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. 53 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 54 [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 LLP
345 California Street
San Francisco, CA 94104
------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On pursuant to paragraph (b)
[X] 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.
<PAGE>
AVONDALE HESTER TOTAL RETURN FUND
100 Congress Avenue, Suite 1920
Austin, Texas 78701
(800) 282-2340
AVONDALE HESTER TOTAL RETURN FUND (the "Fund") is a mutual fund with the
investment objective of seeking the combination of income and capital
appreciation that will produce the maximum total return consistent with
reasonable risk. 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 Hester Capital Management,
LLC, the Fund's investment adviser.
This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. The Fund is a series of Professionally Managed
Portfolios.
A Statement of Additional Information dated October 1, 1998, 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. The SEC maintains an internet site (http://www.sec.gov) that
contains the SAI, other material incorporated by reference and information about
other companies that file electronically with the SEC.
TABLE OF CONTENTS
Expense Table 2
Financial Highlights 3
Objective and Investment Approach of the Fund 4
Management of the Fund 5
How To Invest in the Fund 6
How To Redeem an Investment in the Fund 7
Services Available to the Fund's Shareholders 8
How the Fund's Per Share Value Is Determined 9
Distributions and Taxes 9
General Information 10
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated October 1, 1998
The AVONDALE HESTER TOTAL RETURN 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 $1,000, with subsequent investments of $250 or more ($500
and $100, respectively, for retirement plans). Shares will be redeemed at net
asset value per share.
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)
Management Fees 0.70%
Other Expenses 0.89%
Total Fund Operating Expenses 1.59%
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
1 Year 3 Years 5 Years 10 Years
$16 $50 $87 $189
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."
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period.
The following information has been audited by Tait, Weller & Baker,
independent accountants, whose unqualified report covering the fiscal period
ended March 31, 1998 is incorporated by reference herein and appears in the
annual report to shareholders. This information should be read in conjunction
with the financial statements and accompanying notes which appear in the annual
report and are incorporated by reference into the Statement of Additional
Information. Further information about the Fund's performance is contained in
its annual report, which may be obtained without charge by writing or calling
the address or telephone number on the Prospectus cover.
<TABLE>
<CAPTION>
October 12, 1988*
Year Ended March 31, to March 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $26.13 $27.76 $23.58 $22.93 $24.78 $24.19 $22.44 $20.76 $19.84 $20.00
Income from Investment Operations:
Net investment income 0.16 0.18 0.27 0.23 0.26 0.46 0.51 0.75 0.88 0.48
Net realized and unrealized (loss) gain
on investments 9.61 0.14 6.00 1.49 (0.44) 1.62 1.92 1.46 1.13 (0.14)
Total from investment operations 9.77 0.32 6.27 1.72 (0.18) 2.08 2.43 2.21 2.01 0.34
Less Distributions:
Dividends (from net investment income) (0.15) (0.28) (0.27) (0.23) (0.35) (0.49) (0.68) (0.53) (0.79) (0.50)
Distributions (from net capital gains) (0.49) (1.67) (1.82) (0.84) (1.32) (1.00) -0- -0- (0.30) -0-
Total distributions (0.64) (1.95) (2.09) (1.07) (1.67) (1.49) (0.68) (0.53) (1.09) (0.50)
Net Asset Value, end of period $35.26 $26.13 $27.76 $23.58 $22.93 $24.78 $24.19 $22.44 $20.76 $19.84
Total Return 37.65% 1.10% 26.67% 7.82% (0.82)% 9.19% 11.07% 10.90% 10.13% 1.72%
Net Assets, end of period (millions) $10.9 $ 9.9 $ 9.8 $ 6.9 $ 7.4 $ 7.6 $ 7.8 $ 5.4 $ 2.4 $ 0.7
Ratios/Supplemental Data:
Ratios of expenses to average net assets:
Before expense reimbursement 1.59% 1.83% 1.69% 1.77% 1.83% 1.78% 2.13% 2.58% 4.27% 9.33%+
After expense reimbursement 1.59% 1.83% 1.69% 1.77% 1.83% 1.78% 1.96% 1.98% 1.92% 1.30%+
Ratios of net income (loss)
to average net assets:
Before expense reimbursement 0.48% 0.62% 1.03% 0.96% 1.09% 1.97% 2.00% 3.02% 1.81% (2.63)%+
After expense reimbursement 0.48% 0.62% 1.03% 0.96% 1.09% 1.97% 2.17% 3.62% 4.16% 5.40%+
Portfolio turnover rate 9.38% 40.87% 52.25% 52.24% 73.65% 157.64% 59.58% 65.51% 99.50% 60.82%+
* Effective date of the Fund's initial registration under the Securities Act of 1933.
</TABLE>
+Annualized.
OBJECTIVE AND INVESTMENT APPROACH OF THE FUND
The investment objective of the Fund is to realize the combination of
income and capital appreciation that will produce the maximum total return
consistent with reasonable risk. The Fund seeks to achieve its objective by
investing in equity and fixed income securities. There is, of course, no
assurance that the Fund's objective will be achieved, and the Fund's net asset
value per share will fluctuate as the market value of its investment portfolio
fluctuates.
General Policies. The Fund will normally invest in common stocks,
securities convertible into common stocks, preferred stocks, and fixed income
debt securities, .
The Fund's investment adviser, Hester Capital Management LLC (the
"Adviser") has the flexibility to select among different types of investments
for growth and income and to alter the composition of the portfolio as economic
and market trends change. The Fund may invest up to 100% of the value of its
total assets in either equity securities (common stocks, securities convertible
into common stocks, preferred stocks) or in fixed-income debt securities.
In selecting equity investments for the Fund, the Adviser uses fundamental
analysis and focuses on stocks of companies that have a market capitalization
equal to or in excess of $500 million (commonly known as "large mid-cap" stocks)
and stocks of companies that have a market capitalization in excess of $1
billion (commonly known as "large cap" stocks). The Adviser expects under normal
market conditions the Fund's equity portfolio holdings may include investments
in 45 to 50 companies. The annual portfolio turnover in the equity portion of
the Fund is not expected to exceed 30%.
Fixed-income securities held by the Fund are expected to include U.S.
Treasury and agency obligations as well as high-grade corporate and asset-backed
securities. Typically the average maturity for the fixed-income portion of the
Fund's portfolio would be between two and ten years. This does not, however,
prevent the Fund from purchasing fixed-income securities with longer maturity
periods (such as thirty-year government bonds).
Foreign Securities. The Fund may invest up to 15% of its assets in
securities of foreign issuers, including American Depositary Receipts ("ADR's").
ADR's are receipts typically issued by a U.S. bank or trust company evidencing
ownership of underlying foreign securities.
There are risks associated with investing in foreign securities. 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. Interest or dividends on foreign securities may
be subject to foreign withholding taxes. Investments in foreign countries may be
subject to the possibility of expropriation or confiscatory taxation, exchange
controls, political or social instability or diplomatic developments that could
adversely affect the value of those investments. In addition, the value of the
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.
Securities Lending. In order to generate additional income, the Fund may
lend up to 30% of its portfolio securities to broker-dealers, major banks or
other recognized domestic institutional borrowers of securities who are not
affiliated with the Fund's Adviser or Distributor and whose creditworthiness is
acceptable to the Adviser. The borrower must deliver to the Fund cash or cash
equivalent collateral, or provide to the Fund an irrevocable letter of credit
equal in value to at least 100% of the value of the securities loaned at all
times during the loan. During the time the portfolio securities are on loan, the
borrower pays the Fund any interest paid on such securities. The Fund may invest
the cash collateral and earn additional income, or it may receive an agreed-upon
amount of interest income if the borrower has delivered equivalent collateral or
a letter of credit.
Repurchase Agreements. The Fund may enter into repurchase agreements in
order to earn additional income on available cash, or as a defensive investment
in periods when the Fund is primarily in short-term maturities. A repurchase
agreement is a short-term investment in which the purchaser (i.e., the Fund)
acquires ownership of a U.S. Government security (which may be of any maturity)
and the seller agrees to repurchase the obligation at a future time at a set
price, thereby determining the yield during the purchaser's holding period
(usually not more than seven days from the date of purchase). Any repurchase
transaction in which the Fund engages will require full collateralization of the
seller's obligation during the entire term of the repurchase agreement. In the
event of a bankruptcy or other default of the seller, the Fund could experience
both delays in liquidating the underlying security and losses in value. However,
the Fund intends to enter into repurchase agreements only with banks with assets
of $500 million or more that are insured by the Federal Deposit Insurance
Corporation and the most creditworthy registered securities dealers pursuant to
procedures adopted and reviewed by the Trust's Board of Trustees. The Adviser
monitors the creditworthiness of the banks and securities dealers with whom the
Fund engages in repurchase transactions, and the Fund will not invest more than
15% of its total assets in illiquid securities, including repurchase agreements
maturing in more than seven days.
Portfolio Turnover. The annual rate of overall portfolio turnover is
anticipated to be less than 100%. However, under certain market conditions, the
Fund may experience a higher rate of portfolio turnover. In general, the Adviser
will not consider the rate of portfolio turnover to be a limiting factor in
determining when or whether to purchase or sell securities in order to achieve
the Fund's objective. High portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which are borne directly by
the Fund, and may increase realized capital gains which are taxable to Fund
shareholders when distributed.
Investment Restrictions. The Fund has adopted certain investment
restrictions, which are described fully in the Statement of Additional
Information. Like the Fund's investment objective, certain of these restrictions
are fundamental and may be changed only by a majority vote of the Fund's
outstanding shares.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund. The Adviser provides the Fund
with advice on buying and selling securities, manages the investments of the
Fund, furnishes the Fund with office space and certain administrative services,
and provides most of the personnel needed by the Fund. As compensation, the Fund
pays the Adviser a monthly investment advisory fee (accrued daily) based upon
the average daily net assets of the Fund at the following annual rates: 0.70% on
the first $200 million of net assets; 0.60% on the next $300 million of net
assets; and 0.50% on net assets exceeding $500 million.
Hester Capital Management, LLC, the Fund's adviser, is a registered
investment advisor located at 100 Congress Avenue, Austin, TX 78701, and
provides investment advisory service to individuals and institutions with assets
of approximately $500 million. Hester is a majority-owned subsidiary of Morgan
Asset Management, Inc., which is owned by Morgan Keegan & Co., a New York Stock
Exchange listed brokerage and investment firm headquartered in Memphis,
Tennessee. Mr. I. Craig Hester, President, and Mr. John Gunthrop, Executive Vice
President, are responsible for the management of the Fund's portfolio. Each has
been associated with the Adviser for more than the past five years. Prior to
September 1, 1998, the Fund was known as Avondale Total Return Fund and was
managed by Herbert R. Smith & Co., Inc.
Investment Company Administration Corporation (the "Administrator") acts as
the Fund's administrator. The Administrator prepares various federal and state
regulatory filings, reports and returns for the Fund, prepares reports and
materials to be supplied to the trustees, monitors the activities of the Fund's
custodian, transfer agent and accountants, and coordinates the preparation and
payment of Fund expenses and reviews the Fund's expense accruals. For its
services, the Administrator receives an annual fee equal to the greater of 0.15
of 1% of the Fund's average daily net assets or $30,000.
The Fund is responsible for its own operating expenses. The Adviser has
agreed to limit the Fund's operating expenses to assure that the Fund's ratio of
operating expenses to average net assets does not exceed 1.83% through the
fiscal year ending March 31, 2000. The Adviser also may reimburse additional
amounts to the Fund at any time in order to reduce the Fund's expenses. Any such
reimbursements or payments of expenses which are the Fund's obligation may be
repaid by the Fund within three subsequent years provided the Fund is able to do
so and remain in compliance with any applicable expense limitations.
The Adviser may consider a number of factors in determining which brokers
or dealers to use for the Fund's portfolio transactions. While these are more
fully discussed in the Statement of Additional Information, the factors include,
but are not limited to, the reasonableness of commissions, quality of services
and execution, and the availability of research which the Adviser may lawfully
and appropriately use in its investment management and advisory capacities.
Provided the Fund receives prompt execution at competitive prices, the Adviser
may also consider the sale of Fund shares as a factor in selecting
broker-dealers for the Fund's portfolio transactions. The Fund will not effect
portfolio transactions with, nor pay commissions to, any broker-dealer
affiliated with the Adviser.
HOW TO INVEST IN THE FUND
The minimum initial investment is $1,000. Subsequent investments must be at
least $250. Investments in retirement plans may be for minimums of $500 and
$100, respectively. The Fund may, at its discretion, waive the minimum
investment requirements for purchases in conjunction with certain group or
periodic plans.
Investors may purchase shares of the Fund by check or by wire:
By check
Initial Investment. Complete the Fund's Account Application (included with
this Prospectus). Make your check payable to "Avondale Hester Total Return
Fund." Mail or deliver the completed Account Application and your check to the
Fund:
Avondale Hester Total Return Fund
P.O. Box 640856
Cincinnati, Ohio 45264-0856
For purchase orders sent by overnight mail, please contact the Transfer
Agent at (800) 282-2340 for instructions.
Subsequent Investments. Detach and complete the stub attached to your
account statement. Make your check payable to "Avondale Hester Total Return
Fund." Write your shareholder account number on the check. Mail or deliver the
check and reinvestment form to the Fund in the envelope provided or send to the
Fund at the address indicated above.
By wire
Initial Investment. Before wiring funds, call the Transfer Agent at (800)
282-2340 between the hours of 9:00 a.m. and 4:00 p.m. Eastern time, on a day the
New York Stock Exchange is open for trading in order to receive an account
number. 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. Provide the
Transfer Agent with your name, and the dollar amount to be invested. Complete
the Fund's Account Application (included with this Prospectus). Be sure to
include the date and the order confirmation number. Mail or deliver the
completed Application to the appropriate address shown at the top of the Account
Application. You should also ensure that the wiring bank includes the name of
the Fund and the account number with the wire. Request your bank to transmit
immediately available funds by wire for purchase of shares in your name to the
Fund's Custodian, as follows:
Star Bank, N.A.
ABA Routing Number: 0420-0001-3
Avondale Hester Total Return Fund
DDA # 483897914
(Account name and number)
Subsequent Investments. For subsequent investments, an investor should call
the Transfer Agent at (800) 282-2340 before the wire is sent. Failure to do so
will cause the purchase to be credited the next day, when the Transfer Agent
receives notice of the wire. The investor's bank should wire the funds as
indicated above. It is essential that complete information regarding the
investor's account be included in all wire instructions in order to facilitate
prompt and accurate handling of investments. Investors may obtain further
information about remitting funds in this manner from the Transfer Agent, and
any fees that may be imposed from their own banks.
General. Payments of proceeds from redemptions of shares 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 its
Distributor reserve the right to reject any purchase order.
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 does not issue share certificates. All shares are 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
Shareholders have the right to have the Fund redeem all or any portion of
their 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 be sent to: Avondale Hester Total Return Fund, American Data Services, P.
O. Box 5536, Hauppauge, NY 11788-0132. To protect the Fund and its shareholders,
a signature guarantee is required for certain transactions, including
redemptions of amounts over $5,000. 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 or wired at the
shareholder's direction the next business day to the predesignated account. The
minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds).
By establishing telephone redemption privileges, a shareholder authorizes
the Fund and its Transfer Agent to act upon the instruction of any person by
telephone to redeem from the account for which such service has been authorized
and transfer the proceeds to the bank account designated in the Authorization.
The Fund and the Transfer Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
such instructions. Neither the Fund nor the Transfer Agent will be liable for
any loss, expense, or cost arising out of any telephone redemption request,
including any fraudulent or unauthorized requests that are reasonably believed
to be genuine, provided that such procedures are followed. The Fund may change,
modify, or terminate these privileges at any time upon at least 60 days' notice
to shareholders.
Shareholders may request telephone redemption after an account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption 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 Gifts/Transfers to Minors Acts 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 the account
is less than $1,000 and will be allowed 30 days to make an additional investment
to bring the value of the account to at least $1,000 before the Fund takes any
action.
SERVICES AVAILABLE TO THE FUND'S SHAREHOLDERS
Retirement Plans. The minimum initial investment for such plans is $500,
with minimum subsequent investments of $100. The Fund also offers a prototype
Individual Retirement Account ("IRA") plan. Investors should consult a tax
adviser before establishing an IRA 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 $25), as if the shareholder had written it directly. Upon
receipt of the check, the Fund automatically invests the money in additional
shares of the Fund at the current net asset value. Applications for this service
are available from the Distributor. There is no charge by the Fund for this
service. The Fund may terminate or modify this privilege at any time, and
shareholders may terminate their participation by notifying the Transfer Agent
in writing.
Systematic Withdrawal Program. As another convenience, the Fund offers a
Systematic Withdrawal Program whereby shareholders may request that a check
drawn in a predetermined amount be sent to them each month or calendar quarter.
A shareholder's account must have Fund shares with a value of at least $10,000
in order to start a Systematic Withdrawal Program, and the minimum amount that
may be withdrawn each month or quarter under the Systematic Withdrawal Program
is $100. This Program may be terminated or modified by a shareholder or the Fund
at any time without charge or penalty.
A withdrawal under the Systematic Withdrawal Program involves a redemption
of shares, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceed the dividends credited to the
shareholder's account, the account ultimately may be depleted.
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 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 annually. Capital gain distributions, if any, are normally
paid annually, but the Fund may make an additional payment of dividends or
distributions if it is necessary at another time during the year.
Dividends and capital gains distributions (net of any required tax
withholding) are automatically reinvested in additional shares of the Fund at
the net asset value per share on the reinvestment date unless the shareholder
has previously requested in writing to the Transfer Agent that 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 (the
"Code"). As long as the Fund continues to qualify, and as long as the Fund
distributes all of its net investment income and net realized capital gains in
accordance with the timing requirements of the Code, the Fund will not be
subject to any federal income or excise taxes. However, distributions made by
the Fund will be taxable to shareholders (other than tax-exempt entities),
whether received in shares (through dividend reinvestment ) or in cash.
Distributions derived from net investment income and short-term capital gains
are taxable to shareholders as ordinary income. A portion of such distributions
may qualify for the intercorporate dividends-received deduction. Distributions
derived from long-term capital gains are taxable as such regardless of the
length of time shares of the fund have been held. Although distributions are
generally taxable when received, certain distributions made in January are
taxable as if received the prior December. Shareholders will be informed
annually of the amount and nature of the Fund's distributions.
Additional information about taxes is set forth in the Statement of
Additional Information. Shareholders should consult their own advisers
concerning federal, state and local taxation of distributions from the 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 the Investment Advisory Agreement); 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, the past five years and from the Fund's inception of
operations. The Fund may also advertise aggregate and average total return
information over different periods of time. The Fund's total return will be
based upon the value of the shares acquired through a hypothetical $1,000
investment (at the maximum public offering price) 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 at net asset value. 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.
Year 2000. Like other business organizations around the world, the Fund
could be adversely affected if the computer systems used by its Advisor and
other service providers do not properly process and calculate information
related to dates beginning January 1, 2000. This is commonly known as the "Year
2000 Issue." The Fund's Adviser is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to its own computer
systems, and it has obtained assurances from the Fund's other service providers
that they are taking comparable steps. However, there can be no assurance that
these actions will be sufficient to avoid any adverse impact on the Fund.
Shareholder Inquiries. Shareholder inquiries should be directed to the
Transfer Agent at (800) 282-2340.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus or in the Statement of Additional
Information.
Investment Adviser
Hester Capital Management, LLC
100 Congress Avenue, Suite 1920
Austin, Texas 78701
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
Transfer Agent
American Data Services
P. O. Box 5536
Hauppauge, New York 11788-0132
(800) 282-2340
Auditors
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
AVONDALE HESTER
TOTAL RETURN FUND
A fully managed mutual fund seeking the combination of income and capital
appreciation that will produce maximum total return consistent with reasonable
risk.
PROSPECTUS
October 1, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
Revised November 2, 1997
AVONDALE HESTER TOTAL RETURN FUND
a series of
PROFESSIONALLY MANAGED PORTFOLIOS
100 Congress Ave.
Austin, Texas 78701
(800) 282-2340
This Statement of Additional Information is not a prospectus, and it
should be read in conjunction with the prospectus of the Avondale Hester Total
Return Fund (the "Fund"). A copy of the prospectus of the Fund dated August 1,
1998, as revised October 1, 1998, is available by calling either of the numbers
listed above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
The Trust.......................................................................................................B-2
Investment Objective And Policies...............................................................................B-2
Investment Restrictions.........................................................................................B-4
Distributions and Tax Information...............................................................................B-6
Trustees and Executive Officers.................................................................................B-8
The Fund's Investment Advisor..................................................................................B-10
The Fund's Administrator.......................................................................................B-10
The Fund's Distributor.........................................................................................B-11
Execution of Portfolio Transactions............................................................................B-11
Additional Purchase and Redemption Information.................................................................B-13
Determination of Share Price...................................................................................B-14
Performance Information........................................................................................B-15
General Information............................................................................................B-16
Financial Statements...........................................................................................B-17
Appendix.......................................................................................................B-18
</TABLE>
Avondale Hester 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 Avondale Hester Total Return Fund is a mutual fund with the
investment objective of seeking the combination of income and capital
appreciation that will produce the maximum total return consistent with
reasonable risk. 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 debt and equity securities may be
adjusted based upon the market interpretation of the Investment Advisor of the
Fund. The following discussion supplements the discussion of the Fund's
investment objective and policies as set forth in the Prospectus. There can be
no assurance the objective of the Fund will be attained.
Repurchase Agreements
The Fund may enter into repurchase agreements as discussed in the
Prospectus. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the U.S.
Government security itself. Such repurchase agreements will be made only with
banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the
Securities and Exchange Commission ("SEC") or exempt from such registration. The
Fund will generally enter into repurchase agreements of short durations, from
overnight to one week, although the underlying securities generally have longer
maturities. The Fund may not enter into a repurchase agreement with more than
seven days to maturity if, as a result, more than 10% of the value of the Fund's
total assets would be invested in illiquid securities including such repurchase
agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. In the event of
the insolvency or default of the seller, the Fund could 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. 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.
Avondale Hester SAI B-2
<PAGE>
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.
Lending of Portfolio Securities
As noted in the Prospectus, the Fund may lend up to 30% of its
portfolio securities in order to generate additional income. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the income earned on the cash to the borrower or
placing broker. Loans are subject to termination at the option of the Fund or
the borrower at any time.
When-Issued Securities
The Fund is authorized to 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, any purchase of such securities would be made 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 designate
liquid assets with its Custodian equal in value to commitments for when-issued
securities. Such segregated assets either will mature or, if necessary, be sold
on or before the settlement date.
Foreign Securities
The Fund may invest up to 15% of its total assets in foreign
securities. Foreign economies may differ from the U.S. economy; individual
foreign companies may differ from domestic
Avondale Hester SAI B-3
<PAGE>
companies in the same industry and foreign currencies may be stronger or weaker
than the U.S. dollar. An investment may be affected by changes in currency rates
and in exchange control regulations, and the Fund may incur transaction charges
in exchanging currencies. Foreign companies are frequently not subject to the
accounting and financial reporting standards applicable to domestic companies,
and there may be less information available about foreign issuers. Foreign stock
markets may have substantially less volume than the New York Stock Exchange, and
securities of foreign issuers may be generally less liquid and more volatile
than those of comparable domestic issuers. There is frequently less government
regulation of exchanges, broker-dealers and issuers than in the United States.
In addition, investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments.
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. With respect to 75% of its total assets: (a) invest more than 5% of
its total assets (taken at market value at the time of investment) in the
securities of any one issuer, or (b) acquire more than 10% of the outstanding
voting securities of any one issuer (at the time of acquisition); except that
this restriction does not apply to securities issued or guaranteed by the United
States Government or its agencies or instrumentalities.
2. 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.
3. (a) Borrow money, except temporarily for extraordinary or emergency
purposes from a bank and then not in excess of 10% of its total assets (at the
lower of cost or fair market value). Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least 300% of all
borrowings, and no additional investments may be made while any such borrowings
are in excess of 5% of total assets.
(b) Mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowings.
4. Purchase securities on margin, sell securities short, 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.)
Avondale Hester SAI B-4
<PAGE>
5. Buy or sell interests in oil, gas or mineral exploration or
development programs, or real estate. (Does not preclude investments in
marketable securities of issuers engaged in such activities.)
6. Purchase or hold securities of any issuer, if, at the time of
purchase or thereafter, any of the Trustees or officers of the Trust or the
Fund's Investment Advisor owns beneficially more than 1/2 of 1%, and all such
Trustees or officers holding more than 1/2 of 1% together own beneficially more
than 5% of the issuer's securities.
7. Purchase or sell real estate, commodities or commodity contracts or
invest in put, call, straddle or spread options. (As a matter of operating
policy, the Board of Trustees may authorize the Fund to engage in certain
activities involving options and/or futures for bona fide hedging purposes; any
such authorization will be accompanied by appropriate notification to
shareholders.)
8. Invest, in the aggregate, more than 10% of its total assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
9. Invest in any issuer for purposes of exercising control or
management.
10. 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.)
11. 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.
The Fund observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote.
12. 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 which
in the aggregate would exceed 10% of the value of the Fund's total assets.
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.
Avondale Hester SAI B-5
<PAGE>
DISTRIBUTIONS AND TAX INFORMATION
Distributions
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually. Also, the Fund expects
to distribute any undistributed net investment income on or about December 31 of
each year. Any net capital gains realized through the period ended October 31 of
each year will also be distributed by December 31 of each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
Tax Information
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to continue to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), provided it complies with all
applicable requirements regarding the source of its income, diversification of
its assets and timing of distributions. The Fund's policy is to distribute to
its shareholders all of its investment company taxable income and any net
realized long-term capital gains for each fiscal year in a manner that complies
with the distribution requirements of the Code, so that the Fund will not be
subject to any federal income or excise taxes. To comply with the requirements,
the Fund must also distribute (or be deemed to have distributed) by December 31
of each calendar year (i) at least 98% of its ordinary income for such year,
(ii) at least 98% of the excess of its realized capital gains over its realized
capital losses for the 12-month period ending on October 31 during such year and
(iii) any amounts from the prior calendar year that were not distributed and on
which the Fund paid no federal income tax.
Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
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
Avondale Hester SAI B-6
<PAGE>
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 during the 90-day period that begins 45 days before the stock
becomes ex-dividend with respect to the dividend.
Any long-term capital gain distributions are taxable to shareholders as
long-term or mid-term capital gains, respectively, regardless of the length of
time shares have been held. 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 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
Avondale Hester SAI B-7
<PAGE>
an investment in the Fund. Shareholders are advised to consult with their own
tax advisers concerning the application of federal, state and local taxes to an
investment in the Fund.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
This discussion and the related discussion in the prospectus have been
prepared by Fund management, and counsel to the Fund has expressed no opinion in
respect thereof.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by
the initial shareholders of the Trust, are responsible for the overall
management of the Trust, including general supervision and review of the
investment activities of the Fund. The Trustees, in turn, elect the officers of
the Trust, who are responsible for administering the day-to-day operations of
the Trust and its separate series. The current Trustees and officers, their
affiliations, dates of birth and principal occupations for the past five years
are set forth below.
Steven J. Paggioli,* 04/03/50 President and Trustee
479 West 22nd Street, New York, NY 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, 09/12/43 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, 09/10/39 Trustee
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Avondale Hester SAI B-8
<PAGE>
Carl A. Froebel, 05/23/38 Trustee
2 Crown Cove Lane, Savannah, GA 31411. Private Investor. Formerly Managing
Director, Premier Solutions, Ltd. (asset management computer and software
products). Formerly President and Founder, National Investor Data Services, Inc.
(investment related computer software).
Rowley W.P. Redington, 06/01/44 Trustee
1191 Valley Road, Clifton, NJ 07103. President, Intertech (consumer electronics
and computer service and marketing); formerly Vice President, PRS of New Jersey,
Inc. (management consulting), and Chief Executive Officer, Rowley Associates
(consultants).
Robert M. Slotky* 06/17/47 Treasurer
2020 E. Financial Way, Suite 100, Glendora, California 91741. Senior Vice
President, Investment Company Administration Corporation since May, 1997;
formerly instructor of accounting at California State University - Northridge
(1997); Chief Financial Officer, Wanger Asset management, L.P. and Treasurer of
Acorn Investment Trust (1992 - 1996).
Robin Berger*, 11/17/56 Secretary
479 West 22nd St., New York, NY 10011. Vice President, The Wadsworth Group since
June, 1993.
Robert H. Wadsworth*, 01/25/40 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, AZ 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 $10,000 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
$5,000. 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.
Avondale Hester SAI B-9
<PAGE>
Name of Trustee Total Annual Compensation
Dorothy A. Berry $25,000
Wallace L. Cook $20,000
Carl A. Froebel $20,000
Rowley W.P. Redington $20,000
During the fiscal year ended March 31, 1998, trustees' fees and
expenses in the amount of $5,221 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 Hester Capital Management, L.L.C., the Advisor, pursuant to an
Investment Advisory Agreement. Prior to September 1, 1998, advisory services
were provided by Herbert R. Smith, Incorporated.
For the fiscal years ended March 31, 1996, March 31, 1997 and March 31,
1998, Herbert R. Smith, Incorporated, the previous advisor received investment
advisory fees of $58,529, $71,531 and $75,323, respectively, under the
Investment Advisory Agreement.
The Advisor is a registered investment advisor located at 100 Congress
Avenue, Austin, TX 78701, and provides investment advisory service to
individuals and institutions with assets of approximately $500 million. The
Advisor is a majority-owned subsidiary of Morgan Asset Management, Inc., which
is owned by Morgan Keegan & Co., a New York Stock Exchange listed, brokerage and
investment firm headquartered in Memphis, Tennessee. Mr. I. Craig Hester,
President, and Mr. John Gunthorp, Executive Vice President, are responsible for
the management of the Fund's portfolio. Each has been associated with the
Advisor for more than the past five years.
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
Avondale Hester SAI B-10
<PAGE>
and Wadsworth with offices at 4455 E. Camelback Rd., Ste. 261-E, Phoenix, AZ
85018. The Administration Agreement provides that the Administrator will prepare
and coordinate reports and other materials supplied to the Trustees; prepare
and/or supervise the preparation and filing of all securities filings, periodic
financial reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required filings necessary to maintain
the Fund's qualification and/or registration to sell shares in all states where
the Fund currently does, or intends to do business; coordinate the preparation,
printing and mailing of all materials (e.g., Annual Reports) required to be sent
to shareholders; coordinate the preparation and payment of Fund related
expenses; monitor and oversee the activities of the Fund's servicing agents
(i.e., transfer agent, custodian, fund accountants, etc.); review and adjust as
necessary the Fund's daily expense accruals; and perform such additional
services as may be agreed upon by the Fund and the Administrator. For its
services, the Administrator receives an annual fee equal to the greater of .15%
of the Fund's average daily net assets or $30,000.
During each of the fiscal years ended March 31, 1996, March 31, 1997
and March 31, 1998, respectively, the Administrator received fees of $30,000.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), a corporation owned
by Messrs. Banhazl, Paggioli and Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
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
Avondale Hester SAI B-11
<PAGE>
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 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. In this regard, during the fiscal year ended March 31, 1998, substantially
all of the brokerage commissions paid by the Fund were directed to the selected
brokers because of research services provided and were effected at rates
believed by Herbert R. Smith, Incorporated, the former Advisor, to be higher
than otherwise obtainable, but reasonable in relation to the services provided.
The services obtained by this allocation of brokerage included the Bridge
Trading System software and data access fees and research reports from William
O'Neil & Co.
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
Avondale Hester SAI B-12
<PAGE>
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. For the fiscal years ended March 31, 1996, March 31, 1997 and
March 31, 1998, respectively, the aggregate brokerage commissions paid by the
Fund were $15,895, $16,852 and $7,960.
Of the total commissions paid by the Fund during the fiscal year ended
March 31, 1998, $4,830 (60.68%) was paid to firms for research, statistical or
other services provided to the former Advisor.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Advisor or the Distributor such rejection
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
Payments to shareholders for shares of the Fund redeemed directly from
the Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund
Avondale Hester SAI B-13
<PAGE>
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 Day. 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.
Avondale Hester SAI B-14
<PAGE>
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. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period .
The average annual compounded rate of returns, or total return, for the
Fund for the one year and five year periods and from the period from inception
of the Fund on October 12, 1988 through March 31, 1998 were 37.65%, 13.51% and
11.65%, respectively.
Avondale Hester SAI B-15
<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 N.A., 425 Walnut Street, Cincinnati, OH 45202 acts as
Custodian of the securities and other assets of the Fund. American Data
Services, Inc., P.O. Box 5536, Hauppauge, NY 11788- 0132 is the Fund's transfer
and shareholder service agent. The Custodian and Transfer Agent do not
participate in decisions relating to the purchase and sale of securities by the
Fund.
Tait, Weller & Baker, Eight Penn Center Plaza, Philadelphia, PA 19103,
are the independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th
Floor, San Francisco, California 94104, are legal counsel to the Fund.
The following persons are beneficial owners of more than 5% of the
Fund's outstanding voting securities as of October 30, 1998. An asterisk (*)
denotes an account affiliated with the Fund's investment advisor, officers or
trustees:
Westwood Trust, Trustee, Humphrey Printing Co. Profit Sharing Trust;
200 Crescent Ct., Dallas, TX 75201; 6.769%
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 the unlikely 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 registration does not involve supervision by the SEC of the
management or policies of the Fund.
Avondale Hester SAI B-16
<PAGE>
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, or may be accessed via the world wide web at
http://www.sec.gov.
FINANCIAL STATEMENTS
The annual report to shareholders for the Fund for its most recent
fiscal year end 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.
Avondale Hester SAI B-17
<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.
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.
Avondale Hester SAI B-18
<PAGE>
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.
Avondale Hester SAI B-19
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
FORM N-1A
PART C
Item 23. Exhibits.
(1) Agreement and Declaration of Trust (1)
(2) By-Laws (1)
(3) Specimen stock certificate (6)
(4) Form of Investment Advisory Agreement
(5) Form of Distribution Agreement (2)
(6) Not applicable
(7) Form of Custodian Agreement with Star Bank, NA (5)
(8) (1) Form of Administration Agreement with Investment
Company Administration Corporation (3)
(2)(a) Fund Accounting Service Agreement with
American Data Services (5)
(2)(b) Transfer Agency and Service Agreement with
American Data Services (5)
(3) Transfer Agency and Fund Accounting Agreement with
Countrywide Fund Services (4)
(4) Transfer Agency Agreement with Provident Financial
Processing Corporation (7)
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) Not applicable
(12) No undertaking in effect
(13) Form of Plan pursuant to Rule 12b-1 (2)
(14) Financial Data Schedule
(filed as Exhibit 27 for electronic filing purposes)
(15) Not applicable
1 Incorporated by reference from Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A, filed on December 29, 1995.
2 Incorporated by reference from Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, filed on January 16, 1996.
3 Incorporated by reference from Post-Effective Amendment No. 35 to the
Registration Statement on Form N-1A, filed on April 24, 1997.
4 Incorporated by reference from Post-Effective Amendment No. 43 to the
Registration Statement on Form N-1A, filed on February 5, 1998.
5 Incorporated by reference from Post-Effective Amendment No. 48 to the
Registration Statement on Form N-1A, filed on June 15, 1998.
6 Incorporated by reference from Post-Effective Amendment No. 52 to the
Registration Statement on Form N-1A, filed on October 29, 1998.
7 To be filed by amendment.
Item 24. 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 25. 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 26. 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 27. 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
Brandes Investment Trust
Fleming Mutual Fund Group
Fremont Mutual Funds
Guinness Flight Investment Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Purisima Funds
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group
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 28. 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 2020 E. Financial Way, Ste. 100, Glendora,
CA 91741.
Item 29. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 30. Undertakings
The registrant undertakes:
(a) To furnish each person to whom a Prospectus is delivered a
copy of Registrant's latest annual report to shareholders,
upon request and without charge.
(b) If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, to call a meeting of shareholders
for the purposes of voting upon the question of removal of a
director and assist in communications with other shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York in the State of New York on
November 2, 1998.
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 November 2, 1998
Steven J. Paggioli
/S/ Eric M. Banhazl Principal November 2, 1998
Eric M. Banhazl Financial
Officer
Dorothy A. Berry Trustee November 2, 1998
*Dorothy A. Berry
Wallace L. Cook Trustee November 2, 1998
*Wallace L. Cook
Carl A. Froebel Trustee November 2, 1998
*Carl A. Froebel
Rowley W. P. Redington Trustee November 2, 1998
*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
PROFESSIONALLY MANAGED PORTFOLIOS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this day of , 1998 by and between PROFESSIONALLY
MANAGED PORTFOLIOS (the "Trust"), a Massachusetts business trust and Hester
Capital Management, L.L.C., a Texas limited liability corporation (the
"Advisor").
WITNESSETH:
WHEREAS, a series of the Trust having separate assets and liabilities has
been created entitled the Avondale Hester Total Return Fund (the "Fund"); and
WHEREAS, it is therefore desirable to have an investment advisory
agreement (i.e., this Agreement) relating to the Fund, which agreement will
apply only to this Fund;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed by and among the parties hereto as
follows:
l. In General
The Advisor agrees, all as more fully set forth herein, to act as
investment adviser to the Trust with respect to the investment of the assets
of the Fund and to supervise and arrange the purchase and sale of securities
held in the portfolio of the Fund.
2. Duties and Obligations of the Advisor with respect to Investment of
Assets of the Fund.
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees of the
Trust, the Advisor shall:
(i) Decide what securities shall be purchased or sold by the
Trust with respect to the Fund and when; and
(ii) Arrange for the purchase and the sale of
securities held in the portfolio of the Fund by placing
purchase and sale orders for the Trust with respect to the Fund.
(b) Any investment purchases or sales made by the Advisor shall
at all times conform to, and be in accordance with, any requirements
imposed by: (l) the provisions of the 1940 Act and of any rules or
regulations in force thereunder; (2) any other applicable provisions
of law; (3) the provisions of the Declaration of Trust and By-Laws of the
Trust as amended from time to time; (4) any policies and determinations
of the Board of Trustees of the Trust; and (5) the fundamental policies
of the Trust relating to the Fund, as reflected in the Trust's registration
statement under the 1940 Act (including by reference the Statement of
Additional Information) as such registration statement is amended from
time to time, or as amended by the shareholders of the Fund.
(c) The Advisor shall give the Trust the benefit of its best
judgment and effort in rendering services hereunder, but the Advisor shall
not be liable for any loss sustained by reason of the purchase, sale or
retention of any security whether or not such purchase, sale or
retention shall have been based on its own investigation and research or
upon investigation and research made by any other individual, firm or
corporation, if such purchase, sale or retention shall have been made and
such other individual, firm or corporation shall have been selected in
good faith. Nothing herein contained shall, however, be construed to
protect the Advisor against any liability to the Trust or its security
holders by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of obligations and duties under this Agreement.
(d) Nothing in this Agreement shall prevent the Advisor or
any affiliated person (as defined in the 1940 Act) of the Advisor from
acting as investment adviser or manager and/or principal underwriter for
any other person, firm or corporation and shall not in any way limit or
restrict the Advisor or any such affiliated person from buying, selling
or trading any securities for its or their own accounts or the accounts of
others for whom it or they may be acting, provided, however, that the
Advisor expressly represents that it will undertake no activities which,
in its judgment, will adversely affect the performance of its
obligations to the Trust under this Agreement.
(e) It is agreed that the Advisor shall have no
responsibility or liability for the accuracy or completeness of the
Trust's Registration Statement under the 1940 Act or the Securities Act of
1933 except for information supplied by the Advisor for inclusion therein.
The Trust may indemnify the Advisor to the full extent permitted by the
Trust's Declaration of Trust.
The Fund may use the name Avondale Hester Total Return Fund or any name
derived from or using the name Avondale Hester Total Return Fund only
for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect. At such time as such an
agreement shall no longer be in effect, the Fund shall cease to use
such a name or any other name connected with the Advisor.
3. Broker-Dealer Relationships
The Advisor is responsible for decisions to buy and sell securities
for the Fund, broker-dealer selection, and negotiation of brokerage commission
rates. The Advisor's primary consideration in effecting a securities
transaction will be execution at the most favorable price. In selecting a
broker-dealer to execute each particular transaction, the Advisor will take
the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the
expected contribution of the broker-dealer to the investment performance of
the Fund on a continuing basis. Accordingly, the price to the Fund in any
transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of
the portfolio execution services offered. Subject to such policies as the
Board of Trustees of the Trust may determine, the Advisor shall not be
deemed to have acted unlawfully or to have breached any duty created by
this Agreement or otherwise solely by reason of its having caused the Fund
to pay a broker or dealer that provides brokerage or research services to the
Advisor an amount of commission for effecting a portfolio transaction in
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Advisor's overall
responsibilities with respect to the Trust. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Fund to such brokers or
dealers who also provide research or statistical material, or other services, to
the Trust, the Advisor, or any affiliate of either. Such allocation shall be in
such amounts and proportions as the Advisor shall determine, and the Advisor
shall report on such allocations regularly to the Trust, indicating the
broker-dealers to whom such allocations have been made and the basis therefor.
The Advisor is also authorized to consider sales of shares as a factor in the
selection of brokers or dealers to execute portfolio transactions, subject to
the requirements of best execution, i.e., that such brokers or dealers are able
to execute the order promptly and at the best obtainable securities price.
4. Allocation of Expenses
The Advisor agrees that it will furnish the Trust, at the Advisor's
expense, with office space and facilities, equipment and clerical personnel
necessary for carrying out its duties under this Agreement. The Advisor
will also pay all compensation of any Trustees, officers and employees of
the Trust who are affiliated persons of the Advisor. All operating costs and
expenses relating to the Fund not expressly assumed by the Advisor under this
Agreement shall be paid by the Trust from the assets of the Fund, including, but
not limited to (I) interest and taxes; (ii) brokerage commissions; (iii)
insurance premiums; (iv) compensation and expenses of the Trust's Trustees other
than those affiliated with the Advisor or the Manager; (v) legal and audit
expenses; (vi) fees and expenses of the Trust's custodian, shareholder servicing
or transfer agent and accounting services agent; (vii) expenses incident to the
issuance of the Fund's shares, including issuance on the payment of, or
reinvestment of, dividends; (viii) fees and expenses incident to the
registration under Federal or state securities laws of the Trust or the shares
of the Fund; (ix) expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders of the Trust; (x) all other expenses
incidental to holding meetings of the Trust's shareholders; (xi) dues or
assessments of or contributions to the Investment Company Institute or any
successor; and (xii) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations which the Trust
may have to indemnify its officers and Trustees with respect thereto;
5. Compensation of the Advisor
(a) The Trust agrees to pay the Advisor and the Advisor agrees
to accept as full compensation for all services rendered by the
Advisor hereunder, an annual management fee, payable monthly and
computed on the value of the net assets of the Fund as of the close of
business each business day according to the following schedule:
0.70% on the first $200 million of net assets; 0.60% on the next
$300 million of net assets; and 0.50% on net assets exceeding $500
million.
(b) In the event the expenses of the Fund (including the fees
of the Advisor and amortization of organization expenses but excluding
interest, taxes, brokerage commissions, extraordinary expenses and
sales charges and any distribution fees) for any fiscal year
exceed the limits set by applicable regulations of state
securities commissions where the Fund is registered or qualified
for sale, the Advisor will reduce its fees by the amount of such
excess. Any such reductions are subject to readjustment during the
year. The payment of the advisory fee at the end of any month will be
reduced or postponed or, if necessary, a refund will be made to
the Fund so that at no time will there be any accrued but unpaid
liability under this expense limitation. The Advisor may reduce any
portion of the compensation or reimbursement of expenses due to it
under this agreement, or may agree to make payments to limit the
expenses which are the responsibility of the Fund. Any such reduction
or payment shall be applicable only to such specific reduction or
payment and shall not constitute an agreement to reduce any future
compensation or reimbursement due to the Advisor hereunder or to
continue future payments. Any fee withheld from the Advisor under this
paragraph shall be reimbursed by the Fund to the Advisor to the extent
permitted by the applicable state law if the aggregate expenses for
the next succeeding fiscal year do not exceed the applicable state
limitation or any more restrictive limitation to which the Advisor
has agreed.
6. Duration and Termination
(a) This Agreement shall go into effect on the effective date of the
Post-Effective Amendment of the Registration Statement of the Trust
covering the shares of the Fund and shall, unless terminated as
hereinafter provided, continue in effect for a period of two years from
that date, and thereafter from year to year, but only so long as such
continuance is specifically approved at least annually by the Trust's
Board of Trustees, including the vote of a majority of the Trustees
who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such party cast in person at a meeting
called for the purpose of voting on such approval, or by the vote of the
holders of a "majority" (as so defined) of the outstanding voting
securities of the Fund and by such a vote of the Trustees.
(b) This Agreement may be terminated by the Advisor at any time without
penalty upon giving the Trust sixty (60) days' written notice (which
notice may be waived by the Trust) and may be terminated by the Trust at
any time without penalty upon giving the Advisor sixty (60) days' written
notice (which notice may be waived by the Advisor), provided that such
termination by the Trust shall be directed or approved by the vote of a
majority of all of its Trustees in office at the time or by the vote of
the holders of a majority (as defined in the 1940 Act) of the voting
securities of the Trust at the time outstanding and entitled to vote. This
Agreement shall automatically terminate in the event of its assignment
(as so defined).
7. Agreement Binding Only on Fund Property
The Advisor understands that the obligations of this Agreement are
not binding upon any shareholder of the Trust personally, but bind
only the Trust's property; the Advisor represents that it has notice
of the provisions of the Trust's Declaration of Trust disclaiming
shareholder liability for acts or obligations of the Trust. This
agreement has been executed by or with reference to any Trustee in such
person's capacity as a Trustee, and the Trustees shall not be personally
liable hereon.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by duly authorized persons and their seals to be hereunto affixed,
all as of the day and year first above written.
PROFESSIONALLY MANAGED PORTFOLIOS
_______________________________________
By:
Title:
ATTEST:
HESTER CAPITAL MANAGEMENT, LLC
________________________________________
By:
Title:
ATTEST:
GASTON SNOW & ELY BARTLETT
COUNSELLORS AT LAW
101 CALIFORNIA ST. SUITE 3000
SAN FRANCISCO, CALIFORNIA 94111
415-982-5444
April 9, 1987
Avondale Investment Trust
1105 Holliday
Wichita Falls, Texas 76301
Gentlemen:
We understand that Avondale Investment Trust, a Massachusetts business trust
(the Trust), has filed with the Securities and Exchange Commission a
Registration Statement on Form N-1A under the Securities Act Of 1933 and the
Investment Company Act of 1940. We also understand that pursuant to said
Registration Statement, the Trust has elected to register an indefinite number
of shares of beneficial interest pursuant to Rule 24f-2 under the Investment
Company Act of 1940.
In connection with the registration of such Shares, we have examined the Trust's
Agreement and Declaration of Trust, its By-Laws, and the Registration Statement,
all as amended, or proposed to be amended, including all exhibits thereto, as
well as such other records and documents as we have deemed necessary. Based
upon such examination, we are of the opinion that:
1. The Trust has been duly organized and is validly existing in good
standing as a business trust under the laws of the Commonwealth of
Massachusetts; and
2. The shares of beneficial interest in the Trust to be offered to
the public have been duly authorized for issuance and will be legally
issued, fully paid and nonassessable when said shares have been issued
and sold in accordance with the terms and in the manner set forth in the
Trust's Registration Statement, as amended.
The opinion in the foregoing paragraph is subject to the possible personal
liability of the shareholders of the Trust to the extent they may be deemed
partners and liable for the Trust's obligations, as described in the
Registration Statement.
We hereby consent to the filing Of this opinion as an exhibit to the Trust's
Registration Statement and to the reference of our name in the documents
comprising said Registration Statement.
Sincerely yours,
GASTON SNOW & ELY BARTLETT
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment to the
Registration Statement on Form N-1A of Professionally Managed Portfolios and to
the use of our report dated April 24, 1998 on the financial statements and
financial highlights of the Avondale Total Return Fund series of
Professionally Managed Portfolios. Such financial statements and financial
highlights appear in the Annual Report to Shareholders which is incorporated by
reference into the Statement of Additional Information.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 2, 1998
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