THE OSTERWEIS FUND LOGO
ANNUAL REPORT
MARCH 31, 1999
<PAGE>
May 13, 1999
Dear Shareholders,
We are pleased to report that for the first quarter of 1999 The Osterweis
Fund had a total return of 12.74%, more than double the 4.98% total return of
the Standard & Poor's 500 Index and far ahead of the 0.93% return earned by the
average stock fund (as reported by THE WALL STREET JOURNAL). A number of stocks
in our portfolio performed quite well in the quarter, vindicating our analysis
of their longer-term prospects.
We believe that in the current economic environment the most important
thing we can do is focus on the dynamic effect that the changing fundamentals of
individual companies may have on stock valuations. As long as inflation and
interest rates remain low, the stocks of companies with solid growth prospects
can carry lofty valuations. We work hard to differentiate between companies
likely to suffer earnings disappointment and valuation contractions and those
likely to enjoy earnings acceleration and an expanded valuation. We think this
has proven to be more productive than trying to analyze the valuation of the
market as a whole.
Please call us if you have any questions.
Sincerely,
/s/ John S. Osterweis
John S. Osterweis
- ----------
The Osterweis Fund's annualized total return from its inception on October 1,
1993 through March 31, 1999 was 16.9%. The annualized return for the five year
period ending on March 31, 1999 was 18.0%. The twelve months ending March 31,
1999 showed a total return of 17.2%. Results shown are past performance, which
should not be regarded as an indicator of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their cost. The Osterweis Fund is distributed by
First Fund Distributors, Inc., Phoenix, AZ 85018.
<PAGE>
THE OSTERWEIS FUND LOGO
Average Annual Total Return
Period Ended March 31, 1999
1 Year.................. 10.94%
5 Year.................. 17.02%
Since Inception (5/1/96) 12.09%
Quarter The Osterweig Fund S & P 500
------- ------------------ ---------
10/4/93 10,000 10,000
12/31/93 10,444 10,179
3/31/94 10,304 9,789
6/30/94 10,355 9,824
9/30/94 10,761 10,313
12/31/94 10,323 10,309
3/31/95 10,707 11,312
6/30/95 11,401 12,391
9/30/95 12,106 13,375
12/31/95 11,849 14,178
3/31/96 12,376 14,942
6/30/96 12,991 15,602
9/30/96 13,269 16,091
12/31/96 13,758 17,438
3/31/97 13,812 17,900
6/30/97 15,903 21,019
9/30/97 17,351 22,596
12/31/97 17,645 23,252
3/31/98 20,134 26,494
6/30/98 20,264 27,352
9/30/98 16,982 24,638
12/31/98 20,931 29,896
3/31/99 23,596 31,374
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
S&P 500 is unmanaged and returns include reinvested dividends.
<PAGE>
THE OSTERWEIS FUND LOGO
SCHEDULE OF INVESTMENTS AT MARCH 31, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 85.8% Market Value
- --------------------------------------------------------------------------------
BEVERAGES - ALCOHOLIC: 3.3%
10,800 Anheuser-Busch Companies, Inc......................... $ 822,825
-----------
BUSINESS SERVICES: 5.6%
23,666 A.C. Nielsen Corp..................................... 641,940
45,000 Convergys Corp........................................ 770,625
-----------
1,412,565
-----------
CASINO - HOTELS: 2.3%
17,490 MGM Grand, Inc........................................ 588,101
-----------
CONSUMER PRODUCTS: 5.5%
11,400 Kimberly-Clark Corp................................... 546,488
54,000 Playtex Products, Inc.*............................... 816,750
-----------
1,363,238
-----------
COSMETICS: 3.5%
18,480 Avon Products, Inc.................................... 869,715
-----------
ENERGY: 2.5%
42,729 Snyder Oil Corp....................................... 632,923
-----------
FINANCIAL SERVICES: 5.3%
18,800 Associates First Capital Corp., Class A............... 846,000
14,900 GATX Corp............................................. 490,769
-----------
1,336,769
-----------
INDEPENDENT POWER PRODUCER: 5.6%
38,400 Calpine Corp.......................................... 1,399,200
-----------
MANUFACTURING - DIVERSIFIED: 2.8%
28,000 Owens-Illinois, Inc................................... 700,000
-----------
See accompanying Notes to Financial Statements.
3
<PAGE>
THE OSTERWEIS FUND LOGO
SCHEDULE OF INVESTMENTS AT MARCH 31, 1999, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
MEDIA AND BROADCASTING: 9.0%
29,119 CBS Corp.*............................................ $ 1,192,059
12,500 Scandinavian Broadcasting System SA*.................. 401,563
23,400 Westwood One, Inc.*................................... 666,900
-----------
2,260,522
-----------
MEDICAL: 1.8%
20,000 HCR Manor Care, Inc.*................................. 456,250
-----------
NEWSPAPERS AND PUBLISHING: 2.2%
40,100 Primedia, Inc.*....................................... 561,400
-----------
OIL FIELD SERVICES: 3.1%
108,000 Newpark Resources, Inc.*.............................. 783,000
-----------
PHARMACEUTICAL: 3.8%
17,000 Forest Laboratories, Inc.*............................ 958,375
-----------
REAL ESTATE: 2.0%
23,800 Crescent Real Estate Equities Company................. 511,700
-----------
REMEDIATION SERVICES: 5.7%
110,405 International Technology Corp.*....................... 1,421,464
-----------
RETAIL: 6.0%
85,500 Sunglass Hut International, Inc.*..................... 897,750
9,704 Tandy Corp............................................ 619,237
-----------
1,516,987
-----------
SUPER-REGIONAL BANKS - US: 2.7%
9,500 BankAmerica Corp...................................... 670,937
-----------
TELECOMMUNICATIONS: 13.1%
15,320 Cellular Communications of Puerto Rico, Inc.*......... 413,640
15,320 CoreComm, Ltd.*....................................... 563,010
See accompanying Notes to Financial Statements.
4
<PAGE>
THE OSTERWEIS FUND LOGO
SCHEDULE OF INVESTMENTS AT MARCH 31, 1999, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS, CONTINUED
10,000 Echostar Communications Corp.*........................ $ 816,250
18,267 NTL Inc.*............................................. 1,486,477
-----------
3,279,377
-----------
Total Common Stocks (cost $12,595,525)................ 21,545,348
-----------
Principal U.S. GOVERNMENT AND
Amount GOVERNMENT AGENCY OBLIGATIONS: 6.3%
- --------------------------------------------------------------------------------
$ 500,000 FFCB, 4.77%, 7/1/1999................................. 499,750
500,000 FFCB, 4.62%, 8/2/1999................................. 499,618
600,000 FHLB, 4.70%, 9/15/1999................................ 586,844
-----------
Total U.S. Government and
Government Agency Obligations (cost $1,586,844)...... 1,586,212
-----------
CONVERTIBLE CORPORATE BONDS: 1.1%
- --------------------------------------------------------------------------------
414,000 Kelley Oil & Gas Partners, 7.875%, 12/15/1999
(cost $382,862)..................................... 281,520
-----------
REPURCHASE AGREEMENT: 9.0%
- --------------------------------------------------------------------------------
2,256,000 Firstar Bank Repurchase Agreement, 3.50%,
dated 3/31/1999, due 4/1/1999, collateralized
by $2,302,156 GNMA, 5.63%, due 2/28/2001 (value
of proceeds $2,256,216) (cost $2,256,000)............. 2,256,000
-----------
Total Investment in Securities (cost
$16,821,231+): 102.2%............................... 25,669,080
Liabilities in excess of Other Assets: (2.2)%......... (543,437)
-----------
TOTAL NET ASSETS: 100.0% ............................. $25,125,643
===========
*Non-income producing security.
+At March 31, 1999, the cost of securities for Federal tax purposes was the same
as the basis for financial reporting. Unrealized appreciation and depreciation
of securities were as follows:
Gross unrealized appreciation................................. $ 9,036,266
Gross unrealized depreciation................................. (188,417)
-----------
Net unrealized appreciation................................. $ 8,847,849
===========
See accompanying Notes to Financial Statements.
5
<PAGE>
THE OSTERWEIS FUND LOGO
STATEMENT OF ASSETS AND LIABILITIES AT MARCH 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $16,821,231) ........ $25,669,080
Cash .......................................................... 901
Dividends and interest receivable ............................. 17,883
Other ......................................................... 42
-----------
Total assets .............................................. 25,687,906
-----------
LIABILITIES
Payables:
Advisory fees ............................................... 20,454
Administration fee .......................................... 4,094
Investment securities purchased ............................. 500,000
Accrued expenses .............................................. 37,715
-----------
Total liabilities ......................................... 562,263
-----------
NET ASSETS ...................................................... $25,125,643
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($25,125,643/1,398,520 shares outstanding;
unlimited number of shares authorized without par value) .... $ 17.97
===========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................... $14,835,783
Undistributed net realized gain on investments ................ 1,442,011
Net unrealized appreciation on investments .................... 8,847,849
-----------
Net assets .................................................. $25,125,643
===========
See accompanying Notes to Financial Statements.
6
<PAGE>
THE OSTERWEIS FUND LOGO
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .................................................. $ 165,882
Interest ................................................... 130,083
Other ...................................................... 15,289
-----------
Total income ............................................. 311,254
-----------
Expenses
Advisory fees .............................................. 209,803
Administration fee ......................................... 41,960
Audit fees ................................................. 35,860
Accounting fees ............................................ 21,088
Reimbursed expenses ........................................ 12,676
Transfer agent fees ........................................ 11,004
Custody fees ............................................... 10,519
Trustee fees' .............................................. 6,038
Reports to shareholders .................................... 4,806
Legal fees ................................................. 4,013
Amortization of deferred organization costs ................ 3,888
Miscellaneous .............................................. 3,008
Registration fees .......................................... 2,513
-----------
Total expenses ........................................... 367,176
-----------
NET INVESTMENT LOSS .................................... (55,922)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions ................. 2,972,398
Net change in unrealized appreciation on investments ......... 591,074
-----------
Net realized and unrealized gain on investments .......... 3,563,472
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $ 3,507,550
===========
See accompanying Notes to Financial Statements.
7
<PAGE>
THE OSTERWEIS FUND LOGO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment (loss) income ................. $ (55,922) $ 24,156
Net realized gain from security transactions . 2,972,398 1,814,280
Net change in unrealized appreciation on
investments ................................ 591,074 5,323,212
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .......................... 3,507,550 7,161,648
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ........................ (123) (57,823)
Net realized gain from security transactions . (1,971,361) (1,810,405)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ........ (1,971,484) (1,868,228)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net
change in outstanding shares (a) ........... 1,148,695 597,520
------------ ------------
TOTAL INCREASE IN NET ASSETS ............... 2,684,761 5,890,940
NET ASSETS
Beginning of year ............................ 22,440,882 16,549,942
------------ ------------
END OF YEAR .................................... $ 25,125,643 $ 22,440,882
============ ============
(a) A summary of capital shares transactions is as follows:
Year Year
Ended Ended
March 31, 1999 March 31, 1998
------------------------ ------------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold .............. 107,134 $ 1,798,786 107,150 $ 1,649,762
Shares issued in
reinvestment of
distribution ........... 130,725 1,936,033 127,199 1,834,205
Shares redeemed .......... (160,144) (2,586,124) (198,090) (2,886,447)
-------- ----------- -------- -----------
Net increase ............. 77,715 $ 1,148,695 36,259 $ 597,520
======== =========== ======== ===========
See accompanying Notes to Financial Statements.
8
<PAGE>
THE OSTERWEIS FUND LOGO
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended March 31,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........ $16.99 $12.88 $11.74 $10.33 $10.28
Income from investment operations:
Net investment (loss) income .......... (0.04) 0.02 0.08 0.12 0.28
Net realized and unrealized
gain on investments ................ 2.62 5.61 1.27 1.48 0.11
------ ------ ------ ------ ------
Total from investment operations.......... 2.58 5.63 1.35 1.60 0.39
------ ------ ------ ------ ------
Less distributions:
From net investment income............. 0.00 (0.05) (0.08) (0.19) (0.25)
From net capital gains ................ (1.60) (1.47) (0.13) 0.00 (0.09)
------ ------ ------ ------ ------
Total distributions....................... (1.60) (1.52) (0.21) (0.19) (0.34)
------ ------ ------ ------ ------
Net asset value, end of year ............. $17.97 $16.99 $12.88 $11.74 $10.33
====== ====== ====== ====== ======
Total return ............................. 17.20% 45.77% 11.60% 15.59% 3.91%
Ratios/supplemental data:
Net assets, end of year (millions)........ $ 25.1 $ 22.4 $ 16.5 $ 16.9 $ 9.8
Ratio of expenses to average net assets:
Before expense reimbursement/
recoupment........................... 1.69% 1.67% 1.75% 1.77% 2.32%
After expense reimbursement/
recoupment........................... 1.75% 1.75% 1.75% 1.75% 1.74%
Ratio of net investment (loss) income to
average net assets:
Before expense reimbursement/
recoupment........................... (0.21)% 0.21% 0.63% 1.47% 2.74%
After expense reimbursement/
recoupment........................... (0.27)% 0.13% 0.63% 1.49% 3.32%
Portfolio turnover rate .................. 31.19% 26.27% 41.30% 57.32% 28.65%
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE>
THE OSTERWEIS FUND LOGO
NOTES TO FINANCIAL STATEMENTS AT MARCH 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Osterweis Fund (the "Fund") is a diversified series of shares of
beneficial interest of Professionally Managed Portfolios (the "Trust"), which is
registered under the Investment Company Act of 1940 (the "1940 Act") as an
open-end management investment company. The Fund began operations on October 1,
1993. The investment objective of the Fund is to attain long-term total returns.
The Fund seeks to achieve its objective by investing primarily in equity
securities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange or 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. 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 are
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, Osterweis Capital Management, Inc. (the
"Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor
10
<PAGE>
THE OSTERWEIS FUND LOGO
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
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 March 31, 1999, the Fund
incurred $209,803 in Advisory fees.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund to the extent necessary to limit
the Fund's aggregate annual operating expenses to 1.75% of average net assets.
Any such reductions made by the Advisor in its fees or payments or reimbursement
of expenses which are the Fund's obligation may be subject to reimbursement by
the Fund within the following three years, provided the Fund is able to effect
such reimbursement and remain in compliance with applicable limitations. For the
year ended March 31, 1999, the Advisor recouped $12,676 of such expenses it
previously reimbursed to the Fund, and the remaining contingent amount
reimbursable to the Advisor totaled $41,205.
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 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 March 31, 1999, the Fund incurred $41,960 in
Administration fees.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and Distributor. As of March 31, 1999, the Fund
shares owned by the Fund's Advisor and its affiliates totaled 210,514 shares,
out of 1,398,520.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, other than
U.S. Government and Government Agency obligations and short-term investments,
for the year ended March 31, 1999, were $6,061,847 and $8,684,695, respectively.
11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To The Shareholders of
The Osterweis Fund and
The Board of Trustees of
Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities of The
Osterweis 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 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 for the year ended March 31, 1995 were audited by other auditors
whose report dated May 16, 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. Our procedures included confirmation of securities owned as of March
31, 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 the 1996 through 1999 financial
highlights referred to above present fairly, in all material respects, the
financial position of The Osterweis Fund as of March 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.
/s/ Ernst & Young LLP
Los Angeles, California
May 7, 1999
<PAGE>
ADVISOR
Osterweis Capital Management, Inc.
One Maritime Plaza, Suite 800
San Francisco, California 94111
----------
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261E
Phoenix, Arizona 85018
----------
CUSTODIAN
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
----------
TRANSFER AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
----------
INDEPENDENT AUDITORS
Ernst & Young LLP
725 South Figueroa Street
Los Angeles, California 90017
----------
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, California 94104
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
