US
GLOBAL
LEADERS
GROWTH FUND
Semi-Annual Report
December 31, 1998
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U.S. GLOBAL LEADERS GROWTH FUND
Dear Fellow Long-Term Investor:
It is gratifying to report the following continued favorable investment
performance results for U.S. Global Leaders Growth Fund on both an absolute and
relative basis:
INCEPTION 9/29/95
TO 12/31/98
1998 (ANNUALIZED)
---- ------------
U.S. Global Leaders Growth Fund 31.98% 31.44%
U.S. GLOBAL LEADERS (AFTER-TAX) 31.98 31.30
S&P 500 Index 28.57 28.00
Lipper Growth Fund Index 25.66 22.50
Lipper International Fund Index 12.65 11.07
The bull market might act somewhat skittishly in 1999, but this epochal bull run
evidences few signs of running out of energy. Sound long-term strategies such as
investing in companies with SUSTAINABLE earnings growth need not be modified.
However, adherents to other approaches (E.G. those based on capitalization size,
country of domicile, price/book ratios, earnings or stock price momentum, etc.)
- -- which might have delivered adequate if not stellar results in the 1995-1998
period of unprecedented stock price gains -- could be in for a jolt. While
psychology can drive the prices of both markets and individual companies in the
short run, it is EARNINGS that determine long run results. Little else matters.
Thus, confidence in the prospects for "Global Leaders" for the foreseeable
future is rooted in our expectation that the concentrated group of companies in
which the Fund invests are likely to sustain earnings growth in the 18 to 20
percent range on average. How many mutual fund portfolio managers can be so
confident? (Certainly investors in the S&P 500 index should not be, as most
analysts anticipate little or no earnings gain for the index companies this year
and no more than 6 to 8 percent average annual earnings gains in the years
beyond.)
Moreover, the relative valuation of the Fund companies collectively is as
compellingly attractive as is their relative earnings power. The Fund's
price/earnings multiple is only 1.5 times its sustainable growth rate, while the
S&P 500's price/earnings multiple is about 4 times its underlying earnings
growth rate. This near Nirvana combination of high relative growth/low relative
valuation is now the most attractive that it has been in my professional career.
The outlook remains reasonably favorable, despite a slowing of economic growth
globally and in the U.S. (but no recession). Inflation is negligible, already
low interest rates should go even lower, and supply/demand relationships are
very favorable for U.S. equities. "The Federal Reserve writes Wall Street's
market letter" is one of the few stock market adages to stand the test of time.
Monetary policies are likely to remain a stabilizing force in world markets --
and the global economy should eventually kick into a more expansionary phase.
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
It is notable that Fund assets have grown from under $5 million at inception on
September 29, 1995 to over $100 million at year-end. Also, I am pleased to
report that MORNINGSTAR awarded the Fund a five-star performance rating for the
three years ending December 31, 1998.*
U.S. Global Leaders Growth Fund shareholders can now access - via the internet -
their account holdings and transaction information as well as the daily NAV
history of the Fund. Passwords are not necessary to view this information.
However, the nine-digit shareholder account number (excluding the "00"
sub-account) must be provided as well as the last four digits of the social
security number or tax ID associated with the account. The site may be accessed
from the Fund's own web site, www.usgloballeaders.com, by selecting "View
Shareholder Account Information" (the last choice on the left side of the page).
It is also important to note that the homepage for our site is a monthly update
of the Fact Sheet on the Fund, which shows current holdings, recent performance
with relevant comparisons, and other important data. The Ad Hoc Commentary page
will display a Letter to Shareholders commenting in timely fashion on the first
and third quarters' performances (supplementing the June 30 annual report and
December 31 semi-annual report that are sent to you directly). If there is a
dramatic stock market development -- such as the over 500 point drop in the Dow
Jones Industrial average that occurred on August 31 and which prompted my
special letter of September 2 -- check out this Ad Hoc Commentary page for
possible observations.
It is said that successful investing, like success itself, is a journey, not a
destination. We are gratified that you have chosen to invest with U.S. Global
Leaders Growth Fund. We are committed to making it a safe and rewarding
experience.
Cordially,
/s/ George M. Yeager
George M. Yeager
"PATIENCE IS THE COMPANION OF WISDOM." St. Augustine
*Morningstar proprietary ratings reflect historical risk-adjusted performance as
of December 31, 1998. These ratings may change monthly. Ratings are calculated
from the Fund's 3-year average annual returns with appropriate fee and charge
adjustments and a risk factor that reflects fund performance relative to 3-month
Treasury bill monthly returns. 2,783 equity funds were rated for the period. 10%
of Funds in an investment category receive five stars, 22.5% four stars, 35%
three stars, 22.5% two stars and 10% one star.
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
SCHEDULE OF INVESTMENTS
AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 96.1% Market Value
- --------------------------------------------------------------------------------
BEVERAGES: 1.7%
26,700 Coca-Cola Company...................................... $ 1,785,563
-----------
BUSINESS AND INFORMATION SERVICES: 12.0%
40,100 Automatic Data Processing, Inc......................... 3,215,519
147,200 Gartner Group, Inc.*................................... 3,128,000
76,000 Quintiles Transnational Corp.*......................... 4,056,500
49,050 Robert Half International, Inc.*....................... 2,191,922
-----------
12,591,941
-----------
COMPUTER SOFTWARE: 2.0%
14,800 Microsoft Corp.*....................................... 2,052,575
-----------
CONSUMER SERVICES: 3.0%
145,800 ServiceMaster Company.................................. 3,216,713
-----------
DRUG DELIVERY SYSTEMS: 3.9%
77,900 ALZA Corp.*............................................ 4,070,275
-----------
ENTERTAINMENT AND LODGING: 5.2%
154,800 Marriott International, Inc., Class A.................. 4,489,200
32,250 Walt Disney Company.................................... 967,500
-----------
5,456,700
-----------
EXPRESS DELIVERY SERVICES: 5.1%
60,200 FDX Corp.*............................................. 5,357,800
-----------
FINANCIAL SERVICES: 3.6%
54,000 State Street Corp...................................... 3,756,375
-----------
FOODS: 2.2%
26,300 Wm. Wrigley Jr. Company................................ 2,355,494
-----------
FOOD SERVICES: 10.3%
55,900 McDonald's Corp........................................ 4,283,337
117,100 Starbucks Corp.*....................................... 6,572,237
-----------
10,855,574
-----------
HEALTH PRODUCTS: 5.4%
58,400 Abbott Laboratories.................................... 2,861,600
33,200 Johnson & Johnson...................................... 2,784,650
-----------
5,646,250
-----------
4
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U.S. GLOBAL LEADERS GROWTH FUND
SCHEDULE OF INVESTMENTS
AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS: 3.5%
22,900 Colgate-Palmolive Company.............................. $ 2,126,837
17,000 Procter & Gamble Company............................... 1,552,313
------------
3,679,150
------------
INSURANCE: 2.8%
30,755 American International Group, Inc...................... 2,971,702
------------
MASS MERCHANDISING: 5.2%
66,850 Wal-Mart Stores, Inc................................... 5,444,097
------------
PHARMACEUTICALS: 8.5%
21,700 Merck & Company, Inc................................... 3,204,819
45,500 Pfizer, Inc............................................ 5,707,406
------------
8,912,225
------------
SPECIALTY RETAIL: 20.2%
127,600 Home Depot, Inc........................................ 7,807,525
177,950 Staples, Inc.*......................................... 7,774,190
107,400 Tiffany & Company...................................... 5,571,375
------------
21,153,090
------------
TOILETRIES: 1.5%
31,492 Gillette Company....................................... 1,521,457
------------
Total Common Stocks (cost $65,333,535)................. 100,826,981
------------
Principal
Amount REPURCHASE AGREEMENT: 1.6%
- --------------------------------------------------------------------------------
$1,687,000 Star Bank Repurchase Agreement, 3.50%,
dated 12/31/1998, due 1/4/1999,
collateralized by $1,740,000 GNMA, 7.00%,
due 3/20/2024, (proceeds $1,687,656)
(cost $1,687,000).................................... 1,687,000
------------
Total Investment in Securities
(cost $67,020,535+): 97.7%......................... 102,513,981
Other Assets less Liabilities: 2.3%.................. 2,364,660
------------
TOTAL NET ASSETS: 100.0% ............................ $104,878,641
============
* Non-income producing security.
5
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U.S. GLOBAL LEADERS GROWTH FUND
SCHEDULE OF INVESTMENTS
AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
+ At December 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................................ $37,030,860
Gross unrealized depreciation................................ (1,537,414)
-----------
Net unrealized appreciation............................ $35,493,446
===========
See accompanying Notes to Financial Statements.
6
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(cost $67,020,535) ....................................... $102,513,981
Cash......................................................... 533
Receivables:
Securities sold........................................... 1,402,968
Fund shares sold.......................................... 1,020,969
Dividends and interest.................................... 45,087
Prepaid expenses............................................. 19,956
------------
Total assets .......................................... 105,003,494
LIABILITIES
Payables:
Advisory fees............................................. 82,357
Administration fee........................................ 13,736
Fund shares redeemed...................................... 18,637
Accrued expenses............................................. 10,123
------------
Total liabilities...................................... 124,853
------------
NET ASSETS ................................................ $104,878,641
============
NETASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE ($104,878,641/4,351,758 shares
outstanding; unlimited number of shares
authorized without par value)................................. $24.10
============
COMPONENTS OF NET ASSETS
Paid-in capital ............................................. $ 72,720,432
Accumulated net investment loss.............................. (304,236)
Accumulated net realized loss on investments................. (3,031,001)
Net unrealized appreciation on investments................... 35,493,446
------------
Net assets ............................................... $104,878,641
============
See accompanying Notes to Financial Statements.
7
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends................................................. $ 256,477
Interest.................................................. 21,223
-----------
Total income........................................... 277,700
-----------
Expenses
Advisory fees ............................................ 435,872
Administration fee........................................ 76,082
Fund accounting fees...................................... 15,359
Custody fees.............................................. 12,128
Transfer agent fees....................................... 10,309
Registration fees......................................... 10,126
Audit fee................................................. 7,931
Trustee fees.............................................. 5,052
Reports to shareholders................................... 3,045
Legal fees................................................ 2,925
Miscellaneous............................................. 2,003
Insurance................................................. 1,104
-----------
Total expenses......................................... 581,936
NET INVESTMENT LOSS ................................ (304,236)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss from security transactions ................ (2,506,739)
Net change in unrealized appreciation on
investments ............................................... 10,443,406
-----------
Net realized and unrealized gain
on investments ..................................... 7,936,667
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ 7,632,431
===========
See accompanying Notes to Financial Statements.
8
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six Months Year
Ended Ended
December 31, 1998# June 30, 1998
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment loss......................... $ (304,236) $ (356,918)
Net realized loss from security
transactions ............................. (2,506,739) (408,137)
Net change in unrealized appreciation
on investments............................ 10,443,406 18,776,260
------------ -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................... 7,632,431 18,011,205
------------ -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares (a)...... 7,829,810 44,553,056
------------ -----------
TOTAL INCREASE IN NET ASSETS ............ 15,462,241 62,564,261
NET ASSETS
Beginning of period......................... 89,416,400 26,852,139
------------ -----------
END OF PERIOD ............................. $104,878,641 $89,416,400
============ ===========
(a) A summary of capital shares transactions is as follows:
Six Months Year
Ended Ended
December 31, 1998# June 30, 1998
----------------------- -------------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold............. 695,896 $14,804,660 2,462,187 $46,809,937
Shares issued in
reinvestment of
distributions........ -0- -0- -0- -0-
Shares redeemed......... (344,696) (6,974,850) (109,778) (2,256,881)
-------- ----------- --------- -----------
Net increase ........... 351,200 $ 7,829,810 2,352,409 $44,553,056
======== =========== ========= ===========
# Unaudited.
See accompanying Notes to Financial Statements.
9
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
Six Months Year Ended June 30, Sept. 29, 1995*
Ended ------------------- through
Dec. 31, 1998# 1998 1997 June 30, 1996
- --------------------------------------------------------------------------------
Net asset value, beginning
of period .................. $22.35 $16.29 $12.08 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
(loss) income ............ (0.07) (0.07) (0.04) 0.01
Net realized and unrealized
gain on investments ...... 1.82 6.13 4.39 2.08
------- ------ ------ ------
Total from investment
operations ................ 1.75 6.06 4.35 2.09
------- ------ ------ ------
Less distributions:
From net investment
income ................... 0.00 0.00 0.00 (0.01)
From net capital gains .... 0.00 0.00 (0.14) 0.00
------- ------ ------ ------
Total distributions ......... 0.00 0.00 (0.14) (0.01)
Net asset value,
end of period .............. $24.10 $22.35 $16.29 $12.08
====== ====== ====== ======
Total return ................ 7.83% 37.20% 36.29% 20.83%
Ratios/supplemental data:
Net assets, end of period
(millions) ................. $104.9 $89.4 $ 26.9 $ 9.0
Ratio of expenses to average
net assets:
Before expense
reimbursement ............. 1.33%+ 1.43% 1.87% 2.55%+
After expense
reimbursement ............. 1.33%+ 1.42% 1.48% 1.48%+
Ratio of net investment loss
to average net assets:
Before expense
reimbursement ............. (0.70)%+ (0.67)% (0.79)% (1.08)%+
After expense
reimbursement ............. (0.70)%+ (0.66)% (0.39)% (0.01)%+
Portfolio turnover rate ..... 6.77% 4.02% 21.49% 4.91%
* Commencement of operations.
+ Annualized.
# Unaudited.
See accompanying Notes to Financial Statements.
10
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The U.S. Global Leaders Growth Fund (the "Fund") is a non-diversified
series of shares of beneficial interest of Professionally Managed Portfolios
(the "Trust"), which is registered under the Investment Company Act of 1940 (the
"1940 Act") as an open-end management investment company. The Fund began
operations on September 29, 1995. The investment objective of the Fund is to
seek growth of capital. The Fund seeks to achieve its objective by investing
primarily in common stocks of United States companies that have substantial
international activities.
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.
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. Realized gains and losses from security transactions
are reported on an identified cost 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.
11
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - COMMITMENTS AND OTHER RELATED
PARTY TRANSACTIONS
For the six months ended December 31, 1998, Yeager, Wood & Marshall, 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 six months ended December 31, 1998, the Fund incurred $435,872 in advisory
fees.
The Fund is responsible for its own operating expenses. The Advisor agreed
to reduce the limit of the Fund's total expenses to not more than 1.39% 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 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 applicable
expense limitations then in effect.
Investment Company Administration, LLC (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 $80 million 0.15% of average daily net assets
$80 to $100 million 0.10% of average daily net assets
Over $100 million 0.05% of average daily net assets
For the six months ended December 31, 1998, the Fund incurred $76,082 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, other
than short-term investments, for the six months ended December 31, 1998, were
$10,353,551 and $5,826,528, respectively.
12
<PAGE>
U.S. GLOBAL LEADERS GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
NOTE 5 - FEDERAL INCOME TAXES
As of June 30, 1998, the Fund had available for Federal tax purposes
$524,262 of unused capital loss carryforward which will expire in 2006.
13
<PAGE>
ADVISOR
Yeager, Wood & Marshall, Incorporated
630 Fifth Avenue
New York, New York 10111
(212) 765-5350
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AND
DIVIDEND
DISBURSING AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
AUDITORS
Ernst & Young, LLP
515 South Flower Street
Los Angeles, California 90071
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, California 94104
This report is intended for 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.
