LOGO
AVONDALE
TOTAL RETURN FUND
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ANNUAL REPORT
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For the Year Ended
March 31, 2000
<PAGE>
April 7, 2000
Dear Shareholders:
Hester Capital Management, L.L.C. ("HCM") is pleased to present the annual
report for the Avondale Hester Total Return Fund (the "Fund") for the year ended
March 31, 2000. The past twelve months have witnessed a continuation of the
secular bull market for U.S. equities supported by high levels of liquidity,
strong corporate profits, and a synchronization of the global economic
expansion.
We are pleased with last year's results. The following chart on investment
performance reflects a comparison of the Fund to the Lipper Flexible Fund Index.
On February 8, Lipper moved Avondale from the balanced fund category to the
flexible fund category because, as stated in the prospectus, "the percentage of
assets allocated between equity and fixed-income securities is flexible rather
than fixed...a significant portion of the Fund's assets has historically been
allocated to common stocks." The Fund's asset allocation at year-end reflected
this flexibility with 89.0% of the assets invested in equities, 7.5% in
fixed-income, and 2.8% in short-term investments.
AVONDALE HESTER TOTAL RETURN FUND
INVESTMENT PERFORMANCE
01/01/00 10/01/99 04/01/99
THROUGH THROUGH THROUGH
03/31/00 03/31/00 03/31/00
-------- -------- --------
Avondale Hester 7.48% 11.96% 18.34%
Lipper Flex Portfolio Fund Index 2.47% 10.56% 10.78%
90 Day US Treasury Bonds 1.33% 2.56% 4.87%
Consumer Price Index 1.66% 1.91% 3.70%
1
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This higher allocation to equities and a lower position in bonds benefited
performance. For the year ending March 31, 2000, the Fund had a return of 18.34%
as compared to 10.78% for the Lipper Flexible Portfolio Fund Index. In addition
to the asset allocation benefits, our equity purchases were incremental to
returns, with buys concentrated in shares of computer services, computers,
electronics, and telecommunication equipment companies. Positions were
eliminated or reduced in pharmaceuticals, consumer products, electric utilities,
and restaurants. In the bond area, investments were made in government agency
securities, with bond sales focused principally in mortgage-backed bonds.
It was a wild first quarter for the first year of the new millenium that
culminated in what can only be characterized as "March Madness." Typically, this
phrase is reserved for the annual NCAA basketball tournament, and it was most
appropriate this year with two teams advancing to the Final Four with double
digit losses and all Final Four teams collectively having the worst win-loss
record in the tournament's history. At least the tournament turned out as
expected with the two teams holding the best records battling for the
championship.
In the tournament of finance, the fans of the New Economy applauded as
their team soared to new all-time records with championship performance, while
teams of the Old Economy did not get invited to the tournament much less reach
the coveted Final Four or even the Sweet 16. Other teams, as represented by the
Dow and the S&P 500, started the year strong, but went into sharp declines
followed by late rallies beginning mid-March. The technology-heavy NASDAQ, as
usual, continued its relentless advance until mid-March, when some signs of
profit taking appeared on the horizon. At that point these averages diverged
with technology selling off and the old economy stocks reviving.
Y2K fears became the biggest non-event since the Edsel. In technology,
Microsoft and its chairman continued to battle the Justice Department, while the
shares of Dr. Koop.com came down with the croup when investors realized that a
business actually needs cash flow to operate! Imagine that! The way the market
has been going, anyone with a business plan written on the back of a napkin, no
sales and huge operating losses could come to the market and the public would
buy it. Coca-Cola lost its fizz. Long-time bull Abby Joseph Cohen of
Goldman-Sachs advised investors to raise cash and reduce portfolio weightings in
technology stocks. Proctor & Gamble surprised shareholders and choked on the
bubbles of Tide Tuesday, and Johnson & Johnson investors needed Maalox to ease
their indigestion as the stock plunged on news of the suspension of its
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heartburn drug Propulsid. The Fed continued to raise rates and all markets
rallied in the face of it. Not only did the Fed raise interest rates twice, but
the yield curve inverted which has normally led to a case of nervousness, but
not this market which continues to be surprisingly resilient. So the madness
continues.
Volatility in the marketplace returned. In the 63 trading days of this
year, 30 of those days (or 48% of the time) experienced percentage changes of 1%
or greater on the Standard & Poor's 500 Composite Index. On the NASDAQ, it was a
stunning 73%. The volatility is reflected in returns as the Dow stumbled, but
the S&P 500 and the NASDAQ Composite continued their push forward. Technology,
communication equipment and services, and utilities were the leaders with
consumer staples, consumer cyclicals, transportation, and basic industry shares
lagging.
Interest rates began the year in an up trend influenced by the Fed who
continues to believe the risk in the economy is weighted mainly toward
inflation. Chairman Greenspan stated in the quarter that the Fed remains
concerned that over time "INCREASES IN DEMAND WILL CONTINUE TO EXCEED THE GROWTH
IN POTENTIAL SUPPLY. SUCH TRENDS COULD FOSTER INFLATIONARY IMBALANCES THAT WOULD
UNDERMINE THE ECONOMY'S RECORD ECONOMIC EXPANSION." The Fed raised rates twice
in the quarter pushing the Fed Funds rate to 6.0% and the discount rate to 5.5%.
The economy appears to have adopted the buzzword from Stuart of AmeriTrade
fame. Rock On! Economic growth for the quarter will surely exceed the Fed's
speed limit led by consumer spending and investment in information technology
(IT). We expect the economic expansion to remain intact; however, growth should
be stronger earlier in the year with some moderation in the second half. The
moderation will come from the cumulative effects of higher energy prices and
higher interest rates. The yield curve is now inverted from 2-year notes out to
30-year bonds. Historically, such yield curve inversions have sapped liquidity
from the system and resulted in a moderation of the economy's pace. The Federal
Open Market Committee (FOMC) minutes give a clearer indication of this viewpoint
when they recently stated that "RELATIVELY HIGH REAL INTEREST RATES WOULD BE
REQUIRED [TO AVERT HIGHER INFLATION], GIVEN THE EFFECTS OF INCREASING
PRODUCTIVITY AND PROFITS ON THE DEMAND FOR CAPITAL GOODS AND, THROUGH THE WEALTH
EFFECT, ON CONSUMPTION SPENDING. PRIVATE LONG-TERM RATES ALREADY HAD RISEN
CONSIDERABLY, BUT WHETHER THEY HAD REACHED A LEVEL THAT WOULD LEAD TO A
REBALANCING OF DEMAND AND SUPPLY WAS AN OPEN QUESTION."
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As for inflation, we see little change from last year's level of 2.7%. In
general, inflation remains relatively muted with the exception of energy prices.
Without question, the tight labor markets are beginning to put some upward
pressure on wage growth. We expect the Fed to remain clearly focused on the
economy and slow the system down through additional rate increases, as the Fed's
goal is one of facilitating the economic expansion while maintaining price
stability. Chairman Greenspan indicated after the last rate increase that
"EXPERIENCE HAS DEMONSTRATED THAT AN ESSENTIAL INGREDIENT IN THIS PROSPERITY,
AND AN INGREDIENT FOR WHICH THE CENTRAL BANK HAS ULTIMATE RESPONSIBILITY OVER
THE LONG RUN, IS LOW AND STABLE INFLATION. MAINTAINING PRICE
STABILITY....REDUCES THE LIKELIHOOD THAT IMBALANCES COULD DEVELOP THAT WOULD
ULTIMATELY UNDERMINE ECONOMIC EXPANSION." Clearly, the Central Bank remains
dedicated to keeping inflation in check.
The Fed has now increased interest rates five times since June 1999,
representing the first time the Fed has been this tight with monetary policy
since February 1995 when they finished a tightening strategy that resulted in
six increases in short term interest rates. There are some expectations that a
more aggressive stance by the Fed could be adopted in future meetings as opposed
to the present modus operandi of gradualism. The February minutes from the FOMC
were recently released and the following statement from those minutes "EXPRESSED
A PREFERENCE FOR AN INCREASE OF 50 BASIS POINTS....TO PROVIDE GREATER ASSURANCE
AGAINST A BUILDUP OF INFLATIONARY EXPECTATIONS AND INFLATION OVER COMING
MONTHS." The Fed cited imbalances such as a further drop in the unemployment
rate, an increase in the trade deficit, and/or a jump in wages or reported
inflation, outside of oil, as areas that will demand future attention.
The Fed will meet again on May 16 and the markets are fully expecting
another 0.25% increase to 6.25%. In fact, the Fed Fund's futures market assigns
68% odds to this event and a 64% chance that rates will be increased to 6.5% at
the June meeting. We feel strongly that the Fed will keep increasing rates until
they have the desired effect on the economy, and that is a moderation of
economic growth to a range of 3% to 3.5%.
The distribution between the haves and the have-nots continues to be the
greatest in our experience in the U.S. financial markets, which dates back to
1970. The market has become increasingly narrow the last five years, with fewer
and fewer stocks accounting for the majority of the market's gain. In 1998 and
1999, only 89 and 31 stocks, respectively, accounted for 100% of the market's
return. On an equally weighted basis, the disparity in rates of return is
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nothing short of amazing. In 1999, only 54% of the stocks in the S&P 500 Index
showed positive changes in their prices.
It now appears that corporate earnings may advance as much as 14% in
calendar year 2000. Given the current trends in interest rates and inflation, we
see no room for multiple expansion, and therefore are not changing our targeted
range on the Dow of 10,000 to 12,500. The market in the first quarter pierced
the low end of this range only to rally back. We continue to look for more
volatility in the marketplace, with the best returns for the year occurring in
the second quarter and latter months of the year. It will be a challenging year
in which to make money, and we do not expect the market to experience the 20%
and 30% returns of the past five years. Overall, we believe that revenue growth
will be an important investment criterion in the new year and will provide a
cushion in these volatile times. While valuation is a challenge, we will
continue to focus on shares of technology, capital goods, financial services,
and healthcare companies.
We value the opportunity to serve as advisor to the Avondale Hester Total
Return Fund and look forward to serving you in the future.
Very truly yours,
/s/ Ira Craig Hester, CFA /s/ John E. Gunthorp, CFA
Ira Craig Hester, CFA John E. Gunthorp, CFA
President & CEO Executive Vice President
--------------------------------------------------------------------------------
Past performance is not predictive of future performance. Average annual total
returns for the one, five and ten year periods ended March 31, 2000 were 18.34%,
18.31% and 12.80%, respectively.
Avondale Hester Total Return Fund
Value of $10,000 vs S&P 500 Index
Average Annual Total Return
Period Ended March 31, 2000
1 Year .............18.34%
5 Year .............18.31%
10 Year ............12.80%
Avondale Hester S&P 500
Qtr Total Return Fund Index w/inc.
-------- ----------------- ------------
3/31/90 10,000 10,000
6/30/90 10,395 10,614
9/30/90 9,623 9,166
12/31/90 10,255 9,987
3/31/91 11,090 11,446
6/30/91 10,875 11,409
9/30/91 11,954 12,020
12/31/91 13,008 13,029
3/31/92 12,318 12,699
6/30/92 12,021 12,929
9/30/92 12,275 13,348
12/31/92 12,810 14,027
3/31/93 13,451 14,633
6/30/93 13,370 14,692
9/30/93 13,773 15,082
12/31/93 13,728 15,436
3/31/94 13,340 14,845
6/30/94 13,081 14,897
9/30/94 13,979 15,640
12/31/94 14,043 15,633
3/31/95 14,383 17,154
6/30/95 16,005 18,790
9/30/95 17,332 20,282
12/31/95 18,057 21,501
3/31/96 18,220 22,659
6/30/96 18,474 23,660
9/30/96 18,637 24,402
12/31/96 18,900 26,444
3/31/97 18,421 27,144
6/30/97 21,396 31,875
9/30/97 22,532 34,266
12/31/97 22,691 35,262
3/31/98 25,357 40,177
6/30/98 25,659 41,478
9/30/98 23,068 37,363
12/31/98 26,918 45,336
3/31/99 28,129 51,095
6/30/99 30,824 54,702
9/30/99 29,735 51,283
12/31/99 30,974 58,914
3/31/00 33,291 60,264
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
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SCHEDULE OF INVESTMENTS at March 31, 2000
Shares Value
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COMMON STOCK: 89.0%
Banks: 6.0%
8,014 Bank One Corporation $ 275,481
4,713 BankAmerica Corp. 247,138
11,020 Regions Financial Corp. 251,394
-----------
774,013
-----------
Beverages - Alcoholic: 1.7%
3,596 Anheuser-Busch Companies, Inc. 223,851
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Chemical - Specialty: 0.7%
2,250 H.B. Fuller Co. 89,859
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Computer Services: 16.7%
9,000 Adobe Systems Incorporated 1,001,813
9,737 First Data Corp. 430,862
9,200 Oracle Corportation* 718,175
-----------
2,150,850
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Computers: 6.2%
2,500 Hewlett-Packard Company 331,406
4,000 International Business Machines Corporation 472,000
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803,406
-----------
Consumer Products: 9.1%
7,537 General Electric Company 1,169,648
-----------
Diversified Manufacturing: 2.6%
2,500 Cooper Industries, Inc. 87,500
2,800 Minnesota Mining and Manufacturing Company 247,975
-----------
335,475
-----------
Electronics: 9.2%
4,300 Altera Corporation* 383,775
1,850 Hadco Corporation* 119,556
3,000 Intel Corporation 395,813
5,900 Kent Electronics Corp.* 172,206
2,000 Vishay Intertechnology, Inc.* 111,250
-----------
1,182,600
-----------
Filtration/Separation Products: 2.4%
13,600 Pall Corp. $ 305,150
-----------
Financial Services: 7.8%
3,513 American Express Company 523,217
8,000 Citigroup Inc. 474,530
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997,747
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Furniture: 2.3%
7,500 Ethan Allen Interiors, Inc. 187,500
3,900 Herman Miller, Inc. 109,200
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296,700
-----------
Hotel/Motel: 2.0%
8,000 Marriott International, Inc - Class A 252,000
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Industrial Machinery: 6.8%
4,500 Dover Corp. 215,437
13,300 Tyco International Ltd. 663,338
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878,775
-----------
Medical Products: 1.4%
17,500 Possis Medical, Inc.* 173,906
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Oil - Energy: 3.2%
3,539 Exxon Corp. 275,378
2,500 Texaco Inc. 134,063
-----------
409,441
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Pharmaceuticals: 7.4%
5,932 Bristol-Myers/Squibb Company 342,573
3,500 Johnson & Johnson 245,219
10,000 Pfizer, Inc. 365,625
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953,417
-----------
Telecommunications Equipment: 2.0%
4,000 Tellabs, Inc.* 251,938
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Telephone: 1.5%
4,250 MCI Worldcom Incorporated* 192,578
-----------
Total Common Stocks (cost $5,719,737) 11,441,354
-----------
6
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SCHEDULE OF INVESTMENTS at March 31, 2000) (Continued)
Principal
Amount Value
--------------------------------------------------------------------------------
BONDS: 7.5%
Agencies: 7.3%
$200,000 Federal Home Loan Bank, 5.705%, 3/02/2009 $ 180,631
100,000 Federal Home Loan Bank, 7.000%, 12/14/2005 97,771
500,000 Federal Home Loan Mortgage Corp., 5.865%, 7/16/2001 493,936
100,000 Federal Home Loan Mortgage Corp., 7.500%, 07/31/2006 98,845
73,389 Federal National Mortgage Assoc., 7.000%, 6/1/2003 72,141
-----------
943,324
-----------
Corporate: 0.2%
25,000 IBM, 6.375%, 6/15/2000 24,979
-----------
Total Bonds (cost $984,134) 968,303
-----------
SHORT-TERM INVESTMENTS: 2.8%
Money Market Investment: 2.8%
$361,381 Firstar Stellar Treasury Fund
(cost $361,381) $ 361,381
-----------
Total Investment in Securities: 99.3%
(cost $7,065,252+) 12,771,038
Other Assets less Liabilites: 0.7% 88,052
-----------
Net Assets: 100.0% $12,859,090
===========
* Non-income producing security.
+ At March 31, 2000, the basis of securities for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation of securities were as follows:
Gross unrealized appreciation $ 5,931,686
Gross unrealized depreciation (225,900)
-----------
Net unrealized appreciation $ 5,705,786
===========
See accompanying Notes to Financial Statements.
7
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STATEMENT OF ASSETS AND LIABILITIES at March 31, 2000
ASSETS
Investments in securities, at value (cost $7,065,252) ........ $12,771,038
Receivables:
Securities sold ............................................. 145,654
Dividends and interest ...................................... 24,558
Fund shares sold ............................................ 9,000
Prepaid expenses ............................................. 5,649
-----------
Total assets ............................................ 12,955,899
===========
LIABILITIES
Payables:
Investment securities purchased ............................. 65,599
Advisory fees ............................................... 7,189
Administration fees ......................................... 2,811
Fund shares redeemed ........................................ 2,000
Accrued expenses ............................................. 19,210
-----------
Total liabilities ....................................... 96,809
-----------
NET ASSETS ..................................................... $12,859,090
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($12,859,090/316,234 shares outstanding; unlimited number
of shares authorized without par value) ....................... $ 40.66
===========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................... $ 6,521,538
Accumulated net investment income ............................. 18,032
Accumulated net realized gain on investments .................. 613,734
Net unrealized appreciation on investments .................... 5,705,786
-----------
Net assets .............................................. $12,859,090
===========
See accompanying Notes to Financial Statements.
8
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STATEMENT OF OPERATIONS For the Year Ended March 31, 2000
INVESTMENT INCOME
Income
Dividends ................................................... $ 121,110
Interest .................................................... 68,677
Other ....................................................... 963
----------
Total income ............................................. 190,750
----------
Expenses
Advisory fees ............................................... 83,064
Administration fees ......................................... 30,000
Fund accounting fees ........................................ 20,643
Audit fees .................................................. 12,114
Transfer agent fees ......................................... 11,682
Trustee fees ................................................ 5,023
Custody fees ................................................ 4,592
Reports to shareholders ..................................... 4,559
Legal, Insurance, Miscellaneous ............................. 964
Registration expense ........................................ 637
----------
Total expenses ........................................... 173,278
----------
NET INVESTMENT INCOME ................................. 17,472
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments ............................. 1,294,684
Net unrealized appreciation on investments ................... 714,055
----------
Net realized and unrealized gain on investments .......... 2,008,739
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $2,026,211
==========
See accompanying Notes to Financial Statements.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income .............................. $ 17,472 $ 42,991
Net realized gain on investments ................... 1,294,684 481,917
Net unrealized appreciation on investments ......... 714,055 603,123
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .............................. 2,026,211 1,128,031
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ......................... (30,276) (14,289)
From net realized gain ............................. (1,139,643) (213,810)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ........... (1,169,919) (228,099)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets derived
from net change in outstanding shares (a) ......... 778,301 (589,689)
------------ ------------
TOTAL INCREASE IN NET ASSETS .................. 1,634,593 310,243
NET ASSETS
Beginning of year .................................. 11,224,497 10,914,254
------------ ------------
END OF YEAR (including accumulated net investment
income of $18,032 and $30,836, respectively) ...... $ 12,859,090 $ 11,224,497
============ ============
</TABLE>
(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 32,470 $ 1,273,095 76,567 $ 2,596,160
Shares issued in reinvestment
of distributions 28,162 1,025,956 6,221 214,284
Shares redeemed (37,926) (1,520,750) (98,828) (3,400,133)
------- ---------- ------- ----------
Net increase (decrease) 22,706 $ 778,301 (16,040) $ (589,689)
======= =========== ======= ===========
See accompanying Notes to Financial Statements.
10
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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 ........... $38.24 $35.26 $26.13 $27.76 $23.58
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ....................... 0.06 0.15 0.16 0.18 0.27
Net realized and unrealized gain
on investments ............................ 6.48 3.62 9.61 0.14 6.00
------ ------ ------ ------ ------
Total from investment operations ............. 6.54 3.77 9.77 0.32 6.27
------ ------ ------ ------ ------
Less distributions:
From net investment income .................. (0.11) (0.05) (0.15) (0.28) (0.27)
From net realized gain ...................... (4.01) (0.74) (0.49) (1.67) (1.82)
------ ------ ------ ------ ------
Total distributions .......................... (4.12) (0.79) (0.64) (1.95) (2.09)
------ ------ ------ ------ ------
Net asset value, end of year ................. $40.66 $38.24 $35.26 $26.13 $27.76
====== ====== ====== ====== ======
Total return ................................. 18.34% 10.94% 37.65% 1.10% 26.67%
Ratios/supplemental data:
Net assets, end of year (millions)........... $ 12.9 $ 11.2 $ 10.9 $ 9.9 $ 9.8
Ratio of expenses to average net assets...... 1.46% 1.57% 1.59% 1.83% 1.69%
Ratio of net investment income to
average net assets ......................... 0.15% 0.41% 0.48% 0.62% 1.03%
Portfolio turnover rate ..................... 25.93% 25.71% 9.38% 40.87% 52.25%
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Avondale Hester Total Return 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 investment management company. The Fund began
operations on October 12, 1988.
Hester Capital Management, the Fund's Advisor, is a registered investment
advisor with assets under management of approximately $500 million, and provides
advisory services to individuals and institutions. Mr. I. Craig Hester,
President, and Mr. John Gunthorp, Executive Vice President, are responsible for
the management of the Fund's portfolio. Prior to September 1, 1998, the Fund was
known as the Avondale Total Return Fund and was managed by Herbert R. Smith &
Co., Inc.
The Fund's primary investment objective is to realize the combination of
income and capital appreciation that will produce the maximum total return
consistent with reasonable risk. The Fund seeks to achieve its objective by
investing primarily in higher quality fixed income debt securities and 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. SECURITIES VALUATION. 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 stated 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 Fund 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 the ask price) until the 60th day prior to
maturity, and 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
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.
Interest income is recorded on an accrual basis. Discounts and
premiums on securities purchased are amortized over the life of the
respective securities.
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, 2000, Hester Capital Management L.L.C. (the
"Manager") provided the Fund with investment management services under an
Investment Advisory Agreement. The Manager furnished all investment advice,
office space, facilities, and most of the personnel needed by the Fund. As
compensation for its services, the Manager was entitled to a monthly fee at the
annual rate of 0.70% on the first $200 million of average daily net assets,
0.60% on the next $300 million of net assets, and 0.50% on net assets exceeding
$500 million. For the year ended March 31, 2000, the Fund incurred $83,064 in
Advisory fees.
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
an annual rate equal to the greater of 0.15% of the Fund's average daily net
assets or $30,000. For the year ended March 31, 2000, the Fund incurred $30,000
in Administration fees.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
13
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NOTES TO FINANCIAL STATEMENTS (Continued)
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of securities, excluding
short-term securities and U.S. Government securities, for the year ended March
31, 2000, were $2,581,581 and $3,146,164, respectively.
For the year ended March 31, 2000, the cost of purchases and the proceeds
from sales of U.S. Government and Government Agency obligations, excluding
short-term securities, were $384,938 and $146,542, respectively.
14
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
AVONDALE HESTER TOTAL RETURN
THE BOARD OF TRUSTEES OF
PROFESSIONALLY MANAGED PORTFOLIOS
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Avondale Hester Total Return Fund, a series of
Professionally Managed Portfolios, as of March 31, 2000, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 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
Avondale Hester Total Return Fund as of March 31, 2000, 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 five years in the period then ended, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
APRIL 21, 2000
15
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Investment Advisor
Hester Capital Management, L.L.C.
100 Congress Ave., Suite 1960
Austin, TX 78701
Distributor
FIRST FUND DISTRIBUTORS, INC.
4455 E. Camelback Road, 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
TAIT, WELLER & BAKER
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
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.
