SECURITIES ACT FILE NO. 33-12213
INVESTMENT COMPANY ACT FILE NO. 811-5037
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 60 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 61 [X]
(Check appropriate box or boxes)
PROFESSIONALLY MANAGED PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
915 Broadway
New York, NY 10010
(Address of Principal Executive Offices)
(212) 633-9700
(Registrant's Telephone Number, including Area Code)
Steven J. Paggioli
Professionally Managed Portfolios
915 Broadway
New York, NY 10010
(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)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On pursuant to paragraph (a)(1)
[X] 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>
PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 13, 1999
PORTFOLIO 21,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
Portfolio 21 is a growth stock mutual fund. The Fund seeks to provide
investors with long-term growth of capital.
The Securities and Exchange Commission has not approved or disapproved of
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is __________ , 1999
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE
<PAGE>
AN OVERVIEW OF THE PORTFOLIO
PORTFOLIO 21'S INVESTMENT GOALS
The Portfolio seeks long-term growth of capital.
PORTFOLIO 21'S PRINCIPAL INVESTMENT STRATEGIES
The Portfolio will primarily invest in common stocks of domestic and
foreign companies that satisfy certain environmental responsibility criteria.
Portfolio 21 refers to the 21st century and the forward thinking that will be
required to sustain us in the new century. In selecting investments, among other
factors, the Advisor will concentrate on those companies that have made a
commitment to environmental sustainability and have demonstrated this commitment
through their business strategies, practices and investments. The Advisor
employs a "bottom-up" approach to stock selection.
PRINCIPAL RISKS OF INVESTING IN PORTFOLIO 21
There is the risk that you could lose money on your investment in the
Portfolio. For example, the following risks could affect the value of your
investment:
* The stock market goes down
* Interest rates go up which can result in a decline in the equity
market
* Growth stocks fall out of favor with the stock market
* Stocks held by the Portfolio may not increase their earnings at the
rate anticipated
* Securities of smaller-capitalization companies involve greater risk
than investing larger- capitalization companies
* Adverse developments occur in foreign markets. Foreign investments
involve greater risk.
* The Portfolio's environmental policy could cause it to underperform
similar funds that do not have an environmental policy.
WHO MAY WANT TO INVEST IN PORTFOLIO 21
The Portfolio may be appropriate for investors who:
* Want an equity investment in companies that are environmentally
responsible
* Are pursuing a long-term goal such as retirement
2
<PAGE>
* Want to add an investment with growth potential to diversify their
investment portfolio
* Are willing to accept higher short-term risk along with higher
potential for long-term growth
The Portfolio may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short-term goal or investing emergency reserves
FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE PORTFOLIO.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price ) ............................ None
Maximum deferred sales charge (load)
(as a percentage of the lower of original purchase
price or redemption proceeds) ................................... None
ANNUAL FUND OPERATING EXPENSES*
(expenses that are deducted from Portfolio assets)
Management Fees ..................................................... 1.00%
Other Expenses ......................................................
Total Annual Fund Operating Expenses ................................
----
* Other Expenses are estimated for the first fiscal year of the Portfolio.
The Advisor has agreed to reduce its fees and/or pay expenses of the
Portfolio to insure that the Portfolio's Total Annual Fund Operating
Expenses will not exceed 1.50% for a minimum period ending March 31, 2000.
The Advisor reserves the right to be reimbursed for any waiver of its fees
or expenses paid on behalf of the Portfolio if the Portfolio's expenses are
less than the limit agreed to by the Portfolio. The Trustees may terminate
this expense reimbursement arrangement at any time.
EXAMPLE
This Example is intended to help you compare the costs of investing in shares of
the Portfolio with the cost of investing in other mutual funds.
3
<PAGE>
The Example assumes that you invest $10,000 in the Portfolio for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Portfolio's operating expenses remain the same. Although your actual costs may
be higher or lower, under the assumptions, your costs would be:
One Year ............................ $
Three Years ......................... $
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
The Portfolio's investment goal is long-term growth of capital.
The Portfolio is a non-diversified fund that will concentrate its
investments in stocks selected for their growth potential. The Portfolio may
invest in companies of any size, from larger, well-established companies to
smaller, emerging growth companies. The Portfolio may invest in domestic as well
as foreign securities, including American Depositary Receipts ("ADRs").
The Portfolio will concentrate its investments in companies that have made
a commitment to environmental sustainability and have demonstrated this
commitment through their business strategies, practices and investments. The
Advisor believes the essence of environmental sustainability is the
acknowledgment of the limits of nature and society's dependence on nature. It
recognizes the fundamental challenge we face: meeting human needs without
undermining nature's ability to support our economy in the future. Some of these
companies are changing the landscape of the industry they are in or are forcing
others in their industry to catch up. Others have product lines that are
ecologically superior to their competition. Still others are developing vitally
needed technologies that will provide cleaner energy sources for the future.
Companies selected for consideration must display some or all of the
following qualities:
* Corporate leadership that has made an explicit commitment to
sustainable practices and has allocated significant resources to
achieve these goals
* Earnings improvements that are derived from the efficient use and
reuse of resources
* Ecologically superior product lines
* Investments in renewable energy
* Innovative transportation and distribution strategies
* Fair and efficient use of resources with respect to meeting human
needs
The Advisor focuses on individual companies that meet their environmental
sustainability criteria. This is often referred to as a "bottom-up" approach to
investing. The Advisor then consider's the company's standing relative to its
competition in such areas as the ecological impact of its products and services,
investments in sustainable technologies and processes, resource efficiency,
waste and pollution intensity and environmental management. Companies that meet
these criteria are investigated further through a review of their financial and
environmental statements, third party research and personal contact with company
representatives.
4
<PAGE>
On an ongoing basis, all companies are reviewed to confirm their continued
commitment to sustainability. Decisions to sell a security will be made when one
or both of the following occurs:
* The company no longer meets the environmental sustainability criteria
* The company no longer meets minimum financial standards
Under normal market conditions, the Portfolio will say fully invested in
stocks. However, the Portfolio may temporarily depart from its principal
investment strategies by making short-term investments in cash equivalents in
response to adverse market, economic or political conditions. This may result in
the Portfolio not achieving its investment objective.
In keeping with its investment approach, the Advisor does not anticipate
frequent buying and selling of securities. This means that the Portfolio should
have a low rate of portfolio turnover and the potential to be a tax efficient
investment. This should result in the realization and distribution to
shareholders of lower capital gains, which would be considered tax efficient.
The anticipated lack of frequent trading also leads to lower transaction costs,
which could help to improve performance.
RISKS OF INVESTING IN THE PORTFOLIO
The principal risks of investing in the Portfolio that may adversely affect
the Portfolio's net asset value or total return are discussed above in
"Principal Risks of Investing in Portfolio 21." These risks are discussed in
more detail below.
MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than it
was worth at an earlier time. Market risk may affect a single issuer, industry,
sector of the economy or the market as a whole.
MANAGEMENT RISK. The risk that a strategy used by the Advisor may fail to
produce the intended result.
SMALLER AND NEWER COMPANIES RISK. Investing in securities of smaller and
newer companies may involve greater risk than investing in larger companies
because they can be subject to more abrupt or erratic share price changes than
larger companies. Small companies may have limited product lines, markets or
financial resources and their management may be dependent on a limited number of
key individuals. Securities of these companies may have limited market liquidity
and their prices may be more volatile.
FOREIGN SECURITIES RISK. The risk of investing in the securities of foreign
companies is greater than the risk of investing in domestic companies. Some of
these risks include: (1) unfavorable changes in currency exchange rates; (2)
5
<PAGE>
economic and political instability; (3) less publicly available information; (4)
less strict auditing and financial reporting requirements; (5) less governmental
supervision and regulation of securities markets; (6) higher transaction costs;
(7) potential adverse effects of the euro conversion; and (8) greater
possibility of not being able to sell securities on a timely basis.
ENVIRONMENTAL SUSTAINABILITY POLICY RISK. The Portfolio's environmental
sustainability policy could cause it to underperform similar funds that do not
have such a policy. Among the reasons for this are (a) growth stocks that meet
the Portfolio's environmental sustainability criteria could underperform those
stocks that do not meet this criteria; and (b) a company's environmental
policies could cause the Portfolio to sell or not purchase stocks that
subsequently perform well.
YEAR 2000 RISK. The risk that the Portfolio's operations could be disrupted
by year 2000- related computer system problems. This situation may negatively
affect the companies in which the Portfolio invests and by extension the value
of the Portfolio's shares. Although the Portfolio's service providers are taking
steps to address this issue, there may still be some risk of adverse effects.
INVESTMENT ADVISOR
Progressive Investment Management Corporation is the investment advisor to
the Portfolio. The investment advisor's address is 2435 SW Fifth Avenue,
Portland, OR 97201. The investment advisor, which was established in 1987,
provides socially responsible investment management services to individual and
institutional investors and manages assets of approximately $140 million. The
investment advisor provides advice on buying and selling securities. The
investment advisor also furnishes the Portfolio with office space and certain
administrative services and provides most of the personnel needed by the
Portfolio. For its services, the Portfolio pays the investment advisor a monthly
management fee based upon the average daily net assets of the Portfolio at the
rate of 1.00% annually.
The Portfolio will be managed by a committee of investment professionals
associated with the Advisor.
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
There are several ways to purchase shares of the Portfolio. An Application
Form, which accompanies this Prospectus, is used if you send money directly to
the Portfolio by mail or by wire. If you have questions about how to invest, or
about how to complete the Application Form, please call __________. To open an
account by wire or to open an retirement account, call _________ for
instructions. You may also buy shares of the Portfolio through your financial
representative. After your account is open, you may add to it at any time. The
Portfolio reserves the right to reject any purchase in whole or in part.
6
<PAGE>
You may buy and sell shares of the Portfolio through certain brokers (and
their agents) that have made arrangements with the Portfolio to sell its shares.
When you place your order with such a broker or its authorized agent, your order
is treated as if you had placed it directly with the Portfolio's Transfer Agent,
and you will pay or receive the next price calculated by the Portfolio. The
broker (or agent) holds your shares in an omnibus account in the broker's (or
agent's) name, and the broker (or agent) maintains your individual ownership
records. The Advisor may pay the broker (or its agent) for maintaining these
records as well as providing other shareholder services. The broker (or its
agent) may charge you a fee for handling your order. The broker (or agent) is
responsible for processing your order correctly and promptly, keeping you
advised regarding the status of your individual account, confirming your
transactions and ensuring that you receive copies of the Portfolio's prospectus.
You may open a Portfolio account with $5,000 and add to your account at any
time with $100 or more. You may open a retirement account with $1,000 and add to
your account at any time with $100 or more. Automatic investment plans allow you
to open a Fund account with $1,000 and add to your account with $100 or more.
The minimum investment requirements may be waived from time to time by the
Portfolio.
BY MAIL. You may send money to the Portfolio by mail. All purchases by
check should be in U.S. dollars. Third party checks and cash will not be
accepted. If you wish to invest by mail, simply complete the Application Form
and mail it with a check (made payable to the "Portfolio 21") to the Portfolio
at the following address:
Portfolio 21
P.O. Box _______________
Kansas City, MO 64141-____
If you are making a subsequent purchase, a stub is attached to the account
statement you will receive after each transaction. Detach the stub from the
statement and mail it together with a check made payable to "Portfolio 21" in
the envelope provided with your statement to the address noted above. Your
account number should be written on the check.
BY OVERNIGHT DELIVERY. If you wish to send your Application Form and check
via an overnight delivery service (such as FedEx), delivery cannot be made to a
post office. In that case, you should use the following address:
Portfolio 21
c/o National Financial Data Services
330 West 9th Street
Kansas City, MO 64105
BY WIRE. If you are making an initial investment in the Portfolio, before
you wire funds you should call the Transfer Agent at (800) _______ to advise
them that you are making an investment by wire. The Transfer agent will give you
your account number. The Transfer Agent will ask for your name and the dollar
7
<PAGE>
amount you are investing. You will then receive your account number and an order
confirmation number. You should then complete the Fund Account Application
included with this Prospectus. Include the date and the order confirmation
number on the Account Application and mail the completed Account Application to
the address at the top of the Account Application. Your bank should transmit
immediately available funds by wire in your name to:
Investors Fiduciary Trust Company
ABA Routing Number: _____________
for credit to Portfolio 21
DDA #_______________
for further credit to [your name and account number]
Your bank may charge you a fee for sending a wire to the Portfolio
If you are making a subsequent purchase, your bank should wire funds as
indicated above. Before each wire purchase, you should be sure to notify the
Transfer Agent. It is essential that your bank include complete information
about your account in all wire instructions. If you have questions about how to
invest by wire, you may call the Transfer Agent. Your bank may charge you a fee
for sending a wire to the Portfolio.
AUTOMATIC INVESTMENT PLAN. You may make regular investments through
automatic periodic deductions from your bank checking or savings account. Under
this Plan, after your initial investment, you authorize the Portfolio to
withdraw from your personal checking or savings account each month an amount
that you wish to investment which must be at least $100. If you wish to invest
on a periodic basis, when opening your Portfolio account complete the Automatic
Investment Plan section of the Account Application Form and mail it to the
Portfolio at the address listed above. Current shareholders may choose at any
time to enroll in the Automatic Investment Plan. Call (800) ______ for
instructions. The Portfolio may terminate or modify this privilege at any time.
You may terminate your participation in the Plan at any time by notifying the
Transfer Agent in writing. Your termination letter must be received by the
Transfer Agent sufficiently in advance of the next scheduled withdrawal.
RETIREMENT PLANS. The Portfolio offers an Individual Retirement Account
("IRA") plan. You may obtain information about opening an IRA account by calling
___________. If you wish to open another type of retirement plan, please contact
the Portfolio at ______________..
HOW TO SELL SHARES
You may sell (redeem) your Portfolio shares on any day the Portfolio and
the New York Stock Exchange ("NYSE") are open for business either directly to
the Portfolio or through your investment representative.
8
<PAGE>
BY MAIL. You may redeem your shares by simply sending a written request to
the Transfer Agent. You should give your account number and state whether you
want all or some of your shares redeemed. The letter should be signed by all of
the shareholders whose names appear in the account registration. Call the
Transfer Agent for details. You should send your redemption request to:
Portfolio 21
c/o National Financial Data Services
P.O. Box _____________
Kansas City.., MO 64141-____
BY TELEPHONE. If you complete the Redemption by Telephone portion of the
Account Application, you may redeem all or some of your shares by calling the
Transfer Agent at _________ before the close of trading on the NYSE. This is
normally 4:00 p.m. Eastern time. Redemption proceeds will be mailed on the next
business day to the address that appears on the Transfer Agent's records. If you
request, redemption proceeds will be wired on the next business day to the bank
account you designated on the Account Application. The minimum amount that may
be wired is $1,000. Wire charges, if any, will be deducted from your redemption
proceeds. Telephone redemptions cannot be made if you notify the Transfer Agent
of a change of address within 30 days before the redemption request. If you have
a retirement account, you may not redeem shares by telephone.
When you establish telephone privileges, you are authorizing the Portfolio
and its Transfer Agent to act upon the telephone instructions of the person or
persons you have designated in your Application. Such persons may request that
the shares in your account be redeemed. Redemption proceeds will be mailed to
the address of record on your account or transferred to the bank account you
have designated on your Account Application.
Before executing an instruction received by telephone, the Portfolio and
the Transfer Agent will use procedures to confirm that the telephone
instructions are genuine. These procedures will include recording the telephone
call and asking the caller for a form of personal identification. If the
Portfolio and the Transfer Agent follow these procedures, they will not be
liable for any loss, expense, or cost arising out of any telephone redemption or
exchange request that is reasonably believed to be genuine. This includes any
fraudulent or unauthorized request. The Portfolio may change, modify or
terminate these privileges at any time upon at least 60 days' notice to
shareholders.
You may request telephone redemption privileges after your account is
opened by calling the Transfer Agent at _____________ for instructions.
You may have difficulties in making a telephone redemption during periods
of abnormal market activity. If this occur, you may make your redemption request
in writing.
Certain redemption requests require that the signature or signatures on the
account have to be guaranteed. Call (800)______________ for instructions.
9
<PAGE>
Payment of your redemption proceeds will be made promptly, but not later
than seven days after the receipt of your written request in proper form. If you
made your initial investment by wire, you will not be permitted to redeem those
shares until one business day after your completed Account Application is
received by the Portfolio. If you did not purchase your shares with a certified
check or wire, the Portfolio may delay payment of your redemption proceeds for
15 days from the date of purchase or until your check has cleared, whichever
occurs first.
The Portfolio may redeem the shares in your account if the value of your
account is less than $___ as a result of redemptions you have made. This does
not apply to retirement plan or Uniform Gifts or Transfers to Minors Act
accounts. You will be notified that the value of your account is less than $____
before the Portfolio makes an involuntary redemption. You will then have 30 days
in which to make an additional investment to bring the value of your account to
at least $___ before the Portfolio takes any action.
The Portfolio has the right to pay redemption proceeds to you in whole or
in part by a distribution of securities from the Portfolio's holdings. It is not
expected that the Portfolio would do so except in unusual circumstances.
AUTOMATIC WITHDRAWAL PROGRAM. As another convenience, you may redeem your
Portfolio shares through the Automatic Withdrawal Program. If you elect this
method of redemption, the Portfolio will send you a check in a minimum amount of
$100. You may choose to receive a check each month or calendar quarter. Your
Portfolio account must have a value of at least $10,000 in order to participate
in this Program. This Program may be terminated at any time by the Portfolio.
You may also elect to terminate your participation in this Program at any time
by writing to the Transfer Agent at:
National Financial Data Services
P.O. Box ______________
Kansas City, MO 64141-____
PRICING OF PORTFOLIO SHARES
The price of the Portfolio's shares is based on the Portfolio's net asset
value. This is done by dividing the Portfolio's assets, minus its liabilities,
by the number of shares outstanding. The Portfolio's assets are the market value
of securities held in its portfolio, plus any cash and other assets. The
Portfolio's liabilities are fees and expenses owed by the Portfolio. The number
of Portfolio shares outstanding is the amount of shares which have been issued
to shareholders. The price you will pay to buy Portfolio shares or the amount
you will receive when you sell your Portfolio shares is based on the net asset
value next calculated after your order is received and accepted.
10
<PAGE>
The net asset value of Portfolio shares is determined as of the close of
regular trading on the NYSE. This is normally 4:00 p.m., Eastern time. Portfolio
shares will not be priced on days that the NYSE is closed for trading (including
certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
The Portfolio will make distributions of dividends and capital gains, if
any, annually, usually on or about December 31 of each year. Because of its
investment strategies, the Portfolio expects that its distributions will
primarily consist of capital gains.
You can choose from three distribution options: (i) reinvest all
distributions in additional Portfolio shares; (2) receive distributions from net
invest income in cash or by automatic clearing house to a pre-designated bank
account while reinvesting capital gain distributions in additional Portfolio
shares; or (3) receive all distributions in cash or by automatic clearing house.
Call (800) _____ for wire instructions. If you wish to change your distribution
option, write to National Financial Data Services before payment of the
distribution. If you do not select an option when you open your account, all
distributions will be reinvested in Portfolio shares. You will receive a
statement confirming reinvestment of distributions in additional Portfolio
shares promptly following the quarter in which the reinvestment occurs.
If a check representing a Portfolio distribution is not cashed within a
specified period, the Transfer agent will notify you that you have the option of
requesting another check or reinvesting the distribution in the Portfolio. If
the Transfer Agent does not receive your election, the distribution will be
reinvested in the Portfolio.
TAX CONSEQUENCES
The Portfolio intends to make distributions of dividends and capital gains.
Dividends are taxable to you as ordinary income. The rate you pay on capital
gain distributions will depend on how long the Portfolio held the securities
that generated the gains, not on how long you owned your Portfolio shares. You
will be taxed in the same manner whether you receive your dividends and capital
gain distributions in cash or reinvest them in additional Portfolio shares.
If you sell your Portfolio shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you
exchange or sell, you may have a gain or a loss on the transaction. You are
responsible for any tax liabilities generated by your transaction.
11
<PAGE>
PORTFOLIO 21,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
For investors who want more information about the Portfolio, the following
document is available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Portfolio and is incorporated into this Prospectus.
You can get free copies of SAI, request other information and discuss your
questions about the Portfolio by contacting the Portfolio at:
National Financial Data Services
P.O. Box ______
Kansas City, MO 64141-____
Telephone: 1-800-____
You can review and copy information about the Portfolio including the
Portfolio's SAI at the Public Reference Room of the Securities and Exchange
Commission in Washington, D.C. You can obtain information on the operation of
the Public Reference Room by calling 1-800-SEC-0330. You can get text-only
copies:
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-6009 or by calling 1-800-SEC-0330.
* Free of charge from the Commission's Internet website at http://www.sec.gov
(Investment Company Act
file no. 811-5137)
12
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO COMPLETION, DATED
APRIL 13, 1999
STATEMENT OF ADDITIONAL INFORMATION
Dated __________, 1999
PORTFOLIO 21,
a series of Professionally Managed Portfolios
2435 SW Fifth Avenue
Portland, OR 97201
(800)________________
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the Prospectus dated _______, 1999, as may be
revised, of PORTFOLIO 21 (the "Portfolio"), a series of Professionally Managed
Portfolios (the "Trust"). Progressive Investment Management Corporation (the
"Advisor") is the advisor to the Portfolio. A copy of the Portfolio's Prospectus
dated __________, 1999 is available by calling the number listed above
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
B-1
<PAGE>
TABLE OF CONTENTS
An Overview of the Portfolio.............................................. B-
The Trust ................................................................ B-
Investment Objective and Policies ........................................ B-
Distributions and Tax Information ........................................ B-
Trustees and Executive Officers........................................... B-
The Portfolio's Investment Advisor ....................................... B-
The Portfolio's Administrator ............................................ B-
The Portfolio's Distributor............................................... B-
Portfolio Transactions and Brokerage ..................................... B-
Portfolio Turnover ............................ .......................... B-
Additional Purchase and Redemption Information............................ B-
Determination of Net Asset Value ......................................... B-
Performance Information .................................................. B-
General Information ...................................................... B-
Financial Statements ..................................................... B-
Appendix ................................................................. B-
B-2
<PAGE>
AN OVERVIEW OF THE PORTFOLIO
WHAT IS PORTFOLIO 21?
Portfolio 21 is a no load mutual fund developed by Progressive Investment
Management for individuals and institutions committed to investing in a
sustainable future. Unlike a more traditionally screened investment program,
Portfolio 21 concentrates on companies that have made a commitment to
environmental sustainability and have demonstrated this commitment through their
business strategies, practices and investments. We believe that companies using
sustainability principles as a core part of their business strategies are
positioned to prosper in the future and are more efficient and profitable today.
WHY PORTFOLIO 21?
Ecological pressures such as population, consumption, and resource depletion are
having a real and increasing effect on business and the world. The classic
response of business has been to view environmental initiatives as harmful to
the economy and the bottom line. However, a growing number of corporate leaders
disagree.
Corporations must take a central role in creating a sustainable economy that
does not undermine the productive capacity of nature. Many companies now
recognize the enormous opportunity that exists to prosper by providing the
products, services and technologies that are needed to create a sustainable
society. These companies are developing cleaner energy sources, resource
efficient production methods, products that are designed to be reused and
rebuilt, raw materials that are benign, and processes that produce little or no
waste. These companies are shaping a new economy that supports a healthy human
balance with nature
HOW IS PORTFOLIO 21 DIFFERENT FROM OTHER SOCIALLY RESPONSIBLE MUTUAL FUNDS?
There are several differences between Portfolio 21 and many of the other
socially responsible mutual funds. While most socially responsible mutual funds
use a broad range of social criteria, Portfolio 21 invests in companies that
have taken affirmative steps toward incorporating environmental sustainability
into their business strategies and activities. The goal is to identify companies
that recognize the ecological crisis and that are positioning themselves to
benefit from a new approach to business.
Portfolio 21 uses environmental sustainability as the primary determinant for
inclusion in the portfolio. We believe that the long-term viability of
corporations depends on their ability to understand and implement a business
model that is based on environmental sustainability.
WHO ARE THE PEOPLE BEHIND PORTFOLIO 21?
At Progressive Investment Management, the following people are responsible for
the management of Portfolio 21:
Leslie E. Christian, CFP, CFA
President
Leslie has more than 20 years experience in the investment field including nine
years in New York as a Director with Salomon Brothers Inc. She is also the
B-3
<PAGE>
co-founder of the Women's Equity Mutual Fund, investing in companies supporting
women in the workplace. Leslie received her bachelor's degree from the
University of Washington and her MBA in Finance from the University of
California, Berkeley.
Carsten Henningsen
Chairman
A pioneer of socially responsible investing, Carsten founded Progressive in 1982
as the first investment management company in the Pacific Northwest specializing
in the field. He received his bachelor's degree from the University of Puget
Sound in Tacoma, Washington and a diploma of international management from
Stichting Nijenrode, The Netherlands School of Business in Breuklen, The
Netherlands.
James Madden, CFA
Senior Portfolio Manager
In addition to his responsibilities as Progressive's senior portfolio manager,
Jim has developed Progressive's shareholder activism programs. He received his
bachelor's degree and his MBA from the University of Wisconsin.
Anthony S. Tursich
Financial Analyst
Tony is a Financial Analyst with Progressive, performing research and analysis
of securities. He received his bachelor's degree from Montana State University
in Bozeman and is currently enrolled in the Chartered Financial Analyst program,
Level III.
Progressive Investment Management has assembled an Advisory Board of composed of
the following individuals:
Spencer Beebe, Chairman, Ecotrust
Susan Burns, President, Natural Strategies
Catherine Gray, President, The Natural Step US
Magnus Huss, Secretary General, The Natural Step Sweden
Chris Lotspeich, Rocky Mountain Institute
Mathis Wackernagel, Director of the National Indicators Program, Redefining
Progress
Susan Burns, President of Natural Strategies, serves as consultant to
Progressive and has been instrumental in helping to develop the screening and
selection criteria for companies in Portfolio 21.
WHAT MAKES A COMPANY A CANDIDATE FOR INVESTMENT AND WHAT IS AN EXAMPLE OF A
COMPANY THAT MAY BE INCLUDED IN PORTFOLIO 21?
Portfolio 21 invests in those companies that have shown exceptional and
significant leadership in sustainable business practices. Some are changing the
landscape of the industry they are in, forcing others in their industry to catch
up. Others have product lines that are ecologically superior to their
competition; in fact, they use ecological principles as a driver for new product
design. Still others are developing vitally needed technologies that will
provide cleaner energy sources for the future.
B-4
<PAGE>
Portfolio 21 companies are chosen using a rigorous screening process. First, a
company selected for consideration in Portfolio 21 must have corporate
leadership that has made an explicit commitment to sustainable business
practices and is allocating significant resources to achieve its goals. Next,
through a detailed industry profile, we identify the most critical ecological
impacts and issues the company and its industry face. Next, the company is
scored against criteria tailored to its industry group and is compared with its
competition in such areas as the ecological aspects of its product range, the
lifecycle impacts of its products and services, its relationships with
suppliers, investments in sustainable technologies and processes, leadership,
resource efficiency, and environmental management.
Companies considered for Portfolio 21 must be publicly traded and meet prudent
financial requirements. Of particular interest is the composition of a company's
earnings. Of most appeal are earnings improvements that are derived from
ecologically superior product lines, the efficient use and reuse of resources,
investments in renewable energy, innovative transportation and distribution
strategies, and the fair and efficient use of resources with respect to meeting
human needs.
WHAT ARE THE FINANCIAL CRITERIA AND HOW MUCH RISK DOES PORTFOLIO 21 HAVE IN
COMPARISON TO THE S&P 500 INDEX?
Portfolio 21 is a global fund, meaning that a significant portion of its
holdings may be non-US stocks. The fund will begin with approximately 30 to 40
stocks representing companies in the United States, Europe, Japan and Australia.
The goal is to continue to add companies to the portfolio as they qualify.
Financial risk is composed of several factors: country and currency risk;
industry risk; market capitalization; and specific company risk. Progressive
Investment Management will manage portfolio risk through prudent diversification
and portfolio positions that are proportionate to a company's market
capitalization. The actual selection process is a bottom up approach,
concentrating on the specific characteristics of each company and then
qualifying the companies using criteria appropriate to their industry groups.
Portfolio 21 is not intended to reflect the exact composition of existing market
indices. Due to the investment criteria specified above, the portfolio may be
relatively higher or lower weighted in particular industries than the current
capital markets reflect. For example, based on our industry analysis, certain
industries, due to their relatively low environmental impact, are more likely to
perform well compared to other industries. In addition, certain industries have
a higher composition of "sustainability leaders" than other industries. For
these reasons, certain industries may be represented more heavily in the
portfolio. Therefore, the fund may not mirror the market performance on a
quarter to quarter basis.
The approach is long term, as is consistent with a sustainability approach. A
result of this approach is that the fund will have relatively low turnover,
making it a potentially more efficient tax vehicle than funds with high turnover
rates.
B-5
<PAGE>
HOW DOES PORTFOLIO 21 RESEARCH COMPANIES?
The research process begins with a universe of approximately 1,500 publicly
traded companies, including the S&P 500, S&P 400, and non-US stocks traded as
ADRs on US exchanges. These companies are reviewed to identify those with an
environmental commitment. To this list we add companies--both US and
non-US--that have been recognized as leaders either by our board of advisors or
other organizations. We then add companies that have participated in or
sponsored environmental organizations, programs or events. In addition, we
prepare a detailed analysis of each industry sector, which helps us identify
leaders in each industry. Finally, an ongoing search of relevant web sites and
publications identifies additional companies for analysis.
Through a series of evaluation steps, Progressive Investment Management narrows
this master list to those companies that it believes may meet the sustainability
criteria. These companies are investigated further through a review of their
financial and environmental statements, third party research, and personal
contact with company representatives.
On an ongoing basis, all companies are reviewed to confirm their continued
commitments to sustainability. The company will either remain in the portfolio
or will be removed. Periodically, new companies are added as they qualify.
HOW DOES PORTFOLIO 21 DEFINE SUSTAINABILITY?
Our definition of sustainability and its translation into detailed evaluation
criteria have been informed by the considerable body of knowledge offered by our
advisory board members and their organizations, including The Natural Step in
the U.S. and Europe, Rocky Mountain Institute and Redefining Progress. To quote
one of our advisory board members, Mathis Wackernagel, the co- author of the
book Our Ecological Footprint: "Sustainability is securing people's quality of
life within the means of nature."
Our definition of sustainability acknowledges the limits of nature and society's
dependence on nature. It recognizes the fundamental challenge we face: meeting
human needs without undermining nature's ability to support our economy into the
future.
Our approach and criteria have been significantly informed by the work of The
Natural Step, which has articulated the underlying principles necessary for a
sustainable society. These principles have allowed us to translate the general
concept of sustainability into specific criteria. These criteria assist us in
identifying the concrete actions we are seeking in companies based on the impact
of their industries as a whole.
IS PORTFOLIO 21 A NO-LOAD MUTUAL FUND?
Yes, Portfolio 21 is a no load mutual fund. The fund does not charge a 12b-1 fee
or any sales loads. In addition, Progressive Investment Management has agreed to
waive its fee for the first six months
of the fund's operations.
B-6
<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
SAI relates only to the Portfolio. Progressive Investment Management Corporation
("the Advisor") is the Portfolio's investment adviser.
The Trust is registered with the SEC as a management investment company. Such a
registration does not involve supervision of the management or policies of the
Portfolio. The Prospectus of the Portfolio and this SAI 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.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to seek to provide investors with
long-term growth of capital. The Portfolio primarily invests in common stocks of
domestic and foreign companies that satisfy certain environmental sustainability
criteria. There is no assurance that the Portfolio will achieve its objective.
The Portfolio is classified as a diversified fund under federal securities laws.
The discussion below supplements information contained in the Portfolio's
Prospectus as to investment policies of the Portfolio.
In addition to the risks associated with particular types of securities, which
are discussed below, the Portfolio is subject to general market risks. The
Portfolio invests primarily in common stocks. The market risks associated with
stocks include the possibility that the entire market for common stocks could
suffer a decline in price over a short or even an extended period. This could
affect the net asset value of your Portfolio shares.
EQUITY SECURITIES. The equity securities in which the Portfolio invests
generally consist of common stock and securities convertible into or
exchangeable for common stock. The securities in which the Portfolio invests are
expected to be either listed on an exchange or traded in an over-the-counter
market.
FOREIGN INVESTMENTS AND CURRENCIES. The Portfolio will invest in securities of
foreign issuers that are not publicly traded in the United States. The Portfolio
may also invest in American Depositary Receipts (ADRs") and foreign securities
traded on a national securities market, purchase and sell foreign currency on a
spot basis and enter into forward currency contracts (see "Forward Currency
Contracts," below).
AMERICAN DEPOSITARY RECEIPTS. The Portfolio may invest its assets in
securities of foreign issuers in the form of ADRs, which are securities
representing securities of foreign issuers. A purchaser of an unsponsored ADR
may not have unlimited voting rights and may not receive as much information
about the issuer of the underlying securities as with a sponsored ADR.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the US economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
B-7
<PAGE>
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. The Portfolio may invest in securities denominated
in foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Portfolio's assets denominated in that currency. Such changes will
also affect the Portfolio's income. The value of the Portfolio's assets may also
be affected significantly by currency restrictions and exchange control
regulations enacted from time to time.
EURO CONVERSION. Several European countries adopted a single uniform
currency known as the "euro," effective January 1, 1999. The euro conversion
could have potential adverse effects on the Portfolio's ability to value its
portfolio holdings in foreign securities, and could increase the costs
associated with the Portfolio's operations. The Portfolio and the Advisor are
working with providers of services to the Portfolio in the areas of clearance
and settlement of trade in an effect to avoid any material impact on the
Portfolio due to the euro conversion; there can be no assurance, however, that
the steps taken will be sufficient to avoid any adverse impact on the Portfolio.
MARKET CHARACTERISTICS. The Advisor expects that many foreign securities in
which the Portfolio invests will be purchased in over-the-counter markets or on
exchanges located in the countries in which the principal offices of the issuers
of the various securities are located, if that is the best available market.
Foreign exchanges and markets may be more volatile than those in the United
States. While growing in volume, they usually have substantially less volume
than U.S. markets, and the Portfolio's foreign securities may be less liquid and
more volatile than U.S. securities. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States. Foreign
security trading practices, including those involving securities settlement
where Portfolio assets may be released prior to receipt of payment or
securities, may expose the Portfolio to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest and dividends payable on certain of the Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to Portfolio
shareholders.
COSTS. To the extent that the Portfolio invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
B-8
<PAGE>
In considering whether to invest in the securities of a foreign company, the
Advisor considers such factors as the characteristics of the particular company,
differences between economic trends and the performance of securities markets
within the U.S. and those within other countries, and also factors relating to
the general economic, governmental and social conditions of the country or
countries where the company is located. The extent to which the Portfolio will
be invested in foreign companies and countries and depositary receipts will
fluctuate from time to time within the limitations described in the prospectus,
depending on the Advisor's assessment of prevailing market, economic and other
conditions.
FORWARD CURRENCY CONTRACTS. The Portfolio may enter into forward currency
contracts in anticipation of changes in currency exchange rates. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. For
example, the Portfolio might purchase a particular currency or enter into a
forward currency contract to preserve the U.S. dollar price of securities it
intends to or has contracted to purchase. Alternatively, it might sell a
particular currency on either a spot or forward basis to hedge against an
anticipated decline in the dollar value of securities it intends to or has
contracted to sell. Although this strategy could minimize the risk of loss due
to a decline in the value of the hedged currency, it could also limit any
potential gain from an increase in the value of the currency.
ILLIQUID SECURITIES. The Portfolio may not invest more than 15% of the value of
its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid. The Advisor will
monitor the amount of illiquid securities in the Portfolio's portfolio, under
the supervision of the Trust's Board of Trustees, to ensure compliance with the
Portfolio's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Portfolio might be
unable to sell restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Portfolio might also have to register such restricted
securities in order to sell them, resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not reflect the actual liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
the Trust's Board of Trustees may determine that such securities are not
illiquid securities despite their legal or contractual restrictions on resale.
In all other cases, however, securities subject to restrictions on resale will
be deemed illiquid.
B-9
<PAGE>
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements. 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 Portfolio, or the purchase
and repurchase prices may be the same, with interest at a stated rate due to the
Portfolio together with the repurchase price on repurchase. In either case, the
income to the Portfolio 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 Portfolio will
generally enter into repurchase agreements of short durations, from overnight to
one week, although the underlying securities generally have longer maturities.
The Portfolio may not enter into a repurchase agreement with more than seven
days to maturity if, as a result, more than 15% of the value of its net 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 Portfolio to the seller of
the U.S. Government security subject to the repurchase agreement. It is not
clear whether a court would consider the U.S. Government security acquired by
the Portfolio subject to a repurchase agreement as being owned by the Portfolio
or as being collateral for a loan by the Portfolio to the seller. In the event
of the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the U.S. Government security before its repurchase under a repurchase
agreement, the Portfolio may encounter delays and incur costs before being able
to sell the security. Delays may involve loss of interest or a decline in price
of the U.S. Government security. If a court characterizes the transaction as a
loan and the Portfolio has not perfected a security interest in the U.S.
Government security, the Portfolio may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, the Portfolio would be at the risk of losing some or all of
the principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Portfolio, the Advisor seeks to minimize the risk
of loss through repurchase agreements by analyzing the creditworthiness of the
other party, in this case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, the Portfolio
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 Portfolio plus accrued interest, and
the Portfolio 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
Portfolio 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 Portfolio will be unsuccessful in seeking to impose on the seller a
contractual obligation to deliver additional securities.
B-10
<PAGE>
SHORT-TERM INVESTMENTS
The Portfolio may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Portfolio
may hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Portfolio will
be dollar-denominated obligations of domestic banks, savings and loan
associations or financial institutions which, at the time of purchase, have
capital, surplus and undivided profits in excess of $100 million (including
assets of both domestic and foreign branches), based on latest published
reports, or less than $100 million if the principal amount of such bank
obligations are fully insured by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the
Portfolio also may make interest-bearing time or other interest-bearing deposits
in commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Portfolio may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at the time
of purchase "A-2" or higher by Standard & Poor's Ratings Group, "Prime-1" or
"Prime-2" by Moody's Investors Service, Inc., or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Advisor to be of comparable quality. These rating symbols are
described in the Appendix.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following investment restrictions that may not be
changed without approval by a "majority of the outstanding shares" of the
Portfolio which, as used in this SAI, means the vote of the lesser of (a) 67% or
more of the shares of the Portfolio represented at a meeting, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Portfolio.
The Portfolio may not:
(1) Make loans to others, except (a) through the purchase of debt securities in
accordance with its investment objective and policies, or (b) to the extent
the entry into a repurchase agreement is deemed to be a loan.
(2) Borrow money, except for temporary or emergency purposes. Any such
borrowings will be made only if immediately thereafter there is an asset
coverage of at least 400% of all borrowings.
(3) Mortgage, pledge or hypothecate any of its assets except in connection with
any borrowings.
B-11
<PAGE>
(4) Purchase securities on margin, participate on a joint or joint and several
basis in any securities trading account, or underwrite securities. (Does
not preclude the Portfolio from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio
securities.)
(5) Purchase real estate, commodities or commodity contracts. (As a matter of
operating policy, the Board of Trustees may authorize the Portfolio in the
future to engage in certain activities regarding futures contracts for bona
fide hedging purposes; any such authorization will be accompanied by
appropriate notification to shareholders.)
(6) Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (a) making
any permitted borrowings, mortgages or pledges or (b) entering into
options, futures or repurchase transactions.
(7) Invest 25% or more of the market value of its assets in the securities of
companies engaged in any one industry, except that this restriction does
not apply to investment in the securities of the U.S. Government, its
agencies or instrumentalities.
(8) With respect to 75% of its total assets, invest more than 5% of its total
assets in securities of a single issuer or hold more than 10% of the voting
securities of such issuer, except that this restriction does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.
The Portfolio observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The
Portfolio may not:
(9) Invest in any issuer for purposes of exercising control or management.
(10) Invest in securities of other investment companies except as permitted
under the 1940 Act.
(11) Invest, in the aggregate, more than 15% of its net assets in securities
with legal or contractual restrictions on resale, securities which are not
readily marketable and repurchase agreements with more than seven days to
maturity.
If a percentage restriction set forth in the prospectus or in this SAI is
adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except with respect to borrowing or the purchase
of restricted or illiquid securities.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits from the
sale of securities are generally made annually, as described in the Prospectus.
Also, the Portfolio 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.
B-12
<PAGE>
Each distribution by the Portfolio is accompanied by a brief explanation of the
form and character of the distribution. In January of each year the Portfolio
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 Portfolio intends to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Code, provided it
complies with all applicable requirements regarding the source of its income,
diversification of its assets and timing of distributions. The Portfolio's
policy is to distribute to 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
Portfolio will not be subject to any federal income or excise taxes. To comply
with the requirements, the Portfolio must also distribute (or be deemed to have
distributed) by December 31 of each calendar year (I) at least 98% of ordinary
income for such year, (ii) at least 98% of the excess of realized capital gains
over 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 Portfolio 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 Portfolio.
Redemptions of Portfolio shares will result in gains and losses for tax purposes
to the extent of the difference between the proceeds and the shareholder's
adjusted tax basis for the shares. Any loss realized upon the redemption of
shares within six months from their date of purchase will be treated as a
long-term capital loss to the extent of distributions of long-term gain
dividends during such six-month period. All or a portion of a loss realized upon
the redemption of shares may be disallowed to the extent shares are purchased
(including shares acquired by means of reinvested dividends) within 30 days
before or after such redemption.
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 Portfolio 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
Portfolio for its taxable year. In view of the Portfolio's investment policies,
it is expected that dividends from domestic corporations may be part of the
Portfolio's gross income and that, accordingly, part of the distributions by the
Portfolio may be eligible for the dividends-received deduction for corporate
shareholders. However, the portion of the Portfolio's gross income attributable
to qualifying dividends is largely dependent on the Portfolio's investment
activities for a particular year and therefore cannot be predicted with any
certainty. The deduction may be reduced or eliminated if Portfolio shares held
by a corporate investor are treated as debt-financed or are held for less than
46 days.
Distributions of the excess of net long-term capital gains over net short-term
capital losses are taxable to shareholders as long-term capital gains,
regardless of the length of time they have held their shares. Capital gains
distributions are not eligible for the dividends-received deduction referred to
in the previous paragraph. Distributions of any net investment income and net
realized capital gains will be taxable as described above, whether received in
B-13
<PAGE>
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.
Under the Code, the Portfolio will be required to report to the Internal Revenue
Service all distributions of taxable income and capital gains as well as gross
proceeds from the redemption of Portfolio shares, except in the case of exempt
shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Portfolio 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 Portfolio 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 Portfolio
with their taxpayer identification numbers or certify their exempt status in
order to avoid possible erroneous application of backup withholding. The
Portfolio reserves the right to refuse to open an account for any person failing
to provide a certified taxpayer identification number.
If more than 50% in value of the total assets of the Portfolio at the end of its
fiscal year is invested in stock or securities of foreign corporations, the
Portfolio may elect to pass through to its shareholders the pro rata share of
all foreign income taxes paid by the Portfolio. If this election is made,
shareholders will be (i) required to include in their gross income their pro
rata share of the Portfolio's foreign source income (including any foreign
income taxes paid by the Portfolio), and (ii) entitled either to deduct their
share of such foreign taxes in computing their taxable income or to claim a
credit for such taxes against their U.S. income tax, subject to certain
limitations under the Code, including certain holding period requirements. In
this case, shareholders will be informed in writing by the Portfolio at the end
of each calendar year regarding the availability of any credits on and the
amount of foreign source income (including or excluding foreign income taxes
paid by the Portfolio) to be included in their income tax returns. If not more
than 50% in value of the Portfolio's total assets at the end of its fiscal year
is invested in stock or securities of foreign corporations, the Portfolio will
not be entitled under the Code to pass through to its shareholders their pro
rata share of the foreign taxes paid by the Portfolio. In this case, these taxes
will be taken as a deduction by the Portfolio.
The Portfolio may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
The use of hedging strategies, such as entering into forward contracts, involves
complex rules that will determine the character and timing of recognition of the
income received in connection therewith by the Portfolio. Income from foreign
currencies (except certain gains therefrom that may be excluded by future
regulations) and income from transactions in forward contracts derived by the
Portfolio with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
B-14
<PAGE>
Any security or other position entered into or held by the Portfolio that
substantially diminishes the Portfolio's risk of loss from any other position
held by the Portfolio may constitute a "straddle" for federal income tax
purposes. In general, straddles are subject to certain rules that may affect the
amount, character and timing of the Portfolio's gains and losses with respect to
straddle positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Portfolio's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Portfolio that may mitigate the effects of the straddle rules.
Certain forward contracts that are subject to Section 1256 of the Code ("Section
1256 Contracts") and that are held by the Portfolio at the end of its taxable
year generally will be required to be "marked to market" for federal income tax
purposes, that is, deemed to have been sold at market value. Sixty percent of
any net gain or loss recognized on these deemed sales and 60% of any net gain or
loss realized from any actual sales of Section 1256 Contracts will be treated as
long-term capital gain or loss, and the balance will be treated as short-term
capital gain or loss.
Section 988 of the Code contains special tax rules applicable to certain foreign
currency transactions that may affect the amount, timing and character of
income, gain or loss recognized by the Portfolio. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency forward
contracts is treated as ordinary income or loss. Some part of the Portfolio's
gain or loss on the sale or other disposition of shares of a foreign corporation
may, because of changes in foreign currency exchange rates, be treated as
ordinary income or loss under Section 988 of the Code rather than as capital
gain or loss.
The Portfolio will not be subject to tax in the Commonwealth of Massachusetts as
long as it qualifies as a regulated investment company for federal income tax
purposes. Distributions and the transactions referred to in the preceding
paragraphs may be subject to state and local income taxes, and the tax treatment
thereof may differ from the federal income tax treatment. Moreover, the above
discussion is not intended to be a complete discussion of all applicable federal
tax consequences of an investment in the Portfolio. Shareholders are advised to
consult with their own tax advisers concerning the application of federal, state
and local taxes to an investment in the Portfolio.
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 Portfolio, 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 the Portfolio's management, and counsel to the Portfolio has expressed no
opinion in respect thereof.
B-15
<PAGE>
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 Portfolio. 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
915 Broadway, New York, New York 10010. Executive Vice President, The Wadsworth
Group (consultants); Executive Vice President of Investment Company
Administration LLC ("ICA") (mutual fund administrator and the Trust's
administrator),and Vice President of First Fund Distributors, Inc. ("FFD") (a
registered broker-dealer and the Funds' Distributor) since 1990.
Dorothy A. Berry, 08/12/43 Chairman and Trustee
14 Five Roses East, Ancram, NY 12502. President, Talon Industries (venture
capital and business consulting); formerly Chief Operating Officer, Integrated
Asset Management (investment adviser 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.
Carl A. Froebel 05/23 /38 Trustee
2 Crown Cove Lane, Savannah, GA 31411. Private Investor. Formerly Managing
Director, Premier Solutions, Ltd. Formerly President and Founder, National
Investor Data Services, Inc. (investment related computer software).
Rowley W.P. Redington 06/01/44 Trustee
1191 Valley Road, Clifton, New Jersey 07103. President; Intertech (consumer
electronics and computer service and marketing); formerly Vice President, PRS of
New Jersey, Inc. (management consulting), and Chief Executive Officer, Rowley
Associates (consultants).
Robert M. Slotky* 6/17/47 Treasurer
2020 E. Financial Way, Suite 100, Glendora, California 91741. Senior Vice
President, ICA since May 1997; former 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
915 Broadway, New York, New York 10010. Vice President, The Wadsworth Group.
Robert H. Wadsworth* 01/25/40 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018. President of The
Wadsworth Group; President of ICA and FFD.
* Indicates an "interested person" of the Trust as defined in the 1940 Act.
B-16
<PAGE>
Set forth below is the rate of compensation received by the following Trustees
from 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 $1,000 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 portfolios of the Trust.
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
It is estimated that during the Portfolio's first fiscal year, Trustees fees and
expenses to be allocated to the Portfolio should not exceed $3,000.
THE PORTFOLIO'S INVESTMENT ADVIS0R
As stated in the Prospectus, investment advisory services are provided to the
Portfolio by Progressive Investment Management Corporation, the Advisor,
pursuant to an Investment Advisory Agreement. After its initial two year term,
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 Portfolio), 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 PORTFOLIO'S ADMINISTRATOR
The Portfolio has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), a corporation owned and controlled by
Messrs. Banhazl, Paggioli and Wadsworth with offices at 2020 East Financial Way,
Ste. 100, Glendora, CA 91741 and 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 Portfolio; prepare all required filings necessary to
maintain the Portfolio's ability to sell shares in all states where it 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 Portfolio related
expenses; monitor and oversee the activities of the Portfolio's servicing agents
B-17
<PAGE>
(i.e., transfer agent, custodian, fund accountants, etc.); review and adjust as
necessary the Portfolio's daily expense accruals; and perform such additional
services as may be agreed upon by the Portfolio and the Administrator.
For its services, the Administrator receives a monthly fee from the Portfolio at
the following annual rate:
Less than $15 million $30,000
$15 million to $50 million 0.20%
$50 million to $100 million 0.15%
$100 million to $150 million 0.10%
over $150 million 0.05%
THE PORTFOLIO'S DISTRIBUTOR
First Fund Distributors, Inc., (the "Distributor"), a corporation owned by Mr.
Banhazl, Mr. Paggioli and Mr. Wadsworth, acts as the Portfolio's principal
underwriter in a continuous public offering of the Portfolio's shares. After its
initial two year term, the Distribution Agreement between the Portfolio 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 Portfolio to which the Distribution Agreement applies
(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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Pursuant to the Investment Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Portfolio and which
broker-dealers will be used to execute the Portfolio'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 Portfolio also may be made directly
from issuers or from underwriters. Where possible, purchase and sale
transactions will be made through dealers (including banks) which specialize in
the types of securities which the Portfolio will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one broker, dealer or underwriter are comparable, the
order may be allocated to a broker, dealer or underwriter that has provided
research or other services as discussed below.
In placing portfolio transactions, the Advisor will use its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
B-18
<PAGE>
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 Portfolio, to be useful in
varying degrees, but of indeterminable value. Portfolio transactions may be
placed with broker-dealers who sell shares of the Portfolio subject to rules
adopted by the National Association of Securities Dealers, Inc.
While it is the Portfolio'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 Portfolio, weight is also given to the ability of
a broker-dealer to furnish brokerage and research services to the Portfolio or
to the Advisor, even if the specific services are not directly useful to the
Portfolio 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 Portfolio 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 Portfolio.
Investment decisions for the Portfolio are made independently from those of
other client accounts or mutual funds managed or advised by the Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Portfolio and one or more of such client accounts. In
such event, the position of the Portfolio 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 Portfolio at the
same time, the Portfolio 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 Portfolio 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 Portfolio is purchasing or
selling, each day's transactions in such security will be allocated between the
Portfolio 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
Portfolio is concerned. In other cases, however, it is believed that the ability
of the Portfolio to participate in volume transactions may produce better
executions for the Portfolio.
The Portfolio does not place securities transactions through brokers solely for
selling shares of the Portfolio, although the Portfolio 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 Portfolio for their customers.
PORTFOLIO TURNOVER
Although the Portfolio generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of them
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
B-19
<PAGE>
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in the Portfolio's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Portfolio's Prospectus regarding the purchase and redemption of Portfolio
shares.
HOW TO BUY SHARES
You may purchase shares of the Portfolio from selected securities brokers,
dealers or financial intermediaries. Investors should contact these agents
directly for appropriate instructions, as well as information pertaining to
accounts and any service or transaction fees that may be charged by those
agents. Purchase orders through securities brokers, dealers and other financial
intermediaries are effected at the next-determined net asset value after receipt
of the order by such agent before the Portfolio's daily cutoff time. Orders
received after that time will be purchased at the next-determined net asset
value.
The public offering price of Portfolio shares is the net asset value. The
Portfolio receives the net asset value. Shares are purchased at the public
offering price next determined after the Transfer Agent receives your order in
proper form. In most cases, in order to receive that day's public offering
price, the Transfer Agent must receive your order in proper form before the
close of regular trading on the New York Stock Exchange ("NYSE"). If you buy
shares through your investment representative, the representative must receive
your order before the close of regular trading on the NYSE to receive that day's
public offering price. Orders are in proper form only after funds are converted
to U.S. funds.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption, exchange or transfer. Otherwise the Portfolio
may delay payment until the purchase price of those shares has been collected
or, if you redeem by telephone, until 15 calendar days after the purchase date.
To eliminate the need for safekeeping, the Portfolio will not issue certificates
for your shares unless you request them.
The Trust reserves the right in its sole discretion (i) to suspend the continued
offering of the Portfolio'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 Portfolio, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts, for
employees of the Advisor or under circumstances where certain economies can be
achieved in sales of the Portfolio's shares.
B-20
<PAGE>
HOW TO SELL SHARES
You can sell your Portfolio shares any day the NYSE is open for regular trading,
either directly to the Portfolio or through your investment representative. The
Portfolio will forward redemption proceeds or redeem shares for which it has
collected payment of the purchase price.
Payments to shareholders for Portfolio shares redeemed directly from the
Portfolio will be made as promptly as possible but no later than seven days
after receipt by the Portfolio's Transfer Agent of the written request in proper
form, with the appropriate documentation as stated in the Portfolio's
Prospectus, except that the Portfolio may suspend the right of redemption or
postpone the date of payment during any period when (a) trading on the NYSE is
restricted as determined by the SEC or the NYSE 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 Portfolio not
reasonably practicable; or (c) for such other period as the SEC may permit for
the protection of the Portfolio's shareholders. At various times, the Portfolio
may be requested to redeem shares for which it has not yet received confirmation
of good payment. In this circumstance, the Portfolio may delay the redemption
until payment for the purchase of such shares has been collected and confirmed
to the Portfolio.
SELLING SHARES DIRECTLY TO THE PORTFOLIO
Send a signed letter of instruction to the Transfer Agent, along with any
certificates that represent shares you want to sell. The price you will receive
is the next net asset value calculated after the Portfolio receives your request
in proper form. In order to receive that day's net asset value, the Transfer
Agent must receive your request before the close of regular trading on the NYSE.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close of
regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services. If you
sell shares having a net asset value of $100,000 a signature guarantee is
required.
If you want your redemption proceeds sent to an address other than your address
as it appears on the Transfer Agent's records, a signature guarantee is
required. The Portfolio may require additional documentation for the sale of
shares by a corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact the Transfer Agent for details.
Signature guarantees may be obtained from a bank, broker-dealer, credit union
(if authorized under state law), securities exchange or association, clearing
agency or savings institution. A notary public cannot provide a signature
guarantee.
DELIVERY OF PROCEEDS
The Portfolio generally sends you payment for your shares the business day after
your request is received in proper form, assuming the Portfolio has collected
payment of the purchase price of your shares. Under unusual circumstances, the
Portfolio may suspend redemptions, or postpone payment for more than seven days,
as permitted by federal securities law.
B-21
<PAGE>
TELEPHONE REDEMPTIONS
Upon receipt of any instructions or inquiries by telephone from a shareholder
or, if held in a joint account, from either party, or from any person claiming
to be the shareholder, the Portfolio or its agent is authorized, without
notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest Account
Application or other written request for services, including purchasing or
redeeming Portfolio shares and depositing and withdrawing monies from the bank
account specified in the shareholder's latest Account Application or as
otherwise properly specified to the Portfolio in writing.
The Transfer Agent will employ these and other reasonable procedures to confirm
that instructions communicated by telephone are genuine; if it fails to employ
reasonable procedures, the Portfolio may be liable for any losses due to
unauthorized or fraudulent instructions. An investor agrees, however, that to
the extent permitted by applicable law, neither the Portfolio nor its agents
will be liable for any loss, liability, cost or expense arising out of any
redemption request, including any fraudulent or unauthorized request. For
information, consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
REDEMPTIONS-IN-KIND
Subject to compliance with applicable regulations, the Portfolio has reserved
the right to pay the redemption price of its shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder receives a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).
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 Portfolio's securities
at the time of redemption or repurchase.
DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, the net asset value and offering price of shares of
the Portfolio will be determined once daily as of the close of public trading on
the New York Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern time) on each
day that the NYSE is open for trading. The Portfolio does not expect to
determine the net asset value of its shares on any day when the NYSE 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. However, the net
asset value of Portfolio shares may be determined on days the NYSE is closed or
at times other than 4:00 p.m. if the Board of Trustees decides it is necessary.
B-22
<PAGE>
In valuing the Portfolio'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 the Portfolio are valued in such manner as the Board of Trustees
in good faith deems appropriate to reflect their fair value.
Trading in foreign securities markets is normally completed well before the
close of the NYSE. In addition, foreign securities trading may not take place on
all days on which the NYSE is open for trading, and may occur in certain foreign
markets on days on which the Portfolio's net asset value is not calculated.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and the close of the NYSE will not be reflected in
the calculation of net asset value unless the Board of Trustees deems that the
particular event would affect net asset value, in which case an adjustment will
be made. Assets or liabilities expressed in foreign currencies are translated,
in determining net asset value, into U.S. dollars based on the spot exchange
rates at 1:00 p.m., Eastern time, or at such other rates as the Advisor may
determine to be appropriate.
The net asset value per share of the Portfolio 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 Portfolio outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
As of the date of this SAI, the NYSE is open for trading every weekday except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
PERFORMANCE INFORMATION
From time to time, the Portfolio 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 Portfolio's average annual
compounded rate of return over the most recent four calendar quarters and the
period from the Portfolio's inception of operations. The Portfolio may also
advertise aggregate and average total return information over different periods
of time.
The Portfolio'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 the Portfolio's
performance by independent sources may also be used in advertisements and in
information furnished to present or prospective investors in the Portfolio.
Investors should note that the investment results of the Portfolio will
fluctuate over time, and any presentation of the Portfolio'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.
B-23
<PAGE>
The Portfolio'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
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.
GENERAL INFORMATION
Investors in the Portfolio will be informed of the Portfolio's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Investor's Fiduciary Trust Company acts as Custodian of the securities and other
assets of the Portfolio. National Financial Data Services, P.O. Box _____,
Kansas City, MO 64141-____, acts as the Portfolio'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 Portfolio.
_________________________ are the independent auditors for the Portfolio.
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th Floor, San
Francisco, California 94104, are legal counsel to the Portfolio.
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 Portfolio's assets for any shareholder held
personally liable for obligations of the Portfolio 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 Portfolio or Trust and satisfy any judgment thereon. All such rights are
limited to the assets of the Portfolio. The Agreement and Declaration of Trust
further provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
B-24
<PAGE>
FINANCIAL STATEMENTS
The Portfolio's annual report to shareholders for its first fiscal year will be
a separate document supplied with this SAI and the financial statements,
accompanying notes and report of independent accountants appearing therein will
be incorporated by reference in future SAIs.
B-25
<PAGE>
APPENDIX
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
B-26
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
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, LLC (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) Form of Opinion and Consent of Counsel
(10) Not applicable
(11) Not applicable
(12) No undertaking in effect
(13) Not applicable
(14) Not applicable
(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.
<PAGE>
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.
<PAGE>
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
James C. Edwards & Co., Inc. File No. 801-13986
Duncan-Hurst Capital
Management, Inc. File No. 801-36309
Progressive Investment
Management Corporation File No. 801-32066
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
<PAGE>
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. Robert
M. Slotky 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 April 9,
1999.
PROFESSIONALLY MANAGED PORTFOLIOS
By /s/ Steven J. Paggioli
------------------------------
Steven J. Paggioli
President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
/s/ Steven J. Paggioli Trustee April 9, 1999
- ------------------------
Steven J. Paggioli
/s/ Robert M. Slotky Principal April 9, 1999
- ------------------------ Financial
Robert M. Slotky Officer
Dorothy A. Berry Trustee April 9, 1999
- ------------------------
*Dorothy A. Berry
Wallace L. Cook Trustee April 9, 1999
- ------------------------
*Wallace L. Cook
Carl A. Froebel Trustee April 9, 1999
- ------------------------
*Carl A. Froebel
Rowley W. P. Redington Trustee April 9, 1999
- ------------------------
*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
<PAGE>
EXHIBITS
Exhibit No. Description
- ----------- -----------
99.B4 Form of Advisory Agreement
99.B9 Form of Opinion of counsel
PROFESSIONALLY MANAGED PORTFOLIOS
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the ____ day of _______,
1999, by and between PROFESSIONALLY MANAGED PORTFOLIOS, a Massachusetts business
trust (hereinafter called the "Trust"), on behalf of Portfolio 21 (the "Fund")
and Progressive Investment Management Corporation(an Oregon corporation
hereinafter called the "Advisor").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company, registered
as such under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, the Fund is a series of the Trust having separate assets and
liabilities; and
WHEREAS, the Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged in the business of
supplying investment advice as an independent contractor; and
WHEREAS, the Trust desires to retain the Advisor to render advice and
services to the Fund pursuant to the terms and provisions of this Agreement, and
the Advisor desires to furnish said advice and services;
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties to this Agreement, intending to be legally
bound hereby, mutually agree as follows:
1. APPOINTMENT OF ADVISOR. The Trust hereby employs the Advisor and the
Advisor hereby accepts such employment, to render investment advice and related
services with respect to the assets of the Fund for the period and on the terms
set forth in this Agreement, subject to the supervision and direction of the
Trust's Board of Trustees.
2. DUTIES OF ADVISOR.
(a) GENERAL DUTIES. The Advisor shall act as investment adviser to the
Fund and shall supervise investments of the Fund on behalf of the Fund in
accordance with the investment objectives, policies and restrictions of the Fund
as set forth in the Fund's and Trust's governing documents, including, without
limitation, the Trust's Agreement and Declaration of Trust and By-Laws; the
Fund's prospectus, statement of additional information and undertakings; and
-1-
<PAGE>
such other limitations, policies and procedures as the Trustees may impose from
time to time in writing to the Advisor. In providing such services, the Advisor
shall at all times adhere to the provisions and restrictions contained in the
federal securities laws, applicable state securities laws, the Internal Revenue
Code, the Uniform Commercial Code and other applicable law.
Without limiting the generality of the foregoing, the Advisor shall: (i)
furnish the Fund with advice and recommendations with respect to the investment
of the Fund's assets and the purchase and sale of portfolio securities for the
Fund, including the taking of such steps as may be necessary to implement such
advice and recommendations (I.E., placing the orders); (ii) manage and oversee
the investments of the Fund, subject to the ultimate supervision and direction
of the Trust's Board of Trustees; (iii) vote proxies for the Fund, file
ownership reports under Section 13 of the Securities Exchange Act of 1934 for
the Fund, and take other actions on behalf of the Fund; (iv) maintain the books
and records required to be maintained by the Fund except to the extent
arrangements have been made for such books and records to be maintained by the
administrator or another agent of the Fund; (v) furnish reports, statements and
other data on securities, economic conditions and other matters related to the
investment of the Fund's assets which the Fund's administrator or distributor or
the officers of the Trust may reasonably request; and (vi) render to the Trust's
Board of Trustees such periodic and special reports with respect to the Fund's
investment activities as the Board may reasonably request, including at least
one in-person appearance annually before the Board of Trustees.
(b) BROKERAGE. The Advisor shall be responsible for decisions to buy
and sell securities for the Fund, for broker-dealer selection, and for
negotiation of brokerage commission rates, provided that the Advisor shall not
direct orders to an affiliated person of the Advisor without general prior
authorization to use such affiliated broker or dealer for the Trust's Board of
Trustees. 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 may 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. The price to a 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
-2-
<PAGE>
having caused a Fund to pay a broker or dealer that provides (directly or
indirectly) 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 a 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.
On occasions when the Advisor deems the purchase or sale of a security to
be in the best interest of a Fund as well as of other clients, the Advisor, to
the extent permitted by applicable laws and regulations, may aggregate the
securities to be so purchased or sold in order to obtain the most favorable
price or lower brokerage commissions and the most efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
3. REPRESENTATIONS OF THE ADVISOR.
(a) The Advisor shall use its best judgment and efforts in rendering
the advice and services to the Fund as contemplated by this Agreement.
(b) The Advisor shall maintain all licenses and registrations
necessary to perform its duties hereunder in good order.
(c) The Advisor shall conduct its operations at all times in
conformance with the Investment Advisers Act of 1940, the Investment Company Act
of 1940, and any other applicable state and/or self-regulatory organization
regulations.
(d) The Advisor shall maintain errors and omissions insurance in an
amount at least equal to that disclosed to the Board of Trustees in connection
with their approval of this Agreement.
-3-
<PAGE>
4. INDEPENDENT CONTRACTOR. The Advisor shall, for all purposes herein, be
deemed to be an independent contractor, and shall, unless otherwise expressly
provided and authorized to do so, have no authority to act for or represent the
Trust or the Fund in any way, or in any way be deemed an agent for the Trust or
for the Fund. It is expressly understood and agreed that the services to be
rendered by the Advisor to the Fund under the provisions of this Agreement are
not to be deemed exclusive, and the Advisor shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
5. ADVISOR'S PERSONNEL. The Advisor shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Advisor shall be
deemed to include persons employed or retained by the Advisor to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Advisor or the Trust's Board of Trustees may desire and reasonably request.
6. EXPENSES.
(a) With respect to the operation of the Fund, the Advisor shall be
responsible for (i) providing the personnel, office space and equipment
reasonably necessary for the operation of the Fund, (ii) the expenses of
printing and distributing extra copies of the Fund's prospectus, statement of
additional information, and sales and advertising materials (but not the legal,
auditing or accounting fees attendant thereto) to prospective investors (but not
to existing shareholders), and (iii) the costs of any special Board of Trustees
meetings or shareholder meetings convened for the primary benefit of the
Advisor. If the Advisor has agreed to limit the operating expenses of the Fund,
the Advisor shall also be responsible on a monthly basis for any operating
expenses that exceed the agreed upon expense limit.
(b) The Fund is responsible for and has assumed the obligation for
payment of all of its expenses, other than as stated in Subparagraph 6(a) above,
including but not limited to: fees and expenses incurred in connection with the
issuance, registration and transfer of its shares; brokerage and commission
expenses; all expenses of transfer, receipt, safekeeping, servicing and
accounting for the cash, securities and other property of the Trust for the
benefit of the Fund including all fees and expenses of its custodian,
shareholder services agent and accounting services agent; interest charges on
any borrowings; costs and expenses of pricing and calculating its daily net
-4-
<PAGE>
asset value and of maintaining its books of account required under the
Investment Company Act; taxes, if any; a pro rata portion of expenditures in
connection with meetings of the Fund's shareholders and the Trust's Board of
Trustees that are properly payable by the Fund; salaries and expenses of
officers and fees and expenses of members of the Trust's Board of Trustees or
members of any advisory board or committee who are not members of, affiliated
with or interested persons of the Advisor; insurance premiums on property or
personnel of the Fund which inure to its benefit, including liability and
fidelity bond insurance; the cost of preparing and printing reports, proxy
statements, prospectuses and statements of additional information of the Fund or
other communications for distribution to existing shareholders; legal, auditing
and accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
herein otherwise prescribed.
(c) The Advisor may voluntarily absorb certain Fund expenses or waive
the Advisor's own advisory fee.
(d) To the extent the Advisor incurs any costs by assuming expenses
which are an obligation of the Fund as set forth herein, the Fund shall promptly
reimburse the Advisor for such costs and expenses, except to the extent the
Advisor has otherwise agreed to bear such expenses. To the extent the services
for which a Fund is obligated to pay are performed by the Advisor, the Advisor
shall be entitled to recover from such Fund to the extent of the Advisor's
actual costs for providing such services. In determining the Advisor's actual
costs, the Advisor may take into account an allocated portion of the salaries
and overhead of personnel performing such services.
7. Investment Advisory and Management Fee.
(a) The Fund shall pay to the Advisor, and the Advisor agrees to
accept, as full compensation for all investment management and advisory services
furnished or provided to such Fund pursuant to this Agreement, an annual
management fee equal to the amount specified in Appendix A to this Agreement,
computed on the value of the net assets of the Fund as of the close of business
each day.
(b) The management fee shall be accrued daily by the Fund and paid to
the Advisor on the first business day of the succeeding month.
-5-
<PAGE>
(c) The initial fee under this Agreement shall be payable on the
first business day of the first month following the effective date of this
Agreement and shall be prorated as set forth below. If this Agreement is
terminated prior to the end of any month, the fee to the Advisor shall be
prorated for the portion of any month in which this Agreement is in effect which
is not a complete month according to the proportion which the number of calendar
days in the month during which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within ten (10) days after the
date of termination.
(d) The fee payable to the Advisor under this Agreement will be
reduced to the extent of any receivable owed by the Advisor to the Fund and as
required under any expense limitation applicable to the Fund.
(e) The Advisor voluntarily may reduce any portion of the compensation
or reimbursement of expenses due to it pursuant to this Agreement and may agree
to make payments to limit the expenses which are the responsibility of the Fund
under this Agreement. 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 such reduction will be agreed to prior to
accrual of the related expense or fee and will be estimated daily and reconciled
and paid on a monthly basis.
(f) Any fee withheld or voluntarily reduced and any Fund expense
absorbed by the Advisor voluntarily or pursuant to an agreed upon expense cap
shall be reimbursed by the Fund to the Advisor, if so requested by the Advisor,
in the first, second or third (or any combination thereof) fiscal year next
succeeding the fiscal year of the withholding, reduction or absorption if the
aggregate amount actually paid by the Fund toward the operating expenses for
such fiscal year (taking into account the reimbursement) do not exceed the
applicable limitation on Fund expenses. Such reimbursement may be paid prior to
a Fund's payment of current expenses if so requested by the Advisor even if such
practice may require the Advisor to waive, reduce or absorb current Fund
expenses.
(g) The Advisor may agree not to require payment of any portion of the
compensation or reimbursement of expenses otherwise due to it pursuant to this
Agreement. Any such agreement shall be applicable only with respect to the
specific items covered thereby and shall not constitute an agreement not to
require payment of any future compensation or reimbursement due to the Advisor
hereunder.
8. NO SHORTING; NO BORROWING. The Advisor agrees that neither it nor any of
its officers or employees shall take any short position in the shares of the
Fund. This prohibition shall not prevent the purchase of such shares by any of
the officers or employees of the Advisor or any trust, pension, profit-sharing
or other benefit plan for such persons or affiliates thereof, at a price not
-6-
<PAGE>
less than the net asset value thereof at the time of purchase, as allowed
pursuant to rules promulgated under the Investment Company Act. The Advisor
agrees that neither it nor any of its officers or employees shall borrow from
the Fund or pledge or use the Fund's assets in connection with any borrowing not
directly for the Fund's benefit. For this purpose, failure to pay any amount due
and payable to the Fund for a period of more than thirty (30) days shall
constitute a borrowing.
9. CONFLICTS WITH TRUST'S GOVERNING DOCUMENTS AND APPLICABLE LAWS. Nothing
herein contained shall be deemed to require the Trust or the Fund to take any
action contrary to the Trust's Agreement and Declaration of Trust, By-Laws, or
any applicable statute or regulation, or to relieve or deprive the Board of
Trustees of the Trust of its responsibility for and control of the conduct of
the affairs of the Trust and Fund. In this connection, the Advisor acknowledges
that the Trustees retain ultimate plenary authority over the Fund and may take
any and all actions necessary and reasonable to protect the interests of
shareholders.
10. REPORTS AND ACCESS. The Advisor agrees to supply such information to
the Fund's administrator and to permit such compliance inspections by the Fund's
administrator as shall be reasonably necessary to permit the administrator to
satisfy its obligations and respond to the reasonable requests of the Trustees.
11. ADVISOR'S LIABILITIES AND INDEMNIFICATION.
(a) The Advisor shall have responsibility for the accuracy and
completeness (and liability for the lack thereof) of the statements in the
Fund's offering materials (including the prospectus, the statement of additional
information, advertising and sales materials), except for information supplied
by the administrator or the Trust or another third party for inclusion therein.
(b) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties hereunder on the
part of the Advisor, the Advisor shall not be subject to liability to the Trust
or the Fund or to any shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security by the
Fund.
(c) Each party to this Agreement shall indemnify and hold harmless
the other party and the shareholders, directors, officers and employees of the
other party (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage or
expenses and reasonable counsel fees incurred in connection therewith) arising
-7-
<PAGE>
out of the Indemnified Party's performance or non-performance of any duties
under this Agreement provided, however, that nothing herein shall be deemed to
protect any Indemnified Party against any liability to which such Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties under this Agreement.
(e) No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or officer of the Advisor, from liability in
violation of Sections 17(h) and (i) of the Investment Company Act.
12. NON-EXCLUSIVITY; TRADING FOR ADVISOR'S OWN ACCOUNT. The Trust's
employment of the Advisor is not an exclusive arrangement. The Trust may from
time to time employ other individuals or entities to furnish it with the
services provided for herein. Likewise, the Advisor may act as investment
adviser for any other person, and shall not in any way be limited or restricted
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
will adversely affect the performance of its obligations to the Fund under this
Agreement; and provided further that the Advisor will adhere to a code of ethics
governing employee trading and trading for proprietary accounts that conforms to
the requirements of the Investment Company Act and the Investment Advisers Act
of 1940.
13. TERM.
(a) This Agreement shall become effective at the time the Fund
commences operations pursuant to an effective amendment to the Trust's
Registration Statement under the Securities Act of 1933 and shall remain in
effect for a period of two (2) years, unless sooner terminated as hereinafter
provided. This Agreement shall continue in effect thereafter for additional
periods not exceeding one (l) year so long as such continuation is approved for
the Fund at least annually by (i) the Board of Trustees of the Trust or by the
vote of a majority of the outstanding voting securities of the Fund and (ii) the
vote of a majority of the Trustees of the Trust who are not parties to this
Agreement nor interested persons thereof, cast in person at a meeting called for
the purpose of voting on such approval. The terms "majority of the outstanding
voting securities" and "interested persons" shall have the meanings as set forth
in the Investment Company Act.
(b) The Fund may use the name "James C. Edwards" or any name derived
from or using that name only for so long as this Agreement or any extension,
renewal or amendment hereof remains in effect. Within sixty (60) days from such
time as this Agreement shall no longer be in effect, the Fund shall cease to use
such a name or any other name connected with the Advisor.
-8-
<PAGE>
14. TERMINATION; NO ASSIGNMENT.
(a) This Agreement may be terminated by the Trust on behalf of a Fund
at any time without payment of any penalty, by the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the Fund,
upon sixty (60) days' written notice to the Advisor, and by the Advisor upon
sixty (60) days' written notice to the Fund. In the event of a termination, the
Advisor shall cooperate in the orderly transfer of Fund affairs and, at the
request of the Board of Trustees, transfer any and all books and records of the
Fund maintained by the Advisor on behalf of the Fund.
(b) This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the Investment Company Act.
15. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute or rule, or shall be otherwise rendered
invalid, the remainder of this Agreement shall not be affected thereby.
16. NOTICE OF DECLARATION OF TRUST. The Advisor agrees that the Trust's
obligations under this Agreement shall be limited to the Fund and to their
assets, and that the Advisor shall not seek satisfaction of any such obligation
from the shareholders of the Fund nor from any trustee, officer, employee or
agent of the Trust or the Fund.
17. CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
18. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Massachusetts without giving effect to
the conflict of laws principles thereof; provided that nothing herein shall be
construed to preempt, or to be inconsistent with, any federal law, regulation or
rule, including the Investment Company Act and the Investment Advisors Act of
1940 and any rules and regulations promulgated thereunder.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all on the day and year first
above written.
PROFESSIONALLY MANAGED JAMES C. EDWARDS
PORTFOLIOS on behalf of CAPITAL MANAGEMENT, INC.
the James C. Edwards Equity
Masters Fund
By: By:
------------------------- -------------------------
------------------------- -------------------------
-10-
<PAGE>
APPENDIX A
Investment Advisory Fee Rate
0.75% of average daily net assets annually
-11-
FORM OF OPINION LETTER
VIA EDGAR
Law Offices of Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
Telephone (415) 835-1600
Facsimile (415) 217-5333
Internet www.phjw.com
_____________, 1999
(415) 835-1600
PROFESSIONALLY MANAGED PORTFOLIOS
479 West 22nd Street
New York, NY 10011
Re: Portfolio 21
Ladies and Gentlemen:
We have acted as counsel to Professionally Managed Portfolios, a Massachusetts
business trust (the "Trust"), in connection with Post-Effective Amendments to
the Trust's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission on _________, 1999 (the "Post-Effective Amendment"), and
relating to the issuance by the Trust of an indefinite number of no par value
shares of beneficial interest (the "Shares") by a series of the Trust: Portfolio
21 (the "Fund").
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of all natural persons, and the conformity
to the originals of all records, documents, and instruments submitted to us as
copies. We have based our opinion on the following:
(a) the Trust's Agreement and Declaration of Trust dated February 17, 1987
(filed with the Massachusetts Secretary of State on February 24,
1987), as amended on May 20, 1988 (filed on September 16, 1988), and
April 12, 1991 (filed on May 31, 1991) (as so amended, the
"Declaration of Trust"), as certified to us by an officer of the Trust
as being true and complete and in effect on the date hereof;
<PAGE>
(b) the Bylaws of the Trust certified to us by an officer of the Trust as
being true and complete and in effect on the date hereof;
(c) resolutions of the Trustees of the Trust adopted at the _________,
1999, meeting of the Trust, authorizing the establishment of the Fund
and the issuance of the Shares;
(d) the Post-Effective Amendment; and
(e) a certificate of an officer of the Trust as to certain factual matters
relevant to this opinion.
Our opinion below is limited to the federal law of the United States of America
and the business trust law of the State of Massachusetts. We are not licensed to
practice law in the State of Massachusetts, and we have based our opinion below
solely on our review of Chapter 182 of the General Laws of the Commonwealth of
Massachusetts and the case law interpreting such Chapter as reported
Massachusetts Corporation Law & Practice (.in Annotated Laws of Massachusetts
(Aspen Law & Business, supp. 1998) as updated on Lexis on March 17, 1999. We
have not undertaken a review of other Massachusetts law or of any administrative
or court decisions in connection with rendering this opinion. We disclaim any
opinion as to any law other than that of the United States of America and the
business trust law of the State of Massachusetts as described above, and we
disclaim any opinion as to any statute, rule, regulation, ordinance, order or
other promulgation of any regional or local governmental authority.
We note that, pursuant to certain decisions of the Supreme Judicial Court of the
Commonwealth of Massachusetts, shareholders of a Massachusetts business trust
may, in certain circumstances, be assessed or held personally liable as partners
for the obligations or liabilities of the Trust. However, we also note that
Article VIII, Section 1 of the Declaration of Trust provides that all persons
extending credit to, contracting with or having any claim against the Trust or
the Portfolios shall look only to the assets of the Trust or the Portfolios for
payment thereof and that the shareholders shall not be personally liable
therefor, and further provides that every note, bond, contract, instrument,
certificate or undertaking made or issued on behalf of the Trust or the
Portfolios may include a notice that such instrument was executed on behalf of
the Trust or the Portfolios and that the obligations of such instruments are not
binding upon any of the shareholders of the Trust or the Portfolios
individually, but are binding only on the assets and property of the Trust.
Based on the foregoing and our examination of such questions of law as we have
deemed necessary and appropriate for the purpose of this opinion, and assuming
that (i) all of the Shares will be issued and sold for cash at the per-share
public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Post-Effective Amendment
and in accordance with the Declaration of Trust, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with, it is our opinion that, when issued and
sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
2
<PAGE>
This opinion is rendered to you in connection with the Post-Effective Amendment
and is solely for your benefit. This opinion may not be relied upon by you for
any other purpose or relied upon by any other person, firm, corporation or other
entity for any purpose, without our prior written consent. We disclaim any
obligation to advise you of any developments in areas covered by this opinion
that occur after the date of this opinion.
We hereby consent to (i) the reference to our firm as Legal Counsel in the
Prospectus included in the Post-Effective Amendment, and (ii) the filing of this
opinion as an exhibit to the Post-Effective Amendment.
Sincerely yours,
Paul, Hastings, Janofsky & Walker LLP
3
