UNITED STATES TRUST COMPANY
BOSTON Investment Management
July, 1997
Dear Shareholder,
COMPARATIVE PERFORMANCE*
Annualized
Since
Quarter First Year Inception
Ending Half Ended 12/1/95 to
6/30/97 1997 6/30/97 6/30/97
------- ---- ------- -------
Boston Managed Growth Fund 12.0% 13.8% 25.4% 19.1%
Standard & Poor's 500 17.5% 20.6% 34.7% 29.5%
Lehman G/C Bond Index 3.6% 2.7% 7.8% 4.7%
90 Day U.S. Treasury Bill 1.2% 2.5% 5.1% 5.2%
*After all expenses at an annual rate of 1%, the Advisor's expense
limitation. Results shown are past performance, which is not an indication of
future returns. Shares of the Fund are not deposits or obligations of United
States Trust Company of Boston or any Bank and are not insured by the FDIC,
Federal Reserve Board or any agency. The value of the Fund shares and returns
will fluctuate and investors may have a gain or loss when they redeem shares.
Distributed by First Fund Distributors, Inc.
MARKET & PERFORMANCE SUMMARY - Fiscal Year Ended June 30, 1997
- --------------------------------------------------------------
Amid a virtually ideal economic, business and political environment for
financial assets, all of the primary stock market indexes set new price records
- - by a wide margin - during the past year. Boston Managed Growth Fund
participated fully in the extraordinary stock market trend. Net asset value
increased to $94.81 on June 30, 1997, from $84.66 at the end of March, 1997, or
12.0% during the past quarter. Results were aided by a combination of an
above-average allocation to equities as well as the strong performance of the
particular stocks held in the Fund. Bond investments provided a positive yet
significantly lower return than stocks, an issue I address later in this report.
For the year ended June 30, 1997, the Fund increased by an outstanding 25.4%.
<PAGE>
Boston Managed Growth Fund
How much higher can stock prices go? Can the economic and political
environment remain this good? Is a major price correction or another crash in
store for us in the second half of 1997, as it was in 1987? These questions seem
more critical, with stock prices up close to 20% during the first half of 1997,
than they were when I first posed them in my year-end 1996 report. At that time,
we concluded that stocks generally had not yet reached overvalued levels,
provided the favorable economic environment did not deteriorate. Our overall
views have not changed. We continue to hold a high (for a balanced fund)
allocation in common stocks of approximately 70% of total assets, with the
balance primarily invested in higher quality bonds having an average maturity of
about five years and providing a yield of roughly 6.5%.
ECONOMIC SUMMARY & OUTLOOK
- --------------------------
As was the case in the summer of 1996, the prevailing concern in the
financial markets was that the economy was growing too rapidly. The Federal
Reserve had just increased interest rates, and both stock and bond prices had
declined sharply in anticipation of further monetary restraint during the
balance of 1997. We shared the view that a continuation of rapid GDP growth
increased the potential for higher inflation and interest rates over the longer
term. Nevertheless, we retained an above-average portion of the Fund in equities
based on our view that the most likely economic outcome was a resumption of
moderate growth with low inflation, strong corporate profits and stable interest
rates.
The potential for economic growth above the Federal Reserve's desired
2% - 3% trend still exists, but recent evidence - employment, retail sales,
housing and capital spending - suggests that real GDP growth will be much closer
to the 2% - 3% range for the balance of 1997 than the over 5% growth rate of the
first quarter. A more moderate rate of economic growth reduces the likelihood of
further interest rate increases by the Federal Reserve, yet leaves sufficient
flexibility for corporations to sustain sales and, particularly, profit gains.
In short, the economic environment is likely to remain favorable for financial
assets over the next six to twelve months.
INVESTMENT STRATEGY
- -------------------
Stock prices and corporate profits have each approximately doubled over
the past five years, with most of the price increase occurring since the
beginning of 1995. The economic environment throughout this period, while never
assured, has been less questionable in the establishment of investment policy
than have the potential future earnings valuations investors accord to common
stocks. New price peaks for stocks, in particular the quick movements we have
witnessed to such unprecedented levels, have confounded complex, computer-driven
quantitative models and simple, back-of-the-envelope computations alike.
Our bullish investment posture in the Fund since its inception in
December, 1995, is best explained by the motivational phrase James Carville
penned during Bill Clinton's 1992 Presidential campaign - `it's the economy
stupid'. Damaging, long lasting bear markets have rarely occurred over the past
fifty years during periods of economic growth with low inflation. The mid-1990's
have not been an exception, and an end to this favorable cycle does not appear
imminent. That said, gains at anything close to the second quarter rate are
clearly not
<PAGE>
Boston Managed Growth Fund
sustainable, and periodically we will experience the type of short, violent
price drops we last had at the end of the first quarter of 1997. As I have noted
in prior reports, these types of declines are difficult to sidestep without
jeopardizing the potential to earn the superior long-term gains offered by
successful stock investments. We expect to retain the Fund's high equity
allocation until we foresee a systemic deterioration in the trend of low
inflation, corporate profits or interest rates. In light of the further growth
we anticipate in corporate profits over the next year, our analyses still
produce attractive stock market returns relative to fixed income investments.
The Fund's current investment position and individual holdings are outlined
fully in the report.
WHY DO YOU OWN BONDS?
- ---------------------
Over the past year many Fund participants have posed the question
above. And no wonder. After posting a total return roughly comparable to bonds
from 1990 through 1994, the S&P 500 stock index has generated a cumulative total
return 77 percentage points higher than bonds (+103% compared to +26%) from
January 1, 1995 through June 30, 1997. That amounts to a lot of money by any
standard! In determining asset allocation, we have clearly favored stocks since
the Fund's inception in December, 1995. Stocks have consistently comprised close
to 65% - 70% of total assets since that time. That is an above-average exposure
relative to other balanced funds, but with perfect hindsight even more of an
equity tilt would have been preferable. There are two primary reasons we did not
place an even higher amount in equities. First, regretfully, we were not blessed
with perfect foresight. More seriously, Boston Managed Growth Fund was designed
to hold all of the assets of a corporate or individual retirement plan, or all
of the long-term financial assets of an individual. Many Fund participants have
indeed entrusted us with their entire portfolios. The fiduciary responsibility
of managing all of a client's investment assets, combined with a lack of perfect
foresight, has led us to broadly diversify investments in the Fund among stocks,
bonds, and money market instruments, and many individual issues within each of
these asset segments. Even though diversification will continue to moderate
performance, we believe it is the most prudent practice.
On behalf of all of us at United States Trust, I thank you for your
continued confidence in our services. Please feel free to contact either me or
my colleagues at (617) 726-7252 should you have any questions about our
investment views or your account.
Sincerely,
/s/ Domenic Colasacco
Domenic Colasacco
Portfolio Manager & President,
United States Trust Company of Boston
<PAGE>
Boston Managed Growth Fund
Value of $10,000 vs. S&P 500 and
S&P 500 + Lehman G/C + US Treas
<TABLE>
<CAPTION>
12/1/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97 6/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston Managed Growth Fund 10,000 10,127 10,265 10,514 10,875 11,585 11,773 13,184
S&P 500 + Lehman G/C + US Treas 10,000 10,165 10,712 11,185 11,536 12,501 12,835 15,069
S&P 500 Index 10,000 10,165 10,332 10,592 10,852 11,462 11,577 12,787
</TABLE>
Annual Average Total Return Periods
Ended June 30, 1997
1 Year Inception (12/1/95)
25.40% 31.84%
Past performance is not predictive of future performance.
<PAGE>
Boston Managed Growth Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1997
- ------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 69.1% Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Communication Services: 2.7%
17,500 Ameritech Corp.......................................................... $ 1,188,906
22,000 BellSouth Corp.......................................................... 1,020,250
---------
2,209,156
---------
Consumer Cyclicals: 5.5%
20,200 Costco Companies, Inc.*................................................. 664,075
5,000 Ford Motor Company...................................................... 188,750
24,000 Gannett Company, Inc.................................................... 2,370,000
30,000 Leggett & Platt, Inc.................................................... 1,290,000
---------
4,512,825
---------
Consumer Products: 9.1%
4,000 Albertson's, Inc........................................................ 146,000
40,000 American Greetings Corp., Class A....................................... 1,485,000
20,000 Anheuser-Busch Companies, Inc........................................... 838,750
5,000 Gillette Company........................................................ 473,750
7,500 Kimberly-Clark Corp..................................................... 373,125
15,000 Procter & Gamble Company................................................ 2,118,750
25,000 Sysco Corp.............................................................. 912,500
6,000 Walt Disney Company..................................................... 481,500
10,000 William Wrigley, Jr., Company........................................... 670,000
---------
7,499,375
---------
Energy and Resources: 4.7%
10,500 Amoco Corp.............................................................. 912,844
10,800 Atlantic Richfield Company.............................................. 761,400
35,000 Exxon Corp.............................................................. 2,152,500
---------
3,826,744
---------
Finance: 14.4%
40,000 Bank of Boston Corp..................................................... 2,882,500
5,000 Chubb Corp.............................................................. 334,375
20,000 Cincinnati Financial Corp............................................... 1,580,000
24,000 Federal National Mortgage Association................................... 1,047,000
12,000 First Virginia Banks, Inc............................................... 723,750
20,000 NationsBank Corp........................................................ 1,290,000
35,000 T. Rowe Price Associates, Inc........................................... 1,806,875
</TABLE>
See accompanying Notes to Financial Statements.
5
<PAGE>
Boston Managed Growth Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1997, Continued
- ------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Finance, continued
40,000 United Asset Management Corp............................................ $ 1,132,500
17,000 Wachovia Corp........................................................... 991,313
-----------
11,788,313
-----------
Healthcare: 12.5%
5,000 American Home Products Corp............................................. 382,500
35,000 Becton Dickinson & Company.............................................. 1,771,875
30,000 Johnson & Johnson....................................................... 1,931,250
15,000 Medtronic, Inc.......................................................... 1,215,000
10,000 Merck & Company, Inc.................................................... 1,035,000
15,000 Pfizer, Inc............................................................. 1,792,500
45,000 Schering-Plough Corp.................................................... 2,154,375
-----------
10,282,500
-----------
Industrial Materials: 3.2%
5,100 PPG Industries, Inc..................................................... 296,437
25,000 Sealed Air Corp.*....................................................... 1,187,500
32,500 Sigma-Aldrich Corp...................................................... 1,139,531
-----------
2,623,468
-----------
Producer Products: 9.1%
22,500 Donaldson Company, Inc.................................................. 855,000
40,000 Emerson Electric Company................................................ 2,202,500
12,000 Honeywell, Inc.......................................................... 910,500
5,000 Hubbell, Inc., Class B.................................................. 220,000
36,000 Illinois Tool Works, Inc................................................ 1,797,750
12,000 Johnson Controls, Inc................................................... 492,750
10,000 Millipore Corp.......................................................... 440,000
5,500 Minnesota Mining & Manufacturing Company................................ 561,000
-----------
7,479,500
-----------
Technology: 7.9%
15,000 Automatic Data Processing, Inc.......................................... 705,000
20,000 Hewlett-Packard Company................................................. 1,120,000
7,000 Intel Corp.............................................................. 992,688
22,000 Lucent Technologies, Inc................................................ 1,585,375
</TABLE>
See accompanying Notes to Financial Statements.
6
<PAGE>
Boston Managed Growth Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1997, Continued
- ------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Technology, continued
10,000 Microsoft Corp.*........................................................ $ 1,263,750
10,000 Xerox Corp.............................................................. 788,750
-----------
6,455,563
-----------
Total Common Stocks (cost $40,798,531).................................. 56,677,444
-----------
Principal Amount CORPORATE BONDS: 10.1%
- ------------------------------------------------------------------------------------------------------------------
$ 925,000 American Home Products, 7.90%, 2/15/2005................................ 982,133
300,000 Atlantic Richfield Company, 8.50%, 4/1/2012............................. 345,698
300,000 Chubb Capital Corp., 6.00%, 2/1/1998.................................... 300,150
300,000 Deere & Company, 8.79%, 8/6/1998........................................ 308,496
500,000 Eaton Corp., 8.90%, 8/15/2006........................................... 566,006
400,000 Equitable Resources, 8.55%, 9/1/2003.................................... 432,155
200,000 Ford Motor Credit Corp., 9.25%, 6/15/1998............................... 205,866
425,000 Ford Motor Credit Corp., 7.75%, 11/15/2002.............................. 442,176
300,000 Ford Motor Credit Corp., 6.625%, 6/30/2003.............................. 296,278
825,000 General Motors Acceptance Corp., 9.625%, 12/15/2001..................... 913,693
300,000 General Motors Acceptance Corp., 8.50%, 1/1/2003........................ 322,657
500,000 Honeywell, Inc., 7.00%, 3/15/2007....................................... 500,378
1,000,000 Leggett & Platt, Inc., 7.185%, 4/24/2002................................ 1,012,770
300,000 Sears Roebuck Company, 9.46%, 6/20/2000................................. 322,664
300,000 Southwestern Bell Capital, 7.75%, 10/30/1997............................ 302,044
375,000 Sysco Corp., 6.50%, 6/15/2005........................................... 366,573
400,000 Unum Corp., 5.88%, 10/15/2003........................................... 377,941
300,000 Weyerhaeuser Company, 7.25%, 7/1/2013 ................................. 299,155
-----------
Total Corporate Bonds (cost $8,413,542)................................. 8,296,833
-----------
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS: 17:2%
- ------------------------------------------------------------------------------------------------------------------
300,000 FHLBB, 9.20%, 8/25/1997................................................. 301,538
875,000 FNMA Medium Term Note, 5.49%, 10/2/2003................................. 857,381
2,750,000 U.S. Treasury Bond, 7.50%, 11/15/2016................................... 2,939,923
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
Boston Managed Growth Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1997, Continued
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY
Principal Amount OBLIGATIONS, continued Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
$2,950,000 U.S. Treasury Note, 9.125%, 5/15/1999................................... $ 3,107,642
3,000,000 U.S. Treasury Note, 8.75%, 8/15/2000.................................... 3,209,064
3,500,000 U.S. Treasury Note, 8.00%, 5/15/2001.................................... 3,699,066
-----------
Total U.S. Government and Government Agency Obligations
(cost $14,313,778)...................................................... 14,114,614
-----------
SHORT-TERM INVESTMENT: 2.3%
- ------------------------------------------------------------------------------------------------------------------
1,887,440 SEI Daily Income Government Fund II (cost $1,887,440)................... 1,887,440
-----------
Total Investment in Securities (cost $65,413,291+): 98.7%............... 80,976,331
Other Assets less Liabilities: 1.3%..................................... 1,057,142
-----------
Total Net Assets: 100.0% ............................................... $82,033,473
===========
+ 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........................................... $15,946,773
Gross unrealized depreciation........................................... (383,733)
-----------
Net unrealized appreciation.................................... $15,563,040
===========
</TABLE>
*Non-income producing security.
See accompanying Notes to Financial Statements.
8
<PAGE>
Boston Managed Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at June 30, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $65,413,291) ................................ $80,976,331
Cash................................................................................... 6,600
Receivables:
Dividends and interest........................................................... 465,960
Investment securities sold....................................................... 640,086
Prepaid expenses....................................................................... 8,875
-----------
Total assets .............................................................. 82,097,852
-----------
LIABILITIES
Payables:
Advisory fee..................................................................... 39,961
Administration fee............................................................... 5,582
Accrued expenses ...................................................................... 18,836
-----------
Total liabilities.......................................................... 64,379
-----------
NET ASSETS ................................................................................. $82,033,473
===========
Net asset value, offering and redemption price per share
($82,033,473/865,240 shares outstanding; unlimited number of shares
authorized without par value) ......................................................... $94.81
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $64,751,949
Undistributed net investment income.................................................... 850,696
Undistributed net realized gain on investments......................................... 867,788
Net unrealized appreciation on investments............................................. 15,563,040
-----------
Net assets ...................................................................... $82,033,473
===========
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE>
Boston Managed Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended June 30, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Interest ........................................................................ $ 1,368,630
Dividends........................................................................ 883,190
-----------
Total income .............................................................. 2,251,820
-----------
Expenses
Advisory fees ................................................................... 517,083
Administration fee............................................................... 68,944
Custodian and accounting fees.................................................... 50,876
Registration fees................................................................ 17,948
Audit fees....................................................................... 16,467
Trustees' fees................................................................... 12,164
Legal fees....................................................................... 8,007
Transfer agent fees.............................................................. 4,780
Insurance fees................................................................... 4,435
Miscellaneous fees............................................................... 4,127
Reports to shareholders.......................................................... 2,030
-----------
Total expenses............................................................. 706,861
Less: expenses reimbursed.................................................. (11,285)
-----------
Net expenses............................................................... 695,576
-----------
Net investment income ................................................... 1,556,244
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .......................................... 1,222,746
Net change in unrealized appreciation on investments .................................. 13,242,577
-----------
Net realized and unrealized gain on investments ................................. 14,465,323
-----------
Net Increase in Net Assets Resulting from Operations ...................... $16,021,567
===========
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE>
Boston Managed Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Year December 1, 1995*
Ended through
June 30, 1997 June 30, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income.................................................. $ 1,556,244 $ 786,736
Net realized gain (loss) from security transactions ................... 1,222,746 (354,958)
Net change in unrealized appreciation on investments................... 13,242,577 2,320,463
----------- -----------
Net increase in net assets resulting from operations ............ 16,021,567 2,752,241
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.................................................. (1,387,106) (105,178)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change
in outstanding shares (a)........................................... 5,628,009 59,123,940
----------- -----------
Total increase in net assets .................................... 20,262,470 61,771,003
NET ASSETS
Beginning of period ................................................... 61,771,003 -0-
----------- -----------
End of period (including undistributed net investment
income of $850,696 and $681,558).................................. $82,033,473 $61,771,003
=========== ===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
Year Ended December 1, 1995*
June 30, 1997 through June 30, 1996
--------------------- ------------------------
Shares Value Shares Value
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold ......................................... 161,142 $13,762,145 827,127 $61,190,223
Shares issued in reinvestment of distribution........ 17,057 1,387,106 1,414 105,178
Shares redeemed...................................... (112,571) (9,521,242) (28,929) (2,171,461)
------- ----------- ------- -----------
Net increase ........................................ 65,628 $ 5,628,009 799,612 $59,123,940
======= =========== ======= ===========
</TABLE>
*Commencement of operations.
See accompanying Notes to Financial Statements.
11
<PAGE>
Boston Managed Growth Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- -------------------------------------------------------------------------------------------------------------------
Year December 1, 1995*
Ended through
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ................................. $77.25 $73.62
------ ------
Income from investment operations:
Net investment income .......................................... 1.90 1.00
Net realized and unrealized gain on investments ................ 17.43 2.78
------ ------
Total from investment operations...................................... 19.33 3.78
------ ------
Less distributions:
From net investment income...................................... (1.77) (.15)
------ ------
Net asset value, end of period ....................................... $94.81 $77.25
====== ======
Total return ......................................................... 25.40% 5.14%++
Ratios/supplemental data:
Net assets, end of period (millions).................................. $82.0 $61.8
Ratio of expenses to average net assets:
Before expense reimbursement.................................... 1.02% 1.00%+
After expense reimbursement..................................... 1.00% 1.00%+
Ratio of net investment income to average net assets:
Before expense reimbursement.................................... 2.24% 2.43%+
After expense reimbursement..................................... 2.25% 2.43%+
Portfolio turnover rate .............................................. 30.78% 17.69%
Average commission rate paid per share................................ $.0575 $.0500
</TABLE>
*Commencement of operations.
+Annualized.
++Not Annualized.
See accompanying Notes to Financial Statements.
12
<PAGE>
Boston Managed Growth Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 1997
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Boston Managed 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 management investment company. The Fund began
operations on December 1, 1995. The investment objective of the Fund is to seek
income and long-term capital growth through an actively managed portfolio of
stocks, bonds, and money market instruments.
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 have 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, 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 reported
amount of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended June 30, 1997, United States Trust Company of Boston
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnishes all
13
<PAGE>
Boston Managed Growth Fund
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
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 year ended June 30, 1997, the Fund incurred $517,083 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 1.00% of average net assets.
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 law. For the year ended June 30, 1997, the
Advisor reimbursed the Fund in the amount of $11,285, and the cumulative
un-recouped amount paid by the Advisor from the Fund's inception through June
30, 1997 totalled $11,285.
Effective April 1, 1997, the Advisor, which is a Massachusetts-chartered
banking and trust company, became the Fund's Custodian and Transfer Agent under
the Custody and Transfer Agency Agreements with the Fund. For the period ended
June 30, 1997, the Advisor was entitled to receive $4,602 and $2,903 for
custodial and transfer agency services, respectively. These balances remained
unpaid at June 30, 1997.
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 Funds; 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
equal to the greater of 0.10% of average net assets or $30,000.
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
The cost of purchases and the proceeds from sales of securities, excluding
U.S. Government obligations and short-term investments, for the year ended June
30, 1997, were $17,238,938 and $12,673,100, respectively.
14
<PAGE>
Boston Managed Growth Fund
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
Boston Managed Growth Fund and
the Board of Trustees of
Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities of
Boston Managed Growth 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 December 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
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 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 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
Boston Managed Growth 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 December 1, 1995
(commencement of operations) through June 30, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
July 30, 1997
15
<PAGE>
Advisor and Shareholder Service Agent
United States Trust Company of Boston
40 Court Street
Boston, MA 02108
(617) 726-7250
o
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
o
Custodian and Transfer Agent
United States Trust Company of Boston
40 Court Street
Boston, MA 02108
(617) 726-7250
o
Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, CA 90071
o
Legal Counsel
Paul, Hastings, Janofsky & Walker
345 California Street, 29th Floor
San Francisco, CA 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.
UNITED STATES TRUST COMPANY
BOSTON Investment Management
BOSTON MANAGED
GROWTH FUND
Annual Report
June 30, 1997
