Rule 497(c) Prospectus
Reg. Nos. 33-47508/811-6653
[The Jensen Portfolio Logo]
<PAGE>
PROSPECTUS
September 22, 2000
[the Jensen Portfolio Logo]
2130 Pacwest Center
1211 SW Fifth Avenue
Portland, OR 97204-3721
503-274-2044
800-221-4384
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The Fund is an equity mutual fund with the principal investment objective of
long-term capital appreciation. To achieve this objective, the Fund invests
primarily in common stocks of approximately 20 companies that satisfy the
investment criteria described in this prospectus.
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TABLE OF CONTENTS
Page
INFORMATION ABOUT THE FUND
Summary of the Fund...................................2
Historical Performance................................3
Fund Expenses.........................................3
Financial Highlights..................................4
Investment Objective, Principal Investment
Strategies, and Primary Risks.........................4
Management of the Fund................................6
SHAREHOLDER SERVICE INFORMATION
Pricing of Fund Shares................................8
How to Buy Fund Shares................................8
How to Redeem Fund Shares.............................9
Dividends, Distributions and Taxes....................10
FOR MORE INFORMATION..................................Back Cover
As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or determined if this Prospectus is
adequate or complete. It is a criminal offense to suggest otherwise.
1
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SUMMARY OF THE FUND
Investment Objective
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The objective of the Fund is long-term capital appreciation.
Principal Investment Strategies
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To achieve its objective, the Fund invests in equity securities of approximately
20 companies that satisfy the investment criteria described below. Generally,
each company the Fund invests in must
|X| have consistently achieved high returns on equity for each of the prior
ten years
|X| be in excellent financial condition and
|X| in the opinion of the Fund's investment adviser, be capable of
sustaining its demonstrated competitive advantages.
The Fund may sell all or part of its position in a company, however, when the
investment adviser has determined that another qualifying security has a much
higher "opportunity factor" to achieve the Fund's objective. In addition, the
Fund must sell its entire position in a company when the company no longer meets
each of the Fund's specified investment criteria, unless that failure is due to
an extraordinary situation that the Fund's investment adviser believes will not
have a material adverse impact on the company's operating performance.
The Fund's strategy seeks to identify companies that
|X| have created competitive barriers to entry in their principal business
|X| consistently report high profit margins and increasing cash flows and
|X| are well-managed and positioned in their industries to maintain at
least a 15 percent total return on equity.
The investment adviser expects the securities of approximately 20, primarily
domestic, companies will be included in the Fund's investment portfolio at any
time, and the Fund must always own the securities of at least 15 different
companies in its portfolio. The Fund strives to be fully invested at all times
in publicly traded common stocks and other eligible equity securities issued by
companies that meet the investment criteria described in this prospectus under
"Investment Objective, Principal Investment Strategies, and Primary Risks."
Principal Risks of Investing in the Fund
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Investing in common stocks has inherent risks which could cause you to lose
money. Some of the risks of investing in this Fund are:
|X| STOCK MARKET RISK
The market value of stocks held by the Fund may decline over a short,
or even an extended period of time, resulting in a decrease in the
value of a shareholder's investment.
|X| MANAGEMENT RISK
The Fund's investment adviser may be incorrect in its judgement of the
value of particular stocks. The investments chosen by the Fund's
adviser may not perform as anticipated. Certain risks are inherent in
the ownership of any security, and there is no assurance that the
Fund's objectives will be achieved.
|X| NONDIVERSIFICATION
The Fund is a nondiversified mutual fund and is permitted to invest a
greater portion of its assets in the securities of a smaller number of
issuers than would be permissible if it were a "diversified" fund. The
Fund's investment adviser expects to invest in the securities of only
approximately 20 companies at any one time. Accordingly, the
appreciation or depreciation of a single portfolio security may have a
greater impact on the net asset value of the Fund.
INVESTMENT SUITABILITY
The Fund is designed for long-term investors who are willing to accept
short-term market price fluctuations.
2
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HISTORICAL PERFORMANCE
The bar chart and table shown below illustrate the variability of the Fund's
returns. The bar chart indicates the risks of investing in the Fund by showing
the changes in the Fund's performance from year to year (on a calendar year
basis). The table shows how the Fund's average annual returns since its
inception compare with those of the S&P 500 Index, an unmanaged index of mostly
larger-sized companies.
The Fund's past performance is not necessarily an indication of how the Fund
will perform in the future.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31*
1993 -7.27%
1994 -1.77%
1995 -27.61%
1996 -21.06%
1997 -22.99%
1998 -16.70%
1999 -16.71%
BEST QUARTER: 4Q 1998 at 17.16%
WORST QUARTER: 3Q 1998 at -10.19%
*The Fund's year-to-date total return as of June 30, 2000 was 16.39%.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Inception
1 YEAR 5 YEARS (SINCE 8/3/92)
--------- --------- --------------
The Fund 16.71% 20.93% 12.52%
S & P 500 Index 21.04% 28.54% 20.86%
FUND EXPENSES
The tables below describe the fees and expenses that you would pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES
(Fees Paid Directly from your Investment)
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Maximum Sales Load
Imposed on Purchases.................................None
Maximum Deferred Sales Load..........................None
Maximum Sales Load Imposed
on Reinvested Dividends..............................None
Redemption Fees...................................None(1)
Exchange Fee.........................................None
ANNUAL FUND OPERATING EXPENSES
(Expenses that are Deducted from Fund Assets)
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Management Fees.....................................0.50%
Distribution or Service (12b-1) Fees.................None
Other Expenses......................................0.44%
Total Annual Fund Operating Expenses................0.94%
(1) The transfer agent charges a $12.00 fee for each redemption paid by wire
transfer.
Example
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The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of each period. This
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$96 $300 $520 $1,155
3
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned on an investment in the Fund,
assuming the reinvestment of all dividends and distributions. This information
has been audited by PricewaterhouseCoopers LLP, whose report, along with the
Fund's financial statements, are included in the Fund's annual report, which is
available without charge upon request.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
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2000 1999 1998 1997 1996
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period................ $19.42 $16.87 $14.78 $12.16 $ 9.94
Income from investment
operations:
Net investment income.............. 0.06 0.05 0.23 0.10 0.15
Net gains or losses on
securities (both realized
and unrealized).................. 5.30 2.56 2.46 2.63 2.23
--------------- --------------- --------------- --------------- ---------------
Total from investment
operations....................... 5.36 2.61 2.69 2.73 2.38
--------------- --------------- --------------- --------------- ---------------
Less distributions:
Dividends from net investment
income........................... (0.03) (0.05) (0.23) (0.10) (0.15)
Return of capital.................. -- (0.01) -- (0.01) (0.01)
Distributions from capital gains... (2.50) -- (0.37) -- --
--------------- --------------- --------------- --------------- ---------------
Total distributions................ (2.53) (0.06) (0.60) (0.11) (0.16)
--------------- --------------- --------------- --------------- ---------------
Net asset value, end of period....... $22.25 $19.42 $16.87 $14.78 $12.16
=============== =============== =============== =============== ===============
=============== =============== =============== =============== ===============
Total return......................... 27.65% 15.51% 18.28% 22.56% 24.14%
Supplemental data and ratios:
Net assets, end of period.......... $30,525,067 $24,542,844 $19,900,373 $14,511,087 $11,257,030
Ratio of expenses to average
net assets(1).................... 0.94% 0.96% 1.02% 1.32% 1.20%
Ratio of net investment income
to average net assets(1)......... 0.31% 0.27% 1.44% 0.61% 1.23%
Portfolio turnover rate............ 32.35% 13.87% 20.80% 24.50% 47.93%
</TABLE>
(1)Without the investment adviser's voluntary waiver of a portion of its
management fee of $4,043 for the year ended May 31, 1997 and $30,602 for the
year ended May 31, 1996, the ratio of expenses to average net assets would
have been 1.35% and 1.49%, respectively, and the ratio of net income to
average net assets would have been 0.58% and 0.94%, respectively. For the
years ended May 31, 1998, 1999 and 2000, the investment adviser did not
waive any of its management fee or voluntarily reimburse the Fund for any
expenses.
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES, AND PRIMARY RISKS
Investment Objective
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The Fund's investment objective is long-term capital appreciation.
Principal Investment Strategies
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The Fund's approach to investing focuses on those companies with a record of
achieving high returns over the long term and which are well positioned to
maintain competitive advantages and continued high returns on equity. The Fund's
investment objective is long-term capital appreciation. To achieve its
objective, the Fund invests primarily in the common stocks of approximately 20
companies selected according to the specific, long-term investment criteria
established by the Fund's investment adviser and described more fully below. The
Fund's investment adviser believes these criteria provide objective evidence of
management that is capable and dedicated to providing above-average returns to
the company's shareholders. A company must have satisfied all of the following
criteria to be selected for investment by the Fund:
|X| attained a return on equity of at least 15 percent per year for each of
the prior 10 years.
|X| be in excellent financial condition based on certain qualitative
factors such as a company's ability to grow its business from excess
cash flow.
|X| have a favorable "opportunity factor" as calculated by the Fund's
investment adviser. A company's opportunity factor is measured by the
ratio of its estimated intrinsic or private business value to its
market value as calculated by the Fund's investment adviser and,
accordingly, represents the investment adviser's estimate of a
company's opportunity to appreciate in value over the long term. By
acquiring the securities of companies whose market price is
4
<PAGE>
undervalued, the Fund attempts to create a portfolio with less
volatility than the overall securities markets.
|X| demonstrated a commitment to increasing shareholders' value by
repurchasing outstanding shares, increasing dividends (although less
tax-efficient for shareholders than the former), paying off debt, or
acquiring companies that contribute to their competitive advantage at
reasonable prices.
|X| in the opinion of the Fund's investment adviser, established entry
barriers as evidenced by: (a) differentiated products, which can be
protected from competition by patents, copyright protection, effective
advertising or other means; (b) economies of scale in the production,
marketing, or maintenance of the company's products or services; (c)
absolute cost advantages, such as obtaining raw materials at lower
costs; (d) capital requirements at a level which make it impracticable
for other firms to enter the business; or (e) other sustainable
competitive advantages identified by the Fund's investment adviser.
|X| have management with vision to turn problems into growth opportunities.
|X| in the opinion of the Fund's investment adviser, have the
capability of continuing to meet all of the above criteria.
The Fund's Portfolio Securities
The Fund may invest in any of the following securities, referred to as eligible
equity securities, issued by companies that meet the Fund's investment criteria
when the Fund purchases the security:
|X| voting common stock that is registered under the Securities Exchange
Act of 1934 and is listed on a major United States stock exchange or
the Nasdaq National Market
|X| convertible debt securities and convertible preferred stock listed on a
major United States stock exchange or the Nasdaq National Market, if
the holder has the right to convert the debt securities or preferred
stock into common stock that satisfies all the requirements above and
|X| American Depository Receipts (ADRs) for the common stock of foreign
corporations, if the ADRs are issued in sponsored programs, registered
under the Securities Exchange Act of 1934 and listed on a major United
States stock exchange or through the Nasdaq National Market. ADRs are
receipts issued by domestic banks or trust companies that represent the
deposit of a security of a foreign issuer and are publicly traded in
the United States.
The Fund may invest in securities that are issued by foreign companies
if the securities qualify as eligible equity securities and if the
issuer meets the Fund's investment criteria described above. There are
no restrictions on the amount of securities of foreign issuers that it
may own. The Fund, however, does not expect securities of foreign
issuers to be a significant amount of the Fund's total assets.
The Fund may also invest up to 10 percent of its assets in cash or cash
equivalents, which include any of the following:
|X| cash held by the Fund's custodian, Firstar Bank, N.A.
|X| FDIC-insured bank deposits
|X| United States Treasury bills with a maturity of less than 90 days
|X| commercial paper with a maturity of less than 30 days and is
rated A-1 by Standard and Poor's Corporation or Prime-1 by Moody's
Investor Services, Inc. and
|X| demand notes of companies whose commercial paper receives the same
ratings listed above by Moody's or S & P.
The Fund purchases investment securities with the expectation of holding them
for long-term appreciation. The Fund's investment policy governs the portfolio
turnover rate. The Fund's investment policy permits the Fund to sell all or part
of its securities of a company when the Fund's adviser determines that the
security should be replaced with another qualifying security that has a higher
opportunity factor. In addition, the Fund must sell its entire position in a
company if that company no longer satisfies the criteria specified above, unless
the failure is due to an extraordinary situation that the Fund's adviser
believes will not have a material adverse impact on the company's operating
performance. Once the Fund makes a determination, however, that it must sell its
securities of a company no longer meeting the investment criteria, it will sell
its position within a reasonable period of time. The Fund is subject to some
restrictions governing the percentage of its assets that may be invested in the
securities of any one company. See "Fundamental Investment Restrictions",
"Portfolio Turnover" and "Taxation of the Fund--Tax Status of the Fund" in the
Fund's Statement of Additional Information for more information on the Fund's
investment policies and restrictions.
Implementation of Investment Objective and Strategies
The Fund has developed an extensive quality control program to ensure that the
Fund's investment strategy, research process and administration are implemented
properly. The objectives of this program are to ensure that
|X| the Fund's investment strategy is applied consistently over time
|X| the objective investment criteria are applied on a uniform basis and
|X| management focuses at all times on the best interests of the
shareholders of the Fund.
5
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The Fund's investment strategy has been blended with certain administrative
policies to accomplish its investment objective. The Fund has:
|X| objectively defined the Fund's research process, so that every
security in the Fund's portfolio has met specific objective and
analytical tests
|X| defined the Fund's trading policy to ensure that the Fund (a) purchases
only eligible equity securities issued by companies that meet the
Fund's investment criteria and (b) makes changes to its portfolio only
when the investment adviser determines the issuer's performance makes a
change advisable
|X| established investment policies that prohibit the Fund from trading on
margin, lending securities, selling short, or trading in futures or
options and
|X| retained a nonaffiliated transfer agent, Firstar Mutual Fund
Services, LLC, to perform all fund accounting and transfer agent
functions, and custodian, Firstar Bank, N.A., for custody functions.
These measures are in addition to those required by the Investment Company Act
of 1940. See the Fund's Statement of Additional Information for more information
on compliance with the 1940 Act.
Primary Risks
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Stock Market and Management Risk
Jensen Investment Management makes all decisions regarding the Fund's
investments. Accordingly, the Fund's investment success depends on the skill of
Jensen Investment Management in evaluating, selecting and monitoring the Fund's
assets and investments. Like all mutual funds, the market value of the Fund's
securities may decrease over a short or extended period of time. Although each
company selected for investment by the Fund must have demonstrated at least a
decade of maintaining or increasing its advantage over competitors, there is a
risk that other companies engaged in the same business may succeed in gaining a
competitive advantage. Furthermore, the Fund may only invest in those companies
with a favorable opportunity factor--a formula based on the ratio of a company's
estimated intrinsic value to its market value.. Since the intrinsic value is
calculated from estimated future cash flows, the investment manager's estimate
may change as the forces of economics (competition, inflation, and the like)
affect each particular company. Because intrinsic value is a function of
business and does not change as much or as frequently as market values, the
relationship between the two is not constant, and the market may either
undervalue or overvalue a company's intrinsic value.
Nondiversification
The Fund is a nondiversified mutual fund. This means the Fund is not restricted
as some other mutual funds are by the provisions of the Investment Company Act
with respect to the diversification of its investments. The Fund's
"nondiversified status" permits the investment of a greater portion of the
Fund's assets in the securities of a smaller number of issuers than would be
permissible under a "diversified status." The appreciation or depreciation of a
single portfolio security may have a greater impact on the net asset value of
the Fund and, accordingly, the net asset value of the Fund may fluctuate more
than a comparable "diversified" fund.
International Risk, Foreign Securities and ADR's
Although all of the Fund's portfolio securities must be listed on United States
stock exchanges or the Nasdaq National Market, the Fund may invest in certain
foreign securities and ADRs. The Fund also invests in domestic companies that
engage in significant foreign business. See "Investment Objective, Principal
Investment Strategies and Primary Risks--The Fund's Portfolio Securities" in
this prospectus. These investments involve certain risks such as:
|X| political or economic instability in the country where the company is
headquartered or doing business
|X| fluctuations in the relative rates of exchange between the currencies
of different nations
|X| the difficulty of predicting international trade patterns and
|X| the possibility of imposition of exchange control regulations.
These securities may also be subject to greater fluctuations in price. With
respect to certain foreign countries, there also is a possibility of
expropriation, nationalization, confiscatory taxation, political, economic or
social instability and diplomatic developments which could affect investments in
those countries. See "Investment Strategies and Risks--ADRs" in the Fund's
Statement of Additional Information for additional information relating to ADRs.
MANAGEMENT OF THE FUND
Investment Adviser
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The Fund's investment adviser is Jensen Investment Management, Inc., with
offices at 2130 Pacwest Center, 1211 SW Fifth Avenue, Portland, Oregon
97204-3721. The investments and business operations of the Fund are managed by
the investment adviser subject to oversight by the Fund's board of directors.
The investment adviser is also responsible for selecting brokers and dealers to
execute the Fund's portfolio transactions. Jensen Investment Management, Inc.
has acted as an investment adviser to the Fund since the Fund was started in
1992.
The investment adviser's investment committee is responsible for all the
Fund's investment decisions. The investment committee is composed of Val E.
Jensen, Gary W. Hibler, Robert F. Zagunis, David S. Davies and Robert G.
Millen.
6
<PAGE>
Mr. Jensen has more than 40 years of experience advising individual and
institutional investors. Mr. Jensen, a Principal of the investment adviser
since 1988, served as President of the investment adviser from 1988 to August
1999 when he was appointed Chairman. He served as President of Jensen
Securities Company from 1983 to 1990 and of Charter Investment Group from
1977 to 1983. Mr. Jensen oversees the implementation of the Fund's investment
policies and the Fund's securities research and trading.
Gary W. Hibler, Ph.D., has 28 years of management experience. He joined the
investment adviser in 1991 as a Principal and served as Secretary from May 1994
until August 1999 when he was appointed President. Dr. Hibler served for five
years as Director of Operations of a division of Nichols Institute, a health
care company traded on the American Stock Exchange with $150 million of revenues
in 1991. Dr. Hibler oversees operations for the Fund.
Robert F. Zagunis, a Principal of the investment adviser since January 1993, has
extensive experience as a commercial loan officer and executive with The Bank of
California (1987 to 1993) and First Interstate Bank of Oregon (1977 to 1987).
His primary responsibilities for the Fund include new business development.
David S. Davies, a Principal of the investment adviser since January 2000, has
30 years of financial management and accounting experience. Mr. Davies joined
the investment adviser in January 1998 as Chief Financial Officer. He served as
chief financial officer and consultant for several high tech, service and
manufacturing companies, most recently as Chief Financial Officer for TelServ, a
telecommunications start-up company, from 1995 to December 1997. Mr. Davies also
served as the Controller and Senior Vice President for US Bancorp from 1976 to
1981. He oversees accounting matters for the Fund.
Robert G. Millen was appointed a Principal of the investment adviser in July
2000. Mr. Millen has over 28 years of experience in banking and financial
services, serving most recently as Vice President of Principal Financial
Group, the seventh largest insurance company in the United States, from
1997 to June 2000. Prior to that, Mr. Millen was the Group Vice President
from 1990 to 1997 for Wellmark Inc., a $1.5 billion managed health care and
financial services company. Mr. Millen's other experience includes serving as
President of First Interstate Bank N.A. in Des Moines, Iowa and senior
management positions at Norwest Bank N.A., also in Des Moines, Iowa. His
primary responsibilities for the Fund are marketing and new business
development.
Jensen Investment Management serves as the Fund's investment adviser under an
agreement dated June 13, 1993. Under the agreement, the investment adviser
provides research, advice and supervision with respect to the management of the
Fund's portfolio of investments, and determines which companies are eligible for
investment by the Fund. The investment adviser places orders for the purchase
and sale of the Fund's securities.
The Fund's investment adviser also serves as investment adviser to individual
and institutional accounts, and was managing assets totaling approximately $187
million at July 31, 2000. For more information about management of the Fund's
investment adviser, see "Management of the Fund" and "Investment Advisory and
Other Services" in the Fund's Statement of Additional Information.
Management Fee
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For its services, the investment adviser receives an annual investment advisory
fee paid by the Fund equal to 0.50% of the Fund's average daily net assets.
Expenses
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The Fund's investment adviser furnishes office space and all necessary office
facilities and equipment for the Fund. The investment adviser also provides the
personnel for servicing the investments of the Fund, maintaining its
organization and assisting in providing shareholder communications and
information services. In addition, all marketing expenses related to the Fund,
such as the cost of printing and delivering prospectuses to prospective
shareholders, are paid by the investment adviser.
The Fund pays all other expenses not expressly assumed by the investment
adviser. Specifically, the Fund pays interest; brokerage fees and commissions;
fees of directors who are not "interested persons" of the Fund; filing and
qualification fees and state securities law qualification fees; fees of the
investment adviser and of the transfer agent; insurance premiums; outside
auditing and legal expenses; costs of maintaining the Fund's corporate
existence, providing investor services and corporate reports, and holding
corporate meetings; costs of preparing, printing and distributing prospectuses
for regulatory purposes and for distribution to existing shareholders of the
Fund; dues and fees for trade organizations; administrative expenses; and any
extraordinary expenses. Subject to the expense guarantees described below, if
the investment adviser advances payment for any Fund expenses, the Fund will
reimburse the investment adviser.
In order to limit the Fund's expenses, the investment adviser has guaranteed
that certain of these expenses payable by the Fund will not exceed specified
levels in any fiscal year. If the Fund's regular operating expenses exceed the
applicable limit set out below, the investment adviser will reduce its
management fee, or reimburse the Fund, in an amount equal to the excess.
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Annual
Average Daily Net Expense Limit
Assets for the Year (including management fees)
---------------- -------------
$100,000 - $10,000,000 2.00%
$10,000,001 - $15,000,000 1.75
$15,000,001 - $25,000,000 1.50
$25,000,001 - $50,000,000 1.25
$50,000,001 - $100,000,000 1.00
$100,000,000 and above 0.75
Any reduction in management fees or reimbursement of expenses by the investment
adviser required under this expense guarantee will be computed and accrued
daily, paid monthly and adjusted annually on the basis of the Fund's average
daily net assets for the year. In addition to this guarantee, the investment
adviser may voluntarily reduce its management fee or reimburse the Fund for
certain expenses in order to keep the Fund's expenses at levels competitive with
other funds.
SHAREHOLDER SERVICE INFORMATION
Pricing of Fund Shares
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The price for Fund shares is the net asset value per share (NAV). The NAV of
Fund shares is determined at the close of regular trading hours of the NYSE each
day the NYSE is open. Your purchase and redemption requests are priced at the
next NAV calculated after receipt of a properly completed purchase or redemption
order. The NAV per share is determined by dividing the total value of the Fund's
securities and other assets, less its liabilities, by the total number of shares
outstanding. Securities are valued at market value. If a security's market value
is not readily available, its fair value is determined in good faith by or under
the direction of the Fund's Board of Directors.
The market value of the securities in the Fund's portfolio changes daily, and
the NAV of Fund shares changes accordingly. See the Statement of Additional
Information for more information about the pricing of the Fund's shares.
How to Buy Fund Shares
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You may purchase shares of the Fund directly from the Fund. Shares of the Fund
are available at the net asset value (NAV), which means that you pay no sales
charges or commissions when you purchase shares.
Minimum Investment
|X| The minimum initial investment is $1,000.
|X| The minimum subsequent investment is $50.
|X| If you purchase through a financial intermediary, you may purchase in
lesser amounts, subject to minimums imposed by the financial
intermediary.
Financial Intermediaries
You may also purchase shares of the Fund through a third party, such as
broker-dealers, financial institutions or other financial service firms. When
you purchase shares of the Fund this way through a financial intermediary, the
financial intermediary may be listed as the shareholder of record of the shares.
In addition, a financial intermediary may use procedures and impose restrictions
that are different from those applicable to shareholders who invest in the Fund
directly.
If you intend to invest in the Fund through a financial intermediary, you should
read the program materials provided by the financial intermediary as a
supplement to this prospectus. Financial intermediaries may charge you
transaction-based fees or other charges for the services they provide to you.
These charges are retained by the financial intermediary and are not paid to the
Fund or the investment adviser.
Buying Shares by Mail
--------------------------------------------------------------------------------
Complete an application and send it to the address below, with a check or money
order for at least the minimum amount and made payable to The Jensen Portfolio:
By Mail:
The Jensen Portfolio, Inc.
c/o Firstar Mutual Fund Services, LLC
PO Box 701
Milwaukee, WI 53201-0701
By Overnight or Express Mail:
The Jensen Portfolio, Inc.
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202-5207
The Fund will not accept cash or third-party checks as payment for the purchase
of shares. All checks or money orders must be in U.S. Dollars only.
Note: Firstar Mutual Fund Services, LLC will charge you a $25 fee against
your account for any returned checks due to insufficient funds. In
addition, you will be responsible for any losses suffered by the fund
as a result.
Buying Shares by Wire
--------------------------------------------------------------------------------
1. Call Firstar Mutual Fund Services, LLC at 800-992-4144 to advise of
the dollar amount of your investment by wire.
2. Complete and send in a completed application form.
3. Instruct your bank to wire your investment amount through the Federal
Reserve as follows:
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
ABA Number: 042000013
For credit to Firstar Mutual Fund Services, LLC
Account Number 112-952-137
Further credit to: The Jensen Portfolio, Inc.
Your account name and account number
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<PAGE>
Buying Shares by Telephone
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Purchases cannot be made by telephoning the Fund or Firstar.
Automatic Investment Program
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You may purchase Fund shares automatically from your bank under the automatic
investment program, which allows monies to be transferred directly from your
checking, savings or money market account to invest in the Fund.
|X| Purchases may be made on the schedule--weekly, monthly, bi-monthly or
quarterly--you select
|X| To be eligible, your account must be maintained at a domestic financial
institution that is a member of the Automated Clearing House Association
|X| You may sign up for the automatic investment program by completing an
application form
|X| Minimum initial investment is $1,000
|X| Minimum subsequent investment is $100
Please call our shareholder services at 800-992-4144 for more information about
participating in the program.
Choosing a Distribution Option
--------------------------------------------------------------------------------
When you complete your account application, you may choose from three
distribution options.
1. You may invest all income dividends and capital gains distributions
in additional shares of the Fund. This option is assigned
automatically if no other choice is made.
2. You may elect to receive income dividends and capital gains
distributions in cash.
3. You may elect to receive income dividends in cash and to reinvest
capital gains distributions in additional shares of the Fund.
You may change your election at any time. Your request for a change must be
received in writing by Firstar prior to the record date for the distribution for
which a change is requested.
Retirement Plans
--------------------------------------------------------------------------------
Tax-deferred retirement plans including
|X| IRAs
|X| Keogh accounts
|X| SEP accounts and
|X| Other ERISA-qualified plans
may invest in the Fund, subject to the other requirements of the Fund. If a plan
has already been established with a custodian or trustee, the plan may purchase
shares of the Fund in the same manner as any other shareholder, subject to any
special charges imposed by the plan's custodian or trustee.
If you want to establish an individual retirement account naming Firstar as
custodian, please call our shareholder services at 800-992-4144 for information
and forms.
Additional Purchase Information
--------------------------------------------------------------------------------
The Fund reserves the right to reject your purchase order and to suspend the
offering of shares of the Fund if management determines the rejection or
suspension is in the best interests of the Fund.
Foreign investors must provide additional information to the Fund. Please call
our shareholder services at 800-992-4144 for assistance.
Stock Certificates
The issuance of Fund shares is recorded on the books of the Fund in full and
fractional shares carried to the third decimal place. For investor convenience
and to avoid additional operating costs, the Fund does not expect to issue share
certificates.
THE FUND AND FIRSTAR MUTUAL FUND SERVICES, LLC ARE AVAILABLE TO ASSIST YOU IN
OPENING ACCOUNTS AND WHEN PURCHASING OR REDEEMING SHARES.
How to Redeem Fund Shares
--------------------------------------------------------------------------------
You may redeem all or a portion of your shares on any business day. Shares of
the Fund are redeemed at the next NAV calculated after the Fund has received
your redemption request in good order. Payment is typically made within one or
two business days of receipt of a valid redemption request.
Redemption by Mail
--------------------------------------------------------------------------------
You may mail your redemption request to:
By Mail:
The Jensen Portfolio, Inc.
c/o Firstar Mutual Fund Services, LLC
PO Box 701
Milwaukee, WI 53201-0701
By Overnight or Express Mail:
The Jensen Portfolio, Inc.
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202-5207
It is important that your redemption request be mailed to the correct address
and be in good order. If a redemption request is inadvertently sent to the Fund
at its corporate address, it will be forwarded to Firstar, but the effective
date of the redemption will be delayed. No redemption will be made until a
request is submitted in good order.
A redemption request is considered to be in good order if the following
information is included:
|X| The name of the Fund
|X| The dollar amount or number of shares being redeemed
|X| The account registration number
|X| The signatures of all registered shareholders as registered
9
<PAGE>
Redemption requests for accounts registered in the names of corporations,
fiduciaries and institutions may require additional redemption documents, such
as corporate resolutions, certificates of incumbency or copies of trust
documents. Please contact Firstar if your account is registered in one of these
categories.
Ira Redemption
If you are an IRA shareholder, you must indicate on your redemption request
whether or not to withhold federal income tax. If your redemption request fails
to make an indication, your redemption proceeds will be subject to withholding.
Redemption by Telephone
--------------------------------------------------------------------------------
Redemptions cannot be made by telephoning the Fund or the transfer agent.
--------------------------------------------------------------------------------
Signature Guarantee
In addition to the requirements discussed above, a signature guarantee may be
needed for:
|X| redemptions made by wire transfer
|X| redemptions payable other than exactly as the account is registered
|X| redemptions mailed to an address other than the address on the account
or to an address that has been changed within 30 days of the redemption
request or
|X| redemptions over $10,000.
The Fund reserves the right to require a signature guarantee under other
circumstances. The Fund honors signature guarantees from national or state
banks, federal savings and loan associations, trust companies and member firms
of domestic stock exchanges.
Redemption Price and Payment for Fund Shares
--------------------------------------------------------------------------------
Redemption requests are processed at the NAV next computed after the transfer
agent receives a redemption request in good order. If your redemption request is
received by the transfer agent in good order before the close of regular trading
hours on the NYSE (currently, 4 p.m. Eastern time), the request is effective on
the day received. If your redemption request is received in good order after the
close of regular trading hours on the NYSE, it is effective on the next business
day.
Payment for your redeemed Fund shares will be mailed to you generally within one
or two business days, but no later than the seventh day after your redemption
request is received in good order by the transfer agent. However, when a
redemption is requested shortly after your purchase of shares by check, the
redemption proceeds of those shares will not be distributed until the check
received for those shares has cleared. Normally, local personal checks or
corporate checks clear within three days, and other personal or corporate checks
clear within seven days, but some may take up to twelve days from the date you
purchased shares. You may avoid these delays by purchasing shares of the Fund by
wire transfer. The Fund may, however, suspend your right of redemption or
postpone the payment date at times when the NYSE is closed or during certain
other periods as permitted under the federal securities laws.
The Fund may be required to withhold federal income tax at a rate of 31% (backup
withholding) from dividend payments, distributions, and redemption proceeds if
you fail to furnish the Fund with your social security or other tax
identification number. See "Dividends, Distributions and Taxes" in this
prospectus for more information.
Your redemption payment will be mailed by check to the account name(s) and
address exactly as registered, unless you requested wire transfer of the
payment. There is no charge for redemption payments that are mailed. Redemption
payments sent by wire transfer must be at least $1,000, and the Fund's transfer
agent currently charges $12.00 for each wire transfer. This amount will be
charged against your account. Your bank may also impose an incoming wire charge.
Redemptions at the Option of The Fund
--------------------------------------------------------------------------------
In addition, the Fund may institute a policy whereby it automatically redeems
shares if an account balance drops below a specified amount as a result of
redemptions by the shareholder. If such a policy is instituted, the Fund may not
implement such redemption if the decrease in the account balance was caused by
any reason other than shareholder redemptions. As of the date of this
Prospectus, the Fund had not instituted such a policy. However, the Fund's
articles of incorporation authorize the board of directors to institute such a
policy if the board determines that such a policy is in the best interests of
the Fund and its shareholders.
The Fund may require the redemption of shares if, in its opinion, such action
would prevent the Fund from becoming a personal holding company, as defined in
the Internal Revenue Code.
Additional Redemption Information
--------------------------------------------------------------------------------
Neither the Fund, the investment adviser nor the transfer agent will be liable
for any loss, cost or expense of acting on written instructions believed by the
party receiving the instructions to be genuine and in accordance with the
procedures described in this prospectus.
Dividends, Distributions and Taxes
The Fund declares and distributes dividends from its net investment income on a
quarterly basis and declares and distributes any net capital gain realized by
the Fund on an annual basis. These distributions are paid in additional Fund
shares unless the shareholder elects in writing to receive distributions in
cash. The Fund will notify you following the end of each calendar year of the
amounts of dividends and capital gain distributions paid (or deemed paid) for
the year.
10
<PAGE>
The Fund intends to qualify at all times as a regulated investment company under
the Internal Revenue Code. By qualifying as a regulated investment company and
satisfying certain other requirements, the Fund will not be subject to federal
income or excise taxes to the extent the Fund distributes its net investment
income and realized capital gains to its shareholders.
The tax characteristics of distributions from the Fund are the same whether paid
in cash or in additional shares. For federal income tax purposes, distributions
of net investment income or of net short-term capital gain are generally taxable
as ordinary income to the recipient shareholders, and distributions designated
as the excess of net long-term capital gain over net short-term capital loss are
generally taxable as long-term capital gain to the recipient shareholder
regardless of the length of time the shareholder held the Fund's shares. A
portion of any distribution properly designated as a dividend by the Fund may be
eligible for the dividends-received deduction in the case of corporate
shareholders.
You may also be subject to state or local taxes with respect to holding Fund
shares or on distributions from the Fund. You are advised to consult your tax
adviser with respect to state and local tax consequences of owning shares of the
Fund.
Federal law requires the Fund to withhold 31 percent of all distributions and
redemption proceeds paid to shareholders who have not provided their correct
taxpayer identification number or certified that withholding does not apply.
Each prospective shareholder is asked to certify on its application to open an
account that the social security number or other tax identification number
provided is correct and that the prospective shareholder is not subject to 31
percent backup withholding for previous under-reporting of income to the
Internal Revenue Service. The Fund generally does not accept an application to
open an account that does not comply with these requirements.
This tax discussion is only a brief summary of some of the important federal tax
considerations generally affecting the fund and its shareholders. There may be
other federal, state or local tax considerations applicable to a particular
shareholder. Prospective investors in the fund are urged to consult their tax
advisers prior to purchasing shares of the fund.
Confirmation and Statements
-------------------------------------------------------------------------------
The Fund's transfer agent, Firstar Mutual Fund Services, LLC, will send you a
statement of your account after every transaction affecting your share balance
or account registration. Please allow seven to ten business days for the
transfer agent to confirm your order. The transfer agent will send a quarterly
account statement to you, regardless of whether you have purchased or redeemed
any shares during the quarter. Generally, a statement with tax information will
be mailed to you by January 31 of each year. A copy of the tax statement also is
filed with the Internal Revenue Service.
The Fund will send you an audited annual report each year and an unaudited
semi-annual report after the Fund's second fiscal quarter. Each of these reports
includes a statement listing the Fund's portfolio securities.
Shareholder Inquiries
--------------------------------------------------------------------------------
Shareholder inquiries are answered promptly. Any inquiries you have should be
addressed to Firstar Mutual Fund Services, LLC at 615 E. Michigan Street,
Milwaukee, WI 53202 (telephone: 800-992-4144).
11
<PAGE>
[PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[The Jensen Portfolio Logo]
DIRECTORS OFFICERS
Norman W. Achen Val E. Jensen, President
Roger A. Cooke Robert F. Zagunis, Vice President
Gary W. Hibler Gary W. Hibler, Secretary
Val E. Jensen
Louis B. Perry
Robert F. Zagunis
INVESTMENT ADVISER LEGAL COUNSEL
Jensen Investment Management, Inc. Stoel Rives LLP
2130 Pacwest Center Suite 2600
1211 SW Fifth Avenue 900 SW Fifth Avenue
Portland, OR 97204-3721 Portland, OR 97204-1268
Telephone: 503-274-2044
800-221-4384
AUDITORS TRANSFER AGENT
PricewaterhouseCoopers LLP Firstar Mutual Fund Services, LLC
Suite 3100 P.O. Box 701
1300 SW Fifth Avenue Milwaukee, WI 53201-0701
Portland, OR 97201
-or-
Third Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Telephone: 800-992-4144
<PAGE>
[Jensen Portfolio Logo]
FOR MORE INFORMATION
Additional information about the Fund is available free upon request.
o ANNUAL REPORT AND SEMI-ANNUAL REPORT: These reports provide the Fund's most
recent financial report and portfolio holdings. The annual report contains
a letter from the Fund's manager discussing the market conditions and
investment strategies that affected the Fund's performance during its last
fiscal year.
o STATEMENT OF ADDITIONAL INFORMATION: The Statement of Additional
Information supplements this prospectus and is incorporated into this
prospectus by reference. The Statement of Additional Information includes a
list of the Fund's investment policies and restrictions, as well as more
detail about the management of the Fund.
You can get free copies of the current annual or semi-annual report and
Statement of Additional Information by contacting the Fund:
By Telephone By Mail
Toll-free in the U.S. c/o The Jensen Portfolio
(800) 992-4144 Firstar Mutual Fund Services, LLC
PO Box 701
Milwaukee, WI 53201-0701
ON THE INTERNET
Text-only versions of the Fund's reports can be viewed online or downloaded
from the SEC's website at: HTTP://WWW.SEC.GOV
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (telephone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
SEC file number: 811-6653
[Jensen Investment Management Logo]
<PAGE>
------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
------------------------------------------
STATEMENT OF
ADDITIONAL INFORMATION
THE JENSEN PORTFOLIO, INC.
2130 Pacwest Center
1211 SW Fifth Avenue
Portland, Oregon 97204-3721
503-274-2044
800-221-4384
<PAGE>
This Statement of Additional Information of The Jensen Portfolio, Inc.
(the "Fund") is not a Prospectus. It relates to a Prospectus dated September 22,
2000 and should be read in conjunction with the Prospectus. The Prospectus is
available without charge upon request by writing the Fund or calling
1-800-221-4384.
The Fund's most recent Annual Report to shareholders is a separate
document supplied with this Statement of Additional Information. The financial
statements, accompanying notes and report of independent accountants appearing
in the Annual Report are incorporated into this Statement of Additional
Information.
ii
<PAGE>
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE FUND........................................................1
History and Classification............................................1
Investment STrategies and Risks.......................................1
Commercial Paper Ratings.....................................1
ADRS.........................................................1
Fundamental Investment Restrictions...................................2
Portfolio Turnover....................................................4
MANAGEMENT OF THE FUND.........................................................5
Directors and Officers................................................5
Compensation..........................................................7
Compensation Table....................................................7
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS.....................................7
Control Persons.......................................................7
Principal Shareholders................................................7
Management Ownership..................................................8
THE INVESTMENT ADVISORY AND OTHER SERVICES.....................................8
Investment Adviser....................................................8
Management of the Investment Adviser..................................9
Administrator........................................................11
Custodian, Transfer Agent and Dividend Disbursing Agent..............12
BROKERAGE ALLOCATION AND OTHER PORTFOLIO TRANSACTIONS.........................12
General Considerations...............................................12
Capital Stock........................................................13
i
<PAGE>
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES...............................14
Purchases and Redemptions............................................14
Pricing of Fund Shares...............................................15
TAXATION OF THE FUND..........................................................15
Tax Status of the Fund...............................................15
Taxation of Fund Distributions.......................................17
Other Tax Considerations.............................................17
Additional Information...............................................18
PERFORMANCE INFORMATION.......................................................18
GENERAL INFORMATION...........................................................19
Independent Accountants..............................................19
Limitation of Director Liability.....................................19
Registration Statement...............................................20
Financial Statements.................................................20
Appendix A - Commercial Paper Ratings .......................................A-1
ii
<PAGE>
DESCRIPTION OF THE FUND
HISTORY AND CLASSIFICATION
The Jensen Portfolio, Inc. (the "Fund") is a no-load mutual fund that
is an open-end, nondiversified, management investment company. The Fund was
organized as an Oregon corporation on April 17, 1992 and commenced operation on
August 3, 1992. Prior to that date, the Fund had no operations other than
organizational matters.
The Fund is designed to provide individuals and family trusts, pension
and profit sharing plans, employee benefit trusts, endowments, foundations,
other institutions, and corporations with access to the professional investment
management services offered by Jensen Investment Management, Inc., which serves
as the investment adviser to the Fund. See "Management of the Fund" and
"Investment Advisory and Other Services" in this Statement of Additional
Information for more information about the investment adviser.
INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment objective is long-term capital
appreciation.
The prospectus discusses the types of securities in which the Fund will
invest, and describes the Fund's investment objectives and strategies. See
"Investment Objective, Principal Investment Strategies, and Primary Risks" in
the prospectus. This Statement of Additional Information contains information
supplemental to the prospectus concerning the techniques and operations of the
Fund, the securities the Fund will invest in, and the policies the Fund will
follow.
Commercial Paper Ratings
Moody's and S&P are private services that provide ratings of the credit
quality of commercial paper. A description of the ratings assigned to commercial
paper by Moody's and S&P are included as Appendix A to this Statement of
Additional Information. The Fund may purchase commercial paper that is rated P-1
by Moody's or A-1 by S&P and demand notes issued by companies whose commercial
paper receives such ratings.
ADRs
The Fund may invest in certain foreign securities, directly and by
purchasing American Depository Receipts ("ADRs"). In addition, the Fund invests
in domestic companies that engage in substantial foreign business. Some of the
risk factors associated with such investments are described in the prospectus
under "Primary Risks--International Risks, Foreign Securities and ADRs." This
information supplements the information about ADRs contained in the prospectus.
Generally, ADRs are denominated in United States dollars and are
publicly traded on exchanges or over-the-counter in the United States. ADRs are
receipts issued by domestic banks or trust companies evidencing the deposit of a
security of a foreign issuer.
<PAGE>
ADRs may be issued in sponsored or unsponsored programs. In sponsored
programs, an issuer has made arrangements to have its securities trade in the
form of ADRs. In unsponsored programs, the issuer may not be directly involved
in the creation of the program. 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. The Fund will acquire only ADRs issued
in sponsored programs.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions set forth
below. These restrictions may not be changed without the approval of the
shareholders. Any change must be approved by the lesser of
(1) 67 percent or more of the Fund's shares present at a
shareholder meeting if the holders of more than 50 percent of the Fund's
outstanding shares are present in person or by proxy, or
(2) more than 50 percent of the Fund's outstanding shares.
In accordance with these restrictions, the Fund may not:
1. At the close of any fiscal quarter, have less than 50 percent of its
total assets represented by (i) cash and cash equivalents permitted by Section
851 of the Internal Revenue Code of 1986, as amended (the "Code"), and
government securities and (ii) other securities limited, in respect of any one
issuer, to an amount not greater in value than 5 percent of the value of the
total assets of the Fund and to not more than 10 percent of the outstanding
voting securities of such issuer.
Compliance with the Fund's policy limiting to 5% the amount of assets
that may be invested in any one issuer is measured at the close of each fiscal
quarter. The percentage of Fund assets in any one issuer could amount to more
than 5% due to market appreciation of the Fund's investment. Changes to
valuations between measurement dates will not necessarily affect compliance with
this policy. The Fund's investment in any one issuer will not, however, exceed
25 percent of the value of the Fund's total assets at the close of any fiscal
quarter.
2. Retain more than 10 percent of its assets in "Cash or Cash
Equivalents" (as defined in the Fund's Bylaws and described in the prospectus
under "Investment Objective Principal Investment Strategies and Primary Risks
--Fundamental Investment Policies"), except that the proceeds of any newly
issued shares of the Fund may remain in Cash or Cash Equivalents for up to 30
days after receipt.
3. Invest in any assets that are not either (a) "Cash or Cash
Equivalents" or (b) "Eligible Equity Securities" (as those terms are defined in
the Fund's Bylaws and described
2
<PAGE>
in the Fund's prospectus under "Investment Objective, Principal Investment
Strategies, and Primary Risks").
4. Retain 25 percent or more of the Fund's total assets in any one
industry. (The Fund generally will use the industry classifications provided by
VALUE LINE in determining an issuer's industry. However, when a Value Line
classification is not available for an issuer, the Fund will use the Directory
of Companies Filing Annual Reports with the SEcurities and Exchange Commission,
published by the Securities and Exchange Commission (the "SEC"), to determine
the appropriate industry for that issuer.)
5. Borrow money to invest in securities or for any other purpose,
except that the investment adviser may advance funds to the Fund to pay
organizational expenses and certain other expenses of the Fund, as disclosed in
the prospectus.
6. Purchase securities on margin, except such short-term credits
as are standard in the industry for the clearance of transactions.
7. Make short sales of securities or maintain a short position.
8. Lend portfolio securities.
9. Make loans to any person or entity, except that the Fund may,
consistent with its investment objectives and policies, invest in: (a) publicly
traded debt securities that qualify as Eligible Equity Securities; (b)
commercial paper of less than 30 days' maturity that is rated P-1 by Moody's
Investment Services, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S & P"); and (c) demand notes that are issued by corporations whose commercial
paper receives such ratings, even though the investment in such obligations may
be deemed to be the making of loans. See "Investment Strategies and
Risks--Commercial Paper Ratings" in this Statement of Additional Information.
10. Invest in, or engage in transactions involving, real estate or real
estate mortgage loans; commodities or commodities contracts, including futures
contracts; oil, gas or other mineral exploration or development programs, or
option contracts.
11. Invest in any security that would expose the Fund to unlimited
liability.
12. Underwrite the securities of other issuers, or invest in
restricted or illiquid securities.
13. Invest in securities of other investment companies.
14. Issue any senior securities.
15. Change the investment policies set forth in the Fund's then current
prospectus and Statement of Additional Information, unless at least 30 days'
prior written notice is provided to each shareholder describing each policy
change and the reasons for the change. However, the
3
<PAGE>
restrictions set forth in paragraphs 1 through 14 above may only be changed with
shareholder approval.
PORTFOLIO TURNOVER
The Fund purchases portfolio securities with the expectation of holding
them for long-term appreciation. The Fund will not sell its position in a
portfolio company unless the investment adviser determines that:
o the portfolio company should be replaced with another qualifying
security that has a higher "opportunity factor" (as described in the
Fund's prospectus) or
o the issuer of the security no longer meets one or more of the
investment criteria specified in the Fund's prospectus.
However, if such failure is due to an extraordinary situation that the
investment adviser believes will not have a material adverse impact on the
company's operating performance, the Fund may retain the investment.
Accordingly, the Fund does not expect its annual portfolio turnover generally to
exceed 25 percent. The turnover rate could, however, be significantly higher or
lower depending on the performance of the portfolio companies, the number of
shares of the Fund that are redeemed, or other external factors outside the
control of the Fund and the investment adviser.
In computing the portfolio turnover rate, all securities whose maturity
or expiration dates at the time of acquisition was one year or less are
excluded. The turnover rate is calculated by dividing (a) the lesser of
purchases or sales of portfolio securities for the fiscal year by (b) the
monthly average of the value of the portfolio securities owned by the Fund
during the fiscal year.
The annualized portfolio turnover rate for the past three years is as
follows:
YEAR ENDED MAY 31,
-------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
32.4% 13.9% 20.8%
-------------------------------------------------------------------------------
4
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Fund is managed under the supervision of its Board of Directors,
which consists of six individuals. The Board of Directors is responsible for the
overall management of the Fund, including the general supervision and review of
the Fund's investment policies and activities. The Board of Directors elects the
officers who conduct the day-to-day business of the Fund. The directors are
fiduciaries for the Fund's shareholders and are governed by the laws of the
state of Oregon in this capacity.
The directors and officers of the Fund are listed below, together with
information about their principal business occupations during at least the last
five years:
VAL E. JENSEN(1), 71, is President and a director of the Fund. A
Principal, since 1988, of the investment adviser, which managed assets totaling
approximately $187 million as of July 31, 2000, Mr. Jensen was President of the
investment adviser from 1988 until August 1999, when he was named Chairman. At
July 31, 2000, Mr. Jensen was the beneficial owner of 36.6 percent of the shares
of the investment adviser. Mr. Jensen was employed as President of Jensen
Securities Co., a registered securities brokerage firm, from 1983 to 1990, and
as President of Charter Investment Group, a registered securities brokerage
firm, from 1977 to 1983. Mr. Jensen has over 40 years of experience in the
securities industry, having worked as a trader, broker, underwriter, investment
banker, and senior executive in national and regional brokerage firms. Mr.
Jensen's business address is 2130 Pacwest Center, 1211 SW Fifth Avenue,
Portland, Oregon 97204-3721.
GARY W. HIBLER(1), Ph.D., 56, is Secretary and a director of the Fund.
Dr. Hibler has been employed as a Principal of the investment adviser since 1991
and served as Secretary of the investment adviser from 1994 to August 1999 when
he was appointed President. At July 31, 2000, Dr. Hibler was the beneficial
owner of 24.6 percent of the outstanding shares of the investment adviser. From
1987 to 1991, Dr. Hibler was employed as Director of Operations of several
operating units of Nichols Institute, Inc. of San Juan Capistrano, California, a
publicly held health care company with $150 million of annual revenues in 1991.
From 1974 to 1986, Dr. Hibler was employed as President, Chief Executive Officer
and a director of Medlab, Inc. of Portland, Oregon, a clinical laboratory with
$6 million of annual revenues in 1986. Dr. Hibler's business address is 2130
Pacwest Center, 1211 SW Fifth Avenue, Portland, Oregon 97204-3721.
ROBERT F. ZAGUNIS(1), 46, is Vice President and a director of the Fund.
Mr. Zagunis has been employed as Vice President and Principal of the Fund's
investment adviser since
(1) This person is an "interested person" of the Fund, as defined in the
Investment Company Act of 1940 as amended. He receives no director
fee, salaries, pension or retirement benefits from the Fund.
5
<PAGE>
January 1993. At July 31, 2000, Mr. Zagunis also was
the beneficial owner of 18.9 percent of the outstanding shares of the investment
adviser. For more than 15 years before joining the investment adviser, Mr.
Zagunis was employed in various commercial banking positions. He was employed by
The Bank of California from 1987 to January 1993, most recently as Vice
President and Loan Officer. Mr. Zagunis was on the Finance Committee for the
State of Oregon Economic Development Department from 1990 to 1993, serving as
its Chair during 1993. Mr. Zagunis' business address is 2130 Pacwest Center,
1211 SW Fifth Avenue, Portland, Oregon 97204-3721.
ROGER A. COOKE, 52, is a director of the Fund. Mr. Cooke has been the
Vice President, Regulatory and Legal Affairs for Precision Castparts Corp., a
worldwide manufacturer of complex metal components and products, since April
2000. Prior to joining Precision Castparts, Mr. Cooke had been the Executive
Vice President, Regulatory and Legal Affairs for Fred Meyer, Inc., a regional
retailer of food, apparel, fine jewelry and products for the home, since
September 1998, and served as Fred Meyer's Vice President, General Counsel and
Secretary from August 1992 to September 1998. Before joining Fred Meyer,
Mr. Cooke was the Deputy General Counsel and Secretary of Pan American World
Airways, Inc. from 1981 to 1990, and Pan Am's Senior Vice President and General
Counsel from 1990 to 1992. From 1973 to 1980, he was associated with the law
firm Simpson Thacher and Bartlett. Mr. Cooke's business address is 4650 SW
Macadam Avenue, Suite 440, Portland, Oregon 97201.
LOUIS B. PERRY, Ph.D., 82, is a director of the Fund. Dr. Perry was
Chairman of Standard Insurance Company from 1983 to 1985, when he retired, and
he was President of that company from 1972 to 1983. From 1959 to 1967, Dr. Perry
was President of Whitman College in Walla Walla, Washington. He was an Honorary
Overseer of Whitman College from 1967 to 1991, and he has served on its Board of
Overseers since 1991. Dr. Perry served as a director of several publicly traded
companies, including Flight Dynamics, Inc., a manufacturer of instrument panel
display devices for commercial aircraft, from 1982 to 1992, Pacificorp, an
diversified energy company, from 1969 to 1989, Tektronix, Inc., a global
hi-technology company, from 1973 to 1988, First National Bank of Oregon from
1969 to 1988, Willamette Industries, a wood-products company, from 1971 to 1990,
and Standard Insurance Co., a mutual insurance company, from 1967 to 1990, and
served as a director of the Fund's investment adviser from January 1991 to April
1992. Dr. Perry's business address is 1585 Gray Lynn Drive, Walla Walla,
Washington 99362.
NORMAN W. ACHEN, J.D., 79, is a director of the Fund. He has been the
senior member of the health care investment and management consulting firm, The
Achen Group, since 1992, and Chairman and Chief Executive Officer of Duplicate
Golf, Inc. since 1993. He was a consultant to Nichols Institute, Inc. from 1991
to 1993, and was a director of Nichols Institute from 1981 to 1993. Mr. Achen
served as President and Chief Executive Officer of Nichols Institute Regional
Laboratories and Treasurer of Nichols Institute between 1985 and 1991. He
founded Overland Bank, Temecula, California, in 1982 and served as its Chairman
until he retired from that position in 1991. He is Chairman and Chief Executive
Officer of International Medical Devices Partners, Inc., where his business
address is 43805 Villa del Sur, Temecula, California 92390.
6
<PAGE>
Each director of the Fund is elected to serve until the director's
successor is duly elected and qualifies.
COMPENSATION
The Fund's directors and officers who are affiliated with the
investment adviser are not separately compensated for their services as
directors or officers of the Fund. The Fund pays each of its directors who are
not "interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), a fee of $5,000 per year, plus $500 for
each meeting attended in person and $250 for each telephonic meeting attended.
Directors also are reimbursed for any expenses incurred in attending meetings.
For the fiscal year ended May 31, 2000, expense reimbursements totaled $2,708
for the disinterested directors.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Compensation Pension or Retirement Benefits
Director From the Fund Accrued as Part of Fund Expenses Total Compensation
-------------------------- --------------------------- ------------------------------------ ------------------------
<S> <C> <C> <C>
Norman W. Achen $6,750 None $6,750
------------------------- --------------------------- ------------------------------------ ------------------------
Louis B. Perry $7,000 None $7,000
-------------------------- --------------------------- ------------------------------------ ------------------------
Roger A. Cooke $7,500 None $7,500
-------------------------- --------------------------- ------------------------------------ ------------------------
</TABLE>
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
CONTROL PERSONS
As of August 31, 2000, there were no control persons of the Fund. The
term "control" means:
o the beneficial ownership, either directly or through one or more
controlled companies, of more than 25% of the voting securities of a
company;
o the acknowledgment or assertion by either the controlled or controlling
party of the existence of control; or
o a final adjudication under section 2(a)(9) of the 1940 Act that control
exists.
PRINCIPAL SHAREHOLDERS
As of August 31, 2000, to the knowledge of the Fund, no person owned of
record or beneficially more than 5 percent of the Fund's outstanding shares
except the following shareholders:
7
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Number of Approximate Percentage of
Beneficial Owner Shares Outstanding Shares
---------------------------------------- ---------------------- ------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette(1) 567,844 39.5%
Pershing Division
Attn: Wing Liang
Mutual Fund Trading Manager
PO Box 2052
Jersey City, New Jersey
---------------------------------------- ---------------------- ------------------------------------
Douglas Walta, M.D.(2) 122,608 8.5%
3415 SW Heather Lane
Portland, Oregon 97201
---------------------------------------- ---------------------- ------------------------------------
Richard L. Knipe(3) 83,724 5.8%
61875 Broken Top Drive #5
Bend, Oregon 97702
---------------------------------------- ---------------------- ------------------------------------
Alan James(3) 74,881 5.2%
Citadel House
19548 S. Lyons Road
Oregon City, Oregon 97045-9623
---------------------------------------- ---------------------- ------------------------------------
</TABLE>
(1) All shares reported are owned of record only.
(2) Of the shares reported, Dr. Walta is the record and beneficial
owner of 42,458 shares and the beneficial owner of an
additional 80,150 shares which are held in trust under an
agreement with G.I. Clinic for the benefit of Dr. Walta.
(3) All shares reported are owned of record and beneficially.
MANAGEMENT OWNERSHIP
As of August 31, 2000, the Fund's officers and directors as a group
owned of record or beneficially 121,374, or 8.4% of the Fund's shares.
THE INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Jensen Investment Management, Inc. is the investment adviser to the
Fund. The investment adviser entered into a Restated Investment Advisory and
Service Contract dated July 13, 1993 with the Fund. Under the advisory
agreement, the investment adviser reviews the portfolio of securities and
investments in the Fund, and advises and assists the Fund in the
8
<PAGE>
selection, acquisition, holding or disposal of securities and makes
recommendations withrespect to other aspects and affairs of the Fund. The
investment adviser is also responsible for placing orders for the purchase and
sale of the Fund's investments directly with the issuers or with brokers or
dealers selected by the investment adviser. See "Brokerage Allocation and Other
Portfolio Transactions" in this Statement of Additional Information. Additional
information about the services provided by the investment adviser to the Fund is
described under "Management of the Fund" in the Fund's prospectus.
MANAGEMENT OF THE INVESTMENT ADVISER
Val E. Jensen, Gary W. Hibler and Robert F. Zagunis are officers and
directors of the investment adviser. See "Management of the Fund" in this
Statement of Additional Information for information about them. The Fund's
investment adviser has one other director. He is Robert G. Millen.
Robert G. Millen, 53, was appointed as Principal of the investment
adviser in July 2000. Mr. Millen has over 28 years of experience in banking and
financial services, serving most recently as Vice President of Principal
Financial Group, the seventh largest insurance company in the United States,
from 1997 to June 2000. Prior to that, Mr. Millen was the Group Vice President
from 1990 to 1997 for Wellmark Inc., a $1.5 billion managed health care and
financial services company. Mr. Millen's other experience includes serving as
President of First Interstate Bank N.A. in Des Moines, Iowa and senior
management positions at Norwest Bank N.A., also in Des Moines, Iowa. His primary
responsibilities for the Fund are marketing and account management.
Mr. Val Jensen, the Chairman and Principal of the investment adviser,
together with his wife, Mary Ellen Jensen, is the beneficial owner of 36.6
percent of the outstanding stock of the investment adviser. Accordingly,
Mr. Jensen controls the investment adviser.
As compensation for its services under the Advisory Agreement, the
investment adviser receives a monthly fee at the annual rate of 0.50 percent of
the average daily net assets of the Fund. The advisory fee paid to the
investment adviser for the services provided to the Fund for the past three
fiscal years was as follows:
YEAR ENDED MAY 31,
-------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
$131,261 $111,145 $87,402
Except for the expenses paid by the investment adviser (which are
described in the Fund's prospectus), the Fund bears all costs of its operations.
The investment adviser has guaranteed that the expenses payable by the Fund will
not exceed certain specified limits, as described in the prospectus.
Accordingly, the investment adviser is required to reimburse certain expenses
paid by the Fund or, alternatively, waive a portion of its management fee if the
Fund's expenses exceeded those limits. For the fiscal years ended May 31, 1998,
1999 and 2000, the ratio of expenses to average net assets was less than the
expense limit set by the investment adviser.
9
<PAGE>
Accordingly, none of the investment adviser's management fee was waived for
1998, 1999 and 2000.
In addition, at its discretion, the investment adviser may voluntarily
reduce its management fee or reimburse the Fund for certain expenses in order to
keep the Fund's expenses at levels competitive with other funds. The investment
adviser voluntarily waived $4,043 of its management fee for 1997. For the Fiscal
years ended May 31, 1998 ,1999, and 2000 the investment adviser made no
voluntary reimbursement of any Fund expenses and did not waive any portion of
its management fee.
The advisory agreement provides that, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations thereunder, the investment adviser is not liable for any act or
omission in the course of, or in connection with, the rendering of services
under the advisory agreement. The advisory agreement does not restrict the
ability of the investment adviser to act as investment adviser for any other
person, firm or corporation, and the investment adviser advises other individual
and institutional investors. The investment adviser does not advise any other
mutual fund.
The advisory agreement continues in effect from year-to-year, if such
continuance is approved annually by (1) the Board of Directors of the Fund, or
(2) a vote of the majority of the outstanding voting shares of the Fund. In
either event, continuance must also be approved by a majority of the Board of
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) by vote cast in person at a meeting called for the purpose of voting on
such approval. The advisory agreement is terminable without penalty on not less
than 60 days' written notice by the Board of Directors of the Fund, by vote of
the majority of the outstanding voting shares of the Fund, or upon not less than
60 days' written notice by the investment adviser. The advisory agreement
terminates automatically upon assignment as defined in the 1940 Act. In
addition, the advisory agreement provides that, in the event of a material
change in the management or ownership of the investment adviser, whether caused
by death, disability or other reason, the Fund's Board of Directors is required
to meet as soon as practicable after such event to consider whether another
investment adviser should be selected for the Fund. In such event, the advisory
agreement may be terminated without any prior notice.
The advisory agreement reserves to the investment adviser the right to
grant the use of a name similar to the Fund's name to another investment company
or business enterprise without approval of the Fund's shareholders and reserves
the right of the investment adviser to withdraw from the Fund the use of the
Fund's name. However, if the investment adviser chooses to withdraw from the
Fund the use of the Fund's name, at the time of such withdrawal, the investment
adviser would have to submit to the Fund's shareholders the question of whether
they wish to continue the advisory agreement.
As used in this Statement of Additional Information and in the Fund's
prospectus, when referring to approval of the advisory agreement to be obtained
from shareholders of the Fund, the term "majority" means the vote, at any
meeting of the shareholders, of the lesser of
10
<PAGE>
(1) 67 percent or more of the Fund's shares present at such
meeting, if the holders of more than 50 percent of the Fund's
outstanding shares are present in person or by proxy, or
(2) more than 50 percent of the Fund's outstanding shares.
ADMINISTRATOR
Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, the Fund's administrator, performs administrative functions for
the Fund in addition to services it provides as the Fund's transfer agent and
dividend disbursing agent. The administrative duties it performs include:
o compiling data for the Fund
o assisting in updating the Fund's prospectus, Statement of Additional
Information, proxy statements, if any, and notices to the SEC required
pursuant to Rule 24f-2 under the 1940 Act
o preparing Semiannual Reports on Form N-SAR
o preparing and filing all federal and state tax returns and required tax
filings, other than those required to be made by the Fund's custodian
and transfer agent
o preparing compliance filings pursuant to state securities laws
o preparing financial statements for the Fund's Annual and Semiannual
Reports to Shareholders with the advice of the Fund's auditors, as
needed, and assisting in editing these reports if requested by the
investment adviser
o monitoring the Fund's expense accruals
o monitoring the Fund's status as a regulated investment company under
Subchapter M of the Code
o maintaining the Fund's fidelity bond as required by the 1940 Act
o periodically monitoring the Fund's compliance with the 1940 Act and the
investment limitations of the Fund as set forth in the Fund's
prospectus and
o generally assisting in the Fund's administrative operations.
For these services, the administrator receives a monthly fee equal to
0.05 percent on an annual basis of the first $100 million of the Fund's average
daily net assets for the year. The monthly fee is reduced to 0.04 percent of the
Fund's net assets in excess of $100 million
11
<PAGE>
and further reduced to 0.03 percent of such net assets in excess of $500
million, subject to an annual minimum of $25,000.
The administrator is relieved of liability to the Fund for any act or
omission in the course of its performance under the administration agreement, so
long as the administrator acts in good faith and is not negligent or guilty of
any willful misconduct. The administration agreement continues in effect from
year-to-year. The agreement, however, may be terminated by the Fund or by the
administrator without penalty after at least 90 days' written notice.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Firstar Bank, N.A. serves as the custodian of the Fund's cash and
securities, Firstar Mutual Fund Services, LLC serves as the Fund's transfer
agent and dividend disbursing agent. The transfer agent processes requests for
the purchase or redemption of the Fund's shares, sends statements of ownership
to shareholders, and performs other administrative duties on behalf of the Fund.
The transfer agent does not play any role in establishing the investment
policies of the Fund or in determining which securities are to be purchased or
sold by the Fund. All fees and expenses of the transfer agent are paid by the
Fund. For its custodial services to the Fund, the custodian receives monthly
fees based upon the Fund's month-end, aggregate NAV, plus certain charges for
securities transactions. For its services as transfer agent and dividend
disbursing agent, the transfer agent receives fees from the Fund based upon the
number of shareholder accounts maintained and the number of transactions
effected. The transfer agent is also reimbursed by the Fund for out-of-pocket
expenses.
Firstar Mutual Fund Services, LLC also serves as the administrator to
the Fund. The fees paid for the administrative services it performs are
described under "Investment Advisory and Other Services--Administrator" in this
Statement of Additional Information.
BROKERAGE ALLOCATION AND OTHER PORTFOLIO TRANSACTIONS
GENERAL CONSIDERATIONS
The Fund's investment adviser is responsible for the execution of the
Fund's portfolio transactions and the allocation of brokerage transactions. When
placing purchase and sale orders, the investment adviser's primary objective is
to obtain the best net results for the Fund, taking into account all factors it
deems relevant, including
o price (including the applicable brokerage commission or dealer spread) and the
size of the transaction
o the nature of the market for the security o the difficulty of execution
o the timing of the transaction taking into account market prices and trends
o the reputation, experience and financial stability of the broker involved and
o the quality of service rendered by the broker in other transactions.
12
<PAGE>
The Fund has no pre-existing obligations to deal with any broker or group of
brokers in the execution of portfolio transactions. However, the investment
adviser has selected a broker through which most of its transactions are
effected. To the knowledge of the Fund's management, no director or officer of
the Fund has any material direct or indirect interest in any broker that will
effect the Fund's portfolio transactions. The Fund paid the following amounts in
brokerage commissions during the past three fiscal years:
YEAR ENDED MAY 31,
-------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
$6,733 $2,717 $3,068
The Fund's investment philosophy generally results in a low portfolio turnover
rate due to the relatively few portfolio transactions during any period, other
than those required by the purchase or sale of Fund shares.
Although the investment adviser may place brokerage business with firms
that provide research, market and statistical services to the investment
adviser, the Fund will not pay any of those brokers any amount of commission for
effecting a securities transaction that exceeds the normal commission the broker
would have received if those research services had not been provided. Similarly,
the Fund will not "pay-up" for research services in principal transactions. In
other words, the investment adviser does not engage in any "soft-dollar"
arrangements.
Even though investment decisions for the Fund are made independently
from those of other accounts managed by the investment adviser, securities of
the same issuer may be purchased, held or sold by the Fund and the other
accounts, because the same security may be suitable for all of them. When the
Fund and such other accounts are simultaneously engaged in the purchase or sale
of the same security, efforts will be made to allocate price and amounts in an
equitable manner. In some cases, this procedure may adversely affect the price
paid or received by the Fund or the size of the position purchased or sold by
the Fund. In other cases, we believe that coordination and the ability to
participate in larger transactions will be beneficial to the Fund.
CAPITAL STOCK
The Fund was incorporated under Oregon law on April 17, 1992. The Fund
has an authorized capital of 100,000,000 shares of Common Stock, par value $.001
per share. All shares are of the same class. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.
Shareholders vote on the election of directors when required by the 1940 Act and
on any other matter properly submitted to a shareholder vote. Shares issued are
fully paid and nonassessable and have no preemptive or conversion rights. Each
share is entitled to participate equally in dividends and distributions declared
by the Fund and in the net assets of the Fund upon liquidation or dissolution
after satisfaction of outstanding liabilities.
13
<PAGE>
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Information concerning the purchase and redemption of the Fund's shares
is set forth under "How to Buy Fund Shares" and "How to Redeem Fund Shares" in
the Fund's prospectus.
PURCHASES AND REDEMPTIONS
Shares are directly sold by the Fund on a continuous basis. Shares may
also be purchased or sold through certain broker-dealers, financial institutions
or other service providers, as described in the Fund's prospectus. The Fund does
not charge any sales load or commission in connection with the purchase of
shares.
Although the Fund and investment adviser have established a minimum
investment amount of $1,000, either, in its sole discretion, may approve smaller
amounts for certain investors.
The Fund reserves the right to suspend or postpone redemptions during
any period when:
(1) trading on the New York Stock Exchange (the "NYSE") is closed
for other than customary weekend and holiday closing, or
restricted as determined by the SEC
(2) the SEC has by order permitted the Fund to suspend redemptions
or
(3) an emergency exists, as determined by the SEC, which makes the
disposal of the Fund's portfolio securities or a determination
of the net asset value of the Fund's shares not reasonably
practicable.
The Fund may institute a policy that requires the automatic redemption
of Fund shares if a shareholder's account balance drops below a certain amount
as a result of redemptions by the shareholder. If an automatic redemption policy
is adopted, the Fund may not cause a redemption to occur if the decrease in a
shareholder's account balance was caused by any reason other than a
shareholder's redemption of Fund shares. As of the date of this Statement of
Additional Information, the Fund has not adopted a policy imposing the automatic
redemption of a shareholder's account if it falls below a certain amount.
Authorization for adopting and implementing such a policy rests with the Fund's
Board of Directors if the Board determines that an automatic redemption policy
is in the best interests of the Fund and its shareholders.
In addition, the Fund may require the redemption of shares if, in its
opinion, such action would prevent the Fund from becoming a personal holding
company, as defined by the Internal Revenue Code of 1986, as amended (the
"Code").
None of the Fund, the investment adviser or the transfer agent will be
liable for any loss or expense of effecting redemptions upon any instructions
believed by them to be genuine and in accordance with the procedures described
in the Fund's prospectus.
14
<PAGE>
PRICING OF FUND SHARES
As indicated in the Fund's prospectus, the Fund's net asset value
("NAV") per share is determined as of the close of business on the NYSE
(currently, 4 p.m. Eastern time) on each day the NYSE is open for trading. NAV
will not be determined on the following holidays: New Year's Day, Martin Luther
King's Birthday, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund's NAV per share is computed by dividing the value of the
securities held by the Fund, plus any cash or other assets (including interest
and dividends accrued but not yet received), minus all liabilities (including
accrued expenses), by the total number of shares outstanding at such time.
Expenses, including the fees payable to the investment adviser, are accrued
daily as is practicable. Dividends receivable are treated as assets from the
date on which securities go ex-dividend and interest on bonds or other
interest-bearing securities is accrued daily.
Securities that are listed on United States stock exchanges are valued
at the last sale price on the day the securities are valued or, if there has
been no sale on that day, at the average of the last available bid and asked
prices. Quotations are taken from the market in which the security is primarily
traded. Over-the-counter securities are valued at the average of the current bid
and asked prices. Securities for which market quotations are not readily
available are valued at fair value as determined by the investment adviser by or
under the direction of the Fund's Board of Directors. Notwithstanding the above
procedures, fixed-income securities may be valued on the basis of prices
provided by an established pricing service when the Board believes that such
prices reflect market values.
TAXATION OF THE FUND
The Fund expects to qualify continuously as a regulated investment
company under Part I of Subchapter M of the Code. To qualify as a regulated
investment company, the Fund must satisfy a gross income test and certain
diversification tests. Generally, shareholders of the Fund will be subject to
federal income tax with respect to distributions from the Fund. As a regulated
investment company, the Fund will generally not be subject to federal income tax
to the extent the Fund distributes its net investment income and net capital
gain to you.
TAX STATUS OF THE FUND
To qualify as a regulated investment company for any taxable year, the
Fund must, among other things: (a) derive at least 90 percent of its gross
income from dividends, interest, payments with respect to securities loans, gain
from sale or other disposition of stock or securities, and certain other types
of income (the "90 Percent Test"); and (b) diversify its holdings so that, at
the end of each fiscal quarter: (i) the Fund holds cash, government securities
and securities of other regulated investment companies and other securities that
represent at least 50 percent of the value of all Fund assets, (ii) the other
securities of any one issuer constitute no more than 5 percent of the value of
the assets of the Fund and 10 percent of the outstanding
15
<PAGE>
voting securities of the issuer, and (iii) no more than 25 percent of the
value of the assets of the Fund is invested in the securities (other than
government securities or the securities of other regulated investment companies)
of any one issuer or of two or more issuers that the Fund "controls" within the
meaning of Section 851 of the Code and that meet certain other criteria. In
addition, the Fund must file, or have filed, a proper election with the Internal
Revenue Service.
Generally, to qualify for flow-through tax treatment the Fund must
distribute at least 90 percent of its "investment company taxable income" which
includes, among other items, dividends, interest and net short-term capital gain
in excess of net long-term capital loss, computed without any deduction for
dividends paid.
A regulated investment company, such as the Fund, that meets the
requirements described above is taxed on its investment company taxable income,
to the extent such income is not distributed to the shareholders of the Fund. In
addition, any excess of net long-term capital gain over net short-term capital
loss that is not distributed is taxed to the Fund at corporate rates.
If the Fund retains any net long-term capital gain in excess of net
short-term capital loss and pays federal income tax on such excess, it may elect
to treat such capital gain as having been distributed to shareholders. If the
Fund elects this treatment, shareholders
o will be taxed on such amounts as long-term capital gain
o may claim their proportionate share of the federal income tax paid by
the Fund on such gain as a credit against their own federal income tax
liabilities, and
o generally will be entitled to increase the adjusted tax basis of their
shares in the Fund by the differences between their pro rata shares of
such gains and their tax credits.
The Fund may be liable for a special tax if it fails to make sufficient
distributions during the calendar year. The required distributions for each
calendar year generally equal the sum of (a) 98 percent of the ordinary income
for the calendar year plus (b) 98 percent of the capital gain net income for the
one-year period that ends on October 31 during the calendar year, plus (c) an
adjustment relating to any shortfall for the prior taxable year. If the actual
distributions are less than the required distributions, a tax of 4 percent
applies to the shortfall.
If the Fund were unable to continue to qualify as a regulated
investment company for any reason, it would become liable for federal income tax
on its net income (and, possibly, other taxes) for the taxable year or years in
which it fails to qualify. Moreover, distributions to shareholders for such
period(s) would be treated as dividends taxable as ordinary income--to the
extent of the Fund's current and accumulated earnings and profits--even though
all or part of such distributions might have qualified for treatment as
long-term capital gain to shareholders had the Fund continued to qualify as a
regulated investment company. In addition, to requalify as a regulated
investment company, the Fund would be required to distribute all of its earnings
for the period(s) during which it did not so qualify and, in some circumstances,
the Fund might be required to recognize gain and pay tax on the net appreciation
in its portfolio as of the time immediately before it requalifies as a regulated
investment company.
16
<PAGE>
There can be no assurance that the requirements for regulated
investment company treatment will be met by the Fund in all possible
circumstances.
TAXATION OF FUND DISTRIBUTIONS
Distributions paid out of the Fund's investment company taxable income
are taxable to shareholders as ordinary income. Because a portion of the Fund's
income may consist of dividends paid by U.S. corporations, a portion of the
distributions paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions properly designated by the Fund as
representing the excess of net long-term capital gain over net short-term
capital loss are taxable to shareholders as long-term capital gain, regardless
of the length of time shareholders have held shares of the Fund. For
noncorporate taxpayers, the highest rate that applies to long-term capital gain
is significantly lower than the highest rate that applies to ordinary income.
Any loss that is realized and allowed on redemption of shares of the Fund less
than six months from the date of purchase of such shares and following the
receipt of a capital gain dividend will be treated as a long-term capital loss
to the extent of the capital gain dividend. The Code contains special rules on
the computation of a shareholder's holding period for this purpose.
Distributions will be taxable as described above, whether paid in
shares or in cash. Each distribution will be accompanied by a brief explanation
of the form and character of the distribution. Shareholders will be notified
annually as to the federal income tax status of distributions, and shareholders
receiving distributions in the form of newly-issued shares will receive a report
as to the NAV of the shares received.
A distribution may be taxable to a shareholder even if the distribution
reduces the NAV of the shares held below their cost (and is in an economic sense
a return of the shareholder's capital). This is more likely when shares are
purchased shortly before an annual distribution of capital gain or other
earnings.
OTHER TAX CONSIDERATIONS
Generally, the Fund must obtain from each shareholder a certification
of the shareholder's taxpayer identification number and certain other
information. The Fund generally will not accept an investment to establish a new
account that does not comply with this requirement. If a shareholder fails to
certify such number and other information, or upon receipt of certain notices
from the Internal Revenue Service, the Fund may be required to withhold 31
percent of any reportable interest or dividends, or redemption proceeds, payable
to the shareholder, and to remit such sum to the Internal Revenue Service for
credit toward the shareholder's federal income taxes. A shareholder's failure to
provide a social security number or other tax identification number may subject
the shareholder to a penalty of $50 imposed by the Internal Revenue Service. In
addition, that failure may subject the Fund to a separate penalty of $50. This
penalty will be charged against the shareholder's account, which may then be
closed. Any such closure of the account may result in a capital gain or loss to
the shareholder.
If the Fund declares a dividend in October, November or December
payable to the shareholders of record on a certain date in such a month and pays
the dividend during January of
17
<PAGE>
the following year, the shareholders will be taxed as if they had received
the dividend on December 31 of the year in which the dividend was declared.
Thus, a shareholder may be taxed on the dividend in a taxable year prior to the
year of actual receipt.
The Code allows the deduction by certain individuals, trusts, and
estates of "miscellaneous itemized deductions" only to the extent that such
deductions exceed 2 percent of the taxpayer's adjusted gross income. The limit
on miscellaneous itemized deductions does not apply, however, with respect to
the expenses incurred by any "publicly offered regulated investment company."
The Fund believes that it is a publicly offered regulated investment company
because its shares are continuously offered pursuant to a public offering
(within the meaning of section 4 of the Securities Act of 1933, as amended).
Therefore, the limit on miscellaneous itemized deductions should not apply to
expenses incurred by the Fund.
A redemption of shares of the Fund may result in taxable gain or loss
to the redeeming shareholder, depending upon whether the redemption proceeds
payable to the shareholder are more or less than the shareholder's adjusted
basis for the redeemed shares.
ADDITIONAL INFORMATION
The foregoing summary and the summary included in the prospectus under
"Dividends, Distributions and Taxes" of the tax consequences of an investment in
the Fund is necessarily general and abbreviated. No attempt has been made to
present a complete or detailed explanation of tax matters. Furthermore, the
provisions of the statutes and regulations on which these summaries are based
are subject to prospective or retroactive change by legislative or
administrative action. State and local taxes are beyond the scope of this
discussion. Prospective investors in the Fund should consult their own tax
advisers regarding federal, state or local tax matters.
PERFORMANCE INFORMATION
The Fund's prospectus contains a brief description of how the Fund's
total return is calculated. Total return is the total of all income (less
expenses) and capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in value of the original investment,
expressed as a percentage of the purchase price.
Because performance comparisons are almost universally offered by the
mutual fund industry, from time to time the Fund will discuss its total return
performance figures in advertisements or marketing materials. The Fund's total
return performance figures may appear alone, or in relation to recognized common
stock indexes such as the Dow Jones Industrial Average or the S&P 500 Stock
Index, or in relation to performance ratings published by recognized mutual fund
statistical services such as Lipper Analytical Services, or by publications such
as FORBES or THE ECONOMIST magazines.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of
18
<PAGE>
1, 5, and 10 years (up to the life of the Fund). These are the annual total
rates of return that would equate the initial amount invested to the ending
redeemable value. These rates of return are calculated pursuant to the following
formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years and
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the period.
All total return figures reflect the deduction of a proportional share of Fund
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the period on which the calculations
are based. Performance information should be considered in light of the Fund's
investment objectives and policies, characteristics and quality of the portfolio
and the market conditions during the relevant period and should not be
considered as a representation of results that may be achieved in the future.
The Fund's total return for the fiscal year ended May 31, 2000 was
27.65 percent. The Fund's average annual total return for the five-year period
ended May 31, 2000 was 21.53 percent. The Fund's average annual total return
from August 3, 1992 (commencement of operations) to May 31, 2000 was 13.73
percent.
GENERAL INFORMATION
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, Portland, Oregon, 1300 SW Fifth Avenue,
Suite 3100, Portland, Oregon 97201-5687 has been selected as independent
accountants for the Fund for its fiscal year ending May 31, 2001. In addition to
reporting annually on the financial statements of the Fund, the Fund's
accountants will review certain of the Fund's filings which are filed with the
SEC.
LIMITATION OF DIRECTOR LIABILITY
The Fund's Articles of Incorporation and Bylaws include provisions that
limit the personal liability of the Fund's directors to the Fund or its
shareholders for monetary damages for conduct as a director. The provisions
eliminate such liability to the fullest extent permitted by law. Oregon law
permits elimination of such liability, except in the following cases: (i) any
breach of the director's duty of loyalty to the Fund or its shareholders; (ii)
acts or omissions not in good faith or which involved intentional misconduct or
a knowing violation of law; (iii) any
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unlawful distribution, as defined by Oregon law; or (iv) any transaction
from which the director derived an improper personal benefit. The general effect
of the provisions is to eliminate monetary damages as one of the remedies
available to shareholders for enforcement of a director's duty of care. As a
result, shareholders may be left without any means to recover a loss suffered as
a result of the negligence or gross negligence of directors in discharging their
duty of care.
REGISTRATION STATEMENT
This Statement of Additional Information and the Fund's prospectus do
not contain all the information included in the Fund's Registration Statement
filed with the SEC under the Securities Act of 1933, as amended, with respect to
the shares offered hereby. Certain portions of the Registration Statement have
been omitted from the prospectus and Statement of Additional Information
pursuant to the rules and regulations of the SEC. The Registration Statement,
including the exhibits filed therewith, may be examined at the offices of the
SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
Registration Statement, including exhibits, and each such statement is qualified
in all respects by this reference.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year ended
May 31, 2000, and the report of the Fund's independent accountants in connection
therewith, are included in the Fund's 2000 Annual Report to Shareholders, which
is incorporated by reference into this Statement of Additional Information. A
copy of the Annual Report to Shareholders may be obtained from the Fund upon
request and without charge.
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APPENDIX A
COMMERCIAL PAPER RATINGS
Prime 1 (P-1) and A-1 are the highest commercial paper ratings issued
by Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's Corporation
("S & P"), respectively.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Issuers within the Prime category may be given ratings 1, 2 or 3,
depending on the relative strengths of certain factors. Among the factors
considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer
(2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative type risks which may be inherent in certain
areas
(3) evaluation of the issuer's products in relation to competition and customer
acceptance;
(4) liquidity
(5) amount and quality of long-term debt
(6) trend of earnings over a period of ten years
(7) financial strength of a parent company and the relationships which exist
with the issuer and
(8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet
obligations.
DESCRIPTION OF S&P'S COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P has the following characteristics:
(1) liquidity ratios are adequate to meet cash requirements
(2) long-term senior debt should be rated A or better, although in some cases
BBB credits may be allowed if other factors outweigh the BBB
(3) the issuer has access to at least two additional channels of borrowing
(4) basic earnings and cash flow have an upward trend with allowance made for
unusual circumstances
(5) typically, the issuer's industry should be well established and the issuer
should have a strong position in the industry, and the reliability and
quality of management should be unquestioned. Issuers rated A are further
referred to by the use of numbers 1, 2 and 3 to denote relative strength
within this highest classification.
A-1
