L
A
July, 1997
Dear Shareholder:
It has been an exciting first half of the year for your Fund. The
Leonetti Balanced Fund gained 10.01 percent for the sixth month period. The
one-year and average annualized returns from inception are 14.91 percent and
12.19 percent, respectively. The Fund's total return since inception (August 1,
1995) is 24.64 percent.* Assets of your Fund have grown to over $11 million.
Starting the year at 6448.27 as measured by the Dow Jones Industrial
Average, the stock market rallied upwards until the second week in March, when
the average reached a record-high closing of 7085.16. The following four weeks
saw the average give up all of its gains and actually drop below the levels it
began the year at. Since then, the stock market has been in a powerful advance
that has taken the Dow Jones Industrial Average to another record-high close of
7796.51.
Even with the sharp move higher, professional money managers and
investors who invest in the broad market faced a problem with the continued
narrowness of the advance. While large capitalization stocks have continued to
perform very well, mid-to-small capitalization stocks have been largely ignored.
There are many reasons for this, notably the growth of index funds, the
tremendous cash flow of money invested in equity mutual funds, and investors
desiring a level of consistency in both revenue and earnings growth. Only time
will tell whether the market will rotate back to where a larger group of stocks
participate in the advance.
We have made several changes in your Fund's equity holdings to better
reflect the market's narrowness. The ten largest stock holdings as of June 30,
1997 in the Leonetti Balanced Fund are: Lucent Technologies, General Electric,
Minnesota Mining & Manufacturing, Travelers Group, Schlumberger Ltd, Chevron,
Intel, Caterpillar, Johnson & Johnson and Allied Signal. The number of holdings
in the small and mid-capitalization range were reduced during the past six
months. We believe the Fund's holdings are well situated for the current market
environment and, if necessary, will shift our concentration of holdings should
the market leadership change.
The economy has offered investors a friendly investing environment with
level inflation, low interest rates, and a growing domestic and world economy.
We foresee nothing at this point that will cause these conditions to change in
the coming months. We do not expect interest rates to change dramatically in one
direction or the other and, as such, will continue to focus our fixed-income
investments on the short-term side of the maturity scale.
We envision improved results for Leonetti Balanced Fund. The market
averages are high, nonetheless we see the trend continuing. Of course there will
be pullbacks along the way, but with low inflation and a low interest rate
environment any pullbacks should be muted and short in duration.
We thank you for being a shareholder in the Fund and look ahead to the
many opportunities that will present themselves in the coming months.
Cordially,
LEONETTI & ASSOCIATES, INC.
*Past performance does not guarantee future results. Share value and returns
fluctuate and you may have a gain or loss when you sell your shares. Performance
results for the Leonetti Balanced Fund and the Lipper Balanced Index include
reinvested dividends, interest and other earnings.
<PAGE>
Leonetti Balanced Fund
Leonetti Balanced Fund
Value of $10,000 vs. S&P 500 and Lipper Balanced Index
<TABLE>
<CAPTION>
1-Aug-95 30-Sep-95 31-Dec-95 31-Mar-96 30-Jun-96 30-Sep-96 31-Dec-96 31-Mar-97 30-Jun-97
-------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leontti Balanced Fund 10,000 9,940 10,605 10,936 10,846 10,856 11,330 11,218 12,464
S & P 500 Index 10,000 10,485 11,115 11,714 12,231 12,615 13,671 14,036 16,478
Lipper Balanced Index 10,000 10,320 10,758 11,004 11,367 11,643 12,291 12,345 13,667
</TABLE>
Annual Average Total Return Periods
Ended June 30, 1997
1 Year Inception (8/1/95)
14.91% 24.64%
Past performance is not predictive of future performance.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 68.4% Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace/Defense Equipment: 2.2%
3,000 United Technologies Corp................................................ $ 249,000
-----------
Aluminum: 2.0%
3,000 Aluminum Company of America............................................. 226,124
-----------
Banks: 1.3%
3,150 Commerce Bancshares, Inc................................................ 142,537
-----------
Building - Heavy Construction: 0.5%
4,000 Specialty Teleconstructors, Inc.*....................................... 61,000
-----------
Chemicals: 2.2%
4,000 E.I. DuPont de Nemours & Company........................................ 251,500
-----------
Computer - Hardware: 1.8%
2,000 Compaq Computer Corp.*.................................................. 198,500
-----------
Computer - Memory Devices: 2.0%
6,000 Quantum Corp.*.......................................................... 121,875
3,000 SMART Modular Technologies, Inc.*....................................... 101,250
-----------
223,125
-----------
Computer Network: 1.8%
3,000 Cisco Systems, Inc.*.................................................... 201,375
-----------
Computer - Online Services: 2.0%
4,000 America On-Line, Inc.*.................................................. 222,500
-----------
Computer - Retailer: 1.0%
5,000 CompUSA, Inc.*.......................................................... 107,500
-----------
Computer - Software: 0.5%
5,000 GT Interactive Software Corp.*.......................................... 59,375
-----------
</TABLE>
3
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1997, Continued
- -------------------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diversified Operations: 10.9%
3,000 Allied Signal, Inc...................................................... $ 252,000
6,000 General Electric Company................................................ 392,250
3,700 Minnesota Mining & Manufacturing Company................................ 377,400
3,000 Tyco International, Ltd................................................. 208,688
-----------
1,230,338
-----------
Electronics - Semiconductor Manufacturing: 2.5%
2,000 Intel Corp.............................................................. 283,625
-----------
Finance - Mortgage and Related Services: 1.9%
5,000 Federal National Mortgage Association................................... 218,125
-----------
Financial: 1.5%
6,000 First Security Corp. - Delaware......................................... 163,875
-----------
Food: 4.5%
5,250 Flowers Industries, Inc................................................. 88,266
5,000 H.J. Heinz Company...................................................... 230,625
5,000 PepsiCo, Inc............................................................ 187,812
-----------
506,703
-----------
Healthcare Products: 2.3%
4,000 Johnson & Johnson....................................................... 257,500
-----------
Insurance: 4.1%
2,000 Allstate Corp........................................................... 146,000
5,000 Travelers Group, Inc.................................................... 315,313
-----------
461,313
-----------
Leisure - Services: 2.1%
3,000 Walt Disney Company..................................................... 240,750
-----------
Machinery: 2.4%
2,500 Caterpillar, Inc........................................................ 268,438
-----------
</TABLE>
4
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1997, Continued
- -------------------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing - Large Appliances: 0.9%
4,000 Maytag Corp............................................................. $ 104,500
-----------
Media - Newspapers: 1.7%
4,000 Tribune Company......................................................... 192,250
-----------
Medical: 3.6%
2,500 Abbott Laboratories..................................................... 166,875
2,000 Pfizer, Inc............................................................. 239,000
-----------
405,875
-----------
Oil: 2.6%
4,000 Chevron Corp............................................................ 295,750
-----------
Oil Well Services and Equipment: 2.8%
2,500 Schlumberger Ltd........................................................ 312,500
-----------
Retail - Drug Stores: 0.9%
2,000 Walgreen Company........................................................ 107,250
-----------
Retail - Restaurants: 2.1%
5,000 McDonald's Corp......................................................... 241,562
-----------
Retail - Supermarkets: 0.7%
3,000 Dominick's Supermarkets, Inc.*.......................................... 79,875
-----------
Telecommunications - Equipment: 3.6%
5,592 Lucent Technologies, Inc................................................ 402,974
-----------
Total Common Stocks (cost $6,050,729)................................... 7,715,739
-----------
Principal Amount U.S. GOVERNMENT OBLIGATIONS: 27.0%
- -------------------------------------------------------------------------------------------------------------------
$350,000 U.S. Treasury Note, 5.625%, due 1/31/1998............................... 350,000
400,000 U.S. Treasury Note, 5.125%, due 2/28/1998............................... 398,625
400,000 U.S. Treasury Note, 5.875%, due 4/30/1998............................... 400,626
</TABLE>
5
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1997, Continued
- -------------------------------------------------------------------------------------------------------------------
Principal Amount Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$350,000 U.S. Treasury Note, 5.875%, due 8/15/1998............................... $ 350,219
400,000 U.S. Treasury Note, 5.875%, due 1/31/1999............................... 399,625
350,000 U.S. Treasury Note, 6.000%, due 10/15/1999.............................. 349,782
400,000 U.S. Treasury Note, 5.875%, due 2/15/2000............................... 397,375
400,000 U.S. Treasury Note, 6.125%, due 7/31/2000............................... 399,375
-----------
Total U.S. Government Obligations (cost $3,046,788) .................... 3,045,627
-----------
REPURCHASE AGREEMENT: 4.0%
- -------------------------------------------------------------------------------------------------------------------
454,000 Star Bank Repurchase Agreement, 5.25%, dated 6/30/1997, due
7/1/1997, collateralized by $455,000 GNMA, 6.50%,
due 2/20/2024 (proceeds $454,066) (cost $454,000)....................... 454,000
-----------
Total Investment in Securities (cost $9,551,517+): 99.4%................ 11,215,366
Other Assets less Liabilities: 0.6%..................................... 67,855
-----------
Total Net Assets: 100.0%................................................ $11,283,221
===========
+ At June 30, 1997, 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........................................... $ 1,691,946
Gross unrealized depreciation.......................................... (28,097)
-----------
Net unrealized appreciation.................................... $ 1,663,849
===========
</TABLE>
*Non-income producing security.
See accompanying Notes to Financial Statements.
6
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $9,551,517) ................................. $11,215,366
Cash................................................................................... 10,559
Receivables:
Fund shares sold................................................................. 3,000
Dividends and interest........................................................... 63,358
Organization costs, net of accumulated amortization of $10,900......................... 19,100
Prepaid expenses....................................................................... 4,054
-----------
Total assets .............................................................. 11,315,437
-----------
LIABILITIES
Payables:
Advisory fee..................................................................... 9,191
Administration fee............................................................... 2,468
Accrued expenses....................................................................... 20,557
-----------
Total liabilities.......................................................... 32,216
-----------
NET ASSETS .................................................................................. $11,283,221
===========
Net asset value, offering and redemption price per share
($11,283,221/916,840 shares outstanding;
unlimited number of shares authorized without par value) ........................ $12.31
===========
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $ 9,279,958
Undistributed net investment income.................................................... 5,083
Undistributed net realized gain on investments......................................... 334,331
Net unrealized appreciation on investments............................................. 1,663,849
-----------
Net assets ...................................................................... $11,283,221
===========
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Interest ........................................................................ $ 164,369
Dividends........................................................................ 119,533
Other............................................................................ 4,788
-----------
Total income .............................................................. 288,690
-----------
Expenses
Advisory fees ................................................................... 104,200
Administration fee............................................................... 30,779
Custodian and accounting fees.................................................... 28,074
Registration fees................................................................ 19,417
Audit fees....................................................................... 17,052
Transfer agent fees.............................................................. 11,148
Legal fees....................................................................... 7,780
Reports to shareholders.......................................................... 6,837
Amortization of organization costs............................................... 6,001
Trustees' fees................................................................... 5,146
Miscellaneous.................................................................... 2,443
Insurance fees................................................................... 947
-----------
Total expenses............................................................. 239,824
-----------
Net investment income ................................................... 48,866
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .......................................... 329,099
Net change in unrealized appreciation on investments .................................. 1,103,880
-----------
Net realized and unrealized gain on investments ................................. 1,432,979
-----------
Net Increase in Net Assets Resulting from Operations ...................... $ 1,481,845
===========
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Year August 1, 1995*
Ended through
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income....................................................... $ 48,866 $ 74,945
Net realized gain from security transactions ............................... 329,099 5,232
Net change in unrealized appreciation on investments........................ 1,103,880 559,969
----------- -----------
Net increase in net assets resulting from operations ................. 1,481,845 640,146
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................................... (81,667) (37,061)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net (decrease) increase in net assets derived from net change
in outstanding shares (a)................................................ (204,172) 9,484,130
----------- -----------
Total increase in net assets ......................................... 1,196,006 10,087,215
NET ASSETS
Beginning of period ........................................................ 10,087,215 -0-
----------- -----------
End of period (including undistributed net investment
income of $5,083 and $37,884, respectively)............................. $11,283,221 $10,087,215
=========== ===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
Year ended August 1, 1995* through
June 30, 1997 June 30, 1996
------------------------- ------------------------
Shares Value Shares Value
-------- ---------- ------- --------
<S> <C> <C> <C> <C>
Shares sold ...................................... 109,814 $1,221,502 977,143 $9,934,701
Shares issued in reinvestment of distribution..... 7,321 80,379 3,510 37,061
Shares redeemed................................... (134,735) (1,506,053) (46,213) (487,632)
-------- ---------- ------- --------
Net (decrease) increase .......................... (17,600) $ (204,172) 934,440 $9,484,130
======== ========== ======= ========
</TABLE>
*Commencement of operations.
See accompanying Notes to Financial Statements.
9
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- -------------------------------------------------------------------------------------------------------------------
Year August 1, 1995*
Ended through
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ........................................ $10.80 $10.00
------ ------
Income from investment operations:
Net investment income ................................................. .06 .09
Net realized and unrealized gain on investments ....................... 1.54 .76
------ ------
Total from investment operations............................................. 1.60 .85
------ ------
Less distributions:
Dividends from investment income....................................... (.09) (.05)
------ ------
Net asset value, end of period .............................................. $12.31 $10.80
====== ======
Total return ................................................................ 14.91% 8.46%++
Ratios/supplemental data:
Net assets, end of period (millions)......................................... $ 11.3 $ 10.1
Ratio of expenses to average net assets...................................... 2.29% 2.26%+
Ratio of net investment income to average net assets......................... .47% 1.02%+
Portfolio turnover rate ..................................................... 119.75% 42.16%
Average commission rate paid per share....................................... $.0600 $.0600
</TABLE>
*Commencement of operations.
+Annualized.
++Not Annualized.
See accompanying Notes to Financial Statements.
10
<PAGE>
Leonetti Balanced Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 1997
- --------------------------------------------------------------------------------
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 high 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 sales 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 sales 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. 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. 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.
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 amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
11
<PAGE>
Leonetti Balanced Fund
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended June 30, 1997, Leonetti & Associates, 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 provides 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 1.00% based upon the average daily net assets of the Fund.
For the year ended June 30, 1997, the Fund incurred $104,200 in advisory fees.
The Fund is responsible for its own operating expenses. The Advisor may
reduce its fees or make reimbursement to the Fund at any time in order to reduce
the Fund's expenses. 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 applicable laws.
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.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than U.S. Government obligations
and short-term investments, for the year ended June 30, 1997 were $11,890,524
and $11,839,739, respectively.
12
<PAGE>
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 of
Leonetti Balanced Fund (the "Fund"), a series of Professionally Managed
Portfolios, including the schedule of investments, as of June 30, 1997, and the
related statement of operations for the year then ended, and the statements of
changes in net assets and the financial highlights for the year then ended and
for the period from August 1, 1995 (commencement of operations) through 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 audits.
We conducted our audits 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, 1997, by correspondence with the custodian and brokers. 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 audits provide 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, 1997, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for the year then ended and 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
July 30, 1997
13
<PAGE>
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<PAGE>
This page intentionally left blank.
<PAGE>
Adviser
Leonetti & Associates, Inc.
1130 Lake Cook Road, Suite 105
Buffalo Grove, Illinois 60089
(800) 454-0999
o
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
o
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
o
Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
o
Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, California 90071
o
Legal Counsel
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, California 94104
This report is intended for the 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.
L
A
Leonetti Balanced Fund
Annual Report
June 30, 1997
