HARRIS BRETALL SULLIVAN & SMITH
GROWTH EQUITY FUND
ANNUAL REPORT
MARCH 31, 1999
<PAGE>
HARRIS BRETALL SULLIVAN & SMITH L.L.C. [LOGO]
May 1, 1999
Dear Shareholders:
The advancement in the broad market in the past year was led by the strength of
growth stocks. After a tumultuous market ride in the Summer/Fall months of 1998,
the financial services and technology sectors fueled the rally in the fourth
quarter. Funds that focused on growth were rewarded with outstanding performance
for the year, while the markets were much less kind to funds with concentrations
in value oriented cyclical stocks. We are pleased to report that the Harris
Bretall Growth Equity Fund outperformed the broad market indices for the year
with reported returns of over 29% for the 12 months ending March 31, 1999.
1999 began with a continued strong demand for common stocks, pushing the Dow
Jones Industrial Average to record highs. Two days before quarter-end, the Dow
closed above the mystical 10,000 level for the first time. Harris Bretall first
predicted Dow 10,000 three years and 4,500 points ago. Despite the skeptics,
then and now, Harris Bretall remains as committed to larger growth stocks today
as we were in 1996.
WHEN WILL THE DOW DOUBLE AGAIN? No one can know for sure. At Harris Bretall, we
believe that the price of a stock follows the earnings of that company. Since
Harris Bretall currently forecasts the earnings growth rate of the companies
that comprise the Dow to remain in the 8% to 12% range, we would expect this
market average to appreciate at a similar rate. At a 12% average annual return,
the Dow would cross the 20,000 level shortly after December 2005. Given the
experience of the last three years, that forecast seems rather realistic. Yet
given the very strong demand for common stocks, the large amount of cash still
on the sidelines, and the current "no boom-no bust" economic climate, such a
move could happen much sooner.
With the projection of continued growth through the remainder of the decade and
our estimates of the Dow reaching the 20,000 level by the Year 2005, the
portfolio for the future should focus on large, U.S. multinational companies
with a concentration in consumer franchises, high technology, health care and
financial services. Of course, no one can predict the movement of the markets.
But the combination of stocks in the Harris Bretall Growth Equity Fund is an
example of a portfolio which we think will lead the market's charge upward.
Sincerely,
/s/ Jack Sullivan /s/ Gordon J. Ceresino
John J. Sullivan Gordon J. Ceresino
Partner Partner
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
Russell 1000 Growth Adj Fund Adj S&P
232.88 10,000 10,000
240.72 10,040 10,278
249.39 10,310 10,600
264.45 10,776 11,487
265.87 11,036 11,791
316.16 12,837 13,846
339.92 13,817 14,885
345.08 14,151 15,317
397.37 16,224 17,452
415.41 16,525 18,018
377.67 14,251 16,230
478.65 18,782 19,694
509.08 21,073 20,667
Average Annual Total Return
Period Ended March 31, 1999
1 Year.......................... 29.88%
Since Inception (5/1/96)........ 29.14%
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
Russell 1000 Growth Index measures the performance of those Russell 1000
securities with higher price-to-book ratios and higher forecasted growth values.
All indices are unmanaged and returns include reinvested dividends.
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS AT MARCH 31, 1999
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Shares COMMON STOCKS: 98.6% Market Value
- --------------------------------------------------------------------------------
BANKS: 2.2%
11,000 Wells Fargo Company................................... $ 385,688
-----------
CAPITAL GOODS/CONGLOMERATE: 7.3%
5,000 General Electric Company.............................. 553,125
5,500 Illinois Tool Works, Inc.............................. 340,313
5,000 Tyco International Ltd................................ 358,750
-----------
1,252,188
-----------
COMPUTER: 2.7%
3,600 EMC Corp.............................................. 459,900
-----------
CONSUMER CYCLICAL: 6.3%
6,000 The Home Depot, Inc................................... 373,500
4,400 The Interpublic Group of Companies, Inc............... 342,650
4,000 Wal-Mart Stores, Inc.................................. 368,750
-----------
1,084,900
-----------
CONSUMER SERVICES: 3.3%
10,000 Mattel, Inc........................................... 248,750
10,000 Walt Disney Company................................... 311,250
-----------
560,000
-----------
CONSUMER STAPLES: 6.6%
3,500 Colgate-Palmolive Company............................. 322,000
7,000 Gillette Company...................................... 416,062
4,000 Procter & Gamble Company.............................. 391,750
-----------
1,129,812
-----------
DRUGS/BIOTECHNOLOGY: 12.0%
6,000 Abbott Laboratories................................... 280,875
6,000 Bristol-Myers Squibb Company.......................... 385,875
4,400 Merck & Company, Inc.................................. 352,825
2,800 Pfizer, Inc........................................... 388,500
5,800 Schering-Plough Corp.................................. 320,813
5,000 Warner Lambert Company................................ 330,937
-----------
2,059,825
-----------
See accompanying Notes to Financial Statements.
3
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS AT MARCH 31, 1999, Continued
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Shares Market Value
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ENTERTAINMENT: 2.5%
6,000 Time Warner, Inc...................................... $ 426,375
-----------
FINANCIAL: 15.0%
3,500 American International Group, Inc..................... 422,187
5,000 BankAmerica Corp...................................... 353,125
6,000 Charles Schwab Corp................................... 576,750
6,500 CitiGroup, Inc........................................ 415,188
4,500 Merrill Lynch & Company, Inc.......................... 397,969
4,000 Morgan Stanley Dean Witter & Co....................... 399,750
-----------
2,564,969
-----------
FOOD / BEVERAGE: 1.8%
5,000 Coca-Cola Company..................................... 306,875
-----------
HEALTH PRODUCTS: 2.3%
4,200 Johnson & Johnson..................................... 393,487
-----------
MEDICAL: 2.1%
5,000 Medtronic, Inc........................................ 358,750
-----------
RETAIL: 8.7%
6,500 Dayton Hudson Corp.................................... 433,063
5,800 Kroger Company*....................................... 347,275
6,000 Safeway, Inc.*........................................ 307,875
14,000 Starbucks Corp.*...................................... 392,875
-----------
1,481,088
-----------
TECHNOLOGY/DEFENSE: 7.3%
7,000 Autodesk, Inc......................................... 283,062
8,000 Automatic Data Processing, Inc........................ 331,000
7,000 Microsoft Corp.*...................................... 627,375
-----------
1,241,437
-----------
See accompanying Notes to Financial Statements.
4
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
SCHEDULE OF INVESTMENTS AT MARCH 31, 1999, Continued
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Shares Market Value
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TELECOMMUNICATIONS - HARDWARE: 15.9%
4,000 America Online, Inc.*................................. $ 584,000
7,300 Applied Materials, Inc.*.............................. 450,319
4,999 Cisco Systems, Inc.*.................................. 547,703
9,600 Dell Computer Corp.*.................................. 392,400
2,700 Intel Corp............................................ 321,637
4,000 Lucent Technologies, Inc.............................. 431,000
-----------
2,727,059
-----------
TELEPHONE - LONG DISTANCE: 2.6%
5,000 MCI WorldCom, Inc.*................................... 442,812
-----------
Total common stocks (cost $11,034,088)........... 16,875,165
-----------
Principal
Amount REPURCHASE AGREEMENT: 0.9%
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$149,000 Firstar Bank Repurchase Agreement, 3.50%,
dated 3/31/1999, due 4/1/1999, collateralized
by $153,273 GNMA, 5.63%, due 2/28/2001 (proceeds
$149,014) (cost $149,000)....................... 149,000
-----------
Total Investments in Securities (cost
$11,183,088+): 99.5% ............. 17,024,165
Other Assets less Liabilities: 0.5%................... 92,850
-----------
TOTAL NET ASSETS: 100.0% ............................. $17,117,015
===========
*Non-income producing security.
+ At March 31, 1999, the cost of securities for Federal income tax purposes was
$11,216,033. Unrealized appreciation and depreciation of securities were as
follows:
Gross unrealized appreciation................................ $ 5,874,564
Gross unrealized depreciation................................ (66,432)
-----------
Net unrealized appreciation................................ $ 5,808,132
===========
See accompanying Notes to Financial Statements.
5
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES AT MARCH 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $11,183,088) ........ $17,024,165
Cash .......................................................... 449
Receivables:
Dividends and interest ...................................... 7,802
Fund shares sold ............................................ 106,593
Other assets .................................................. 21,317
-----------
Total assets .............................................. 17,160,326
-----------
LIABILITIES
Payables:
Advisory fees ............................................... 4,688
Fund shares redeemed ........................................ 5,000
Accrued expenses .............................................. 33,623
-----------
Total liabilities ......................................... 43,311
-----------
NET ASSETS ...................................................... $17,117,015
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($17,117,015/845,801 shares outstanding;
unlimited number of shares authorized without par value) .... $ 20.24
===========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................... $10,827,346
Undistributed net realized gain on investments ................ 448,592
Net unrealized appreciation on investments .................... 5,841,077
-----------
Net assets ................................................ $17,117,015
===========
See accompanying Notes to Financial Statements.
6
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividend ................................................... $ 87,483
Interest ................................................... 11,160
-----------
Total income ............................................. 98,643
-----------
Expenses
Advisory fees .............................................. 97,541
Distribution fees .......................................... 32,514
Administration fee ......................................... 30,000
Fund accounting fees ....................................... 18,985
Transfer agent fees ........................................ 15,842
Audit fee .................................................. 15,595
Registration fees .......................................... 13,433
Custody fees ............................................... 9,292
Reports to shareholders .................................... 7,948
Legal fees ................................................. 4,815
Trustee fees ............................................... 4,205
Miscellaneous .............................................. 2,739
Insurance .................................................. 809
-----------
Total expenses ........................................... 253,718
Less: expenses waived and reimbursed ..................... (85,948)
-----------
Net expenses ............................................. 167,770
-----------
NET INVESTMENT LOSS .................................... (69,127)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions ............... 912,941
Net change in unrealized appreciation on investments ....... 2,901,133
-----------
Net realized and unrealized gain on investments .......... 3,814,074
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $ 3,744,947
===========
See accompanying Notes to Financial Statements.
7
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
NET INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment loss .......................... $ (69,127) $ (24,024)
Net realized gain from security transactions . 912,941 34,322
Net change in unrealized appreciation on
investments ................................ 2,901,133 2,750,964
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................ 3,744,947 2,761,262
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from security transactions . (496,278) (9,975)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net
change in outstanding shares (a) ........... 1,897,137 5,753,555
------------ ------------
TOTAL INCREASE IN NET ASSETS ............. 5,145,806 8,504,842
NET ASSETS
Beginning of year ............................ 11,971,209 3,466,367
------------ ------------
END OF YEAR .................................... $ 17,117,015 $ 11,971,209
============ ============
(a) A summary of capital shares transactions is as follows:
Year Ended Year Ended
March 31, 1999 March 31, 1998
----------------------- ------------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold .............. 408,124 $ 6,550,229 476,406 $ 6,518,871
Shares issued in
reinvestment of
distributions .......... 30,224 496,278 718 9,975
Shares redeemed .......... (331,586) (5,149,370) (52,264) (775,291)
-------- ----------- -------- -----------
Net increase ............. 106,762 $ 1,897,137 424,860 $ 5,753,555
======== =========== ======== ===========
See accompanying Notes to Financial Statements.
8
<PAGE>
HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Year Ended March 31, May 1, 1996*
-------------------- through
1999 1998 March 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period............... $16.20 $11.03 $10.00
------ ------ ------
Income from investment operations:
Net investment loss.......................... (0.08) (0.02) 0.00
Net realized and unrealized
gain on investments......................... 4.77 5.20 1.04
------ ------ ------
Total from investment operations................... 4.69 5.18 1.04
------ ------ ------
Less distributions:
From net investment income................... 0.00 0.00 (0.01)
From net capital gains....................... (0.65) (0.01) 0.00
------ ------ ------
Total distributions................................ (0.65) (0.01) (0.01)
------ ------ ------
Net asset value, end of period..................... $20.24 $16.20 $11.03
====== ====== ======
Total return....................................... 29.88% 47.02% 10.36%
Ratios/supplemental data:
Net assets, end of period (millions)............... $ 17.1 $ 12.0 $ 3.5
Ratio of expenses to average net assets:
Before expense reimbursement and waiver...... 1.95% 2.39% 4.97%+
After expense reimbursement and waiver....... 1.29% 1.29% 1.28%+
Ratio of net investment loss to average net assets:
Before expense reimbursement and waiver...... (1.19)% (1.42)% (3.69)%+
After expense reimbursement and waiver....... (0.53)% (0.31)% 0.00%+
Portfolio turnover rate............................ 52.77% 40.96% 14.62%
</TABLE>
*Commencement of operations.
+Annualized.
See accompanying Notes to Financial Statements.
9
<PAGE>
HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
NOTES TO FINANCIAL STATEMENTS AT MARCH 31, 1999
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NOTE 1 - ORGANIZATION
Harris Bretall Sullivan & Smith Growth Equity 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 May 1, 1996. The investment objective of the Fund is to seek
growth of capital. 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 included in the NASDAQ National Market System
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. SECURITIES 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. 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 year ended March 31, 1999, Harris Bretall Sullivan & Smith L.L.C.
(the "Advisor"), provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnishes 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 0.75% based upon the average daily net assets of the Fund. For
the year ended March 31, 1999, the Fund incurred $97,541 in Advisory fees.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees to the extent necessary to limit the Fund's aggregate
annual operating expenses to 1.29% of average daily net assets. For the year
ended March 31, 1999, the Advisor has waived its fees and reimbursed the Fund in
the amount of $85,948. The cumulative unreimbursed amount paid by the Advisor on
behalf of the Fund is $245,035.
10
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HARRIS BRETALL SULLIVAN & SMITH GROWTH EQUITY FUND
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
The Advisor may recapture from the Fund the total amount above no later
than March 31, 2001, subject to the requirement that the Fund must pay the
current ordinary operating expenses of the Fund before any such recapture, and
subject to its continued compliance with any other expense limitations (both the
payment of current expenses and continued compliance are "additional
requirements"). The Advisor may recapture a partial amount of the above amount
no later than March 31, 2002, except that the amount paid by the Advisor during
the Fund's first year of operation is excluded and subject to the additional
requirements listed above. The Advisor may recapture a partial amount of the
above amount no later than March 31, 2003, except that the amounts paid by the
Advisor during the Fund's first two years of operation are excluded and subject
to the additional requirements listed above. After the Fund's seventh year of
operations, the Advisor may only seek to recapture for any amounts paid during
the previous three fiscal years of the Fund's operations, subject to the
additional requirements listed above.
Investment Company Administration, LLC (the "Administrator") acts as the
Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Fund's
expense accruals. For its services, the Administrator receives an annual fee at
the following rate:
Under $25 million 0.12% of average daily net assets
$25 to $50 million 0.07% of average daily net assets
$50 to $100 million 0.05% of average daily net assets
Over $100 million 0.03% of average daily net assets,
with a minimum fee of $30,000 annually
For the year ended March 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.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and the Distributor.
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. For the year ended March 31, 1999, the Fund paid
$32,514 to the Distribution Coordinator.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from the sale of securities, other
than short-term investments, for the year ended March 31, 1999, were $7,967,274
and $6,825,046, respectively.
11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of
Harris Bretall Sullivan & Smith Growth Equity Fund and the
Board of Trustees of Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities of Harris
Bretall Sullivan & Smith Growth Equity Fund (the "Fund"), a series of
Professionally Managed Portfolios, including the schedule of investments, as of
March 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 fiscal years
in the period then ended, and the financial highlights for each of the three
fiscal 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.
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 March 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 Harris
Bretall Sullivan & Smith Growth Equity Fund as of March 31, 1999, the results of
its operations for the fiscal year, the changes in its net assets for each of
the two fiscal years in the period then ended, and the financial highlights for
each of the three fiscal years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
April 30, 1999
<PAGE>
ADVISOR
Harris Bretall Sullivan & Smith L.L.C.
One Sansome Street, Suite 3300
San Francisco, CA 94104
(415) 765-8300
Account Inquiries (800) 282-2340
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
CUSTODIAN
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 282-2340
INDEPENDENT AUDITORS
Ernst & Young LLP
725 South Figueroa Street
Los Angeles, CA 90017
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 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.
