May 11, 1997
Securities and Exchange Commission
Attn: Filing Desk, Stop 1-4
450 Fifth Street, N.W.
Washington, DC 20549
Re: Professionally Managed Portfolios
File No. 811-5037
CIK No. 811030
Dear Sir or Madam:
On behalf of the above Registrant and pursuant to Rule 30b-2 under
the Investment Company Act of 1940, I enclose for filing via EDGAR,
a copy of the Semi-annual Report to shareholders of the Lighthouse
Contrarian Fund series of the Registrant for the six month period ended
February 28, 1998.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
/s/
Robert H. Wadsworth
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
SEMI-ANNUAL REPORT
February 28, 1998
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
March 31, 1998
Dear Shareholder,
Performance
The Lighthouse Contrarian Fund began on September 29, 1995, with an NAV of
$12.00 and closed on February 27, 1998, at $14.84. A capital gains distribution
of $0.61 was paid on December 15, 1997, bringing the total distributions since
inception to $0.94. The annualized total return from inception through March 31,
1998, was 13.83% and for the one year period then ended was 13.27%.
Signs of a Stock Market Mania
Just the other night, Saturday Night Live ran a skit about Alan Greenspan. A
couple of rogue Canadians attempt to ruin the U.S. economy by forcing the Fed
Chairman at gunpoint to raise interest rates. Two superheroes come to his
rescue, allowing Greenspan to lower rates. He tells the public, "Throw caution
to the wind and put all of your money into stocks."
All joking aside, the public has already taken this advice. As a result, the
U.S. stock market is now showing all the signs of a classic mania:
1) A parabolic rise in prices - As investors ignore valuations and chase
performance, a virtuous cycle of accelerating price increases takes hold. 2)
Historically high valuations - Record high price/earnings, price/book value,
price/sales, and market capitalization/GDP ratios are dismissed as irrelevant.
3) Rationalizations for why the boom will continue - The art of extrapolation
rules as business cycles, credit cycles, and stock market cycles are thought to
no longer exist. 4) Widespread public participation - Booming mutual funds,
investment clubs, day trading seminars, and chat rooms are the order of the day.
Speculators chase hot Internet stocks, stock splits, and rumors. 5) Obvious
signs of crowd behavior - The investment crowd convinces itself that it is
immune to negative news. The Asian crisis, slowing PC demand, decelerating
earnings growth, and President Clinton's alleged infidelities only seem to
encourage more speculation.
What is most frightening about a mania? It turns a rational difference of
opinion into an emotional (and irrational) group consensus. Economic actors
businessmen, investors, and politicians - rush in to join the frenzied crowd,
throwing caution to the wind.
A Brief History of Conventional Wisdom
As the late Malcolm Forbes once said, "Conventional wisdom seldom is." Over the
past eight decades, the consensus has been dead wrong at major turning points:
Late 1920s - Economic prosperity and stable consumer prices were expected to go
on indefinitely. Mainstream economists argued that the business cycle had been
repealed. Stocks quadrupled from their 1924 lows to 1929 highs. Result: Massive
deflation ensued and the economy went into a prolonged depression. Stocks
plunged 89% from their 1929 highs to 1932 lows. The Dow did not recover its
losses until 1954, a span of 25 years.
Late 1940s - An economic depression was widely expected to follow World War II.
Historically, depressions followed wars as sure as night followed day.
Shell-shocked, Americans put just 15% of their household assets into stocks.
Result: World peace
<PAGE>
unleashed a baby boom and pent up demand for consumer goods. The 1950s
experienced low inflation, solid economic growth, and a 250% rise in the Dow.
Late 1950s - Stocks were felt to be too expensive. The NYSE, for example, warned
the public about high stock prices. Result: Stocks got even more expensive, with
the Dow nearing 1000 in 1968.
Late 1960s - Risk taking was in vogue during this "go-go" era. Reminiscent of
the late 1920s, economists again saw a "new era" in which business cycles had
been repealed. Americans placed a record 26% of their assets into the stock
market. Result: Oil shocks, inflation, recessions, high interest rates, and high
unemployment rates defined the 1970s. Stock prices lost one-third of their value
from 1968 to 1974. It took 15 years for the 1968 stock investor to get back to
even, not counting inflation.
Late 1970s - Oil prices were expected to hit $50 or even $100 per barrel.
Inflation was chronic and tangible assets like gold, oil and real estate were
the only game in town. Americans tied up 45% of their wealth in tangible assets
and shunned stocks. Sentiment was so bleak in 1979 that a Business Week cover
article declared "The Death of Equities." Result: The Reagan revolution ushered
in a remarkable period of economic expansion with declining inflation.
Corporations restructured, corporate bond yields dropped from 12% to under 9%
and the Dow tripled.
Late 1980s - Following the 1987 stock market crash, several parallels were made
to the 1929 crash. It was widely felt that Japan had displaced the U.S. as the
world's economic superpower and that America had lost its competitiveness. The
technology sector was thought to be particularly vulnerable to Japan, Inc.
Despite the strong 1980s stock market, Americans still had just 12% of their
household assets in stocks. Result: Japan's stock market dropped 60% while the
U.S. market more than tripled. Technology stocks like Microsoft, Intel, Cisco
Systems, and Compaq Computer led the way.
Conventional Wisdom Today
The conventional view today is incredibly optimistic. The U.S. is again on top
of the world. A golden age of global capitalism is creating unbounded
opportunities for U.S. multinationals. Technology is a key driver of the
economy, producing strong productivity gains while keeping a lid on inflation.
Baby boomers are expected to keep pouring money into the stock market, taking
the Dow to 10000 and beyond. Economists and analysts talk about a "new economy"
in which the old business cycle and valuation rules no longer apply. Americans
have over 28% of their wealth tied up in stocks, a record. Sound familiar?
We have little doubt that the consensus view will prove wrong once again. As the
Asian crisis shows, the global economy is not all it is cracked up to be.
Capitalism, to its credit, is a profit and loss system. Failure is necessary to
remove waste and inefficiency. Unfortunately, the current system allows many
large companies to keep profits, but socialize losses (share them with
taxpayers). For example, IMF bailouts in Southeast Asia will cut the losses of
investors and bankers in that region. In hindsight, it appears the "Asian
Miracle" was artificially supported by years of easy credit, loan guarantees,
government subsidies and protections.
The productivity/technology argument is beginning to show some serious cracks.
Capital spending budgets that once lavished money on technology have plenty of
fat to trim. Buying a flashy new box loaded with memory and the latest
microprocessor chip from Intel is no longer seen as a necessity. Corporate PC
demand is slowing, as evidenced by earnings disappointments from Intel, Compaq,
and Micron Technology. Year 2000 spending is also forcing information technology
managers to allocate resources more carefully.
The demographic case - that no price is too high to pay for a stock because a
baby boomer will eventually pay a higher price - puts a new twist on the old
greater fool theory. Contrary to popular opinion, new money is not pouring into
stocks because more people are turning 46 and saving more. In fact, the total
level of savings has stayed remarkably flat (lower savings rates offset by
somewhat more favorable demographics). Where is all of the money coming from?
Banks are supplying a great deal of easy credit as evidenced by the money supply
growing at a 12-year high 9.4%, ubiquitous credit card solicitations, and a home
refinancing boom. Corporations and investors (professional and individual) are
showing a strong preference for stock and holding little cash. Foreign
investors, the ultimate latecomers to the party, are now adding their own fuel
to a U.S. stock market fire that is already out of control.
<PAGE>
Conventional wisdom tells us "It's different this time" and that "It's the only
game in town." Seasoned contrarians know these are ten of the most dangerous
words in the English language.
Short Positions
We have been starved for good values on the long side (with the exception of
gold mining and energy stocks), but feel like kids in a candy store on the short
side. Short sales and put options also provide a way to hedge the Fund against a
substantial decline in the stock market. The following is a brief rationale for
some of our favorite short positions:
Internet stocks - Yahoo! (86 13/16) faces plenty of competition from Lycos,
Excite, Infoseek, Alta Vista, and Microsoft. A favorite of Internet fans, the
company is valued at $4.0 billion, or 59 times current sales. Its stock trades
at 124 times "hoped-for" earnings of $0.70 in 1999.
PC-related stocks - Over 40% of the Fund's short/equity put position is in
personal computer and PC-related stocks. We expect the slowdown in PC demand to
adversely affect computer makers (Gateway 2000), semiconductor companies (Intel,
Micron), semiconductor equipment makers (Applied Materials, et. al.), and even
desktop software king Microsoft. Microsoft (84 15/16) is simply too big to grow
rapidly enough to justify its valuation. The company commands a market value of
$206.8 billion, or 15.8 times current revenues. The stock trades at 47.7 times
expected 1998 earnings which benefit greatly by excluding options-based
compensation from the income statement.
Blue chip stocks - Earnings estimates are falling rapidly for multinational
companies. According to First Call, S&P 500 earnings are expected to grow just
4.3% in the 1st quarter. Coca Cola (76) is valued at $188.0 billion, 10.0 times
current revenues, and 45.8 times 1998 earnings which are expected to be flat
with 1997. Warren Buffett admits to having a difficult time finding value and
sold 5% of his stock holdings over the past year. Investors do not seem to care,
valuing his holding company, Berkshire Hathaway (2183), at $80.4 billion, or
41.7 times "look-through" earnings.
Bank stocks - Booms hide a multitude of sins and banks have committed their
share this cycle. First Union (57 1/8) has made a number of expensive
acquisitions in short order including Signet Banking (Virginia), CoreStates
Financial (Pennsylvania), and Money Store (sub-prime lending). Their new "Future
Bank" concept plans to build a commissioned sales force to originate loans - a
frightening sign of the times. Citicorp (143 5/8) has over $50 billion in Asian
loans and a $600 million Year 2000 mess to deal with. We believe the company has
increasingly relied on accounting gimmicks to meet earnings estimates.
Conclusion
One of the most important lessons of investing is to never join a raging crowd.
Unfortunately, most investors will ignore today's obvious signs of excess and
choose the costly "school of hard knocks" to learn this lesson. To those tempted
to jump on the late 1990s bandwagon, keep this in mind. The same crowd who can't
own enough stocks today at sky-high valuations will probably dump those same
stocks tomorrow at fire sale prices.
The Lighthouse Contrarian Fund is ideally positioned for the ending of this
speculative mania. While we look forward to the day when bargains reappear,
experience, history and common sense tell us this is the time to be avoiding not
joining - the current folly.
Thank you for your patience and support.
/s/
Kevin P. Duffy
Portfolio Manager
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at February 28, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 77.3% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Goods: 3.3%
<S> <C> <C> <C>
30,000 3D Systems Corp......................................................... $ 232,500
3,000 Commercial Metals Company*.............................................. 96,000
15,000 Huntco, Inc., Class A*.................................................. 221,250
11,000 Nucor Corp.*............................................................ 566,500
-------
1,116,250
---------
Consumer Goods - Apparel: 7.9%
8,200 Jones Apparel Group, Inc................................................ 451,000
4,300 Liz Claiborne, Inc.*.................................................... 215,000
36,000 Norton McNaughton, Inc.................................................. 204,750
25,000 Oshkosh B'Gosh, Inc., Class A*.......................................... 981,250
28,000 Quiksilver, Inc......................................................... 826,000
-------
2,678,000
---------
Consumer Goods - Consumer Products: 3.9%
38,400 Fossil, Inc............................................................. 1,032,000
12,600 Helen of Troy Ltd....................................................... 192,938
10,700 Polk Audio, Inc......................................................... 96,300
------
1,321,238
---------
Consumer Goods - Food Producers: 0.4%
32,000 The UniMark Group, Inc.................................................. 128,000
-------
Consumer Goods - Restaurants: 0.9%
14,500 Lone Star Steakhouse and Saloon, Inc.................................... 305,406
-------
Consumer Goods - Retail, Apparel: 1.9%
10,000 AnnTaylor Stores Corp................................................... 141,875
23,000 Designs, Inc............................................................ 51,031
15,000 Paul Harris Stores, Inc................................................. 132,188
10,000 Talbots, Inc.*.......................................................... 178,125
4,000 The Limited, Inc.*...................................................... 116,000
-------
619,219
-------
Consumer Goods - Retail, General Merchandise: 0.2%
4,000 Kmart Corp.............................................................. 53,500
------
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
SCHEDULE OF INVESTMENTS at February 28, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Goods - Retail, Mail Order: 4.4%
37,600 Lands' End, Inc......................................................... $ 1,480,500
-----------
Consumer Goods - Retail, Specialty: 6.0%
22,000 Claire's Stores, Inc.*.................................................. 396,000
70,000 Good Guys, Inc.......................................................... 525,000
75,000 REX Stores Corp......................................................... 806,250
45,200 Sun Television and Appliances, Inc.*.................................... 104,525
6,900 Toys "R" Us, Inc........................................................ 181,125
-------
2,012,900
---------
Consumer Goods - Tobacco: 1.2%
2,400 Philip Morris Companies, Inc.*.......................................... 104,250
9,000 RJR Nabisco Holdings Corp.*............................................. 311,063
-------
415,313
-------
Energy - Oil, Secondary: 17.0%
8,000 Anadarko Petroleum Corp.*............................................... 516,000
29,000 Barrett Resources Corp.................................................. 879,063
43,000 Basin Exploration, Inc.................................................. 706,812
13,000 Benton Oil and Gas Company.............................................. 161,687
18,000 Forest Oil Corp......................................................... 253,125
25,000 Key Production Company, Inc............................................. 251,563
34,000 Nuevo Energy Company.................................................... 1,219,750
10,000 Ocean Energy, Inc....................................................... 467,500
28,000 Plains Resources, Inc................................................... 442,750
20,000 Pogo Producing Company*................................................. 561,250
14,000 Vintage Petroleum, Inc.*................................................ 280,875
-------
5,740,375
---------
Energy - Oil Field Services: 1.1%
10,620 R&B Falcon Corp......................................................... 281,430
2,000 Tidewater, Inc.*........................................................ 89,000
------
370,430
-------
Energy - Seismic: 2.1%
27,000 Mitcham Industries, Inc................................................. 479,250
3,000 Western Atlas, Inc...................................................... 227,812
-------
707,062
-------
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
SCHEDULE OF INVESTMENTS at February 28, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Financial - Publishing: 0.1%
1,050 Value Line, Inc.*....................................................... $ 44,100
--------
Health Care - Biotechnology: 0.6%
40,000 Xoma Corp............................................................... 198,750
-------
Health Care - Pharmaceuticals: 6.2%
36,000 ICN Pharmaceuticals, Inc................................................ 2,079,000
---------
Precious Metals - Gold Mining: 9.7%
75,000 Agnico Eagle Mines, Ltd.*............................................... 473,437
48,000 Barrick Gold Corp.*..................................................... 927,000
20,000 Coeur d'Alene Mines Corp.*.............................................. 227,500
37,000 Crown Resources Corp.................................................... 154,937
7,500 Getchell Gold Corp...................................................... 139,688
47,000 Newmont Mining Corp.*................................................... 1,360,063
- ---------
3,282,625
---------
Technology - Communications: 0.2%
13,000 Vtel Corp............................................................... 78,000
------
Technology - Computers: 0.8%
5,400 Sun Microsystems, Inc................................................... 257,175
-------
Technology - Semiconductors: 2.0%
5,000 QLogic Corp............................................................. 200,625
22,500 SDL, Inc................................................................ 466,875
-------
667,500
-------
Technology - Software: 5.9%
50,000 Informix Corp........................................................... 390,625
12,000 Intersolv, Inc.......................................................... 186,750
50,000 Progress Software Corp.................................................. 1,268,750
13,000 Sybase, Inc............................................................. 136,500
-------
1,982,625
---------
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
SCHEDULE OF INVESTMENTS at February 28, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - Truck: 1.5%
50,000 American Freightways Corp............................................... $ 515,625
---------
Total Common Stocks (cost $21,491,066).................................. 26,053,593
----------
CLOSED-END FUNDS - INTERNATIONAL: 1.5%
- ------------------------------------------------------------------------------------------------------------------------------------
19,000 Argentina Fund, Inc.*................................................... 242,250
16,000 Chile Fund, Inc.*....................................................... 266,000
-------
Total Closed-End Funds (cost $604,221).................................. 508,250
-------
Principal Amount REPURCHASE AGREEMENT: 4.2%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,417,000 Star Bank Repurchase Agreement, 4.80%, dated 2/27/1998,
due 3/2/1998, collateralized by $1,445,783 GNMA, 7.375%,
due 5/20/2024 (proceeds $1,417,567) (cost $1,417,000)................... 1,417,000
---------
Total Investment in Securities (cost $23,512,287+): 83.0%............... 27,978,843
----------
LONG EQUITY OPTIONS: 1.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Contracts Common Stocks / Expiration Date / Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
44 Banc One Corp. / May 59 Puts............................................ 20,076
65 BankAmerica Corp. / April 90 Puts....................................... 82,062
30 BankAmerica Corp. / April 80 Puts....................................... 13,687
60 Clear Channel Communications, Inc. / July 95 Puts....................... 55,500
110 Coca-Cola Company / August 75 Puts...................................... 80,437
110 First Union Corp. / July 55 Puts........................................ 44,688
70 Intel Corp. / July 95 Puts.............................................. 67,375
140 Kellogg Company / March 53 Puts......................................... 138,250
70 NationsBank Corp. / May 70 Puts......................................... 25,812
------
Total Long Equity Options (cost $754,210)............................... 527,887
-------- -------
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
SCHEDULE OF INVESTMENTS at February 28, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Contracts Index / Expiration Date / Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
110 S&P 500 Index / June 1050 Puts.......................................... $ 411,125
40 Semiconductor Index / June 350 Puts..................................... 178,500
-------
Total Long Index Options (cost $903,331)................................ 589,625
-------
Total Put Options Purchased (cost $1,657,541): 3.3%..................... 1,117,512
---------
Other Assets less Liabilities: 13.7%.................................... 4,618,409
---------
Total Net Assets: 100.0% ............................................... $33,714,764
===========
SECURITIES SOLD SHORT at February 28, 1998: (40.2%)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Common Stocks
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Goods - Luxury Items: (1.1%)
14,000 Saks Holdings, Inc...................................................... $ 365,750
---------
Consumer Goods - Restaurants: (0.1%)
1,000 Planet Hollywood International, Inc., Class A........................... 10,062
------
Diversified Operations: (1.9%)
350 Berkshire Hathaway, Inc., Class B....................................... 651,000
-------
Financial - Banks: (7.7%)
11,000 Banc One Corp.*......................................................... 621,500
7,800 Citicorp*............................................................... 1,033,500
8,000 NationsBank Corp.*...................................................... 548,000
7,000 Silicon Valley Bancshares............................................... 399,000
-------
2,602,000
---------
Financial - Consumer Credit: (0.8%)
11,000 The Money Store, Inc.*.................................................. 274,313
-------
Financial - Investment Banker/Broker: (2.3%)
11,000 Merrill Lynch and Company, Inc.*........................................ 787,187
-------
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
SCHEDULE OF INVESTMENTS at February 28, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES SOLD SHORT, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Technology - Computers: (3.8%)
29,000 Gateway 2000, Inc....................................................... $ 1,276,000
-----------
Technology - Internet: (6.7%)
4,500 Netscape Communications Corp............................................ 87,188
7,100 Security Dynamics Technologies, Inc..................................... 252,938
26,400 Yahoo! Inc.............................................................. 1,932,150
---------
2,272,276
---------
Technology - Semiconductors: (3.3%)
7,500 Alliance Semiconductor Corp............................................. 49,219
1,000 Integrated Silicon Solution, Inc........................................ 10,500
8,000 Logic Devices, Inc...................................................... 23,000
25,000 Micron Technology, Inc.................................................. 829,688
4,000 Novellus Systems, Inc................................................... 191,750
-------
1,104,157
---------
Technology - Semiconductor Equipment: (7.1%)
27,000 Applied Materials, Inc.................................................. 993,937
18,000 KLA-Tencor Corp......................................................... 830,812
20,000 Kulicke & Soffa Industries, Inc......................................... 555,000
-------
2,379,749
---------
Technology - Software: (5.4%)
20,000 Microsoft Corp.......................................................... 1,695,000
9,000 Zitel Corp.............................................................. 124,875
-------
1,819,875
---------
Total Common Stocks Sold Short (proceeds $11,360,160)................... $13,542,369
===========
<FN>
*Income producing security.
+At February 28, 1998, the cost of the 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........................................... $ 7,725,336
Gross unrealized depreciation........................................... (5,981,018)
----------
Net unrealized appreciation....................................... $ 1,744,318
===========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at February 28, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $23,512,287)................................. $27,978,843
Put options purchased (cost $1,657,541)................................................ 1,117,512
Deposits with brokers for securities sold short........................................ 18,177,853
Cash................................................................................... 333
Receivables:
Fund shares sold................................................................. 63,301
Dividends and interest .......................................................... 66,970
Deferred organization costs............................................................ 17,295
Prepaid expenses....................................................................... 36,180
------
Total assets .............................................................. 47,458,287
----------
LIABILITIES
Securities sold short, at value (proceeds $11,360,160)................................. 13,542,369
Payables:
Advisory fees.................................................................... 29,557
Securities purchased............................................................. 39,530
Fund shares redeemed............................................................. 109,796
Accrued expenses ...................................................................... 22,271
------
Total liabilities.......................................................... 13,743,523
----------
NET ASSETS ................................................................................. $33,714,764
===========
Net asset value, offering price and redemption price per share
($33,714,764/2,271,271 shares outstanding;
unlimited number of shares authorized without par value) .............................. $14.84
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $31,348,652
Accumulated net investment loss........................................................ (21,200)
Undistributed net realized gain on investment transactions............................. 642,994
Net unrealized appreciation on investments............................................. 1,744,318
---------
Net assets ................................................................ $33,714,764
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Six Months Ended February 28, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Interest......................................................................... $ 298,920
Dividends........................................................................ 96,183
------
Total income............................................................... 395,103
-------
Expenses
Advisory fees.................................................................... 207,877
Distribution fees................................................................ 41,575
Administration fee .............................................................. 33,260
Dividends paid on short sales.................................................... 20,280
Registration fees................................................................ 14,835
Fund accounting fees............................................................. 9,679
Audit fee........................................................................ 7,615
Transfer agent fees.............................................................. 7,607
Custody fees..................................................................... 7,594
Trustee fees..................................................................... 4,179
Reports to shareholders.......................................................... 3,945
Amortization of deferred organization costs...................................... 3,301
Legal fees....................................................................... 2,934
Miscellaneous.................................................................... 2,515
Insurance........................................................................ 1,128
-----
Total expenses............................................................. 368,324
Less: expenses reimbursed.................................................. (15,442)
-------
Net expenses............................................................... 352,882
-------
Net investment income ............................................... 42,221
------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from security transactions..................................... 1,314,531
Net realized gain from short sale transactions................................... 720,705
Net realized loss on put options purchased....................................... (1,133,243)
Net change in unrealized appreciation on investments............................. (1,820,092)
----------
Net realized and unrealized loss on investments............................ (918,099)
--------
Net decrease in net assets resulting from operations ................ $ (875,878)
==========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
February 28, 1998* August 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS
<S> <C> <C>
Net investment income........................................................ $ 42,221 $ 25,237
Net realized gain from security transactions................................. 1,314,531 1,422,317
Net realized gain from short sale transactions............................... 720,705 669,699
Net realized loss on put options purchased................................... (1,133,243) (952,617)
Net change in unrealized appreciation on investments......................... (1,820,092) 2,609,095
---------- ---------
Net (decrease) increase in net assets resulting from operations ....... (875,878) 3,773,731
-------- ---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments............................................. (1,274,545) (315,958)
---------- --------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a) 5,401,145 13,041,844
--------- ----------
Total increase in net assets........................................... 3,250,722 16,499,617
NET ASSETS
Beginning of period......................................................... 30,464,042 13,964,425
---------- ----------
End of period ............................................................... $33,714,764 $30,464,042
=========== ===========
<FN>
(a) A summary of capital shares transactions is as follows:
Six Months Year
Ended Ended
February 28, 1998* August 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold ......................................... 377,130 $ 6,016,790 1,173,527 $17,013,634
Shares issued in reinvestment of distribution........ 81,339 1,271,330 20,938 311,143
Shares redeemed...................................... (120,131) (1,886,975) (290,812) (4,282,933)
-------- ---------- -------- ----------
Net increase......................................... 338,338 $ 5,401,145 903,653 $13,041,844
======= =========== ======= ===========
*Unaudited.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year September 29, 1995*
Ended Ended through
February 28, 1998# August 31, 1997 August 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period.......................... $15.76 $13.57 $12.00
------ ------ ------
Income from investment operations:
Net investment income................................... 0.02 0.05 (0.09)
Net realized and unrealized (loss) gain on investments.. (0.33) 2.41 1.72
----- ---- ----
Total from investment operations.............................. (0.31) 2.46 1.63
----- ---- ----
Less distributions:
From net capital gains.................................. (0.61) (0.27) (0.06)
----- ----- -----
Net asset value, end of period................................ $14.84 $15.76 $13.57
====== ====== ======
Total return.................................................. (2.15)% 18.22% 13.67%
Ratios/supplemental data:
Net assets, end of period (millions).......................... $ 33.7 $ 30.5 $ 14.0
Ratio of expenses to average net assets:
Before expense reimbursement............................ 2.21%+ 2.24% 2.95%+
After expense reimbursement**........................... 2.12%+ 2.00% 2.00%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement............................ 0.16%+ (0.13%) (2.14)%+
After expense reimbursement**........................... 0.25%+ 0.11% (1.19)%+
Portfolio turnover rate....................................... 32.51% 21.94% 20.56%
Average commission rate paid per share........................ $0.0575 $0.0489 $0.0588
<FN>
#Unaudited.
*Commencement of operations.
**Including dividends on short sells.
+Annualized.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
NOTES TO FINANCIAL STATEMENTS at February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Lighthouse Contrarian 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 September 29, 1995. 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. Prior to November 12, 1997, the Fund was known
as the Lighthouse 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.
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 is relieved on a first-in, first-out basis. Dividend
income and distributions to shareholders are recorded on the
ex-dividend date.
D. Deferred Organization Costs. All of the expenses incurred by the
Advisor in connection with the organization and registration of the
Fund's shares will be borne by the Fund and are being amortized to
expense on a straight-line basis over a period of five years.
E. 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 - SECURITIES SOLD SHORT
Securities sold short represent obligations of the Fund to make a future
delivery of a specific security and, correspondingly, create an obligation to
purchase the security at prevailing market prices (or deliver the security, if
owned by the Fund) at the later delivery date. As a result, these short sales
create the risk that the Fund's ultimate obligation to satisfy the delivery
requirements may exceed the amount recorded in the accompanying statement of
assets and liabilities.
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
The amount deposited with brokers for securities sold short is essentially
restricted to the extent that it serves as deposits for securities sold short.
It is the Fund's policy to continuously monitor the credit standing of the
brokers with whom it conducts business.
NOTE 4 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the six months ended February 28, 1998, Lighthouse Capital Management,
Inc. (the "Advisor") provided the Fund with investment management services under
an Investment Advisory Agreement. The Advisor furnished 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 1.25% based upon the average daily net assets of the Fund. For
the six months ended February 28, 1998, the Fund incurred $207,877 in Advisory
fees.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to limit the Fund's total expenses to not more than 2.00% of average net
assets annually. Any such reductions made by the Advisor in its fees or payments
or reimbursement of expenses which are the Fund's obligation are subject to
reimbursement by the Fund within the following three years, provided the Fund is
able to effect such reimbursement and remain in compliance with applicable
limitations. For the six months ended February 28, 1998, the Advisor reimbursed
the Fund in the amount of $15,442. As of February 28, 1998, the cumulative
expense reimbursement from the Advisor to the Fund is $140,355.
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 six months ended February 28, 1998, the Fund incurred $33,260 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 5 - 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%
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
of the average daily net assets of the Fund. The Plan allows that approved
excess distribution costs can be resubmitted by the Distribution Coordinator in
the future years, up to a maximum of three subsequent fiscal years following
initial submission. No such excess costs were incurred during the current period
ended. The Fund paid $41,575 in distribution costs to the Advisor as the
appointed Distribution Coordinator for the six months ended February 28, 1998.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, other
than short-term investments, were $5,365,161 and $9,515,843, respectively.
Purchased options transactions during the six months ended February 28,
1998 are summarized as follows:
<TABLE>
Put Options Purchased
<S> <C>
Options outstanding, beginning of period................................ $ 841,598
Options purchased....................................................... 3,390,174
Options closed.......................................................... (1,748,001)
Options exercised....................................................... (485,715)
Options expired......................................................... (340,516)
--------
Options outstanding at February 28, 1998................................ 1,657,541
Unrealized depreciation at February 28, 1998............................ (540,029)
--------
Market value of options at February 28, 1998............................ $ 1,117,512
===========
Average fair market value of options for the
six months ended February 28, 1998................................... $ 1,511,763
===========
Net trading losses on options for the
six months ended February 28, 1998................................... $(1,133,243)
===========
</TABLE>
<PAGE>
Advisor
LIGHTHOUSE CAPITAL MANAGEMENT, INC.
10000 Memorial Drive, Suite 660
Houston, Texas 77024
(713) 688-6881
Account Inquiries (800) 282-2340
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 and Dividend Disbursing Agent
AMERICAN DATA SERVICES, INC.
P.O. Box 5536
Hauppauge, New York 11788-0132
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.
