June 6,1998
Securities and Exchange Commission
Attn: Filing Desk, Stop 1-4
450 Fifth Street, N.W.
Washington, DC 20549
Re: Professionally Managed Portfolios
File No. 811-5037
CIK No. 811030
Dear Sir or Madam:
On behalf of the above Registrant and pursuant to Rule 30b-2 under the
Investment Company Act of 1940, I enclose for filing via EDGAR, a copy of the
Annual Report to shareholders of the Osterweis Fund series of the Registrant for
the year ended March 31, 1998.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
/s/
Robert H. Wadsworth
<PAGE>
The Osterweis Fund
Annual Report
March 31, 1998
<PAGE>
The Osterweis Fund
April 24, 1998
Dear Shareholders,
During the first quarter of 1998, The Osterweis Fund (the "Fund") enjoyed very
strong returns. Net asset value per share increased 14.1%, compared to a 13.9%
total return for the Standard and Poor's 500 Index. Because the Fund was less
than fully invested in stocks, its above-average performance reflects a
significant outperformance from the stocks it did hold.
While the stock market, in our view, cannot continually rise at the same
exceptional rate that it has over the past three years, the factors that have
led to recent market strength are still intact. These include an expanding
economy, rising corporate profits, and a lack of inflationary pressure, coupled
with easy credit and low or declining interest rates. Eventually one or more of
these conditions will change and the market will suffer an inevitable
correction.
For a while last year, it appeared that the Asian turmoil would adversely affect
economic growth and corporate profits. This has proven partially true as some
U.S. companies selling to Asia or competing with Asian goods have seen lower
profits. On balance though, Asia's problems now appear to be a net positive for
the U.S., as they have not caused a slowdown in overall U.S. growth, but have
lessened inflationary pressures. As a result, the Fed has been able to maintain
an accommodative U.S. domestic monetary policy and low interest rates.
So while some U.S. companies have reported Asian-related earnings problems and
typically have seen their stocks trashed, in general, U.S. corporate profits
have remained solid. This, coupled with benign interest rates, has allowed the
stock market to flourish.
While we are certainly a bit cautious in the face of current stock market
valuations, we believe that it is not particularly productive to focus on
macroeconomic predictions, which, in our experience, are often wrong, but
instead to focus on specific investment opportunities. Despite the market's
generally rich valuation level, we are able to identify a number of attractively
priced situations with improving fundamentals. As a result, we continue to build
our portfolio with stocks specifically chosen for a combination of strong free
cash flows, excellent management and improving profit outlooks. Such companies
should prove rewarding investments over time, even if the overall market turns
less ebullient.
<PAGE>
Please let us know if we can answer any questions. We appreciate the trust you
have placed in us and want to be responsive to your investment needs.
Sincerely,
/s/
John S. Osterweis
The Osterweis Fund's average annual total return from its inception on October
1, 1993 through March 31, 1998 was 16.9%. The twelve months ending March 31,
1998 provided a total return of 45.8%. Results shown are past performance, which
should not be regarded as an indicator of future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed, may
be worth more or less than their cost. The Osterweis Fund is distributed by
First Fund Distributors, Inc., Phoenix, AZ 85018.
The Osterweis Fund
Vaslue of $10,000 vs. the S&P 500 Index
Average Annual Total Return
Period Ended March 31, 1998
1 Year.....................45.77%
Since Inception (10/1/93)..16.85%
Qtr Adj Fund Adj S&P
10/1/93 10000 10000
12/31/93 10444 10179.15
3/31/94 10303.7 9789.359
6/30/94 10354.8 9823.736
9/30/94 10760.9 10313.23
12/31/94 10323.3 10308.93
3/31/95 10706.8 11311.74
6/30/95 11401.3 12390.81
9/30/95 12106.1 13374.64
12/31/95 11849 14178.14
3/31/96 12376.1 14942.03
6/30/96 12990.7 15602.23
9/30/96 13268.9 16091.02
12/31/96 13758.4 17437.85
3/31/97 13812.1 17899.76
6/30/97 15903.2 21018.91
9/30/97 17350.9 22596.06
12/31/97 17645.4 23252.44
3/31/98 20134 26493.87
Past performance is not predictive of future performance.
The S&P 500 is a broad market-weighted average of U. S. blue-chip
companies. The index is unmanaged and returns include reinvested dividends.
<PAGE>
The Osterweis Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 89.7% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Banks: 3.1%
<S> <C> <C>
9,500 NationsBank Corp........................................................ $ 692,906
---------
Beverages - Alcoholic: 2.2%
10,800 Anheuser-Busch Companies, Inc........................................... 500,175
-------
Building and Heavy Construction: 3.2%
25,800 CalMat Company.......................................................... 712,725
-------
Business Services: 2.8%
23,666 A.C. Nielsen Corp....................................................... 625,670
-------
Computer Services: 2.7%
13,200 Electronic Data Systems Corp............................................ 605,550
-------
Consumer Products: 6.1%
11,400 Kimberly-Clark Corp..................................................... 571,425
54,000 Playtex Products, Inc................................................... 796,500
-------
1,367,925
---------
Cosmetics: 3.2%
9,240 Avon Products, Inc...................................................... 720,720
-------
Energy: 9.4%
38,400 Calpine Corp............................................................ 684,000
22,000 Pioneer Natural Resources Company....................................... 547,250
42,729 Snyder Oil Corp......................................................... 870,603
-------
2,101,853
---------
Financial Services: 3.3%
9,400 Associates First Capital Corp., Class A................................. 742,600
-------
Insurance: 3.8%
12,700 HSB Group, Inc.......................................................... 854,075
-------
See accompanying Notes to Financial Statements.
<PAGE>
The Osterweis Fund
SCHEDULE OF INVESTMENTS at March 31, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing - Diversified: 2.2%
5,900 W.R. Grace & Company.................................................... $ 493,756
---------
Media and Broadcasting: 9.5%
29,119 CBS Corp................................................................ 988,226
12,500 Scandinavian Broadcasting System SA, ADR*............................... 412,500
23,400 Westwood One, Inc....................................................... 725,400
-------
2,126,126
---------
Newspapers and Publishing: 2.8%
43,100 PRIMEDIA, Inc........................................................... 633,031
-------
Pharmaceuticals: 6.6%
22,000 Forest Laboratories, Inc................................................ 794,750
50,000 Sequus Pharmaceuticals, Inc............................................. 528,125
13,000 VIVUS, Inc.............................................................. 152,750
-------
1,475,625
---------
Real Estate: 7.9%
49,800 Catellus Development Corp............................................... 924,413
23,800 Crescent Real Estate Equities Company................................... 856,800
-------
1,781,213
---------
Retail: 13.8%
28,600 Rite Aid Corp........................................................... 979,550
95,000 Sunglass Hut International, Inc......................................... 997,500
23,704 Tandy Corp.............................................................. 1,114,088
---------
3,091,138
---------
Telecommunications: 7.1%
7,900 Cellular Communications International, Inc.............................. 537,200
15,320 CoreComm, Inc........................................................... 255,174
18,267 NTL Inc................................................................. 790,048
-------
1,582,422
---------
Total Common Stocks (cost $12,005,990).................................. 20,107,510
----------
See accompanying Notes to Financial Statements.
<PAGE>
The Osterweis Fund
SCHEDULE OF INVESTMENTS at March 31, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
Telecommunications: 1.4%
7,785 AirTouch Communications, Inc., 6.00%, Class B (cost $193,727)........... $ 321,131
---------
WARRANTS: 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Oil/Gas - Exploration: 0.2%
25,928 Patina Oil & Gas Corp., Exp. 5/2/2001 (cost $46,994).................... 37,272
------
U.S. GOVERNMENT AND
Principal Amount GOVERNMENT AGENCY OBLIGATIONS: 4.2%
- ------------------------------------------------------------------------------------------------------------------------------------
$ 350,000 FFCB, 5.47%, 4/1/1998................................................... 350,000
300,000 FHLD, 5.50%, 6/10/1998.................................................. 296,862
300,000 FFCB, 5.46%, 10/1/1998.................................................. 300,000
-------
Total U. S. Government and Government Agency Obligations
(cost $946,792)......................................................... 946,862
-------
CONVERTIBLE CORPORATE BONDS: 1.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Oil/Gas - Exploration: 1.8%
414,000 Kelley Oil & Gas Partners, 7.875%, 12/15/1999 (cost $368,217)........... 405,720
-------
REPURCHASE AGREEMENT: 4.1%
- ------------------------------------------------------------------------------------------------------------------------------------
928,000 Star Bank Repurchase Agreement, 5.00%, dated 3/31/1998,
due 4/1/1998, collateralized by $949,763 GNMA, due
5/20/2024 (proceeds $928,129) (cost $928,000)........................... 928,000
-------
Total Investment in Securities (cost $14,489,720+): 101.4%.............. 22,746,495
Liabilities in excess of Other Assets: (1.4)%........................... (305,613)
--------
Total Net Assets: 100.0% ............................................... $22,440,882
===========
<FN>
*Non-income producing security.
See accompanying Notes to Financial Statements.
<PAGE>
The Osterweis Fund
SCHEDULE OF INVESTMENTS at March 31, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
+At March 31, 1998, the cost of securities for Federal tax purposes was the same
as the basis for financial reporting. Unrealized appreciation and depreciation
of securities were as follows:
Gross unrealized appreciation........................................... $ 8,671,778
Gross unrealized depreciation........................................... (415,003)
--------
Net unrealized appreciation.................................... $ 8,256,775
===========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
The Osterweis Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $14,489,720)................................. $22,746,495
Cash ................................................................................. 35
Dividends and interest receivable .................................................... 30,775
Deferred organization costs............................................................ 3,930
-----
Total assets .............................................................. 22,781,235
----------
LIABILITIES
Payables:
Advisory fees.................................................................... 18,613
Administration fee............................................................... 3,667
Securities purchased............................................................. 300,000
Accrued expenses ...................................................................... 18,073
------
Total liabilities.......................................................... 340,353
-------
NET ASSETS ................................................................................ $22,440,882
===========
Net asset value, offering and redemption price per share
($22,440,882/1,320,805 shares outstanding;
unlimited number of shares authorized without par value) ........................ $16.99
======
COMPONENTS OF NET ASSETS
Paid-in capital........................................................................ $13,743,133
Undistributed net realized gain on investments......................................... 440,974
Net unrealized appreciation on investments............................................. 8,256,775
---------
Net assets ...................................................................... $22,440,882
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
The Osterweis Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Dividends........................................................................ $ 201,711
Interest ........................................................................ 140,229
Other ........................................................................... 14,726
------
Total income .............................................................. 356,666
-------
Expenses
Advisory fees.................................................................... 190,006
Administration fee............................................................... 38,001
Fund accounting fees............................................................. 17,301
Audit fee........................................................................ 15,501
Custody fees..................................................................... 10,674
Transfer agent fees.............................................................. 9,885
Amortization of deferred organization costs...................................... 7,753
Trustee fees..................................................................... 6,102
Registration fees................................................................ 5,177
Reports to shareholders.......................................................... 5,001
Miscellaneous.................................................................... 5,001
Legal fees....................................................................... 4,501
Insurance........................................................................ 2,226
-----
Total expenses............................................................. 317,129
Add: reimbursement to Advisor.............................................. 15,381
------
Net expenses............................................................... 332,510
-------
Net investment income ............................................. 24,156
------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .......................................... 1,814,280
Net change in unrealized appreciation on investments .................................. 5,323,212
---------
Net realized and unrealized gain on investments ........................... 7,137,492
---------
Net increase in net assets resulting from operations ................ $ 7,161,648
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
The Osterweis Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
March 31, 1998 March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment income......................................................... $ 24,156 $ 109,972
Net realized gain from security transactions ................................. 1,814,280 576,542
Net change in unrealized appreciation on investments.......................... 5,323,212 1,224,750
--------- ---------
Net increase in net assets resulting from operations ................... 7,161,648 1,911,264
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................................... (57,823) (113,260)
Net realized gain from security transactions.................................. (1,810,405) (188,621)
---------- --------
Total distributions to shareholders .................................... (1,868,228) (301,881)
---------- --------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets derived from net change in
outstanding shares (a) .................................................... 597,520 (1,943,533)
------- ----------
Total increase (decrease) in net assets ................................ 5,890,940 (334,150)
NET ASSETS
Beginning of year............................................................. 16,549,942 16,884,092
---------- ----------
End of year ................................................................. $22,440,882 $16,549,942
=========== ===========
<FN>
(a) A summary of capital shares transactions is as follows:
Years Ended Year Ended
March 31, 1998 March 31, 1997
Shares Value Shares Value
Shares sold ......................................... 107,150 $ 1,649,762 329,346 $ 4,104,926
Shares issued in reinvestment of distribution........ 127,199 1,834,205 24,407 297,077
Shares redeemed ..................................... (198,090) (2,886,447) (507,580) (6,345,536)
-------- ---------- -------- ----------
Net increase (decrease) ............................. 36,259 $ 597,520 (153,827) $(1,943,533)
====== ========= ======== ===========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
The Osterweis Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, October 1, 1993*
through
1998 1997 1996 1995 March 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.88 $11.74 $10.33 $10.28 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ............ 0.02 0.08 0.12 0.28 0.08
Net realized and unrealized
gain on investments ........... 5.61 1.27 1.48 0.11 0.22
---- ---- ---- ---- ----
Total from investment operations..... 5.63 1.35 1.60 0.39 0.30
---- ---- ---- ---- ----
Less distributions:
From net investment income........ (0.05) (0.08) (0.19) (0.25) (0.02)
From net capital gains ........... (1.47) (0.13) 0.00 (0.09) 0.00
----- ----- ---- ----- ----
Total distributions.................. (1.52) (0.21) (0.19) (0.34) (0.02)
----- ----- ----- ----- -----
Net asset value, end of period ...... $16.99 $12.88 $11.74 $10.33 $10.28
====== ====== ====== ====== ======
Total return ........................ 45.77% 11.60% 15.59% 3.91% 3.04%
Ratios/supplemental data:
Net assets, end of period (millions). $ 22.4 $ 16.5 $ 16.9 $ 9.8 $ 5.1
Ratio of expenses to average net assets:
Before expense reimbursement/
recoupment.................... 1.67% 1.75% 1.77% 2.32% 3.73%+
After expense reimbursement/
recoupment.................... 1.75% 1.75% 1.75% 1.74% 1.75%+
Ratio of net investment income to
average net assets:
Before expense reimbursement/
recoupment................... 0.21% 0.63% 1.47% 2.74% 0.42%+
After expense reimbursement/
recoupment.................... 0.13% 0.63% 1.49% 3.32% 2.40%+
Portfolio turnover rate ............. 26.27% 41.30% 57.32% 28.65% 34.97%
Average commission rate paid
per share++........................ $.0709 $.0551 - - -
<FN>
*Commencement of operations.
+Annualized.
++For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate paid per share for security trades on
which commissions are charged. This amount may vary from period to period and
fund to fund depending on the mix of trades executed in various markets where
trading practices and commission rate structures may differ.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
The Osterweis Fund
NOTES TO FINANCIAL STATEMENTS at March 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Osterweis 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 October 1,
1993. The investment objective of the Fund is to attain long-term total returns.
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. Security Transactions, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. The cost of securities owned on realized
transactions are relieved on a first-in, first-out basis. Dividend
income and distributions to shareholders are recorded on the
ex-dividend date.
D. 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.
<PAGE>
The Osterweis Fund
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended March 31, 1998, Osterweis 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 1.00% based upon the average daily net assets of the Fund. For
the year ended March 31, 1998, the Fund incurred $190,006 in Advisory fees.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund to the extent neccessary to
limit the Fund's aggregate annual operating expenses to 1.75% of average net
assets. Any such reductions made by the Advisor in its fees or payments or
reimbursement of expenses which are the Fund's obligation may be 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 year ended March 31, 1998, the Advisor recouped $15,381 of
such expenses it previously reimbursed to the Fund, and at March 31, 1998, the
remaining contingent amount reimbursable to the Advisor totaled $53,881.
Investment Company Administration Corporation (the "Administrator") acts
as the Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Fund's
expense accruals. For its services, the Administrator receives a monthly fee at
the following annual rate:
Under $15 million $30,000
$15 to $50 million 0.20% of average daily net assets
$50 to $100 million 0.15% of average daily net assets
$100 to $150 million 0.10% of average daily net assets
Over $150 million 0.05% of average daily net assets
For the year ended March 31, 1998, the Fund incurred $38,001 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. As of March 31, 1998, the Fund
shares owned by the Fund's Advisor and its affiliates totaled 181,120 shares,
out of 1,320,805.
<PAGE>
The Osterweis Fund
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, other
than U.S. Government and Government Agency obligations and short-term
investments, for the year ended March 31, 1998, were $4,770,652 and $5,324,086,
respectively.
For the year ended March 31, 1998, the cost of purchases and the proceeds
from sales of U.S. Government and Government Agency obligations, excluding
short-term securities, were $0 and $858,981, respectively.
NOTE 5 - YEAR 2000 ISSUE (Unaudited)
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems it uses and those used by the Fund's brokers and other major
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 issue". Management is assessing its computer systems and the systems
compliance issues of its brokers and major service providers. Based on
information available to management, the Fund's brokers and major service
providers are taking steps that they believe are reasonably designed to address
the Year 2000 issue with respect to computer systems that they use. At this
time, however, there can be no assurance that these steps will be sufficient,
and the failure of a timely completion of all necessary procedures could have a
material adverse effect on the Fund's operations. Management will continue to
monitor the status of and the Fund's exposure to, this issue.
<PAGE>
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders of
The Osterweis Fund and the
Board of Trustees of Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities of
The Osterweis Fund (the "Fund"), a series of Professionally Managed Portfolios,
including the schedule of investments, as of March 31, 1998, and the related
statement of operations for the year then ended and the statement of changes in
net assets for each of the two years in the period then ended and the financial
highlights for each of the three years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the year ended March 31, 1995 and for the period from October 1,
1993 (commencement of operations) through March 31, 1994 were audited by other
auditors whose report dated May 16, 1995 expressed an unqualified opinion on
those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Osterweis Fund as of March 31, 1998, the results of its operations for the year
then ended, and the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
May 1, 1998
<PAGE>
Advisor
Osterweis Capital Management, Inc.
One Maritime Plaza, Suite 1201
San Francisco, California 94111
================================================================================
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261E
Phoenix, Arizona 85018
================================================================================
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
================================================================================
Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
================================================================================
Independent Auditors
Ernst & Young LLP
515 South Flower Street, 24th Floor
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.
