SEMI-ANNUAL REPORT
THE THURLOW GROWTH FUND
December 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
Shareholder Letter . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . 2
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . 4
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . 5
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . 8
<PAGE>
February 10, 1998
Dear Fellow Shareholder,
What an exciting beginning we had! The Thurlow Growth Fund is an
aggressive growth mutual fund that seeks to beat its peers in strong
markets, and to be defensive and limit our losses in weak markets. This
was proven in the rough market environment that greeted us in 1997. We
began The Thurlow Growth Fund on August 8, 1997, almost to the day when a
bear market began. In our first six weeks The Thurlow Growth Fund was on
course to have a +70% first-year return. However, the correction finally
caught up with The Thurlow Growth Fund, and we ended 1997 with a 14.0%
loss.
This result is remarkable when you consider that our top holdings during
the fall quarter - energy service and high technology stocks - fell as
much as 50% from October to year's-end. Key Energy Group (ticker: KEG)
was our biggest single holding in October, and, after we sold it, that
stock fell 55% by December 31, 1997. Instead of following this sector
down, The Thurlow Growth Fund lightened up on our investments and at one
time during this correction held as much as 35% cash.
Looking ahead, we expect a benign interest rate environment, caused in
part by a stronger dollar relative to most other currencies. While high-
technology and energy service stocks still appear to be oversold, home-
builders, airlines, banks, financial services and retailers appear to have
the strongest economic ingredients for 1998 gains. If the relative
strengths of high technology and energy service stocks catch up to their
strong fundamental strengths, The Thurlow Growth Fund will resume its
participation in these sectors too.
We expect to continue our marketing efforts, too. Since our inception,
The Thurlow Growth Fund appeared at mutual fund conferences in San
Francisco, Seattle and Atlanta. As fund manager, I gave seminars to
interested investors at these conferences, and to several investor clubs.
I also participated in an on-line "Sage" chat on America Online, and I was
a guest on the "Mitch Slater" radio talk show in New York. Lately, we
have created a web page, which can be found at www.thurlowfunds.com, and
we have continued to publish periodic e-mails to our investors. These e-
mails include comments on recent buys and sells by The Thurlow Growth
Fund, and commentary on the market in general. All past e-mails will also
be posted on the web site.
Thank you for your business and we wish you success in 1998.
Sincerely,
/s/ THOMAS F. THURLOW
Fund Manager, Thurlow Growth Fund
<PAGE>
The Thurlow Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
(Unaudited)
ASSETS:
Investments, at value (cost $388,520) $400,309
Dividend and interest receivable 474
Receivable from Adviser 19,592
Organizational expenses, net of accumulated
amortization 24,695
--------
Total assets 445,070
--------
LIABILITIES:
Payable for securities purchased 50,633
Accrued expenses and other liabilities 40,230
--------
Total liabilities 90,863
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NET ASSETS $354,207
========
NET ASSETS CONSIST OF:
Capital stock $401,040
Accumulated undistributed net investment loss (815)
Accumulated undistributed net realized loss on
investments (57,807)
Net unrealized appreciation on investments 11,789
--------
Total Net Assets $354,207
========
Shares outstanding
(500 million shares authorized, $ 0.0001
par value) 41,200
Net Asset Value, Redemption Price and Offering
Price Per Share $8.60
=====
See Notes to the Financial Statements.
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The Thurlow Growth Fund
STATEMENT OF OPERATIONS
August 8, 1997 1 through December 31, 1997
(Unaudited)
INVESTMENT INCOME:
Dividend income $113
Interest income 909
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Total investment income 1,022
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EXPENSES:
Investment advisory fees 1,178
Administration fees 12,562
Shareholder servicing and accounting costs 21,738
Distribution fees 236
Custody fees 2,094
Federal and state registration 1,190
Professional fees 6,018
Reports to shareholders 4,577
Amortization of organizational expenses 2,104
Other 2,408
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Total expenses before waiver and
reimbursement 54,105
Less: Waiver of expenses and
reimbursement from Adviser (52,268)
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Net Expenses 1,837
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NET INVESTMENT LOSS (815)
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REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized loss on investments (57,807)
Change in unrealized appreciation on investments 11,789
-------
Net realized and unrealized loss on
investments (46,018)
-------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($46,833)
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1 Commencement of Operations.
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
August 8, 1997 1 through December 31, 1997
(Unaudited)
OPERATIONS:
Net investment loss ($815)
Net realized loss on investments (57,807)
Change in unrealized appreciation on investments 11,789
--------
Net decrease in net assets from operations (46,833)
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CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 407,040
Cost of shares redeemed (6,000)
-------
Net increase in net assets from capital
share transaction 401,040
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TOTAL INCREASE IN NET ASSETS 354,207
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NET ASSETS:
Beginning of period 0
-------
End of period ((including undistributed net
investment loss of ($815)) $354,207
=======
1 Commencement of Operations.
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
FINANCIAL HIGHLIGHTS
August 8, 1997 1 through December 31, 1997
(Unaudited)
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.02)
Net realized and unrealized loss
on investments (1.38)
------
Total from investment operations (1.40)
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NET ASSET VALUE, END OF PERIOD $8.60
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TOTAL RETURN 2 (14.00%)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $354,207
Ratio of net expenses to average
net assets 3 1.95%
Ratio of net investment income to
average net assets 3 (0.87%)
Portfolio turnover rate 195.12%
Average commission rate paid $0.1446
1 Commencement of Operations.
2 Not annualized.
3 Annualized for the period August 8, 1997 through December 31, 1997.
Without expense waivers of $52,268 for the period August 8, 1997
through December 31, 1997, the ratio of expenses to average net
assets would have been 57.41% and the ratio of net investment income
to average net assets would have been (56.33%).
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
SCHEDULE OF INVESTMENTS - December 31, 1997 (Unaudited)
Shares Value
COMMON STOCKS - 84.2%
BANKING & FINANCIAL SERVICES - 14.8%
400 Actrade International, Ltd. * $ 10,675
400 Bank of Commerce 8,950
300 Civic BanCorp * 5,850
300 New York Bancorp Inc. 11,906
300 St. Francis Capital Corporation 15,150
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52,531
-------
BUILDING - MOBILE/MFG. AND RV - 2.8%
300 National R.V. Holdings, Inc. * 9,863
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BUSINESS SERVICE - 1.1%
300 Forensic Technologies International
Corporation * 3,750
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CAPITAL GOODS - 13.3%
200 Centex Construction Products, Inc. 6,025
450 Gardner Denver Machinery Inc. * 11,391
500 Gencor Industries, Inc. 9,750
200 Graco, Inc. 7,462
500 Kellstrom Industries, Inc. * 12,375
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47,003
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COMPUTER EQUIPMENT - 2.0%
400 GENICOM Corporation * 4,600
200 Iomega Corporation * 2,487
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7,087
-------
COMPUTER SERVICES - 2.3%
300 Metro Information Services, Inc. * 8,325
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COSMETICS AND PERSONAL CARE - 2.8%
400 Twinlab Corporation * 9,900
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ENERGY - 0.5%
100 The Houston Exploration Company * 1,837
-------
ENTERTAINMENT & LEISURE - 2.6%
400 THQ, Inc. * 9,200
-------
HEALTH CARE - 4.8%
400 Mariner Health Group, Inc. * 6,500
300 MedQuist, Inc. * 10,425
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16,925
-------
HOME FURNISHINGS - 2.6%
500 Rent-Way, Inc. * 9,250
-------
HOUSING - 6.3%
700 Dominion Homes Inc. * 8,400
400 Lennar Corporation 8,625
200 Toll Brothers, Inc. * 5,350
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22,375
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LEISURE - TOYS/GAMES/HOBBY - 3.2%
300 Action Performance Companies, Inc. * 11,363
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RETAIL - 11.1%
300 Abercrombie & Fitch Company * 9,375
500 Best Buy Co., Inc. * 18,438
400 The Dress Barn, Inc. * 11,350
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39,163
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RETAIL - DISCOUNT - 3.6%
400 Party City Corporation * 12,900
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SOFTWARE - 4.2%
100 Datastream Systems, Inc. * 3,100
400 Sanchez Computer Associates, Inc. * 11,650
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14,750
-------
TECHNOLOGY - 1.6%
200 En Pointe Technologies, Inc.* 1,950
100 Procom Technology, Inc. * 1,581
200 Summit Design, Inc. * 2,075
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5,606
-------
TELECOMMUNICATIONS - 4.6%
1,200 Applied Signal Technology, Inc. * 16,500
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TOTAL COMMON STOCKS (Cost of $286,539) 298,328
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SHORT-TERM INVESTMENTS - 28.8%
Principal
Amount
VARIABLE RATE DEMAND NOTES - 28.8%
$ 16,500 American Family Financial Services 16,500
15,600 General Mill, Inc. 15,600
15,600 Johnson Controls, Inc. 15,600
15,600 Pitney Bowes, Inc. 15,600
15,600 Sara Lee Corp. 15,600
15,600 Warner Lambert Company 15,600
7,481 Wisconsin Electric Power Company 7,481
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101,981
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TOTAL SHORT-TERM INVESTMENTS (Cost of $101,981) 101,981
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TOTAL INVESTMENTS - 113.0% (Cost of $388,520) 400,309
Liabilities in Excess of Other Assets - (13.0%) (46,102)
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TOTAL NET ASSETS - 100.0% $354,207
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* Non-income producing security.
See Notes to the Financial Statements.
<PAGE>
The Thurlow Growth Fund
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
1. ORGANIZATION
The Thurlow Funds, Inc. (the "Company") was incorporated under the
laws of Maryland on April 30, 1997, and is registered as a no-load, open-
end, diversified management investment company under the Investment
Company Act of 1940. The Company presently consists of one diversified
investment portfolio, the Thurlow Growth Fund (the "Fund"). The principal
investment objective of the Fund is capital appreciation, with current
income as a secondary objective. Thomas F. Thurlow and Thomas N. Thurlow
held 10,069 shares of the Fund's capital stock at $10 per share on July
28, 1997. The Fund commenced operations on August 8, 1997.
The costs incurred in connection with the organization, initial
registration and public offering of shares, aggregating $26,799, have been
paid by the Adviser and will be reimbursed by the Fund. These costs are
being amortized over the period of benefit, but not to exceed sixty months
from the Fund's commencement of operations.
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.
a) Investment Valuation - Common stocks that are listed on a
securities exchange are valued at the last quoted sales price on the day
the valuation is made. Price information on listed securities is taken
from the exchange where the security is primarily traded. Common stocks
which are listed on an exchange but which are not traded on the valuation
date are valued at the current bid prices. Unlisted equity securities for
which market quotations are readily available and options are valued at
the current bid prices. Debt securities which will mature in more than 60
days will be valued at the latest bid prices furnished by an independent
pricing service. Short-term instruments with a remaining maturity of 60
days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined by the Investment Adviser
in accordance with procedures approved by the Board of Directors.
b) Federal Income Taxes - No provision for federal income taxes
or excise taxes has been made since the Fund intends to comply with the
provisions of the Internal Revenue Code available to regulated investment
companies in the current and future years.
c) Distributions to Shareholders - Dividends from net investment
income are declared and paid annually. Distributions of the Fund's net
realized capital gains, if any, will be declared at least annually.
d) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent 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.
e) Other - Investment and shareholder transactions are recorded
on trade date. The Fund determines the gain or loss realized from the
investment transactions by comparing the original cost of the security lot
sold with the net sales proceeds. Dividend income is recognized on the
ex-dividend date or as soon as information is available to the Fund, and
interest income is recognized on an accrual basis. Generally accepted
accounting principles require that permanent financial reporting and tax
differences be reclassified to capital stock.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period August 8, 1997
through December 31, 1997, were as follows:
Shares sold 41,834
Shares issued to holders in
reinvestment of dividends 0
Shares redeemed (634)
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Net increase 41,200
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4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-
term investments, by the Fund for the period August 8, 1997 through
December 31, 1997, were $668,379 and $324,033, respectively.
At December 31, 1997, gross unrealized appreciation and depreciation
of investments for tax purposes were as follows:
Appreciation $21,995
(Depreciation) (10,206)
------
Net appreciation
on investments $11,789
======
At December 31, 1997, the cost of investments for federal income tax
purposes was $388,520.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with
Thurlow Capital Management, Inc. Pursuant to its Advisory Agreement with
the Fund, the Investment Adviser is entitled to receive a fee, calculated
daily and payable monthly, at the annual rate of 1.25% as applied to the
Fund's daily net assets.
Firstar Trust Company, a subsidiary of Firstar Corporation, a
publicly held bank holding company, serves as custodian, transfer agent,
administrator and accounting services agent for the Fund.
The Fund has adopted a written plan of distribution (the "Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940. The
Plan authorizes the Fund to make payments in connection with the
distribution of shares at an annual rate of up to 0.25% of the Fund's
average daily net assets.
If the aggregate annual operating expenses (excluding interest,
taxes, brokerage commissions and other costs incurred in connection with
the purchase or sale of portfolio securities, and extraordinary items)
exceed 1.95% of the Fund's average daily net assets, the Investment
Adviser may reimburse the Fund for the amount of such excess.
Accordingly, for the period ended December 31, 1997, the Investment
Adviser reimbursed the Fund $52,268.
<PAGE>
Investment Adviser
Thurlow Capital Management, Inc.
P.O. Box 50427
Palo Alto, CA 94303-0427
Administrator, Dividend Paying Agent,
Shareholders' Servicing Agent,
Custodian and Transfer Agent
Firstar Trust Company
Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
Counsel
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Independent Auditors
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, WI 53201-1215
Directors
Thomas F. Thurlow
Martina Hearn
Natasha L. McRee
Stephanie E. Rosendahl
Basil S. Shiber
