Insightful Investor Growth Fund
Annual Report
December 31, 1995
<PAGE>
Insightful Investor Growth Fund
January 1996
Dear Shareholder:
INSIGHTFUL INVESTOR GROWTH FUND is off to a very good start.
I am pleased to report to you that for the five month period from July 28, 1995,
when we commenced operations, to December 31, 1995, the Fund achieved a total
return of 15.93%. The Fund's total return substantially outperformed that of the
S&P 500 and more than tripled that of the NASDAQ Composite during the same
period.
Stock Selection Counts
Throughout my investment career, I have always believed that quality stock
selection is the key to successful long-term investing. The Fund's excellent
performance in its first five months, in my opinion, was due primarily to just
that--stock selection.
As you know, my portfolio management approach starts with monitoring the top
growth stock holdings of some of America's greatest investors--people like
Warren Buffett, Mario Gabelli, Mike Price and Marty Zweig.
I then subject their top holdings to my own very rigorous fundamental and
technical analysis, eliminating those that don't make the grade. What I'm left
with are a select group of powerful growth companies. Let me describe some of
the Fund's current portfolio companies:
The Fund's top holding was National Media Corporation, the largest publicly
traded infomercial company in the country. Over the five month period, National
Media's stock rose an impressive 57.4%.
Say what you want about infomercials, but they do sell products. After a few
years of very bad management which actually almost bankrupted the company,
National Media now has a new management team in place which is determined to
sharply grow sales and earnings. And that looks to be precisely what they're
doing. Foreign sales are booming as the company has teamed up with Japanese
giant Mitsui to air National Media's infomercials on television stations
throughout Japan. National Media recently reported that latest quarter sales
were up over 65%. Earnings per share rose an impressive 950%.
We also hold Callaway Golf, the leading premium golf club manufacturer in the
world. In 1995 Callaway reported a 23% increase in annual sales, and a 25%
increase in earnings. Callaway's stock rose 40.9% during the period.
United Healthcare is another of the Fund's holdings. It's one of the largest
HMO's in the country. We think this company is a cash cow. Several health care
analysts have described the company's management team as second to none. United
Healthcare's stock rose 44.3% during the period.
<PAGE>
Diversified but not Over-Diversified
You may have read recently that approximately 80% of all mutual funds
underperform the overall market averages. One major reason for this, in my view,
is that most funds own too many stocks. I don't see why we should buy our 115th
favorite stock for the Fund when we could buy more of our top ten stocks. In our
view, the Fund can be well-diversified to reduce risk with a lot less stocks in
its portfolio. It will not be so over-diversified as to practically guarantee
mediocre performance. At year end, the Fund owned 30 stocks.
1996: Another Good Year for Stocks
Few investors believe that the stock and bond markets can match their
spectacular returns of 1995. While I doubt that we'll see the major market
averages advance over 30% this year, there are several factors that do suggest
that stocks can continue to perform well. All indications are that the economy
will continue its slow growth, low inflation pattern of the past two years.
That's bullish for stocks and bonds because it means that the Federal Reserve
can continue to lower interest rates. In addition, we believe corporate profits
should continue to grow strongly. Many American companies are leaner and more
productive than they've ever been. That's also bullish for stocks. I feel
confident that many of the Fund's core holdings will report record sales and
profits in 1996.
A Different Kind of Fund
As I'm sure you can tell, I am determined to make the Fund different from many
other mutual funds that spend as much or more on marketing as they do on
research. My focus is to seek out and uncover what we believe are great growth
companies and undiscovered special situations. I hope that the results will
speak for themselves. I am very pleased with our excellent start and I look
forward to writing to you again after the first half of the year.
I appreciate that you have become a shareholder in the Fund and I will continue
to work hard to justify your confidence.
Sincerely,
Dan Bruce Levine
Portfolio Manager
P.S. If you would like to add to your investment in the Fund, simply complete
the enclosed order form by filling in the additional amount to be invested, and
mailing it in the enclosed envelope, along with your check. Thanks again for
your support.
<PAGE>
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
INSIGHTFUL INVESTOR GROWTH FUND AND THE S&P 500 STOCK INDEX.
Average Annual Total Return
Since Inception (7/28/95) 41.33%
S&P 500 Stock Index Insightful Investor Growth Fund
<S> <C> <C>
7/30/95 10,000 10,000
8/30/95 10,006 10,140
9/30/95 10,427 10,160
10/31/95 10,395 10,270
12/1/95 10,843 10,870
12/31/95 11,052 11,593
</TABLE>
Past performance is not predictive of future performance.
<PAGE>
<TABLE>
<CAPTION>
Insightful Investor Growth Fund
PORTFOLIO OF INVESTMENTS at December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 88.4% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Advertising: 24.4%
<S> <C> <C>
24,000 National Media Corp..................................................... $ 504,000
---------
Automobile: 2.4%
900 Chrysler Corp........................................................... 49,838
------
Business Services: 2.7%
1,350 Robert Half International............................................... 56,531
------
Computer & Software: 8.3%
500 Adaptec, Inc............................................................ 20,500
10,000 Compucom Systems, Inc................................................... 95,000
1,500 Zilog, Inc.............................................................. 54,938
------
170,438
-------
Electronics: 3.4%
1,000 Electro Scientific Industries, Inc...................................... 29,250
1,000 Teradyne, Inc........................................................... 25,000
500 Vishay Intertechnology.................................................. 15,750
------
70,000
------
Entertainment: 3.2%
650 Cedar Fair.............................................................. 24,050
15,000 Latin American Casinos.................................................. 41,250
------
65,300
------
Financial Services: 4.4%
3,000 DVI, Inc................................................................ 42,000
700 Nationsbank Corp........................................................ 48,738
------
90,738
------
Games & Toys: 2.4%
4,000 Acclaim Entertainment, Inc.............................................. 49,500
------
Insurance: 3.1%
25,000 Lloyd Thompson Group PLC................................................ 64,719
------
Manufacturing: 1.6%
3,000 Wandel & Goltermann Technologies, Inc................................... 31,875
------
<PAGE>
Insightful Investor Growth Fund
PORTFOLIO OF INVESTMENTS at December 31, 1995, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Medical: 15.7%
4,000 Quidel Corp............................................................. $ 28,500
2,000 Rehabcare Group, Inc.................................................... 38,500
1,350 United Healthcare Corp.................................................. 88,425
1,750 Universal Health Services............................................... 77,656
3,625 Vivra, Inc.............................................................. 91,078
------
324,159
-------
Oil Equipment & Services: 4.1%
2,500 Pool Energy Services Co................................................. 23,750
1,700 Seitel, Inc............................................................. 60,137
------
83,887
------
Recreational Equipment: 6.0%
1,750 Arctco, Inc............................................................. 22,750
3,500 Callaway Golf Co........................................................ 79,188
600 Cobra Golf, Inc......................................................... 21,375
------
123,313
-------
Telecommunications: 6.7%
500 DSC Communications Corp................................................. 18,437
1,750 GTE Corp................................................................ 77,000
2,500 Intermedia Communications of Florida.................................... 43,750
------
139,187
-------
Total Common Stocks (cost $1,523,987)................................... 1,823,485
---------
PREFERRED STOCKS: 0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Computers: 0.9%
750 Comdisco, Inc........................................................... 19,312
------
Total Preferred Stocks (cost $19,176)................................... 19,312
------
Principal Amount REPURCHASE AGREEMENTS: 11.1%
- ------------------------------------------------------------------------------------------------------------------------------------
$229,745 Provident Bank Repurchase Agreement, 5.20%, dated 12/29/95,
due 1/2/96 (proceeds $229,878) (cost $229,745) (a)...................... 229,745
-------
<PAGE>
Insightful Investor Growth Fund
PORTFOLIO OF INVESTMENTS at December 31, 1995, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment in Securities (cost $1,772,908+): 100.4%.................................... $ 2,072,542
Liabilities less Other Assets: (0.4%)................................... (8,840)
------
Total Net Assets: 100.0%................................................ $ 2,063,702
===========
<FN>
(a) It is the Fund's intention to receive U.S. Government securities as
collateral for any repurchase agreement with a market value which is at least
equal to 100% of the value of the amount invested by the Fund plus accrued
interest. The repurchase agreement is collateralized by $235,000 U.S. Treasury
Bills, due 3/7/96, which have a value of $232,797. If the market value of the
U.S. Government securities subject to the repurchase agreement becomes less than
the repurchase price (including interest), the Fund will obtain additional
collateral. The Fund further intends for collateral to be physically delivered
or transferred by book entry to the account of the custodian.
+ At December 31, 1995, the cost of securities for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities was as follows:
Gross unrealized appreciation........................................... $ 330,995
Gross unrealized depreciation........................................... (31,361)
-------
Net unrealized appreciation............................................. $ 299,634
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Insightful Investor Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (identified cost $1,772,908) (Note 2-A) ........... $2,072,542
Receivables:
Expense reimbursement............................................................ 2,944
Dividends and interest .......................................................... 1,462
Other assets........................................................................... 513
---
Total assets .............................................................. 2,077,461
---------
LIABILITIES
Accrued expenses ...................................................................... 13,759
------
NET ASSETS .............................................................................. $2,063,702
==========
Net asset value and redemption price per share
($2,063,702/178,106 shares outstanding;
unlimited number of shares authorized without par value) ........................ $11.59
======
Computation of offering price per share ($11.59/.9375)*................................ $12.36
======
SOURCE OF NET ASSETS
Paid-in capital ....................................................................... $1,815,085
Accumulated net realized loss on investments........................................... (51,017)
Net unrealized appreciation of investments............................................. 299,634
-------
Net assets ...................................................................... $2,063,702
==========
<FN>
*On investments of greater than $50,000, the offering price is reduced.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Insightful Investor Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Period July 28, 1995* through December 31,1995
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Interest ........................................................................ $ 11,838
Dividends........................................................................ 4,589
-----
Total investment income ................................................... 16,427
------
Expenses
Advisory fees (Note 3) .......................................................... 7,268
Management fees (Note 3)......................................................... 15,061
Custodian and accounting fees.................................................... 9,477
Transfer agent fees.............................................................. 3,274
Auditing fees.................................................................... 5,754
Trustees' fees................................................................... 1,438
Legal fees....................................................................... 719
Reports to shareholders.......................................................... 1,439
Distribution expenses (Note 4)................................................... 1,444
Miscellaneous.................................................................... 1,439
-----
Total expenses............................................................. 47,313
Less: expenses reimbursed (Note 3)......................................... (32,777)
-------
Net expenses............................................................... 14,536
------
Net investment income ................................................... 1,891
-----
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions .......................................... (51,017)
Net unrealized appreciation of investments ............................................ 299,634
-------
Net realized and unrealized gain of investments ................................. 248,617
-------
Net Increase in Net Assets Resulting from Operations ...................... $ 250,508
=========
<FN>
*Commencement of operations.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Insightful Investor Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
July 28, 1995*
through
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C>
Net investment income........................................................................ $ 1,891
Net realized loss on security transactions .................................................. (51,017)
Net unrealized appreciation of investments................................................... 299,634
-------
Net increase in net assets resulting from operations .................................. 250,508
-------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ($.012 per share)...................................................... (1,891)
------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a)................. 1,815,085
---------
Total increase in net assets .......................................................... 2,063,702
NET ASSETS
Beginning of period ......................................................................... -0-
-
End of period .............................................................................. $2,063,702
==========
<FN>
(a) A summary of capital shares transactions is as follows:
July 28, 1995*
through
December 31, 1995
Shares Value
Shares sold .............................................................. 183,449 $1,873,324
Shares issued in reinvestment of distributions............................ 184 1,891
Shares redeemed........................................................... (5,527) (60,130)
------ -------
Net increase ............................................................. 178,106 $1,815,085
======= ==========
*Commencement of operations.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Insightful Investor Growth Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
for a capital share outstanding throughout the period
- ------------------------------------------------------------------------------------------------------------------------------------
July 28, 1995*
through
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<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 ........................................ 1.59
----
Total from investment operations.............................................................. 1.60
----
Less distributions:
Dividends from net investment income.................................................... (.01)
----
Net asset value, end of period ............................................................... $11.59
======
Total return ................................................................................. 15.93%
Ratios/supplemental data:
Net assets, end of period (millions).......................................................... $ 2.1
Ratio of expenses to average net assets:
Before expense reimbursement ........................................................... 8.13%+
After expense reimbursement............................................................. 2.50%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement ........................................................... (5.31)%+
After expense reimbursement ............................................................ 0.32%+
Portfolio turnover rate ...................................................................... 50.75%
<FN>
*Commencement of operations.
+Annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Insightful Investor Growth Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Insightful Investor Growth Fund (the "Fund") is a diversified 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 an open-end management investment company. The Fund's primary
investment objective is growth of capital which it seeks to achieve by investing
principally in common stocks. The market value of the Fund's investment
portfolio will fluctuate with market conditions and investor's shares, when
redeemed, may be worth more or less than their original cost. The Fund began
operations on July 28, 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. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on
an exchange or NASDAQ for which there has been no sale and other
over-the-counter securities are valued at the last reported bid
price. Securities for which quotations are not readily available are
valued at their respective fair values as determined in good faith by
the Board of Trustees. Short-term investments are stated at cost,
which when combined with accrued interest, approximates market value.
U.S. Government securities with less than 60 days remaining to
maturity when acquired by the Fund are valued on an amortized cost
basis. U.S. Government securities with more than 60 days remaining to
maturity are valued at the current market value (using the mean
between the bid and asked price) until the 60th day prior to
maturity, and are then valued at amortized cost based upon the value
on such date unless the Board determines during such 60 day period
that this amortized cost basis does not represent fair value.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no federal
income tax provision is required.
C. Security Transactions, Investment Income and Distributions. As
is common in the industry, security transactions are
accounted for on the trade date. Dividend income and distributions
to shareholders are recorded on the ex-dividend date.
D. Accounting Estimates. In preparing financial statements in conformity
with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements, as well as
the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
<PAGE>
Insightful Investor Growth Fund
NOTES TO FINANCIAL STATEMENTS, Continued
NOTE 3 - INVESTMENT ADVISORY AND MANAGEMENT FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
For the period ended December 31, 1995, Insightful Management Corporation
(the "Adviser") provided the Fund with investment management services under an
Investment Advisory Agreement. The Adviser furnished all investment advice,
office space, facilities, and most personnel needed by the Fund. As compensation
for its services, the Adviser is entitled to a monthly fee at the annualized
rate of 1.25% based upon the average daily net assets of the Fund. For the
period ended December 31, 1995, the Fund incurred $7,268 in advisory fees.
The Fund is responsible for its own operating expenses. The Adviser 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 the most stringent limits
prescribed by any state in which the Fund's shares are offered for sale. During
the period ended December 31, 1995, the Adviser waived all of its advisory fees
and in addition, voluntarily reimbursed $25,509 of the Fund's operating
expenses. Any such reductions made by the Adviser in its fees or payments or
reimbursement of expenses which are the Fund's obligation are subject to
reimbursement by the Fund within the following three years provided the Fund is
able to effect such reimbursement and remain in compliance with applicable
expense limitations.
Southampton Investment Management Company (the "Manager") acts as the
Fund's Administrative Manager under an Administrative Management 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 Manager receives an
annual fee equal to the greater of 0.20% of the Fund's average daily net assets
between $15 and $50 million or $30,000.
Newcomb & Company (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 Adviser. During the period ended December 31,
1995, the Distributor received commissions of $1,155 on sales of the Fund's
shares.
Certain officers and Trustees of the Trust are also officers and/or
directors of the Manager.
NOTE 4 - DISTRIBUTION COSTS
The Fund has adopted a Distribution and Shareholder Servicing Plan (the
"Plan") in accordance with Rule 12b-1 under the 1940 Act. The Plan provides that
the Fund may pay a fee to the Distributor at an annual rate of up to 0.25% of
the average daily net assets of the Fund. Payments made pursuant to the Plan are
limited to the actual expenses incurred by the Distributor in activities that
are primarily designed to promote the sale of shares of the Fund. The Fund
incurred $1,444 in distribution expenses for the period ended December 31, 1995.
NOTE 5 - INVESTMENT TRANSACTIONS
Purchases and sales of securities, other than short-term investments, for
the period ended December 31, 1995 were $2,026,162 and $431,982, respectively.
At December 31, 1995 the Fund had a capital loss carryforward for federal
income tax purposes of $22,053 which expires in 2003. In addition, the Fund
realized losses for financial reporting purposes of $28,964 which will not be
realized for federal income tax purposes until 1996.
<PAGE>
Insightful Investor Growth Fund
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of
Insightful Investor Growth 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 Insightful Investor Growth 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 July 28, 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
Insightful Investor Growth Fund as of December 31, 1995, and the results of its
operations, the changes in its net assets and the financial highlights for the
period from July 28, 1995 to December 31, 1995, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 2, 1996
<PAGE>
Adviser
Insightful Management Corporation
175 Great Neck Road Suite 307
Great Neck, New York 11021
Distributor
Newcomb & Company
Six New England Executive Park
Burlington, Massachusetts 01803
Custodian
Star Bank
P.O. Box 1118
Cincinnati, Ohio 45201-1118
Transfer Agent
American Data Services, Inc.
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 shareholders of the
Insightful Investor Growth Fund and may not
be used as sales literature unless preceded or
accompanied by a current prospectus.
