THE CRESCENT FUND
Annual Report
For the Year Ended
March 31, 1996
<PAGE>
THE CRESCENT FUND
April 24, 1996
Dear Shareholder:
Hunting season is open and bears beware, lest some fashion-forward bull be seen
wearing your coat. The U.S. stock market has continued its spectacular climb to
unprecedented heights. The Russell 2500 advanced 5.9% during 1996's first
quarter. This accomplishment pales in comparison to the Dow Jones Industrial
Average which jumped 9.8%.
The stock market returns stand in stark contrast to the Lehman Brothers
Government/Corporate Bond Index, which declined 2.3% for the same period. The
Crescent Fund's performance follows:
<TABLE>
<CAPTION>
Time Period Crescent Balanced Russell Lehman S&P
Fund Benchmark 2500 Brothers 500
60% Russell 2500 Gov't/
40% LB Gov't/Corp. Corporate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Quarter ended 3/31/96 5.3% 2.6% 5.9% -2.3% 5.5%
1995 26.0% 26.7% 31.7% 19.2% 37.5%
1994 4.3% -2.0% -1.1% -3.5% 1.3%
Annualized since 15.9% 12.0% 15.9% 6.1% 16.6%
inception*
<FN>
*Inception is 6/2/93. The annualized performance of the Russell 2500,
Lehman Brothers Government/Corporate, and S&P 500 Indices begin 5/30/93.
</FN>
</TABLE>
The stock and bond markets, which generally move in the same direction, have
uncoupled in 1996. For the stock market to continue its upward trajectory, it
would appear that interest rates need to decline. Otherwise, it seems likely
that the stock market will decline. The stock market and bond market cannot
continue on their divergent paths.
Inflation has been perking up lately. The CRB, a widely used commodity index,
has increased 3.4% this year, and 7.9% in the past twelve months. In addition,
recent economic news points to a relatively strong economy. This could lead the
inflation-fearful Fed towards a more restrictive fiscal policy, thereby
increasing interest rates. With interest rates as one of the primary
underpinnings of the stock market, observers watch the Fed's action closely.
One factor that has yet to impact interest rates is the increase in foreign
holdings of U.S. debt. Foreign investors continue to finance our American
lifestyle, owning $555 billion of U.S. Treasury securities, up 28% ($121
billion)
<PAGE>
THE CRESCENT FUND
from a year ago. The foreign ownership of our debt now stands at
around 14% of total U.S. Treasury debt. How long until our foreign financiers
recognize that U.S., Inc. has a deteriorating balance sheet? If we wish to
continue to have them borrow money, we might eventually have to pay them a
higher rate of interest.
The stock market currently trades at the upper limits of historical valuations.
For every historical measure violated, some pundit finds justification as to why
it is different this time. Price/earnings ratios are high, but that's because
interest rates are so low. Dividend yields are low, but that is explained by
lower than normal payout ratios and unusually high corporate share repurchases.
Price/book ratios are high, but the high replacement cost of assets justifies
this. Although sound reasons, we remain cautious.
Two stocks and one bond that we own will serve as excellent examples of our
investment process for this quarter's letter.
We have been searching for retailers to own given the depressed retail
environment and the underperformance of their share prices. We recently
purchased Good Guys, a consumer electronics retailer located in the western
United States. With a $10.50 book value and $1.75 in cash per share and no debt,
Good Guys offered an excellent value at our $8 cost. We believe that, at 76% of
book, Good Guys offers an excellent risk/reward ratio as we patiently await an
improving retail climate. They have survived a difficult competitive onslaught
from the aggressive expansion of Circuit City and Best Buy into their California
backyard. Recently, Best Buy has begun to raise prices in some areas and certain
other competitors have been closing stores or going out of business. Good Guys
has approximately $900 million in sales and a market capitalization of $109
million. They have no debt and excess cash on the balance sheet. Any improvement
in margin will provide significant upside. Meanwhile, they continue to earn
money, albeit at lower than historic levels. We believe that, at our cost, the
price/earnings ratio on 1996 earnings estimates is 10-11x, well below the
market's 17x.
We have owned Pinkerton's, a well-recognized brand name in the security services
industry, since late 1995. One of three large national companies, Pinkerton's
has new management with a mandate to make money rather than increase revenues,
as had been the case in prior years. The company has been out of favor for
years, with its stock price at 1990 levels. The new management has been exiting
unprofitable contracts, thereby increasing margins and earnings. With reported
earnings per share of $1.26 in 1995 and $0.83 per share of non-cash charges,
Pinkerton's has in excess of $2 in free cash flow per share. We purchased our
position at 9x 1995 free cash flow, and today, although it has appreciated
slightly, it still trades at only 10x.
The fixed income arena has provided us with certain opportunities as well. We
now own Alexander Haagen Properties 7.5% Convertible Bonds. Alexander Haggen, a
southern California-based Real Estate Investment Trust (REIT), survived the
worst of the California depression. They own 40 properties, primarily shopping
centers and two regional malls. California real estate is finally beginning to
show signs of strength after five years of weakness. These bonds have a yield to
their five year maturity of more than 11%. We believe that this 5% premium to
U.S. Treasury Notes and a 65% loan to value justifies our position.
We intensively research our investments. As part of this process, I am
frequently on the road visiting companies. I visited a local bank's corporate
offices two months ago. While sitting with the senior management, an armed
<PAGE>
THE CRESCENT FUND
robbery occurred. I was thankful that I was upstairs in the executive
offices and not on the main floor. Fortunately, no one was injured and police
caught the perpetrator. We will not permit the threat of violence to interfere
with our research. But since we realize that our shareholders need a healthy
fund manager, we will consider taking a Pinkerton's guard on our riskier company
visits.
Listed below are the Crescent Fund's ten largest holdings as of March 31,
1996. These investments account for 32.2% of the total portfolio value:
Common Stock
Dundee Bancorp, Inc., Class A
Littelfuse, Inc.
Mac Frugals Bargains Close-Outs, Inc.
Phoenix Duff & Phelps Corp.
Pinkerton's, Inc.
Price Enterprises, Inc.
Santa Barbara Bancorp
Semi-Tech Global, Ltd.
U.S. Facilities Corp.
Corporate Bonds
Rockefeller Center Properties, Inc., 0%, due 12/31/2000
The Crescent Fund had the following asset composition at March 31, 1996.
<TABLE>
<CAPTION>
Common Stocks (net of short sales) 59.5%
<S> <C>
Preferred Stocks 4.8%
Corporate Bonds 24.1%
Cash and Other Assets 11.6%
</TABLE>
Thank you for your continued investment in the Crescent Fund.
Respectfully,
/S/
Steven Romick
Senior Vice President
First Pacific Advisors, Inc.
<PAGE>
THE CRESCENT FUND
COMPARISON OF $10,000 INVESTMENT IN THE CRESCENT FUND, THE S&P 500 INDEX
AND THE BALANCED BENCHMARK*
Annual Average Total Return
Periods Ended March 31, 1996
1 Year Inception(10/9/92)
24.71% 15.86%
Date Crescent Fund S&P 500 Index Balanced Benchmark
6/2/93 10,000 10,000 10,000
9/30/93 10,590 10,291 10,718
3/31/94 11,127 10,127 10,543
9/30/94 11,394 10,666 10,728
3/31/95 12,168 11,705 11,292
9/30/95 14,097 13,846 12,985
3/31/96 15,175 15,470 13,786
*Balanced Benchmark (60% Russell 2500 / 40% L/B G/C)
Past Performance is not
predictive of future performace.
<PAGE>
THE CRESCENT FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 64.5% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Banks: 4.6%
<S> <C> <C>
5,800 Chase Manhattan Corp.................................................... $ 426,300
24,900 Santa Barbara Bancorp................................................... 594,487
-------
1,020,787
---------
Consumer Goods: 2.6%
1,500 Alberto Culver Co., Class A............................................. 53,438
10,300 Reebok International, Ltd............................................... 284,538
8,000 RJR Nabisco Holdings, Inc............................................... 242,000
-------
579,976
-------
Financial Services: 13.4%
9,350 American Express Co..................................................... 461,656
66,400 Dundee Bancorp, Inc., Class A*.......................................... 828,426
5,150 Federal Home Loan Mortgage Corp......................................... 439,037
13,000 John Nuveen Co., Class A................................................ 316,875
8,000 Lehman Brothers Holdings, Inc........................................... 214,000
110,300 Phoenix Duff & Phelps Corp.............................................. 689,375
-------
2,949,369
---------
Healthcare: 2.3%
10,000 Global Health Sciences Fund*............................................ 180,000
15,500 Summit Care Corp.*...................................................... 329,375
-------
509,375
-------
Insurance: 3.9%
5,500 Foremost Corp. of America............................................... 302,500
30,000 U.S. Facilities Corp.................................................... 562,500
-------
865,000
-------
Manufacturing: 8.1%
18,200 Coachmen Industries, Inc................................................ 477,750
42,000 Image Industries, Inc.*................................................. 483,000
15,000 Littelfuse, Inc.* ................................................... 566,250
10,000 Reliance Steel & Aluminum Co............................................ 228,750
-------
1,755,750
---------
Media and Telecommunications: 2.4%
12,000 Central Newspapers, Inc., Class A....................................... 427,500
10,000 Playboy Enterprises, Inc.*.............................................. 101,250
- -------
528,750
-------
<PAGE>
THE CRESCENT FUND
PORTFOLIO OF INVESTMENTS at March 31, 1996, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate: 5.7%
41,100 Crown American Realty Trust............................................. $ 313,388
5,000 Felcor Suite Hotels, Inc................................................ 155,000
50,000 Price Enterprises, Inc.................................................. 787,500
-------
1,255,888
---------
Restaurants: 1.1%
10,000 IHOP Corp.*............................................................. 251,250
-------
Retail: 6.2%
60,000 Good Guys, Inc.*........................................................ 525,000
40,100 Mac Frugals Bargains Close-Outs Inc.*................................... 561,400
23,000 Rhodes, Inc.*........................................................... 218,500
20,000 Sportmart, Inc., Class A*............................................... 68,750
------
1,373,650
---------
Savings and Loans: 2.9%
31,600 HF Bancorp, Inc.*....................................................... 316,000
11,000 Long Island Bancorp, Inc................................................ 309,375
-------
625,375
-------
Services: 4.3%
25,000 Children's Discovery Centers of America, Inc.*.......................... 125,000
37,500 Pinkerton's, Inc.*...................................................... 815,625
-------
940,625
-------
Technology: 3.5%
9,000 Arrow Electronics, Inc.*................................................ 423,000
15,000 Wang Laboratories, Inc.*................................................ 356,250
-------
779,250
-------
Miscellaneous: 3.5%
102,250 Semi-Tech Global, Ltd.*................................................. 770,119
-------
Total Common Stocks (cost $11,862,949).................................. 14,205,164
----------
PREFERRED STOCKS: 4.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Goods: 0.7%
6,450 RJR Nabisco Holdings Corp., 10%, 12/31/2044 Series T.................... 155,606
<PAGE>
THE CRESCENT FUND
PORTFOLIO OF INVESTMENTS at March 31, 1996, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services: 1.1%
9,730 Phoenix Duff & Phelps, $1.50, 11/1/2015, Series A....................... $ 233,520
------------
Manufacturing: 1.8%
16,050 Schuller Corp., $2.70, Series B......................................... 405,262
-------
Medical Related: 0.9%
6,315 Foxmeyer Health, $4.20, 11/30/2003, Series A............................ 205,222
-------
Retail: 0.3%
5,800 Signet Group PLC, $1.06 Convertible..................................... 59,450
------
Total Preferred Stocks (cost $1,060,858)................................ 1,059,060
---------
Principal Amount CORPORATE BONDS: 24.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Goods: 0.6%
$150,000 Playtex Family Products Corp., 9%, due 12/15/2003....................... 135,375
-------
Energy: 1.8%
400,000 Mesa Capital Corp., 12.75%, due 6/30/1998............................... 394,000
-------
Leisure: 0.4%
85,000 MGM Grand Hotel Finance Corp., 12%, due 5/1/2002........................ 93,925
------
Financial Services: 1.4%
300,000 GPA Delaware, Inc., Debs, 8.75%, due 12/15/1998......................... 304,500
-------
Manufacturing: 2.5%
410,000 Fomento Economico Mex, 9.5%, due 7/22/1997.............................. 413,331
140,000 Triangle Pacific Corp., 10.5%, due 8/1/2003............................. 147,700
-------
561,031
-------
Media and Telecommunications: 3.8%
135,000 Adelphia Communications Corp., 12.5%, due 5/15/2002..................... 140,063
327,000 Busse Broadcasting Corp., 11.625%, due 10/15/2000....................... 323,730
<PAGE>
THE CRESCENT FUND
PORTFOLIO OF INVESTMENTS at March 31, 1996, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Amount Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Media and Telecommunications, Continued
$ 210,000 Grupo Televisa, 10%, due 11/9/1997...................................... $ 211,050
225,000 Marvel Parent Holdings, Inc., 0%, due 4/15/1998......................... 169,875
-------
844,718
-------
Miscellaneous: 1.4%
510,000 International Semi-Tech Microelectric, Inc., 11.5%, due 8/15/2003....... 306,000
-------
Real Estate: 8.3%
500,000 Alexander Haagen Properties, Inc., 7.5%, due 1/15/2001.................. 432,500
1,500,000 Rockefeller Center Properties, Inc., 0%, due 12/31/2000................. 915,000
125,000 Trump Plaza Funding, Inc., 10.875%, due 6/15/1998....................... 140,625
300,000 Value Property Trust, 11.125%, due 9/29/2002............................ 301,500
-------
1,789,625
---------
Retail: 0.3%
80,000 Fabri-Centers of America, Inc., 6.25%, due 3/1/2002..................... 67,800
------
Services: 2.6%
347,051 EMCOR Group, Inc., 7%, due 12/15/1997................................... 350,522
250,000 EMCOR Group, Inc., Series C, 11%, due 12/15/2001........................ 226,250
-------
576,772
-------
Technology: 1.0%
214,379 Anacomp, Inc., 12.25%, due 12/26/1997 (a)............................... 219,202
-------
Total Corporate Bonds (cost $5,190,379)................................. 5,292,948
---------
REPURCHASE AGREEMENT: 5.3%
- ------------------------------------------------------------------------------------------------------------------------------------
1,173,000 Star Bank Repurchase Agreement, 5.10%, dated 3/29/1996, due
4/1/1996, collateralized by $1,250,000 GNMA, 7.0%, due
5/20/2022 (value of collateral is $1,270,700)
(proceeds $1,173,492) (cost $1,173,000)................................. 1,173,000
<PAGE>
THE CRESCENT FUND
PORTFOLIO OF INVESTMENTS at March 31, 1996, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value
Total Investment in Securities (cost $19,287,186): 98.7%................ $21,730,172
Other Assets in excess of Liabilities: 1.3%............................. 294,556
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets: 100.0%................................................ $22,024,728
===========
<FN>
*Indicates non-income producing security.
(a) Security is in default. Interest is not being accrued or received.
SECURITIES SOLD SHORT at March 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Common Stocks
- ------------------------------------------------------------------------------------------------------------------------------------
2,500 Acclaim Entertainment, Inc.............................................. $ 26,406
1,500 Alberto Culver Co., Class B............................................. 57,750
3,000 Bed Bath & Beyond, Inc.................................................. 158,250
833 Castle & Cooke, Inc..................................................... 13,645
2,500 Dole Food Co............................................................ 96,250
6,400 Nabisco Holdings Corp., Class A......................................... 209,600
3,000 Regal Cinemas, Inc...................................................... 111,000
5,500 Sensormatic Electronics Corp............................................ 111,375
3,500 Smithfield Foods, Inc................................................... 101,500
20,000 Sportmart, Inc.......................................................... 102,500
4,000 Warnaco Group, Inc., Class A............................................ 96,500
------
Total (proceeds $974,512)............................................... $ 1,084,776
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE CRESCENT FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at March 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (identified cost $19,287,186) (Note 2-A) .......... $21,730,172
Cash................................................................................... 72,708
Deposits with brokers for securities sold short........................................ 1,675,523
Receivables:
Fund shares sold................................................................. 51,992
Dividends and interest .......................................................... 114,049
Investment securities sold....................................................... 201,624
Organization costs (net of accumulated amortization of $8,011) (Note 2-F).............. 8,667
Prepaid expenses....................................................................... 7,681
-----
Total assets .............................................................. 23,862,416
----------
LIABILITIES
Securities sold short, at value - proceeds $974,512.................................... 1,084,776
Payables:
Investment securities purchased.................................................. 718,921
Investment advisor............................................................... 18,228
Manager.......................................................................... 4,557
Accrued expenses ...................................................................... 11,206
------
Total liabilities.......................................................... 1,837,688
---------
NET ASSETS .............................................................................. $22,024,728
===========
Net asset value, offering and redemption price per share
($22,024,728/1,738,874 shares outstanding;
unlimited number of no par value shares authorized) ............................. $12.67
======
SOURCE OF NET ASSETS
Paid-in capital ....................................................................... $18,624,860
Undistributed net investment income.................................................... 170,505
Undistributed net realized gain on investments......................................... 896,641
Net unrealized appreciation of investments............................................. 2,332,722
---------
Net assets....................................................................... $22,024,728
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE CRESCENT FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended March 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Interest ........................................................................ $ 485,568
Dividends........................................................................ 458,578
-------
Total investment income ................................................... 944,146
-------
Expenses
Advisory fees (Note 3) .......................................................... 189,156
Management fee (Note 3).......................................................... 51,509
Custodian and accounting fees.................................................... 19,557
Transfer agent fees.............................................................. 7,510
Auditing fees.................................................................... 11,460
Legal fees....................................................................... 2,015
Reports to shareholders.......................................................... 3,198
Trustees' fees................................................................... 3,609
Insurance........................................................................ 3,388
Registration fees................................................................ 3,021
Amortization of organization costs............................................... 4,011
Dividends on securities sold short............................................... 8,414
Miscellaneous.................................................................... 3,191
-----
Net expenses..................................................................... 310,039
-------
Net investment income ................................................... 634,107
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on security transactions ............................................ 2,192,917
Net realized gain on call options written.............................................. 121,154
Net realized loss on short sale transactions........................................... (71,151)
Net increase in unrealized appreciation of investments ................................ 1,246,238
---------
Net realized and unrealized gain on investments ................................. 3,489,158
---------
Net Increase in Net Assets Resulting from Operations ...................... $ 4,123,265
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE CRESCENT FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
March 31, March 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment income.................................................. $ 634,107 $ 287,185
Net realized gain on security transactions ............................ 2,192,917 281,570
Net realized gain on call options written.............................. 121,154 32,149
Net realized (loss) gain on short sale transactions.................... (71,151) 15,394
Net increase in unrealized appreciation of investments................. 1,246,238 617,069
--------- -------
Net increase in net assets resulting from operations ............ 4,123,265 1,233,367
--------- ---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ($0.37 and $0.18 per share, respectively)........ (559,924) (227,520)
Net realized gain from security transactions ($0.88 and
$0.53 per share, respectively)................................... (1,361,813) (602,478)
---------- --------
Total dividends and distributions ............................... (1,921,737) (829,998)
---------- --------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding
shares (a)....................................................... 3,832,810 5,413,466
--------- ---------
Total increase in net assets .................................... 6,034,338 5,816,835
NET ASSETS
Beginning of year ..................................................... 15,990,390 10,173,555
---------- ----------
End of year (including undistributed net investment income
of $170,505 and $92,311, respectively)......................... $22,024,728 $15,990,390
=========== ===========
<FN>
(a) A summary of capital shares transactions is as follows:
Year Ended Year Ended
March 31, 1996 March 31, 1995
Shares Value Shares Value
Shares sold ...................................... 356,056 $4,376,535 640,197 $7,000,403
Shares issued in connection with payment of
dividends................................... 153,426 1,821,467 76,721 815,341
Shares redeemed................................... (193,936) (2,365,192) (221,594) (2,402,278)
-------- ---------- -------- ----------
Net increase ..................................... 315,546 $3,832,810 495,324 $5,413,466
======= ========== ======= ==========
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE CRESCENT FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended June 2, 1993*
March 31, March 31, through
1996 1995 March 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period............................. $11.23 $10.96 $10.00
------ ------ ------
Income from investment operations:
Net investment income ..................................... .40 .21 .13
Net realized and unrealized gain on investments ........... 2.29 .77 .99
---- --- ---
Total from investment operations................................. 2.69 .98 1.12
---- --- ----
Less distributions:
Dividends from net investment income....................... (.37) (.18) (.10)
Distributions from net capital gains ...................... (.88) (.53) (.06)
---- ---- ----
Total distributions.............................................. (1.25) (.71) (.16)
----- ---- ----
Net asset value, end of period .................................. $12.67 $11.23 $10.96
====== ====== ======
Total return .................................................... 24.71% 9.35% 13.73%+
Ratios/supplemental data:
Net assets, end of period (millions)............................. $ 22.0 $ 16.0 $ 10.2
Ratio of expenses to average net assets:
Before expense reimbursement .............................. 1.59% 1.65% 1.86%+
After expense reimbursement................................ 1.59% 1.65% 1.85%+
Ratio of net investment income to average net assets:
Before expense reimbursement .............................. 3.35% 2.16% 1.60%+
After expense reimbursement ............................... 3.35% 2.16% 1.61%+
Portfolio turnover rate ......................................... 99.98% 101.41% 88.88%
<FN>
*Commencement of operations.
+Annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE CRESCENT FUND
NOTES TO FINANCIAL STATEMENTS at March 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Crescent 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
provide a total return consistent with reasonable investment risk through a
combination of income and capital appreciation. The Fund seeks to achieve its
objective by investing in a combination of equity securities and fixed income
obligations, but there are no assurances that this objective will be achieved.
The 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.
The Fund began operations on June 2, 1993.
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.
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 daily
on an accrual basis. Discounts and premiums on securities purchased
are amortized over the life of the respective securities. Income and
capital gains distributions to shareholders are determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are
primarily due to differing treatments for the deferral of wash sale
losses and amortization of organization costs.
D. Short Sales. A short sale transaction occurs when the Fund sells a
security it does not own, in anticipation that the market price of
the security will decline. If the value of the security sold short
increases between the time of the short sale and the time the Fund
closed out the short position, the Fund realizes a loss. Any dividend
declared on short positions existing on the record date shall be
recorded on the ex-dividend date and included as an expense of the
period.
E. Call and Put Options. When the Fund writes a call or put option an
amount equal to the premium received is reflected as a
liability. The amount of the liability is subsequently "marked to
market" to reflect the current market value of the option
written. If an option which the Fund has written either
<PAGE>
THE CRESCENT FUND
NOTES TO FINANCIAL STATEMENTS at March 31, 1996, Continued
- --------------------------------------------------------------------------------
expires on its stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or loss if
the cost of the closing transaction exceeds the premium received when
the option is sold), and the liability related to such option is
extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such a sale are increased
by the premium originally received. If a put option which the Fund
has written is exercised, the amount of the premium originally
received reduces the cost of the security which the Fund purchases
upon exercise of the option.
The premium paid by the Fund for the purchase of a call or put
option is recorded as an investment and subsequently marked to market
to reflect the current market value of the option purchased. If an
option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost
of the option. If the Fund enters into a closing transaction, it
realizes a gain (loss) if the proceeds from the sale are greater
(less) than the cost of the option purchased. If the Fund exercises a
put option, it realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased
by the premium originally paid. If the Fund exercises a call option,
the cost of the security purchased upon exercise is increased by the
premium originally paid.
These option contracts may be listed for trading on a national
securities exchange or traded over-the-counter ("OTC"). OTC options
are transacted directly with dealers and not with a clearing
corporation, and there is a risk of non-performance by the dealer.
The Fund, as writer of a call option, loses the potential for gain on
the underlying security above the exercise price while the option is
outstanding. By writing a put option, the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds
the current market price.
F. Organization Costs. Expenses originally 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.
G. 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.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the period ended February 29, 1996, Crescent Management (the
"Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. From March 1, 1996 to March 31, 1996, First
Pacific Advisors (the "Advisor") provided the Fund with investment management
services under an Investment Advisory Agreement. The Advisor furnished all
investment advice, office space and certain administrative services, and
provides most of the personnel needed by the Fund. As compensation for its
services, the Advisor was entitled to a monthly fee at the annual rate of 1.00%
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 1.85% of total net assets.
<PAGE>
THE CRESCENT FUND
NOTES TO FINANCIAL STATEMENTS at March 31, 1996, Continued
- --------------------------------------------------------------------------------
Southampton Investment Management Company (the "Manager") acts as the
Fund's 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 Administrator. Certain officers and Trustees
of the Fund are also officers and/or directors of the Manager and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 1996, the cost of purchases and the proceeds
from sales of securities, excluding short-term securities, were $19,653,502 and
$16,781,085, respectively. At March 31, 1996, the cost of securities for Federal
tax purposes was $19,287,186. Unrealized appreciation and depreciation of
securities was as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................ $3,182,958
Unrealized depreciation............................................ (850,236)
--------
Net unrealized appreciation.................................. $2,332,722
==========
</TABLE>
Written options transactions during the year ended March 31, 1996 are
summarized as follows:
<TABLE>
Call Options Written
Premiums Received
<S> <C>
Options outstanding, beginning of period........................... $ (149,238)
Options written.................................................... (170,428)
Options closed..................................................... -0-
Options exercised.................................................. -0-
Options expired.................................................... 319,666
-------
Market value of written options at March 31, 1996.................. $ -0-
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- -------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
THE CRESCENT 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 The Crescent Fund (a series of
Professionally Managed Portfolios) as of March 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the two years in the period then ended and for the period
from June 2, 1993 (commencement of operations) to March 31, 1994. 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 audits.
We conducted our audits 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 March
31, 1996, by correspondence with the custodian and brokers. Where brokers did
not reply to our confirmation request, we carried out other appropriate auditing
procedures. 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 audits provide 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 The
Crescent Fund as of March 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in the
period then ended and for the period from June 2, 1993 (commencement of
operations) to March 31, 1994, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 26, 1996
<PAGE>
Advisor
First Pacific Advisors
11400 Olympic Boulevard
Suite 1200
Los Angeles, California 90064
(310) 996-5417
--
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road
Suite 261E
Phoenix, Arizona 85018
--
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
--
Transfer Agent
American Data Services
24 West Carver Street
2nd Floor
Huntington, New York 11743
--
Auditors
Tait, Weller & Baker
2 Penn Center Plaza
Philadelphia, Pennsylvania 19102
--
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
This report is intended for the shareholders of
The Crescent Fund and should not be used as
sales literature unless accompanied or
preceded by a current prospectus.
