Leonetti Balanced Fund
Annual Report
June 30, 1998
<PAGE>
Leonetti Balanced Fund
July, 1998
Dear Shareholder:
The Leonetti Balanced Fund has enjoyed the first half of the calendar
year 1998, gaining 12.97%, and is ahead 24.10% for the twelve month period
ending June 30, 1998. Your Fund has been receiving positive recognition from
various mutual fund tracking services. Recently, Morningstar ranked us as the
20th best performing balanced fund out of a total of 680 such funds for the
twelve months ending June 30, 1998. The assets of your Fund have grown above $15
million.
The stock market spent much of the second quarter digesting the large
gains achieved in the first quarter. From the highs reached in early April, the
market experienced a significant correction that hurt the broad market much more
than the decline that the various indices experienced. In late June, the stock
market gathered support and appears to have entered the very beginnings of a
switch back to a very sustainable uptrend. Bonds continued to do well in our low
interest rate, low inflation and slower growth environment.
Asia continued to dominate the financial news as the focus moved from
country to country with the latest concern being Japan. As the economic damage
became more known, it became quite obvious that the Federal Reserve would have
to hold the line on interest rates in order to avoid exacerbating the economic
crisis in Asia. The troubles in Asia brought many doom and gloom pundits out of
their closets predicting worldwide depression and a return to the 1930's, even
as economic steps were being taken to correct or get the most troubled economies
back on track. We don't believe investors should ignore the troubles in Asia,
but we don't think investors should penalize themselves either by overreacting.
Your Fund's ten largest stock holdings as of June 30,1998 were Lucent
Technologies, IBM Corp., General Electric, American Express, Procter & Gamble,
America Online, Cisco Systems, Tyco International, AirTouch Communications and
Colgate-Palmolive.
The outlook for both stocks and bonds in the second half of the year
should be very good. We especially believe the third quarter will be very
strong. Interest rates appear ready to continue their decline towards 5 percent
on the long bond.
We would like to welcome our many new shareholders to the Leonetti
Balanced Fund and thank all of you for being shareholders in the Fund.
Cordially,
Leonetti & Associates, Inc.
<PAGE>
Leonetti Balanced Fund
Value of a $10,000 invetsment in the Lipper Balanced Fund vs. the Wilshire
5000 + Salomon + US Treas Index and the Lipper Balanced Index
Qtr Fund Blended Lipper
8/1/95 10,000 10,000 10,000
9/30/95 9,940 10,375 10,354
12/31/95 10,605 10,842 10,817
3/31/96 10,936 11,187 11,059
6/30/96 10,846 11,535 11,283
9/30/96 10,856 11,821 11,579
12/31/96 11,330 12,456 12,224
3/31/97 11,218 12,509 12,277
6/30/97 12,464 13,994 13,586
9/30/97 13,709 15,030 14,465
12/31/97 13,691 15,342 14,675
3/31/98 14,993 16,736 15,834
6/30/98 15,468 17,085 16,111
Average Annual Total Return
Period Ended June 30, 1998
1 Year............................. 24.10%
Cumulative Since Inception (8/1/95) 54.68%
Annualized Total Return............ 16.14%
Past performance is not predictive of future performance.
The Lipper Balanced Index is an equally weighted performance index, of the
largest qualifying funds in the Lipper category. The Wilshire 5000 + Salomon +
US Treas Index is a blend of the Wilshire 5000 Equity Index (65%), the Salomon
Broad Investment Grade Bond Index (25%) and the 90-day U.S. Government Treasury
Bill (10%). The Wilshire 5000 measures the performance of all equity securities
issued by companies with headquarters in the U.S. The Salomon Broad Bond Index
consists of U.S. Treasury and Government-sponsored agency bonds with a maturity
of one year or longer and a minimum of one-hundred million dollars outstanding.
The indices are unmanaged and returns include reinvested dividends.
The S&P 500 Index (dividends reinvested) has been removed from the above chart.
The Wilshire 5000 + Salomon + US Treas Index and Lipper Balanced Index more
appropriately reflects our investment style. As a broad market reference, the
average annualized total return for the S&P 500 Index over the time period shown
was 29.91%.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 63.6% Market Value
Aerospace / Defense: 1.7%
<S> <C> <C>
6,000 AlliedSignal, Inc....................................................... $ 266,250
---------
Agricultural Biotechnology: 2.9%
6,000 AgriBioTech, Inc.*...................................................... 166,125
5,000 Monsanto Company........................................................ 279,375
-------
445,500
-------
Banks: 1.6%
4,960 Commerce Bancshares, Inc................................................ 242,110
-------
Communication - Equipment: 7.3%
11,184 Lucent Technologies, Inc................................................ 930,369
6,000 Qwest Communications International, Inc.*............................... 209,250
-------
1,139,619
---------
Computer - Hardware: 4.6%
5,000 Compaq Computer Corp.................................................... 141,875
5,000 International Business Machines Corp.................................... 574,062
-------
715,937
-------
Computer - Network: 2.7%
4,500 Cisco Systems, Inc.*.................................................... 414,281
-------
Computer - Online Services: 2.7%
4,000 America OnLine, Inc.*................................................... 424,000
-------
Consumer - Household Products: 5.2%
4,000 Colgate-Palmolive Company............................................... 352,000
5,000 Procter & Gamble Company................................................ 455,313
-------
807,313
-------
Diversified Operations: 6.0%
6,000 General Electric Company................................................ 546,000
6,000 Tyco International, Ltd................................................. 378,000
-------
924,000
-------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at June 30, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Electronics - Semiconductors: 5.2%
5,000 Altera Corp.*........................................................... $ 147,812
6,000 Applied Materials, Inc.*................................................ 177,000
4,000 Intel Corp.............................................................. 296,500
5,000 Novellus Systems, Inc.*................................................. 178,438
-------
799,750
-------
Financial: 2.9%
4,000 American Express Company................................................ 456,000
- -------
Food: 0.7%
5,250 Flowers Industries, Inc................................................. 107,297
-------
Machinery: 3.2%
6,000 Caterpillar, Inc........................................................ 317,250
5,000 Dover Corp.............................................................. 171,250
-------
488,500
-------
Manufacturing - Large Appliances: 1.3%
4,000 Maytag Corp............................................................. 197,500
-------
Media - Newspapers: 1.8%
4,000 Tribune Company......................................................... 275,250
-------
Oil: 4.0%
4,000 Chevron Corp............................................................ 332,250
4,000 Exxon Corp.............................................................. 285,250
-------
617,500
-------
Retail - Apparel: 1.1%
68 Abercrombie & Fitch Company, Class A*................................... 2,992
5,000 Limited, Inc............................................................ 165,625
-------
168,617
-------
Retail - General: 0.9%
4,000 Fingerhut Companies, Inc................................................ 132,000
-------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at June 30, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Retail - Office Supply: 0.6%
6,000 OfficeMax, Inc.*........................................................ $ 99,000
--------
Retail - Supermarkets: 2.8%
5,000 Dominick's Supermarkets, Inc.*.......................................... 222,813
5,000 Kroger Company*......................................................... 214,375
-------
437,188
-------
Telecommunication Services: 2.3%
6,000 AirTouch Communications, Inc.*.......................................... 350,625
-------
Transportation Services: 2.1%
4,000 AMR Corp.*.............................................................. 333,000
-------
Total Common Stocks (cost $7,136,544)................................... 9,841,237
---------
Principal Amount U.S. GOVERNMENT OBLIGATIONS: 28.4%
- ------------------------------------------------------------------------------------------------------------------------------------
$ 350,000 U.S. Treasury Note, 5.875%, due 8/15/1998............................... 350,328
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............................... 299,157
350,000 U.S. Treasury Note, 6.000%, due 10/15/1999.............................. 352,078
900,000 U.S. Treasury Note, 5.375%, due 1/31/2000............................... 898,032
400,000 U.S. Treasury Note, 5.875%, due 2/15/2000............................... 402,250
800,000 U.S. Treasury Note, 5.500%, due 2/29/2000............................... 800,001
400,000 U.S. Treasury Note, 6.125%, due 7/31/2000............................... 404,875
500,000 U.S. Treasury Note, 5.250%, due 1/31/2001............................... 497,032
-------
Total U.S. Government Obligations (cost $4,394,723) ... 4,404,753
---------
REPURCHASE AGREEMENT: 7.6%
- ------------------------------------------------------------------------------------------------------------------------------------
1,182,000 Star Bank Repurchase Agreement, 5.20%, dated 6/30/1998,
due 7/1/1998, collateralized by $1,185,000 GNMA, 5.20%,
due 5/20/2024, (proceeds $1,182,171) (cost $1,182,000).................. 1,182,000
---------
<PAGE>
Leonetti Balanced Fund
SCHEDULE OF INVESTMENTS at June 30, 1998, Continued
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment in Securities (cost $12,713,267+): 99.6%............... $15,427,990
Other Assets less Liabilities: 0.4%..................................... 69,095
------
Total Net Assets: 100.0% ............................................... $15,497,085
===========
<FN>
*Non-income producing.
+ At June 30, 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........................................... $ 2,983,524
Gross unrealized depreciation.......................................... (268,801)
--------
Net unrealized appreciation.................................... $ 2,714,723
===========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $12,713,267) ................................ $15,427,990
Cash................................................................................... 47
Receivables:
Fund shares sold................................................................. 300
Dividends and interest........................................................... 95,067
Deferred organization costs............................................................ 13,100
Other assets........................................................................... 215
---
Total assets .............................................................. 15,536,719
----------
LIABILITIES
Payables:
Advisory fees.................................................................... 12,333
Administration fee............................................................... 2,468
Fund shares redeemed............................................................. 440
Accrued expenses....................................................................... 24,393
------
Total liabilities.......................................................... 39,634
------
NET ASSETS .............................................................................. $15,497,085
===========
Net asset value, offering and redemption price per share
($15,497,085/1,104,981 shares outstanding;
unlimited number of shares authorized without par value) ........................ $14.02
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $11,700,630
Undistributed net investment income.................................................... 26,568
Undistributed net realized gain on investments......................................... 1,055,164
Net unrealized appreciation on investments............................................. 2,714,723
---------
Net assets ...................................................................... $15,497,085
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Year Ended June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Interest ........................................................................ $ 220,572
Dividends........................................................................ 88,343
Other............................................................................ 3,496
-----
Total income .............................................................. 312,411
-------
Expenses
Advisory fees ................................................................... 130,603
Administration fee............................................................... 30,000
Registration fees................................................................ 20,181
Fund accounting fees............................................................. 16,660
Transfer agent fees.............................................................. 15,865
Audit fee........................................................................ 14,502
Custody fees..................................................................... 8,301
Reports to shareholders.......................................................... 6,500
Amortization of deferred organization costs...................................... 6,001
Trustee fees..................................................................... 4,300
Legal fees....................................................................... 3,682
Miscellaneous.................................................................... 3,479
Insurance........................................................................ 565
---
Total expenses............................................................. 260,639
-------
Net investment income ............................................. 51,772
------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .......................................... 1,694,629
Net change in unrealized appreciation on investments .................................. 1,050,874
---------
Net realized and unrealized gain on investments ................................. 2,745,503
---------
Net increase in net assets resulting from operations ........................................ $ 2,797,275
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year Year
Ended Ended
June 30, 1998 June 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment income................................................. $ 51,772 $ 48,866
Net realized gain from security transactions ......................... 1,694,629 329,099
Net change in unrealized appreciation on investments.................. 1,050,874 1,103,880
--------- ---------
Net increase in net assets resulting from operations ........... 2,797,275 1,481,845
--------- ---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income................................................. (30,287) (81,667)
Net realized gain on investments...................................... (973,796) -0-
-------- -
Total dividends and distributions to shareholders .............. (1,004,083) (81,667)
---------- -------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets derived from net change
in outstanding shares (a).......................................... 2,420,672 (204,172)
--------- --------
Total increase in net assets ................................... 4,213,864 1,196,006
NET ASSETS
Beginning of year .................................................... 11,283,221 10,087,215
---------- ----------
End of year ............................................................... $15,497,085 $11,283,221
=========== ===========
<FN>
(a) A summary of capital shares transactions is as follows:
Year Ended Year Ended
June 30, 1998 June 30, 1997
Shares Value Shares Value
Shares sold ...................................... 218,573 $2,894,591 109,814 $1,221,502
Shares issued in reinvestment of distributions.... 81,718 994,509 7,321 80,379
Shares redeemed................................... (112,150) (1,468,428) (134,735) (1,506,053)
-------- ---------- -------- ----------
Net increase (decrease) .......................... 188,141 $2,420,672 (17,600) $ (204,172)
======= ========== ======= ==========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, August 1, 1995*
through
1998 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 ................................ 0.05 0.06 0.09
Net realized and unrealized gain on investments ...... 2.75 1.54 0.76
---- ---- ----
Total from investment operations............................ 2.80 1.60 0.85
---- ---- ----
Less distributions:
From net investment income............................ (0.03) (0.09) (0.05)
From net capital gains................................ (1.06) 0.00 0.00
----- ---- ----
Total distributions......................................... (1.09) (0.09) (0.05)
----- ----- -----
Net asset value, end of period ............................. $14.02 $12.31 $10.80
====== ====== ======
Total return ............................................... 24.10% 14.91% 8.46%
Ratios/supplemental data:
Net assets, end of period (millions)........................ $ 15.5 $ 11.3 $ 10.1
Ratio of expenses to average net assets..................... 1.99% 2.29% 2.26%+
Ratio of net investment income to average net assets........ 0.40% 0.47% 1.02%+
Portfolio turnover rate .................................... 89.51% 119.75% 42.16%
<FN>
*Commencement of operations.
+Annualized.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Leonetti Balanced Fund
NOTES TO FINANCIAL STATEMENTS at June 30, 1998
- --------------------------------------------------------------------------------
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 sale 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>
Leonetti Balanced Fund
NOTES TO FINANCIAL STATEMENTS, Continued
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended June 30, 1998, Leonetti & Associates, Inc. (the
"Adviser") provided the Fund with investment management services under an
Investment Advisory Agreement. The Adviser furnished all investment advice,
office space, facilities, and most of the personnel needed by the Fund. As
compensation for its services, the Adviser 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 June 30, 1998, the Fund incurred $130,603 in advisory fees.
The Fund is responsible for its own operating expenses. The Adviser 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 Adviser 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
For the year ended June 30, 1998, the Fund incurred $30,000 in
Administration fees.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and the Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, excluding
U.S. Government obligations and short-term investments, for the year ended June
30, 1998, were $9,378,922 and $9,987,796, respectively.
For the year ended June 30, 1998, the cost of purchases and the proceeds
from sales of U.S. Government and Government Agency obligations, excluding
short-term securities, were $2,494,279 and $1,149,781, respectively.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
Leonetti Balanced Fund and the
Board of Trustees of Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Leonetti Balanced Fund (the "Fund") (one of the
portfolios constituting the series of Professionally Managed Portfolios), as of
June 30, 1998, and the related statement of operations for the year then ended,
and the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in the
period then ended and for the period from August 1, 1995 (commencement of
operations) through June 30, 1996. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 June
30, 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
Leonetti Balanced Fund as of June 30, 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 two years
in the period then ended, and for the period from August 1, 1995 (commencement
of operations) through June 30, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
July 31, 1998
<PAGE>
Adviser
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.
