Leonetti Balanced Fund
Semi-Annual Report
December 31, 1996
<PAGE>
January, 1997
Dear Shareholder:
The Leonetti Balanced Fund gained 6.83 percent in 1996, while the Lipper
Balanced Index returned 14.49 percent during the same time frame. The Fund's
total return since inception (August 1, 1995) is 13.30 percent (9.20% on an
annualized basis).* The Fund currently has over $10 million in assets. A
dividend of .0899 cents per share was declared and paid in December, 1996.
Last year's appearance of added volatility, coupled with the extreme narrowness
of stock issues participating in the advance made it difficult to outperform the
indices. The two percent total return offered by the Treasury's 30-year bond
made the comparison that much harder to attain. Additionally, our allocation to
the high technology sector mid-year resulted in returns below the Lipper
Balanced Index, which we were unable to recoup during the year. Thus, our 1996
returns ended far below our expectations.
The Fund's portfolio is prominently diversified across many sectors of the
economy. In our view a diversified portfolio of quality growth companies is an
admirable strategy during periods of increased volatility for individual stocks.
We believe this positioning will result in increased returns and better
performance in the future.
At the year's end the portfolio mix consisted of nearly 75% common stocks, 22%
fixed-income holdings and 3% in cash equivalent securities. The ten largest
equity holdings in the Fund were: Caterpillar, Chevron, General Motors, AT&T,
International Paper, Minnesota Mining & Manufacturing, General Electric,
AllState, Eastman Kodak and Tyco International. The fixed-income portion of the
Fund is comprised of U.S. Treasury Notes with an average maturity of one year,
which we maintain is fitting at this point in the interest rate cycle.
As noted last January, the cash segment of the portfolio mix was reduced to
purchase stocks in the financial and medical industries, among others. That
strategy proved timely and should continue to benefit the Fund throughout the
first quarter of 1997. We believe the stock market will prove many naysayers
wrong and push to still higher highs. Looking forward, the long bond's interest
rate should be in the 6 - 7.25 percent range.
We look forward to 1997 and anticipate better returns for our shareholders. We
wish to thank everyone, especially our shareholders, for their continued support
of the Leonetti Balanced Fund.
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
shares. Performance results for the Leonetti Balanced Fund and the
Lipper Balanced Index include reinvested dividends, interest and
other earnings.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 74.9% Market Value
- -------------------------------------------------------------------------------------------------------------------
Aerospace - Defense: 1.2%
<S> <C> <C>
2,000 Rockwell International Corp............................................. $ 121,750
---------
Airlines: 0.7%
3,000 USAir Group............................................................. 70,125
------
Auto: 4.3%
8,000 General Motors Corp..................................................... 446,000
-------
Banks: 1.4%
3,150 Commerce Bancshares, Inc................................................ 145,687
-------
Biomed - Genetics: 1.6%
3,000 Amgen, Inc.............................................................. 163,125
-------
Chemicals: 1.5%
4,000 Monsanto Company........................................................ 155,500
-------
Commercial Services - Miscellaneous: 1.3%
2,100 Ambresco, Inc........................................................... 56,175
4,000 Employee Solutions, Inc................................................. 82,000
------
138,175
-------
Computer Hardware: 5.6%
2,000 Compaq Computer Corp.................................................... 148,500
3,000 Hewlett Packard Company................................................. 150,750
3,500 NCR Corp................................................................ 117,688
6,000 Sun Microsystems, Inc................................................... 154,125
-------
571,063
-------
Computer - Memory Devices: 0.7%
2,670 Imation Corp............................................................ 75,093
------
Computer - Peripheral Equipment: 1.3%
3,000 Lexmark International Group, Inc........................................ 82,875
2,000 Microtouch, Inc......................................................... 48,000
------
130,875
-------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at December 31, 1996 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------------------
Computer Software: 0.7%
4,000 Activision, Inc......................................................... $ 51,500
2,000 Ross Systems, Inc....................................................... 19,250
- ------
70,750
------
Cosmetics - Personal Care: 0.7%
3,000 Amrion, Inc............................................................. 67,875
------
Diversified Operations: 9.0%
3,000 American Standard Companies, Inc........................................ 114,750
3,000 General Electric Company................................................ 296,625
3,700 Minnesota Mining & Manufacturing Company................................ 306,637
4,000 Tyco International, Ltd................................................. 211,500
-------
929,512
-------
Electrical - Control Instruments: 1.2%
3,000 General Signal Corp..................................................... 128,250
-------
Finance - Mortgage & Related Services: 1.8%
5,000 Federal National Mortgage Association................................... 186,250
-------
Financial: 1.3%
4,000 First Security Corp..................................................... 135,000
-------
Food: 2.8%
3,500 Flowers Industries...................................................... 75,250
3,000 H.J. Heinz Company...................................................... 107,250
3,000 Quaker Oats Company..................................................... 114,375
-------
296,875
-------
Insurance: 2.3%
4,000 AllState Corp........................................................... 231,500
-------
Leisure: 2.5%
2,750 Eastman Kodak Company................................................... 220,688
2,000 First Years, Inc........................................................ 32,500
------
253,188
-------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at December 31, 1996 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------------------
Leisure - Hotels & Motels: 0.5%
2,000 Hilton Hotels Corp...................................................... $ 52,250
--------
Machinery: 5.1%
7,000 Caterpillar, Inc........................................................ 526,750
-------
Media - Newspapers: 1.5%
2,000 Tribune Company......................................................... 157,750
-------
Medical: 3.1%
2,500 Abbott Laboratories..................................................... 126,875
4,000 Allegiance Corp......................................................... 110,500
2,500 American Medical Response............................................... 81,250
------
318,625
-------
Medical - Dental Supplies: 0.7%
2,000 Henry Schein, Inc....................................................... 68,750
------
Medical - Hospitals: 0.9%
4,000 Tenet Healthcare Corp................................................... 87,500
------
Oil: 5.1%
8,000 Chevron Corporation..................................................... 520,000
-------
Paper: 3.1%
8,000 International Paper Company............................................. 323,000
-------
Railroad: 1.3%
3,000 Kansas City Southern Industries, Inc.................................... 135,000
-------
Retail - Discount Chains: 0.9%
3,000 Toys R Us, Inc.......................................................... 90,000
------
Retail - Drug Stores: 1.6%
4,000 Walgreen Company........................................................ 160,000
-------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at December 31, 1996 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------------------
Telecommunications: 3.4%
8,000 AT&T Corp............................................................... $ 348,000
---------
Telecommunications - Equipment: 2.3%
3,000 Celeritek, Inc.......................................................... 31,875
2,000 Davox Corp.............................................................. 82,500
2,592 Lucent Technologies, Inc................................................ 119,880
-------
234,255
-------
Telecommunications - Services: 1.0%
2,000 Mastec, Inc............................................................. 106,000
-------
Transportation: 1.3%
5,000 Canadian Pacific, Ltd................................................... 132,500
-------
Waste Management: 1.2%
4,000 USA Waste Services, Inc................................................. 127,500
-------
Total Common Stocks (cost $6,682,588)................................... 7,704,473
---------
Principal Amount U.S. GOVERNMENT OBLIGATIONS: 21.8%
- -------------------------------------------------------------------------------------------------------------------
$400,000 U.S. Treasury Note, 4.750%, due 2/15/97................................. 399,500
350,000 U.S. Treasury Note, 5.625%, due 6/30/97................................. 350,109
350,000 U.S. Treasury Note, 5.625%, due 1/31/98................................. 348,906
400,000 U.S. Treasury Note, 5.125%, due 2/28/98................................. 396,375
400,000 U.S. Treasury Note, 5.875%, due 4/30/98................................. 399,750
350,000 U.S. Treasury Note, 5.875%, due 8/15/98................................. 349,673
-------
Total U.S. Government Obligations (cost $2,246,138) ... 2,244,313
---------
REPURCHASE AGREEMENT: 3.5%
- -------------------------------------------------------------------------------------------------------------------
361,000 Star Bank Repurchase Agreement, 5.0%, dated 12/31/96, due 1/2/97,
collateralized by $385,000 GNMA, due 1/20/24 (proceeds $361,099)
(cost $361,000)......................................................... 361,000
-------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at December 31, 1996 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------------------
Market Value
- -------------------------------------------------------------------------------------------------------------------
Total Investment in Securities (cost $9,289,726+): 100.2%............... $10,309,786
Liabilities in excess of Other Assets: (0.2)%........................... (21,922)
-------
Total Net Assets: 100.0%................................................ $10,287,864
===========
<FN>
+ At December 31, 1996, the cost of securities for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
Gross unrealized appreciation........................................... $ 1,170,740
Gross unrealized depreciation.......................................... (150,680)
--------
Net unrealized appreciation.................................... $ 1,020,060
===========
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (identified cost $9,289,726) (Note 2-A) ........... $10,309,786
Cash................................................................................... 861
Receivables:
Fund shares sold................................................................. 3,500
Dividends and interest........................................................... 44,018
Organization costs, net of accumulated amortization of $7,924.......................... 22,076
Other assets........................................................................... 16,227
------
Total assets .............................................................. 10,396,468
----------
LIABILITIES
Payables:
Advisory fee..................................................................... 8,747
Administration fee............................................................... 1,802
Securities purchased............................................................. 98,055
------
Total liabilities.......................................................... 108,604
-------
NET ASSETS .............................................................................. $10,287,864
===========
Net asset value, offering and redemption price per share
($10,287,864/919,716 shares outstanding;
unlimited number of shares authorized without par value) ........................ $11.19
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $ 9,309,076
Accumulated net realized loss on investments........................................... (40,217)
Overdistribution of net investment income.............................................. (1,055)
Net realized appreciation on investments............................................... 1,020,060
---------
Net assets ...................................................................... $10,287,864
===========
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Six Months ended December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Interest ........................................................................ $ 77,194
Dividends........................................................................ 67,240
Other............................................................................ 2,845
-----
Total investment income ................................................... 147,279
-------
Expenses
Advisory fees (Note 3) .......................................................... 51,596
Administration fee (Note 3)...................................................... 15,123
Custodian and accounting fees.................................................... 9,171
Auditing fees.................................................................... 7,719
Registration fees................................................................ 7,490
Transfer agent fees.............................................................. 3,624
Amortization of organization costs............................................... 3,025
Trustees' fees................................................................... 2,208
Reports to shareholders.......................................................... 1,718
Miscellaneous fees............................................................... 1,513
Legal fees....................................................................... 1,364
-----
Total expenses............................................................. 104,551
-------
Net investment income ................................................... 42,728
------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions .......................................... (45,449)
Net change in unrealized appreciation on investments .................................. 460,091
-------
Net realized and unrealized gain on investments ................................. 414,642
-------
Net Increase in Net Assets Resulting from Operations ...................... $ 457,370
=========
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Six Months August 1, 1995*
ended through
December 31, 1996# June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment income.................................................. $ 42,728 $ 74,945
Net realized (loss) gain from security transactions ................... (45,449) 5,232
Net change in unrealized appreciation on investments................... 460,091 559,969
------- -------
Net increase in net assets resulting from operations ............ 457,370 640,146
------- -------
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)........................................... (175,054) 9,484,130
-------- ---------
Total increase in net assets .................................... 200,649 10,087,215
NET ASSETS
Beginning of period ................................................... 10,087,215 -0-
---------- -
End of period (including (overdistributed) undistributed net
investment income of ($1,055) and $39,459, respectively)......... $10,287,864 $10,087,215
=========== ===========
<FN>
(a) A summary of capital shares transactions is as follows:
Six Months ended August 1, 1995* through
December 31, 1996# June 30, 1996
--------------------- --------------------------
Shares Value Shares Value
------- --------- ------- ----------
Shares sold ........................................... 72,189 $ 787,166 977,143 $9,934,701
Shares issued in reinvestment of distribution.......... 7,321 80,379 3,510 37,061
Shares redeemed........................................ (94,234) (1,042,599) (46,213) (487,632)
------- ---------- ------- --------
Net (decrease) increase ............................... (14,724) $ (175,054) 934,440 $9,484,130
======= ========== ======= ==========
*Commencement of operations.
#Unaudited.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- -------------------------------------------------------------------------------------------------------------------
Six Months August 1, 1995*
ended through
December 31, 1996# June 30, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period .......................... $10.80 $10.00
------ ------
Income from investment operations:
Net investment income ................................... .05 .09
Net realized and unrealized gain on investments ......... .43 .76
--- ---
Total from investment operations............................... .48 .85
--- ---
Less distributions:
From net investment income............................... (.09) (.05)
---- ----
Net asset value, end of period ................................ $11.19 $10.80
====== ======
Total return .................................................. 4.46%++ 8.46%++
Ratios/supplemental data:
Net assets, end of period (millions)........................... $ 10.3 $ 10.1
Ratio of expenses to average net assets ....................... 2.03%+ 2.26%+
Ratio of net investment income to average net assets .......... .83%+ 1.02%+
Portfolio turnover rate ....................................... 45.54% 42.16%
Average commission rate paid per share+++....................... $.0600 $.0600
<FN>
#Unaudited.
*Commencement of operations.
+Annualized.
++Not Annualized.
+++For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission
rate per share for security trades on which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Leonetti Balanced Fund (the "Fund") is a diversified series of shares
of beneficial interest of Professionally Managed Portfolios (the "Trust"), which
is registered under the Investment Company Act of 1940 (the "1940 Act") as an
open-end management investment company. The Fund began operations on August 1,
1995. The investment objective of the Fund is to seek total return through a
combination of income and capital growth, consistent with preservation of
capital. The Fund seeks to achieve its objective by investing primarily in
equity securities and higher quality fixed income obligations.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on
an exchange or NASDAQ for which there 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, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. Dividend income and distributions to shareholders are
recorded on the ex-dividend date.
D. Deferred Organization Costs. The Fund has incurred expenses of
$30,000 in connection with the organization of the Fund. These costs
have been deferred and are being amortized on a straight line basis
over a period of sixty months from the date the Fund commenced
investment operations.
E. Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
<PAGE>
Leonetti Balanced Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended December 31, 1996, Leonetti & Associates, Inc.
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and most personnel needed by the Fund. As compensation
for its services, the Advisor was entitled to a monthly fee at the annual rate
of 1.00% based upon the average daily net assets of the Fund. For the six months
ended December 31, 1996, the Fund incurred $51,596 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 or expense
limitations.
Investment Company Administration Corporation (the "Administrator") acts
as the Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Fund's
expense accruals. For its services, the Administrator receives a monthly fee at
the following annual rate:
Under $15 million $30,000
$15 to $50 million 0.20% of average net assets
$50 to $100 million 0.15% of average net assets
$100 to $150 million 0.10% of average net assets
over $150 million 0.05% of average net assets
FirstFund 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 short-term investments, for
the six months ended December 31, 1996 were $4,646,464 and $4,412,939,
respectively.
<PAGE>
Advisor
Leonetti & Associates, Inc.
1130 Lake Cook Road, Suite 105
Buffalo Grove, Illinois 60089
(800) 454-0999
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
Transfer Agent
American Data Services, Inc.
24 West Carver Street, 2nd Floor
Huntington, New York 11743
Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, California 90071
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
This report is intended for the shareholders of
the Leonetti Balanced Fund and should not be
used as sales literature unless accompanied
or preceded by a current prospectus.
