[PORTFOLIO 21 LOGO]
PROSPECTUS
DECEMBER 29, 2000
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PORTFOLIO 21
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
Portfolio 21 is a growth stock mutual fund. The Portfolio seeks to provide
investors with long-term growth of capital.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 29, 2000
TABLE OF CONTENTS
An Overview of the Portfolio............................................ 3
Performance............................................................. 4
Fees and Expenses....................................................... 4
Investment Objective and Principal Investment Strategies................ 5
Principal Risks of Investing in the Portfolio........................... 6
Investment Advisor...................................................... 7
Shareholder Information................................................. 8
Pricing of Portfolio Shares............................................. 12
Dividends and Distributions............................................. 12
Tax Consequences........................................................ 13
Rule 12b-1 Fees......................................................... 13
Financial Highlights.................................................... 14
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AN OVERVIEW OF THE PORTFOLIO
WHAT IS THE PORTFOLIO'S GOAL?
The Portfolio seeks long-term growth of capital.
WHAT ARE THE PORTFOLIO'S PRINCIPAL INVESTMENT STRATEGIES?
The Portfolio primarily invests in common stocks of domestic and foreign
companies of any size market capitalization that satisfy certain environmental
responsibility criteria. Such companies must also exhibit certain financial
characteristics that indicate positive prospects for long-term earnings growth.
Portfolio 21 refers to the 21st century and the forward thinking that will be
required to sustain us in the new century. In selecting investments the Advisor
concentrates on those companies that have made a commitment to environmental
sustainability and have demonstrated this commitment through their business
strategies, practices and investments. The Advisor employs a "bottom-up"
approach to stock selection.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO?
There is the risk that you could lose money on your investment in the Portfolio.
The following risks could affect the value of your investment:
* The stock market goes down
* Interest rates go up which can result in a decline in the equity
market o Growth stocks fall out of favor with the stock market
* Stocks held by the Portfolio may not increase their earnings at the
rate anticipated
* Securities of smaller-capitalization companies involve greater risk
than investing in larger-capitalization companies
* Adverse developments occur in foreign markets. Foreign investments
involve greater risk.
* The Portfolio's environmental policy could cause it to make or avoid
investments that could result in the Portfolio underperforming similar
funds that do not have an environmental policy.
WHO MAY WANT TO INVEST IN THE PORTFOLIO?
The Portfolio may be appropriate for investors who:
* Want an equity investment in companies that are environmentally
responsible o Are pursuing a long-term goal such as retirement
* Want to add an investment with growth potential to diversify their
investment portfolio
* Are willing to accept higher short-term risk along with higher
potential for long-term growth
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The Portfolio may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short-term goal
PERFORMANCE
Because the Portfolio has been in operation for less than a full calendar year,
its total return bar chart and performance table have not been included.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases..................... None
Maximum deferred sales charge (load)................................. None
ANNUAL FUND OPERATING EXPENSES*
(expenses that are deducted from Portfolio assets)
Management Fees...................................................... 1.00%
Distribution (12b-1) Fee............................................. 0.25%
Other Expenses....................................................... 3.23%
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Total Annual Fund Operating Expenses................................. 4.48%
Fee Reduction and/or Expense Reimbursement........................... (2.98%)
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Net Expenses......................................................... 1.50%
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* The Advisor has contractually agreed to reduce its fees and/or pay expenses
of the Portfolio for an indefinite period to ensure that the Portfolio's
Total Fund Annual Operating Expenses will not exceed 1.50%. If the Advisor
does reduce its fees or pay Portfolio expenses, the Portfolio may reimburse
the Advisor in future years. The Trustees may terminate this expense
reimbursement arrangement at any time.
EXAMPLE
This Example is intended to help you compare the cost of investing in shares of
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio 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 Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, under the assumptions, your costs would be:
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One Year.................................... $ 153
Three Years................................. $ 474
Five Years.................................. $ 818
Ten Years................................... $ 1,791
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The Portfolio's investment goal is long-term growth of capital.
The Portfolio concentrates its investments in stocks selected for their
growth potential. The Portfolio may invest in companies of any size, from
larger, well-established companies to smaller, emerging growth companies. The
Portfolio may invest in domestic as well as foreign securities, including
American Depositary Receipts ("ADRs").
The Portfolio concentrates its investments in companies that have made a
commitment to environmental sustainability and have demonstrated this commitment
through their business strategies, practices and investments. The Advisor
believes the essence of environmental sustainability is the acknowledgment of
the limits of nature and society's dependence on nature. The Advisor's
investment perspective recognizes the fundamental challenge we face: meeting
human needs without undermining nature's ability to support our economy in the
future. Some of these companies are changing the landscape of the industry they
are in or are forcing others in their industry to catch up. Others have product
lines that are ecologically superior to their competition. Still others are
developing vitally needed technologies that will provide cleaner energy sources
for the future.
Companies selected for consideration must display some or all of the
following qualities:
* Corporate leadership that has made an explicit commitment to
sustainable practices and has allocated significant resources to
achieve these goals
* Earnings improvements that are derived from the efficient use and
reuse of resources
* Ecologically superior product lines o Investments in renewable energy
* Innovative transportation and distribution strategies
* Fair and efficient use of resources with respect to meeting human
needs
The Advisor focuses on individual companies that meet their environmental
sustainability criteria. The Advisor then consider's the company's standing
relative to its competition in such areas as the ecological impact of its
products and services, investments in sustainable technologies and processes,
resource efficiency, waste and pollution intensity and environmental management.
Companies that meet these criteria are investigated further through a review of
their financial and environmental statements, third party research and personal
contact with company representatives.
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In addition to the environmental sustainability criteria, a company
selected for the Portfolio must exhibit certain financial characteristics that
indicate positive prospects for long-term earnings growth. These include some or
all of the following:
* rising trends in revenues and earnings
* sound balance sheet
* increasing profit margins
* evolving product lines
The actual selection process is a bottom-up approach. This means that the
Advisor concentrates on the specific characteristics of each company and then
qualifies the company using financial and environmental criteria appropriate to
their industry groups.
On an ongoing basis, all companies are reviewed to confirm their continued
commitment to sustainability. Decisions to sell a security will be made when one
or both of the following occurs:
* The company no longer meets the environmental sustainability criteria
* The company no longer meets minimum financial standards
Under normal market conditions, the Portfolio will stay fully invested in
stocks. However, the Portfolio may temporarily depart from its principal
investment strategies by making short-term investments in cash equivalents in
response to adverse market, economic or political conditions. This may result in
the Portfolio not achieving its investment objective.
In keeping with its investment approach, the Advisor does not anticipate
frequent buying and selling of securities. This means that the Portfolio should
have a low rate of portfolio turnover and the potential to be a tax efficient
investment. This should result in the realization and distribution to
shareholders of lower capital gains, which would be considered tax efficient.
The anticipated lack of frequent trading also leads to lower transaction costs,
which could help to improve performance.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The principal risks of investing in the Portfolio that may adversely affect
the Portfolio's net asset value or total return have previously been summarized
under "Principal Risks of Investing in the Portfolio." These risks are discussed
in more detail below.
MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than it
was worth at an earlier time. Market risk may affect a single issuer, industry,
sector of the economy or the market as a whole.
SMALLER AND NEWER COMPANIES RISK. Investing in securities of smaller and
newer companies may involve greater risk than investing in larger companies
because they can be subject to more abrupt or erratic share price changes than
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larger companies. Small companies may have limited product lines, markets or
financial resources and their management may be dependent on a limited number of
key individuals. Securities of these companies may have limited market liquidity
and their prices may be more volatile.
FOREIGN SECURITIES RISK. The risk of investing in the securities of foreign
companies is greater than the risk of investing in domestic companies. Some of
these risks include: (1) unfavorable changes in currency exchange rates; (2)
economic and political instability; (3) less publicly available information; (4)
less strict auditing and financial reporting requirements; (5) less governmental
supervision and regulation of securities markets; (6) higher transaction costs;
(7) potential adverse effects of the euro conversion; and (8) greater
possibility of not being able to sell securities on a timely basis.
ENVIRONMENTAL SUSTAINABILITY POLICY RISK. The Portfolio's environmental
sustainability policy could cause it to underperform similar funds that do not
have such a policy. Among the reasons for this are (a) growth stocks that meet
the Portfolio's environmental sustainability criteria could underperform those
stocks that do not meet this criteria; and (b) a company's environmental
policies could cause the Portfolio to sell or not purchase stocks that
subsequently perform well.
INVESTMENT ADVISOR
Progressive Investment Management Corporation is the investment advisor to
the Portfolio. The investment advisor's address is 2435 SW Fifth Avenue,
Portland, OR 97201. The investment advisor, which was established in 1987,
provides socially responsible investment management services to individual and
institutional investors and manages assets of approximately $172 million. The
investment advisor provides advice on buying and selling securities. The
investment advisor also furnishes the Portfolio with office space and certain
administrative services and provides most of the personnel needed by the
Portfolio. For its services, the Portfolio pays the investment advisor a monthly
management fee based upon the average daily net assets of the Portfolio at the
rate of 1.00% annually.
The Portfolio is managed by a committee of investment professionals
associated with the Advisor.
PORTFOLIO EXPENSES
The Portfolio is responsible for its own operating expenses. The Advisor
has contractually agreed to reduce its fees and/or pay expenses of the Portfolio
to ensure that the Portfolio's aggregate annual operating expenses (excluding
interest and tax expenses) will not exceed 1.50% of the Portfolio's average
daily net assets. Any reduction in advisory fees or payment of expenses made by
the Advisor are subject to reimbursement by the Portfolio if requested by the
Advisor in subsequent fiscal years. This reimbursement may be requested by the
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Advisor if the aggregate amount actually paid by the Portfolio toward operating
expenses for such fiscal year (taking into account the reimbursements) does not
exceed the applicable limitation on Portfolio expenses. The Advisor is permitted
to be reimbursed for fee reductions and/or expense payments made in the prior
three fiscal years. (At startup, the Portfolio is permitted to look for longer
periods of four and five years.) Any such reimbursement will be reviewed by the
Trustees. The Portfolio 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
There are several ways to purchase shares of the Portfolio. An Account
Application, which accompanies this Prospectus, is used if you send money
directly to the Portfolio by mail or by wire. If you have questions about how to
invest, or about how to complete the Account Application, please call
1-877-351-4115 Ext. 21. To open an account by wire or to open a retirement
account, call 1-877-351-4115 Ext. 21 for instructions. You may also buy shares
of the Portfolio through your financial representative. After your account is
open, you may add to it at any time. The Portfolio reserves the right to reject
any purchase in whole or in part.
You may buy and sell shares of the Portfolio through certain brokers (and
their agents) that have made arrangements with the Portfolio to sell its shares.
When you place your order with such a broker or its authorized agent, your order
is treated as if you had placed it directly with the Portfolio's Transfer Agent,
and you will pay or receive the next price calculated by the Portfolio. The
broker (or agent) holds your shares in an omnibus account in the broker's (or
agent's) name, and the broker (or agent) maintains your individual ownership
records. The Portfolio may pay the broker (or its agent) for maintaining these
records as well as providing other shareholder services. The broker (or its
agent) may charge you a fee for handling your order. The broker (or agent) is
responsible for processing your order correctly and promptly, keeping you
advised regarding the status of your individual account, confirming your
transactions and ensuring that you receive copies of the Portfolio's prospectus.
You may open a Portfolio account with $5,000 and add to your account at any
time with $100 or more. You may open a retirement account with $1,000 and add to
your account at any time with $100 or more. Automatic investment plans allow you
to open a Portfolio account with $1,000 and add to your account with $100 or
more. The minimum investment requirements may be waived from time to time by the
Portfolio.
BY MAIL. You may make an investment in the Portfolio by mail. All purchases
by check should be in U.S. dollars. Third party checks and cash will not be
accepted. If you wish to invest by mail, simply complete the Account Application
and mail it with a check (made payable to "Portfolio 21") to the Portfolio at
the following address:
Portfolio 21
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
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If you are making a subsequent purchase, a stub is attached to the account
statement you will receive after each transaction. Detach the stub from the
statement and mail it together with a check made payable to "Portfolio 21" in
the envelope provided with your statement to the address noted above. Your
account number should be written on the check.
BY OVERNIGHT DELIVERY. If you wish to send your Account Application and
check via an overnight delivery service (such as FedEx), delivery cannot be made
to a post office box. In that case, you should use the following address:
Portfolio 21
c/o American Data Services, Inc.
150 Motor Parkway
Suite 109
Hauppauge, NY 11788
BY WIRE. If you are making an initial investment in the Portfolio, before
you wire funds you should call the Transfer Agent at 1-800-282-2340 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:
UMB Bank, N.A.
ABA Routing Number:101000695
for credit to Portfolio 21
DDA # 9870912554
for further credit to [your name and account number]
If you are making a subsequent purchase, your bank should wire funds as
indicated above. Before each wire purchase, you should be sure to notify the
Transfer Agent. IT IS ESSENTIAL THAT YOUR BANK INCLUDE COMPLETE INFORMATION
ABOUT YOUR ACCOUNT IN ALL WIRE INSTRUCTIONS. If you have questions about how to
invest by wire, you may call the Transfer Agent. Your bank may charge you a fee
for sending a wire to the Portfolio.
AUTOMATIC INVESTMENT PLAN. You may make regular investments through
automatic periodic deductions from your bank checking account. Under this Plan,
after your initial investment, you authorize the Portfolio to withdraw from your
checking account each month an amount that you wish to invest which must be at
least $100. If you wish to invest on a periodic basis, when opening your
Portfolio account complete the Automatic Investment Plan section of the Account
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Application and mail it to the Portfolio at the address listed above. Current
shareholders may choose at any time to enroll in the Automatic Investment Plan.
Call 1-877-351-4115 Ext. 21 for instructions. The Portfolio may terminate or
modify this privilege at any time. You may terminate your participation in the
Plan at any time by notifying the Transfer Agent in writing. Your termination
letter must be received by the Transfer Agent sufficiently in advance of the
next scheduled withdrawal.
RETIREMENT PLANS. The Portfolio offers Individual Retirement Account
("IRA") plans. You may obtain information about opening an IRA account by
calling 1-877-351-4115 Ext. 21. If you wish to open another type of retirement
plan, please contact your securities dealer.
HOW TO SELL SHARES
You may sell (redeem) your Portfolio shares on any day the Portfolio and
the New York Stock Exchange ("NYSE") are open for business either directly to
the Portfolio or through your investment representative.
BY MAIL. You may redeem your shares by simply sending a written request to
the Transfer Agent. You should give your account number and state whether you
want all or some of your shares redeemed. The letter should be signed by all of
the shareholders whose names appear on the account registration. Call the
Transfer Agent for details. You should send your redemption request to:
Portfolio 21
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
To protect the Portfolio and its shareholders, a signature guarantee is
required for all written redemption requests over $100,000. Signature(s) on the
redemption request must be guaranteed by an "eligible guarantor institution."
These include banks, broker-dealers, credit unions and savings institutions. A
broker-dealer guaranteeing signatures must be a member of a clearing corporation
or maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees. Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature guarantee
program. A notary public is not an acceptable guarantor.
BY TELEPHONE. If you complete the Redemption by Telephone portion of the
Account Application, you may redeem all or some of your shares by calling the
Transfer Agent at 1-800-282-2340 before the close of trading on the NYSE. This
is normally 4:00 p.m., Eastern time. Redemption proceeds will be mailed on the
next business day to the address that appears on the Transfer Agent's records.
If you request, redemption proceeds will be wired on the next business day to
the bank account you designated on the Account Application. The minimum amount
that may be wired is $1,000. Wire charges, if any, will be deducted from your
redemption proceeds. Telephone redemptions cannot be made if you notify the
Transfer Agent of a change of address within 30 days before the redemption
request. If you have a retirement account, you may not redeem shares by
telephone.
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When you establish telephone privileges, you are authorizing the Portfolio
and its Transfer Agent to act upon the telephone instructions of the person or
persons you have designated on your Account Application. Such persons may
request that the shares in your account be redeemed. Redemption proceeds will be
mailed to the address of record on your account or transferred to the bank
account you have designated on your Account Application.
Before executing an instruction received by telephone, the Portfolio and
the Transfer Agent will use 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
Portfolio 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 Portfolio may change, modify or
terminate these privileges at any time upon at least 60 days' notice to
shareholders.
You may request telephone redemption privileges after your account is
opened by calling Portfolio 21 at 1-877-351-4115 Ext. 21 for instructions.
You may have difficulties in making a telephone redemption during periods
of abnormal market activity. If this occurs, you may make your redemption
request in writing.
Payment of your redemption proceeds will be made promptly, but not later
than seven days after the receipt of your written request in proper form. If you
made your initial investment by wire, payment of your redemption proceeds for
those shares will not be made until one business day after your completed
Account Application is received by the Portfolio. If you did not purchase your
shares with a certified check or wire, the Portfolio may delay payment of your
redemption proceeds for 15 days from the date of purchase or until your check
has cleared, whichever occurs first.
The Portfolio may redeem the shares in your account if the value of your
account is less than $1,000 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
$1,000 before the Portfolio makes an involuntary redemption. You will then have
30 days in which to make an additional investment to bring the value of your
account to at least $1,000 before the Portfolio takes any action.
The Portfolio has the right to pay redemption proceeds to you in whole or
in part by a distribution of securities from the Portfolio's holdings. It is not
expected that the Portfolio would do so except in unusual circumstances. If the
Portfolio pays your redemption proceeds by a distribution of securities, you
could incur brokerage or other charges in converting the securities to cash.
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SYSTEMATIC WITHDRAWAL PROGRAM. As another convenience, you may redeem your
Portfolio shares through the Systematic Withdrawal Program. If you elect this
method of redemption, the Portfolio will send you a check in a minimum amount of
$100. You may choose to receive a check each month or calendar quarter. Your
Portfolio account must have a value of at least $10,000 in order to participate
in this Program. This Program may be terminated at any time by the Portfolio.
You may also elect to terminate your participation in this Program at any time
by writing to the Transfer Agent at:
Portfolio 21
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
PRICING OF PORTFOLIO SHARES
The price of the Portfolio's shares is based on the Portfolio's net asset
value. This is calculated by dividing the Portfolio's assets, minus its
liabilities, by the number of shares outstanding. The Portfolio's assets are the
market value of securities held in its portfolio, plus any cash and other
assets. The Portfolio's liabilities are fees and expenses owed by the Portfolio.
The number of Portfolio shares outstanding is the amount of shares which have
been issued to shareholders. The price you will pay to buy Portfolio shares or
the amount you will receive when you sell your Portfolio shares is based on the
net asset value next calculated after your order is received by the Transfer
Agent with complete information and meeting all the requirements discussed in
this Prospectus.
The net asset value of Portfolio shares is determined as of the close of
regular trading on the NYSE. This is normally 4:00 p.m., Eastern time. Portfolio
shares will not be priced on days that the NYSE is closed for trading (including
certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
The Portfolio will make distributions of dividends and capital gains, if
any, at least annually, typically after year end. The Portfolio 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 Portfolio shares unless you choose
one of the following options: (1) receive dividends in cash, while reinvesting
capital gain distributions in additional Portfolio 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.
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TAX CONSEQUENCES
The Portfolio intends to make distributions of dividends and capital gains.
Dividends are taxable to you as ordinary income. The rate you pay on capital
gain distributions will depend on how long the Portfolio held the securities
that generated the gains, not on how long you owned your Portfolio shares. You
will be taxed in the same manner whether you receive your dividends and capital
gain distributions in cash or reinvest them in additional Portfolio shares.
If you sell your Portfolio shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell,
you may have a gain or a loss on the transaction. You are responsible for any
tax liabilities generated by your transaction.
RULE 12B-1 FEES
The Portfolio has adopted a distribution plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940. This rule allows the Portfolio to pay
distribution fees for the sale and distribution of its shares and for services
provided to shareholders. The Plan provides for the payment of a distribution
and service at the annual rate of 0.25% of the Portfolio's average daily nets
which are payable to the Advisor, as Distribution Coordinator. Because these
fees are paid out of the Portfolio's assets on an on-going basis, over time
these fees will increase the cost of your investment in Portfolio shares and may
cost you more than paying other types of sales charges.
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FINANCIAL HIGHLIGHTS
This table shows the Portfolio's financial performance for the period
shown. Certain information reflects financial results for a single Portfolio
share. "Total return" shows how much your investment in the Portfolio would have
increased or decreased during the period, assuming you had reinvested all
dividends and distributions. This information has been audited by Tait, Weller &
Baker, independent accountants. Their report and the Portfolio's financial
statements are included in the Annual Report, which is available upon request.
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
--------------------------------------------------------------------------------
September 30, 1999*
through
August 31, 2000
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Net asset value, beginning of period............................ $21.00
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Income from investment operations:
Net investment income...................................... 0.02
Net realized and unrealized gain on
investments and foreign currency....................... 4.35
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Total from investment operations................................ 4.37
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Net asset value, end of period.................................. $25.37
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Total return.................................................... 20.81%++
Ratios/supplemental data:
Net assets, end of period (millions)....................... $ 7.3
Ratio of expenses to average net assets:
Before fees waived and expenses absorbed................... 4.48%+
After fees waived and expenses absorbed.................... 1.50%+
Ratio of net investment income (loss) to average net assets:
Before fees waived and expenses absorbed................... (2.84)%+
After fees waived and expenses absorbed.................... 0.14%+
Portfolio turnover rate......................................... 0.17%++
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* Commencement of operations.
+ Annualized.
++ Not annualized.
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ADVISOR
Progressive Investment Management Corporation
2435 SW Fifth Avenue
Portland, Oregon 97201
(877) 351-4115 Ext. 21
*
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
*
CUSTODIAN
UMB Bank, N.A.
928 Grand Boulevard
Kansas City, Missouri 64106
*
TRANSFER AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
*
AUDITORS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103
*
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, California 94104
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PORTFOLIO 21
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS (THE "TRUST")
WWW.PORTFOLIO21.COM
For investors who want more information about the Portfolio, the following
documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Additional information about the Portfolio's
investments is available in the Portfolio's annual and semi-annual reports to
shareholders. In the Portfolio's annual report, you will find a discussion of
market conditions and investment strategies that significantly affected the
Portfolio's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Portfolio 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 Portfolio by contacting the Portfolio at:
Portfolio 21
2435 SW Fifth Avenue
Portland, OR 97201
Telephone: 1-877-351-4115 Ext. 21
You can review and copy information including the Portfolio'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 Portfolio 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)
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STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 29, 2000
PORTFOLIO 21
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
2435 SW FIFTH AVENUE
PORTLAND, OR 97201
(877) 351-4115 EXT. 21
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the Prospectus dated December 29, 2000, as
may be revised, of Portfolio 21 (the "Portfolio"), a series of Professionally
Managed Portfolios (the "Trust"). Progressive Investment Management Corporation
(the "Advisor") is the advisor to the Portfolio. A copy of the Portfolio's
Prospectus is available by calling the number listed above
TABLE OF CONTENTS
An Overview of the Portfolio............................................. B-2
The Trust................................................................ B-7
Investment Objective and Policies........................................ B-7
Investment Restrictions.................................................. B-12
Distributions and Tax Information........................................ B-14
Trustees and Executive Officers.......................................... B-18
The Portfolio's Investment Advisor....................................... B-19
The Portfolio's Administrator............................................ B-19
The Portfolio's Distributor.............................................. B-20
Portfolio Transactions and Brokerage..................................... B-21
Portfolio Turnover....................................................... B-23
Additional Purchase and Redemption Information........................... B-23
Determination of Net Asset Value......................................... B-26
Performance Information.................................................. B-27
General Information...................................................... B-27
Financial Statements..................................................... B-28
Appendix................................................................. B-29
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AN OVERVIEW OF THE PORTFOLIO
WHAT IS PORTFOLIO 21?
Portfolio 21 is a no load mutual fund developed by Progressive Investment
Management for individuals and institutions committed to investing in a
sustainable future. Unlike a more traditionally screened investment program,
Portfolio 21 concentrates on companies that have made a commitment to
environmental sustainability and have demonstrated this commitment through their
business strategies, practices and investments. Portfolio 21 refers to the 21st
century and the forward thinking that will be required to sustain us in the new
century. We believe that companies using sustainability principles as a core
part of their business strategies are positioned to prosper in the future and
are more efficient and profitable today.
WHY PORTFOLIO 21?
Ecological pressures such as population, consumption, and resource
depletion are having a real and increasing effect on business and the world. The
classic response of business has been to view environmental initiatives as
harmful to the economy and the bottom line. However, a growing number of
corporate leaders disagree.
Corporations must take a central role in creating a sustainable economy
that does not undermine the productive capacity of nature. Many companies now
recognize the enormous opportunity that exists to prosper by providing the
products, services and technologies that are needed to create a sustainable
society. These companies are developing cleaner energy sources, resource
efficient production methods, products that are designed to be reused and
rebuilt, raw materials that are benign, and processes that produce little or no
waste. These companies are shaping a new economy that supports a healthy human
balance with nature.
HOW IS PORTFOLIO 21 DIFFERENT FROM OTHER SOCIALLY RESPONSIBLE MUTUAL FUNDS?
There are several differences between Portfolio 21 and many of the other
socially responsible mutual funds. While most socially responsible mutual funds
use a broad range of social criteria, Portfolio 21 invests in companies that
have taken affirmative steps toward incorporating environmental sustainability
into their business strategies and activities. The goal is to identify companies
that recognize the ecological crisis and are positioning themselves to benefit
from a new approach to business.
Portfolio 21 uses environmental sustainability as the primary determinant
for inclusion in the portfolio. We believe that the long-term viability of
corporations depends on their ability to understand and implement a business
model that is based on environmental sustainability.
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WHO ARE THE PEOPLE BEHIND PORTFOLIO 21?
At Progressive Investment Management, the following people are responsible
for the management of Portfolio 21:
LESLIE E. CHRISTIAN, CFP, CFA
PRESIDENT
Leslie has more than 25 years experience in the investment field including nine
years in New York as a Director with Salomon Brothers Inc. She is also the
co-founder of the Women's Equity Mutual Fund, investing in companies supporting
women in the workplace. Leslie received her bachelor's degree from the
University of Washington and her MBA in Finance from the University of
California, Berkeley. She has earned both the Chartered Financial Analyst and
Certified Financial Planner designations
CARSTEN HENNINGSEN
CHAIRMAN
Carsten has more than 18 years experience in socially and environmentally
responsible investing and is considered a pioneer in the field. He received his
bachelor's degree from the University of Puget Sound in Tacoma, Washington and
is a graduate of the international management program at Stichting Nijenrode,
The Netherlands School of Business in Breuklen, The Netherlands.
JAMES MADDEN, CFA
SENIOR PORTFOLIO MANAGER
Jim has more than eight years experience in socially and environmentally
responsible investing. He has led several shareholder resolutions with
corporations and developed shareholder activism programs. He received his
bachelor's degree and MBA from the University of Wisconsin. Jim has earned the
Chartered Financial Analyst designation.
ANTHONY S. TURSICH, CFA
PORTFOLIO MANAGER
Tony is responsible for financial analysis of securities with an emphasis on
smaller companies and the holdings in Portfolio 21. He received his bachelor's
degree from Montana State University in Bozeman and has earned the Chartered
Financial Analyst designation.
INDIGO TEIWES-CAIN
RESEARCH ANALYST
Indigo manages the environmental sustainability research program for Portfolio
21. Her work involves company research as well as industry analysis. Indigo
graduated from the University of Oregon and was valedictorian of both the
Lundquist College of Business and the Environmental Studies Program. She has
worked with the Sierra Club, the University of Oregon's Sustainable Business
Symposium, and Ogden Environmental and Energy Services.
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Progressive Investment Management has assembled an Advisory Board of
composed of the following individuals:
SPENCER BEEBE, Chairman and President, Ecotrust
SUSAN BURNS, Principal, Natural Strategies Inc.
CATHERINE GRAY, Executive Director, The Natural Step US
MAGNUS HUSS, Secretary General, The Natural Step Sweden
CHRIS LOTSPEICH, Rocky Mountain Institute
ALLAN SAVORY, Founding Director, The Allen Savory Center for Holistic Management
ARIANE VAN BUREN, PH.D, Director of Energy and Environmental Programs,
Interfaith Center on Corporate Responsibility
MATHIS WACKERNAGEL, Director of the National Indicators Program, Redefining
Progress
CONSULTANTS
NATURAL STRATEGIES INC.
Natural Strategies Inc, a sustainability management consulting firm,
provides consultation and technical support to Portfolio 21's research and
analysis team. In addition, Natural Strategies has been instrumental in the
development of the screening criteria and selection methodology used to evaluate
companies for Portfolio 21. Through group facilitation and original research,
Natural Strategies assisted in translating the principles of The Natural Step
and other sustainability frameworks into a detailed set of criteria and a
comprehensive scoring system. Natural Strategies brings to Portfolio 21
knowledge and expertise in the following areas: corporate sustainability
research, benchmarking, best practices research, environmental management,
corporate strategy, and environmental reporting.
WHAT MAKES A COMPANY A CANDIDATE FOR INVESTMENT?
Portfolio 21 invests in those companies that have shown exceptional and
significant leadership in sustainable business practices. Some are changing the
landscape of the industry they are in, forcing others in their industry to catch
up. Others have product lines that are ecologically superior to their
competition; in fact, they use ecological principles as a driver for new product
design. Still others are developing vitally needed technologies that will
provide cleaner energy sources for the future.
Portfolio 21 companies are chosen using a rigorous screening process.
First, a company selected for consideration in Portfolio 21 must have corporate
leadership that has made an explicit commitment to sustainable business
practices and is allocating significant resources to achieve its goals. Next,
through a detailed industry profile, we identify the most critical ecological
impacts and issues the company and its industry face. Next, the company is
scored against criteria tailored to its industry group and is compared with its
competition in such areas as the ecological aspects of its product range, the
lifecycle impacts of its products and services, its relationships with
suppliers, investments in sustainable technologies and processes, leadership,
resource efficiency, and environmental management.
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Companies considered for Portfolio 21 must be publicly traded and meet
prudent financial requirements. Of particular interest is the composition of a
company's earnings. Of most appeal are earnings improvements that are derived
from ecologically superior product lines, the efficient use and reuse of
resources, investments in renewable energy, innovative transportation and
distribution strategies, and the fair and efficient use of resources with
respect to meeting human needs.
WHAT ARE THE FINANCIAL CRITERIA FOR SELECTING COMPANIES AND HOW MUCH RISK DOES
PORTFOLIO 21 HAVE IN COMPARISON TO THE S&P 500 INDEX?
Portfolio 21 is a global fund, meaning that a significant portion of its
holdings may be non-US stocks. The Portfolio will begin with approximately 30 to
40 stocks representing companies in the United States, Europe, Japan and
Australia. The goal is to continue to add companies to the portfolio as they
qualify.
In addition to the environmental sustainability criteria, a company
selected for Portfolio 21 must exhibit certain financial characteristics that
indicate positive prospects for long term earnings growth. These include some or
all of the following: rising trends in revenues and earnings; a sound balance
sheet; increasing profit margins; and evolving product lines. It is important
that a company be financially positioned to take advantage of long term trends
related to the shift from a resource-based economy to a knowledge-based economy.
In this sense, there is a clear link between a company's financial
characteristics and outlook and its environmental sustainability.
Financial risk is composed of several factors: country and currency risk;
industry risk; market capitalization; and specific company risk. Progressive
Investment Management will seek to manage portfolio risk through prudent
diversification and portfolio positions that are proportionate to a company's
market capitalization. The actual selection process is a bottom up approach,
concentrating on the specific characteristics of each company and then
qualifying the companies using financial and environmental criteria appropriate
to their industry groups.
Portfolio 21 is not intended to reflect the exact composition of existing
market indices such as the S&P 500. Due to the investment criteria specified
above, the portfolio may be relatively higher or lower weighted in particular
industries than the current capital markets reflect. For example, based on our
industry analysis, certain industries, due to their relatively low environmental
impact, are more likely to perform well compared to other industries. In
addition, certain industries have a higher composition of "sustainability
leaders" than other industries. For these reasons, certain industries may be
represented more heavily in the portfolio.
The approach is long term, as is consistent with a sustainability approach.
A result of this approach is that the Portfolio will have relatively low
turnover, making it a potentially more efficient tax vehicle than funds with
high turnover rates.
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HOW DOES PORTFOLIO 21 RESEARCH COMPANIES?
The research process begins with a universe of approximately 1,500 publicly
traded companies, including the S&P 500, S&P 400, and non-US stocks traded as
ADRs on US exchanges. These companies are reviewed to identify those with an
environmental commitment. To this list we add companies--both US and
non-US--that have been recognized as leaders either by our board of advisors or
other organizations. We then add companies that have participated in or
sponsored environmental organizations, programs or events. In addition, we
prepare a detailed analysis of each industry sector, which helps us identify
leaders in each industry. Finally, an ongoing search of relevant web sites and
publications identifies additional companies for analysis.
Through a series of evaluation steps, the portfolio managers narrow this
master list to those companies that it believes may meet the sustainability
criteria. These companies are investigated further through a review of their
financial and environmental statements, third party research, and personal
contact with company representatives.
On an ongoing basis, all companies are reviewed to confirm their continued
commitments to sustainability. The company either remains in the portfolio or is
removed. Periodically, new companies are added as they qualify.
HOW DOES PORTFOLIO 21 DEFINE SUSTAINABILITY?
Our definition of sustainability and its translation into detailed
evaluation criteria have been informed by the considerable body of knowledge
offered by our advisory board members and their organizations, including The
Natural Step in the U.S. and Europe*, Rocky Mountain Institute and Redefining
Progress. To quote one of our advisory board members, Mathis Wackernagel, the
co-author of the book Our Ecological Footprint: "Sustainability is securing
people's quality of life within the means of nature."
Our definition of sustainability acknowledges the limits of nature and
society's dependence on nature. It recognizes the fundamental challenge we face:
meeting human needs without undermining nature's ability to support our economy
into the future.
Our approach and criteria have been significantly informed by the work of
The Natural Step1, which has articulated the underlying principles necessary for
a sustainable society. These principles have allowed us to translate the general
concept of sustainability into specific criteria. These criteria assist us in
identifying the concrete actions we are seeking in companies based on the impact
of their industries as a whole.
----------
* The Natural Step (TNS) is an international network of nonprofit educational
organizations working to accelerate the movement toward a sustainable
society. The Natural Step was founded in 1989 by Dr. Karl-Henrik Robert,
one of Sweden's leading cancer researchers. TNS provides a planning
framework that is grounded in natural science and serves as a guide for
businesses, communities, academia, government entities, and individuals
undertaking the path of sustainable development.
B-6
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IS PORTFOLIO 21 A NO-LOAD MUTUAL FUND?
Yes, Portfolio 21 is a no load mutual fund. The fund does not charge a
12b-1 fee or any sales loads. In addition, Progressive Investment Management has
agreed to waive its investment advisory fee for the first six months of the
fund's operations. Of course, like all mutual funds, the Portfolio pays the
expenses of its ongoing operations.
There can be no guarantee that Portfolio 21will achieve its objectives or
that its focus on environmental sustainability factors will result in better
performance than other mutual funds.
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust. The Trust
consists of various series which represent separate investment portfolios. This
SAI relates only to the Portfolio. Progressive Investment Management Corporation
("the Advisor") is the Portfolio's investment adviser.
The Trust is registered with the SEC as a management investment company.
Such a registration does not involve supervision of the management or policies
of the Portfolio. The Prospectus of the Portfolio and this SAI omit certain of
the information contained in the Registration Statement filed with the SEC.
Copies of such information may be obtained from the SEC upon payment of the
prescribed fee.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to seek to provide investors
with long-term growth of capital. The Portfolio primarily invests in common
stocks of domestic and foreign companies that satisfy certain environmental
sustainability criteria. There is no assurance that the Portfolio will achieve
its objective. The Portfolio is diversified, which under applicable federal law
means that as to 75% of its total assets, not more than 5% may be invested in
the securities of a single issuer and that it may hold no more than 10% of the
voting securities of a single issuer. The discussion below supplements
information contained in the Portfolio's Prospectus as to investment policies of
the Portfolio.
In addition to the risks associated with particular types of securities,
which are discussed below, the Portfolio is subject to general market risks. The
Portfolio invests primarily in common stocks. The market risks associated with
stocks include the possibility that the entire market for common stocks could
suffer a decline in price over a short or even an extended period. This could
affect the net asset value of your Portfolio shares.
EQUITY SECURITIES. The equity securities in which the Portfolio invests
generally consist of common stock and securities convertible into or
exchangeable for common stock. The securities in which the Portfolio invests are
expected to be either listed on an exchange or traded in an over-the-counter
market.
B-7
<PAGE>
INVESTMENT COMPANY SECURITIES. The Portfolio may invest in shares of other
investment companies in pursuit of its investment objective. This may include
invest in money market mutual funds in connection with management of daily cash
positions. In addition to the advisory and operational fees the Portfolio bears
directly in connection with its own operation, the Portfolio and its
shareholders will also bear the pro rata portion of each other investment
company's advisory and operational expenses.
FOREIGN INVESTMENTS AND CURRENCIES. The Portfolio will invest in securities
of foreign issuers that are not publicly traded in the United States. The
Portfolio may also invest in American Depositary Receipts (ADRs") and foreign
securities traded on a national securities market, purchase and sell foreign
currency on a spot basis and enter into forward currency contracts (see "Forward
Currency Contracts," below).
AMERICAN DEPOSITARY RECEIPTS. The Portfolio may invest its assets in
securities of foreign issuers in the form of ADRs, which are securities
representing securities of foreign issuers. A purchaser of an unsponsored ADR
may not have unlimited voting rights and may not receive as much information
about the issuer of the underlying securities as with a sponsored ADR.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. The Portfolio may invest in securities denominated
in foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Portfolio's assets denominated in that currency. Such changes will
also affect the Portfolio's income. The value of the Portfolio's assets may also
be affected significantly by currency restrictions and exchange control
regulations enacted from time to time.
B-8
<PAGE>
EURO CONVERSION. Several European countries adopted a single uniform
currency known as the "euro," effective January 1, 1999. The euro conversion,
that will take place over a several-year period, could have potential adverse
effects on the Portfolio's ability to value its portfolio holdings in foreign
securities, and could increase the costs associated with the Portfolio's
operations. The Portfolio and the Advisor are working with providers of services
to the Portfolio in the areas of clearance and settlement of trade in an effect
to avoid any material impact on the Portfolio due to the euro conversion; there
can be no assurance, however, that the steps taken will be sufficient to avoid
any adverse impact on the Portfolio.
MARKET CHARACTERISTICS. The Advisor expects that many foreign securities in
which the Portfolio invests will be purchased in over-the-counter markets or on
exchanges located in the countries in which the principal offices of the issuers
of the various securities are located, if that is the best available market.
Foreign exchanges and markets may be more volatile than those in the United
States. While growing in volume, they usually have substantially less volume
than U.S. markets, and the Portfolio's foreign securities may be less liquid and
more volatile than U.S. securities. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States. Foreign
security trading practices, including those involving securities settlement
where Portfolio assets may be released prior to receipt of payment or
securities, may expose the Portfolio to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest and dividends payable on certain of the Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to Portfolio
shareholders.
COSTS. To the extent that the Portfolio invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
EMERGING MARKETS. Some of the securities in which the Portfolio may invest
may be located in developing or emerging markets, which entail additional risks,
including less social, political and economic stability; smaller securities
markets and lower trading volume, which may result in less liquidity and greater
price volatility; national policies that may restrict the Portfolio's investment
opportunities, including restrictions on investments in issuers or industries,
or expropriation or confiscation of assets or property; and less developed legal
structures governing private or foreign investment.
In considering whether to invest in the securities of a foreign company,
the Advisor considers such factors as the characteristics of the particular
company, differences between economic trends and the performance of securities
markets within the U.S. and those within other countries, and also factors
B-9
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relating to the general economic, governmental and social conditions of the
country or countries where the company is located. The extent to which the
Portfolio will be invested in foreign companies and countries and depositary
receipts will fluctuate from time to time within the limitations described in
the Prospectus, depending on the Advisor's assessment of prevailing market,
economic and other conditions.
FORWARD CURRENCY CONTRACTS. The Portfolio may enter into forward currency
contracts in anticipation of changes in currency exchange rates. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. For
example, the Portfolio might purchase a particular currency or enter into a
forward currency contract to preserve the U.S. dollar price of securities it
intends to or has contracted to purchase. Alternatively, it might sell a
particular currency on either a spot or forward basis to hedge against an
anticipated decline in the dollar value of securities it intends to or has
contracted to sell. Although this strategy could minimize the risk of loss due
to a decline in the value of the hedged currency, it could also limit any
potential gain from an increase in the value of the currency.
ILLIQUID SECURITIES. The Portfolio may not invest more than 15% of the
value of its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid. The Advisor will
monitor the amount of illiquid securities in the Portfolio's portfolio, under
the supervision of the Trust's Board of Trustees, to ensure compliance with the
Portfolio's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Portfolio might be
unable to sell restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Portfolio might also have to register such restricted
securities in order to sell them, resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not reflect the actual liquidity of such
investments. These securities might be adversely affected if qualified
B-10
<PAGE>
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.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements.
Under such agreements, the seller of the security agrees to repurchase it at a
mutually agreed upon time and price. The repurchase price may be higher than the
purchase price, the difference being income to the Portfolio, or the purchase
and repurchase prices may be the same, with interest at a stated rate due to the
Portfolio together with the repurchase price on repurchase. In either case, the
income to the Portfolio is unrelated to the interest rate on the U.S. Government
security itself. Such repurchase agreements will be made only with banks with
assets of $500 million or more that are insured by the Federal Deposit Insurance
Corporation or with Government securities dealers recognized by the Federal
Reserve Board and registered as broker-dealers with the Securities and Exchange
Commission ("SEC") or exempt from such registration. The Portfolio will
generally enter into repurchase agreements of short durations, from overnight to
one week, although the underlying securities generally have longer maturities.
The Portfolio may not enter into a repurchase agreement with more than seven
days to maturity if, as a result, more than 15% of the value of its net assets
would be invested in illiquid securities including such repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Portfolio to the seller of
the U.S. Government security subject to the repurchase agreement. It is not
clear whether a court would consider the U.S. Government security acquired by
the Portfolio subject to a repurchase agreement as being owned by the Portfolio
or as being collateral for a loan by the Portfolio to the seller. In the event
of the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the U.S. Government security before its repurchase under a repurchase
agreement, the Portfolio may encounter delays and incur costs before being able
to sell the security. Delays may involve loss of interest or a decline in price
of the U.S. Government security. If a court characterizes the transaction as a
loan and the Portfolio has not perfected a security interest in the U.S.
Government security, the Portfolio may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, the Portfolio would be at the risk of losing some or all of
the principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Portfolio, the Advisor seeks to minimize the risk
of loss through repurchase agreements by analyzing the creditworthiness of the
other party, in this case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security. However, the
Portfolio will always receive as collateral for any repurchase agreement to
which it is a party securities acceptable to it, the market value of which is
equal to at least 100% of the amount invested by the Portfolio plus accrued
interest, and the Portfolio will make payment against such securities only upon
physical delivery or evidence of book entry transfer to the account of its
Custodian. If the market value of the U.S. Government security subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Portfolio will direct the seller of the U.S. Government security
to deliver additional securities so that the market value of all securities
subject to the repurchase agreement will equal or exceed the repurchase price.
It is possible that the Portfolio will be unsuccessful in seeking to impose on
the seller a contractual obligation to deliver additional securities.
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SHORT-TERM INVESTMENTS
The Portfolio may invest in any of the following securities and
instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The
Portfolio may hold certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Portfolio will
be dollar-denominated obligations of domestic banks, savings and loan
associations or financial institutions which, at the time of purchase, have
capital, surplus and undivided profits in excess of $100 million (including
assets of both domestic and foreign branches), based on latest published
reports, or less than $100 million if the principal amount of such bank
obligations are fully insured by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the
Portfolio also may make interest-bearing time or other interest-bearing deposits
in commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Portfolio may invest a portion
of its assets in commercial paper and short-term notes. Commercial paper
consists of unsecured promissory notes issued by corporations. Commercial paper
and short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher by Standard & Poor's Ratings Group, "Prime-1"
or "Prime-2" by Moody's Investors Service, Inc., or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Advisor to be of comparable quality. These rating symbols are
described in the Appendix.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following investment restrictions that may
not be changed without approval by a "majority of the outstanding shares" of the
Portfolio which, as used in this SAI, means the vote of the lesser of (a) 67% or
more of the shares of the Portfolio represented at a meeting, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Portfolio.
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The Portfolio may not:
(1) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and policies, or (b) to
the extent the entry into a repurchase agreement is deemed to be a loan.
(2) Borrow money, except for temporary or emergency purposes. Any such
borrowings will be made only if immediately thereafter there is an asset
coverage of at least 300% of all borrowings.
(3) Mortgage, pledge or hypothecate any of its assets except in connection
with any borrowings.
(4) Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Portfolio from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio securities.)
(5) Purchase real estate, commodities or commodity contracts. (As a matter
of operating policy, the Board of Trustees may authorize the Portfolio in the
future to engage in certain activities regarding futures contracts for bona fide
hedging purposes; any such authorization will be accompanied by appropriate
notification to shareholders.)
(6) Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (a) making any
permitted borrowings, mortgages or pledges or (b) entering into options, futures
or repurchase transactions.
(7) Invest 25% or more of the market value of its assets in the securities
of companies engaged in any one industry, except that this restriction does not
apply to investment in the securities of the U.S. Government, its agencies or
instrumentalities.
(8) With respect to 75% of its total assets, invest more than 5% of its
total assets in securities of a single issuer or hold more than 10% of the
voting securities of such issuer, except that this restriction does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.
The Portfolio observes the following policies, which are not deemed
fundamental and which may be changed without shareholder vote. The Portfolio may
not:
(9) Invest in any issuer for purposes of exercising control or management.
(10) Invest in securities of other investment companies except as permitted
under the 1940 Act.
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(11) Invest, in the aggregate, more than 15% of its net assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable and repurchase agreements with more than seven days
to maturity.
(12) With respect to fundamental investment restriction (2) above, the
Portfolio will not purchase portfolio securities while outstanding borrowings
exceed 5% of its assets.
Except with respect to borrowing, 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.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually, as described in the
Prospectus. Also, the Portfolio expects to distribute any undistributed net
investment income on or about December 31 of each year. Any net capital gains
realized through the period ended October 31 of each year will also be
distributed by December 31 of each year.
Each distribution by the Portfolio is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the
Portfolio will issue to each shareholder a statement of the federal income tax
status of all distributions.
TAX INFORMATION
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Portfolio intends to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Code, provided it
complies with all applicable requirements regarding the source of its income,
diversification of its assets and timing of distributions. The Portfolio's
policy is to distribute to shareholders all of its investment company taxable
income and any net realized long-term capital gains for each fiscal year in a
manner that complies with the distribution requirements of the Code, so that the
Portfolio will not be subject to any federal income or excise taxes. To comply
with the requirements, the Portfolio must also distribute (or be deemed to have
distributed) by December 31 of each calendar year (I) at least 98% of ordinary
income for such year, (ii) at least 98% of the excess of realized capital gains
over realized capital losses for the 12-month period ending on October 31 during
such year and (iii) any amounts from the prior calendar year that were not
distributed and on which the Portfolio paid no federal income tax.
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Net investment income consists of interest and dividend income, less
expenses. Net realized capital gains for a fiscal period are computed by taking
into account any capital loss carryforward of the Portfolio.
Redemptions of Portfolio shares will result in gains and losses for tax
purposes to the extent of the difference between the proceeds and the
shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption of shares within six months from their date of purchase will be
treated as a long-term capital loss to the extent of distributions of long-term
gain dividends during such six-month period. All or a portion of a loss realized
upon the redemption of shares may be disallowed to the extent shares are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Portfolio designates the amount
distributed as a qualifying dividend. The aggregate amount so designated cannot,
however, exceed the aggregate amount of qualifying dividends received by the
Portfolio for its taxable year. In view of the Portfolio's investment policies,
it is expected that dividends from domestic corporations may be part of the
Portfolio's gross income and that, accordingly, part of the distributions by the
Portfolio may be eligible for the dividends-received deduction for corporate
shareholders. However, the portion of the Portfolio's gross income attributable
to qualifying dividends is largely dependent on the Portfolio's investment
activities for a particular year and therefore cannot be predicted with any
certainty. The deduction may be reduced or eliminated if Portfolio shares held
by a corporate investor are treated as debt-financed or are held for less than
46 days.
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Capital
gains distributions are not eligible for the dividends-received deduction
referred to in the previous paragraph. Distributions of any net investment
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
Under the Code, the Portfolio will be required to report to the Internal
Revenue Service all distributions of taxable income and capital gains as well as
gross proceeds from the redemption of Portfolio shares, except in the case of
exempt shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
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capital gains and proceeds from the redemption of Portfolio shares may be
subject to withholding of federal income tax at the rate of 31 percent in the
case of non-exempt shareholders who fail to furnish the Portfolio with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Portfolio
with their taxpayer identification numbers or certify their exempt status in
order to avoid possible erroneous application of backup withholding. The
Portfolio reserves the right to refuse to open an account for any person failing
to provide a certified taxpayer identification number.
If more than 50% in value of the total assets of the Portfolio at the end
of its fiscal year is invested in stock or securities of foreign corporations,
the Portfolio may elect to pass through to its shareholders the pro rata share
of all foreign income taxes paid by the Portfolio. If this election is made,
shareholders will be (i) required to include in their gross income their pro
rata share of the Portfolio's foreign source income (including any foreign
income taxes paid by the Portfolio), and (ii) entitled either to deduct their
share of such foreign taxes in computing their taxable income or to claim a
credit for such taxes against their U.S. income tax, subject to certain
limitations under the Code, including certain holding period requirements. In
this case, shareholders will be informed in writing by the Portfolio at the end
of each calendar year regarding the availability of any credits on and the
amount of foreign source income (including or excluding foreign income taxes
paid by the Portfolio) to be included in their income tax returns. If not more
than 50% in value of the Portfolio's total assets at the end of its fiscal year
is invested in stock or securities of foreign corporations, the Portfolio will
not be entitled under the Code to pass through to its shareholders their pro
rata share of the foreign taxes paid by the Portfolio. In this case, these taxes
will be taken as a deduction by the Portfolio.
The Portfolio may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
The use of hedging strategies, such as entering into forward contracts,
involves complex rules that will determine the character and timing of
recognition of the income received in connection therewith by the Portfolio.
Income from foreign currencies (except certain gains therefrom that may be
excluded by future regulations) and income from transactions in forward
contracts derived by the Portfolio with respect to its business of investing in
securities or foreign currencies will qualify as permissible income under
Subchapter M of the Code.
Any security or other position entered into or held by the Portfolio that
substantially diminishes the Portfolio's risk of loss from any other position
held by the Portfolio may constitute a "straddle" for federal income tax
purposes. In general, straddles are subject to certain rules that may affect the
amount, character and timing of the Portfolio's gains and losses with respect to
straddle positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
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disposition of the offsetting position; that the Portfolio's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Portfolio that may mitigate the effects of the straddle rules.
Certain forward contracts that are subject to Section 1256 of the Code
("Section 1256 Contracts") and that are held by the Portfolio at the end of its
taxable year generally will be required to be "marked to market" for federal
income tax purposes, that is, deemed to have been sold at market value. Sixty
percent of any net gain or loss recognized on these deemed sales and 60% of any
net gain or loss realized from any actual sales of Section 1256 Contracts will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions that may affect the amount, timing and character
of income, gain or loss recognized by the Portfolio. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency forward
contracts is treated as ordinary income or loss. Some part of the Portfolio's
gain or loss on the sale or other disposition of shares of a foreign corporation
may, because of changes in foreign currency exchange rates, be treated as
ordinary income or loss under Section 988 of the Code rather than as capital
gain or loss.
The Portfolio will not be subject to tax in the Commonwealth of
Massachusetts as long as it qualifies as a regulated investment company for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state and local income taxes, and the
tax treatment thereof may differ from the federal income tax treatment.
Moreover, the above discussion is not intended to be a complete discussion of
all applicable federal tax consequences of an investment in the Portfolio.
Shareholders are advised to consult with their own tax advisers concerning the
application of federal, state and local taxes to an investment in the Portfolio.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Portfolio, including the possibility that such a shareholder
may be subject to a U.S. withholding tax at a rate of 30 percent (or at a lower
rate under an applicable income tax treaty) on amounts constituting ordinary
income.
This discussion and the related discussion in the Prospectus have been
prepared by the Portfolio's management, and counsel to the Portfolio has
expressed no opinion in respect thereof.
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TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by the
initial shareholders of the Trust, are responsible for the overall management of
the Trust, including general supervision and review of the investment activities
of the Portfolio. The Trustees, in turn, elect the officers of the Trust, who
are responsible for administering the day-to-day operations of the Trust and its
separate series. The current Trustees and officers, their affiliations, dates of
birth and principal occupations for the past five years are set forth below.
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 Portfolio'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).
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.
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Set forth below is the rate of compensation received by the following
Trustees from all other portfolios of the Trust. This total amount is allocated
among the portfolios. Disinterested Trustees receive an annual retainer of
$10,000 and a fee of $2,500 for each regularly scheduled meeting. These Trustees
also receive a fee of $1,000 for any special meeting attended. The Chairman of
the Board of Trustees receives an additional annual retainer of $5,000.
Disinterested trustees are also reimbursed for expenses in connection with each
Board meeting attended. No other compensation or retirement benefits were
received by any Trustee 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 period September 30, 1999 (commencement of operations) though
August 31, 2000, trustees' fees and expenses in the amount of $1,988 were
allocated to the Portfolio. 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 Portfolio.
THE PORTFOLIOS INVESTMENT ADVIS0R
As stated in the Prospectus, investment advisory services are provided to
the Portfolio by Progressive Investment Management Corporation, the Advisor,
pursuant to an Investment Advisory Agreement. After its initial two year term,
the Investment Advisory Agreement continues in effect for successive annual
periods so long as such continuation is approved at least annually by the vote
of (1) the Board of Trustees of the Trust (or a majority of the outstanding
shares of the Portfolio), and (2) a majority of the Trustees who are not
interested persons of any party to the Agreement, in each case cast in person at
a meeting called for the purpose of voting on such approval. Any such agreement
may be terminated at any time, without penalty, by either party to the agreement
upon sixty days' written notice and is automatically terminated in the event of
its "assignment," as defined in the 1940 Act.
For the period September 30, 1999 through August 31, 2000, the Portfolio
accrued $35,632 in advisory fees, all of which were waived by the Advisor. For
the same period, the Advisor reimbursed the Portfolio an additional $70,945 for
operating expenses.
THE PORTFOLIOS ADMINISTRATOR
The Portfolio 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 2020 East Financial
Way, Ste. 100, Glendora, CA 91741 and 4455 E. Camelback Rd., Ste. 261-E,
Phoenix, AZ 85018. The Administration Agreement provides that the Administrator
will prepare and coordinate reports and other materials supplied to the
Trustees; prepare and/or supervise the preparation and filing of all securities
filings, periodic financial reports, prospectuses, statements of additional
information, marketing materials, tax returns, shareholder reports and other
regulatory reports or filings required of the Portfolio; prepare all required
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filings necessary to maintain the Portfolio's ability to sell shares in all
states where it currently does, or intends to do business; coordinate the
preparation, printing and mailing of all materials (e.g., annual reports)
required to be sent to shareholders; coordinate the preparation and payment of
Portfolio related expenses; monitor and oversee the activities of the
Portfolio's servicing agents (i.e., transfer agent, custodian, fund accountants,
etc.); review and adjust as necessary the Portfolio's daily expense accruals;
and perform such additional services as may be agreed upon by the Portfolio and
the Administrator.
For its services, the Administrator receives a monthly fee from the
Portfolio at the following annual rate:
Less than $15 million $30,000
$15 million to $50 million 0.20% of average daily net assets
$50 million to $100 million 0.15% of average daily net assets
$100 million to $150 million 0.10% of average daily net assets
over $150 million 0.05% of average daily net assets
For the period September 30, 1999 through August 31, 2000, the
Administrator received administration fees of $27,542 from the Portfolio.
THE PORTFOLIO'S DISTRIBUTOR
First Fund Distributors, Inc., (the "Distributor"), a corporation partly
owned by Messrs. Paggioli and Wadsworth, acts as the Portfolio's principal
underwriter in a continuous public offering of the Portfolio's shares. After its
initial two year term, the Distribution Agreement between the Portfolio and the
Distributor continues in effect for periods not exceeding one year if approved
at least annually by (I) the Board of Trustees or the vote of a majority of the
outstanding shares of the Portfolio to which the Distribution Agreement applies
(as defined in the 1940 Act) and (ii) a majority of the Trustees who are not
interested persons of any such party, in each case cast in person at a meeting
called for the purpose of voting on such approval. The Distribution Agreement
may be terminated without penalty by the parties thereto upon sixty days'
written notice, and is automatically terminated in the event of its assignment
as defined in the 1940 Act.
Pursuant to a plan of distribution adopted by the Trust, on behalf of the
Portfolio, pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), the Portfolio
will pay a fee at an annual rate of 0.25% of its average daily net assets to the
Advisor, as Distribution Coordinator, for distribution and related expenses. The
Plan provides for the compensation to the Advisor, as Distribution Coordinator,
regardless of the Portfolio's distribution expenses.
The Plan allows excess distribution expenses to be carried forward by the
Advisor, as Distribution Coordinator, and resubmitted in a subsequent fiscal
year, provided that (i) distribution expenses cannot be carried forward for more
than three years following initial submission; (ii) the Trustees have made a
determination at the time of initial submission that the distribution expenses
are appropriate to be carried forward and (iii) the Trustees make a further
determination, at the time any distribution expenses which have been carried
forward are submitted for payment, that payment at the time is appropriate,
consistent with the objectives of the Plan and in the current best interests of
shareholders.
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Under the Plan, the Trustees will be furnished quarterly with information
detailing the amount of expenses paid under the Plan and the purposes for which
payments were made. The Plan may be terminated at any time by vote of a majority
of the Trustees of the Trust who are not interested persons. Continuation of the
Plan is considered by such Trustees no less frequently than annually.
During the period September 30, 1999 through August 31, 2000, the Portfolio
paid fees of $8,908 to the Advisor, as Distribution Coordinator, of which $5,534
was for compensation to sales personnel, $878 was for compensation to
broker-dealers, $1,998 was for expenses related to advertising and marketing
material, $159 was for printing, postage and office expenses and $339 was for
miscellaneous other expenses.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Pursuant to the Investment Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Portfolio and which
broker-dealers will be used to execute the Portfolio's portfolio transactions.
Purchases and sales of securities in the over-the-counter market will be
executed directly with a "market-maker" unless, in the opinion of the Advisor, a
better price and execution can otherwise be obtained by using a broker for the
transaction.
Purchases of portfolio securities for the Portfolio also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be made through dealers (including banks) which specialize in
the types of securities which the Portfolio will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one broker, dealer or underwriter are comparable, the
order may be allocated to a broker, dealer or underwriter that has provided
research or other services as discussed below.
In placing portfolio transactions, the Advisor will use its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
than one broker-dealer can offer the most favorable price and execution
available, consideration may be given to those broker-dealers which furnish or
supply research and statistical information to the Advisor that it may lawfully
and appropriately use in its investment advisory capacities, as well as provide
other services in addition to execution services. The Advisor considers such
information, which is in addition to and not in lieu of the services required to
be performed by it under its Agreement with the Portfolio, to be useful in
varying degrees, but of indeterminable value. Portfolio transactions may be
placed with broker-dealers who sell shares of the Portfolio subject to rules
adopted by the National Association of Securities Dealers, Inc.
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While it is the Portfolio's general policy to seek first to obtain the most
favorable price and execution available, in selecting a broker-dealer to execute
portfolio transactions for the Portfolio, weight is also given to the ability of
a broker-dealer to furnish brokerage and research services to the Portfolio or
to the Advisor, even if the specific services are not directly useful to the
Portfolio and may be useful to the Advisor in advising other clients. In
negotiating commissions with a broker or evaluating the spread to be paid to a
dealer, the Portfolio may therefore pay a higher commission or spread than would
be the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission or spread has been
determined in good faith by the Advisor to be reasonable in relation to the
value of the brokerage and/or research services provided by such broker-dealer.
The standard of reasonableness is to be measured in light of the Advisor's
overall responsibilities to the Portfolio.
Investment decisions for the Portfolio are made independently from those of
other client accounts or mutual funds managed or advised by the Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Portfolio and one or more of such client accounts. In
such event, the position of the Portfolio and such client account(s) in the same
issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts seeks to acquire the same security as the Portfolio at the
same time, the Portfolio may not be able to acquire as large a portion of such
security as it desires, or it may have to pay a higher price or obtain a lower
yield for such security. Similarly, the Portfolio may not be able to obtain as
high a price for, or as large an execution of, an order to sell any particular
security at the same time. If one or more of such client accounts simultaneously
purchases or sells the same security that the Portfolio is purchasing or
selling, each day's transactions in such security will be allocated between the
Portfolio and all such client accounts in a manner deemed equitable by the
Advisor, taking into account the respective sizes of the accounts and the amount
being purchased or sold. It is recognized that in some cases this system could
have a detrimental effect on the price or value of the security insofar as the
Portfolio is concerned. In other cases, however, it is believed that the ability
of the Portfolio to participate in volume transactions may produce better
executions for the Portfolio.
The Portfolio does not place securities transactions through brokers solely
for selling shares of the Portfolio, although the Portfolio may consider the
sale of shares as a factor in allocating brokerage. However, as stated above,
broker-dealers who execute brokerage transactions may effect purchases of shares
of the Portfolio for their customers.
During the period September 30, 1999 through August 31, 2000, the Portfolio
paid $14,352 in brokerage commissions with respect to portfolio transactions.
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PORTFOLIO TURNOVER
Although the Portfolio generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of them
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in the Portfolio's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. For the period September 30,
1999 through August 31, 2000, the Portfolio had a portfolio turnover rate of
0.17%.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Portfolio's Prospectus regarding the purchase and redemption of Portfolio
shares.
HOW TO BUY SHARES
You may purchase shares of the Portfolio from selected securities brokers,
dealers or financial intermediaries. Investors should contact these agents
directly for appropriate instructions, as well as information pertaining to
accounts and any service or transaction fees that may be charged by those
agents. Purchase orders through securities brokers, dealers and other financial
intermediaries are effected at the next-determined net asset value after receipt
of the order by such agent before the Portfolio's daily cutoff time. Orders
received after that time will be purchased at the next-determined net asset
value.
The public offering price of Portfolio shares is the net asset value. The
Portfolio receives the net asset value. Shares are purchased at the public
offering price next determined after the Transfer Agent receives your order in
proper form as discussed in the Portfolio'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"). If you buy shares through your investment
representative, the representative must receive your order before the close of
regular trading on the NYSE to receive that day's public offering price. Orders
are in proper form only after funds are converted to U.S. funds.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption or transfer. Otherwise the Portfolio may delay
payment until the purchase price of those shares has been collected or, if you
redeem by telephone, until 15 calendar days after the purchase date. To
eliminate the need for safekeeping, the Portfolio will not issue certificates
for your shares unless you request them.
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The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Portfolio's shares, (ii) to reject purchase orders in
whole or in part when in the judgment of the Advisor or the Distributor such
rejection is in the best interest of the Portfolio, and (iii) to reduce or waive
the minimum for initial and subsequent investments for certain fiduciary
accounts, for employees of the Advisor or under circumstances where certain
economies can be achieved in sales of the Portfolio's shares.
HOW TO SELL SHARES
You can sell your Portfolio shares any day the NYSE is open for regular
trading, either directly to the Portfolio or through your investment
representative. The Portfolio will forward redemption proceeds or redeem shares
for which it has collected payment of the purchase price.
Payments to shareholders for Portfolio shares redeemed directly from the
Portfolio will be made as promptly as possible but no later than seven days
after receipt by the Portfolio's Transfer Agent of the written request with
complete information and meeting all the requirements discussed in the
Portfolio's Prospectus, except that the Portfolio may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the NYSE is restricted as determined by the SEC or the NYSE is closed for other
than weekends and holidays; (b) an emergency exists as determined by the SEC
making disposal of portfolio securities or valuation of net assets of the
Portfolio not reasonably practicable; or (c) for such other period as the SEC
may permit for the protection of the Portfolio's shareholders. At various times,
the Portfolio may be requested to redeem shares for which it has not yet
received confirmation of good payment. In this circumstance, the Portfolio may
delay the redemption until payment for the purchase of such shares has been
collected and confirmed to the Portfolio.
SELLING SHARES DIRECTLY TO THE PORTFOLIO
Send a signed letter of instruction to the Transfer Agent, along with any
certificates that represent shares you want to sell. The price you will receive
is the next net asset value calculated after the Transfer Agent receives your
request in proper form as discussed in the Portfolio's Prospectus. In order to
receive that day's net asset value, the Transfer Agent must receive your request
before the close of regular trading on the NYSE.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close
of regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services.
If you sell shares having a net asset value of $100,000 a signature
guarantee is required.
If you want your redemption proceeds sent to an address other than your
address as it appears on the Transfer Agent's records, a signature guarantee is
required. The Portfolio may require additional documentation for the sale of
shares by a corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact the Transfer Agent for details.
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DELIVERY OF PROCEEDS
The Portfolio generally sends you payment for your shares the business day
after your request is received in proper form, assuming the Portfolio has
collected payment of the purchase price of your shares. Under unusual
circumstances, the Portfolio may suspend redemptions, or postpone payment for
more than seven days, but only as authorized by SEC rules, as stated above under
"How to Sell Shares."
TELEPHONE REDEMPTIONS
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Portfolio or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest Account
Application or other written request for services, including purchasing or
redeeming Portfolio shares and depositing and withdrawing monies from the bank
account specified in the shareholder's latest Account Application or as
otherwise properly specified to the Portfolio in writing. The Transfer Agent
will employ these and other reasonable procedures to confirm that instructions
communicated by telephone are genuine; if it fails to employ reasonable
procedures, the Portfolio may be liable for any losses due to unauthorized or
fraudulent instructions. An investor agrees, however, that to the extent
permitted by applicable law, neither the Portfolio nor its agents will be liable
for any loss, liability, cost or expense arising out of any redemption request,
including any fraudulent or unauthorized request. For information, consult the
Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
REDEMPTIONS-IN-KIND
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 Portfolio's
assets). The Portfolio 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.
The value of shares on redemption or repurchase may be more or less than
the investor's cost, depending upon the market value of the Portfolio's
securities at the time of redemption or repurchase.
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DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, the net asset value and offering price of
shares of the Portfolio will be determined once daily as of the close of public
trading on the NYSE (normally 4:00 p.m. Eastern time) on each day that the NYSE
is open for trading. The Portfolio does not expect to determine the net asset
value of its shares on any day when the NYSE is not open for trading even if
there is sufficient trading in its portfolio securities on such days to
materially affect the net asset value per share. However, the net asset value of
Portfolio shares may be determined on days the NYSE is closed or at times other
than 4:00 p.m. if the Board of Trustees decides it is necessary.
In valuing the Portfolio's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Trustees of the
Trust shall determine in good faith to reflect the security's fair value. All
other assets of the Portfolio are valued in such manner as the Board of Trustees
in good faith deems appropriate to reflect their fair value.
Trading in foreign securities markets is normally completed well before the
close of the NYSE. In addition, foreign securities trading may not take place on
all days on which the NYSE is open for trading, and may occur in certain foreign
markets on days on which the Portfolio's net asset value is not calculated.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and the close of the NYSE will not be reflected in
the calculation of net asset value unless the Board of Trustees deems that the
particular event would affect net asset value, in which case an adjustment will
be made. Assets or liabilities expressed in foreign currencies are translated,
in determining net asset value, into U.S. dollars based on the spot exchange
rates at 1:00 p.m., Eastern time, or at such other rates as the Advisor may
determine to be appropriate.
The net asset value per share of the Portfolio is calculated as follows:
all liabilities incurred or accrued are deducted from the valuation of total
assets which includes accrued but undistributed income; the resulting net assets
are divided by the number of shares of the Portfolio outstanding at the time of
the valuation and the result (adjusted to the nearest cent) is the net asset
value per share.
As of the date of this SAI, the NYSE is open for trading every weekday
except for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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PERFORMANCE INFORMATION
From time to time, the Portfolio may state its total return in
advertisements and investor communications. Total return may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return will be accompanied by information on the Portfolio's
average annual compounded rate of return over the most recent four calendar
quarters and the period from the Portfolio's inception of operations. The
Portfolio may also advertise aggregate and average total return information over
different periods of time.
The Portfolio's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of the Portfolio's
performance by independent sources may also be used in advertisements and in
information furnished to present or prospective investors in the Portfolio.
Investors should note that the investment results of the Portfolio will
fluctuate over time, and any presentation of the Portfolio's total return for
any period should not be considered as a representation of what an investment
may earn or what an investor's total return may be in any future period.
The Portfolio's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000
purchase at the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized.
The Portfolio's total return for the period September 30, 1999 through
August 31, 2000 was 20.81%. During this period, certain fees and/or expenses of
the Portfolio have been waived or reimbursed. Accordingly, the Portfolio's
return figure is higher than it would have been had such fees and expenses not
been waived or reimbursed.
GENERAL INFORMATION
Investors in the Portfolio will be informed of the Portfolio's progress
through periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
UMB Bank, N.A., acts as Custodian of the securities and other assets of the
Portfolio. American Data Services, Inc., P.O. Box 536, Hauppauge, NY 11788-0132,
acts as the Portfolio's transfer and shareholder service agent. The Custodian
and Transfer Agent do not participate in decisions relating to the purchase and
sale of securities by the Portfolio.
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103, are the
independent auditors for the Portfolio.
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th Floor,
San Francisco, California 94104, are legal counsel to the Portfolio.
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On November 30, 2000, Charles Schwab & Co., Inc, San Francisco, CA 94104
owned of record or beneficially 69.24% of the Portfolio's outstanding voting
securities.
The Trust was organized as a Massachusetts business trust on February 17,
1987. The Agreement and Declaration of Trust permits the Board of Trustees to
issue an limited number of full and fractional shares of beneficial interest,
without par value, which may be issued in any number of series. The Board of
Trustees may from time to time issue other series, the assets and liabilities of
which will be separate and distinct from any other series.
Shares issued by the Portfolio have no preemptive, conversion, or
subscription rights. Shareholders have equal and exclusive rights as to
dividends and distributions as declared by the Portfolio and to the net assets
of the Portfolio upon liquidation or dissolution. The Portfolio, as a separate
series of the Trust, votes separately on matters affecting only the Portfolio
(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 Portfolio's assets for any shareholder held
personally liable for obligations of the Portfolio or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Portfolio or Trust and satisfy any judgment thereon. All such rights are
limited to the assets of the Portfolio. The Agreement and Declaration of Trust
further provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
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 Portfolio.
FINANCIAL STATEMENTS
The annual report to shareholders for the Portfolio for the fiscal period
September 31, 1999 though August 31, 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.
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APPENDIX
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
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