<PAGE> 1
[KAYNE ANDERSON RISING DIVIDENDS FUND]
July 12, 1996
Dear Shareholder:
The second quarter of 1996, which ended June 30th, showed continued strength in
the stock market. For the quarter the Fund was up 3.4% vs. the S&P 500 increase
of 4.5%. Over the past twelve months the Kayne, Anderson Rising Dividends Fund
has shown an increase of 27.5% vs. the S&P 500 increase of 26.0%.
We expect a positive economic environment to persist. As we see it: (1)
inflation is under control; (2) economic growth is moderate; (3) in this
election year, interest rates are expected to stay in a trading range, rather
than trend higher; (4) corporate profits should grow moderately; and (5)
worldwide demand for equities is expected to remain strong.
Our portfolio is structured to keep pace in a positive market environment yet
be risk averse during any downturn. The defensive nature of our portfolio
derives from the high quality of the companies we own. We only buy companies
which meet our very selective Rising Dividend investment disciplines. As a
result, ninety-eight percent of our companies are rated A- to A+ by Standard &
Poor's. Below we have summarized a few key statistics to show the quality of
the companies in our portfolio compared to the companies in the S&P 500 Stock
Index, as of June 30, 1996:
<TABLE>
<CAPTION>
Rising
Dividends
Fund S&P 500*
---------------- --------
<S> <C> <C>
Annualized Earnings Growth -- 10 years......... 13.6% 6.6%
Annualized Dividend Growth -- 10 years......... 15.3% 5.9%
Earnings Reinvestment rate -- 5 years.......... 59.0% 43.0%
Long Term Debt/Total Capitalization............ 20.0% 33.7%
Return on Equity -- 5 years.................... 21.0% 15.4%
Price/Earnings Ratio -- 1997 Estimate.......... 17.1x 16.8x
</TABLE>
These statistics show that a Rising Dividends stock portfolio has superior
fundamental characteristics. That is, the stocks we hold are enjoying above
average growth, paying out a consistently rising income stream to shareholders,
reinvesting substantially more into the business, showing substantially higher
return on invested capital, while at the same time having a much better balance
sheet with much lower debt as compared to the average company. In addition, the
table shows that the price/earnings ratio is approximately the same as the S&P
500 even though our companies have demonstrably better growth and much higher
quality.
<PAGE> 2
The companies we own are "stocks for all seasons." They are industry leaders and
consistent growers with strong managements and clean balance sheets. At times
when investors are concerned about the economic outlook, these companies stand
out as outstanding risk-averse holdings. A diversified portfolio of these
companies should continue to keep pace in up markets and be defensive in down
markets.
One other point to emphasize is the favorable tax situation. Because our
portfolio is made up only of high quality companies, we are long-term holders
and the portfolio has relatively low turnover. As a result, in most years
realized capital gains are minimized.
In summary, we are comfortable with the economic outlook and with our
diversified, high quality, rising dividends equity portfolio. We thank you for
your continued confidence and we encourage you to contact us with any questions
or comments.
/s/ Richard A. Kayne /s/ Allan M. Rudnick
- ----------------------------- -----------------------------
Richard A. Kayne Allan M. Rudnick
Chief Executive Officer Chief Investment Officer
*Note: S&P 500 statistics are compiled from the most recently filed annual
statements.
<PAGE> 3
KAYNE, ANDERSON RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Shares COMMON STOCKS: 99.6% Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
BASIC MATERIAL/CHEMICALS: 5.2%
18,500 Monsanto Company.................................. $ 601,250
13,530 PPG Industries, Inc. ............................. 659,588
----------
1,260,838
----------
BASIC MATERIALS/METALS: 1.4%
6,540 Nucor Corporation................................. 331,087
----------
CAPITAL GOODS/ELECTRICAL EQUIPMENT: 11.2%
22,010 AMP, Inc. ........................................ 883,151
11,800 General Electric Company.......................... 1,020,700
10,300 W.W. Grainger Corporation......................... 798,250
----------
2,702,101
----------
COMMUNICATION SERVICES/TELECOM: 3.4%
6,960 Bell Atlantic Corporation......................... 443,700
7,520 SBC Communications, Inc. ......................... 370,360
----------
814,060
----------
CONSUMER CYCLICAL/ENTERTAINMENT & LEISURE: 3.4%
13,060 The Walt Disney Company........................... 821,148
----------
CONSUMER CYCLICAL/MISCELLANEOUS: 1.8%
15,900 Rubbermaid, Inc. ................................. 433,275
----------
CONSUMER CYCLICAL/PUBLISHING & BROADCASTING: 4.0%
13,405 Gannett Company, Inc. ............................ 948,404
----------
CONSUMER CYCLICAL/RETAILING: 2.5%
23,750 Wal-Mart Stores, Inc. ............................ 602,656
----------
CONSUMER CYCLICAL/SERVICES: 2.2%
9,500 Cintas Corporation................................ 508,250
----------
CONSUMER STAPLES/BEVERAGES: 2.5%
12,040 Coca-Cola Company................................. 588,455
----------
</TABLE>
3
<PAGE> 4
KAYNE, ANDERSON RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1996 (UNAUDITED), CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
SHARES MARKET VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES / CONSUMER PRODUCTS: 4.4%
12,930 International Flavors & Fragrances .............. $ 615,791
5,000 Procter & Gamble Co. ............................ 453,125
-----------
1,068,916
-----------
CONSUMER STAPLES / FOODS: 8.6%
6,350 Kellogg Company ................................. 465,137
20,000 Sara Lee Corporation ............................ 647,500
16,800 Sysco Corporation ............................... 575,400
7,450 Wm. Wrigley, Jr., Company ....................... 376,225
-----------
2,064,262
-----------
ENERGY: 6.5%
8,110 Exxon Corporation ............................... 704,556
3,650 Mobil Corporation ............................... 409,256
2,910 Royal Dutch Petroleum Company ................... 447,413
-----------
1,561,225
-----------
FINANCIAL / BANKING: 8.1%
14,250 Banc One Corporation ............................ 484,500
20,000 Equifax, Inc. ................................... 525,000
9,300 Fifth Third Bancorp ............................. 502,200
12,500 Norwest Corporation ............................. 435,937
-----------
1,947,637
-----------
FINANCIAL / FINANCIAL: 4.9%
8,080 Franklin Resources, Inc. ........................ 492,880
13,460 State Street Boston Corporation ................. 686,460
-----------
1,179,340
-----------
FINANCIAL / INSURANCE: 1.8%
958 Cincinnati Financial Corporation ................ 54,965
2,450 General RE Corporation .......................... 373,013
-----------
427,978
-----------
HEALTH CARE / DRUGS & HOSPITAL SUPPLIES: 11.0%
9,350 Abbott Laboratories ............................ 406,725
10,000 Astra AB-ADR, Class A .......................... 437,500
20,020 Johnson & Johnson .............................. 990,990
</TABLE>
4
<PAGE> 5
KAYNE, ANDERSON RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1996 (UNAUDITED), CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
SHARES MARKET VALUE
- ------------------------------------------------------------------------------
<S> <C>
HEALTH CARE / DRUGS & HOSPITAL SUPPLIES:
CONTINUED
7,480 Merck & Company, Inc. .......................... $483,396
18,730 Mylan Laboratories, Inc. ....................... 323,093
-----------
2,641,703
-----------
MISCELLANEOUS: 2.3%
8,040 Minnesota Mining & Manufacturing Company ....... 554,760
-----------
TECHNOLOGY / COMPUTERS & OFFICE EQUIPMENT: 4.7%
4,850 Diebold, Inc. .................................. 234,013
9,050 Hewlett-Packard Company ........................ 901,606
-----------
1,135,619
-----------
TECHNOLOGY / DATA SERVICES: 7.9%
19,920 Automatic Data Processing ...................... 769,410
7,930 Electronic Data Systems ........................ 426,238
9,750 Reuters Holdings PLC, ADR ...................... 706,875
-----------
1,902,523
-----------
TECHNOLOGY / TELECOMMUNICATIONS EQUIPMENT: 1.8%
20,620 L.M. Ericsson Tel-Sp, ADR ...................... 443,330
-----------
Total Common Stock (cost $18,003,505) .......... 23,937,567
-----------
Total Investments in Securities
(cost $18,003,505+): 99.6%.................... 23,937,567
Other Assets Less Liabilities: 0.4% ............ 87,161
-----------
TOTAL NET ASSETS: 100.0% ....................... $24,024,728
===========
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation .................. $ 6,107,273
Gross unrealized depreciation .................. (173,211)
-----------
Net unrealized appreciation ............ $ 5,934,062
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
KAYNE, ANDERSON RISING DIVIDENDS FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1996 (UNAUDITED)
<TABLE>
- --------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (identified cost $18,003,505)
(Note 2A)........................................................... $23,937,567
Cash.................................................................... 45,468
Dividends and interest receivable....................................... 29,838
Prepaid expenses........................................................ 11,902
Deferred organization expenses (Note 2D)................................ 26,998
-----------
Total assets.................................................... 24,051,773
-----------
LIABILITIES
Accrued expenses........................................................ 27,045
-----------
NET ASSETS................................................................ $24,024,728
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($24,024,728/1,732,419 shares outstanding,
unlimited number of shares authorized without par value)....... $ 13.87
===========
SOURCE OF NET ASSETS
Paid-in capital........................................................ $17,200,855
Undistributed net investment income.................................... 85,943
Undistributed net realized gain on investments......................... 803,868
Net unrealized appreciation of investments............................. 5,934,062
-----------
Net assets..................................................... $24,024,728
===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
KAYNE, ANDERSON RISING DIVIDENDS FUND
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................... $ 11,111
Dividends................................................... 221,922
---------
Total income............................................ 233,033
---------
Expenses:
Advisory fees (Note 3)...................................... 86,194
Management fee (Note 3)..................................... 25,487
Custodian and accounting fees............................... 13,060
Auditing fees............................................... 5,984
Transfer agent fees......................................... 3,740
Amortization of deferred organization expenses (Note 2D)... 3,826
Trustee's fees.............................................. 2,596
Registration fees........................................... 2,313
Miscellaneous............................................... 2,079
Legal fees.................................................. 1,707
Reports to shareholders..................................... 396
---------
Net expenses............................................ 147,382
---------
NET INVESTMENT INCOME................................. 85,651
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions................ 803,868
Net change in unrealized appreciation of investments........ 1,254,015
----------
Net realized and unrealized gain on investments......... 2,057,883
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.. $2,143,534
==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
KAYNE, ANDERSON RISING DIVIDENDS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET INCREASE IN NET ASSETS RESULTING FROM Six Months Ended May 1, 1995* to
OPERATIONS June 30, 1996** December 31, 1995
---------------- -----------------
<S> <C> <C>
Net investment income.............................................. $ 85,651 $ 114,280
Net realized gain from security transactions....................... 803,868 232,704
Net unrealized appreciation of investments......................... 1,254,015 3,060,930
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ 2,143,534 3,407,914
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ($0.000 and $0.074 per share, respectively).. -- (118,762)
Net realized gain from securities transactions
($0.000 and $0.145 per share, respectively...................... -- (232,704)
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS............... -- (351,466)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a)......................................... 1,267,864 17,556,882
----------- -----------
TOTAL INCREASE IN NET ASSETS................................... 3,411,398 20,613,330
NET ASSETS
Beginning of period................................................ 20,613,330 --
----------- -----------
END OF PERIOD (including undistributed net investment income of
$85,943 and $292, respectively)................................ $24,024,728 $20,613,330
=========== ===========
<CAPTION>
(a) A summary of capital share transactions is as follows:
Six Months Ended May 1, 1995* to
June 30, 1996** December 31, 1995
------------------------ ----------------------------
Shares Value Shares Value
------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold..................................... 184,133 $2,423,473 534,414 $ 5,826,371
Shares issued in consideration for like-kind
contributions (Note 5)....................... -- -- 1,143,396 12,177,173
Shares issued in reinvestment of distribution... -- -- 27,825 351,428
Shares redeemed................................. (84,408) (1,155,609) (72,941) (798,090)
------- ---------- -------- ----------
Net increase.................................... 99,725 $1,267,864 1,632,694 $17,556,882
======= ========== ======== ===========
</TABLE>
- -----------------------
* Commencement of operations.
** Unaudited.
See accompanying notes to financial statements.
8
<PAGE> 9
KAYNE, ANDERSON RISING DIVIDENDS FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Six Months May 1, 1995*
Ended to
June 30, 1996** December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period....... $12.63 $10.65
------ ------
Income from investment operations:
Net investment income.............. .05 .07
Net realized and unrealized gain
on investments................... 1.19 2.13
------ ------
Total income from investment operations.... 1.24 2.20
------ ------
Less distributions:
Dividends from net investment
income........................... -- (.07)
Distributions from net capital
gains............................ -- (.15)
------ ------
Total distributions........................ -- (.22)
------ ------
Net asset value, end of period............. $13.87 $12.63
====== ======
Total return............................... 9.82%++ $20.65%++
Ratios/supplemental data:
Net assets, end of period (millions)....... $24.0 $20.6
Ratio of expenses to average net assets.... 1.30%+ 1.31%+
Ratio of net investment income to average
net assets............................... 0.74%+ 0.94%+
Portfolio turnover rate.................... 12% 28%
</TABLE>
- ----------------
* Commencement of operations.
** Unaudited.
+ Annualized.
++ Not Annualized.
See accompanying notes to financial statements.
9
<PAGE> 10
KAYNE, ANDERSON RISING DIVIDENDS FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Kayne, Anderson Rising Dividends Fund (the "Fund") is a series of
shares of beneficial interest of Professionally Managed Portfolios, which is
registered under the Investment Company Act of 1940 (the "1940 Act") as a
diversified, open-end management investment company. The Fund began operations
on May 1, 1995.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund. These policies are in conformity with
generally accepted accounting principles.
A. Security Valuation: The Fund's investments are carried at market
value. Securities listed on an exchange or quoted on a national
market system are valued at the last sale price. Other
securities are valued at the last quoted bid price. Securities
for which market quotations are not readily available, if any,
are valued at an independent pricing service or determined
following procedures approved by the Board of Trustees.
Short-term investments are valued at amortized cost which
approximates market value.
B. Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially
all of its taxable income to its shareholders. Therefore, no
federal income tax provision is required.
C. Securities Transactions, Dividends and Distributions: As is
common in the industry, security transactions are accounted for
on the trade date. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
D. Deferred Organization Expenses: All of the expenses incurred by
the Advisor in connection with the organization and registration
of the Fund's shares will be borne by the Fund and are being
amortized to expense on a straight-line basis over a period of
five years.
E. Accounting Estimates: In preparing financial statements in
conformity with generally accepted accounting principles,
management makes estimates and assumptions with respect to
expenses that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as
the reported amounts of expenses during the period. Actual
results could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY AND MANAGEMENT FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
For the period ended June 30, 1996, Kayne, Anderson Investment
Management, L.P. (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 personnel as needed by the Fund. As compensation for its services, the
Advisor is entitled to a monthly fee at the annual rate of 0.75% based upon the
average daily net assets of the Fund.
10
<PAGE> 11
KAYNE, ANDERSON RISING DIVIDENDS FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1996 (UNAUDITED), CONTINUED
- -------------------------------------------------------------------------------
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 $15 million -
$30,000, $15 to $50 million - 0.20% of average net assets, $50 to $100 million
- - 0.15% of average net assets, $100 to $150 million - 0.10% of average net
assets, over $150 million - 0.05% of average net assets.
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 - PURCHASES AND SALES OF SECURITIES
For the period ended June 30, 1996, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$4,758,911 and $2,770,362, respectively.
NOTE 5 - IN-KIND CONTRIBUTION TRANSACTIONS
At the Fund's inception on May 1, 1995, certain shareholders purchased
Fund shares through nontaxable in-kind contributions of securities with a
market value totaling $12,177,173 (including contributed unrealized gain of
$1,619,117). These securities were deemed to be in accordance with the
investment objective of the Fund.
11
<PAGE> 12
' ADVISOR
Kayne, Anderson Investment Management, L.P.
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
(310) 556-2721
*
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
*
CUSTODIAN AND TRANSFER AGENT
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
*
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
*
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
This report is intended for shareholders of the
Kayne, Anderson Rising Dividends Fund and may
not be used as sales literature unless preceded or
accompanied by a current prospectus.
[KAYNE, ANDERSON RISING DIVIDENDS FUND]
Semi-Annual Report
June 30, 1996
