As Filed With the Securities and Exchange Commission on May 21, 1999
Securities Act File No. 33-12213
Investment Company Act File No. 811-5037
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 63 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 64 [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) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 633-9700
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 30, 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.
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THE OSTERWEIS FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
The Osterweis Fund is a mutual fund that principally invests in common
stocks. The Fund seeks to attain long-term total returns.
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
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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
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AN OVERVIEW OF THE FUND
THE OSTERWEIS FUND'S INVESTMENT GOAL
The Fund seeks to attain long-term total returns.
THE OSTERWEIS FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in common stocks of companies that the Advisor
believes offer superior investment value. In selecting investments, the Advisor
focuses on companies that it believes to be undervalued or otherwise
out-of-favor in the market, but that have attractive growth prospects.
PRINCIPAL RISKS OF INVESTING IN THE OSTERWEIS 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 in response to an unforeseen event
* Interest rates go up which can result in lower equity valuations
* Stocks in the Fund's portfolio may not increase their earnings at the
rate anticipated
WHO MAY WANT TO INVEST IN THE OSTERWEIS FUND
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Want to add an equity investment to diversify their investment
portfolio
* Are willing to accept higher short-term risk along with higher
potential for long-term growth of capital
The Fund may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short-term goal
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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]
1994: -1.16
1995: 14.78
1996: 16.11
1997: 28.25
1998: 18.63
[End of bar chart]
* The Fund's year-to-date return as of 3/31/99 was 12.74%.
During the period shown in the bar chart, the Fund's highest quarterly return
was 23.25% for the quarter ended December 31, 1998 and the lowest quarterly
return was -16.20% for the quarter ended September 30, 1998.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
Since Inception
1 Year 5 Years (10/1/93)
------ ------- ---------
The Osterweis Fund 18.62% 14.91% 15.10%
S&P 500 Index* 28.72% 24.09% ____%
- --------------
* The S&P 500 Index is an unmanaged index generally representative of the
market for the stocks of large sized U.S. companies.
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
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ANNUAL FUND OPERATING EXPENSES*
(expenses that are deducted from Fund assets)
Management Fees ......................................................... 1.00%
Distribution and Service (12b-1) Fees ................................... None
Other Expenses .......................................................... 0.75%
Total Annual Fund Operating Expenses .................................... 1.75%
- ----------
* The Advisor has undertaken to limit the operating expenses of the Fund to
1.75% of average net assets until a date following advance notice to
shareholders. During the fiscal year ended March 31, 1999, the Fund repaid
the Advisor for expenses it had previously paid for the Fund. Without such
repayment, Total Annual Fund Operating Expenses would have been ____%.
EXAMPLE
This example is intended to help you compare the costs of investing in 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 periods
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 .................. $
Three Years .............. $
Five Years ................ $
Ten Years ................. $
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The goal of the Fund is to seek to attain long-term total returns.
The Fund emphasizes the purchase of common stocks of companies which
the Advisor believes offer superior investment value. To a lesser degree, the
Fund may also invest in convertible securities and the securities of foreign
companies.
The Advisor focuses on the securities of companies that it believes to
be undervalued or otherwise out-of-favor in the market. The stock prices of such
companies may be depressed by visible near-term problems and not reflect the
companies' long-term prospects. The Advisor places particular emphasis on the
analysis of a company's ability to generate cash and its management's deployment
of this cash and on a company's longer-term growth prospects.
The Advisor also seeks under-researched, high growth situations that it
believes can be purchased at modest valuations as well as companies with
substantial unrecognized assets and improving earnings prospects. As such
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companies achieve greater visibility and their stocks are accorded valuations
more in line with the growth rates, the Advisor is inclined to regard them as
candidates for sale, in order to reduce the risk of future earnings
disappointments.
The Fund anticipates that it will have a low rate of portfolio
turnover. This means that the Fund has the potential to be a tax efficient
investment. This should result in the realization and the distribution to
shareholders of lower capital gains, which would be considered tax efficient.
This anticipated lack of frequent trading also leads to lower transaction costs,
which could help to improve performance.
Under normal market conditions, the Fund will stay fully invested in
stocks. 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 that may adversely affect the Fund's net asset
value or total return are discussed above in "Principal Risks of Investing in
The Osterweis 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.
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." Although the Fund's
service providers are taking steps to address this issue, there may still be
some risk of adverse effects. The Year 2000 Problem may negatively affect the
companies in which the Fund invests and by extension the value of the Fund's
shares.
INVESTMENT ADVISOR
Osterweis Capital Management, Inc. is the investment advisor to the
Fund. The Advisor's address is One Maritime Plaza, Suite 800, San Francisco CA
94111. The Advisor has provided investment advisory services to individual and
institutional accounts since 1983. The Advisor presently has assets under
management in excess of $1 billion. 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 its services, the Fund pays the Advisor a monthly
management fee based upon its average daily net assets. For the fiscal year
ended March 31, 1999, the Advisor received advisory fees of 1.00% of the Fund's
average net assets.
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PORTFOLIO MANAGER
Mr. John S. Osterweis, President and Director of the Advisor, is
principally responsible for the management of the Fund's portfolio. Mr.
Osterweis has over twenty-five years of securities analysis and portfolio
management experience. He has held his current position with the Advisor for
over five years.
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.
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
You may open a Fund account with $100,000 and add to your account at
any time with $1,000 or more. After you have opened a Fund account, you also may
make automatic subsequent monthly investments with $250 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 "The Osterweis Fund") to:
The Osterweis 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:
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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 "The Osterweis
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 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
The Osterweis Fund
DDA #48389003
Account name (shareholder name)
Shareholder account number
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.
BY PAYMENT IN KIND
In addition to cash purchases, Fund shares may be purchased by
tendering payment in kind in the form of shares of stock, bonds or other
securities. Any securities used to buy Fund shares must be readily marketable,
their acquisition consistent with the Fund's objective and otherwise acceptable
to the Advisor. If you purchase Fund shares in this manner, you will realize a
capital gain or loss for federal income tax purposes on each security tendered.
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
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to invest, which must be at least $250. 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 prototype Individual Retirement Account ("IRA") and
Keogh plans. You may obtain information about opening an account by calling
(800) 282-2340. If you wish to open a Section 403(b) or other retirement plan,
please contact the Distributor.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Fund and the NYSE
are open for business.
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:
The Osterweis Fund
P.O. Box 5536
Hauppauge, NY 11788-0132
To protect the Fund and its shareholders, a signature guarantee is
required for all written redemption requests. 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.
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 before 4:00 p.m., Eastern time, on any business day the
NYSE is open. Redemption proceeds will be mailed on the next business day to the
address that appears on the Transfer Agent's records. If you request, redemption
proceeds will be wired on the next business day to the bank account you
designated on the Account Application. The minimum amount that may be wired is
$1,000. Wire charges, if any, will be deducted from your redemption proceeds.
Telephone redemptions cannot be made if you notify the Transfer Agent of a
change of address within 30 days before the redemption request. If you have a
retirement account, you may not redeem shares by telephone.
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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 occurs, 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 $1,500 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
$1,500 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 $1,500 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 $100,000 in order to participate in this Program. This Program may be
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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.
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, at least annually, typically after year end. The Fund will make another
distribution of any additional undistributed capital gains earned during the
12-month period ended October 31 on or about December 31.
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 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.
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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. This information has been audited by ____________,
independent accountants. Their report and the Fund's financial statements are
included in the Annual Report, which is available upon request.
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THE OSTERWEIS 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
THE OSTERWEIS FUND,
A SERIES OF
PROFESSIONALLY MANAGED PORTFOLIOS
ONE MARITIME PLAZA, SUITE 1201
SAN FRANCISCO, CA 94111
(415) 434-4441
(800) 282-2340
This Statement of Additional Information ("SAI") is not a prospectus
and it should be read in conjunction with the Prospectus dated ________, 1999,
as may be revised, of The Osterweis Fund (the "Fund"), a series of
Professionally Managed Portfolios (the "Trust"). Osterweis Capital Management,
Inc. (the "Advisor") is the advisor to the Fund. A copy of the Fund's Prospectus
is available by calling either of the numbers listed above.
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
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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 Osterweis Fund is a mutual fund with the investment objective of
seeking to attain long-term total returns. 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.
CONVERTIBLE SECURITIES AND WARRANTS
The Fund may invest in convertible securities and warrants. A
convertible security is a fixed-income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
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PREFERRED STOCK
The Fund may invest in preferred stocks. 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 be 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 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.
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<PAGE>
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 reflect the value of the security in
determining its net asset value. The market value of the when-issued securities
may be more or less than the purchase price. The Fund does not believe that its
net asset value or income will be adversely affected by its purchase of
securities on a when-issued basis. The Fund'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
B-4
<PAGE>
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.
FIXED-INCOME SECURITIES
Although equity securities are the primary focus for the Fund, the
Advisor may also purchased fixed income securities and convertible bonds for the
Fund's portfolio in pursuing its investment goal. The Advisor prefers to
purchase fixed-income securities during times of high real interest rates or
when it believes that the outlook for the equity markets is sufficiently
unsettled to warrant building yield into the Fund's portfolio.
Fixed-income securities eligible for purchase by the Fund include
investment grade corporate debt securities, those rated BBB or better by
Standard & Poor's Ratings Group ("S&P") or Baa or better by Moody's Investors
Service, Inc. ("Moody's). Securities rated BBB by S&P are considered investment
grade, but Moody's considers securities rated Baa to have speculative
characteristics.
The Fund reserves the right to invest up to 30% of its assets in
securities rated lower than BBB by S&P or lower than Baa by Moody's but rated at
least B by S&P or Moody's (or, in either case, if unrated, deemed by the Advisor
to be of comparable quality). Lower-rated securities generally offer a higher
current yield than that available for higher grade issues. However, lower-rated
securities involve higher risks, in that they are especially subject to adverse
changes in general economic conditions and in the industries in which the
issuers are engaged, to changes in the financial condition of the issuers and to
price fluctuations in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
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<PAGE>
payments of interest and principal and increase the possibility of default. In
addition, the market for lower-rated debt securities has expanded rapidly in
recent years, and its growth paralleled a long economic expansion. At times in
recent years, the prices of many lower-rated debt securities declined
substantially, reflecting an expectation that many issuers of such securities
might experience financial difficulties. As a result, the yields on lower-rated
debt securities rose dramatically, but such higher yields did not reflect the
value of the income stream that holders of such securities expected, but rather,
the risk that holders of such securities could lose a substantial portion of
their value as a result of the issuers' financial restructuring or default.
There can be no assurance that such declines will not recur. The market for
lower-rated debt issues generally is thinner and less active than that for
higher quality securities, which may limit the Fund's ability to sell such
securities at fair value in response to changes in the economy or financial
markets. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of lower-rated
securities, especially in a thinly traded market.
Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Fund may have
to replace the security with a lower-yielding security, resulting in a decreased
return for investors. Also, as the principal value of bonds moves inversely with
movements in interest rates, in the event of rising interest rates the value of
the securities held by a Fund may decline proportionately more than a Fund
consisting of higher-rated securities. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher-rated bonds, resulting in a
decline in the overall credit quality of the securities held by the Fund and
increasing the exposure of the Fund to the risks of lower-rated securities.
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. If a security's rating is reduced while it
is held by the Fund, the Advisor will consider whether the Fund should continue
to hold the security but 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 debt securities are described in Appendix A.
U. S. GOVERNMENT SECURITIES
U.S. Government securities in which the Fund may invest include direct
obligations issued by the U.S. Treasury, such as Treasury bills, certificates of
indebtedness, notes and bonds. U.S. Government agencies and instrumentalities
that issue or guarantee securities include, but are not limited to, the Federal
Housing Administration, Federal National Mortgage Association, Federal Home Loan
Banks, Government National Mortgage Association, International Bank for
Reconstruction and Development and Student Loan Marketing Association.
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<PAGE>
All Treasury securities are backed by the full faith and credit of the
United States. 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 the Federal Home Loan Banks, are backed by the right of the agency or
instrumentality to borrow from the Treasury. Others, such as securities issued
by the Federal National Mortgage Association, are supported only by the credit
of the instrumentality and not by the Treasury. If the securities are not backed
by the full faith and credit of the United States, the owner of the securities
must look principally to the agency issuing the obligation for repayment and may
not be able to assert a claim against United States in the event that the agency
or instrumentality does not meet its commitment.
Among the U.S. Government securities that may be purchased by the Fund
are "mortgage-backed securities" of the Government National Mortgage Association
("Ginnie Mae"), the Federal Home Loan Mortgage Association ("Freddie Mac") and
the Federal National Mortgage Association ("Fannie Mae"). These mortgage-backed
securities include "pass-through" securities and "participation certificates,"
both of which represent pools of mortgages that are assembled, with interests
sold in the pool. Payments of principal (including prepayments) and interest by
individual mortgagors are "passed through" to the holders of interests in the
pool; thus each payment to holders may contain varying amounts of principal and
interest. Prepayments of the mortgages underlying these securities may result in
the Fund's inability to reinvest the principal at comparable yields.
Mortgage-backed securities also include "collateralized mortgage obligations,"
which are similar to conventional bonds in that they have fixed maturities and
interest rates and are secured by groups of individual mortgages. Timely payment
of principal and interest on Ginnie Mae pass-throughs is guaranteed by the full
faith and credit of the United States. Freddie Mac and Fannie Mae are both
instrumentalities of the U.S. Government, but their obligations are not backed
by the full faith and credit of the United States.
FOREIGN SECURITIES
The Fund may invest up to 20% of its total assets in securities of
foreign issuers . The Fund may also invest without limit in securities of
foreign issuers which are listed and traded on a U.S. national securities
exchange. The Advisor usually buys securities of leading foreign companies that
have well recognized franchises and are selling at a discount to the securities
of similar domestic businesses.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. Among
the means through which the Fund may invest in foreign securities is the
purchase of American Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs"). Generally, ADRs, in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets, while EDRs, in
bearer form, may be denominated in other currencies and are designed for use in
European securities markets. ADRs are receipts typically issued by a U.S. bank
or trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have the same classification as
the underlying securities they represent. Thus, an ADR or EDR representing
ownership of common stock will be treated as common stock.
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<PAGE>
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and diversification and balance of
payments position. The internal politics of some foreign countries may not be as
stable as those of the United States. Governments in some foreign countries also
continue to participate to a significant degree, through ownership interest or
regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are affected by the
trade policies and economic conditions of their trading partners. If these
trading partners enacted protectionist trade legislation, it could have a
significant adverse effect upon the securities markets of such countries.
CURRENCY FLUCTUATIONS. The Fund may invest in securities denominated in
foreign currencies. A change in the value of any such currency against the U.S.
dollar will result in a corresponding change in the U.S. dollar value of the
Fund's assets denominated in that currency. Such changes will also affect the
Fund's income. The value of the Fund's assets may also be affected significantly
by currency restrictions and exchange control regulations enacted from time to
time.
EURO CONVERSION. Several European countries adopted a single uniform
currency known as the "euro," effective January 1, 1999. The euro conversion,
that will take place over a several-year period, could have potential adverse
effects on the Fund's ability to value its portfolio holdings in foreign
securities, and could increase the costs associated with the Fund's operations.
The Fund and the Advisor are working with providers of services to the Fund in
the areas of clearance and settlement of trade to avoid any material impact on
the Fund due to the euro conversion; there can be no assurance, however, that
the steps taken will be sufficient to avoid any adverse impact on the Fund.
MARKET CHARACTERISTICS. The Advisor expects that many foreign
securities in which the Fund invests will be purchased in over-the-counter
markets or on exchanges located in the countries in which the principal offices
of the issuers of the various securities are located, if that is the best
available market. Foreign exchanges and markets may be more volatile than those
in the United States. While growing, they usually have substantially less volume
than U.S. markets, and the Fund's foreign securities may be less liquid and more
volatile than U.S. securities. Also, settlement practices for transactions in
foreign markets may differ from those in United States markets, and may include
delays beyond periods customary in the United States. Foreign security trading
practices, including those involving securities settlement where Fund assets may
be released prior to receipt of payment or securities, may expose the Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer.
B-8
<PAGE>
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest and dividends payable on some of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to Fund shareholders.
COSTS. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
OPTIONS AND FUTURES TRANSACTIONS
To the extent consistent with its investment objective and policies,
the Fund may purchase and write call and put options on securities, securities
indices and on foreign currencies and enter into futures contracts and use
options on futures contracts, to the extent of up to 5% of its assets. The Fund
has no present intention of engaging in such transactions.
Transactions in options on securities and on indices involve certain
risks. For example, there are significant differences between the securities and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless. If the Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, the Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased. Except
to the extent that a call option on an index written by the Fund is covered by
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; such losses may be mitigated or exacerbated by
changes in the value of the Fund's securities during the period the option was
outstanding.
B-9
<PAGE>
Use of futures contracts and options thereon also involves certain
risks. The variable degree of correlation between price movements of futures
contracts and price movements in the related portfolio positions of the Fund
creates the possibility that losses on the hedging instrument may be greater
than gains in the value of the Fund's position. Also, futures and options
markets may not be liquid in all circumstances and certain over the counter
options may have no markets. As a result, in certain markets, the Fund might not
be able to close out a transaction at all or without incurring losses. Although
the use of options and futures transactions for hedging should minimize the risk
of loss due to a decline in the value of the hedged position, at the same time
they tend to limit any potential gain which might result from an increase in the
value of such position. If losses were to result from the use of such
transactions, they could reduce net asset value and possibly income. The Fund
may use these techniques to hedge against changes in interest rates or
securities prices or as part of its overall investment strategy. The Fund will
segregate liquid assets, (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations under options and futures
contracts to avoid leveraging of the Fund.
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
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.
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<PAGE>
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) to the
extent the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except as stated in the Prospectus and this
Statement of Additional Information. Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least 300% of all
borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities).
4. Purchase or sell real estate, commodities or commodity contracts
(other than futures transactions for the purposes and under the conditions
described in the prospectus and in this Statement of Additional Information).
5. Invest 25% or more of the market value of its assets in the
securities of companies engaged in any one industry. (Does not apply to
investment in the securities of the U.S.
Government, its agencies or instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures, forward or repurchase transactions.
7. 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.
B-11
<PAGE>
The Fund observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The Fund may not:
8. Purchase any security if as a result the Fund would then hold more
than 10% of any class of securities of an issuer (taking all common stock issues
of an issuer as a single class, all preferred stock issues as a single class,
and all debt issues as a single class) or more than 10% of the outstanding
voting securities of an issuer.
9. Invest in any issuer for purposes of exercising control or
management.
10. Invest in securities of other investment companies which would
result in the Fund owning more than 3% of the outstanding voting securities of
any one such investment company, the Fund owning securities of another
investment company having an aggregate value in excess of 5% of the value of the
Fund's total assets, or the Fund owning securities of investment companies which
in the aggregate would exceed 10% of the value of the Fund's total assets.
11. Invest, in the aggregate, more than 15% of its net assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
If a percentage restriction described in the Prospectus or in this SAI
is adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except with respect to borrowing or the purchase
of restricted or illiquid securities.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually. Also, the Fund expects
to distribute any undistributed net investment income on or about December 31 of
each year. Any net capital gains realized through the period ended October 31 of
each year will also be distributed by December 31 of each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
TAX INFORMATION
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to continue to qualify and elect to be
treated as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"), provided that it complies with all applicable
B-12
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requirements regarding the source of its income, diversification of its assets
and timing of distributions. It is the Fund's policy 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 tax or excise taxes based on net income. To avoid the excise
tax, 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 one-year 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 excise 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.
The Fund may purchase and write certain options, futures and foreign
currency. Such transactions are subject to special tax rules that may affect the
amount, timing, and character of distributions to shareholders. For example,
such contracts that are "Section 1256 contracts" will be "marked-to-market" for
Federal income tax purposes at the end of each taxable year (i.e., each contract
will be treated as sold for its fair market value on the last day of the taxable
year). In general, unless certain special elections are made, gain or loss from
transactions in such contracts will be 60% long term and 40% short-term capital
gain or loss. Section 1092 of the Code, which applies to certain "straddles,"
may also affect the taxation of the Fund's transactions in options, futures, and
foreign currency contracts. Under Section 1092 of the Code, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
of such transactions.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Portfolio designates the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Portfolio
for its taxable year. The deduction, if any, may be reduced or eliminated if
Portfolio shares held by a corporate investor are treated as debt-financed or
are held for fewer than 46 days.
Any long-term capital gain distributions are taxable to shareholders as
long-term capital gains regardless of the length of time they have held their
shares. Capital gains distributions are not eligible for the dividends-received
deduction referred to in the previous paragraph. Distributions of any ordinary
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders who choose to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
B-13
<PAGE>
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
Under the Code, the Fund will be required to report to the Internal
Revenue Service all distributions of ordinary income and capital gains as well
as gross proceeds from the redemption of Portfolio shares, except in the case of
exempt shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at the current maximum federal tax 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 backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld. Corporate and other exempt shareholders should provide the Fund
with their taxpayer identification numbers or certify their exempt status in
order to avoid possible erroneous application of backup withholding. The Fund
reserves the right to refuse to open an account for any person failing to
certify the person's 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,
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.
B-14
<PAGE>
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by
the initial shareholders of the Trust, are responsible for the overall
management of the Trust, including general supervision and review of the
investment activities of the 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).
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).
B-15
<PAGE>
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 March 31, 1999, trustees' fees and
expenses in the amount of $____ 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.
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided
to the Fund by Osterweis Capital Management, the Advisor, pursuant to an
Investment Advisory Agreement. (the "Advisory Agreement"). 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%.
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<PAGE>
The Advisory Agreement continues in effect for successive annual
periods so long as such continuation is approved at least annually by the vote
of (1) the Board of Trustees of the Trust (or a majority of the outstanding
shares of the Fund, 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.
For the fiscal year ended March 31, 1999, the Advisor received fees of
$________. The the same period, the Fund repaid the Advisor $_____ of the
amounts of expenses it previously reimbursed the Fund during prior fiscal
periods. For the fiscal year ended March 31, 1998, the Advisor received fees of
$190,006. For the same period, the Fund repaid the Advisor $15,381 of the
amounts of expenses it previously reimbursed the Fund during prior fiscal
periods. For the fiscal year ended March 31, 1997, the Advisor received fees of
$179,929..
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:
Average Net Assets Fee or Fee Rate
- ------------------ ---------------
Under $15 million $30,000
$15 to $50 million 0.20%
$50 to $100 million 0.15%
$100 to $150 million 0.10%
Over $150 million 0.05%
During the fiscal years ended March 31, 1999, 1998 and 1997, the
Administrator received fees of $______, $38,001 and $34,149, respectively.
B-17
<PAGE>
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.
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
B-18
<PAGE>
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
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 fiscal years ended March 31, 1999, the Fund paid $_______ in
brokerage commissions, of which $_________ was paid to brokers who provided
research, statistical or other services to the Advisor. During the fiscal years
ended March 31, 1998, the Fund paid $23,654 in brokerage commissions, of which
$12,723 was paid to brokers who provided research, statistical or
B-19
<PAGE>
other services to the Advisor. During the fiscal year ended March 31, 1997, the
Fund paid $23,956 in brokerage commissions.
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." The Fund's portfolio turnover rate for the fiscal years ended March
31, 1999 and 1998 was ___% and 26.27%, 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.
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 fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
B-20
<PAGE>
Shareholders who purchase Fund shares by payment-in-kind in the form of
shares of stock, bonds or other securities will be charged the brokerage
commissions on the sale of any security so tendered it if is sold by the Fund
within 90 days of acquisition.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular
trading.
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.
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,
B-21
<PAGE>
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. 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.
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
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<PAGE>
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.
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
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.
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<PAGE>
Average annual total return for the Fund for the periods ending March
31, 1999 are as follows:
One Year 17.24%
Five Years 18.01%
Life of Fund* 16.90%
- --------------
The Fund commenced operations on October 1, 1993.
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.
__________________________, 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.
As of May 10, 1999, Osterweis Capital Management Retirement Trust, John
S. Osterweis, Trustee, San Francisco, CA 94111, an account affiliated with the
Fund's Advisor and officers, beneficially owned 13.70% of the Fund's outstanding
voting securities.
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
B-24
<PAGE>
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 annual report to shareholder for the Fund for the fiscal year ended
March 31, 1999 is a separate document supplied with this SAI and the financial
statements, accompanying notes and report of independent accountants appearing
therein are incorporated by reference in this SAI.
B-25
<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.
Ba: Bonds which are rated Ba are judged to have speculative elements:
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
B-26
<PAGE>
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.
AA: Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.
B-27
<PAGE>
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-28
<PAGE>
PROFESSIONALLY MANAGED PORTFOLIOS
PART C
ITEM 23. EXHIBITS.
(1) Agreement and Declaration of Trust (1)
(2) By-Laws (1)
(3) Specimen stock certificate (6)
(4) Form of Investment Advisory Agreement (2)
(5) Form of Distribution Agreement (2)
(6) Not applicable
(7) Form of Custodian Agreement with Star Bank, NA (5)
(8) (1) Form of Administration Agreement with Investment Company
Administration, LLC (3)
(2)(a) Fund Accounting Service Agreement with American Data
Services (5)
(2)(b) Transfer Agency and Service Agreement with American
Data Services (5)
(3) Transfer Agency and Fund Accounting Agreement with
Countrywide Fund Services (4)
(4) Transfer Agency Agreement with Provident Financial
Processing Corporation (8)
(9) Opinion of Counsel (7)
(10) Not applicable
(11) Not applicable
(12) No undertaking in effect
(13) Not applicable
(14) Not applicable
(15) Not applicable
- ----------
1 Incorporated by reference from Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A, filed on December 29, 1995.
2 Incorporated by reference from Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, filed on January 16, 1996.
3 Incorporated by reference from Post-Effective Amendment No. 35 to the
Registration Statement on Form N-1A, filed on April 24, 1997.
4 Incorporated by reference from Post-Effective Amendment No. 43 to the
Registration Statement on Form N-1A, filed on February 5, 1998.
5 Incorporated by reference from Post-Effective Amendment No. 48 to the
Registration Statement on Form N-1A, filed on June 15, 1998.
6 Incorporated by reference from Post-Effective Amendment No. 52 to the
Registration Statement on Form N-1A, filed on October 29, 1998.
7 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:
<PAGE>
Herbert R. Smith & Co, Inc. File No. 801-7098
Hodges Capital Management, Inc. File No. 801-35811
Perkins Capital Management, Inc. File No. 801-22888
Osterweis Capital Management File No. 801-18395
Pro-Conscience Funds, Inc. File No. 801-43868
Trent Capital Management, Inc. File No. 801-34570
Academy Capital Management File No. 801-27836
Sena, Weller, Rohs, Williams File No. 801-5326
Leonetti & Associates, Inc. File No. 801-36381
Lighthouse Capital Management File No. 801-32168
Yeager, Wood & Marshall, Inc. File No. 801-4995
Harris Bretall Sullivan & Smith File No. 801-7369
Pzena Investment Management LLC File No. 801-50838
Titan Investment Advisers, LLC File No. 801-51306
Pacific Gemini Partners LLC File No. 801-50007
James C. Edwards & Co., Inc. File No. 801-13986
Duncan-Hurst Capital
Management, Inc. File No. 801-36309
Progressive Investment
Management Corporation File No. 801-32066
With respect to United States Trust Company of Boston, the response to this
item is incorporated by reference to the responses to Item 5 of Part A and Item
16 of Part B ("Management") of Post-Effective Amendment No. 20 to the
Registration Statement.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) First Fund Distributors, Inc. (the "Distributor") is the principal
underwriter all series of the Registrant except for the Hodges Fund, the Matrix
Growth Fund and the Matrix Emerging Growth Fund. The Distributor acts as
principal underwriter for the following other investment companies:
Advisors Series Trust
Brandes Investment Trust
Fleming Mutual Fund Group
Fremont Mutual Funds
Guinness Flight Investment Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Purisima Funds
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group
UBS Private Investor Funds
<PAGE>
First Dallas Securities, Inc., 2311 Cedar Springs Rd., Ste. 100, Dallas, TX
75201, an affiliate of Hodges Capital Management, acts as Distributor of the
Hodges Fund. The President and Chief Financial Officer of First Dallas
Securities, Inc. is Don W. Hodges. First Dallas does not act as principal
underwriter for any other investment companies. Reynolds, DeWitt Securities Co.,
an affiliate of Sena Weller Rohs Williams, 300 Main St., Cincinnati, OH 45202,
acts as Distributor for the Matrix Growth Fund and Matrix Emerging Growth Fund.
(b) The officers of First Fund Distributors, Inc. are:
Robert H. Wadsworth President & Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Secretary
Each officer's business address is 4455 E. Camelback Rd., Ste. 261-E,
Phoenix, AZ 85018. Mr. Paggioli serves as President and a Trustee of the
Registrant. Mr. Wadsworth serves as Vice President of the Registrant. Mr. Robert
M. Slotky serves as Treasurer of the Registrant.
c. Incorporated by reference from the Statement of Additional
Information filed herewith as Part B.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession the Registrant's
custodian and transfer agent, except those records relating to portfolio
transactions and the basic organizational and Trust documents of the Registrant
(see Subsections (2) (iii). (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which, with respect to portfolio transactions are kept by each Fund's
Advisor at its address set forth in the prospectus and statement of additional
information and with respect to trust documents by its administrator at 479 West
22nd Street, New York, NY 10011 and 2020 E. Financial Way, Ste. 100, Glendora,
CA 91741.
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in
Parts A and B.
<PAGE>
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
20, 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 20, 1999
- ---------------------------------
Steven J. Paggioli
/s/ Robert M. Slotky Principal Financial May 20, 1999
- --------------------------------- Officer
Robert M. Slotky
Trustee May 20, 1999
- ---------------------------------
*Dorothy A. Berry
Trustee May 20, 1999
- ---------------------------------
*Wallace L. Cook
Trustee May 20, 1999
- ---------------------------------
*Carl A. Froebel
Trustee May 20, 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
