Leonetti Balanced Fund
Annual Report
June 30, 1996
<PAGE>
June 30, 1996
THE LEONETTI BALANCED FUND
Dear Shareholder:
The Leonetti Balanced Fund marked its first eleven months as a public fund by
gaining 8.5 percent. The portfolio mix at the end of June stood at 66 percent
common stock, 26 percent fixed income, and the remaining 8 percent was in cash
equivalents. The Lipper Balanced Index was up 13.0 percent during the same
period of time.
The economy continued to fool the economists by moving ahead at a slightly
stronger clip than what had been anticipated. This strength in the economy has
brought an unusual level of volatility to the fixed income market. As interest
rates have moved higher, the stock market advance has narrowed. One industry
group after another has witnessed pullbacks in their stock prices. In some cases
such as technology, the correction has been quite severe.
At the end of the fiscal year, the largest holdings in the Fund listed in order
were: duPont, Chevron, Minnesota Mining and Manufacturing, Bellsouth, AT&T,
General Motors, International Paper, American Electric Power, Baxter
International and Placer Dome.
On the fixed income side of the portfolio, we continue to believe that shorter
term maturities offer the best reward with the lowest risk. The holdings of the
Fund are in U.S. Treasury Notes, with the average maturity less than two years.
We remain very positive on the stock market in the coming months. Our feeling is
that the large capitalization stocks will come back into favor in the second
half of 1996. This rotation should benefit the Leonetti Balanced Fund.
As the size of the Fund and the number of shareholders continues to grow, we
look forward to the second half of 1996.
Cordially,
LEONETTI & ASSOCIATES, INC.
<PAGE>
THE LEONETTI BALANCED FUND
*Results shown are past performance, which is not a guarantee of future returns.
Share value and returns fluctuate and you may have a gain or loss when you sell
shares. Performance results for the Leonetti Balanced Fund and the Lipper
Balanced Index include reinvested dividends.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE LEONETTI BALANCED
FUND AND THE LIPPER FUND.
Date Leonetti Balanced Fund Lipper Fund
8/1/95 10,000 10,000
9/30/95 994 10,263
12/31/95 10,605 10,699
3/31/96 10,963 10,944
6/30/96 10,846 11,304
Past performance is not predictive of future performance.
<PAGE>
THE LEONETTI BALANCED FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 66.5% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Airlines: 0.7%
<S> <C> <C>
4,000 US Air Group............................................................ $ 72,000
--------
Auto: 3.6%
7,000 General Motors Corporation.............................................. 366,625
-------
Chemicals: 4.7%
6,000 E.I. duPont de Nemours.................................................. 474,750
-------
Commercial Services - Security / Safety: 0.7%
3,500 ADT, Ltd................................................................ 66,062
------
Computer Graphics: 0.6%
6,000 Sigma Designs, Inc...................................................... 56,250
------
Computer Networks: 0.7%
5,000 Auspex Systems.......................................................... 75,000
------
Computer Software: 4.7%
8,000 Activision.............................................................. 104,000
6,000 Electronics Arts, Inc................................................... 160,500
8,000 Micrografx, Inc......................................................... 117,000
5,000 Softkey Software........................................................ 94,688
------
476,188
-------
Diversified Operations: 7.1%
3,000 General Electric Company................................................ 259,500
6,700 Minnesota Mining & Manufacturing Company................................ 462,300
-------
721,800
-------
Electronics: 1.2%
6,000 Altron, Inc............................................................. 121,500
-------
Food: 3.6%
7,000 Flowers Industries...................................................... 112,875
7,000 Nabisco Holdings Corporation - Class A.................................. 247,625
-------
360,500
-------
<PAGE>
THE LEONETTI BALANCED FUND
PORTFOLIO OF INVESTMENTS at June 30, 1996, Continued
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Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Household Appliances: 1.0%
5,000 Maytag Corporation...................................................... $ 104,375
---------
Leisure: 2.1%
2,750 Eastman Kodak Company................................................... 213,812
-------
Medical: 8.6%
5,000 Abbott Laboratories..................................................... 217,500
5,000 American Medical Response............................................... 176,250
5,000 Baxter International, Inc............................................... 236,250
2,500 Elan Corporation, PLC - ADR............................................. 142,813
4,000 Invacare Corporation.................................................... 94,000
------
866,813
-------
Mining: 1.9%
8,000 Placer Dome, Inc........................................................ 191,000
-------
Oil: 4.7%
8,000 Chevron Corporation..................................................... 472,000
-------
Paper: 2.9%
8,000 International Paper Company............................................. 295,000
-------
Railroad: 2.1%
5,000 Kansas City Southern Industries......................................... 214,375
-------
Semiconductors: 0.9%
5,000 Cyrix Corporation....................................................... 86,250
------
Telecommunications: 10.5%
5,000 AT&T.................................................................... 310,000
8,000 Bellsouth Corporation................................................... 339,000
4,000 Dialogic Corporation.................................................... 238,500
5,000 Telephonos de Mexico.................................................... 167,500
-------
1,055,000
---------
<PAGE>
THE LEONETTI BALANCED FUND
PORTFOLIO OF INVESTMENTS at June 30, 1996, Continued
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Shares Market Value
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Utilities: 3.0%
7,000 American Electric Power................................................. $ 298,375
---------
Waste Management: 1.2%
4,000 USA Waste Services, Inc................................................. 118,500
-------
Total Common Stocks (cost $6,138,707)................................... 6,706,175
---------
Principal Amount U.S. GOVERNMENT OBLIGATIONS: 25.6%
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$350,000 U.S. Treasury Note, 4.375%, due 11/15/96................................ 348,688
400,000 U.S. Treasury Note, 4.750%, due 2/15/97................................. 397,750
350,000 U.S. Treasury Note, 5.625%, due 6/30/97................................. 349,453
350,000 U.S. Treasury Note, 5.625%, due 1/31/98................................. 347,812
400,000 U.S. Treasury Note, 5.125%, due 2/28/98................................. 394,250
400,000 U.S. Treasury Note, 5.875%, due 4/30/98................................. 398,624
350,000 U.S. Treasury Note, 5.875%, due 8/15/98................................. 348,031
-------
Total U.S. Government Obligations (cost $2,592,107) ... 2,584,608
---------
REPURCHASE AGREEMENT: 7.3%
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738,000 Star Bank Repurchase Agreement, 5.0%, dated 6/28/96, due 7/1/96,
collateralized by $785,000 GNMA, due 5/20/22 (proceeds $738,303)
(cost $738,000)......................................................... 738,000
-------
TOTAL INVESTMENT IN SECURITIES (cost $9,468,814+): 99.4%................ 10,028,783
Other Assets less Liabilities: 0.6%..................................... 58,432
------
TOTAL NET ASSETS: 100.0%................................................ $10,087,215
===========
<FN>
+ At June 30, 1996, the cost of securities for Federal tax purposes was the same
as the basis for financial reporting. Unrealized appreciation and depreciation
of securities were as follows:
Gross unrealized appreciation........................................... $ 859,284
Gross unrealized depreciation.......................................... (299,315)
--------
Net unrealized appreciation.................................... $ 559,969
=========
</FN>
</TABLE>
<PAGE>
THE LEONETTI BALANCED FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (identified cost $9,468,814) (Note 2-A) ........... $10,028,783
Cash................................................................................... 343
Dividends and interest receivable...................................................... 53,072
Organization costs, net of accumulated amortization of $4,899.......................... 25,101
Other assets........................................................................... 6,322
-----
Total assets .............................................................. 10,113,621
----------
LIABILITIES
Advisory fee payable................................................................... 9,259
Other liabilities...................................................................... 17,147
------
Total liabilities.......................................................... 26,406
------
NET ASSETS $10,087,215
===========
Net asset value, offering and redemption price per share
($10,087,215/934,440 shares outstanding;
unlimited number of shares authorized without par value) ........................ $10.80
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $ 9,484,130
Undistributed net investment income.................................................... 37,884
Undistributed net realized gain on investments......................................... 5,232
Net unrealized appreciation of investments............................................. 559,969
-------
Net assets ...................................................................... $10,087,215
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE LEONETTI BALANCED FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Period August 1, 1995* through June 30, 1996
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INVESTMENT INCOME
<S> <C>
Income
Interest ........................................................................ $ 144,512
Dividends........................................................................ 100,967
Other............................................................................ 2,182
-----
Total investment income ................................................... 247,661
-------
Expenses
Advisory fees (Note 3) .......................................................... 83,530
Administration fee (Note 3)...................................................... 27,534
Custodian and accounting fees.................................................... 16,765
Transfer agent fees.............................................................. 5,966
Auditing fees.................................................................... 14,686
Legal fees....................................................................... 1,377
Trustees' fees................................................................... 2,754
Registration fees................................................................ 9,697
Amortization of organization costs............................................... 4,899
Reports to shareholders.......................................................... 2,754
Miscellaneous.................................................................... 2,754
-----
Total expenses............................................................. 172,716
-------
Net investment income ................................................... 74,945
------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on security transactions ............................................ 5,232
Net unrealized appreciation of investments ............................................ 559,969
-------
Net realized and unrealized gain on investments ................................. 565,201
-------
Net Increase in Net Assets Resulting from Operations ...................... $ 640,146
=========
<FN>
*Commencement of operations.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE LEONETTI BALANCED FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
August 1, 1995*
through
June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C>
Net investment income........................................................................ $ 74,945
Net realized gain on security transactions .................................................. 5,232
Net change in unrealized appreciation of investments......................................... 559,969
-------
Net increase in net assets resulting from operations .................................. 640,146
-------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ($0.045 per share)..................................................... (37,061)
-------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a)................. 9,484,130
---------
Total increase in net assets .......................................................... 10,087,215
NET ASSETS
Beginning of period ......................................................................... -0-
-
End of period (including undistributed net investment income of $39,459).................... $10,087,215
===========
<FN>
(a) A summary of capital shares transactions is as follows:
August 1, 1995* through
June 30, 1996
Shares Value
Shares sold .............................................................. 977,143 $9,934,701
Shares issued in reinvestment of distribution............................. 3,510 37,061
Shares redeemed........................................................... (46,213) (487,632)
------- --------
Net increase ............................................................. 934,440 $9,484,130
======= ==========
*Commencement of operations.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE LEONETTI BALANCED FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
- ------------------------------------------------------------------------------------------------------------------------------------
August 1, 1995* through
June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period ......................................................... $10.00
------
Income from investment operations:
Net investment income .................................................................. .09
Net realized and unrealized gain on investments ........................................ .76
---
Total from investment operations.............................................................. .85
---
Less distributions:
Dividends from net investment income.................................................... (.05)
----
Net asset value, end of period ............................................................... $10.80
======
Total return ................................................................................. 8.46%++
Ratios/supplemental data:
Net assets, end of period (millions).......................................................... $ 10.1
Ratio of expenses to average net assets:
Before expense reimbursement ........................................................... 2.26%+
After expense reimbursement............................................................. 2.26%+
Ratio of net investment income to average net assets:
Before expense reimbursement ........................................................... 1.02%+
After expense reimbursement ............................................................ 1.02%+
Portfolio turnover rate ...................................................................... 42.16%
Average commission rate paid per share........................................................ $ 0.0600
<FN>
*Commencement of operations.
+Annualized.
++Not Annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE LEONETTI BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Leonetti Balanced 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 began operations on August 1,
1995. The investment objective of the Fund is to seek total return through a
combination of income and capital growth, consistent with preservation of
capital. The Fund seeks to achieve its objective by investing primarily in
equity securities and higher quality fixed income obligations.
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. Deferred Organization Costs. The Fund has incurred expenses of
$30,000 in connection with the organization of the Fund. These costs
have been deferred and are being amortized on a straight line basis
over a period of sixty months from the date the Fund commenced
investment operations. In the event that any of the initial shares of
the Fund are redeemed during the amortization period by any holder
thereof, the redemption proceeds will be reduced by any unamortized
organization expenses in the same proportion as the number of said
shares being redeemed bears to the number of initial shares that are
outstanding at the time of the redemption.
<PAGE>
THE LEONETTI BALANCED FUND
E. Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the period ended June 30, 1996, Leonetti & Associates, Inc. (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 was entitled to a monthly fee at the annual rate
of 1.00% (reduced from 1.25% during the period) based upon the average daily net
assets of the Fund. For the period ended June 30, 1996, the Fund incurred
$83,530 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. 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.
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.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments,
for the period ended June 30, 1996 were $11,641,152 and
$2,918,656, respectively.
<PAGE>
THE LEONETTI BALANCED FUND
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
The Leonetti Balanced 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 Leonetti Balanced Fund (a series of
Professionally Managed Portfolios) as of June 30, 1996, and the related
statements of operations and changes in net assets and the financial highlights
for the period from August 1, 1995 (commencement of operations) to June 30,
1996. 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 June
30, 1996, 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
Leonetti Balanced Fund as of June 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the period from
August 1, 1995 (commencement of operations) to June 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
August 5, 1996
<PAGE>
Adviser
Leonetti & Associates, Inc.
1130 Lake Cook Road, Suite 105
Buffalo Grove, IL 60089
(800) 454-0999
--
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, Inc.
24 West Carver Street, 2nd Floor
Huntington, New York 11743
--
Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, CA 90071
--
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
This report is intended for the shareholders of
the Leonetti Balanced Fund and should not be
used as sales literature unless accompanied
or preceded by a current prospectus.
