THE
OSTERWEIS
FUND
--------------------------------------------------------------------------------
ANNUAL REPORT
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For the Year Ended
March 31, 2000
<PAGE>
THE
OSTERWEIS
FUND
May 2, 2000
Dear Shareholders,
During the first quarter of 2000, The Osterweis Fund (the "Fund") continued to
outperform the overall stock market as it had last year. The Fund had a total
return of 9.87% versus 2.29% for the Standard & Poor's 500 Index. For the twelve
months ended March 31, 2000, the Fund had a total return of 63.16% versus 17.94%
for the Standard & Poor's 500 Index. Both for the quarter and the past twelve
months, our superior returns reflected the exceptional performance of several
key holdings.
Beginning in the first quarter, we began to scale back our larger positions. Not
only had they grown to be a greater percentage of our portfolio, but also they
had also reached valuation levels that could no longer be regarded inexpensive.
We reinvested proceeds from the sales into other stocks that we regarded as
undervalued relative to their prospects for accelerating earnings and cash
flows. We wish we had moved more aggressively. Subsequent to the end of the
first quarter of 2000, the market began a correction that has proven quite
violent, taking its greatest toll on stocks that had been the previous big
winners - ours included. As a result, the Fund has given back all of the first
quarter gains and, through May 1, 2000, is now up 1.1% from the end of 1999.
Where does the stock market go from here? On an overall basis we believe that
the correction probably has further to go in order to rectify the extreme
valuation disparity between "new economy" and "old economy" stocks. Given the
bubble-like valuation of the former, it is likely that the gods will demand
human sacrifice before the bull market can resume.
Corrections are a normal feature of any market. They are necessary to wring out
excesses and allow for a resumption of healthy growth. For investors with
long-term horizons, corrections should be viewed as much for the opportunities
they create as for the risks they entail.
As we discussed, we have been shifting assets from the more overvalued sectors
to the more undervalued. The recent market correction has further reduced
overvaluation in our portfolio. Consequently, we believe our portfolio is now
well balanced among various sectors with favorable growth and valuation
characteristics. On a short-term basis, no one can predict what the market will
do. But over the long-term, one can be reasonably confident that companies with
sustainable, growing cash flows will prove to be good or possibly spectacular
investments if purchased at reasonable valuations.
The strength of the U.S. economy suggests that the current stock market
correction is cyclical and that the long term secular bull market will resume
once speculation and overvaluation are wrung out of the "new economy" bubble. In
contrast to the overvalued tech sector of the market, there are many very
1
<PAGE>
attractively priced stocks. Eventually, money will flow from the overvalued to
the undervalued sectors. We regard the current correction as a necessary
transition to a more rational investment climate, and we remain confident that
our focus on attractively valued companies with growing cash flows will continue
to prove rewarding over time.
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, 2000 was 23.11%. The annualized returns for the one and
five year periods ending on March 31, 2000 were 63.16% and 29.22%, respectively.
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.
The Osterweis Fund
Value of $10,000 vs S&P 500 Index
Average Annual Total Return
Period Ended March 31, 2000
1 Year ......................63.16%
5 Year ......................29.22%
Since Inception (10/1/93)....23.11%
The Osterweis Fund S&P 500 Index w/inc
------------------ -------------------
10/1/93 $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
6/30/99 27,299 33,589
9/30/99 26,643 31,490
12/31/99 35,039 36,176
3/31/00 38,499 37,004
Past performance is not predictive of future performance. The S&P 500 Index is a
broad market-weighted average of U.S. blue-chip companies. The S&P 500 Index is
unmanaged and returns include reinvested dividends.
2
<PAGE>
SCHEDULE OF INVESTMENTS at March 31, 2000
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS: 84.3%
Beverages - Alcoholic: 1.4%
10,800 Anheuser-Busch Companies, Inc. $ 672,300
----------
Business Services: 5.6%
23,666 ACNielsen Corporation* 532,485
55,000 Convergys Corp.* 2,124,375
3,400 The ServiceMaster Company 38,250
----------
2,695,110
----------
Consumer Products: 2.8%
11,400 Kimberly-Clark Corporation 638,400
54,000 Playtex Products, Inc.* 702,000
----------
1,340,400
----------
Cosmetics: 1.1%
18,480 Avon Products, Inc. 537,075
----------
Direct Marketing: 4.3%
50,000 ValueVision International, Inc., Class A* 2,068,750
----------
Electronic Components - Misc: 2.0%
40,000 Universal Electroinics Inc.* 970,000
----------
Energy: 1.2%
58,894 Santa Fe Snyder Corp.* 566,855
----------
Financial Services: 2.0%
24,900 GATX Corp. 946,200
----------
Independent Power Producer: 7.2%
36,800 Calpine Corporation* 3,459,200
----------
Insurance - Property/Casualty: 3.6%
31,000 XL Capital Ltd. 1,716,625
----------
Manufacturing - Diversified: 2.1%
60,000 Owens-Illinois, Inc.* 1,012,500
----------
Media and Broadcasting: 22.4%
26,119 CBS Corporation* $1,478,988
53,200 Echostar Communications Corp.* 4,202,800
15,000 Pegasus Communications Corp.* 2,111,250
40,100 Primedia, Inc.* 1,283,200
46,800 Westwood One, Inc.* 1,696,500
----------
10,772,738
----------
Medical: 2.4%
85,000 Manor Care, Inc.* 1,147,500
----------
Oil Field Services: 1.8%
108,000 Newpark Resources, Inc.* 864,000
----------
Pharmaceutical: 3.0%
17,000 Forest Laboratories, Inc.* 1,436,500
----------
Pipelines: 4.2%
58,600 Kinder Morgan, Inc. 2,021,700
----------
Real Estate: 1.8%
48,800 Crescent Real Estate
Equities Company 854,000
----------
Remediation Services: 1.7%
110,405 The IT Group, Inc.* 834,938
----------
Resorts/Theme Parks: 2.6%
60,000 Premier Parks Inc.* 1,260,000
----------
Telecommunications: 11.1%
29,800 American Tower Corp., Class A 1,471,375
26,970 CoreComm, Inc.* 1,186,680
28,541 NTL Inc.* 2,648,985
----------
5,307,040
----------
Total Common Stocks (Cost $18,663,023) 40,483,431
----------
3
<PAGE>
SCHEDULE OF INVESTMENTS at March 31, 2000 (Continued)
Principal
Amount Value
--------------------------------------------------------------------------------
U. S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS: 7.6%
$500,000 Federal Farm Credit Bank, 5.560%, 4/3/2000 $ 500,000
500,000 Federal Farm Credit Bank, 5.670%, 5/1/2000 500,000
500,000 Federal Farm Credit Bank, 6.250%, 10/2/2000 500,000
850,000 Federal Home Loan Bank, 5.640%, 4/24/2000 846,937
300,000 Federal Home Loan Bank, 5.720%, 7/21/2000 294,523
250,000 U.S. Treasury Bond, 6.250%, 1/31/2002 248,750
500,000 U.S. Treasury Notes, 5.500%, 7/31/2001 493,281
250,000 U.S. Treasury Notes, 6.625%, 3/31/2002 250,469
-----------
Total U. S. Government and Government Agency
Obligations (Cost $3,639,518) 3,633,960
-----------
REPURCHASE AGREEMENT: 9.2%
$4,438,000 Firstar Bank Repurchase Agreement, 3.75%,
dated 3/31/2000, due 4/3/2000, collateralized by
$4,526,520 FHLMC ARM, 6.319% due 9/1/2029 (value
of proceeds $4,439,387) (Cost $4,438,000) $ 4,438,000
-----------
Total Investments in Securities
(Cost $26,740,541+): 101.1% 48,555,391
Liabilities in excess of Other Assets: (1.1%) (529,391)
-----------
Net Assets: 100.0% $48,026,000
===========
* Non-income producing security.
+ At March 31, 2000, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation $23,119,544
Gross unrealized depreciation (1,304,694)
-----------
Net unrealized appreciation $21,814,850
===========
See accompanying Notes to Financial Statements.
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES at March 31, 2000
ASSETS
Investments in securities, at value (cost $26,740,541) ........ $48,555,391
Cash .......................................................... 284
Receivables:
Dividends and interest ..................................... 29,602
Fund shares sold ........................................... 16,531
Prepaid expenses .............................................. 569
-----------
Total assets ............................................ 48,602,377
-----------
LIABILITIES
Payables:
Investment securities purchased ............................ 500,000
Advisory fees .............................................. 39,038
Administration fees ........................................ 8,716
Accrued expenses .............................................. 28,623
-----------
Total liabilities ....................................... 576,377
-----------
NET ASSETS .................................................... $48,026,000
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($48,026,000 /1,783,081 shares outstanding; unlimited
number of shares authorized without par value) ............... $ 26.93
===========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................... $22,948,381
Accumulated net realized gain on investments .................. 3,262,769
Net unrealized appreciation on investments .................... 21,814,850
-----------
Net assets .............................................. $48,026,000
===========
See accompanying Notes to Financial Statements.
5
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended March 31, 2000
INVESTMENT INCOME
Income
Interest .................................................. $ 204,994
Dividends ................................................. 167,605
Other ..................................................... 13,501
------------
Total income ............................................ 386,100
------------
Expenses
Advisory fees ............................................. 355,496
Administration fees ....................................... 71,099
Accounting fees ........................................... 23,370
Audit fees ................................................ 21,357
Custody fees .............................................. 14,088
Transfer agent fees ....................................... 11,031
Trustee fees .............................................. 5,983
Reports to shareholders ................................... 4,549
Miscellaneous ............................................. 3,781
Legal fees ................................................ 3,160
Insurance expense ......................................... 1,379
Registration expense ...................................... 1,104
Amortization of deferred organization costs ............... 42
------------
Total expenses .......................................... 516,439
Add: expenses recouped by advisor ....................... 41,723
------------
Net expenses ............................................ 558,162
------------
NET INVESTMENT LOSS .................................. (172,062)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments ............................ 4,929,959
Net unrealized appreciation on investments .................. 12,967,001
------------
Net realized and unrealized gain on investments ......... 17,896,960
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS .......................................... $ 17,724,898
============
See accompanying Notes to Financial Statements.
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
March 31, 2000 March 31, 1999
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss .......................... $ (172,062) $ (55,922)
Net realized gain on investments ............. 4,929,959 2,972,398
Net unrealized appreciation on investments ... 12,967,001 591,074
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................... 17,724,898 3,507,550
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (9) (123)
From net realized gain ....................... (3,109,201) (1,971,361)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ........ (3,109,210) (1,971,484)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net
change in outstanding shares (a) ........... 8,284,669 1,148,695
------------ ------------
TOTAL INCREASE IN NET ASSETS ............... 22,900,357 2,684,761
NET ASSETS
Beginning of year ............................ 25,125,643 22,440,882
------------ ------------
END OF YEAR .................................. $ 48,026,000 $ 25,125,643
============ ============
(a) A summary of capital share transactions is as follows:
Year Ended Year Ended
March 31, 2000 March 31, 1999
---------------------- ----------------------
Shares Value Shares Value
-------- ----------- -------- -----------
Shares sold 395,770 $ 8,379,354 107,134 $ 1,798,786
Shares issued in reinvestment
of distribution 137,309 3,064,724 130,725 1,936,033
Shares redeemed (148,518) (3,159,409) (160,144) (2,586,124)
-------- ----------- -------- -----------
Net increase 384,561 $ 8,284,669 77,715 $ 1,148,695
======== =========== ======== ===========
See accompanying Notes to Financial Statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each year
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $17.97 $16.99 $12.88 $11.74 $10.33
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .............. (0.10) (0.04) 0.02 0.08 0.12
Net realized and unrealized gain on
investments .............................. 11.04 2.62 5.61 1.27 1.48
------ ------ ------ ------ ------
Total from investment operations ........... 10.94 2.58 5.63 1.35 1.60
------ ------ ------ ------ ------
Less distributions:
From net investment income ............... (0.00) 0.00 (0.05) (0.08) (0.19)
From net realized gain ................... (1.98) (1.60) (1.47) (0.13) 0.00
------ ------ ------ ------ ------
Total distributions ........................ (1.98) (1.60) (1.52) (0.21) (0.19)
------ ------ ------ ------ ------
Net asset value, end of year ............... $26.93 $17.97 $16.99 $12.88 $11.74
====== ====== ====== ====== ======
Total return ............................... 63.16% 17.20% 45.77% 11.60% 15.59%
Ratios/supplemental data:
Net assets, end of year (millions)........ $ 48.0 $ 25.1 $ 22.4 $ 16.5 $ 16.9
Ratio of expenses to average net assets:
Before fees waived and expenses
absorbed or recouped ..................... 1.45% 1.69% 1.67% 1.75% 1.77%
After fees waived and expenses
absorbed or recouped ..................... 1.57% 1.75% 1.75% 1.75% 1.75%
Ratio of net investment income (loss)
to average net assets:
Before fees waived and expenses
absorbed or recouped ..................... (0.36)% (0.21)% 0.21% 0.63% 1.47%
After fees waived and expenses
absorbed or recouped ..................... (0.48)% (0.27)% 0.13% 0.63% 1.49%
Portfolio turnover rate .................. 38.58% 31.19% 26.27% 41.30% 57.32%
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 Nasdaq are valued at the last reported sales
price at the close of regular trading on the last business day of the
period; securities traded on an exchange or Nasdaq for which there
have been no sales and other over-the-counter securities are valued at
the last reported bid price. Securities for which quotations are not
readily available are valued at their respective fair values as
determined in good faith by the Board of Trustees. Short-term
investments are stated at cost, which when combined with accrued
interest, approximates market value.
B. FEDERAL INCOME TAXES. The Fund intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
C. SECURITY TRANSACTIONS, DIVIDEND INCOME AND DISTRIBUTIONS. Security
transactions are accounted for on the trade date. The cost of
securities sold is determined on a first-in, first-out basis. Dividend
income and distributions to shareholders are recorded on the
ex-dividend date.
D. USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
E. RECLASSIFICATION OF CAPITAL ACCOUNTS. The Fund accounts and reports
for distributions to shareholders in accordance with the American
Institute of Certified Public Accountant's Statement of Position 93-2:
DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF
INCOME, CAPITAL AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT
COMPANIES. For the year ended March 31, 2000, the Fund decreased
paid-in capital by $172,062 due to the Fund experiencing a net
investment loss during the year. Accumulated net realized gain on
investments and net assets were not affected by this change.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended March 31, 2000, Osterweis Capital Management, Inc. (the
"Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and most of the personnel needed by the Fund. As
compensation for its services, the Advisor was entitled to a monthly fee at the
annual rate of 1.00% based upon the average daily net assets of the Fund. For
the year ended March 31, 2000, the Fund incurred $355,496 in advisory fees.
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
daily net assets. Any fee withheld and/or any Fund expense absorbed by the
Advisor pursuant to an agreed upon expense cap shall be reimbursed by the Fund
to the Advisor, if so requested by the Advisor, anytime before the end of the
third fiscal year following the year to which the fees waived and expenses
absorbed relate, provided the aggregate amount of the Fund's current operating
expenses for such fiscal year does not exceed the applicable limitation on Fund
expenses. Any such reimbursement is also contingent upon Board of Trustees
review and approval prior to the time the reimbursement is initiated. The Fund
must pay its current ordinary operating expenses before the Advisor is entitled
to any reimbursement. For the year ended March 31, 2000, the Advisor recouped
$41,723 of such expenses it previously reimbursed to the Fund.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Fund's
expense accruals. For its services, the Administrator receives a monthly fee at
the following annual rate:
Under $15 million $30,000
$15 to $50 million 0.20% of average daily net assets
$50 to $100 million 0.15% of average daily net assets
$100 to $150 million 0.10% of average daily net assets
Over $150 million 0.05% of average daily net assets
For the year ended March 31, 2000, the Fund incurred $71,099 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, 2000, the Fund
shares owned by the Fund's Advisor and its affiliates totaled 245,019 shares,
out of 1,783,081.
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, 2000, were $13,803,281 and $12,008,171,
respectively.
For the year ended March 31, 2000, the cost of purchase and the proceeds
from sales of U.S. Government and Government Agency obligations, excluding
short-term securities, were $1,012,585 and $0, respectively.
11
<PAGE>
NOTE 5 - REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board, with member banks of the
Federal Reserve System or with such other brokers or dealers that meet the
credit guidelines established by the Board of Trustees. The Fund will always
receive and maintain, as collateral, securities whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral.
If the seller defaults and the value of the collateral declines, or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
12
<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 INSTITUTIONAL CUSTODY SERVICES
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.
