June 8, 1998
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 Avondale Total Return Fund series of
the Registrant for the year ended March 31, 1998.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
/s/
Robert H. Wadsworth
<PAGE>
AVONDALE TOTAL RETURN FUND
ANNUAL REPORT
March 31, 1998
<PAGE>
April 21, 1998
Dear Fellow Shareholder:
As reported in The Wall Street Journal April 6, 1998, Avondale Total Return Fund
had an excellent 12-month period ending March 31, 1998, with a total return of
37.65%.
The very strong stock market, which commenced in 1995 and continues as this
report is written, has been an outstanding period for investors. Record numbers
of individuals and institutions continue to join the army of investors. We are
concerned about the euphoric atmosphere in the current market.
The magic combination of low inflation and low interest rates, plus the growth
of new investment vehicles and interest in investing by an ever-growing universe
of individuals and institutions, created an unparalleled flow of funds.
Primarily, this "new money" has been targeted toward common stocks.
Avondale's portfolio approach to equity investments typically includes
large-capitalization stocks and a representative percentage of medium- to
small-capitalization companies. Further, we believe normal market cycles create
periods where diversifying some portion of the portfolio in other than
large-capitalization positions makes profitable sense. This cycle, however, has
been a particularly positive experience in the major corporation sector where
two-thirds of our equity commitment resides.
Primarily because of our technical analytical work, we entered this positive
period overbalanced toward our stock positions. Our bond positions provide for
preservation of capital. Of course, when we see evidence of the stock market
weakening, we will once again shift more of the portfolio assets into the bond
market. I assure you, our fundamental and technical analytical disciplines will
continue to guide our strategy.
Sincerely,
/s/
Herbert R. Smith, Chairman/CEO
Herbert R. Smith, Incorporated
<PAGE>
AVONDALE TOTAL RETURN FUND
Average Annual Total Return
Period Ended March 31, 1998
1 Year.....................37.65%
5 Year.....................13.51%
Since Inception (10/12/88).11.65%
Qtr Shearson/S&P Adj Fund S & P adjusted
(already adj for inv)
10/12/88 10000 10000 10000
12/31/88 10098.82 9964.9 10280.18149
3/31/89 10434.11 10172.4 11006.75117
6/30/89 11200.02 10772.2 11965.79198
9/30/89 11755.35 11195.9 13263.79469
12/31/89 12066.62 11411.2 13535.08895
3/31/90 11943.11 11202.4 13159.33081
6/30/90 12520.37 11644.9 13967.75652
9/30/90 12038.04 10780.5 12062.30413
12/31/90 12769.85 11488.1 13142.64777
3/31/91 13677.16 12423.7 15062.60037
6/30/91 13789.37 12182.2 15013.9545
9/30/91 14524.76 13390.8 15818.17048
12/31/91 15551.1 14572.5 17145.0177
3/31/92 15269.91 13799.6 16710.63505
6/30/92 15663.59 13466.2 17014.20397
9/30/92 16152.27 13751.5 17565.67972
12/31/92 16690.59 14350.5 18458.45612
3/31/93 17381.46 15068 19255.49995
6/30/93 17627.53 14977.3 19333.92582
9/30/93 18069.88 15429.3 19847.358
12/31/93 18372.94 15379.1 20313.23573
3/31/94 17767.44 14944.4 19535.3696
6/30/94 17739.69 14654 19603.97275
9/30/94 18372.03 15659.4 20580.788
12/31/94 18408.54 15731.2 20572.21261
3/31/95 19922.37 16112.8 22573.39757
6/30/95 21530.4 17929.3 24726.75679
9/30/95 22908.4 19415.9 26690.0541
12/31/95 24043.81 20228.5 28293.49673
3/31/96 24988.04 20410.3 29817.88983
6/30/96 25885.47 20695.5 31135.38207
9/30/96 26661.58 20877.8 32110.79408
12/31/96 28440.23 21172.6 34798.47826
3/31/97 29041.11 20635.6 35720.25508
6/30/97 33364.05 23968.1 41944.74328
9/30/97 35228.55 25241.2 45092.06854
12/31/97 36125.45 25419.2 46401.92089
3/31/98 40508.6 28405.6 52870.41801
Past performance is not predictive of future performance.
Effective May 31, 1997, the blended benchmark consists of a 60% S&P 500
and 40% Salomon Bros. 1-5 Yr. Govt./Corp. blend. Prior to May 31, 1997, the
blend consisted of a 60% S&P 500 and 40% Shearson 4-Yr. Govt./Corp. blend.
<PAGE>
AVONDALE TOTAL RETURN FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 88.8% Market Value
Banks: 12.1%
<S> <C> <C>
5,300 First Commerce Corp..................................................... $ 454,475
7,649 First Commercial Corp................................................... 534,952
4,600 NationsBank Corp........................................................ 335,513
-------
1,324,940
---------
Beverages - Alcoholic: 2.5%
5,900 Anheuser-Busch Companies, Inc........................................... 273,244
-------
Beverages - Soft Drink: 1.5%
2,100 Coca-Cola Company....................................................... 162,619
-------
Commercial Services: 0.3%
1,300 Sodexho Marriott Services, Inc.......................................... 34,531
------
Computer Services: 4.6%
8,900 Exar Corp.*............................................................. 192,462
9,400 First Data Corp......................................................... 305,500
-------
497,962
-------
Computers: 4.1%
1,025 3Com Corp.*............................................................. 36,836
2,800 International Business Machines Corp.................................... 290,850
6,600 Western Digital Corp.*.................................................. 115,912
-------
443,598
-------
Consumer Products: 7.2%
6,200 Bell & Howell Company*.................................................. 170,112
7,200 General Electric Company................................................ 620,550
-------
790,662
-------
Consumer Services: 3.3%
3,400 Walt Disney Company..................................................... 362,950
-------
Electric Services: 2.7%
5,002 Duke Power Company...................................................... 297,932
-------
See accompanying Notes to Financial Statements.
<PAGE>
AVONDALE TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS at March 31, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Electronic Instrumentation: 4.3%
21,600 Kollmorgen Corp......................................................... $ 469,800
---------
Finance: 5.7%
3,400 American Express Company................................................ 312,162
2,700 Transamerica Corp....................................................... 314,550
-------
626,712
-------
Health Care: 0.9%
3,000 Columbia Healthcare..................................................... 96,750
------
Hotel/Motel: 5.5%
5,200 Marriott International, Inc.*........................................... 193,375
5,200 Marriott International, Inc., Class A*.................................. 186,225
4,600 Promus Hotel Corp.*..................................................... 219,650
-------
599,250
-------
Industrial Machinery: 7.0%
4,800 Caterpillar, Inc........................................................ 264,300
5,400 Toro Company............................................................ 206,888
5,300 Tyco International Ltd.................................................. 289,512
-------
760,700
-------
Insurance: 4.7%
8,500 Travelers Group, Inc.................................................... 510,000
-------
Oil-Energy: 5.1%
4,000 Chevron Corp............................................................ 321,250
3,400 Exxon Corp.............................................................. 229,925
-------
551,175
-------
Pharmaceuticals: 16.9%
2,800 Bristol-Myers/Squibb Company............................................ 292,075
8,500 Carrington Laboratories, Inc.*.......................................... 37,719
4,000 Johnson & Johnson....................................................... 293,250
6,400 Pfizer, Inc............................................................. 638,000
7,200 Schering-Plough Corp.................................................... 588,150
-------
1,849,194
---------
See accompanying Notes to Financial Statements.
<PAGE>
AVONDALE TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS at March 31, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
Telecommunications Equipment: 0.4%
2,000 IPC Information Systems, Inc.*.......................................... $ 41,000
--------
Total Common Stock (cost $5,308,401).................................... 9,693,019
---------
Principal Amount BONDS: 8.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Agencies: 7.4%
$150,000 FNMA, 5.300%, 12/10/1998................................................ 149,529
250,000 FNMA, 6.375%, 10/13/2000................................................ 250,715
132,640 FNMA, 7.500%, 8/1/2002.................................................. 134,862
201,521 FNMA, 7.000%, 6/1/2003.................................................. 204,669
72,373 GNMA, 5.500%, 5/20/2027................................................. 72,831
------
812,606
-------
U.S. Treasury Notes: 0.5%
50,000 7.125%, 2/29/2000....................................................... 51,359
------
Corporate: 0.9%
75,000 Associates Corp., 6.750%, 10/15/1999.................................... 75,863
25,000 IBM, 6.375%, 6/15/2000.................................................. 25,244
------
101,107
-------
Total Bonds (cost $961,082)............................................. 965,072
-------
SHORT-TERM INVESTMENTS: 4.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Investment: 4.8%
518,582 Star Treasury Cash Management Fund, 4.71%, 4/1/1998
(cost $518,582)......................................................... 518,582
-------
See accompanying Notes to Financial Statements.
<PAGE>
AVONDALE TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS at March 31, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value
Total Investment in Securities (cost $6,788,065+): 102.4%.................................... $11,176,673
Liabilities in excess of Other Assets: (2.4)%........................... (262,419)
--------
Total Net Assets: 100.0% ............................................... $10,914,254
===========
<FN>
*Non-income producing security.
+At March 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....................................................... $ 4,669,894
Gross unrealized depreciation....................................................... (281,286)
--------
Net unrealized appreciation............................................. $ 4,388,608
===========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
AVONDALE TOTAL RETURN FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $6,788,065).................................... $11,176,673
Receivables:
Dividends and interest............................................................. 26,553
Securities sold.................................................................... 469,507
Fund shares sold................................................................... 2,394
Other assets ............................................................................ 8,617
-----
Total assets ................................................................ 11,683,744
----------
LIABILITIES
Payables:
Advisory fees...................................................................... 6,660
Administration fee................................................................. 2,811
Fund shares redeemed............................................................... 737,807
Accrued expenses ........................................................................ 22,212
------
Total liabilities ........................................................... 769,490
-------
NET ASSETS ................................................................................. $10,914,254
===========
Net asset value, offering and redemption price per share
($10,914,254/309,568 shares outstanding;
unlimited number of shares authorized without par value) ........................ $35.26
======
COMPONENTS OF NET ASSETS
Paid-in capital ......................................................................... $ 6,225,496
Undistributed net investment income...................................................... 2,134
Undistributed net realized gain on investments .......................................... 298,016
Net unrealized appreciation on investments .............................................. 4,388,608
---------
Net assets ........................................................................ $10,914,254
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
AVONDALE TOTAL RETURN FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Dividends ....................................................................... $ 124,268
Interest ......................................................................... 99,053
------
Total income ............................................................... 223,321
-------
Expenses
Advisory fees...................................................................... 75,323
Administration fee ................................................................ 30,000
Fund accounting fees ............................................................. 16,801
Transfer agent fees .............................................................. 11,212
Audit fee ......................................................................... 10,864
Registration fees.................................................................. 5,311
Trustee fees ..................................................................... 5,221
Custody fees....................................................................... 5,159
Reports to shareholders ........................................................... 3,759
Miscellaneous...................................................................... 3,600
Legal fees ....................................................................... 2,300
Insurance.......................................................................... 2,016
-----
Total expenses ............................................................. 171,566
-------
Net investment income ................................................ 51,755
------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions............................................. 217,544
Net change in unrealized appreciation on investments..................................... 3,099,157
---------
Net realized and unrealized gain on investments.............................. 3,316,701
---------
Net increase in net assets resulting from operations .................. $ 3,368,456
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
AVONDALE TOTAL RETURN FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year Year
Ended Ended
March 31, 1998 March 31,1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment income ................................................ $ 51,755 $ 63,314
Net realized gain from security transactions ............................ 217,544 328,367
Net change in unrealized appreciation on investments ..................... 3,099,157 (278,573)
--------- --------
Net increase in net assets resulting from operations .............. 3,368,456 113,108
--------- -------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................................................... (49,621) (103,009)
Net realized gain from security transactions ............................. (166,584) (618,518)
-------- --------
Total distributions to shareholders ................................ (216,205) (721,527)
-------- --------
CAPITAL SHARE TRANSACTIONS
Net (decrease) increase in net assets derived from net change in
outstanding shares (a).............................................. (2,115,938) 695,317
---------- -------
Total increase in net assets....................................... 1,036,313 86,898
NET ASSETS
Beginning of year......................................................... 9,877,941 9,791,043
--------- ---------
End of year .............................................................. $10,914,254 $9,877,941
=========== ==========
<FN>
(a) A summary of capital share transactions is as follows:
Year Ended Year Ended
March 31, 1998 March 31, 1997
Shares Value Shares Value
Shares sold ...................................... 11,969 $ 383,640 50,865 $1,401,783
Shares issued in reinvestment of distributions.... 6,229 196,258 25,387 676,759
Shares redeemed................................... (86,710) (2,695,836) (50,907) (1,383,225)
------- ---------- ------- ----------
Net (decrease) increase........................... (68,512) $(2,115,938) 25,345 $ 695,317
======= =========== ====== =========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
AVONDALE TOTAL RETURN FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each year
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........... $26.13 $27.76 $23.58 $22.93 $24.78
Income from investment operations:
Net investment income.................... 0.16 0.18 0.27 0.23 0.26
Net realized and unrealized gain
(loss) on investments ............. 9.61 0.14 6.00 1.49 (0.44)
---- ---- ---- ---- -----
Total from investment operations............... 9.77 0.32 6.27 1.72 (0.18)
---- ---- ---- ---- -----
Less distributions:
From net investment income............... (0.15) (0.28) (0.27) (0.23) (0.35)
From net capital gains................... (0.49) (1.67) (1.82) (0.84) (1.32)
----- ----- ----- ----- -----
Total distributions............................ (0.64) (1.95) (2.09) (1.07) (1.67)
----- ----- ----- ----- -----
Net asset value, end of year................... $35.26 $26.13 $27.76 $23.58 $22.93
====== ====== ====== ====== ======
Total return................................... 37.65% 1.10% 26.67% 7.82% (0.82)%
Ratios/supplemental data:
Net assets, end of year (millions)............. $ 10.9 $ 9.9 $ 9.8 $ 6.9 $ 7.4
Ratio of expenses to average net assets........ 1.59% 1.83% 1.69% 1.77% 1.83%
Ratio of net investment income to average
net assets............................... 0.48% 0.62% 1.03% 0.96% 1.09%
Portfolio turnover rate ...................... 9.38% 40.87% 52.25% 52.24% 73.65%
Average commission rate paid per share++........ $.1000 $.1000 - - -
<FN>
++For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose 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 various markets where trading
practices and commission rate structures may differ.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
AVONDALE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS at March 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
Avondale Total Return 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 October 12,
1988.
The Fund's primary investment objective is to realize the combination of
income and capital appreciation that will produce the maximum total return
consistent with reasonable risk. The Fund seeks to achieve its objective by
investing primarily in equity securities and higher-quality fixed-income debt
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; securities traded on
an exchange or NASDAQ for which there have been no sales and other
over-the-counter securities are valued at the last reported bid
price. Securities for which quotations are not readily available are
valued at their respective fair values as determined in good faith
by the Board of Trustees. Short-term investments are stated at cost,
which when combined with accrued interest, approximates market
value.
U.S. Government securities with less than 60 days remaining to
maturity when acquired by the Fund are valued on an amortized cost
basis. U.S. Government securities with more than 60 days remaining
to maturity are valued at the current market value (using the mean
between the bid and asked price) until the 60th day prior to
maturity, and 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. Interest income is recorded on an accrual basis.
Discounts and premiums on securities purchased are amortized over
the life of the respective securities.
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended March 31, 1998, Herbert R. Smith, Incorporated (the
"Manager") provided the Fund with investment management services under an
Investment Advisory Agreement. The Manager furnished all investment advice,
office space, facilities, and most of the personnel needed by the Fund. As
compensation for its services, the Manager was entitled to a monthly fee at the
annual rate of 0.70% on the first $200 million of average daily net assets;
0.60% on the next $300 million of net assets; and 0.50% on net assets exceeding
$500 million. For the year ended March 31, 1998, the Fund incurred $75,323 in
Management fees.
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
an annual rate equal to the greater of 0.15% of the Fund's average daily net
assets or $30,000. For the year ended March 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 Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, excluding
short-term securities and U.S. Government securities, for the year ended March
31, 1998, were $896,500 and $2,167,796, respectively.
For the year ended March 31, 1998, the cost of purchases and the proceeds
from sales of U.S. Government and Government Agency obligations, excluding
short-term securities, were $74,149 and $987,327, respectively.
NOTE 5 - YEAR 2000 ISSUE (Unaudited)
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems it uses and those used by the Fund's brokers and other major
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 issue". Management is assessing its computer systems and the systems
compliance issues of its brokers and major service providers. Based on
information available to management, the Fund's brokers and major service
providers are taking steps that they believe are reasonably designed to address
the Year 2000 issue with respect to computer systems that they use. At this
time, however, there can be no assurance that these steps will be sufficient,
and the failure of a timely completion of all necessary procedures could have a
material adverse effect on the Fund's operations. Management will continue to
monitor the status of and the Fund's exposure to, this issue.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
AVONDALE TOTAL RETURN FUND and
THE BOARD OF TRUSTEES OF
PROFESSIONALLY MANAGED PORTFOLIOS
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Avondale Total Return Fund (a series
of Professionally Managed Portfolios) as of March 31, 1998, and the related
statement of operations for the year then ended, 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 five 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1998, by correspondence with the custodian and brokers. Where brokers did
not reply to our confirmation request, we carried out other appropriate auditing
procedures. 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
Avondale Total Return Fund as of March 31, 1998, the results of its operations
for the year then ended, 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 five years
in the period then ended, in conformity with generally accepted accounting
principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
April 24, 1998
<PAGE>
Investment Manager
Herbert R. Smith, Incorporated
1105 Holliday
Wichita Falls, Texas 76301
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
Eight 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.
