Purisima Funds
Semi-Annual Report
February 28, 1998
Shareholder Letter
We are pleased to bring you the semi-annual report of the Purisima Funds for the
six-month period ended February 28, 1998. During the reporting period, we
continued to pursue our investment objective of seeking a high level of total
return for our shareholders. Our investment strategy for the fund helped
generate a six-month, net total return of 14.37%, as we sought to take advantage
of economic developments around the world.
Economic Update
In the US, it's been the best of all possible worlds for the economy. Good news
is still the order of the day, and many of the leading economic indicators
pointed toward steady growth in the first quarter of 1998. Forecasts for low
inflation, low unemployment and steady growth were supported by low oil prices.
More good news for the economy was the Federal Reserve's decision not to raise
interest rates in the fourth calendar quarter of 1997. But how could the Fed
raise rates in the face of all the Asian noise? It went ahead and left interest
rates alone in part because the situation in the Pacific Rim seemed too fragile.
Despite Southeast Asia stabilizing toward the end of the reporting period, its
overall performance was disastrous. It's noteworthy that as Asia became more
entrenched in trouble, America wasn't the nation to bail them out.
Interestingly, it was Japan who answered the call for aid. Although Japan has
failed to pull itself up by the proverbial bootstraps, it's use of reserves to
bailout neighbors is a pretty sure sign their economy is not as weak as many
think.
All the hoopla over Southeast Asia led to another interesting development, the
possibility for EMU to get really close to happening without many paying
attention to it. Actual implementation starts January 1st. That's only ten
months away. An unexpected turn along the way could create a surprise effect -
whether a good or bad surprise we're not sure. But the potential for a big
economic effect is there.
Meanwhile, during the six-month period, Europe's economic performance was mixed.
Interest rates were falling in some places, rising in others. Unemployment is
still at record levels in Germany and France, but inflation pressures continue
to be held in check and growth expansion is turning around some countries like
Spain. However, while conditions have begun to look up for much of Europe,
Britain's yield curve became inverted, signaling a possible recession.
We've been saying throughout the last year, Europe will experience a rebound
that will propel it forward. Well in some countries that's happening, but in
others it's slow going. We believe Europe's rebound will gain strength and the
troubles in Asia will actually be healthy for the US market overall. In our
opinion, Asia is a temporary diversion that will serve to prolong the bull
market we're in domestically. People will realize the crisis isn't as
threatening as it now appears, and we can expect a nice rebound when that
realization hits.
Portfolio Update
Happily, we hit the bull's-eye with our domestic sector bet. Bigger was and
still is better. A US big cap strategy generated higher total returns than a
small cap strategy for the six-month period. The market's small growth fad
fizzled in the third calendar quarter of 1997, and big cap regained momentum,
surpassing other sectors. In Japan we continued to invest in large exporters,
but slightly decreased our exposure, as we judged Japan's long-waited economic
recovery to be lagging those of many European nations. We continued our European
strategy of investing in large multi-nationals we believe well positioned to
benefit from a recovery. However, we eliminated all our British investments, as
we became concerned the inversion of its yield curve could lead to recession.
<PAGE>
We avoided Southeast Asia and so were able to sit on the sidelines, observing
the crisis ensue without being embroiled in it. Similarly, we had no exposure in
Latin America, and were mostly unaffected by the lackluster performance of many
of those markets during the six-month period.
Towards the end of 1997, many investors who had lost money in gold mining stocks
sold their holdings in order to lock in tax losses. The prices of many mining
stocks were consequently pushed down to what we considered bargain prices, and
taking advantage of this opportunity we bought some of these stocks.
Unfortunately, earlier in the period, a similar phenomena negatively impacted
one of the fund's holdings. Like gold, diamonds also experienced a price
decline, which adversely affected our investment in De Beers. We had originally
purchased De Beers because of its dominant market position in diamonds, a
commodity that typically benefits from strong global economic growth. However,
these factors were not enough to overcome the decline in diamond prices, as
Russia dumped new supplies on the market. Seeing the potential for more
downside, we liquidated this position.
Of course the news for the fund was largely positive. Among our holdings that
performed well was Banco Bilbao Vizcaya, whose stock gained over 70%, during the
reporting period. A strengthening Spanish economy, favorable interest rate
environment and consolidation in Europe's banking industry, coupled with the
bank's strong market share of Spain's retail banking market, all contributed to
this stock's significant appreciation.
Looking forward, we expect moderate US growth with low inflation and strong
performance from domestic big caps. We believe Japan should begin to recover and
most of Western Europe will continue its economic recovery, which will benefit
our holdings there. At the same time, we remain leery of Southeast Asia, Latin
America and other developing markets. However, please remember the opinions
expressed in this report are for the six-month period, ending February 28, 1998,
and may change with market conditions. Portfolio selections are given to
demonstrate our investment strategy and are not meant as individual investment
advice. As always, we appreciate your continued support and look forward to
serving your investment needs in the future.
Sincerely,
Kenneth L. Fisher
Chairman and Chief Executive Office
Fisher Investments, Inc.
<PAGE>
PURISIMA TOTAL RETURN FUND
Schedule of Investments
February 28, 1998
Unaudited
<TABLE>
<CAPTION>
% of Market
Shares Net Assets Value
------ ---------- -----
<S> <C> <C> <C>
COMMON STOCKS 98.7%
Basic Materials 10.4%
16,500 Agmico-Eagle Mines, Ltd $104,156
36,000 Amax Gold, Inc. 99,000
7,800 Ashanti Goldfields - GDR 74,587
15,700 Battle Mountain Gold Co. 94,200
9,200 Coeur D' Alene Mines 104,650
2,000 Dupont De Nemours & Co. 122,625
37,000 Echo Bay Mines, Ltd 76,312
8,200 Homestake Mining Co. 82,000
2,300 Norsk Hydro A/S - ADR 101,775
3,000 Rhone - Poulenc SA - ADR 138,563
75,000 Royal Oak Mines, Ltd 98,437
-----------
1,096,305
-----------
Capital Goods 6.8%
700 ABB AB - ADR 88,025
2,500 Boeing Co. 135,625
2,600 General Electric Co. 202,150
500 Matsushita Electric Industrial Co., Ltd 73,062
1,250 Minnesota Mining & Mfg Co. 106,641
1,200 Sony Corp. - ADR 108,525
-----------
714,028
-----------
Communication Services 10.1%
200 Ameritech Corp. 8,338
3,150 AT&T Corp. 191,756
1,800 Bell Atlantic Corp. 161,550
2,600 Bellsouth Corp. 158,600
5,900 Deutsche Telekom - ADR 118,000
3,400 Portugal Telecom SA 178,925
1,800 SBC Communications Inc. 136,125
200 Telecom Italia Spa - ADR 13,775
1,000 Telefonica De Espana - ADR 103,500
-----------
1,070,569
-----------
Consumer, Cyclical 7.8%
1,700 Daimler - Benz AG - ADR 137,912
6,840 Fiat SPA - ADR 121,410
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
3,200 Ford Motor Co. 181,000
1,100 General Motors Corp. 75,831
225 Home Depot 14,358
1,400 Mc Donald's Corp. 76,650
2,700 Volvo AB - ADR 73,237
3,200 Wal-Mart Stores, Inc. 148,200
-----------
828,598
-----------
Consumer, Non-Cyclical 9.1%
1,900 Gillette Co. 204,963
3,550 Pepsico, Inc. 129,797
2,550 Philip Morris Cos., Inc. 110,766
1,900 Procter & Gamble Co. 161,381
2,500 Unilever N.V. 160,781
1,700 The Walt Disney Co. 190,294
-----------
957,982
-----------
Energy 9.0%
600 Amoco Corp. 51,000
2,100 Chevron Corp. 170,362
1,800 Elf Aquitaine - ADR 102,937
2,500 Exxon Corp. 159,687
1,600 Mobil Corp. 115,900
2,700 Repsol SA - ADR 120,150
1,800 Royal Dutch Petroleum 97,762
200 Texaco, Inc. 11,162
2,250 Total SA - ADR 124,453
-----------
953,413
-----------
Financial Services 15.5%
100 Aegon N.V. ADR 11,250
1,125 American Int'l Group 135,211
4,000 Banco Bilbao Vizcaya - ADR 185,500
14,350 Bank of Tokyo - Mitsu - ADR 204,488
1,700 Bankamerica Corp. 131,750
1,400 Chase Manhattan Corp. 173,688
1,000 Citicorp 132,500
6,300 Espirito Santo Finl - ADR 155,138
2,000 Federal National Mortgage Association 127,625
1,600 ING Groep N. V. 85,100
3,400 Istitu Mobiliare Ital - ADR 141,100
1,500 Nat'l Austral Bank - ADR 105,000
1,400 WestPac Banking - ADR 48,300
-----------
1,636,650
-----------
Healthcare 11.6%
1,750 Abbott Laboratories 130,922
2,050 American Home Products 192,187
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
6,300 Astra AB - ADR - A 127,181
900 Bristol-Myers Squibb Co. 90,169
2,300 Johnson & Johnson 173,650
1,450 Merck & Co., Inc. 184,966
200 Novartis AG - ADR 18,275
1,800 Novo-Nordisk A/S- ADR 134,213
2,000 Pfizer, Inc. 177,000
-----------
1,228,563
-----------
Technology 17.7%
3,100 Alcatel Alsthom - ADR 81,181
3,075 Cisco Systems, Inc. 202,566
1,200 Ericsson (LM) Tel. - ADR 54,375
3,100 Fuji Photo Film - ADR 122,450
2,100 Hewlett-Packard Co. 140,700
1,250 Hitachi Ltd - ADR 94,688
2,200 Intel Corp. 197,313
1,300 IBM Corp. 135,769
1,300 Lucent Technologies, Inc. 140,888
2,000 Microsoft Corp. 169,500
1,400 Motorola, Inc. 78,050
3,200 NEC Corp. - ADR 181,200
1,600 Nokia Corp. - ADR A 161,200
750 Philips Electronics 58,406
70 Raytneon Co. - Class A 4,060
600 SGS-Thomson Microelectronics 45,675
-----------
1,868,021
-----------
Utilities 0.7%
3,200 Endesa S.A. - ADR 71,200
-----------
71,200
-----------
TOTAL COMMON STOCKS
(cost $9,143,067) 10,425,329
-----------
SHORT-TERM INVESTMENTS 4.5%
UMB Bank, n.a.
Money Market Fiduciary 471,803
-----------
Total Investments (cost $ 9,614,870) 103.2% 10,897,132
-----------
Liabilities, less
Other Assets -3.2% -337,298
-----------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
NET ASSETS 100.0% $10,559,834
===========
ADR - American Depository Receipt
GDR - Global Depository Receipt
</TABLE>
<PAGE>
PURISIMA TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998 (Unaudited)
ASSETS:
Investments at market value $10,897,132
(cost of $9,614,870)
Dividends and interest receivable 11,220
Deferred organizational costs, net 97,814
Prepaid expenses 24,459
- --------------------------------------------------------------------------------
Total Assets 11,030,625
- --------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased 384,472
Payable to adviser 60,550
Accrued distribution expense 1,856
Other accrued expenses 23,863
- --------------------------------------------------------------------------------
Total Liabilities 470,741
- --------------------------------------------------------------------------------
NET ASSETS $10,559,884
================================================================================
COMPOSITION OF NET ASSETS
Capital stock $ 9,475,533
Accumulated distributions in excess of
net investment income -16,380
Accumulated net realized loss on investments -181,532
Net unrealized appreciation on investments 1,282,263
- --------------------------------------------------------------------------------
Net Assets $10,559,884
================================================================================
Number of shares issued and outstanding
($.01 par value, unlimited shares authorized) 779,610
Net Asset Value Per Share $ 13.55
================================================================================
<PAGE>
PURISIMA TOTAL RETURN FUND
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1998 (Unaudited)
INVESTMENT INCOME:
Dividends $ 44,271
Interest 4,556
- --------------------------------------------------------------------------------
48,827
EXPENSES:
Investment advisory 36,330
Administration 19,836
Federal and state registration 13,389
Amortization of organizational costs 13,263
Fund accounting 9,895
Distribution 9,082
Transfer agent 6,583
Auditing 6,496
Legal 5,951
Printing 4,959
Trustees 3,698
Insurance 3,471
Custody 2,635
Other 2,479
- --------------------------------------------------------------------------------
Total expenses before reimbursement 138,067
Less: reimbursement of expenses by advisor -83,555
- --------------------------------------------------------------------------------
Net Expenses 54,512
Net Investment Loss -5,685
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments -180,804
Change in unrealized appreciation on investments 1,276,156
- --------------------------------------------------------------------------------
Net gain on investments 1,095,352
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,089,667
================================================================================
<PAGE>
PURISIMA TOTAL RETURN FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six October 28,
Months Ended 1996 to
2/28/98 August 31,
(Unaudited) 1997*
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income (loss) $ (5,685) $ 5,305
Net realized loss on investments -180,804 -728
Change in unrealized appreciation
on investments 1,276,156 6,107
- ----------------------------------------------------------------------------------------
Increase in net assets resulting
from operations 1,089,667 10,684
- ----------------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS
From net investment income -16,000 --
- ----------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 5,380,403 4,162,372
Net asset value of shares issued on reinvestment of
distributions 15,952 --
Cost of shares redeemed -146,082 -37,112
- ----------------------------------------------------------------------------------------
Net increase from capital share transactions 5,250,273 4,125,260
- ----------------------------------------------------------------------------------------
Net Increase in Net Assets 6,323,940 4,135,944
NET ASSETS
Beginning of period 4,235,944 100,000
- ----------------------------------------------------------------------------------------
End of period (including, undistributed (distributions in
excess of) net investment income of ($16,381) and
$5,305, respectively) $ 10,559,884 $ 4,235,944
========================================================================================
CHANGES IN SHARES
Shares sold 433,305 350,497
Shares issued on reinvestment of distributions 1,291 --
Shares redeemed -11,842 -3,641
- ----------------------------------------------------------------------------------------
Net Increase 422,754 346,856
========================================================================================
</TABLE>
*Commencement of operations
<PAGE>
PURISIMA TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
The following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Annual Report.
For the Six
Months October
Ended 28, 1996*
2/28/98 to August
(Unaudited) 31, 1997
----------- --------
Net Assets Value, Beginning of Period $ 11.87 $ 10.00
- ----------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income (Loss) -0.01 0.02
Net Realized and Unrealized gains
on Investments 1.71 1.85
- ----------------------------------------------------------------------------
Total from Investment Operations 1.70 1.87
- ----------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income# -0.02 --
- ----------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.55 $ 11.87
============================================================================
Total Return+ 14.37% 18.70%
Net Assets at End of Period ('000) $ 10,560 $ 4,236
Ratio of Expenses to Average Net Assets
Before Expense Reimbursement++ 3.80% 20.97%
After Expense Reimbursement++ 1.50% 1.50%
Ratio of Net Investment Income to Average++
Net Assets (Net of Expense Reimbursement) -0.16% 0.56%
Portfolio Turnover Rate+ 7.90% 1.35%
Average Commission Rate Paid $ 0.0330 $0.0326
================================================
+ Not annualized
++ Annualized
* Commencement of operations
# Net investment income per share has been computed before adjustments for
book/tax differences
<PAGE>
Purisima Total Return Fund
Notes to Financial Statements
February 28, 1998
(Unaudited)
(1) Organization
------------
The Purisima Total Return Fund (the "Fund"), constituting the initial
series of The Purisima Funds (the "Trust"), was organized as a Delaware
business trust on June 27, 1996 and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company issuing its shares in series, each series
representing a distinct portfolio with its own investment objectives
and policies. The only series presently authorized is the Purisima
Total Return Fund. Fisher Investments, Inc. (the "Adviser") serves as
the investment adviser to the Fund and purchased 10,000 shares on
September 11, 1996 for cash in the amount of $100,000 to capitalize the
Fund. Investment operations of the Fund began on October 28, 1996. The
investment objective of the Fund is to produce a high level of total
return.
(2) Significant Accounting Policies
-------------------------------
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles ("GAAP"). The presentation of financial
statements in conformity with GAAP 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 amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.
(a) Investment Valuation
Securities which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on
which such securities are traded. Securities traded on
over-the-counter markets are valued on the basis of closing
over-the-counter trade prices. Securities for which there were
no transactions are valued at the closing bid prices.
Short-term investments are valued at cost.
(b) Organization Costs
Costs incurred by the Fund in connection with its
organization, registration and the initial public offering of
shares have been deferred and will be amortized over 5 years.
If any of the original shares of the Fund are redeemed by any
holder thereof prior to the end of the amortization period,
the redemption proceeds will be reduced by the pro rata share
of the unamortized expenses as of the date of redemption. The
pro rata share by which the proceeds are reduced will be
derived by dividing the number of original shares outstanding
at the time of redemption.
<PAGE>
(c) Federal Income and Excise Taxes
The Fund intends to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and
to distribute substantially all investment company net taxable
income and net capital gains to shareholders in a manner which
results in no tax cost to the Fund. Therefore, no federal
income or excise tax provision is required.
(d) Distribution to Shareholders
Dividends from net investment income will be declared and paid
annually. Distributions of net realized gains, if any, will be
declared at least annually. Distributions to shareholders are
recorded on the ex-dividend date. The Fund periodically makes
reclassifications among certain of its capital accounts as a
result of the recognition and characterization of certain
income and capital gain distributions determined annually in
accordance with federal tax regulations which may differ from
generally accepted accounting principles.
(e) Other
Investment transactions are accounted for on the trade date.
The Fund determines the gain or loss realized from investment
transactions by comparing the original cost of the security
lot sold with the net sale proceeds. Dividend income is
recognized on the ex-dividend date and interest income is
recognized on an accrual basis.
(3) Investment Adviser
------------------
The Fund has an Investment Management Agreement with the Adviser, with
whom certain officers and trustees of the Fund are affiliated, to
furnish investment advisory services to the Fund. Under the terms of
this agreement, the Fund will pay the Adviser a monthly fee at the
annual rate of 1.00% of the Fund's average daily net assets. The
Adviser has agreed to voluntarily reduce fees for expenses (exclusive
of brokerage, interest, taxes and extraordinary expenses) that exceed
the expense limitation of 1.50% of the Fund's average daily net assets.
During the six months ended February 28, 1998, the Adviser reimbursed
$83,555 of expenses. The Investment Management Agreement permits the
Adviser to seek reimbursement of any reductions made to its management
fee and payments made to limit expenses which are the responsibility of
the fund within the three-year period following such reduction, subject
to the Fund's ability to effect such reimbursement and remain in
compliance with applicable expense limitations. At such time as it
appears probable that the Adviser will seek such reimbursement, the
amount of reimbursement that the Fund is able to effect will be accrued
as an expense of the Fund for that current period.
<PAGE>
(4) Service and Distribution Plan
-----------------------------
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a
Service and Distribution Plan (the "Plan"). Under the Plan, the Fund is
authorized to pay expenses incurred for the purpose of financing
activities, including the employment of other dealers, intended to
result in the sale of shares of the Fund at an annual rate of up to
0.25% of the Fund's average daily net assets.
(5) Investment Transactions
-----------------------
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the six months ended February 28, 1998 is
summarized below:
Purchases $ 5,754,206
Sales $ 515,974
At February 28, 1998, gross unrealized appreciation and depreciation of
investments, based on cost for the federal income tax purposes of
$9,614,870 were as follows:
Appreciation $ 1,456,017
Depreciation 173,754
------------
Net appreciation on investments $ 1,282,263
============
