Portico International Equity Fund
Retail Shares
Supplement dated July 17, 1997 to the Prospectus dated February
28, 1997
At the June 13, 1997 Board of Directors meeting (the "Board
Meeting") of Portico Funds, Inc. (the "Company") Firstar
Investment Research & Management Company ("FIRMCO" or the
"Adviser") recommended to the Board that the current passive
investment strategy of the Portico International Equity Fund
(the "Fund") be changed to one of active management. Currently,
the Fund attempts to attain its investment objective of capital
appreciation by seeking to duplicate substantially the country
weightings of the gross domestic product weighted Morgan Stanley
Capital International Europe, Australia and Far East Index (the
"Index") and, within these parameters, invests primarily in
companies included in the Index with small to medium
capitalizations. At the Board Meeting, the Adviser recommended
that the Fund's investment strategy be modified and that the
Fund attempt to attain its investment objective of capital
appreciation through investment in securities of foreign
companies and governments which management believes are
undervalued.
In conjunction with the change in investment strategy, the
Adviser also recommended the hiring of Hansberger Global
Investors, Inc. ("Hansberger Global") to provide sub-advisory
services to the Fund. Hansberger Global employs an active
investment strategy which uses a fundamental bottom-up approach
in its search for undervalued foreign companies. The hiring of
Hansberger Global is contingent upon the approval of a new
investment advisory agreement and a new sub-advisory agreement
by the shareholders of the Fund at a meeting scheduled to be
held on August 15, 1997. If approved, the Adviser anticipates
Hansberger Global will begin serving as the new sub-adviser on
or around September 2, 1997.
During the period July 21, 1997 through September 2, 1997, the
Adviser and the current sub-adviser will begin to transition the
Fund from the passive investment strategy to an active
investment strategy, as described above. Currently, the number
of securities held by the Fund may vary from 450 to 750. It is
expected that Hansberger Global will reduce the number of Fund
holdings to approximately 100 to 150. During this transition
period, the Adviser and current sub-adviser will begin to reduce
the number of securities held by the Fund. Normally, in June of
each year, the Adviser and current sub-adviser will rebalance
the Fund in light of revisions made by Morgan Stanley Capital
International to the Index's country weightings. In order to
minimize transaction costs to the Fund, the Fund was not
rebalanced in June 1997.
Effective September 2, 1997, the Prospectus is amended as
follows:
Page 1.
Replace the International Equity Fund's investment objective
with the following:
The International Equity Fund seeks capital appreciation through
investing in foreign securities which the Sub-Adviser believes
are undervalued.
Remove the reference to "State Street Global Advisors, a
division of State Street Bank and Trust Company" as sub-adviser
from the second sentence of the fourth paragraph and revise the
sentence to read: Hansberger Global Investors, Inc. (the
"Sub-Adviser") serves as the sub-adviser to the International
Equity Fund.
Page 10.
The following is added to the "Performance History" section:
Prior Performance of the International Equity Fund's Portfolio
Manager.
The Portico International Equity Fund, with its amended
investment objective, will be managed by the portfolio
management team of James Chaney, Robert Mazuelos and John Hock
of Hansberger Global Investors, Inc. Mr. Chaney will be
primarily responsible for the day to day management of the Fund
and he will be using substantially the same investment
objective, policies and restrictions as the Templeton
Institutional Funds, Inc. Foreign Equity Series (the "Templeton
Fund"), which was previously managed by Mr. Chaney. During Mr.
Chaney's tenure as the Templeton Fund's portfolio manager from
October 1, 1993 to June 30, 1996, the Templeton Fund's average
annual total return was 13.59% and the average annual total
return for the year ended June 30, 1996 was 16.89%. During the
period October 1, 1993 through June 30, 1996, the expense ratio
of the Templeton Fund ranged between 1.00% and .88% of the
Fund's average net assets and the Templeton Fund did not waive
any portion of its fees. The expense ratio of the Portico
International Equity Fund since January 9, 1995, when the Retail
Shares of the Fund were offered, has been 1.75% of the Fund's
average net assets; previously and since inception, the expense
ratio had been 1.50% of the Fund's average net assets.
Performance quotations of the Templeton Fund represent past
performance of the Templeton managed fund, which is separate and
distinct from the Portico International Equity Fund; do not
represent past performance of the International Equity Fund; and
should not be considered as representative of future results of
the International Equity Fund. Performance assumes the
reinvestment of all net investment income and capital gains.
The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
Pages 16 - 19.
The International Equity Fund Investment Objective section is
deleted and replaced with the following:
The investment objective of the International Equity Fund is to
seek capital appreciation through investing in foreign
securities which the Sub-Adviser believes are undervalued.
Income will be an incidental consideration. The Fund pursues
its objective by investing under normal market conditions
substantially all (and in any event at least 65%) of the value
of its total assets in foreign common stocks and equity related
securities (including convertible securities and warrants).
The Sub-Adviser's investment decisions rely on a fundamental
analysis of securities with a long-term investment perspective.
The Sub-Adviser seeks to increase the scope and effectiveness of
this fundamental investment approach by extending the search for
value into many countries around the world. The Sub-Adviser
believes that this global search provides more diverse
opportunities and flexibility to shift portfolio investments not
only from company to company and industry to industry, but also
country to country, in search of undervalued securities. Under
normal market conditions, the Fund will invest more than 80% of
its invested assets (excluding its cash position) in issuers
located in at least three countries other than the United States.
Although the Fund generally invests in common stock, it may also
invest in preferred stocks and certain debt securities, rated or
unrated, such as convertible bonds and bonds selling at a
discount, when the Sub-Adviser believes the potential for
appreciation will equal or exceed that available from
investments in common stock. The Fund may also invest in
warrants or rights to subscribe to or purchase such securities,
and sponsored or unsponsored American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") and other depository receipts
(collectively, "Depository Receipts"). For further discussion
of Depository Receipts, see "Other Investment Information".
The Fund may invest in closed-end investment companies holding
foreign securities, and enter into transactions in options on
securities and securities indices, forward foreign currency
contracts, and futures contracts and related options. When
deemed appropriate by the Adviser (or Sub-Adviser), the Fund may
invest cash balances in repurchase agreements and other money
market investments to maintain liquidity in an amount sufficient
to meet expenses or for day-to-day operating purposes. These
investment techniques are described below under "Other
Investment Information" and under the heading "Investment
Objectives and Policies" in the Statement of Additional
Information ("SAI"). Whenever, in the judgment of the Adviser
(or Sub-Adviser), market or economic conditions warrant, the
Fund may adopt a temporary defensive position and may invest
without limit in money market securities denominated in U.S.
dollars or in the currency of any foreign country. See "Other
Investment Information - Money Market Instruments" section in
the Prospectus as supplemented below. Although the Fund does
not intend to do so during the current fiscal year, the Fund
also may lend portfolio securities and borrow money for
temporary purposes. The Fund would borrow money to meet
redemption requests prior to the settlement of securities
already sold or in the process of being sold by the Fund.
Because of the risks associated with international common stock
investments, the Fund is intended to be a long-term investment
vehicle and is not designed to provide investors with a means of
speculating on short-term stock market movements.
Page 20.
The following is added to the "Other Investment Information -
Money Market Instruments" section:
For temporary defensive purposes, during periods in which the
Adviser (or the Sub-Adviser) believes changes in economic,
financial or political conditions make it advisable, the
International Equity Fund may reduce its holdings in equity and
other securities and may invest up to 100% of its assets in
certain short-term (less than twelve months to maturity) and
medium-term (not greater than five years to maturity) debt
securities and in cash (U.S. dollars, foreign currencies, or
multicurrency units). These short-term and medium-term debt
securities may consist of (a) obligations of governments,
agencies or instrumentalities of any member state of the
Organization for Economic Cooperation and Development
(''OECD''), (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances)
of banks organized under the laws of any member state of the
OECD, denominated in any currency; (c) floating rate securities
and other instruments denominated in any currency issued by
international development agencies; (d) finance company and
corporate commercial paper and other short-term corporate debt
obligations of corporations organized under the laws of any
member state of the OECD meeting the Fund's credit quality
standards; and (e) repurchase agreements with banks and
broker-dealers covering any of the foregoing securities. The
short-term and medium-term debt securities in which the Fund may
invest for temporary defensive purposes will be those that the
Adviser (or the Sub-Adviser) believes to be of high quality,
i.e., subject to relatively low credit risk of loss of interest
or principal (there is currently no rating system for debt
securities in most emerging countries). If rated, these
securities will be rated in one of the four highest rating
categories by rating services such as Moody's Investors Service,
Inc. or Standard & Poor's Corporation. To the extent the Fund
invests in such instruments, it will not be invested in
accordance with the investment policies designed for it to
realize its investment objective.
Page 21.
Under the heading "Restricted Securities", the first sentence is
revised to state that the International Equity Fund will not
knowingly invest more than 10% (the previous limitation was 5%),
and in all cases will not invest more than 15%, of the value of
its net assets in securities that are illiquid at the time of
purchase.
After the first sentence under the heading "Restricted
Securities", insert the following:
These securities may present a higher degree of business and
financial risk, which can result in substantial losses.
Although these securities may be resold in privately negotiated
transactions, the prices realized from these sales could be less
than those originally paid by the Fund or less than what the
Fund may consider the fair value of such securities. Further,
companies whose securities are not publicly traded may not be
subject to disclosure and other investor protection requirements
that might apply if their securities were publicly traded.
Page 22.
The following is added to "Other Investment Information -
Foreign Securities" section:
Some emerging countries have laws and regulations that preclude
direct foreign investment in the securities of companies located
there. Certain emerging countries permit, however, indirect
foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries through
specifically authorized investment funds. The International
Equity Fund may invest in these investment funds, as well as
other closed-end investment companies. Securities of other
investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940 (the
"1940 Act"). In addition to the advisory fees and other
expenses the Fund bears directly in connection with its own
operations, as a shareowner of another investment company, the
Fund would bear its pro rata portion of the other investment
company's advisory fees and other expenses, and such fees and
other expenses will be borne indirectly by the Fund's
shareowners.
Pages 23-24.
The following sentence in "Other Investment Information -
Foreign Securities" is deleted:
"In this regard, the Funds do not intend to hedge against
foreign currency risk (except on unsettled trades), and changes
in currency exchange rates will impact a Fund's net asset value
(positively or negatively) irrespective of the performance of
the portfolio securities held by the Fund."
and replaced with:
"In this regard, the Funds, with the exception of the
International Equity Fund, do not intend to hedge against
foreign currency risk (except on unsettled trades). Changes in
currency exchange rates will affect the value of unhedged
positions and will impact a Fund's net asset value (positively
or negatively) irrespective of the performance of the portfolio
securities held by the Fund." See the section entitled "Foreign
Currency Transactions" below for the International Equity Fund.
The first sentence in the "Other Investment Information -
Options" section is revised to state that the International
Equity Fund may purchase put and call options without limit;
previously, the Fund was not authorized to purchase options.
The first sentence in the second paragraph in the "Other
Investment Information - Options" section is revised to state
that the International Equity Fund will engage in unlisted
over-the-counter options only with broker-dealers deemed
creditworthy by the Adviser (or the Sub-Adviser).
In addition, the first sentence in the fourth paragraph of this
section is revised to state that the International Equity Fund
may write call options on securities and various stock or bond
indices; previously, the Fund was not authorized to do so.
Insert the following as the second to last sentence in the third
paragraph of this section:
The International Equity Fund may write call options on
securities and on various stock indices which will be traded on
a recognized securities or futures exchange or over the counter
and during the current year the aggregate value of the Fund's
assets subject to options written by the Fund will not exceed 5%
of the value of its net assets.
Insert the following paragraphs after the fourth paragraph of
this section:
The International Equity Fund may also write (i.e., sell)
covered put options on securities and various securities
indices. The writer of a put incurs an obligation to buy the
security underlying the option from the put's purchaser at the
exercise price at any time on or before the termination date, at
the purchaser's election (certain options the Fund writes will
be exercisable by the purchaser only on a specific date).
Generally, a put is ''covered'' if the Fund maintains cash, U.S.
government securities or other liquid high grade debt
obligations equal to the exercise price of the option or if the
Fund holds a put on the same underlying security with a similar
or higher exercise price. By writing a covered put option on a
security, the Fund receives a premium for writing the option;
however, the Fund assumes the risk that the value of the
security will decline before the exercise date, in which event,
the Fund may incur a loss in excess of the premium received when
the put is exercised.
Risks associated with the use of options on securities include
(i) imperfect correlation between the change in market value of
the securities the Fund holds and the prices of options relating
to the securities purchased or sold by the Fund; and (ii) the
possible lack of a liquid secondary market for an option.
Page 24.
The second to last sentence in the first paragraph of the
section "Other Investment Information - Futures Contracts and
Related Options" (referring to the ability of the International
Equity Fund to utilize international stock index futures
contracts and related options to assist in matching the Index)
is deleted.
Page 25.
The first sentence of the first full paragraph of the "Other
Investment Information - Futures Contracts and Related Options"
is replaced with the following:
Risks associated with the use of futures contracts and options
on futures include (a) imperfect correlation between the change
in market values of the securities held by a Fund and the prices
of related futures contracts and options on futures purchased or
sold by the Fund, and (b) the possible lack of a liquid
secondary market for futures contracts (or related options) and
the resulting inability of a Fund to close open futures
positions, which could have an adverse impact on the Fund's
ability to hedge. The risk of loss in trading on futures
contracts and related options in some strategies can be
substantial, due both to the low margin deposits required and
the extremely high degree of leverage involved in futures
pricing. Gains and losses on futures and related options depend
on the Adviser's (or Sub-Adviser's) ability to predict correctly
the direction of stock prices, interest rates, and other
economic factors.
The third sentence of the first full paragraph is revised to
increase from 10% to 25% the maximum percentage of the
International Equity Fund's assets that may be at risk as a
result of futures contracts; except futures contracts on
currencies (see the next section). The following is added after
this sentence:
With respect to positions in futures and related options that do
not constitute ''bona fide hedging'' positions as defined in
regulations of the Commodity Futures Trading Commission, the
International Equity Fund will not enter into a futures contract
or related option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions
plus premiums paid by it for open futures option positions, less
the amount by which any such options are ''in-the-money,'' would
exceed 5% of the Fund's total net assets.
The following is inserted before the section entitled "Other
Investment Information - Convertible Securities and Warrants":
Foreign Currency Transactions. The International Equity Fund may
enter into forward foreign currency exchange contracts
(''forward contracts''), providing for the purchase of or sale
of an amount of a specified currency at a future date. This Fund
may use forward contracts to protect against a foreign
currency's decline against the U.S. dollar between the trade
date and settlement date for a securities transaction, or to
lock in the U.S. dollar value of dividends declared on
securities it holds, or generally to protect the U.S. dollar
value of the securities it holds against exchange rate
fluctuations. This Fund may also use forward contracts to
protect against fluctuating exchange rates and exchange control
regulations. Forward contracts may limit the Fund's losses due
to exchange rate fluctuation, but they will also limit any gains
that the Fund might otherwise have realized. This Fund may also
hedge its foreign currency exchange rate risk by entering into
foreign currency futures contracts ("currency futures"). The
forecasting of short-term currency market movements is extremely
difficult and whether short-term hedging strategies would be
successful is highly uncertain.
Except where segregated accounts are not required under the 1940
Act, when this Fund enters into a forward contracts or currency
futures, the Custodian will place cash, U.S. government
securities, or high-grade debt securities into a segregated
account of this Fund in an amount equal to the value of the
Fund's total assets committed to consummation of forward
contracts and currency futures. If the value of these segregated
securities declines, additional cash or securities will be
placed in the account on a daily basis so that the account value
is at least equal to the Fund's commitments to such contracts.
See "Investment Objectives and Policies" in the SAI.
Pages 25-26.
At the end of the third paragraph of the section "Other
Investment Information - Convertible Securities and Warrants"
regarding warrants add the following:
This 5% limit includes warrants that are not listed on any stock
exchange, and such warrants are limited to 2% of the
International Equity Fund's net assets. Warrants acquired by
the International Equity Fund in units or attached to securities
are not subject to these limits.
Page 26.
The following is inserted after the first paragraph of the
"Other Investment Information - American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs"), and Global
Depository Receipts ("GDRs")" section:
The International Equity Fund may also invest in unsponsored
ADRs. In unsponsored ADR programs, the issuer may not be
directly involved in arranging its securities to be traded in
the form of depository receipts. Although regulatory
requirements with respect to sponsored and unsponsored programs
are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in
the creation of a sponsored program. Accordingly, there may be
less information available regarding issuers of securities
underlying unsponsored programs and there may not be a
correlation between such information and the market value of the
Depository Receipts.
Insert the following sentence at the end of the "Other
Investment Information - Concentration" section:
In regards to the International Equity Fund, a foreign
government (but not the United States government) is deemed to
be an "industry" and therefore investments in obligations of any
one foreign government are subject to this 25% limitation.
Insert the following at the end of the "Other Investment
Information" section:
Lower Rated Debt Securities. The International Equity Fund may
invest up to 5% of its net assets in lower rated or unrated debt
securities. Debt considered below investment grade may be
referred to as ''junk bonds'' or ''high risk'' securities. The
emerging country debt securities in which the Fund may invest
are subject to significant risk and will not be required to meet
any minimum rating standard or equivalent.
Sovereign Debt. The International Equity Fund may invest up to
5% of its net assets in obligations of foreign countries and
political entities ("Sovereign Debt"), which may trade at a
substantial discount from face value. The Fund may hold and
trade Sovereign Debt of emerging market countries in appropriate
circumstances and to participate in debt conversion programs.
Emerging country Sovereign Debt involves a high degree of risk,
is generally lower-quality debt, and is considered speculative
in nature.
Brady Bonds. The International Equity Fund may invest up to 5%
of its net assets in Brady Bonds as part of its investment in
Sovereign Debt of countries that have restructured or are in the
process of restructuring their Sovereign Debt pursuant to the
Brady Plan.
Brady Bonds are issued under the framework of the Brady Plan, an
initiative announced by former U.S. Treasury Secretary Nicholas
F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external indebtedness. The Brady
Plan contemplates, among other things, the debtor nation's
adoption of certain economic reforms and the exchange of
commercial bank debt for newly issued bonds.
Pages 36-38.
The last four sentences of the second paragraph of the
"Management of the Funds - Advisory Services" section are
deleted and replaced with:
Subject to the general supervision of the Board of Directors and
in accordance with the investment objective and policies of the
International Equity Fund, the Adviser is responsible for the
Fund's investment program, general investment criteria and
policies. Under the terms of the Advisory Agreement between the
Fund and the Adviser, the Adviser is authorized to delegate its
duties under that agreement to another adviser. As described
below, the Adviser has retained Hansberger Global Investors,
Inc. with respect to the International Equity Fund's investments.
The reference to the International Equity Fund's advisory fees
in the fourth paragraph of this section is deleted and replaced
with:
1.50% on the International Equity Fund's first $25 million,
1.45% on the next $75 million and 1.10% on average daily net
assets in excess of $100 million.
The sixth through ninth paragraphs of this section are deleted
and replaced with:
Hansberger Global Investors, Inc., a Delaware corporation
founded in 1994, with its principal office at 515 East Las Olas
Boulevard, Suite 1300, Fort Lauderdale, Florida 33301, provides
sub-advisory services to the International Equity Fund. Subject
to the oversight and supervision of the Fund's Board of
Directors and Adviser, the Sub-Adviser formulates and implements
a continuous investment program for the Fund, selects
investments in accordance with the Fund's investment objective
and policies and places orders for purchases and sales of the
Fund's portfolio transactions subject to applicable law and
procedures adopted by the Fund's Board of Directors. Additional
information appears in the Statement of Additional Information.
Currently, the Sub-Adviser has $792 million in assets under
management.
The Sub-Adviser is entitled to a fee, payable by the Adviser,
for its services and expenses incurred with respect to the
International Equity Fund. The fee is computed daily and paid
monthly at the following annual rates (as a percentage of the
Fund's average daily net assets): 0.75% on the Fund's first $25
million, 0.50% of the next $75 million and 0.35% of the Fund's
average daily net assets in excess of $100 million.
The last two sentences of the last paragraph of this section are
deleted and replaced with:
The portfolio management team comprised of James Chaney, Robert
Mazuelos and John Hock manages the Fund for the Sub-Adviser.
Mr. Chaney will be primarily responsible for the day to day
management of the Fund. Mr. Chaney joined the Sub-Adviser as
Chief Investment Officer in 1996 and has 12 years of investment
experience. Prior to joining the Sub-Adviser, he was Executive
Vice President for Templeton Worldwide, Inc. and a senior member
of its Portfolio Management/Strategy Committee. Robert Mazuelos
joined the Sub-Adviser in 1995 as a research analyst. Prior to
joining the Sub-Adviser, he was a performance analyst at
Templeton Investment Counsel, Inc. where he was responsible for
return analysis on separate accounts and mutual funds. John
Hock joined the Sub-Adviser in 1996 as a research analyst.
Prior to joining the Sub-Adviser, he was a senior analyst in the
global securities research and economics group at Merrill Lynch.
Page 39.
In the section "Management of the Funds - Custodian, Transfer
and Dividend Disbursing Agent and Accounting Services Agent",
effective August 19, 1997 and September 2, 1997, State Street
Bank and Trust Company will no longer serve as custodian and
accounting agent, respectively, for the International Equity
Fund. Firstar Trust, an affiliate of the Adviser, will become
custodian and accounting agent for this Fund on August 19, 1997
and September 2, 1997, respectively.
