[THE OSTERWEIS FUND LOGO]
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1999
<PAGE>
[THE OSTERWEIS FUND LOGO]
October 20, 1999
Dear Shareholders,
During the third quarter of 1999, The Osterweis Fund declined 2.41%,
compared to a 6.24% drop in the total return of the Standard & Poor's 500 Index.
While we prefer not to report a loss, we are nonetheless pleased that The
Osterweis Fund once again outperformed the overall stock market. For the
six-month period ending September 30, 1999, The Osterweis Fund was up 12.91%,
exceeding the total return of the Standard & Poor's 500 Index which was 0.36%.
Our nine-month, year-to-date total return of 27.29% also compares very favorably
to the 5.36% total return of the Standard & Poor's 500 Index.
The third quarter was a difficult period for the stock market. The
combination of more restrictive monetary conditions and the announcement of
numerous earnings disappointments triggered a stock market correction of 10%
from the mid-July peak. Stocks of companies announcing earnings problems were
severely punished. While the popular averages are still up for the year-to-date
period, many investors and funds have a loss. Against this background, our
robust results are particularly gratifying.
Tight labor markets at home and gathering economic strength abroad have
caused a buildup in inflationary pressures. At the same time, the dominant
trends of technology-driven productivity gains, globalization, and enhanced
internet competition continue to limit companies' ability to raise prices. Since
higher costs cannot be passed on in the form of higher prices, companies must
either offset them with productivity gains or suffer reduced profit margins. For
many companies, the third quarter was a period of lower margins. Despite the
threat of higher inflation, overall consumer inflation remained quiescent.
We expect the stock market to remain volatile throughout the rest of this
year. If cost pressures grow, they will either damage corporate profits or burst
forth in palpably higher inflation causing the Fed to tighten monetary policy.
Either disappointing profits or a significant Fed tightening would be unsettling
to the stock market. On the other hand, an easing of inflationary cost pressures
and a steady monetary policy should spark a stock market rally. As the economic
data are ambiguous and do not wholly support either scenario, we believe that
the market will vacillate between the two views until a more definite consensus
can be built.
<PAGE>
Despite the market's generally extended valuation level, we continue to
find attractively priced investment candidates. Because so many stocks are
trading significantly below their highs, we are able to identify a number of
potential investments that combine strong growth potential, the ability to
generate free cash flow and reasonable valuation. Such stocks should be
successful investments over time regardless of market conditions.
Please let us know if you have any questions.
Sincerely,
/s/ John S. Osterweis
John S. Osterweis
- ----------
The Osterweis Fund's annualized total return from its inception on October 1,
1993 through September 30, 1999 was 17.74%. The annualized returns for the five
year period ending on September 30, 1999 was 19.87%. The twelve months ending
September 30, 1999 showed a total return of 56.89%. Results shown are past
performance, which should not be regarded as an indicator of future results.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their cost. The Osterweis
Fund is distributed by First Fund Distributors, Inc., Phoenix, AZ 85018.
<PAGE>
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 86.0% Value
- --------------------------------------------------------------------------------
BEVERAGES - ALCOHOLIC: 2.3%
10,800 Anheuser-Busch Companies, Inc........................ $ 756,675
-----------
BUSINESS SERVICES: 5.0%
23,666 A.C. Nielsen Corp.*................................. 536,922
55,000 Convergys Corp.*..................................... 1,089,687
-----------
1,626,609
-----------
CASINO - HOTELS: 1.7%
10,565 MGM Grand, Inc.*..................................... 540,796
-----------
CONSUMER PRODUCTS: 4.3%
11,400 Kimberly-Clark Corp.................................. 598,500
54,000 Playtex Products, Inc.*.............................. 796,500
-----------
1,395,000
-----------
COSMETICS: 1.4%
18,480 Avon Products, Inc................................... 458,535
-----------
DIRECT MARKETING: 4.0%
50,000 ValueVision International, Inc.*..................... 1,300,000
-----------
ELECTRONIC COMP - MISC: 1.4%
20,000 Universal Electronics Inc.*.......................... 462,500
-----------
ENERGY: 4.4%
40,900 KN Energy Inc.*...................................... 917,694
58,894 Santa Fe Snyder Corp.*............................... 530,046
-----------
1,447,740
-----------
FINANCIAL SERVICES: 3.5%
18,800 Associates First Capital Corp., Class A.............. 676,800
14,900 GATX Corp............................................ 462,831
-----------
1,139,631
-----------
INDEPENDENT POWER PRODUCER: 9.3%
35,400 Calpine Corp.*....................................... 3,011,213
-----------
See accompanying Notes to Financial statements.
3
<PAGE>
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
INSURANCE - LIFE/HEALTH: 2.2%
28,000 Torchmark Corp....................................... $ 724,500
-----------
MANUFACTURING - DIVERSIFIED: 2.4%
40,000 Owens-Illinois, Inc.*................................ 792,500
-----------
MEDIA AND BROADCASTING: 11.0%
29,119 CBS Corp.*........................................... 1,346,754
15,000 Pegasus Communications Corp.*........................ 676,875
12,500 SBS Broadcasting SA*................................. 484,375
23,400 Westwood One, Inc.*.................................. 1,055,925
-----------
3,563,929
-----------
MEDICAL: 3.5%
66,600 HCR Manor Care, Inc.*................................ 1,144,687
-----------
NEWSPAPERS AND PUBLISHING: 1.7%
40,100 Primedia, Inc.*...................................... 561,400
-----------
OIL FIELD SERVICES: 2.6%
108,000 Newpark Resources, Inc.*............................. 837,000
-----------
PHARMACEUTICAL: 2.2%
17,000 Forest Laboratories, Inc.*........................... 716,125
-----------
PHOTO EQUIPMENT & SUPPLIES: 3.4%
14,500 Eastman Kodak Company................................ 1,093,844
-----------
REAL ESTATE: 1.3%
23,800 Crescent Real Estate Equities Company................ 428,400
-----------
REMEDIATION SERVICES: 3.2%
110,405 International Technology Corp.*...................... 1,055,748
-----------
RETAIL: 1.1%
34,200 Sunglass Hut International, Inc.*.................... 361,237
-----------
See accompanying Notes to Financial statements.
4
<PAGE>
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS: 14.1%
22,980 CoreComm, Inc.*...................................... $ 756,904
14,800 Echostar Communications Corp.*....................... 1,344,025
40,000 Loral Space & Communications Ltd.*................... 687,500
18,267 NTL Inc.*............................................ 1,755,345
-----------
4,543,774
-----------
Total Common Stocks (cost $17,224,836)............... 27,961,843
-----------
Principal U.S. GOVERNMENT AND
Amount GOVERNMENT AGENCY OBLIGATIONS: 8.7%
- --------------------------------------------------------------------------------
$ 500,000 FFCB, 5.06%, 10/1/1999............................... 500,000
-----------
500,000 FFCB, 5.10%, 11/1/1999............................... 500,000
-----------
500,000 FFCB, 5.56%, 4/3/2000................................ 500,000
850,000 FHLB, 5.49%, 1/25/2000............................... 834,963
-----------
500,000 U.S. Treasury Notes, 5.50%, 7/31/2001................ 498,750
-----------
Total U.S. Government and
Government Agency Obligations (cost $2,832,940)...... 2,833,713
-----------
REPURCHASE AGREEMENT: 7.0%
- --------------------------------------------------------------------------------
2,287,000 Firstar Bank Repurchase Agreement, 3.30%, dated
9/30/1999, due 10/1/1999, collateralized by
$2,332,716 FNMA, 6.00% due 3/1/2013 (value of
proceeds $2,287,210) (cost $2,287,000)............... 2,287,000
-----------
Total Investment in Securities (cost $22,344,776+):
101.7%............................................. 33,082,556
Liabilities in Excess of Other Assets: (1.7%) ....... (547,633)
-----------
TOTAL NET ASSETS: 100.0% ............................ $32,534,923
===========
*Non-income producing security.
+ At September 30, 1999, the basis of securities for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation........................ $11,472,543
Gross unrealized depreciation........................ (734,763)
-----------
Net unrealized appreciation.................... $10,737,780
===========
See accompanying Notes to Financial Statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES AT SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investment in securities, at value (cost $22,344,776) ........ $ 33,082,556
Cash ......................................................... 154
Dividends and interest receivable ............................ 22,460
Other ........................................................ 670
------------
Total assets ............................................... 33,105,840
------------
LIABILITIES
Payables:
Investment securities purchased ............................ 500,000
Advisory fees ................................................ 27,809
Administration fee ........................................... 6,287
Other accrued expenses ....................................... 36,821
------------
Total liabilities .......................................... 570,917
------------
NET ASSETS ..................................................... $ 32,534,923
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($32,534,923/1,603,422 shares outstanding; unlimited
number of shares authorized without par value) ......... $ 20.29
============
COMPONENTS OF NET ASSETS
Paid-in capital .............................................. $ 18,911,631
Accumulated net investment loss .............................. (94,967)
Undistributed net realized gain on investments ............... 2,980,479
Net unrealized appreciation on investments ................... 10,737,780
------------
Net assets ................................................. $ 32,534,923
============
See accompanying Notes to Financial Statements.
6
<PAGE>
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest .................................................... $ 91,793
Dividends ................................................... 77,812
Other ....................................................... 12,885
-----------
Total income .......................................... 182,490
-----------
Expenses
Advisory fees ............................................... 158,403
Administration fees ......................................... 31,680
Audit fees .................................................. 13,325
Accounting fees ............................................. 11,537
Custody fees ................................................ 5,996
Transfer agent fees ......................................... 5,516
Trustees' fees ............................................. 3,821
Registration fees ........................................... 3,704
Reports to shareholders ..................................... 2,637
Legal fees .................................................. 1,900
Miscellaneous ............................................... 1,823
Insurance ................................................... 106
-----------
Total expenses ............................................ 240,448
Recouped expenses ......................................... 37,009
-----------
Net expenses .............................................. 277,457
-----------
NET INVESTMENT LOSS ..................................... (94,967)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .............. 1,538,468
Net unrealized appreciation on investments ................ 1,889,931
-----------
Net realized and unrealized gain on investments ......... 3,428,399
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $ 3,333,432
===========
See accompanying Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
September 30, 1999# March 31, 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss .................................. $ (94,967) $ (55,922)
Net realized gain from security transactions ......... 1,538,468 2,972,398
Net unrealized appreciation on investments ........... 1,889,931 591,074
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 3,333,432 3,507,550
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................................ -- (123)
Net realized gain from security transactions ......... -- (1,971,361)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ................ -- (1,971,484)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a) ............................. 4,075,848 1,148,695
------------ ------------
TOTAL INCREASE IN NET ASSETS ....................... 7,409,280 2,684,761
NET ASSETS
Beginning of period ..................................... 25,125,643 22,440,882
------------ ------------
END OF PERIOD ........................................... $ 32,534,923 $ 25,125,643
============ ============
</TABLE>
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1999# March 31, 1999
----------------------- ------------------------
Shares Value Shares Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold ................................. 281,590 $ 5,631,788 107,134 $ 1,798,786
Shares issued in reinvestment of distribution -- -- 130,725 1,936,033
Shares redeemed ............................. (76,688) (1,555,940) (160,144) (2,586,124)
------- ----------- -------- -----------
Net increase ................................ 204,902 $ 4,075,848 77,715 $ 1,148,695
======= =========== ======== ===========
</TABLE>
# Unaudited.
See accompanying Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------
Six Months Year Ended March 31,
Ended --------------------------------------------------------
September 30, 1999# 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $17.97 $16.99 $12.88 $11.74 $10.33 $10.28
====== ====== ====== ====== ====== ======
Income from investment operations:
Net investment (loss) income......... (0.06) (0.04) 0.02 0.08 0.12 0.28
Net realized and unrealized
gain on investments.............. 2.38 2.62 5.61 1.27 1.48 0.11
------ ------ ------ ------ ------ ------
Total from investment operations........ 2.32 2.58 5.63 1.35 1.60 0.39
------ ------ ------ ------ ------ ------
Less distributions:
From net investment income........... -- -- (0.05) (0.08) (0.19) (0.25)
From net realized gains.............. -- (1.60) (1.47) (0.13) -- (0.09)
------ ------ ------ ------ ------ ------
Total distributions..................... -- (1.60) (1.52) (0.21) (0.19) (0.34)
------ ------ ------ ------ ------ ------
Net asset value, end of period.......... $20.29 $17.97 $16.99 $12.88 $11.74 $10.33
====== ====== ====== ====== ====== ======
Total return............................ 12.91% 17.20% 45.77% 11.60% 15.59% 3.91%
Ratios/supplemental data:
Net assets, end of period (millions).... $ 32.5 $ 25.1 $ 22.4 $ 16.5 $ 16.9 $ 9.8
Ratio of expenses to average net assets:
Before expense reimbursement/
recoupment........................ 1.52%+ 1.69% 1.67% 1.75% 1.77% 2.32%
After expense reimbursement/
recoupment........................ 1.75%+ 1.75% 1.75% 1.75% 1.75% 1.74%
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement/
recoupment........................ (0.37)%+ (0.21)% 0.21% 0.63% 1.47% 2.74%
After expense reimbursement/
recoupment........................ (0.60)%+ (0.27)% 0.13% 0.63% 1.49% 3.32%
Portfolio turnover rate................. 10.89% 31.19% 26.27% 41.30% 57.32% 28.65%
</TABLE>
#Unaudited.
+Annualized.
See accompanying Notes to Financial Statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS AT SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Osterweis Fund (the "Fund") is a diversified series of shares of
beneficial interest of Professionally Managed Portfolios (the "Trust"), which is
registered under the Investment Company Act of 1940 (the "1940 Act") as an
open-end management investment company. The Fund began operations on October 1,
1993. The investment objective of the Fund is to attain long-term total returns.
The Fund seeks to achieve its objective by investing primarily in equity
securities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange or Nasdaq are valued at the last reported sales
price at the close of regular trading on the last business day of the
period; securities traded on an exchange or Nasdaq for which there
have been no sales and other over-the-counter securities are valued at
the last reported bid price. Securities for which quotations are not
readily available are valued at their respective fair values as
determined in good faith by the Board of Trustees. Short-term
investments are stated at cost, which when combined with accrued
interest, approximates market value.
B. FEDERAL INCOME TAXES. The Fund intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
C. SECURITY TRANSACTIONS, DIVIDEND INCOME AND DISTRIBUTIONS. Security
transactions are accounted for on the trade date. The cost of
securities sold is determined 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 September 30, 1999, Osterweis Capital Management,
Inc. (the "Advisor") provided the Fund with investment management services under
an Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and most of the personnel needed by the Fund. As
compensation for its services, the Advisor was entitled to a monthly fee at the
annual rate of 1.00% based upon the average daily net assets of the Fund. For
the six months ended September 30, 1999, the Fund incurred $158,403 in advisory
fees.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund to the extent necessary to limit
the Fund's aggregate annual operating expenses to 1.75% of average net assets.
Any such reductions made by the Advisor in its fees or payments or reimbursement
of expenses which are the Fund's obligation may be subject to recoupment by the
Advisor within the following three years, provided the Advisor is able to effect
such recoupment and remain in compliance with applicable limitations. For the
six months ended September 30, 1999, the Advisor recouped $37,009 of such
expenses it previously reimbursed to the Fund. The remaining contingent amount
recoupable by the Advisor at September 30, 1999 totaled $4,196 and was recouped
by October 31, 1999.
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 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 September 30, 1999, the Fund incurred $31,680 in
administration fees.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and Distributor. As of September 30, 1999, the
Fund shares owned by the Fund's Advisor and its affiliates totaled 210,720
shares, out of 1,603,422.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, other than
U.S. Government and Government Agency obligations and short-term investments,
for the six months ended September 30, 1999, were $6,656,638 and $2,908,277,
respectively.
For the six months ended September 30, 1999, the cost of purchase and the
proceeds from sales of U.S. Government and Government Agency obligation,
excluding short-term securities, were $500,207 and $0, respectively.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
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.
12
<PAGE>
ADVISOR
Osterweis Capital Management, Inc.
One Maritime Plaza, Suite 800
San Francisco, California 94111
==========
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261E
Phoenix, Arizona 85018
==========
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, Ohio 45202
==========
TRANSFER AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
==========
INDEPENDENT AUDITORS
Ernst & Young LLP
725 South Figueroa Street
Los Angeles, California 90017
==========
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.
