As filed with the Securities and Exchange Commission on August 17, 2000
Securities Act File No. 33-12213
Investment Company Act File No. 811-5037
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post Effective Amendment No.104 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 106 [X]
(Check appropriate box or boxes)
PROFESSIONALLY MANAGED PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
915 Broadway
New York, NY 10010
(Address of Principal Executive Offices, Including Zip Code)
(212) 633-9700
Registrant's Telephone Number, including Area Code:
Steven J. Paggioli
Professionally Managed Portfolios
915 Broadway
New York, NY 10010
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On August 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
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<PAGE>
PZENA FOCUSED VALUE FUND
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
The Pzena Focused Value Fund is a stock mutual fund. The Fund seeks
long-term growth of capital.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST 28, 2000
<PAGE>
TABLE OF CONTENTS
An Overview of the Fund................................................... 3
Performance............................................................... 4
Fees and Expenses......................................................... 5
Investment Objective and Principal Investment Strategies.................. 6
Principal Risks of Investing in the Fund.................................. 7
Investment Advisor........................................................ 7
Shareholder Information................................................... 8
Pricing of Fund Shares.................................................... 11
Dividends and Distributions............................................... 12
Tax Consequences.......................................................... 12
Financial Highlights...................................................... 13
2
<PAGE>
AN OVERVIEW OF THE FUND
THE FUND'S INVESTMENT GOAL
The Fund seeks long-term growth of capital.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund primarily invests in common stocks of domestic companies. In selecting
investments, Pzena Investment Management, LLC, the Fund's investment advisor
("Advisor") combines traditional fundamental research with a proprietary
computer quantitative model and a systematic assessment of business risk, to
identify companies that are currently undervalued in relation to estimated
future earnings and cash flow. The Fund is non-diversified. This means that it
may make larger investments in individual companies than a fund that is
diversified.
PRINCIPAL RISKS OF INVESTING IN THE FUND
There is the risk that you could lose money on your investment in the Fund. The
following risks could affect the value of your investment:
* The stock market goes down
* Interest rates rise which can result in a decline in the equity market
* Value stocks fall out of favor with the stock market
* Stocks in the Fund's portfolio may not increase their earnings at the rate
anticipated
* As a non-diversified fund, the Fund's share price may be more volatile than
the share price of a diversified fund
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Want to add an investment in undervalued stocks to their equity 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
3
<PAGE>
PERFORMANCE
The following performance information indicates some of the risks of
investing in the Fund. The bar chart shows how the Fund's total return has
varied from year to year. The table shows the Fund's average return over time
compared with a broad-based market index that include stocks of companies
similar to those considered for purchase by the Fund. This past performance will
not necessarily continue in the future.
CALENDAR YEAR TOTAL RETURNS*
[The following is the bar chart]
1997: 24.57%
1998: -5.67%
1999: 0.29%
[End of bar chart]
* The Fund's year-to-date return as of 6/30/00 was 3.15%.
During the period shown in the bar chart, the Fund's highest quarterly return
was 30.73% for the quarter ended June 30, 1999 and the lowest quarterly return
was -21.97% for the quarter ended September 30, 1998.
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
Since Inception
1 Year (6/24/96)
------ ---------
Pzena Focused Value Fund 0.29% 7.83%
S&P Barra/500 Value Index* 12.72% 19.82%
----------
* The S&P Barra/500 Index is an unmanaged capitalization-weighted index of
all the stocks on the S&P 500 Index that have low price-to-book ratios.
4
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares othe Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
Maximum deferred sales charge (load) None
ANNUAL FUND OPERATING EXPENSES*
(expenses that are deducted from Fund assets)
Management Fees 1.25%
Other Expenses 1.74%
------
Total Annual Fund Operating Expenses 2.99%
Fee Reduction and/or Expense Reimbursement (1.24)%
------
Net Expenses 1.75%
======
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* The Advisor has contractually agreed to reduce its fees and/or pay expenses
of the Fund for an indefinite period to ensure the Total Fund Operating
Expenses will not exceed the net expense amount shown. The Advisor reserves
the right to be reimbursed for any waiver of its fees or expenses paid on
behalf of the Fund if the Fund's expenses are less than the limit agreed to
by the Fund. The Trustees may terminate this expense reimbursement
arrangement at any time.
EXAMPLE
This Example is intended to help you compare the costs of investing in 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, that
dividends and distributions are reinvested 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 $ 178
Three Years $ 551
Five Years $ 949
Ten Years $2,062
5
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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The goal of the Fund is to seek long-term growth of capital.
The Fund invests primarily in domestic equity securities and, normally,
will invest at least 80% of its assets in such securities. The Advisor seeks to
buy securities of companies that, in its opinion, are undervalued in the
marketplace in relation to estimated future earnings and cash flow. These
companies generally sell at price to book ratios below market average, as
defined by the S&P 500 Index.
The Advisor has an eight-person research team, consisting of persons with
extensive experience managing or consulting to large public businesses. When
investing, the Advisor views itself as buying businesses, not stocks, and asks
the question, "would we buy the entire business for cash at the current price?".
In contrast to the more prevalent momentum strategies on Wall Street that ask,
"what will happen next?", the Advisor's is a long-term strategy aimed at
long-term returns.
The Advisor's approach to valuation is straightforward. Its universe
consists of the 1,500 largest publicly traded U.S. companies. Today this
includes companies with market values above $750 million. Using fundamental
research and a proprietary quantitative computer model, the Advisor ranks these
companies on a daily basis from the cheapest to the most expensive on the basis
of current share price to normal long-term earnings power. The Advisor only
considers investing in those companies that rank among the cheapest 20%, and
systematically rules out an investment in a company where the share price is not
among the most attractive. This systematic process is intended to ensure that
the Fund's portfolio avoids the emotional inputs that can lead to overvalued
securities.
The Advisor approaches sales from the same disciplined framework. The
Advisor systematically sells any stock that ranks in the bottom 50% of the
universe. In addition, if another security is found with return and risk
characteristics that are meaningfully superior to another in the Fund's
portfolio, the Advisor will sell earlier. On average, the Advisor expects to
hold positions for three years.
The Fund anticipates that its portfolio turnover rate will not exceed 80%.
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.
6
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risks of investing in the Fund that may adversely affect the
Fund's net asset value or total return are summarized above under "An Overview
of the Fund." These risks are discussed in more detail below.
MANAGEMENT RISK. Management risk means that your investment in the Fund
varies with the success and failure of the Advisor's investment strategies and
the Advisor's research, aand determination of portfolio securities. If the
Advisor's investment strategies do not produce the expected results, your
investment could be diminished or even lost.
MARKET RISK. Market risk means that the price of common stock may move up
or down (sometimes rapidly and unpredictably) in response to general market and
economic conditions, investor perception and anticipated events, as well as the
activities of the particular issuer. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. Since the Fund invests
in equity securities, its share price will change daily in response to stock
market movements.
UNDERVALUED STOCKS RISK. Undervalued stocks can react differently to
issuer, political, market and economic developments than the market as a whole
and other types of stocks. Undervalued stocks tend to be inexpensive relative to
their earnings or assets compared to other types of stocks. However, these
stocks can continue to be inexpensive for long periods of time and may not
realize their full economic value.
INVESTMENT ADVISOR
Pzena Investment Management, LLC, the Fund's investment advisor, is located
at 830 Third Avenue, New York, NY 10022. The Advisor has been providing
investment advisory services since 1995 and is controlled by Mr. Richard S.
Pzena. The Advisor supervises the Fund's investment activities and determines
which securities are purchased and sold by the Fund. 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 April 30, 2000, the Advisor received advisory fees of 0.01% of the
Fund's average daily net assets, net of waiver.
Mr. Richard S. Pzena is principally responsible for the management of the
Fund's portfolio. Prior to establishing the Advisor, Mr. Pzena was Director of
Research for United States equities at an investment advisory firm with several
billion dollars in investment advisory and investment company assets under
management.
7
<PAGE>
FUND EXPENSES
The Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce its fees and/or pay expenses of the Fund to
ensure that the Fund's aggregate annual operating expenses (excluding interest
and tax expenses) will not exceed 1.75% of the Fund's average daily net assets.
Any reduction in advisory fees or payment of expenses made by the Advisor may be
reimbursed by the Fund if the Advisor requests in subsequent fiscal years. This
reimbursement may be requested if the aggregate amount actually paid by the Fund
toward operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. 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 $5,000 and add to your account at any time
with $1,000 or more. You may open a retirement plan account with $2,000 and add
to your account at any time with $1,000 or more. 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
Account Application included with this Prospectus and mail it with a check (made
payable to "Pzena Focused Value Fund") to:
Pzena Focused Value Fund
P.O. Box 640856
Cincinnati, OH 45264-0856
If you wish to send your Account Application and check via an overnight
delivery service (such as FedEx), you should call the Transfer Agent at (800)
282-2340 for instructions.
If you are making a subsequent purchase, use the stub 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 "Pzena Focused
Value 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.
8
<PAGE>
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 #0420-0001-3
Pzena Focused Value Fund
DDA #485776710
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 by telephone. 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.
RETIREMENT PLANS
The Fund offers an Individual Retirement Account ("IRA") plan. You may
obtain information about opening an IRA account, Keogh, Section 403(b) or other
retirement plan by contacting the Fund at (212) 355-1600.
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:
Pzena Focused Value Fund
P.O. Box 5536
Hauppauge, NY 11788-0132
9
<PAGE>
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 mnet
capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
If you complete the Redemption by Telephone portion of the Account
Application, you may redeem all or some of your shares by calling the Transfer
Agent at (800) 282-2340 between the hours of 9:00 a.m. and 4:00 p.m., Eastern
time. 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 ha
retirement account, you may not redeem shares by telephone.
When you establish telephone privileges, you are authorizing the Fund and
its Transfer Agent to act upon the telephone instructions of the person or
persons you have designated in your Account Application. Redemption proceeds
will be transferred to the bank account you have designated on your Account
Application.
Before executing an instruction received by telephone, the Fund and the
Transfer Agent will use reasonable procedures to confirm that the telephone
instructions are genuine. These procedures may include recording the telephone
call and asking the caller for a form of personal identification. If the Fund
and the Transfer Agent follow these reasonable 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 as
discussed in this Prospectus. 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.
10
<PAGE>
The Fund may redeem the shares in your account if the value of your account
is less than $5,000 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 $5,000 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
$5,000 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. If the Fund
pays your redemption proceeds by a distribution of syou could incur brokerage or
other charges in converting the securities to cash.
SYSTEMATIC WITHDRAWAL PROGRAM
As another convenience, you may redeem your Fund shares through the
Systematic Withdrawal Program. If you elect this method of redemption, the Fund
will send you a check in a minimum amount of $100. You may choose to receive a
check each month or calendar quarter. Your Fund account must have a value of at
least $10,000 in order to participate in this Program. This Program may be
terminated at any time by the Fund. You may also elect to terminate your
participation in this Program at any time by writing to the Transfer Agent.
A withdrawal under the Program involves a redemption of shares and may
result in a gain or loss for federal income tax purposes. In addition, if the
amount withdrawn exceeds the dividends credited to your account, the account
ultimately may be depleted.
PRICING OF FUND SHARES
The price of the Fund's shares is based on the Fund's net asset value. This
is calculated 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).
11
<PAGE>
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 choose one
of the following options: (1) receive dividends in cash, while reinvesting
capital gain distributions in additional Fund shares; or (2) receive all
distributions in cash. If you wish to change your distribution option, write to
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 sell, you
may have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
12
<PAGE>
FINANCIAL HIGHLIGHTS
This table shows the Fund's financial performance for up to the past
five years. Certain information reflects financial results for a single Fund
share. "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 Tait, Weller &
Baker, independent accountants. Their report and the Fund's financial statements
are included in the Annual Report, which is available upon request.
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended April 30, June 24, 1996*
------------------------------- through
2000 1999 1998 April 30, 1997
------ ------- ------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............... $11.83 $ 14.40 $11.56 $10.00
------ ------- ------ ------
Income for Investment Operations:
Net investment loss ............................. (0.06) (0.05) (0.03) 0.00
Net realized and unrealized gain (loss)
on investments ................................ 0.19 (2.02) 3.93 1.59
------ ------- ------ ------
Total from investment operations ................... 0.13 (2.07) 3.90 1.59
------ ------- ------ ------
Less distributions:
From net investment income ...................... 0.00 0.00 0.00 (0.01)
From net realized gain .......................... (0.33) (0.50) (1.06) (0.03)
------ ------- ------ ------
Total distributions ................................ (0.33) (0.50) (1.06) (0.02)
------ ------- ------ ------
Net asset value, end of period ..................... $11.63 $ 11.83 $14.40 $11.56
====== ======= ====== ======
Total return ....................................... 1.34% (14.03%) 35.10% 15.88%
Ratios/supplemental data:
Net assets, end of period (millions) ............ $ 5.3 $ 7.2 $ 9.7 $ 3.9
Ratio of expenses to average net assets:
Before fees waived and expenses absorbed ........ 2.99% 2.60% 2.69% 5.82%+
After fees waived and expenses absorbed ......... 1.75% 1.75% 1.75% 1.75%+
Ratio of net investment loss to average net assets:
Before fees waived and expenses absorbed ........ (1.71%) (1.26%) (1.26%) (4.16%)+
After fees waived and expenses absorbed ......... (0.47%) (0.41%) (0.32%) (0.09%)+
Portfolio turnover rate ............................ 50.07% 47.14% 53.95% 22.06%
</TABLE>
* Commencement of operations.
+ Annualized.
13
<PAGE>
ADVISOR
Pzena Investment Management, L.L.C.
830 Third Avenue
14th Floor
New York, NY 10022
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
INDEPENDENT AUDITORS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
COUNSEL TO THE ADVISOR
Nutter McClennen & Fish, LLP
One International Plaza
Boston, MA 02110
<PAGE>
PZENA FOCUSED VALUE 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 1-202-942-8090. Reports and other information about the Fund are also
available:
* Free of charge from the Commission's EDGAR database on the Commission's
Internet website at http://www.sec.gov., or
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102, or
* For a fee, by electronic request at the following e-mail address:
[email protected].
(The Trust's SEC Investment Company Act
file number is 811-05037)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 28, 2000
PZENA FOCUSED VALUE FUND
A SERIES OF
PROFESSIONALLY MANAGED PORTFOLIOS
830 THIRD AVENUE, 14TH FLOOR
NEW YORK, NY 10022
(212) 355-1600
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Prospectus dated August 28, 2000, as may
be revised, of the Pzena Focused Value Fund (the "Fund"). Pzena Investment
Management, LLC (the "Advisor) is the investment advisor to the Fund. Copies of
the Fund's Prospectus are available by calling the number above or (212)
633-9700.
TABLE OF CONTENTS
The Trust ............................................................. B-2
Investment Objective and Policies ..................................... B-2
Investment Restrictions ............................................... B-9
Distributions and Tax Information ..................................... B-11
Trustees and Executive Officers ....................................... B-13
The Fund's Investment Advisor ......................................... B-14
The Fund's Administrator .............................................. B-15
The Fund's Distributor ................................................ B-15
Execution of Portfolio Transactions ................................... B-16
Portfolio Turnover ................................................... B-17
Additional Purchase And Redemption Information ........................ B-17
Determination of Share Price .......................................... B-19
Performance Information ............................................... B-19
General Information ................................................... B-20
Financial Statements .................................................. B-21
Appendix A ........................................................... B-22
Appendix B ........................................................... B-24
B-1
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust. The
Trust consists of various series which represent separate investment portfolios.
This 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 Pzena Focused Value Fund is a mutual fund with the investment
objective of seeking long-term growth of capital. The Fund is nondiversified,
which under the Investment Company Act of 1940 ("1940 Act") means that there is
no restriction under the 1940 Act on how much the Fund may invest in the
securities of any one issuer. In addition, the Fund may invest more than 25% of
its assets in what may be considered a single industry sector. The following
discussion supplements the discussion of the Fund's investment objective and
policies as set forth in the Prospectus. There can be no assurance the objective
of the Fund will be attained.
PREFERRED STOCK. A preferred stock is a blend of the characteristics of
a bond and common stock. It can offer the higher yield of a bond and has
priority over common stock in equity ownership, but does not have the seniority
of a bond and, unlike common stock, its participation in the issuer's growth may
be limited. Preferred stock has preference over common stock in the receipt of
dividends and in any residual assets after payment to creditors should the
issuer by dissolved. Although the dividend is set at a fixed annual rate, in
some circumstances it can be changed or omitted by the issuer.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities
(bonds, notes, debentures, preferred stock and other securities convertible
income common stocks ) that may offer higher income than the common stocks into
which they are convertible. The convertible securities in which the Fund may
invest include fixed-income or zero coupon debt securities, which may be
converted or exchanged at a rated or determinable exchange ratio into underlying
shares of common stock. Prior to their conversion, convertible securities may
have characteristics similar to non- convertible debt securities. While
convertible securities generally offer lower yields than non- convertible debt
securities of similar quality, their prices may reflect changes in the value of
the underlying common stock. Convertible securities generally entail less credit
risk than the i common stock.
INVESTMENT COMPANIES. The Fund may invest in shares of other invest
companies in pursuit of its investment objective. This may include investment in
money market mutual funds in connection with the Fund's management of daily cash
positions. In addition to the advisory and operational fees the Fund bears
directly in connection with its own operation, the Fund and its shareholders
will also bear the pro rata portion of each other investment company's advisory
and operational expenses.
B-2
<PAGE>
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 5% of the value of its net assets would be invested
in illiquid securities including such repurchase agreements.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the U.S. Government security subject to the
repurchase agreement. It is not clear whether a court would consider the U.S.
Government security acquired by the Fund subject to a repurchase agreement as
being owned by the Fund or as being collateral for a loan by the Fund to the
seller. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the U.S. Government security before its repurchase
under a repurchase agreement, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or a
decline in price of the U.S. Government security. If a court characterizes the
transaction as a loan and the Fund has not perfected a security interest in the
U.S. Government security, the Fund may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, the Fund would be at the risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Fund, the Advisor seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
other party, in this case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, the
Fund will always receive as collateral for any repurchase agreement to which it
is a party securities acceptable to it, the market value of which is equal to at
least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
B-3
<PAGE>
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 5% of the value
of its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid. The Advisor will
monitor the amount of illiquid securities in the Fund's portfolio, under the
supervision of the Trust's Board of Trustees, to ensure compliance with the
Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to sell restricted or other illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemption requests within
seven days. The Fund might also have to register such restricted securities in
order to sell them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
B-4
<PAGE>
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. These securities might be adversely affected if qualified
institutional buyers were unwilling to purchase such securities. 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.
FOREIGN INVESTMENTS. The Fund may invest in up to 20% of its net assets
in securities of foreign issuers that are not publicly traded in the United
States, including Depositary Receipts. The Fund may also invest without regard
to the 20% limitation in securities of foreign issuers which are listed and
traded on a domestic national securities exchange.
DEPOSITARY RECEIPTS. The Fund may invest in securities of foreign
issuers in the form of American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). These securities may not necessarily be
denominated in the same currency as the securities for which they may be
exchanged. These are certificates evidencing ownership of shares of a foreign-
based issuer held in trust by a bank or similar financial institution, Designed
for use in U.S. and European securities, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
market and currencies. ADRs and EDRs may be purchased through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depositary, whereas a depositary may
establish an unsponsored facility without participation by the issuer of the
depositary security. Holders of unsponsored depositary receipts generally bear
all the costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts of the deposited securities.
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.
B-5
<PAGE>
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 seve 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.
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.
B-6
<PAGE>
CORPORATE DEBT SECURITIES. The Fund may invest up to 20% of its assets
in debt securities, including debt securities rated below investment grade.
Bonds rated below BBB by S&P or Baa by Moody's, commonly referred to "junk
bonds," typically carry higher coupon rates than investment grade bonds, but
also are described as speculative by both S&P and Moody's and may be subject to
greater market price fluctuations, less liquidity and greater risk of income or
principal including greater possibility of default and bankruptcy of the issuer
of such securities than more highly rated bonds. Lower rated bonds also are more
likely to be sensitive to adverse economic or company developments and more
subject to price fluctuations in response to changes in interest rates. 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. During periods of economic downturn or rising interest rates, highly
leveraged issuers of lower rated securities may experience financial stress
which could adversely affect their ability to make payments of interest and
principal and increase the possibility of default.
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
the Fund has acquired the security. If a security's rating is reduced while it
held by the Fund, the Advisor will consider whether the Fund should continue to
hold the security but is not required to dispose of it. Credit ratings attempt
to evaluate the safety of principal and interest payments and do not evaluate
the risks of fluctuations in market value. Also, rating agencies may fail to
make timely changes in credit ratings in response to subsequent events, so that
an issuer's current financial conditions may be better or worse than the rating
indicates. The ratings for corporate debt securities are described in Appendix
A.
ZERO COUPON SECURITIES. Zero coupon securities are debt obligations
that do not entitle the holder to any periodic payment of interest prior to
maturity or a specified date when the securities begin paying current interest.
They are issued and traded at a discount from their face amount or par value,
which discount varies depending on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. The market prices of zero coupon securities generally are
more volatile than the prices of securities that pay interest periodically and
in cash and are likely to respond to changes in interest rates to a greater
degree than do other types of debt securities having similar maturities and
credit quality. Original issue discount earned on zero coupon securities must be
included in the Fund's income. Thus, to continue to quality for tax treatment as
a regulated investment company and to avoid a certain excise tax on
undistributed income, the Fund may be required to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. These
distributions must be made from the Fund's cash assets or, if necessary, from
the proceeds of sales of portfolio securities. The Fund will not be able to
purchase additional income-producing securities with cash used to make such
distributions, and its current income ultimately could be reduced as a result.
B-7
<PAGE>
OPTIONS AND FUTURES CONTRACTS. To the extent consistent with its
investment objective and policies, the Fund may purchase and write call and put
options on securities, securities indexes and on foreign currencies and enter
into futures contracts and use options on futures contracts, to the extent of up
to 5% of its assets.
Transactions in options on securities and on 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.
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.
B-8
<PAGE>
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.
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 from banks for temporary or emergency
purposes. Any such borrowing will be made only if immediately thereafter there
is an asset coverage of at least 300% of all borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
B-9
<PAGE>
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (The
Fund is not precluded from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase or sell real estate, commodities or commodity contracts
(other than futures transactions for the purposes and under the conditions
described in the prospectus and in this SA
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. (a) With respect to 50% of the Fund's assets, purchase the
securities of any issuer if more than 5% of the total assets of the Fund would
be invested in the securities of the issuer, other than obligations of the U.S.
Government, its agencies or instrumentalities.
(b) With respect to the remaining 50% of the Fund's assets,
purchase the securities of any issuer if more than 25% of the total assets of
the Fund would be invested in the securities of the issuer.
The Fund observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The Fund may not:
8. Purchase any security if as a result the Fund would then hold more
than 10% of any class of securities of an issuer (taking all common stock issues
of an issuer as a single class, all preferred stock issues as a single class,
and all debt issues as a single class) or more than 10% of the outstanding
voting securities of a single issuer.
9. Invest in any issuer for purposes of exercising control or
management.
10. Invest in securities of other investment companies except as
permitted under the Investment Company Act of 1940.
11. Invest, in the aggregate, more than 5% 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.
12. Invest more than 20% of its assets in securities of foreign issuers
(including American Depositary Receipts with respect to foreign issuers, but
excluding securities of foreign issuers listed and traded on a domestic national
securities exchange).
13. With respect to fundamental investment restriction 2(a) above, the
Fund will not purchase portfolio securities while outstanding borrowings exceed
5% of its assets.
B-10
<PAGE>
If a percentage restriction set forth in the prospectus or in this SAI
is adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except with respect to borrowing or the purchase
of restricted or illiquid securities.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually. Also, the Fund expects
to distribute any undistributed net investment income on or about December 31 of
each year. Any net capital gains realized through the period ended October 31 of
each year will also be distributed by December 31 of each year.
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions.
TAX INFORMATION
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to qualify and continue to elect to be
treated as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"), provided it complies with all applicable
requirements regarding the source of its income, diversification of its assets
and timing of distributions. The Fund's policy is to distribute to its
shareholders all of its investment company taxable income and any net realized
capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes. To comply with the requirements, the Fund
must also distribute (or be deemed to have distributed) by December 31 of each
calendar year (i) at least 98% of its ordinary income for such year, (ii) at
least 98% of the excess of its realized capital gains over its realized capital
losses for the 12-month period ending on October 31 during such year and (iii)
any amounts from the prior calendar year that were not distributed and on which
the Fund paid no federal income tax.
The Fund's ordinary income generally consists of interest and dividend
income, less expenses. Net realized capital gains for a fiscal period are
computed by taking into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designate the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Fund for
their taxable year. In view of the Fund's investment policy, it is expected that
dividends from domestic corporations will be part of the Fund's gross income and
that, accordingly, part of the distributions by the Fund may be eligible for the
dividends-received deduction for corporate shareholders. However, the portion of
the Fund's gross income attributable to qualifying dividends is largely
dependent on the Fund's investment activities for a particular year and
therefore cannot be predicted with any certainty. The deduction may be reduced
or eliminated if the Fund shares held by a corporate investor are treated as
debt-financed or are held for less than 46 days.
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
B-11
<PAGE>
The Fund may write, purchase, or sell certain options and futures
contracts. Such transactions are subject to special tax rules that may affect
the amount, timing, and character o 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 and futures
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.
A redemption of Fund shares may result in recognition of a taxable gain
or loss. Any loss realized upon a redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long capital gains during such
six-month period. Any loss realized upon a redemption of Fund shares may be
disallowed under certain wash sale rules to the extent shares of the Fund are
purchased (through reinvestment of distributions or otherwise) within 30 days
before or after the redemption.
Under the Code, the Fund will be required to report to the Internal
Revenue Service ("IRS") all distributions of ordinary income and capital gains
as well as gross proceeds from the redemption or exchange of Fund shares, except
in the case of exempt shareholders, which includes most corporations. Pursuant
to the backup withholding provisions of the Code, distributions of any taxable
income and capital gains and proceeds from the redemption of Fund shares may be
subject to withholding of federal income tax at the rate of 31 percent in the
case of non-exempt shareholders who fail to furnish the Fund with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. If the withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Fund with their
taxpayer identification numbers or certify their exempt status in order to avoid
possible erroneous application of backup withholding. The Fund reserve the right
to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
The Fund will not be subject to corporate income tax in the
Commonwealth of Massachusetts as long as its qualifies as regulated investment
companies for federal income tax purposes. Distributions and the transactions
referred to in the preceding paragraphs may be subject to state and local income
taxes, and the tax treatment thereof may differ from the federal income tax
treatment.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
B-12
<PAGE>
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.
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) and Investment Company Administration, LLC ("ICA") (mutual
fund administrator and the Trust's administrator),and Vice President and
Secretary 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. (computer software); formerly President and
Founder, National Investor Data Services, Inc. (investment related computer
software).
Rowley W.P. Redington 06/01/44 Trustee
1191 Valley Road, Clifton, New Jersey 07103. President; Intertech (consumer
electronics and computer service and marketing); formerly Vice President, PRS of
New Jersey, Inc. (management consulting), and Chief Executive Officer, Rowley
Associates (consultants).
Robert M. Slotky* 6/17/47 Treasurer
2020 E. Financial Way, Suite 100, Glendora, California 91741. Senior Vice
President, ICA since May 1997; former instructor of accounting at California
State University-Northridge (1997); Chief Financial Officer, Wanger Asset
Management L.P. and Treasurer of Acorn Investment Trust (1992- 1996).
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<PAGE>
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, 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 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 April 30, 2000, trustees' fees and
expenses in the amount of $4,125 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 Pzena Investment Management, LLC, 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 1.25%.
The Advisory Agreement will continue in effect for successive annual
periods so long as such continuation is approved at least annually by the vote
of (1) the Board of Trustees of the Trust (or a majority of the outstanding
shares of the Fund, and (2) a majority of the Trustees who are not interested
persons of any party to the Advisory Agreement, in each case cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated at any time, without penalty, by either party to the
Advisory Agreement upon sixty days' written notice and is automatically
terminated in the event of its "assignment," as defined in the 1940 Act.
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<PAGE>
The Advisor has contractually agreed to limit the Fund's operating
expenses, including the Advisor's fee, to an annual level of 1.75% of the Fund's
average daily net assets. For the fiscal year ended April 30, 2000, the Fund
incurred advisory fees of $80,432, of which the Advisor waived $79,867 pursuant
to the expense limitation. For the fiscal year ended April 30, 1999, the Fund
incurred advisory fees of $101,150, of which amount the Advisor reimbursed
$68,951 to the Fund pursuant to the expense limitation. For the fiscal year
ended April 30, 1998, the Fund incurred advisory fees of $83,738, of which
amount the Advisor reimbursed $63,814 to the Fund pursuant to the expense
limitation.
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), a corporation partly owned and
controlled by Messrs. 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% of average net assets
$50 to $100 million 0.15% of average net assets
$100 million to $150 million 0.10% of average net assets
Over $150 million 0.05% of average net assets
For each of the fiscal years ended April 30, 2000, 1999 and 1998, the
Administrator received fees of $30,000 from the Fund.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), a corporation partly
owned by Messrs. 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.
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<PAGE>
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
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
B-16
<PAGE>
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 F 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.
For the fiscal years ended April 30, 2000, 1999 and 1998, the Fund paid
$22,980, $153,741 and $22,516, respectively, 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 higher transaction costs and may
result in a greater number of taxable transactions. See "Execution of Portfolio
Transactions." For the fiscal years ended April 30, 2000 and 1999, the Fund had
a portfolio turnover rate of 50.07% and 47.14%, 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 as discussed in the Fund's Prospectus. 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-17
<PAGE>
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,
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 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 (in excess of the lesser of (i) $250,000 or (ii) 1% of the Fund's
assets). The Fund has reserved the right to pay the redemption price of its
shares in excess of the amounts specified by the rule, 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. Automatic
Investment Plan
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<PAGE>
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
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.
B-19
<PAGE>
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which the
maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
The Fund's average annual total return for periods ending April 30,
2000 are as follows*:
One Year 1.34%
Since Inception 8.42%
(June 24, 1996)
----------
* Certain fees of the Fund have been waived from inception through April 30,
2000. Accordingly, the Fund's return figures are higher than they would
have been had such fees not been waived.
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, Inc., 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.
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103, are
the independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker, LLP, 345 California Street, 29th
Floor, San Francisco, California 94104, are legal counsel to the Fund.
On July 31, 2000, Harry L. Hathaway IRA, San Marino, CA 91108
beneficially owned of record 7.19% 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.
B-20
<PAGE>
Shares issued by the Fund have no preemptive, conversion, or
subscription rights. Shareholders have equal and exclusive rights as to
dividends and distributions as declared by the Fund and to the net assets of the
Fund upon liquidation or dissolution. The Fund, as a separate series of the
Trust, votes separately on matters affecting only the Fund (e.g., approval of
the Advisory Agreement); all series of the Trust vote as a single class on
matters affecting all series jointly or the Trust as a whole (e.g., election or
removal of Trustees). Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in any election of Trustees can, if they so
choose, elect all of the Trustees. While the Trust is not required and does not
intend to hold annual meetings of shareholders, such meetings may be called by
the Trustees in their discretion, or upon demand by the holders of 10% or more
of the outstanding shares of the Trust, for the purpose of electing or removing
Trustees.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Agreement and Declaration of Trust further
provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
The Boards of the Trust, the Advisor and the Distributor have adopted
Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes permit, subject to
certain conditions, personnel of the Advisor and Distributor to invest in
securities that may be purchased or held by the Fund.
FINANCIAL STATEMENTS
The Fund's annual report to shareholders for its fiscal year ended
April 30, 2000 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-21
<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.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospectus of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
B-22
<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, C: Bonds rated BB, B, CCC, CC and C are regarded on
balance as predominantly speculative with respect to capacity to pay interest
and repay principal BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
BB: Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Bonds rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
CC: The rating CC typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the additional of a plus or minus sign to show relative standing with the major
categories.
B-23
<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 w 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-24
<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 (9)
(9) Opinion of counsel (7)
(10) Consent of Auditors
(11) Not applicable
(12) No undertaking in effect
(13) Not applicable
(14) Not applicable
(15) Not applicable
(16) (a) Code of Ethics-Pzena Investment Management LLC
(b) Code of Ethics-First Fund Distributors (8)
----------
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 Post-Effective Amendment No. 81 to the
Registration Statement on Form N-1A, filed on August 19, 1999.
8 Incorporated by reference from Post-Effective Amendment No. 97 to the
Registration Statement on Form N-1A, filed on July 19, 2000.
9 To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
As of the date of this Amendment to the Registration Statement, there are
no persons controlled or under common control with the Registrant.
ITEM 25. INDEMNIFICATION
The information on insurance and indemnification is incorporated by
reference to Pre-Effective Amendment No. 1 and Post-Effective Amendment No. 1 to
the Registrant's Registration Statement.
In addition, insurance coverage for the officers and trustees of the
Registrant also is provided under a Directors and Officers/Errors and Omissions
Liability insurance policy issued by ICI Mutual Insurance Company with a
$1,000,000 limit of liability.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
With respect to investment advisors, the response to this item is
incorporated by reference to their Form ADVs, as amended:
Herbert R. Smith & Co, Inc. File No. 801-7098
Hodges Capital Management, Inc. File No. 801-35811
Perkins Capital Management, Inc. File No. 801-22888
Osterweis Capital Management File No. 801-18395
Pro-Conscience Funds, Inc. File No. 801-43868
Trent Capital Management, Inc. File No. 801-34570
Academy Capital Management File No. 801-27836
Sena, Weller, Rohs, Williams File No. 801-5326
Leonetti & Associates, Inc. File No. 801-36381
Lighthouse Capital Management File No. 801-32168
Yeager, Wood & Marshall, Inc. File No. 801-4995
Harris Bretall Sullivan & Smith File No. 801-7369
Pzena Investment Management LLC File No. 801-50838
Titan Investment Advisers, LLC File No. 801-51306
Pacific Gemini Partners LLC File No. 801-50007
James C. Edwards & Co., Inc. File No. 801-13986
Duncan-Hurst Capital Management, Inc. File No. 801-36309
Progressive Investment Management Corporation File No. 801-32066
With respect to United States Trust Company of Boston, the response to this
item is incorporated by reference to the responses to Item 5 of Part A and Item
16 of Part B ("Management") of Post-Effective Amendment No. 20 to the
Registration Statement.
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
<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 t 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 915
Broadway, New York, NY 10010 and 2020 E. Financial Way, Ste. 100, Glendora, CA
91741.
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Parts A
and B.
ITEM 30. UNDERTAKINGS
The registrant undertakes:
(a) To furnish each person to whom a Prospectus is delivered a copy of
Registrant's latest annual report to shareholders, upon request and
without charge.
(b) If requested to do so by the holders of at least 10% of the Trust's
outstanding shares, to call a meeting of shareholders for the purposes
of voting upon the question of removal of a director and assist in
communications with other shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant represents that this amendment
meets the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York in the State of New York on August 16, 2000.
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 dates indicated.
/s/ Steven J. Paggioli Trustee August 16, 2000
---------------------------------
Steven J. Paggioli
/s/ Robert M. Slotky Principal Financial August 16, 2000
--------------------------------- Officer
Robert M. Slotky
Dorothy A. Berry Trustee August 16, 2000
---------------------------------
*Dorothy A. Berry
Wallace L. Cook Trustee August 16, 2000
---------------------------------
*Wallace L. Cook
Carl A. Froebel Trustee August 16, 2000
---------------------------------
*Carl A. Froebel
Rowley W. P. Redington Trustee August 16, 2000
---------------------------------
*Rowley W. P. Redington
* By /s/ Steven J. Paggioli
---------------------------------
Steven J. Paggioli, Attorney-in-Fact under powers of
attorney as filed with Post-Effective Amendment No. 20
to the Registration Statement filed on May 17, 1995
<PAGE>
EXHIBITS
Number Description
------ -----------
99.B10 Consent of Auditors
99.B16.A Code of Ethics-Pzena Investment Management
