[LEONETTI BALANCED FUND LOGO]
LEONETTI BALANCED FUND
SEMI-ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
January, 1999
Dear Shareholder:
The Leonetti Balanced Fund finished a volatile market year with a solid gain of
27.52 percent at December 31,1998. The Lipper Balanced Fund Index gained 15.09
percent for the same period. Your Fund's return exceeded the Lipper Balanced
Fund Index, a widely-followed mutual fund benchmark, by 12.43 percent. This
outstanding performance placed the Leonetti Balanced Fund ninth out of 409
balanced mutual funds followed by Lipper Analytical Services during 1998. The
assets of the Fund crossed the $19 million level at year-end.*
The stock market exhibited an amazing display of strength in the fourth quarter
of the year, sending stocks soaring from their October 8th lows. As fear gripped
the market, the large capitalization stocks that had led the market higher
earlier in the year caught fire and rocketed many of the indices to new highs.
Technology and telecommunication stocks led the rally, but no group could keep
up with the frenzied pace of the internet stocks. Substantial gains were
realized by stocks that had any relation to the internet.
The low-inflation, slow-growth economy gave the Federal Reserve the chance to
cut interest rates twice, with the second rate cut coming as a surprise to the
market. This second rate cut was the fuel for the sharp stock market rise. The
interest rate action was taken by the Federal Reserve to help the economy from
slipping into a recession. It appears the rate cut was very timely and averted
much of the damage that the financial markets had been worrying would occur.
Your Fund's ten largest holdings as of December 31, 1998 were IBM Corp., America
Online, Lucent Technologies, Cisco Systems, McDonald's Corp., General Electric,
Microsoft Corp., Tribune Co., Intel Corp. and Comcast Corp.
As we look at 1999, once again we are far more positive on the markets than
most. As cash continues to flow into this liquidity-driven market, we expect the
stock market will move much higher. In our view, the Dow Industrials could reach
11,200 and possibly 11,500 during the year. We see interest rates continuing to
decline for the first half of the year with a good chance of reaching the 4-to-4
1/4 percent level on the long bond.
Entering the last year in this century, the stock market should continue to
climb the wall of worry, pushing aside impeachment-related news, millennium
fears and international worries. We welcome our new shareholders and thank all
of you for being investors in the Leonetti Balanced Fund.
Cordially,
LEONETTI & ASSOCIATES, INC.
*The average annual total return from inception on August 1, 1995 through
December 31, 1998 was 17.70%. Past performance does not guarantee future
results. Share value and returns fluctuate and you may have a gain or loss when
you sell your shares. Performance results for the Leonetti Balanced Fund and the
Lipper Balanced Index include reinvested dividends, interest and other earnings.
<PAGE>
LEONETTI BALANCED FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED)
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Shares COMMON STOCKS: 69.0% Market Value
- --------------------------------------------------------------------------------
BANKS: 2.6%
5,208 Commerce Bancshares, Inc.................................... $ 221,340
4,000 Mellon Bank Corp............................................ 275,000
----------
496,340
----------
COMMUNICATION - EQUIPMENT: 8.0%
11,184 Lucent Technologies, Inc.................................... 1,230,240
6,000 Qwest Communications International, Inc.*................... 300,000
----------
1,530,240
----------
COMPUTER - HARDWARE: 9.9%
10,000 Compaq Computer Corp........................................ 419,375
8,000 International Business Machines Corp........................ 1,478,000
----------
1,897,375
----------
COMPUTER - MEMORY DEVICES: 1.2%
8,000 SMART Modular Technologies, Inc.*........................... 222,000
----------
COMPUTER - NETWORK: 5.5%
11,250 Cisco Systems, Inc.*........................................ 1,044,141
----------
COMPUTER - ONLINE SERVICES: 6.7%
8,000 America Online, Inc.*....................................... 1,280,000
----------
COMPUTER - SOFTWARE: 2.9%
4,000 Microsoft Corp.*............................................ 554,750
----------
CONSUMER - HOUSEHOLD PRODUCTS: 2.4%
5,000 Procter & Gamble Company.................................... 456,563
----------
DIVERSIFIED OPERATIONS: 5.6%
6,000 General Electric Company.................................... 612,375
6,000 Tyco International, Ltd..................................... 452,625
----------
1,065,000
----------
ELECTRONICS - SEMICONDUCTORS: 4.1%
5,000 Altera Corp.*............................................... 304,375
4,000 Intel Corp.................................................. 474,250
----------
778,625
----------
2
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LEONETTI BALANCED FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
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Shares Market Value
- --------------------------------------------------------------------------------
MANUFACTURING - LARGE APPLIANCES: 1.3%
4,000 Maytag Corp................................................ $ 249,000
-----------
MEDIA - NEWSPAPERS: 2.8%
8,000 Tribune Company............................................ 528,000
-----------
MEDICAL - PHARMACEUTICALS: 3.5%
3,000 Pfizer, Inc................................................ 376,312
4,000 Warner-Lambert Company..................................... 300,750
-----------
677,062
-----------
OIL: 2.3%
6,000 Exxon Corp................................................. 438,750
-----------
PROPERTY/CASUALTY/TITLE INSURANCE: 1.2%
5,000 Chicago Title Corp.*....................................... 234,687
-----------
RETAIL - RESTAURANTS: 3.2%
8,000 McDonald's Corp............................................ 613,000
-----------
RETAIL - SUPERMARKETS: 1.6%
5,000 Kroger Company*............................................ 302,500
-----------
TELECOMMUNICATION SERVICES: 1.8%
4,000 Sprint Corp................................................ 336,500
-----------
TELEVISION - CABLE: 2.4%
8,000 Comcast Corp., Class A*.................................... 469,500
-----------
Total Common Stocks (cost $7,687,253)...................... 13,174,033
-----------
3
<PAGE>
LEONETTI BALANCED FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Principal Amount U.S. GOVERNMENT OBLIGATIONS: 28.1% Market Value
- --------------------------------------------------------------------------------
$ 500,000 U.S. Treasury Bill, 4.460%, due 7/22/1999........ $ 487,548
400,000 U.S. Treasury Note, 5.875%, due 1/31/1999........ 400,375
300,000 U.S. Treasury Note, 5.000%, due 2/15/1999........ 300,188
350,000 U.S. Treasury Note, 6.000%, due 10/15/1999....... 353,719
900,000 U.S. Treasury Note, 5.375%, due 1/31/2000........ 907,313
400,000 U.S. Treasury Note, 5.875%, due 2/15/2000........ 405,250
800,000 U.S. Treasury Note, 5.500%, due 2/29/2000........ 807,750
400,000 U.S. Treasury Note, 6.125%, due 7/31/2000........ 408,875
800,000 U.S. Treasury Note, 4.500%, due 9/30/2000........ 798,750
500,000 U.S. Treasury Note, 5.250%, due 1/31/2001........ 506,407
-----------
Total U.S. Government Obligations
(cost $5,335,308)............................. 5,376,175
-----------
REPURCHASE AGREEMENT: 2.6%
- --------------------------------------------------------------------------------
499,000 Star Bank Repurchase Agreement, 3.50%, dated
12/31/1998, due 1/4/1999, collateralized by
$515,000 GNMA, 7.00%, due 3/20/2024
(proceeds $499,194) (cost $499,000)............ 499,000
-----------
Total Investment in Securities
(cost $13,521,561+): 99.7%..................... 19,049,208
Other Assets less Liabilities: 0.3%............ 55,843
-----------
TOTAL NET ASSETS: 100.0% ...................... $19,105,051
===========
* Non-income producing.
+ 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................. $ 5,558,612
Gross unrealized depreciation................. (30,965)
------------
Net unrealized appreciation.......... $ 5,527,647
============
See accompanying Notes to Financial Statements.
4
<PAGE>
LEONETTI BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $13,521,561) ........ $19,049,208
Cash .......................................................... 29
Receivables:
Fund shares sold ............................................ 45,434
Dividends and interest ...................................... 97,058
Other assets .................................................. 9,272
-----------
Total assets ...................................... 19,201,001
-----------
LIABILITIES
Payables:
Advisory fees ............................................... 15,002
Administration fee .......................................... 2,550
Securities purchased ........................................ 70,686
Accrued expenses .............................................. 7,712
-----------
Total liabilities ................................. 95,950
-----------
NET ASSETS ...................................................... $19,105,051
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($19,105,051/1,287,472 shares outstanding;
unlimited number of shares authorized without par value) .... $ 14.84
===========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................... $14,204,975
Undistributed net investment income ........................... 3,553
Accumulated net realized loss on investments .................. (631,124)
Net unrealized appreciation on investments .................... 5,527,647
-----------
Net assets .............................................. $19,105,051
===========
See accompanying Notes to Financial Statements.
5
<PAGE>
LEONETTI BALANCED FUND
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest .................................................. $ 139,999
Dividends ................................................. 41,342
Other ..................................................... 2,222
----------
Total income ........................................ 183,563
----------
Expenses
Advisory fees ............................................. 80,173
Administration fee ........................................ 15,123
Fund accounting fees ...................................... 10,331
Registration fees ......................................... 10,081
Audit fee ................................................. 7,720
Transfer agent fees ....................................... 7,009
Custody fees .............................................. 5,444
Amortization of deferred organization costs ............... 3,025
Legal fees ................................................ 2,792
Trustee fees .............................................. 2,017
Reports to shareholders ................................... 1,617
Miscellaneous ............................................. 1,587
Insurance ................................................. 364
----------
Total expenses ...................................... 147,283
----------
NET INVESTMENT INCOME ......................... 36,280
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions ................ (666,413)
Net change in unrealized appreciation on investments ........ 2,812,924
----------
Net realized and unrealized gain on investments ....... 2,146,511
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................ $2,182,791
==========
See accompanying Notes to Financial Statements.
6
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LEONETTI BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
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Six Months Year
Ended Ended
December 31, 1998# June 30, 1998
------------------ -------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income ....................... $ 36,280 $ 51,772
Net realized (loss) gain from security
transactions ............................... (666,413) 1,694,629
Net change in unrealized appreciation
on investments ............................. 2,812,924 1,050,874
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ 2,182,791 2,797,275
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DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ....................... (59,295) (30,287)
Net realized gain on investments ............ (1,019,875) (973,796)
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS .......................... (1,079,170) (1,004,083)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares(a)......... 2,504,345 2,420,672
----------- -----------
TOTAL INCREASE IN NET ASSETS ............ 3,607,966 4,213,864
NET ASSETS
Beginning of period .................... 15,497,085 11,283,221
----------- -----------
END OF PERIOD ................................ $19,105,051 $15,497,085
=========== ===========
(a) A summary of capital shares transactions is as follows:
Six Months Ended Year Ended
December 31, 1998# June 30, 1998
--------------------- ---------------------
Shares Value Shares Value
------- ---------- -------- ----------
Shares sold .................... 147,904 $2,035,672 218,573 $2,894,591
Shares issued in reinvestment
of distributions............... 78,386 1,074,676 81,718 994,509
Shares redeemed................. (43,799) (606,003) (112,150) (1,468,428)
------- ---------- ------- ----------
Net increase.................... 182,491 $2,504,345 188,141 $2,420,672
======= ========== ======= ==========
# Unaudited.
See accompanying Notes to Financial Statements.
7
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LEONETTI BALANCED FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
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Six Months Year Ended June 30, August 1, 1995*
Ended ------------------- through
December 31, 1998# 1998 1997 June 30, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .. $14.02 $12.31 $ 10.80 $10.00
------ ------ ------- ------
Income from investment operations:
Net investment income ................ 0.03 0.05 0.06 0.09
Net realized and unrealized
gain on investments ................. 1.70 2.75 1.54 0.76
------ ------ ------- ------
Total from investment operations ...... 1.73 2.80 1.60 0.85
------ ------ ------- ------
Less distributions:
From net investment income ........... (0.05) (0.03) (0.09) (0.05)
From net capital gains ............... (0.86) (1.06) -0- -0-
------ ------ ------- ------
Total distributions ................... (0.91) (1.09) (0.09) (0.05)
------ ------ ------- ------
Net asset value, end of period ........ $14.84 $14.02 $ 12.31 $10.80
====== ====== ======= ======
Total return .......................... 12.87% 24.10% 14.91% 8.46%
Ratios/supplemental data:
Net assets, end of period (millions) .. $19.1 $15.5 $ 11.3 $10.1
Ratio of expenses to average net assets 1.83%+ 1.99% 2.29% 2.26%+
Ratio of net investment income to
average net assets ................... 0.45%+ 0.40% 0.47% 1.02%+
Portfolio turnover rate ............... 35.23% 89.51% 119.75% 42.16%
</TABLE>
* Commencement of operations.
+ Annualized.
# Unaudited.
See accompanying Notes to Financial Statements.
8
<PAGE>
LEONETTI BALANCED FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998 (UNAUDITED)
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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.
9
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LEONETTI BALANCED FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
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NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the six months ended December 31, 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 six months ended December 31, 1998, the Fund incurred $80,173 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, 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 $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 December 31, 1998, the Fund incurred $15,123 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 six months ended
December 31, 1998, were $6,826,580 and $5,609,457, respectively.
For the six months ended December 31, 1998, the cost of purchases and the
proceeds from sales of U.S. Government and Government Agency obligations,
excluding short-term securities, were $808,516 and $0, respectively.
10
<PAGE>
ADVISER
Leonetti & Associates, Inc.
1130 Lake Cook Road, Suite 300
Buffalo Grove, Illinois 60089
(847) 520-0999
+
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
(800) 282-2340
+
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.
