[AVONDALE LOGO]
TOTAL RETURN FUND
October 11, 1996
Dear Fellow Shareholder:
What a difference a year makes! 1995 was an almost uninterrupted joy ride. The
Dow moved from, roughly, 3800 to a December close in the 5100 area. 1996, on the
other hand, has so far been flat in the first quarter, spent the first month of
the second quarter in a strong downtrend, rallied for May, flat in June, and was
dramatically downward in the first half of July. We looked at that latter period
as a cleansing wash.
Avondale Total Return Fund's fiscal six-month period (September 30, 1996) was a
far cry from the fiscal year-end which showed a total return performance of
26.67% -- certainly rewarding for a Fund which carried over 28% in cash and
fixed income securities.
The period mirrored the lower level of enthusiasm witnessed in the entire
market. So far this year, all indices significantly trail last year's
exceptionally strong record. Avondale, with its heavier growth bias in its stock
holdings and shorter-than-the-index bond maturity schedule was, at quarter end,
about 4% behind the combined stock and bond indices, but still positive by 2.5%.
Large capitalization stocks appeared to be the strongest market group -- which
was certainly reflected in both the Dow Jones and S&P indices. As this cycle
matures, I would expect the high capitalization stocks to show a
weaker-than-market performance. The counter argument, also quite valid, is that
high-capitalization stocks will continue to be favored because it is the only
arena where many of the largest investment pools can find liquidity. The
favorite phrase of the really bullish brigade is, "there will never be another
down period" -- take six aspirin and call when you wake up.
We will continue to rely on our two-phased research approach -- a blend of both
fundamental and technical analysis -- to guide our way. While we are not heading
for the sidelines, we have recently raised some additional cash. Be assured that
we continue to employ the same strict discipline on the sell side, which has
been our firm's consistent hallmark for more than a quarter century.
Sincerely,
/s/ Herbert R. Smith
Herbert R. Smith, Chairman/CEO
Herbert R. Smith, Incorporated
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[AVONDALE LOGO]
TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS at September 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 77.9% Market Value
- --------------------------------------------------------------------------------
Banks: 5.9%
8,700 Countrywide Credit Industries, Inc............ $ 222,937
5,034 First Commercial Corp......................... 173,988
2,300 Nationsbank Corp.............................. 199,813
---------
596,738
---------
Beverages - Soft Drink: 2.3%
4,600 Coca-Cola Co.................................. 234,025
---------
Building - Heavy Construction: 1.7%
2,800 Fluor Corp.................................... 172,200
---------
Chemicals: 2.0%
9,000 M. A. Hanna Co................................ 205,875
---------
Computer Services: 6.8%
8,900 Exar Corp. (a)................................ 127,938
5,200 First Data Corp............................... 424,450
12,500 General DataComm Industries, Inc. (a)......... 140,625
---------
693,013
---------
Computers: 3.6%
6,200 Bell & Howell Co. (a)......................... 196,850
1,400 IBM Corp...................................... 174,300
---------
371,150
---------
Computers - Peripheral Equipment: 2.1%
3,400 U.S. Robotics, Inc............................ 219,725
---------
Consumer Products: 3.2%
3,600 General Electric Co........................... 327,600
---------
Diversified Operations: 2.0%
4,800 Tyco International, Ltd....................... 207,000
---------
See accompanying "Notes to Financial Statements."
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[AVONDALE LOGO]
TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS at September 30, 1996 (Unaudited), Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
Drugs: 10.2%
1,400 Bristol-Myers/Squibb Co...................... $ 134,925
8,500 Carrington Labs, Inc. (a).................... 187,000
4,800 Johnson & Johnson............................ 246,000
3,200 Pfizer, Inc.................................. 253,200
3,600 Schering-Plough Corp......................... 221,400
----------
1,042,525
----------
Electronics Instrumentation: 3.8%
5,200 Kent Electronics Corp. (a)................... 112,450
21,600 Kollmorgen Corp.............................. 272,700
----------
385,150
----------
Entertainment: 2.1%
3,400 The Walt Disney Co........................... 215,475
----------
Finance - Leasing Company: 2.0%
4,600 AT&T Capital Corp............................ 206,425
----------
Health Care: 0.4%
1,000 PhyCor, Inc.................................. 38,062
----------
Hotel/Motel: 7.0%
5,600 Doubletree Corp. (a)......................... 223,300
10,312 La Quinta Motor Inns, Inc.................... 201,084
5,200 Marriott International, Inc.................. 286,650
----------
711,034
----------
Industrial Machinery: 2.0%
6,400 Toro Co...................................... 212,800
----------
Insurance: 3.4%
5,400 American RE Corp............................. 342,900
----------
Life / Health Insurance: 1.9%
2,700 Transamerica Corp............................ 188,663
----------
See accompanying "Notes to Financial Statements."
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[AVONDALE LOGO]
TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS at September 30, 1996 (Unaudited), Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
Manufacturing - Diversified: 2.1%
7,700 Pall Corp.................................... $ 217,525
----------
Oil Company - Exploration & Production: 1.0%
2,000 Louisiana Land and Exploration Co............ 105,250
----------
Oil-Energy: 1.7%
1,500 Mobil Corp................................... 173,625
----------
Pipelines: 2.2%
6,500 Panenergy Corp............................... 225,062
----------
Recycling - Metal: 0.6%
7,000 Covol Technologies, Inc...................... 57,750
----------
Restaurants: 1.3%
2,700 McDonald's Corp.............................. 127,912
----------
Telecommunications Equipment: 0.8%
4,000 IPC Information Systems (a).................. 83,000
----------
Toys/Games: 2.0%
7,813 Mattel, Inc.................................. 202,148
----------
Utilities/Electric: 3.8%
3,900 Duke Power Co................................ 181,838
5,100 Oklahoma Gas & Electric Co................... 204,000
----------
385,838
----------
Total Common Stock (cost $6,079,407)......... 7,948,470
----------
See accompanying "Notes to Financial Statements."
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[AVONDALE LOGO]
TOTAL RETURN FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at September 30, 1996 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------
Principal Amount BONDS: 16.8% Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Notes: 7.4%
$700,000 5.875%, 7/31/1997....................................................... $ 701,093
50,000 7.125%, 2/29/2000....................................................... 51,156
-----------
752,249
-----------
Agencies: 7.7%
100,000 FHLMC, 7.770%, 3/6/2002................................................. 101,118
100,000 FNMA, 6.150%, 11/6/1998................................................. 99,431
150,000 FNMA, 5.300%, 12/10/1998................................................ 147,287
250,000 FNMA, 6.375%, 10/13/2000................................................ 247,246
192,198 FNMA Balloon, 7.500%, 8/1/2002.......................................... 194,562
-----------
789,644
-----------
Corporate: 1.7%
75,000 Associates Corp., 6.750%, 10/15/1999.................................... 75,265
25,000 IBM, 6.375%, 6/15/2000.................................................. 24,739
75,000 Pfizer, Inc., 6.500%, 2/1/1997.......................................... 75,221
-----------
175,225
-----------
Total Bonds (cost $1,721,270)........................................... 1,717,118
-----------
SHORT-TERM INVESTMENTS: 5.1%
- ------------------------------------------------------------------------------------------------------------------
Repurchase Agreement: 2.1%
210,000 Star Bank Repurchase Agreement, 5.30%, dated 9/30/1996, due
10/1/1996 collateralized by $230,000 GNMA, 7.0%, due 1/20/2024
(value of collateral is $230,791) (proceeds $210,031) (cost $210,000)... 210,000
-----------
Money Market Fund: 3.0%
305,349 Star Treasury Cash Management, 4.71%, 4/1/1997 (cost $305,349).......... 305,349
-----------
Total Short-Term Investments (cost $515,349)............................ 515,349
-----------
Total Investment in Securities (cost $8,316,026*): 99.8%................ 10,180,937
Other Assets less Liabilities: 0.2%..................................... 16,842
-----------
Net Assets: 100.0%...................................................... $10,197,779
===========
</TABLE>
See accompanying "Notes to Financial Statements."
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[AVONDALE LOGO]
TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS at September 30, 1996 (Unaudited), Continued
- ------------------------------------------------------------------------------
(a) Indicates security on which no cash dividends were paid.
*Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation............................ $ 2,070,227
Gross unrealized depreciation............................ (205,316)
-----------
Net unrealized appreciation.................. $ 1,864,911
===========
See accompanying "Notes to Financial Statements."
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[AVONDALE LOGO]
TOTAL RETURN FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (identified cost $8,316,026) (Note 2-A) ............. $10,180,937
Cash..................................................................................... 123
Receivables:
Dividends and interest............................................................. 30,280
Subscriptions...................................................................... 1,000
Prepaid expenses ........................................................................ 16,622
-----------
Total assets ................................................................ 10,228,962
-----------
LIABILITIES
Payables:
Redemptions........................................................................ 6,300
Dividends.......................................................................... 23,110
Accrued expenses ........................................................................ 1,773
-----------
Total liabilities ........................................................... 31,183
-----------
NET ASSETS ................................................................................... $10,197,779
===========
Net asset value, offering and redemption price per share
($10,197,779/377,803 shares outstanding;
unlimited number of shares authorized without par value) ........................ $ 26.99
===========
SOURCE OF NET ASSETS
Paid-in capital ......................................................................... $ 8,450,194
Undistributed net investment income...................................................... 163
Accumulated net realized loss on investments ............................................ (117,489)
Net unrealized appreciation of investments .............................................. 1,864,911
-----------
Net assets ........................................................................ $10,197,779
===========
</TABLE>
See accompanying "Notes to Financial Statements."
7
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[AVONDALE LOGO]
TOTAL RETURN FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Six Months Ended September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Interest ......................................................................... $ 72,791
Dividends ....................................................................... 49,654
---------
Total investment income .................................................... 122,445
---------
Expenses
Investment management fees (Note 3) .............................................. 35,397
Administration fee (Note 3) ...................................................... 15,041
Custodian and accounting fees .................................................... 8,741
Transfer agent fees .............................................................. 3,259
Auditing fees .................................................................... 6,017
Legal fees ....................................................................... 566
Insurance ........................................................................ 2,999
Shareholder reports ............................................................... 1,132
Trustees' fees ................................................................... 1,690
Miscellaneous .................................................................... 1,879
---------
Total expenses ............................................................. 76,721
---------
Net investment income ................................................. 45,724
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions............................................. (117,521)
Net change in unrealized appreciation on investments..................................... 296,887
---------
Net realized and unrealized gain on investments.............................. 179,366
---------
Net increase in net assets resulting from operations................... $ 225,090
=========
</TABLE>
See accompanying "Notes to Financial Statements."
8
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[AVONDALE LOGO]
TOTAL RETURN FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Six Months Year Ended
Ended September March 31,
30, 1996* 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income ................................................ $ 45,724 $ 85,939
Net realized gain (loss) from security transactions ..................... (117,521) 1,164,049
Net change in unrealized appreciation on investments ..................... 296,887 601,115
----------- ----------
Net increase in net assets resulting from operations .............. 225,090 1,851,103
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............................................... (46,519) (85,296)
From realized gains ...................................................... (468,504) (545,369)
----------- ----------
Total dividends and distributions .................................. (515,023) (630,665)
----------- ----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a).............................................. 696,669 1,635,207
----------- ----------
Total increase in net assets....................................... 406,736 2,855,645
NET ASSETS
Beginning of period....................................................... 9,791,043 6,935,398
----------- ----------
End of period (including undistributed net investment income of
$163 and $958, respectively)....................................... $10,197,779 $9,791,043
=========== ==========
</TABLE>
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1996* March 31, 1996
------------------------ ------------------------
Shares Value Shares Value
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold ...................................... 40,871 $1,130,085 66,460 $1,814,618
Shares issued in reinvestment of distributions.... 18,351 491,912 21,687 598,280
Shares redeemed................................... (34,154) (925,328) (29,486) (777,691)
------- ---------- ------- ----------
Net increase...................................... 25,068 $ 696,669 58,661 $1,635,207
======= ========== ======= ==========
</TABLE>
*Unaudited.
See accompanying "Notes to Financial Statements."
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[AVONDALE LOGO]
TOTAL RETURN FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Years Ended March 31,
----------------------------------------------------------------------------
Sept. 30, 1996* 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 27.76 $ 23.58 $ 22.93 $ 24.78 $ 24.19 $ 22.44
Income from investment operations:
Net investment income .12 .27 .23 .26 .46 .51
Net realized and unrealized gain
(loss) on investments .51 6.00 1.49 (.44) 1.62 1.92
-------- -------- -------- -------- -------- --------
Total from investment operations .63 6.27 1.72 (.18) 2.08 2.43
-------- -------- -------- -------- -------- --------
Less distributions:
From net investment income (.13) (.27) (.23) (.35) (.49) (.68)
From net capital gains (1.27) (1.82) (.84) (1.32) (1.00) -0-
-------- -------- -------- -------- -------- --------
Total distributions (1.40) (2.09) (1.07) (1.67) (1.49) (.68)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 26.99 $ 27.76 $ 23.58 $ 22.93 $ 24.78 $ 24.19
======== ======== ======== ======== ======== ========
Total return 4.62%+ 26.67% 7.82% (0.82)% 9.19% 11.04%
Ratios/supplemental data:
Net assets, end of period (millions) $ 10.2 $ 9.8 $ 6.9 $ 7.4 $ 7.6 $ 7.8
Ratio of expenses to average net assets:
Before expense reimbursement 1.52%+ 1.69% 1.77% 1.83% 1.78% 2.13%
After expense reimbursement 1.52%+ 1.69% 1.77% 1.83% 1.78% 1.96%
Ratio of net investment income to average
net assets:
Before expense reimbursement 0.90%+ 1.03% 0.96% 1.09% 1.97% 2.00%
After expense reimbursement 0.90%+ 1.03% 0.96% 1.09% 1.97% 2.17%
Portfolio turnover rate 22.35% 52.25% 52.24% 73.65% 157.64% 59.58%
Average commission rate paid.++ $ 0.0436 - - - - -
</TABLE>
+Annualized.
++For fiscal years beginning after September 1, 1995, a fund is required to
disclose average commission rate per share for security trades on which
commissions are charged.
*Unaudited.
See accompanying "Notes to Financial Statements."
10
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[AVONDALE LOGO]
TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS at September 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
Avondale Total Return Fund (the "Fund") is a series of shares of
beneficial interest of Professionally Managed Portfolios (the "Trust"), which is
registered under the Investment Company Act of 1940 (the "1940 Act") as a
diversified, open-end management company.
The Fund's primary investment objective is to realize the combination of
income and capital appreciation that will produce the maximum total return
consistent with reasonable risk. The Fund seeks to achieve its objective by
investing primarily in higher quality fixed income debt securities and equity
securities. The market value of the Fund's investment portfolio will fluctuate
with market conditions and an investor's shares, when redeemed, may be worth
more or less than their original cost.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on
an exchange or NASDAQ for which there has been no sale and other
over-the-counter securities are valued at the last reported bid
price. Securities for which quotations are not readily available are
valued at their respective fair values as determined in good faith
by the Board of Trustees. Short-term investments are stated at cost,
which when combined with accrued interest, approximates market
value.
U.S. Government securities with less than 60 days remaining to
maturity when acquired by the Fund are valued on an amortized cost
basis. U.S. Government securities with more than 60 days remaining
to maturity are valued at the current market value (using the mean
between the bid and asked price) until the 60th day prior to
maturity, and are then valued at amortized cost based upon the value
on such date unless the Board determines during such 60 day period
that this amortized cost basis does not represent fair value.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no federal income tax provision is
required.
C. Security Transactions, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recognized
on an accrual basis. Discounts and premiums on securities purchased
are amortized over the life of the respective securities.
D. Accounting Estimates. In preparing financial statements in
conformity with generally accepted accounting principles, management
makes estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
11
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[AVONDALE LOGO]
TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS at September 30, 1996 (Unaudited), Continued
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended September 30, 1996, Herbert R. Smith,
Incorporated (the "Manager") provided the Fund with investment management
services under an Investment Management Agreement. The Manager furnished all
investment advice, office space and certain administrative services. As
compensation for its services, the Manager receives a monthly fee at the annual
rate of 0.70% on the first $200 million of average daily net assets; 0.60% on
the next $300 million of net assets; and 0.50% on net assets exceeding $500
million.
Investment Company Administration Corporation (the "Administrator") acts
as the Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Fund's
expense accruals. For its services, the Administrator receives a monthly fee at
an annual rate equal to the greater of 0.15% of the Fund's average daily net
assets or $30,000.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. For
the period ended September 30, 1996, the Distributor did not receive any fees
from the Fund in connection with its distribution of shares. The Distributor is
an affiliate of the Administrator.
Certain officers and Trustees of the Fund are also officers and/or
directors of the Administrator and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the six months ended September 30, 1996, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities and U.S.
Government securities, were $1,933,553 and $938,868, respectively. For the six
months ended September 30, 1996, costs from purchases and proceeds from sales of
U.S. Government securities were $1,266,339 and $1,096,398, respectively.
12
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Investment Manager
Herbert R. Smith, Incorporated
1105 Holliday
Wichita Falls, Texas 76301
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
Transfer Agent
American Data Services, Inc.
24 West Carver Street
2nd Floor
Huntington, New York 11743
Auditors
Tait, Weller & Baker
2 Penn Center Plaza, Suite 700
Philadelphia, Pennsylvania 19102
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
This report is intended only for the information
of shareholders or those who have received the
prospectus covering shares of beneficial interest
of Avondale Total Return Fund, which contains
information about the management fee and other costs.
[AVONDALE LOGO]
TOTAL RETURN FUND
SEMI-ANNUAL REPORT
September 30, 1996
16
