LIGHTHOUSE CONTRARIAN FUND
--------------------------------------------------------------------------------
ANNUAL REPORT
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For the year ended
August 31, 2000
<PAGE>
To our fellow shareholders:
PERFORMANCE
We are extremely pleased to report that the Fund finished the fiscal year, ended
August 31, 2000, with a twelve-month return and calendar year-to-date return of
26.46% and 36.68%, respectively. This result compares with the S&P 500 Index,
which returned 16.32% and 4.11% for the same two periods. This performance
places Lighthouse Contrarian Fund in an elite group of diversified funds that
have managed to significantly outperform the market indices so far this year.
WALL STREET REVISITED
Looking back over the investment landscape of the last three years, powerful
market trends were in force. Investment success appeared easy to the average
investor. The winning investment strategy for the period consisted of nothing
more than holding one's nose and buying the most popular stocks regardless of
price. The only perceived risk was in not participating. Large-capitalization,
blue chip "growth" stocks and the "New Economy" stocks (e.g., technology,
internet, media, communications and anything wireless) were the order of the day
and almost everything else was excluded. The remaining publicly traded stocks
provided a primary source of cash as everyone moved to the same side of the
boat. The typical portfolio manager, despite presumed better judgement, threw in
the towel and joined the masses in order to retain jobs and clients. Those
managers not so inclined, many with untouchable long-term performance records,
simply decided to exit an investment business that was no longer predicated on
basic research and rational thought processes.
Index funds became popular since the very stocks that attracted all this capital
exerted greater and greater influence on the capitalization-weighted indices. As
indices climbed, more investors were attracted to index funds. The resulting
capital inflows were then funneled by portfolio managers back into the same
stocks thereby making the indices rise further, a self-perpetuating circle not
unlike a Ponzi scheme. It's important to understand that an index portfolio
manager spends not even one minute in assessing the fundamentals or valuations
of the companies in which he invests client capital. His only goal is to buy the
companies that power the index, good investments or not.
All of this created obscene valuations for companies lucky enough to be included
in the chosen few. It also created significant under-valuations for the great
majority of companies below the radar screen. In fact, these trends, fed by the
chat rooms and the popularity of do-it-yourself Internet trading, resulted in
one of the largest disparities in valuation between market sectors on record.
While a popular tech stock or a huge blue chip growth stock could command a
1
<PAGE>
valuation measured by triple-digit price/earnings multiples, smaller, less
popular stocks with comparable growth profiles could muster only single-digit
multiples of earnings in comparison. It's no wonder so many ignored companies
have been going private or are being acquired by larger competitors.
CHANGING PERSPECTIVES
We believe the markets are now in the midst of change. Of course, the markets
are always changing, but this one should be noteworthy, lengthy in transition
and beneficial once completed. Understanding its implications may well determine
who prospers and who loses ground in a frustrating search for investment
performance over the next few years.
The overall market, so far this year, can best be described as directionless and
nervous. The new trend is that there is none. Despite all the thrashing about,
the truth is - the popular indexes have gone nowhere and are virtually flat or
slightly down for the year. With few current investment fads and a less than
stellar IPO market, there are limited opportunities for fund managers and
institutions to throw cash at a short list of stocks that would guarantee
substantial returns. It's understandable that the average fund manager is
becoming increasingly uncomfortable as most are not making their investors much
money and they hold portfolios crammed with the same over-valued securities.
Owning a popular stock, having a valuation completely out of touch with its
fundamentals, is much easier when its price goes up every day. Consequently,
money flows appear to be slowly headed back to the areas of the market long
neglected and out of the popular index stocks. Our view is that the markets are
slowly returning to a pattern of rational behavior in which valuation principles
and risk assessment reclaim their rightful place in the investment process. The
advance-decline line (daily number of advancing stocks minus declining stocks)
appears to have bottomed and is showing strength for the first time in a couple
of years. This indicates that the majority of stocks are rising, even though the
few popular ones that move the indexes have stalled. The implication is that
momentum investing and passive index fund investing are falling out of favor at
long last. Active stock picking based on fundamentals and prudent valuation
should fill the void. This process should be slow to unfold as old habits die
hard. However, the trend reversal is inevitable at some point due to the
extremes created by investors over the last few years. We think it is beginning
now.
STRATEGY
Lighthouse Contrarian Fund is classified as a diversified mutual fund and,
contrary to some other popular "diversified" funds, we actually practice
diversification. With the extremely narrow market of the last few years, it has
not been uncommon to see funds experience "style drift". In other words, many
funds have attempted to stretch the limits of their funds' prospectus in order
to be heavily over-weighted in the hot areas. We have recently reviewed the
holdings of some "diversified" funds with technology sector weightings at more
than 90% of the portfolio. This works fine as long as the popular sector is
2
<PAGE>
trending higher but can be counterproductive when the trend stalls or, even
worse, reverses. We believe diversification is important as it helps reduce the
volatility of the fund by smoothing individual security and sector risk.
The contrarian investment style is opportunity driven and 2000 has been a year
rife with opportunity. We continue to find many rapidly growing companies at
amazingly good value in out-of-favor sectors of the market and have continued to
populate the portfolio with these ideas. Nervous traders have given us numerous
occasions to buy fast-growing technology stocks at significant discounts to
their growth rates (undervalued on a relative basis). There have also been at
least two market-driven buying opportunities where companies with market leading
products and fat profit margins could be purchased at true bargain-basement
prices (cheap on an absolute basis). At the same time, we are trimming or
selling earlier ideas that are now rewarding our patience.
We are finding unusually attractive opportunities in the consumer area as
investors, fearing a slowdown in consumer spending, have already priced most
consumer stocks as if a severe recession is imminent. An end to Fed interest
rate increases, short of a recession, could result in significant rebounds in
this hard-hit sector. We are concentrating on market leaders and
well-capitalized niche players as the market is not generally asking higher
relative prices for the higher quality companies in this sector.
We are also finding opportunities in a select handful of technology companies
whose prices have slumped to attractive levels based on specific industry
concerns which we believe are unfounded or irrelevant to the companies involved.
Unlike the consumer area mentioned above, technology has been a popular area
until very recently. Therefore we are focusing on undiscovered companies with
low analyst coverage which are benefiting from the strong technology spending
cycle or using major technology sector sell-offs to add leading companies at
attractive relative prices.
We continue to find value in some corners of the financial sector and have added
to our holdings recently. Consolidation activity is driving the sector as major
financial conglomerates, especially those based in Europe, continue to build
critical mass on a global scale. Financial companies in the U.S. are especially
tempting acquisition candidates due to the low relative valuations, strong
dollar, well-developed financial markets, continuing deregulation, and the aging
demographic profile of the population. While most financial company (e.g. banks,
brokerage and insurance) stock prices have been held back due to the perceived
impact of rising interest rates, this only creates opportunity in anticipation
of the end of the Fed's moves and an eventual move to lower rates again.
We have been trimming our exposure in areas where we believe prices have reached
fair value. Primarily, these sales have occurred in the energy and health care
sectors, the latter specifically related to biotechnology. We have also sold
some issues in the technology area that reached our price objectives ahead of
schedule. Even so, our net exposure to technology has increased overall, though
still considerably less than the technology weighting represented in the major
indices. While we have trimmed selectively, we continue to see opportunity in
each of these areas and will continue to maintain appropriate weightings as long
as these opportunities persist.
3
<PAGE>
Finally, we continue to see opportunity in smaller capitalization stocks in
general. Since the collapse of the Asian economies and the devaluation of the
Ruble in 1998, investment has been directed primarily toward larger companies.
This has led to a market capitalization discount for smaller companies as their
stock prices have lagged their growth rates. It may be that with continued poor
performance by the S&P 500 (a popular large capitalization index), this discount
will contract as money begins to seek better opportunities in smaller companies.
Investing in smaller companies requires thorough research, patience and
conviction but may reap significant rewards in the future.
IN CONCLUSION
As always, we continue to apply a disciplined, contrarian strategy in managing
the Fund: a strategy that is best described as opportunistic. Opportunity comes
in many different forms triggered by a myriad of different events. We focus on
recognizing these opportunities and taking advantage of bargain prices in a
timely manner. As always, we base our decisions on a significant research
effort. Unlike times past when anyone could do well in the market by buying the
popular stocks and trends, we believe a superior research effort will become an
increasingly important factor in providing future investment performance.
As can be seen from the performance noted above, the results of this strategy
have begun to pay significant dividends as a flat market begins to separate
closet indexers from those managers conducting value-added research. Although we
know there is much work left to do, we are encouraged by our progress to date.
Sincerely,
/s/ Lanny C. Barbee
Lanny C. Barbee
Portfolio Manager
Past performance is not indicative of future performance. Since the Fund's
inception on September 29, 1995, the average annual total return has been 3.23%
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<PAGE>
LIGHTHOUSE CONTRARIAN FUND
Value of $10,000 vs S&P 500 Index
Average Annual Total Return
Period Ended August 31, 2000
1 Year............................26.46%
Since Inception (9/29/95)..........3.23%
Lighthouse Contrarian Fund S&P 500 Index with Income
-------------------------- -------------------------
Sep-95 10,000 10,000
Dec-95 10,068 10,599
Jun-96 11,392 11,663
Dec-96 12,970 13,035
Jun-97 12,841 15,712
Dec-97 13,813 17,382
Jun-98 12,678 20,447
Dec-98 9,303 22,349
Jun-99 10,057 25,109
Dec-99 8,558 27,040
Jun-00 11,094 26,927
Aug-00 11,698 28,153
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 index is
unmanaged and returns inclued reinvested dividends.
5
<PAGE>
Lighthouse Contrarian Fund
SCHEDULE OF INVESTMENTS at August 31, 2000
Shares Value
------ -----
COMMON STOCKS: 94.8%
Aerospace/Defense Equipment: 0.4%
34,000 AVTEAM, Inc. - Class A* $ 47,812
-----------
Agricultural Operations: 3.9%
10,000 Delta and Pine Land Co 244,375
3,400 Potash Corp. 180,625
-----------
425,000
-----------
Apparel Manufacturing: 3.4%
8,300 Jones Apparel Group, Inc.* 203,350
11,000 Nautica Enterprises, Inc.* 129,937
4,000 Tarrant Apparel Group* 30,750
-----------
364,037
-----------
Automobiles: 1.5%
3,000 DaimlerChrysler AG 156,187
-----------
Banks: 1.3%
9,700 Pacific Century Financial Corp. 135,800
-----------
Biotechnology: 6.7%
14,000 Ligand Pharmaceuticals, Inc.* 182,000
8,000 Maxim Pharmaceuticals, Inc.* 489,500
4,100 Xoma Corp. 49,713
-----------
721,213
-----------
Business Services: 0.9%
8,200 RemedyTemp, Inc. - Class A* 98,912
-----------
Communications Equipment: 1.3%
4,200 Harmonic, Inc.* 140,700
-----------
Consumer Products: 1.3%
8,300 Fossil, Inc.* 144,731
-----------
Electronic Components: 11.9%
1,800 Altera Corp.* 116,662
1,100 Analog Devices, Inc.* 110,550
5,000 Coherent, Inc.* 402,500
4,000 Sawtek, Inc.* 201,750
2,990 Texas Instruments, Inc. 200,143
6,200 Vishay Intertechnology, Inc.* 249,938
-----------
1,281,543
-----------
Foods: 1.1%
2,400 Suiza Foods Corp.* 120,000
-----------
Gold Mining: 2.9%
10,300 Barrick Gold Corp. 164,156
17,200 Placer Dome, Inc. 152,650
-----------
316,806
-----------
Insurance: 1.5%
7,300 UnumProvident Corp. 158,319
-----------
Investment Banking/Brokerage: 1.3%
4,100 Southwest Securities Group, Inc. 136,069
-----------
Manufacturing Equipment: 10.4%
10,700 Applied Films Corp.* 371,825
5,400 Electro Scientific Industries, Inc.* 222,413
2,000 Keithley Instruments, Inc. 151,875
16,000 Trikon Technologies, Inc.* 369,000
-----------
1,115,113
-----------
Medical Products: 3.3%
11,500 Cohesion Technologies, Inc.* 123,625
8,500 CryoLife, Inc.* 228,438
-----------
352,063
-----------
Oil and Gas Exploration: 18.9%
3,400 Anadarko Petroleum Corp. 223,618
6,000 Barrett Resources Corp.* 207,750
16,200 Basin Exploration, Inc.* 324,000
5,700 Louis Dreyfus Natural Gas Corp.* 198,075
10,300 Nuevo Energy Co.* 197,631
6,600 Patina Oil & Gas Corp. 140,250
11,200 Plains Resources, Inc.* 198,800
7,200 Pogo Producing Co. 193,500
10,000 Pure Resources* 193,125
3,700 St Mary Land & Exploration Co. 153,088
-----------
2,029,837
-----------
Oil and Gas Pipelines: 3.9%
22,000 Plains All American Pipeline, L.P. 415,250
-----------
See accompanying Notes to Financial Statements.
6
<PAGE>
Lighthouse Contrarian Fund
SCHEDULE OF INVESTMENTS at August 31, 2000
Shares Value
------ -----
Oilfield Equipment/Services: 1.5%
29,200 Mitcham Industries, Inc.* $ 166,075
-----------
Pharmaceuticals: 3.6%
2,200 Aventis - Sponsored ADR 164,450
5,500 GelTex Pharmaceuticals, Inc.* 222,836
-----------
387,286
-----------
Real Estate: 0.8%
13,700 Kennedy-Wilson, Inc.* 90,763
-----------
Restaurants: 2.8%
5,000 CEC Entertainment, Inc.* 144,375
7,000 Jack in the Box, Inc.* 154,438
-----------
298,813
-----------
Retail - Specialty: 2.2%
6,800 Claire's Stores, Inc. 133,875
8,100 Pacific Sunwear of California, Inc.* 107,831
-----------
241,706
-----------
Software: 3.6%
14,300 Progress Software Corp.* 195,731
5,200 Synopsys, Inc.* 192,725
-----------
388,456
-----------
Transportation: 4.4%
8,900 American Freightways Corp.* 146,294
8,300 CNF Transportation, Inc. 203,350
9,000 J.B. Hunt Transport Services, Inc. 121,500
-----------
471,144
-----------
TOTAL COMMON STOCKS
(Cost $8,107,156) 10,203,635
-----------
Principal
Amount Value
------ -----
SHORT-TERM INVESTMENT: 4.7%
Money Market Investment: 4.7%
$510,393 Firstar Stellar Treasury Fund
(cost $510,393) $ 510,393
-----------
TOTAL INVESTMENTS IN SECURITIES: 99.5%
(Cost $8,617,549+) 10,714,028
-----------
Other Assets less Liabilities: 0.5% 49,884
-----------
NET ASSETS: 100.0% $10,763,912
===========
* Non-income producing security.
+ At August 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 $ 2,940,919
Gross unrealized depreciation (844,440)
-----------
Net unrealized appreciation $ 2,096,479
===========
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LIGHTHOUSE CONTRARIAN FUND
STATEMENT OF ASSETS AND LIABILITIES at August 31, 2000
ASSETS
Investments in securities, at value (cost $8,617,549) ...... $ 10,714,028
Receivables:
Securities sold .......................................... 55,769
Dividends and interest ................................... 18,136
Fund shares sold ......................................... 1,350
Prepaid expenses and other assets .......................... 69,625
------------
Total assets ........................................... 10,858,908
------------
LIABILITIES
Payables:
Due to advisor ........................................... 5,348
Distribution fees ........................................ 4,274
Administration fees ...................................... 2,541
Fund shares redeemed ..................................... 58,842
Accrued expenses ........................................... 23,991
------------
Total liabilities ...................................... 94,996
------------
NET ASSETS ................................................... $ 10,763,912
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($10,763,912/815,616 shares outstanding; unlimited
number of shares authorized without par value) ............. $ 13.20
============
COMPONENTS OF NET ASSETS
Paid-in capital ............................................ $ 14,922,532
Accumulated net realized loss on investments ............... (6,255,099)
Net unrealized appreciation on investments ................. 2,096,479
------------
Net assets ............................................. $ 10,763,912
============
See accompanying Notes to Financial Statements.
8
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LIGHTHOUSE CONTRARIAN FUND
STATEMENT OF OPERATIONS For the Year Ended August 31, 2000
INVESTMENT INCOME
Income
Dividends .................................................. $ 66,910
Interest ................................................... 31,742
Other ...................................................... 2,496
-----------
Total income ........................................... 101,148
-----------
Expenses
Advisory fees .............................................. 124,764
Administration fees ........................................ 30,000
Registration fees .......................................... 28,160
Distribution fees .......................................... 24,953
Fund accounting fees ....................................... 16,599
Audit fees ................................................. 14,001
Transfer agent fees ........................................ 10,726
Reports to shareholders .................................... 7,002
Custody fees ............................................... 6,751
Amortization of deferred organization costs ................ 6,705
Trustee fees ............................................... 2,863
Miscellaneous .............................................. 2,234
Legal fees ................................................. 1,426
Insurance expense .......................................... 303
-----------
Total expenses ........................................... 276,487
Less: fees waived ........................................ (76,864)
-----------
Net expenses ............................................. 199,623
-----------
NET INVESTMENT LOSS .................................... (98,475)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments ............................. 405,923
Net realized loss on put option .............................. (694,438)
Net unrealized appreciation on investments ................... 2,515,417
-----------
Net realized and unrealized gain on investments ............ 2,226,902
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 2,128,427
===========
See accompanying Notes to Financial Statements.
9
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
2000 1999
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss .......................... $ (98,475) $ (64,240)
Net realized gain on investments ............. 405,923 1,102,332
Net realized loss from short sale transactions -- (3,101,741)
Net realized loss on put options ............. (694,438) (2,024,255)
Net unrealized appreciation on investments ... 2,515,417 3,388,473
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................ 2,128,427 (699,431)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... -- (16,726)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets derived from
net change in outstanding shares (a) ....... (3,749,347) (8,642,202)
------------ ------------
TOTAL DECREASE IN NET ASSETS ............... (1,620,920) (9,358,359)
NET ASSETS
Beginning of year ............................ 12,384,832 21,743,191
------------ ------------
END OF YEAR .................................. $ 10,763,912 $ 12,384,832
============ ============
(a) A summary of capital share transactions is as follows:
YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999
-------------------------- --------------------------
Shares Value Shares Value
----------- ----------- ----------- -----------
Shares sold 39,995 $ 482,277 103,469 $ 1,113,248
Shares issued in
reinvestment of
distributions -- -- 1,589 16,385
Shares redeemed (411,900) (4,231,624) (920,664) (9,771,835)
----------- ----------- ----------- -----------
Net decrease (371,905) $(3,749,347) (815,606) $(8,642,202)
=========== =========== =========== ===========
See accompanying Notes to Financial Statements.
10
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
Year Ended August 31, September 29, 1995*
---------------------------------------- through
2000 1999 1998 1997 August 31, 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 10.43 $ 10.85 $ 15.76 $ 13.57 $ 12.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ......... (0.17) (0.07) 0.01 0.05 (0.09)
Net realized and unrealized
gain (loss) on investments ......... 2.94 (0.34) (4.31) 2.41 1.72
------- ------- ------- ------- -------
Total from investment operations ....... 2.77 (0.41) (4.30) 2.46 1.63
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ........... -- (0.01) -- -- --
From net realized gain ............... -- -- (0.61) (0.27) (0.06)
------- ------- ------- ------- -------
Total distributions .................... -- (0.01) (0.61) (0.27) (0.06)
------- ------- ------- ------- -------
Net asset value, end of period ......... $ 13.20 $ 10.43 $ 10.85 $ 15.76 $ 13.57
======= ======= ======= ======= =======
Total return ........................... 26.46% (3.78%) (28.46%) 18.22% 13.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) . $ 10.8 $ 12.4 $ 21.7 $ 30.5 $ 14.0
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and
expenses absorbed .................. 2.77% 2.47% 2.13% 2.24% 2.95%+
After fees waived and
expenses absorbed .................. 2.00% 2.00%** 2.00%** 2.00%** 2.00%+**
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS:
Before fees waived and expenses
absorbed ........................... (1.76%) (0.85%) (0.06%) (0.13%) (2.14%)+
After fees waived and expenses
absorbed ........................... (0.99%) (0.39%)** 0.08%** 0.11%** (1.19%)+**
Portfolio turnover rate .............. 57.49% 122.00% 44.09% 21.94% 20.56%
</TABLE>
* Commencement of operations.
+ Annualized.
** Excluding dividends paid on Securities sold short representing 0.11%,
0.15%, 0.06% and 0.00% for the period ended August 31, 1999, 1998, 1997 and
1996, respectively.
See accompanying Notes to Financial Statements.
11
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The Lighthouse Contrarian 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 September 29, 1995. 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. Prior to No-vember 12, 1997, the Fund was known
as the Lighthouse Growth Fund.
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. 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 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.
12
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
NOTES TO FINANCIAL STATEMENTS Continued
E. RECLASSIFICATION OF CAPITAL ACCOUNTS. The Fund account and report for
distributions to shareholders in accordance with the American
Institute of Certified Public Accountants' 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 August 31, 2000, the Fund decreased
paid-in capital by $218,949 to reclassify accumulated net investment
loss. Accumulated net realized loss on investments and net assets were
not affected by this change.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended August 31, 2000, Lighthouse Capital Management, Inc.
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and most of the personnel needed by the Fund. As
compensation for its services, the Advisor was entitled to a monthly fee at the
annual rate of 1.25% based upon the average daily net assets of the Fund. For
the year ended August 31, 2000, the Fund incurred $124,764 in Advisory fees.
The Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to limit the Fund's total operating expenses by reducing
all or a portion of its fees and reimbursing the Fund for expenses, excluding
interest and tax expense, so that its ratio of expenses to average net assets
will not exceed 2.00%. 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 August 31, 2000, the
Advisor waived fees of $76,864.
At August 31, 2000, the cumulative unreimbursed amount paid and/or waived
by the Advisor on behalf of the Fund that may be reimbursed was $314,565. The
Advisor may recapture a portion of the above amount no later than the dates as
stated below:
August 31,
----------------------------------
2001 2002 2003
-------- -------- --------
Lighthouse Contrarian Fund $118,914 $118,787 $ 76,864
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.
13
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
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:
Average Net Assets of the Fund Fee or Fee Rate
------------------------------ ---------------
Under $15 million $30,000
$15 to $50 million 0.20% of average daily net assets
$50 to $100 million 0.15% of average daily net assets
$100 to $150 million 0.10% of average daily net assets
Over $150 million 0.05% of average daily net assets
For the year ended August 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.
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 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 August 31, 2000, the Fund paid
to the Advisor, as Distribution Coordinator, $24,953.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, other than
short-term investments, were $5,325,306 and $8,350,370, respectively.
14
<PAGE>
LIGHTHOUSE CONTRARIAN FUND
NOTES TO FINANCIAL STATEMENTS Continued
Option transactions during the year ended August 31, 2000 are summarized as
follows:
Put Options
---------
Options outstanding, beginning of period ............. $ 704,968
Options purchased .................................... 135,705
Options closed ....................................... (363,617)
Options written ...................................... 0
Options expired ...................................... (477,056)
---------
Options outstanding at August 31, 2000 ............... 0
Unrealized depreciation at August 31, 2000 ........... 0
---------
Market value of options at August 31, 2000 ........... $ 0
=========
Average fair market value of options for the
year ended August 31, 2000 ......................... $ 76,083
=========
Net trading losses on options for the
year ended August 31, 2000 ......................... $(694,438)
=========
15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Lighthouse Contrarian 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 Lighthouse Contrarian Fund (the Fund), a series
of Professionally Managed Portfolios, as of August 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 four years in the period then ended and for the
period from September 29, 1995 (commencement of operations) through August 31,
1996. 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. Our procedures included confirmation of securities
owned as of August 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
Lighthouse Contrarian Fund as of August 31, 2000, the results of its operations
for the year then ended, and the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended, and for the period September 29, 1995
(commencement of operations) through August 31, 1996, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Los Angeles, California
October 3, 2000
<PAGE>
Advisor
LIGHTHOUSE CAPITAL MANAGEMENT, INC.
10000 Memorial Drive, Suite 660
Houston, Texas 77024
(713) 688-6881
Account Inquiries (800) 282-2340
Distributor
FIRST FUND DISTRIBUTORS, INC.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
Custodian
FIRSTAR INSTITUTIONAL CUSTODY SERVICES
425 Walnut Street
Cincinnati, Ohio 45201
Transfer and Dividend Disbursing
Agent AMERICAN DATA SERVICES, INC.
P.O. Box 5536
Hauppauge, New York 11788-0132
Auditors
ERNST & YOUNG LLP
725 South Figueroa
Los Angeles, California 90017
Legal Counsel
PAUL, HASTINGS, JANOFSKY & WALKER
345 California Street, 29th Floor
San Francisco, California 94104
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
