November 6, 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 Trent Equity Fund series of the Registrant
for the twelve month period ended August 31, 1997.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
Robert H. Wadsworth
<PAGE>
TRENT EQUITY FUND
Annual Report
For the Year Ended
August 31, 1997
<PAGE>
TRENT EQUITY FUND
Annual Report
Year Ended August 31, 1997
Dear Shareholder:
Following a solid 20% gain in calendar year 1996, Trent Equity Fund is
up 20% for the calendar year to date through September 30, 1997.1 For the fiscal
year ended August 31, 1997, the Fund was up 21%.
The Fund's approach to investing does not consider market timing. We
believe that it is impossible to time the market. In fact, we pay little
attention to the day-to-day changes in stock market. We prefer to think like
business owners. When we find a good company to buy at a good price, we buy it,
and then concentrate on how the company is doing rather than focusing on the
stock price of the company or the market. In this respect, we are keeping our
attention on what is important -- how the company is doing -- and not on what is
not as important -- short-term market price movements. We are very pleased with
the portfolio of companies we own in the Trent Equity Fund, and believe their
earnings will grow substantially faster than the earnings of the average S&P 500
company over the next five years.
ACTIVITY IN CURRENT HOLDINGS
Harley-Davidson enjoyed a 45% gain since our semi-annual report on
February 28, 1997. Its earnings growth remains particularly strong, up 22% for
the first six months of the calendar year. The demand for Harley motorcycles
remains robust and the company has a substantial order backlog.
Michaels Stores, the arts and crafts retail chain, was up 65% for the
six months ended August 31, 1997. Michaels' stock price had fallen dramatically
from 1994 to 1996 because, in a push to increase new store openings, the company
did not pay sufficient attention to operations. With a new Chief Executive
Officer, Michael Rouleau, Michaels has focused its inventory, installed a
sophisticated point-of-sale system, and improved its store lay-out. As a result,
operating margins are on the rise.
Family Dollar Stores, the small-box family retailer, was up 35% for the
six months. Family Dollar is continuing to benefit from the conversion to
everyday low pricing that was substantially completed about a year ago. The
ever-increasing store size of the Wal-Marts of the world is creating a huge
opportunity for the value retailers that locate in small 7,000 square foot
stores in neighborhood shopping centers.
American Express moved ahead 19% during the six month period ended
August 31, 1997. Everything is going right for American Express. After years of
diluting its efforts, American Express has begun to focus on exploiting its
valuable brand name through innovation. The company is now increasing its share
of the charge card market after decades of losing market share. Additionally,
the company's very profitable money management division is growing rapidly.
Libbey, the largest manufacturer of institutional glass tableware, was
up 28% during the six month period. At $575 million, Libbey has one of the
smaller market capitalizations in the Trent Equity Fund. However, it enjoys a
dominant sixty percent market share.
NEW HOLDINGS
During the six month period, the Fund added Walt Disney Company,
McDonald's, Nike and PETsMART.
<PAGE>
We have been a Walt Disney fan for a long time, and have finally decided
to take a position. Although not an example of one of our value purchases, we
believe Disney will be a steady grower.
McDonald's is a better example of a value purchase, as the stock price
has been flat for just short of two years. The market is concerned about
stagnant-to-declining same-store sales and marketing miscues. We believe that
the Fund is taking advantage of a low stock price due to the focus of the
investment community on short-term considerations. We see a large continuing
international growth opportunity for McDonald's, as it is in a position to
capitalize on growth in emerging countries more than any other restaurant group.
We bought Nike after a significant pullback in stock price. Investors
seem to be focused on order rates that have fallen after the explosive growth
over the last couple of years. We see Nike as one of the great brand names with
an unusual capacity for growth. All things being equal, we like to own the
number one company in market share. Nike has twice the market share of the
second-leading competitor.
The Fund purchased PETsMART after a significant drop in share price
resulting from concern about inventory problems and a loss of the flea and tick
prevention business. PETsMART is, by a wide margin, the leading pet supply chain
in the U.S. with a presence in the United Kingdom. The company's focus on
aggressive expansion had resulted in losing focus on operations. Like Michaels,
they are refocusing on operations. We believe the company will be able to
accomplish that objective.
SIGNIFICANT REALIZED GAINS AND LOSSES
The companies that we sold during the six month period were Department
56, Gaylord Entertainment, Natural Wonders, and Pall Corporation.
With Department 56, which sells ceramic and porcelain collectibles, we
became less certain about continuing demand for their products.
Though we were initially pleased with the sale of The Nashville Network
and Country Music Television cable networks to Westinghouse Electric's CBS
subsidiary, the move up in Westinghouse stock prior to the closing of the deal
made it much less attractive for Gaylord, so we exited the position.
We sold Natural Wonders, concluding that its concept was not as unique
as we initially thought it was. There was a great deal of competition for gift
items in general and Natural Wonders has not been able to position its nature
and science niche adequately.
We sold Pall Corporation, the manufacturer of fluid filters and
equipment, because it seemed to be less in control of its destiny than we
thought. It continues to have difficulty in creating sales growth.
We are very optimistic about the long-term prospects of the companies
that we own. We thank you for your investment in Trent Equity Fund.
TRENT CAPITAL MANAGEMENT, INC.
1The annualized performance of the Fund for the one-year, five-year and
inception to date periods through September 30, 1997 was 21.18%, 12.26%, and
13.44%, respectively.
<PAGE>
Trent Equity Fund
Value of $10,000 vs. S & P 500 Index
Average Annual Total Return
Ended August 31, 1997
1 Year.....................20.69%
5 Year.....................10.67%
Since Inception (8/13/90)..12.77%
Date Trent Equity Fund S&P 500
13-Aug-90 10,000 10,000
31-Aug-90 9,710 9,542
31-Aug-91 14,000 12,103
31-Aug-92 14,060 13,065
31-Aug-93 16,394 15,052
31-Aug-94 16,497 15,875
31-Aug-95 18,045 19,271
31-Aug-96 19,349 22,879
31-Aug-97 23,352 32,155
Past performance is not predictive of future performance.
This graph is furnished to you in accordance with SEC regulations. It
compares a $10,000 investment in the Trent Equity Fund with The Standard &
Poor's 500 Index, on a cumulative basis. All return calculations reflect the
reinvestment of income, dividends and capital gains distribution, if any, as
well as all fees and expenses. Performance results reflect the total returns of
a predecessor limited partnership managed by Trent Capital Management, prior to
the effective date of the Fund's registration statement, which was September 2,
1992. The limited partnership returns are restated to reflect all fees and
expenses applicable to the Fund. If the limited partnership had been registered
as an investment company under the federal securities laws, its performance
might have been adversely affected because of the additional restrictions
applicable to registered investment companies.
The total returns for the Fund reflect the fact that fees and expenses
in excess of certain expense limits specified in the investment management
agreement have been deferred by Trent Capital Management. Total return results
would have been lower had there been no deferral of fees and expenses of expense
limitations.
Past performance is no guarantee of future performance. Investment return
and the principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less that their original cost.
<PAGE>
TRENT EQUITY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at August 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 99.8% Market Value
- -------------------------------------------------------------------------------------------------------------------
Apparel: 4.2%
<S> <C> <C>
2,600 NIKE, Inc............................................................... $ 138,775
---------
Beverages: 3.5%
2,000 Coca-Cola Company....................................................... 114,625
-------
Consumer Products: 9.4%
2,531 Gillette Corp........................................................... 209,598
8,500 Oakley, Inc.*........................................................... 103,594
-------
313,192
-------
Entertainment: 4.6%
2,000 Walt Disney Company..................................................... 153,625
-------
Financial Services: 20.7%
4,000 American Express Company................................................ 311,000
6,800 Federal Home Loan Mortgage Corp......................................... 221,425
3,800 First Data Corp......................................................... 156,038
-------
688,463
-------
Food Processing: 3.6%
2,900 Nabisco Holdings Corp., Class A......................................... 120,350
-------
Household Products: 10.6%
4,000 Libbey, Inc............................................................. 153,500
5,000 Newell Company.......................................................... 196,875
-------
350,375
-------
Media and Broadcasting: 4.1%
6,000 Thomson Corp............................................................ 136,766
-------
Medical Supplies: 3.8%
2,200 Johnson & Johnson....................................................... 124,712
-------
Pharmaceuticals: 2.7%
1,500 Abbott Laboratories..................................................... 89,906
------
<PAGE>
TRENT EQUITY FUND
SCHEDULE OF INVESTMENTS at August 31, 1997, Continued
- -------------------------------------------------------------------------------------------------------------------
Shares Market Value
Publishing: 4.0%
2,200 Reuters Holdings PLC.................................................... $ 133,925
---------
Recreation: 10.1%
6,200 Harley-Davidson, Inc.................................................... 335,575
-------
Restaurants: 4.0%
2,775 McDonald's Corp......................................................... 131,292
-------
Retail: 14.5%
9,300 Family Dollar Stores, Inc............................................... 197,625
8,800 Michaels Stores, Inc.*.................................................. 215,050
8,000 PETsMART, Inc.*......................................................... 68,500
------
481,175
-------
Total Common Stocks (cost $2,424,553)................................... 3,312,756
---------
Total Investments in Securities (cost $2,424,553+): 99.8% .............. 3,312,756
Other Assets less Liabilities: 0.2%..................................... 7,091
-----
Total Net Assets: 100.0% ............................................... $3,319,847
==========
<FN>
* Non-income producing security.
+ At August 31, 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........................................... $ 950,204
Gross unrealized depreciation........................................... (62,001)
-------
Net unrealized appreciation....................................... $ 888,203
=========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
TRENT EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at August 31, 1997
- -------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $2,424,553) ................................. $3,312,756
Cash................................................................................... 18,061
Dividends and interest receivable...................................................... 2,956
Prepaid expenses and other assets...................................................... 1,744
-----
Total assets .................................................................... 3,335,517
---------
LIABILITIES
Due to Advisor ........................................................................ 332
Accrued expenses....................................................................... 15,338
------
Total liabilities................................................................ 15,670
------
NET ASSETS ................................................................................ $3,319,847
==========
Net asset value, offering and redemption price per share
($3,319,847/279,063 shares outstanding;
unlimited number of shares authorized without par value) ............................. $11.90
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $2,700,569
Accumulated net realized loss on investments........................................... (268,925)
Net unrealized appreciation on investments............................................. 888,203
-------
Net assets ...................................................................... $3,319,847
==========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
TRENT EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended August 31, 1997
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Dividends........................................................................ $ 38,262
Interest......................................................................... 863
Other............................................................................ 777
---
Total income............................................................... 39,902
------
Expenses
Advisory fee..................................................................... 37,134
Custodian and accounting fees.................................................... 18,648
Audit fees....................................................................... 11,911
Transfer agent fees.............................................................. 10,906
Administration fee............................................................... 7,925
Reports to shareholders.......................................................... 5,474
Legal fees....................................................................... 5,099
Amortization of organization costs............................................... 4,674
Miscellaneous.................................................................... 3,770
Trustees' fees................................................................... 3,500
Registration fees................................................................ 2,992
Insurance fees................................................................... 443
---
Total expenses............................................................. 112,476
Less: expense reimbursed and waived........................................ (47,895)
-------
Net expenses............................................................... 64,581
------
Net investment loss ................................................. (24,679)
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions..................................... (108,559)
Net change in unrealized appreciation of investments............................. 735,603
-------
Net realized and unrealized gain on investments............................ 627,044
-------
Net Increase in Net Assets Resulting from Operations ................ $ 602,365
=========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
TRENT EQUITY FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Year Year
Ended Ended
August 31, August 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment loss........................................................... $ (24,679) $ (19,906)
Net realized loss from security transactions.................................. (108,559) (77,268)
Net change in unrealized appreciation on investments.......................... 735,603 285,069
------- -------
Net increase in net assets resulting from operations ................... 602,365 187,895
------- -------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from security transactions ................................. -- (301,203)
--------
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets derived from net change
in outstanding shares (a).................................................. (321,146) (653,999)
-------- --------
Total increase (decrease) in net assets ................................ 281,219 (767,307)
NET ASSETS
Beginning of year............................................................. 3,038,628 3,805,935
--------- ---------
End of year .................................................................. $3,319,847 $3,038,628
========== ==========
<FN>
(a) A summary of capital share transactions is as follows:
Year Year
Ended Ended
August 31, 1997 August 31, 1996
- -------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
- -------------------------------------------------------------------------------------------------------------------
Shares sold ......................................... 14,605 $ 158,843 23,105 $ 223,608
Shares issued in reinvestment of distributions....... -- -- 32,409 280,983
Shares redeemed...................................... (43,688) (479,989) (119,166) (1,158,590)
------- -------- -------- ----------
Net decrease ........................................ (29,083) $(321,146) (63,652) $(653,999)
======= ========= ======= =========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
TRENT EQUITY FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- -------------------------------------------------------------------------------------------------------------------
September 2,
Year Ended August 31, 1992* through
- -------------------------------------------------------------------------------------------------------------------
August 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 9.86 $10.24 $11.50 $11.66 $10.00
Income from investment operations:
Net investment loss......................... (.10) (.06) -- (.07) (.08)
Net realized and unrealized gain
on investments........................... 2.14 .67 .67 .15 1.76
---- --- --- --- ----
Total from investment operations.................. 2.04 .61 .67 .08 1.68
---- --- --- --- ----
Less distributions:
From net investment income.................. -- -- -- -- (.01)
From capital gains.......................... -- (.99) (1.93) (.24) (.01)
---- ----- ---- ----
Total distributions............................... -- (.99) (1.93) (.24) (.02)
---- ----- ---- ----
Net asset value, end of period.................... $11.90 $ 9.86 $10.24 $11.50 $11.66
====== ====== ====== ====== ======
Total return...................................... 20.69% 7.23% 9.38% 0.64% 16.91%+
Ratios/supplemental data:
Net assets, end of period (millions).............. $ 3.3 $ 3.0 $ 3.8 $ 3.9 $ 4.7
Ratio of expenses to average net assets:
Before expense reimbursement................ 3.48% 3.63% 3.65% 3.16% 3.33%+**
After expense reimbursement................. 2.00% 2.10% 1.85% 1.85% 2.54%+**
Ratio of net investment loss to average net assets:
Before expense reimbursement................ (2.25)% (2.15)% (2.00)% (1.68)% (1.84)%+**
After expense reimbursement................. (0.76)% (0.62)% (0.15)% (0.36)% (1.05)%+**
Portfolio turnover rate........................... 43.81% 59.33% 46.52% 149.25% 315.38%
Average commission rate paid per share++.......... $.0615 $.0625 -- -- --
<FN>
*Commencement of operations.
+Annualized.
++For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate paid 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 varous markets where
trading practices and commission rate structures may differ.
** Excludes taxes and tax reimbursements of 2.84% of average daily net assets
on an annualized basis.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
TRENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS at August 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Trent 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 a
diversified, open-end management investment company. The Fund began operations
on September 2, 1992. The investment objective of the Fund is to seek capital
appreciation, both realized and unrealized. 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. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sales price at the close of regular
trading on the last business day of the period; seurities 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.
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
shareholders. Therefore, no federal income tax provision is
required.
C. Securities Transactions, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. The cost of securities owned on realized
transactions are relieved on a first-in, first-out basis. Dividend
income and distributions to shareholders are recorded on the
ex-dividend date.
D. 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 August 31, 1997, Trent Capital Management, Inc. (the
"Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished investment advice, office
space and certain administrative services, and provided most of the personnel
needed by the Fund. As compensation for its services, the Advisor was entitled
to a monthly fee at the annual rate of 1.15% based upon the average daily net
assets of the Fund. The Advisor has voluntarily limited the Fund's expenses to
the annual
<PAGE>
TRENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, Continued
level of 2.00% of average daily net assets. The Advisor waived its management
fee and reimbursed expenses for the year ended August 31, 1997 in the amount of
$47,895.
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 fee equal to
the greater of 0.25% of the Fund's average daily net assets or $15,000. During
the year ended August 31, 1997, the Administrator waived $7,075 of its fee.
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 and receives no compensation
for its services.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and Distributor.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses incurred in connection with its organization and the
registration of its shares have been assumed by the Fund.
The organization expenses have been capitalized and amortized over a
period of sixty months. Investors purchasing shares of the Fund bore such
expenses only as they were amortized against the Fund's investment income.
NOTE 5 - INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of securities, other
than short-term investments, for the year ended August 31, 1997, were $1,405,190
and $1,727,784, respectively.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
the Trent Equity Fund and
Board of Trustees of
Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Trent Equity Fund (a series of
Professionally Managed Portfolios) as of August 31, 1997, and the related
statements of operations for the year then ended and the changes in net assets
for each of the two years in the period then ended and the financial highlights
for each of the four years in the period then ended and the period September 2,
1992 to August 31, 1993. 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
August 31, 1997, by correspondence with the custodian. 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
Trent Equity Fund as of August 31, 1997, the results of its operations for the
year then ended, the changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the four years in the
period then ended and the period September 2, 1992 to August 31, 1993, in
conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 6, 1997
<PAGE>
Advisor
Trent Capital Management, Inc.
3101 North Elm Street
Suite 150
Greensboro, North Carolina 27408
(910) 282-9302
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.
P.O. Box 5536
Hauppauge, New York 11788-0132
Auditors
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, California 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.
