[HARRIS BRETALL LOGO]
HARRIS BRETALL
SULLIVAN & SMITH GROWTH EQUITY FUND
--------------------------------------------------------------------------------
ANNUAL REPORT
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For the Year Ended
March 31, 2000
<PAGE>
[HARRIS BRETALL LOGO]
May 11, 2000
Dear Shareholders:
For most of the past year investors benefited from a continuation of the
extraordinary rally in technology companies. Because the Fund portfolio has a
substantial commitment to this sector, it too experienced good appreciation.
However, the most recent period saw a correction in the NASDAQ Composite, an
index dominated by technology stocks, which took prices down substantially. This
sell-off has continued, with the NASDAQ experiencing some of the worst
single-day declines in its history. After a triumphal close above the 5000 level
on March 9th, the index was below 3700 only 18 trading days later. Despite the
price weakness during the last few trading sessions Harris Bretall's optimism
for technology stocks has not waned. Earnings drive stock prices, and we expect
these issues to rebound once earnings reports are released.
Harris Bretall remains optimistic concerning the prospects for the U.S. economy
and the financial markets. The Federal Reserve Bank is expected to increase
interest rates modestly - perhaps 25/50 basis points in May. Yet it does not
appear that such monetary restraint will disrupt the economy or the stock
market. Corporate earnings remain exceptional, with estimates rising to more
than 15% annual growth for year 2000 for the average S & P 500 Index company.
Our outlook for the companies held in the Fund's portfolio is for earnings
growth of almost twice that rate.
This scenario should sound familiar - strong economic growth, better than
forecast corporate earnings, and low inflation. For most of the past decade this
recipe has led to higher stock prices. We believe the same will occur this year.
Like last year, we believe these first few months are the beginning of another
successful investment year.
We invite you to review our outlook on the technology sector and our Quarterly
Economic and Market Outlook Report, both of which can be found on our website
www.hbss.com. Together these two papers make a powerful case to continue a major
commitment to growth.
Sincerely,
/s/ John J. Sullivan /s/ Gordon J. Ceresino
John J. Sullivan, CFA Gordon J. Ceresino, CIMA
Partner Partner
<PAGE>
Harris, Bretall, Sullican & Smith Growth Equity Fund
Value of $10,000 vs S&P 500 and Russell 1000 Growth Indices
Average Annual Total Return
Period Ended March 31, 2000
1 Year.......................... 27.87%
Since Inception (5/1/96)........ 28.88%
HBSS Growth S&P 500 Russell 1000
Qtr Equity Fund Index w/inc. Growth Index w/inc.
--- ----------- ------------ -------------------
5/1/96 10,000 10,000 10,000
6/30/96 10,040 10,278 10,337
9/30/96 10,310 10,600 10,709
12/31/96 10,776 11,487 11,356
3/31/97 11,036 11,791 11,417
6/30/97 12,837 13,846 13,576
9/30/97 13,817 14,885 14,596
12/31/97 14,151 15,317 14,818
3/31/98 16,224 17,452 17,063
6/30/98 16,525 18,018 17,838
9/30/98 14,251 16,230 16,217
12/31/98 18,782 19,694 20,554
3/31/99 21,073 20,667 21,860
6/30/99 21,791 22,127 22,702
9/30/99 20,292 20,744 21,871
12/31/99 25,383 23,830 27,369
3/31/00 26,945 24,376 29,321
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 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.
2
<PAGE>
SCHEDULE OF INVESTMENTS AT MARCH 31, 2000
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS: 92.7%
Capital Goods/Conglomerates: 5.2%
7,500 General Electric Company $ 1,163,906
7,500 Illinois Tool Works Inc. 414,375
-----------
1,578,281
-----------
Communications: 14.8%
8,000 America Online, Inc.* 538,000
19,000 Cisco Systems, Inc.* 1,468,937
9,200 JDS Uniphase Corporation* 1,109,175
6,100 Lucent Technologies Inc. 370,575
6,000 Yahoo! Inc.* 1,028,250
-----------
4,514,937
-----------
Consumer Cyclical: 7.7%
12,000 Costco Wholesale Corporation* 630,750
9,000 Home Depot, Inc. 580,500
7,000 Target Corp. 523,250
11,000 Wal-Mart Stores, Inc. 610,500
-----------
2,345,000
-----------
Consumer Services: 3.4%
10,000 The Interpublic Group of Companies, Inc. 472,500
14,000 The Walt Disney Company 579,250
-----------
1,051,750
-----------
Consumer Staples: 2.8%
8,000 Colgate-Palmolive Company 451,000
16,000 Walgreen Co. 412,000
-----------
863,000
-----------
Drugs/Biotechnology: 6.4%
7,000 Biogen Inc.* 489,125
7,000 Bristol-Myers Squibb Company 404,250
3,000 Genentech, Inc.* 456,000
13,000 Pfizer, Inc. 475,313
3,800 Schering-Plough Corporation 139,650
-----------
1,964,338
-----------
Energy: 4.2%
16,000 Halliburton Company $ 656,000
8,000 Schlumberger Limited 612,000
-----------
1,268,000
-----------
Financial: 11.6%
4,875 American International Group, Inc. 533,812
9,000 Citigroup Inc. 533,813
9,000 Morgan Stanley Dean Witter & Co. 734,063
12,000 The Charles Schwab Corp. 681,750
6,000 The Goldman Sachs Group, Inc. 630,750
10,000 Wells Fargo & Company 409,375
-----------
3,523,563
-----------
Hardware: 11.7%
10,600 Dell Computer Corporation* 571,738
6,500 EMC Corporation* 812,500
5,000 International Business Machines Corporation 590,000
9,000 Network Appliance, Inc.* 744,750
9,000 Sun Microsystems, Inc.* 843,328
-----------
3,562,316
-----------
Healthcare: 1.4%
6,000 Johnson & Johnson 420,375
-----------
Semiconductors: 13.6%
9,000 Applied Materials, Inc.* 848,250
13,500 Intel Corporation 1,781,156
3,500 PMC-Sierra, Inc.* 712,906
5,000 Texas Instruments, Incorporated 800,000
-----------
4,142,312
-----------
Software & Services: 5.3%
12,000 BroadVision, Inc.* 538,500
10,000 Microsoft Corporation* 1,062,500
-----------
1,601,000
-----------
3
<PAGE>
SCHEDULE OF INVESTMENTS AT MARCH 31, 2000 (CONTINUED)
Shares Value
--------------------------------------------------------------------------------
Utilities: 4.6%
13,500 MCI WorldCom Incorprated* $ 611,719
13,000 Qwest Communications International Inc.* 630,500
4,000 SBC Communications Inc. 168,000
-----------
1,410,219
-----------
Total Common Stocks (cost $17,544,714) 28,245,091
-----------
Principal
Amount Value
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REPURCHASE AGREEMENT: 3.7%
$1,126,000 Firstar Bank Repurchase Agreement, 3.75%, dated
3/31/2000, due 4/3/2000, collateralized by $1,148,459
FHLMC ARM, 6.319%, due 9/1/2029 (proceeds $1,126,352)
(cost $1,126,000) $ 1,126,000
-----------
Total Investments in Securities
(cost $18,670,714+): 96.4% 29,371,091
Other Assets less Liabilities: 3.6% 1,093,573
-----------
Net Assets: 100.0% $30,464,664
===========
* 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 $10,971,681
Gross unrealized depreciation (271,304)
-----------
Net unrealized appreciation $10,700,377
===========
See accompanying Notes to Financial Statements.
4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES AT MARCH 31, 2000
ASSETS
Investments in securities,
at value (cost $18,670,714) ................................ $29,371,091
Cash ......................................................... 393
Receivables:
Investment securities sold ................................. 1,088,322
Fund shares sold ........................................... 60,633
Dividends and interest ..................................... 6,052
Due from advisor ........................................... 1,797
Prepaid expenses ............................................. 10,701
-----------
Total assets ........................................... 30,538,989
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LIABILITIES
Payables:
Fund shares redeemed ....................................... 32,914
Distribution fees .......................................... 17,205
Administration fees ........................................ 3,199
Accrued expenses ............................................. 21,007
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Total liabilities ...................................... 74,325
-----------
NET ASSETS ................................................... $30,464,664
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($30,464,664/1,244,080 shares outstanding; unlimited number
of shares authorized without par value)...................... $ 24.49
===========
COMPONENTS OF NET ASSETS
Paid-in capital .............................................. $19,451,417
Accumulated net realized gain on investments ................. 312,870
Net unrealized appreciation on investments ................... 10,700,377
-----------
Net assets ............................................. $30,464,664
===========
See accompanying Notes to Financial Statements.
5
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended March 31, 2000
INVESTMENT INCOME
Income
Dividends ............................................... $ 107,756
Interest ................................................ 25,364
-----------
Total income ........................................ 133,120
-----------
Expenses
Advisory fees ........................................... 159,117
Distribution fees ....................................... 53,039
Administration fees ..................................... 30,563
Registration expense .................................... 27,335
Fund accounting fees .................................... 20,858
Audit fees .............................................. 16,713
Transfer agent fees ..................................... 16,153
Custody fees ............................................ 12,070
Reports to shareholders ................................. 6,907
Trustee fees ............................................ 6,126
Legal fees .............................................. 2,716
Miscellaneous ........................................... 1,429
Insurance expense ....................................... 142
-----------
Total expenses ...................................... 353,168
Less: fees waived and expenses absorbed ............. (79,274)
-----------
Net expenses ........................................ 273,894
-----------
Net investment loss ............................. (140,774)
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments .......................... 1,171,749
Net unrealized appreciation on investments ................ 4,859,300
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Net realized and unrealized gain
on investments ........................................ 6,031,049
-----------
Net increase in net assets resulting
from operations ..................................... $ 5,890,275
===========
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 .......................... $ (140,774) $ (69,127)
Net realized gain on investments ............. 1,171,749 912,941
Net unrealized appreciation on investments ... 4,859,300 2,901,133
----------- -----------
Net increase in net assets resulting
from operations .......................... 5,890,275 3,744,947
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gain ....................... (1,307,471) (496,278)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares (a) ...... 8,764,845 1,897,137
----------- -----------
Total increase in net assets ............... 13,347,649 5,145,806
NET ASSETS
Beginning of year ............................ 17,117,015 11,971,209
----------- -----------
End of year .................................. $30,464,664 $17,117,015
=========== ===========
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 2000 March 31, 1999
------------------------- -------------------------
Shares Value Shares Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold 584,466 $12,532,016 408,124 $ 6,550,229
Shares issued in reinvestment
of distributions 54,627 1,195,782 30,224 496,278
Shares redeemed (240,814) (4,962,953) (331,586) (5,149,370)
----------- ----------- ----------- -----------
Net increase 398,279 $ 8,764,845 106,762 $ 1,897,137
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended March 31, May 1, 1996*
---------------------------- through
2000 1999 1998 March 31, 1997
------ ------ ------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .............. $20.24 $16.20 $11.03 $10.00
------ ------ ------ ------
Income from investment operations:
Net investment loss ............................. (0.11) (0.08) (0.02) 0.00
Net realized and unrealized gain
on investments ................................ 5.60 4.77 5.20 1.04
------ ------ ------ ------
Total from investment operations .................. 5.49 4.69 5.18 1.04
------ ------ ------ ------
Less distributions:
From net investment income ...................... 0.00 0.00 0.00 (0.01)
From net realized gain .......................... (1.24) (0.65) (0.01) 0.00
------ ------ ------ ------
Total distributions ............................... (1.24) (0.65) (0.01) (0.01)
------ ------ ------ ------
Net asset value, end of period .................... $24.49 $20.24 $16.20 $11.03
====== ====== ====== ======
Total return ...................................... 27.87% 29.88% 47.02% 10.36%
Ratios/supplemental data:
Net assets, end of period (millions) ............ $ 30.5 $ 17.1 $ 12.0 $ 3.5
Ratio of expenses to average net assets:
Before fees waived and expenses absorbed ........ 1.66% 1.95% 2.39% 4.97%+
After fees waived and expenses absorbed ......... 1.29% 1.29% 1.29% 1.28%+
Ratio of net investment loss to average net assets:
Before fees waived and expenses absorbed ........ (1.03%) (1.19%) (1.42%) (3.69%)+
After fees waived and expenses absorbed ......... (0.66%) (0.53%) (0.31%) 0.00%+
Portfolio turnover rate ......................... 55.07% 52.77% 40.96% 14.62%
</TABLE>
* Commencement of operations.
+ Annualized.
See accompanying Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 Nasdaq are valued at the last reported sales
price at the close of regular trading on each day that the exchanges
are open for trading; 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 $140,774 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, 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, 2000, the Fund incurred $159,117 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 1.29% of average
daily net assets. Any fee waived 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, provided the aggregate amount of the
Fund's current operating expenses for such fiscal year does not exceed the
applicable limitation on Fund expenses. For the year ended March 31, 2000, the
Advisor waived fees of $79,274. At March 31, 2000, the cumulative unreimbursed
amount paid and/or waived by the Advisor on behalf of the Fund is $324,309. The
Advisor may recapture $159, 087 of the above amount no later than March 31, 2002
and $165,222 no later than March 31, 2003. The Fund must pay its current
ordinary operating expenses before the Advisor is entitled to any reimbursement.
Any such reimbursement is also contingent upon Board of Trustees review and
approval prior to the time the reimbursement is initiated.
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, with a minimum fee of $30,000:
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
For the year ended March 31, 2000, the Fund incurred $30,563 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, 2000, the Fund paid
to the Advisor, as Distribution Coordinator, $53,039.
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, 2000, were $16,565,451
and $11,226,574, respectively.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - 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.
12
<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, 2000, 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 four
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 auditing standards generally accepted
in the United States. 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, 2000, 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, 2000, the results of
its operations for the fiscal year then ended, 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 four fiscal years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Los Angeles, California
April 27, 2000
13
<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 INSTITUTIONAL CUSTODY SERVICES
425 Walnut Street
Cincinnati, OH 45202
Transfer Agent 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 the shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
