Harris Bretall Sullivan & Smith
Growth Equity Fund
Semi-Annual Report
September 30, 1998
<PAGE>
Harris Bretall Sullivan & Smith, LLC
Dear Shareholders:
Investors' confidence in the stock market has been tested over the last six
months with the Standard & Poor's 500 Index most recently reporting a 9.9%
decline during the three months ending September 30, 1998. Despite the
tumultuous investment climate of the past six months, the Harris Bretall
Sullivan & Smith Growth Equity Fund maintained positive year-to-date returns.
The best place for investors continues to be the large capitalization growth
companies. We are pleased to report an average annualized total return since
inception on May 1, 1996 of 15.79% for the period ending September 30, 1998. The
cumulative return for the same period was 42.51%. The return for the year ended
September 30, 1998 was 3.14%. Even after reducing earnings expectations for the
companies represented in the Fund, we forecast their operating earnings for the
fourth quarter to be up more than 13%, year-over-year. The numbers compare
favorably to the S&P 500 Index, whose earnings we estimate to be up less than
6%.
The past two quarters have demonstrated that stock and bond prices are as much a
function of investor attitude as they are of business fundamentals. At present,
most investors are suffering from a true crisis in confidence. With leadership
vacuums in many major industrial countries, investors can be forgiven for
sentiments of uncertainty about the economic outlook.
As one examines global leadership today, it appears that leaders are struggling
to find a way to address the country-by-country economic challenges that have
produced the current crisis. It appears that there are no quick or easy
solutions. However, based on our 27 years of experience, we distinguish four
tenets that provide a basis for optimism:
o In times of financial crisis, liquidity can be created and put into
the system to stimulate economic growth
o Countries will cooperate to solve problems, particularly when global
stability is threatened
o The United States is economically very sound, and will provide
global leadership. U.S. short-term interest rates can be lowered,
and the substantial federal budget surplus has yet to be committed
o While solutions are not yet evident, we know they will manifest
themselves. In the meantime, stock prices represent an
unprecedented opportunity to establish positions in quality growth
companies
Demographics, Technology and Globalization remain the three most dynamic trends
to impact the market. We have yet to witness the full power of these converging
trends. Harris Bretall urges investors to take advantage of the current market
turmoil to add to their equity positions so that they may be positioned to be
beneficiaries of this unprecedented market opportunity.
Sincerely,
/s/ /s/
John J. Sullivan, CFA Gordon J. Ceresino
Partner Partner
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at September 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 130.2% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Airlines: 2.7%
<S> <C> <C>
4,100 AMR Corp.*.............................................................. $ 227,294
---------
Capital Goods/Conglomerate: 9.8%
3,300 General Electric Company................................................ 262,556
5,100 Illinois Tool Works, Inc................................................ 277,950
5,410 Tyco International Ltd.................................................. 298,903
-------
839,409
-------
Consumer Cyclical: 10.0%
7,580 The Home Depot, Inc..................................................... 299,410
4,700 The Interpublic Group of Companies, Inc................................. 253,506
5,560 Wal-Mart Stores, Inc.................................................... 303,715
-------
856,631
-------
Consumer Services: 4.9%
6,900 Mattel, Inc............................................................. 193,200
9,000 Walt Disney Company..................................................... 227,812
-------
421,012
-------
Consumer Staples: 8.4%
3,500 Colgate-Palmolive Company............................................... 239,750
6,000 Gillette Company........................................................ 229,500
3,500 Procter & Gamble Company................................................ 248,281
-------
717,531
-------
Drugs/Biotechnology: 17.1%
6,400 Abbott Laboratories..................................................... 278,000
2,245 Bristol-Myers/Squibb Company............................................ 233,199
2,100 Merck & Company, Inc.................................................... 272,081
3,000 Pfizer, Inc............................................................. 317,813
3,500 Schering-Plough Corp.................................................... 362,469
- -------
1,463,562
---------
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
SCHEDULE OF INVESTMENTS at September 30, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Financial: 16.5%
2,913 American International Group, Inc....................................... $ 224,301
4,000 BankAmerica Corp........................................................ 240,500
7,000 Charles Schwab Corp..................................................... 275,625
2,300 Citicorp................................................................ 213,756
4,200 Merrill Lynch & Company, Inc............................................ 198,975
7,300 Norwest Corp............................................................ 261,431
-------
1,414,588
---------
Food and Beverage: 5.0%
3,900 Coca-Cola Company....................................................... 224,738
6,755 PepsiCo, Inc............................................................ 198,850
-------
423,588
-------
Health Products: 3.1%
3,380 Johnson & Johnson....................................................... 264,485
-------
Medical: 2.8%
4,130 Medtronic, Inc.......................................................... 239,024
-------
Retail: 13.1%
6,200 Dayton Hudson Corp...................................................... 221,650
6,100 Kroger Company.......................................................... 305,000
7,340 Safeway, Inc.*.......................................................... 340,392
7,000 Starbucks Corp.*........................................................ 253,313
-------
1,120,355
---------
Technology/Defense: 9.4%
6,000 Autodesk, Inc........................................................... 157,500
3,820 Automatic Data Processing, Inc.......................................... 285,545
3,300 Microsoft Corp.*........................................................ 363,206
-------
806,251
-------
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
SCHEDULE OF INVESTMENTS at September 30, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications - Hardware: 24.5%
2,500 America Online, Inc.*................................................... $ 278,125
7,300 Applied Materials, Inc.*................................................ 184,325
4,800 Cisco Systems, Inc.*.................................................... 296,700
8,030 Compaq Computer Corp.................................................... 253,949
4,200 Dell Computer Corp.*.................................................... 276,150
3,350 Hewlett-Packard Company................................................. 177,341
3,000 Intel Corp.............................................................. 257,250
3,000 Lucent Technologies, Inc................................................ 207,188
4,200 Tellabs, Inc.*.......................................................... 167,212
-------
2,098,240
---------
Telephone - Long Distance: 2.9%
5,100 MCI WorldCom, Inc.*..................................................... 249,263
-------
Total common stocks (cost $9,405,118)................................... 11,141,233
----------
Principal Amount REPURCHASE AGREEMENT: 3.1%
- ------------------------------------------------------------------------------------------------------------------------------------
$263,000 Star Bank Repurchase Agreement, 4.900%, dated 9/30/1998,
due 10/1/1998, collateralized by $270,000 GNMA, 7.375%,
due 5/20/2024 (proceeds $263,036) (cost $263,000)....................... 263,000
-------
Total Investments in Securities (cost $9,668,118+): 133.3% ............. 11,404,233
Liabilities in excess of Other Assets: (33.3)%.......................... (2,848,060)
----------
Total Net Assets: 100.0% ............................................... $ 8,556,173
===========
<FN>
*Non-income producing security.
+ At September 30, 1998, the cost for Federal income tax purposes was the same
as the basis for financial reporting. Unrealized appreciation and depreciation
of securities were as follows:
Gross unrealized appreciation........................................... $ 2,245,445
Gross unrealized depreciation........................................... (509,330)
--------
Net unrealized appreciation................................... $ 1,736,115
===========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at September 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $9,668,118) ................................. $11,404,233
Cash................................................................................... 538
Receivables:
Due from Advisor................................................................. 648
Dividends ....................................................................... 6,509
Fund shares sold................................................................. 34
Prepaid expenses....................................................................... 18,752
------
Total assets .............................................................. 11,430,714
----------
LIABILITIES
Payables:
Administration fee............................................................... 2,564
Distribution fees................................................................ 7,476
Fund shares redeemed............................................................. 2,850,874
Accrued expenses....................................................................... 13,627
------
Total liabilities.......................................................... 2,874,541
---------
NET ASSETS $ 8,556,173
===========
Net asset value, offering and redemption price per share
($8,556,173/601,343 shares outstanding;
unlimited number of shares authorized without par value) ........................ $14.23
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $ 7,037,721
Accumulated net investment loss........................................................ (28,615)
Accumulated net realized loss on investments........................................... (189,048)
Net unrealized appreciation on investments............................................. 1,736,115
---------
Net assets ...................................................................... $ 8,556,173
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Six Months Ended September 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Dividends........................................................................ $ 45,176
Interest......................................................................... 3,548
-----
Total income............................................................... 48,724
------
Expenses
Advisory fees.................................................................... 44,965
Administration fee............................................................... 15,041
Distribution fees................................................................ 14,988
Fund accounting fees............................................................. 9,261
Transfer agent fees.............................................................. 7,950
Audit fee........................................................................ 7,823
Registration fees................................................................ 6,700
Reports to shareholders.......................................................... 4,795
Custody fees..................................................................... 4,137
Trustee fees..................................................................... 2,261
Legal fees....................................................................... 2,021
Miscellaneous.................................................................... 1,795
Insurance........................................................................ 393
---
Total expenses............................................................. 122,130
Less: expenses waived and reimbursed....................................... (44,791)
-------
Net expenses............................................................... 77,339
------
Net investment loss ................................................. (28,615)
-------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from security transactions..................................... (220,977)
Net change in unrealized appreciation on investments............................. (1,203,829)
----------
Net realized and unrealized loss on investments............................ (1,424,806)
----------
Net decrease in net assets resulting from operations ................ $(1,453,421)
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
September 30, 1998# March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment loss................................................. $ (28,615) $ (24,024)
Net realized (loss) gain from security transactions................. (220,977) 34,322
Net change in unrealized appreciation on investments................ (1,203,829) 2,750,964
---------- ---------
Net (decrease) increase in net assets
resulting from operations ................................. (1,453,421) 2,761,262
---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from security transactions........................ 0 (9,975)
- ------
CAPITAL SHARE TRANSACTIONS
Net (decrease) increase in net assets derived from net change in
outstanding shares (a)........................................... (1,961,615) 5,753,555
---------- ---------
Total (decrease) increase in net assets ...................... (3,415,036) 8,504,842
NET ASSETS
Beginning of period................................................. 11,971,209 3,466,367
---------- ---------
End of period ............................................................ $ 8,556,173 $11,971,209
=========== ===========
<FN>
(a) A summary of capital shares transactions is as follows:
Six Months Year
Ended Ended
September 30, 1998# March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold ......................................... 119,419 $ 1,783,413 476,406 $6,518,871
Shares issued in reinvestment of distributions....... 0 0 718 9,975
Shares redeemed...................................... (257,115) (3,745,028) (52,264) (775,291)
-------- ---------- ------- --------
Net (decrease) increase.............................. (137,696) $(1,961,615) 424,860 $5,753,555
======== =========== ======= ==========
#Unaudited.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year May 1, 1996*
Ended Ended through
September 30, 1998# March 31, 1998 March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period................... $16.20 $11.03 $10.00
------ ------ ------
Income from investment operations:
Net investment loss.............................. (0.05) (0.02) 0.00
Net realized and unrealized
(loss) gain on investments.................... (1.92) 5.20 1.04
----- ---- ----
Total from investment operations....................... (1.97) 5.18 1.04
----- ---- ----
Less distributions:
From net investment income....................... 0.00 0.00 (0.01)
From net capital gains........................... 0.00 (0.01) 0.00
---- ----- ----
Total distributions.................................... 0.00 (0.01) (0.01)
---- ----- -----
Net asset value, end of period......................... $14.23 $16.20 $11.03
====== ====== ======
Total return........................................... (12.16)% 47.02% 10.36%
Ratios/supplemental data:
Net assets, end of period (millions)................... $ 8.6 $ 12.0 $ 3.5
Ratio of expenses to average net assets:
Before expense reimbursement and waiver.......... 2.04%+ 2.39% 4.97%+
After expense reimbursement and waiver........... 1.29%+ 1.29% 1.28%+
Ratio of net investment loss to average net assets:
Before expense reimbursement and waiver.......... (1.23)%+ (1.42)% (3.69)%+
After expense reimbursement and waiver........... (0.48)%+ (0.31)% 0.00%+
Portfolio turnover rate................................ 17.47% 40.96% 14.62%
<FN>
#Unaudited.
*Commencement of operations.
+Annualized.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
NOTES TO FINANCIAL STATEMENTS at September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
Harris Bretall Sullivan & Smith Growth Equity Fund (the "Fund") is a
diversified series of shares of beneficial interest of Professionally Managed
Portfolios (the "Trust"), which is registered under the Investment Company Act
of 1940 (the "1940 Act") as an open-end management investment company. The Fund
began operations on May 1, 1996. The investment objective of the Fund is to seek
growth of capital. The Fund seeks to achieve its objective by investing
primarily in equity securities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. 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. Securities Transactions, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. The cost of securities owned on realized
transactions is 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 OTHER RELATED PARTY TRANSACTIONS
For the six months ended September 30, 1998, Harris Bretall Sullivan &
Smith L.L.C. (the "Advisor"), provided the Fund with investment management
services under an Investment Advisory Agreement. The Advisor furnishes all
investment advice, office space, facilities, and most of the personnel needed by
the Fund. As compensation for its services, the Advisor was entitled to a
monthly fee at the annual rate of 0.75% based upon the average daily net assets
of the Fund. For the six months ended September 30, 1998, the Fund incurred
$44,965 in Advisory fees.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited),
Continued
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees to the extent necessary to limit the Fund's aggregate
annual operating expenses to 1.29% of average daily net assets. For the six
months ended September 30, 1998, the Advisor has waived its fees and reimbursed
the Fund in the amount of $44,791. The cumulative unreimbursed amount paid by
the Advisor on behalf of the Fund is $203,878.
The Advisor may recoup from the Fund the total amount above no later than
March 31, 2001, subject to the requirement that the Fund must pay the current
ordinary operating expenses of the Fund before any reimbursement, and subject to
its continued compliance with any other expense limitations (both the payment of
current expenses and continued compliance are "additional requirements"). The
Advisor may recoup a partial amount of the above amount no later than March 31,
2002, except that the amount paid by the Advisor during the Fund's first year of
operation is excluded and subject to the additional requirements listed above.
The Advisor may recoup a partial amount of the above amount no later than March
31, 2003, except that the amounts paid by the Advisor during the Fund's first
two years of operation are excluded and subject to the additional requirements
listed above. After the Fund's seventh year of operations, the Advisor may
generally only seek reimbursement for any amounts paid during the previous three
years of the Fund's operations, subject to the additional requirements listed
above.
Investment Company Administration, LLC (the "Administrator") acts as the
Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Fund's
expense accruals. For its services, the Administrator receives an annual fee at
the following rate:
Under $25 million 0.12% of average daily net assets
$25 to $50 million 0.07% of average daily net assets
$50 to $100 million 0.05% of average daily net assets
Over $100 million 0.03% of average daily net assets,
with a minimum fee of $30,000 annually
For the six months ended September 30, 1998, the Fund incurred $15,041 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 Advisor 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 Advisor as
reimbursement for, or in anticipation of, expenses incurred for
distribution-related activity. For the six months ended September 30, 1998, the
Fund paid to the Distribution Coordinator $14,988.
<PAGE>
Harris Bretall Sullivan & Smith
Growth Equity Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from the sale of securities, other
than short-term investments, for the six months ended September 30, 1998, were
$2,666,475 and $2,019,298, respectively.
<PAGE>
Advisor
Harris Bretall Sullivan & Smith L.L.C.
One Sansome Street, Suite 3300
San Francisco, CA 94104
(415) 765-8300
Account Inquiries (800) 282-2340
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Transfer and Dividend Disbursing Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 282-2340
Independent Auditors
Ernst & Young LLP
515 South Flower Street
Los Angeles, CA 90071
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
