---

 

 

PROXY STATEMENT

 

SPECIAL MEETING OF SHAREHOLDERS OF

 

(each a series of Professionally Managed Portfolios)

 

TO BE HELD ON JULY 27, 2009

 

This Proxy Statement is furnished in connection with a solicitation of proxies made by, and on behalf of, the Board of Trustees (the “Board”) of Professionally Managed Portfolios (the “Trust”) to be used at the special meeting of shareholders of the Winslow Green Growth Fund and the Winslow Green Solutions Fund (the “Funds”) and at any adjournments thereof (the “Meeting”), to be held on Monday, July 27, 2009 at 10:30 a.m. Pacific time at the offices of U.S. Bancorp Fund Services, LLC, 2020 E. Financial Way, Suite 100, Glendora, California 91741.

Shareholders of record at the close of business on the record date established as April 30, 2009 (the “Record Date”) are entitled to notice of, and to vote at, the Special Meeting.  The Notice of Special Meeting of Shareholders (the “Notice”), this proxy statement and the enclosed proxy card are being mailed to shareholders on or about [May __, 2009].  The Meeting is being held to vote on the following proposals and to transact such other business as may properly come before the Meeting or any adjournments thereof:

 

PROPOSAL 1.

To Approve An Investment Advisory Agreement Between Brown Investment Advisory Incorporated (“Brown Advisory”) And The Trust, On Behalf Of The Funds.

 

Shareholders of the Funds are being asked to approve a new Investment Advisory Agreement between Brown Advisory and the Trust on behalf of the Funds.

Background

Effective March 31, 2009, Brown Advisory Management LLC (“BAMLLC”) entered into an agreement with Winslow Management Company, LLC (“Winslow”), whereby Winslow would become a wholly-owned subsidiary of BAMLLC.  BAMLLC is a subsidiary of Brown Advisory Holdings Incorporated (“Brown Holdings”).  Brown Holdings has several other SEC-registered investment advisers under its control, including Brown Advisory.  As a result of this transaction, Winslow’s investment management team has become part of Brown Advisory.  Although the transaction will not result in any change to the Funds’ investment strategies or in the portfolio managers responsible for the day-to-day management of the Funds, the transaction does result in a “change in control” of Winslow under applicable law.

Under the Investment Company Act of 1940, as amended (the “1940 Act”), an investment advisory agreement is automatically terminated when an investment adviser undergoes a change in control.  BAMLLC’s acquisition of Winslow on March 31, 2009 terminated Winslow’s Investment Advisory Agreement with the Funds.  Further, under the 1940 Act, a person may act as investment adviser for a Fund under an interim agreement after the termination of a previous agreement if (1) the compensation to be received under the interim agreement is no greater than the compensation the adviser would have received under the previous agreement; and (2) the Board of Trustees, including a majority of the Trustees who are not interested persons of the Fund, has approved the interim agreement before the previous contract is terminated.  In addition, the Fund and the contract must meet certain conditions under Rule 15a-4 under the 1940 Act.

With the change in control of Winslow on March 31, 2009 and the resulting termination of Winslow’s Investment Advisory Agreement with the Funds, the Board was required to take action to approve the necessary interim and final arrangements for the continued management of the Funds by the same portfolio management team under the Brown umbrella.

 

Proxy Statement

1

 

---

 

At a Board meeting held on March 23, 2009, the Board approved an Interim Investment Advisory Agreement with Brown Advisory on behalf of the Funds (“Interim Advisory Agreement”) so that as of March 31, 2009, Brown Advisory began managing the Funds.  The terms of the Interim Advisory Agreement are substantially identical to the terms of Winslow’s recently terminated investment advisory agreement except for the identity of the investment adviser and the commencement date of the agreement.  Additionally, under the Interim Advisory Agreement, management fees earned by Brown Advisory are held in an escrow account until shareholder approval for Brown Advisory as the new investment advisor is obtained.  The Board also approved a final Investment Advisory Agreement with Brown Advisory on behalf of the Funds, subject to shareholder approval.

Accordingly, the Funds need shareholder approval to engage Brown Advisory as the investment adviser on a permanent basis.  If the Funds’ shareholders do not approve Brown Advisory as the investment adviser for the Funds, then Brown Advisory will not be permitted to serve as the Funds’ investment adviser beyond August 28, 2009 and the Board will have to consider other alternatives for the Funds, including the possible liquidation of the Funds.

At the March 23, 2009 Board Meeting, the Board, which is comprised entirely of persons who are not “interested persons” as that term is defined under the 1940 Act (“Independent Trustees”), voted unanimously to approve an interim investment advisory agreement (“Interim Investment Advisory Agreement”) and the proposed new investment advisory agreement (“New Investment Advisory Agreement”), both agreements between Brown Advisory and the Trust, on behalf of the Funds, retaining Brown Advisory as investment adviser for the Funds.  The Board also voted unanimously to recommend that shareholders approve the New Investment Advisory Agreement.

Legal Requirements in Approving the Interim and New Investment Advisory Agreements

To avoid disruption of the Funds’ investment management and after considering the potential benefits to shareholders of engaging Brown Advisory as the Funds’ new investment adviser as discussed more fully below, the Board approved the Interim Investment Advisory Agreement.  In doing so, the Board has determined that it was prudent to act pursuant to the requirements of Rule 15a-4 under the 1940 Act.  Under Rule 15a-4, an adviser can serve pursuant to an interim advisory agreement for up to 150 days while a Fund seeks shareholder approval of a new investment advisory agreement.  Rule 15a-4 imposes the following conditions, all of which were met in the case of the Interim Investment Advisory Agreement:

 

(1)

the compensation under the interim contract may be no greater than under the previous contract;

 

(2)

the Funds’ Board of Trustees, including a majority of the independent trustees, has voted in person to approve the interim contract before the previous contract is terminated;

 

(3)

the Funds’ Board of Trustees, including a majority of the independent trustees, determines that the scope and quality of services to be provided to the Funds under the interim contract will be at least equivalent to the scope and quality of services provided under the previous contract;

 

(4)

the interim contract provides that the Funds’ Board of Trustees or a majority of the Funds’ outstanding voting securities may terminate the interim contract at any time, without the payment of any penalty, on not more than 10 calendar days’ written notice to the adviser;

 

 

Proxy Statement

2

 

 

---

 

 

(5)

the interim contract contains the same provisions as the previous contract with the exception of effective and termination dates, provisions required by Rule 15a-4 and other differences determined to be immaterial by the Funds’ board;

 

(6)

the interim contract provides in accordance with the specific provisions of Rule 15a-4 for the establishment of an escrow account for fees received under the interim contract pending approval of a new contract by shareholders; and

 

(7)

the Board of Trustees satisfies certain fund governance standards under Rule 0-1(a)(7) of the 1940 Act.

 

The Interim Investment Advisory Agreement currently in effect will terminate upon the sooner to occur of (1) August 28, 2009, or (2) the approval by the Fund’s shareholders of the proposed New Investment Advisory Agreement.  Under the Interim Investment Advisory Agreement, the advisory fees earned by Brown Advisory during this interim period will be held in an interest-bearing escrow account at U.S. Bank, N.A.  Fees that are paid to the escrow account, including interest earned, will be paid to Brown Advisory if the Fund shareholders approve the New Investment Advisory Agreement within 150 days of the date of the Interim Investment Advisory Agreement.  If shareholders of the Fund do not approve the New Investment Advisory Agreement within 150 days of the date of the Interim Advisory Agreement, then Brown Advisory will be paid, out of the escrow account, the lesser of: (1) any costs incurred in performing the Interim Investment Advisory Agreement, plus interest earned on the amount while in escrow; or (2) the total amount in the escrow account, plus interest.

The form of the New Investment Advisory Agreement is attached hereto as Exhibit A.  The terms of the New Investment Advisory Agreement are substantially similar to the terms of the Prior Investment Advisory Agreement with respect to services to be provided by Brown Advisory compared to those previously provided by Winslow.  Both the New Investment Advisory Agreement and the Prior Investment Advisory Agreement have identical fee structures.  The material terms of the New Investment Advisory Agreement and Prior Investment Advisory Agreement are compared below in “Summary of the New Investment Advisory Agreement and Prior Investment Advisory Agreement.”

If the Funds’ shareholders do not approve the New Investment Advisory Agreement at the Meeting or at an adjournment of the Meeting, then Brown Advisory will not be able to serve as the Funds’ investment adviser beyond the termination date of the Interim Advisory Agreement, in which case the Board will consider other alternatives and will make such arrangements for the Funds’ investments as it deems appropriate and in the best interests of the Funds, including (without limitation) possibly liquidating the Funds.

Compensation Paid to the Adviser

Under the Prior Investment Advisory Agreement, Winslow was entitled to receive a monthly advisory fee computed at an annual rate of 0.90% of each Fund’s average daily net assets in return for the services provided by Winslow as investment adviser to the Funds.  The fee structure under the New Investment Advisory Agreement and the Interim Investment Advisory Agreement with Brown Advisory will be identical to the fee structure under the Prior Investment Advisory Agreement.  (As described above, under the Interim Investment Advisory Agreement, the fees to be paid to Brown Advisory will be paid to an escrow account.)  For the fiscal year ended December 31, 2008, the Funds paid Winslow investment advisory fees in the amounts shown below.

Winslow also had a separate contractual obligation to the Funds under which it was required to pay Fund expenses or waive its advisory fees to the extent necessary to maintain the Funds’ expense ratios in the amounts shown below.  That agreement, called an Operating Expense Limitation Agreement, terminated simultaneously with the termination of the Prior Investment Advisory Agreement.  Winslow is no longer entitled to recoup any amounts it waived or paid into the Funds under that agreement.

 

Proxy Statement

3

 

---

 

 

Advisory Fees Paid for Fiscal Year Ended December 31, 2008

	Advisory Fee Payable	Advisory Fee Waived	Advisory Fee Retained
Winslow Green Growth Fund	$3,024,596	$99,518	$2,925,078
Winslow Green Solutions Fund	$158,704	$158,704	$0*

*During the fiscal year ended December 31, 2008, Winslow not only waived all of its advisory fees, but it paid $117,694 of the Fund’s other expenses.

 

 

Operating Expense Limitations (as a percentage of average daily net assets)

	Investor Shares	Institutional Shares
Winslow Green Growth Fund	1.45%	1.20%
Winslow Green Solutions Fund	1.25%	1.00%

 

Information about Brown Advisory

Brown Advisory is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended.  Brown Advisory’s principal office is located at 901 S. Bond Street, Suite 400, Baltimore, Maryland 21231, while the Funds’ portfolio management will be performed out of Winslow’s current office located at 99 High Street, 12th Floor, Boston, Massachusetts 02110.  As of April 30, 2009, Brown Advisory managed over $14 billion of investment assets.  Brown Advisory is a wholly-owned subsidiary of Brown Investment & Trust Company, which is a wholly-owned subsidiary of Brown Advisory Holdings Incorporated.

The following table sets forth the name, position and principal occupation of each chief executive officer of Brown Advisory as of April 30, 2009.  Each individual’s address is c/o Brown Advisory, 901 S. Bond Street, Suite 400, Baltimore, Maryland 21231.

Name	Position/Principal Occupation
Michael D. Hankin	President & Director
David M. Churchill	Treasurer & Secretary
Richard M. Bernstein	Director
Geoffrey R. B. Carey	Director
Paul J. Chew	Director
Nancy I. Denney	Chief Compliance Officer

Summary of the New Investment Advisory Agreement and the Prior Investment Advisory Agreement

A copy of the proposed New Investment Advisory Agreement is attached hereto as Exhibit A.  The following description is only a summary; however, all material terms of the New Investment Advisory Agreement have been included in this summary.  You should refer to Exhibit A for the New Investment Advisory Agreement, and the description set forth in this Proxy Statement of the New Investment Advisory Agreement is qualified in its entirety by reference to Exhibit A.  The investment advisory services to be provided by Brown Advisory under the New Investment Advisory Agreement and the fee structure are identical to the services currently provided by Winslow and the fee structure under the Prior Investment Advisory Agreement.

 

Advisory Services.  Both the New Investment Advisory Agreement and Prior Investment Advisory Agreement state that, subject to the supervision of the Board of Trustees of the Funds, the adviser will provide for the overall management of the Funds including: (i) furnish the Funds with advice and recommendations with respect to the investment of the Funds’ assets and the purchase and sale of portfolio securities for the Funds, including the taking of such steps as may be necessary to implement such advice and recommendations (i.e., placing the orders); (ii) manage and oversee the investments of the Funds, subject to the ultimate supervision and direction of the Trust’s Board of Trustees; (iii) vote proxies for the Funds, file ownership reports under Section 13 of the Securities Exchange Act of 1934 for the Funds, and take other actions on behalf of the Funds; (iv) maintain the books and records required to be maintained by the Funds except to the extent arrangements have been made for such books and records to be maintained by the administrator or another agent of the Funds; (v) furnish reports, statements and other data on securities, economic conditions and other matters related to the investment of the Funds’ assets which the Funds’ administrator or distributor or the officers of the Trust may reasonably request; and (vi) render to the Trust’s Board of Trustees such periodic and special reports with respect to the Funds’ investment activities as the Board may reasonably request, including at least one in-person appearance annually before the Board of Trustees.

 

Proxy Statement

4

 

---

 

 

Brokerage.  Both the New Investment Advisory Agreement and the Prior Investment Advisory Agreement provide that the adviser shall be responsible for decisions to buy and sell securities for the Funds, for broker-dealer selection, and for negotiation of brokerage commission rates, provided that the adviser shall not direct orders to an affiliated person of the adviser without general prior authorization to use such affiliated broker or dealer from the Trust’s Board of Trustees.  The adviser’s primary consideration in effecting a securities transaction will be execution at the most favorable price.  In selecting a broker-dealer to execute each particular transaction, the adviser may take the following into consideration: the best net price available; the reliability, integrity and financial condition of the broker-dealer; the size of and difficulty in executing the order; and the value of the expected contribution of the broker-dealer to the investment performance of the Funds on a continuing basis.  The price to the Funds in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered.

 

Management Fees.  Both the New Investment Advisory Agreement and Prior Investment Advisory Agreement contain the identical fee structure based on the Fund’s average daily net assets.

 

Duration and Termination.  The Prior Investment Advisory Agreement provided that it became effective at the time the Funds commenced operations and remained in effect for a period of two years, unless sooner terminated.  The New Investment Advisory Agreement provides that it will become effective on [________, 2009 (the date of the Shareholder Meeting) or upon receiving the vote of a majority of the outstanding securities of the Funds, whichever is later] and provides that it will continue in effect for a period of two years, unless sooner terminated.  Both the New Investment Advisory Agreement and the Prior Investment Advisory Agreement provide that they shall continue in effect for successive annual periods, with such continuation to be approved at least annually by the Board or by the vote of a majority of the outstanding securities.  Both the New Investment Advisory Agreement and the Prior Investment Advisory Agreement may be terminated at any time, on 60 days prior written notice, by the Trust (by vote of the Trust’s Board of Trustees or by vote of a majority of the outstanding voting securities of the Funds) without the payment of a penalty, or by the adviser at any time, without the payment of a penalty, upon 60 days prior written notice.

 

Payment of Expenses.  Both the New Investment Advisory Agreement and the Prior Investment Advisory Agreement provide that the adviser will pay all expenses incurred by it in connection with its activities under the Agreement, that the Fund shall bear all of its own expenses not specifically assumed by the adviser, and that general expenses of the Trust not readily identifiable as belonging to the Fund or another portfolio of the Trust shall be allocated among all the portfolios of the Trust in such a manner as the Trust’s Board of Trustees determines to be fair and equitable.  The adviser may voluntarily or contractually absorb certain Fund expenses.  Brown Advisory has contractually agreed pursuant to an Operating Expense Limitation Agreement, for a two year period, to waive its advisory fee and reimburse expenses of the Funds to the extent necessary to limit the Funds’ total annual operating expenses to the following amounts as a percentage of each Fund’s average daily net assets:

	Investor Shares	Institutional Shares
Winslow Green Growth Fund	1.45%	1.20%
Winslow Green Solutions Fund	1.25%	1.00%

 

Proxy Statement

5

 

---

 

 

Under the Operating Expense Limitation Agreement, Brown Advisory has retained the right to recoup any expenses paid or advisory fees waived going forward for a period of three years from the time of the payment or waiver to the extent that it does not increase the operating expense ratio above the amounts shown above.  (Brown Advisory is not entitled to recoup any amounts Winslow waived or paid into the Funds under Winslow’s previous Operating Expense Limitation Agreement.)

 

Limitation on Liability and Indemnification.  Both the New Investment Advisory Agreement and the Prior Investment Advisory Agreement provide that the adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which the particular Agreement relates, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the adviser in the performance of its duties or from reckless disregard by it of its obligations and duties under the particular Agreement.  Both the New Investment Advisory Agreement and the Prior Investment Advisory Agreement provide that the Fund will indemnify the adviser against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit not resulting from disabling conduct by the adviser.

Board Approval and Recommendation

 

In reaching its decision to approve the New Investment Advisory Agreement, the Trustees, all of whom are Independent Trustees, met at a special meeting held on March 23, 2009 with senior executives of Brown Advisory.  In the course of their review, the Trustees considered their legal responsibilities with regard to all factors deemed to be relevant to the Funds.  The Trustees also considered other matters, including, but not limited to the following: (1) the quality of services provided to the Funds in the past by Winslow since the Funds’ inception compared to the quality of services expected to be provided to the Funds with Brown Advisory as the named investment adviser going forward; (2) the performance of the Funds while managed by Winslow, compared to other Funds managed by Brown Advisory; (3) the fact that the terms of the New Investment Advisory Agreement are identical to the terms of the Prior Investment Advisory Agreement; (4) the fact that Brown Advisory is retaining the Funds’ current investment management team to continue managing the Funds; (5) the fact that the fee structure under the New Investment Advisory Agreement would be identical to the fee structure under the Prior Investment Advisory Agreement and that Brown Advisory has agreed to maintain the Funds’ current expense limitation agreement in effect for a two year period; and (6) other factors deemed relevant.

The Trustees also evaluated the New Investment Advisory Agreement in light of information they had requested and received from Brown Advisory prior to and at the March 23, 2009 meeting.  The Trustees reviewed these materials with management of Brown Advisory.  The Independent Trustees also discussed the New Investment Advisory Agreement further in executive session with their counsel.  Below is a summary of the material factors considered by the Board in its deliberations as to whether to approve the New Advisory Agreement, and the Board’s conclusions.  In their deliberations, the Trustees did not rank the importance of any particular piece of information or factor considered, but considered these matters in their totality.

Nature, Extent and Quality of Services Provided to the Fund.  The Trustees discussed the nature, extent and quality of Brown Advisory’s overall services to be provided to the Funds.  The Trustees evaluated the quality and stability of the staff committed to those portfolio management responsibilities.  The Board considered Winslow’s specific responsibilities in all aspects of day-to-day management of the Funds as well as the qualifications, experience and responsibilities of the portfolio managers and other key personnel at Winslow and considered that none of the persons involved in providing services to the Funds were expected to change as a result of the transaction.  The Trustees also considered the structure of Brown Advisory’s compliance procedures and the trading capability of Brown Advisory.  After reviewing Brown Advisory’s compliance policies and procedures with respect to the Funds, the Board concluded that the policies and procedures were reasonably designed to prevent violation of federal securities laws.  The Trustees evaluated Brown Advisory’s financial condition noting that it appeared to be sufficiently capitalized to operate the Funds.  The Trustees considered Brown Advisory’s history, reputation and resources. The Board concluded that Brown Advisory had sufficient quality and depth of personnel, resources, investment methods and compliance policies and procedures essential to performing its duties under the proposed New Investment Advisory Agreement and that, in the Board’s view, the nature, overall quality, and extent of the management services to be provided would be satisfactory.

 

Proxy Statement

6

 

---

 

Section 15(f) of the 1940 Act.

In considering whether the arrangements between Brown Advisory and the Funds comply with the conditions of Section 15(f) of the 1940 Act, the Trustees reviewed the conditions of the Section 15(f).  Section 15(f) provides a non-exclusive safe harbor for an investment advisor to an investment company or any of its affiliated persons to receive any amount or benefit in connection with a change in control of the investment advisor so long as two conditions are met.  First, for a period of three years after closing of the transaction, at least 75% of the board members of the Trust cannot be “interested persons” (as defined in the Investment Company Act of 1940) of the investment advisor or predecessor advisor.  Second, an “unfair burden” must not be imposed upon the Funds as a result of the transaction or any express or implied terms, conditions or understandings applicable thereto.

The Trustees considered that, consistent with the first condition of Section 15(f), neither Brown Advisory nor the Board was aware of any plans to reconstitute the Board following the change in investment advisor.  Thus, at least 75% of the Trustees would not be “interested persons” of Brown Advisory for a period of three years after the change in investment advisor.  With respect to the second condition of Section 15(f), Brown Advisory has undertaken to maintain each Fund’s current expense cap for the required 2 year period.

Costs of Services Provided and Profits Realized by Brown Advisory.  The Trustees examined the fee and expense information for the Funds, including a comparison of such information to other similarly situated mutual funds as determined by Lipper Inc. (“Lipper”).  The Trustees also examined the total expense ratio of the Funds relative to the other mutual funds in their respective Lipper category.

The Trustees reviewed financial information provided by Brown Advisory, including information concerning its costs in providing services to the Funds and its estimated profitability.  The Trustees next considered that the contractual management fees.  The Trustees examined the total expense ratios, and considered the addition of new Rule 12b-1 fees.  The Trustees discussed the advantages and disadvantages of possibly removing the existing shareholder servicing fees or introducing a combination of both types of fees for the Funds.  The Trustees noted that the Funds’ expense ratio regardless of the addition of the Rule 12b-1 fee was not going to change.

Based on the information provided, the Trustees concluded that the amount of advisory fees that the Funds currently pay, and will pay under the New Investment Advisory Agreement, to Brown Advisory is reasonable in light of the nature and quality of the services provided.

Investment Performance of the Funds.  The Trustees discussed the performance of the Funds, noting the Funds had experienced poor performance in recent periods, which had effected both its short term and long term performance record. In considering performance, the Trustees also considered the performance history with respect to the previous portfolios of the Forum Funds and the fact that the Funds had experienced more favorable relative performance prior to the recent months.  The Board also noted that the Funds were subject to certain social investment criteria, which may limit their investment opportunities relative to their peer group.  The Board determined that the Funds’ recent period of underperformance was not a reason not to approve the New Investment Advisory Agreement at this time.

Economies of Scale and Fee Levels Reflecting Those Economies.  In considering the overall fairness of the proposed New Investment Advisory Agreement, the Trustees assessed the degree to which economies of scale that would be expected to be realized if the Funds’ assets increase as well as the extent to which fee levels would reflect those economies of scale for the benefit of the Funds’ shareholders.  The Trustees determined that the fee schedule in the New Investment Advisory Agreement is reasonable and appropriate and that breakpoints in the fee schedule are unnecessary based on the current level of the Funds’ assets.

 

Proxy Statement

7

 

---

 

Other Benefits to Brown Advisory. The Trustees considered any fall-out benefits to Brown Advisory, noting that Brown Advisory did not intend to use its affiliated broker-dealer to perform trading for the Funds.  The Trustees further noted that they were not considering any change in the Funds’ custody arrangements at this time.

No single factor was determinative of the Board’s decision to approve the New Investment Advisory Agreement, but rather the Board based its determination on the total mix of information available to them.  Based on a consideration of all the factors in their totality, the Board determined that the advisory arrangements with Brown Advisory, including the advisory fee, were fair and reasonable.  The Board therefore determined that the New Investment Advisory Agreement would be in the best interests of the Funds and their shareholders.

Vote Required