JAGGF Jaguar Mining Inc (QX)

Item 1. Report to Stockholders.

 

 

 

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	Beginning	Ending	Expenses Paid
	Account Value	Account Value	During the Period
	6/1/13	11/30/13	6/1/13 – 11/30/13*
Institutional Class Actual	$1,000.00	$1,063.70	$6.21
Hypothetical (5% annual
return before expenses)	$1,000.00	$1,019.05	$6.07
Investor Class Actual	$1,000.00	$1,062.60	$7.50
Hypothetical (5% annual
return before expenses)	$1,000.00	$1,017.80	$7.33

M C K INLEY D IVERSIFIED I NCOME F UND – I NSTITUTIONAL C LASS

Value of $100,000 vs. Dow Jones Utility Average

and S&P 500 ® Index

 

 

Average Annual Returns		Since Inception
Period Ended November 30, 2013		(3/27/2013)
McKinley Diversified Income Fund – Institutional Class			5.04%
Dow Jones Utility Average			(0.50)%
S&P 500® Index			17.21%

M C K INLEY D IVERSIFIED I NCOME F UND – I NVESTOR C LASS

 

Value of $10,000 vs. Dow Jones Utility Average

and S&P 500 ® Index

 

 

Average Annual Returns		Since Inception
Period Ended November 30, 2013		(3/27/2013)
McKinley Diversified Income Fund – Investor Class			4.88%
Dow Jones Utility Average			(0.50)%
S&P 500® Index			17.21%

M C K INLEY D IVERSIFIED I NCOME F UND

 

SCHEDULE OF INVESTMENTS at November 30, 2013

 

Shares					Value
COMMON STOCKS: 67.8%
Biotechnology: 1.7%
	28,426		PDL BioPharma,
			Inc.		$	277,722
Capital Markets: 7.6%
	20,842		AllianceBernstein
			Holding LP			462,484
	7,598		Apollo Global
			Management, LLC			229,384
	25,260		Apollo Investment
			Corp.			227,845
	7,945		The Blackstone
			Group LP			227,068
	4,900		Och-Ziff Capital
			Management
			Group, LLC			68,061
						1,214,842
Chemicals: 2.9%
	6,091		LyondellBasell
			Industries NV			470,103
Commercial Banks: 3.5%
	61,866		Banco Santander
			SA - ADR			553,082
Commercial Services & Supplies: 2.3%
	20,315		RR Donnelley
			& Sons Co.			375,827
Diversified Financial Services: 3.4%
	55,980		KKR Financial
			Holdings, LLC			536,288
Diversified Telecommunication
Services: 3.3%
	14,802		AT&T, Inc.			521,178
Energy Equipment & Services: 4.3%
	16,209		SeaDrill Ltd.			692,287
Gas Utilities: 1.5%
	5,669		AmeriGas
			Partners LP			245,014
Metals & Mining: 1.1%
	11,546		Vale SA - ADR			176,885
Oil, Gas & Consumable Fuels: 13.4%
	10,268		Atlas Pipeline
			Partners LP			358,969
	23,420		Breitburn Energy
			Partners LP			442,872
	13,969		Calumet Specialty
			Products Partners LP			399,374
	20,006		Capital Product
			Partners LP			179,254
	2,534		Energy Transfer
			Partners LP			137,241
	20,424		Linn Energy, LLC			621,299
						2,139,009
Pharmaceuticals: 6.9%
	8,204		AstraZeneca
			PLC - ADR			469,186
	6,534		Bristol Myers
			Squibb Co.			335,717
	5,754		GlaxoSmithKline
			PLC - ADR			304,502
						1,109,405
Semiconductors & Semiconductor
Equipment: 2.6%
	17,354		Intel Corp.			413,719
Thrifts & Mortgage Finance: 3.5%
	24,049		Home Loan Servicing
			Solutions Ltd.			559,620
Tobacco: 9.8%
	11,961		Altria Group, Inc.			442,318
	9,280		Reynolds
			American, Inc.			468,176
	39,955		Vector Group Ltd.			654,463
						1,564,957
TOTAL COMMON STOCKS
(Cost $10,205,101)						10,849,938

 

The accompanying notes are an integral part of these financial statements.

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

SCHEDULE OF INVESTMENTS at November 30, 2013 (Continued)

 

Shares					Value
PARTNERSHIPS & TRUSTS: 14.5%
Real Estate Investment Trusts: 14.5%
	14,835		Agree Realty Corp.		$	434,666
	18,706		Capstead Mortgage
			Corp.			225,033
	52,638		MFA Financial, Inc.			383,731
	54,318		Newcastle
			Investment Corp.			298,206
	68,807		Northstar Realty
			Finance Corp.			679,813
	9,235		Omega Healthcare
			Investors, Inc.			301,892
TOTAL PARTNERSHIPS & TRUSTS
(Cost $2,362,211)						2,323,341
INVESTMENT COMPANIES: 15.9%
	37,690		Ares Capital Corp.			692,742
	18,314		Main Street
			Capital Corp.			603,447
	58,790		Prospect Capital
			Corp.			670,794
	24,869		Solar Capital Ltd.			575,718
TOTAL INVESTMENT COMPANIES
(Cost $2,476,932)						2,542,701
SHORT-TERM INVESTMENTS: 8.2%
Money Market Funds: 8.2%
	515,642		First American
			Treasury
			Obligations Fund -
			Class Z, 0.00% 1			515,642
	795,000		Invesco Treasury
			Portfolio, 0.02% 1			795,000
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,310,642)						1,310,642
TOTAL INVESTMENTS
IN SECURITIES: 106.4%
(Cost $16,354,886)						17,026,622
Liabilities in Excess
of Other Assets: (6.4)%						(1,019,627	)
TOTAL NET ASSETS: 100.0%					$	16,006,995

ADR – American Depositary Receipt

1	Seven-day yield as of November 30, 2013.

The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”).  GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund.

The accompanying notes are an integral part of these financial statements.

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

STATEMENT OF ASSETS AND LIABILITIES at November 30, 2013

 

ASSETS
Investments in securities, at value (cost $16,354,886)		$	17,026,622
Receivables:
Fund shares sold			200
Dividends and interest			27,697
Due from adviser, net			4,313
Prepaid expenses			8,885
Total assets			17,067,717
LIABILITIES
Payables:
Investment securities purchased			994,748
Administration fees			9,495
Transfer agent fees			7,966
Fund accounting fees			5,860
Custody fees			3,013
Chief Compliance Officer fees			2,864
Shareholder servicing fees			1,932
Trustee fees			974
Distribution fees - Investor Class			48
Other accrued expenses			33,822
Total liabilities			1,060,722
NET ASSETS		$	16,006,995
COMPONENTS OF NET ASSETS
Paid-in capital		$	14,419,900
Accumulated net investment loss			(67,151	)
Accumulated net realized gain on investments			982,510
Net unrealized appreciation on investments			671,736
Net assets		$	16,006,995
Net Asset Value (unlimited shares authorized):
Institutional Class:
Net assets		$	15,768,362
Shares of beneficial interest issued and outstanding			772,996
Net asset value, offering and redemption price per share		$	20.40
Net Asset Value (unlimited shares authorized):
Investor Class:
Net assets		$	238,633
Shares of beneficial interest issued and outstanding			11,704
Net asset value, offering and redemption price per share		$	20.39

The accompanying notes are an integral part of these financial statements.

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

STATEMENT OF OPERATIONS For the Period Ended November 30, 2013 *

INVESTMENT INCOME
Income
Dividends (net of $4,076 foreign withholding tax)		$	549,399
Interest			50
Total investment income			549,449
EXPENSES
Investment advisory fees			77,980
Administration fees			30,552
Transfer agent fees			25,015
Fund accounting fees			20,995
Audit fees			20,678
Reports to shareholders			16,377
Shareholder servicing fees			14,416
Chief Compliance Officer fees			8,864
Custody fees			7,999
Registration fees			4,037
Trustee fees			3,465
Legal fees			3,367
Miscellaneous expenses			3,224
Insurance expense			1,347
Distribution fees - Investor Class			282
Total expenses			238,598
Less: fees waived			(121,347	)
Net expenses			117,251
Net investment income			432,198
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments			(348,382	)
Change in net unrealized appreciation on investments			671,736
Net realized and unrealized gain on investments			323,354
Net increase in net assets resulting from operations		$	755,552

*  Fund commenced operations on March 27, 2013.

The accompanying notes are an integral part of these financial statements.

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

STATEMENT OF CHANGES IN NET ASSETS

 

		Period Ended
		November 30, 2013*
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income		$	432,198
Net realized loss on investments			(348,382	)
Change in unrealized appreciation on investments			671,736
Net increase in net assets resulting from operations			755,552
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income
Institutional Class			(415,676	)
Investor Class			(5,184	)
Total distributions to shareholders			(420,860	)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net
change in outstanding shares - Institutional Class (1)			15,437,863
Net increase in net assets derived from net
change in outstanding shares - Investor Class (1)			234,440
Total increase in net assets from capital share transactions			15,672,303
Total increase in net assets			16,006,995
NET ASSETS
Beginning of period			—
End of period		$	16,006,995
Accumulated net investment loss		$	(67,151	)

                  

(1)  Summary of capital share transactions is as follows:

 

		Period Ended
		November 30, 2013*
		Shares				Value
Institutional Class
Shares sold			753,165			$	15,054,159
Shares issued in reinvestment of distribution			21,415				415,676
Shares redeemed			(1,584	)			(31,972	)
Net increase			772,996			$	15,437,863
		Period Ended
		November 30, 2013*
		Shares				Value
Investor Class
Shares sold			11,581			$	232,070
Shares issued in reinvestment of distribution			178				3,460
Shares redeemed			(55	)			(1,090	)
Net increase			11,704			$	234,440

*  Fund commenced operations on March 27, 2013.

The accompanying notes are an integral part of these financial statements.

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

FINANCIAL HIGHLIGHTS For a capital share outstanding throughout the period

 

Institutional Class

 

		Period Ended
		November 30, 2013*
Net asset value, beginning of period		$	20.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income			0.59	**
Net realized and unrealized gain on investments			0.38
Total from investment operations			0.97
LESS DISTRIBUTIONS
From net investment income			(0.57	)
Net asset value, end of period		$	20.40
Total return		5.04		%^
SUPPLEMENTAL DATA
Net assets, end of period (millions)		$	15.8
Portfolio turnover rate		53		%^
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before fees waived			2.45	% +
After fees waived			1.20	% +
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
Before fees waived			3.18	% +
After fees waived			4.43	% +

*	Fund commenced operations on March 27, 2013.

**	Net investment income per share is calculated using the ending balance prior to consideration of adjustments for permanent book and tax differences.

^	Not annualized.

+	Annualized.

The accompanying notes are an integral part of these financial statements.

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

FINANCIAL HIGHLIGHTS For a capital share outstanding throughout the period

 

Investor Class

 

		Period Ended
		November 30, 2013*
Net asset value, beginning of period		$	20.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income			0.55	**
Net realized and unrealized gain on investments			0.39
Total from investment operations			0.94
LESS DISTRIBUTIONS
From net investment income			(0.55	)
Net asset value, end of period		$	20.39
Total return		4.88		%^
SUPPLEMENTAL DATA:
Net assets, end of period (millions)		$	0.2
Portfolio turnover rate		53		%^
RATIO OF EXPENSES TO AVERAGE NET ASSETS
Before fees waived			2.70	% +
After fees waived			1.45	% +
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
Before fees waived/recouped			3.29	% +
After fees waived/recouped			4.54	% +

*	Fund commenced operations on March 27, 2013.

**	Net investment income per share is calculated using the ending balance prior to consideration of adjustments for permanent book and tax differences.

^	Not annualized.

+	Annualized.

The accompanying notes are an integral part of these financial statements.

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

NOTES TO FINANCIAL STATEMENTS November 30, 2013

 

NOTE 1 – ORGANIZATION

 

McKinley Diversified Income 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, as amended (the “1940 Act”) as an open-end investment management company.  The Fund commenced operations on March 27, 2013.

 

The Fund offers Institutional and Investor Class shares.  Institutional Class shares are offered primarily for direct investment by investors such as pension and profit-sharing plans, employee benefit trusts, endowments, foundations, and corporations.  Each class of shares has equal rights as to earnings and assets except that Investor Class shares bear distribution expenses.  Each class of shares has exclusive voting rights with respect to matters that affect just that class.  Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.

 

The investment objective of the Fund is to seek substantial current income and long-term capital appreciation.

 

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 accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

A.

Security Valuation.   All equity securities that are traded on a national securities exchange, except those listed on the NASDAQ Global Market® (“NASDAQ”), are valued at the last reported sale price on the exchange on which the security is principally traded.  Securities traded on NASDAQ will be valued at the NASDAQ Official Closing Price (“NOCP”).  If, on a particular day, an exchange-traded or NASDAQ security does not trade, then the mean between the most recent quoted bid and asked prices will be used. All equity securities that are not traded on a listed exchange are valued at the last sale price in the over-the-counter market.  If a non-exchange traded security does not trade on a particular day, then the mean between the last quoted closing bid and asked price will be used.

 

Debt securities are valued by using the mean between the closing bid and asked prices provided by an independent pricing service.  If the closing bid and asked prices are not readily available, the independent pricing service may provide a price determined by a matrix pricing

 

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

NOTES TO FINANCIAL STATEMENTS November 30, 2013 (Continued)

 

method.  These techniques generally consider such factors as yields or prices of bonds of comparable quality, type of issue, coupon, maturity, ratings and general market conditions.  In the absence of a price from a pricing service, securities are valued at their respective fair values as determined in good faith by the Board of Trustees.

 

Short-term securities that have maturities of less than 60 days, at time of purchase, are valued at amortized cost, which when combined with accrued interest, approximates market value.

 

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.  When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Board of Trustees.  Fair value pricing is an inherently subjective process, and no single standard exists for determining fair value.  Different funds could reasonably arrive at different values for the same security.  The use of fair value pricing by a fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. At November 30, 2013, the Fund did not hold any fair valued securities.

 

As described above, the Fund utilizes various methods to measure the fair value of most of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:

 

	Level 1 –	Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
	Level 2 –	Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
	Level 3 –	Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

 

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

NOTES TO FINANCIAL STATEMENTS November 30, 2013 (Continued)

 

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

 

The inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurements fall in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

The following is a summary of the inputs used to value the Fund’s net assets as of November 30, 2013. See the Schedule of Investments for industry breakout:

 

Description		Level 1				Level 2				Level 3				Total
Common Stocks		$	10,849,938			$	—			$	—			$	10,849,938
Partnerships
& Trusts			2,323,341				—				—				2,323,341
Investment
Companies			2,542,701				—				—				2,542,701
Short-Term
Investments			1,310,642				—				—				1,310,642
Total Investments
in Securities		$	17,026,622			$	—			$	—			$	17,026,622

There were no transfers into or out of Level 1, 2, or 3 for the period ended November 30, 2013.

 

B.

Federal Income Taxes.   The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies.  Therefore, no provision for federal income taxes or excise taxes has been made.

 

In order to avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as

 

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

NOTES TO FINANCIAL STATEMENTS November 30, 2013 (Continued)

 

dividends in each calendar year at least 98.0% of its net investment income (earned during the calendar year) and at least 98.2% of its net realized capital gains (earned during the twelve months ended November 30) plus undistributed amounts, if any, from prior years.

 

Net capital losses incurred after November 30, and within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.

 

As of November 30, 2013, the Fund did not have any tax positions that did not meet the “more likely-than-not” threshold of being sustained by the applicable tax authority. Generally, tax authorities can examine all the tax returns filed for the last three years.  The Fund identifies its major tax jurisdictions as U.S. Federal and Massachusetts State.  As of November 30, 2013, the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.

 

C.

Security Transactions and Investment Income.   Investment securities transactions are accounted for on the trade date.  Gains and losses realized on sales of securities are determined on a specific identification basis.  Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method.  Dividend income is recorded on the ex-dividend date.  Interest income is recorded on an accrual basis. Other non-cash dividends are recognized as investment income at the fair value of the property received.  Withholding taxes on foreign dividends have been provided for in accordance with the Trust’s understanding of the applicable country’s tax rules and rates.

 

D.

Distributions to Shareholders.   Distributions to shareholders from net investment income normally are declared and paid at least quarterly.  Distributions to shareholders from net realized gains on securities for the Fund normally are declared and paid on an annual basis.  Distributions are recorded on the ex-dividend date.

 

E.

Use of Estimates.   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

 

 

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NOTES TO FINANCIAL STATEMENTS November 30, 2013 (Continued)

 

F.

Share Valuation.   The net asset value (“NAV”) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent.  The Fund’s shares will not be priced on the days on which the NYSE is closed for trading.  The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share.

 

G.

Guarantees and Indemnifications.   In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses.  The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.  However, based on experience, the Fund expects the risk of loss to be remote.

 

H.

Reclassifications of Capital Accounts.   Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting.  These reclassifications have no effect on net assets or net asset value per share.  For the period ended November 30, 2013, the Fund decreased accumulated net realized loss $1,330,892, decreased paid-in capital $1,252,403 and decreased undistributed net investment income $78,489.

 

I.

Subsequent Events.   In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. The Fund has determined that there were no subsequent events that would need to be disclosed in the Fund’s financial statements.

 

J.

Recent Accounting Pronouncement.   In January 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-01 Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities . The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The guidance requires retrospective application for all comparative periods presented. Management has evaluated and adopted ASU 2013-01 and has determined there is no impact to the Fund.

 

 

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NOTES TO FINANCIAL STATEMENTS November 30, 2013 (Continued)

 

NOTE 3 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS

 

McKinley Capital Management, LLC (the “Adviser”) provides the Fund with investment management services under an Investment Advisory Agreement (the “Agreement”).  Under the Agreement, the Adviser furnishes all investment advice, office space, certain administrative services, and provides most of the personnel needed by the Fund. As compensation for its services, the Adviser is entitled to a monthly fee at the annual rate of 0.80% based upon the average daily net assets of the Fund. For the period ended November 30, 2013, the Fund incurred $77,980 in advisory fees.

 

The Fund is responsible for its own operating expenses. The Adviser has contractually agreed to limit Fund expenses by reducing all or a portion of its fees and reimbursing the Fund expenses so that its ratio of expenses to average net assets will not exceed 1.20% and 1.45% for the Institutional Class and Investor Class shares, respectively.  The contract’s term is indefinite and may be terminated only by the Board of Trustees.  For the period ended November 30, 2013, the amount that exceeded the ratio of expenses was $121,347.  As of November 30, 2013, the amount due from the Adviser was $4,313.

 

Any fees waived and/or any Fund expenses absorbed by the Adviser pursuant to an agreed upon expense cap shall be reimbursed by the Fund to the Adviser, if so requested by the Adviser, any time before the end of the third 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.  The Fund must pay its current ordinary operating expenses before the Adviser is entitled to any reimbursements of its fees and/or expenses.  Any such reimbursement is also contingent upon Board of Trustees review and approval.  At November 30, 2013, the cumulative unreimbursed amount paid and/or waived by the Adviser on behalf of the Fund that may be recouped was $121,347.  The Adviser may recapture portions of this amount no later than November 30, 2016.

 

U.S. Bancorp Fund Services, LLC (“USBFS”), an indirect wholly-owned subsidiary of U.S. Bancorp, serves as the Fund’s Administrator (“Administrator”) and, in that capacity, performs various administrative and accounting services for the Fund.  USBFS also serves as the Fund’s fund accountant and transfer agent. 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

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

NOTES TO FINANCIAL STATEMENTS November 30, 2013 (Continued)

payment of the Fund’s expenses and reviews the Fund’s expense accruals.  The officers of the Trust and the Chief Compliance Officer are also employees of the Administrator.  As compensation for its services, the Administrator is entitled to a monthly fee at an annual rate based upon the average daily net assets of the Fund.  Fees paid by the Fund for Administration and Chief Compliance Officer services for the period ended November 30, 2013 are disclosed in the Statement of Operations.

 

Quasar Distributors, LLC (the “Distributor”) acts as the Fund’s principal underwriter in a continuous public offering of the Fund’s shares.  U.S. Bank, N.A. (the “Custodian”) serves as custodian to the Fund. Both the Distributor and Custodian are affiliates of the Administrator.

 

The Fund has adopted a Distribution Plan in accordance with Rule 12b-1 under the 1940 Act with respect to the Investor Class shares and a Shareholder Servicing Plan on behalf of both the Institutional and Investor Classes.  The Distribution Plan provides that the Fund may pay a fee to the Distributor at an annual rate of up to 0.25% of the average daily net assets of Investor Class shares.  No distribution fees are paid by Institutional Class shares.  These fees may be used by the Distributor to provide compensation for sales support, distribution activities, or shareholder servicing activities. Under the Shareholder Servicing Plan, each Class is authorized to pay the Adviser an annual shareholder servicing fee of up to 0.15% of each Class’s average daily net assets.  The Adviser uses this fee to finance certain activities related to servicing and maintaining shareholder accounts.  For the period ended November 30, 2013, the Fund incurred distribution fees of $282 and shareholder servicing fees of $14,416.

 

NOTE 4 – PURCHASES AND SALES OF SECURITIES

 

For the period ended November 30, 2013, the cost of purchases and the proceeds from the sale of securities, excluding short-term investments, were $22,904,872 and $7,391,560, respectively.

 

There were no purchases or sales of long-term U.S. Government securities for the period ended November 30, 2013.

 

NOTE 5 – DISTRIBUTIONS TO SHAREHOLDERS

 

The tax character of distributions paid during the period ended November 30, 2013 was as follows:

 

		November 30, 2013
	Distributions paid from
	Ordinary income:	$420,860

 

 

22

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M C K INLEY D IVERSIFIED I NCOME F UND

 

NOTES TO FINANCIAL STATEMENTS November 30, 2013 (Continued)

 

As of November 30, 2013, the components of accumulated earnings (losses) on a tax basis were as follows:

 

Cost of investments		$	15,704,017
Gross tax unrealized appreciation			1,756,607
Gross tax unrealized depreciation			(434,002	)
Net tax unrealized appreciation			1,322,605
Undistributed ordinary income			114,405
Undistributed long-term capital gain			150,085
Total distributable earnings			264,490
Other accumulated losses			—
Total accumulated gains		$	1,587,095

 

23

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M C K INLEY D IVERSIFIED I NCOME F UND

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders of

McKinley Diversified Income Fund and

The Board of Trustees of

Professionally Managed Portfolios

 

We have audited the accompanying statement of assets and liabilities, of McKinley Diversified Income Fund, a series of Professionally Managed Portfolios (the Trust), including the schedule of investments, as of November 30, 2013, and the related statement of operations, the statement of changes in net assets and the financial highlights for the period March 27, 2013 (commencement of operations) to November 30, 2013. These financial statements and financial highlights are the responsibility of the Trust’s management.  Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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.  The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting.  Accordingly, we express no such opinion.  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 November 30, 2013, 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 audit provides 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 McKinley Diversified Income Fund as of November 30, 2013, the results of its operations, the changes in its net assets and its financial highlights for the period March 27, 2013 (commencement of operations) to November 30, 2013, in conformity with accounting principles generally accepted in the United States of America.

 

TAIT, WELLER & BAKER LLP

 

Philadelphia, Pennsylvania

January 24, 2014

 

 

24

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M C K INLEY D IVERSIFIED I NCOME F UND

 

TRUSTEES AND EXECUTIVE OFFICERS (Unaudited)

 

				Number of
				Portfolios
		Term of	Principal	in Fund	Other
	Positions	Office and	Occupation	Complex (2)	Directorships
Name, Address	with the	Length of	During	Overseen	Held During
and Age	Trust (1)	Time Served	Past Five Years	by Trustees	Past Five Years
Independent Trustees of the Trust
Dorothy A. Berry	Chairman	Indefinite	Formerly, President,	1	Director, PNC
(born 1943)	and	Term;	Talon Industries,		Funds, Inc.
c/o U.S. Bancorp	Trustee	Since	Inc. (business
Fund Services, LLC		May	consulting);
2020 E. Financial Way		1991.	formerly, Executive
Suite 100			Vice President and
Glendora, CA 91741			Chief Operating
			Officer, Integrated
			Asset Management
			(investment advisor
			and manager) and
			formerly, President,
			Value Line, Inc.
			(investment advisory
			and financial
			publishing firm).
Wallace L. Cook	Trustee	Indefinite	Investment	1	The Dana
(born 1939)		Term;	Consultant; formerly,		Foundation;
c/o U.S. Bancorp		Since	Chief Executive		The Univ. of
Fund Services, LLC		May	Officer, Rockefeller		Virginia Law
2020 E. Financial Way		1991.	Trust Co., (prior		School Fdn.
Suite 100			thereto Senior Vice
Glendora, CA 91741			President), and
			Managing Director,
			Rockefeller & Co.
			(Investment Manager
			and Financial Advisor);
			formerly, Senior Vice
			President, Norton
			Simon, Inc.
Eric W. Falkeis (3)	Trustee	Indefinite	President and Chief	1	None
(born 1973)		Term;	Operating Officer,
c/o U.S. Bancorp		Since	Direxion Funds
Fund Services, LLC		September	since 2013; formerly,
2020 E. Financial Way		2011.	Senior Vice President,
Suite 100			and Chief Financial
Glendora, CA 91741			Officer (and other
			positions), U.S.
			Bancorp Fund
			Services, LLC,
			(1997-2013).

 

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

TRUSTEES AND EXECUTIVE OFFICERS (Unaudited) (Continued)

 

				Number of
				Portfolios
		Term of	Principal	in Fund	Other
	Positions	Office and	Occupation	Complex (2)	Directorships
Name, Address	with the	Length of	During	Overseen	Held During
and Age	Trust (1)	Time Served	Past Five Years	by Trustees	Past Five Years
Carl A. Froebel	Trustee	Indefinite	Formerly President	1	None.
(born 1938)		Term;	and Founder,
c/o U.S. Bancorp		Since	National Investor
Fund Services, LLC		May	Data Services, Inc.
2020 E. Financial Way		1991.	(investment related
Suite 100			computer software).
Glendora, CA 91741
Steven J. Paggioli	Trustee	Indefinite	Consultant, since	1	Independent
(born 1950)		Term;	July 2001; formerly,		Trustee, The
c/o U.S. Bancorp		Since	Executive Vice		Managers Funds;
Fund Services, LLC		May	President, Investment		Trustee,
2020 E. Financial Way		1991.	Company		Managers AMG
Suite 100			Administration,		Funds, Aston
Glendora, CA 91741			LLC (mutual fund		Funds; Advisory
			administrator).		Board Member,
					Sustainable
					Growth
					Advisers, LP;
					Independent
					Director, Chase
					Investment
					Counsel.
Officers of the Trust
Elaine E. Richards	President	Indefinite	Vice President	Not	Not
(born 1968)		Term;	and Legal	Applicable.	Applicable.
c/o U.S. Bancorp		Since	Compliance
Fund Services, LLC		March	Officer, U.S.
2020 E. Financial Way		2013.	Bancorp Fund
Suite 100	Secretary	Indefinite	Services, LLC,
Glendora, CA 91741		Term;	since July 2007.
		Since
		February
		2008.
Eric C. VanAndel	Treasurer	Indefinite	Vice President,	Not	Not
(born 1975)		Term;	U.S. Bancorp	Applicable.	Applicable.
c/o U.S. Bancorp		Since	Fund Services,
Fund Services, LLC		April	LLC, since
615 East Michigan St.		2013.	April 2005.
Milwaukee, WI 53202

 

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

TRUSTEES AND EXECUTIVE OFFICERS (Unaudited) (Continued)

 

				Number of
				Portfolios
		Term of	Principal	in Fund	Other
	Positions	Office and	Occupation	Complex (2)	Directorships
Name, Address	with the	Length of	During	Overseen	Held During
and Age	Trust (1)	Time Served	Past Five Years	by Trustees	Past Five Years
Donna Barrette	Chief	Indefinite	Senior Vice	Not	Not
(born 1966)	Compli-	Term:	President and	Applicable.	Applicable.
c/o U.S. Bancorp	ance	Since	Compliance
Fund Services, LLC	Officer	July	Officer, U.S.
615 East Michigan St.		2011.	Bancorp Fund
Milwaukee, WI 53202	Anti-	Indefinite	Services, LLC
	Money	Term:	since August 2004.
	Laundering	Since
	Officer	July
		2011.
	Vice	Indefinite
	President	Term:
		Since
		July
		2011.

 

(1)	The Trustees of the Trust are not “interested persons” of the Trust as defined under the 1940 Act (“Independent Trustees”).

(2)

The Trust is comprised of numerous series managed by unaffiliated investment advisers.  The term “Fund Complex” applies only to the Fund.  The Fund does not hold itself out as related to any other series within the Trust for purposes of investment and investor services, nor does it share the same investment advisor with any other series.

(3)	Prior to March 8, 2013, Mr. Falkeis was an “interested person” of the Trust as defined by the 1940 Act by virtue of the fact that he was an interested person of Quasar Distributors, LLC who acts as principal underwriter to the series of the Trust.

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

FEDERAL TAX INFORMATION (Unaudited)

 

For the period ended November 30, 2013, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was 80.52%.

 

For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the period ended November 30, 2013, was 62.40%.

 

The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C) for the Fund for the period ended November 30, 2013, was 5.66%.

 

INFORMATION ABOUT PROXY VOTING (Unaudited)

 

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling (888) 458-1963.  Furthermore, you can obtain the description on the SEC’s website at www.sec.gov .

 

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent period ended June 30 is available without charge, upon request, by calling (888) 458-1963. Furthermore, you can obtain the Fund’s proxy voting records on the SEC’s website at www.sec.gov .

 

INFORMATION ABOUT THE PORTFOLIO HOLDINGS (Unaudited)

 

The Fund files its complete schedule of portfolio holdings for its first and third fiscal quarters with the SEC on Form N-Q.  The Fund’s Form N-Q is available without charge, upon request, by calling (888) 458-1963.  Furthermore, you can obtain the Form N-Q on the SEC’s website at www.sec.gov .

 

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

INFORMATION ABOUT HOUSEHOLDING (Unaudited)

 

In an effort to decrease costs, the Fund will reduce the number of duplicate prospectuses, proxy statements and annual and semi-annual reports that you receive by sending only one copy of each to those addresses shown by two or more accounts.  Please call the Transfer Agent toll free at (888) 458-1963 to request individual copies of these documents.  The Fund will begin sending individual copies 30 days after receiving your request.  This policy does not apply to account statements.

 

INFORMATION ABOUT THE FUND’S TRUSTEES (Unaudited)

 

The Statement of Additional Information (“SAI”) includes information about the Fund’s Trustees and is available without charge, upon request, by calling (888) 458-1963. Furthermore, you can obtain the SAI on the SEC’s website at www.sec.gov or the Fund’s website at http://mckinleycapitalfunds.com .

 

 

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M C K INLEY D IVERSIFIED I NCOME F UND

 

PRIVACY NOTICE (Unaudited)

 

The Fund collects non-public personal information about you from the following sources:

 

• Information we receive about you on applications or other forms;

 

• Information you give us verbally; and/or

 

• Information about your transactions with us or others.

 

We do not disclose any non-public personal information about our shareholders or former shareholders without the shareholder’s authorization, except as permitted by law or in response to inquiries from governmental authorities. We may share information with affiliated parties and unaffiliated third parties with whom we have contracts for servicing the Fund. We will provide unaffiliated third parties with only the information necessary to carry out their assigned responsibilities.  All shareholder records will be disposed of in accordance with applicable law.  We maintain physical, electronic and procedural safeguards to protect your non-public personal information and require third parties to treat your non-public personal information with the same high degree of confidentiality.

 

In the event that you hold shares of the Fund through a financial intermediary, including, but not limited to, a broker-dealer, bank or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would be shared with unaffiliated third parties.

 

 

30

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Investment Adviser

McKINLEY CAPITAL MANAGEMENT, LLC

3301 C Street, Suite 500

Anchorage, AK  99503

Distributor

QUASAR DISTRIBUTORS, LLC

615 East Michigan Street

Milwaukee, WI  53202

Custodian

U.S. BANK, N.A.

Custody Operations

1555 N. RiverCenter Drive, Suite 302

Milwaukee, WI  53212

Transfer Agent, Fund Accountant and Fund Administrator

U.S. BANCORP FUND SERVICES, LLC

615 East Michigan Street

Milwaukee, WI  53202

Independent Registered Public Accounting Firm

TAIT WELLER & BAKER LLP

1818 Market Street, Suite 2400

Philadelphia, PA  19103

Legal Counsel

PAUL HASTINGS LLP

75 East 55th Street, Floor 15

New York, NY  10022

McKinley Diversified Income Fund

 

	Ticker	CUSIP
Institutional Shares	MCDNX	74316J425
Investor Shares	MCDRX	74316J417

 

 

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Item 2. Code of Ethics.

The registrant has adopted a code of ethics that applies to the registrant’s President and Treasurer.  The registrant has not made any amendments to its code of ethics during the period covered by this report.  The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.

A copy of the registrant’s Code of Ethics is filed herewith.

Item 3. Audit Committee Financial Expert.

The registrant’s Board of Trustees of the Trust has determined that there is at least one audit committee financial expert serving on its audit committee. Ms. Dorothy A. Berry and Messrs. Wallace L. Cook, Carl A. Froebel , Eric W. Falkeis   and Steven J. Paggioli are each an “audit committee financial expert” and are considered to be “independent” as each term is defined in Item 3 of Form N-CSR.

Item 4. Principal Accountant Fees and Services.

The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the period.  “Audit services” refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.  “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit.  “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.  There were no “Other services” provided by the principal accountant.  The following table details the aggregate fees billed for the period for audit fees, audit-related fees, tax fees and other fees by the principal accountant.

McKinley Diversified Income Fund

	FYE  11/30/2013
Audit Fees	$18,000
Audit-Related Fees	N/A
Tax Fees	$2,600
All Other Fees	N/A

The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services of the registrant, including services provided to any entity affiliated with the registrant.

The percentages of fees billed by Tait, Weller & Baker LLP applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:

 

	FYE  11/30/2013
Audit-Related Fees	0%
Tax Fees	0%
All Other Fees	0%

All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant.   (If more than 50 percent of the accountant’s hours were spent to audit the registrant's financial statements for the period, state how many hours were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.)

The following table indicates the non-audit fees billed   or expected to be billed by the registrant’s accountant for services to the registrant and to the registrant’s investment adviser (and any other controlling entity, etc.—not sub-adviser) for the period.  The audit committee of the board of trustees/directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser is compatible with maintaining the principal accountant's independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant’s independence.

McKinley Diversified Income Fund

Non-Audit Related Fees	FYE  11/30/2013
Registrant	N/A
Registrant’s Investment Adviser	N/A

Item 5. Audit Committee of Listed Registrants.

Not applicable to open-end investment companies.

Item 6. Schedule of Investments.

Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable to open-end investment companies.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable to open-end investment companies.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable to open-end investment companies.

Item 10. Submission of Matters to a Vote of Security Holders.

The registrant has adopted a nominating committee charter that contains the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.  There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees for the period.

 

Item 11. Controls and Procedures.

(a)

The Registrant’s President and Treasurer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934.  Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider.

(b)

There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the nine month period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 12. Exhibits.

(a)	(1) Any code of ethics or amendment thereto, that is subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Filed herewith.

(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed herewith.

(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons.   Not applicable to open-end investment companies.

(b)	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Furnished herewith.

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)   Professionally Managed Portfolios                                                                                                            

By (Signature and Title) /s/ Elaine E. Richards

Elaine E. Richards, President

Date    January 30, 2014                                                                         

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title) /s/ Elaine E. Richards

Elaine E. Richards, President

Date    January 30, 2014                                                                         

 

By (Signature and Title)   /s/ Eric C. VanAndel

Eric C. VanAndel, Treasurer

Date    January 31, 2014             

                                                            

* Print the name and title of each signing officer under his or her signature.