GARZARELLI BALANCED FUND
- ---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
Number of
Shares Value
-------- ----------
COMMON STOCKS 57.23%
Aerospace 0.77%
125 Northrop Grumman Corp. $15,172
----------
AUTOMOTIVE PARTS 1.95%
500 Dana Corp. 24,687
250 TRW, Inc. 13,719
----------
38,406
----------
CONSTRUCTION 0.74%
250 Centex Corp. 14,594
----------
CONSUMER PRODUCTS 3.96%
800 American Stores Co. 19,500
300 Avon Products, Inc. 18,600
300 ConAgra, Inc. 19,800
400 Quaker Oats Co. 20,150
----------
78,050
----------
COMMUNICATION PRODUCTS 1.05%
500 Iridium World Communications Ltd.<F1> 20,625
----------
COMPUTER HARDWARE 3.66%
500 Compaq Computer Corp.<F1> 37,375
300 Hewlett Packard Co. 20,869
300 Sun Microsystems, Inc.<F1> 14,044
----------
72,288
----------
COMPUTER SOFTWARE 3.30%
400 Adobe Systems, Inc. 20,150
300 Computer Associates International, Inc. 21,544
400 EMC Corp. 23,350
----------
65,044
----------
DRUGS 1.57%
600 Schering-Plough Corp. 30,900
----------
HEALTHCARE SUPPLIES 3.72%
500 Amgen, Inc.<F1> 23,968
250 Becton, Dickinson & Co. 11,969
1,000 Biomet, Inc. 24,000
275 Kimberly-Clark Corp. 13,457
----------
73,394
----------
HOSPITAL MANAGEMENT 1.11%
750 Tenet Healthcare Corp.<F1> 21,843
----------
HOTEL/MOTEL 0.72%
200 Marriott International, Inc. 14,212
----------
Number of
Shares Value
-------- ----------
LIFE INSURANCE 1.24%
500 Conseco, Inc. $24,406
----------
MACHINERY AND EQUIPMENT 5.51%
245 Applied Materials, Inc.<F1> 23,336
250 Cummins Engine Company, Inc. 19,516
600 PACCAR, Inc. 33,600
700 Snap-On, Inc. 32,244
----------
108,696
----------
MAJOR REGIONAL BANKS 4.19%
400 Bank of New York Co., Inc. 19,200
200 Comerica, Inc. 15,788
500 First Union Corp. 25,031
200 Republic New York Corp. 22,725
----------
82,744
----------
MULTILINE INSURERS 2.77%
225 Allstate Corp. 18,084
300 Travelers, Inc. 20,475
700 USF&G Corp. 16,056
----------
54,615
----------
OIL - INTERNATIONAL INTEGRATED 1.00%
320 Texaco, Inc. 19,660
----------
OIL AND GAS (DRILLING & EQUIPMENT) 4.25%
400 Baker Hughes, Inc. 17,500
400 Halliburton Co. 20,800
400 Phillips Petroleum Co. 20,650
700 Rowan Companies, Inc.<F1> 24,938
----------
83,888
----------
PRINTING AND PUBLISHING 2.16%
200 Gannett Company, Inc. 21,588
400 New York Times Co. Class A<F1> 21,000
----------
42,588
----------
RESTAURANTS 0.75%
700 Wendy's International, Inc. 14,875
----------
RETAIL 0.72%
250 CVS Corp. 14,219
----------
SEMICONDUCTORS 1.40%
300 Intel Corp. 27,694
----------
TELEPHONE 4.07%
400 Ameritech Corp. 26,600
288 Bell Atlantic Corp. 23,166
100 Genesys Telecommunication Laboratories, Inc.<F1> 3,638
700 U.S. West Communications Group 26,950
----------
80,354
----------
Number of
Shares Value
------ ----------
TEXTILE - APPAREL MANUFACTURERS 2.72%
400 Liz Claiborne, Inc. $21,975
400 Nike, Inc. Class B 21,200
100 Polo Ralph Lauren Corp.<F1> 2,619
85 VF Corp. 7,873
----------
53,667
----------
TOBACCO 1.47%
700 Philip Morris Cos., Inc. 29,094
----------
UTILITIES 2.43%
400 Columbia Gas System, Inc. 28,000
775 Public Service Enterprise Group 19,956
----------
47,956
----------
Total Common Stocks (cost $984,317) 1,128,984
----------
Principal
Amount
- --------
U.S. TREASURY NOTES 19.11%
$25,000 6.375%, 4/30/99 25,224
50,000 6.375%, 5/15/99 50,434
25,000 6.00%, 8/15/99 25,068
75,000 6.00%, 8/15/00 75,228
50,000 5.25%, 1/31/01 48,995
25,000 6.25%, 4/30/01 25,213
25,000 6.375%, 9/30/01 25,329
50,000 6.25%, 2/28/02 50,443
25,000 6.625%, 4/30/02 25,580
25,000 6.375%, 8/15/02 25,373
----------
Total U.S. Treasury Notes (cost $373,484) 376,887
----------
U.S TREASURY BONDS 16.86%
325,000 6.625%, 2/15/27 332,647
----------
Total U.S. Treasury Bonds (cost $329,283) 332,647
----------
SHORT-TERM INVESTMENTS 2.36%
46,535 UMB Bank, n.a., Money Market Fiduciary 46,535
----------
Total Short-term Investments (cost $46,535) 46,535
----------
Total Investments (cost $1,733,619) 95.56% 1,885,053
----------
Cash and Other Assets, less
Liabilities 4.44% 87,457
----------
NET ASSETS 100.00% $1,972,510
==========
*Non-income producing security
See notes to the financial statements.
GARZARELLI BALANCED FUND
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (Unaudited)
ASSETS:
Investments at value (cost $1,733,619) $1,885,053
Deferred organizational costs 94,099
Cash 34,228
Prepaid expenses 24,214
Due from adviser 20,711
Dividends and interest receivable 10,418
- ---------------------------------------------------------------------------
Total Assets 2,068,723
- ---------------------------------------------------------------------------
LIABILITIES:
Accrued expenses 96,213
- ---------------------------------------------------------------------------
Total Liabilities 96,213
- ---------------------------------------------------------------------------
NET ASSETS $1,972,510
===========================================================================
NET ASSETS CONSIST OF:
Capital stock $1,803,633
Undistributed net investment income 6,252
Undistributed net realized gain on investments 11,191
Net unrealized appreciation on investments 151,434
- ---------------------------------------------------------------------------
NET ASSETS $1,972,510
===========================================================================
CAPITAL STOCK, No par value, unlimited authorization
Issued and outstanding 162,316
NET ASSET VALUE, REDEMPTION PRICE
AND OFFERING PRICE PER SHARE $12.15
===========================================================================
See notes to the financial statements.
GARZARELLI BALANCED FUND
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the period March 31, 1997 to September 30, 1997 (Unaudited)
INVESTMENT INCOME:
Dividends $5,202
Interest 11,091
- ---------------------------------------------------------------------------
16,293
- ---------------------------------------------------------------------------
EXPENSES:
Fund administration and accounting fees 32,398
Trustees' fees 24,629
Federal and state registration fees 20,765
Shareholder servicing fees 20,689
Reports to shareholders 11,656
Amortization of organizational costs 10,551
Legal fees 10,322
Other 8,099
Audit fees 6,017
Investment advisory fees 3,760
Custody fees 2,669
12b-1 fees 1,253
- ---------------------------------------------------------------------------
Total expenses before reimbursement and waiver 152,808
Reimbursement and waiver of expenses by adviser (146,541)
- ---------------------------------------------------------------------------
Net Expenses 6,267
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME 10,026
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 11,191
Net unrealized appreciation on investments 151,434
- ---------------------------------------------------------------------------
Net Gain on Investments 162,625
- ---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $172,651
===========================================================================
See notes to the financial statements.
GARZARELLI BALANCED FUND
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the period March 31, 1997 to September 30, 1997 (Unaudited)
OPERATIONS:
Net investment income $10,026
Net realized gain on investments 11,191
Net unrealized appreciation on investments 151,434
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations 172,651
- ---------------------------------------------------------------------------
DIVIDENDS PAID FROM:
Net investment income (3,774)
- ---------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 163,726 shares issued 1,720,352
Cost of 1,697 shares redeemed (20,125)
Proceeds from 287 shares reinvested 3,406
- ---------------------------------------------------------------------------
Net increase 1,703,633
- ---------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,872,510
NET ASSETS:
Beginning of period 100,000
- ---------------------------------------------------------------------------
End of period $1,972,510
===========================================================================
See notes to the financial statements.
THE GARZARELLI BALANCED FUND
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Unaudited)
March 31,1997<F2>
to September 30,1997
--------------------
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations:
Net investment income 0.07
Net realized and unrealized gains
on securities 2.11
- ---------------------------------------------------------------------------
Total from Investment Operations 2.18
Less Distributions:
Dividends from net investment income (0.03)
- ---------------------------------------------------------------------------
Total Distributions (0.03)
- ---------------------------------------------------------------------------
Net Asset Value, End of Period $12.15
===========================================================================
Total Return <F3> 21.85%
Supplemental Data and Ratios:
Net assets, end of period $1,972,510
Ratio of net expenses to average net assets <F4><F5> 1.25%
Ratio of net investment income to average net assets <F4><F5> 2.00%
Portfolio turnover rate 11.10%
Average commission rate paid on portfolio
investment transactions $0.1113
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> Net of reimbursements and waivers. Without reimbursements and waivers,
the ratio of net expenses to average net assets would have been 30.47%,
and the ratio of net investment income to average net assets would have
been (27.22)%.
See notes to the financial statements.
Garzarelli Balanced Fund
- ---------------------------------------------------------------------------
Notes to the Financial Statements
September 30,1997
(Unaudited)
(1) Organization
------------
The Garzarelli Funds (the "Trust") was organized in October 1, 1996 as a
Delaware Business Trust 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 and operating is the Garzarelli Balanced
Fund (the "Fund").
(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 revenues 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 primarily traded. Securities traded on only 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. Debt securities (other then short-
term instruments) are valued at prices furnished by a pricing service.
Debt instruments maturing within 60 days are valued by the amortized
cost method. Any securities for which market quotations are not
readily available are valued at their fair value as determined in good
faith by Garzarelli Investment Management, LLC (the "Adviser")
pursuant to guidelines established by the Board of Trustees.
(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 the period of benefit, but not to
exceed five years from the date upon which the Fund commenced its
investment activities. If any of the original shares of the Fund
purchased by the initial shareholder 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
costs 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 of the Fund being redeemed by the total number of
original shares outstanding at the time of redemption.
(c) Federal Income and Excise Taxes
No provision for federal income taxes has been made since the Fund has
complied to date with the provisions of the Internal Revenue Code
available to regulated investment companies and intends to continue to
so comply in future years.
(d) Distributions to Shareholders
Dividends from net investment income will be declared and paid
quarterly. 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 may periodically make
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 GAAP. As of September 30, 1997
there were no such reclassifications.
(e) Securities Transactions and Investment Income
Investment transactions are accounted for on the trade date plus one.
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.
Acquisition and market discounts will be amortized over the life of
the security.
(3) Investment Transactions
-----------------------
The aggregate purchases and sales of securities, excluding short-term
investments, and U.S. government obligations, for the Fund for the period
March 31, 1997 to September 30, 1997 are summarized below:
Purchases
U.S. Government $ 702,646
Other 1,072,797
Sales
Other 99,671
At September 30, 1997, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $1,733,619
were as follows:
Appreciation $170,462
Depreciation (19,028)
--------
Net appreciation on investments $151,434
========
(4) Investment Adviser
------------------
The Fund has an 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 Adviser is
compensated at 0.75% of average daily net assets of the Fund. The Adviser
has agreed to voluntarily reduce its fees for expenses (exclusive of
brokerage, interest, taxes and extraordinary expenses) that exceed the
annual expense limitation of 1.25% of average net assets for the Fund
during the first fiscal year end. In addition to waiving its fee the
Adviser has also agreed to reimburse the Fund for any expenses that exceed
1.25% of average net assets. During the period ended September 30, 1997,
the Adviser waived fees of $3,760 and reimbursed the Fund an additional
$142,781 for expenses that exceeded the expense limitation of 1.25%.
(5) Sub-Adviser
-----------
The Adviser has entered into an agreement with Affinity Investment
Advisors, Inc. (the "Sub-Adviser") to serve as the Fund's portfolio
manager, subject to the Adviser's supervision. Under the terms of the
agreement, the Sub-Adviser is compensated by the Adviser at 12% of the
Adviser's fees, net of any fees waived by the Adviser.
(6) Service and Distribution Plan
-----------------------------
The Trust has entered into a distribution agreement with Sunstone
Distribution Services, LLC (the "Distributor"), an affiliate of Sunstone
Financial Group, Inc. (the "Administrator") and Sunstone Investor
Services, LLC (the "Transfer Agent"). 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. As of
September 30, 1997, there have not been any payments made under the Plan.
