted securities"); and
(iii) repurchase agreements having more than seven days to maturity. A
considerable period of time may elapse between the Fund's decision to dispose of
such securities and the time when the Fund is able to dispose of them, during
which time the value of the securities could decline. Securities which meet the
requirements of Securities Act Rule 144A are restricted, but may be determined
to be liquid by the Trustees, based on an evaluation of the applicable trading
markets.
Foreign Securities. The Fund may invest up to 20% of its assets in
securities of foreign issuers, including American Depositary Receipts with
respect to securities of foreign issuers. There may be less publicly available
information about these issuers than is available about companies in the U.S.
and foreign auditing requirements may not be comparable to those in the U.S. In
addition, the value of foreign securities may be adversely affected by movements
in the exchange rates between foreign currencies and the U.S. dollar, as well as
other political and economic developments, including the possibility of
expropriation, confiscatory taxation, exchange controls or other foreign
governmental restrictions. The Fund may invest without regard to this 20%
limitation in securities of foreign issuers which are listed and traded on a
domestic national securities exchange.
Other Investment Techniques. The Fund may purchase put and call options and
engage in the writing of covered call options and secured put options on
securities, and employ a variety of other investment techniques, including the
purchase and sale of market index futures contracts, financial futures contracts
and options on such futures. These policies and techniques may involve a greater
degree of risk than those inherent in more conservative investment approaches.
The Fund will engage in futures contracts and related options only for hedging
purposes. It will not engage in such transactions for speculation or leverage.
The Fund maintains an operating policy that it may not invest in options and
futures contracts if as a result more than 5% of its assets would be at risk.
Portfolio Turnover. The annual rate of portfolio turnover is not expected
to exceed 80%. In general, the Adviser will not consider the rate of portfolio
turnover to be a limiting factor in determining when or whether to purchase or
sell securities in order to achieve the Fund's objective.
The Fund has the right to modify the investment policies described above
without shareholder approval; however, the Fund does not presently contemplate
making any such modifications.
Risk Factors
Equity Securities. Securities in which the Fund invests, and its share
price and returns, are subject to fluctuation. Equities are subject to market
risks which cause their prices to fluctuate. In addition, there may be a
substantial period of time before equities held by the Fund realize the
appreciation potential the Adviser believes them to have.
Debt Securities. The Fund may invest up to 20% of its assets in debt
securities, including securities which are rated below investment-grade, or if
unrated, are considered by the Adviser to be equivalent to below
investment-grade securities (commonly referred to as "junk bonds").
The value of debt securities will change as interest rates fluctuate.
During periods of falling interest rates, the values of outstanding long term
debt obligations generally rise. Conversely, during periods of rising interest
rates, the value of such securities generally decline. The magnitude of these
fluctuations typically will be greater for securities with longer maturities.
Debt securities also are subject to credit risk relative to the ability of the
issuer to make timely interest payments and repay principal on maturity.
Lower Rated Debt Securities. Bonds rated or considered below investment
grade typically carry higher coupon rates than investment grade bonds, but also
are described as speculative by both Moody's and S&P and may be subject to
greater market price fluctuations, less liquidity and greater risk of income or
principal, including greater possibility of default or bankruptcy of the issuer
of such securities than more highly rated bonds. Lower rated bonds also are more
likely to be sensitive to adverse economic or company developments and more
subject to price fluctuations in response to changes in interest rates. The
market for lower-rated debt issues generally is thinner and less active than
that for higher quality securities, which may limit the Fund's ability to sell
such securities at fair value in response to changes in the economy or financial
markets. During periods of economic downturn or rising interest rates, highly
leveraged issuers of lower rated securities may experience financial stress
which could adversely affect their ability to make payments of interest and
principal and increase the possibility of default.
Non-Diversification. The Fund is a non-diversified investment company
portfolio, which means that the Fund is required to comply only with the
diversification requirements of the Internal Revenue Code of 1986 (the "Code")
so that the Fund will not be subject to U.S. taxes on its net investment income.
These provisions, among others, require that at the end of each calendar
quarter, (1) not more than 25% of the value of the fund's total assets can be
invested in the securities of a single issuer, and (2) with respect to 50% of
the value of the Fund's total assets, no more than 5% of the value of its total
assets can be invested in the securities of a single issuer and the Fund may not
own more than 10% of the outstanding voting securities of a single issuer.
Compliance with the diversification requirements of the Code is a fundamental
policy of the Fund and may be changed only with the affirmative vote of the
holders of the majority of the Fund's outstanding shares.
Since the Fund, as a non-diversified investment company portfolio, could
invest in a smaller number of individual issuers than a diversified investment
company, the value of the Fund's investments could be more affected by any
single adverse occurrence than would the value of the investments of a
diversified investment company.
The Fund has adopted certain other investment restrictions, which are
described fully in the Statement of Additional Information. Like the Fund's
investment objective, certain of these restrictions are fundamental and may be
changed only by a majority vote of the Fund's outstanding shares.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. The Adviser was founded in
1995 and is controlled by Mr. Richard S. Pzena, who is principally responsible
for the management of the Fund's portfolio. Mr. Pzena was formerly Director of
Research for United States Equities at an investment advisory firm with several
billion dollars in investment advisory and investment company assets under
management.
The Adviser 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 Adviser an advisory fee (accrued
daily) based upon the average daily net assets of the Fund at the rate of 1.25%
annually. This fee is higher than that paid by most investment companies.
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, monitors the activities of the Fund's custodian,
transfer agent and accountants, and coordinates the preparation and payment of
Fund expenses and reviews the Fund's expense accruals. For its services, the
Administrator receives a fee at the following 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 Adviser has
voluntarily undertaken to limit the Fund's operating expenses to 1.75% of the
Fund's average net assets annually. This undertaking may be modified or
withdrawn by the Adviser upon notice to shareholders. The Adviser also may
reimburse additional amounts to the Fund at any time in order to reduce the
Fund's expenses, or to the extent required by applicable securities laws.
Reductions made by the Adviser in its fees or payments or reimbursements of
expenses which are the Fund's obligation are subject to reimbursement by the
Fund provided the Fund is able to do so and remain in compliance with applicable
limitations.
The Adviser 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 Adviser may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the 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.
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund is $5,000 ($2,000 for retirement
plan accounts). Subsequent investments must be at least $1,000. First Fund
Distributors, Inc. (the "Distributor"), an affiliate of the Administrator, acts
as Distributor of the Fund's shares. The Distributor may, at its discretion,
waive the minimum investment requirements for purchases in conjunction with
certain group or periodic plans.
Shares of the Fund are offered continuously for purchase at their net asset
value per share next determined after a purchase order is received. Investors
may be charged a fee if they effect a transaction in fund shares through a
broker or agent.
Investors may purchase shares of the Fund by check or wire:
By Check: For initial investments, an investor should complete the Fund's
Account Application (included with this Prospectus). The completed application,
together with a check payable to "Pzena Focused Value Fund," should be mailed
to: Pzena Focused Value Fund, P.O. Box 640856, Cincinnati, OH 45264. For
investments by overnight delivery services please call the Transfer Agent at
(800) 385-7003 for instructions.
Subsequent investments should be made by check payable to "Pzena Focused
Value Fund," and mailed to the address indicated above in the envelope provided.
The investor's account number should be written on the check.
By Wire: For initial investments, before wiring funds, an investor should
call 1-800-385-7003 to advise that an initial investment will be made by wire
and to receive an account number. The Transfer Agent will request the investor's
name and the dollar amount to be invested and provide an order confirmation
number. The investor should then complete the Fund's Account Application
(included with this Prospectus), including the date and the order confirmation
number on the application. The completed Application should be mailed to the
address shown at the top of the Account Application. The investor's bank should
transmit immediately available funds by wire for purchase of shares, in the
investor's name to the Fund as follows:
Star Bank, N.A. Cinti/Trust
ABA Routing Number: 0420-0001-3
DDA #485776710
for further credit to Pzena Focused Value Fund
Account Number [Name of Shareholder]
For subsequent investments, an investor should call the Transfer Agent at
(800) 385-7003 before the wire is sent. Failure to do so will cause the purchase
to be credited the next day, when the Transfer Agent receives notice of the
wire. The investor's bank should wire the 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. Payment of redemption proceeds from shares that were purchased
with an initial investment made by wire may be delayed until one business day
after the completed Account Application is received by the Fund. All investments
must be made in U.S. dollars; to avoid fees and delays, checks should be drawn
only on U.S. banks and should not be made by third party check. A charge may be
imposed if any check used for investment does not clear. The Fund and the
Distributor reserve the right to reject any purchase order in whole or in part.
If an order, together with payment in proper form, is received by the Transfer
Agent by the close of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time), Fund shares will be purchased at the offering price
determined as of the close of trading on that day. Otherwise, Fund shares will
be purchased at the offering price determined as of the close of trading on the
New York Stock Exchange on the next business day. Federal tax law requires that
investors provide a certified Taxpayer Identification Number and certain other
required certifications upon opening or reopening an account in order to avoid
backup withholding of taxes at the rate of 31% on taxable distributions and
proceeds of redemptions. See the Fund's Account Application for further
information concerning this requirement.
The Fund does not issue share certificates. All shares are normally held in
non-certificated form registered on the books of the Fund and the Fund's
Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUND
A shareholder has the right to have the Fund redeem all or any portion of
outstanding shares in the account at their current net 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.
Redemption requests should be sent to Pzena Focused Value Fund, c/o American
Data Services, P.O. Box 5536, Hauppauge, NY 11788-0132. To protect the Fund and
its shareholders, a signature guarantee is required for redemptions.
Signature(s) on the redemption request must be guaranteed by an "eligible
guarantor institution" as defined in the federal securities laws. These
institutions include banks, broker-dealers, credit unions and savings
institutions. A broker-dealer guaranteeing signatures must be a member of a
clearing corporation or maintain net capital of at least $100,000. Credit unions
must be authorized to issue signature guarantees. Signature guarantees will be
accepted from any eligible guarantor institution which participates in a
signature guarantee program. A notary public is not an acceptable guarantor.
Telephone Redemption. Shareholders who complete the Redemption by Telephone
portion of the Fund's Account Application may redeem shares on any business day
the New York Stock Exchange is open by calling the Fund at 1-800-385-7003 before
4:00 p.m. Eastern time. Redemption proceeds will be mailed or wired at the
shareholder's direction the next business day to the predesignated account. The
minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds).
By establishing telephone redemption privileges, a shareholder authorizes
the Fund and its agents to act upon the instruction of any person by telephone
to redeem from the account for which such service has been authorized and
transfer the proceeds to the bank account designated in the authorization. The
Fund and its agents will use procedures to confirm that redemption instructions
received by telephone are genuine, including recording of telephone instructions
and requiring a form of personal identification before acting on such
instructions. If these identification procedures are followed, neither the Fund
nor its agents will be liable for any loss, expense, or cost which results from
acting upon instructions of a person believed to be a shareholder with respect
to the telephone redemption privilege. The Fund may change, modify, or terminate
these privileges at any time upon at least 60 days' notice to shareholders.
Shareholders may request telephone redemption privileges after an account
is opened; however, the authorization form will require a separate signature
guarantee. Shareholders may experience delays in exercising telephone redemption
privileges during periods of abnormal market activity.
General. Payment of redemption proceeds will be made promptly, but not
later than seven days after the receipt of all documents in proper form,
including a written redemption order with appropriate signature guarantee in
cases where telephone redemption privileges are not being utilized. The Fund may
suspend the right of redemption under certain extraordinary circumstances in
accordance with applicable rules of the Securities and Exchange Commission. In
the case of shares purchased by check and redeemed shortly after purchase, the
Fund will not mail redemption proceeds until it has been notified that the check
used for the purchase has been collected, which may take up to 15 days from the
purchase date. To minimize or avoid such delay, investors may purchase shares by
certified check or federal funds wire. A redemption may result in recognition of
a gain or loss for federal income tax purposes. Investors should consult their
own tax adviser as to the effect of any redemption.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account, other than retirement plan
or Uniform Gifts/Transfers to Minors Act accounts, if at any time, due to
redemptions by the shareholder, the total value of a shareholder's account does
not equal at least $5,000. 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 $5,000 and will be allowed 30 days to make an additional investment
to bring the value of the account to at least $5,000 before the Fund takes any
action.
RETIREMENT PLANS
The Fund offers an Individual Retirement Account plan and information is
available from the Fund and the Distributor with respect to Keogh, Section
403(b) and other retirement plans offered. Investors should consult their own
tax adviser before establishing any retirement plan.
HOW THE FUND'S PER SHARE VALUE IS DETERMINED
The net asset value of a Fund share is determined once daily as of the
close of public trading on the New York Stock Exchange (currently 4:00 p.m.
Eastern time) on each day the New York Stock Exchange is open for trading. Net
asset value per share is calculated by dividing the value of the Fund's total
assets, less its liabilities, by the number of Fund shares outstanding.
Portfolio securities are valued using current market values, if available.
Securities for which market quotations are not readily available are valued at
fair values as determined in good faith by or under the supervision of the
Trust's officers in accordance with methods which are specifically authorized by
the Board of Trustees. Short-term obligations with remaining maturities of sixty
days or less are valued at amortized cost as reflecting fair value.
DISTRIBUTIONS AND TAXES
Dividends and Distributions. Any dividends from net investment income
(which includes realized short-term capital gains) are declared and paid at
least annually, typically at the end of the Fund's fiscal year (April 30). Any
undistributed long-term net capital gains realized during the 12-month period
ended each October 31, as well as any additional undistributed capital gains
realized during the Fund's fiscal year, will also be distributed to shareholders
on or about December 31 of each year.
Dividends and capital gains distributions (net of any required tax
withholding) are automatically reinvested in additional shares of the Fund at
the net asset value per share on the reinvestment date unless the shareholder
has previously requested in writing to the Transfer Agent that distributions be
made in cash.
Any dividend or distribution paid by the Fund has the effect of reducing
the net asset value per share on the reinvestment date by the amount of the
dividend or distribution. Investors should note that a dividend or distribution
paid on shares purchased shortly before such dividend or distribution was
declared will be subject to income taxes as discussed below even though the
dividend or distribution represents, in substance, a partial return of capital
to the shareholder.
Taxes. The Fund intends to 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"). As long as the Fund continues to so qualify, and
as long as the Fund distributes all of its income each year to the shareholders,
the Fund will not be subject to any federal income tax or excise taxes based on
net income. Distributions made by the Fund will be taxable to shareholders
whether received in shares (through dividend reinvestment) or in cash.
Distributions derived from net investment income, including net short-term
capital gains, are taxable to shareholders as ordinary income. A portion of
these distributions may qualify for the intercorporate dividends-received
deduction. Distributions designated as capital gains distributions are taxable
as long-term capital gains regardless of the length of time shares of the Fund
have been held. Although distributions are generally taxable when received,
certain distributions made in January are taxable as if received in the prior
December. Shareholders will be informed annually of the amount and nature of the
Fund's distributions. Additional information about taxes is set forth in the
Statement of Additional Information. Shareholders should consult their own
advisers concerning federal, state and local tax consequences of investment in
the Fund.
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 April 30.
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 year and over the period from the Fund's inception of
operations. The Fund may also advertise aggregate and average total return
information over different periods of time. The Fund's total return will be
based upon the value of the shares acquired through a hypothetical $1,000
investment at the beginning of the specified period and the net asset value of
such shares at the end of the period, assuming reinvestment of all
distributions. Total return figures will reflect all recurring charges against
Fund income. Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period.
Shareholder Inquiries. Shareholder inquiries should be directed to the Fund
at the address and telephone number shown on the cover of this prospectus.
Adviser
Pzena Investment Management, LLC
830 Third Avenue
14th Floor
New York, NY 10022
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank
425 Walnut Street
Cincinnati, Ohio 45202
Shareholder Service and Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 385-7003
Auditors
Tait, Weller, & Baker
2 Penn Center Plaza
Philadelphia, PA 19102
Counsel to the Fund
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, CA 94104
Counsel to the Adviser
Lane Altman & Owens
101 Federal Street
Boston, MA 02110
PROSPECTUS
August 31, 1997
<PAGE>
TITAN FINANCIAL SERVICES FUND
9672 Pennsylvania Avenue
Upper Marlboro, Maryland 20772
888-44-TITAN
Account Inquiries 1-800-385-7003
Titan Financial Services Fund (the "Fund"), is a mutual fund with the
primary objective of capital appreciation. Its secondary objective is moderate
income. The Fund will seek to achieve its objectives by investing principally in
equity securities of financial services companies, which include commercial
banks, consumer banks, savings and loan institutions, insurance companies,
finance companies, mortgage and other lenders, securities brokerage companies,
credit card providers, service providers to the banking and financial services
sectors and holding companies. See "Investment Objectives and Policies." No
assurance can be given that the Fund's investment objectives will be realized.
This Prospectus concisely sets forth information about the Fund that you
should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information ("SAI"), dated August 31,1997
(which is incorporated by reference herein), is on file with the Securities and
Exchange Commission. You can obtain a free copy of the SAI, and further
inquiries can be made, by contacting the Fund, or by calling 888-44-TITAN.
Table of Contents
Prospectus Summary 2
Expenses of Investing in the Fund 3
Financial Highlights 4
Investment Objectives and Policies; Risk Factors 5
Management and Administration of the Fund 8
Purchase of Fund Shares 9
How to Redeem an Investment in the Fund 10
Plan of Distribution 11
Determination of Net Asset Value 12
Dividends, Distributions and Taxes 12
Performance Information 13
General Information 13
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK. SHARES OF THE FUND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION ("FDIC"), FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
Prospectus dated August 31, 1997
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund or
its distributor. This Prospectus does not constitute an offering by the Fund or
its distributor in any jurisdiction in which such offering may not be lawfully
made.
TITAN FINANCIAL SERVICES FUND
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
The Fund. Titan Financial Services Fund (the "Fund"), a diversified,
professionally managed portfolio, is a separate series of Professionally Managed
Portfolio (the "Trust"), a registered open-end management investment company.
Investment Objectives and Policies. Capital appreciation and, secondarily,
moderate income; invests principally in equity securities of financial services
companies, which include commercial banks, consumer banks, savings and loan
institutions, insurance companies, finance companies, mortgage and other
lenders, securities brokerage companies, credit card providers, service
providers to the banking and financial services sectors and holding companies.
Investment Adviser. Titan Investment Advisers, LLC (the "Investment
Adviser"). See "Management and Administration of the Fund."
Administrator. Investment Company Administration Corporation (the
"Administrator"). See "Management and Administration of the Fund."
Purchases. Shares of the Fund are available without a sales charge. See
"Purchase of Fund Shares."
Redemptions. The Fund's shareholders may redeem shares at net asset value
through American Data Services, Inc, the Fund's transfer agent (the "Transfer
Agent").
Dividends. Declared and paid annually; net capital gain also is distributed
annually. See "Dividends, Distributions and Taxes."
Minimum Purchase. $5,000 for first purchase ($2,000 for Individual
Retirement Accounts); $100 for subsequent purchases.
Who Should Invest. The Fund invests primarily in equity securities of
financial services companies, which include commercial banks, consumer banks,
savings and loan institutions, insurance companies, finance companies, mortgage
and other lenders, securities brokerage companies, credit card providers,
service providers to the banking and financial services sectors and holding
companies. Accordingly, the Fund is designed for investors who are seeking
capital appreciation potential and to a lesser extent, moderate income, for a
portion of their assets and who can assume the risks of greater fluctuation of
market value resulting from investment in a portfolio concentrated in the
banking and savings and loan industries. While the Fund is not intended to
provide a complete or balanced investment program it can serve as one component
of an investor's long-term program to accumulate assets for retirement, college
tuition or other major goals.
Risk Factors. There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. The Fund's concentration in
the financial services industries subjects its shares to greater risk than the
shares of a fund whose portfolio is not so concentrated and, in particular, its
shares will be affected by economic, legislative and regulatory developments
impacting those industries. Neither the federal insurance of bank and savings
and loan deposits nor governmental regulation of the bank and savings and loan
industries ensures the solvency or profitability of commercial banks and thrifts
or their holding companies or insurers against the risks of investing in the
equity securities issued by these institutions. The Fund's investments in
foreign securities and its use of options also entail special risks.
EXPENSES OF INVESTING IN THE FUND
The following table is intended to assist investors in understanding the
expenses associated with investing in the Fund.
Shareholder Transactions Costs:
Maximum sales charge on purchases (as a % of offering price) NONE
Sales charges on reinvested distributions NONE
Deferred sales charges NONE
Redemption fee1 1.00%
Annual Fund Operating Expenses (as a % of average net assets): Investment
advisory fees 1.00% 12b-1 distribution and service fees2 0.25% Other
expenses (estimated) (after reimbursement) 1.25% Total Fund Operating
Expenses (after reimbursement)2 2.50%
1 A redemption fee is assessed on redemptions of shares purchased and redeemed
within one year of purchase; the fee is 1.00% of the value of the shares
redeemed in the first year.
2 The Fund has adopted a plan of distribution under which the fund will pay a
distribution 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 such fees than
the maximum sales charge permitted under the rules of the National Association
of Securities Dealers. In the absence of the Adviser's expense reimbursement,
total operating expenses would have been 3.14% for the Fund's initial fiscal
period ended April 30, 1997.
Example of Effect of Expenses:
An investor would pay the following expenses on a $1,000 assuming (1) a 5%
annual return and (2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
Assuming No Redemption $25 $78 $133 $284
Assuming complete
redemption at the end of
period, with redemption fee $36 $78 $133 $284
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. This Example should not be
considered a representation of past or future expenses, and the Fund's actual
expenses may be more or less than those shown. The actual expenses attributable
to the Fund's shares will depend upon, among other things, the level of average
net assets, the extent to which the Fund incurs variable expenses, such as
transfer agency costs, and whether the Investment Adviser reimburses all or a
portion of the Fund's expenses and/or waives all or a portion of its advisory
fees.
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
The following information has been audited by Tait, Weller & Baker,
independent accountants, whose unqualified report covering the period ended
April 30, 1997 is incorporated by reference herein and appears in the annual
report to shareholders. This information should be read in conjunction with the
financial statements and accompanying notes which appear in the annual report
and are incorporated by reference 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
Investment Advisor at the address or number on the cover page.
May 22, 1996*
through
April 30, 1997
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income .04
Net realized and unrealized gain on investments 2.62
Total from investment operations 2.66
Less distributions:
From net investment income (.06)
Net asset value, end of period $12.60
Total return 26.67%0
Ratios/supplemental data:
Net assets, end of period (millions) $ 7.6
Ratio of expenses to average net assets:
Before expense reimbursement 3.14%+
After expense reimbursement 2.49%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement (0.33%)+
After expense reimbursement 0.33%+
Portfolio turnover rate 97.84%
Average commission rate paid per share $.0464
*Commencement of operations.
+Annualized.
0Not annualized.
INVESTMENT OBJECTIVES AND POLICIES; RISK FACTORS
The Fund's primary investment objective is capital appreciation. Its
secondary objective is moderate income. The investment objectives of the Fund
are fundamental and may not be changed without the approval of the holders of a
majority of the Fund's shares. There is no assurance that the Fund's investment
objectives will be achieved.
The Fund will seek to achieve its investment objectives by investing at
least 65%, and possibly up to 100% of its total assets in equity securities of
financial services companies, which include commercial banks, consumer banks,
savings and loan institutions, insurance companies, finance companies, mortgage
and other lenders, securities brokerage companies, credit card providers and
service providers to the banking and financial services sectors, and holding
companies for each of the foregoing. Equity securities may include common
stocks, preferred stocks, securities convertible into common or preferred
stocks, warrants, and convertible bonds.
In seeking its objective, the Fund will concentrate on equity securities of
such companies that are, in the Investment Adviser's opinion, undervalued both
from the standpoint of book value and earnings. The Investment Adviser will seek
to identify companies whose prospects are deemed attractive on the basis of a
growth in earnings and assets and the companies' fundamentals. Equity selection
will be made on the basis of book value, earnings, quality of assets, merger
potential, and franchise value (particularly in regard to banks and savings and
loan institutions). The Investment Adviser will pay particular attention to
smaller banking institutions with assets of $5 billion or less. In addition, the
Fund will invest in stronger mutual savings banks that have converted to
publicly held companies. The Fund will also endeavor to open deposit accounts
with mutual savings and loan associations with the intent of subscribing to
stock in the event the institutions go public.
The Fund may also invest up to 35% of its assets in equity securities of
other types of issuers and in debt securities of all issuers, including money
market investments. The market value of the debt securities in the Fund's
portfolio will also tend to vary in an inverse relationship with changes in
interest rates. For example, as interest rates rise, the market value of debt
securities tend to decline. The Fund also may invest up to 20% of its total
assets in American Depository Receipts ("ADRs"). See "Specialized Risk Factors
of Foreign Securities."
The Fund will invest no more than 5% of its total assets in the securities
of any one issuer other than the U.S. government, except that up to 25% of the
Fund's total assets may be invested without regard to this limitation. In
addition, in order to be diversified, the Fund normally expects to be invested
in the securities of at least 30 separate companies.
The Fund does not constitute a complete investment program. Thus, it is
recommended that an investment in this Fund be considered only one portion of
your overall investment portfolio. Securities in which the fund invests, and its
share price and returns, are subject to fluctuation, and investors may have a
gain or loss when they redeem shares. Investments in equity securities in
general are subject to market risks that may cause their prices to fluctuate
over time. An investment in the Fund is more suitable for longer term investors
who can bear the risk of short-term fluctuation in principal and net asset value
that are inherent in investing in equity securities for capital appreciation.
Special Considerations and Risks Relating to the Financial Services
Industry. Because the Fund's investments will be concentrated in the financial
services industry, its shares are subject to greater risks than the shares of a
fund whose portfolio is not so concentrated, and it will be particularly
affected by economic, legislative and regulatory developments affecting those
industries. Events may occur which significantly affect the banking and
financial services industries resulting in the Fund's share value increasing or
decreasing at rates faster than the share value of a mutual fund with
investments in many industries.
Commercial banks, savings and loan institutions and their holding companies
are especially influenced by adverse effects of volatile interest rates,
portfolio concentrations in loans to particular businesses, such as real estate
and energy, and competition from new entrants in their areas of business. These
institutions are subject to extensive federal regulation and, in some cases, to
state regulation as well. However, neither federal insurance of deposits nor
regulation of the bank and savings and loan industries ensures the solvency or
profitability of commercial banks or savings and loan institutions or their
holding companies, or insures against the risk of investing in the equity
securities issued by these institutions.
Investment banking, securities and commodities brokerage and investment
advisory companies also are subject to governmental regulation and investments
in those companies are subject to the risks related to securities and
commodities trading and securities underwriting activities. Insurance companies
also are subject to extensive governmental regulation, including the imposition
of maximum rate levels, which may be inadequate for some lines of business. The
performance of insurance companies will be affected by interest rates, severe
competition in the pricing of services, claims activities, marketing competition
and general economic conditions.
The financial services industry may be subject to greater government
regulation than many other industries and changes in governmental policies and
the need for regulatory approval may have a material effect on the services of
this industry. As previously noted, banks, savings and loan institutions, and
finance companies are subject to extensive governmental regulations which may
limit both the financial commitments they can make, including the amounts and
types of loans, and the interest rates and fees they can charge. Profitability
is largely dependent on the availability and cost of capital funds, and can
fluctuate significantly when interest rates change.
Specialized Risk Factors of Foreign Securities. As previously stated in
this Prospectus, the Fund may invest up to 20% of its total assets in ADRs,
which are securities convertible into securities of corporations based in
foreign countries. These investment may involve special risks arising from
political, economic and social developments abroad, as well as those that may
result from the differences between the regulations to which U.S. and foreign
issuers and markets are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest, limitations
on the use or transfer of Fund assets and political or social instability or
diplomatic developments. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Securities of many foreign
companies may be less liquid and their prices more volatile than securities of
comparable U.S. companies.
While the Fund generally invests only in securities that are traded on
recognized exchanges or in over-the-counter ("OTC") markets, from time to time
foreign securities may be difficult to liquidate rapidly without significantly
depressing the price of such securities. There may be less publicly available
information concerning foreign issuers of securities held by the Fund than is
available concerning U.S. companies. Foreign securities trading practices,
including those involving securities settlement where the Fund's assets may be
released prior to receipt of payment, may expose the Fund to increased risk in
the event of a failed trade or the insolvency of a foreign broker-dealer.
Transactions in foreign securities may be subject to less efficient settlement
practices. Legal remedies for defaults and disputes may have to be pursued in
foreign courts, whose procedures may differ substantially from those of U.S.
courts.
Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in
foreign currency exchange rates will affect the Fund's net asset value, the
value of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and capital gain, if any, to be distributed
to shareholders by the Fund. If the value of a foreign currency rises against
the U.S. dollar, the value of the Fund's assets denominated in that currency
will decrease. The exchange rates between the U.S. dollar and other currencies
are determined by supply and demand in the currency exchange markets,
international balances of payments, speculation and other economic and political
conditions. In addition, some foreign currency values may be volatile and there
is the possibility of governmental intervention in the currency markets. Any of
these factors could adversely affect the Fund.
Hedging Strategies. The Fund may attempt to reduce the overall risk of its
investments (hedge) by purchasing and selling (writing) call and put options on
debt and equity securities which are listed on Exchanges or are written in
over-the-counter transactions ("OTC Options"). Listed options, which are
currently listed on several different Exchanges, are issued by the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the Fund
the right to buy from the OCC the underlying security covered by the option at
the stated exercise price (the price per unit of the underlying security) by
filing an exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell to the OCC the
underlying security at that exercise price prior to the expiration date of the
option, regardless of its then current market price. Ownership of a listed put
option would give the Fund the right to sell the underlying security to the OCC
at the stated exercise price. OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct agreements
with the Fund. With OTC options, such variables as expiration date, exercise
price and premium will be agreed upon between the Fund and the transacting
dealer, without the intermediation of a third party such as the OCC. The Fund
will engage in OTC option transactions only with primary U.S. government
securities dealers recognized by the Federal Reserve Bank of New York.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
illiquid securities, including cover for OTC options and securities whose
disposition is restricted under the federal securities law (other than "Rule
144A" securities the Investment Adviser has determined to be liquid under
procedures approved by the Fund's Board of Trustees). Rule 144A establishes a
"safe harbor" from registration requirements of the Securities Act of 1933
("1933 Act") for resale of certain securities to qualified institutional buyers.
Institutional markets for restricted securities have developed as a result of
Rule 144A, providing both readily ascertainable value for restricted securities
and the ability to liquidate an investment to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing Rule 144A-eligible restricted securities held by the Fund, however,
could affect adversely the marketability of such portfolio securities and the
Fund might be unable to dispose of such securities promptly or at favorable
prices.
When-Issued and Delayed Delivery Securities. The Fund may purchase debt
securities on a "when-issued" basis or may purchase or sell securities for
delayed delivery. In when- issued or delayed transactions, delivery of the
securities occurs beyond normal settlement periods, but the Fund generally would
not pay for such securities or start earning interest on them until they are
delivered. However, when the Fund purchases securities on a when- issued or
delayed basis, it immediately assumes the risks of ownership, including the risk
of price fluctuation. Failure by a counterparty to deliver a security purchased
on a when-issued or delayed basis may result in a loss or missed opportunity to
make an alternative investment. Depending on market conditions, the Fund's
when-issued and delayed delivery purchase commitments could cause its net asset
value per share to be more volatile, because such securities may increase the
amount by which the Fund's total assets, including the value of when-issued and
delayed delivery securities held by the Fund, exceed its net assets.
Other Information. When the Investment Adviser believes that conditions in
the securities markets warrant a temporary defensive strategy, the Investment
Adviser may temporarily invest up to 100% of the Fund's total assets in debt
securities, preferred stock, cash or money market instruments or invest in any
other securities the Investment Adviser considers consistent with such defensive
strategies. It is impossible to predict when, or for how long, the Investment
Adviser may use these alternative strategies.
The Fund intends to buy and hold securities for capital appreciation.
Although the Fund does not intend to engage in substantial short-term trading as
a means of achieving its investment objective, it may sell portfolio securities
without regard to the length of time they have been held, in accordance with the
investment policies described earlier. Fund changes will be affected whenever
the Fund's Investment Adviser believes they will benefit the performance of the
portfolio. The Fund does expect to engage in a substantial number of portfolio
transactions. It is anticipated that, under normal market conditions, the Fund's
portfolio turnover rate will not exceed 100% in any one year. The Fund will
incur brokerage costs commensurate with its portfolio turnover rate; thus a
higher level (over 100%) of portfolio transactions will increase the Fund's
overall brokerage expenses. Short term gains and losses may result from such
portfolio transactions. See "Dividends, Distributions and Taxes" for a
discussion of the tax implication of the Fund's trading policy.
MANAGEMENT AND ADMINISTRATION OF THE FUND
The overall management of the business and affairs of the Fund is vested in
the Board of Trustees. The Board of Trustees must approve all significant
agreements between the Fund and persons or companies furnishing services to it,
including the Fund's agreements with its investment adviser, administrator,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to its officers, to the Investment Adviser, and to the Administrator
subject always to the investment objectives and policies of the Fund and to
general supervision by the Board of Trustees.
Investment Adviser
Pursuant to an investment advisory contract with the Fund, Titan Investment
Advisers, LLC (the "Investment Adviser") actively manages the Fund's portfolio
with a view to achieving the Fund's investment objectives. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Adviser will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, as well as investment
factors it deems relevant. The Fund's Board of Trustees is responsible for
generally overseeing the conduct of the Fund's business. Subject to such
policies as the Trustees may determine, the Investment Adviser furnishes a
continuing investment program for the Fund and makes investment decisions on its
behalf. The Investment Adviser also manages the Fund's other affairs and
businesses. As compensation for its services, the Investment Adviser receives
from the Fund a fee accrued daily and paid monthly at an annual rate of 1.00% of
the Fund's average net assets. The contract may be terminated by either party
without penalty on 60 days' written notice to the other party and will terminate
automatically upon its assignment.
Gilbert R. Giordano, President of the Investment Adviser, has primary
responsibility for the day-to-day management of the Fund's portfolio. Mr.
Giordano has been employed by the Adviser since its inception in 1996. Mr.
Giordano has over thirty years experience in the banking and financial services
industry. He was founder of the United Bank & Trust Company of Maryland in 1966,
and continues to serve as Chairman of that organization, which was merged with
First Virginia Bank and is now known as First Virginia Bank of Maryland. He is
currently a member of the Board of Directors of First Virginia Bank, Inc. The
Advisor has its principal executive offices at 9672 Pennsylvania Avenue, Upper
Marlboro, Maryland 20772.
The Fund pays all expenses not assumed by the Investment Adviser, including
Trustees' fees, auditing, legal, custodial, transfer agency, investor servicing
and shareholder reporting expenses, advisory fees, administration fees, federal
and state registration and notice fees, and payments under its distribution
plan. The Adviser has agreed to limit the Fund's operating expenses to assure
that the Fund's annual ratio of operating expenses to average net assets will
not exceed 2.50%. The Adviser also may reimburse additional amounts to the Fund
at any time in order to reduce the Fund's expenses, or to the extent required by
applicable securities laws. Reductions made by the Adviser in its fees or
payments or reimbursement of expenses which are the Fund's obligation are
subject to reimbursement by the Fund provided the Fund is able to do so and
remain in compliance with applicable limitations.
Administrator
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, monitors the activities of the Fund's custodian,
transfer agent and accountants, and coordinates the preparation and payment of
Fund expenses and reviews the Fund's expense accruals. For its services, the
Administrator receives 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 million to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
PURCHASE OF FUND SHARES
The minimum initial investment in the Fund is $5,000 ($2,000 for Individual
Retirement Accounts). Subsequent investments must be at least $100. First Fund
Distributors, Inc. (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.
In addition to cash purchases, shares may be purchased by tendering payment in
kind in the form of shares of stock, bonds or other securities, provided that
any such tendered security is readily marketable, its acquisition is consistent
with the Fund's objective and it is otherwise acceptable to the Advisor.
Shares of the Fund 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 the 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 be charged a
fee if they effect transactions through a broker or agent.
Investors may purchase shares of the Fund by check or wire:
By Check: For initial investments, an investor should complete the Fund's
Account Application (included with this Prospectus). The completed application,
together with a check payable to "Titan Financial Services Fund" should be
mailed to the Fund: Titan Financial Services Fund, P.O. Box 640856, Cincinnati,
OH 45264-0856.
A stub is attached to the account statement sent to shareholders after each
transaction. For subsequent investments the stub should be detached from the
statement and, together with a check payable to "Titan Financial Services Fund,"
mailed to the Fund in the envelope provided at the address indicated above. The
investor's account number should be written on the check.
By Wire: For initial investments, before wiring funds, an investor should
call the Transfer Agent at (800) 385-7003 between the hours of 9:00 a.m. and
4:00 p.m. Eastern time, on a day when the NYSE is open for trading in order to
receive an account number. The Transfer Agent will request the investor's name,
address, taxpayer identification number, amount being wired and wiring bank. The
investor should then instruct the wiring bank to transfer funds by wire to: Star
Bank, Cincinnati, OH, ABA #0420-0001-3, DDA #485776504, for credit to Titan
Financial Services Fund, for further credit to [investor's name and account
number]. The investor should also ensure that the wiring bank includes the name
of the Fund and the account number with the wire. If the funds are received by
the Transfer Agent prior to the time that the Fund's net asset value is
calculated, the funds will be invested on that day; otherwise they will be
invested on the next business day. Finally, the investor should write the
account number provided by the Transfer Agent on the Application Form and mail
the Form promptly to the Transfer Agent.
For subsequent investments, an investor should call the Transfer Agent at
(800) 385-7003 before the wire is sent. Failure to do so will cause the purchase
to be credited the next day, when the Transfer Agent receives notice of the
wire. The investor's bank should wire the 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 NYSE is
open for trading. The redemption price is the net asset value per share next
determined after the shares are validly tendered for redemption.
Direct Redemption. A written request for redemption must be received by the
Fund's Transfer Agent in order to constitute a valid tender for redemption.
Redemption requests should be sent to Titan Financial Services Fund, c/o
American Data Services, P.O. Box 5536, Hauppauge, NY 11788-0132. 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.
Redemption Fee. A redemption fee is imposed upon redemptions of fund shares
within one year of their initial purchase. The fee is designed to compensate the
Fund for transaction costs and administrative expenses that may arise from
frequent short-term trading activity in its shares.
The fee is 1.0% of the amount redeemed.
Telephone Redemption. Shareholders who complete the Redemption by Telephone
portion of the Fund's Account Application may redeem shares on any business day
the NYSE is open by calling the Fund's Transfer Agent at (800) 385-7003 between
the hours of 9:00 a.m. and 4:00 p.m. Eastern time. Redemption proceeds will be
mailed to the address of record 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 send the
proceeds to the address of record on the account or 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 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 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 SEC. In the case of shares purchased by check
and redeemed shortly after purchase, the Fund will not mail redemption proceeds
until it has been notified that the check used for the purchase has been
collected, which may take up to 15 days from the purchase date. To minimize or
avoid such delay, investors may purchase shares by certified check or federal
funds wire. A redemption may result in recognition of a gain or loss for federal
income tax purposes. 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 $2,000. 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 $2,000 and will be allowed 30 days to make an
additional investment to bring the value of his account to at least $2,000
before the Fund takes any action.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan'), under which the Fund pays the Advisor, as Distribution
Coordinator, a fee, which is accrued daily and payable monthly, at the annual
rate of 0.25% the Fund's average daily net assets. The fee is treated by the
Fund as an expense in the year it is accrued.
Amounts paid under the Plan are paid to the Distribution Coordinator for
services provided and the expenses borne by the Distribution Coordinator and
others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to and
expenses of account executives and others who engage in or support distribution
of shares or who service stock accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the Fund's shares to other than current
shareholders; and preparation, printing and distribution of sales literature and
advertising materials. The Advisor may in its discretion and out of its own
funds, compensate third parties, such as financial planners, advisors, brokers
and financial institutions, for sales and marketing assistance with respect to
the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., Eastern time (or on days when the New York Stock Exchange ("NYSE") closes
prior to 4:00 p.m., at such earlier time), by taking the value of all assets of
the Fund, subtracting all its liabilities, dividing by the number of shares
outstanding and adjusting to the nearest cent. The net asset value per share
will not be determined on such federal and non-federal holidays as are observed
by the NYSE.
The Fund values its assets based on their current market value when market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Fund's Board of Trustees. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity unless the Board of Trustees determines that this does not represent
fair value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to pay dividends at least annually and to distribute
substantially all of the Fund's net investment income and net short-term capital
gains, if any. The Fund intends to distribute dividends from net long-term
capital gains, if any, once each year. The Fund may, however, determine to
distribute all or part of any long-term capital gains in any year for
reinvestment. All dividends and any capital gains distributions will be paid in
additional Fund shares and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends be paid in cash. Any shareholder who receives a cash
payment representing a dividend or capital gains distribution may invest such
dividend or distribution at the net asset value next determined after receipt by
the Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares acquired from the reinvestment
of dividends or capital gains distributions are not subject to the imposition of
a contingent deferred sales charge upon their redemption.
Because the Fund intends to distribute all of its net investment income and
net short-term capital gains to shareholders and otherwise qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code, it
is not expected that the Fund will be required to pay any federal income tax.
Shareholders who are required to pay taxes on their income will normally have to
pay federal income taxes, and any state income taxes, on the dividends and
distributions they receive from the Fund. Such dividends and distributions, to
the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary dividend income
regardless of whether the shareholder receives such distributions in additional
shares or in cash.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends-received deduction available to certain corporations.
At the end of the calendar year, shareholders will be sent full information
on their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains, and the amount of dividends qualifying for the
corporate dividends-received deduction. To avoid being subject to a 31% federal
backup withholding tax on taxable dividends, capital gains distributions and the
proceeds of redemptions and repurchases, shareholders must furnish their
taxpayer identification numbers and certify the accuracy of the numbers.
Shareholders should consult their tax advisers as to the applicability of the
foregoing to their current situation.
PERFORMANCE INFORMATION
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over a period of one year as well as over the life of the Fund,
if less than any of the foregoing. Average annual total return reflects all
income earned by the Fund, any appreciation or depreciation of the Fund's
assets, all expenses incurred by the Fund and all sales charges which would be
incurred by redeeming shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. The Fund may also advertise the growth of a
hypothetical investment of $10,000 in shares of the Fund. The Fund from time to
time may also advertise its performance relative to certain performance rankings
and indexes compiled by independent organizations (such as mutual fund
performance ratings and indexes compiled by independent organizations such as
Lipper Analytical Services, Inc., Morningstar, the S&P Mid-Cap Index, NASDAQ
Composite, Russell Mid Cap Index, S&P 100 Index and the Wilshire Mid Cap Index).
GENERAL INFORMATION
Organization. The Trust is registered with the Securities and Exchange
Commission as an open-end management investment company and was organized as a
Massachusetts Business Trust on February 17, 1987. The Fund is a series of the
Trust. The Board of Trustees may from time to time issue other series, the
assets and liabilities of which will be separate and distinct from only other
series.
All shares of beneficial interest of the Fund (no par value) are equal as
to earnings, assets and voting privileges. There are no conversion, preemptive
or other subscription rights. In the event of a liquidation, each share of the
Fund is entitled to its portion of all the Fund's assets after all debts and
expenses have been paid. The shares do not have cumulative voting rights.
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.
Custodian and Transfer Agent. Star Bank, N.A., 425 Walnut St., Cincinnati,
OH 45202 is custodian of the Fund's assets. American Data Services, Inc., P.O.
Box 5536, Hauppauge, NY 11788-0132 is the Fund's Transfer Agent.
Confirmation and Statements. Shareholders will receive confirmation of
purchases and redemptions of Fund shares. The Transfer Agent will provide
shareholders with statements on a quarterly basis. Shareholders will also
receive audited and unaudited semi-annual financial statements of the Fund.
Titan Financial Services Fund
9672 Pennsylvania Avenue
Upper Marlboro, Maryland 20772
888-44-TITAN
Account Inquiries 1-800-385-7003
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261E
Phoenix, AZ 85018
Custodian
Star Bank
425 Walnut St.
Cincinnati, Ohio 45202
Shareholder Service and Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 385-7003
Auditors
Tait, Weller, & Baker
2 Penn Center Plaza
Philadelphia, PA 19102
Counsel to the Fund
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, CA 94104
[INSERT TITAN LOGO]
Prospectus
August 31, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 31, 1997
PZENA FOCUSED VALUE FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
830 Third Ave., 14th floor
New York, NY 10022
(212) 355-1600
This Statement of Additional Information is not a prospectus and it
should be read in conjunction with the prospectus of the Pzena Focused Value
Fund (the "Fund"). A copy of the prospectus dated August 31, 1997 is available
by calling the number 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-7
Distributions and Tax Information...............................................................................B-8
Trustees and Executive Officers................................................................................B-11
The Fund's Administrator.......................................................................................B-14
The Fund's Distributor.........................................................................................B-15
Execution of Portfolio Transactions............................................................................B-15
Additional Purchase and Redemption Information.................................................................B-17
Determination of Share Price...................................................................................B-18
Performance Information........................................................................................B-18
General Information............................................................................................B-19
Financial Statements...........................................................................................B-20
Appendix.......................................................................................................B-21
</TABLE>
Pzena 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 Fund is a mutual fund with the investment objective of long-term
capital growth. The following discussion supplements the discussion of the
Fund's investment objective and policies as set forth in the Prospectus. There
can be no assurance the objective of the Fund will be attained.
Repurchase Agreements
The Fund may enter into repurchase agreements as discussed in the
Prospectus. Under such agreements, the seller of the 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 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
Pzena SAI B-2
<PAGE>
some or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Fund, the Investment Advisor seeks
to minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the U.S. Government
security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, 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 segregate liquid assets with its Custodian 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.
Foreign Securities
The Fund may invest up to 20% of its assets in foreign securities.
Foreign investments can involve significant risks in addition to the risks
inherent in U.S. investments. The value of securities denominated in or indexed
to foreign currencies, and of dividends and interest from
Pzena SAI B-3
<PAGE>
such securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable information regarding
an issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, generally are higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign securities trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It also may be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There can be no assurance that the Advisor will be able
to anticipate or counter these potential events and their impacts on the Fund's
share price.
Securities of foreign issuers may be held by the Fund in the form of
American Depositary Receipts and European Depositary Receipts ("ADRs" and
"EDRs"). These are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national market and currencies.
The Fund may invest without regard to the 20% limitation in securities
of foreign issuers which are listed and traded on a domestic national securities
exchange.
Debt Securities and Ratings
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. If a security's rating is reduced while it
is held by the Fund, the Advisor will consider whether the Fund should continue
to hold the security but the Fund is not required to dispose of it. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the
Pzena SAI B-4
<PAGE>
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial conditions may be better or worse than the rating
indicates.
The Fund reserves the right to invest up to 20% of its assets in debt
securities, which may include those rated lower than BBB by S & P or lower than
Baa by Moody's but rated at least B by S & P or Moody's (or, in either case, if
unrated, deemed by the Advisor to be of comparable quality). Lower-rated
securities generally offer a higher current yield than that available for higher
grade issues. However, lower-rated securities involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuations in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to make payments of interest and principal and increase the
possibility of default. In addition, the market for lower-rated debt securities
has expanded rapidly in recent years, and its growth paralleled a long economic
expansion. At times in recent years, the prices of many lower-rated debt
securities declined substantially, reflecting an expectation that many issuers
of such securities might experience financial difficulties. As a result, the
yields on lower-rated debt securities rose dramatically, but such higher yields
did not reflect the value of the income stream that holders of such securities
expected, but rather, the risk that holders of such securities could lose a
substantial portion of their value as a result of the issuers' financial
restructuring or default. There can be no assurance that such declines will not
recur. The market for lower-rated debt issues generally is smaller and less
active than that for higher quality securities, which may limit the Fund's
ability to sell such securities at fair value in response to changes in the
economy or financial markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values and
liquidity of lower-rated securities, especially in a smaller and less actively
traded market.
Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower-yielding security, resulting in a
decreased return to investors. Also, because the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by the Fund may decline proportionately
more than the Fund consisting of higher-rated securities. If the Fund
experiences unexpected net redemptions, it may be forced to sell its
higher-rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Fund and increasing the exposure of the Fund to the risks
of lower-rated securities. Investments in zero-coupon bonds may be more
speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
Options and Futures Contracts
As indicated in the Prospectus, to the extent consistent with its
investment objectives and policies, the Fund may purchase and write call and put
options on securities, securities indexes
Pzena SAI B-5
<PAGE>
and on foreign currencies and enter into futures contracts and use options on
futures contracts, to the extent of up to 5% of its assets.
Transactions in options on securities and on indexes involve certain
risks. For example, there are significant differences between the securities and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless. If the Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, the Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased. Except
to the extent that a call option on an index written by the Fund is covered by
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; such losses may be mitigated or exacerbated by
changes in the value of the Fund's securities during the period the option was
outstanding.
Use of futures contracts and options thereon also involves certain
risks. The variable degree of correlation between price movements of futures
contracts and price movements in the related portfolio positions of the Fund
creates the possibility that losses on the hedging instrument may be greater
than gains in the value of the Fund's position. Also, futures and options
markets may not be liquid in all circumstances and certain over the counter
options may have no markets. As a result, in certain markets, the Fund might not
be able to close out a transaction at all or without incurring losses. Although
the use of options and futures transactions for hedging should minimize the risk
of loss due to a decline in the value of the hedged position, at the same time
they tend to limit any potential gain which might result from an increase in the
value of such position. If losses were to result from the use of such
transactions, they could reduce net asset value and possibly income. The Fund
may use these techniques to hedge against changes in interest rates or
securities prices or as part of its overall investment strategy. The Fund will
maintain segregated accounts consisting of cash, U.S. Government securities, or
other high grade debt obligations (or, as permitted by applicable regulation,
enter into certain offsetting positions) to cover its obligations under options
and futures contracts to avoid leveraging of the Fund.
Pzena SAI B-6
<PAGE>
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) to the
extent the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except from banks for temporary or emergency
purposes. Any such borrowing will be made only if immediately thereafter there
is an asset coverage of at least 300% of all borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (The
Fund is not precluded from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase or sell real estate, commodities or commodity contracts
(other than futures transactions for the purposes and under the conditions
described in the prospectus and in this Statement of Additional Information).
5. Invest 25% or more of the market value of its assets in the
securities of companies engaged in any one industry. (Does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures, forward or repurchase transactions.
7. (a) With respect to 50% of the Fund's assets, purchase the
securities of any issuer if more than 5% of the total assets of the Fund would
be invested in the securities of the issuer, other than obligations of the U.S.
Government, its agencies or instrumentalities.
(b) With respect to the remaining 50% of the Fund's assets,
purchase the securities of any issuer if more than 25% of the total assets of
the Fund would be invested in the securities of the issuer.
Pzena SAI B-7
<PAGE>
The Fund observes the following policies, which are not deemed fundamental and
which may be changed without shareholder vote. The Fund may not:
8. Purchase any security if as a result the Fund would then hold more
than 10% of any class of securities of an issuer (taking all common stock issues
of an issuer as a single class, all preferred stock issues as a single class,
and all debt issues as a single class) or more than 10% of the outstanding
voting securities of a single issuer.
9. Invest in any issuer for purposes of exercising control or
management.
10. Invest in securities of other investment companies which would
result in the Fund owning more than 3% of the outstanding voting securities of
any one such investment company, the Fund owning securities of another
investment company having an aggregate value in excess of 5% of the value of the
Fund's total assets, or the Fund owning securities of investment companies in
the aggregate which would exceed 10% of the value of the Fund's total assets.
11. Invest, in the aggregate, more than 5% of its total assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
12. Invest more than 15% of its assets in securities of foreign issuers
(including American Depositary Receipts with respect to foreign issuers, but
excluding securities of foreign issuers listed and traded on a domestic national
securities exchange).
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except
with respect to restrictions regarding borrowing and investment in illiquid
securities, or as otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Any dividends from net investment income (including realized short term
capital gains) are declared and paid at least annually, typically at the end of
the Fund's fiscal year (December 31). Any undistributed long-term net capital
gains realized during the 12-month period ended each October 31, as well as any
additional undistributed long-term capital gains realized during the Fund's
fiscal year, will also be distributed to shareholders on or about December 31 of
each year.
Pzena SAI B-8
<PAGE>
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,
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
Pzena SAI B-9
<PAGE>
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.
The Fund may write, purchase or sell certain option, futures, and
foreign currency contracts. Such transactions are subject to special tax rules
that may affect the amount, timing and character of distributions to
shareholders. Unless the Fund is eligible to make and makes a special election,
such contracts that are "Section 1256 contracts" will be "marked-to-market" for
federal income tax purposes at the end of each taxable year, i.e., each contract
will be treated as sold for its fair market value on the last day of the taxable
year. In general, unless the special election referred to in the previous
sentence is made, gain or loss from transactions in such contracts will be 60%
long-term and 40% short-term capital gain or loss. Section 1092 of the Code,
which applies to certain "straddles", may affect the taxation of the Fund's
transactions in option, futures and foreign currency contracts. Under Section
1092 of the Code, the Fund may be required to postpone recognition for tax
purposes of losses incurred in certain closing transactions.
A redemption of Fund shares may result in recognition of a taxable gain
or loss. Any loss realized upon a redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gains during
such six-month period. Any loss realized upon a redemption of Fund shares may be
disallowed under certain wash sale rules to the extent shares of the Fund are
purchased (through reinvestment of distributions or otherwise) within 30 days
before or after the redemption.
Under the Code, the Fund will be required to report to the Internal
Revenue Service ("IRS") all distributions of taxable income and capital gains as
well as gross proceeds from the redemption or exchange of Fund shares, except in
the case of exempt shareholders, which includes most corporations. Pursuant to
the backup withholding provisions of the Internal Revenue Code, distributions of
any taxable income and capital gains and proceeds from the redemption of Fund
shares may be subject to withholding of federal income tax at the rate of 31
percent in the case of non-exempt shareholders who fail to furnish the Fund with
their taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Fund with
their taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. The Fund reserves
the right to refuse to open an account for any person failing to provide a
certified taxpayer identification number.
Pzena SAI B-10
<PAGE>
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 and the Fund's Distributor) since 1990.
Dorothy A. Berry, 54 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).
Pzena SAI B-11
<PAGE>
Wallace L. Cook, 57 Trustee
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel, 59 Trustee
2 Crown Cove Lane, Savannah, GA 31411. Private Investor. Formerly Managing
Director, Premier Solutions, Ltd. Formerly President and Founder, National
Investor Data Services, Inc. (investment related computer software).
Rowley W.P. Redington, 53 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*, 40 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.
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.
Pzena SAI B-12
<PAGE>
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 April 30, 1997, trustees' fees and
expenses in the amount of $2,548 were allocated to the Fund. As of the date of
this Statement of Additional Information, the Trustees and Officers of the Trust
as a group did not own more than 1% of the outstanding shares of the Fund.
Investment Advisor
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. Pzena Investment Management
LLC acts as Advisor to the Fund. The Advisor was founded in 1995 and is
controlled by Mr. Richard Pzena, who is principally responsible for the Fund's
portfolio. Although the Adviser has not previously managed an investment
company, Mr. Pzena was formerly Director of Research for U.S. equities at an
investment advisory firm with several billion in investment advisory and
investment company assets under management.
Under the Investment Advisory Agreement with the Fund, the Advisor
provides the Fund with advice on buying and selling securities, manages the
investments of the Fund, furnishes the Fund with office space and certain
administrative services, and provides most of the personnel needed by the Fund.
As compensation, the Fund pays the Advisor a monthly management fee (accrued
daily) based upon the average daily net assets of the Fund at the rate of 1.25%
annually.
The Adviser has undertaken to limit the Fund's operating expenses to an
annual level of 1.75% of the Fund's average net assets. For the fiscal period
ended April 30, 1997, the Advisor waived its fees of $21,340 and reimbursed the
Fund for other operating expenses in the amount of $48,237.
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.
Pzena 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, ICAC receives a 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
ICAC received fees of $26,499 from the Fund for the fiscal period ended April
30, 1997.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc., (the "Distributor"), a corporation owned
by Mr. Banhazl, Mr. Paggioli and Mr. Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
for periods not exceeding one year if approved at least annually by (i) the
Board of Trustees or the vote of a majority of the outstanding shares of the
Fund (as defined in the 1940 Act) and (ii) a majority of the Trustees who are
not interested persons of any such party, in each case cast in person at a
meeting called for the purpose of voting on such approval. The Distributing
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
Pzena SAI B-14
<PAGE>
Pursuant to the Investment Advisory Agreement, the Adviser 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 Adviser, 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 Adviser 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 Adviser that
it may lawfully and appropriately use in its investment advisory capacities, as
well as provide other services in addition to execution services. The Adviser
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.
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
Adviser, even if the specific services are not directly useful to the Fund and
may be useful to the Adviser 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 Adviser 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 Adviser's overall responsibilities to the
Fund.
Pzena SAI B-15
<PAGE>
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds managed or advised by the Adviser.
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 Adviser, taking into account
the respective sizes of the accounts and the amount being purchased or sold. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as the Fund is concerned. In other
cases, however, it is believed that the ability of the Fund to participate in
volume transactions may produce better executions for the Fund.
The Fund does not effect securities transactions through brokers solely
for selling shares of the Fund, although the Fund may consider the sale of
shares as a factor in allocating brokerage. However, as stated above,
broker-dealers who execute brokerage transactions may effect purchases of shares
of the Fund for their customers.
The Fund does not use the Distributor to execute its portfolio
transactions. For the fiscal period ended April 30, 1997 the aggregate brokerage
commissions paid by the Fund were $9,895.
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.
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
Pzena SAI B-16
<PAGE>
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, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas. The Fund does not expect to determine
the net asset value of its shares on any day when the Exchange is not open for
trading even if there is sufficient trading in its portfolio securities on such
days to materially affect the net asset value per share.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ
Pzena SAI B-17
<PAGE>
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
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
Pzena SAI B-18
<PAGE>
Aggregate total return is calculated in a similar manner, except that
the results are not annualized.Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period and gives effect to the maximum applicable sales charge.
The Fund's total return since its inception on June 24, 1996 through
the fiscal period ending April 30, 1997 was 15.88%.
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.
Star Bank N.A., 425 Walnut Street, Cincinnati, OH 45202 acts as
Custodian of the securities and other assets of the Fund. The Custodian does not
participate in decisions relating to the purchase and sale of securities by the
Fund. American Data Services, Inc., P.O. Box 5536, Hauppauge, NY 11788-0132 is
the Fund's Transfer and Dividend Disbursing Agent.
Tait, Weller & Baker, 2 Penn Center Plaza, Philadelphia, PA 19102 are
the independent auditors for the Fund.
Lane, Altman & Owens, 101 Federal St., Boston, MA 02110 are legal
counsel to the Advisor.
Paul, Hastings, Janofsky & Walker, 345 California Street, 29th Floor,
San Francisco, California 94104, are legal counsel to the Fund.
The following persons are beneficial owners of more than 5% of the
Fund's outstanding voting securities as of August 14, 1997.
Richard M. Cion, Westport, CT 06880; 6.40%
M & M Value Partners, Jericho, NY 11753; 5.44%
Olga E. Manigan, Rye, NY 10580; 5.76%
Raymond James & Associates, Inc., St. Petersburg, FL 33733; 7.59%
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
Pzena SAI B-19
<PAGE>
of the Trust. The Agreement and Declaration of Trust also provides for
indemnification and reimbursement of expenses out of the Fund's assets for any
shareholder held personally liable for obligations of the Fund or Trust. The
Agreement and Declaration of Trust provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund or Trust and satisfy any judgment thereon. All such
rights are limited to the assets of the Fund. The Agreement and Declaration of
Trust further provides that the Trust may maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the protection
of the Trust, its shareholders, trustees, officers, employees and agents to
cover possible tort and other liabilities. Furthermore, the activities of the
Trust as an investment company would not likely give rise to liabilities in
excess of the Trust's total assets. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance exists and the Fund itself is unable to meet
its obligations.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for the fiscal year
ended April 30, 1997 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.
Pzena SAI B-20
<PAGE>
APPENDIX
Description of Bond Ratings*
Moody's Investors Service
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations or protective elements
may be of greater amplitude or there may be other elements present which make
long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements: their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Pzena SAI B-21
<PAGE>
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Standard & Poor's Corporation
AAA: Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.
Pzena SAI B-22
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 31, 1997
TITAN FINANCIAL SERVICES FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
9672 Pennsylvania Avenue
Upper Marlboro, Maryland 20772
Titan Financial Services Fund (the "Fund"), a diversified,
professionally managed portfolio, is a separate series of Professionally Managed
Portfolios, an open-end management investment company. This Statement of
Additional Information ("SAI") is not a prospectus and should be read only in
conjunction with the Funds' current Prospectus, dated August 31, 1997. A copy of
the Prospectus may be obtained by calling toll-free at 1-800-385-7003. This SAI
is dated August 31, 1997.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
Investment Policies and Restrictions............................................................................B-2
Trustees and Executive Officers................................................................................B-16
Investment Management, Administration and Distribution
arrangements..........................................................................................B-18
The Fund's Administrator.......................................................................................B-19
Portfolio Transactions.........................................................................................B-21
Valuation of Shares............................................................................................B-22
Performance Information........................................................................................B-23
Taxes..........................................................................................................B-25
General Information............................................................................................B-27
Financial Statements...........................................................................................B-28
Appendix.......................................................................................................B-29
</TABLE>
Titan SAI B-1
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.
Yield Factors and Ratings. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's ("S&P") and other nationally recognized statistical rating
organization ("NRSROs") are private services that provide rating of the credit
quality of debt obligations. A description of the ratings assigned to corporate
debt obligations by Moody's and S&P is included in the Appendix to this SAI. The
Fund may use these ratings in determining whether to purchase, sell or hold a
security. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, securities with the same maturity,
interest rate and rating may have different market prices.
Special Considerations Concerning the Banking Industry and the Savings
and Loan Industry.
-- The Banking Industry. In the United States, the deposits of
commercial banks are insured by the Federal Deposit Insurance Corporation (the
"FDIC"). Many of these banks are subsidiaries of bank holding companies.
Commercial banks accept deposits, make commercial and other loans, and engage in
a variety of other investments. The Fund normally intends to invest in the
securities of those bank holding companies which receive a substantial portion
of their income from one or more commercial bank subsidiaries, as well as in the
securities of banking institutions.
Despite some measure of deregulation, commercial banks and their
holding companies are also subject to extensive government regulation that
significantly affects their activities, earnings, and competitive environment.
The Office of the Comptroller of the Currency is the primary federal regulator
of national banks. The FDIC is the primary federal regulatory of most
state-chartered commercial banks with FDIC-insured deposits. State-chartered
commercial banks are also subject to primary supervision and regulation by state
banking authorities. The Board of Governors of the Federal Reserve System
("FRB") is the primary federal regulator of bank holding companies and also has
regulatory authority over state-chartered banks which are members of the Federal
Reserve System. Federal regulators receive comprehensive reports on and conduct
examinations of a number of aspects of a federally regulated commercial bank's
operations and financial condition, including capital adequacy, liquidity,
earnings, dividends, investments, management practice and loan loss reserves.
Federal regulators also require that commercial banks maintain minimum levels of
capital and liquidity, require the establishment of loan loss reserves, and may
limit the bank's ability to pay dividends in certain circumstances.
Bank holding companies must file regular reports with the FRB and are
subject to examinations of certain aspects of their own and their subsidiaries'
operations. The activities of a bank holding company are restricted by federal
regulations which, among other things, generally
Titan SAI B-2
<PAGE>
prohibit a bank holding company from controlling banks in more than one state,
except where specifically permitted by state law, and restrict the types of
non-banking activities in which the holding company directly or indirectly may
engage.
Certain economic factors are of particular importance to commercial
banks. The availability and cost of funds to commercial banks and other finance
companies is important to their profitability. This factor has increased in
importance with the deregulation of interest rates. The quality of a bank's
portfolio of loans can be adversely affected by depressed market conditions in
certain industries. Recent examples of such industries that have affected the
loan portfolios of some banks include commercial real estate, international
sovereign credits, energy and agriculture. Smaller banks can be particularly
affected by such conditions if the economic base of the area in which they are
located is closely tied to a depressed industry, such as agriculture.
-- The Savings and Loan Industry. The principal business of
savings and loan institutions traditionally has consisted of attracting deposits
from the general public and originating or purchasing mortgage loans secured by
liens on residential real estate. In addition to long-term, fixed-rate
residential mortgage loans, savings institutions recently have begun to extend a
greater number of loans with shorter terms and/or adjustable interest rates,
including consumer and commercial loans, and construction loans on both
residential and commercial real estate developments. These types of loans may
involve greater risks of default than residential mortgage loans.
Historically, many savings institutions were organized primarily as
mutual companies and as such were owned by their depositors and did not issue
common stock. However, in recent years, the need for equity capital and
deregulation of the industry have encouraged conversion to stock ownership.
Securities of newly converted savings institutions may not be readily
marketable, due to the lack of a public trading market or certain restrictions
on transfer. Some savings institutions are controlled by holding companies. The
Fund normally intends to invest in the securities of those savings institution
holding companies, the savings institution subsidiaries of which comprise a
significant percentage of their total assets and provide a significant
percentage of their income.
Savings institutions and their holding companies are subject to
extensive government regulation. Savings institutions with FDIC-insured deposits
are subject to periodic FDIC examination and to FDIC regulation and supervision
of their operations. A state-chartered savings institution is also regulated by
the laws and bank regulatory authority of the state in which it has its
principal office. Savings institutions with federally insured deposits are
subject to certain minimum net worth or capital requirements and to other
requirements limiting the types of investments they may make. In addition,
holding companies of savings institutions which are federally chartered may be
subject in certain cases to restrictions on the activities in which they may
engage.
Titan SAI B-3
<PAGE>
The results of operations of savings institutions may be materially
affected by general economic conditions, the monetary and fiscal policies of the
federal government and the regulatory policies of governmental authorities.
Although in recent years savings institutions have derived an increased portion
of their income from receipt of fees, the results of operations of savings
institutions continue to depend to a large extent on the level of their "net
interest income" (the difference between the interest earned on loans and
investments and the interest paid on deposits and borrowings). During the period
between the late 1970s and mid-1982, general market interest rates rose to, and
remained at, historically high levels as a result of inflationary pressures and
governmental policies. During the same period, savings institutions generally
experienced a shift in the composition of their deposits form relatively
long-term, low-rate certificate accounts or low-rate passbook accounts to
certificates of deposit and accounts bearing rates determined by market
conditions, often with short maturities. Competition from alternative
investments such as money market mutual funds affected savings flows, causing
reduced inflows to (or actual net outflows from) savings institutions, thus
limiting their ability to make new loans or investments. As a result, the
average cost of funds of most savings institutions increased faster than the
average yield earned on their assets, which consisted principally of long-term
real estate loans at fixed rates of interest. These factors had a severe adverse
impact on the earnings of most of the savings industry, with the large majority
of savings institutions reporting operating losses for 1991 and 1992. Although
interest rates have since declined, there can be no assurance that interest
rates will remain at current levels.
Beginning in the early 1980s a substantial number of savings
institutions significantly expanded the amount of their investments in
construction lending, real estate development projects, and secured and
unsecured commercial and consumer loans. These investments generally entail more
risk than mortgage loans secured by residential real estate and may result in
losses for certain institutions. Many institutions have also initiated asset and
liability management programs designed to minimize vulnerability to interest
rate changes. These programs have included such activities as increasing use of
adjustable rate mortgages, origination of a higher proportion of shorter-term
commercial and consumer loans, and the lengthening of maturities for deposits
and borrowings. By including such investments, the assets of savings
institutions have begun to match the maturities of their liabilities more
closely. In addition, some savings institutions are conducting hedging
transactions to reduce their exposure to interest rate risk. The Fund's
investments in savings institutions will be affected by changes in the levels of
interest rates, national and local cycles in real estate and other economic
factors.
Federal and state regulations do not insure the solvency or
profitability of savings and banking institutions or their holding companies,
nor do they insure against risk any investments in securities issued by such
institutions. The FDIC insure the deposits of member institutions but in no way
protect or insure investments in the securities of these institutions.
--Legislative Concerns. Legislation has been enacted which has altered
the regulatory structure and capital requirements of the banking and savings and
loan institution industries. This legislation was enacted as a response to
financial problems experienced by a
Titan SAI B-4
<PAGE>
number of banks and savings and loan institutions relating to inadequate
capital, adverse economic conditions and alleged fraud and mismanagement. This
legislation also strengthened the civil sanctions and criminal penalties for
defrauding or otherwise damaging depository institutions and their depositors
and curtailed the authority of savings and loan institutions to engage in real
estate investment and certain other activities. In addition, the legislation has
given federal regulators substantial authority to use all of the assets of a
bank or savings and loan institution holding company to satisfy federal claims
against an insolvent savings and loan institution or bank owned by the holding
company and mandated regulatory action against institutions with inadequate
capital levels. Legislative and regulatory actions have also increased the
capital requirements applicable to commercial banks and savings and loan
institutions. These changes have extended the risk to holding company
shareholders in the event of the insolvency of any depository institution owned
by the holding company.
From time to time legislative proposals have been introduced that if
enacted could expose bank holding companies to well-established competitors,
such as securities firms and insurance companies, as well as companies engaged
in other areas of business. Increased competition may also result from the
broadening of interstate banking powers, which has already lead to a reduction
in the number of publicly traded regional banks. Although the costs of insurance
premiums have been reduced, these rates can be increased in the future which may
adversely affect the Fund.
Special Considerations Concerning Other Financial Services Industries.
Many of the investment considerations discussed in connection which banks and
savings associations also apply to financial services companies. These companies
are all subject to extensive regulation, rapid business changes, value
fluctuations due to the concentration of loans in particular industries
significantly affected by economic conditions, volatile performance dependent
upon the availability and cost of capital and prevailing interest rates, and
significant competition. General economic conditions significantly affect these
companies. Credit and other losses resulting from the financial difficulty of
borrowers or other third parties have a potentially adverse effect on companies
in this industry. Investment banking, securities brokerage and investment
advisory companies are particularly subject to government regulation and rate
setting, potential anti-trust and tax law changes, and industry-wide pricing and
competition cycles. Property and casualty insurance companies may be affected by
weather and other catastrophes. Life and health insurance companies may be
affected by mortality and morbidity rates, including the effects of epidemics,
and by possible future changes in the health care industries. Individual
insurance companies may be exposed to reserve inadequacies, problems in
investment portfolios (for example, due to real estate or "junk" bond holdings)
and failures of reinsurance carriers. Proposed or potential anti-trust or tax
law changes also may affect adversely insurance companies' policy sales, tax
obligations and profitability. In addition, several significant companies have
recently reported liquidity or solvency difficulties and credit rating
downgrades.
The financial services industries currently are changing relatively
rapidly as existing distinctions between various financial services industries
become less clear. For example, recent
Titan SAI B-5
<PAGE>
business combinations have included different financial services industries such
as insurance, finance and securities brokerage under single ownership. In
addition, changes in governmental regulation have permitted companies
traditionally active in one area to expand into other areas. The effect of these
changes in particular segments of the financial services industries is difficult
to predict.
Repurchase Agreements. Repurchase agreements are transactions in which
the Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. The Fund maintains custody
of the underlying securities prior to their repurchase; thus, the obligation of
the bank or dealer to pay the repurchase price on the date agreed to is, in
effect, secured by such securities. If the value of such securities is less than
the repurchase price, plus any agreed-upon additional amount, the other party to
the agreement must provide additional collateral so that at all times the
collateral is at least equal to the repurchase price, plus any agreed-upon
additional amount. The difference between the total amount to be received upon
repurchase of the securities and the price that was paid by the Fund upon their
acquisition is accrued as interest and included in the Fund's net investment
income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party to
a repurchase agreement becomes bankrupt. The Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Titan Investment Advisers, LLC (the "Investment Adviser") to present minimal
credit risks in accordance with guidelines established by the Fund's Board of
Trustees. The Investment Adviser will review and monitor the creditworthiness of
those institutions under the Board's general supervision.
Lending of Fund Securities. Although it has no present intention of
doing so during the coming year, the Fund may lend up to 331/3% of the total
value of its portfolio securities to broker-dealers or institutional investors
that the Investment Adviser deems qualified, but only when the borrower
maintains with the Fund's custodian collateral either in cash or money market
instruments in an amount at least equal to the market value of the securities
loaned, plus accrued interest and dividends, determined on a daily basis and
adjusted accordingly. In determining whether to lend securities to a particular
broker-dealer or institutional investor, the Investment Adviser will consider,
and during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. The Fund will
retain authority to terminate any loans at any time. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. The Fund will retain record ownership of loaned securities to
exercise beneficial rights, such as voting and subscription rights
Titan SAI B-6
<PAGE>
and rights to dividends, interest or other distributions, when retaining such
rights is considered to be in the Fund's interest.
Reverse Repurchase Agreements. Although it has no intention of doing so
during the coming year, the Fund may enter into reverse repurchase agreements
with banks up to an aggregate value of not more than 5% of its total assets.
Such agreements involve the sale of securities held by the Fund subject to the
Fund's agreement to repurchase the securities at an agreed-upon date and price
reflecting a market rate of interest. Such agreements are considered to be
borrowings and may be entered into only for temporary or emergency purposes.
While a reverse repurchase agreement is outstanding, the Fund will segregate
liquid assets, marked to market daily, in an amount at least equal to the Fund's
obligations under the reverse repurchase agreement.
Illiquid Securities. As indicated in the Prospectus, the Fund may
invest up to 15% of its net assets in illiquid securities. The term "illiquid
securities" for this purpose means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which the Fund has valued the securities and includes, among other things,
purchased over-the-counter ("OTC") options, repurchase agreements maturing in
more than seven days and restricted securities other than those the Investment
Adviser has determined are liquid pursuant to guidelines established by the
Funds's board of Trustees. The assets used as cover for OTC options written by
the Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option. Illiquid restricted
securities may be sold only in privately negotiated transactions or in public
offerings with respect to which a registration statement is in effect under the
Securities Act of 1933 ("1933 Act"). Where registration is required, the Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
restrictions on resale to the general public or certain institutions is not
dispositive of the liquidity of such investments.
Titan SAI B-7
<PAGE>
Rule 144A under the 1933 Act established a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment to satisfy share redemption orders. Such markets might include
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the National Association of Securities Dealers, Inc. ("NASD"). An
insufficient number of qualified buyers interested in purchasing Rule
144A-eligible restricted securities held by the Fund, however, could affect
adversely the marketability of such portfolio and the Fund might be unable to
dispose of such securities promptly or at favorable prices.
The Board of Trustees has delegated the function of making day-to-day
determinations of liquidity to the Investment Adviser, pursuant to guidelines
approved by the Board. The Investment Adviser takes into account a number of
factors in reaching liquidity decisions, including (1) the frequency of trades
for the security, (2) the number of dealers that make quotes for the security,
(3) the number of dealers that have undertaken to make a market in the security,
(4) the number of other potential purchasers and (5) the nature of the security
and how trading is effected (e.g., the time needed to sell the security, how
offers are solicited and the mechanics of transfer). The Investment Adviser will
monitor the liquidity of restricted securities in the Fund's portfolio and
report periodically on such decisions to the Board of Trustees.
When-Issued and Delayed Delivery Securities. A security purchased on a
when-issued or delayed delivery basis is recorded as an asset on the commitment
date and is subject to changes in market value, generally based upon changes in
the level of interest rates. Thus, fluctuation in the value of the security from
the time of the commitment date will affect the Fund's net asset value. When the
Fund commits to purchase securities on a when-issued or delayed delivery basis,
its custodian will segregate liquid assets with a market value equal to the
amount of the commitment. If necessary, additional assets will be placed in the
account daily so that the value of the account will equal or exceed the amount
of the Fund's purchase commitment. The Fund purchases when-issued securities
only with the intention of taking delivery, but may sell the right to acquire
the security prior to delivery if the Investment Adviser deems it advantageous
to do so, which may result in capital gain or loss to the Fund.
Special Considerations Relating to Foreign Securities. To the extent
that the Fund invests in U.S. dollar-denominated securities of foreign issuers,
theses securities may not be registered with the SEC, nor may the issuers
thereof by subject to its reporting requirements. Accordingly, there may be less
publicly available information concerning foreign issuers of securities held by
the Funds than is available concerning U.S. companies. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards or other regulatory requirements comparable to those applicable to
U.S. companies.
Titan SAI B-8
<PAGE>
The Funds may invest in foreign securities by purchasing American
Depository Receipts ("ADRs"), which are securities convertible into securities
of corporations based in foreign countries. These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. ADRs are receipts
typically issued by a U.S. bank or Fund company evidencing ownership of the
underlying securities. For purposes of the Fund's investment policies, ADRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR representing ownership of common stock will be treated
as common stock.
The Fund anticipates that their brokerage transactions involving
securities of companies headquartered in countries other than the United States
will be conducted primarily on the principal exchanges of such countries.
Foreign security trading practices, including those involving securities
settlement where assets of the Fund may be released prior to receipt of payment,
may expose the Fund to increased risk in the event of a failed trade or the
insolvency of a foreign broker-dealer. Transactions on foreign exchanges are
usually subject to fixed commissions that are generally higher than negotiated
commissions on U.S. transactions, although the Fund will endeavor to achieve the
best net results in effecting its portfolio transactions. There is generally
less government supervision and regulation of exchanges and brokers in foreign
countries than in the United States.
The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed in dealings between
nations. Costs are also incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher than
those charged in the United States, and foreign securities markets may be less
liquid, more volatile and subject to lessen governmental supervision than in the
United States. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations, and could be subject to
extended clearance and settlement periods.
Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the Fund would be subject.
Segregated Assets. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis or reverse
repurchase agreements, the Fund will maintain with its custodian liquid assets,
marked to market daily, in an amount at least equal to the Fund's
Titan SAI B-9
<PAGE>
obligation or commitment under such transactions. As described below under
"Special Risks of Hedging Strategies," segregation of liquid assets may also be
required in connection with certain transactions involving options.
Special Risks of Hedging Strategies. The use of options involves
special considerations and risks, as described below. Risks pertaining to
particular instruments are described in the sections that follow.
(1) Successful use of options depends upon the Investment Adviser's
ability to predict movements of the overall securities, currency and interest
rate markets, which require different skills than predicting changes in the
prices of individual securities.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the investments
being hedged. For example, if the value of a an instrument used in a short hedge
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which instruments are traded.
The effectiveness of hedges using instruments on indices will depend on the
degree of correlation between price movements in the index and price movements
in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered in a short
hedge because the Investment Adviser projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the instrument. Moreover, if the price of the instrument
declined by more than the increase in the price of the security, the Fund could
suffer a loss. In either such case, the Fund would have been in a better
position had it not hedged at all.
(4) As described below, the Fund might be required to maintain assets
as "cover," maintain segregated assets or make margin payments when it takes
positions in an instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If the Fund were unable to close out
its positions in such instruments, it might be required to continue to maintain
such assets or make such payments until the position expired or matured. These
requirements might impair the Fund's ability to sell a portfolio security or
make an investment at a time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a disadvantageous time. The
Fund's ability to close out a position in an instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of a contra party to enter
into a transaction
Titan SAI B-10
<PAGE>
closing out the position. Therefore, there is no assurance that any hedging
position can be closed out at a time and price that is favorable to the Fund.
Writing Call Options. The Fund may write (sell) call options on
securities and indices. Call options generally will be written on securities
that, in the opinion of the Investment Adviser, are not expected to make any
major price moves in the near future but that, over the long term, are deemed to
be attractive investments for the Fund.
A call option gives the holder (buyer) the right to purchase a security
at a specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, he or she may be assigned an exercise notice, requiring him or her to
deliver the underlying security against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by purchasing an
option identical to that previously sold.
Portfolio securities on which call options may be written will be
purchase solely on the basis of investment considerations consistent with the
Fund's investment objective. When writing a call option, the Fund, in return for
the premium, gives up the opportunity for profit from a price increase in the
underlying security above the exercise price, and retains the risk of loss
should the price of the security decline. Unlike one who owns securities not
subject to an option, the Fund has no control over when it may be required to
sell the underlying securities, since most options may be exercised at any time
prior to the option's expiration. If a call option that the Fund has written
expires, the Fund will realize a gain in the amount of the premium; however,
such gain may be offset by a decline in the market value of the underlying
security during the option period. If the call option is exercised, the Fund
will realize a gain or loss from the sale of underlying security, which will be
increased or offset by the premium received. The Fund does not consider a
security covered by a call option to be "pledged" as that term is used in the
Fund's policy that limits the pledging or mortgaging of its assets.
Writing call options can serve as a limited short hedge because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value.
The premium that the Fund receives for writing a call option is deemed
to constitute the market value of an option. The premium the Fund will receive
from writing a call option will reflect, among other things, the current market
price of the underlying investment, the relationship of the exercise price to
such market price, the historical price volatility of the underlying investment,
and the length of the option period. In determining whether a particular call
option should be written, the Investment Adviser will consider the
reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for those options.
Titan SAI B-11
<PAGE>
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit the Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both.
The Fund will pay transaction costs in connection with the writing of
options and in entering into closing purchase contracts. Transaction costs
relating to options activity normally are higher than those applicable to
purchases and sales of portfolio securities.
The exercise price of the options may be below, equal to or above the
current market values of the underlying securities at the time the options are
written. From time to time, the Fund may purchase an underlying security for
delivery in accordance with the exercise of an option, rather than delivering
such security from its portfolio. In such cases, additional costs will be
incurred.
The Fund will realize a profit or loss from a closing purchase
transaction is less or more, respectively, than the premium received from
writing the option. Because increases in the market price of a call option
generally will reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by the
Fund.
Writing Put Options. The Fund may write put options on securities and
indices. A put option gives the purchases of the option the right to sell, and
the writer (seller) the obligation to buy, the underlying security at the
exercise price at any time until the expiration date. The operation of put
options in other respects, including their related risks and rewards, is
substantially identical to that of call options.
The Fund generally would write put options in circumstances where
Investment Adviser wishes to purchase the underlying security for the Fund's
portfolio at a price lower than the current market price of the security. In
such event, the Fund would write a put option at an exercise price that, reduced
by the premium received on the option, reflects the lower price it is willing to
pay. Since the Fund also would receive interest on debt securities maintained to
cover the exercise price of the option, this technique could be used to enhance
current return during periods of market uncertainty. The risk in such a
transaction would be that the market price of the underlying security would
decline below the exercise price, less the premium received.
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security depreciates to
a price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Fund will be obligated to purchase the
security at more than its market value.
Titan SAI B-12
<PAGE>
Purchasing Put Options. The Fund may purchase put options on securities
and indices. As the holder of a put option, the Fund would have the right to
sell the underlying security at the exercise price at any time until the
expiration date. The Fund may enter into closing sale transactions with respect
to such options, exercise such options or permit such options to expire.
The Fund may purchase a put option on an underlying security
("protective put") owned by the Fund in order to protect against an anticipated
decline in the value of the security. Such hedge protection is provided only
during the life of the put option when the Fund, as the holder of the put
option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security's market price. For
example, a put option may be purchased in order to protect unrealized
appreciation of a security when the Investment Adviser deems it desirable to
continue to hold the security because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any profit otherwise
available for distribution when the security eventually is sold.
The Fund also may purchase put options at a time when the Fund does not
own the underlying security. By purchasing put options on a security it does not
own, the Fund seeks to benefit from a decline in the market price of the
underlying security. If the put option is not sold when it has remaining value,
and if the market price of the underlying security remains equal to or greater
than the exercise price during the life of the put option, the Fund will lose
its entire investment in the put option. In order for the purchase of a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale transaction.
Purchasing Call Options. The Fund may purchase call options on
securities and indices. As the holder of a call option, the Fund would have the
right to purchase the underlying security at the exercise price at any time
until the expiration date. The Fund may enter into closing sale transactions
with respect to such options, exercise such options or permit such options to
expire.
The Fund also may purchase call options on underlying securities it
owns in order to protect unrealized gains on call options previously written by
it. A call option could be purchased for this purpose where tax considerations
make it inadvisable to realize such gains through a closing purchase
transaction. Call options also may be purchased at times to avoid realizing
losses that would result in a reduction of the Fund's current return. For
example, where the Fund has written a call option on an underlying security
having a current market value below the price at which such security was
purchased by the Fund, an increase in the market price could result in the
exercise of the call option written by the Fund and the realization of a loss on
the underlying security. Accordingly, the Fund could purchase a call option on
the same underlying security, which could be exercised to fulfill the Fund's
delivery obligations under its written call (if it is exercised). This strategy
could allow the Fund to avoid selling the Fund security at a time when it has an
unrealized loss; however, the Fund would have to pay a premium to purchase the
call option plus transaction costs.
Titan SAI B-13
<PAGE>
Aggregate premiums paid for put and call options will not exceed 5% of
such Fund's total assets at the time of purchase.
Options may be either listed on an exchange or traded over-the-counter
("OTC"). Listed options are third-party contracts (i.e., performance of the
obligations of the purchase and seller is guaranteed by the exchange or clearing
corporation), and have standardized strike prices and expiration dates. OTC
options are two-party contracts with negotiated strike prices and expiration
dates. OTC options differ from exchange-traded options in that OTC options are
transacted with dealers directly and not through a corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the dealer.
Since no exchange is involved, OTC options are valued on the basis of a quote
provided by the dealer. In the case of OTC options, there can be no assurance
that a liquid secondary market will exist for any particular option at any
specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund may also sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written by
the Fund. The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option its writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which there
appears to be liquid secondary market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only be negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra party, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
Investment Restrictions
The following investment restrictions are fundamental policies of the
Fund. Under the 1940 Act, a fundamental policy may not be changed without the
vote of a majority of the outstanding voting securities of a Fund, which is
defined in the 1940 Act as the lesser of (1) 67% or more of the shares present
at a Fund meeting, if the holders of more than 50% of the outstanding shares of
the Fund are present or represented by proxy or (2) more than 50% of the
outstanding shares of the Fund.
Titan SAI B-14
<PAGE>
Under the investment restrictions adopted by the Fund:
1. The Fund may not purchase securities of any one issuer, if as a
result, more than 5% of the Fund's total assets would be invested in
securities of that issuer or the Fund would own or hold more than 10%
of the outstanding voting securities of that issuer, except that up to
25% of the Fund's total assets may be invested without regard to this
limitation, and except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment
companies.
2. The Fund may not issue senior securities or borrow money, except as
permitted under the Investment Company Act of 1940 (the "1940 Act") and
then not in excess of 33-1/3% of the Fund's total assets (including the
amount of the senior securities issued but reduced by any liabilities
not constituting senior securities) at the time of the issuance or
borrowing, except that the Fund may borrow up to an additional 5% of
its total assets (not including the amount borrowed) for temporary or
emergency purposes.
3. The Fund may not purchase or sell physical commodities unless
acquired as a result of owning securities or other instruments, except
that the Fund may purchase, sell or enter into financial options.
4. The Fund may not purchase or sell real estate, except that
investments in securities of issuers that invest in real estate and
investments in mortgage-backed securities, mortgage participations or
other instruments supported by interests in real estate are not subject
to this limitation, and except that the Fund may exercise rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly
manner.
5. The Fund may not engage in the business of underwriting securities
of other issuers, except to the extent that the Fund might be
considered an underwriter under the federal securities laws in
connection with its disposition of portfolio securities.
6. The Fund may not make loans, except through loans of portfolio
securities, or through repurchase agreements, provided that for
purposes of this restriction, the acquisition of bonds, debentures or
other debt securities and investments in government obligations,
commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a loan.
The following investment restrictions may be changed by the Board of
Trustees without shareholder approval:
Titan SAI B-15
<PAGE>
1. The Fund may not purchase any securities of other investment
companies, except to the extent permitted by the 1940 Act and except
that this limitation does not apply to securities received or acquired
as dividends, through offers or exchange, or as a result of
reorganization, consolidation, or merger.
2. The Fund may not purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions and
except that the Fund may make margin deposits in connection with its
use of financial options.
3. The Fund may not make short sales of securities or maintain a short
position, except that a Fund may (a) sell short "against the box" and
(b) maintain short positions in connections with its use of financial
options.
4. The Fund may not mortgage, pledge, or hypothecate any assets except
in connection with permitted borrowings or the issuance or senior
securities.
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 and the Fund's Distributor) since 1990.
Dorothy A. Berry, 54 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, 57 Trustee
Titan SAI B-16
<PAGE>
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel, 59 Trustee
2 Crown Cove Lane, Savannah, GA 31411. Private Investor. Formerly Managing
Director, Premier Solutions, Ltd. Formerly President and Founder, National
Investor Data Services, Inc. (investment related computer software).
Rowley W.P. Redington, 53 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*, 40 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.
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.
Titan SAI B-17
<PAGE>
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 April 30, 1997, trustees' fees and
expenses in the amount of $3,019 were allocated to the Fund. As of the date of
this Statement of Additional Information, the Trustees and Officers of the Trust
as a group did not own more than 1% of the outstanding shares of the Fund.
The Fund receives investment advisory services pursuant to agreements
with the Advisor and the Trust. Each such agreement, after its initial term,
continues in effect for successive annual periods so long as such continuation
is approved at least annually by the vote of (1) the Board of Trustees of the
Trust (or a majority of the outstanding shares of the Fund to which the
agreement applies), and (2) a majority of the Trustees who are not interested
persons of any party to the Agreement, in each case cast in person at a meeting
called for the purpose of voting on such approval. Any such agreement may be
terminated at any time, without penalty, by either party to the agreement upon
60 days' written notice and is automatically terminated in the event of its
"assignment," as defined in the 1940 Act.
INVESTMENT MANAGEMENT, ADMINISTRATION AND DISTRIBUTION
ARRANGEMENTS
Investment Advisory Arrangements. Titan Investment Advisers, LLC (the
"Investment Adviser") acts as the investment adviser to the Fund pursuant to a
an investment advisory agreement with the Fund ("Advisory Agreement") dated May
20, 1996.
For its services, the Investment Adviser receives, pursuant to the
Advisory Agreement, a fee at an annual rate of 1.00% of the Fund's average daily
net assets. The fee is computed daily and payable monthly.
Under the terms of the Advisory Agreement, the Fund bears all expenses
incurred in its operation that are not specifically assumed by the Fund's
Adviser. General expenses of the Fund not readily identifiable as belonging to
the Fund are allocated among series by or under the direction of the board of
Trustees in such manner as the board deems to be fair and equitable. Expenses
borne by the Fund include the following (or the Fund's share of the following):
(1) the cost (including brokerage commissions) of securities purchased or sold
by the Fund and any losses incurred in connection therewith, (2) fees payable to
and expenses incurred on behalf of the Fund by the Investment Adviser, (3)
organizational expenses, (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and
Titan SAI B-18
<PAGE>
maintenance of such registrations and qualifications, (5) fees and salaries
payable to Trustees who are not interested persons (as defined in the 1940 Act)
of the Fund, Investment Adviser, (6) all expenses incurred in connection with
Trustees' services, including travel expenses, (7) taxes (including any income
or franchise taxes) and governmental fees, (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds, (9) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund for violation of any law, (10) legal,
accounting and auditing expenses, including legal fees of special counsel for
the independent Trustees, (11) charges of custodians, transfer agents and other
agents, (12) costs of preparing share certificates, (13) expenses of setting in
type and printing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials for existing
shareholders, and costs of mailing such materials to existing shareholders, (14)
any extraordinary expenses (including fees and disbursements of counsel)
incurred by the Fund, (15) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations, (16)
costs of mailing and tabulating proxies and costs of meetings of shareholders,
the board and any committees thereof, (17) the cost of investment company
literature and other publications provided to Trustees and officers and (18)
costs of mailing, stationery and communications equipment.
Under the Advisory Agreement, the Investment Adviser will not be liable
for any error or judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of the contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Investment
Adviser in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Advisory Agreement terminates
automatically upon its assignment and is terminable at any time without penalty
by the Fund's board of Trustees or by vote of the holders of a majority of a
Fund's outstanding voting securities, on 60 days' written notice to the
Investment Adviser or by the Investment Adviser on 60 days' written notice to
the Fund.
The Adviser has undertaken to limit the Fund's operating expenses to an
annual level of 2.5% of the Fund's average net assets. For the fiscal period
ended April 30, 1997, the Advisor received advisory fees of $46,576 and
reimbursed the Fund for operating expenses in the amount of $30,832.
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
Titan SAI B-19
<PAGE>
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, ICAC receives a 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
ICAC received fees of $28,591from the Fund for the fiscal period ended April 30,
1997.
Distribution Arrangements. First Fund Distributors, Inc. acts as the
distributor of the shares of the Fund under a distribution contract with the
Fund dated May 20, 1996 ("Distribution Contract").
Plan of Distribution
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the Act (the "Plan"), under which, the fund pays the Distributor a fee,
which is accrued daily and paid monthly, at the annual rate of 0.25% of the
Fund's average daily assets. Among other things, the Plan provides that (1) the
Investment Adviser will submit to the Fund's Board of Trustees at least
quarterly, and the Trustees will review, reports regarding all amounts expended
under the Plan and the purposes for which such expenditures were made, (2) the
Plan will continue in effect only so long as it is approved at least annually,
and any material amendment thereto is approved, by the Fund's Board of Trustees,
including those who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in operation of the plan or any agreement
related to the Plan, acting in person at a meeting called for that purpose, (3)
payments by the Fund under the Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the Fund and (4) while the Plans remains in effect, the selection and nomination
of Trustees who are not "interested persons" of the Fund shall be committed to
the discretion of the Trustees who are not interested persons of the Fund.
During the year ended April 30, 1997, the Fund paid fees of $11,668 to the
Distributor, of which $ was for selling compensation, and $ related to
Distributor printing expenses.
Titan SAI B-20
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policy established by the Board of Trustees of the Fund, the
Investment Adviser will arrange for the execution of the Fund's portfolio
transactions and the allocation of brokerage. In executing portfolio
transactions the Investment Adviser will seek to obtain the best net results for
the Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved. The Fund may invest in
securities traded in the over-the-counter markets and deal directly with the
dealers who make markets in the securities involved, unless a better price or
execution could be obtained by using a broker. While the Investment Adviser
generally will sell reasonably competitive commission rates, payment of the
lowest commission or spread is not necessarily consistent with best results in
particular transactions.
In placing orders with brokers and dealers, the Investment Adviser will
attempt to obtain the best net price and the most favorable execution for
orders; however, the Investment Adviser may, in its discretion, purchase and
sell portfolio securities through brokers and dealers who provide the Investment
Adviser or the Fund with research, analysis, advice and similar services. The
Investment Adviser may, in return for research and analysis, pay brokers a
higher commission than may be charged by other brokers, provided that the
Investment Adviser determines in good faith that such commission is reasonable
in terms either of that particular transaction or of the overall responsibility
of the Investment Adviser to the Fund and its other clients and that the total
commission paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term. Information and research received from such brokers
and dealers will be in addition to, and not in lieu of, the services required to
be performed by the Investment Adviser under its Advisory Agreement with the
Fund. The Fund has no obligation to deal with any broker or group of brokers in
the execution of transactions.
Investment decisions for the Fund and for other investment accounts
managed by the Investment Adviser are made independently of each other in the
light off differing considerations for the various accounts. However, the same
investment decision may occasionally be made for two or more such accounts. In
such cases, simultaneous transactions are inevitable. Purchases or sales are
then averaged as to price and allocated to accounts according to a formula
deemed equitable to each account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as the Fund is
concerned, in other cases it is believed to be beneficial to the Fund.
The Fund does not use the Distributor to execute its portfolio
transactions. For the fiscal period ended April 30, 1997 the aggregate brokerage
commissions paid by the Fund were $29,040.
Portfolio Turnover
Because the Fund's primary objective is long-term capital appreciation,
the Fund anticipates that its annual portfolio turnover rate generally will not
exceed 100%. The turnover rate will not be
Titan SAI B-21
<PAGE>
a limiting factor if the Investment Adviser deems portfolio changes appropriate.
The turnover rate may vary greatly form year to year. Portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of all securities the
maturities of which at the time of acquisition were one year or less) by the
monthly average value of securities in the portfolio during the year (exclusive
of portfolio securities the maturities of which at the time of acquisition were
one year or less).
VALUATION OF SHARES
The Fund determines its net asset value per share as of the close of
regular trading (currently 4:00 p.m., eastern time) on the NYSE on each Monday
through Friday when the NYSE is open. Currently, the NYSE is closed on the
observance of the following holidays: New Year's Day, Presidents' Day, Martin
Luther King Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each security will be valued on the basis of the last sales price on
the valuation date on the principal exchange on which the security is traded.
Where securities are traded on one or more exchanges and also over-the-counter,
the securities will generally be valued using the quotations the Board of
Trustees or its delegate believes reflect most closely the value of such
securities. With respect to those securities for which no trades have taken
place that day and unlisted securities for which market quotations are readily
available, the value shall be determined by taking the latest "bid" prices.
Short-term securities which mature in more than 60 days will be valued at
current market quotations. Short-term securities which mature in 60 days or less
will be valued at amortized cost, if their term to maturity from date of
purchase is 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their term to maturity from date of purchase exceeds 60 days.
Securities for which market quotations are not readily available, including
restricted securities, and other assets will be valued at fair value as
determined in good faith according to a pricing procedure developed by the
Investment Adviser and approved by the Board of Trustees.
In the calculation of the Fund's net asset value; (1) an equity
portfolio security listed or traded on the New York or American Stock Exchange
or other domestic or foreign stock exchange or quoted by NASDAQ is valued at its
latest sale price on that exchange or quotation service prior to the time assets
are valued; if there were no sales that day, the security is valued at the
latest bid price (in cases where a security is traded on more than one exchange,
the security is valued on the exchange designated as the primary market by the
Fund's Board of Trustees); (2) an option is valued at the mean between the
latest bid and asked prices; (3) a futures contract is valued at the latest
sales price on the commodities exchange on which it trades unless the Board
determines that such price does not reflect its market value, in which case it
will be valued at its fair value as determined by the Board of Trustees; (4) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price; (5) when market quotations
are not readily available, including circumstances under which it is determined
by the Investment Adviser that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value as
Titan SAI B-22
<PAGE>
determined in good faith under procedures established by and under the general
supervision of the Fund's Board of Trustees (valuation of debt securities for
which market quotations are not readily available may be used upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); (6) the value of short-term
debt securities which mature at a date less than sixty days subsequent to
valuation date will be determined on an amortized cost or amortized value basis;
and (7) the value of other assets will be determined in good faith at fair value
under procedures established by and under the general supervision of the Fund's
Board. For valuation purposes, quotations of foreign portfolio securities, other
assets and liabilities and forward contracts stated in foreign currency are
translated into U.S. dollar equivalents at the prevailing market ratings prior
to the close of the New York Stock Exchange. Dividends receivable are accrued as
the ex-dividend date or as of the time that the relevant ex-dividend date and
amounts become known. Interest income is accrued daily except when collection is
uncertain. Certain securities in the Fund's portfolio may be valued by an
outside pricing service approved by the Fund's Board of Trustees. The pricing
service may utilize a matrix system incorporating security quality, maturity and
coupon as the evaluation model parameters, and/or research evaluations by its
staff, including review of broker-dealer market price quotations, in determining
what it believes is the fair valuation of the portfolio securities valued by
such pricing service.
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Total Return Calculations. Average annual total return quotes
("Standardized Return") used in the Fund's Performance Advertisements are
calculated according to the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000 to
purchase shares of a Fund
T = average annual total return of shares of that Fund
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the
beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. All dividends and other distributions are assumed to
have been reinvested at net asset value.
Titan SAI B-23
<PAGE>
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). A Fund calculates Non-Standardized Return for
specified periods of time by assuming an investment of $1,000 in Fund shares and
assuming the reinvestment of all dividends and other distributions. The rate of
return is determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the initial value.
The Fund's total return since its inception on May 22, 1996 through the
fiscal period ending April 30, 1997 was 26.67%.
Other Information. In Performance Advertisements, the Fund may compare its
Standardized Return and/or their Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Companies Services ("Wiesenberger"), Investment
Company Data, Inc. ("ICD"), or Morningstar Mutual Funds ("Morningstar") or with
the performance of recognized stock and other indices, including (but not
limited to) the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average and the Wilshire 5000 Index. The Fund also may refer in such
materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper, CDA,
Wiesenberger, ICD, Bloomberg Financial Markets Service or Morningstar.
Performance Advertisements also may refer to discussions of the Fund and
comparative mutual fund data and ratings reported in independent periodicals,
including (but not limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES,
BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE
CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Ratings may
include criteria relating to portfolio characteristics in addition to
performance information. In connection with a ranking, a Fund may also provide
additional information with respect to the ranking, such as the particular
category to which it relates, the number of funds in the category, the criteria
on which the ranking is based, and the effect of sales charges, fee waivers
and/or expense reimbursements.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the Fund investment are reinvested
by being paid in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDS) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and the
averages of yields of CDS of major banks published by Banxquote (TM) Money
Markets. In comparing the Fund's performance to CD performance, investors should
keep in mind that bank CDS are insured in whole or in part by an agency of the
U.S. government and offer fixed principal and fixed or variable rates of
interest, and that bank CD yields may vary depending on the financial
institution offering the CD and prevailing interest rates. Shares
Titan SAI B-24
<PAGE>
of the Fund are not insured or guaranteed by the U.S. government and returns
thereon and net asset value will fluctuate. The securities held by the Fund
generally have longer maturities than most CDS and may reflect interest rate
fluctuations for longer term securities.
TAXES
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,
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
Titan SAI B-25
<PAGE>
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 of Fund shares may result in recognition of a taxable gain or
loss. Any loss realized upon a redemption of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gains during such
six-month period. Any loss realized upon a redemption of Fund shares may be
disallowed under certain wash sale rules to the extent shares of the Fund are
purchased (through reinvestment of distributions or otherwise) within 30 days
before or after the redemption.
Under the Code, the Fund will be required to report to the Internal Revenue
Service ("IRS") all distributions of taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of exempt shareholders, which includes most corporations. Pursuant to the
backup withholding provisions of the Internal Revenue Code, distributions of any
taxable income and capital gains and proceeds from the redemption of Fund shares
may be subject to withholding of federal income tax at the rate of 31 percent in
the case of non-exempt shareholders who fail to furnish the Fund with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Fund with
their taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. The Fund reserves
the right to refuse to open an account for any person failing to provide a
certified taxpayer identification number.
The Fund will not be subject to tax in the Commonwealth of Massachusetts as
long as it qualifies as a regulated investment company for federal income tax
purposes. Distributions and the transactions referred to in the preceding
paragraphs may be subject to state and local income taxes, and the tax treatment
thereof may differ from the federal income tax treatment. Moreover, the above
discussion is not intended to be a complete discussion of all applicable federal
tax consequences of an investment in the Fund. Shareholders are advised to
consult with their own tax advisers concerning the application of federal, state
and local taxes to an investment in the Fund.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
Titan SAI B-26
<PAGE>
This discussion and the related discussion in the prospectus have been
prepared by Fund management, and counsel to the Fund has expressed no opinion in
respect thereof.
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.
Star Bank N.A., 425 Walnut Street, Cincinnati, OH 45202 acts as Custodian
of the securities and other assets of the Fund. The Custodian does not
participate in decisions relating to the purchase and sale of securities by the
Fund. American Data Services, Inc., P.O. Box 5536, Hauppauge, NY 11788- 0132 is
the Fund's Transfer and Dividend Disbursing Agent.
Tait, Weller & Baker, 2 Penn Center Plaza, Philadelphia, PA 19102 are
the independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker, 345 California Street, 29th Floor, San
Francisco, California 94104, are legal counsel to the Fund. Kirkpatrick &
Lockhart LLP, 1800 M St., NW, Washington, D.C. 20036-5891 is legal counsel to
the Advisor.
The following persons are beneficial owners of more than 5% of the Fund's
outstanding voting securities as of August 14, 1997. An asterisk (*) denotes an
account affiliated with the Fund's investment advisor, officers or trustees:
*Gilbert R. Giordano, Lothian, MD 20711; 8.20%
*Star Bank, custodian for Gilbert R. Giordano, IRA Account, Lothian, MD
20711; 8.37%
*Ernest Michael Zimmerman, Washington, DC; 20037; 6.30%
*Mervin H. Zimmerman, Rockville, MD 20852; 12.61%
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for the fiscal year ended
April 30, 1997 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.
Titan SAI B-27
<PAGE>
APPENDIX
Description of Bond Ratings*
Moody's Investors Service
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations or protective elements
may be of greater amplitude or there may be other elements present which make
long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements: their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Titan SAI B-28
<PAGE>
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Standard & Poor's Corporation
AAA: Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.
Titan SAI B-29
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
FORM N-1A
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements for the fiscal year ended April 30, 1997:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended April 30, 1997 (Pzena Focused Value Fund and
Tital Financial Services Fund Series).
Financial Statements: Financial Statements for the fiscal year ended
March 31, 1997: Incorporated by reference from the annual reports to
shareholders for the fiscal year ended March 31, 1997) (Avondale Total
Return, Harris Bretall Sullivan & Smith Growth Equity, Hodges,
Osterweis, Perkins Opportunity and Women's Equity Mutual Fund Series).
Financial Statements for the fiscal year ended June 30, 1996:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended June 30, 1996 (Boston Managed Growth Fund,
Leonetti Balanced Fund, U.S. Global Leaders Growth Fund series).
Financial Statements for the fiscal year ended August 31, 1996:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended August 31, 1996 (Academy Value, Lighthouse
Growth and Trent Equity Fund Series).
Financial Statements for the fiscal yer ended December 31, 1996;
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended December 31, 1996 (Insightful Investor Growth
Fund Series, Matrix Growth Fund Series, Matrix Emerging Growth Fund
Series)
(b) Exhibits:
(1) Agreement and Declaration of Trust-2
(2) By-Laws--2
(3) Voting Trust Agreement -- Not applicable
(4) Specimen Share Certificate-3
(5) Form of Investment Advisory Agreement-1
(6) Form of Distribution Agreement-1
(7) Benefit Plan -- Not applicable
(8) Form of Custodian and Transfer Agent
Agreements-6
(9) Form of Administration Agreement--7
(10) Consent and Opinion of Counsel as to legality of
shares-3
(11) Consent of Accountants
(12) All Financial Statements omitted from Item 23 --
Not applicable
(13) Letter of Understanding relating to initial
capital-3
(14) Model Retirement Plan Documents - Not applicable
(15) Form of Plan pursuant to Rule 12b-1 -1
(16) Schedule for Computation of Performance
Quotations-5
1 Incorporated by reference from Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, filed on January 16, 1996.
2 Incorporated by reference from Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A, filed on December 29, 1995.
3 Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on April 13, 1987.
4 Incorporated by reference to Post-effective Amendment No. 5 to the
Registration Statement on Form N-1A, filed on May 2, 1991.
5 Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on June 17, 1992.
6 To be filed by amendment.
7 Incorporated by reference from Post-Effective Amendment No. 35 to the
Registration Statement on Form N-1A, filed on April 24, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant.
As of the date of this Amendment to the Registration Statement, there
are no persons controlled or under common control with the Registrant.
Item 26. Number of Holders of Securities.
Number of Record
Holders as of
Title of Class August 14, 1997
Shares of Beneficial Interest, no par value:
Academy Value Fund 160
Avondale Total Return Fund 149
Boston Managed Growth Fund 188
Hodges Fund 1,003
Osterweis Fund 124
Perkins Opportunity Fund 7,900
ProConscience Womens Equity Fund 497
Trent Equity Fund 122
Matrix Growth Fund 402
Matrix Emerging Growth Fund 61
Leonetti Balanced Fund 299
Lighthouse Growth Fund 372
U.S.Global Leaders Growth Fund 104
Harris, Bretall, Sullivan & Smith
Growth Equity Fund 68
Pzena Focused Value Fund 154
Titan Financial Services Fund 443
Item 27. Indemnification
The information on insurance and indemnification is incorporated by
reference to Pre-Effective Amendment No. 1 and Post-Effective Amendment No. 1 to
the Registrant's Registration Statement.
In addition, insurance coverage for the officers and trustees of the
Registrant also is provided under a Directors and Officers/Errors and Omissions
Liability insurance policy issued by ICI Mutual Insurance Company with a
$1,000,000 limit of liability.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
With respect to Investment Advisors, the response to this item is
incorporated by reference to their Form ADVs as amended:
Herbert R. Smith & Co, Inc. File No. 801-7098
Hodges Capital Management, Inc. File No. 801-35811
Perkins Capital Management, Inc. File No. 801-22888
Osterweis Capital Management File No. 801-18395
Pro-Conscience Funds, Inc. File No. 801-43868
Trent Capital Management, Inc. File No. 801-34570
Academy Capital Management File No. 801-27836
Sena, Weller, Rohs, Williams File No. 801-5326
Leonetti & Associates, Inc. File No. 801-36381
Lighthouse Capital Management File No. 801-32168
Yeager, Wood & Marshall, Inc. File No. 801-4995
Harris Bretall Sullivan & Smith File No. 801-7369
Pzena Investment Management LLC File No. 801-50838
Titan Investment Advisers, LLC File No. 801-51306
Pacific Gemini Partners LLC File No. 801-50007
With respect to United States Trust Company of Boston, the response to this
item is incorporated by reference to the responses to Item 5 of Part A and Item
16 of Part B ("Management")of Post-Effective Amendment No. 20 to the
Registration Statement.
Item 29. Principal Underwriters.
(a) First Fund Distributors, Inc. (the "Distributor") is the principal
underwriter all series of the Registrant except for the Hodges Fund, the Matrix
Growth Fund and the Matrix Emerging Growth Fund. The Distributor acts as
principal underwriter for the following other investment companies:
Advisors Series Trust
Guinness Flight Investment Funds, Inc.
Hotchkis and Wiley Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
UBS Private Investor Funds
First Dallas Securities, Inc., 2311 Cedar Springs Rd., Ste. 100, Dallas, TX
75201, an affiliate of Hodges Capital Management, acts as Distributor of the
Hodges Fund. The President and Chief Financial Officer of First Dallas
Securities, Inc. is Don W. Hodges. First Dallas does not act as principal
underwriter for any other investment companies. Reynolds, DeWitt Securities Co.,
an affiliate of Sena Weller Rohs Williams, 300 Main St., Cincinnati, OH 45202,
acts as Distributor for the Matrix Growth Fund and Matrix Emerging Growth Fund.
(b) The officers of First Fund Distributors, Inc. are:
Robert H. Wadsworth President & Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Secretary
Each officer's business address is 4455 E. Camelback Rd., Ste. 261-E,
Phoenix, AZ 85018. Mr. Paggioli serves as President and a Trustee of the
Registrant. Mr. Wadsworth serves as Vice President of the Registrant. Mr.
Banhazl serves as Treasurer of the Registrant.
c. Incorporated by reference from the Statement of Additional
Information filed herewith as Part B.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession the Registrant's
custodian and transfer agent, except those records relating to portfolio
transactions and the basic organizational and Trust documents of the Registrant
(see Subsections (2) (iii). (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which, with respect to portfolio transactions are kept by each Fund's
Advisor at its address set forth in the prospectus and statement of additional
information and with respect to trust documents by its administrator at 479 West
22nd Street, New York, NY 10011 and 2025 E. Financial Way, Ste. 101, Glendora,
CA 91741.
Item 31. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 32. Undertakings
The registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of each Fund's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this amendment to this registration statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of New York in the State of
New York on August 15, 1997.
PROFESSIONALLY MANAGED PORTFOLIOS
By /S/ Steven J. Paggioli
Steven J. Paggioli
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
/S/ Steven J. Paggioli Trustee August 15, 1997
Steven J. Paggioli
/S/ Eric M. Banhazl Principal August 15, 1997
Eric M. Banhazl Financial
Officer
Dorothy A. Berry Trustee August 15, 1997
*Dorothy A. Berry
Wallace L. Cook Trustee August 15, 1997
*Wallace L. Cook
Carl A. Froebel Trustee August 15, 1997
*Carl A. Froebel
Rowley W. P. Redington Trustee August 15, 1997
*Rowley W. P. Redington
* By /S/ Steven J. Paggioli
Steven J. Paggioli, Attorney-in-Fact under powers of
attorney as filed with Post-Effective Amendment No. 20 to the
Registration Statement filed on May 17, 1995
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment
No. 37 to the Registration Statement on Form N-1A of Professionally Managed
Portfolios and to the use of our reports dated May 17, 1997 on the financial
statements and financial highlights of the Pzena Focused Value Fund and Titan
Financial Services Fund, each a series of Professionally Managed Portfolios.
Such financial statements and financial highlights appear in the 1997 Annual
Report to Shareholders of each Fund which are incorporated by reference into the
Statements of Additional Information.
Tait, Weller & Baker
Philadelphia, PA
August 18, 1997
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<NAME> PROFESSIONALLY MANAGED PORTFOLIOS
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<S> <C>
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<PERIOD-END> APR-30-1997
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<RECEIVABLES> 46,719
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