GARZARELLI BALANCED FUND
- ------------------------
SCHEDULE OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
NUMBER OF
SHARES VALUE
- --------- -----
COMMON STOCK 49.3%
COMPUTER HARDWARE 2.5%
120 Hewlett Packard Co. $ 6,300
-------
COMPUTER SOFTWARE 2.5%
120 Computer Associates Intl., Inc. 6,240
-------
DIVERSIFIED 12.5%
400 S&P 500 Depositary Receipt 32,038
-------
DRUGS 3.1%
100 Schering-Plough Corp. 8,000
-------
HOSPITAL MANAGEMENT 2.3%
230 Tenet Healthcare Corp.* 5,980
-------
LIFE INSURANCE 2.4%
150 Conseco, Inc. 6,206
-------
MACHINERY AND EQUIPMENT 2.6%
120 Applied Materials, Inc.* 6,585
-------
MAJOR REGIONAL BANKS 4.8%
100 Comerica, Inc. 5,850
75 First Union Corp. 6,300
-------
12,150
-------
MULTILINE INSURERS 2.6%
120 Travelers, Inc. 6,645
-------
OIL - INTERNATIONAL INTEGRATED 2.5%
60 Texaco, Inc. 6,330
-------
OIL AND GAS (DRILLING & EQUIPMENT) 2.1%
300 Rowan Companies, Inc.* 5,400
-------
NUMBER OF
SHARES VALUE
- --------- -----
TELEPHONE 2.5%
125 Nynex Corp. $6,469
-------
TEXTILE - APPAREL MANUFACTURERS 4.6%
125 Liz Claiborne, Inc. 5,656
85 VF Corp. 6,131
-------
11,787
-------
TOBACCO 2.3%
150 Philip Morris Cos., Inc. 5,906
-------
Total Common Stock (cost $120,816) 126,036
-------
PRINCIPAL
AMOUNT
- ---------
U.S. TREASURY NOTES 9.4%
$25,000 5.25%, 1/31/01 23,988
-------
Total U.S. Treasury Notes (cost $23,852) 23,988
-------
SHORT-TERM INVESTMENTS 64.5%
165,071 UMB Bank, n.a., Money Market Fiduciary 165,071
-------
Total Short-term Investments (cost $165,071) 165,071
-------
Total Investments (cost $309,739) 123.2% 315,095
-------
Liabilities, less
Cash and Other Assets (23.2)% (59,284)
-------
NET ASSETS 100.0% $255,811
=======
*Non-income producing security
See notes to the financial statements
GARZARELLI BALANCED FUND
- ------------------------
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997 (Unaudited)
ASSETS:
Investments at value (cost $309,739) $315,095
Deferred organizational costs 88,570
Prepaid expenses 45,278
Receivable for investments sold 30,873
Dividends and interest receivable 564
--------
Total Assets 480,380
--------
LIABILITIES:
Payable for investments purchased 90,576
Accrued expenses 68,830
Payable to Adviser 65,163
--------
Total Liabilities 224,569
--------
Net Assets $255,811
========
NET ASSETS CONSIST OF:
Capital stock $249,600
Undistributed net investment income 222
Undistributed net realized gain on investments 633
Net unrealized appreciation on investments 5,356
--------
Net Assets $255,811
========
CAPITAL STOCK, UNLIMITED AUTHORIZATION
Issued and outstanding 24,824
NET ASSET VALUE, REDEMPTION PRICE
AND OFFERING PRICE PER SHARE $10.31
========
See Notes to the Financial Statements
GARZARELLI BALANCED FUND
- ------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 31, 1997 TO APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME:
Dividends $38
Interest 329
--------
367
--------
EXPENSES:
Fund administration and accounting fees 5,162
Federal and state registration fees 3,827
Shareholder servicing fees 3,197
Reports to shareholders 2,829
Trustees' fees 2,338
Legal fees 1,592
Other 1,538
Amortization of organizational costs 1,430
Audit fees 777
Custody fees 320
Investment advisory fees 86
--------
Total expenses before reimbursement and waiver 23,096
Reimbursement and waiver of expenses by adviser (22,951)
--------
Net expenses 145
--------
NET INVESTMENT INCOME 222
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 633
Net unrealized appreciation on investments 5,356
--------
Net gain on investments 5,989
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $6,211
========
See Notes to the Financial Statements
GARZARELLI BALANCED FUND
- ------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MARCH 31, 1997 TO APRIL 30, 1997 (UNAUDITED)
OPERATIONS:
Net investment income $222
Net realized gain on investments 633
Net unrealized appreciation on investments 5,356
--------
Net increase in net assets resulting
from operations 6,211
--------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 14,824 shares sold 149,600
--------
TOTAL INCREASE IN NET ASSETS 155,811
NET ASSETS:
Beginning of period 100,000
--------
End of period $255,811
========
See Notes to the Financial Statements
THE GARZARELLI BALANCED FUND
- ----------------------------
FINANCIAL HIGHLIGHTS (Unaudited)
MARCH 31,1997<F1>
TO APRIL 30,1997
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gains
on securities 0.30
--------
Total from investment operations 0.31
Net asset value, end of period $10.31
========
Total return<F2> 3.10%
Supplemental data and ratios:
Net assets, end of period $255,811
Ratio of net expenses to average
net assets<F3><F4> 1.25%
Ratio of net investment income to
average net assets<F3><F4> 1.92%
Portfolio turnover rate 41.16%
Average commission rate paid on portfolio
investment transactions $0.0912
<F1> Commencement of operations
<F2> Not annualized.
<F3> Annualized.
<F4> Net of reimbursements and waivers. Without reimbursements and waivers, the
ratio of net expenses to average net assets would have been 199.56%.
See Notes to the Financial Statements
GARZARELLI BALANCED FUND
NOTES TO THE FINANCIAL STATEMENTS
APRIL 30, 1997
(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 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 than 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
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 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 generally accepted accounting
principals. As of April 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 April 30, 1997 are summarized below:
Purchases $174,884
Sales $ 30,873
At April 30, 1997, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $309,739 were
as follows:
Appreciation $5,493
Depreciation (137)
------
Net appreciation on investments $5,356
======
(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 twelve months of operations. 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 April 30, 1997,
the Adviser waived and reimbursed the Fund for expenses totaling $22,951.
As of April 30, 1997, Elaine Garzarelli, Chairperson of both the Adviser
and the Fund, controlled either directly or indirectly 40.3% of the
outstanding shares.
(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 April 30,
1997 there have not been any payments made under the Plan.
