================================================================================
LEONETTI & ASSOCIATES, INC.
PRIVATE FINANCIAL ADVISORS
LEONETTI FUNDS
LEONETTI BALANCED FUND
LEONETTI GROWTH FUND
ANNUAL REPORT
June 30, 2000
[LOGO]
<PAGE>
LEONETTI BALANCED FUND
July, 2000
Dear Shareholder:
The second quarter proved to be a very tough environment for stock investing.
The NASDAQ Composite witnessed the quickest and deepest pullback since 1974 -
from the March 10th high to the May 24th low there was a drop of 41%.
By the end of June, slightly less than half of the decline had been recovered.
For the first time in several years, stocks have been the worst performer among
competing industry classes for the first half of the year. Even money market
funds have done better than the S&P 500 so far.
Among the industry groups, the best performers for the first six months of this
year were Biotechs, Semiconductors, Oil Service, REITS and Drugs. We also saw a
resurgence in small and mid-capitalization stocks. The worst industry performers
were the Internet and Retailers. Relative weakness in basic industry and
cyclical stocks was consistent with the theme of economic slowing.
YEAR TO DATE PERFORMANCE*
-------------------------
Dow Industrials 9.13%
NASDAQ Composite 2.54%
S&P 500 1.00%
* without dividends
The Leonetti Balanced Fund (the "Fund") reflected the returns of the stock
indices shown, with a drop of 2.31% for the first six months of this year. This
trailed the Fund's benchmark, the Lipper Balanced Fund Index, which had a
positive six-month return of 1.74%. This was due mostly to the strength in
bonds, weakness in large capitalization growth stocks, and good returns in the
small and mid-cap markets. Your Fund, which has provided fundholders with three
consecutive calendar years (through 1999) of returns exceeding 20%, (average
annual return since inception on August 1, 1995 through June 30, 2000 was
16.84%) has utilized a portfolio mix of large capitalization growth stocks,
coupled with the short-term maturities for the fixed-income portion. For the
past twelve months, your fund is up 11.81% compared to the 4.44% return of the
Lipper Balanced Fund Index. Assets of the fund have grown to over $30 million.
1
<PAGE>
The ten largest common stock holdings of the Leonetti Balanced Fund as of June
30, 2000 were, in order:
EMC Corp (EMC)
Sun Microsystems (SUNW)
Oracle (ORCL)
Intel Corp. (INTC)
General Electric (GE)
Cisco Systems (CSCO)
Citgroup (C)
American Home Products (AHP)
Northern Trust Corp. (NTRS)
America Online (AOL)
Our strategy will continue to focus on large capitalization growth stocks. We
strongly believe that this is the area that will be the recipient of the large
cash flows entering the market in the future, much as it has been in the past
few years. The past several months of up and down moves with little follow
through to the upside in the large-cap growth area is primarily the result of
the significant gains that were achieved late last year. As the market has
worked through much of the excess, many of these stocks are beginning to look
very attractive once again.
Historically, the second half of presidential election years have been very
positive. According to Sam Stovall, Senior Investment Strategist at Standard &
Poors,
"Keep in mind that we are just about to enter the second half of a
presidential election year. Going back to 1960, there have been 10
elections, and there have been no negative returns in each of these 10
second halves. Also, the average return was twice that of the average years
second half return during the entire period."
After experiencing the pain of the first half, not many investors would complain
if this turned out to be the eleventh positive second half in a presidential
election year.
Our target for the Dow this year remains at 12,750 with a possibility of
reaching 13,100. The target is still attainable, but might become more difficult
as the November election nears.
Cordially,
LEONETTI & ASSOCIATES, INC.
2
<PAGE>
LEONETTI BALANCED FUND
Value of $10,000 vs Wilshire 5000 + Salomon + US Treasury and Lipper
Balanced Index
Average Annual Total Return
Period Ended June 30, 2000
1 Year.................................. 11.81%
3 Years ................................ 19.96%
Since Inception (8/1/95)................ 16.89%
Leonetti Wilshire 5000 + Lipper
Balanced Fund Salomon + US Treasury Balanced Index
------------- --------------------- --------------
8/1/95 10,000 10,000 10,000
9/30/95 9,940 10,375 10,354
12/31/95 10,605 10,842 10,817
3/31/96 10,936 11,187 11,059
6/30/96 10,846 11,535 11,283
9/30/96 10,856 11,821 11,579
12/31/96 11,330 12,456 12,224
3/31/97 11,218 12,509 12,277
6/30/97 12,464 13,994 13,586
9/30/97 13,709 15,030 14,465
12/31/97 13,691 15,342 14,675
3/31/98 14,993 16,736 15,834
6/30/98 15,468 17,085 16,111
9/30/98 14,387 16,014 15,183
12/31/98 17,459 18,222 16,930
3/31/99 18,506 18,628 17,201
6/30/99 19,224 19,552 17,974
9/30/99 19,212 18,760 17,229
12/31/99 22,002 20,967 18,449
3/31/00 22,787 21,671 18,999
6/30/00 21,494 21,196 18,770
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Lipper Balanced Index is an equally weighted performance index of the
largest qualifying funds in the Lipper category. The Wilshire 5000 + Salomon +
US Treasury Index is a blend of the Wilshire 5000 Equity Index (65%), the
Salomon Broad Investment Grade Bond Index (25%) and the 90-day U.S. Government
Treasury Bill Yield (10%). The Wilshire 5000 measures the performance of all
equity securities issued by companies with headquarters in the U.S. The Salomon
Broad Index consists of U.S. Treasury and Government-sponsored agency bonds with
a maturity of one year or longer. The indices are unmanaged and returns include
reinvested dividends.
3
<PAGE>
LEONETTI GROWTH FUND
July, 2000
Dear Shareholder:
The first half of the Year 2000 has been difficult for stock investors. The
powerful advance of the fourth quarter of 1999 gave way to a significant decline
in the NASDAQ. A drop of 41% from the March 10th high to the May 24th low. The
Dow Industrial Average has also been suffering with slightly more than one-third
of its thirty components trading at or near yearly lows. As you can see by the
indices below, with the exception of a few industry groups, most groups have
been pressured for the first six months of this year.
YEAR TO DATE PERFORMANCE*
-------------------------
Dow Industrials 9.13%
NASDAQ Composite 2.54%
S&P 500 1.00%
* without dividends
The Leonetti Growth Fund (the "Fund") has struggled this year with a drop of
4.37%, compared to the S&P 500 dropping 0.47%. The Fund's cumulative total
return since inception on September 1, 1999 was 20.5%, while the S&P 500 total
return was 10.35% for the same period. The assets of the Fund have more than
doubled since the beginning of the year. The assets as of June 30, 2000 are
nearly $6.5 million.
Much of the skittishness in the stock market has revolved around higher
inflation and interest rates. The sustained strength of the economy has seen the
number of unemployed drop significantly, while the number of employed has
swelled. As wonderful as this is, a growing fear among economists has developed:
the fear that wage pressures will accelerate, which would accelerate the growth
of inflation. For this reason many economists seem to be rejoicing over the
tightening path that the Federal Reserve has followed over the past year. Six
increases in interest rates by the Federal Reserve in the past twelve months has
some others thinking the economy is at risk of falling into a mild recession.
This is quite similar to the tightening schedule that was done in 1994. More
recently, the sharp rise in oil prices has slowed the economy considerably and
has put pressure on prices. At this point, it appears the Federal Reserve is on
schedule for one last increase at their last meeting, which is at the end of
August. That should be the last.
4
<PAGE>
Our strategy remains investing in large capitalization growth stocks. We have
favored the computer technology, telecommunications, financial and media
sectors. These four sectors will not only benefit with higher stock prices, but
will be the drivers for the economy as it continues to grow.
The Leonetti Growth Fund's ten largest stock holdings as of June 30, 2000 were,
in order:
Intel Corp. (INTC)
EMC Corp. (EMC)
Sun Microsystems (SUNW)
American International Group (AIG)
Oracle Corp. (ORCL)
Veritas Software (VRTS)
Nortel Networks (NT)
Univision (UVN)
Cisco Systems (CSCO)
Morgan Stanley Dean Witter (MWD)
The second half of presidential election years have been very positive and much
of the excess that had been built into many stocks early in the year has been
worked out. As cash continues to flow into the financial markets, the large
capitalization sector should receive the lion's share. Our outlook remains very
positive for the remainder of the year.
Cordially,
LEONETTI & ASSOCIATES, INC.
LEONETTI GROWTH FUND
Value of $10,000 vs S&P 500 Index
Cumulative Total Return
Period Ended June 30, 2000
Since Inception (9/1/99)....... 20.50%
Leonetti Growth Fund S&P 500 Index w/inc.
-------------------- --------------------
9/1/99 10,000 10,000
9/30/99 10,190 9,646
10/31/99 10,460 10,256
11/30/99 11,270 10,467
12/31/99 12,600 11,081
1/31/00 12,200 10,524
2/29/00 13,580 10,325
3/31/00 13,420 11,335
4/30/00 12,710 10,994
5/31/00 11,550 10,769
6/30/00 12,050 11,035
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.
5
<PAGE>
LEONETTI BALANCED FUND
SCHEDULE OF INVESTMENTS at June 30, 2000
SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCKS: 64.0%
COMMERCIAL SERVICES: 2.7%
20,000 Paychex, Inc. $ 840,000
------------
COMPUTERS - HARDWARE: 6.0%
20,000 Sun Microsystems, Inc.* 1,818,750
------------
COMPUTERS - MEMORY DEVICES: 8.1%
32,000 EMC Corp.* 2,462,000
------------
COMPUTERS - NETWORKING PRODUCTS: 4.2%
20,000 Cisco Systems, Inc.* 1,271,250
------------
COMPUTERS - SOFTWARE: 5.5%
20,000 Oracle Corp.* 1,681,250
------------
CONSUMER SERVICES: 1.3%
10,000 Walt Disney Co. (The) 388,125
------------
DIVERSIFIED FINANCIAL SERVICES: 4.0%
20,000 Citigroup, Inc. 1,205,000
------------
DIVERSIFIED OPERATIONS: 4.2%
24,000 General Electric Co. 1,272,000
------------
DRUGS & PHARMACEUTICALS: 3.9%
20,000 American Home Products Corp. 1,175,000
------------
ELECTRONIC COMPONENTS - SEMICONDUCTORS: 4.4%
10,000 Intel Corp. 1,336,875
------------
FINANCE - INVESTMENT BANKERS/BROKERS: 2.3%
6,000 Merrill Lynch & Co., Inc. 690,000
------------
INTERNET SOFTWARE: 2.8%
16,000 America Online, Inc.* 844,000
------------
LEISURE & RECREATION PRODUCTS: 2.5%
20,000 Harley-Davidson, Inc. 770,000
------------
MEDIA - NEWSPAPERS/CABLE TV: 1.8%
16,000 Tribune Co. 560,000
------------
RETAIL - BUILDING PRODUCTS: 1.6%
10,000 Home Depot, Inc. (The) 499,375
------------
RETAIL - DISCOUNT: 1.9%
10,000 Wal-Mart Stores, Inc. 576,250
------------
SUPER - REGIONAL BANKS: 3.2%
15,000 Northern Trust Corp. 975,938
------------
TELECOMMUNICATIONS - EQUIPMENT: 3.6%
10,368 Lucent Technologies, Inc. 614,304
10,000 Nokia Corp.-Sponsored ADR 499,375
------------
1,113,679
------------
TOTAL COMMON STOCKS
(cost 11,382,001) 19,479,492
------------
PRINCIPAL
AMOUNT
--------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS: 31.4%
$ 800,000 U.S. Treasury Note,
4.50%, 9/30/2000 796,751
1,000,000 U.S. Treasury Note,
4.625%, 11/30/2000 993,125
500,000 U.S. Treasury Note,
4.625%, 12/31/2000 495,625
800,000 U.S. Treasury Note,
5.00%, 2/28/2001 792,750
500,000 U.S. Treasury Note,
5.25%, 1/31/2001 496,875
1,000,000 U.S. Treasury Note,
5.25%, 5/31/2001 989,375
500,000 U.S. Treasury Note,
5.50%, 8/31/2001 494,219
1,300,000 U.S. Treasury Note,
5.875%, 11/30/2001 1,289,032
400,000 U.S. Treasury Note,
6.125%, 7/31/2000 400,250
1,000,000 U.S. Treasury Note,
6.25%, 10/31/2001 996,875
800,000 U.S. Treasury Note,
6.25%, 1/31/2002 797,250
1,000,000 U.S. Treasury Note,
6.375%, 9/30/2001 998,438
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(cost $9,576,234) 9,540,565
------------
6
<PAGE>
LEONETTI BALANCED FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (Continued)
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 4.5%
$1,362,000 Firstar Bank Repurchase Agreement, 4.25%,
dated 06/30/2000, due 07/03/2000,
[collateralized by $1,389,197 FHLMC ARM,
6.311% due 09/01/2029] (value of proceeds
$1,362,482) (cost $1,362,000) $ 1,362,000
------------
TOTAL INVESTMENTS IN SECURITIES
(cost $22,320,235+): 99.9% 30,382,057
Other Assets less Liabilities: 0.1% 32,090
------------
NET ASSETS: 100.0% $ 30,414,147
============
ADR - American Depositary Receipt.
* Non-income producing security.
+ At June 30, 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 $ 8,269,431
Gross unrealized depreciation (207,609)
-----------
Net unrealized appreciation $ 8,061,822
===========
See accompanying notes to financial statements.
7
<PAGE>
LEONETTI GROWTH FUND
SCHEDULE OF INVESTMENTS at June 30, 2000
SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCKS: 98.2%
BANKING: 2.9%
4,000 Bank of New York Co., Inc. $ 186,000
------------
BEVERAGES: 1.8%
4,000 Pepsi Bottling Group, Inc. 116,750
------------
BROADCAST MEDIA: 1.2%
2,500 Fox Entertainment Group, Inc.
- Class A* 75,937
------------
COMMERCIAL SERVICES: 2.6%
4,000 Paychex, Inc. 168,000
------------
COMPUTERS - HARDWARE: 5.6%
4,000 Sun Microsystems, Inc.* 363,750
------------
COMPUTERS - MEMORY DEVICES: 10.3%
5,000 EMC Corp.* 384,688
2,500 VERITAS Software Corp.* 282,539
------------
667,227
------------
COMPUTERS - NETWORKING PRODUCTS: 3.9%
4,000 Cisco Systems, Inc.* 254,250
------------
COMPUTERS - SOFTWARE: 5.2%
4,000 Oracle Corp.* 336,250
------------
CONSUMER SERVICES: 2.4%
4,000 Walt Disney Co. (The) 155,250
------------
DATA PROCESSING: 3.1%
4,000 First Data Corp. 198,500
------------
DIVERSIFIED FINANCIAL SERVICES: 7.6%
4,000 Citigroup, Inc. 241,000
3,000 Morgan Stanley Dean Witter & Co. 249,750
------------
490,750
------------
DIVERSIFIED OPERATIONS: 3.7%
4,500 General Electric Co. 238,500
------------
DRUGS & PHARMACEUTICALS: 6.6%
4,000 American Home Products Corp. 235,000
4,000 Pfizer, Inc. 192,000
------------
427,000
------------
ELECTRONIC COMPONENTS: 3.1%
4,000 Celestica, Inc.* 198,500
------------
ELECTRONIC COMPONENTS - SEMICONDUCTORS: 8.2%
4,000 Intel Corp. 534,750
------------
ELECTRONICS: 3.2%
3,000 Texas Instruments, Inc. 206,063
------------
FINANCE - INVESTMENT BANKERS/BROKERS: 0.9%
500 Merrill Lynch & Co., Inc. 57,500
------------
INSURANCE - MULTILINE: 5.4%
3,000 American International Group, Inc. 352,500
------------
INTERNET SOFTWARE: 1.9%
2,500 Broadvision, Inc.* 127,031
------------
LEISURE & RECREATION PRODUCTS: 2.4%
4,000 Harley-Davidson, Inc. 154,000
------------
SCHOOLS: 1.7%
4,000 Apollo Group, Inc. - Class A* 112,000
------------
TELECOMMUNICATIONS: 2.6%
4,000 BellSouth Corp. 170,500
------------
TELECOMMUNICATIONS - EQUIPMENT: 7.9%
4,800 Nokia Corp. - Sponsored ADR 239,700
4,000 Nortel Networks Corp. 273,000
------------
512,700
------------
TELEVISION: 4.0%
2,500 Univision Communications, Inc.* 258,750
------------
TOTAL COMMON STOCKS
(cost 5,832,673) 6,362,458
------------
8
<PAGE>
LEONETTI GROWTH FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (Continued)
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 2.1%
$136,000 Firstar Bank Repurchase Agreement, 4.25%
dated 06/30/2000, due 07/03/2000
[collateralized by $138,715 FHLMC ARM,
6.311% due 09/01/2029] (value of proceeds
$136,048) (cost $136,000) $ 136,000
------------
TOTAL INVESTMENTS IN SECURITIES
(cost $5,968,673+): 100.3% 6,498,458
Liabilities in excess of Other Assets: (0.3)% (16,647)
------------
NET ASSETS: 100.0% $ 6,481,811
============
ADR - American Depositary Receipt.
* Non-income producing security.
+ At June 30, 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 $ 713,826
Gross unrealized depreciation (184,041)
------------
Net unrealized appreciation $ 529,785
============
See accompanying Notes to Financial Statements.
9
<PAGE>
LEONETTI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES at June 30, 2000
<TABLE>
<CAPTION>
Balanced Growth
Fund Fund
----------- ----------
<S> <C> <C>
ASSETS
Investments in securities, at value
(cost $22,320,235 and $5,968,673) ........................... $30,382,057 $6,498,458
Cash .......................................................... 1,348 697
Receivables:
Dividends and interest ...................................... 116,358 156
Fund shares sold ............................................ 101 1,804
Prepaid expenses .............................................. 5,218 9,977
Deferred organization costs ................................... 1,082 --
----------- ----------
Total assets ........................................... 30,506,164 6,511,092
----------- ----------
LIABILITIES
Payables:
Fund shares redeemed ........................................ 45,165 --
Due to advisor .............................................. 24,750 3,971
Administration fees ......................................... 5,497 2,438
Accrued expenses ............................................ 16,605 22,872
----------- ----------
Total liabilities ...................................... 92,017 29,281
----------- ----------
NET ASSETS .................................................. $30,414,147 $6,481,811
=========== ==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($30,414,147/1,710,330 and $6,481,811/537,779 shares
outstanding; unlimited number of shares authorized
without par value) .......................................... $ 17.78 $ 12.05
=========== ==========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................... $21,302,814 $6,490,992
Accumulated net investment income ............................. 80,491 --
Accumulated net realized gain (loss) on investments............ 969,020
Net unrealized appreciation on investments .................... 8,061,822 529,785
----------- ----------
Net assets............................................... $30,414,147 $6,481,811
=========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE>
LEONETTI FUNDS
STATEMENTS OF OPERATIONS For the Period Ended June 30, 2000
<TABLE>
<CAPTION>
Balanced Growth
Fund Fund*
---------- ---------
<S> <C> <C>
INVESTMENT INCOME
Income
Interest ............................................................ $ 467,214 $ 16,125
Dividends ........................................................... 81,169 8,731
Other ............................................................... 12,247 --
---------- ---------
Total income .................................................... 560,630 24,856
---------- ---------
Expenses
Advisory fees ....................................................... 274,935 30,560
Administration fees ................................................. 59,580 24,904
Fund accounting fees ................................................ 24,732 13,695
Transfer agent fees ................................................. 22,751 12,526
Audit fees .......................................................... 17,226 14,498
Custody fees ........................................................ 13,630 7,999
Reports to shareholders ............................................. 9,318 2,096
Trustee fees ........................................................ 6,841 2,803
Deferred organization expense ....................................... 6,017 --
Legal fees .......................................................... 3,813 2,212
Registration expense ................................................ 2,249 13,067
Miscellaneous ....................................................... 1,749 1,057
Insurance expense ................................................... 754 193
---------- ---------
Total expenses ................................................... 443,595 125,610
Less: fees waived and expenses absorbed .......................... -- (64,244)
---------- ---------
Net expenses ..................................................... 443,595 61,366
---------- ---------
NET INVESTMENT INCOME (LOSS) ................................... 117,035 (36,510)
---------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments ............................... 932,687 (538,966)
Net unrealized appreciation on investments ............................ 1,836,455 529,785
---------- ---------
Net realized and unrealized gain (loss) on investments ............. 2,769,142 (9,181)
---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................................... $2,886,177 $ (45,691)
========== =========
</TABLE>
* Commenced operations on September 1, 1999.
See accompanying Notes to Financial Statements.
11
<PAGE>
LEONETTI BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 2000 June 30, 1999
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income .................................... $ 117,035 $ 65,238
Net realized gain on investments ......................... 932,687 676,378
Net unrealized appreciation on investments ............... 1,836,455 3,510,644
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 2,886,177 4,252,260
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............................... (68,992) (59,358)
From net realized gain ................................... (675,334) (1,019,875)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .................... (744,326) (1,079,233)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares ....................... 4,204,474 5,397,710
------------ ------------
TOTAL INCREASE IN NET ASSETS ........................... 6,346,325 8,570,737
NET ASSETS
Beginning of year ........................................ 24,067,822 15,497,085
------------ ------------
END OF YEAR .............................................. $ 30,414,147 $ 24,067,822
============ ============
Accumulated net investment income .......................... $ 80,491 $ 32,448
============ ============
(a) A summary of capital share transactions is as follows:
Year Ended Year Ended
June 30, 2000 June 30, 1999
------------------------ ------------------------
Shares Value Shares Value
-------- ----------- -------- -----------
Shares sold 354,229 $ 6,196,803 365,405 $ 5,421,234
Shares issued in reinvestment
of distributions 41,794 743,508 78,386 1,074,676
Shares redeemed (158,912) (2,735,837) (75,553) (1,098,200)
-------- ----------- -------- -----------
Net increase 237,111 $ 4,204,474 368,238 $ 5,397,710
======== =========== ======== ===========
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE>
LEONETTI GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS at June 30, 2000
September 1, 1999*
Through
June 30, 2000
-------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss $ (36,510)
Net realized loss on investments (538,966)
Net unrealized appreciation on investments 529,785
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (45,691)
-----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change
in outstanding shares (a) 6,527,502
-----------
TOTAL INCREASE IN NET ASSETS 6,481,811
NET ASSETS
Beginning of period --
-----------
END OF PERIOD $ 6,481,811
===========
(a) A summary of capital share transactions is as follows:
September 1, 1999*
Through
June 30, 2000
-------------------------
Shares Value
-------- -----------
Shares sold 543,925 $ 6,600,930
Shares redeemed (6,146) (73,428)
-------- -----------
Net increase 537,779 $ 6,527,502
======== ===========
* Commencement of operations.
See accompanying Notes to Financial Statements.
13
<PAGE>
LEONETTI BALANCED FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
Year Ended June 30, August 1, 1995*
--------------------------------------- Through
2000 1999 1998 1997 June 30, 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 16.34 $ 14.02 $ 12.31 $ 10.80 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................................. 0.07 0.05 0.05 0.06 0.09
Net realized and unrealized gain
on investments ....................................... 1.86 3.18 2.75 1.54 0.76
------- ------- ------- ------- -------
Total from investment operations ......................... 1.93 3.23 2.80 1.60 0.85
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ............................. (0.05) (0.05) (0.03) (0.09) (0.05)
From net realized gain ................................. (0.44) (0.86) (1.06) -- --
------- ------- ------- ------- -------
Total distributions ...................................... (0.49) (0.91) (1.09) (0.09) (0.05)
------- ------- ------- ------- -------
Net asset value, end of period ........................... $ 17.78 $ 16.34 $ 14.02 $ 12.31 $ 10.80
======= ======= ======= ======= =======
Total return ............................................. 11.81% 24.28% 24.10% 14.91% 8.46%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) ................... $ 30.4 $ 24.1 $ 15.5 $ 11.3 $ 10.1
Ratio of expenses to average net assets ................ 1.61% 1.77% 1.99% 2.29% 2.26%+
Ratio of net investment income to average net assets.... 0.43% 0.35% 0.40% 0.47% 1.02%+
Portfolio turnover rate ................................ 88.76% 81.16% 89.51% 119.75% 42.16%++
</TABLE>
* Commencement of operations
+ Annualized.
++ Not annualized.
See accompanying Notes to Financial Statements.
14
<PAGE>
LEONETTI GROWTH FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout the period
September 1, 1999*
Through
June 30, 2000
-------------
Net asset value, beginning of period ........................ $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ........................................ (0.07)
Net realized and unrealized gain on investments ............ 2.12
-------
Total from investment operations ............................. 2.05
-------
Net asset value, end of period ............................... $ 12.05
=======
Total return ................................................. 20.50%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) ....................... $ 6.5
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed ................... 4.09%+
After fees waived and expenses absorbed .................... 2.00%+
RATIO OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed ................... (3.28%)+
After fees waived and expenses absorbed .................... (1.19%)+
Portfolio turnover rate ...................................... 193.89%++
* Commencement of operations.
+ Annualized.
++ Not annualized.
See accompanying Notes to Financial Statements.
15
<PAGE>
LEONETTI FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The Leonetti Balanced Fund and the Leonetti Growth Fund (the "Funds") are
each 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 Leonetti Balanced Fund and the Leonetti Growth Fund began
operations on August 1, 1995 and September 1, 1999, respectively. The investment
objective of the Leonetti Balanced Fund is to seek total return through a
combination of income and capital growth, consistent with preservation of
capital. The investment objective of the Leonetti Growth Fund is long-term
growth of capital.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Securities traded on a national securities
exchange, or Nas-daq are valued at the last reported sales price at
the close of regular trading on each day 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.
U.S. Government securities with less than 60 days remaining to
maturity when acquired by the Funds are valued on an amortized cost
basis. U.S. Government securities with more than 60 days remaining to
maturity are valued at the current market value (using the mean
between the bid and asked price) until the 60th day prior to maturity,
and are then valued at amortized cost based upon the value on such
date unless the Board determines during such 60 day period that this
amortized cost basis does not represent fair value. Short-term
investments are stated at cost which, when combined with accrued
interest, approximates market value.
B. FEDERAL INCOME TAXES. The Funds intend to comply with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of their taxable income to their
shareholders. Therefore, no federal income tax provisions are
required.
At June 30, 2000, the Leonetti Growth Fund has a capital loss
carryforward of approximately $538,966 expiring June 30, 2008
available to offset future gains, if any.
16
<PAGE>
LEONETTI FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
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. DEFERRED ORGANIZATION COSTS. The Leonetti Balanced Fund incurred
expenses of $30,000 in connection with its organization. These costs
have been deferred and are being amortized on a straight-line basis
over a period of sixty months from the date the Fund commenced
operations.
E. USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
F. RECLASSIFICATION OF CAPITAL ACCOUNTS. The Funds account and report 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 period ended June 30, 2000, the Leonetti Growth
Fund decreased paid-in-capital by $36,510 due to the Fund experiencing
a net investment loss during the period. Accumulated net realized loss
on investments and net assets were not affected by these changes.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
Leonetti & Associates, Inc. (the "Advisor") provides the Funds 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 Funds. As compensation for its services, the Advisor
is entitled to a monthly fee at the annual rate of 1.00% of the average daily
net assets of the Funds. For the periods ended June 30, 2000, the Leonetti
Balanced Fund and the Leonetti Growth Fund incurred $274,935 and $30,560,
respectively, in advisory fees.
The Funds are responsible for their own operating expenses. The Advisor has
contractually agreed to limit the Leonetti Growth Fund's total operating
expenses by reducing all or portion of its fees and reimbursing the Fund for
expenses, excluding interest and tax expenses, so that its ratio of expenses to
average net assets will
17
<PAGE>
LEONETTI FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
not exceed 2.00%. In the case of the Fund's initial period of operations, any
fee waived or voluntarily reduced 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
fifth fiscal year following the year to which the fee waiver and/or expense
absorption relates, 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 period ended June 30, 2000, the advisor
waived $30,560 in fees and absorbed expenses of $23,739. The Fund must pay its
current ordinary operating expenses before the Advisor is entitled to any
reimbursement of fees and/or expenses. Any such reimbursement is also contingent
upon Board of Trustees review and approval prior to the time the reimbursement
is initiated.
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Funds' administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Funds; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Funds' custodian, transfer agent and accountant;
coordinates the preparation and payment of Fund expenses and reviews the Funds'
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 periods ended June 30, 2000, the Leonetti Balanced Fund and the
Leonetti Growth Fund incurred $59,580 and $24,904 in administration fees,
respectively. The Administrator waived $9,945 of administration fees for the
Leonetti Growth Fund.
First Fund Distributors, Inc. (the "Distributor") acts as the Funds'
principal underwriter in a continuous public offering of the Funds' 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.
18
<PAGE>
LEONETTI FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from the sale of securities for the
periods ended June 30, 2000, excluding U.S. Government obligations and
short-term investments, were $21,125,588 and $20,642,202, respectively, for the
Leonetti Balanced Fund and $12,726,932, and $6,355,293, respectively, for the
Leonetti Growth Fund.
The cost of purchases and the proceeds from sales of U.S. Government
obligations, excluding short-term investments, for the year ended June 30, 2000
were $5,662,486 and $0, respectively, for the Leonetti Balanced Fund.
NOTE 5 - REPURCHASE AGREEMENTS
The Funds 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 Funds 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 respective Fund in each agreement, and the Funds will make payment of 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 Funds may be delayed or limited.
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Leonetti Balanced Fund and Leonetti Growth Fund and the Board of
Trustees of Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Leonetti Balanced Fund and Leonetti Growth Fund
(the "Funds") (two of the portfolios constituting the series of Professionally
Managed Portfolios), as of June 30, 2000, and the related statements of
operations, the statements of changes in net assets, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Funds' 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 June 30, 2000 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 financial highlights referred to
above present fairly, in all material respects, the financial position of
Leonetti Balanced Fund and Leonetti Growth Fund as of June 30, 2000, the results
of their operations, the changes in their net assets, and the financial
highlights for each of the periods referred to above in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst + Young LLP
Los Angeles, California
July 31, 2000
20
<PAGE>
================================================================================
ADVISOR
LEONETTI & ASSOCIATES, INC.
1130 Lake Cook Road, Suite 300 Buffalo
Grove, IL 60089
DISTRIBUTOR
FIRST FUND DISTRIBUTORS, INC. 4455 East
Camelback Rd., Suite 261E
Phoenix, AZ 85018
CUSTODIAN
FIRSTAR INSTITUTIONAL CUSTODY SERVICES
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT
AMERICAN DATA SERVICES, INC.
P.O. Box 5536 Hauppauge, NY
11788-0132 (800) 282-2340
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.
