December 10, 1996
Securities and Exchange Commission
Attn: Filing Desk, Stop 1-4
450 Fifth Street, N.W.
Washington, DC 20549
Re: Professionally Managed Portfolios
File No. 811-5037
CIK No. 811030
Dear Sir or Madam:
On behalf of the above Registrant and pursuant to Rule 30b-2 under the
Investment Company Act of 1940, I enclose for filing via EDGAR, a copy of the
Semi-annual Report to shareholders of the Harris Bretall Sullivan & Smith Growth
Equity Fund series of the Registrant for the six month period ended September
30, 1996.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
/s/
Robert H. Wadsworth
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
Semi-Annual
September 30, 1996
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
Dear Shareholders,
The Harris Bretall Sullivan & Smith Growth Equity Fund is pleased to report a
return of 3.1% from inception on May 1, 1996 through the initial fiscal period
ended September 30, 1996. A 4.0% return was reported for the Fund as of October
31, 1996. Our intention is to help you invest for your tomorrow by investing in
high quality, growth oriented equities. We are enthusiastic about the financial
markets' potential and confident in our ability to select the companies which
will be major beneficiaries of the future.
During the past six months, we have seen the continuation of what we term the
"Virtuous Cycle". The Virtuous Cycle is that period of time when interest rates
are stable or declining, earnings are rising, and price/earnings ratios are
expanding. Our 1997 forecast expects moderating growth through the second half
of 1997. Specifically, we expect 1997 GDP growth to be 1.5%, down from the 3%
growth of 1996 -- no recession, no pick-up in inflation, no collapse in
corporate earnings, and no significant rise in interest rates.
Interest rates are expected to remain in a fairly narrow trading range through
the remainder of the year. Concerns over higher inflation will be balanced by
moderation in economic growth. By spring 1997, the slowdown in the economy
should be pronounced enough to move interest rates significantly lower. Until
this pause becomes obvious, the yield on 30 year U.S. Treasury Bonds should
trade in a range between 6.75% and 7.00%. Once signs of a moderating economy are
more evident, long-term interest rates should fall -perhaps as low as
6.25%-6.50%. On the shorter end of the yield curve, near-term strength in
employment could push the Fed Funds rate 25-50 basis points higher to
5.50%-5.75%. This would cause the yield curve to be essentially flat by the
spring of 1997.
While we anticipate that corporate profits will be negatively affected by this
mild slowdown, we do not expect any major dislocations. We believe that
operating earnings for the S&P 500 Index will be up slightly in 1997 to $40.00
per share from $38.00 per share in 1996.
Given the challenging nature of this scenario, pressure from the Fed, and only
modest growth in earnings, some investors have grown "bearish". However, the
reality is that most of this negative sentiment is already reflected in stock
prices. There are no great excesses or over-valuation issues. In fact, the stock
market is selling in-line with most historical averages. At Harris Bretall
Sullivan & Smith, Inc. we believe that, despite the confusing environment, the
markets offer significant opportunity.
On behalf of everyone at HBSS, we thank you for your participation in the Growth
Equity Fund. Please do not hesitate to contact us at 800/685-HBSS should you
have any questions regarding our mutual fund or any of our other services.
Sincerely,
/s/ /s/
John J. Sullivan, CFA Gordon J. Ceresino
Partner Senior Vice President
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 88.9% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Industries: 6.0%
<S> <C> <C>
350 E.I. Du Pont de Nemours................................................. $ 30,887
450 Great Lakes Chemical Corporation........................................ 25,650
650 Nucor Corporation....................................................... 32,988
------
89,525
------
Capital Goods/Conglomerates: 8.2%
450 Fluor Corporation....................................................... 27,675
350 General Electric Company................................................ 31,850
450 Illinois Tool Works, Inc................................................ 32,456
700 Tyco International, Inc................................................. 30,187
------
122,168
-------
Consumer Cyclical: 8.0%
860 Circuit City Stores, Inc................................................ 31,068
510 Home Depot, Inc......................................................... 29,006
650 Interpublic Group Cos., Inc............................................. 30,713
1,100 Wal Mart Stores, Inc.................................................... 29,012
------
119,799
-------
Consumer Services: 4.1%
1,150 Mattel, Inc............................................................. 29,756
500 The Walt Disney Company................................................. 31,687
------
61,443
------
Consumer Staples: 4.5%
350 Colgate Palmolive Company............................................... 30,406
500 Gillette Company........................................................ 36,063
------
66,469
------
Drugs/Biotechnology: 8.5%
650 Abbott Laboratories..................................................... 32,012
450 American Home Products Corporation...................................... 28,688
550 Amgen, Inc.............................................................. 34,719
450 Merck & Company, Inc.................................................... 31,669
------
127,088
-------
Energy: 2.0%
350 Schlumberger, Ltd....................................................... 29,575
------
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
PORTFOLIO OF INVESTMENTS at September 30, 1996 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Financial: 10.2%
300 American International Group, Inc....................................... $ 30,225
400 BankAmerica Corporation................................................. 32,850
1,200 Charles Schwab Corporation.............................................. 27,750
720 Norwest Corporation..................................................... 29,430
120 Wells Fargo & Company................................................... 31,200
------
151,455
-------
Food/Beverage: 4.3%
550 General Mills, Inc...................................................... 33,206
1,100 Pepsico, Inc............................................................ 31,075
------
64,281
------
Healthcare: 4.4%
700 Johnson & Johnson....................................................... 35,875
700 United Healthcare Corporation........................................... 29,138
------
65,013
------
Technology/Defense: 12.2%
1,200 Autodesk, Inc........................................................... 31,050
630 Automatic Data Processing, Inc.......................................... 27,484
860 Electronic Arts......................................................... 32,143
400 First Data Corporation.................................................. 32,650
205 Microsoft Corporation................................................... 27,034
720 Oracle Systems.......................................................... 30,645
------
181,006
-------
Telecommunications/Hardware: 14.5%
1,000 Applied Materials, Inc.................................................. 27,625
550 Cisco Systems, Inc...................................................... 34,134
600 Hewlett Packard Company................................................. 29,250
325 Intel Corporation....................................................... 31,017
700 Lucent Technologies..................................................... 32,112
500 Motorola, Inc........................................................... 25,813
500 Tellabs, Inc............................................................ 35,313
------
215,264
-------
Transportation: 2.0%
400 Union Pacific Corporation............................................... 29,300
------
Total Common Stocks (cost $1,258,452)................................... 1,322,386
---------
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
PORTFOLIO OF INVESTMENTS at September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Amount REPURCHASE AGREEMENT: 11.3% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
$169,000 Star Bank Repurchase Agreement, 5.30%, dated 9/30/96, due 10/1/96,
collateralized by $185,000 GNMA, 6.5%, due 1/20/2024 (value of
collateral is $185,636) (proceeds $169,025) (cost $169,000)............. $ 169,000
---------
Total Investments in Securities (cost $1,427,452+): 100.2% ............. 1,491,386
Liabilities in excess of Other Assets: (0.2)%........................... (2,355)
------
Total Net Assets: 100.0% ............................................... $1,489,031
==========
<FN>
+ At September 30, 1996, the cost for federal income tax purposes was the same
as the basis for financial reporting. Unrealized appreciation and depreciation
of securities were as follows:
Gross unrealized appreciation........................................... $ 106,623
Gross unrealized depreciation........................................... (42,689)
-------
Net unrealized appreciation................................... $ 63,934
========
</FN>
</TABLE>
See accompanying "Notes to Financial Statements."
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (identified cost $1,427,452) (Note 2-A) ........... $1,491,386
Cash................................................................................... 747
Receivables:
Dividends and interest .......................................................... 1,277
From Advisor..................................................................... 5,402
Prepaid expenses....................................................................... 546
---
Total assets .............................................................. 1,499,358
---------
LIABILITIES
Distribution fees payable (Note 4)..................................................... 819
Other accrued expenses and liabilities................................................. 9,508
-----
Total liabilities.......................................................... 10,327
------
NET ASSETS $1,489,031
==========
Net asset value, offering price and redemption price per share
($1,489,031/144,438 shares outstanding;
unlimited number of shares authorized without par value) ........................ $10.31
======
SOURCE OF NET ASSETS
Paid-in capital ....................................................................... $1,445,877
Undistributed net investment income.................................................... 877
Accumulated net realized loss on investment transactions............................... (21,657)
Net unrealized appreciation of investments............................................. 63,934
------
Net assets ...................................................................... $1,489,031
==========
</TABLE>
See accompanying "Notes to Financial Statements."
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Period May 1, 1996* through September 30, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
<S> <C>
Dividends........................................................................ $ 4,813
Interest......................................................................... 2,175
-----
Total income............................................................... 6,988
-----
Expenses:
Advisory fees (Note 3)........................................................... 3,553
Administration fee (Note 3)...................................................... 12,942
Distribution costs (Note 4)...................................................... 1,184
Custodian and accounting fees.................................................... 7,550
Transfer agent fees.............................................................. 2,804
Auditing fees.................................................................... 6,903
Trustees' fees................................................................... 1,295
Legal fees....................................................................... 647
Reports to shareholders.......................................................... 1,295
Miscellaneous.................................................................... 1,294
-----
Total expenses............................................................. 39,467
Less: expense reimbursements (Note 3)...................................... (33,356)
-------
Net expenses............................................................... 6,111
-----
Net investment income ............................................... 877
---
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from securities transactions................................... (21,657)
Net change in unrealized appreciation of investments............................. 63,934
------
Net realized and unrealized gain on investments............................ 42,277
------
Net Increase in Net Assets Resulting from Operations ................ $ 43,154
========
<FN>
*Commencement of operations.
</FN>
</TABLE>
See accompanying "Notes to Financial Statements."
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
May 1, 1996*
through
September 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C>
Net investment income...................................................................... $ 877
Net realized loss on securities transactions............................................... (21,657)
Net change in unrealized appreciation of investments....................................... 63,934
------
Net increase in net assets resulting from operations ................................ 43,154
------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a)............... 1,445,877
---------
Total increase in net assets ........................................................ 1,489,031
NET ASSETS
Beginning of period........................................................................ -0-
-
End of period (including undistributed net investment income of $877)...................... $1,489,031
==========
<FN>
(a) A summary of capital shares transactions is as follows:
May 1, 1996*
through
September 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold................................................................. 149,385 $1,495,937
Shares redeemed............................................................. (4,947) (50,060)
------ -------
Net increase................................................................ 144,438 $1,445,877
======= ==========
*Commencement of operations.
</FN>
</TABLE>
See accompanying "Notes to Financial Statements."
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
May 1, 1996*
through
September 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period....................................................... $10.00
Income from Investment Operations:
Net investment income................................................................ .01
Net realized and unrealized gain on investments...................................... .30
---
Total from investment operations........................................................... .31
---
Net Asset Value, End of Period............................................................. $10.31
======
Total Return............................................................................... 7.61%+
Ratios/Supplemental Data:
Net assets, end of period (millions)....................................................... $ 1.5
Ratio of expenses to average net assets:
Before expense reimbursement......................................................... 8.22%+
After expense reimbursement.......................................................... 1.27%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement......................................................... (6.77)%+
After expense reimbursement.......................................................... 0.18%+
Portfolio turnover rate.................................................................... 10.42%
Average commission rate paid............................................................... $0.0600++
<FN>
*Commencement of operations.
+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.
</FN>
</TABLE>
See accompanying "Notes to Financial Statements."
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
NOTES TO FINANCIAL STATEMENTS at September 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Harris Bretall Sullivan & Smith Growth Equity Fund (the "Fund") is a
diversified series of shares of beneficial interest of Professionally Managed
Portfolios, which is registered under the Investment Company Act of 1940 as a
diversified, open-end management company. The Fund began operations on May 1,
1996. The investment objective of the Fund is to seek growth of capital. The
Fund seeks to achieve its objective by investing primarily in equity securities.
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. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements. Actual results could differ from those
estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended September 30, 1996, Harris Bretall Sullivan &
Smith, Inc. (the "Advisor") provides the Fund with investment management
services under an Investment Advisory Agreement. The Advisor furnishes all
investment advice, office space, facilities, and provides most of the personnel
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.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund to the extent necessary to limit
the Fund's aggregate annual operating expenses to 1.29% of average net assets
annually. Any such reductions made by the Advisor in its fees or payments may be
subject to reimbursement by the Fund in the next succeeding fiscal year if the
Fund is able to effect such reimbursement and remain in
<PAGE>
Harris Bretall Sullivan & Smith Growth Equity Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
compliance with any expense limitations in effect. For the six months ended
September 30, 1996, the Advisor has waived its fees and reimbursed the Fund in
the amount of $29,803.
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
the following annual rate:
Under $25 million - 0.12% of average net assets
$25 to $50 million - 0.07% of average net assets
$50 to $100 million - 0.05% of average net assets
over $100 million - 0.03% of average net assets, with a minimum fee of
$30,000 annually
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 Administrator.
Certain officers and Trustees of the Fund are also officers and/or
directors of the Administrator and the Distributor.
NOTE 4 - DISTRIBUTION COSTS
The Fund has adopted a Distribution Plan (the"Plan") in accordance with
Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will pay a fee to
the Distributor at an annual rate of up to 0.25% of the average daily net assets
of the Fund. The fee is paid to the Distributor as reimbursement for, or in
anticipation of, expenses incurred for distribution-related activity.
NOTE 5 - PURCHASES AND SALES OF SECURITES
For the six months ended September 30, 1996, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$1,436,397 and $120,159, respectively.
<PAGE>
Advisor
Harris Bretall Sullivan & Smith, Inc.
One Sansome Street, Suite 3300
San Francisco, CA 94104
(415) 765-8300
Account Inquiries (800) 385-7003
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut St.
Cincinnati, OH 45202
Transfer and Dividend Disbursing Agent
American Data Services, Inc.
24 West Carver St.
Huntington, NY 11743
(800) 385-7003
Independent Auditors
Ernst & Young LLP
515 South Flower St.
Los Angeles, CA 90071
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
This report is intended for shareholders
of Harris Bretall Sullivan & Smith Growth
Equity Fund and may not be used as
sales literature unless preceded or
accompanied by a current prospectus.
