[U.S. GLOBAL LEADERS GROWTH FUND LOGO]
Annual Report
June 30, 1999
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U.S. GLOBAL LEADERS GROWTH FUND
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Dear Fellow Long-Term Investor:
When frustrated over underwhelming short-term performance results in an
otherwise high performing long-term investment plan, I often used to say that
the world's most irrelevant statistic was the score at half-time. Now that
investment horizons for many if not most market participants have become so
incredibly short-term, my sports metaphor should perhaps be updated to the
irrelevancy of who is the leading driver after the first 100 laps of the Indy
500, or with the new lunacy of day trading, to which horse was first out of the
starting gate at the Kentucky Derby.
As summarized below, the stock market -- and to a greater extent, U.S. Global
Leaders Growth Fund -- ended the second quarter below their past recovery peak
valuations:
YEAR-TO-DATE YEAR INCEPTION 9/29/95
ENDING ENDED TO 6/30/99
6/30/99 6/30/99 (ANNUALIZED)
------- ------- ------------
U.S. Global Leaders
Growth Fund 6.43% 14.77% 28.90%
U.S. GLOBAL LEADERS
(AFTER-TAX) 6.43% 14.77% 28.78%
S&P 500 Index 12.32% 22.77% 27.79%
Lipper Growth Fund Index 11.93% 21.69% 22.90%
Lipper International
Fund Index 6.90% 4.00% 11.50%
Short-term underlying negatives in the quarter were more heavily weighted by
traders than underlying longer-term positives, which in reality have been
strengthening. The artificially induced jump in oil prices and a spillover
effect in other commodity prices raised inflation concerns and spooked the bond
market. Since stock prices of sustainable growth companies are prime
beneficiaries of low interest rates, the converse is also true. That's a large
part of the 1999 2Q market story.
Eventually, a number of much more important long-term positives will favorably
impact the stock market and "Global Leaders" portfolio companies: inflation
remains subdued, with labor costs per unit of output falling to Post World War
II lows; the U.S. economy continues to expand with both consumer and business
confidence on the rise; Asian economies are either stabilizing or recovering;
Japanese leadership is coming out of denial and beginning to implement necessary
financial, economic and regulatory reforms; the awesome positives flowing from
globalization trends were actually strengthened by the Asian flu (not undermined
as was earlier feared); and international financial reforms have been set in
motion to help guard against future instabilities and to strengthen safety nets.
Accordingly, the next major stock market move should be UP rather than down.
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U.S. GLOBAL LEADERS GROWTH FUND
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Inasmuch as investment performance is ultimately driven by the underlying
earnings performance of the portfolio companies, it is encouraging to note that
our "Global Leaders" this year should about match last year's average earnings
gain of 19 percent (vs. a 5.1 percent DECLINE in 1998 for the S&P 500). Second
half earnings comparisons will become easier in the case of multinationals like
Gillette and Coca-Cola which took earnings hits in many of their emerging
markets beginning in 1998 3Q. Moreover, the valuation of U.S. Global Leaders
Growth Fund is compellingly attractive. The Fund's P/E multiple MATCHES the S&P
500's, yet its underlying sustainable earnings growth rate is 3 TIMES the S&P's.
I encourage you to periodically visit the Fund's internet website:
WWW.USGLOBALLEADERS.COM. 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. Click on the "In the News"
section to read recent articles about the Fund that have appeared in DOW JONES
INVESTMENT ADVISOR, INVESTOR'S BUSINESS DAILY, and INDIVIDUAL INVESTOR. Also,
shareholders can review their account holdings and transaction information as
well as the daily NAV history of the Fund by selecting "View Shareholder Account
Information" (the last choice on the left side of the page). 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.
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,
George M. Yeager
"PATIENCE IS THE COMPANION OF WISDOM." St. Augustine
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U.S. GLOBAL LEADERS GROWTH FUND
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U.S. Global Leaders
Growth Fund S&P 500 w/inc
----------- -------------
9/29/95 10,000 10,000
3/31/96 11,313 11,170
9/30/96 $13,004 $12,029
3/31/97 $13,638 $13,381
9/30/97 $17,773 $16,891
3/31/98 $21,766 $19,805
9/30/98 $18,825 $18,418
3/31/99 $25,932 $25,109
Average Annual Total Return
Period Ended June 30, 1999
1 Year.....................14.77%
3 Year.....................28.99%
Since Inception (9/29/95)..28.90%
Past performance is not predictive of future performance.
The S&P 500 is a broad market-weighted average of U. S. blue-chip companies. The
index is unmanaged and returns include reinvested dividends.
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U.S. GLOBAL LEADERS GROWTH FUND
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SCHEDULE OF INVESTMENTS
AT JUNE 30, 1999
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Shares COMMON STOCKS: 99.4% Value
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BEVERAGES - 1.3%
26,700 The Coca-Cola Company............................. $ 1,668,750
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BUSINESS & INFORMATION SERVICES - 11.2%
80,200 Automatic Data Processing......................... 3,528,800
276,200 Gartner Group, Inc.*.............................. 5,662,100
199,950 Robert Half International Inc.*................... 5,198,700
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14,389,600
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CONSUMER SERVICES - 5.8%
400,800 The ServiceMaster Company......................... 7,515,000
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ENTERTAINMENT & LODGING - 5.3%
32,250 The Walt Disney Company........................... 993,703
154,800 Marriott International, Inc. - Class A............ 5,785,650
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6,779,353
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EXPRESS DELIVERY SERVICES - 5.1%
120,400 FDX Corporation*.................................. 6,531,700
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FINANCIAL SERVICES - 4.2%
63,000 State Street Corporation.......................... 5,378,625
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FOOD SERVICES - 10.4%
234,200 Starbucks Corporation*............................ 8,797,138
111,800 McDonald's Corporation............................ 4,618,738
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13,415,876
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FOODS - 1.8%
26,300 Wm. Wrigley Jr. Company........................... 2,367,000
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HEALTH PRODUCTS - 6.5%
91,100 Abbott Laboratories............................... 4,145,050
44,000 Johnson & Johnson................................. 4,312,000
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8,457,050
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HOUSEHOLD PRODUCTS - 3.4%
29,300 Colgate-Palmolive Company......................... 2,893,375
17,000 The Procter & Gamble Company...................... 1,517,250
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4,410,625
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INSURANCE - 3.0%
32,755 American International Group, Inc................. 3,834,382
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See accompanying Notes to Financial Statements.
5
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U.S. GLOBAL LEADERS GROWTH FUND
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SCHEDULE OF INVESTMENTS
AT JUNE 30, 1999, CONTINUED
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Shares Value
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MASS MERCHANDISING - 5.0%
133,700 Wal-Mart Stores, Inc.............................. $ 6,451,025
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PHARMACEUTICALS - 9.3%
75,600 Merck & Co, Inc................................... 5,594,400
58,800 Pfizer, Inc....................................... 6,453,300
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12,047,700
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SPECIAL RETAIL - 20.8%
127,600 The Home Depot, Inc............................... 8,222,225
107,400 Tiffany & Co...................................... 10,364,100
266,925 Staples, Inc...................................... 8,257,992
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26,844,317
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TELECOMMUNICATIONS - 4.8%
110,100 AT&T Corp......................................... 6,144,956
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TOILETRIES - 1.5%
47,492 The Gillette Company.............................. 1,947,172
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Total Common Stocks
(cost $86,324,907)................................ 128,183,131
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Principal
Amount REPURCHASE AGREEMENTS: 0.6%
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$774,000 Firstar Bank Repurchase Agreement, 3.30%, dated
06/30/99, due 07/01/99, collateralized by $789,294
GNMA, 5.50%, due 05/20/24, (proceeds $774,071)
(cost $774,000)................................... 774,000
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Total Investments in Securities
(cost $87,098,907): 100.00%....................... 128,957,131
Liabilities in Excess of
Other Assets: 0.00%............................. (4,539)
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TOTAL NET ASSETS: 100.00% ........................ $ 128,952,592
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*Non-income producing security.
+At June 30, 1999, the cost of securities for Federal tax purposes was the same
as their basis for financial reporting purposes. Unrealized appreciation and
depreciation of securities were as follows:
Gross unrealized appreciation..................... $ 45,722,689
Gross unrealized depreciation..................... (3,864,465)
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Net unrealized appreciation................. $ 41,858,224
============
See accompanying Notes to Financial Statements.
6
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U.S. GLOBAL LEADERS GROWTH FUND
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STATEMENT OF ASSETS AND LIABILITIES
AT JUNE 30, 1999
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ASSETS
Investments in securities,
at value (cost $87,098,907) ............................ $ 128,957,131
Cash ...................................................... 456
Receivables:
Fund shares sold ....................................... 199,454
Dividends and interest ................................. 92,629
Prepaid expenses .......................................... 1,568
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Total assets ........................................ 129,251,238
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LIABILITIES
Payables:
Advisory fees .......................................... 102,411
Administration fee ..................................... 14,575
Fund shares redeemed ................................... 146,707
Other .................................................. 5,000
Accrued expenses .......................................... 29,953
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Total liabilities ................................... 298,646
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NET ASSETS ................................................... $ 128,952,592
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NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($128,952,592/5,027,986 shares outstanding; unlimited
number of shares authorized without par value) ............. $ 25.65
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COMPONENTS OF NET ASSETS
Paid-in capital ........................................... $ 89,182,540
Undistributed net realized loss on investments ............ (2,088,172)
Net unrealized appreciation on investments ................ 41,858,224
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Net assets ............................................. $ 128,952,592
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See accompanying Notes to Financial Statements.
7
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U.S. GLOBAL LEADERS GROWTH FUND
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
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INVESTMENT INCOME
Income
Dividends .............................................. $ 593,889
Interest ............................................... 66,987
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Total income ..................................... 660,876
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Expenses
Advisory fees .......................................... 1,017,545
Administration fee ..................................... 162,193
Fund accounting fees ................................... 32,915
Custody fees ........................................... 28,033
Transfer agent fees .................................... 22,408
Registration fees ...................................... 20,043
Audit fee .............................................. 15,980
Trustee fees ........................................... 12,334
Reports to shareholders ................................ 9,954
Miscellaneous .......................................... 5,954
Legal fees ............................................. 5,801
Insurance .............................................. 2,189
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Total expenses .................................... 1,335,349
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NET INVESTMENT LOSS ........................... (674,473)
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REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized loss on investments .......................... (1,563,910)
Net unrealized appreciation on investments ................ 16,808,184
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Net realized and unrealized gain on investments ........ 15,244,274
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 14,569,801
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See accompanying Notes to Financial Statements.
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U.S. GLOBAL LEADERS GROWTH FUND
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STATEMENT OF CHANGES IN NET ASSETS
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Year Year
Ended Ended
June 30, 1999 June 30, 1998
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INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment loss .................... $ (674,473) $ (356,918)
Net realized loss on investments ....... (1,563,910) (408,137)
Net change in unrealized
appreciation on investments ......... 16,808,184 18,776,260
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NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....... 14,569,801 18,011,205
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CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived
from net change in outstanding
shares (a) .......................... 24,966,391 44,553,056
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TOTAL INCREASE IN NET ASSETS ....... 39,536,192 62,564,261
NET ASSETS
Beginning of year ......................... 89,416,400 26,852,139
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END OF YEAR ............................... $ 128,952,592 $ 89,416,400
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(a) A summary of capital share transactions is as follows:
Year Year
Ended Ended
June 30, 1999 June 30, 1998
-------------------------- --------------------------
Shares Value Shares Value
Shares sold ........ 1,580,614 $ 37,133,193 2,462,187 $ 46,809,937
Shares redeemed .... (553,186) (12,166,802) (109,778) (2,256,881)
--------- ------------ --------- ------------
Net increase ....... 1,027,428 $ 24,966,391 2,352,409 $ 44,553,056
========= ============ ========= ============
See accompanying Notes to Financial Statements.
9
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U.S. GLOBAL LEADERS GROWTH FUND
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FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
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Year Ended June 30, Sept. 29, 1995*
-------------------------- through
1999 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 income (loss) ..... (0.13) (0.07) (0.04) 0.01
Net realized and unrealized
gain on investments ............ 3.43 6.13 4.39 2.08
------- ------- ------- -------
Total from investment operations ... 3.30 6.06 4.35 2.09
------- ------- ------- -------
Less distributions:
From net investment income ....... 0.00 0.00 0.00 (0.01)
From net realized 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 ..... $ 25.65 $ 22.35 $ 16.29 $ 12.08
======= ======= ======= =======
Total return ....................... 14.77% 37.20% 36.29% 20.83%**
Ratios/supplemental data:
Net assets, end of period
(millions)...................... $ 129.0 $ 89.4 $ 26.9 $ 9.0
Ratio of expenses to average
net assets:
Before expense reimbursement ... 1.31% 1.43% 1.87% 2.55%+
After expense reimbursement..... 1.31% 1.42% 1.48% 1.48%+
Ratio of net investment loss to
average net assets:
Before expense reimbursement ... (0.66)% (0.67)% (0.79)% (1.08)%+
After expense reimbursement .... (0.66)% (0.66)% (0.39)% (0.01)%+
Portfolio turnover rate ............ 14.27% 4.02% 21.49% 4.91%
*Commencement of operations.
+Annualized.
**Not annualized.
See accompanying Notes to Financial Statements.
10
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U.S. GLOBAL LEADERS GROWTH FUND
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NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999
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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 in
sustainable growth companies with a global reach.
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, DIVIDEND INCOME AND DISTRIBUTIONS. Security
transactions are accounted for on the trade date. The cost of
securities sold is determined 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.
E. RECLASSIFICATION OF CAPITAL ACCOUNTS. The Fund accounts and reports
for distributions to shareholders in accordance with the
11
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U.S. GLOBAL LEADERS GROWTH FUND
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
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American Institute of Certified Public Accountant's Statement of
Position 93-2: DETERMINATION, DISCLOSURE AND FINANCIAL STATEMENT
PRESENTATION OF INCOME, CAPITAL GAIN AND RETURN OF CAPITAL
DISTRIBUTIONS BY INVESTMENT COMPANIES. For the year ended June 30,
1999, the Fund's paid-in capital decreased by $674,473 due to the Fund
experiencing a net investment loss during the year. Net increase in
net assets resulting from operations and net assets were not affected
by this reclassification.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended June 30,1999, 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 year ended June 30, 1999, the Fund incurred $1,017,545 in advisory fees.
The Fund is responsible for its own operating expenses. However, the
Advisor has agreed to limit 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. The cumulative unrecouped expenses at June
30, 1999 totaled $109,694. The Advisor elected not to recoup any expenses during
the year ended June 30, 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
based on average daily net assets at the following annual rates:
Under $15 million - $30,000
$15 to $50 million - 0.20%
$50 to $80 million - 0.15%
$80 to $100 million - 0.10%
Over $100 million - 0.05%
12
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
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For the year ended June 30, 1999, the Fund incurred $162,193 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 the sale of securities for the
year ended June 30, 1999, other than short-term investments, were $38,920,573
and $14,345,008, respectively.
NOTE 5 - FEDERAL INCOME TAXES
As of June 30, 1999, the Fund had available for federal income tax purposes
$2,088,172 of unused capital loss carryforwards of which $524,262 will expire in
2006 and $1,563,910 will expire in 2007.
13
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REPORT OF INDEPENDENT AUDITORS
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To the Shareholders of
U.S. Global Leaders Growth Fund and
the Board of Trustees of
Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of U.S. Global Leaders Growth Fund (the
"Fund") (one of the portfolios constituting the series of Professionally Managed
Portfolios), as of June 30, 1999, and the related statement of operations for
the 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
three years in the period then ended and for the period from September 29, 1995
(commencement of operations) through June 30, 1996. 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.
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 June 30, 1999, by correspondence with the custodian and
brokers. 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
U.S. Global Leaders Growth Fund as of June 30, 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 three years in the period then ended and for the period from September 29,
1995 (commencement of operations) through June 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
July 30, 1999
14
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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
Firstar Institutional Custody Services
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
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 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.
