Academy Value Fund
Annual Report
August 31, 1998
<PAGE>
September 21, 1998
To our shareholders:
Our fiscal year 1998 (September 1, 1997 to August 31, 1998) has been turbulent
for investors. The turmoil that began in the Asian markets last fall eventually
spread to Russia and many Latin American countries. This led to the uncertainty
in the global financial markets, affecting U.S. markets as well. We believe that
the fundamental impact of these events is deflationary, leading to erosion of
profits and increased competition.
The impact on our portfolio was significant. While economic downturns are
typically weathered well by our style of investing, this downturn has not been
accompanied by the Federal Reserve's easing of monetary policy in light of over
capacity worldwide. Given the tight monetary environment, large, growth-oriented
companies have been more successful at maintaining earnings.
We made two tactical steps in view of these conditions. First, we have increased
our cash position from 5% earlier in the year to over 30%. The short-term
overweight in cash provides us with a safe haven against some of the
deterioration of value in the equity markets. We also believe that we may see
some continued downward pressure on equity prices of excellent companies. If our
beliefs are correct, the higher cash position will allow us to take advantage of
outstanding investment opportunities.
Second, we have eliminated holdings in companies whose primary leadership is
foreign. By "leadership" we mean the culture, management style, and primary
financial reporting. While we will continue to purchase and own shares in
companies that do business overseas, the leadership will be domestic.
We appreciate the stewardship responsibilities you have entrusted to us.
Sincerely,
Academy Capital Management, Inc.
<PAGE>
Academy Value Fund
Average Annual Total Return
Period Ended August 31, 1998
1 Year..................... -24.16%
Since Inception (12/9/94).. 12.03%
3/31/95 10,360 11,148
6/30/95 11,190 12,193
9/30/95 11,680 13,397
12/31/95 10,603 13,687
3/31/96 11,171 14,386
6/30/96 11,587 15,105
9/30/96 11,689 15,156
12/31/96 12,145 15,945
3/31/97 12,683 15,120
6/30/97 13,921 17,571
9/30/97 15,281 20,186
12/31/97 14,513 19,511
3/31/98 14,949 21,473
6/30/98 13,451 20,472
8/31/98 11,203 15,161
Past performance is not predictive of future performance.
The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, which represents approximately 11% of the
total market capitalization of the Russell 3000 Index. As of the latest
reconstitution, the average market capitalization was approximately $592.0
million; the median market capitalization was approximately $500.0 million. The
largest company in the index had an approximate market capitalization of
$1,402.7 million.
<PAGE>
Academy Value Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at August 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 77.2% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Apparel Manufacturer: 2.0%
<S> <C> <C>
2,300 Tommy Hilfiger Corp.*................................................... $ 107,525
---------
Chemicals: 4.6%
4,550 Great Lakes Chemicals Corp.............................................. 178,019
3,482 Millenium Chemicals, Inc................................................ 75,298
------
253,317
-------
Computers and Information Processing: 7.2%
28,300 Bell Microproducts, Inc.*............................................... 159,188
26,144 Silicon Graphics, Inc.*................................................. 236,930
-------
396,118
-------
Conglomerate: 1.9%
4,193 Hanson Trust - PLC, ADR................................................. 103,253
-------
Consumer Services: 3.0%
8,700 Franklin Covey Company*................................................. 163,125
-------
Cosmetic and Personal Care Products: 1.8%
2,816 Block Drug Company, Inc., Class A....................................... 95,744
------
Electronic Security Devices: 3.1%
22,000 Ultrak, Inc.*........................................................... 171,875
-------
Environmental Services: 4.0%
20,141 Fluor Daniel/GTI, Inc.*................................................. 115,811
36,000 Gundle/SLT Environmental, Inc.*......................................... 105,750
-------
221,561
-------
Financial Services: 6.3%
19,000 London Pacific Group, Ltd., ADR......................................... 216,125
117,300 National Auto Credit, Inc.*............................................. 131,962
-------
348,087
-------
Health Care Providers: 2.4%
18,000 NovaCare, Inc.*......................................................... 131,625
-------
See accompanying Notes to Financial Statements.
<PAGE>
Academy Value Fund
SCHEDULE OF INVESTMENTS at August 31, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Human Resources: 1.8%
16,550 Olsten Corp............................................................. $ 97,231
--------
Industrial Products: 2.7%
8,900 Watts Industries, Inc., Class A......................................... 148,519
-------
Insurance: 3.6%
7,506 AmerUs Life Holdings, Inc............................................... 199,847
-------
Medical Products: 9.4%
16,900 IDEXX Laboratories, Inc.*............................................... 295,750
13,000 Vital Signs, Inc........................................................ 220,188
-------
515,938
-------
Pharmaceuticals: 1.3%
77,250 Huntingdon Life Sciences Group - PLC, ADR*.............................. 72,422
------
Restaurants: 6.7%
22,550 Lone Star Steakhouse & Saloon, Inc.*.................................... 191,675
11,350 Luby's Cafeterias, Inc.................................................. 173,087
-------
364,762
-------
Retailers - Broadline: 2.5%
4,700 Dillard's, Inc., Class A................................................ 135,712
-------
Telephone Systems: 2.5%
3,900 Telefonos de Mexico SA, ADR............................................. 139,181
-------
Tobacco: 9.1%
5,400 Philip Morris Companies, Inc............................................ 224,438
10,450 UST, Inc................................................................ 273,006
-------
497,444
-------
Transportation: 1.3%
8,200 Laidlaw, Inc............................................................ 70,725
------
Total Common Stocks (cost $5,653,464)................................... 4,234,011
---------
See accompanying Notes to Financial Statements.
<PAGE>
Academy Value Fund
SCHEDULE OF INVESTMENTS at August 31, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value
Principal Amount U.S. GOVERNMENT AND GOVERNMENT OBLIGATIONS: 4.6%
- ------------------------------------------------------------------------------------------------------------------------------------
$ 250,000 FHLB, 5.58%, 8/17/2001 (cost $252,024).................................. $ 253,047
---------
REPURCHASE AGREEMENT: 22.8%
- ------------------------------------------------------------------------------------------------------------------------------------
1,250,000 Star Bank Repurchase Agreement, 4.90%, dated 8/31/1998,
due 9/1/1998, collateralized by $1,250,000 GNMA 5.50%,
due 3/20/2022 (proceeds $1,250,170) (cost $1,250,000)................... 1,250,000
---------
Total Investments in Securities (cost $7,155,488+): 104.6% ............. 5,737,058
Liabilities in excess of Other Assets: (4.6)%........................... (250,338)
--------
Total Net Assets: 100.0% ............................................... $ 5,486,720
===========
<FN>
*Non-income producing security.
+ At August 31, 1998, 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........................................... $ 212,777
Gross unrealized depreciation........................................... (1,631,207)
----------
Net unrealized depreciation....................................... $(1,418,430)
===========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Academy Value Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at August 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $5,905,488) ................................. $ 4,487,058
Repurchase agreement (cost $1,250,000)................................................. 1,250,000
Cash................................................................................... 713
Receivables:
Due from Advisor................................................................. 1,973
Securities sold.................................................................. 18,026
Dividends and interest .......................................................... 9,441
Prepaid expenses and other assets...................................................... 1,997
-----
Total assets .............................................................. 5,769,208
---------
LIABILITIES
Payables:
Administration fee............................................................... 2,546
Securities purchased............................................................. 252,458
Fund shares sold................................................................. 5,000
Accrued audit fee...................................................................... 15,452
Accrued expenses ...................................................................... 7,032
-----
Total liabilities.......................................................... 282,488
-------
NET ASSETS $ 5,486,720
===========
Net asset value, offering and redemption price per share
($5,486,720/547,419 shares outstanding;
unlimited number of shares authorized without par value) .............................. $10.02
======
COMPONENTS OF NET ASSETS
Paid-in capital........................................................................ $ 6,257,467
Undistributed net investment income.................................................... 14,357
Undistributed net realized gain on investments......................................... 633,326
Net unrealized depreciation on investments............................................. (1,418,430)
----------
Net assets ................................................................ $ 5,486,720
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Academy Value Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended August 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Dividends........................................................................ $ 114,022
Interest......................................................................... 29,145
------
Total income............................................................... 143,167
-------
Expenses
Advisory fees.................................................................... 66,690
Administration fee............................................................... 30,000
Distribution fees................................................................ 16,673
Audit fees....................................................................... 19,352
Registration fees................................................................ 7,106
Fund accounting fees............................................................. 13,990
Transfer agent fees.............................................................. 13,637
Custody fees..................................................................... 7,200
Legal fees....................................................................... 3,528
Reports to shareholders.......................................................... 5,314
Trustee fees..................................................................... 4,103
Miscellaneous.................................................................... 3,811
Insurance........................................................................ 358
---
Total expenses............................................................. 191,762
Less: expenses reimbursed.................................................. (70,644)
-------
Net expenses............................................................... 121,118
-------
Net investment income ............................................... 22,049
------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from security transactions..................................... 638,066
Net change in unrealized depreciation on investments............................. (2,370,964)
----------
Net realized and unrealized loss on investments............................ (1,732,898)
----------
Net decrease in net assets resulting from operations ................ $(1,710,849)
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Academy Value Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year Year
Ended Ended
August 31, 1998 August 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment income (loss)................................................... $ 22,049 $ (12,409)
Net realized gain from security transactions................................... 638,066 621,063
Net change in unrealized (depreciation) appreciation on investments............ (2,370,964) 691,891
---------- -------
Net (decrease) increase in net assets resulting from operations ............. (1,710,849) 1,300,545
---------- ---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from security transactions................................... (601,385) -0-
-------- -
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a)... 1,530,157 306,917
--------- -------
Total (decrease) increase in net assets ..................................... (782,077) 1,607,462
NET ASSETS
Beginning of period............................................................ 6,268,797 4,661,335
--------- ---------
End of period .................................................................... $5,486,720 $6,268,797
========== ==========
<FN>
(a) A summary of capital shares transactions is as follows:
Year Year
Ended Ended
August 31, 1998 August 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold.................................... 137,272 $1,811,156 84,279 $1,109,926
Shares issued in reinvestment of distribution.. 47,353 601,385 -0- -0-
Shares redeemed................................ (67,785) (882,384) (63,999) (803,009)
------- -------- ------- --------
Net increase................................... 116,840 $1,530,157 20,280 $ 306,917
======= ========== ====== =========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Academy Value Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended August 31, December 9, 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
through
1998 1997 1996 August 31,1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $14.56 $11.36 $11.60 $10.00
------ ------ ------ ------
Income from investment operations:
Net investment income (loss)..................... 0.04 (0.03) 0.01 0.03
Net realized and unrealized (loss) gain
on investments................................. (3.28) 3.23 (0.10) 1.57
----- ---- ----- ----
Total from investment operations....................... (3.24) 3.20 (0.09) 1.60
----- ---- ----- ----
Less distributions:
From net investment income....................... 0.00 0.00 (0.03) 0.00
From net capital gains........................... (1.30) 0.00 (0.12) 0.00
----- ---- ----- ----
Total distributions.................................... (1.30) 0.00 (0.15) 0.00
----- ---- ----- ----
Net asset value, end of period......................... $10.02 $14.56 $11.36 $11.60
====== ====== ====== ======
Total return........................................... (24.16)% 28.17% (0.64)% 22.68%+
Ratios/supplemental data:
Net assets, end of period (millions)................... $ 5.5 $ 6.3 $ 4.7 $ 3.2
Ratio of expenses to average net assets:
Before expense reimbursement and waived fee...... 2.88% 3.42% 3.39% 5.20%+
After expense reimbursement and waived fee....... 1.82% 2.00% 2.00% 2.00%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement and waived fee...... (0.73)% (1.67)% (1.20)% (2.62)%+
After expense reimbursement and waived fee....... 0.33% (0.24)% 0.18% 0.64%+
Portfolio turnover rate................................ 39.56% 49.72% 27.71% 13.26%
<FN>
*Commencement of operations.
+Annualized.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Academy Value Fund
NOTES TO FINANCIAL STATEMENTS at August 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Academy Value Fund (the "Fund") is a 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 December 9,
1994. The investment objective of the Fund is growth of capital. The Fund seeks
to achieve its objective by investing primarily in common stocks.
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.
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.
NOTE 3 - COMMITMENTS AND RELATED PARTY TRANSACTIONS
For the year ended August 31, 1998, Academy Capital Management, Inc. (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 1.00% based upon the average daily net assets of the Fund. For
the year ended August 31, 1998, the Fund incurred $66,690 in Advisory fees.
<PAGE>
Academy Value Fund
NOTES TO FINANCIAL STATEMENTS at August 31, 1998, Continued
The Fund is responsible for its own operating expenses. The Adviser has
agreed to reduce its fees to the extent necessary to limit the Fund's aggregate
annual operating expenses to 2.00% of average daily net assets. Effective August
31, 1998, the Adviser agreed to amend the expense reimbursement agreement to
limit the period within which the Adviser may recoup the amount below from the
Fund to no later than August 31, 2001, and subject to the Fund's ability to
effect such reimbursement and remain in compliance with applicable expense
limitations. In addition, the possible recoupment period of any expense
reimbursements in each year subsequent to 1998 will be limited to three years
from the year of the reimbursement, and subject to the Fund's ability to effect
such reimbursement and remain in compliance with applicable expense limitations.
For the year ended August 31, 1998, the Adviser reimbursed the Fund in the
amount of $70,644. As of August 31, 1998, the cumulative expense reimbursement
and waiver from the Adviser to the Fund are $139,391 and $104,863, 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 a monthly fee at
the following annual rate:
Under $15 million $30,000
$15 to $50 million 0.20% of average daily net assets
$50 to $100 million 0.15% of average daily net assets
$100 to $150 million 0.10% of average daily net assets
Over $150 million 0.05% of average daily net assets
For the year ended August 31, 1998, the Fund incurred $30,000 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 the Distributor.
NOTE 4 - DISTRIBUTION PLAN
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 Adviser as Distribution Coordinator at an annual rate of up to 0.25% of the
average daily net assets of the Fund. The fee is paid to the Adviser as
reimbursement for, or in anticipation of, expenses incurred for
distribution-related activity. During the year ended August 31, 1998, the Fund
paid fees of $16,673 to the Adviser.
<PAGE>
Academy Value Fund
NOTES TO FINANCIAL STATEMENTS at August 31, 1998, Continued
NOTE 5 - PURCHASES AND SALES OF SECURITIES
For the year ended August 31, 1998, the cost of purchases and the proceeds
from sales of securities, excluding short-term securities, were $3,073,660 and
$2,357,968, respectively.
For the year ended August 31, 1998, the cost of purchases and the proceeds
from sales of U.S. Government and Government Agency Obligations, excluding
short-term securities were $252,031 and $0, respectively.
NOTE 6 - REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board, with member banks of the
Federal Reserve System or with such other brokers or dealers that meet the
credit guidelines established by the Board of Trustees. The Fund will always
receive and maintain, as collateral, securities whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral.
If the seller defaults and the value of the collateral declines, or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
The Academy Value Fund and
Board of Trustees of
Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities of
Academy Value Fund (the "Fund"), (one of the portfolios constituting
Professionally Managed Portfolios), including the schedule of investments, as of
August 31, 1998, and the related statements of operations for the year then
ended and the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the three years
in the period then ended. 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. The financial highlights of the Fund for the period December 9,
1994 through August 31, 1995 were audited by other auditors whose report dated
October 10, 1995, expressed an unqualified opinion on those financial
highlights.
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, 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 1998 and 1997 financial statements and the 1996, 1997
and 1998 financial highlights referred to above present fairly, in all material
respects, the financial position of Academy Value Fund as of August 31, 1998,
the results of its operations for the year then ended, changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the three years in the period then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
September 30, 1998
<PAGE>
Adviser
Academy Capital Management, Inc.
500 North Valley Mills Drive
Suite 208
Waco, Texas 76710
(817) 751-0555
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
Independent Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, California 90071
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.
