PZENA FOCUSED VALUE FUND
Semi-Annual Report
For the Six Months Ended
October 31, 1998
<PAGE>
December, 1998
Dear Shareholders;
Enclosed please find our 1998 Semi-Annual Report. As of November 30, the fund's
return for the year-to-date was -7.2%. Since inception, the fund has earned an
average annual return of 10.7%.1
Needless to say, 1998 has been one of the most challenging years ever for value
investors like us. The result of this environment is that value is currently "on
sale". In fact, the current discount at which the deepest value segment of our
universe sells has reached levels seen only three times in the prior 40 years.
As illustrated in the following table, in each of those prior instances, the
recovery for value was pronounced.
<TABLE>
<CAPTION>
THE CYCLE OF VALUE INVESTING2
VALUE
PERIOD S&P 500 VALUE3 ADVANTAGE
------ ------- ----- ---------
<S> <C> <C> <C> <C>
FEAR Jan 69 - Jun 73 +19.3% -16.8% -36.1%
RECOVERY Jun 73 - Jul 79 +30.4% +263.1% +232.7%
- ------------------------------------------------------------------------------------------------------------------------------------
FEAR Jul 79 - Nov 80 +45.6% +22.5% -23.1%
RECOVERY Nov 80 - Feb 89 +192.9% +464.6% +271.7%
- ------------------------------------------------------------------------------------------------------------------------------------
FEAR Feb 89 - Oct 90 +11.3% -29.7% -41.0%
RECOVERY Oct 90 - Feb 95 +82.6% +199.9% +117.3%
- ------------------------------------------------------------------------------------------------------------------------------------
FEAR Feb 95 - Oct 98 +142.8% +78.5% -64.3%
RECOVERY ? ? ? ?
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Annualized Jan 60 - Oct 98 12.6% 17.9% 5.3%
</TABLE>
With full recognition of the folly of trying to predict the exact timing of the
turn back to value, we are excited about the opportunities before us. We believe
that the cyclical nature of investment returns ensures that the current
valuation extremes will reverse, and history shows that the reversal can be long
and powerful.
We appreciate your confidence in us and look forward to many years of successful
investing together.
Sincerely,
/S/
Richard S. Pzena
1The average annual total return for the year ended September 30, 1998 and from
inception through September 30, 1998 was -18.8% and 6.5%, respectively. Results
shown are past performance, which should not be regarded as an indicator of
future results. Share value and returns fluctuate and investors may have a gain
or loss when they sell shares.
2 Source of table provided by Pzena Investment Management, LLC.
3 Value represents the lowest price-to-book quintile of the largest 1,500
companies.
<PAGE>
PZENA FOCUSED VALUE FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS at October 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 98.9% Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace / Defense: 5.7%
<S> <C> <C>
12,025 Boeing Company.......................................................... $ 450,937
------ ---------
Basic Materials: 1.0%
12,375 J&L Specialty Steel, Inc................................................ 75,023
------ ------
Building Materials: 2.5%
5,400 Owens Corning........................................................... 196,088
----- -------
Chemicals: 4.1%
5,925 Lyondell Chemical Company............................................... 99,984
5,875 Union Carbide Corp...................................................... 226,188
----- -------
326,172
-------
Chemicals - Diversified: 1.3%
2,025 FMC Corp.*.............................................................. 103,402
----- -------
Communications Equipment: 3.5%
17,725 Anixter International, Inc.*............................................ 273,630
------ -------
Computer Services: 1.3%
2,550 Electronic Data Systems Corp............................................ 103,753
----- -------
Computers - Peripherals: 3.9%
17,750 Quantum Corp.*.......................................................... 310,625
------ -------
Distributors - Health Food: 2.0%
15,625 Fleming Companies, Inc.................................................. 159,180
------ -------
Electronics - Component Distributors: 3.0%
4,750 Avnet, Inc.............................................................. 236,312
----- -------
Engineering and Construction: 1.8%
3,775 Fluor Corp.............................................................. 146,517
----- -------
<PAGE>
PZENA FOCUSED VALUE FUND
SCHEDULE OF INVESTMENTS at October 31, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Foods: 3.1%
8,580 RJR Nabisco Holdings Corp............................................... $ 245,066
----- ---------
Health Care - Long Term: 4.2%
49,375 Beverly Enterprises, Inc.*.............................................. 333,281
------ -------
Health Care - Managed Care: 2.1%
14,425 Foundation Health Systems, Inc.*........................................ 169,494
------ -------
Health Care - Medical Products/Supplies: 4.8%
22,775 Quest Diagnostics, Inc.*................................................ 378,634
------ -------
Insurance - Life / Health: 2.0%
2,125 Aetna, Inc.............................................................. 158,578
----- -------
Insurance - Multi-Line: 3.2%
3,525 CIGNA Corp.............................................................. 257,105
----- -------
Insurance - Property and Casualty: 6.3%
4,125 CNA Financial Corp.*.................................................... 171,703
9,900 St. Paul Companies, Inc................................................. 327,937
----- -------
499,640
-------
Iron and Steel: 3.0%
13,125 UCAR International, Inc.*............................................... 236,250
------ -------
Leisure Time - Products: 3.1%
7,250 Polaris Industries, Inc................................................. 249,219
----- -------
Machinery - Diversified: 3.8%
18,225 Coltec Industries, Inc.*................................................ 304,130
------ -------
Medical - Hospitals: 3.2%
12,000 Columbia/HCA Healthcare Corp............................................ 252,000
------ -------
<PAGE>
PZENA FOCUSED VALUE FUND
SCHEDULE OF INVESTMENTS at October 31, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Textiles - Apparel: 5.1%
26,415 Fruit of the Loom, Inc., Class A*....................................... $ 402,829
------ ---------
Textiles - Specialty: 3.1%
26,830 Burlington Industries, Inc.*............................................ 248,177
------ -------
Tobacco: 4.1%
6,350 Philip Morris Companies, Inc............................................ 324,644
----- -------
Transportation - Air Freight: 4.1%
6,135 FDX Corp.*.............................................................. 322,471
----- -------
Transportation - Airlines: 4.1%
3,065 Delta Air Lines, Inc.................................................... 323,549
----- -------
Transportation - Railroads: 3.0%
3,505 Canadian Pacific, Ltd................................................... 79,301
3,250 Union Pacific Corp...................................................... 154,781
----- -------
234,082
-------
Utilities - Electric Companies: 6.5%
5,550 Nevada Power Company.................................................... 140,138
12,500 Northeast Utilities*.................................................... 195,313
4,700 Unicom Corp............................................................. 177,131
----- -------
512,582
-------
Total Common Stocks (cost $8,465,284)................................... 7,833,370
---------- ---------
Principal Amount REPURCHASE AGREEMENT: 1.3%
- ------------------------------------------------------------------------------------------------------------------------------------
$104,000 Star Bank Repurchase Agreement, 4.70%, dated 10/30/1998,
due 11/2/1998, collateralized by $110,000 GNMA, 7.375%,
due 5/20/2024, (proceeds $104,041) (cost $104,000)...................... 104,000
- -- ----- -------- -------- -------
<PAGE>
PZENA FOCUSED VALUE FUND
SCHEDULE OF INVESTMENTS at October 31, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Securities (cost $8,569,284+): 100.2% ............. $7,937,370
Liabilities in excess of Other Assets: (0.2)%........................... (12,320)
---- -------
Total Net Assets: 100.0% ............................................... $7,925,050
===== ==========
<FN>
*Non-income producing security.
+ At October 31, 1998, the cost of securities for Federal tax purposes was
$8,571,729. Unrealized appreciation and depreciation of securities were as
follows:
Gross unrealized appreciation........................................... $ 525,895
Gross unrealized depreciation........................................... (1,160,254)
----------
Net unrealized depreciation................................... $ (634,359)
==========
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
PZENA FOCUSED VALUE FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at October 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at value (cost $8,569,284).................................. $ 7,937,370
Cash................................................................................... 558
Receivables:
Fund shares sold................................................................. 600
Dividends and interest .......................................................... 6,640
Deferred organization costs ........................................................... 22,986
Prepaid expenses....................................................................... 8,118
-----
Total assets .............................................................. 7,976,272
---------
LIABILITIES
Payables:
Advisory fees.................................................................... 1,735
Administration fee............................................................... 2,774
Deferred organization costs...................................................... 31,438
Accrued expenses....................................................................... 15,275
------
Total liabilities.......................................................... 51,222
------
NET ASSETS $ 7,925,050
===========
Net asset value, offering and redemption price per share
($7,925,050/716,572 shares outstanding;
unlimited number of shares authorized without par value) ........................ $11.06
======
COMPONENTS OF NET ASSETS
Paid-in capital ....................................................................... $ 8,622,475
Accumulated net investment loss........................................................ (14,583)
Accumulated net realized loss on investments........................................... (50,928)
Net unrealized depreciation on investments............................................. (631,914)
--------
Net assets ...................................................................... $ 7,925,050
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
PZENA FOCUSED VALUE FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - For the Six Months Ended October 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income
<S> <C>
Dividends........................................................................ $ 55,723
Interest......................................................................... 6,485
-----
Total income............................................................... 62,208
------
Expenses
Advisory fees.................................................................... 54,851
Administration fee............................................................... 15,123
Fund accounting fees............................................................. 9,207
Transfer agent fees.............................................................. 7,453
Audit fee........................................................................ 6,218
Custody fees..................................................................... 4,321
Amortization of deferred organization costs...................................... 3,527
Reports to shareholders.......................................................... 2,848
Trustee fees..................................................................... 2,307
Legal fees....................................................................... 2,090
Miscellaneous.................................................................... 1,826
Registration fees................................................................ 1,514
Insurance........................................................................ 429
---
Total expenses............................................................. 111,714
Less: expenses reimbursed.................................................. (34,923)
-------
Net expenses............................................................... 76,791
------
Net investment loss ................................................. (14,583)
-------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from security transactions..................................... (381,228)
Net change in unrealized depreciation on investments............................. (1,992,921)
----------
Net realized and unrealized loss on investments............................ (2,374,149)
----------
Net decrease in net assets resulting from operations ................ $(2,388,732)
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
PZENA FOCUSED VALUE FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
October 31, 1998# April 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment loss................................................. $ (14,583) $ (20,723)
Net realized (loss) gain from security transactions................. (381,228) 801,510
Net change in unrealized appreciation on investments................ (1,992,921) 1,090,800
---------- ---------
Net (decrease) increase in net assets
resulting from operations .................................... (2,388,732) 1,871,587
---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments.................................... -0- (515,429)
- --------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a)........................................... 659,388 4,441,553
------- ---------
Total (decrease) increase in net assets ......................... (1,729,344) 5,797,711
NET ASSETS
Beginning of period................................................. 9,654,394 3,856,683
--------- ---------
End of period ......................................................... $7,925,050 $9,654,394
========== ==========
<FN>
(a) A summary of capital shares transactions is as follows:
Six Months Year
Ended Ended
October 31, 1998# April 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold............................. 96,026 $1,251,891 347,998 $4,631,975
Shares issued in reinvestment
of distribution...................... -0- -0- 39,637 496,658
Shares redeemed......................... (49,806) (592,503) (50,885) (687,080)
------- -------- ------- --------
Net increase............................ 46,220 $ 659,388 336,750 $4,441,553
====== ========= ======= ==========
</FN>
</TABLE>
#Unaudited.
See accompanying Notes to Financial Statements.
<PAGE>
PZENA FOCUSED VALUE FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year June 24, 1996*
Ended Ended through
October 31, 1998# April 30, 1998 April 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period...................... $14.40 $11.56 $10.00
------ ------ ------
Income from investment operations:
Net investment loss................................. (0.02) (0.03) 0.00
Net realized and unrealized (loss) gain
on investments.................................... (3.32) 3.93 1.59
----- ---- ----
Total from investment operations.......................... (3.34) 3.90 1.59
----- ---- ----
Less distributions:
From net investment income.......................... 0.00 0.00 (0.01)
From net capital gains.............................. 0.00 (1.06) (0.02)
---- ----- -----
Total distributions....................................... 0.00 (1.06) (0.03)
---- ----- -----
Net asset value, end of period............................ $11.06 $14.40 $11.56
====== ====== ======
Total return.............................................. (23.19)% 35.10% 15.88%
Ratios/supplemental data:
Net assets, end of period (millions)................. $ 7.9 $ 9.7 $ 3.9
Ratio of expenses to average net assets:
Before expense reimbursement........................ 2.55%+ 2.69% 5.82%+
After expense reimbursement......................... 1.75%+ 1.75% 1.75%+
Ratio of net investment loss to average net assets:
Before expense reimbursement........................ (1.13)%+ (1.26)% (4.16)%+
After expense reimbursement......................... (0.33)%+ (0.32)% (0.09)%+
Portfolio turnover rate................................... 16.60% 53.95% 22.06%
<FN>
*Commencement of operations.
+Annualized.
#Unaudited.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
PZENA FOCUSED VALUE FUND
NOTES TO FINANCIAL STATEMENTS at October 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Pzena Focused Value 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 June 24, 1996. The investment objective of the Fund is to seek
long-term growth of capital.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a national
securities exchange, or included in the NASDAQ National Market
System, are valued at the last reported sale price at the close of
regular trading on the last business day of the period; securities
traded on an exchange or NASDAQ for which there have been no sales,
and other over-the-counter securities, are valued at the last
reported bid price. Securities for which quotations are not readily
available are valued at their respective fair values, as determined
in good faith by the Board of Trustees. Short-term investments are
stated at cost which, when combined with accrued interest,
approximates market value.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no federal income tax provision is
required.
C. Security Transactions, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. 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. All of the expenses incurred by the
Advisor in connection with the organization and registration of the
Fund's shares will be borne by the Fund and are being amortized on a
straight-line basis over a period of five years.
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 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 October 31, 1998, Pzena Investment Management,
LLC (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 1.25% based upon the average daily net assets of the Fund. For
the six months ended October 31, 1998, the Fund incurred $54,851 in Advisory
fees.
<PAGE>
PZENA FOCUSED VALUE FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
The Fund is responsible for its own operating expenses. The Advisor has
agreed to limit the Fund's total expenses to not more than 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 ("excess expense
payments") are subject to reimbursement by the Fund within a specified period of
time, provided the Fund is able to effect such reimbursement and remain in
compliance with any expense limitations then in effect. For the six months ended
October 31, 1998, the total amount of excess expense payments was $34,923. The
cumulative amount of excess expense payments is $168,314.
The Advisor may be reimbursed for excess expense payments that were
incurred in any of the previous five years until such time as the Fund has been
in operation for six years. After the Fund's sixth year of operations, the
Advisor may only seek reimbursement for any amounts paid during the previous
four years and after the seventh year and thereafter during the previous three
years of the Fund's operations, subject to the additional requirements listed
above. All reimbursement of excess expense payments are subject to the
reimbursement that the Fund must pay its current operating expenses first and
may only reimburse up to its applicable operating expense cap.
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 an annual fee at
the following 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 October 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 the sale of securities, other
than short-term investments, for the six months ended October 31, 1998, were
$2,291,837 and $1,402,626, respectively.
<PAGE>
Advisor
Pzena Investment Management, LLC
830 Third Avenue
14th Floor
New York, NY 10022
Distributor
First Fund Distributors, Inc.
4455 E. Camelback Road
Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Shareholder Service and Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788
Independent Auditors
Tait, Weller, & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
Counsel to the Fund
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
Counsel to the Advisor
Lane Altman & Owens
101 Federal Street
Boston, MA 02110
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.
