As Filed With the Securities and Exchange Commission On May 25, 1999
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. 67 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 68 [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, including zip code
(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)
[X] On July 26, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
================================================================================
<PAGE>
LEONETTI BALANCED FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
Leonetti Balanced Fund is a mutual fund that seeks total return through a
combination of income and capital growth, consistent with preservation 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
<PAGE>
TABLE OF CONTENTS
An Overview of the Fund ...................................................
Performance ...............................................................
Fees and Expenses .........................................................
Investment Objective and Principal Investment Strategies...................
Principal Risks of Investing in the Fund ..................................
Investment Advisor ........................................................
Shareholder Information ...................................................
Pricing of Fund Shares ....................................................
Dividends and Distributions ...............................................
Tax Consequences ..........................................................
Financial Highlights ......................................................
2
<PAGE>
AN OVERVIEW OF THE FUND
LEONETTI BALANCED FUND'S INVESTMENT GOAL
The Fund seeks total return through a combination of income and capital growth,
consistent with preservation of capital.
LEONETTI BALANCED FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in a combination of equity and high-quality fixed-income
securities. The percentage of assets allocated between equity and fixed-income
securities is flexible rather than fixed. Because the Fund seeks to produce the
maximum total return, a significant portion of the Fund's assets has
historically been allocated to common stocks. In selecting equity securities for
the Fund, the Advisor emphasizes three types of investments:
* out-of-favor blue chip stocks
* growth stocks that pay dividends and exhibit a rising trend in
earnings and revenue
* small companies with rapidly rising revenues and earnings
In selecting fixed-income securities, the Advisor seeks a reliable and constant
stream of income for the Fund, while preserving its capital.
PRINCIPAL RISKS OF INVESTING IN THE LEONETTI BALANCED FUND
As with all mutual funds, there is the risk that you could lose money on your
investment in the Fund. 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 both the
equity and fixed-income markets
* Growth stocks fall out of favor with the stock market
* Stocks in the Fund's portfolio may not increase their earnings at
the rate anticipated
* Securities of smaller-capitalization companies involve greater risk
than investing in larger- capitalization companies
WHO MAY WANT TO INVEST IN THE LEONETTI BALANCED FUND
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Are seeking total return from both capital gains and income
* Are willing to accept a moderate degree of market volatility
The Fund may not be appropriate for investors who:
* Are pursuing a short-term goal
* Are seeking a steady level of income
3
<PAGE>
PERFORMANCE
The following performance information indicates some of the risks of
investing in the Fund. The bar chart shows how the Fund's total return has
varied from year to year. The table shows the Fund's average return over time
compared with broad-based market indices. This past performance will not
necessarily continue in the future.
CALENDAR YEAR TOTAL RETURNS (%)*
[The following is the bar chart]
1996: 6.83
1997: 20.85
1998: 27.52
[End of bar chart]
*The Fund's year-to-date return as of 3/31/99 was 6.00%.
During the period shown in the bar chart, the Fund's highest quarterly return
was 21.39% for the quarter ended December 31, 1998 and the lowest quarterly
return was -6.99% for the quarter ended September 30, 1998.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
Since Inception
1 Year (8/1/95)
------ --------
Leonetti Balanced Fund 27.52% 17.70%
Lipper Balanced Index* ____% ____%
Wilshire 5000 Equity Index/
Salomon Broad Investment Grade
Bond Index/90-day U.S. Government
Treasury Bill** _____% _____%
- ----------
* The Lipper Balanced Fund Index measures the performance of those mutual
funds that Lipper Analytical Services, Inc. has classified as "balanced."
Balanced funds maintain a portfolio of both stocks and bonds, typically with
a stock ratio of approximately 60% of assets and a bond ratio of
approximately 40% of assets. The funds in this Index has a similar
investment objective as the Fund.
** These figures represents a blend of the performance of the Wilshire 5000
Equity Index (65%), the Salomon Broad Investment Grade Bond Index (25%) and
the 90-day U.S. Government Treasury Bill (10%). This combined index mirrors
the long-term allocation of the Fund.
4
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
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 Fund assets)
Management Fees .................................................. 1.00%
Other Expenses ................................................... 0.99%
-----
Total Annual Fund Operating Expenses ............................. 1.99%
-----
EXAMPLE
This Example is intended to help you compare the costs of investing in shares of
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund 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
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, under the assumptions, your costs would be:
One Year ............................ $ 20
Three Years ....................... $ 62
Five Years ......................... $107
Ten Years .......................... $232
5
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment goal is to seek total return through a
combination of income and capital growth, consistent with the preservation of
capital.
The Advisor has the flexibility to select among different types of
investments for growth and income and to alter the composition of the Fund's
portfolio as economic and market trends change. Under normal market conditions,
the Fund expects that between 25% and 75% of the Fund's assets will be invested
in either equity securities or fixed income securities.
The Fund will primarily invest in equity securities of domestic
companies of any size. Equity securities include common and preferred stock.
In selecting equity investments for the Fund the Advisor emphasizes
the following three types of investments.
In evaluating out-of-favor companies, the Advisor's fundamental focus
is on a company's business. The Advisor looks for companies that have
experienced problems due to debt, management, excess expenses or cyclical
forces, but are still leaders in their industries. This group of companies
includes, but is not limited to, the largest corporations. These companies are
principally components of the Dow Jones Industrial, Transportation and Utility
averages. It is the Advisor's opinion that such companies frequently undergo
restructuring, management changes, debt reduction and other corporate events
that can have a positive effect on the prices of such stocks, while still
providing a cash flow through regular dividend payments.
The Advisor also seeks growth stocks that pay dividends and that have
shown a rising trend in earnings and revenues over a period of years. Companies
with low or declining debt levels, rising gross profit margins, expanding
product lines and significant stock ownership by management are viewed by the
Advisor as attractive. Many of such companies may be components of the Standard
& Poor's 500 Index. The Advisor does not limit its investment selections to
companies within this Index and will invest in any company that the Advisor
believes has similar characteristics.
The small companies selected for the Fund's portfolio will have
experienced rapidly rising revenues and earnings. The Advisor looks for
companies that have little or no debt, a following in the investment community,
an expanding product line or products that involve a change or improvement in
their industry and control or significant involvement by company founders in
day-to-day management.
6
<PAGE>
Fixed-income securities held by the Fund are expected to include U.S.
Treasury and agency obligations and investment grade corporate debt securities.
Investment grade debt securities are generally considered to be those rated BBB
or better by Standard & Poor's Ratings Group ("S&P"), Duff & Phelps Credit
Rating Co. ("Duff") or Fitch Investors Service, Inc. ("Fitch"), or Baa or better
by Moody's Investors Service, Inc. ("Moody's"), or if unrated, determined by the
Advisor to be of equal quality. Securities rated BBB by S&P, Duff and Fitch or
Baa by Moody's, the lowest tier of investment grade, are generally regarded as
having adequate capacity to pay interest and repay principal, but may have some
speculative characteristics. It is expected that at least 25% of the Fund's
assets will be invested in fixed-income securities.
In selecting fixed-income securities, the Advisor uses a combined
approach of technical and fundamental analysis. The Advisor focuses on the
anticipated direction of interest rates and the yield curve. Corporate bond
analysis encompasses the same research approach that is used in purchasing
common stocks for the Fund.
Under normal market conditions, the Fund will stay fully invested in
stocks and/or fixed-income securities. However, the Fund 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 Fund not achieving its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risks of investing in the Fund that may adversely
affect the Fund's net asset value or total return are discussed above in
"Principal Risks of Investing in the Leonetti Balanced Fund." 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.
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.
7
<PAGE>
FIXED-INCOME SECURITIES RISK. The market value of fixed-income
securities are sensitive to prevailing interest rates. Generally, when interest
rates risk, the fixed-income security's value declines and when interest rates
decline, its market value rises. Generally, the longer the remaining maturity of
a security, the greater the effect of interest rate changes on the market value
of the security. In addition, changes in the ability of an issuer to make
payments of interest and principal and in the market's perception of an issuer's
creditworthiness affect the market value of fixed-income securities of that
issuer.
YEAR 2000 RISK. The risk that the Fund could be adversely affected if
the computer systems used by the Advisor and other service providers do not
properly process and calculate information related to dates beginning January 1,
2000. This is commonly known as the "Year 2000 Problem." This situation may
negatively affect the companies in which the Fund invests and by extension the
value of the Fund's shares. Although the Fund's service providers are taking
steps to address this issue, there may still be some risk of adverse effects.
INVESTMENT ADVISOR
Leonetti & Associates, Inc. is the investment advisor to the Fund.
The Advisor's address is 1130 Lake Cook Road, Suite 300, Buffalo Grove, IL
60089. The Advisor, which was established in 1982, provides investment
management services to investment companies, individual and institutional
investors, with assets under management in excess of $_______. The Advisor
provides the Fund with advice on buying and selling securities. The Advisor also
furnishes the Fund with office space and certain administrative services and
provides most of the personnel needed by the Fund. For the fiscal year ended
June 30, 1998, the Advisor received advisory fees of 1.00% of the Fund's average
net assets.
Mr. Craig T. Johnson, Portfolio Manager, is responsible for the
day-to-day management of the Fund. Mr. Johnson joined the Advisor in 1983.
FUND EXPENSES
The Fund is responsible for its own operating expenses. At times, the
Advisor may reduce its fees and/or pay expenses of the Fund in order to reduce
the Fund's aggregate annual operating expenses. Any reduction in advisory fees
or payment of expenses made by the Advisor are subject to reimbursement by the
Fund if requested by the Advisor in subsequent fiscal years. The Advisor is
permitted to be reimbursed for fee reductions and/or expense payments made in
the prior three fiscal years. Any such reimbursement will be reviewed by the
Trustees. The Fund must pay its current ordinary operating expenses before the
Advisor is entitled to any reimbursement of fees and/or expenses.
8
<PAGE>
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
You may open a Fund account with $100 and add to your account at any
time with $25 or more. After you have opened a Fund account, you also may make
automatic subsequent monthly investments with $25 or more through the Automatic
Investment Plan. The minimum investment requirements may be waived from time to
time by the Fund.
You may purchase shares of the Fund by check or wire. All purchases
by check must be in U.S. dollars. Third party checks and cash will not be
accepted. A charge may be imposed if your check does not clear. The Fund is not
required to issue share certificates. The Fund reserves the right to reject any
purchase in whole or in part.
BY CHECK
If you are making an initial investment in the Fund, simply complete
the Application Form included with this Prospectus and mail it with a check
(made payable to "Leonetti Balanced Fund") to:
Leonetti Balanced Fund
P.O. Box 640856
Cincinnati, OH 45264-0856
If you wish to send your Application Form and check via an overnight
delivery service (such as FedEx), you should call the Transfer Agent at (800-
282-2340) for instructions:
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 "Leonetti
Balanced Fund" to the Fund in the envelope provided with your statement or to
the address noted above. Your account number should be written on the check.
BY WIRE
If you are making an initial investment in the Fund, before you wire
funds you should call the Transfer Agent at (800) 282-2340 between 9:00 a.m. and
4:00 p.m., Eastern time, on a day when the New York Stock Exchange ("NYSE") is
open for trading to advise them that you are making an investment by wire. The
Transfer Agent will ask for your name and the dollar amount you are investing.
You will then receive your account number and an order confirmation number. You
should then complete the 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:
Firstar Bank, N.A. Cinti/Trust
ABA Routing #0420-00001-3
Leonetti Balanced Fund
DDA #483897963
Account name (shareholder name)
Shareholder account number
9
<PAGE>
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 Fund.
You may buy and sell shares of the Fund through certain brokers (and
their agents) that have made arrangements with the Fund 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 Fund's Transfer Agent, and you
will pay or receive the next price calculated by the Fund. 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 Fund's prospectus.
AUTOMATIC INVESTMENT PLAN
For your convenience, the Fund offers an Automatic Investment Plan.
Under this Plan, after your initial investment, you authorize the Fund to
withdraw from your personal checking account each month an amount that you wish
to invest, which must be at least $25. If you wish to enroll in this Plan,
complete the appropriate section in the Account Application. The Fund 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.
RETIREMENT PLANS
The Fund offers an Individual Retirement Account ("IRA") plan. You
may obtain information about opening an IRA account by calling (800) 282-2340.
If you wish to open a Keogh, Section 403(b) or other retirement plan, please
contact your securities dealer.
HOW TO EXCHANGE SHARES
You may exchange your shares between the Fund and the Leonetti Growth
Fund on any day the Funds and the New York Stock Exchange ("NYSE") are open for
business. Before making an exchange into the Leonetti Growth Fund, obtain and
read a copy of its prospectus.
10
<PAGE>
BY MAIL. You may exchange your shares by simply sending a written
request to the Fund's Transfer Agent. You should give your account number and
the number of shares or dollar amount to be exchanged. The letter should be
signed by all of the shareholders whose names appear in the account
registration.
BY TELEPHONE. If your account has telephone privileges, you may also
exchange Fund shares by calling the Transfer Agent at (800) 282-2340 between the
hours of 9:00 a.m. and 4:00 p.m.., Eastern time, on any day the NYSE is open for
trading. If you are exchanging shares by telephone, you will be subject to
certain identification procedures which are listed below under "How to Sell
Shares." The Fund may modify, restrict or terminate the exchange privilege at
any time.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Fund and the
NYSE are open for business either directly to the Fund or through your
investment representative.
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. You should send
your redemption request to:
Leonetti Balanced Fund
P.O. Box 5536
Hauppauge, NY 11788-0132
To protect the Fund and its shareholders, a signature guarantee is
required for certain redemption requests. Signature guarantees are not required
for redemptions under $5,000 if the proceeds are sent to the shareholder's
address of record on the account. Signature(s) on the redemption request must be
guaranteed by an "eligible guarantor institution." These include banks,
broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted for any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
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 (800) 282-2340 between the hours of 9:00 a.m. and 4:00
p.m., Eastern time, on any day the NYSE is open for trading. 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
11
<PAGE>
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 Fund
and its Transfer Agent to act upon the telephone instructions of the person or
persons you have designated in your Account Application. Redemption proceeds
will be transferred to the bank account you have
designated on your Account Application.
Before executing an instruction received by telephone, the Fund 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 Fund
and the Transfer Agent follow these procedures, they will not be liable for any
loss, expense, or cost arising out of any telephone redemption request that is
reasonably believed to be genuine. This includes any fraudulent or unauthorized
request. The Fund 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 (800) 282-2340 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.
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, payment of your redemption proceeds
for those shares will not be made until one business day after your completed
Account Application is received by the Fund. If you did not purchase your shares
with a certified check or wire, the Fund may delay payment of your redemption
proceeds for up to 15 days from date of purchase or until your check has
cleared, whichever occurs first.
The Fund may redeem the shares in your account if the value of your
account is less than $100 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 $100
before the Fund 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 $100 before the Fund takes any action.
The Fund has the right to pay redemption proceeds to you in whole or
in part by a distribution of securities from the Fund's portfolio. It is not
expected that the Fund would do so except in unusual circumstances.
SYSTEMATIC WITHDRAWAL PROGRAM. As another convenience, you may redeem
your Fund shares through the Systematic Withdrawal Program. If you elect this
method of redemption, the Fund will send you a check in a minimum amount of
$100. You may choose to receive a check each month or calendar quarter. Your
Fund 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 Fund. You may
also elect to terminate your participation in this Program at any time by
writing to the Transfer Agent.
A withdrawal under the Program involves a redemption of shares and
may result in a gain or loss for federal income tax purposes. In addition, if
the amount withdrawn exceeds the dividends credited to your account, the account
ultimately may be depleted.
12
<PAGE>
PRICING OF FUND SHARES
The price of the Fund's shares is based on the Fund's net asset
value. This is done by dividing the Fund's assets, minus its liabilities, by the
number of shares outstanding. The Fund's assets are the market value of
securities held in its portfolio, plus any cash and other assets. The Fund's
liabilities are fees and expenses owed by the Fund. The number of Fund shares
outstanding is the amount of shares which have been issued to shareholders. The
price you will pay to buy Fund shares or the amount you will receive when you
sell your Fund shares is based on the net asset value next calculated after your
order is received by the Transfer Agent with complete information and meeting
all the requirements discussed in this Prospectus.
The net asset value of the Fund's shares is determined as of the
close of regular trading on the NYSE. This is normally 4:00 p.m., Eastern time.
Fund shares will not be priced on days that
the NYSE is closed for trading (including certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
The Fund will make distributions of dividends and capital gains, if
any, annually, usually on or about December 31 of each year.
All distributions will be reinvested in Fund shares unless you
request in writing to the Transfer Agent that you wish to receive your
distributions in cash. This written request must be received by the Transfer
Agent in advance of the payment date for the distribution.
TAX CONSEQUENCES
The Fund 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 Fund held the securities
that generated the gains, not on how long you owned your Fund 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 Fund shares.
If you exchange or sell your Fund 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.
FINANCIAL HIGHLIGHTS
This table shows the Fund's financial performance for up to the past
five years. "Total return" shows how much your investment in the Fund would have
increased or decreased during each period, assuming you had reinvested all
dividends and distributions. The information for the period August 1, 1995
through June 30, 1998 has been audited by Ernst & Young LLP, independent
accountants. Their report and the Fund's financial statements are included in
the Annual Report, which is available upon request.
13
<PAGE>
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six Months Year Ended June 30, August 1, 1995*
Ended -------------------- through
December 31, 1998# 1998 1997 June 30, 1996
------------------ ---- ---- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .. $14.20 $12.31 $ 10.80 $10.00
------ ------ ------- ------
Income from investment operations:
Net investment income ............. 0.03 0.05 0.06 0.09
Net realized and unrealized
gain on investments .............. 1.70 2.75 1.54
0.76
------ ------ ------- ------
Total from investment operations ...... 1.73 2.80 1.60 0.85
------ ------ ------- ------
Less distributions:
From net investment income ........ (0.05) (0.03) (0.09) (0.05)
From net capital gains ............ (0.86) (1.06) -0- -0-
------ ------ ------- ------
Total distributions ................... (0.91) (1.09) (0.09) (0.05)
------ ------ ------- ------
Net asset value, end of period ........ $14.84 $14.02 $ 12.31 $10.80
====== ====== ======= ======
Total return .......................... 12.87% 24.10% 14.91% 8.46%
Ratios/supplemental data:
Net assets, end of period (millions) .. $ 19.1 $ 15.5 $ 11.3 $ 10.1
Ratio of expenses to average
net assets ........................... 1.83%+ 1.99% 2.29% 2.26%+
Ratio of net investment income to
average net assets ................... 0.45%+ 0.40%+ 0.47% 1.02%+
Portfolio turnover rate ............... 35.23% 89.51% 119.75% 42.16%
</TABLE>
- ----------
* Commencement of operations.
+ Annualized.
# Unaudited.
14
<PAGE>
LEONETTI BALANCED FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS (THE "TRUST")
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of market conditions and
investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
Prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund at:
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Telephone: 1-800-282-2340
You can review and copy information including the Fund's reports and 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
* For a fee, by calling 1-800-SEC-0330, or
* Free of charge from the Commission's Internet website at
http://www.sec.gov.
(The Trust's SEC Investment Company Act
file number is 811-5037)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
_________________, 1999
LEONETTI BALANCED FUND
A SERIES OF
PROFESSIONALLY MANAGED PORTFOLIOS
1130 LAKE COOK ROAD, SUITE 300
BUFFALO GROVE, IL 60089
(847) 520-0999
This Statement of Additional Information ("SAI") is not a prospectus
and it should be read in conjunction with the prospectus of the Leonetti
Balanced Fund (the "Fund"). Leonetti & Associates, Inc. (the "Advisor) is the
investment advisor to the Fund. Copies of the Fund's Prospectus dated
_____________, 1999 are available by calling the number above or (212) 633-
9700.
TABLE OF CONTENTS
The Trust ..............................................................B-
Investment Objective and Policies........................................B-
Investment Restrictions..................................................B-
Distributions and Tax Information........................................B-
Trustees and Executive Officers..........................................B-
The Fund's Investment Advisor............................................B-
The Fund's Administrator.................................................B-
The Fund's Distributor...................................................B-
Execution of Portfolio Transactions......................................B-
Portfolio Turnover......................................................B-
Additional Purchase And Redemption Information...........................B-
Determination of Share Price.............................................B-
Performance Information..................................................B-
General Information......................................................B-
Financial Statements.....................................................B-
Appendix A..............................................................B-
Appendix B..............................................................B-
B-1
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust. The
Trust may consist of various series which represent separate investment
portfolios. This SAI relates only to the Fund.
The Trust is registered with the SEC as a management investment
company. Such a registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this 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 Leonetti Balanced Fund is a mutual fund with the investment
objective of seeking total return through a combination of income and capital
growth, consistent with preservation of capital. The Fund is diversified, which
under applicable federal law means that as to 75% of its total assets, no more
than 5% may be invested in the securities of a single issuer and that it may
hold no more than 10% of the voting securities of a single issuer. The following
discussion supplements the discussion of the Fund's investment objective and
policies as set forth in the Prospectus. There can be no assurance the objective
of the Fund will be attained.
PREFERRED STOCK. A preferred stock is a blend of the characteristics
of a bond and common stock. It can offer the higher yield of a bond and has
priority over common stock in equity ownership, but does not have the seniority
of a bond and, unlike common stock, its participation in the issuer's growth may
be limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer by dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
REPURCHASE AGREEMENTS. The Fund 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 Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the U.S. Government
security itself. Such repurchase agreements will be made only with banks with
assets of $500 million or more that are insured by the Federal Deposit Insurance
Corporation or with Government securities dealers recognized by the Federal
Reserve Board and registered as broker-dealers with the Securities and Exchange
Commission ("SEC") or exempt from such registration. The Fund will generally
enter into repurchase agreements of short durations, from overnight to one week,
although the underlying securities generally have longer maturities. The Fund
B-2
<PAGE>
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 Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
the Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, 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
Fund will always receive as collateral for any repurchase agreement to which it
is a party securities acceptable to it, the market value of which is equal to at
least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
WHEN-ISSUED SECURITIES. The Fund may from time to time purchase
securities on a "when-issued" basis. The price of such securities, which may be
expressed in yield terms, is fixed at the time the commitment to purchase is
made, but delivery and payment for them take place at a later date. Normally,
the settlement date occurs within one month of the purchase; during the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
securities may be sold prior to the settlement date, the Fund intends to
purchase them with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time the Fund makes the commitment to
purchase a security on a when-issued basis, it will record the transaction and
B-3
<PAGE>
reflect the value of the security in determining its net asset value. Themarket
value of the when-issued securities may be more or less than the purchase price.
The Fund does not believe that its net asset value or income will be adversely
affected by its purchase of securities on a when-issued basis. The Fund's
Custodian will segregate liquid assets equal in value to commitments for
when-issued securities. Such segregated assets either will mature or, if
necessary, be sold on or before the settlement date.
ILLIQUID SECURITIES. The Fund 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 Fund's portfolio, under the
supervision of the Trust's Board of Trustees, to ensure compliance with the
Fund'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 Fund 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 Fund 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.
INVESTMENT COMPANIES. The Fund may under certain circumstances invest
a portion of its assets in other investment companies, including money market
funds. An investment in a mutual fund will involve payment by the Fund of its
pro rata share of advisory and administrative fees charged by such fund.
B-4
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. U.S. Government securities include
direct obligations issued by the United States Treasury, such as Treasury bills
(maturities of one year or less), U.S. Treasury notes (maturities of one to ten
years) and U.S. Treasury bonds (generally maturities of greater than ten years).
They also include U.S. Government agencies and instrumentalities that issue or
guarantee securities, such as the Federal Home Loan Banks, The Federal National
Mortgage Association and the Student Loan Marketing Association. Except for U.S.
Treasury securities, obligations of U.S. Government agencies and
instrumentalities may or may not be supported by the full faith and credit of
the United States. Some, such as those of the Federal Home Loan Banks, are
backed by the right of the issuer to borrow from the Treasury, others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations, while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to asset a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
CORPORATE DEBT SECURITIES. The Fund may invest in investment-grade
corporate debt securities. Investment-grade securities are generally considered
to be those rated BBB or better by Standard & Poor's Ratings Group ("S&P"), Duff
& Phelps Credit Rating Co. ("Duff") or Fitch Investors Service, Inc. ("Fitch")
or Baa or better by Moody's Investor's Service, Inc. ("Moody's") or, if unrated,
deemed to be of comparable quality by the Advisor. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make interest and principal payments in securities with these ratings than is
the case with higher grade bonds.
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. If a security's rating is reduced while it
held by the Fund, the Advisor will consider whether the Fund should continue to
hold the security but is not required to dispose of it. Credit ratings attempt
to evaluate the safety of principal and interest payments and do not evaluate
the risks of fluctuations in market value. Also, rating agencies may fail to
make timely changes in credit ratings in response to subsequent events, so that
an issuer's current financial conditions may be better or worse than the rating
indicates. The ratings for corporate debt securities are described in Appendix
A.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and
instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The
Fund 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
B-5
<PAGE>
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund 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 Fund 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 Fund 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 S&P, "Prime-1" or "Prime-2" by Moody's,
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 Appendix B.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted
by the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b)
through the lending of its portfolio securities as described above and in its
Prospectus, or (c) to the extent the entry into a repurchase agreement is deemed
to be a loan.
2. (a) Borrow money, except from banks for temporary or emergency
purposes. Any such borrowing will be made only if immediately thereafter there
is an asset coverage of at least 300% of all borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
B-6
<PAGE>
4. Purchase or sell real estate, commodities or commodity contracts.
(As a matter of operating policy, the Board of Trustees may authorize the Fund
to engage in certain activities regarding futures contracts for bona fide
hedging purposes; any such authorization will be accompanied by appropriate
notification to shareholders).
5. Invest 25% or more of the market value of its assets in the
securities of companies engaged in any one industry. (Does not apply to
investment in the securities of the U.S.
Government, its agencies or instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from making any
permitted borrowings, mortgages or pledges.
7. Purchase the securities of any issuer, if as a result more than 5%
of the total assets of the Fund would be invested in the securities of that
issuer, other than obligations of the U.S. Government, its agencies or
instrumentalities, provided that up to 25% of the value of the Fund's assets may
be invested without regard to this limitation.
8. Invest in any issuer for purposes of exercising control or
management.
The Fund observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The Fund may not:
9. Invest in securities of other investment companies which would
result in the Fund owning more than 3% of the outstanding voting securities of
any one such investment company, the Fund owning securities of another
investment company having an aggregate value in excess of 5% of the value of the
Fund's total assets, or the Fund owning securities of investment companies in
the aggregate which would exceed 10% of the value of the Fund's total assets.
10. Invest, in the aggregate, more than 15% of its 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 (other than securities that meet the requirements of Securities Act
Rule 144A which the Trustees have determined to be liquid based on applicable
trading markets).
If a percentage restriction described in the Fund's Prospectus or
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 for the policy regarding
borrowing or as otherwise specifically noted.
B-7
<PAGE>
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net
profits from the sale of securities are generally made annually. Also, the Fund
expects to distribute any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the period
ended October 31 of each year will also be distributed by December 31 of each
year.
Each distribution by the Fund is accompanied by a brief explanation
of the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
TAX INFORMATION
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to qualify and continue to elect to be
treated as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"), provided it complies with all applicable
requirements regarding the source of its income, diversification of its assets
and timing of distributions. The Fund's policy is to distribute to its
shareholders all of its investment company taxable income and any net realized
capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes. To comply with the requirements, the Fund
must also distribute (or be deemed to have distributed) by December 31 of each
calendar year (i) at least 98% of its ordinary income for such year, (ii) at
least 98% of the excess of its realized capital gains over its realized capital
losses for the 12-month period ending on October 31 during such year and (iii)
any amounts from the prior calendar year that were not distributed and on which
the Fund paid no federal income tax.
The Fund's ordinary income generally consists of interest and
dividend income, less expenses. Net realized capital gains for a fiscal period
are computed by taking into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital
gains are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designate the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Fund for
their taxable year. In view of the Fund's investment policy, it is expected that
dividends from domestic corporations will be part of the Fund's gross income and
that, accordingly, part of the distributions by the Fund may be eligible for the
dividends-received deduction for corporate shareholders. However, the portion of
the Fund's gross income attributable to qualifying dividends is largely
dependent on the Fund's investment activities for a particular year and
B-8
<PAGE>
therefore cannot be predicted with any certainty. The deduction may be reduced
or eliminated if the Fund shares held by a corporate investor are treated as
debt-financed or are held for less than 46 days.
A redemption or exchange of Fund shares may result in recognition of
a taxable gain or loss. Any loss realized upon a redemption of shares within six
months from the date of their purchase will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gains during such six-month period. Any loss realized upon a redemption of Fund
shares may be disallowed under certain wash sale rules to the extent shares of
the Fund are purchased (through reinvestment of distributions or otherwise)
within 30 days before or after the redemption.
Under the Code, the Fund will be required to report to the Internal
Revenue Service ("IRS") all distributions of ordinary income and capital gains
as well as gross proceeds from the redemption or exchange of Fund shares, except
in the case of exempt shareholders, which includes most corporations. Pursuant
to the backup withholding provisions of the Code, distributions of any taxable
income and capital gains and proceeds from the redemption of Fund shares may be
subject to withholding of federal income tax at the rate of 31 percent in the
case of non-exempt shareholders who fail to furnish the Fund with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. If the withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Fund with their
taxpayer identification numbers or certify their exempt status in order to avoid
possible erroneous application of backup withholding. The Fund reserve the right
to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
The Fund will not be subject to corporate income tax in the
Commonwealth of Massachusetts as long as its qualifies as regulated investment
companies for federal income tax purposes. Distributions and the transactions
referred to in the preceding paragraphs may be subject to state and local income
taxes, and the tax treatment thereof may differ from the federal income tax
treatment.
The foregoing discussion of U.S. federal income tax law relates
solely to the application of that law to U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30 percent (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income.
In addition, the foregoing discussion of tax law is based on existing
provisions of the Code, existing and proposed regulations thereunder, and
current administrative rulings and court decisions, all of which are subject to
change. Any such charges could affect the validity of this discussion. The
discussion also represents only a general summary of tax law and practice
currently applicable to the Fund and certain shareholders therein, and, as such,
B-9
<PAGE>
is subject to change. In particular, the consequences of an investment in shares
of the Fund under the laws of any state, local or foreign taxing jurisdictions
are not discussed herein. Each prospective investor should consult his or her
own tax advisor to determine the application of the tax law and practice in his
or her own particular circumstances.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by
the initial shareholders of the Trust, are responsible for the overall
management of the Trust, including general supervision and review of the
investment activities of the Fund. The Trustees, in turn, elect the officers of
the Trust, who are responsible for administering the day-to-day operations of
the Trust and its separate series. The current Trustees and officers, their
affiliations, dates of birth and principal occupations for the past five years
are set forth below. Unless noted otherwise, each person has held the position
listed for a minimum of five years.
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 Fund's Distributor).
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 advisor and manager) and formerly President, Value
Line, Inc., (investment advisory and financial publishing firm).
Wallace L. Cook 09/10/39 Trustee
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
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).
B-10
<PAGE>
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.
Set forth below is the rate of compensation received by the following
Trustees from all 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
During the fiscal year ended June 30, 1998, trustees' fees and
expenses in the amount of $4,300 were allocated to the Fund. As of the date of
this SAI, the Trustees and officers of the Trust as a group did not own more
than 1% of the outstanding shares of the Fund.
B-11
<PAGE>
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are
provided to the Fund by Leonetti & Associates, Inc., the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). The Advisor is
controlled by Mr. Michael Leonetti. As compensation, the Fund pays the Advisor a
monthly management fee (accrued daily) based upon the average daily net assets
of the Fund at the annual rate of 1.00%.
The Advisory Agreement will continue in effect for successive annual
periods so long as such continuation is approved at least annually by the vote
of (1) the Board of Trustees of the Trust (or a majority of the outstanding
shares of the Fund, and (2) a majority of the Trustees who are not interested
persons of any party to the Advisory Agreement, in each case cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated at any time, without penalty, by either party to the
Advisory Agreement upon sixty days' written notice and is automatically
terminated in the event of its "assignment," as defined in the 1940 Act.
The use of the name "Leonetti" by the Fund is pursuant to a license
granted by the Advisor, and in the event the Advisory Agreement is terminated,
the Advisor has reserved the right to require the Fund to remove any references
to the name "Leonetti."
During the Fund's initial fiscal period ended June 30, 1996 and for
the fiscal years ended June 30, 1997 and June 30, 1998, the Advisor received
fees of $83,530, $104,200 and $130,603, respectively, under the Advisory
Agreement.
THE FUND'S ADMINISTRATOR
The Fund 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 4455 E. Camelback Rd.,
Ste. 261-E, Phoenix, AZ 85018. The Administration Agreement provides that the
Administrator will prepare and coordinate reports and other materials supplied
to the Trustees; prepare and/or supervise the preparation and filing of all
securities filings, periodic financial reports, prospectuses, statements of
additional information, marketing materials, tax returns, shareholder reports
and other regulatory reports or filings required of the Fund; prepare all
required notice filings necessary to maintain the Fund's ability to sell shares
in all states where the Fund currently does, or intends to do business;
coordinate the preparation, printing and mailing of all materials (e.g., Annual
Reports) required to be sent to shareholders; coordinate the preparation and
payment of Fund related expenses; monitor and oversee the activities of the
Fund's servicing agents (i.e., transfer agent, custodian, fund accountants,
etc.); review and adjust as necessary the Fund's daily expense accruals; and
perform such additional services as may be agreed upon by the Fund and the
Administrator. For its services, the Administrator receives a monthly fee at the
following annual rate:
B-12
<PAGE>
AVERAGE NET ASSETS FEE OR FEE RATE
- ------------------ ---------------
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 to $100 million 0.15% of average net assets
$100 million to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
During the Fund's initial fiscal period ended June 30, 1996 and for
the fiscal years ending June 30, 1997 and June 30, 1998, the Administrator
received fees of $27,534, $30,779 and $30,000, respectively.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), a corporation
owned by Messrs. Banhazl, Paggioli and Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
from year to year if approved at least annually by (i) the Board of Trustees or
the vote of a majority of the outstanding shares of the Fund (as defined in the
1940 Act) and (ii) a majority of the Trustees who are not interested persons of
any such party, in each case cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreement may be terminated without
penalty by the parties thereto upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Fund and which broker-dealers are
eligible to execute the Fund's portfolio transactions. Purchases and sales of
securities in the over-the-counter market will generally be executed directly
with a "market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own accounts. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
B-13
<PAGE>
In placing portfolio transactions, the Advisor will use its
reasonable efforts to choose broker-dealers capable of providing the services
necessary to obtain the most favorable price and execution available. The full
range and quality of services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and other factors. In those instances where it is
reasonably determined that more than one broker-dealer can offer the services
needed to obtain the most favorable price and execution available, consideration
may be given to those broker-dealers which furnish or supply research and
statistical information to the Advisor that it may lawfully and appropriately
use in its investment advisory capacities, as well as provide other services in
addition to execution services. The Advisor considers such information, which is
in addition to and not in lieu of the services required to be performed by it
under its Agreement with the Fund, to be useful in varying degrees, but of
indeterminable value. Portfolio transactions may be placed with broker-dealers
who sell shares of the Fund subject to rules adopted by the National Association
of Securities Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the
most favorable price and execution available in selecting a broker-dealer to
execute portfolio transactions for the Fund, weight is also given to the ability
of a broker-dealer to furnish brokerage and research services to the Fund or to
the Advisor, even if the specific services are not directly useful to the Fund
and may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those
of other client accounts or mutual funds ("Funds") managed or advised by the
Advisor. Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts or Funds.
In such event, the position of the Fund and such client account(s) or Funds in
the same issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts or Funds seeks to acquire the same security as the Fund at
the same time, the Fund may not be able to acquire as large a portion of such
security as it desires, or it may have to pay a higher price or obtain a lower
yield for such security. Similarly, the Fund may not be able to obtain as high a
price for, or as large an execution of, an order to sell any particular security
at the same time. If one or more of such client accounts or Funds simultaneously
purchases or sells the same security that the Fund is purchasing or selling,
each day's transactions in such security will be allocated between the Fund and
all such client accounts or Funds in a manner deemed equitable by the Advisor,
taking into account the respective sizes of the accounts and the amount being
purchased or sold. It is recognized that in some cases this system could have a
B-14
<PAGE>
detrimental effect on the price or value of the security insofar as the Fund is
concerned. In other cases, however, it is believed that the ability of the Fund
to participate in volume transactions may produce better executions for the
Fund.
The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
brokers solely for selling shares of the Fund, although the Fund may consider
the sale of shares as a factor in allocating brokerage. However, as stated
above, broker-dealers who execute brokerage transactions may effect purchase of
shares of the Fund for their customers.
During the Fund's initial fiscal period ended June 30, 1996 and for
the fiscal years ending June 30, 1997 and June 30, 1998, the Fund paid brokerage
commissions of $26,457, $34,556 and $20,118, respectively.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
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 Fund'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 transaction costs and may result in a
greater number of taxable transactions. See "Portfolio Transactions and
Brokerage." For the fiscal year ended June 30, 1998 and 1997, the Fund had a
portfolio turnover rate of 89.51% and 119.75%, respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained
in the Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
The public offering price of Fund shares is the net asset value. Each
Fund 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"), normally 4:00 p.m.,
Eastern time. 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.
B-15
<PAGE>
The NYSE annually announces the days on which it will not be open for
trading. The most recent announcement indicates that it will not be open on the
following days: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the NYSE may close on days not included in that
announcement.
The Trust reserves the right in its sole discretion (i) to suspend
the continued offering of the Fund's shares, (ii) to reject purchase orders in
whole or in part when in the judgment of the Advisor or the Distributor such
rejection is in the best interest of the Fund, and (iii) to reduce or waive the
minimum for initial and subsequent investments for certain group or periodic
plans.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular
trading, either directly to the Fund or through your investment representative.
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.
DELIVERY OF REDEMPTION PROCEEDS
Payments to shareholders for shares of the Fund redeemed directly
from the Fund will be made as promptly as possible but no later than seven days
after receipt by the Fund's Transfer Agent of the written request in proper
form, with the appropriate documentation as stated in the Prospectus, except
that the Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the 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 Fund not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Fund's shareholders. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, but only as
authorized by SEC rules.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the Fund's
portfolio securities at the time of redemption or repurchase.
B-16
<PAGE>
TELEPHONE REDEMPTIONS
Shareholders must have selected telephone transactions privileges on
the Account Application when opening a Fund account. 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 Fund 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 shares of the Fund and
depositing and withdrawing monies from the bank account specified in the Bank
Account Registration section of the shareholder's latest Account Application or
as otherwise properly specified to the Fund 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 Fund and the Transfer Agent may be liable
for any losses due to unauthorized or fraudulent instructions. If these
procedures are followed, an investor agrees, however, that to the extent
permitted by applicable law, neither the Fund 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 may be modified or terminated without notice.
REDEMPTIONS-IN-KIND
The Fund has reserved the right to pay the redemption price of its
shares, either totally or partially, by a distribution in kind of 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 SEC 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).
AUTOMATIC INVESTMENT PLAN
As discussed in the Prospectus, the Fund provides an Automatic
Investment Plan for the convenience of investors who wish to purchase shares of
the Fund on a regular basis. All record keeping and custodial costs of the
Automatic Investment Plan are paid by the Fund. The market value of the Fund's
shares is subject to fluctuation, so before undertaking any plan for systematic
investment, the investor should keep in mind that this plan does not assure a
profit nor protect against depreciation in declining markets.
B-17
<PAGE>
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of public
trading on the NYSE (normally 4:00 p.m., Eastern time) on each day that the NYSE
is open for trading. The Fund 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 the Fund's 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.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Trustees of the
Trust shall determine in good faith to reflect the security's fair value. All
other assets of the Fund are valued in such manner as the Board of Trustees in
good faith deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows:
all liabilities incurred or accrued are deducted from the valuation of total
assets which includes accrued but undistributed income; the resulting net assets
are divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in
advertisements and investor communications. Total return may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return will be accompanied by information on the Fund's
average annual compounded rate of return for the most recent one, five and ten
year periods, or shorter periods from inception, through the most recent
calendar quarter. The Fund may also advertise aggregate and average total return
information over different periods of time.
The Fund's total return 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 Fund's
performance by independent sources may also be used in advertisements and in
information furnished to present or prospective investors in the Fund.
B-18
<PAGE>
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which
the maximum sales load is deducted
T = average annual total return n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase
at the end of the period
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
The Fund's average annual total return for periods ending March 31,
1999 are as follows:
One Year 23.43%
Since Inception 18.29%
(August 1, 1995)
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Firstar Institutional Custody Services, located at 425 Walnut St.,
Cincinnati, Ohio 45201 acts as Custodian of the securities and other assets of
the Fund. American Data Services, P.O. Box 5536, Hauppauge, NY 11788-0132 acts
as the Fund's transfer and shareholder service agent. The Custodian and Transfer
Agent do not participate in decisions relating to the purchase and sale of
securities by the Fund.
Ernst & Young, L.L.P. are the independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker, LLP, 345 California Street, 29th
Floor, San Francisco, California 94104, are legal counsel to the Fund.
B-19
<PAGE>
On May 10, 1999, the following persons owned of record more that 5%
of the Fund's outstanding voting securities:
Star Bank, NA, Custodian for Frank G. Valeria IRA Account,
Niles, IL, 60714; 15.30%
Charles Schwab & Co., Special Custody Account, San Francisco,
CA 94104; 12.44%
The Trust was organized as a Massachusetts business trust on February
17, 1987. The Agreement and Declaration of Trust permits the Board of Trustees
to issue an limited number of full and fractional shares of beneficial interest,
without par value, which may be issued in any number of series. The Board of
Trustees may from time to time issue other series, the assets and liabilities of
which will be separate and distinct from any other series.
Shares issued by the Fund have no preemptive, conversion, or
subscription rights. Shareholders have equal and exclusive rights as to
dividends and distributions as declared by the Fund and to the net assets of the
Fund upon liquidation or dissolution. The Fund, as a separate series of the
Trust, votes separately on matters affecting only the Fund (e.g., approval of
the Advisory Agreement); all series of the Trust vote as a single class on
matters affecting all series jointly or the Trust as a whole (e.g., election or
removal of Trustees). Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in any election of Trustees can, if they so
choose, elect all of the Trustees. While the Trust is not required and does not
intend to hold annual meetings of shareholders, such meetings may be called by
the Trustees in their discretion, or upon demand by the holders of 10% or more
of the outstanding shares of the Trust, for the purpose of electing or removing
Trustees.
The shareholders of a Massachusetts business trust could, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Agreement and Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Trust. The Agreement and Declaration of Trust also provides for indemnification
and reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Agreement and Declaration of Trust further
provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
FINANCIAL STATEMENTS
The Fund's annual report to shareholders for its fiscal year ended
June 30, 1998 and its semi-annual report to shareholders for the six-month
period ended December 31, 1998 are separate documents supplied with this SAI and
the financial statements, accompanying notes and report of independent
accountants (annual report) appearing therein are incorporated by reference in
this SAI.
B-20
<PAGE>
APPENDIX A
CORPORATE BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations or
protective elements may be of greater amplitude or there may be other elements
present which make long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay principal and interest.
B-21
<PAGE>
AA: Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and
interest, although they are more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.
APPENDIX B
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-22
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
PART C
ITEM 23. EXHIBITS.
(1) Agreement and Declaration of Trust (1)
(2) By-Laws (1)
(3) Specimen stock certificate (5)
(4) Form of Investment Advisory Agreement (6)
(5) Form of Distribution Agreement (6)
(6) Not applicable
(7) Form of Custodian Agreement with Star Bank, NA (4)
(8) (1) Form of Administration Agreement with Investment Company
Administration, LLC (2)
(2)(a) Fund Accounting Service Agreement with American Data
Services (4)
(2)(b) Transfer Agency and Service Agreement with American Data
Services (4)
(3) Transfer Agency and Fund Accounting Agreement with
Countrywide Fund Services (3)
(4) Transfer Agency Agreement with Provident Financial
Processing Corporation (8)
(9) Opinion of Counsel(7)
(10) Accountants Consent (5)
(11) Not applicable
(12) No undertaking in effect
(13) Not applicable
(14) Financial Data Schedules (filed as Exhibit 27 for electronic
filing purposes)
(15) Not applicable
1 Incorporated by reference from Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A, filed on December 29, 1995.
2 Incorporated by reference from Post-Effective Amendment No. 35 to the
Registration Statement on Form N-1A, filed on April 24, 1997.
3 Incorporated by reference from Post-Effective Amendment No. 43 to the
Registration Statement on Form N-1A, filed on February 5, 1998.
4 Incorporated by reference from Post-Effective Amendment No. 48 to the
Registration Statement on Form N-1A, filed on June 15, 1998.
5 Incorporated by reference from Post-Effective Amendment No. 52 to the
Registration Statement on Form N-1A, filed on October 29, 1998.
6 Incorporated by reference from Post-Effective Amendment No. 62 to the
Registration Statement on Form N-1A, filed on May 11, 1999.
7 Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on April 13, 1987.
8 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.
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.
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) First Fund Distributors, Inc. (the "Distributor") is the principal
underwriter all series of the Registrant except for the Hodges Fund, the Matrix
Growth Fund and the Matrix Emerging Growth Fund. The Distributor acts as
principal underwriter for the following other investment companies:
Advisors Series Trust
Brandes Investment Trust
Fleming Mutual Fund Group
Fremont Mutual Funds
Guinness Flight Investment Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Purisima Funds
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group
UBS Private Investor Funds
First Dallas Securities, Inc., 2311 Cedar Springs Rd., Ste. 100, Dallas, TX
75201, an affiliate of Hodges Capital Management, acts as Distributor of the
Hodges Fund. The President and Chief Financial Officer of First Dallas
Securities, Inc. is Don W. Hodges. First Dallas does not act as principal
underwriter for any other investment companies. Reynolds, DeWitt Securities Co.,
an affiliate of Sena Weller Rohs Williams, 300 Main St., Cincinnati, OH 45202,
acts as Distributor for the Matrix Growth Fund and Matrix Emerging Growth Fund.
(b) The officers of First Fund Distributors, Inc. are:
Robert H. Wadsworth President & Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Secretary
Each officer's business address is 4455 E. Camelback Rd., Ste. 261-E,
Phoenix, AZ 85018. Mr. Paggioli serves as President and a Trustee of the
Registrant. Mr. Wadsworth serves as Vice President of the Registrant. Mr.
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.
<PAGE>
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 May 21,
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 May 21, 1999
- ---------------------------------
Steven J. Paggioli
/s/ Robert M. Slotky Principal Financial May 21, 1999
- --------------------------------- Officer
Robert M. Slotky
Dorothy A. Berry Trustee May 21, 1999
- ---------------------------------
*Dorothy A. Berry
Wallace L. Cook Trustee May 21, 1999
- ---------------------------------
*Wallace L. Cook
Carl A. Froebel Trustee May 21, 1999
- ---------------------------------
*Carl A. Froebel
Rowley W. P. Redington Trustee May 21, 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
----------- -----------
27.16 FDS-Annual report
27.17 FDS-Semi-annual report
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 811030
<NAME> PROFESSIONALLY MANAGED PORTFOLIOS
<SERIES>
<NUMBER> 16
<NAME> LEONETTI BALANCED FUND
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 12713267
<INVESTMENTS-AT-VALUE> 15427990
<RECEIVABLES> 95367
<ASSETS-OTHER> 215
<OTHER-ITEMS-ASSETS> 13147
<TOTAL-ASSETS> 15536719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39634
<TOTAL-LIABILITIES> 39634
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11700630
<SHARES-COMMON-STOCK> 1104981
<SHARES-COMMON-PRIOR> 916840
<ACCUMULATED-NII-CURRENT> 26568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1055164
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2714723
<NET-ASSETS> 15497085
<DIVIDEND-INCOME> 88343
<INTEREST-INCOME> 220572
<OTHER-INCOME> 3496
<EXPENSES-NET> 260639
<NET-INVESTMENT-INCOME> 51772
<REALIZED-GAINS-CURRENT> 1694629
<APPREC-INCREASE-CURRENT> 1050874
<NET-CHANGE-FROM-OPS> 2797275
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (30287)
<DISTRIBUTIONS-OF-GAINS> (973796)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 218573
<NUMBER-OF-SHARES-REDEEMED> (112150)
<SHARES-REINVESTED> 81718
<NET-CHANGE-IN-ASSETS> 4213864
<ACCUMULATED-NII-PRIOR> 5083
<ACCUMULATED-GAINS-PRIOR> 334331
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 130603
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 260639
<AVERAGE-NET-ASSETS> 13071685
<PER-SHARE-NAV-BEGIN> 12.31
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 2.75
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (1.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.02
<EXPENSE-RATIO> 1.99
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 811030
<NAME> PROFESSIONALLY MANAGED PORTFOLIOS
<SERIES>
<NUMBER> 17
<NAME> LEONETTI BALANCED FUND
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 13521561
<INVESTMENTS-AT-VALUE> 19049208
<RECEIVABLES> 142492
<ASSETS-OTHER> 9301
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19201001
<PAYABLE-FOR-SECURITIES> 70686
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25264
<TOTAL-LIABILITIES> 95950
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14204975
<SHARES-COMMON-STOCK> 1287472
<SHARES-COMMON-PRIOR> 1104981
<ACCUMULATED-NII-CURRENT> 3553
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (631124)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5527647
<NET-ASSETS> 19105051
<DIVIDEND-INCOME> 41342
<INTEREST-INCOME> 139999
<OTHER-INCOME> 2222
<EXPENSES-NET> 147283
<NET-INVESTMENT-INCOME> 36280
<REALIZED-GAINS-CURRENT> (666413)
<APPREC-INCREASE-CURRENT> 2812924
<NET-CHANGE-FROM-OPS> 2182791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59295
<DISTRIBUTIONS-OF-GAINS> 1019875
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 147904
<NUMBER-OF-SHARES-REDEEMED> 43799
<SHARES-REINVESTED> 78386
<NET-CHANGE-IN-ASSETS> 3607966
<ACCUMULATED-NII-PRIOR> 26568
<ACCUMULATED-GAINS-PRIOR> 1055164
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 80173
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 147283
<AVERAGE-NET-ASSETS> 15922892
<PER-SHARE-NAV-BEGIN> 14.02
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 1.70
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> .86
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.84
<EXPENSE-RATIO> 1.83
</TABLE>
