<PAGE> 1
[KAYNE, ANDERSON RISING DIVIDENDS FUND]
February 15, 1996
Dear Shareholder:
The equity markets were very strong in the fourth quarter of 1995, as was the
performance of your Fund. We are pleased to report that the Kayne, Anderson
Rising Dividends Fund returned 8.80% for the quarter. This compares with the
average equity Mutual Fund return of 3.06% according to Lipper Analytical
Services. Since inception on May 1, 1995, the Fund has returned 20.65%, with the
year end N.A.V. at $12.63, after a distribution of $.219 as of December 29,
1995.
Our outlook for 1996 is for continued positive stock and bond market results,
based on the supportive underlying economic fundamentals.
There are a number of key factors to consider. First, inflation is under control
and is expected to stay in a 2.5%-3.5% range. As a function of the excellent
inflation outlook, the Fed can maintain an accommodative interest rate policy,
allowing rates to stay in the current trading range.
Second, although corporate profit growth has slowed from a 20%-plus rate in
early 1995 to under 10% at year end, we do not expect a recession in 1996. We
anticipate a mid-single digit profit expansion in the first quarter of 1996 and
higher earnings in general for the year as a whole.
Third, given the level of interest rates and price/earning ratios, we do not
think the stock market appears overvalued.
Fourth, U.S. corporations continue to be extremely competitive with foreign
entities given relatively low labor and capital costs, and the fact that we have
now enjoyed a number of years of strong capital equipment investment and
improved productivity.
Finally, U.S. fiscal policy continues to be very positive for financial markets
and is sounder than many of our major trading partners. We are experiencing the
most dramatic scaling back of the federal establishment since demobilization at
the end of World War II. In the past year, federal government spending absorbed
21.6% of GDP, down from a record 24.4% in fiscal 1993. Under the Republican
budget proposal it would shrink to 18.7% over seven years, and under President
Clinton's recent proposal it would go to 20.1%. Another way of looking at it:
over the past five years the deficit has fallen from 5% of GDP to under 2% and
is headed toward zero. One might be concerned that this fiscal policy could lead
to an economic slowdown, but the proposed tax cuts should be stimulative to
economic growth.
To take advantage of this positive long term outlook, the Fund is basically
fully invested in our Rising Dividend companies. Our stock positions are
prudently diversified across industries and economic sectors. The dividends of
<PAGE> 2
our top ten holdings have shown a 14.7% compound annual growth rate over the
past ten years. This indicates that the Board of Directors of these companies
are confident in their future growth opportunities. We are anticipating that the
growth in earnings and cash flow of these blue chip companies will continue at
double-digit rates, and that this growth will be shared with the stockholders
through increased dividends. This is an excellent time to consider adding to
your Rising Dividends Fund since we believe that the type of steady growers
which we own will perform very well in the moderate growth environment we
envision.
We appreciate your support and confidence. Please do not hesitate to contact us
with any questions or comments on the enclosed information, or if there is any
other way we might be of service to you.
Respectfully,
/s/ Richard A. Kayne /s/ Allan M. Rudnick
Richard A. Kayne Allan M. Rudnick
Chief Executive Officer Chief Investment Officer
- --------------
The Kayne, Anderson Rising Dividends Fund seeks to provide long-term capital
appreciation, with dividend income as a secondary consideration, by investing in
a select list of companies with strong rising dividends, significant
reinvestment of cash flow and low debt.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT INDICATIVE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE. SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
<TABLE>
<CAPTION>
<S> <C> <C>
FUND S&P 500
---- -------
05/01/95 10,000 10,000
06/30/95 10,394 10,632
08/31/95 10,695 11,024
10/31/95 11,249 11,453
12/31/95 12,065 12,177
</TABLE>
<PAGE> 3
KAYNE, ANDERSON RISING DIVIDENDS FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 96.5% Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC MATERIAL / CHEMICALS: 6.3%
3,700 Monsanto Company.............................................................. $ 453,250
18,460 PPG Industries, Inc. ......................................................... 844,545
------------
1,297,795
------------
BASIC MATERIALS / METALS: 1.8%
6,540 Nucor Corporation............................................................. 373,598
------------
CAPITAL GOODS / ELECTRICAL EQUIPMENT: 11.9%
9,710 AMP, Inc...................................................................... 372,621
5,180 Emerson Electric Company...................................................... 423,465
13,530 General Electric Company...................................................... 974,160
10,300 W.W. Grainger Corporation..................................................... 682,375
------------
2,452,621
------------
CONSUMER CYCLICAL / BUSINESS SERVICES: 3.2%
10,000 Dun & Bradstreet Corporation.................................................. 647,500
------------
CONSUMER CYCLICAL / ENTERTAINMENT & LEISURE: 3.7%
13,060 The Walt Disney Company....................................................... 770,540
------------
CONSUMER CYCLICAL / PUBLISHING & BROADCASTING: 4.0%
13,405 Gannett Company, Inc. ........................................................ 822,732
------------
CONSUMER CYCLICAL / RETAILING: 2.6%
23,750 Wal-Mart Stores, Inc. ........................................................ 531,406
------------
CONSUMER STAPLES / BEVERAGES: 2.2%
6,020 Coca-Cola Company............................................................. 446,985
------------
CONSUMER STAPLES / CONSUMER PRODUCTS: 3.8%
7,730 International Flavors & Fragrances............................................ 371,040
5,000 Procter & Gamble.............................................................. 415,000
-------------
786,040
-------------
</TABLE>
3
<PAGE> 4
KAYNE, ANDERSON RISING DIVIDENDS FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995, CONTINUED
- ------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES / FOODS: 8.4%
5,000 Albertson's, Inc. ........................................................ $ 164,375
20,000 Sara Lee Corporation...................................................... 637,500
16,800 Sysco Corporation......................................................... 546,000
7,450 Wm. Wrigley, Jr., Company................................................. 391,125
-------------
1,739,000
-------------
ENERGY: 7.1%
8,110 Exxon Corporation......................................................... 649,814
3,650 Mobil Corporation......................................................... 408,800
2,910 Royal Dutch Petroleum Company............................................. 410,674
-------------
1,469,288
-------------
FINANCIAL / BANKING: 6.9%
19,500 Banc One Corporation...................................................... 736,125
9,220 Fifth Third Bancorp....................................................... 675,365
-------------
1,411,490
-------------
FINANCIAL / INSURANCE: 2.1%
913 Cincinnati Financial Corporation.......................................... 59,573
2,450 General RE Corporation.................................................... 379,750
-------------
439,323
-------------
FINANCIAL SERVICES: 4.5%
6,500 Franklin Resources, Inc................................................... 327,438
13,460 State Street Boston Corporation........................................... 605,700
-------------
933,138
-------------
HEALTH CARE / DRUG & HOSPITAL SUPPLIES: 10.1%
9,350 Abbott Laboratories....................................................... 390,362
10,000 Astra AB-ADR, Class A..................................................... 397,500
10,010 Johnson & Johnson......................................................... 857,106
18,730 Mylan Laboratories, Inc. ................................................. 440,155
-------------
2,085,123
-------------
MISCELLANEOUS / SPECIALTY MATERIALS: 2.6%
8,040 Minnesota Mining & Manufacturing Company.................................. 532,650
-------------
</TABLE>
4
<PAGE> 5
KAYNE, ANDERSON RISING DIVIDENDS FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995, CONTINUED
- ------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY / COMPUTERS & OFFICE EQUIPMENT: 5.8%
7,900 Diebold, Inc. ............................................................ $ 437,462
9,050 Hewlett-Packard Company................................................... 757,938
-------------
1,195,400
-------------
TECHNOLOGY / DATA SERVICES: 9.4%
9,960 Automatic Data Processing................................................. 739,530
7,930 General Motors, Class E................................................... 412,360
14,200 Reuters Holdings PLC, ADR................................................. 782,775
-------------
1,934,665
-------------
TECHNOLOGY / TELECOMMUNICATIONS EQUIPMENT: 0.1%
1,120 Ericsson (L.M.) Tel-Sp, ADR............................................... 21,840
-------------
Total Common Stocks (cost $15,211,087).................................... 19,891,134
-------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Principal Amount REPURCHASE AGREEMENT: 3.3%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$680,311 Provident Bank Repurchase Agreement, 5.25%, dated 12/29/95,
due 1/2/96, collateralized by $690,000 U.S. Treasury Bills,
due 3/7/96 (value of collateral is $683,533) (proceeds $680,708)
(cost $680,311)........................................................... 680,311
-------------
Total Investments in Securities (cost $15,891,398+): 99.8%................ 20,571,445
Other Assets Less Liabilities: 0.2%...................................... 41,885
-------------
TOTAL NET ASSETS: 100.0%.................................................. $ 20,613,330
=============
+Cost for federal income tax purpose is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation............................................. $ 4,716,941
Gross unrealized depreciation............................................. (36,894)
-------------
Net unrealized appreciation..................................... $ 4,680,047
=============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
KAYNE, ANDERSON RISING DIVIDENDS FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (identified cost $15,891,398) (Note 2A)............... $20,571,445
Dividends and interest receivable......................................................... 36,493
Prepaid expenses.......................................................................... 6,209
Deferred organization expenses (Note 2D).................................................. 30,824
-----------
Total assets.................................................................. 20,644,971
-----------
LIABILITIES
Accrued expenses.......................................................................... 30,414
Other liabilities......................................................................... 1,227
-----------
Total liabilities................................................................... 31,641
-----------
NET ASSETS...................................................................................... $20,613,330
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($20,613,330/1,632,694 shares outstanding;
unlimited number of shares authorized without par value)............................ $ 12.63
===========
SOURCE OF NET ASSETS
Paid-in capital........................................................................... $15,932,991
Undistributed net investment income....................................................... 292
Net unrealized appreciation on investments................................................ 4,680,047
-----------
Net assets.......................................................................... $20,613,330
===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
KAYNE, ANDERSON RISING DIVIDENDS FUND
<TABLE>
STATEMENT OF OPERATIONS - FOR THE PERIOD MAY 1, 1995* TO DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Income:
Interest...................................................................... $ 16,399
Dividends..................................................................... 256,968
---------------
Total income............................................................ 273,367
---------------
Expenses:
Advisory fees (Note 3)........................................................ 90,944
Management fee (Note 3)....................................................... 30,224
Custodian and accounting fees................................................. 11,797
Auditing fees................................................................. 8,000
Transfer agent fees........................................................... 4,978
Amortization of deferred organization expenses (Note 2D)...................... 4,774
Reports to shareholders....................................................... 2,006
Trustees fees................................................................. 2,006
Legal fees.................................................................... 1,003
Miscellaneous................................................................. 3,355
---------------
Total expenses.......................................................... 159,087
---------------
NET INVESTMENT INCOME............................................. 114,280
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions........................................ 232,704
Net unrealized appreciation on investments.......................................... 3,060,930
---------------
Net realized and unrealized gain on investments......................... 3,293,634
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $ 3,407,914
===============
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
7
<PAGE> 8
KAYNE, ANDERSON RISING DIVIDENDS FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM: May 1, 1995* to
OPERATIONS December 31, 1995
-----------------
<S> <C>
Net investment income....................................................................... $ 114,280
Net realized gain from security transactions................................................ 232,704
Net unrealized appreciation of investments.................................................. 3,060,930
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................. 3,407,914
-------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ($0.074 per share).................................................... (118,762)
Net realized gain from securities transactions ($0.145 per share)........................... (232,704)
-------------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS..................................... (351,466)
-------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a)................ 17,556,882
-------------
TOTAL INCREASE IN NET ASSETS.......................................................... 20,613,330
=============
NET ASSETS:
Beginning of period -0-
-------------
END OF PERIOD (including undistributed net investment income of $292) $ 20,613,330
=============
</TABLE>
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
May 1, 1995* to
December 31, 1995
----------------------------
Shares Value
--------- ------------
<S> <C> <C>
Shares sold ............................................................. 534,414 $ 5,826,371
Shares issued in consideration for like-kind contributions (Note 6)...... 1,143,396 12,177,173
Shares issued in reinvestment of distribution............................ 27,825 351,428
Shares redeemed.......................................................... (72,941) (798,090)
--------- ------------
Net increase............................................................. 1,632,694 $ 17,556,882
========= ============
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
8
<PAGE> 9
KAYNE, ANDERSON RISING DIVIDENDS FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- -------------------------------------------------------------------------------------------------
May 1, 1995*
through
December 31,1995
- -------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period....................................... $10.65
------
Income from investment operations:
Net investment income................................................ .07
Net realized and unrealized gain on investments...................... 2.13
------
Total income from investment operations 2.20
------
Less distributions:
Dividends from net investment income................................. (.07)
Distributions from net capital gains................................. (.15)
------
Total distributions........................................................ (.22)
------
Net asset value, end of period............................................. $12.63
======
Total return............................................................... 20.65%
Ratios/supplemental data:
Net assets, end of period (millions)....................................... $ 20.6
Ratio of expenses to average net assets.................................... 1.31%+
Ratio of net investment income to average net assets....................... 0.94%+
Portfolio turnover rate.................................................... 28%
</TABLE>
*Commencement of operations.
+Annualized.
See accompanying notes to financial statements.
9
<PAGE> 10
KAYNE, ANDERSON RISING DIVIDENDS FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Kayne, Anderson Rising Dividends Fund (the "Fund") is a series of
shares of beneficial interest of Professionally Managed Portfolios, which is
registered under the Investment Company Act of 1940 (the "1940 Act") as a
diversified, open-end management investment company. The Fund's primary
investment objective is long-term capital appreciation, with dividend income as
a secondary objective. The Fund seeks to achieve its objectives by investing
principally in equity securities, but there are no assurances that this
objective will be achieved. The value of the Fund's investments will fluctuate
with market conditions and an investor's shares, when redeemed, may be worth
more or less than their original cost. The Fund began operations on May 1, 1995.
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: The Fund's investments are carried at market
value. Securities listed on an exchange or quoted on a national
market system are valued at the last sale price. Other securities
are valued at the last quoted bid price. Securities for which market
quotations are not readily available, if any, are valued at an
independent pricing service or determined following procedures
approved by the Board of Trustees. Short-term investments are valued
at amortized cost which approximates market value.
B. Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
C. Securities Transactions, Dividends 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.
D. Deferred Organization Expenses: All of the expenses incurred by the
Advisor in connection with the organization and registration of the
Fund's shares will be borne by the Fund and are being amortized to
expense on a straight-line basis over a period of five years.
E. Accounting Estimates: In preparing financial statements in
conformity with generally accepted accounting principles, management
makes estimates and assumptions with respect to expenses that affect
the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of expenses
during the period. Actual results could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY AND MANAGEMENT FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
For the period ended December 31, 1995, Kayne, Anderson Investment
Management, L.P. (the "Advisor") provided the Fund with investment management
services under an Investment Advisory Agreement. The Advisor
10
<PAGE> 11
KAYNE, ANDERSON RISING DIVIDENDS FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1995, CONTINUED
- --------------------------------------------------------------------------------
furnished all investment advice, office space and certain administrative
services, and provides personnel as needed by the Fund. As compensation for its
services, the Advisor is entitled to a monthly fee at the annual rate of 0.75%
based upon the average daily net assets of the Fund.
Southampton Investment Management Company (the "Manager") acts as the
Fund's Administrative Manager under an Investment Management Agreement. The
Manager 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 Manager receives an
annual fee equal to the greater of 0.20% 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. The
Distributor is an affiliate of the Manager.
Certain officers and Trustees of the Fund are also officers and/or
directors of the Manager and the Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the period ended December 31, 1995, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$7,802,736 and $4,988,891, respectively.
NOTE 5 - IN-KIND CONTRIBUTION TRANSACTIONS
At the Fund's inception on May 1, 1995, certain shareholders purchased
Fund shares through nontaxable in-kind contributions of securities with a market
value totaling $12,177,173 (including contributed unrealized gain of
$1,619,117). These securities were deemed to be in accordance with the
investment objective of the Fund.
11
<PAGE> 12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of
Kayne, Anderson Rising Dividends Fund and
the Board of Trustees of
Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kayne, Anderson Rising Dividends Fund
(a series of Professionally Managed Portfolios) as of December 31, 1995, and the
related statements of operations and changes in net assets and the financial
highlights for the period from May 1, 1995 (commencement of operations) to
December 31, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Kayne, Anderson Rising Dividends Fund as of December 31, 1995, the results of
its operations, the changes in its net assets and the financial highlights for
the period from May 1, 1995 to December 31, 1995, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 2, 1996
12
<PAGE> 13
ADVISOR
Kayne, Anderson Investment Management, L.P.
1800 Avenue of the Stars, Suite 1425
Los Angeles, California 90067
(310) 556-2721
-
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
-
CUSTODIAN AND TRANSFER AGENT
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
-
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
-
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
This report is intended for shareholders of the
Kayne, Anderson Rising Dividends Fund and may
not be used as sales literature unless preceded or accompanied by a
current prospectus.
[KAYNE, ANDERSON RISING DIVIDENDS FUND LOGO]
Annual Report
December 31, 1995
