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. 38 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 39 |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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It is proposed that this filing will become effective (check appropriate box)
|_| Immediately upon filing pursuant to paragraph (b)
|X| On October 30, 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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Title of Securities Being Reagistered:
Shares of Beneficial Interest, No Par Value
<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>
BOSTON MANAGED GROWTH FUND
40 Court Street
Boston, MA 02108
(617) 726-7250
BOSTON MANAGED GROWTH FUND (the "Fund") is a no-load mutual fund with the
investment objective of seeking income and long-term capital growth through an
actively managed portfolio of stocks, bonds and money market instruments. United
States Trust Company of Boston, a Massachusetts-chartered banking and trust
company (the "Advisor"), acts as investment advisor to the Fund. The Advisor is
not affiliated with United States Trust Company of New York.
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. A Statement of Additional Information dated October 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
Objective and Investment Approach of the Fund; Risk Factors 4
Management of the Fund 5
How To Invest in the Fund 6
How To Redeem an Investment in the Fund 7
Retirement Plans 9
How the Fund's Per Share Value is Determined 9
Distributions and Taxes 9
General Information 10
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY UNITED STATES TRUST COMPANY OF BOSTON OR ANY BANK. SHARES OF THE FUND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY.
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.
Prospectus dated October 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 the various
costs and expenses which may be borne directly or indirectly by an investment in
the Fund. Actual expenses may be more or less than those shown. Other expenses
are based on estimates.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Investment Advisory Fee 0.75%
Other expenses (after waiver) 0.25%*
Total Fund Operating Expenses (after waiver) 1.00%*
*The Advisor has voluntarily undertaken to limit the operating expenses of the
Fund to no more than 1.00% of average net assets annually.
Example
This table illustrates the net transaction and operating expenses that would be
incurred by an investment in the Fund over different time periods, assuming a
$1,000 investment, a 5% annual return, and redemption at the end of each time
period. Amounts in the table could increase if the Advisor's limitation of
expenses were terminated.
One year $ 10
Three years $ 32
Five years $ 55
Ten years $ 122
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 BOSTON MANAGED GROWTH FUND (the "Fund") is a diversified series of
Professionally Managed Portfolios (the "Trust"), an open-end management
investment company offering redeemable shares of beneficial interest. Shares may
be purchased and redeemed without a sales or redemption charge at their net
asset value. The minimum initial investment is $100,000 with subsequent
investments of $1,000 or more. Because the prices of stocks, bonds and money
market instruments fluctuate, the value of an investment in the Fund will vary
as the market value of its investment portfolio changes, and when shares are
redeemed, they may be worth more or less than their original cost. The Fund is
diversified, which under applicable federal law means that as to 75% of its
total assets, no more than 5% may be invested in the assets of a single issuer,
with the exception of U.S. Treasury and agency securities, and it may not hold
more than 10% of the voting securities of a single issuer.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period.
The following information has been audited by Ernst & Young L.L.P.,
independent accountants, whose unqualified report covering the fiscal period
ended June 30, 1997 is incorporated by reference herein and appears in the
annual report to shareholders. This information shoud be read in conjunction
with the financial statements and accompanying notes thereto which appear in the
annual report and are incorporated by reference into the Statement of Additional
Information. Further information about the Fund's performance may be included in
its annual report, which may be obtained without charge by writing or calling
the address or telephone number on the Prospectus cover page.
Year ecember 1, 1995*
Ended through
June 30, 1997 June 30, 1996
Net asset value, beginning of period $77.25 $73.62
Income from investment operations:
Net investment income 1.90 1.00
Net realized and unrealized
gain on investments 17.43 2.78
Total from investment operations 19.33 3.78
Less distributions:
From net investment income (1.77) (.15)
Net asset value, end of period $94.81 $77.25
Total return 25.40% 5.14%0
Ratios/supplemental data:
Net assets, end of period (millions) $82.0 $ 61.8
Ratio of expenses to average net assets:
Before expense reimbursement 1.02% 1.00%+
After expense reimbursement 1.00% 1.00%+
Ratio of net investment income to average net assets:
Before expense reimbursement 2.24% 2.43%+
After expense reimbursement 2.25% 2.43%+
Portfolio turnover rate 30.78% 17.69%
Average commission rate paid per share $.0575 $.0500
*Commencement of operations.
+Annualized.
0Not Annualized.
OBJECTIVE AND INVESTMENT APPROACH OF THE FUND; RISK FACTORS
The Fund's investment objective is to seek income and long-term capital growth
through an actively managed portfolio of stocks, bonds and money market
instruments. It is not the policy of the Fund to take risks to obtain
speculatively or aggressively high returns. There is no predetermined percentage
of assets to be allocated to either stocks, bonds or money market instruments.
The expected returns and risks of different asset classes - stocks, bonds and
money market instruments - change over time. The ability to evaluate and
determine the relative attractiveness of these asset categories is advantageous
in controlling risk and achieving attractive returns. In determining the asset
allocation of the Fund, the Advisor considers various macroeconomic variables
such as interest rates, inflation, corporate profits, unemployment, the dollar,
as well as the relative prices of stocks, bonds and money market instruments.
The Fund is not limited in its investment selection to companies located in the
Boston area or any other specific region. The Fund may invest in both domestic
and foreign securities. See "Foreign Securities" on page 5.
The Fund may purchase both common and preferred stocks. Within different
industries, individual stock selection is based upon analysis of the company's
fundamental characteristics including financial strength, response to industry
and economy-wide changes and price and cost trends. Although companies with
varying fundamental characteristics may be purchased to achieve diversification,
emphasis is given to companies with above-average earnings growth, sustained
profitability and above-average return on invested capital.
Bond investments made by the Fund are those which are considered by the Advisor
to be investment grade, including bonds which are direct or indirect obligations
of the U.S. Government, or which at the date of investment are rated Baa or
better by Moody's Investor Services ("Moody's") or BBB or better by Standard &
Poor's ("S&P") or of comparable quality as determined by the Fund. Bonds rated
Baa or BBB are considered medium grade obligations, possess speculative
characteristics and are more susceptible to changing market conditions. The Fund
may purchase lower-rated obligations (those rated below BBB or Baa, which are
considered non-investment grade securities), but no more than 20% of its net
assets may be so invested and the Fund will not purchase or hold obligations
rated lower than B.
Bonds rated 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 a greater possibility of
default or bankruptcy of the issuer of such securities, than more highly rated
bonds. Lower rated bonds also are likely to be more sensitive to adverse
economic or company developments. The Advisor seeks to reduce the risks
associated with investing in such securities by limiting the Fund's holdings in
such securities. See the Statement of Additional Information concerning bond
ratings.
Money market instruments selected for investment include high grade, short-term
obligations, including those of the U.S. government, its agencies and
instrumentalities, U.S. dollar-denominated certificates of deposit, time
deposits and bankers' acceptances of U.S. banks, generally banks with assets in
excess of $1 billion, repurchase agreements with recognized dealers and banks
and commercial paper (including participation interests in loans extended by
banks to issuers of commercial paper) that at the date of investment is rated
A-1 by S&P or P-1 by Moody's, or, if unrated, of comparable quality as
determined by the Advisor.
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 Advisor monitors the creditworthiness of the banks and
securities dealers with whom the Fund engages in repurchase transactions.
Illiquid and Restricted Securities. The Fund may not invest more than 5% 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 15% of its assets in 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 15% 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 100%. In general, the Advisor will not consider the rate of portfolio
turnover to be a limiting factor in determining when or whether to purchase or
sell securities in order to achieve the Fund's objective.
The Fund has adopted certain investment restrictions, which are described fully
in the Statement of Additional Information. Like the Fund's investment
objective, certain of these restrictions are fundamental and may be changed only
by a majority vote of the Fund's outstanding shares.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. United States Trust Company
of Boston is the Advisor to the Fund. The Advisor is a Massachusetts-chartered
banking and trust company and is a wholly-owned subsidiary of UST Corp., a
Massachusetts bank holding company. It is located at 40 Court Street, Boston MA
02108. The Trust Department of the Advisor has managed funds as a fiduciary
since 1895. Mr. Domenic Colasacco, Executive Vice President of UST Corp., and a
member of UST Corp.'s Executive Policy Committee is the Fund's portfolio
manager. He is the President of United States Trust Company and has been its
Chief Investment Officer since 1980. Mr. Colasacco is a Chartered Financial
Analyst and a member of the Boston Security Analysts' Society. Neither the
Advisor nor UST Corp. is affiliated with United States Trust Company of New
York.
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 investment
advisory fee (accrued daily) based upon the average daily net assets of the Fund
at the rate of 0.75% annually.
Investment Company Administration Corporation (the "Administrator") acts as the
Fund's Administrator under a 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 an annual rate equal to the greater of 0.10 of 1% of
the Fund's average daily net assets or $30,000.
The Fund is responsible for its own operating expenses. The Advisor has
voluntarily undertaken to limit the Fund's operating expenses to 1.00% of the
Fund's average net assets annually. This undertaking may be modified or
withdrawn by the Advisor upon notice to shareholders. The Advisor also may
reimburse additional amounts to the Fund at any time in order to reduce the
Fund's expenses, or to the extent required by applicable securities laws. Any
such reductions made by the Advisor in its fees or payments or reimbursements of
expenses which are the Fund's obligation may be subject to reimbursement by the
Fund.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors include, but
are not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Advisor may also
consider the sale of Fund shares as a factor in selecting broker-dealers for the
Fund's portfolio transactions.
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund is $100,000. Subsequent investments
must be at least $1000. 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. 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
security has a readily ascertainable market value, its acquisition is consistent
with the Fund's investment objective and the tendered security is otherwise
acceptable to the Fund's Advisor and is acquired for investment and not resale.
Shares of the Fund are offered continuously for purchase at their net asset
value per share next determined after a purchase order is received.
Investors may purchase shares of the Fund by check or wire:
By Check: For initial investments, an investor should complete the Fund's
Account Application (included with this Prospectus). The completed application,
together with a check payable to "Boston Managed Growth Fund," should be mailed
to: Boston Managed Growth Fund, c/o United States Trust Company of Boston, 40
Court Street, Boston, MA 02108.
Subsequent investments should be made by check payable to "Boston Managed Growth
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
1-800-626-7788, ext. 4050, or 1-617-695-4050 to advise that an initial
investment will be made by wire and to receive an account number. The
Shareholder Service 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:
United States Trust Company of Boston
ABA Routing Number: 0110-0133-1
for further credit to Boston Managed Growth Fund
Account Number [Name of Shareholder]
For subsequent investments, the investor's bank should wire funds as indicated
above. It is not necessary to contact the Shareholder Service Agent prior to
making subsequent investments by wire, but it is essential that complete
information regarding the investor's account be included in all wire
instructions in order to facilitate prompt and accurate handling of investments.
Investors may obtain further information from the Shareholder Service 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 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
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 Shareholder Service Agent in order to constitute a valid tender
for redemption. To protect the Fund and its shareholders, a signature guarantee
is required for certain transactions, including redemptions. Signature(s) on the
redemption request must be guaranteed by an "eligible guarantor institution" as
defined in the federal securities laws. These institutions include banks,
broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
Telephone Redemption. Shareholders who complete the Redemption by Telephone
portion of the Fund's Account Application may redeem shares on any business day
the New York Stock Exchange is open by calling the Fund at 1-800-626-7788, ext.
4050 or 1-617-695-4050 before 1:00 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 advisor as to the effect of any redemption.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account, other than retirement plan
or Uniform Gifts/Transfers to Minors Act accounts, if at any time, due to
redemptions by the shareholder, the total value of a shareholder's account does
not equal at least $25,000. 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 $25,000 and will be allowed 30 days to make an additional
investment to bring the value of the account to at least $25,000 before the Fund
takes any action.
RETIREMENT PLANS
The Fund offers an Individual Retirement Account plan and information is
available from the Fund and the Distributor with respect to Keogh, Section
403(b) and other retirement plans offered. Investors should consult their own
tax advisor before establishing any retirement plan.
HOW THE FUND'S PER SHARE VALUE IS DETERMINED
The net asset value of a Fund share is determined once daily as of the close of
public trading on the New York Stock Exchange (currently 4:00 p.m. Eastern time)
on each day the New York Stock Exchange is open for trading. Net asset value per
share is calculated by dividing the value of the Fund's total assets, less its
liabilities, by the number of Fund shares outstanding.
Portfolio securities are valued using current market values, if available.
Securities for which market quotations are not readily available are valued at
fair values as determined in good faith by 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. Dividends from net investment income are declared
and paid at least annually, typically at the end of the Fund's fiscal year (June
30). Any undistributed net capital gains realized during the Fund's fiscal year
will also be distributed to shareholders after the end of the year, with a
supplemental distribution on or about December 31 of any undistributed net
investment income earned during the calendar year as well as any additional
undistributed capital gains earned during the 12-month period ended each October
31.
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 payment be made in cash.
Any dividend or distribution paid by the Fund has the effect of reducing the net
asset value per share on the reinvestment date by the amount of the dividend or
distribution. Investors should note that a dividend or distribution paid on
shares purchased shortly before such dividend or distribution was declared will
be subject to income taxes as discussed below even though the dividend or
distribution represents, in substance, a partial return of capital to the
shareholder.
Taxes. The Fund has qualified and elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the Fund continues to qualify, and as long as
the Fund distributes all of its income each year to the shareholders, the Fund
will not be subject to any federal income tax or excise taxes based on net
income. 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 June 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 a
change in the Fund's investment objective); 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, through the most recent calendar quarter. 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.
Advisor, Custodian and Transfer Agent
United States Trust Company of Boston
40 Court Street
Boston, MA 02108
(617) 726-7250
o
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261E
Phoenix, AZ 85018
o
Auditors
Ernst & Young, L.L.P.
515 South Flower Street
Los Angeles, CA 90071
o
Legal Counsel
Paul, Hastings, Janofsky & Walker, L.L.P.
345 California Street, 29th Floor
San Francisco, CA 94104
BOSTON MANAGED
GROWTH FUND
Prospectus
October 31, 1997
<PAGE>
LEONETTI BALANCED FUND
1130 Lake Cook Road, Ste. 300
Buffalo Grove, IL 60089
(800) 454-0999
The LEONETTI BALANCED FUND (the "Fund") is a no-load mutual fund with the
investment objective of seeking total return through a combination of income and
capital growth, consistent with preservation of capital. The Fund seeks to
achieve its objective by investing primarily in equity securities (common and
preferred stocks) and higher quality fixed-income obligations. The balance
between equity and fixed-income securities will be adjusted based upon the
market interpretation of the Advisor to the Fund, Leonetti & Associates, Inc.
(the "Advisor").
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. A Statement of Additional Information dated
October 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 given above.
TABLE OF CONTENTS
Expense Table 2
Financial Highlights 3
Objective and Investment Approach of the Fund; Risk Factors 4
Management of the Fund 6
How To Invest in the Fund 6
How To Redeem an Investment in the Fund 8
Services Available to the Fund's Shareholders 9
How the Fund's Per Share Value Is Determined 9
Distributions and Taxes 10
General Information 10
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.
Prospectus dated October 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 the
various costs and expenses which may be borne directly or indirectly by an
investment in the Fund. Actual expenses may be more or less than those shown.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Advisory Fees 1.00%
Fee to Administrator* 0.20%
Other Expenses 1.09%
Total Fund Operating Expenses 2.29%
* The Administrator's fee is the greater of $30,000 or 0.20% of average net
assets annually.
Example
This table illustrates the net transaction and operating expenses that would be
incurred by an investment in the Fund over different time periods assuming a
$1,000 investment, a 5% annual return, and redemption at the end of each time
period.
One year $ 23
Three years $ 71
Five years $ 121
Ten years $ 260
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 LEONETTI BALANCED FUND (the "Fund") is a diversified series of
Professionally Managed Portfolios (the "Trust"), an open-end management
investment company offering redeemable shares of beneficial interest. Shares of
the Fund may be purchased at their net asset value per share. The minimum
initial investment is $100 with subsequent investments of $100 or more. Shares
will be redeemed at net asset value per share.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period.
The following information has been audited by Ernst & Young L.L.P.,
independent accountants, whose unqualified report covering the fiscal period
ended June 30, 1997 is incorporated by reference herein and appears in the
annual report to shareholders. This information shoud be read in conjunction
with the financial statements and accompanying notes thereto 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 included in its
annual report, which may be obtained without charge by writing or calling the
address or telephone number on the Prospectus cover page.
Year August 1, 1995*
Ended through
June 30, 1997 June 30, 1996
Net asset value, beginning of period $10.80 $10.00
Income from investment operations:
Net investment income .06 .09
Net realized and unrealized gain
on investments 1.54 .76
Total from investment operations 1.60 .85
Less distributions:
Dividends from investment income (.09) (.05)
Net asset value, end of period $12.31 $10.80
Total return 14.91% 8.46%++
Ratios/supplemental data:
Net assets, end of period (millions) $11.3 $10.1
Ratio of expenses to average net assets 2.29% 2.26%+
Ratio of net investment income to average
net assets .47% 1.02%+
Portfolio turnover rate 119.75% 42.16%
Average commission rate paid per share $.0600 $.0600
*Commencement of operations.
+Annualized.
++Not Annualized.
OBJECTIVE AND INVESTMENT APPROACH OF THE FUND; RISK FACTORS
The investment objective of the Fund is to provide total return, through a
combination of income and capital growth, consistent with preservation of
capital. The Fund seeks to achieve its objective by investing in a combination
of equity securities (common and preferred stocks) and fixed-income obligations.
There is, of course, no assurance that the Fund's objective will be achieved.
There is no fixed percentage of the Fund's assets that will be invested in
either equity securities or fixed-income securities. It is expected that under
normal circumstances the Fund's investment in either equity securities or
fixed-income securities will range between 30% and 70% of net assets.
Because prices of common stocks and fixed-income securities fluctuate, the value
of an investment in the Fund will vary as the market value of its investment
portfolio changes, and when shares are redeemed they may be worth more or less
than their original cost. The Fund is diversified, which under applicable
federal law means that as to 75% of its total assets, no more than 5% may be
invested in the securities of a single issuer and it may not hold more than 10%
of the voting securities of such issuer.
Investment Approach-Equity Securities. In selecting equity securities for the
Fund the Advisor emphasizes three types of investments: out-of-favor blue chip
stocks, growth stocks that pay dividends and exhibit a rising trend in earnings
and revenue, and small companies with rapidly rising revenues and earnings.
In evaluating out-of-favor companies, the Advisor's fundamental focus is on a
company's business. The Advisor looks for companies that have experienced
problems due to debt, management, excessive expenses or cyclical forces, but are
still leaders in their industries. This group of companies includes, but is not
limited to, the largest corporations, principally those that are components of
the Dow Jones Industrial, Transportation and Utility averages. In the Advisor's
view, such companies frequently undergo restructuring, management changes, debt
reduction and other corporate events that can have a positive effect on prices
of such stocks, while still providing a cash flow through regular dividend
payments.
The Advisor also seeks growth stocks for the Fund that pay dividends and that
have shown a rising trend in earnings and revenues over a period of years. In
looking at such companies, the Advisor views positively such characteristics as
low or declining debt levels, rising gross profit margins, expanding product
lines and significant stock ownership by management. Many of such companies may
be components of the Standard & Poor's 500 Index ("S&P 500"), but the Advisor is
not limited to companies within this index and the Fund may invest in other,
non-S&P 500 companies that the Advisor believes have similar characteristics.
The small companies selected for the Fund's portfolio will have experienced
rapidly rising revenues and earnings. The Advisor looks for such companies that
have characteristics such as little or no debt, a following in the investment
community, an expanding product line or products that involve a change or
improvement in their industry, and control or significant involvement by company
founders in day-to-day management. Smaller companies present greater
opportunities for capital growth, but may also involve greater risks than larger
companies. Although smaller companies can benefit from the development of new
products and services, they also may have limited product lines, markets or
financial resources, and their securities may trade less frequently and in more
limited volume than the securities of larger, more mature companies. As a
result, the prices of the securities of such smaller companies may fluctuate to
a greater degree than the prices of the securities of other issuers.
Investment Approach-Fixed-Income Obligations. Through fixed-income investments,
the Advisor seeks a reliable and recurring stream of income for the Fund, while
preserving its capital.
The Advisor's approach is to focus the Fund's fixed-income holdings in bills,
notes and bonds issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Corporate bonds and notes held by the Fund must be investment
grade, i.e., rated BBB or better by Standard & Poor's Corporation ("S&P"), Duff
& Phelps Credit Rating Co. ("Duff"), or Fitch Investors Service, Inc. ("Fitch,")
or Baa or better by Moody's Investors Service ("Moody's"). Under normal market
conditions, it is expected that at least 25% of the Fund's net assets will be
held in fixed-income senior securities.
Securities rated BBB by S&P, Duff, and Fitch or Baa by Moody's are investment
grade, but Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher-rated debt securities.
In selecting fixed-income securities for the Fund the Advisor uses a combined
approach of technical and fundamental analysis, focusing on interest rate
anticipation and the yield curve. Corporate bond analysis encompasses the same
research approach that is used in purchasing common stocks for the Fund. Lower
quality and "junk" bonds are avoided.
Risk Factors. Securities in which the Fund invests, and its share price and
returns, are subject to fluctuation. Investments in equity securities in general
are subject to market risks that may cause their prices to fluctuate over time.
Generally, the value of fixed-income 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 declines. The magnitude
of these fluctuations generally will be greater for securities with longer
maturities. Debt securities are also subject to credit risk relative to the
ability of the issuer to make timely interest payments and repay principal on
maturity. To the extent the Fund invests in undervalued or out-of-favor
companies, there may be a substantial time period before the securities of such
companies return to price levels believed by the Advisor to represent their true
value. An investment in the Fund therefore is more suitable for long-term
investors who can bear the risk of short-term fluctuations in principal and net
asset value.
When-Issued Securities. The Fund may purchase securities on a when-issued basis,
for payment and delivery at a later date, generally within one month. The price
and yield are generally fixed on the date of commitment to purchase, and the
value of the security is thereafter reflected in the Fund's net asset value.
During the period between purchase and settlement, no payment is made by the
Fund and no interest accrues to the Fund. At the time of settlement, the market
value of the security may be more or less than the purchase price. The Fund
limits its investments in when-issued securities to less than 5% of its total
assets. When the Fund purchases securities on a when-issued basis, it maintains
liquid assets in a segregated account with its Custodian in an amount equal to
the purchase price as long as the obligation to purchase continues.
Portfolio Turnover. The annual rate of portfolio turnover is anticipated to be
approximately 80%. In general, the Advisor will not consider the rate of
portfolio turnover to be a limiting factor in determining when or whether to
purchase or sell securities in order to achieve the Fund's objective. Higher
than anticipated portfolio turnover during the fiscal year ended June 30, 1997
reflected several changes made by the Adviser intended to better reflect the
continued narrowness of the stock market's robust advance and provide prominent
diversification across many sectors of the economy.
The Fund has adopted certain investment restrictions, which are described fully
in the Statement of Additional Information. Like the Fund's investment
objective, certain of these restrictions are fundamental and may be changed only
by a majority vote of the Fund's outstanding shares.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. Leonetti & Associates, Inc.,
1130 Lake Cook Road, Suite 300, Buffalo Grove, IL 60089 acts as investment
advisor to the Fund. The Advisor was founded in 1982 and is controlled by Mr.
Michael E. Leonetti. The Advisor provides investment advisory services to
individual and institutional investors, and manages assets in excess of $200
million. Mr. Craig T. Johnson is responsible for management of the Fund's
portfolio.
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 1.00% annually.
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 each Fund Fee or fee rate Under $15 million $30,000
$15 to $50 million 0.20% of average net assets $50 to $100 million 0.15% of
average net assets $100 million to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
The Fund is responsible for its own operating expenses. The Advisor may reduce
its fees or make reimbursements to the Fund at any time in order to reduce the
Fund's expenses. Any such reductions made by the Advisor in its fees or payments
or reimbursement of expenses which are the Fund's obligation may be subject to
reimbursement by the Fund.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors include, but
are not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Advisor may also
consider the sale of Fund shares as a factor in selecting broker-dealers for the
Fund's portfolio transactions.
HOW TO INVEST IN THE FUND
The minimum initial investment in the Fund is $100. Subsequent investments must
be at least $100. First Fund Distributors, Inc. (the "Distributor"), an
affiliate of the Administrator, acts as Distributor of the Fund's shares. The
Distributor may, at its discretion, waive the minimum investment requirements
for purchases in conjunction with certain individuals or 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
Fund's 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 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 "Leonetti Balanced Fund," should be mailed to
Leonetti Balanced Fund, P.O. Box 640856, Cincinnati, OH 45264-0856.
For subsequent investments, a stub is attached to the account statement sent to
shareholders after each transaction. The stub should be detached from the
statement and, together with a check payable to "Leonetti Balanced Fund," mailed
to the Leonetti Balanced 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 Fund's Transfer Agent at (800) 385-7003 to advise the Transfer Agent that an
initial investment will be made by wire and to receive an account number. The
Transfer Agent will request the investor's name and the dollar amount to be
invested and provide an order confirmation number. The investor should then
complete the Fund's Account Application (included with this Prospectus), also
including the date and the order confirmation number on the application. The
completed Account Application should be mailed to the address shown at the top
of the Account Application. The investor's bank should transmit immediately
available funds by wire for purchase of shares, in the investor's name to the
Fund's Custodian, as follows:
Star Bank, N.A. Cinti/Trust
ABA #0420-0001-3
Attn: Leonetti Balanced Fund
DDA #483897963
Account name (shareholder name)
Shareholder account number
For subsequent investments, the investor should first notify the Transfer Agent
and then the investor's bank should wire funds as indicated above. It is
essential that complete information regarding the investor's account be included
in all wire instructions in order to facilitate prompt and accurate handling of
investments. Investors may obtain further information from the Transfer Agent
about remitting funds in this manner and from their own banks about any fees
that may be imposed.
General. Payment of redemption proceeds may be delayed with respect to any
shares purchased with an initial investment made by wire until one business day
after the completed Account Application is received by the Fund. All investments
must be made in U.S. dollars and, to avoid fees and delays, checks should be
drawn only on U.S. banks and should not be made by third party check. A charge
may be imposed if any check used for investment does not clear. The Fund and the
Distributor reserve the right to reject any purchase order in whole or in part.
If an order, together with payment in proper form, is received by the Transfer
Agent by the close of trading on the New York Stock Exchange (currently 4:00
p.m., New York City time), Fund shares will be purchased at the offering price
determined as of the close of trading on that day. Otherwise, Fund shares will
be purchased at the offering price determined as of the close of trading on the
New York Stock Exchange on the next business day. Federal tax law requires that
investors provide a certified Taxpayer Identification Number and certain other
required certifications upon opening or reopening an account in order to avoid
backup withholding of taxes at the rate of 31% on taxable distributions and
proceeds of redemptions. See the Fund's Account Application for further
information concerning this requirement.
The Fund is not required to issue share certificates. All shares are normally
held in non-certificated form registered on the books of the Fund and the Fund's
Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUND
A shareholder has the right to have the Fund redeem all or any portion of his
outstanding shares at their current net asset value on each day the New York
Stock Exchange is open for trading. The redemption price is the net asset value
per share next determined after the shares are validly tendered for redemption.
Direct Redemption. A written request for redemption must be received by the
Fund's Transfer Agent in order to constitute a valid tender for redemption.
Requests for redemption of fund shares should be mailed to Leonetti Balanced
Fund, 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 guarantees are not required on redemptions of
amounts under $5,000 sent to the shareholder at the address of record on the
account. Signature guarantees must be made by an "eligible guarantor
institution" as defined in the federal securities laws. These institutions
include banks, broker-dealers, credit unions and savings institutions. A
broker-dealer guaranteeing signatures must be a member of a clearing corporation
or maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees. Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature guarantee
program. A notary public is not an acceptable guarantor.
Telephone Redemption. Shareholders who complete the Redemption by Telephone
portion of the Fund's Account Application may redeem shares on any business day
the New York Stock Exchange is open by calling the Fund's Transfer Agent at
(800) 385-7003 before 4:00 p.m. Eastern time. Redemption proceeds will be mailed
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).
Telephone redemption is not available for IRA accounts.
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 privileges after an account is
opened; however, the authorization form may require a separate signature
guarantee. Shareholders may experience delays in exercising telephone redemption
privileges during periods of abnormal market activity. General. Payment of
redemption proceeds will be made promptly, but not later than seven days after
the receipt of all documents in proper form, including a written redemption
order with appropriate signature guarantee in cases where telephone redemption
privileges are not being utilized. The Fund may suspend the right of redemption
under certain extraordinary circumstances in accordance with the rules of the
Securities and Exchange Commission. In the case of shares purchased by check and
redeemed shortly after purchase, the Fund will not mail redemption proceeds
until it has been notified that the check used for the purchase has been
collected, which may take up to 15 days from the purchase date. To minimize or
avoid such delay, investors may purchase shares by certified check or federal
funds wire. A redemption may result in recognition of a gain or loss for federal
income tax purposes.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account, other than retirement plan
or Uniform Gift to Minors Act accounts, if at any time, due to redemptions by
the shareholder, the total value of a shareholder's account does not equal at
least $1,000. If the Fund determines to make such an involuntary redemption, the
shareholder will first be notified that the value of his account is less than
$1,000 and will be allowed 30 days to make an additional investment to bring the
value of his account to at least $1,000 before the Fund takes any action.
SERVICES AVAILABLE TO THE FUND'S SHAREHOLDERS
Retirement Plans. The Fund offers a prototype Individual Retirement Account
("IRA") plan and information is available from the Advisor, Distributor or from
your securities dealer with respect to Keogh, Section 403(b) and other
retirement plans offered. Investors should consult a tax adviser before
establishing any retirement plan.
Check-A-Matic Plan. For the convenience of shareholders, the Fund offers a
preauthorized check service under which a check is automatically drawn on the
shareholder's personal checking account each month for a predetermined amount
(but not less than $100), as if the shareholder had written it directly. Upon
receipt of the withdrawn funds, the Fund automatically invests the money in
additional shares of the Fund at the current offering price. Applications for
this service are available from the Transfer Agent. There is no charge by the
Fund for this service. The Distributor may terminate or modify this privilege at
any time, and shareholders may terminate their participation by notifying the
Transfer Agent in writing, sufficiently in advance of the next scheduled
withdrawal.
Systematic Withdrawal Program. As another convenience, the Fund offers a
Systematic Withdrawal Program whereby shareholders may request that a check
drawn in a predetermined amount be sent to them each month or calendar quarter.
A shareholder's account must have Fund shares with a value of at least $10,000
in order to start the Systematic Withdrawal Program, and the minimum amount that
may be withdrawn each month or quarter under the Systematic Withdrawal Program
is $100. This Program may be terminated or modified by a shareholder or the Fund
at any time without charge or penalty.
A withdrawal under the Systematic Withdrawal Program involves a redemption of
shares, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceeds the dividends credited to the
shareholder's account, the account ultimately may be depleted.
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 60
days or less are valued at amortized cost as reflecting fair value.
DISTRIBUTIONS AND TAXES
Dividends and Distributions. Any dividends from net investment income are
declared and paid at least annually, typically at the end of the Fund's fiscal
year (June 30). Any undistributed net capital gains realized during the 12-month
period ended each October 31, as well as any additional undistributed capital
gains realized during the Fund's fiscal year, will also be distributed to
shareholders on or about December 31 of each year.
Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the net asset
value per share on the reinvestment date unless the shareholder has previously
requested in writing to the Transfer Agent that payment be made in cash.
Any dividend or distribution paid by the Fund has the effect of reducing the net
asset value per share on the reinvestment date by the amount of the dividend or
distribution (apart from any other change in the value of the Fund's shares on
that date.) 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 has qualified and elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the fund continues to qualify, and as long as
the Fund distributes all of its income each year to the shareholders, the Fund
will not be subject to any federal income tax or excise taxes based on net
income. Distributions made by the Fund will be taxable to shareholders whether
received in shares (through dividend reinvestment) or in cash. Distributions
derived from net investment income, including net short-term capital gains, are
taxable to shareholders as ordinary income. A portion of these distributions may
qualify for the intercorporate dividends-received deduction. Distributions
designated as capital gains dividends are taxable as long-term capital gains
regardless of the length of time shares of the Fund have been held. Although
distributions are generally taxable when received, certain distributions made in
January are taxable as if received the prior December. Shareholders will be
informed annually of the amount and nature of the Fund's distributions.
Additional information about taxes is set forth in the Statement of Additional
Information. Shareholders should consult their own advisers concerning federal,
state and local tax consequences of investments 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.
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 a
change in the Fund's investment objective); 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, through the most recent calendar quarter. The Fund may also
advertise aggregate and average total return information over different periods
of time. The Fund's total return will be based upon the value of the shares
acquired through a hypothetical $1,000 investment at the beginning of the
specified period and the net asset value of such shares at the end of the
period, assuming reinvestment of all distributions. Total return figures will
reflect all recurring charges against Fund income. Investors should note that
the investment results of the Fund will fluctuate over time, and any
presentation of the Fund's total return for any prior period should not be
considered as a representation of what an investor's total return may be in any
future period.
Shareholder Inquiries. Shareholder inquiries should be directed to the Transfer
Agent at (800) 385-7003.
Advisor
Leonetti & Associates, Inc.
1130 Lake Cook Road, Ste. 300
Buffalo Grove, IL 60089
(800) 454-0999
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 385-7003
Auditors
Ernst & Young L.L.P.
515 South Flower Street
Los Angeles, CA 90071
Legal Counsel
Paul, Hastings, Janofsky & Walker L.L.P.
345 California Street, 29th Floor
San Francisco, CA 94104
Leonetti Balanced Fund
Prospectus
October 31, 1997
<PAGE>
PROSPECTUS
OCTOBER 31, 1997
TABLE OF CONTENTS
Expense Table 4
Financial Highlights 6
Objective and Investment Approach of the Fund 7
Management of the Fund 10
How To Invest in the Fund 11
How To Redeem an Investment in the Fund 13
Services Available to the Fund's Shareholders 15
How the Fund's Per Share Value Is Determined 15
Distributions and Taxes 16
General Information 17
P.O. Box 640856
Cincinnati, Ohio 45264-0856
(800) 282-2340
U.S. GLOBAL LEADERS GROWTH FUND
(the "Fund") is a mutual fund with the investment objective of seeking growth of
capital. The Fund seeks to achieve its objective by investing primarily in
common stocks of United States companies that have substantial international
activities ("U.S. Global Leaders"). The Fund does not have a policy of
investment in any specific number of countries outside the U.S., although it may
invest in securities of foreign companies that meet the Advisor's criteria of
global leadership. Yeager, Wood & Marshall Incorporated (the "Advisor") serves
as investment advisor to the Fund.
This Prospectus sets forth basic information about the Fund that prospective
investors should know before investing. It should be read and retained for
future reference. A Statement of Additional Information dated October 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. This Statement of
Additional Information is available without charge upon written request to the
Fund at the address given above.
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
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.
EXPENSE TABLE
Expenses are one of several factors to consider when investing in the Fund. The
purpose of the following fee table is to provide an understanding of the various
costs and expenses which may be borne directly or indirectly by an investment in
the Fund. Actual expenses may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees 1.00%
Other Expenses (after waiver) 0.48%*
Total Fund Operating Expenses (after waiver) 1.48%*
*The Advisor has agreed to reduce its fees or make payments to assure that the
Fund's ratio of operating expenses to average net assets will not exceed 1.48%.
In the absence of this limitation, the Fund's ratio of expenses to average net
assets would have been 1.87% for the fiscal year ended June 30, 1997.
EXAMPLE
This table illustrates the net transaction and operating expenses that would be
incurred by an investment in the Fund over different time periods assuming a
$1,000 investment, a 5% annual return, and redemption at the end of each time
period.
One year $ 15
Three years $ 47
Five years $ 81
Ten years $ 177
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. Amounts in the table could
increase if the Advisor's limitation of expenses were to be terminated. See
"Management of the Fund."
U.S. GLOBAL LEADERS GROWTH 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. See
"Non-Diversification" on page 9. Shares of the Fund may be purchased at their
net asset value per share. The minimum initial investment is $2,000 with
subsequent investments of $1,000 or more. Shares will be redeemed at net asset
value per share.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period.
The following information has been audited by Ernst & Young L.L.P., independent
accountants, whose unqualified report covering the fiscal period ended June 30,
1997 is incorporated by reference herein and appears in the annual report to
shareholders. This information shoud be read in conjunction with the financial
statements and accompanying notes thereto 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 included in its annual
report, which may be obtained without charge by writing or calling the address
or telephone number on the Prospectus cover page.
Year September 29, 1995*
Ended through
June 30, 1997 June 30, 1996
Net asset value, beginning of period $12.08 $10.00
Income from investment operations:
Net investment (loss) income (.04) .01
Net realized and unrealized gain
on investments 4.39 2.08
Total from investment operations 4.35 2.09
Less distributions:
Dividends from net investment
income -0- (.01)
Distributions from net
realized gain (.14) -0-
Total distributions (.14) (.01)
Net asset value, end of period $16.29 $12.08
Total return 36.29% 20.83%
Ratios/supplemental data:
Net assets, end of period (millions) $26.9 $ 9.0
Ratio of expenses to average net assets:
Before expense reimbursement 1.87% 2.55%+
After expense reimbursement 1.48% 1.48%+
Ratio of net investment loss to average
net assets:
Before expense reimbursement (.79)% (1.08)%+
After expense reimbursement (.39)% (0.01)%+
Portfolio turnover rate 21.49% 4.91%
Average commission rate paid per
share $.0688 $.0700
*Commencement of operations.
+Annualized.
Not Annualized.
OBJECTIVE AND INVESTMENT APPROACH
OF THE FUND
The investment objective of the Fund is to seek growth of capital. The Fund
seeks to achieve its objective by investing primarily in common stocks of United
States companies that have substantial international activities ("U.S. Global
Leaders"). Under normal market conditions, at least 65% of the Fund's total
assets will be invested in stocks of companies the Advisor regards as U.S.
Global Leaders as set forth below. Unlike mutual funds that are classified as
"global" funds, the Fund does not have a policy of investment in any specific
number of countries outside the U.S., although it may invest in securities of
foreign companies that meet the Advisor's criteria of global leadership. There
is, of course, no assurance that the Fund's objective will be achieved. The Fund
is not designed for investors seeking income rather than growth of capital.
Because prices of securities 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.
INVESTMENT APPROACH: U.S. GLOBAL LEADERS
In selecting common stocks for the Fund, the Advisor focuses on companies it
views as "U.S. Global Leaders": Companies that have leading positions in growing
markets in the developed countries and also derive a substantial portion of
their profits in fast-growing emerging markets. Under normal market conditions,
the Fund will invest at least 65% of the value of its total assets in securities
of such companies.
U.S. Global Leaders portfolio companies typically:
-Hold leading market shares of their relevant growth markets, and hence possess
the pricing flexibility that results in high profit margins and high investment
returns.
-Supply consumable products or services so that their revenue streams are
recurring rather than derived from infrequent or postponable sales of big-ticket
items.
-Maintain strong balance sheets with relatively low debt to equity ratios.
The Advisor believes that companies with these characteristics should have
relatively low business risk and relatively high sustainability of earnings
growth.
The Advisor believes that leading multinational companies traded publicly in
U.S. securities markets have a number of advantages that make them attractive
investments. U.S. capital markets are large and liquid. Accounting practices are
consistent and well regulated. Currency and political risks are minimized, and
the costs associated with investing abroad are reduced.
Companies that have leading positions in growing markets in the U.S. and other
developed countries and also derive a significant portion of their profits in
fast-growing emerging markets are relatively limited in number at this time.
Because of the difficulty and expense in building broad-based distribution in
newer global markets, it appears likely that the number of such companies will
not expand rapidly. Thus, the Advisor's view is that the stocks of multinational
companies that can sustain superior global earnings growth are likely to be
accorded premium relative valuations.
The Advisor's investment policy is to identify U.S. Global Leaders companies
with superior long-term earnings prospects and to continue to own them as long
as their managements are fulfilling their mission. As long as the Advisor
believes that shares of such companies continue to enjoy favorable prospects for
capital growth and that they are not overvalued in the marketplace, such shares
are ordinarily retained. Thus it is expected that the Fund's annual rate of
portfolio turnover will be relatively low compared to that of most common stock
mutual funds, normally not more than 25%.
FOREIGN INVESTMENTS
There are foreign companies that fit the profile of Global Leaders companies
developed by the Advisor, and the Advisor may invest in such companies. While
the Advisor is permitted to invest up to 25% of the Fund's net assets in foreign
companies, under normal circumstances, the level of such investment is not
expected to exceed 15%. Investment in foreign companies generally will be in the
form of American Depository Receipts ("ADRs"). 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. securities markets, and ADRs are
alternatives to the purchase of the underlying securities in their national
market and currencies.
The Advisor intends to limit its investment in foreign companies to large
capitalization, well-established issuers, the securities of which are publicly
traded in the U.S and which provide their financial data in accordance with
generally accepted accounting principles in the United States. Thus the Advisor
expects to minimize the risks associated with investing in foreign companies
generally. For further information on foreign investing, including the risks
associated with such investments, see the Statement of Additional Information.
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 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.
Since the Fund, as a non-diversified investment company portfolio could invest
in a smaller number of individual issuers than a diversified investment company,
the value of the Fund's investments could be more affected by any single adverse
occurrence than would the value of the investments of a diversified investment
company. However, it is the policy of the Fund to attempt to reduce its overall
exposure to risk from declines in individual securities by spreading its
investments over a number of different companies and a variety of industries.
OTHER PERMITTED INVESTMENTS AND RISKS
Under normal market conditions, it is expected that the Fund will be
substantially fully invested, and cash and cash equivalent investment should
account for less than 5% of Fund assets. However, if the Advisor believes market
conditions to warrant a temporary defensive position, the Fund may invest
without limit in cash, certificates of deposit, bankers acceptances and other
short-term bank deposit accounts, short-term U.S. Government, agency and
instrumentality obligations, repurchase agreements with respect to such
obligations and in other domestic debt rated in one of the two highest grades by
one or more of the nationally recognized statistical ratings organizations, or
if unrated, believed by the Advisor to be of comparable quality.
The Fund has adopted certain investment restrictions, which are described fully
in the Statement of Additional Information. Like the Fund's investment
objective, certain of these restrictions are fundamental and may be changed only
by a majority vote of the Fund's outstanding shares.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. The Advisor is located at 630
Fifth Avenue, New York, NY 10111. The Advisor was founded in 1968 and is
controlled by George M. Yeager, President. Mr. Yeager is responsible for the
management of the Fund's portfolio. The Advisor provides investment advisory
services to individual and institutional investors with assets in excess of
$400,000,000.
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 1.00% annually.
Investment Company Administration Corporation (the "Administrator") acts as the
Fund's Administrator under an Administration 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;
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: Under $15 million - $30,000, $15 to $50 million -
0.20% of average net assets, $50 to $100 million - 0.15% of average net assets,
$100 to $150 million - 0.10% of average net assets, over $150 million - 0.05% of
average net assets.
The Fund is responsible for its own operating expenses. The Advisor is currently
undertaking to limit the Fund's annual operating expenses to no more than 1.48%
of average net assets and expects to reduce this limit to 1.39% when the Fund's
net assets exceed $50 million. Any such reductions made by the Advisor in its
fees or payments or reimbursement of expenses which are the Fund's obligation
may be subject to reimbursement by the Fund.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors include, but
are not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Advisor may also
consider the sale of Fund shares as a factor in selecting broker-dealers for the
Fund's portfolio transactions.
The Advisor may in its discretion and out of its own funds compensate third
parties for the sale and marketing of shares of the Fund for services provided
to Fund shareholders.
HOW TO INVEST IN THE FUND
The minimum initial investment is $2,000. Subsequent investments must be at
least $1,000. First Fund Distributors, Inc. (the "Distributor"), acts as
Distributor of the Fund's shares. Shares of the Fund may be purchased without
regard to these minimums by employees, officers and Trustees of the Trust, the
Advisor or firms providing contractual services to the Fund, and members of
their immediate families and by retirement plans and trusts for their benefit.
The Distributor may, at its discretion, waive the minimum investment
requirements for charitable organizations, employee benefit plans, clients of
the Advisor, and others with whom the Advisor has an established business
relationship. Brokers or other financial institutions may charge a fee to their
customers who purchase shares of the Fund through them as intermediaries. 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 security is readily marketable, its acquisition is consistent with the
Fund's investment objective and it is otherwise acceptable to the Fund's
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 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 "U.S. Global Leaders Growth Fund," should be
mailed to: U.S. Global Leaders Growth Fund, P.O. Box 640856, Cincinnati, OH
45264-0856. Investments sent by overnight delivery services should be sent to:
U.S. Global Leaders Growth Fund, c/o Star Bank, N.A., 425 Walnut Street, M.L.
6118, Cincinnati, OH 45202 For subsequent investments, a stub is attached to the
account statement sent to shareholders after each transaction. The stub should
be detached from the statement and, together with a check payable to "U. S.
Global Leaders Growth Fund," mailed in the envelope provided to the address
indicated above. The investor's account number should be written on the check.
BY WIRE: For initial investments, before wiring funds, an investor should call
the Fund's Transfer Agent at (800) 282-2340 between the hours of 9:00 a.m. and
4:00 p.m. Eastern time, on a day when the New York Stock Exchange is open for
trading in order to receive an account number. The Transfer Agent will request
the investor's name, address, tax identification number, amount being wired and
wiring bank. The investor should then instruct the wiring bank to transfer funds
by wire to: Star Bank, N.A. Cinti/Trust, ABA #0420-0001-3, DDA # 483898029, U.S.
Global Leaders Growth Fund, [Account name and 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, the investor should first notify the Fund and then
have the investor's financial institution wire funds as indicated above. It is
essential that complete information regarding your account be included in all
wire instructions in order to facilitate prompt and accurate handling of
investments. Investors may obtain information about remitting funds in this
manner from the Transfer Agent and should obtain from their own banks
information 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 and, to avoid fees and delays, checks should be drawn only
on U.S. banks and should not be made by third party check. A charge may be
imposed if any check used for investment does not clear. The Fund and the
Distributor reserve the right to reject any purchase order in whole or in part.
If an order, together with payment in proper form, is received by the Transfer
Agent by the close of trading on the New York Stock Exchange (currently 4:00
p.m., New York City time), Fund shares will be purchased at the offering price
determined as of the close of trading on that day. Otherwise, Fund shares will
be purchased at the offering price determined as of the close of trading on the
New York Stock Exchange on the next business day.
Federal tax regulations require that investors provide a certified Taxpayer
Identification Number and certain other required certifications upon opening or
reopening an account in order to avoid backup withholding of taxes at the rate
of 31% on taxable distributions and proceeds of redemptions. See the Fund's
Account Application for further information concerning this requirement.
The Fund is not required to issue share certificates. All shares are normally
held in non-certificated form registered on the books of the Fund and the Fund's
Transfer Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUND
A shareholder has the right to have the Fund redeem all or any portion of his
outstanding shares at their current net asset value on each day the New York
Stock Exchange is open for trading. The redemption price is the net asset value
per share next determined after the shares are validly tendered for redemption.
DIRECT REDEMPTION. A written request for redemption must be received by the
Fund's Transfer Agent in order to constitute a valid tender for redemption.
Redemption requests should (a) state the number of shares to be redeemed, (b)
identify the shareholder's account number and (c) be signed by each registered
owner exactly as recorded on the account registration. Additional documentation
may be required from corporate, trust, or partnership shareholders. To protect
the Fund and its shareholders, a signature guarantee is required for certain
transactions, including redemptions. Signature(s) on the redemption request must
be guaranteed by an "eligible guarantor institution" as defined in the federal
securities laws. These institutions include banks, broker-dealers, credit unions
and savings institutions. A broker-dealer guaranteeing signatures must be a
member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
TELEPHONE REDEMPTION. Shareholders who complete the Redemption by Telephone
portion of the Fund's Account Application may redeem shares on any business day
the New York Stock Exchange is open by calling the Fund's Transfer Agent at
(800) 282-2340 before 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 during
periods of abnormal market activity.
GENERAL. Payment of the redemption proceeds will be made promptly, but not later
than seven days after the receipt of all documents in proper form, including a
written redemption order with appropriate signature guarantee in cases where
telephone redemption privileges are not being utilized. The Fund may suspend the
right of redemption under certain extraordinary circumstances in accordance with
the Rules of the Securities and Exchange Commission. In the case of shares
purchased by check and redeemed shortly after purchase, the Fund will not mail
redemption proceeds until it has been notified that the check used for the
purchase has been collected, which may take up to 15 days from the purchase
date. To minimize or avoid such delay, investors may purchase shares by
certified check or federal funds wire. A redemption may result in recognition of
a gain or loss for Federal income tax purposes.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account, other than retirement plan
or Uniform Gift to Minors Act accounts, if at any time, due to redemptions by
the shareholder, the total value of a shareholder's account does not equal at
least $1,000. If the Fund determines to make such an involuntary redemption, the
shareholder will first be notified that the value of his account is less than
$1,000 and will be allowed 30 days to make an additional investment to bring the
value of his account to at least $1,000 before the Fund takes any action.
SERVICES AVAILABLE TO THE FUND'S
SHAREHOLDERS
RETIREMENT PLANS. The Fund offers a prototype Individual Retirement Account
("IRA") plan and information is available from the Distributor or from your
securities dealer with respect to Keogh, Section 403(b) and other retirement
plans offered. Investors should consult a tax adviser before establishing any
retirement plan.
AUTOMATIC INVESTMENT PLAN. For the convenience of shareholders, the Fund offers
a preauthorized check service under which a check is automatically drawn on the
shareholder's personal checking account each month for a predetermined amount
(but not less than $250), as if the shareholder had written it directly. Upon
receipt of the withdrawn funds, the Fund automatically invests the money in
additional shares of the Fund at the current offering price as of the close of
regular trading on the New York Stock Exchange. Applications for this service
are available from the Distributor. There is no charge by the Fund for this
service. The Distributor may terminate or modify this privilege at any time, and
shareholders may terminate their participation by notifying the Transfer Agent
in writing, sufficiently in advance of the next scheduled withdrawal.
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.
DISTRIBUTION AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends from net investment income are declared
and paid at least annually, typically at the end of the Fund's fiscal year (June
30). Any undistributed net capital gains realized during the Fund's fiscal year
will also be distributed to shareholders after the end of the year, with a
supplemental distribution on or about December 31 of any undistributed net
investment income as well as any additional undistributed capital gains earned
during the 12-month period ended each October 31.
Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the net asset
value per share on the reinvestment date unless the shareholder has previously
requested in writing to the Transfer Agent that payment be made in cash.
Any dividend or distribution paid by the Fund has the effect of reducing the net
asset value per share on the reinvestment date by the amount of the dividend or
distribution. Investors should note that a dividend or distribution paid on
shares purchased shortly before such dividend or distribution was declared will
be subject to income taxes as discussed below even though the dividend or
distribution represents, in substance, a partial return of capital to the
shareholder.
TAXES. The Fund has qualified and elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the Fund continues to qualify, and as long as
the Fund distributes all of its income each year to the shareholders, the Fund
will not be subject to any federal income or excise taxes. The distributions
made by the Fund will be taxable to shareholders whether received in shares
(through dividend reinvestment ) or in cash. Distributions derived from net
investment income, including net short-term capital gains, are taxable to
shareholders as ordinary income. A portion of these distributions may qualify
for the intercorporate dividends-received deduction. Distributions designated as
capital gains dividends are taxable as long-term capital gains regardless of the
length of time shares of the Fund have been held. Although distributions are
generally taxable when received, certain distributions made in January are
taxable as if received the prior December. Shareholders will be informed
annually of the amount and nature of the Fund's distributions. Additional
information about taxes is set forth in the Statement of Additional Information.
Shareholders should consult their own advisers concerning federal, state and
local tax consequences of investments 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.
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., any change in
the Fund's investment objective); 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 one year and over
the period from the Fund's inception of operations, through the most recent
calendar quarter. 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.
CUSTODIAN AND TRANSFER AGENT:
SHAREHOLDER INQUIRIES
Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, serves as custodian of
the Fund's assets. American Data Services, Inc., P.O. Box 5536, Hauppauge, NY
11788-0132 is the Fund's Transfer and Dividend Disbursing Agent. Shareholder
inquiries should be directed to the Transfer Agent at (800) 282-2340.
ADVISOR
Yeager, Wood & Marshall, Incorporated
630 Fifth Avenue
New York, New York 10111
(212) 765-5350
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261E
Phoenix, Arizona 85018
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AND
DIVIDEND
DISBURSING AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
AUDITORS
Ernst & Young, L.L.P.
515 South Flower Street
Los Angeles, California 90071
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker
345 California Street, 29th Floor
San Francisco, California 94104
U.S. GLOBAL LEADERS GROWTH FUND
P.O. Box 640856
Cincinnati, Ohio 45264-0856
(800) 282-2340
********************************************************************************
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1997
BOSTON MANAGED GROWTH FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
40 Court St.
Boston, MA 02108
(617) 726-7250
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the prospectus of the Boston Managed Growth Fund
(the "Fund"). A copy of the prospectus dated October 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-6
Distributions And Tax Information...............................................................................B-8
Trustees And Executive Officers................................................................................B-11
The Fund's Investment Advisor..................................................................................B-13
The Fund's Administrator.......................................................................................B-13
The Fund's Distributor.........................................................................................B-14
Execution of Portfolio Transactions............................................................................B-14
Additional Purchase And Redemption Information.................................................................B-16
Determination of Share Price...................................................................................B-17
Performance Information........................................................................................B-17
General Information............................................................................................B-18
Financial Statements...........................................................................................B-19
Appendix.......................................................................................................B-20
</TABLE>
BMG 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 seeking
income and long-term capital growth through an actively managed portfolio of
stocks, bonds and money market instruments. 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 5% 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
BMG SAI B-2
<PAGE>
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at the risk of losing some
or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Fund, the Investment Advisor seeks
to minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the U.S. Government
security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, 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.
Foreign Securities
The Fund may invest up to 15% of its assets in foreign securities.
Foreign investments can involve significant risks in addition to the risks
inherent in U.S. investments. The value of securities denominated in or indexed
to foreign currencies, and of dividends and interest from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar.
BMG SAI B-3
<PAGE>
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 15% limitation in securities
of foreign issuers which are listed and traded on a domestic national securities
exchange.
Debt Securities and Ratings
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. If a security's rating is reduced while it
is held by the Fund, the Advisor will consider whether the Fund should continue
to hold the security but the Fund is not required to dispose of it. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial conditions may be better or worse
than the rating indicates.
BMG SAI B-4
<PAGE>
The Fund reserves the right to invest up to 20% of its assets in
securities 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 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
BMG SAI B-5
<PAGE>
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
segregate liquid assets (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.
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:
BMG SAI B-6
<PAGE>
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 more than 25% of the market value of its assets in the
securities of companies engaged in any one industry. (Does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures, forward or repurchase transactions.
7. Purchase the securities of any issuer, if as a result more than 5%
of the total assets of the Fund would be invested in the securities of that
issuer, other than obligations of the U.S. Government, its agencies or
instrumentalities, provided that up to 25% of the value of the Fund's assets may
be invested without regard to this limitation.
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.
BMG SAI B-7
<PAGE>
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).
13. Invest in securities issued by UST Corp. (parent corporation of the
Advisor).
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits
from the sale of securities, if any, are generally made annually by the Fund
after the conclusion of its fiscal year (June 30). Also, the Fund expects to
distribute any undistributed net investment income on or about December 31 of
each year. Any net capital gains realized through the twelve month period ended
October 31 of each year will also be distributed by December 31 of each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to continue to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), provided it complies with all
applicable requirements regarding the source of its income, diversification of
its assets and timing of distributions. The Fund's policy is to distribute to
its shareholders all of its investment company taxable income and any net
realized long-term capital gains for each fiscal year in a manner
BMG SAI B-8
<PAGE>
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 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
BMG SAI B-9
<PAGE>
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.
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 advisors 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.
BMG SAI B-10
<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.
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
14 Five Roses East, Ancram, NY 12517. 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
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).
BMG SAI B-11
<PAGE>
Rowley W.P. Redington, 53 Trustee
202 North Mountain Avenue, Montclair, New Jersey 07042. 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.
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 June 30, 1997, trustees' fees and expenses
in the amount of $12,164 were allocated to the Fund. As of the date of this
Statement of Additional Information, the
BMG SAI B-12
<PAGE>
Trustees and Officers of the Trust as a group did not own more than 1% of the
outstanding shares of the Fund.
THE FUND'S INVESTMENT ADVISOR
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. United States Trust Company
of Boston is the Advisor to the Fund. The Advisor is a Massachusetts-chartered
banking and trust company and is a wholly-owned subsidiary of UST Corp., a
Massachusetts bank holding company. It is located at 40 Court Street, Boston MA
02108. The Trust Department of the Advisor has managed funds as a fiduciary
since 1895. Mr. Domenic Colasacco, Executive Vice President of UST Corp., and a
member of UST Corp.'s Executive Policy Committee is the Fund's portfolio
manager. He is the President of United States Trust Company and has been its
Chief Investment Officer since 1980. Mr. Colasacco is a Chartered Financial
Analyst and a member of the Boston Security Analysts' Society. Neither the
Advisor nor UST Corp. is affiliated with United States Trust Company of New
York.
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 0.75%
annually.
The Advisor has undertaken to limit the Fund's operating expenses to an
annual level of 1.00% of the Fund's average net assets. During the Fund's
initial fiscal period ended June 30, 1996, the Advisor received advisory fees of
$241,607. For the fiscal year ended June 30, 1997, the Advisor received advisory
fees of $517,083 and reimbursed the Fund for operating expenses in the amount of
$11,285.
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.
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
BMG SAI B-13
<PAGE>
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 an annual fee equal to the greater of 0.10% of the
Fund's average daily net assets or $30,000. During the Fund's initial fiscal
period ended June 30, 1996 and fiscal year ended June 30, 1997, the
Administrator received fees of $32,214 and $68,944, respectively.
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 Distribution
Agreement may be terminated without penalty by the parties thereto upon sixty
days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Advisor determines
which securities are to be purchased and sold by the Fund and which
broker-dealers are eligible to execute the Fund's portfolio transactions.
Purchases and sales of securities in the over-the-counter market will generally
be executed directly with a "market-maker" unless, in the opinion of the
Advisor, a better price and execution can otherwise be obtained by using a
broker for the transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
BMG SAI B-14
<PAGE>
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Advisor will use its reasonable
efforts to choose broker-dealers capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers which furnish or supply research and statistical
information to the Advisor that it may lawfully and appropriately use in its
investment advisory capacities, as well as provide other services in addition to
execution services. The Advisor considers such information, which is in addition
to and not in lieu of the services required to be performed by it under its
Agreement with the Fund, to be useful in varying degrees, but of indeterminable
value. 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
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds ("Funds") managed or advised by the
Advisor. Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts or Funds.
In such event, the position of the Fund and such client account(s) or Funds in
the same issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts or Funds seeks to acquire the same security as the Fund at
the same time, the Fund may not be able to acquire as large a portion of such
security as it desires, or it may have to pay a higher price or obtain a lower
yield for such security. Similarly, the Fund may not be able to obtain as high a
price for, or as large an execution of, an order to sell any particular security
at the same time. If one or more of such client accounts or Funds simultaneously
purchases or sells the same security that the Fund is purchasing or selling,
each day's transactions in such security will be allocated between the Fund and
all such client accounts or Funds in a manner deemed equitable by the Advisor,
taking into account the respective
BMG SAI B-15
<PAGE>
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 in
accordance with any formula, nor does it effect securities transactions through
brokers solely for selling shares of the Fund, although the Fund may consider
the sale of shares as a factor in allocating brokerage. However, as stated
above, broker-dealers who execute brokerage transactions may effect purchase of
shares of the Fund for their customers. The Fund does not use the Distributor to
execute its portfolio transactions. During the Fund's initial fiscal period
ended June 30, 1996 and fiscal year ending June 30, 1997, brokerage commissions
totaled $19,693 and $28,507, respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Manager or the Distributor such rejection
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
Payments to shareholders for shares of the Fund redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which it has not yet received confirmation of
good payment; in this circumstance, the Fund may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Fund may
make payment partly in securities with a current market value equal to the
redemption price. Although the Fund does not anticipate that it will make any
part of a redemption payment in securities, if such payment were made, an
investor may incur brokerage costs in converting such securities to cash. The
Fund has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash.
BMG SAI B-16
<PAGE>
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption or repurchase.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of 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 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,
BMG SAI B-17
<PAGE>
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
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. The Fund's average annual total return since its
inception on December 1, 1995 through the fiscal year ending June 30, 1997 was
19.1%. The Fund's total return for the fiscal year ending June 30, 1997 was
25.4%
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.
The Advisor also acts as Custodian of the securities and other assets
of the Fund and as the Fund's transfer agent.
Ernst & Young, LLP, 515 S. Flower St., Los Angeles, CA 90071 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.
There were no beneficial owners of more than 5% of the Fund's
outstanding voting securities as of October 9, 1997.
BMG SAI B-18
<PAGE>
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Agreement and Declaration of Trust further
provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for the fiscal period
ended June 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.
BMG SAI B-19
<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.
BMG SAI B-20
<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.
BMG SAI B-21
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1997
LEONETTI BALANCED FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
1130 Lake Cook Road. Ste. 105
Buffalo Grove, IL 60089
(708) 520-0999
This Statement of Additional Information is not a prospectus and it
should be read in conjunction with the prospectus of the Leonetti Balanced Fund
(the "Fund"). A copy of the prospectus of the Fund dated October 31, 1997 is
available by calling the number above or (212) 633- 9700.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
The Trust.......................................................................................................B-2
Investment Objective And Policies...............................................................................B-2
Investment Restrictions.........................................................................................B-3
Distributions and Tax Information...............................................................................B-5
Trustees And Executive Officers.................................................................................B-7
The Fund's Investment Advisor...................................................................................B-9
the Fund's Administrator.......................................................................................B-10
the Fund's Distributor.........................................................................................B-11
Execution of Portfolio Transactions............................................................................B-11
Additional Purchase And Redemption Information.................................................................B-12
Determination of Share Price...................................................................................B-13
Performance Information........................................................................................B-14
General Information............................................................................................B-15
Financial Statements...........................................................................................B-16
</TABLE>
LBF 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 Leonetti Balanced Fund is a mutual fund with the investment
objective of seeking total return through a combination of income and capital
growth, consistent with preservation of capital. The following discussion
supplements the discussion of the Fund's investment objective and policies as
set forth in the Prospectus. There can be no assurance the objective of the Fund
will be attained.
Repurchase Agreements
The Fund may enter into repurchase agreements as discussed in the
Prospectus. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the U.S.
Government security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration. The
Fund will generally enter into repurchase agreements of short durations, from
overnight to one week, although the underlying securities generally have longer
maturities. The Fund may not enter into a repurchase agreement with more than
seven days to maturity if, as a result, more than 15% 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
LBF SAI B-2
<PAGE>
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at the risk of losing some
or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Fund, the Investment Advisor seeks
to minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the U.S. Government
security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, 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.
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:
LBF SAI B-3
<PAGE>
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b)
through the lending of its portfolio securities as described above and in its
Prospectus, or (c) to the extent the entry into a repurchase agreement is deemed
to be a loan.
2. (a) Borrow money, except from banks for temporary or emergency
purposes. Any such borrowing will be made only if immediately thereafter there
is an asset coverage of at least 300% of all borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase or sell real estate, commodities or commodity contracts.
(As a matter of operating policy, the Board of Trustees may authorize the Fund
to engage in certain activities regarding futures contracts for bona fide
hedging purposes; any such authorization will be accompanied by appropriate
notification to shareholders).
5. Invest more than 25% of the market value of its assets in the
securities of companies engaged in any one industry. (Does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges.
7. Purchase the securities of any issuer, if as a result more than 5%
of the total assets of the Fund would be invested in the securities of that
issuer, other than obligations of the U.S. Government, its agencies or
instrumentalities, provided that up to 25% of the value of the Fund's assets may
be invested without regard to this limitation.
8. Invest in any issuer for purposes of exercising control or
management.
The Fund observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The Fund may not:
9. Invest in securities of other investment companies which would
result in the Fund owning more than 3% of the outstanding voting securities of
any one such investment company, the Fund owning securities of another
investment company having an aggregate value in excess of 5% of the
LBF SAI B-4
<PAGE>
value of the Fund's total assets, or the Fund owning securities of investment
companies in the aggregate which would exceed 10% of the value of the Fund's
total assets.
10. Invest, in the aggregate, more than 15% of its total assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity (other than securities that meet the requirements of Securities Act
Rule 144A which the Trustees have determined to be liquid based on applicable
trading markets).
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually, as described in the
Prospectus after the conclusion of the Fund's fiscal year (June 30). Also, the
Fund expects to distribute any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the period
ended October 31 of each year will also be distributed by December 31 of each
year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to continue to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), provided it complies with all
applicable requirements regarding the source of its income, diversification of
its assets and timing of distributions. The Fund's policy is to distribute to
its shareholders all of its investment company taxable income and any net
realized long-term capital gains for each fiscal year in a manner that complies
with the distribution requirements of the Code, so that the Fund will not be
subject to any federal income or excise taxes. To comply with the requirements,
the Fund must also distribute (or be deemed to have distributed) by December 31
of each calendar year (i) at least 98% of its ordinary income for such year,
(ii) at least 98% of the excess of its realized capital gains over its realized
capital losses for the 12-month period ending on October 31 during such year and
(iii) any amounts from the prior calendar year that were not distributed and on
which the Fund paid no federal income tax.
LBF SAI B-5
<PAGE>
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment policy, it is
expected that dividends from domestic corporations will be part of the Fund's
gross income and that, accordingly, part of the distributions by the Fund may be
eligible for the dividends-received deduction for corporate shareholders.
However, the portion of the Fund's gross income attributable to qualifying
dividends is largely dependent on that Fund's investment activities for a
particular year and therefore cannot be predicted with any certainty. The
deduction may be reduced or eliminated if the Fund shares held by a corporate
investor are treated as debt-financed or are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
A redemption or exchange of Fund shares may result in recognition of a
taxable gain or loss. Any loss realized upon a redemption or exchange of shares
within six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gains during such six-month period. In determining gain or loss from an
exchange of Fund shares for shares of another mutual fund, the sales charge
incurred in purchasing the shares that are surrendered will be excluded from
their tax basis to the extent that a sales charge that would otherwise be
imposed in the purchase of the shares received in the exchange is reduced. Any
portion of a sales charge excluded from the basis of the shares surrendered will
be added to the basis of the shares received. Any loss realized upon a
redemption or exchange may be disallowed under certain wash sale rules to the
extent shares of the same Fund are purchased (through reinvestment of
distributions or otherwise) within 30 days before or after the redemption or
exchange.
LBF SAI B-6
<PAGE>
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 advisors 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
LBF SAI B-7
<PAGE>
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
14 Five Roses East, Ancram, NY 12517. 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
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
202 North Mountain Avenue, Montclair, New Jersey 07042. 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
LBF SAI B-8
<PAGE>
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.
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 June 30, 1997, trustees' fees and expenses
in the amount of $5,146 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'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided
to the Fund by Leonetti & Associates, Inc., the Advisor, pursuant to an
Investment Advisory Agreement. The Advisor is controlled by Mr. Michael
Leonetti. The Investment Advisory Agreement continues in effect from year to
year so long as such continuation is approved at least annually by (1) the Board
of Trustees of the Trust or the vote of a majority of the outstanding shares of
the Fund, and (2) a majority of the Trustees who are not interested persons of
any party to the Agreement, in each case cast in person at a meeting called for
the purpose of voting on such approval. The Agreement may be terminated at any
time, without penalty, by either the Fund or the Advisor upon sixty days'
written notice and is automatically terminated in the event of its assignment as
defined in the 1940 Act. Under the Investment Advisory Agreement, the Advisor
receives monthly a fee at the annual rate of 1.00% of the Fund's average daily
net assets. During the Fund's initial fiscal period ended June 30, 1996 and for
the fiscal year ended June 30, 1997, the Advisor received fees of $83,530 and
$104,200, respectively, under the Agreement.
LBF SAI B-9
<PAGE>
The use of the name "Leonetti" by the Fund is pursuant to a license
granted by the Advisor, and in the event the Investment Advisory Agreement with
the Fund is terminated, the Advisor has reserved the right to require the Fund
to remove any references to the name "Leonetti."
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.
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 monthly fee at the following annual rate:
<TABLE>
Average net assets Fee or fee rate
<CAPTION>
<S> <C>
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 to $100 million 0.15% of average net assets
$100 million to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
</TABLE>
During the Fund's initial fiscal period ended June 30, 1996 and for the fiscal
year ending June 30, 1997, the Administrator received fees of $27,534 and
$30,779, respectively.
LBF SAI B-10
<PAGE>
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 Distribution
Agreement may be terminated without penalty by the parties thereto upon sixty
days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Advisor determines
which securities are to be purchased and sold by the Fund and which
broker-dealers will be used to execute the Fund's portfolio transactions.
Purchases and sales of securities in the over-the-counter market will be
executed directly with a "market-maker" unless, in the opinion of the Advisor, a
better price and execution can otherwise be obtained by using a broker for the
transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one broker, dealer or underwriter are comparable, the
order may be allocated to a broker, dealer or underwriter that has provided
research or other services as discussed below.
In placing portfolio transactions, the Advisor will use its best
efforts to choose a broker-dealer capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the most favorable price
and execution available, consideration may be given to those broker-dealers
which furnish or supply research and statistical information to the Advisor that
it may lawfully and appropriately use in its investment advisory capacities, as
well as provide other services in addition to execution services. The Advisor
considers such information, which is in addition to and not in lieu of the
services required to be performed by it under its Agreement with the Fund, to be
useful in varying degrees,
LBF SAI B-11
<PAGE>
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
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds managed or advised by the Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts. In such
event, the position of the Fund and such client account(s) in the same issuer
may vary and the length of time that each may choose to hold its investment in
the same issuer may likewise vary. However, to the extent any of these client
accounts seeks to acquire the same security as the Fund at the same time, the
Fund may not be able to acquire as large a portion of such security as it
desires, or it may have to pay a higher price or obtain a lower yield for such
security. Similarly, the Fund may not be able to obtain as high a price for, or
as large an execution of, an order to sell any particular security at the same
time. If one or more of such client accounts simultaneously purchases or sells
the same security that the Fund is purchasing or selling, each day's
transactions in such security will be allocated between the Fund and all such
client accounts in a manner deemed equitable by the Advisor, taking into account
the respective sizes of the accounts and the amount being purchased or sold. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as the Fund is concerned. In other
cases, however, it is believed that the ability of the Fund to participate in
volume transactions may produce better executions for the Fund.
The Fund does not 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. During the Fund's initial fiscal period ended
June 30, 1996 and for the fiscal year ending June 30, 1997, the Fund paid
brokerage commissions of $26,457 and $34,556, respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Manager
LBF SAI B-12
<PAGE>
or the Distributor such rejection is in the best interest of the Fund, and (iii)
to reduce or waive the minimum for initial and subsequent investments for
certain fiduciary accounts or under circumstances where certain economies can be
achieved in sales of the Fund's shares.
Payments to shareholders for shares of the Fund redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which it has not yet received confirmation of
good payment; in this circumstance, the Fund may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Fund may
make payment partly in securities with a current market value equal to the
redemption price. Although the Fund does not anticipate that it will make any
part of a redemption payment in securities, if such payment were made, an
investor may incur brokerage costs in converting such securities to cash. The
Fund has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash.
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
LBF SAI B-13
<PAGE>
(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 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.
LBF SAI B-14
<PAGE>
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which the
maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. The Fund's average annual total return since its
inception on August 1, 1995 through the fiscal year ending June 30, 1997 was
12.19%. The Fund's total return for the fiscal year ending June 30, 1997 was
14.91%
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, 425 Walnut St., 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, P.O. Box 5536, Hauppauge, NY 11788-0132 acts as the
Fund's transfer and shareholder service agent.
Ernst & Young, LLP, 515 S. Flower St., Los Angeles, CA 90071 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.
On October 9, 1997, the following persons owned of record more that 5%
of the Fund's outstanding voting securities:
Star Bank, NA, Custodian for Frank G. Valeria IRA Account, Niles, IL,
60714; 15.0%
Charles Schwab & Co., Special Custody Account, San Francisco, CA 94104;
16.6%
LBF SAI B-15
<PAGE>
Aetna Screw Products Co., Retirement Plan #1, Niles, IL, 60714; 6.3%
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Agreement and Declaration of Trust further
provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for the fiscal period
ended June 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.
LBF SAI B-16
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1997
U.S. GLOBAL LEADERS GROWTH FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
630 Fifth Avenue
New York, NY 10111
(212) 765-5350
This Statement of Additional Information is not a prospectus and it
should be read in conjunction with the prospectus of the U.S. Global Leaders
Growth Fund (the "Fund"). A copy of the prospectus of the Fund dated October 31,
1997 is available by calling the number listed above or (212) 633-9700.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
The Trust.........................................................................................................2
Investment Objective And Policies.................................................................................2
Investment Restrictions...........................................................................................4
Distributions and Tax Information.................................................................................5
Trustees And Executive Officers...................................................................................7
Investment Advisor................................................................................................9
The Fund's Administrator.........................................................................................10
The Fund's Distributor...........................................................................................10
Execution of Portfolio Transactions..............................................................................11
Additional Purchase and Redemption Information...................................................................12
Determination of Share Price.....................................................................................13
Performance Information..........................................................................................14
General Information..............................................................................................15
Financial Statements.............................................................................................16
</TABLE>
USG 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 U.S. Global Leaders Growth Fund is a mutual fund with the
investment objective of seeking growth of capital. The following discussion
supplements the discussion of the Fund's investment objective and policies as
set forth in the Prospectus. There can be no assurance the objective of the Fund
will be attained.
Repurchase Agreements
The Fund may enter into repurchase agreements as discussed in the
Prospectus. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the U.S.
Government security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration. The
Fund will generally enter into repurchase agreements of short durations, from
overnight to one week, although the underlying securities generally have longer
maturities. The Fund may not enter into a repurchase agreement with more than
seven days to maturity if, as a result, more than 15% 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
USG SAI B-2
<PAGE>
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at the risk of losing some
or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Fund, the Investment Advisor seeks
to minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the U.S. Government
security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, 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.
Foreign Investments
The Advisor is permitted to invest up to 25% of the Fund's net assets
in foreign companies, although the level of such investment is not expected to
exceed 15% under normal circumstances. The Advisor intends to invest only in
large capitalization, well established foreign issuers the securities of which
are traded in the U.S., and which present their financial data in accordance
with generally accepted accounting principles in the U.S. Thus, the Advisor thus
expects that there will be little, if any risk associated with its foreign
investments.
The risks associated with foreign issuers include 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. While the Advisor believes it
unlikely that the companies and countries in which the Advisor invests would be
subject to such circumstances, there is no assurance that the Advisor will be
able to anticipate or counter these potential events in selecting foreign
issuers for the Fund's portfolio.
Borrowing
The Fund may borrow money from banks in an aggregate amount not to exceed
one-third of the value of the Fund's total assets to meet temporary or emergency
purposes, and may pledge its assets in
USG SAI B-3
<PAGE>
connection with such borrowings. The Fund will not purchase any securities while
any such borrowings exceed 5% of that Fund's total assets.
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 occasional 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 as stated in the Prospectus and this
Statement of Additional Information. Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least 300% of all
borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase or sell real estate, commodities or commodity contracts
(the Board of Trustees may in the future authorize the Fund to engage in certain
activities regarding futures contracts for bona fide hedging purposes; any such
authorization will be accompanied by appropriate notification to shareholders).
5. Invest 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 repurchase
transactions.
7. Invest in any issuer for purposes of exercising control or
management.
The Fund observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The Fund may not:
USG SAI B-4
<PAGE>
8. 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.
9. Invest, in the aggregate, more than 15% of its total assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually, as described in the
Prospectus after the conclusion of the Fund's fiscal year (June 30). Also, the
Fund expects to distribute any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the period
ended October 31 of each year will also be distributed by December 31 of each
year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to continue to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), provided it complies with all
applicable requirements regarding the source of its income, diversification of
its assets and timing of distributions. The Fund's policy is to distribute to
its shareholders all of its investment company taxable income and any net
realized long-term capital gains for each fiscal year in a manner that complies
with the distribution requirements of the Code, so that the Fund will not be
subject to any federal income or excise taxes. To comply with the requirements,
the Fund must also distribute (or be deemed to have distributed) by December 31
of each calendar year (i) at least 98% of its ordinary income for such year,
(ii) at least 98% of the excess of its realized capital gains over its realized
capital losses for the 12-month period ending on October 31 during such year and
(iii) any amounts from the prior calendar year that were not distributed and on
which the Fund paid no federal income tax.
USG SAI B-5
<PAGE>
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Fund for its taxable year. In view of the Fund's investment policy, it is
expected that dividends from domestic corporations will be part of the Fund's
gross income and that, accordingly, part of the distributions by the Fund may be
eligible for the dividends-received deduction for corporate shareholders.
However, the portion of the Fund's gross income attributable to qualifying
dividends is largely dependent on that Fund's investment activities for a
particular year and therefore cannot be predicted with any certainty. The
deduction may be reduced or eliminated if the Fund shares held by a corporate
investor are treated as debt-financed or are held for less than 46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the 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
USG SAI B-6
<PAGE>
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 advisors 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.
USG SAI B-7
<PAGE>
Dorothy A. Berry, 54 Trustee
14 Five Roses East, Ancram, NY 12517. 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
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
202 North Mountain Avenue, Montclair, New Jersey 07042. 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.
USG SAI B-8
<PAGE>
Set forth below is the rate of compensation received by the following
Trustees from the Fund and all other portfolios of the Trust. This total amount
is allocated among the portfolios. Disinterested trustees receive an annual
retainer of $7,500 and a fee of $2,500 for each regularly scheduled meeting.
These trustees also receive a fee of $1000 for any special meeting attended. The
Chairman of the Board of Trustees receives an additional annual retainer of
$4,500. Disinterested trustees are also reimbursed for expenses in connection
with each Board meeting attended. No other compensation or retirement benefits
were received by any Trustee or officer from the Fund or any other portfolios of
the Trust.
Name of Trustee Total Annual Compensation
Dorothy A. Berry $22,000
Wallace L. Cook $17,500
Carl A. Froebel $17,500
Rowley W.P. Redington $17,500
During the Fund's fiscal year ended June 30, 1997, $6,032 of Trustees' fees and
expenses 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. The Advisor is located at 630
Fifth Avenue, New York, NY 10111. The Advisor was founded in 1968 and is
controlled by Mr. George M. Yeager, President. The Advisor provides investment
advisory services to individual and institutional investors with assets of over
$400 million. Mr. Yeager is responsible for management of the Fund's portfolio.
Under the Investment Advisory Agreement with the Fund, the Advisor
provides the Fund with advice on buying and selling securities, manages the
investments of the Fund, furnishes the Fund with office space and certain
administrative services, and provides most of the personnel needed by the Fund.
As compensation, the Fund pays the Advisor a monthly investment advisory fee
(accrued daily) based upon the average daily net assets of the Fund at the rate
of 1.00% annually. During the Fund's initial fiscal period ended June 30, 1996,
the Advisor reimbursed fees and expenses totaling $43,575, including its
advisory fee of $40,684. During the fiscal year ended June 30, 1997, the Fund
incurred advisory fees of $148,503, and the Advisor reimbursed expenses in the
amount of $59,209, in accordance with its undertaking to limit the Fund's total
expenses to no more than 1.48% of average net assets annually.
The Investment Advisory Agreement continues in effect for successive
annual periods so long as such continuation is approved at least annually by the
vote of (1) the Board of Trustees of the Trust (or a majority of the outstanding
shares of the Fund to which the agreement applies), and (2)
USG SAI B-9
<PAGE>
a majority of the Trustees who are not interested persons of any party to the
Agreement, in each case cast in person at a meeting called for the purpose of
voting on such approval. Any such agreement may be terminated at any time,
without penalty, by either party to the agreement upon sixty days' written
notice and is automatically terminated in the event of its "assignment," as
defined in the 1940 Act.
THE FUND'S 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 monthly fee at the following annual rate:
Average net assets Fee or fee rate
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 to $100 million 0.15% of average net assets
$100 million to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
During the Fund's fiscal year ended June 30, 1997 the Administrator received
fees of $27,423. For the Fund's initial fiscal period ended June 30, 1996, the
Administrator received fees of $20,027.
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)
USG SAI B-10
<PAGE>
a majority of the Trustees who are not interested persons of any such party, in
each case cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated without penalty by the
parties thereto upon sixty days' written notice, and is automatically terminated
in the event of its assignment as defined in the 1940 Act.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Advisor determines
which securities are to be purchased and sold by the Fund and which
broker-dealers will be used to execute the Fund's portfolio transactions.
Purchases and sales of securities in the over-the-counter market will be
executed directly with a "market-maker" unless, in the opinion of the Advisor, a
better price and execution can otherwise be obtained by using a broker for the
transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one broker, dealer or underwriter are comparable, the
order may be allocated to a broker, dealer or underwriter that has provided
research or other services as discussed below.
In placing portfolio transactions, the Advisor will use its best
efforts to choose a broker-dealer capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the most favorable price
and execution available, consideration may be given to those broker-dealers
which furnish or supply research and statistical information to the Advisor that
it may lawfully and appropriately use in its investment advisory capacities, as
well as provide other services in addition to execution services. The Advisor
considers such information, which is in addition to and not in lieu of the
services required to be performed by it under its Agreement with the Fund, to be
useful in varying degrees, but of indeterminable value. Portfolio transactions
may be placed with broker-dealers who sell shares of the Fund subject to rules
adopted by the National Association of Securities Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available, in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the
USG SAI B-11
<PAGE>
spread to be paid to a dealer, the Fund may therefore pay a higher commission or
spread than would be the case if no weight were given to the furnishing of these
supplemental services, provided that the amount of such commission or spread has
been determined in good faith by the Advisor to be reasonable in relation to the
value of the brokerage and/or research services provided by such broker-dealer.
The standard of reasonableness is to be measured in light of the Advisor's
overall responsibilities to the Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds managed or advised by the Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts. In such
event, the position of the Fund and such client account(s) in the same issuer
may vary and the length of time that each may choose to hold its investment in
the same issuer may likewise vary. However, to the extent any of these client
accounts seeks to acquire the same security as the Fund at the same time, the
Fund may not be able to acquire as large a portion of such security as it
desires, or it may have to pay a higher price or obtain a lower yield for such
security. Similarly, the Fund may not be able to obtain as high a price for, or
as large an execution of, an order to sell any particular security at the same
time. If one or more of such client accounts simultaneously purchases or sells
the same security that the Fund is purchasing or selling, each day's
transactions in such security will be allocated between the Fund and all such
client accounts in a manner deemed equitable by the Advisor, taking into account
the respective sizes of the accounts and the amount being purchased or sold. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as the Fund is concerned. In other
cases, however, it is believed that the ability of the Fund to participate in
volume transactions may produce better executions for the Fund.
The Fund does not 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. During the fiscal year ended June 30, 1997,
the Fund paid brokerage commissions of $27,828. Brokerage commissions paid by
the Fund during its initial fiscal period ended June 30, 1996 totaled $7,275.
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,
USG SAI B-12
<PAGE>
except that the Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted as determined by the SEC or such Exchange is closed for other than
weekends and holidays; (b) an emergency exists as determined by the SEC making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable; or (c) for such other period as the SEC may permit for
the protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which it has not yet received confirmation of
good payment; in this circumstance, the Fund may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Fund may
make payment partly in securities with a current market value equal to the
redemption price. Although the Fund does not anticipate that it will make any
part of a redemption payment in securities, if such payment were made, an
investor may incur brokerage costs in converting such securities to cash. The
Fund has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption or repurchase.
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 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.
USG SAI B-13
<PAGE>
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
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. The Fund's total return for the one year period
and from inception on September 29, 1995 through June 30, 1997 were 36.29% and
32.91%, respectively.
USG SAI B-14
<PAGE>
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, 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, P.O. Box 5536, Hauppauge, NY 11743 is the Fund's
Transfer and Dividend Disbursing Agent.
Ernst & Young, 515 S. Flower St., Los Angeles, CA 90071 are the
independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker, 345 California St., 29th floor, San
Francisco, California 94104, are legal counsel to the Fund.
On October 9 , 1997, the following persons owned of record and/or
beneficially more than 5% of the Fund's outstanding voting securities:
BHC Securities Inc. Trade Account, Philadelphia, PA 19103; 21.4%
record.
Lazard Freres & Co. LLC, New York, NY 10271; 15.9% record.
L. B. Dayton, A. D. Buxton Trustees, B. N. Dayton 1978 Family Trust,
Helena, MT 59601; 9.1% record and beneficial.
Brandt Dayton, Trustee, B. N. Dayton Revocable Trust, New York, NY
10024; 6.9% record and beneficial.
Donaldson, Lufkin, Jenrette Securities Corp., Jersey City, NJ 07303;
6.6% record.
Norwest Bank of South Dakota, Trustee, Bruce B. Dayton Trust,
Minneapolis, MN 55479; 5.2% record and beneficial.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The
USG SAI B-15
<PAGE>
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 period
ended June 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.
USG SAI B-16
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
FORM N-1A
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements for the fiscal year ended June 30, 1997:
Incorporated by Reference from the annual reports to shareholders for
the fiscal year ended June 30, 1997 (Boston Managed Growth Fund,
Leonetti Balanced Fund and U.S. Global Leaders Growth 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 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
Titan Financial Services 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 (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 October 9, 1997
Shares of Beneficial Interest, no par value:
Academy Value Fund 166
Avondale Total Return Fund 147
Boston Managed Growth Fund 193
Hodges Fund 1,035
Osterweis Fund 126
Perkins Opportunity Fund 7,260
ProConscience Womens Equity Fund 508
Trent Equity Fund 123
Matrix Growth Fund 398
Matrix Emerging Growth Fund 61
Leonetti Balanced Fund 304
Lighthouse Growth Fund 381
U.S.Global Leaders Growth Fund 111
Harris, Bretall, Sullivan & Smith
Growth Equity Fund 70
Pzena Focused Value Fund 168
Titan Financial Services Fund 537
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.
Fremont Mutual Funds, Inc.
Fleming Funds, Inc.
The Purisima 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 October 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 October 15, 1997
Steven J. Paggioli
/S/ Eric M. Banhazl Principal October 15, 1997
Eric M. Banhazl Financial
Officer
Dorothy A. Berry Trustee October 15, 1997
*Dorothy A. Berry
Wallace L. Cook Trustee October 15, 1997
*Wallace L. Cook
Carl A. Froebel Trustee October 15, 1997
*Carl A. Froebel
Rowley W. P. Redington Trustee October 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. 38 to the Registration Statement on Form N-1A of Professionally Managed
Portfolios and to the use of our reports on the financial statements and
financial highlights dated July 30, 1997 with respect to the Boston Managed
Growth Fund, Leonetti Balanced Fund and U.S. Global Leaders Growth Fund series.
Such financial statements and financial highlights appear in the 1997 Annual
Reports to Shareholders of the Funds which are incorporated by reference into
the Statements of Additional Information.
Ernst & Young LLP
Los Angeles, CA
October 15, 1997
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<INVESTMENTS-AT-COST> 65,413,291
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<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 9,551,517
<INVESTMENTS-AT-VALUE> 11,215,366
<RECEIVABLES> 66,358
<ASSETS-OTHER> 33,713
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<NAME>U.S. GLOBAL LEADERS GROWTH FUND
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