TRENT EQUITY FUND
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED
FEBRUARY 28, 1999
<PAGE>
March 1999
Dear Shareholder:
For the six month period ending February 28, 1999, the Trent Equity Fund
was up 27.56%. This strong performance compares well with a gain of 28.52% for
the Russell 3000 Index and 30.28% for the S&P 500 with dividends reinvested.
During the period the Fund recovered from a difficult six-weeks-July 17 to
August 31, 1998, a time marked by global economic and financial turmoil. As the
Fund does not react to short-term events, it stayed fully invested through the
full cycle -- not only the downturn in July and August, but also the subsequent
recovery from the market decline. In fact, our attention was more focused on
opportunities for investment during this period than it was on cutting back on
positions.
ACTIVITY IN CURRENT HOLDINGS
The best performers during the six-month period, in order of dollar impact,
were Chancellor Media, up 63%; American Express, up 39%; Brunswick, up 64%;
Nike, up 55%; Qualcomm, up 66%; and McDonald's, up 36%. Our success in
Chancellor Media was primarily the result of purchasing the stock in October
1998, a time of market overreaction on the downside to concern about the
potential effect of possible FCC regulations on radio broadcasters, which we do
not believe will actually materialize. The market also overreacted to
Chancellor's higher than average debt during a period of perceived financial
crisis. American Express rebounded from a precipitous third quarter 1998 drop
that affected many global financial services companies. We purchased Brunswick
at a very attractive valuation due to market overreaction to concerns about the
effects a possible recession would have on the company's boat business. Nike's
business seems to be strengthening. Qualcomm's performance stems from the
potential for a quick resolution to a patent fight with another significant
global telecommunications equipment company. McDonald's new CEO is having a
positive impact on that company's operations. In addition, the new "made to
order" system is receiving good reviews. The three poorest performers were
Michaels Stores, down 27%; Service Corp. International, down 14%; and Campbell
Soup, down 15%. Michaels Stores' recent same store sales comparisons have been
less than expected. Service Corp. International is such a recent purchase that
nothing has changed since our purchase. Campbell Soup's unit growth numbers have
been weak of late.
NEW HOLDINGS
New purchases during the six month period were Brunswick, Chancellor Media,
Dollar General, The Learning Company, Revlon, Service Corp. International and
ServiceMaster. We added to Gartner Group and Sinclair Broadcasting during the
six month period. We sold Newell and subsequently purchased it back at a lower
price. Brunswick is the number one or two leading provider of products in seven
of the top ten recreational categories. Two-thirds of its operating income comes
from its marine division, which owns boat names such as Sea Ray, Boston Whaler,
and Bayliner, and the Mercury engine line. Other prominent recreational lines
are bowling, billiards, biking and camping equipment. Chancellor Media is the
largest US group of radio stations. Dollar General is the largest and most well
1
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run small store value retailer. Most of Dollar General's business is in the
eastern US. We purchased The Learning Company, which publishes educational
CD-ROM software, primarily in order to ultimately own Mattel, which is
purchasing The Learning Company in a stock for stock acquisition. Mattel is a
classic value purchase for the Trent Equity Fund as the stock price has fallen
by half in the last year due to slowing sales for some traditional products as
well as a conversion on the part of many of its larger retailer customers to
just in time inventory systems. We like Mattel's position as the top toy
manufacturer and believe that it is participating in the electronic age, thus
not allowing itself to be left behind. Revlon enjoys a 30% market share of the
self-service cosmetic business. Service Corp. International is the largest
funeral home service provider and cemetery owner in the US. ServiceMaster
provides an assortment of industrial and consumer services such as facilities
maintenance, carpet cleaning, lawn care and pest control. Sinclair Broadcasting
owns major network TV broadcasting station affiliates. We sold a partial
position in Newell for an average price of $45.38 upon the announcement of its
acquisition of Rubbermaid. We felt that Newell was paying a hefty price for
Rubbermaid and that Newell's stock price did not reflect the magnitude of that
price. After our sale of Newell, the stock price dropped and we purchased a
portion of our position back for $37.81 per share.
SIGNIFICANT GAINS AND LOSSES
In order of dollar magnitude, the largest realized gains during the six
month period were taken in Harley-Davidson, up 258%; Newell, up 68%; Intel, up
36%; Abbott Labs, up 107%; and Coca-Cola, up 37%. In each case, the holdings
were sold because of high valuation. There were no significant realized losses
during the period.
Although the market indices show unprecedented high price earnings ratios,
index numbers are skewed by the inordinate impact of a small group of large
capitalization companies. The broad market is not nearly as high as are a few
highly popular names. We continue to find excellent values and are moving out of
those positions in which we have enjoyed sizable gains and that have become
overvalued. We are buying excellent companies that are at historically low
valuations in relation to the market. We continue to be optimistic about the
outlook for the global economy. Productivity should continue to improve
dramatically due to efficiencies brought on by the evolution of electronic
commerce. Many of our holdings are expected to benefit from this improved
productivity. We thank you for being an investor in the Trent Equity Fund.
TRENT CAPITAL MANAGEMENT, INC
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TRENT EQUITY FUND
SCHEDULE OF INVESTMENTS AT FEBRUARY 28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 100.8% Market Value
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES: 5.5%
5,500 Gartner Group, Inc., Class A*........................... $ 123,406
5,700 ServiceMaster Company................................... 106,519
----------
229,925
----------
COMPUTER SOFTWARE: 4.8%
6,800 The Learning Company, Inc.*............................. 197,625
----------
COMPUTERS: 3.0%
1,900 Hewlett-Packard Company................................. 126,231
----------
CONSUMER PRODUCTS: 9.2%
2,062 The Gillette Company.................................... 110,575
3,800 Nike, Inc., Class B..................................... 203,775
8,500 Oakley, Inc.*........................................... 70,656
----------
385,006
----------
CONTAINERS: 1.6%
2,300 Crown Cork & Seal Company, Inc.......................... 63,825
----------
COSMETICS AND TOILETRIES: 2.2%
6,600 Revlon, Inc., Class A*.................................. 93,225
----------
ENTERTAINMENT: 4.6%
5,475 Walt Disney Company..................................... 192,652
----------
FINANCIAL SERVICES: 11.6%
3,150 American Express Company................................ 341,775
2,450 Federal Home Loan Mortgage Corp......................... 144,244
----------
486,019
----------
FOOD AND BEVERAGE: 1.8%
1,800 Campbell Soup Company................................... 72,338
----------
FUNERAL SERVICES: 2.8%
7,700 Service Corp. International............................. 118,387
----------
3
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TRENT EQUITY FUND
SCHEDULE OF INVESTMENTS AT FEBRUARY 28, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS: 6.2%
4,000 Libbey, Inc............................................. $ 119,250
3,320 Newell Company.......................................... 141,100
----------
260,350
----------
LEISURE AND RECREATION PRODUCTS: 4.7%
9,300 Brunswick Corp.......................................... 198,206
----------
MACHINERY: 3.7%
3,380 Caterpillar, Inc........................................ 154,001
----------
MEDIA: 14.3%
7,800 Chancellor Media Corp.*................................. 341,250
7,400 Sinclair Broadcast Group, Inc., Class A*................ 109,612
2,200 Tribune Company......................................... 145,888
----------
596,750
----------
MEDICAL SUPPLIES: 2.2%
1,100 Johnson & Johnson....................................... 93,913
----------
OIL - FIELD SERVICES: 2.8%
2,400 Schlumberger Ltd........................................ 116,550
----------
RETAIL: 15.8%
7,600 Claire's Stores, Inc.................................... 167,675
5,500 Dollar General Corp..................................... 164,656
1,775 McDonald's Corp......................................... 150,875
6,600 Michaels Stores, Inc.*.................................. 113,025
8,000 PETsMART, Inc.*......................................... 63,000
----------
659,231
----------
TELECOMMUNICATIONS: 4.0%
2,300 QUALCOMM, Inc........................................... 167,900
----------
Total Investments in Securities (cost $3,485,146+):
100.8% ............................................... 4,212,134
Liabilities in excess of Other Assets: (0.8)%........... (33,226)
----------
TOTAL NET ASSETS: 100.0% ............................... $4,178,908
==========
* Non-income producing security.
4
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TRENT EQUITY FUND
SCHEDULE OF INVESTMENTS AT FEBRUARY 28, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
+ At February 28, 1999, the cost of investments 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 ..................... $ 1,012,074
Gross unrealized depreciation ..................... (285,086)
-----------
Net unrealized appreciation ................. $ 726,988
===========
See accompanying Notes to Financial Statements.
5
<PAGE>
TRENT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES AT FEBRUARY 28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $3,485,146) ........ $ 4,212,134
Receivables:
Dividends .................................................. 3,510
Fund shares sold ........................................... 7,113
Other assets ................................................. 18
-----------
Total assets ............................................. 4,222,775
-----------
LIABILITIES
Cash overdraft ............................................... 27,541
Payables:
Advisory fees .............................................. 584
Administration fee ......................................... 2,257
Fund shares redeemed ....................................... 150
Audit fee .................................................. 4,971
Accrued expenses and other liabilities ....................... 8,364
-----------
Total liabilities ........................................ 43,867
-----------
NET ASSETS ..................................................... $ 4,178,908
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($4,178,908/330,786 shares outstanding;
unlimited number of shares authorized without par value) ..... $ 12.63
===========
COMPONENTS OF NET ASSETS
Paid-in capital .............................................. $ 3,262,830
Accumulated net investment loss .............................. (20,934)
Undistributed net realized gain on investments ............... 210,024
Net unrealized appreciation on investments ................... 726,988
-----------
Net assets ............................................... $ 4,178,908
===========
See accompanying Notes to Financial Statements.
6
<PAGE>
TRENT EQUITY FUND
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .................................................... $ 16,548
Interest ..................................................... 424
---------
Total income ............................................... 16,972
---------
Expenses
Advisory fees ................................................ 21,796
Administration fee ........................................... 14,750
Fund accounting fees ......................................... 8,201
Audit fee .................................................... 6,932
Transfer agent fees .......................................... 6,248
Custody fees ................................................. 2,673
Legal fees ................................................... 2,434
Trustee fees ................................................. 2,067
Reports to shareholders ...................................... 1,887
Registration fees ............................................ 1,785
Miscellaneous ................................................ 1,234
Insurance .................................................... 147
---------
Total expenses ............................................. 70,154
Less: expenses waived and reimbursed ....................... (32,248)
---------
Net expenses ............................................... 37,906
---------
NET INVESTMENT LOSS ...................................... (20,934)
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions ................. 464,957
Net change in unrealized appreciation on investments ......... 450,224
---------
Net realized and unrealized gain on investments ............ 915,181
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 894,247
=========
See accompanying Notes to Financial Statements.
7
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TRENT EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
February 28, 1999# August 31, 1998
------------------ ---------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment loss ................................... $ (20,934) $ (43,462)
Net realized gain from security transactions .......... 464,957 782,584
Net change in unrealized appreciation on investments .. 450,224 (611,439)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 894,247 127,683
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments ...................... (725,130) -0-
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets derived from
net change in outstanding shares (a) ................ 762,222 (199,961)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............ 931,339 (72,278)
NET ASSETS
Beginning of period ................................... 3,247,569 3,319,847
----------- -----------
END OF PERIOD ............................................ $ 4,178,908 $ 3,247,569
=========== ===========
</TABLE>
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
February 28, 1999# August 31, 1998
--------------------- --------------------
Shares Value Shares Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold ................................. 16,590 $ 216,654 19,742 $ 281,652
Shares issued in reinvestment of distribution 60,162 693,068 -0- -0-
Shares redeemed ............................. (11,556) (147,500) (33,215) (481,613)
------- --------- ------- ---------
NET INCREASE (DECREASE) ..................... 65,196 $ 762,222 (13,473) $(199,961)
======= ========= ======= =========
</TABLE>
#Unaudited.
See accompanying Notes to Financial Statements.
8
<PAGE>
TRENT EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended August 31,
February 28, ---------------------------------------------------
1999# 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $12.23 $11.90 $ 9.86 $10.24 $11.50 $11.66
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment loss...................... (0.06) (0.16) (0.10) (0.06) 0.00 (0.07)
Net realized and unrealized gain
on investments........................ 3.17 0.49 2.14 0.67 0.67 0.15
------ ------ ------ ------ ------ ------
Total from investment operations............... 3.11 0.33 2.04 0.61 0.67 0.08
------ ------ ------ ------ ------ ------
Less distributions:
From net investment income............... 0.00 0.00 0.00 0.00 0.00 0.00
From net capital gains................... (2.71) 0.00 0.00 (0.99) (1.93) (0.24)
------ ------ ------ ------ ------ ------
Total distributions............................ (2.71) 0.00 0.00 (0.99) (1.93) (0.24)
------ ------ ------ ------ ------ ------
Net asset value, end of period................. $12.63 $12.23 $11.90 $ 9.86 $10.24 $11.50
====== ====== ====== ====== ====== ======
Total return................................... 27.56% 2.77% 20.69% 7.23% 9.38% 0.64%
Ratios/supplemental data:
Net assets, end of period (millions)........... $ 4.2 $ 3.2 $ 3.3 $ 3.0 $ 3.8 $ 3.9
Ratio of expenses to average net assets:
Before expense reimbursement............. 3.70%+ 3.08% 3.48% 3.63% 3.65% 3.16%
After expense reimbursement.............. 2.00%+ 2.00% 2.00% 2.10% 1.85% 1.85%
Ratio of net investment loss to average
net assets:
Before expense reimbursement............. (2.80)%+ (2.23)% (2.25)% (2.15)% (2.00)% (1.68)%
After expense reimbursement.............. (1.10)%+ (1.15)% (0.76)% (0.62)% (0.15)% (0.36)%
Portfolio turnover rate........................ 29.42% 41.14% 43.81% 59.33% 46.52% 149.25%
</TABLE>
#Unaudited.
+Annualized.
See accompanying Notes to Financial Statements.
9
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TRENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS AT FEBRUARY 28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
Trent Equity Fund (the "Fund") is a diversified series of shares of
beneficial interest of Professionally Managed Portfolios (the "Trust"), which is
registered under the Investment Company Act of 1940 (the "1940 Act") as a
diversified, open-end management investment company. The Fund began operations
on September 2, 1992. The investment objective of the Fund is to seek capital
appreciation, both realized and unrealized. 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 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. USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the six months ended February 28, 1999, Trent 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 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 1.15% based upon the average daily net
assets of the Fund. For the six months ended February 28, 1999, the Fund
incurred $21,796 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
daily net assets. Any such reductions made by the Advisor in its fees or
10
<PAGE>
payments or reimbursement of expenses which are the Fund's obligation are
subject to the 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. For the six months ended February 28, 1999, the
Advisor waived fees and reimbursed the Fund in the amount of $32,248.
Investment Company Administration, L.L.C. (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 received 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, 1999, the Fund incurred $14,750 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 and receives no compensation
for its services.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and the Distributor.
NOTE 4 - INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of securities, other than
short-term investments, for the six months ended February 28, 1999, were
$1,187,066 and $1,113,248, respectively.
NOTE 5 - REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board, with member banks of the
Federal Reserve System or with such other brokers or dealers that meet the
credit guidelines established by the Board of Trustees. The Fund will always
receive and maintain, as collateral, securities whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral.
If the seller defaults and the value of the collateral declines, or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
11
<PAGE>
ADVISOR
Trent Capital Management, Inc.
3101 North Elm Street
Suite 150
Greensboro, North Carolina 27408
(336) 282-9302
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road
Suite 261E
Phoenix, Arizona 85018
CUSTODIAN
Firstar 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
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103
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.
