June 9, 1997
Securities and Exchange Commission
Attn: Filing Desk, Stop 1-4
450 Fifth Street, N.W.
Washington, DC 20549
Re: Professionally Managed Portfolios
File No. 811-5037
CIK No. 811030
Dear Sir or Madam:
On behalf of the above Registrant and pursuant to Rule 30b-2 under
the Investment Company Act of 1940, I enclose for filing via EDGAR,
a copy of the Annual Report to shareholders of the Harris Bretall
Sullivan & Smith Growth Equity Fund series of the Registrant for
the twelve month period ended March 31, 1997.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
Robert H. Wadsworth
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
Annual Report
March 31, 1997
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
Dear Shareholder:
We are pleased to present you with the first Annual Report for the Harris
Bretall Sullivan & Smith Growth Equity Fund (the "Fund") for the year ended
March 31, 1997.
General Market Overview
The stock market has enjoyed an abnormal five year period of higher-than-average
returns and lower-than-average volatility. Over the last couple of months the
market has experienced a 10% correction and an increase in volatility. Investors
should not be alarmed by this volatility, as it is an overdue return to more
normal stock market conditions. In fact, the market has historically experienced
on average a 10% correction once each year. This market correction is the first
in over six years.
Perhaps, the key contributing factor to the recent correction is the 1/4%
increase in the Fed Funds Rate and the strong possibility of an additional 1/4%
point increase in the near future. Although this has caused a short term
disruption, we endorse Chairman Greenspan's proactive policy in keeping
inflation in check and thereby continuing a moderately paced economic expansion.
The major benefactor of this type of environment has been and will continue to
be financial assets. Therefore, we remain optimistic about market opportunities
in the near future, as well as over the longer term.
Portfolio Review
Since inception on May 1st of last year, the Fund's total return, as of March
31, 1997, was 10.36%. The performance has lagged the S&P 500 Index (the "Index")
primarily due to the Fund's strategy of equally weighting all positions. The
Index's performance, which is capitalization weighted, has been dominated by a
handful of the large capitalization companies. For example, price changes in
General Electric, the largest company in the Index, have over 500 times the
impact on the Index's performance as does Shoney's, the smallest company in the
Index. Although this trend has made it difficult to outperform the S&P 500 Index
in the short term, history has shown that equally weighted strategies have
tended to outperform capitalization weighted strategies over the longer term.
The Fund is overweighted in technology-related companies, as the firm believes
that the single most powerful force behind the new-found competitiveness of
American industry is its leadership in technology. Moreover, we have a strong
focus on companies in health care, financial services and in U.S. companies that
have established a presence in the global marketplace. We are convinced that
with the present economic trend, American growth companies should thrive as
never before.
Our valuation work shows the market fairly valued, based on 1997 earnings
estimates and slightly undervalued based on 1998 earnings estimates. As of March
31, 1997, the Fund was 99% invested in equities.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
Outlook
The pace of U.S. economic growth has been surprisingly strong, resulting in
continued good corporate earnings growth. We expect this trend to remain in
place, but at a somewhat more moderate rate. Our philosophy has always been that
consistent corporate earnings are the key to long-term stock price appreciation.
We believe double-digit earnings growth will continue through the decade for
companies in the health care, financial service and technology sectors. Certain
consumer franchise companies will also see this level of earnings growth;
however, the average corporation will see its earnings growth slow to a rate
more in line with historical single-digit averages.
Our five year annual projected corporate earnings growth rate for the companies
in the portfolio is 17% versus 9% for the S&P 500--twice the expected growth at
a discount to the market. With a strong relative earnings advantage, HBSS
believes this should be the beginning of an outstanding relative performance
period for the Fund.
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have.
Sincerely,
/s/ /s/
John J. Sullivan, CFA Gordon J. Ceresino
Partner Senior Vice President
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
Harris, Bretall, Sullivan & Smith Growth Equity Fund
Value of $10,000 vs. Russell 1000 Growth Index and S&P 500 Index
Annual Average Total Return
Periods Ended March 31, 1997
1 Year Inception (5/1/96)
N/A 10.36%
<TABLE>
<CAPTION>
Harris, Bretal, Sullivan & Smith S & P 500 Russell 1000 Growth
<S> <C> <C> <C> <C>
5/1/96 10,000 10,000 10,000
6/30/96 10,040 10,277 10,364
9/30/96 10,310 10,600 10,737
12/31/96 10,776 11,487 11,385
3/31/97 11,036 11,794 11,447
</TABLE>
Past performance is not predictive of future performance.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 98.4% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Goods/Conglomerates: 7.7%
<S> <C> <C>
1,200 Fluor Corp.............................................................. $ 63,000
650 General Electric Company................................................ 64,513
900 Illinois Tool Works, Inc................................................ 73,462
1,200 Tyco International, Inc................................................. 66,000
------
266,975
-------
Consumer Cyclical: 9.0%
2,100 Circuit City Stores, Inc................................................ 70,088
1,400 Home Depot, Inc......................................................... 74,900
1,500 Interpublic Group, Inc.................................................. 79,125
3,150 Wal Mart Stores, Inc.................................................... 87,806
------
311,919
-------
Consumer Services: 4.0%
2,800 Mattel, Inc............................................................. 67,200
1,000 Walt Disney Company*.................................................... 73,000
------
140,200
-------
Consumer Staples: 3.9%
750 Colgate Palmolive Company*.............................................. 74,719
850 Gillette Company........................................................ 61,731
------
136,450
-------
Drugs/Biotechnology: 10.0%
1,200 Abbott Laboratories*.................................................... 67,350
1,150 American Home Products Corp............................................. 69,000
1,350 Amgen, Inc.............................................................. 75,431
850 Merck & Co., Inc........................................................ 71,613
750 Pfizer, Inc............................................................. 63,094
------
346,488
-------
Financial: 12.0%
600 American International Group, Inc....................................... 70,425
600 BankAmerica Corp. ................................................... 60,450
2,400 Charles Schwab Corp..................................................... 76,500
600 Citicorp................................................................ 64,950
1,400 Norwest Corp............................................................ 64,750
270 Wells Fargo & Company................................................... 76,714
-------
413,789
-------
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
SCHEDULE OF INVESTMENTS at March 31, 1997, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Food/Beverage: 9.2%
1,200 General Mills, Inc...................................................... $ 74,550
1,500 McDonald's Corp......................................................... 70,875
3,000 PepsiCo, Inc............................................................ 97,875
2,250 Sysco Corp.............................................................. 76,781
------
320,081
-------
Healthcare: 4.4%
1,300 Oxford Health Plans, Inc................................................ 76,212
1,600 United Healthcare Corp.................................................. 76,200
------
152,412
-------
Health Products: 2.1%
1,400 Johnson & Johnson....................................................... 74,025
------
Leisure - Gaming: 1.7%
2,200 Circus Circus Enterprises, Inc.......................................... 57,200
------
Technology/Defense: 13.6%
2,450 Autodesk, Inc........................................................... 75,950
1,650 Automatic Data Processing, Inc.......................................... 69,094
2,300 Electronic Arts, Inc.................................................... 61,237
1,500 Electronic Data Systems Corp............................................ 60,563
1,950 First Data Corp......................................................... 66,056
810 Microsoft Corp.......................................................... 74,267
1,700 Oracle Systems, Inc..................................................... 65,556
------
472,723
-------
Telecommunications/Hardware: 18.8%
1,900 Adobe Systems, Inc...................................................... 76,237
2,000 Applied Materials, Inc.................................................. 92,750
1,300 Cisco Systems, Inc...................................................... 62,563
950 Compaq Computer Corp.................................................... 72,793
1,450 Hewlett Packard Company................................................. 77,213
3,050 Informix Corp........................................................... 46,131
550 Intel Corp.............................................................. 76,519
1,600 Linear Technology Corp.................................................. 70,800
1,400 Lucent Technologies, Inc................................................ 73,850
------
648,856
-------
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
SCHEDULE OF INVESTMENTS at March 31, 1997, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation: 2.0%
1,200 Union Pacific Corp...................................................... $ 68,100
--------
Total common stocks (cost $3,220,238)................................... 3,409,218
---------
Total Investments in Securities (cost $3,220,238+): 98.4% .............. 3,409,218
Other Assets less Liabilities: 1.6%..................................... 57,149
------
Total Net Assets: 100.0% ............................................... $3,466,367
==========
<FN>
*Non-income producing security.
+ At March 31, 1997, the cost for Federal income tax purposes was the same as
the basis for financial reporting. Unrealized appreciation and depreciation of
securities were as follows:
Gross unrealized appreciation........................................... $ 321,820
Gross unrealized depreciation........................................... (132,840)
--------
Net unrealized appreciation................................... $ 188,980
=========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (identified cost $3,220,238) (Note 2-A) ........... $3,409,218
Cash................................................................................... 49,345
Receivables:
From Advisor..................................................................... 19,470
Dividends and interest .......................................................... 2,501
Fund shares sold................................................................. 1,500
Prepaid expenses....................................................................... 7,320
-----
Total assets .............................................................. 3,489,354
---------
LIABILITIES
Payables:
Administration fee............................................................... 2,677
Distribution fees................................................................ 2,155
Accrued expenses....................................................................... 18,155
------
Total liabilities.......................................................... 22,987
------
NET ASSETS $3,466,367
==========
Net asset value, offering and redemption price per share
($3,466,367/314,179 shares outstanding;
unlimited number of shares authorized without par value) ........................ $11.03
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $3,269,805
Overdistribution of net investment income.............................................. (1,440)
Undistributed net realized gain on investments......................................... 9,022
Net unrealized appreciation on investments............................................. 188,980
-------
Net assets ...................................................................... $3,466,367
==========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Period May 1, 1996* through March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Dividends........................................................................ $ 19,646
Interest......................................................................... 6,158
-----
Total income............................................................... 25,804
------
Expenses
Administration fee (Note 3)...................................................... 28,315
Custodian and accounting fees.................................................... 15,408
Advisory fees (Note 3)........................................................... 15,020
Audit fees....................................................................... 14,882
Transfer agent fees.............................................................. 7,210
Distribution costs (Note 4)...................................................... 5,007
Miscellaneous fees............................................................... 4,282
Legal fees....................................................................... 3,880
Reports to shareholders.......................................................... 2,791
Trustees' fees................................................................... 2,791
Registration fees................................................................ 417
---
Total expenses............................................................. 100,003
Less: expenses reimbursed/waived (Note 3)................................. (74,252)
-------
Net expenses............................................................... 25,751
------
Net investment income ............................................... 53
--
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions..................................... 9,022
Net change in unrealized appreciation on investments............................. 188,980
-------
Net realized and unrealized gain on investments............................ 198,002
-------
Net Increase in Net Assets Resulting from Operations ................ $ 198,055
=========
<FN>
*Commencement of operations.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
May 1, 1996*
through
March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C>
Net investment income...................................................................... $ 53
Net realized gain from security transactions............................................... 9,022
Net change in unrealized appreciation on investments....................................... 188,980
-------
Net increase in net assets resulting from operations ................................ 198,055
-------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................................................... (1,493)
------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a)............... 3,269,805
---------
Total increase in net assets ........................................................ 3,466,367
NET ASSETS
Beginning of period........................................................................ -0-
-
End of period (including accumulated net investment loss of $1,440)........................ $3,466,367
==========
<FN>
(a) A summary of capital shares transactions is as follows:
May 1, 1996*
through
March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold................................................................. 327,664 $3,416,156
Shares issued in reinvestment of distributions.............................. 140 1,488
Shares redeemed............................................................. (13,625) (147,839)
------- --------
Net increase................................................................ 314,179 $3,269,805
======= ==========
*Commencement of operations.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
- ------------------------------------------------------------------------------------------------------------------------------------
May 1, 1996*
through
March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period....................................................... $10.00
Income from investment operations:
Net investment income................................................................ .00
Net realized and unrealized gain on investments...................................... 1.04
----
Total from investment operations........................................................... 1.04
----
Less distributions:
From net investment income........................................................... (.01)
----
Net asset value, end of period............................................................. $11.03
======
Total return............................................................................... 10.36%++
Ratios/supplemental data:
Net assets, end of period (millions)....................................................... $ 3.5
Ratio of expenses to average net assets:
Before expense reimbursement and waiver.............................................. 4.97%+
After expense reimbursement and waiver............................................... 1.28%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement and waiver.............................................. (3.69)%+
After expense reimbursement and waiver............................................... 0.00%+
Portfolio turnover rate.................................................................... 14.62%
Average commission rate paid per share..................................................... $.0688
<FN>
*Commencement of operations.
+Annualized.
++Not annualized.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
NOTES TO FINANCIAL STATEMENTS at March 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Harris Bretall Sullivan & Smith Growth Equity Fund (the "Fund") is a
diversified series of shares of beneficial interest of Professionally Managed
Portfolios (the "Trust"), which is registered under the Investment Company Act
of 1940 (the "1940 Act") as an open-end management investment company. The Fund
began operations on May 1, 1996. The investment objective of the Fund is to seek
growth of capital. The Fund seeks to achieve its objective by investing
primarily in equity securities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. The Fund's investments are carried at market
value. Securities listed on an exchange or quoted on a National
Market System are valued at the last sale price. Other securities
are valued at the last quoted bid price. Securities for which market
quotations are not readily available, if any, traded on an exchange
or NASDAQ for which there have been no sales and other
over-the-counter securities are valued at their respective fair
values as determined in good faith by the Board of Trustees.
Short-term investments are stated at cost, which when combined with
accrued interest, approximates market value.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no federal income tax provision is
required.
C. Securities Transactions, Dividends and Distributions. As is common
in the industry, security transactions are accounted for on the
trade date. The cost of securities owned on realized transactions
are relieved on a first-in, first-out basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
D. Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the period ended March 31, 1997, Harris Bretall Sullivan & Smith, Inc.
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnishes all investment advice,
office space, facilities, and most 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 period
ended March 31, 1997, the Fund incurred $15,020 in Advisory fees.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund to the extent necessary to limit
the Fund's aggregate annual operating expenses to 1.29% of average net assets.
Any such reductions made by the Advisor in its fees or payments or reimbursement
of expenses which
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
NOTES TO FINANCIAL STATEMENTS, Continued
are the Fund's obligation are subject to reimbursement by the Fund provided the
Fund is able to effect such reimbursement and remain in compliance with any
applicable laws or expense limitations. For the period ended March 31, 1997, the
Advisor waived its fees and reimbursed the Fund in the amount of $74,252.
Investment Company Administration Corporation (the "Administrator") acts
as the Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Fund's
expense accruals. For its services, the Administrator receives an annual fee at
the following rate:
Under $25 million - 0.12% of average net assets
$25 to $50 million - 0.07% of average net assets
$50 to $100 million - 0.05% of average net assets
Over $100 million - 0.03% of average net assets,
with a minimum fee of $30,000 annually
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and the Distributor.
NOTE 4 - DISTRIBUTION COSTS
The Fund has adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will pay a fee to
the Distributor at an annual rate of up to 0.25% of the average daily net assets
of the Fund. The fee is paid to the Distributor as reimbursement for, or in
anticipation of, expenses incurred for distribution-related activity.
NOTE 5 - PURCHASES AND SALES OF SECURITES
The cost of purchases and the proceeds from sales of securities, other
than U.S. Government obligations and short-term investments, for the period
ended March 31, 1997, were $3,643,608 and $432,391, respectively.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
HARRIS BRETALL SULLIVAN & SMITH
GROWTH EQUITY FUND and
THE BOARD OF TRUSTEES OF
PROFESSIONALLY MANAGED PORTFOLIOS
We have audited the accompanying statement of assets and liabilities of
Harris Bretall Sullivan & Smith Growth Equity Fund (the Fund), a series of
Professionally Managed Portfolios, including the schedule of investments, as of
March 31, 1997, and the related statements of operations, changes in net assets,
and the financial highlights for the period from May 1, 1996 (commencement of
operations) through March 31, 1997. 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 March
31, 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
Harris Bretall Sullivan & Smith Growth Equity Fund as of March 31, 1997, the
results of its operations, the changes in its net assets, and the financial
highlights for the period from May 1, 1996 (commencement of operations) through
March 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
May 9, 1997
<PAGE>
Advisor
Harris Bretall Sullivan & Smith, Inc.
One Sansome Street, Suite 3300
San Francisco, CA 94104
(415) 765-8300
Account Inquiries (800) 385-7003
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Transfer and Dividend Disbursing Agent
American Data Services, Inc.
24 West Carver Street, 2nd Floor
Huntington, NY 11743
(800) 385-7003
Independent Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, CA 90071
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
