December 5, 1997
Securities and Exchange Commission
Attn: Filing Desk, Stop 1-4
450 Fifth Street, N.W.
Washington, DC 20549
Re: Professionally Managed Portfolios
File No. 811-5037
CIK No. 811030
Dear Sir or Madam:
On behalf of the above Registrant and pursuant to Rule 30b-2 under
the Investment Company Act of 1940, I enclose for filing via EDGAR,
a copy of the Semi-annual Report to shareholders of the Harris
Bretall Sullivan & Smith Growth Equity Fund series of the
Registrant for the six month period ended September 30, 1997.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
/s/
Robert H. Wadsworth
<PAGE>
Harris Bretall Sullivan & Smith, Inc.
Harris Bretall Sullivan & Smith
Growth Equity Fund
Semi-Annual Report
September 30, 1997
<PAGE>
Harris Bretall Sullivan & Smith, Inc.
Dear Shareholder:
The Harris Bretall Sullivan & Smith Growth Equity Fund is pleased to report an
average annualized total return of 21.44% from inception on May 1, 1996 through
October 31, 1997. A cumulative return was reported for the Fund of 33.87% for
the same period.* Harris Bretall invests in high quality, growth companies that
possess the best opportunities for earnings growth. Harris Bretall represents a
portfolio of solutions for our clients by investing in those companies that will
help them reach their financial goals.
The market experienced one of the most impressive performance periods in recent
memory due mostly to strong fundamental economic factors. During the period,
interest rates moved modestly lower as foreign and domestic investors poured
money into the Treasury Market. The long bond was up 2 points on Tuesday,
October 27 -- yielding 6.13% -- the lowest yield since the spring of 1996. In
addition, all data continues to show that, despite healthy economic activity,
inflation remains very much contained. Clearly, the "Virtuous Cycle" -- solid
earnings growth along with benign interest rates -- is still intact.
While the crash of the Asian markets has implications for their economies, it
has very little fundamental effect on the U.S. economy. Harris Bretall forecasts
the effect on the U.S. GDP may only be .25% - .50%. As a result, U.S. inflation
should be lower than it would have been, and threat of Federal Reserve
tightening is greatly reduced. With lower inflation, lower interest rates, and
only minimal disruption to U.S. corporate earnings, the fundamental story
remains as strong as ever. Fundamentally, stock prices today represent a buying
opportunity for investors.
Our forecast is that the economy is likely to experience a 2 1/2%-3 1/2% GDP
expansion. Inflation should remain below 3% and long-term interest rates will be
stable to lower. We project continued growth through the remainder of the
decade, with the Dow Jones Industrial Average reaching 10,000 by the year 2000.
We base this forecast on our observation that the power of the current economic
environment comes from productivity gains fostered by continued investments in
technology. We remain optimistic that this positive investment environment will
persist and are confident that the Harris Bretall portfolio will continue to
perform well for our investors.
Continuing our commitment to the future, Harris Bretall is excited to announce
its alliance with Value Asset Management, a Connecticut based holding company.
As a part of this transaction, we expanded our ownership to include three new
partners: Susan A. Foley, David S. Post and Gordon J. Ceresino. We are excited
about the opportunities this alliance creates for Harris Bretall and for our
clients.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
On behalf of everyone at Harris Bretall, we thank you for your
participation in the Growth Equity Fund. Please do not hesitate to contact us at
800/685-HBSS should you have any questions regarding our mutual fund or any of
our other services.
Sincerely,
/s/ /s/
John J. Sullivan, CFA Gordon J. Ceresino
Partner Senior Vice President
*Results shown are past performance which should not be regarded as an
indication of future returns. The value of the Fund's shares and their return
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. The Fund's average annual total return, for the
period from inception on May 1, 1996 through September 30, 1997 was 25.64% and
for the year ended on that date was 34.02%.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at September 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 98.4% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Goods/Conglomerate: 8.6%
<S> <C> <C>
1,700 Dover Corp.............................................................. $ 115,387
1,700 General Electric Company................................................ 115,706
2,500 Illinois Tool Works, Inc................................................ 125,000
1,650 Tyco International, Inc................................................. 135,403
-------
491,496
-------
Consumer Cyclical: 6.3%
2,200 Home Depot, Inc......................................................... 114,675
2,550 Interpublic Group Companies, Inc........................................ 130,846
3,150 Wal-Mart Stores, Inc.................................................... 115,369
-------
360,890
-------
Consumer Services: 4.4%
3,600 Mattel, Inc............................................................. 119,250
1,700 Walt Disney Company*.................................................... 137,063
-------
256,313
-------
Consumer Staples: 6.4%
2,000 Colgate Palmolive Company*.............................................. 139,375
1,300 Gillette Company........................................................ 112,206
2,100 Safeway, Inc............................................................ 114,187
-------
365,768
-------
Cosmetics and Toiletries: 2.0%
1,640 Proctor & Gamble Company................................................ 113,262
-------
Pharmaceuticals/Biotechnology: 12.0%
2,100 Abbott Laboratories*.................................................... 134,269
2,000 Amgen, Inc.............................................................. 95,875
1,300 Bristol-Myers Squibb Company............................................ 107,575
1,100 Merck & Co., Inc........................................................ 109,931
2,000 Pfizer, Inc............................................................. 120,125
2,300 Schering-Plough Corp.................................................... 118,450
-------
686,225
-------
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
SCHEDULE OF INVESTMENTS at September 30, 1997 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Financial: 12.8%
1,125 American International Group, Inc....................................... $ 116,086
1,700 BankAmerica Corp. ................................................... 124,631
850 Citicorp................................................................ 113,847
1,450 Franklin Resources, Inc................................................. 135,031
1,700 Merrill Lynch & Co...................................................... 126,119
1,900 Norwest Corp............................................................ 116,375
-------
732,089
-------
Food and Beverage: 8.7%
2,100 Coca-Cola Company....................................................... 127,969
1,700 ConAgra, Inc............................................................ 112,200
2,400 McDonald's Corp......................................................... 114,300
3,800 Pepsico, Inc............................................................ 142,500
-------
496,969
-------
Health Care: 6.1%
2,400 Medtronic, Inc.......................................................... 112,800
1,600 Oxford Health Plans, Inc................................................ 119,800
2,400 United Healthcare Corp.................................................. 120,000
-------
352,600
-------
Health Products: 2.2%
2,200 Johnson & Johnson....................................................... 126,775
-------
Hotels and Motels: 2.3%
1,800 HFS, Inc................................................................ 133,988
-------
Technology/Defense: 7.9%
2,450 Autodesk, Inc........................................................... 111,169
2,500 Automatic Data Processing, Inc.......................................... 125,000
810 Microsoft Corp.......................................................... 107,173
3,000 Oracle Corp............................................................. 109,313
-------
452,655
-------
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
SCHEDULE OF INVESTMENTS at September 30, 1997 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications/Hardware: 17.1%
2,000 Applied Materials, Inc.................................................. $ 190,500
1,600 Cisco Systems, Inc...................................................... 116,900
2,375 Compaq Computer Corp.................................................... 177,531
1,400 Intel Corp.............................................................. 129,238
2,000 Linear Technology Corp.................................................. 137,500
1,400 Lucent Technologies, Inc................................................ 113,925
2,200 Tellabs, Inc............................................................ 113,300
-------
978,894
-------
Transportation: 1.6%
1,500 Union Pacific Corp...................................................... 93,938
------
Total common stocks (cost $4,374,773)................................... 5,641,862
---------
Principal Amount REPURCHASE AGREEMENT: 3.6%
- ------------------------------------------------------------------------------------------------------------------------------------
$209,000 Star Bank Repurchase Agreement, 5.45%, dated 9/30/97,
due 10/1/97, collateralized by $210,000 GNMA (value of
collateral $215,250) (cost $209,000).................................... 209,000
-------
Total Investments in Securities (cost $4,583,773+): 102.0% ............. 5,850,862
Liabilities in excess of Other Assets: (2.0)%........................... (117,791)
--------
Total Net Assets: 100.0% ............................................... $5,733,071
==========
<FN>
*Non-income producing security.
+ At September 30, 1997, the cost for Federal income tax purposes was the same
as the basis for financial reporting. Unrealized appreciation and depreciation
of securities were as follows:
Gross unrealized appreciation........................................... $1,302,367
Gross unrealized depreciation........................................... (35,278)
-------
Net unrealized appreciation................................... $1,267,089
==========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at September 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $4,583,773) ................................. $5,850,862
Cash................................................................................... 58
Receivables:
From Advisor..................................................................... 164
Dividends and interest .......................................................... 3,948
Securities sold.................................................................. 11,421
Prepaid expenses....................................................................... 12,372
------
Total assets .............................................................. 5,878,825
---------
LIABILITIES
Payables:
Administration fee............................................................... 2,563
Distribution fees................................................................ 3,434
Fund shares redeemed............................................................. 15,209
Securities purchased............................................................. 117,425
Accrued expenses....................................................................... 7,123
-----
Total liabilities.......................................................... 145,754
-------
NET ASSETS $5,733,071
==========
Net asset value, offering and redemption price per share
($5,733,071/415,213 shares outstanding;
unlimited number of shares authorized without par value) ........................ $13.81
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $4,532,123
Accumulated net investment loss........................................................ (3,716)
Accumulated net realized loss on investments........................................... (62,425)
Net unrealized appreciation on investments............................................. 1,267,089
---------
Net assets ...................................................................... $5,733,071
==========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Six Months Ended September 30, 1997
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Dividends........................................................................ $ 20,942
Interest......................................................................... 8,238
-----
Total income............................................................... 29,180
------
Expenses
Advisory fees.................................................................... 18,288
Administration fee............................................................... 15,041
Custodian and accounting fees.................................................... 11,247
Audit fees....................................................................... 8,399
Distribution costs............................................................... 6,096
Transfer agent fees.............................................................. 4,352
Miscellaneous.................................................................... 1,675
Reports to shareholders.......................................................... 1,607
Trustee fees..................................................................... 1,607
Legal fees....................................................................... 1,394
Registration fees................................................................ 479
---
Total expenses............................................................. 70,185
Less: expenses reimbursed/waived........................................... (38,729)
-------
Net expenses............................................................... 31,456
------
Net investment income ............................................... (2,276)
------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions..................................... (71,447)
Net change in unrealized appreciation on investments............................. 1,078,109
---------
Net realized and unrealized gain on investments............................ 1,006,662
---------
Net Increase in Net Assets Resulting from Operations ................ $1,004,386
==========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months May 1, 1996*
Ended through
September 30, 1997# March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment (loss) income.............................................. $ (2,276) $ 53
Net realized (loss) gain from security transactions....................... (71,447) 9,022
Net change in unrealized appreciation on investments...................... 1,078,109 188,980
--------- -------
Net increase in net assets resulting from operations ............... 1,004,386 198,055
--------- -------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................................... -0- (1,493)
- ------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a)................................................. 1,262,318 3,269,805
--------- ---------
Total increase in net assets ....................................... 2,266,704 3,466,367
NET ASSETS
Beginning of period....................................................... 3,466,367 -0-
--------- -
End of period (including accumulated net investment loss of
$3,716 and $1,440, respectively).................................... $5,733,071 $3,466,367
========== ==========
<FN>
(a) A summary of capital shares transactions is as follows:
Six Months May 1, 1996*
Ended through
September 30, 1997# March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold ......................................... 105,330 $1,319,720 327,664 $3,416,156
Shares issued in reinvestment of distributions....... -0- -0- 140 1,488
Shares redeemed...................................... (4,296) (57,402) (13,625) (147,839)
------ ------- ------- --------
Net increase......................................... 101,034 $1,262,318 314,179 $3,269,805
======= ========== ======= ==========
*Commencement of operations.
#Unaudited.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months May 1, 1996*
Ended through
September 30, 1997# March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period...................................... $11.03 $10.00
Income from investment operations:
Net investment (loss) income........................................ (.01) .00
Net realized and unrealized gain on investments..................... 2.79 1.04
---- ----
Total from investment operations.......................................... 2.78 1.04
---- ----
Less distributions:
From net investment income.......................................... .00 (.01)
--- ----
Net asset value, end of period............................................ $13.81 $11.03
====== ======
Total return.............................................................. 25.20% 10.36%
Ratios/supplemental data:
Net assets, end of period (millions)...................................... $ 5.7 $ 3.5
Ratio of expenses to average net assets:
Before expense reimbursement and waiver............................. 2.87%+ 4.97%+
After expense reimbursement and waiver.............................. 1.29%+ 1.28%+
Ratio of net investment (loss) income to average net assets:
Before expense reimbursement and waiver............................. (1.68)%+ (3.69)%+
After expense reimbursement and waiver.............................. (0.09)%+ 0.00%+
Portfolio turnover rate................................................... 26.08% 14.62%
Average commission rate paid per share.................................... $.0700 $.0688
<FN>
*Commencement of operations.
#Unaudited.
+Annualized.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
NOTES TO FINANCIAL STATEMENTS at September 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Harris Bretall Sullivan & Smith Growth Equity 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 May 1, 1996. 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.
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, traded on an exchange
or NASDAQ for which there have been no sales and other
over-the-counter securities are valued at their respective fair
values as determined in good faith by the Board of Trustees.
Short-term investments are stated at cost, which when combined with
accrued interest, approximates market value.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no federal income tax provision is
required.
C. Securities Transactions, Dividends and Distributions. As is common
in the industry, security transactions are accounted for on the
trade date. The cost of securities owned on realized transactions
are relieved on a first-in, first-out basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
D. 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 amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the six months ended September 30, 1997, Harris Bretall Sullivan &
Smith, Inc. (the "Advisor") provided the Fund with investment management
services under an Investment Advisory Agreement. The Advisor furnishes all
investment advice, office space, facilities, and most of the personnel needed by
the Fund. As compensation for its services, the Advisor was entitled to a
monthly fee at the annual rate of 0.75% based upon the average daily net assets
of the Fund. For the six months ended September 30, 1997, the Fund incurred
$18,288 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 1.29% of average
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
NOTES
TO FINANCIAL STATEMENTS (Unaudited), Continued
net assets annually. Any such reductions made by the Advisor in its fees or
payments or reimbursement of expenses which are the Fund's obligation are
subject to reimbursement by the Fund provided the Fund is able to effect such
reimbursement and remain in compliance with any applicable laws or expense
limitations. For the six months ended September 30, 1997, the Advisor waived its
fees and reimbursed the Fund in the amount of $38,729.
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 an annual fee at
the following rate:
Under $25 million - 0.12% of average daily net assets
$25 to $50 million - 0.07% of average daily net assets
$50 to $100 million - 0.05% of average daily net assets
Over $100 million - 0.03% of average daily net assets, with a minimum fee
of $30,000 annually
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 the Distributor.
NOTE 4 - 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 Distributor at an annual rate of up to 0.25% of the average daily net assets
of the Fund. The fee is paid to the Distributor as reimbursement for, or in
anticipation of, expenses incurred for distribution-related activity.
NOTE 5 - PURCHASES AND SALES OF SECURITES
The cost of purchases and the proceeds from the sale of securities, other
than short-term investments, for the six months ended September 30, 1997 were
$2,419,213 and $1,193,231, respectively.
<PAGE>
Advisor
Harris Bretall Sullivan & Smith, Inc.
One Sansome Street, Suite 3300
San Francisco, CA 94104
(415) 765-8300
Account Inquiries (800) 385-7003
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Transfer and Dividend Disbursing Agent
American Data Services, Inc.
150 Motor Parkway, Ste. 109
Hauppauge, NY 11788
(800) 385-7003
Independent Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, CA 90071
Legal Counsel
Paul, Hastings, Janofsky & Walker
345 California Street, 29th Floor
San Francisco, CA 94104
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
