<PAGE> 1
LIGHTHOUSE GROWTH FUND
August 31, 1996
Dear Shareholder,
PERFORMANCE
The LIGHTHOUSE GROWTH FUND began on September 29, 1995 with an NAV of $12.00 and
ended its first fiscal year on August 31, 1996 at $13.57. Since inception, the
Fund reported a total return of 13.67%, which includes a $.06 per share
long-term capital gains distribution paid in December, 1995. The Lipper Growth
Fund Index was up 7.72% for the same time period. Year-to-date the Fund was up
12.90% vs. a gain of 6.09% for Lipper.
OVERVIEW
The excesses that we discussed in our last letter continued to build through the
month of May. At that point, speculative fever was running rampant. Iomega
epitomized the frenzy. On the strength of a hot storage product, its Zip drive
for the personal computer market, Iomega soared over 500% for the year to a high
of $55. Hyped by The Cabot Market Letter and the Motley Fools on America Online,
Iomega caught the public's eye. At its peak, Iomega sported a market cap of $6.5
billion. With sales approaching $1 billion this year and bullish forecasts of
$1.5 billion next year, we estimated the company could optimistically earn
$0.75/share in 1997. But with a hot product attracting plenty of attention (and
competition) in what has traditionally been a commodity business, these future
earnings are far from dependable. The bubble has now burst with Iomega trading
at about $15 per share.
The Iomega story is typical of a number of bubble stocks. Former high fliers
such as Presstek, Diana, and Optical Cable are off over 75% from their highs.
Even more respectable names such as America Online, Ascend Communications, and
Netscape Communications have rolled over anywhere from 25% to 50%. Most
portfolio managers see the bubble stocks as the individual investor's worst
nightmare. The removal of these excesses, they say, is healthy and necessary in
order to keep the bull market intact. Unfortunately, the speculation virus was
not isolated to naive risk takers, but spread to more respectable mainstream
investors.
For example, Fidelity Investments let go of its flagship Magellan Fund manager
Jeff Vinik at the top of the bull market in May. Mr. Vinik made the mistake of
getting more defensive (raising cash and buying bonds) as stocks continued their
relentless climb. Fidelity eventually succumbed to the pressure of "keeping up
with the Dow Joneses" by simply replacing Vinik with a portfolio manager more
willing to bet the $50+ billion fund on an ever-rising stock market.
Wall Street Week host and perennial optimist Louis Rukeyser also gave in to the
pressure to jump on the bullish bandwagon last May. Frustrated that his panel of
"elves" remained stubbornly neutral on its outlook for the market, he simply
replaced his less cheery technical analysts with more bullish gurus from the
brokerage/mutual fund community.
ECONOMY
We do not have much faith in economic prognosticators, nor do we intend to get
into the GNP forecasting business. Instead, we prefer to look at the economy as
a self-regulating system in which excesses are built up and removed. Excesses
are sometimes caused or made worse by government intervention and central bank
manipulation of credit. They are removed by the free market, but government
tampering can prolong this cleansing process.
<PAGE> 2
For example, last year we witnessed quite possibly the greatest boom in the
history of the semiconductor industry. Most analysts and industry executives
felt the good times would continue despite the previous cyclical nature of the
business. State and foreign governments jumped on the bandwagon by encouraging
new construction of semiconductor fabrication plants through tax breaks and
subsidized loans. Of course, the good times did not last and the current bust is
getting ugly. Especially hard hit are the low-end commodity chipmakers (Alliance
Semiconductor, Integrated Silicon Solutions, Logic Devices, Micron Technology)
who compete with well-funded Asian companies. Good times for the equipment
makers (Applied Materials, KLA Instruments, Mattson Technology, Tencor
Instruments) lasted a bit longer as the Asians continued to add new technology
and new capacity. Now however, investors are beginning to focus on the future
and it's not a pretty sight.
Today's greatest excesses are in the Internet and networking areas. There is an
absolute gold rush to the Internet as entrepreneurs try to make overnight
fortunes, untested and unprofitable companies go public, and lagging companies
look to the Internet to save the day. Internet infrastructure construction is
booming and those companies who sell networking gear to the industry (Ascend
Communications, Cascade Communications, Premisys Communications, Xylan) are
benefiting. The Internet may be the wave of the future, but it will not prevent
these excesses from being corrected. The trans-Atlantic flight of Charles
Lindbergh spurred a similar boom in aviation stocks in 1927. Despite getting in
on the ground floor of a high growth industry, speculators of the time were
badly burned when airline stocks eventually crashed and the industry
consolidated.
There are other problems with the economy that concern us. Inflation was
declared dead by most economists earlier this year. We remain skeptical. As long
as the government owns a printing press, they will use it. Energy prices have
been low and stable for over a decade. Now, inventories are tight and prices are
moving higher. The 1990s bull market has created its own share of excesses. As
the wealthy have seen their stock portfolios rise, they have been buying more
luxury goods. When Wall Street throws a party, it tends to celebrate by lighting
a cigar or two.
INVESTMENT STRATEGY
Our current investment strategy is twofold: bet against areas where excesses are
the greatest and look for value in areas where excesses are limited. Since our
last report, the LIGHTHOUSE GROWTH FUND continued to get more defensive. The
Fund increased its short position from 15.7% to 19.8%, cash from 38.0% to 45.6%,
and energy stocks from 17.0% to 19.6%. As of August 31, a small position in
long-term S&P 500 put options hedged approximately 14.0% of the portfolio.
The economic expansion since 1990 has largely avoided the consumer. As a result,
consumer-related industries such as retail and apparel are mostly devoid of
excesses. Consumer stocks dropped from 34.0% of the Fund's net assets to 29.3%.
We also hedged our consumer position by selling short overhyped IPO Planet
Hollywood and overvalued sporting goods retailer Just For Feet. The Fund also
recently added two luxury goods companies, Gucci and Saks Holdings, to its short
position. As of August 31, the Fund's short position in consumer stocks totaled
4.8%.
Capital spending and technology spending have been the main drivers of the 1990s
economy. Our short position continues to target areas of excess in high tech:
semiconductors - 2.8%, semiconductor equipment - 1.9%, peripherals - 0.9%,
Internet - 3.6%, and networking - 5.8% (15.0% total). This large short position
was mostly hedged by long positions in communications - 0.6%, computers - 4.5%,
semiconductors - 1.7%, and software - 6.8% (13.0% total). As of August 31, the
Fund was net short 2.0% in technology.
<PAGE> 3
We continue to be leery of interest-sensitive companies. As a result, the Fund's
position in financial stocks dropped from 9.0% to 3.8%.
As we approach our first full year of operations, we would like to thank you for
your support. We started operations with approximately $4 million in net assets
which have grown to $14 million. We are in the process of obtaining a NASDAQ
symbol which will be LGFTX and you will soon be able to reach us on our Web site
at http://www.lightkeepers.com.
/s/ Kevin P. Duffy /s/ Paul G. Horton
Kevin P. Duffy Paul G. Horton
Portfolio Manager Managing Director
[LIGHTHOUSE GROWTH FUND CHART]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Fund
Date Plot Pt. Index Factor Plot Pt.
09/29/95 10,000 1,712.15 0.00000 10,000
02/29/96 10,546 1,893.99 0.10621 11,062
08/31/96 11,367 1,950.16 0.02966 11,390
</TABLE>
Average Annual Total Return
Ended August 31, 1996
Inception (9/29/95)
14.88%
Past performance is not predictive of future performance.
<PAGE> 4
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT AUGUST 31, 1996
==========================================================================================
Shares COMMON STOCKS: 71.4% Market Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS - STEEL: 0.2%
2,000 Chaparral Steel Company.................................... $ 26,250
----------
CONSUMER GOODS - APPAREL: 7.0%
4,100 Jones Apparel Group........................................ 227,037
4,300 Liz Claiborne, Inc......................................... 149,425
25,600 Norton McNaughton, Inc..................................... 198,400
9,800 Oshkosh B'Gosh, Inc., Class A.............................. 166,600
10,000 Quiksilver, Inc............................................ 235,000
----------
976,462
----------
CONSUMER GOODS - CONSUMER PRODUCTS: 4.7%
41,000 Fossil, Inc................................................ 338,250
15,000 Helen of Troy, Ltd......................................... 211,875
8,500 Polk Audio, Inc............................................ 100,938
----------
651,063
----------
CONSUMER GOODS - RESTAURANTS: 0.4%
4,000 Vicorp Restaurants, Inc.................................... 53,000
----------
CONSUMER GOODS - RETAIL, APPAREL: 1.8%
9,000 AnnTaylor Stores, Inc...................................... 130,500
19,200 Designs, Inc............................................... 127,200
----------
257,700
----------
CONSUMER GOODS - RETAIL, GENERAL MERCHANDISE: 2.1%
4,900 Dillard Department Stores, Class A......................... 166,600
13,000 Kmart Corp................................................. 130,000
----------
296,600
----------
CONSUMER GOODS - RETAIL, MAIL ORDER: 3.6%
24,000 Land's End, Inc............................................ 504,000
----------
Consumer Goods - Retail, Specialty: 8.1%
40,000 Good Guys, Inc............................................. 330,000
18,000 MicroAge, Inc.............................................. 270,000
14,000 Rex Stores................................................. 194,250
45,200 Sun Television & Appliances................................ 152,550
6,500 Toys R Us.................................................. 191,750
----------
1,138,550
----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT AUGUST 31, 1996, CONTINUED
==========================================================================================
Shares Market Value
- ------------------------------------------------------------------------------------------
<S> <C>
CONSUMER GOODS - TOBACCO: 1.6%
800 Philip Morris Companies, Inc.......................... $ 71,800
5,500 RJR Nabisco, Inc...................................... 145,062
----------
216,862
----------
ENERGY - OIL, SECONDARY: 14.5%
3,700 Anadarko Petroleum Corp............................... 195,175
13,000 Barrett Resources Corp................................ 430,625
27,000 Basin Exploration, Inc................................ 182,250
10,100 Forest Oil Corp....................................... 142,663
16,000 Key Production Company, Inc........................... 140,000
10,800 Nuevo Energy Company.................................. 403,650
22,000 Optima Petroleum Corp................................. 66,000
21,000 Petrocorp, Inc........................................ 189,000
10,000 Plains Resources...................................... 136,250
4,100 Pogo Producing Company................................ 139,912
----------
2,025,525
----------
ENERGY - OILFIELD SERVICES: 2.6%
7,500 Dreco Energy Services, Ltd............................ 193,125
6,500 Numar Corp............................................ 99,938
2,000 Tidewater, Inc........................................ 76,750
----------
369,813
----------
ENERGY - SEISMIC: 2.5%
31,000 Mitcham Industries, Inc............................... 193,750
2,500 Western Atlas, Inc.................................... 151,875
----------
345,625
----------
FINANCIAL - BROKERAGE FIRMS: 3.5%
1,000 Charles Schwab Corp................................... 25,000
2,600 Edwards (A.G.) & Sons, Inc............................ 72,800
2,000 Inter-Regional Financial Group........................ 53,250
8,200 Legg Mason, Inc....................................... 249,075
4,000 Piper Jaffray Companies, Inc.......................... 47,500
2,000 Raymond James Financial, Inc.......................... 46,500
----------
494,125
----------
FINANCIAL - MUTUAL FUND COMPANIES: 0.3%
1,050 Value Line, Inc....................................... 38,325
----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT AUGUST 31, 1996, CONTINUED
==========================================================================================
Shares Market Value
- ------------------------------------------------------------------------------------------
<S> <C>
HEALTH CARE - PHARMACEUTICAL: 2.4%
16,000 ICN Pharmaceuticals, Inc.............................. $ 336,000
----------
PRECIOUS METALS - GOLD MINING: 1.6%
13,000 Agnico Eagle Mines, Ltd............................... 227,500
----------
TECHNOLOGY - COMMUNICATIONS: 0.6%
10,000 Vtel Corp............................................. 79,375
----------
TECHNOLOGY - COMPUTERS: 4.5%
27,600 Advanced Logic Research............................... 227,700
2,000 Apple Computer, Inc................................... 48,500
3,000 Dell Computer Corp.................................... 201,375
2,700 Sun Microsystems, Inc................................. 146,813
----------
624,388
----------
TECHNOLOGY - SEMICONDUCTORS: 1.7%
1,000 Advanced Micro Devices, Inc........................... 12,750
12,000 Cyrix Corp............................................ 162,000
5,000 QLogic Corp........................................... 56,875
----------
231,625
----------
TECHNOLOGY - SOFTWARE: 6.8%
10,000 7th Level, Inc........................................ 71,250
12,000 Intersolv, Inc........................................ 94,500
40,000 Progress Software Corp................................ 645,000
8,500 Sybase, Inc........................................... 136,930
----------
947,680
----------
TRANSPORTATION - AIRLINES: 0.9%
5,700 Southwest Airlines Company............................ 130,387
----------
Total Common Stocks (cost $9,804,138)................. 9,970,855
----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT AUGUST 31, 1996, CONTINUED
===================================================================================================================
Shares CLOSED-END FUNDS - INTERNATIONAL: 2.9% Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
15,000 Argentina Fund.......................................................... $ 168,750
10,000 Chile Fund.............................................................. 230,000
-----------
Total Closed-End Funds (cost $405,684).................................. 398,750
-----------
Total Investment in Securities (cost $10,209,822+): 74.3%............... 10,369,605
-----------
LONG INDEX OPTIONS: 1.0%
- -------------------------------------------------------------------------------------------------------------------
Shares Subject to Put Common Stocks / Expiration Date / Exercise Price
3,000 S&P 500 / March 700 (cost $120,711)..................................... 145,875
-----------
Principal Amount REPURCHASE AGREEMENT: 13.3%
- -------------------------------------------------------------------------------------------------------------------
$1,851,000 Star Bank Repurchase Agreement, 4.75%, dated 8/30/96, due 9/3/96,
collateralized by $1,995,000 GNMA, due 1/20/24 (proceeds $1,851,977)
(cost $1,851,000)....................................................... 1,851,000
-----------
Other Assets Less Liabilities: 11.4%.................................... 1,597,945
-----------
Total Net Assets: 100.0%................................................ $13,964,425
===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT AUGUST 31, 1996, CONTINUED
==========================================================================================
SECURITIES SOLD SHORT: (19.8)%
- ------------------------------------------------------------------------------------------
Shares Common Stocks Market Value
- ------------------------------------------------------------------------------------------
<S> <C>
CONSUMER GOODS - LUXURY ITEMS: (2.7)%
3,000 Gucci Group, NV........................................ $199,501
5,200 Saks Holdings, Inc..................................... 177,450
--------
376,951
--------
CONSUMER GOODS - RESTAURANTS: (1.1)%
6,000 Planet Hollywood International, Inc.................... 146,250
--------
CONSUMER GOODS - RETAIL, SPECIALTY: (1.1)%
3,300 Just For Feet, Inc..................................... 147,675
--------
TECHNOLOGY - COMPUTER PERIPHERALS: (0.9)%
8,000 Iomega Corp............................................ 124,000
--------
TECHNOLOGY - INTERNET: (3.5)%
4,500 Netscape Communications Corp........................... 159,188
6,000 PSINet, Inc............................................ 66,000
2,900 Security Dynamics Technologies, Inc.................... 189,226
4,000 Spyglass, Inc.......................................... 66,500
750 Yahoo!, Inc............................................ 14,719
--------
495,633
--------
TECHNOLOGY - NETWORKING: (5.8)%
4,900 Ascend Communications, Inc............................. 256,638
4,200 Cascade Communications Corp............................ 286,126
3,200 Premisys Communications, Inc........................... 124,800
3,500 Xylan Corporation...................................... 147,875
--------
815,439
--------
TECHNOLOGY - SEMICONDUCTORS: (2.8)%
7,500 Alliance Semiconductor Corp............................ 46,875
3,500 C-Cube Microsystems.................................... 133,875
1,000 Integrated Silicon Solution, Inc....................... 8,875
8,000 Logic Devices, Inc..................................... 29,500
7,000 Micron Technology, Inc................................. 159,250
500 Xilinx, Inc............................................ 17,500
--------
395,875
--------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT AUGUST 31, 1996, CONTINUED
================================================================================================
Shares Common Stocks Market Value
- ------------------------------------------------------------------------------------------------
<S> <C>
TECHNOLOGY - SEMICONDUCTOR EQUIPMENT: (1.9)%
5,700 Applied Materials, Inc................................ $ 138,225
3,500 KLA Instruments Corp.................................. 69,125
3,000 Mattson Technology, Inc............................... 25,500
1,600 Tencor Instruments.................................... 27,600
-----------
260,450
-----------
Total (proceeds $3,532,641)........................... $ 2,762,273
===========
+ At August 31, 1996, the cost and proceeds of securities for Federal tax
purposes were the same as the basis for financial reporting. Unrealized
appreciation and depreciation of securities were as follows:
Gross unrealized appreciation......................... $ 2,066,879
Gross unrealized depreciation......................... (1,111,564)
-----------
Net unrealized appreciation..................... $ 955,315
===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT AUGUST 31, 1996
==================================================================================================================
<S> <C>
ASSETS
Investments, at value (Identified cost $10,209,822) (Note 2-A) ........................ $10,369,605
Repurchase agreement (Cost $1,851,000) (Note 7)........................................ 1,851,000
Cash................................................................................... 771
Deposits with brokers for securities sold short........................................ 4,603,565
Put options purchased (Cost $120,711).................................................. 145,875
Receivables:
Expense reimbursement from Advisor (Note 4)...................................... 7,508
Fund shares sold................................................................. 79,817
Investments sold................................................................. 13,799
Dividends and interest .......................................................... 2,321
Organization costs..................................................................... 25,069
Other assets........................................................................... 26,211
-----------
Total assets .............................................................. 17,125,541
-----------
LIABILITIES
Securities sold short, at value (Proceeds $3,532,641).................................. 2,762,273
Payable for securities purchased....................................................... 369,792
Advisory fee payable................................................................... 13,876
Other accrued expenses ................................................................ 15,175
-----------
Total liabilities.......................................................... 3,161,116
-----------
NET ASSETS ................................................................................. $13,964,425
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($13,964,425/1,029,280 shares outstanding;
unlimited shares authorized of no par value) .......................................... $ 13.57
===========
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $12,905,663
Accumulated net investment loss........................................................ (88,658)
Undistributed net realized gain on investment transactions............................. 192,105
Net unrealized appreciation of investments............................................. 955,315
-----------
Net assets ...................................................................... $13,964,425
===========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 11
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - FOR THE PERIOD SEPTEMBER 29, 1995* TO AUGUST 31, 1996
===========================================================================================================-------
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................................... $ 35,802
Dividends........................................................................ 24,655
----------
Total income............................................................... 60,457
----------
Expenses:
Advisory fees (Note 4)........................................................... 92,926
Administration fee (Note 4)...................................................... 24,698
Transfer agent fees.............................................................. 21,013
Distribution costs (Note 5)...................................................... 18,585
Custodian and accounting fees.................................................... 17,265
Auditing fees.................................................................... 14,780
Registration fee................................................................. 10,597
Miscellaneous.................................................................... 9,370
Legal fees....................................................................... 3,667
Amortization of deferred organization expenses (Note 2D)......................... 3,183
Reports to shareholders.......................................................... 2,291
Trustees' fees................................................................... 2,038
----------
Total expenses............................................................. 220,413
Less, expenses waived/reimbursed (Note 4).................................. (71,298)
----------
Net expenses............................................................... 149,115
----------
Net investment loss ................................................. (88,658)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on security transactions....................................... 244,701
Net realized loss on put options purchased....................................... (23,135)
Net change in unrealized appreciation of investments............................. 955,315
----------
Net realized and unrealized gain on investments............................ 1,176,881
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $1,088,223
==========
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
11
<PAGE> 12
LIGHTHOUSE GROWTH FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD SEPTEMBER 29, 1995* TO AUGUST 31, 1996
=========================================================================================================-----===
<S> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss....................................................................... $ (88,658)
Net realized gain on securities transactions.............................................. 244,701
Net realized loss on put options purchased................................................ (23,135)
Net change in unrealized appreciation of investments...................................... 955,315
-----------
Net increase in net assets resulting from operations ............................... 1,088,223
-----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from securities transactions ($0.062 per share)......................... (29,461)
-----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a) ............. 12,905,663
-----------
Total increase in net assets........................................................ 13,964,425
NET ASSETS:
Beginning of period....................................................................... -0-
-----------
END OF PERIOD ............................................................................ $13,964,425
===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
September 29, 1995*
through
August 31, 1996
-------------------------
Shares Value
--------- -----------
<S> <C> <C>
Shares sold .................................................................... 1,114,505 $14,014,925
Shares issued in reinvestment of distributions.................................. 2,409 29,010
Shares redeemed................................................................. (87,634) (1,138,272)
--------- -----------
Net increase.............................................................. 1,029,280 $12,905,663
========= ===========
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
12
<PAGE> 13
LIGHTHOUSE GROWTH FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
===============================================================================
<TABLE>
<CAPTION>
September 29, 1995*
through
August 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period................................. $ 12.00
Income from Investment Operations:
Net investment loss............................................ (.09)
Net realized and unrealized gain on investments................ 1.72
-------
Total from investment operations..................................... 1.63
-------
Less:
Distributions (from capital gains)............................. (.06)
-------
Net Asset Value, End of Period....................................... $ 13.57
=======
Total Return......................................................... 13.67 %++
Ratios/Supplemental Data:
Net assets, end of period (thousands)................................ $13,964
Ratio of expenses to average net assets:
Before expense reimbursement................................... 2.95 %+
After expense reimbursement.................................... 2.00 %+
Ratio of net investment loss to average net assets:
Before expense reimbursement................................... (2.14)%+
After expense reimbursement.................................... (1.19)%+
Portfolio turnover................................................... 20.56%
Average commission rate paid per share............................... $.0588
</TABLE>
*Commencement of operations.
+Annualized.
++Not Annualized.
See accompanying notes to financial statements.
13
<PAGE> 14
LIGHTHOUSE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS AT AUGUST 31, 1996
================================================================================
NOTE 1 - ORGANIZATION
The Lighthouse 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 investment management company. The Fund began operations on September
29, 1995. The investment objective of the Fund is to seek growth of capital. The
Fund seeks to achieve its objective by investing primarily in equity securities.
Equity securities in which the Fund invests include common stocks and securities
having the characteristics of common stocks, such as convertible preferred
stocks, convertible debt securities and warrants.
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 valued 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, 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. 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.
14
<PAGE> 15
LIGHTHOUSE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 - SECURITIES SOLD SHORT
Securities sold short represent obligations of the Fund to make a future
delivery of a specific security and, correspondingly, create an obligation to
purchase the security at prevailing market prices (or deliver the security, if
owned by the Fund) at the later delivery date. As a result, these short sales
create the risk that the Fund's ultimate obligation to satisfy the delivery
requirements may exceed the amount recorded in the accompanying statement of
assets and liabilities.
The amount deposited with brokers for securities sold short is essentially
restricted to the extent that they serve as deposits for securities sold short.
It is the Fund's policy to continuously monitor the credit standing of the
brokers with whom it conducts business.
NOTE 4 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the period ended August 31, 1996, Lighthouse Capital Management, Inc.
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and most personnel needed by the Fund. As compensation
for its services, the Advisor was 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 August 31, 1996, the Fund incurred $92,926 in advisory fees.
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 2.00% of total net assets
calculated daily. As a result, the Advisor waived $71,298 of its fee. The Fund
will reimburse the Advisor, pursuant to this agreement, in later years in which
operating expenses for the portfolio are less than the applicable percentage
limitation, set forth previously for any such year.
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 Trust are also officers and/or
directors of the Administrator and Distributor.
15
<PAGE> 16
LIGHTHOUSE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
NOTE 5 - DISTRIBUTION COSTS
The Fund has adopted a Distribution Plan (the "Plan"), in accordance with
Rule 12b-1, under the 1940 Act. The Plan provides that the Fund will pay a fee
to the Distribution Coordinator, at an annual rate of up to 0.25% of the average
daily net assets of the Fund. The Plan allows that approved excess distribution
costs can be resubmitted by the Distribution Coordinator in the future years, up
to a maximum of three subsequent fiscal years following initial submission. No
such excess costs were incurred during the current period ended. The Fund
incurred $18,585 in distribution expenses, to the Advisor as the appointed
Distribution Coordinator, for the period ended August 31, 1996.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, for
the period ended August 31, 1996 were $11,199,437 and $1,360,951, respectively.
Purchased options transactions during the period ended August 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Put Options Purchased
---------------------
<S> <C>
Options outstanding, beginning of period................................ $ -0-
Options purchased....................................................... 293,367
Options closed.......................................................... (93,940)
Options exercised....................................................... -0-
Options expired......................................................... (78,716)
--------
Options outstanding at August 31, 1996.................................. 120,711
Unrealized appreciation at August 31, 1996.............................. 25,164
--------
Market value of options at August 31, 1996.............................. $145,875
========
Average fair market value of options for the
period ended August 31, 1996.......................................... $ 82,434
========
Net trading losses on options traded for period ended August 31, 1996... $(61,075)
========
</TABLE>
NOTE 7 - REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board, with member banks of the
Federal Reserve System or with such other brokers or dealers that meet the
credit guidelines established by the Board of Trustees. The Fund will always
receive and maintain, as collateral, securities whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral.
If the seller defaults and the value of the collateral declines, or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
16
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
The Lighthouse 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 Lighthouse Growth Fund (a series of
Professionally Managed Portfolios) as of August 31, 1996, and the related
statements of operations and changes in net assets and the financial highlights
for the period from September 29, 1995 (commencement of operations) to August
31, 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
August 31, 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
Lighthouse Growth Fund as of August 31, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the period from
September 29, 1995 (commencement of operations) to August 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
October 5, 1996
<PAGE> 18
[LIGHTHOUSE LOGO]
LIGHTHOUSE GROWTH FUND
ANNUAL REPORT
Advisor
LIGHTHOUSE CAPITAL MANAGEMENT, INC.
10000 Memorial Drive, Suite 660
Houston, Texas 77024
(713) 688-6881
Account Inquiries (800) 282-2340
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 and Dividend Disbursing Agent
AMERICAN DATA SERVICES, INC.
24 West Carver Street
2nd Floor
Huntington, New York 11743
Independent Auditors
ERNST & YOUNG LLP
515 South Flower Street
Los Angeles, California 90071
Legal Counsel
HELLER, EHRMAN, WHITE & McAULIFFE
333 Bush Street
San Francisco, California 94104
August 31, 1996
