UNITED STATES TRUST COMPANY
BOSTON Investment Management
To: All Shareholders/Boston Balanced Fund
From: Domenic Colasacco
Re: Portfolio Manager's Report - June 30, 1998
Fund NAV: $29.21
COMPARATIVE PERFORMANCE*
<TABLE>
<CAPTION>
Annualized
Since
Quarter Year to Year Inception
Ending Date Ended 12/1/95 to
6/30/98 6/30/98 6/30/98 6/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Boston Balanced Fund 2.64% 14.22% 27.55% 22.31%
Standard & Poor's 500 3.24% 17.63% 30.13% 29.81%
Lehman G/C Bond Index 2.61% 4.17% 11.29% 7.20%
90 Day US Treasury Bill 1.22% 2.45% 5.08% 5.15%
</TABLE>
*After all expenses at an annual rate of 1%, the Adviser'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 AND PERFORMANCE SUMMARY - Second Quarter, 1998
- -----------------------------------------------------
The stock market was a far less friendly place to invest over the past
three months than it was in the first quarter of this year. Nearly twice as many
stocks listed on the New York Stock Exchange actually dropped rather than
increased in value during the second quarter; those of mid-size and smaller
companies fared particularly poorly. Stocks of larger capitalization growth
companies such as Microsoft, Pfizer and Lucent Technologies countered the more
difficult overall trend, and due to their heavy weighting in the Index, allowed
the Standard & Poor's 500 to reach a new high. In light of the significant
exposure we maintained in these and other established growth companies, Boston
Balanced Fund extended its record of consecutive increases in unit value to ten
quarters, which is every calendar quarter since inception. The quarterly gain of
2.64% brought the increase for the first half of 1998 to 14.23%, and an
extraordinary 27.55% for the past twelve months. By comparison, the average
balanced mutual fund tracked by Lipper Analytical Services increased by only
1.15% for the second quarter, 8.89% for the first half and 17.58% for the year
ended June 30, 1998. Boston Balanced ranked among the top five funds out of
roughly 400 balanced funds in the Lipper Universe.
In my last several quarterly memorandums I have noted that it is
unrealistic to expect continued absolute and relative gains that are close to
recent results. I am pleased to have been proven wrong thus far, but the streak
of consecutive quarterly gains posted by the Fund will end in time. Indeed, only
a sharp rebound in prices during
<PAGE>
Boston Balanced Fund
the last weeks of June allowed the stock market and the Fund to post an increase
for the second quarter. As I discuss subsequently, there are many potential
short-term problems on the horizon, ranging from rising wage costs to corporate
earnings disappointments related to slumping Asian economies, that could cause
stock values to drop in the months ahead. At this time, however, none appear
sufficient to end the gradual economic growth and low inflation we have enjoyed
for the past seven years, and for most of the past sixteen years. We have not
changed our long-held view that a deterioration in these economic trends is
essential for a steep and prolonged multi-year stock market decline to occur.
Accordingly, we expect to maintain the Fund's stock allocation at an
above-average (for a balanced fund) level of close to 70% of total assets until
we anticipate a significant change in the economic environment.
ECONOMIC SUMMARY AND OUTLOOK
- ----------------------------
With its usual zeal, the financial press in recent months has carried
many stories about either an economic recession just around the corner, or a
re-emergence of inflation due to low unemployment levels and an accompanying
rise in wage costs. Most of the forecasts of potential recession and deflation
have been related to developments in Asia. The economic problems of most Asian
countries are far from over. Japan recently announced that its economy
officially slipped into recession during the first half of 1998, and other
smaller emerging market countries such as Indonesia, Thailand and Korea are
suffering even steeper drops in GDP. While the ultimate length and depth of the
Asian recessions is unknown, we share the view of most economic forecasters that
Asia will serve to only slow down the rate of, rather than end, our longstanding
economic expansion. In part, this conclusion reflects the fact that Asia
accounts for less than 30% of our international trade and below 10% of reported
corporate profits. These levels will decline, but not disappear. Stronger
European economies are also serving to soften the impact of adverse Asian
activity. In some respects, a moderation in domestic GDP growth is welcome.
Growth during the first half of 1998, at an estimated 4% - 5%, was unsustainably
high. Slower growth over the next year reduces the possibility that the Federal
Reserve will raise interest rates. The domestic inflation rate will also be
aided by slower GDP growth. In short, without the other economic imbalances that
usually precede recessions (restrictive monetary policy, excess inventory
accumulation or an exogenous event that destroys consumer and business
confidence), we expect the domestic economy to track a gradual 2% - 3% rate of
growth, with low inflation and interest rates, well into 1999.
INVESTMENT STRATEGY
- -------------------
Our overall investment strategy has not changed much since year end
1997, nor, in fact, since the Fund's inception in December, 1995. Throughout
this period stock prices have been reaching progressive new highs, supported by
a combination of low inflation, declining interest rates, strong corporate
profits, and the United States' political and economic stability and dominance
in the world. This economic backdrop has appeared to be threatened on several
occasions by either excessive GDP growth/inflationary forces, or deflationary
recession developments such as Asia. Each time the stock market has reacted with
sharp, unnerving, but thankfully brief price drops of only several weeks'
duration. Our consistent decision to maintain a high common stock allocation in
the Fund has been supported by the quantitative equity valuation models that we
use to gauge comparative attractiveness. Thus far these models have assessed
stocks as offering better total return potential than either bonds
<PAGE>
Boston Balanced Fund
or money market instruments provided the economy stays healthy. Stocks generally
have appreciated by nearly 100% since December, 1995, but current higher
valuations are justified by the improvement in profits, the decline in interest
rates, and prospects for more of the same in the future. We do not expect to
revise asset allocation until our assessment of the economic future changes.
Among individual stocks, the Fund has been aided by the significant
exposure to the larger capitalization growth companies noted previously. While
retaining the core growth company investments, we have continued to seek
high-quality, reasonably-valued companies to more broadly diversify the Fund.
Hubbell, Chubb, Ford and Grainger are among the stocks we have purchased in
recent months. The attached summary statement outlines all of the individual
holdings and sector allocations in the Fund.
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 and President,
United States Trust Company of Boston
<PAGE>
Boston Balanced Fund
Boston Balanced Fund
Value of $10,000 vs Lipper Balanced and Blended Benchmark Indices
Boston Lipper Blend (S&P 500 +
Balanced Balanced Lehman G/C +
Fund US Treas.
Dec 01, 95 $10,000 $10,000 $10,000
Jun 30, 96 10,514 10,574 10,592
Dec 31, 96 11,585 11,456 11,450
Jun 30, 97 13,184 12,733 12,759
Dec 31, 97 14,722 13,753 13,831
Jun 30, 98 16,817 15,099 15,307
Average Annual total Return
Period Ended June 30, 1998
1 Year....................... 27.55%
Since Inception (12/1/95).... 22.31%
Past performance is not predictive of future performance.
The Lipper Balanced Index is an equal weighted performance index of the 30
largest qualifying funds in the Lipper Balanced category. The index is unmanaged
and returns include reinvested dividends.
The Blended Index consists of the S&P 500 Index (50%), the Lehman
Government/Corporate Index (40%) and the 90 day U.S. Treasury Bill (10%). The
S&P 500 is a broad market capitalization-weighted average of U.S. companies. The
Lehman Government/Corporate Index is comprised of roughly 70% U.S. Treasury and
Agency Obligations and 30% SEC registered corporate bonds. The percentage
weights which have been applied to the indices are intended to replicate the
long term asset allocation of balanced funds generally.
The S&P 500 Index (dividends reinvested) has been removed from the above chart.
The Blended Index and Lipper Balanced Index more appropriately reflects our
investment style. As a broad market reference, the average annual total return
for the S&P 500 Index over the time period shown was 29.91%.
<PAGE>
Boston Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1998
- --------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 69.0% Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Communication Services: 3.5%
6,500 Aliant Communications, Inc................................. $ 178,344
40,000 Ameritech Corp............................................. 1,795,000
35,000 BellSouth Corp............................................. 2,349,375
------------
4,322,719
------------
Consumer Cyclicals: 9.4%
30,000 Costco Companies, Inc.*.................................... 1,891,875
50,000 Ford Motor Company......................................... 2,950,000
40,000 Gannett Company, Inc....................................... 2,842,500
25,000 Johnson Controls, Inc...................................... 1,429,688
75,000 Leggett & Platt, Inc....................................... 1,875,000
12,000 The McClatchy Company, Class A............................. 415,500
------------
11,404,563
------------
Consumer Products: 9.5%
50,000 American Greetings Corp., Class A.......................... 2,546,875
15,000 Anheuser-Busch Companies, Inc.............................. 707,812
10,000 Gillette Company........................................... 566,875
25,000 Procter & Gamble Company................................... 2,276,563
100,000 Sysco Corp................................................. 2,562,500
12,000 Walt Disney Company........................................ 1,260,750
17,000 William Wrigley, Jr. Company............................... 1,666,000
------------
11,587,375
------------
Energy and Resources: 3.4%
21,000 Amoco Corp................................................. 874,125
10,000 Atlantic Richfield Company................................. 781,250
35,000 Exxon Corp................................................. 2,495,937
------------
4,151,312
------------
Finance: 13.7%
80,000 BankBoston Corp............................................ 4,450,000
20,000 Chubb Corp................................................. 1,607,500
40,000 Cincinnati Financial Corp.................................. 1,535,000
25,000 Federal National Mortgage Association...................... 1,518,750
26,200 First Virginia Banks, Inc.................................. 1,339,475
15,000 NationsBank Corp........................................... 1,147,500
</TABLE>
5
<PAGE>
Boston Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1998, Continued
- --------------------------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance, continued
80,000 T. Rowe Price Associates, Inc.............................. $ 3,005,000
5,000 United Asset Management Corp............................... 130,312
16,000 Wachovia Corp.............................................. 1,352,000
10,000 Wilmington Trust Corp...................................... 608,750
------------
16,694,287
------------
Health Care: 12.3%
35,000 Becton, Dickinson and Company.............................. 2,716,875
30,000 Johnson & Johnson.......................................... 2,212,500
32,000 Medtronic, Inc............................................. 2,040,000
10,000 Merck & Company, Inc....................................... 1,337,500
28,000 Pfizer Inc................................................. 3,043,250
40,000 Schering-Plough Corp....................................... 3,665,000
------------
15,015,125
------------
Industrial Materials: 1.0%
10,000 Sealed Air Corp. (New)*.................................... 367,500
25,000 Sigma-Aldrich Corp......................................... 878,125
------------
1,245,625
------------
Producer Products: 6.7%
45,000 Donaldson Company, Inc..................................... 1,063,125
45,000 Emerson Electric Company................................... 2,716,875
20,000 Grainger, W.W., Inc........................................ 996,250
5,000 Hubbell Inc., Class A...................................... 218,125
35,000 Illinois Tool Works, Inc................................... 2,334,062
15,000 Precision Castparts Corp................................... 800,625
------------
8,129,062
------------
Technology: 8.8%
10,000 Applied Materials, Inc.*................................... 295,000
15,000 Automatic Data Processing, Inc............................. 1,093,125
15,000 Hewlett-Packard Company.................................... 898,125
12,500 Intel Corp................................................. 926,563
42,500 Lucent Technologies, Inc................................... 3,535,469
23,000 Microsoft Corp.*........................................... 2,492,625
15,000 Xerox Corp................................................. 1,524,375
------------
10,765,282
------------
</TABLE>
6
<PAGE>
Boston Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1998, Continued
- --------------------------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation: 0.7%
6,000 AMR Corp.*................................................. $ 499,500
3,000 Delta Air Lines, Inc....................................... 387,750
------------
887,250
------------
Total Common Stocks (cost $51,261,705)..................... 84,202,600
------------
Principal Amount CORPORATE BONDS: 10.3%
- --------------------------------------------------------------------------------------------------
$1,000,000 Albertson's Inc., 6.66%, 7/21/2008......................... 1,044,945
925,000 American Home Products, 7.90%, 2/15/2005................... 1,017,187
300,000 Atlantic Richfield Company, 8.50%, 4/1/2012................ 364,056
300,000 Deere & Company, 8.79%, 8/6/1998........................... 300,916
500,000 Eaton Corp., 8.90%, 8/15/2006.............................. 584,425
400,000 Equitable Resources, 8.55%, 9/1/2003....................... 444,925
425,000 Ford Motor Credit Corp., 7.75%, 11/15/2002................. 452,115
300,000 Ford Motor Credit Corp., 6.625%, 6/30/2003................. 306,806
1,000,000 Ford Motor Credit Corp., 7.20%, 6/15/2007.................. 1,068,231
1,000,000 General Electric Capital Corp., 7.375%, 9/15/2004.......... 1,077,568
1,000,000 General Electric Capital Corp., 8.30%, 9/20/2009........... 1,175,673
825,000 General Motors Acceptance Corp., 9.625%, 12/15/2001........ 916,846
300,000 General Motors Acceptance Corp., 8.50%, 1/1/2003........... 327,735
500,000 Honeywell, Inc., 7.00%, 3/15/2007.......................... 528,866
1,000,000 Leggett & Platt, Inc., 7.185%, 4/24/2002................... 1,039,235
500,000 Leggett & Platt, Inc., 6.25%, 9/9/2008..................... 501,572
300,000 Sears Roebuck and Company, 9.46%, 6/20/2000................ 319,317
375,000 Sysco Corp., 6.50%, 6/15/2005.............................. 385,081
400,000 Unum Corp., 5.88%, 10/15/2003.............................. 395,070
300,000 Weyerhaeuser Company, 7.25%, 7/1/2013 ..................... 323,220
------------
Total Corporate Bonds (cost $12,348,331)................... 12,573,789
------------
</TABLE>
7
<PAGE>
Boston Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1998, Continued
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY
Principal Amount OBLIGATIONS: 14.4% Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 600,000 FFCB, 6.20%, 11/30/2009.................................... $ 621,877
500,000 FHLB, 6.24%, 11/18/2002.................................... 500,671
4,000,000 FHLB, 6.185%, 5/6/2008..................................... 4,130,288
875,000 FNMA, 5.49%, 10/2/2003..................................... 873,101
1,000,000 FNMA, 8.25%, 10/12/2004.................................... 1,031,268
4,000,000 U.S. Treasury Bond, 7.50%, 11/15/2016...................... 4,803,752
250,000 U.S. Treasury Note, 9.125%, 5/15/1999...................... 257,656
3,000,000 U.S. Treasury Note, 8.75%, 8/15/2000....................... 3,192,189
2,000,000 U.S. Treasury Note, 6.50%, 5/15/2005....................... 2,111,876
------------
Total U.S. Government and Government Agency Obligations
(cost $17,154,673)......................................... 17,522,678
------------
SHORT-TERM INVESTMENT: 6.1%
- --------------------------------------------------------------------------------------------------
7,448,268 SEI Daily Income Government Fund II (cost $7,448,268)...... 7,448,268
------------
Total Investment in Securities (cost $88,212,977+): 99.8%.. 121,747,335
Other Assets less Liabilities: 0.2%........................ 193,314
------------
Total Net Assets: 100.0% .................................. $121,940,649
============
*Non-income producing security.
+ At June 30, 1998, the cost of securities for Federal tax purposes was $88,173,626. Unrealized
appreciation and depreciation of securities were as follows:
Gross unrealized appreciation.............................. $ 33,848,301
Gross unrealized depreciation.............................. (274,592)
------------
Net unrealized appreciation....................... $ 33,573,709
============
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE>
Boston Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at June 30, 1998
- --------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $88,212,977) ................... $121,747,335
Cash...................................................................... 95,763
Receivables:
Securities sold..................................................... 527,145
Dividends and interest ............................................. 540,088
Prepaid expenses.......................................................... 8,991
------------
Total assets ................................................. 122,919,322
------------
LIABILITIES
Payables:
Securities purchased................................................ 829,174
Advisory fees....................................................... 72,151
Administration fee.................................................. 9,620
Accrued expenses ......................................................... 67,728
------------
Total liabilities............................................. 978,673
------------
NET ASSETS ..................................................................... $121,940,649
============
Net asset value, offering and redemption price per share
($121,940,649/4,175,096 shares outstanding; unlimited number of shares
authorized without par value) ............................................ $29.21
======
COMPONENTS OF NET ASSETS
Paid-in capital .......................................................... 84,161,922
Undistributed net investment income....................................... 1,073,301
Undistributed net realized gain on investments............................ 3,171,068
Net unrealized appreciation on investments................................ 33,534,358
------------
Net assets ......................................................... $121,940,649
============
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE>
Boston Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended June 30, 1998
- --------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Interest ........................................................... $ 1,787,008
Dividends........................................................... 998,021
------------
Total income ................................................. 2,785,029
------------
Expenses
Advisory fees ...................................................... 733,603
Administration fee.................................................. 97,814
Fund accounting fees................................................ 40,202
Transfer agent fees................................................. 27,037
Custody fees........................................................ 23,770
Audit fees.......................................................... 14,737
Trustee fees........................................................ 13,698
Registration fees................................................... 7,457
Miscellaneous....................................................... 6,818
Legal fees.......................................................... 6,282
Insurance........................................................... 3,070
Reports to shareholders............................................. 3,000
------------
Total expenses................................................ 977,488
------------
Net investment income ...................................... 1,807,541
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions ............................. 3,852,396
Net change in unrealized appreciation on investments ..................... 17,971,318
------------
Net realized and unrealized gain on investments .................... 21,823,714
------------
Net increase in net assets resulting from operations ......... $ 23,631,255
============
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE>
Boston Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
Year Year
Ended Ended
June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income............................................ $ 1,807,541 $ 1,556,244
Net realized gain from security transactions .................... 3,852,396 1,222,746
Net change in unrealized appreciation on investments............. 17,971,318 13,242,577
------------ -----------
Net increase in net assets resulting from operations .......... 23,631,255 16,021,567
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................................ (1,584,936) (1,387,106)
Net realized gain from security transactions..................... (1,549,116) -0-
------------ -----------
Net distributions to shareholders ............................. (3,134,052) (1,387,106)
------------ -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change
in outstanding shares (a)....................................... 19,409,973 5,628,009
------------ -----------
Total increase in net assets .................................. 39,907,176 20,262,470
NET ASSETS
Beginning of year................................................ 82,033,473 61,771,003
------------ -----------
End of year (including undistributed net investment income
of $1,073,301 and $850,696, respectively)............................ $121,940,649 $82,033,473
============ ===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------------------- -------------------------
Shares Value Shares Value
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold ......................................... 656,792 $24,300,384 161,142 $13,762,145
Shares issued in reinvestment of distributions....... 31,030 3,134,052 17,057 1,387,106
Shares issued in stock split......................... 2,770,018 -0- -0- -0-
Shares redeemed...................................... (147,984) (8,024,463) (112,571) (9,521,242)
--------- ----------- -------- -----------
Net increase ........................................ 3,309,856 $19,409,973 65,628 $ 5,628,009
========= =========== ======== ===========
</TABLE>
See accompanying Notes to Fiancial Statements.
11
<PAGE>
Boston Balanced Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- --------------------------------------------------------------------------------------------------------------------
Year Year December 1, 1995*
Ended Ended through
June 30, 1998++ June 30, 1997++ June 30, 1996++
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ...................... $ 23.70 $19.31 $18.41
------- ------ ------
Income from investment operations:
Net investment income ............................... 0.46 0.47 0.25
Net realized and unrealized gain on investments ..... 5.94 4.36 0.69
------- ------ ------
Total from investment operations........................... 6.40 4.83 0.94
------- ------ ------
Less distributions:
From net investment income........................... (0.45) (0.44) (0.04)
From net capital gains............................... (0.44) 0.00 0.00
------- ------ ------
Total distributions........................................ (0.89) (0.44) (0.04)
------- ------ ------
Net asset value, end of period ............................ $ 29.21 $23.70 $19.31
======= ====== ======
Total return .............................................. 27.55% 25.40% 5.14%
Ratios/supplemental data:
Net assets, end of period (millions)....................... $ 121.9 $ 82.0 $ 61.8
Ratio of expenses to average net assets:
Before expense reimbursement......................... 1.00% 1.02% 1.00%+
After expense reimbursement.......................... 1.00% 1.00% 1.00%+
Ratio of net investment income to average net assets:
Before expense reimbursement......................... 1.85% 2.24% 2.43%+
After expense reimbursement.......................... 1.85% 2.25% 2.43%+
Portfolio turnover rate ................................... 22.71% 30.78% 17.69%
</TABLE>
*Commencement of operations.
+Annualized.
++Per share data has been restated to give effect to a 4-for-1 stock split to
shareholders of record of the close on January 9, 1998.
See accompanying Notes to Financial Statements.
12
<PAGE>
Boston Balanced Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Boston 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 investment management 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. Prior to January 5, 1998, the Fund
was known as the Boston Managed Growth Fund.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sales price at the close of regular
trading on the last business day of the period; securities traded on
an exchange or NASDAQ for which there 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 ask price) until the 60th day prior to maturity,
and are then valued at amortized cost based upon the value on such
date unless the Board determines during such 60-day period that this
amortized cost basis does not represent fair value.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no federal income tax provision is
required.
C. Security Transactions, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. The cost of securities owned on realized transactions
are relieved on a first-in, first-out basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
D. 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
amounts of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
13
<PAGE>
Boston Balanced Fund
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended June 30, 1998, United States Trust Company of Boston
(the "Adviser") provided the Fund with investment management services under an
Investment Advisory Agreement. The Adviser furnished all investment advice,
office space, facilities, and most of the personnel needed by the Fund. As
compensation for its services, the Adviser 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, 1998, the Fund incurred $733,603 in Advisory fees.
The Fund is responsible for its own operating expenses. The Adviser 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 Adviser in its fees or payments or reimbursement
of expenses which are the Fund's obligation may be subject to reimbursement by
the Fund within three years provided the Fund is able to effect such
reimbursement and remain in compliance with any applicable limitations.
The Adviser, which is a Massachusetts-chartered banking and trust company,
acts as the Fund's Custodian and Transfer Agent under the Custody and Transfer
Agency Agreements with the Fund. For the year ended June 30, 1998, the Fund
incurred $23,770 and $27,037 in Custody and Transfer Agency fees, respectively.
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
equal to the greater of 0.10% of average net assets or $30,000. For the year
ended June 30, 1998, the Fund incurred $97,814 in Administration fees.
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, 1998, were $25,004,145 and $13,490,885, respectively.
For the year ended June 30, 1998, the cost of purchases and the proceeds
from sales of U.S. Government obligations, excluding short-term securities, were
$11,122,296 and $7,855,697, respectively.
NOTE 5 - CAPITAL STOCK TRANSACTIONS
On August 19, 1997, the Board of Trustees authorized a 4-for-1 stock
split, payable January 14, 1998 to shareholders of record on January 9, 1998.
14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
Boston Balanced Fund and the
Board of Trustees of Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Boston Balanced Fund (the "Fund") (one of the
portfolios constituting the series of Professionally Managed Portfolios), as of
June 30, 1998, and the related statement of operations for the year then ended,
and the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in the
period 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Boston
Balanced Fund as of June 30, 1998, the results of its operations for the year
then ended, and the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the two years in the
period 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 31, 1998
15
<PAGE>
Adviser, Custodian and Transfer 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
Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, CA 90071
o
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
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 BALANCED FUND
Annual Report
June 30, 1998
