Leonetti Balanced Fund
Semi-Annual Report
December 31, 1997
<PAGE>
January, 1998
Dear Shareholder:
The year of 1997 proved to be an outstanding year for the Leonetti Balanced
Fund. Your fund gained 20.85 percent for the year, outperforming the various
balanced indices that it is measured against. The assets of your fund have grown
well above $12 million.*
Stocks and long term bonds enjoyed a robust year, even though many factors
worked to erode the gains in the fourth quarter. The fourth quarter became a
classic case of two steps forward and two steps backward for the stock market,
resulting in little progress during the last three months. The increased
volatility, however, sent some investors to the sidelines and, for the rest of
us, it created a very rocky road.
Asia became the catalyst for significant selling in the stock market during
the fourth quarter of 1997. As worries grew that the financial problems would
escalate from a currency crisis into a full blown economic crisis, institutions
began to bail out of stocks of companies that had any exposure to the region.
Technology and telecommunication stocks were sold off, as were machinery,
consumer goods and many others. Following the usual path of excess that the
stock market experiences from time to time, many stocks were sold beyond what
was warranted. Adding fuel to the fire, a few companies used the Asia situation
as a reason or an excuse for forecasting poor results that would have probably
occurred with or without Asia. After July's big run up in stock prices, many
stocks were extended in price and this also contributed to the selling as panic
took hold.
The Dow Industrials hit their 1997 high in the first week of August, while
the broad market didn't top until early in October. As the Asia fear spread, the
stock market witnessed the first halt in trading on October 27 when the Dow
Industrials dropped 554 points or 7.2 percent for the day. This overreaction
coupled with a flight to quality, namely long-term US Treasury bonds, formed a
bottom in the stock market that has held through many days of follow-up selling,
especially in mid-November and mid-December. The Dow Industrials finished the
year 4.3 percent off of its August high, while the Nasdaq Composite finished
10.1 percent off of its October high. The S&P 500 faired the best. It finished
only 1.4 percent off of its high, mainly due to the strength in financial,
airline and utility stocks in the last two months of the year.
The Asia situation did accomplish two things. The Federal Reserve was able
to restrain from raising interest rates, knowing that any increase would bring
added turmoil to the unsteady situation in Asia. Since that time, our economy
has gradually slowed, while inflation has remained in check, removing the need
at this point to raise rates. It also has solidified China's chances of its
economy becoming the second most powerful in the world as we enter the next
century.
<PAGE>
Your fund's ten largest stock holdings as of December 31, 1997 are: Lucent
Technologies, General Electric, Travelers Group, Schlumberger, America Online,
International Business Machines, Peoplesoft, Chevron, Walt Disney and Compaq
Computer. The stock portfolio is very well diversified and is currently weighted
towards large capitalization stocks.
Our outlook for the first half of 1998 is probably rosier than most. Even
with all the known worries, the low interest rate, low inflation and good growth
economy that we have been experiencing should translate into significant
advances in stock prices for the first half of 1998. As always it will be
interesting.
Thank you for being a shareholder in the fund. The new year will be
exciting and the Leonetti Balanced Fund's outlook is very bright.
Cordially,
LEONETTI & ASSOCIATES, INC.
*Past performance does not guarantee future results. Share value and returns
fluctuate and you may have a gain or loss when you sell your shares. Performance
results for the Leonetti Balanced Fund and the Lipper Balanced Index include
reinvested dividends, interest and other earnings.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at December 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 72.7% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Banks: 1.8%
<S> <C> <C>
3,307 Commerce Bancshares, Inc................................................ $ 224,049
---------
Computer - Hardware: 2.3%
5,000 Compaq Computer Corp.................................................... 282,188
-------
Computer - Mainframe: 2.5%
3,000 International Business Machines Corp.................................... 313,687
-------
Computer - Network: 2.0%
4,500 Cisco Systems, Inc.*.................................................... 250,875
-------
Computer - Online Services: 2.9%
4,000 America OnLine, Inc.*................................................... 356,750
-------
Computer - Retailer: 1.2%
5,000 CompUSA, Inc.*.......................................................... 155,000
-------
Computer - Software: 2.5%
8,000 PeopleSoft, Inc.*....................................................... 312,000
-------
Diversified Operations: 6.6%
4,000 Canadian Pacific, Ltd................................................... 109,000
6,000 General Electric Company................................................ 440,250
6,000 Tyco International, Ltd................................................. 270,375
-------
819,625
-------
Electronics - Manufacturing: 2.3%
4,000 Intel Corp.............................................................. 281,000
-------
Financial: 3.4%
6,000 First Security Corp. - Delaware......................................... 251,250
4,000 SunAmerica, Inc......................................................... 171,000
-------
422,250
-------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at December 31, 1997 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Food: 6.3%
4,000 Campbell Soup Company................................................... $ 232,500
5,250 Flowers Industries, Inc................................................. 107,953
5,000 H.J. Heinz Company...................................................... 254,062
5,000 PepsiCo, Inc............................................................ 182,187
-------
776,702
-------
Health Care Products: 2.1%
4,000 Johnson & Johnson....................................................... 263,500
-------
Insurance: 4.7%
4,000 Conseco, Inc............................................................ 181,750
7,500 Travelers Group, Inc.................................................... 404,063
-------
585,813
-------
Machinery: 2.0%
5,000 Caterpillar, Inc........................................................ 242,813
-------
Manufacturing - Large Appliances: 1.2%
4,000 Maytag Corp............................................................. 149,250
-------
Media - Newspapers: 2.0%
4,000 Tribune Company......................................................... 249,000
-------
Medical: 2.0%
4,000 Schering-Plough Corp.................................................... 248,500
-------
Multimedia: 2.4%
3,000 Walt Disney Company..................................................... 297,188
-------
Networking Products: 1.2%
4,000 Adaptec, Inc.*.......................................................... 148,500
-------
Office Automation and Equipment: 1.8%
3,000 Xerox Corp.............................................................. 221,437
-------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at December 31, 1997 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Oil: 4.4%
4,000 Chevron Corp............................................................ $ 308,000
4,000 Exxon Corp.............................................................. 244,750
-------
552,750
-------
Oil Well Services and Equipment: 3.2%
5,000 Schlumberger Ltd........................................................ 402,500
-------
Publishing: 0.9%
3,000 Scholastic Corp.*....................................................... 112,500
-------
Retail - Drug Stores: 1.0%
4,000 Walgreen Company........................................................ 125,500
-------
Retail - Mail Order: 0.7%
4,000 Fingerhut Companies, Inc................................................ 85,500
------
Retail - Office Supply: 0.5%
4,000 OfficeMax, Inc.*........................................................ 57,000
------
Retail - Supermarkets: 0.9%
3,000 Dominick's Supermarkets, Inc.*.......................................... 109,500
-------
Telecommunication Services: 1.3%
4,000 AirTouch Communications, Inc.*.......................................... 166,250
-------
Telecommunications - Equipment: 6.2%
4,000 Advanced Fibre Communications, Inc.*.................................... 116,500
5,592 Lucent Technologies, Inc................................................ 446,661
3,000 Nokia Corp. ADR......................................................... 208,500
-------
771,661
-------
Wireless Equipment: 0.4%
4,000 Specialty Telecontructors, Inc.*........................................ 51,000
------
Total Common Stocks (cost $6,977,418)................................... 9,034,288
---------
<PAGE>
Leonetti Balanced Fund
U.S. GOVERNMENT OBLIGATIONS: 27.0%
$350,000 U.S. Treasury Note, 5.625%, due 1/31/1998............................... $ 350,110
400,000 U.S. Treasury Note, 5.125%, due 2/28/1998............................... 399,875
400,000 U.S. Treasury Note, 5.875%, due 4/30/1998............................... 400,750
350,000 U.S. Treasury Note, 5.875%, due 8/15/1998............................... 350,657
400,000 U.S. Treasury Note, 5.875%, due 1/31/1999............................... 401,000
300,000 U.S. Treasury Note, 5.000%, due 2/15/1999............................... 297,938
350,000 U.S. Treasury Note, 6.000%, due 10/15/1999.............................. 352,078
400,000 U.S. Treasury Note, 5.875%, due 2/15/2000............................... 401,751
400,000 U.S. Treasury Note, 6.125%, due 7/31/2000............................... 404,125
--- -------
Total U.S. Government Obligations (cost $3,345,937) ... 3,358,284
---------
REPURCHASE AGREEMENT: 1.2%
- ------------------------------------------------------------------------------------------------------------------------------------
152,000 Star Bank Repurchase Agreement, 5.50%, dated 12/31/97,
due 1/2/98, collateralized by $155,000 GNMA,
(proceeds $152,046) (cost $152,000)..................................... 152,000
-------
Total Investment in Securities (cost $10,475,355+): 100.9%.............. 12,544,572
Liabilities in excess of Other Assets: (0.9%)........................... (115,709)
--------
Total Net Assets: 100.0% ............................................... $12,428,863
===========
<FN>
*Non-income producing.
+ At December 31, 1997, 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........................................... $ 2,268,524
Gross unrealized depreciation.......................................... (199,307)
--------
Net unrealized appreciation.................................... $ 2,069,217
===========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $10,475,355) ................................ $12,544,572
Cash................................................................................... 341
Receivables:
Fund shares sold................................................................. 250
Dividends and interest........................................................... 74,191
Deferred organization costs............................................................ 16,075
Prepaid expenses....................................................................... 3,500
-----
Total assets .............................................................. 12,638,929
----------
LIABILITIES
Payables:
Advisory fees.................................................................... 11,989
Administration fee............................................................... 2,550
Fund shares redeemed............................................................. 186,768
Accrued expenses....................................................................... 8,759
-----
Total liabilities.......................................................... 210,066
-------
NET ASSETS .............................................................................. $12,428,863
===========
Net asset value, offering and redemption price per share
($12,428,863/1,001,245 shares outstanding;
unlimited number of shares authorized without par value) ........................ $12.41
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $10,317,641
Distribution in excess of net investment income........................................ (1,704)
Undistributed net realized gain on investments......................................... 43,709
Net unrealized appreciation on investments............................................. 2,069,217
---------
Net assets ...................................................................... $12,428,863
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Six Months Ended December 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Interest ........................................................................ $ 96,793
Dividends........................................................................ 48,285
Other............................................................................ 1,246
-----
Total income .............................................................. 146,324
-------
Expenses
Advisory fees ................................................................... 60,960
Administration fee............................................................... 15,123
Registration fees................................................................ 10,226
Fund accounting fees............................................................. 8,166
Audit fee........................................................................ 6,814
Transfer agent fees.............................................................. 6,569
Custody fees..................................................................... 4,537
Amortization of deferred organization costs...................................... 3,025
Trustee fees..................................................................... 2,017
Legal fees....................................................................... 1,982
Reports to shareholders.......................................................... 1,765
Miscellaneous.................................................................... 1,661
Insurance........................................................................ 206
---
Total expenses............................................................. 123,051
-------
Net investment income ............................................. 23,273
------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .......................................... 682,340
Net change in unrealized appreciation on investments .................................. 405,368
-------
Net realized and unrealized gain on investments ................................. 1,087,708
---------
Net increase in net assets resulting from operations ................ $ 1,110,981
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
December 31, 1997* June 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment income....................................................... $ 23,273 $ 48,866
Net realized gain from security transactions ............................... 682,340 329,099
Net change in unrealized appreciation on investments........................ 405,368 1,103,880
------- ---------
Net increase in net assets resulting from operations ................. 1,110,981 1,481,845
--------- ---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................................... (30,060) (81,667)
Net realized gain on investments............................................ (972,962) -0-
-------- -
Total dividends and distributions to shareholders .................... (1,003,022) (81,667)
---------- -------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets derived from net change
in outstanding shares (a)................................................ 1,037,683 (204,172)
--------- --------
Total increase in net assets ......................................... 1,145,642 1,196,006
NET ASSETS
Beginning of period ........................................................ 11,283,221 10,087,215
---------- ----------
End of period (including undistributed net investment
income of $5,083 at June 30, 1997)...................................... $12,428,863 $11,283,221
=========== ===========
<FN>
(a) A summary of capital shares transactions is as follows:
Six Months Ended Year Ended
December 31, 1997* June 30, 1997
Shares Value Shares Value
Shares sold ...................................... 71,398 $ 931,380 109,814 $1,221,502
Shares issued in reinvestment of distribution..... 81,714 994,460 7,321 80,379
Shares redeemed................................... (68,707) (888,157) (134,735) (1,506,053)
------- -------- -------- ----------
Net increase (decrease) .......................... 84,405 $1,037,683 (17,600) $ (204,172)
====== ========== ======= ==========
*Unaudited.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Year August 1, 1995*
Ended Ended through
December 31, 1997# June 30, 1997 June 30, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ....................... $12.31 $10.80 $10.00
------ ------ ------
Income from investment operations:
Net investment income ................................ .08 .06 .09
Net realized and unrealized gain on investments ...... 1.20 1.54 .76
---- ---- ---
Total from investment operations............................ 1.28 1.60 .85
---- ---- ---
Less distributions:
From net investment income............................ (.09) (.09) (.05)
From net capital gains................................ (1.09) -0- -0-
----- - -
Total distributions......................................... (1.18) (.09) (.05)
----- ---- ----
Net asset value, end of period ............................. $12.41 $12.31 $10.80
====== ====== ======
Total return ............................................... 9.85% 14.91% 8.46%++
Ratios/supplemental data:
Net assets, end of period (millions)........................ $ 12.4 $ 11.3 $ 10.1
Ratio of expenses to average net assets..................... 2.02%+ 2.29% 2.26%+
Ratio of net investment income to average net assets........ 0.38%+ 0.47% 1.02%+
Portfolio turnover rate .................................... 27.58% 119.75% 42.16%
Average commission rate paid per share...................... $.0600 $.0600 $.0600
<FN>
#Unaudited.
*Commencement of operations.
+Annualized.
++Not Annualized.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
NOTES TO FINANCIAL STATEMENTS at December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Leonetti Balanced Fund (the "Fund") is a diversified series of shares
of beneficial interest of Professionally Managed Portfolios (the "Trust"), which
is registered under the Investment Company Act of 1940 (the "1940 Act") as an
open-end management investment company. The Fund began operations on August 1,
1995. The investment objective of the Fund is to seek total return through a
combination of income and capital growth, consistent with preservation of
capital. The Fund seeks to achieve its objective by investing primarily in
equity securities and high quality fixed-income obligations.
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 are then valued at amortized cost based upon the value
on such date unless the Board determines during such 60 day period
that this amortized cost basis does not represent fair value.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no federal income tax provision is
required.
C. Security Transactions, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. The cost of securities owned on realized
transactions 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. The Fund has incurred expenses of
$30,000 in connection with the organization of the Fund. These costs
have been deferred and are being amortized on a straight-line basis
over a period of sixty months from the date the Fund commenced
investment operations.
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 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 (Unaudited), Continued
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the six months ended December 31, 1997, Leonetti & Associates, Inc.
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space and certain administrative services, 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 1.00% based upon the average daily net
assets of the Fund. For the six months ended December 31, 1997, the Fund
incurred $60,960 in advisory fees.
The Fund is responsible for its own operating expenses. The Advisor may
reduce its fees or make reimbursement to the Fund at any time in order to reduce
the Fund's expenses. 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 three years, provided the Fund is
able to effect such reimbursement and remain in compliance with any expense
limitations then in effect.
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
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, other
than U.S. Government obligations and short-term investments, for the six months
ended December 31, 1997 were $3,469,621 and $3,225,272, respectively.
<PAGE>
Advisor
Leonetti & Associates, Inc.
1130 Lake Cook Road, Suite 300
Buffalo Grove, Illinois 60089
(800) 454-0999
--
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
--
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
--
Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
--
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 the shareholders of the Fund and may not be
used as sales literature unless preceded or accompanied by a current
prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Statements and other information herein are dated and
are subject to change.
