ACADEMY VALUE FUND
ANNUAL REPORT
AUGUST 31, 1999
ACADEMY VALUE FUND
<PAGE>
ACADEMY VALUE FUND
September 16, 1999
To our Shareholders:
In our communications with you this year, we outlined several economic and
market conditions that were causing concern. We also stated that due to these
conditions, the Fund's portfolio was primarily invested in fixed income
securities with a small exposure to equities. Our view of the economic and
market environment has not changed, therefore the composition of the portfolio
remains significantly invested in U.S. Government Agency and Inflation Protected
Securities. Some examples of our concerns include:
- consumer debt is exploding while the same consumer has a negative
savings rate
- margin loans for stock purchases have risen significantly, implying
increased use of leverage
- personal bankruptcies and corporate bond defaults are rising during
"the greatest economic expansion in American history"
- a decline in corporate earnings quality as companies are scrambling to
meet investors' earnings growth demands by suppressing and/or moving
expenses off the income statement
- the Federal Reserve's move to twice increase interest rates; many
predict a third rate increase
These items are in addition to the concerns discussed in our most recent letter
and are only a few of the current market characteristics that we feel are
unfavorable. Finally, in light of these and other factors, investors are paying
$31.50 for every $1 of corporate earnings, which are estimated to grow less than
7% per year over the next five years. One only has to look at Maytag, Sears, and
American Home Products to see the downside risk in the current market if
earnings expectations are not met.
For the year ended August 31, 1999, the total return for the Fund was -0.34%.
This return was not driven by the advances or declines in the equity portfolio,
but from the return of the bond portfolio as the level of interest rates
increased over the last several quarters. To reiterate, our current position in
bonds is not permanent, but short-term in nature. We are committed to investing
in equities and continue to identify companies with the business fundamentals we
desire. Our restraint from adding these companies to the portfolio at this time
is directly related to their current asking price, not our view of their
business prospects.
We look forward to the opportunities the next year will bring and will be
communicating with you again soon. Once again we would like to thank you for
allowing us to be the stewards of your investment.
Sincerely,
Academy Capital Management
<PAGE>
ACADEMY VALUE FUND
Value of $10,000 vs Russell 2000 Indexes
Average Annual Total Return
Period Ended August 31, 1999
1 Year..................... -0.34%
Since Inception (12/9/94).. 2.36%
Academy Value Fund Russell 2000 w/inc
------------------ ------------------
12/9/94 10,000 10,000
12/31/94 10,140 10,656
3/31/95 10,360 11,148
6/30/95 11,190 12,193
9/30/95 11,680 13,397
12/31/95 10,603 13,687
3/31/96 11,171 14,386
6/30/96 11,587 15,105
9/30/96 11,689 15,156
12/31/96 12,145 15,945
3/31/97 12,683 15,120
6/30/97 13,921 17,571
9/30/97 15,281 20,186
12/31/97 14,513 19,511
3/31/98 14,949 21,473
6/30/98 13,451 20,472
9/30/98 11,595 16,348
12/31/98 11,255 19,014
3/31/99 11,217 17,982
6/30/99 11,165 20,779
8/31/99 11,165 19,371
Past performance is not predictive of future performance.
The Russell 2000 Index measures the performance of the 2,000 smallest companies
in the Russell 3000 Index, which represents approximately 8% of the total market
capitalization of the Russell 3000 Index. As of the latest reconstitution, the
average market capitalization was approximately $526.4 million; the median
market capitalization was approximately $428.0 million. The largest company in
the index had an approximate market capitalization of $1,349.8 million.
2
<PAGE>
ACADEMY VALUE FUND
SCHEDULE OF INVESTMENTS AT AUGUST 31, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 12.5% Market Value
- --------------------------------------------------------------------------------
FINANCIAL SERVICES: 2.4%
117,300 National Auto Credit, Inc.*........................... $ 105,570
-----------
HUMAN RESOURCES: 2.5%
10,750 Olsten Corp........................................... 110,187
-----------
INDUSTRIAL PRODUCTS: 2.7%
5,500 Watts Industries, Inc., Class A....................... 121,000
-----------
RESTAURANTS: 4.9%
14,300 Lone Star Steakhouse & Saloon, Inc.*.................. 109,038
8,200 Luby's Cafeterias, Inc................................ 109,675
-----------
218,713
-----------
Total Common Stocks (cost $1,155,784)................. 555,470
-----------
Principal U.S. GOVERNMENT AND
Amount GOVERNMENT AGENCY OBLIGATIONS: 86.4%
- --------------------------------------------------------------------------------
$1,000,000 Fannie Mae, 6.29%, 02/11/2009......................... 998,245
500,000 FHLB, 4.675%, 10/15/2002.............................. 476,156
1,000,000 FHLB, 4.64%, 10/09/2002............................... 951,643
300,000 TSY INFL IX N/B, 3.625%, 01/15/2008................... 299,367
1,100,000 TSY INFL IX N/B, 3.875%, 01/15/2009................... 1,099,772
-----------
Total U.S. Government and Government Agency Obligations
(Cost $3,939,338)..................................... 3,825,183
-----------
Total Investments in Securities
(cost $5,095,122+): 98.9%............................. 4,380,653
Other Assets less Liabilities: 1.1%................... 48,005
-----------
Total Net Assets: 100.0%.............................. $ 4,428,658
===========
* Non-income producing security.
See accompanying Notes to Financial Statements.
3
<PAGE>
ACADEMY VALUE FUND
SCHEDULE OF INVESTMENTS AT AUGUST 31, 1999, CONTINUED
- --------------------------------------------------------------------------------
+ At August 31, 1999, the basis of securities for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation of securities were as follows:
Gross unrealized appreciation......................... $ 5,561
Gross unrealized depreciation......................... (720,030)
-----------
Net unrealized depreciation......................... $ (714,469)
===========
See accompanying Notes to Financial Statements.
4
<PAGE>
ACADEMY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES AT AUGUST 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $5,095,122).......... $ 4,380,653
Cash............................................................ 42,705
Receivables:
Due from Advisor.............................................. 2,258
Fund shares purchased......................................... 1,391
Dividends and interest........................................ 37,663
Prepaid expenses and other assets............................... 561
-----------
Total assets.............................................. 4,465,231
-----------
LIABILITIES
Accrued audit fees.............................................. 16,243
Fund shares redeemed............................................ 1,103
Other accrued expenses.......................................... 19,227
-----------
Total liabilities......................................... 36,573
-----------
NET ASSETS........................................................ $ 4,428,658
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($4,428,658/509,095 shares outstanding; unlimited number
of shares authorized without par value)......................... $ 8.70
===========
COMPONENTS OF NET ASSETS
Paid-in capital................................................. $ 5,895,626
Undistributed net investment income............................. 82,442
Accumulated net realized loss on investments................... (834,941)
Net unrealized depreciation on investments...................... (714,469)
-----------
Net assets.................................................. $ 4,428,658
===========
See accompanying Notes to Financial Statements.
5
<PAGE>
ACADEMY VALUE FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED AUGUST 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest...................................................... $ 172,439
Dividends..................................................... 26,721
Other......................................................... 1,629
-----------
Total income.............................................. 200,789
-----------
Expenses
Advisory fees................................................. 50,784
Administration fee............................................ 30,000
Fund accounting fees.......................................... 18,612
Audit fees.................................................... 16,290
Transfer agent fees........................................... 12,888
Distribution fees............................................. 12,696
Custody fees.................................................. 7,872
Registration fees............................................. 7,182
Legal fees.................................................... 4,832
Trustee fees.................................................. 4,140
Reports to shareholders....................................... 3,612
Miscellaneous................................................. 3,409
Insurance..................................................... 489
-----------
Total expenses............................................ 172,806
Less: expenses reimbursed................................. (71,238)
-----------
Net expenses.............................................. 101,568
-----------
NET INVESTMENT INCOME.................................. 99,221
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions.................. (835,179)
Unrealized appreciation on investments........................ 703,961
-----------
Net realized and unrealized loss on investments........... (131,218)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS... $ (31,997)
===========
See accompanying Notes to Financial Statements.
6
<PAGE>
ACADEMY VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Year Year
Ended Ended
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
DECREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income............................................. $ 99,221 $ 22,049
Net realized (loss) gain from security transactions............... (835,179) 638,066
Unrealized appreciation (depreciation) on investments............. 703,961 (2,370,964)
----------- -----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........... (31,997) (1,710,849)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income........................................ (31,136) --
From net realized gains........................................... (633,088) (601,385)
----------- -----------
Total distributions to shareholders............................ (664,224) (601,385)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net (decrease) increase in net assets derived from net change
in outstanding shares (a)...................................... (361,841) 1,530,157
----------- -----------
TOTAL DECREASE IN NET ASSETS .................................. (1,058,062) (782,077)
NET ASSETS
Beginning of year.............................................. 5,486,720 6,268,797
----------- -----------
END OF YEAR....................................................... $ 4,428,658 $ 5,486,720
=========== ===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
Year Year
Ended Ended
August 31, 1999 August 31, 1998
------------------------- -------------------------
Shares Value Shares Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold......................................... 102,654 $ 986,276 137,272 $ 1,811,156
Shares issued in reinvestment of distributions...... 76,700 664,224 47,353 601,385
Shares redeemed..................................... (217,678) (2,012,341) (67,785) (882,384)
----------- ----------- ----------- -----------
Net increase (decrease)............................. (38,324) $ (361,841) 116,840 $ 1,530,157
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
ACADEMY VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended August 31, December 9, 1994*
-------------------------------------------- through
1999 1998 1997 1996 August 31,1995
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 10.02 $ 14.56 $ 11.36 $ 11.60 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss)........... 0.20 0.04 (0.03) 0.01 0.03
Net realized and unrealized (loss)
gain on investments.................. (0.24) (3.28) 3.23 (0.10) 1.57
-------- -------- -------- -------- --------
Total from investment operations......... (0.04) (3.24) 3.20 (0.09) 1.60
-------- -------- -------- -------- --------
Less distributions:
From net investment income............. (0.06) -- -- (0.03) --
From net realized gains................ (1.22) (1.30) -- (0.12) --
-------- -------- -------- -------- --------
Total distributions...................... (1.28) (1.30) -- (0.15) --
-------- -------- -------- -------- --------
Net asset value, end of period........... $ 8.70 $ 10.02 $ 14.56 $ 11.36 $ 11.60
======== ======== ======== ======== ========
Total return............................. (0.34%) (24.16%) 28.17% (0.64%) 22.68%
Ratios/supplemental data:
Net assets, end of period (millions)..... $ 4.4 $ 5.5 $ 6.3 $ 4.7 $ 3.2
Ratio of expenses to average net assets:
Before expense reimbursement and
waived fee........................... 3.40% 2.88% 3.42% 3.39% 5.20%+
After expense reimbursement and
waived fee........................... 2.00% 1.82% 2.00% 2.00% 2.00%+
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement and
waived fee........................... 0.55% (0.73%) (1.67%) (1.20%) (2.62%)+
After expense reimbursement and
waived fee........................... 1.95% 0.33% (0.24%) 0.18% 0.64%+
Portfolio turnover rate.................. 100.92% 39.56% 49.72% 27.71% 13.26%
</TABLE>
* Commencement of operations.
+ Annualized.
See accompanying Notes to Financial Statements.
8
<PAGE>
ACADEMY VALUE FUND
NOTES TO FINANCIAL STATEMENTS AT AUGUST 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Academy Value Fund (the "Fund") is a 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 December 9,
1994. The investment objective of the Fund is growth of capital. The Fund seeks
to achieve its objective by investing primarily in common stocks.
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, INVESTMENT 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 RELATED PARTY TRANSACTIONS
For the year ended August 31, 1999, Academy 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 year ended August 31, 1999, the Fund incurred $50,784 in advisory fees.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce its fees to the extent necessary to limit the Fund's aggregate
annual operating expenses to 2.00% of average daily 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 provided the Fund is able to effect such reimbursement and remain in
compliance with applicable expense limitations. Effective December 31, 1998, the
9
<PAGE>
ACADEMY VALUE FUND
NOTES TO FINANCIAL STATEMENTS AT AUGUST 31, 1999, CONTINUED
- --------------------------------------------------------------------------------
Advisor has chosen to no longer recoup such fees. For the year ended August 31,
1999, the Advisor waived fees of $50,784 and reimbursed the Fund in the amount
of $20,454. As of August 31, 1999, the cumulative expense reimbursement and
waiver from the Advisor to the Fund are $159,845 and $155,647, respectively.
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 year ended August 31, 1999, the Fund incurred $30,000 in
administration fees.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
ICA Fund Services Corp. (the "Transfer Agent") acts as the Fund's transfer
agent. The Transfer Agent is an affiliate of the Administrator.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator, Distributor, and Transfer Agent.
Certain officers of the Advisor and their relatives are shareholders of the
Fund whose value as of August 31, 1999 equaled approximately 6.36% of the Fund's
net assets.
NOTE 4 - DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan"), in accordance with
Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will pay a fee to
the Advisor as Distribution Coordinator at an annual rate of up to 0.25% of the
average daily net assets of the Fund. The fee is paid to the Advisor as
reimbursement for, or in anticipation of, expenses incurred for distribution-
related activity. During the year ended August 31, 1999, the Fund paid fees of
$12,696 to the Advisor.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, excluding
short-term investments, for the year ended August 31, 1999, were $34,651 and
$3,702,437, respectively.
For the year ended August 31, 1999, the cost of purchases and the proceeds
from sales of U.S. Government obligations, excluding short-term securities, were
$4,295,059 and $581,650, respectively.
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
Academy Value Fund and the
Board of Trustees of Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities of Academy
Value Fund (the "Fund") (one of the portfolios constituting the series of
Professionally Managed Portfolios), including the schedule of investments, as of
August 31, 1999, and the related statement of operations for the fiscal year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights of the Fund for the period December 9,
1994 through August 31, 1995 were audited by other auditors whose report dated
October 10, 1995, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1999, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Academy Value Fund as of August 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
September 27, 1999
11
<PAGE>
ADVISOR
Academy Capital Management, Inc.
500 North Valley Mills Drive
Suite 208
Waco, Texas 76710
(817) 751-0555
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road
Suite 261E
Phoenix, Arizona 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
ICA Fund Services Corp.
4455 East Camelback Road
Suite 261E
Phoenix, Arizona 85018
INDEPENDENT AUDITORS
Ernst & Young LLP
725 South Figueroa
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.
